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V
Annual Report
of the
Secretary of the Treasury
on the
State of the Finances
For the Fiscal Year Ended June 30j 1959
TREASURY D E P A R T M E N T
DOCUMENT NO. 3215
Secretary
UNITED STATES GOVERNiVlENl^ PRINTING OFFICE, WASHINGTON : 1960
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington 25, D.C.
^ ^ ^ ^ ^ ^ A
Price 32.25 (paper cover)
CONTENTS
Page
Transmittal and statement by the Secretary of the Treasury
.._
1
Summary of fiscal operations
Budget receipts and expenditures
^
Budget receipts in 1959
.
^
„Estimates of receipts in 1960 and 1961
_.^
Budget expenditures in 1959
^__..-_
.
Estimates of expenditures in 1960 and 1961
Trust account and other transactions
.
..
_.^
-..--Account of the Treasurer of the United S t a t e s . ^ . . . ^ . . .
^.^
Public debt operations and ownership of Federal securities._.._
._
Public debt operations
.
.__^.
Ownership of Federal securities
.._.^._...,_.
Corporations and certain other business-type activities of the United
States Government
.
.
.
.
Securities owned by the United States Government
.._
Taxation developments
. .
International financial and monetary developments
.
5
7
7
9
15
16
16
18
19
25
32
REVIEW OF FISCAL OPERATIONS
36
40
40
49
ADMINISTRATIVE REPORTS
Management improvement program
Comptroller of the Currency, Bureau of the
Customs, Bureau of
Defense Lending, Office of
Engraving and Printing, Bureau of
Fiscal Service
.
Internal Revenue Service
International Finance, Office of
Mint, Bureau of the
Narcotics, Bureau of
United States Coast Guard
United States Savings Bonds Division
United States Secret Service
.
.....
..
.
69
71
73
89
90
96
126
134
135
140
144
159
163
EXHIBITS
PUBLIC DEBT OPERATIONS; CALLS OF GUARANTEED OBLIGATIONS, REGULATIONS,
AND LEGISLATION
Treasury Certificates of Indebtedness, Treasury Notes, and Treasury Bonds
Offered and Allotted
1. Treasury certificates of indebtedness
169
2. Treasury notes
176
3. Treasury bonds
.
181
Treasury Bills Offered and Accepted
4. Treasury bills
185
Guaranteed Obligations Called
5. Calls for partial redemption, before maturity, of insurance fund
debentures
in
200
IV
CONTENTS
Regulations
Page
6. First amendment, May 1, 1959, to Department Circular No. 418,
Revised, regulations governing Treasury bills
7. First amendment, August 15, 1958, to Department Circular No. 530,
Eighth Revision, amending the provisions limiting the holdings
of United States savings bonds
8. Second amendment, October 31, 1958, to Department Circular No. 530,
Eighth Revision, further amending the provisions limiting the holdings of United Statessavings bonds
9. Second amendment, August 15, 1958, to Department Circular No. 653,
Fourth Revision, extending to individuals and personal trust estates
the privilege of reinvesting proceeds of Series F and G savings bonds
maturing on and after September 1, 1958, in Series E savings bonds
without regard to the limitation on holdings
10. Third amendment, October 31, 1958, to Department Circular No. 653,
Fourth Revision, extending to all bondowners, except commercial
banks, the privilege of reinvesting proceeds of Series F and G savings
bonds at or after maturity in Series E savings bonds without regard
to the limitation on holdings
11. Second amendment, August 15, 1958, to Department Circular No. 905,
Revised, extending to individuals and personal trust estates the
privilege of reinvesting proceeds of Series F and G savings bonds
maturing on and after September 1, 1958, in Series H savings bonds
without regard to the limitation on holdings
12. Third amendment, October 31, 1958, to Department Circular No. 905,
Revised, extending to all bondowners, except commercial banks,
the privilege of reinvesting proceeds of Series F and G savings
bonds at or after maturity in Series H savings bonds without regard
to the limitation on holdings
13. Supplement, January 30, 1959, to Department Circular No. 300,
tvi.vi) J Revised April 30, 1955, general regulations with respect to United
tdk § States securities
204
204
205
205
206
207
207
208
Legislation
14. An act to increase the amount of obligations, issued under the Second
Liberty Bond Act, which may be outstanding at any one time
.
216
PUBLIC DEBT MANAGEMENT
15. Message to Congress by the President, June 8, 1959, requesting the
removal of the ceilings on interest rates for savings bonds and new
issues of Treasury bonds, and an increase in the statutory debt
limitation
16. Letter of Secretary of the Treasury Anderson, June 8, 1959, to the
Speaker of the House of Representatives transmitting drafts of two
bills to facilitate management of the public debt and an analysis of
the proposed new savings bond program
17. Statement by Secretary of the Treasury Anderson, June 10, 1959, before
the House Ways and Means Committee in support of improving
the savings bond program, removing the ceiling on interest rates on
new issues of Treasury bonds, and increasing the statutory debt
limitation
18» Message to Congress by the President, August 25, 1959, again requesting the removal of the ceiling on interest rates on new issues of
Treasury bonds
19. Statement by Secretary of the Treasury Anderson, September 3, 1959,
on the proposal to remove interest rate ceilings on Government securities
20. Statement by Secretary of the Treasury Anderson, July 24, 1959,
before the Joint Economic Committee and a joint statement by the
Secretary and Chairman of the Board of Governors of the Federal
Reserve System relating to the Treasury-Federal Reserve study of
the Government's securities market
216
218
238
276
278
278
CONTENTS
V
TAXATION DEVELOPMENTS
Page
21. Statement by Secretary of the Treasury Anderson, February 5, 1959,
before the Joint Economic Committee on the Government's fiscal
outlook and some of its implications for the Nation's economy
22. Statement by Deputy to the Secretary of the Treasury Smith, December 1, 1958, before the Subcommittee on Foreign Trade Policy of
the House Committee on Ways and Means on the existing tax treatment of foreign income
.__
23. Letter from Secretary of the Treasury Anderson, May 6, 1959, to the
Chairman of the House Committee on Ways and Means on a bill,
H.R. 5, to provide tax relief for foreign income
24. Statement by Assistant to the Secretary of the Treasury- Lindsay,
March 3, 1959, before the Senate Finance Committee on H.R. 4245
relating to the taxation of the income of life insurance companies
298
301
307
315
INTERNATIONAL FINANCIAL AND MONETARY DEVELOPMENTS
25. Statement by Secretary of the Treasury Anderson, March 9, 1959,
before the Senate Foreign Relations Committee on increasing the
resources of the International Bank for Reconstruction and Development and the International Monetary Fund
26. Statement by Secretary of the Treasury Anderson, June 3, 1959,
before the House Banking and Currency Committee on the proposed
Inter-American Development Bank
27. Press release, June 18, 1959, announcing that Secretary of the Treasury Anderson was making arrangements to increase the U.S. subscription to the International Bank for Reconstruction and Development and the International Monetary Fund
28. Letter from Secretary of the Treasury Anderson, July 31, 1959, to the
President of the International Bank for Reconstruction and Development on establishing an International Development Association
29. Letter from the President of the International Bank for Reconstruction
and Development, August 3, 1959, to each of the Governors of the
Bank on establishing an International Development Association
30. Statement by Secretary of the Treasury Anderson as Governor for
the United States, September 28, 1959, at the opening joint session
of the International Monetary Fund and the International Bank
for Reconstruction and Development
31. Statement by Secretary of the Treasury Anderson as Governor for the
United States, September 29; 1959, at the discussion of the Annual
Report of the International Monetary Fund
32. Statement by AssiwStant Secretary of the Treasury Upton as Temporary
Alternate Governor, September 30, 1959, at the discussion of the
Annual Report of the International Finance Corporation
320
330
-336
336
339
339
340
344
ADDRESS ON THE FUTURE ECONOMIC G R O W T H OF THE NATION
33. Remarks by Secretary of the Treasury Anderson, April 20, 1959,
before the Associated Press. New York, N.Y
345
ORGANIZATION AND PROCEDURE
34. Treasury Department orders relating to organization and procedure..
350
TABLES
Bases of tables
Description of accounts relating to cash operations
361
364
SUMMARY OF FISCAL OPERATIONS
1. Summary of fiscal operations, fiscal years 1932-59 and monthly 1959.
366
RECEIPTS AND EXPENDITURES
2. Receipts and expenditures, fiscalyears 1789-1959
3. Budget receipts and expenditures, monthly for fiscal year 1959 and
totals for 1958 and 1959
368
374
VI
CONTENTS
Page
4. Public enterprise revolving funds, receipts a n d expenditures for fiscal
year 1959, a n d net 1958 and 1959
5. T r u s t account and other receipts and expenditures, monthly for fiscal
year 1959 and totals for 1958 a n d 1959
,.
6. I n v e s t m e n t s of Government agencies in public debt securities (net),
monthly for fiscal year 1959 a n d totals for 1958 and 1959
7. Sales a n d redemptions of obligations of Government agencies in
m a r k e t (net), monthly for fiscal year 1959 a n d totals for 1958
a n d 1959
8. Budget receipts by sources and expenditures by major functions,
fiscal years 1952-59
_.
9. T r u s t account a n d other transactions by major classifications, fiscal
years 1952-59
10. Budget receipts and expenditures, based on existing and proposed
legislation, actual for t h e fiscal year 1959 and estimated for 1960
a n d 1961
11. T r u s t account and other transactions, actual for t h e fiscal year 1959
a n d estimated for 1960 a n d 1961
12. Effect of financial operations on t h e public debt, actual for t h e fiscal
year 1959 and estimated for 1960 and 1961
13. I n t e r n a l revenue collections b y t a x sources, fiscal years 1929-59
14. I n t e r n a l revenue collections and refunds by States, fiscal year 1 9 5 9 . .
15. Customs collections and refunds, fiscalyears 1958 and 1959
16. Deposits b y t h e Federal Reserve Banks representing interest charges
on Federal Reserve notes, fiscalyears 1947-59
17. Postal receipts and expenditures, fiscal years 1916-59
18. Cash income and outgo, fiscal years 1952-59
401
404
414
416
418
421
423
427
429
430
436
437
437
438
439
PUBLIC DEBT, GUARANTEED OBLIGATIONS, ETC.
I.—Outstanding
19.
20.
21.
22.
23.
24
25.
26.
27.
28.
29.
Principal of t h e public debt, 1790-1959
Public debt a n d guaranteed obligations outstanding J u n e 30, 1934-59.
Public d e b t outstanding b y security classes, J u n e 30, 1952-59
Guaranteed obligations held outside t h e Treasury by issuing Governm e n t corporations and other business-type activities, J u n e 30,
1952-59
M a t u r i t y distribution of marketable interest-bearing public debt
and guaranteed obligations, J u n e 30, 1946-59
S u m m a r y of public debt and guaranteed obligations by securit}^
classes, J u n e 30, 1959
Description of public debt issues outstanding J u n e 30, 1959
Description of guaranteed obligations held outside t h e Treasury,
J u n e 30, 1959
Postal Savings Systems' deposits and Federal Reserve notes outstanding J u n e 30, 1946-59
S t a t u t o r y limitation on t h e public d e b t and guaranteed obligations,
J u n e 30, 1959
D e b t limitation under sec. 21 of t h e Second Liberty Bond Act, as
amended
446
448
449
451
452
453
454
471
472
473
474
II.—Operations
30. Public debt receipts and expenditures b y security classes, monthly
for fiscal year 1959 and totals for 1958 a n d 1959
31. Changes in public debt issues, fiscalyear 1959
32. Issues, maturities, a n d redemptions of interest-bearing public debt
securities, excluding special issues, J u l y 1958-June 1959
33. Allotments b y investor classes on subscriptions for marketable
securities other t h a n regular weekly Treasury bills, fiscal years
1954r-59
34. Public d e b t increases a n d decreases, a n d balances in t h e account of
t h e Treasurer of t h e U.S., fiscalyears 1 9 1 6 - 5 9 - . - i
35. S t a t u t o r y debt retirements, fiscal years 1918-59
476
486
505
528
531
532
CONTENTS
VH
Page
36. Cumulative sinking fund, fiscal years 1921-59
37. Transactions on account of the cumulative sinking fund, fiscal year
1959
533
534
III.—United States savings bonds
38. Summary of sales and redemptions of savings bonds by series, fiscal
years 1935-59 and monthly 1959
39. Sales and redemptions of Series E through R savings bonds by series,
fiscal years 1941-59 and monthly 1959
40. Sales and redemptions of Series E and H savings bonds by denominations, fiscal years 1941-59 and monthly 1959
41. Sales of Series E and H savings bonds by States, fiscal years 1958,
1959, and cumulative
.
42. Percent of Series E and H savings bonds sold in each year redeemed
through each yearly period thereafter
43. Percent of Series E and H savings bonds sold in each year redeemed
through each yearly period thereafter, by denominations
535
536
540
541
542
543
IV.—Interest
44. Amount of interest-bearing public debt outstanding, the computed
annual interest charge, and the computed rate of interest, June 30,
1916-59, and at the end of each month during 1959
45. Computed annual interest rate and computed annual interest charge
on the public debt by security classes, June 30, 1939-59
46. Interest on the public debt by security classes, fiscal years 1956-59..
47. Interest on the public debt and guaranteed obhgations by tax status,
fiscal years 1940-59
548
550
552
553
V.—Prices and yields of securities
48. Average yields of taxable long-term Treasury bonds by months,
October 1941-June 1959
49. Prices and yields of marketable public debt issues, June 30, 1958,
and June 30, 1959, and price range since first traded
..
554
555
VI.—Ownership of governmental securities
50. Estimated ownership of interest-bearing governmental securities outstanding June 30, 1952-59, by type of issuer
51. Estimated distribution of interest-bearing governmental securities
outstanding June 30, 1952-59, by tax status and type of issuer
52. Summary of Treasury survey of ownership of interest-bearing public
debt and guaranteed obligations, June 30, 1958 and 1959
557
558
560
ACCOUNT OF THE TREASURER OF THE UNITED STATES
53. Assets and liabilities in the account of the Treasurer of the United
States, June 30, 1958 and 1959
54. Analysis of changes in tax and loan account balances, fiscal years
1952-59
562
563
STOCK AND CIRCULATION OF MONEY IN THE UNITED STATES
55. Stock of money, money in the Treasury, in the Federal Reserve
Banks, and in circulation, by kinds, June 30, 1959
56. Stock of money, monej^ in the Treasury, in the Federal Reserve
Banks, and in circulation, June 30, 1913-59
57. Stock of money by kinds, June 30, 1913-59
58. Money in circulation by kinds, June 30, 1913-59
59. Location of gold, silver bullion at monetary value, and coin held by
the Treasury on June 30, 1959
._
60. Paper currency issued and redeemed during the fiscal year 1959, and
outstanding June 30, 1959, by classes and denominations
564
566
567
568
569
569
Vin
CONTENTS
TRUST FUNDS AND CERTAIN OTHER ACCOUNTS OF THE FEDERAL
GOVERNMENT
Page
61. Holdings of Federal securities by Government agencies and accounts,
June 30, 1952-59
I.—Trust funds
62. Ainsworth Library fund, Walter Reed General Hospital, June 30,
1959
63. Civil service retirement and disability fund, June 30, 1959
64. District of Columbia teachers' retirement and annuity fund, June 30,
1959
65. District of Columbia, Workmen's Compensation Act, relief and rehabilitation, June 30, 1959
66. District of Columbia other funds—Investments as of June 30, 1958
and 1959
67. Employees' life insurance fund. Civil Service^ Commission, June 30,
1959
68. Federal disability insurance trust fund, June 30, 1959
69. Federal old-age and survivors insurance trust fund, June 30, 1959
70. Foreign service retirement and disability fund, June 30, 1959
71. Highway trust fund, June 30, 1959
72. Judicial survivors annuity fund, June 30, 1959.
73. Library of Congress trust funds, June 30. 1959
74. Longshoremen's and Harbor Workers' Compensation Act, relief and
rehabilitation, June 30, 1959
75. National Archives trust fund, June 30, 1959
76. National park trust fund, June 30, 1959
77. National service life insurance fund, June 30, 1959
78. Pershing Hall Memorial fund, June 30, 1959
79. Philippine Government pre-1934 bond account, June 30, 1959
80. Public Health Service gift funds, June 30, 1959
81. Railroad retirement account, June 30, 1959
.
82. Unemployment trust fund, June 30, 1959
83. U.S. Government life insurance fund, June 30, 1959
84. U.S. Naval Academy general gift fund, June 30, 1959
570
573
573
575
576
577
578
580
582
584
585
586
587
588
588
589
589
590
591
592
593
594
600
601
II.—Certain other accounts
85. Colorado River Dam fund, Boulder Canyon project, status by operating years ending May 31, 1933 through 1959
86. Refugee Relief Act of 1953, loan program through June 30, 1959
602
603
FEDERAL AID TO STATES
87. Expenditures for Federal aid to States, individuals, etc., fiscal years
1930, 1940, 1950, and 1959
88. Expenditures made by the Government as direct payments to States
under cooperative arrangements and expenditures within States
which provided relief and other aid, fiscal year 1959
604
612
CUSTOMS STATISTICS
89. Summary of customs collections and expenciitures, fiscal year 1959..
90. Customs collections and payments by dibtricts, fiscal year 1959
91. Value of dutiable and taxable imports for consumption and computed duties and taxes collected by tariff schedules, fiscal years
1957 and 1958
92. Value of dutiable and taxable imports for consumption and computed
duties and taxes collected by tariff schedules, fiscal years 1958 and
1959
93. Value of dutiable imports and amounts of duties collected at specific,
ad valorem, and compound rates, fiscal years 1943-59
627
628
629
630
631
CONTENTS
IX
Page
94. Computed customs duties, value of dutiable imports, and ratio of
computed duties to value of dutiable imports, by tariff schedules,
calendar years 1947-58 and January-June 1959
95. Computed customs duties, value of imports entered for consumption,
and ratio of duties to value of dutiable imports and to value of all
imports, calendar years 1947-58 and January-June 1959
96. Value of dutiable imports for consumption and computed duties collected by countries, fiscal years 1957 and 1958
97. Value of dutiable imports for consumption and computed duties
collected by countries, fiscal years 1958 and 1959
98. Merchandise entries by number,'^ fiscal years 1958 and 1959
99. Vehicles and persons entering the United States by number, fiscal
years 1958 and 1959
100. Aircraft and aircraft passengers entering the United States by
number, fiscal years 1958 and 1959
101. Drawback transactions, fiscal years 1958 and 1959
102. Principal commodities on which drawback was paid, fiscal years
1958 and 1959
103. Seizures for violations of customs laws, fiscal years 1958 and 1959. _
104. Investigative activities, fiscal years 1958 and 1959
632
634
634
636
638
638
639
640
640
641
642
ENGRAVING AND PRINTING PRODUCTION
105. New postage stamp issues delivered, fiscal year 1959
106. Deliveries of finished work by the Bureau of Engraving and Printing,
fiscal years 1958 and 1959
643
644
INTERNATIONAL CLAIMS
107. Awards of the Mixed Claims Commission, United States and Germany, certified to the Secretary ot the Treasury by the Secretary
of State, through June 30, 1959
108. Mexican claims fund as of June 30, 1959
109. Yugoslav claims fund as of June 30, 1959
GOLD AND CURRENCY
TRANSACTIONS AND FOREIGN
DOLLAR HOLDINGS
646
648
649
GOLD AND
110. United States net gold transactions with foreign countries and international institutions, fiscal years 1952-59
111. Estimated gold reserves and dollar holdings of foreign countries as of
June 30, 1958 and 1959
112. Assets and habilities of the exchange stabilization fund as of June 30,
1958 and 1959
113. Summary of receipts, withdrawals, and balances of foreign currencies acquired by the United States without purchase with
dollars, fiscal year 1959
114. Balances of foreign currencies acquired by the United States without purchase with dollars, June 30, 1959
650
651
653
655
657
INDEBTEDNESS OF FOREIGN GOVERNMENTS
115. Indebtedness of foreign governments to the United States arising
from World War I, and payments thereon as of June 30, 1959
116. World War I indebtedness, payments and balances due under agreements between the United States and Germany as of June 30, 1959.
117. Outstanding indebtedness of foreign countries on United States
Government credits (exclusive of indebtedness arising from World
War I) as of June 30, 1959, by area, country, and major program..
118. Status of accounts under lend-lease and surplus property agreements
(World War II) as of June 30, 1959
658
659
660
662
X
CONTENTS
CORPORATIONS AND CERTAIN OTHER BUSINESS-TYPE ACTIVITIES OF
THE UNITED STATES GOVERNMENT
Page
119. Capital stock, notes, and bonds of Government agencies held by t h e
Treasury or other Government agencies, J u n e 30, 1958 and 1959,
and changes during 1959
...
120. Borrowing authority and outstanding issues of Government corporations and certain other business-type activities whose obligations
are issued to t h e Secretary of t h e Treasury, J u n e 30, 1 9 5 9 . 121. Comparative s t a t e m e n t of obligations of Government corporations
and certain other business-type activities held by t h e Treasury,
J u n e 30, 1952-59
122. Description of obligations of Government corporations and certain
other business-type activities held by t h e Treasury, J u n e 30, 1 9 5 9 . .
123. Comparative s t a t e m e n t of t h e assets, liabilities, and net investment
of Government corporations and certain other business-type activities, J u n e 30, 1952-59
124. S t a t e m e n t of financial condition of Government corporations and
certain other business-type activities, J u n e 30, 1959
125. Income and expense of Government corporations and certain other
business-type activities, fiscal year 1959
126. Source and application of funds of Government corporations and
certain other business-type activities, fiscal year 1959
127. Restoration of a m o u n t s of capital impairment of t h e Commodity
Credit Corporation, p u r s u a n t to t h e act of March 8, 1938, as
amended
,
128. Dividends, interest, and similar earnings received by t h e Treasury
from Government corporations and certain other business-type activities, fiscal years 1958 and 1959
666
668
669
670
674
676
683
685
687
688
GOVERNMENT LOSSES IN SHIPMENT
129. Government losses in shipment revolving fund, J u n e 30, 1959
689
FEDERAL PERSONAL AND REAL PROPERTY
130. Personal and real property inventory of t h e United States Governm e n t as of J u n e 30, 1957, 1958, and 1959
131. Personal and real property inventory of t h e United States Government, by d e p a r t m e n t s and agencies as of J u n e 30, 1959
690
692
PERSONNEL
132. N u m b e r of employees in t h e d e p a r t m e n t a l and field services of t h e
Treasurv D e p a r t m e n t , quarterly from J u n e 30, 1958, to J u n e 30,
1959...1
133. Cash awards paid to employees and estimated savings under t h e incentive awards program, fiscal j^ears 1958 and 1959
INDEX
694
694
695
S E C R E T A R I E S , U N D E R S E C R E T A R I E S , AND ASSISTANT S E C R E T A R I E S
O F T H E TREASURY D E P A R T M E N T F R O M JANUARY 2 1 , 1953, T O
JANUARY 11, 19601
Term of service
Official
To-
From-
Secretaries of ihe Treasury
Jan. 21, 1953 July 28, 1957
July 29, 1957
George M. H u m p h r e y , Ohio.
Robert B. Anderson, Connecticut.
Under Secretaries ^
Jan. 28, 1953 July 31, 1955 Marion B. Folsom, New York.
Aug. 3, 1954 Sept. 25, 1957 W. Randolph Burgess, Maryland.
Aug. 3, 1955 Jan. 31, 1956 H . C h a p m a n Rose, Ohio.
F r e d C. Scribner, Jr., Maine.
Aug. 9, 1957
Sept. 30, 1957
Julian B . Baird, Minnesota.
Assistant Secretaries
Jan. 24,
Jan. 28,
Sept. 20,
Aug. 3,
Apr. 18,
Dec. 4,
Dec. 16,
Dec. 17,
1952
1953
1954
1955
1957
1957
1957
1958
Feb. 28, 1957 Andrew N . Overby, District of Columbia.
Aug. 2, 1955 H . C h a p m a n Rose, Ohio.
Laurence B. Robbins, Illinois.
Dec. 15, 1957 D a v i d W. Kendall, Michigan.
Aug. 8,1957 Fred C. Scribner, Jr., Maine.
Dec. 15, 1958 T o m B. Coughran, California.
A. Gilmore Flues, Ohio.
T . Graydon Upton, Pennsylvania.
Deputies to the Secretary
Jan. 21, 1953 Aug. 2, 1954 W. Randolph Burgess, New York.
Jan. 9, 1957 Jan. 15, 1959 D a n Throop Smith, Massachusetts.
J o h n P . Weitzel, Massachusetts.
Oct. 15, 1959
Fiscal Assistant Secretaries
Mar. 16, 1945 June 17, 1955
June 19, 1955
E d w a r d F . Bartelt, Illinois.
William T . Heffelfinger, District of Columbia.
Administrative Assistant Secreiary
Aug. 2, 1950
Sept. 14, 1959
Aug. 31, 1959
William W. Parsons, California.
A. E . Weatherbee, Maine.
1 For oflQcials from September 11, 1789, through January 20,1953, see exhibit 55, p. 314, in the 1953 annual
report.
2 The positions of an additional Under Secretary and an additional Assistant Secretary were established
under the provisions of an act approved July 22,1954 (5 U.S.C. 244, 246).
XI
PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OF THE TREASURY
DEPARTMENT AS OF JANUARY 11, 1960
SECRETARY
ROBERT B. ANDERSON
Fred C. Scribner, Jr
Eugene T. Rossides
A. E. Weatherbee
James H. Stover
Paul McDonald
Willard L. Johnson
S.T. Adams
Nils A. Lennartson
Under Secretary.
Assistant to the Under Secretary.
Administrative Assistant Secretary.
Chief, Management Analysis Staff.
Director of Administrative Services.
Budget Officer.
Director of Personnel.
Assistant to the Secretary (for public
affairs).
Stephen C. Manning, Jr
Deputy Assistant to the Secretary.
Douglas H. Eldridge
Chief, Tax Analysis Staff.
Nathan N. Gordon
Chief, International Tax Staff.
Francis J. Gaff ord
Assistant to the Secretary and Personnel
Security Officer.
Julian B. Baird
Under Secretary for Monetary Affairs.
Robert P. Mayo
Assistant to the Secretary (for debt
management).
R. Duane Saunders
Chief, Debt Analysis Staff.
Charles E. Walker
Assistant to the Secretary (for debt
management).
William T. Heffelfinger
Fiscal Assistant Secretary.
Martin L. Moore
Assistant to the Fiscal Assistant Secretary.
George F. Stickney
Technical Assistant (systems and methods).
Hampton A. Rabon, Jr
Technical Assistant.
Boyd A. Evans
Technical Assistant.
Frank F. Dietrich
Technical Assistant.
Sidney S. Sokol
Technical Assistant.
Frank A. Southard, Jr
Special Assistant to the Secretary.
Laurence B. Robbins
Assistant Secretary.
Robert W. Benner
Assistant to the Assistant Secretary.
A. Gilmore Flues
Assistant Secretary.
James P. Hendrick
Assistant to the Secretary.
Vacancy
Assistant to the Secretary for Law Enforcement.
Captain Q. R. Walsh, U.S.C.G
Aide to the Assistant Secretary.
T. Graydon Upton
. . . Assistant Secretary.
A. H. Von Klemperer..
Assistant to the Secretary.
David A. Lindsay
General Counsel.
Jay W. Glasmann
Assistant to the Secretary and Head,
Legal Advisory Staff.
John P. Weitzel
Deputy to the Secretary.
BUREAU OF ACCOUNTS
Robert W. Maxwell
Harold R. Gearhart
Juhaii.F. Cannon
Harold A. Ball
xn
Commissioner of Accounts.
Assistant Commissioner.
Chief Disbursing Officer.
Chief Auditor.
PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS
Ray T. Bath
Sidney Cox
Deputy Commissioner — Accounting
Systems.
Deputy Commissioner—Deposits and
Investments.
Assistant Commissioner for Administration.
Deputy Commissioner — Central Accounts.
Deputy Commissioner — Central Reports.
_..
John H. Henriksen
XHI
^
Howard A. Turner
Samuel J. Elson
BUREAU OF CUSTOMS
Ralph Kelly
David B. Strubinger
Lawton M. King
Commissioner of Customs.
Assistant Commissioner of Customs.
Deputy Commissioner of Management
and Controls.
Deputy Commissioner of InveFtigations.
Deputy Commissioner of Appraisement
Administration.
C. A. Emerick
Walter G. Roy
BUREAU OF ENGRAVING AND P R I N T I N G
Henry J. Holtzclaw
Director, Bureau of Engraving and
Printing.
Assistant to the Director.
Frank G. Uhler
BUREAU OF T H E M I N T
William H. Brett
Leland Howard
.
Director of the Mint.
Assistant Director.
BUREAU OF NARCOTICS
Harry J. Anslinger
Henry L. Giordano
Wayland L. Speer.
Commissioner of Narcotics.
Deputy Commissioner.
Assistant to the Commissioner.
,
BUREAU OF THE PUBLIC DEBT
Edwin L. Kilby
Donald M. Merritt
Ross A. Heffelfinger, Jr
Commissioner of the Public Dept.
Assistant Commissioner.
Deputy Commissioner in Charge, Washington Office.
Deputy Commissioner in Charge, Chicago Office.
Charles D. Peyton
I N T E R N A L REVENUE SERVICE
Dana Latham
Charles I. Fox
Vernon D. Acree
William H. Loeb
Harold T. Swartz
Bertrand M. Harding..
Wilber A. Gallahan
Gray W . H u m e . .
Hart H. Spiegel
Joseph L. Carrigg
Leo Speer
.
Commissioner of Internal Revenue.
Deputy Commissioner
Assistant Commissioner (Inspection).
Assistant Commissioner (Operations). :
Assistant Commissioner (Technical).
Assistant Commissioner (Planning and
Research).
Administrative Assistant to the Commissioner.
Fiscal Management Officer,
Chief Counsel.
Director of Practice.
Technical Advisor to the Commissioner.
XIV
PRINCIPAL
ADMINISTRATIVE
AND STAFF
OFFICERS
OFFICE OF T H E COMPTROLLER OF T H E CURRENCY
Ray M. Gidney
L. A. Jennings
Comptroller of the Currency.
First Deputy Comptroller of the
rency.
Second Deputy Comptroller of
Currency.
Third Deputy Comptroller of
Currency.
Fourth Deputy Comptroller of
Currency.
Chief National Bank Examiner.
W. M. Taylor
G. W. Garwood
C. C. Fleming
H. S. Haggard
Curthe
the
the
OFFICE OF D E F E N S E L E N D I N G
Robert M. Seabury
Director.
OFFICE OF T H E GENERAL COUNSEL
David A. Lindsay
Elting Arnold
John K. Carlock
Hart H. Spiegel
Fred B. Smith
Jay W. Glasmann
.
Edward C. Rustigan
General Counsel.
Assistant General Counsel.
Assistant General Counsel.
Assistant General Counsel.
Assistant General Counsel.
Head, Legal Advisory Staff (Assistant
to the Secretary).
Associate Head, Legal Advisory Staff.
OFFICE OF INTERNATIONAL FINANCE
George H. Willis
Elting Arnold
Director.
Acting Director, Foreign Assets Control.
OFFICE OF T H E TREASURER OF T H E U N I T E D STATES
Ivy Baker Priest
Wilham T. Howell
Willard E. Scott
Treasurer of the United States.
Deputy Treasurer.
Assistant Deputy Treasurer.
U N I T E D STATES COAST GUARD '
Vice Admiral Alfred C. Richmond
Rear Admiral James A. Hirshfield
Rear Admiral Edward H. Thiele
Rear Admiral Henry T. Jewell
Commandant, U.S. Coast Guard.
Assistant Commandant and Chief af
Staff.
Engineer in Chief.
Chief, Office of Merchant Marine
Safety.
U N I T E D STATES SAVINGS BONDS DIVISION
Vacancy
Bill McDonald
National Director.
Assistant National Director.
U N I T E D STATES SECRET SERVICE
U. E. Baughman
Russell Daniel
E. A. Wildy
Chief, U.S. Secret Service.
Deputy Chief.
Assistant Chief—Security.
PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS
XV
COMMITTEES AND BOARDS
Ivy Baker Priest
A. E. Weatherbee
James H. Stover
S. T. Adams
Willard E. Scott
Chairman, Interdepartmental Savings
Bond Committee.
Chairman, Treasury Management Committee.
Chairman, Treasury Awards Committee.
Chairman, Treasury Wage Board.
Employment Policy Officer.
•ORGANIZATION OF THE DEPARTMENT OF THE TREASURY-
January 11,1960
Office \
of fhe
)
j Secrefary/
UNDER SECRETARY
4 u t to the
SKfetary fOf Lc»
Enforcemetill/
4SSISTANTO THE
SECRETARY
SECRETARY
-
j
ASSISTANT
TO THE
SECRETARY
ASSISTANT
TO THE
SECRETARY
SPECIAL ASST
TO THE
SECRETARY
FISCAL
ASSISTANT
SECRETARY
ASSISTANT
TO THE
SECRETARY
Ot.-ceo!
U.S. Secret
Service
I Operating N
1 Bureaus /
Bureau of
Customs
Bureau of
Narcotics
U.S.
Coast Guord
U.S. Savings
Bonds Division
Bureau of
Accounts
Office of the
Treasurer
of ttie U.S.
AD.VINISTRATIVE F
ASSISTANT
E
SECRETARY
[
ASSISTANT
TO THE
SECRETARY
f
Bureau of
Engraving and
Printing
Internol Revenue
Service
Bureauof
tlie Mint
Office of ttie
Comptroller of
the Currency
Bureau of
the Public Debt
CHART 1
1 The General Counsel serves as legal advisor to the Secretary, his associates, and heads of bureaus.
2 The Assistant to the Secretary for Law Enforcement coordinates enforcement activities of the U.S. Secret Service, U.S. Coast Guard, Bureau of Customs. Bureau of Narcotics, and Internal Revenue Service.
ANNUAL REPORT ON THE FINANCES
TREASURY DEPARTMENT,
Washington, D . C , January SO, 1960.
S I R S : I have the honor to report to you on the finances of the
Federal Government for the fiscal year ended June 30, 1959.
The economy during this period was characterized by strong
recovery. Because revenues—and to some extent expenditures—
reflect very largely economic conditions in an immediately preceding
period, the recession period of 1957-58 had its strongest impact on the
Government's fiscal position during the fiscal year 1959. As a result,
the Federal Government had to close the gap between revenues and
expenditures by additional new money borrowing in larger amounts
than had been necessary in 1958.
A marked improvement in the Government's fiscal position has
occurred in recent months. With continued prosperity, a balanced
budget is in prospect for the fiscal year 1960 and a substantial surplus
estimated for 1961.
R O B E R T B . ANDERSON,
Secretary oj the Treasury,
To THE PRESIDENT OF THE SENATE.
To THE SPEAKER OF THE H O U S E OF REPRESENTATIVES.
525622—60-
REVIEW
OF FISCAL
OPERATIONS
Summary of Fiscal Operations
Net budget receipts in fiscal 1959 amounted to $68.3 biUion and
budget expenditures to $80.7 billion, resulting in a $12.4 billion deficit.
The deficit was in large part an aftermath of the 1957-58 recession.
Although the recession had ended before fiscal 1959 began, its impact
on 1959 finances was substantial. Revenues fell below the preceding
year's level because the payment of some taxes lags substantially
behind the accrual of tax liabilities. This was most noticeable in
corporation income tax receipts which in 1959 fell $2.8 billion below
1958 and $3.9 billion below 1957. Some tax receipts did reflect the
recovery in business activity which began in the middle of the calendar
year 1958. In particular, individual income tax collections in fiscal
1959 increased $2.0 biUion compared with 1958.
CHART
2.
THE BUDGET
$Bil.
80.7
80
Expenditures^
74.3
'56
Fiscal Years
To some extent expenditures in 1959 were also affected by the 195758 recession. Expenditures under temporary programs to provide
greater unemployment compensation and to aid housing construction
were much larger in 1959 than in preceding years.
5
6
195 9 REPORT OF THE SECRETARY OF THE TREASURY
In consequence of the strength of the recovery movement which
began in mid-1958, receipts in 1960 are estimated to exceed expenditures by approximately $200 million and a $4.2 billion surplus is
anticipated for the fiscal year 1961.
The increase in the public debt during fiscal 1959 was less than the
amount of deficit because part of it was financed by a $4.4 billion
drawing down of the Treasury's cash balance. As of June 30, 1959,
the public debt outstanding amounted to $284.7 billion compared with
$276.3 billion a year earlier. The Government's fiscal operations in
fiscal 1958 and 1959 and their effect on the public debt are summarized
below.
Budget results:
Netreceipts
Net expenditures
Budget deficit..
..-.
_
-,>_.„._
___
...
_...
Plus:
Trust account and other transactions, excess of expenditures, or
receipts (—) L.
_..
._.
Change in Treasurer's balance:
Increase, or decrease (—)
Equals: Public debt mcrease
_..
' Includes net trust account transactions, etc.; net investments by Government agencies in public debt
securities; net sales or redemptions of obligations of Government agencies in the market; changes in clearing
and other accoimts necessary to reconcile to Treasury cash; and changes in amount of cash held outside
the Treasury.
I t is anticipated that the surpluses estimated for 1960 and 1961 will
combine to reduce the public debt to $280 billion by June 30, 1961.
Because the Government's expenditures are spread somewhat evenly
during the fiscal year while tax receipts are not, the Treasury is required to provide some interim financing even in periods when the
Government's revenues and expenditures for the fiscal year are in
balance or result in a surplus. Receipts from corporation income taxes
and from individual income taxes not withheld are regularly much
less in the first half than in the second half of the fiscal year. For this
reason, the first half of fiscal 1958 showed a deficit of $6.7 billion
although the year-end deficit was $2.8 billion. In 1959 a deficit of
$11.0 billion in the first six months accounted for almost 90 percent
of the deficit for the entire year. Fiscal 1960 is expected to end with a
surplus of $0.2 billion, although a $5.6 billion deficit was incurred in
the first six months of the year.
REVIEV^ OF FISCAL OPERATIONS
7
BUDGET RECEIPTS AND EXPENDITURES
B U D G E T R E C E I P T S I N 1959
Net budget receipts in the fiscal year 1959 amounted to $68.3
billion, $0.8 billion below those in fiscal 1958 and $2.8 billion below
the record 1957 receipts.
Receipts in 1958 reflected the decline in business profits during the
latter part of the calendar year 1957 and the leveling off of personal
income during the mid-1957 to mid-1958 period. Although a strong
recovery movement commenced in mid-1958, receipts declined in
fiscal 1959 because of the lag between tax liabilities and receipts which
is characteristic of certain tax sources.
A comparison of net receipts after refunds and transfers, by major
sources, for the fiscal years 1958 and 1959 is shown below. Additional
data for 1959 on a gross basis are presented in table 10.
Increase, or decrease (—)
1959
1958
Source
Amount
Percent
I n millions of dollars
Internal revenue:
I n d i v i d u a l income taxes
C o r p o r a t i o n income taxes
Excise taxes
E m p l o y m e n t taxes
E s t a t e a n d gift t a x e s . . . .
_
I n t e r n a l r e v e n u e n o t otherwise classified
34,724
20,074
8,612
333
1,393
6
36,719
17,309
8,504
321
1,333
5
1,995
-2,765
-108
-12
-60
-2
5.7
-13.8
-3.3
-3.6
-4.3
-24.9
Total internal revenue
Customs
--_
Miscellaneous receipts
65,142
782
3,193
64,190
925
3,155
-951
144
-38
-1.5
18.4
-1.2
N e t b u d g e t receipts
69,117
68,270
-846
Individual inc^ome taxes.—Receipts from individual income taxes
amounted to $36,719 million in 1959, an increase of $1,995 million
over 1958. The bulk of the rise occurred in taxes withheld from
salaries and wages, which refiect the growth in personal incomes more
quickly than the taxes paid on declarations and on final returns.
Corporation income taxes.—Corporation income tax receipts
amounted to $17,309 million in fiscal 1959, a decrease of $2,765
miUion below 1958. This reflected the sharp drop in profits during
the calendar year 1958, the liability year which primarily determined
receipts in fiscal 1959.
8
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Excise taxes.—Receipts from this source are listed in the following
table.
Increase, or decrease ( - )
1959
1958
Source
Amount
Percent
In millions of dollars
Alcohol taxes
Tobacco taxes..
_
._
Taxes on documents, other instruments, and
playing cards...
Manufacturers' excise taxes.
Retailers' excise taxes
.
Miscellaneous excise taxes
Undistributed depositary receipts and unap• plied collections
Gross excise taxes.
._
Deduct:
•Refunds of receipts . . . .
.. „ ..
Transfer to highway trust fund.^.._
2,946
1,734
3,002
1,807
56
73
1.9
4.2
109
3,974
342
1,741
134
3,959
356
1,436
24
-15
14
-305
22.3
—.4
4.1
-17.5
-33
66
99
.
10,814
10,760
-55
—.5
._
86
2,116
84
2,171
-2
55
-2.3
2.6
8,612
8,504
-108
-1.3
Net excise taxes
0)
1 Percentage comparison inappropriate.
Total excise tax receipts were slightly lower in fiscal 1959 than in
1958. However, comparison between 1959 and 1958 is obscured by
the repeal of the taxes on transportation of property and of oil by
pipeline, effective August 1, 1958 (receipts from these taxes declined
$347 million in 1959), and by the change on June 24, 1959, from a
stamp S3^stem to a system of filing semimonthly returns for alcohol
and tobacco taxes. Except for these taxes affected by legislative
changes and by the reduced sales of automobiles in the calendar
year 1958, virtually all excises gained in fiscal 1959 as a result of
expanded business activity.
Employment taxes.—Receipts from the various employment taxes
were as follows:
Increase, or decrease (—)
1959
1958
Amount
Source
Percent
In millions of dollars
Federal Insurance Contributions Act and SelfEmployment Contributions Act «
Railroad Retirement Tax Act
Federal Unemployment Tax Act
_
Gross employment taxes
_
Deduct:
Refunds of receipts
Transfers to:
Federal old-age and survivors insurance
trust fund
Federal disability insurance trust fundRailroad retirement account
_,
Net employment taxes _. . .
*Less than $500,000.
..-
..
7,733
575
336
8,004
526
324
271
-50
-12
8,644
8,854
4
3
6.870
863
575
7,158
847
525
287
-16
-50
4.2
-1.9
-8.6
333
321
-12
-3.6
209
(*)
3.5
-8.7
-3.5
2.4
-3.5
REVIEW OF FISCAL OPERATIONS
9
The increase in receipts under the Federal Insurance Contributions
Act and the Self-Employment Contributions Act resulted principally
from the one-quarter percent increase in rates each on employers
and employees effective January 1, 1959 (by an act approved August
28, 1958 (26 U.S.C. 3101)), although higher taxable wages also contributed. Collections from both the Railroad Retirement Tax Act
and the Federal Unemployment Tax Act were lower than in 1958.
After transfers to the trust accounts, net budget receipts were
affected only to the extent of the small decline in Federal Unemployment Tax Act collections.
Estate and gift taxes.—Receipts from estate and gift taxes amounted
to $1,333 million in fiscal 1959, $60 million below receipts in 1958.
Customs.'—Customs receipts continued their increase in 1959, reaching $925 million, $144 million above receipts in 1958.
Miscellaneous receipts.—Miscellaneous receipts decreased to $3,155
million in fiscal 1959. The decline of $38 million was in part the
result of a decline in the interest paid to the Treasury by the Commodity Credit Corporation and the Federal Reserve Banks.
ESTIMATES OF RECEIPTS IN 1960 AND 1961
The Secretary of the Treasury is required each year to prepare and
submit in his annual report to Congress estimates of the public
revenue for the current fiscal year and for the fiscal year next ensuing (act of February 26, 1907 (5 U.S.C. 265)).
The estimates of receipts from taxes and customs for the current
and coming fiscal years are prepared by the Treasury Department.
In general, the estimates of miscellaneous receipts are prepared by
the agencies depositing these receipts in the Treasury.
The estimates are based on the assumption of a continued rise
in the level of economic activity through the period underlying the
fiscal year 1961 receipts. The revenue estimates are consistent with
an increase in the gross national product from about $480 billion in
the calendar year 1959 to about $510 billion in calendar 1960. I t is
also assumed for fiscal 1961 that legislation will be enacted extending
present corporation income and excise tax rates for a year beyond
June 30, 1960; that aviation gas taxes will be increased and a new
tax imposed on jet fuels, and both credited to the general fund; and
that adequate fees and charges will be established for special services
or benefits as recommended by the President.
Receipts in the fiscal year 1959 were adversely affected by the
1957-58 recession. The recovery and growth in business activity
and profits which commenced in the middle of the calendar year
1958 are expected to result in an increase of $10.3 billion in receipts
in fiscal 1960 as compared with 1959 and a further rise in receipts of
10
195 9 REPORT OF THE SECRETARY OF THE TREASURY
$5.4 billion for 1961. The amounts estimated for 1960 and 1961—
$78.6 billion and $84 billion, respectively—are substantially higher
than the level attained in any past year.
Detailed estimates of budget receipts under both existing and
proposed legislation are contained in table 10.
Receipts by major sources
Actual receipts for 1959 and estimated receipts for 1960 and 1961
are compared by major sources in the following table. The amount
shown for each receipt source is the net amount after deduction of
refunds and transfers to trust funds.
1959
actual
Source
1960
estimate
1961
estimate
Increase, or
decrease (—),
1961 over
1960
In millions of dollars
Individual income taxes
Corporation income taxes..-.
Excise taxes
Employment taxes
Estate and gift taxes
Taxes not otherwise classified
Customs
Miscellaneous receipts
Net budget receipts
36,719
17,309
8,504
321
1,333
5
925
3,155
40,306
22,200
9,100
333
1,470
6
1,176
4,010
43,706
23,500
9,623
340
1,620
5
1,376
3,930
68,270
78,600
84,000
3,400
i;300
423
7
150
200
The individual income tax is estimated to remain by far the most
important tax source in 1960 and 1961. Revenues from individual
income taxes are about double the corporation income tax; together,
the two income taxes are estimated to account for 80 percent of
receipts in 1961.
Substantial increases are estimated for all major tax sources for
the fiscal year 1961, with the largest share of the increase provided
by the individual income tax. Another significant increase is provided by the corporation income tax.
Individual income taxes.—The yield from this source on a gross
and net basis is shown in the follomng table.
1959
actual
Source
1960
estimate
1961
estimate
Increase 1961
over 1960
In millions of dollars
Individual income taxes:
Withheld
Other
-
29,001
11,733
32,100
12,600
35,200
13,200
3,100
600
.
40,735
4,016
44,700
4,394
48,400
4,694
3,700
300
_ .
36, 719
40,306
43, 706
3,400
Gross individual income taxes
TvP,s.9 rp.f|ind.<? nf reo.ftipt.s
Net individual income taxes
REVIEW OF FISCAL
11
OPERATIONS
Individual income tax receipts are estimated to increase by $3.4
billion in fiscal 1961. The rise of $7 billion in receipts from this
somxe since 1959 reflects the growth in personal income which was
resumed in mid-1958 and is estimated to continue through the fiscal
year 1961.
Corporation income taxes.—Corporation receipts on a gross and
net basis are shown in the following table.
1959
actual
Source
1960
estimate
1961
estimate
Increase 1961
over 1960
In millions of dollars
Corporation income taxes
TvP,.<?s rP.fnnd.t; nf rP-CP.ipts
. .
Net corporation income taxes...
.,
18,092
782
23,000
800
24,300
800
1,300
17,309
22,200
23, 500
1,300
Receipts from corporation income taxes in each fiscal year are
determined primarily by corporate profits of the calendar year ending
in the fiscal year. Thus, receipts in fiscal 1960 largely reflect calendar
year 1959 profits and receipts in fiscal 1961, calendar 1960 profits.
Substantial gains have been reported for profits following the depressed first half of calendar 1958. Although restrained somewhat
by the steel strike in the fall, profits for calendar 1959 will average
substantially above those for calendar 1958. As a result, corporation
income tax receipts are estimated to rise from $17.3 billion in 1959
to $22.2 billion in 1960. I t is expected that profits will show a further
rise for calendar 1960 as compared with calendar 1959 and will result
in a rise of $1.3 billion in corporation income taxes to a total of $23.5
billion for 1961.
Comparisons of receipts in these years are affected by: (1) The
completion with the fiscal year 1960 of the accelerated schedule of
corporation income tax payments; and (2) the postponement from
June to September 1959 of the payment of a substantial portion of
life insurance liabilities for calendar 1958 as a result of the Life
Insurance Company Income Tax Act of 1959.
12
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Excise taxes.—The yield of the excise taxes is shown in the following
table.
1959
actual
1961
estimate
1960
estimate
Source
Increase, or
decrease ( - ) ,
1961 over
1960
I n millions of doUars
Alcohol taxes
.
._ .
_
T o b a c c o taxes
.
Taxes on d o c u m e n t s , other i n s t r u m e n t s , a n d
p l a y i n g cards
M a n u f a c t u r e r s ' excise taxes
Retailers' excise taxes
-_.
Miscellaneous excise taxes
_
_ __
U n d i s t r i b u t e d depositary receipts a n d u n a p plied collections
Gross excise taxes
__
Deduct:
R e f u n d s of r e c e i p t s . .
Transfer to h i g h w a y t r u s t fund
N e t excise taxes
3,002
1,807
3,142
1,892
3,243
1,957
101
65
134
3,959
356
1,436
138
4,821
377
1,395
143
5,332
395
1,487
5
511
18
92
66
46
10,760
11,811
12, 557
-46
84
2,171
84
2,627
84
2,960
323
8,504
9,100
9,523
423
746
Gross excise tax receipts are estimated to increase $1,051 million in
1960 and to rise further by $746 million in 1961. However, receipts
transferred to the highway trust fund are estimated to increase by
$456 million in 1960 and by $323 million in 1961. Consequently, the
increase in net excise taxes remaining as general fund receipts is reduced
to $596 million in 1960 and $423 million in 1961.
Receipts transferred to the highway trust fund will be augmented in
1960 and 1961 by an estimated increase in sales of taxable products,
but the major reason for the much higher transfers is the increase of
1 cent per gallon in the tax rates on gasoline and diesel fuel effective
October 1, 1959, and continuing until June 30, 1961. The increase in
rates affects year-to-year comparisons since it is only partly effective
in 1960 but fully operative in 1961. The amount transferred in 1961
is reduced by the retention in general fund receipts of the revenue
from the tax on aviation gasoline under proposed legislation.
Net excise tax receipts in 1960 and 1961 are expected to increase
because of the much higher volume of sales of taxable goods and
services estimated to accompany higher consumer incomes. The
increase is much larger for 1960 than for 1961 primarily because of the
difference in the rate of increase in receipts from the tax on passenger
automobiles. Receipts from this tax in 1960 are estimated to increase
$346 million because of the sharp rise in production from the reduced
level in the calendar year 1958. In 1961 a much more moderate
increase of $65 million in receipts from this tax is estimated. However,
increases in 1960 are generally greater than in 1961 because receipts
in 1959 were adversely affected by the leveling off of personal incomes
13
REVIEW OF FISCAL OPERATIONS
which lasted for about 1 year until the middle of the calendar year
1958.
Part of the rise in excise receipts which is estimated to occur in 1960
because of the rise in sales of taxable goods and services is offset by
the effect of the repeal of taxes on the transportation of property and
of oil by pipeline.
The estimate for excise tax receipts in 1961 includes the effect of
the proposed legislation for aviation fuels. Under this proposal
receipts from the tax on aviation gasoline will be credited to the general
fund, the net rate will be increased from 2 to 4K cents per gallon, and
a new tax at the 4K-cent rate will be imposed on jet fuel.
Employment taxes.—The yield of the emplojment taxes is shown in
the following table.
1969
actual
Source
1960
estimate
1961
estimate
Increase 1961
over 1960
In millions of dollars
Federal Insurance Contributions Act and
Self-Employment Contributions Act
Railroad Retirement Tax Act
Federal Unemployment Tax Act
Gross employment taxes
...
Deduct:
Refunds of receipts
*_
Transfers to:
Federal old-age and survivors insurance
tmst fnnd
„.,.
Federal disability insm-ance trust fund.
Railroad retirement account
„.
Net employment taxes
...
8,004
525
324
10,092
630
335
11,665
660
342
1,573
30
7
8,854
11,057
12,667
1,610
3
2
2
7,158
847
525
9,164
928
630
10,693
972
660
1,529
44
30
321
333
340
7
Receipts from the Federal Insurance Contributions Act and the
Self-Employment Contributions Act are estimated to increase by
$2,088 million in 1960 and $1,573 million in 1961. These increases
are expected to occur partly because of growing levels of taxable
wages, but principally because of changes in law effective January 1,
1959, and January 1, 1960. The January 1, 1959, changes consisted
of an increase of one-fourth of 1 percent each in the tax rate on
employers and employees and an increase in the maximum amount
taxable from $4,200 to $4,800. These changes were partially reflected,
therefore, in fiscal 1959 receipts but fully refiected in fiscal 1960
receipts. A further increase of one-half of 1 percent each on employers
and employees was effective on January 1, 1960, partially affecting
1960 receipts but whoUy effective in fiscal 1961.
Increases in the fiscal years 1960 and 1961 are also estimated for
receipts from the Railroad Retirement Tax Act and the Federal
Unemployment Tax Act.
14
1959 REPORT OF THE SECRETARY OF THE TREASURY"
Estate and gift taxes.—The yield from estate and gift taxes on a
gross and net basis is shown in the following table.
1959
actual
1960
estimate
1961
estimate
Increase 1961
over 1960
Source
I n millions of doUars
E s t a t e a n d gift taxes
Less refunds of receipts
.
N e t estate a n d gift taxes
1,353
20
1,500
30
1,650
30
150
1,333
1,470
1,620
150
Receipts from the estate and gift taxes are expected to increase by
about the same amounts in fiscal years 1960 and 1961. Because of the
length of time after the date of death permitted in the filing of estate
tax returns, which represent the bulk of these receipts, the income
from this source does not immediately reflect changes in security
and other asset values.
Customs.—Customs receipts on a gross and net basis are shown in
the following table.
1969
actual
1960
estimate
1961
estimate
Increase 1961
over 1960
Source
I n millions of doUars
Customs.
Less refunds of receipts
_-
N e t customs
. _
._
_.
948
23
1.200
24
1,400
24
200
925
1,176
1,376
200
Customs receipts are estimated to increase appreciabl}^ in both
1960 and 1961 as taxable imports rise with expanded business activity.
Miscellaneous receipts.—'Receipts from this source on a gross and
net basis are shown in the following table.
1959
actual
1960
estimate
1961
estimate
Decrease (—),
1961 over 1960
Som'ce
I n miUions of dollars
Miscellaneous receipts
Less refunds of receipts _
_
_ _ _ _
N e t miscellaneous receipts . -
_
3,158
3
4,013
3
3,932
2
—81
—1
3,155
4,010
3,930
—80
The estimated increase of $855 million in 1960 is attributable for
the most part to larger collections of interest on loans and of dividends
and other earnings. Because of the nonrecurring nature of some of
15
REVIEW OF FISCAL OPERATIONS
the collections in 1960, a small decrease is forecast for 1961. The
1961 estimate includes amounts under proposed legislation to increase charges for Government services which provide special benefits
to identifiable individuals or groups.
BUDGET EXPENDITURES IN 1959
The budget expenditures of $80.7 billion in the fiscal 3^ear represented an increase of $8.8 billion over the expenditures of 1958 and
reflected in substantial degree the impact of spending initiated in 1958
to halt the recession in national business activity. The distribution
of the increase is shown in the comparative summary of expenditures
which follows, and details of expenditures by major functions for the
fiscal years 1952 through 1959 are shown in table 8.
Fiscal year
Principal function
1958
Increase
1959
Amount
Percent
In biUions of doUars
Major national secmity
._.
.__
International affairs and finance
Interest
Veterans' services and benefits
Labor and welfare
Agriculture and agricultural resources
Natm-al resources
Commerce and housing
_. _
. . __
General government
_.
Total
44.1
2.2
7.7
5.0
3.4
4.4
1.5
2.1
1.4
46.4,
3.8
7.7
5.2
4.4
6.5
1.7
3.4
1.6
2.3
1.6
5
68
.2
1.0
2.1
.1
1.3
.2
4
30
50
71.9
80.7
8.8
12
62
14
Major national security expenditures included increases of $2.1
billion for military defense, $0.3 billion for development and control
of atomic energy, $0.2 billion for military assistance, and a reduction
of $0.3 billion for stockpiling and defense production expansion. The
rise of $1.5 billion for international affairs represented primarily the
$1.4 billion payment to the International Monetary Fund on the
increased United States subscription. Increases for agricultural program expenditures included $2.0 billion for stabilization of farm prices
and farm income and $0.1 billion for conservation of land and water
resources. Labor and welfare increases included $0.4 billion for labor
and manpower, $0.2 billion for public assistance, $0.3 billion for
promotion of health and education, and lesser amounts for other
welfare services. Commerce and housing expenditm-es included
increases of $0.9 billion for housing, $0.2 biUion for aviation and flight
technology, $0.1 billion for postal service, and small amounts for
other aids and services. Expenditures for veterans' benefits, natural
resources, and general government also increased slightly.
16
1959 REPORT OF THE SECRETARY OF THE TREASURY
E S T I M A T E S O F E X P E N D I T U R E S I N 1960 A N D 1961
Actual expenditures for the fiscal year 1959 and estimates for the
fiscal years 1960 and 1961 are summarized by agencies in the following
table. Further details will be found in table 10. The estimates are
based on those submitted to the Congress in the Budget oj the United
States Government jor the Fiscal Year Ending June SO, 1961.
Actual budget expenditures for the Hscal year 1959 and estimated expenditures for
1960 and 1961
[In miUions of doUars.
O n basis of 1961 B u d g e t d o c u m e n t ]
1959 a c t u a l
Legislative b r a n c h
_
T h e judiciary
A g r i c u l t u r e D e p a r t m e n t (including C o m m o d i t y C r e d i t Corporation)
_
Atomic Energy Commission
Civil Service C o m m i s s i o n
_
Commerce Department
Defense D e p a r t m e n t :
M i l i t a r y functions
M U i t a r y assistance
Civil functions
E x p a n s i o n of defense p r o d u c t i o n
E x p o r t - I m p o r t B a n k of W a s h i n g t o n
F e d e r a l A v i a t i o n Agency
General Services A d m i n i s t r a t i o n
H e a l t h , E d u c a t i o n , a n d Welfare D e p a r t m e n t
H o u s i n g a n d H o m e F i n a n c e Agency
Interior D e p a r t m e n t
Justice D e p a r t m e n t
Labor Department-__
M u t u a l security—economic
N a t i o n a l Aeronautics a n d Space A d m i n i s t r a t i o n
P o s t Office D e p a r t m e n t _
SmaU Business A d m m i s t r a t i o n
State Department
Treasury Department:
I n t e r e s t o n t h e pubUc d e b t
Other
_
Veterans' Administration
Allowance for contingencies
AU other
N e t budget expenditures..
1960 e s t i m a t e 1961 e s t i m a t e
118
47
135
49
162
52
7,091
2,541
23
382
6,706
2,676
22
644
6,201
2,689
71
473
41,233
2,340
807
239
390
441
359
3,092
1,152
751
250
1,016
1,524
146
774
110
264
40,946
1,800
907
170
a 66
667
430
3,417
361
744
259
644
1,650
325
604
102
40,995
1,750
972
89
a7
681
458
3,517
500
809
271
540
1,700
600
49
120
292
7,693
2,248
6,232
635
9,300
984
5,367
75
619
9,600
952
5,446
200
734
80,697
78,383
79,816
» Excess of credits ( d e d u c t ) .
TRUST ACCOUNT AND OTHER TRANSACTIONS
Certain financial activities of Government agencies which result
in an increase or decrease in the cash balance of the Treasurer of the
United States or the cash held outside the Treasurer's account are
nonbudgetary in character, that is, they do not affect the budget
surplus or deficit of the Government. These transactions are shown
in Treasury reports under the following classifications: Trust and
deposit fund transactions; net investments of Government agencies in
public debt securities; and net sales or redemptions of obligations of
Government agencies in the market. For fiscal 1959 the aggregate
of these transactions was an excess of expenditures of $329 million
compared with an, excess of receipts of $633 million in 1958. Details
REVIEW OF FISCAL OPERATIONS
17
are shown in tables 5, 6, and 7. Annual data for the fiscal years 1952
through 1959 are summarized in table 9, and data for 1959 with
estimates for 1960 and 1961 are shown in table 11.
Trust and deposit fund accounts
As defined under ^^Bases of Tables—Descriptioo of Accounts
Relating to Cash Operations—Nonbudget Accounts," trust funds are
maintained to account for moneys held by the Government for use in
carrying out programs in accordance with trust agreements or statutes;
and deposit funds are used to account for moneys held by the Government as banker or agent for others, or to account for funds held in
suspense temporarily and later refunded or paid into some other
account of the Government. Transactions relating to the majority
of trust accounts are reported on a gross basis, but some trust accounts operating as revolving or working funds and deposit fund accounts are reported net. The principal Government trust accounts
include: The Federal disability insurance trust fund; the Federal
old-age and survivors insurance trust fund; the civil service retirement and disability fund; the employees' life insurance fund, Civil
Service Commission; the veterans' life insurance funds; the highway
trust fund; the railroad retirement account; and the unemployment
trust fund. For the fiscal year 1959 the aggregate of transactions in
trust and deposit fund accounts resulted in an excess of expenditures
of $1,511 million, compared with an excess of receipts of $262 milhon
in 1958.
Investments of Government agencies in public debt securities (net)
Transactions in this classification affect both budgetary and nonbudgetary accounts, but are not included in the classification of the
parent account since they have no effect on the operating programs
of the fund involved and represent an exchange of assets. The investments in United States securities, including a small amount of
securities guaranteed by the United States, provide interest earnings
for these accounts and are made primarily in accordance with statutory provisions which require investment of moneys not needed to
meet current expenditures. In the fiscal year 1959 the total of sales
and redemptions exceeded acquisitions by $1,112 million, compared
with net acquisitions of $197 million in 1958. In addition there
were net sales in 1959 for the accounts of Government-sponsored
enterprises of $70 million, compared with net acquisitions of $460
million in 1958.
Sales and redemptions of obligations of Government agencies in the market (net)
Transactions in this classification represent financing operations
between certain Government agencies and the public, and are re525622—60
3
18
1959 REPORT OF THE SECRETARY OF THE TREASURY
ported at par value of the securities. Obligations of Government
agencies currently issued are not guaranteed by the United States,
except for the debentures of the Federal Housing Administration,
which are issued in exchange for foreclosed insured mortgages. Nominal amounts of guaranteed obligations of the now liquidated Home
Owners' Loan Corporation and Federal Farm Mortgage Corporation
remain outstanding and funds for their payment are on deposit with
the Treasurer of the United States. Transactions in fiscal 1959 resulted in net sales of $71 million, compared with $567 million of net
sales in 1958. In addition Government-sponsored agencies had net
sales of their obligations in 1959 of $1,222 million, compared with
$167 million of net redemptions in 1958.
ACCOUNT OF THE TREASURER OF THE UNITED STATES
The account of the Treasurer of the United States, as published in
the Daily Statement oj the United States Treasury, consists of three sections: (1) The gold section discloses on the asset side the value of gold
on hand and on the liability side the amount of gold certificates, etc.,
and the balance of gold available; (2) the silver section lists assets of
silver bullion and silver dollars, and liabilities of silver certificates, etc.,
together with the balance of silver available; and (3) assets in the third
section consist of the balances of gold and silver available, other
silver bullion, coin, currency, unclassified collections, and funds of the
Government on deposit with the Federal Reserve Banks and other
depositaries. The liabilities of the third section include funds to the
credit of the Board of Trustees of the Postal Savings Systems, and
uncollected items, exchanges, etc.
The difference between the assets and liabilities constitutes the
balance in the Treasurer's account. Of this balance, the available
operating funds consist of the gold balance, the available funds on
deposit in Federal Reserve Banks, and the balances in Treasury tax
and loan accounts in commercial banks. Funds not immediate^
available for operating purposes include such items as currency in
process of redeinption, checks in process of collection, and deposits in
general or other depositaries in consideration of certain services performed for Government officers. Table 53 contains details of the
assets and liabilities in the account of the Treasurer of the United
States as of June 30, 1958 and 1959.
During the fiscal year 1959 there was a decrease of $4,399 million
in the balance in the account, bringing the balance to $5,350 million
as of June 30, 1959. Daily balances in the account ranged from a high
of $9,622 million on July 1, 1958, to a low of $2,624 million on January
REVIEW OF FISCAL OPERATIONS
19
20, 1959. The net change in the balance, on the basis of the Daily
Staternent oj the United States Treasury, is accounted for as follows:
(jn millions of dollars)
Balance June 30, 1958
Add:
Net deposits
Net increase in gross public debt
Investments of Government agencies in public debt
securities, net
__
Sales of obligations of Government agencies in
market, net,-.
-__
Certain public debt redemptions included as cash
withdrawals below L^
9, 749
81, 612
8, 363
1, 129
699
1, 090
92, 893
Total
Deduct:
Cash with draw als____
94, 042
Accrual of discount on savings bonds and Treasury
bills included in net increase in gross public debt
above
3, 250
102,642
97, 292
Balance June 30, 1959
5 350
» Represents principally discount included in savings bond and Treasury bill redemptions.
PUBLIC DEBT OPERATIONS AND OWNERSHIP OF FEDERAL
SECURITIES
A net increase of $8.4 biUion in the public debt and guaranteed
obligations during the fiscal year brought the total Federal debt outstanding to $284.8 billion on June 30, 1959. This followed a niet increase in the debt of $5.8 billion during the fiscal year 1958, in contrast
with net declines aggregating $3.8 biUion in the two fiscal years
immediately preceding.
Changes in the total of outstanding Federal debt are determined
mainly by the budget situation, together with increases or decreases in
the cash balance between one year-end and the next. In the fiscal
year 1959 the net budget deficit amounted to $12.4 bUlion, This was
the largest peacetime deficit in history. I t was financed in part by
drawing on a temporarUy high cash balanc^e and in part by a rise of
$8.4 bUlion in outstanding debt. I n the fiscal year 1958, in contrast,
part of the $5.8 bUlion increase in debt reflected a rise in the Treasury
cash balance during the year as well as deflcit financing.
20
1959 REPORT OF THE SECRETARY OF THE TREASURY
Of the $8.4 billion total increase in debt during fiscal 1959 iuterestbearing issues accounted for $7.1 bUlion and noninterest-bearing debt
for $1.3 bUlion. The latter consisted mainly of additional notes held
by the International Monetary Fund. The rise in pubhc issues was
due to an increase of $11.4 bUlion in marketable securities, p a r t i a l ^
offset by a decline of $2.7 billion in public nonmarketable issues. The
decrease in public nonmarketable issues was largely attributable to the
turning in for cash of a large volume of both matured and unmatured
Series F and G savings bonds (which are no longer on sale). The
decline of $1.5 bUlion in special issue holdings by Government investment accounts during the fiscal year reflected principaUy an excess of
expenditures over receipts in the unemployment trust fund, the
Federal old-age and survivors insurance trust fund, and the highway
trust fund.
CHART
3.
THE PUBLIC DEBT^
$Bil.
300
World War EPeak-*2.l^^
200
100
1916 '19
46 49
'59
-^Apr.30
June 30
1 Including pubUc debt and guaranteed obUgations.
2 Excluding Victory Loan proceeds used to repay debt in 1946.
A summary of changes in the debt during the year is shown in the
accompanying table. Changes in the level of the debt since 1916 are
Ulustrated in chart 3.
21
REVIEW OP FISCAL OPERATIONS
Class of debt
June 30,1958 June 30,1959
Increase, or
decrease ( - )
In biUions of doUars
PubUc debt:
Interest-bearing:
PubUc issues:
Marketable
Nonmarketable
Total pubUc issues
.._
Special issues to Government investment accounts—
Total Interest-bearing pubUc debt
Matured debt on which interest has ceased
Debt bearing no interest
.
.
Total pubUc debt
Guaranteed obUgations not owned by the Treasury
Total pubUc debt and guaranteed obUgations
_..
.
166.7
61.8
178.0
59.1
11.4
—2.7
228.5
46.2
237.1
44.8
8.6
-1.5
274.7
.6
1.0
281.8
.5
2.4
7.1
—,1
1.3
276.3
.1
284.7
.1
276.4
284.8
8.4
(*)
8.4
•Less than $50 milUon.
Progress toward debt management objectives
In addition to Treasury new money borrowing required to cover the
deficit, a total of $45 billion of marketable Treasury issues (exclusive
of aU Treasury bUls and tax anticipation certificates) reached
maturity or were called during the year and required refinancing.
In both new money and refunding operations, the Treasury guided
its operations by certain major objectives. First, it sought to secure
the funds as much as possible from true savers rather than from commercial banks in order to reduce the inflationary potential of Treasury
financing during a period of rising economic activity. Second, it
continued its efforts to secure the necessary funds at as reasonable
cost to the taxpayer as possible, consistent with the primary goal of
contributing to sound economic growth. And finally, it sought to
reduce the frequency of its operations and otherwise plan its borrowing programs so as to interfere as little as possible with Federal Keserve
conduct of monetary policy.
A high and rising level of output and trade characterized the entire
fiscal year, following the turn from recession to recovery which occurred close to the end of the fiscal year 1958. By the fall of 1958
Federal Keserve policy had changed from one of credit ease to one of
gradually increasing restraint. Discount rates at the Federal Keserve
Banks were increased four times during the fiscal year from 1% percent
prevailing in June 1958 to 3K percent in effect at the end of the fiscal
year.
During the early months of fiscal 1959 there was unsettlement in
the price structure of the Government bond market following unexpectedly large exchanges for the Treasury's June 1958 offering of
6-year 8-month 2% percent bonds, together with large acquisitions of this
issue b}^ temporary holders. By January 1959, however, market and
22
1959 REPORT OF THE SECRETARY OF THE TREASURY
other conditions had become suitable for modest debt-lengthening
operations. The Treasury issued $0.9 billion of 4 percent 21-year
bonds for cash in that month (at a price of 99 for an effective yield of
4.07 percent), and in AprU 1959 issued $0.6 bUlion of 4 percent lOK
year bonds for cash (at par) through reopening an issue first offered
in October 1957.
Dtifiiig the fiscal year the Treasury continued its program for
achieving a more orderly scheduling of its maturities through grouping
more of them on the four dates of mid-February, May, August, and
Noveniber. The aims of this program are: To reduce the nuinber of
tiines each year that Treasury borrowing operations interfere with
other borrowers such as corporations. States, and municipalities; to
minimize the ''churning'' in the money markets on the major quarterly
corporation income tax dates; and to facUitate the effective execution
by the Federal Keserve of its monetary policy. At the end of the year
the program for grouping maturities had advanced to the point where
over 79 percent of outstanding Treasury marketable securities maturing within the next ten years (excluding all Treasury bills and
tax anticipation certificates) wUl fall due in February, May, August,
or November as compared with 69 percent maturing in those months
at the end of fiscal 1958, and about 10 percent at the end of June 1953.
The major innovation in Treasury financing of marketable issues
during the year was the initiation of a program leading to the establishment of bill cycles of six months and one year, in addition to the 13week cycle of these auction-type issues in effect at the beginning of the
fiscal year. In this way the handling of $30 bUlion to $35 bUlion
of the public debt wUl be on a routine basis so that its constant refunding has a minimum impact upon the money markets.
The first step in the new program was taken in December 1958 when
26-week bUls were inaugurated. Further offerings of 26-week bUls
were made in each succeeding week of the fiscal year. This program
at the end of the year included $25 bUlion of regular weekly Treasury
bUls: $14 bUlion of 3-month bills maturing at the rate of $1 bUlion to
$1.2 billion per week, and about $11 bUlion of 6-month bUls maturing
at the rate of $400 million or $500 million per week. In addition the
Treasury had $4 bUlion of longer-term Treasury bUls maturing on
mid-month dates in January 1960 and AprU 1960; and in June 1959
the Treasury announced that a third issue of $2 bUlion with a July
15, 1960, maturity would be offered in July 1959, with the expectation
that a fourth issue of simUar size with an October 1960 maturity
would be offered later.
A fiirther innovation in financing techiques during the year was the
offering of|one long-term bond and several certificate and note issues
REVIEW OF FISCAL
23
OPERATIONS
at prices slightly less than par. In the December 1958 exchange
offering the Treasury issued a 3% percent ll}^-month certificate priced
at 99.95 and a 3% percent 2K-year note priced at 99%. In January
1959 a SYi percent 1-year 4-month note and a 4 percent 21-year bond
were offered for cash at prices of 99^^ and 99.00, respectively. In
M a y a 4 percent 1-year certificate was offered at 99.95 in exchange
for maturing obligations.
In addition to the two issues of long-term bonds, offered in January
and March 1959 and totaling $1.5 billion, over $11 billion of notes
having maturities in the one- to five-year area wefe issued for cash or
in exchange for maturing obligations during the course of the year.
Nevertheless, the Treasury lost ground during the year in its efforts
to keep the average maturity of the debt from constantly shortening.
Toward the end of the fiscal year the 4}^ percent statutory interest
rate ceiling currently applying to all new issues of Treasury bonds
(which includes all new Treasury issues maturing in more than 5
years) acted in an increasing degree to prevent the Treasury from
undertaking major debt lengthening operations.
At the end of the year the amount of marketable debt within one
year of maturity amounted to $73 billion as compared with
CHART
4.
STRUCTURE OF THE PUBLIC DEBT JUNE 30,1959
Total
Nonmarketable
Marketable
$Bil
Savings Bonds-^0\\
X
Time to Maturity^
200
K.45«"
' % investment
Bonds, etc.
X Speciai Issues
5 Years
^ a n d Over
P285y
lto5
'Years
100
mMm
Wittiin I Year
1 PartiaUy tax-exempt bonds are classified to earliest call date.
^EandH
;42'/p
to Trust Funds
Other
24
1959 REPORT OF THE SECRETARY OF THE TREASURY
billion on June 30, 1958. Similarly, the average length of the marketable debt to final maturity (partially tax-exempt bonds to first call
date) declined from 5 years and 3 months in June 1958 to 4
years and 7 months in June 1959. The passage of time, which always
operates to shorten the debt, could not be offset effectively during the
fiscal year 1959 because of the impact on credit markets of the record
peacetime Federal budget deficit of $12.4 billion and the rising
demands for credit in the private sector of the economy.
The most significant feature of debt ownership change during the
3^ear was a $13 billion increase in the portfolios of private nonbank
investors. This was sufficient to absorb the increase in the total
public debt as well as the decline in holdings of the banking system
and Government investment accounts.
Treasury legislative program for facilitating debt management
On June 8, 1959, in accordance with the President's message of
that date on public debt management, the Secretary of the Treasury
transmitted to the Speaker of the House of Kepresentatives two bills
providing primarily for three major steps designed to strengthen the
public debt management program, as follows:
(1) Kemoval of the present 3.26 percent interest rate ceiling on
savings bonds which, together with other changes, would permit the
Treasury to go forward with a reinvigorated savings bonds program;
(2) Kemoval of the present 4J^ percent interest rate ceiling on
new Treasury bond issues; and
(3) An increase in the regular public debt limit from $283 billion
to $288 billion, with a temporary increase to $295 billion through
June 30, 1960.
These proposals were discussed in detail by the Secretary of the
Treasury in his appearance before the House Ways and Means Committee on June 10, 1959 (see exhibit 17).
The Congress acted first on the proposal to increase the debt
limit. A discussion of changes in the statutory limit and in the debt
subject to limit during the fiscal year is given on page 27.
By an act approved September 22, 1959, Congress raised the permissible interest rate which could be paid on savings bonds when
held to maturity from 3.26 percent to 4 ^ percent. On the same date
the Treasury announced, effective June 1, 1959, an increase in interest
yields to 3% percent on all new Series E and H savings bonds when
held to maturity, and increased investment yields for all outstanding
E and H bonds by approximately K percent if held to maturity.
Details of these changes will be found beginning on page 161, and in
exhibit 16 on page 222.
In addition to permitting an increase in the interest rate ceiling on
REVIEW OF FISCAL OPERATIONS
25
savings bonds, the act approved September 22, 1959, granted the
Treasury authority which can be used to facilitate refunding of outstanding debt issues in advance of maturity. Under this new authority, whenever it is so provided by regulations issued by the Secretary
of the Treasury concerning the issue of obligations of the United
States, no gain or loss shaU be recognized for Federal income tax
purposes on the surrender to the United States of obligations
issued under the Second Liberty Bond Act in exchange solely for
other Treasury obligations.
The purpose of advance refunding as permitted by this legislation
is to encourage long-term investors to retain their investments in
Federal securities by offering them an opportunity to exchange their
present bonds for new ones of longer maturity before the passage of
time brings the maturity of their current holdings down into the
short-term area. Treasury experience has been that the long-term
investor frequently disposes of his Government obligations as they
shorten in maturity in order to shift to longer-term securities other
than Governments. Advance refunding thus affords an excellent
technique for debt lengthening with a minimum market effect on the
flow of current savings and investment funds. A statement by the
Secretary of the Treasury describing the advance refunding technique
may be found in exhibit 17 on page 259.
The first session of the 86th Congress adjourned ia September 1959
without taking action on the administration's request for removal of
the 4K percent iaterest rate ceUing effective on Treasury securities
having a maturity of more than five years.
PUBLIC DEBT OPERATIONS
As noted previously, the Treasury was able to finance the $12.4
bUhon deficit in the fiscal year 1959 and refinance $45 biUion of
maturing obligations (exclusive of aU Treasury bUls and tax
anticipation certificates) without increasing its borrowing from the
commercial banking system.
In mid-July, in the first major financing of the year, holders of certificates maturing August 1 and of two bond issues called for redemption on
September 15 were offered 1% percent one-year certificates. This was
followed on July 29 by a cash offeriug of IK percent tax anticipation
certificates of indebtedness to mature on March 24, 1959. The tax
anticipation certificates were planned to meet needs of the Treasury
for cash duriag the July-December period, when receipts are seasonally
low, by offering securities attractive particularly to corporations as
they invest their tax reserves.
In September a further cash offeriag was made consisting of 3}^
percent 13-month Treasury notes and an issue of 219-day Treasury
26
1959 REPORt OF THE SECRETARY OF THE TREASURY
bUls. Instead of by the usual auction, the biUs were offered at a
fixed price of 98.023 to yield approximately 3.25 percent.
A second cash offeriag of tax anticipation securities was made ia
November, when the Treasury borrowed to meet seasonal needs by
issuing tax anticipation bills (at auction) to mature iinmediately
following the mid-June 1959 tax collection date. Further offerings
of tax anticipation bills (at auction) to cover seasonal needs were
made ia February and May, to mature immediately after tax collection,
dates in September 1959 and December 1959, respectively.
In line with its efforts to achieve a more orderly scheduliag of
short-term maturities, the Treasury ia its December 1958 exchange
operations offered holders of maturiag issues a choice of:
A S% percent ll)^-month certificate maturing in November 1959^
and priced at 99.95 to yield 3;43 percent, or
A 3% percent 2}^-year note maturing in May 1961 and priced at
99% percent to yield 3.68 percent.
The next major financing exclusive of Treasury bill offeriags
occurred in January 1959 when the Treasury offered for cash a
4 percent 21-year bond and a 3K percent 16-month note. Both of
these offeriags were issued at a discount, to yield 4.07 percent for the
bond and 3.45 percent for the note. I t wUl be noted that the yield
on the long-term bond required by current market conditions was at
that time very close to the 4% percent interest rate ceiling effective on
issues maturing in more than five years.
In February 1959 holders of the $14% bUlion securities maturing in
the middle of that month were offered a 3% percent 1-year certificate
and a 4 percent 3-year note.
Immediately following the February refunding a September 1959
tax anticipation bill was sold at auction to raise additional cash. The
timing of the offeriag coincided closely with the cash paid out ia
connection with the refunding.
In April another cash offering was made of a 4 percent note haviag
a maturity of a little over 4 years, and at the same time the 4 percent
bond maturiag ia October 1969, origiaally issued ia October 1957, was
reopened for cash subscription. The last offerings of the fiscal year
exclusive of regular weekly bills were a 4 percent 1-year certificate
offered ia exchange for a certificate maturing ia May 1959 and a
December 1959 tax anticipation bill (221-day) sold at auction to raise
additional cash.
The inclusion ia the March cash offeriag of a 289-day Treasury bUl
to be issued on an auction basis was noted by the Treasury a t that
time as the first step in a move looking to the eventual establishment
of a pattern of one-year maturities on quarterly dates ia mid-January,
REVIEW OF FISCAL OPERATIONS
27
AprU, July, and October. A further step in this program was taken
in May with the offering on an auction basis of a 340-day Treasury
bill.
Borrowing in thp early part of the fiscal year raised the' debt very
npar to the statutory liaiit of $280 bUlion then in effect, A peak of
$278.3 bUlion for the July-SiBptembpr quarter was reached on August
28, 1958. By Public Law 85-912, approved September 2, 1958, the
permanent debt ceiling was raised from $275 bUlion to $283 billion and
this in addition to the temporary iacrease of $5 bUlion already in
effect as a result of the act of February 26, 1958, provided an
operating ceUing of $28:8 billion for the remainder of the fiscal year.
Additional borrowing as a result of a large deficit in the last haK of the
fiscal year kept the debt relatively close to the temporary limit of $288
bUlion. The highest amount in the year was $286.8 bUlion reached on
May 11, 1959. On June 30, 1959, Public Law 86-74 was approved
which immediately raised the pernianent debt ceiling from $283 bUlion
to $285 billion and authorized a temporary increase of $10 billion to
be ia effect only duriag the fiscal year 1960. A comparison of the
statutory debt limit with the public debt outstanding subject to the
limit since June 30, 1956, is shown ia chart 5.
C H A R T 5.
__MONTHLY RANGE OF PUBLIC DEBT SUBJECT TO LIMIT.
$Bil.
Terri porary Increase
in Limit
290
\ Regular
Statutory Limit
280
Debt.
Endof Month
270
1956
1957
— Fiscol Years
1958
1959
28
1959 REPORT OF THE SECRETARY OF THE TREASURY
For further detail on the statutory limit on the public debt and
guaranteed obligations as of June 30, 1959, see table 28, and for a
summary of amendments to the law liaiitiag the debt see table 29.
The foUowiag tables summarize the financing operations duriag the
fiscal year and show the results of the public offerings of marketable
bonds, notes, certificates of iadebtedness, and bUls.
In handling its weekly offering of 13-week Treasury bUls and the
new 26-week biUs which were offered on a regular weekly basis
beginning on December 11, 1958, the Treasury raised a net amount of
$2.6 billion of new cash during the fiscal year. Prior to the iaitiation
of the 26-week cycle approximately $100 miUion of new cash was
Public offerings of marketable Treasury securities excluding reHnancing of regular
weekly bills, Hscal year 1969
[In milUons of dollars]
Date of
issue
Description of security and maturity date
Issued for
cash
Issued in
exchange
for other
securities
Total
issued
BONDS, NOTES, AND CERTIFICATES OF INDEBTEDNESS
1958
Apr. 1
Aug. 1
Aug. 6
Oct. 1
Oct. 10
Dec. 1
Dec. 1
1^% exchange note—Apr. 1,1963 i
1H% certificate—Aug. 1, 1959.
—
1H% certificate (tax anticipation)—Mar. 24,1959..
IH% exchange note—Oct. 1,1963 ».—
3Wo note—Nov. 15, 1959..
„
3H% certificate—Nov. 15,1959, issued at 99.95
3H% note—May 15,1961, issued at 99J^
1969
Jan. 21
Jan. 23
Feb. 15
Feb. 16
Apr. 1
Apr. 18
Apr. 1
May 15
3H% note—May 16,1960, issued at 99%
4% bond—Feb. 15, 1980, issued at 99.00
3%% certificate—Feb. 15, 1960, issued at 99.993..
4% note—Feb. 15,1962, issued at 99.993
4% note—May 15,1963
4% bond—Oct. 1, 1969
—
l k % exchange note—Apr. 1,1964 i
4% certificate—May 15,1960, issued at 99.95
Total bonds, notes, and certificates of indebtedness..
2 427
13, 500
3,567
506
1,184
7,711
4,078
2,738
130
1,269
2,738
884
11,363
1,435
1,743
619
130
1,269
40,419
51,154
11,363
1,435
1,743
619
10,735
427
13, 500
3,567
506
1,184
7,711
4,078
BILLS * (MATURITY VALUE)
1968
Oct. 8
Nov. 20
1969
Feb. 16
Apr. 1
May 11
May 15
3.26% 219-day—May 15,1959, issued at fixed price
2.999% 214-day (tax anticipation)—June 22,1959, auction..
2,735
2,997
2,735
2,997
3.293% 217-day (tax anticipation)—Sept. 21,1959, auction..
3.386% 289-day—Jan. 15,1960, auction
_
3.835% 340-day—Apr. 15, 1960, auction
3.565% 221-day (tax anticipation)—Dec. 22, 1959, auction..
Increase in ofterings of regular 91-day weekly bills during
period Sept. 11, 1958, through Nov. 13, 1958
_.
Changes in regular bUl offerings Dec. 11, 1958, through
June 30, 1959:
91.day
...-..-.9,100
182-day
10,700
1,502
2,006
2,003
1,500
1,502
2,006
2,003
1,500
1,000
1,000
Total bills
Total public offerings.
1,600
1,600
15,343
15,343
26,078
40,419
66,497
1 Issued only on demand of owners in exchange for 2%% Treasury Bonds, Investment Series B-1975-80.
2 Issued subsequent to June 30,1958.
3 Reopening of bonds issued Oct. 1,1957.
* Amounts are maturity value. Treasury bills are sold on a discount basis with competitive bids for each
issue. (One issue of biUs during the flscal year was sold on a fixed price basis.) The average sale price for
auctioned issues gives an approximate yield on a bank discount basis as indicated for each series.
29
EEVIEW OF FISCAL OPERATIONS
Disposition of matured marketable Treasury securities excluding reHnancing of regular
weekly bills, Hscal year 1959
[In mUUons of dollars]
Date of
refundmg or
retii'ement
1958
Aug. 1
Aug. 1
Aug. 1
Oct.
Dec.
Dec.
1
1
1
1959
Feb. 15
Feb. 15
Mar. 24
Apr.
1
May 15
Called or maturing security
Description and maturity date
Issue date
Total
Percent
exchanged
BONDS, NOTES, AND CERTIFICATES OF INDEBTEDNESS
4% certificate—Aug. 1,1958
2H% bond—Sept. 15, 1956-59,
called Sept. 15, 1958
..
2^^% bond—Mar. 15, 1957-59,
called Sept. 15, 1968
m % exchange note—Oct. 1,1958.
3H% certificate—Dec. 1,1958
2 ^ 0 bond—Dec. 15,1958
2}^% certificate—Feb. 14. 1959....
V/i% note—Feb. 16, 1969 . .
1^-^% certificate (tax anticipation)—Mar. 24, 1959
1J^% exchange note—Apr. 1,
1959
. .
134% certificate—May 15,1959...
Aug. 1,1957
885
10,634
11,519
Feb.
1,1944
1,612
2,206
3,818
57.8
Mar.
Oct.
Dec.
Feb.
1,1952
1,1953
1,1957
15,1953
267
121
100
312
660
71.2
9,733
2,056
927
121
9,833
2,368
99.0
86.8
Feb. 14,1958
May 17,1954
876
1,199
8,894
3,904
9,770
5,102
91.0
76.5
Aug. 6,1958
3,667
Apr. 1,1954
June 15,1958
119
547
1,269
119
1,817
9,605
39, 356
48,961
Total bonds, notes, and
certificates of indebtedness
1959
May 15
June 22
Redeemed
for cash or Exchanged
carried to
for new
matured
security
debtl
92.3
3,567
69.8
BILLS
3H% —May 15, 1959
2.999% (tax anticipation)—June
22, 1959 . _
8,1958
2,735
2,735
Nov. 20,1958
2,997
2,997
Oct.
Total bUls
Total Treasury securities.
5,732
5,732
15,337
39,356
54.693
1 Including tax anticipation issues redeemed for taxes.
raised each week, begirming with the issue of September 11 and continuing through November 13. With the addition of the 26-week
biUs on December 11, approximately $200 mUlion of new cash was
raised each week duriag the period December 11 through January 15.
During the period March 5 through March 26, $100 miUion of new
money was raised each week. Regular weekly bills (including the
26-week biUs) outstandiag at the close of the fiscal year 1959, totaled
$25 billion. An additional $4 bUlion was outstanding in Treasury
bUls of somewhat longer maturity under the program for gradually
moving some of the debt into a new 1-year bill cycle which could be
handled in routine fashion.
To raise additional cash for current requirements the Treasury, as
already noted, issued approximately $6 bUlion of tax anticipation bUls
and approximately $3}^ billion of tax anticipation certificates during
the course of the fiscal year. The tax anticipation certificates issued
ia August 1958 were acceptable at par in payment of iacome and
]3rofits taxes due March 15, 1959. SimUarly, the tax anticipation
30
1959 REPORT OF THE SEtJRETAitY OF THE TREASURY
Alidtnients of marketable Treasury securities other than regular weekly biUs, Hscal
year 1969 ^
[In mUlions of dollars]
Amount issued
Date of
financing
Allotments by investor classes
U.S.
Government
In exchange
investment
For cash for other
securi' accourits
ties
and
Federal
Reserve
Banks
Issue-^description pf security and
maturity date
Commercial All other
bariks 2
BONDS, NOTES, AND OERTIFICATES OF
INDEBTEDNESS
1968
Aug. 1
Aug. 6
XH% certificate—Aug. i, 1969-0.....
1H% certificate (tax anticipation) Mar. 24,
ig5cPD
Oct. 10 33^% notei^N'ov.'lsriWg-"^^^^
3H%
certiflcate—Nov. i5,.1969-E
Dec. 1
.....
Dec. 1 3^6%riote-^May 16,- 1961-B.-
1959
Jan. 21 3H% riote^May 16,1960-B_
Jari. 23 4% borid—Feb. 15, 1980
Feb. 15 354% certificate—Feb. 16, 1960-A.
Feb. 15 4% note—Feb. 15,1962-D
Apr. 1 4% note—May 15,1963-^B
Apr. 1 4% bond^Oct. 1,1969.^..
May 15 4% certificate—May 15,1960-B...
13,500
3,567
1,184
7,711
4,078
2,738
1, 743
619
11,363
1,435
1,269
7,218
106
5,686
2,923
60
5,646
9
100
50
155
3,600
2,682
3,097
664
1,090
736
470
416
1,635
419
2,302
170
2,418
972
1,331
335
367
436
664
3,299
454
312
234
747
BILLS
1958
Oct. 8
Nov. 20
3K%—May 15, 1959....
2.999% (tax anticipation)
1959.
June
22,
1969
Feb. 16 3.293% (tax anticipation)—Sept. 21, 1959
Apr. 1 3.386%—Jan. 15, 1960...
May 11 3.835% —Apr. 15, 1960
May 15 3.665% (tax anticipation)—Dec. 22, 1959
2,735
2,256
479
2,997
2,871
n.a.
1, 5Q2
2,006
2,003
1,500
1,443
n.a.
1,952
539
n,a,
n.a.
51
961
n.a. Nbt iavaUable.
1 Excludes 1J^% Treasury EA and EO notes issued in exchange for nonmarketable 2%% Treasufy
Bonds, Investment Series B-1975-86.
2 Includes trust companies and stock savings banks.
3 Reoperiing of borids issued Octdbef 1,1957.
bUls issued in November 1958, February 1959, and May 1959 were
acceptable in payment of income and profits taxes due in June 1959,
September 1959, and December 1959, respectively. (For additional
information on all bill issues see exhibit 4.)
The tightening of credit, beginning ia the fall of 1958, was reflected
ia an increase ia Treasury borrowing costs. The average rate on
new issues of 13-week Treasury bUls, for example, iacreased from %
of 1 percent at the beginning of the fiscal year to about 3K percent
at the close of the fiscal year.
The weekly average rates on new bUl offer mgs throughout the year
are shown in exhibit 4 and the trend of long-term rates is reflected in
table 48. The average aimual interest rate as computed on the total
interest-bearing public debt was 2^867 percent on June 30, 1959, as
31
REVIEW OF FISCAL OPERATIOISTS
compared with 2.638 percent a year earlier. (For further detail on
the computed annual interest rate by security classes see table 45.)
Changes contributiag to the net decliae of $2.7 billion ia the nonmarketable public debt are shown in the foUowiag table.
June 30.1958 June 30, 1959
Class of security
Increase, or
decrease (—)
In bUUoris of doUars
United States savings bonds:
SeriesE
SeriesH.. ^
Subtotal E and H
Series F and O
^__.
Series J and K
_.
_
. .
Subtotal savings bonds,-. .-- . .
Treasury bonds, investment series
Depositary bonds
>
.......
:..
..._
38.1
4.1
38.0
4.7
^_.-
42.1
7.2
2.7
42.7
5.3
2.5
52.0
9.6
.2
50.5
8.4
.2
61.8
59.1
. ^ _.;. _
Total interest-bearing public nonmarketable issues......
(*)
a
.6
-1.9
—.2
—1.6
-1.3
(*)
^2.7
* Less than $50 miUion.
The decline of $1.3 billion in investment series bonds outstanding
was due principally to exchanges during the year of $1.1 bUlion of the
2% percent convertible Series B-1975-80 bonds into marketable 5year IK percent notes.
The largest portion of the nonmarketable public issues outstanding
is in United States savings bonds. The total of all series of interestbearing savings bonds outstanding at the close of the fiscal year was
$50.5 bUlion as compared with $52.0 biUion as of June 30, 1958. The
decline of approximately $1.5 billion in outstanding savings bonds
was due mainly to the large redemption of Series F, G, J, and K
savings bonds, both raatured and unmatured. However, Serie.s E
and H savings bonds outstanding also dropped in the last few months
of the fiscal year as a result of the trends of declining sales and increasing redemptions during these inonths. These trends were partially responsible for the Treasury's request in June 1959 for removal
of the 3.26 percent interest rate ceUing then in effect for savings bonds.
On September 22, 1959, as already noted, an act was approved raising
the permissible interest rate which could be paid on savings bonds
when held to maturity from 3.26 percent to 4}^ percent. On that day
the Treasury, in accordance with aii earlier announcement, made
effective on June 1, 1959, an increase in interest yields for both new
and old Series E and H savings bonds. All new E and H savings
bonds wUl earn 3% percent when held to maturity and all outstanding
E and H savings bonds wUl earn approximately K percent more than
previously when held to next maturity, with lesser improvement in
yields if redeemed earlier.
32
1959 REPORT OF THE SECRETARY OF THE TREASURY
CHART 6.
E AND H BONDS, FISCAL YEARS l95l-'59
The amount of E and H bonds outstanding (including accrued
interest) reached an alltime peak of $42.7 bUlion on June 30, 1959, as
compared with $42.1 bUlion on June 30, 1958.
An excess of redemptions of E and H bonds over cash sales during
the fiscal year was more than offset by the automatic accrual of
interest on E bonds. Although sales of the smaller denomination E
bonds ($200 or under) were still at a high level for the year as a whole,
they were about 4 percent below those in fiscal 1958 and sales of the
larger denomination bonds were off more than 7 percent. (For further
detaU on savings bonds sales by denominations see table 40.) DetaUed information on savings bonds from March 1, 1935, when this
type of security was first offered, through June 30, 1959, is given in
tables 38 through 43.
OWNERSHIP OF FEDERAL SECURITIES
Private nonbank investors held an estimated $142.8 bUlion of
Federal securities at the end of the fiscal year 1959—approximately
one-half of the $284.8 bUlion total debt outstanding. These investors
include individuals (and also partnerships and personal trust accounts), insurance companies, mutual savings banks, nonfinancial
corporations, pension funds, foreign accounts. State and local governments, and nonprofit associations. Commercial banks and Federal
33
REVIEW OF FISCAL OPERATIONS
Eeserve Banks together held $87.4 bUlion, representing nearly onethird of the debt. The remaining $54.6 biUion of debt was held by
Government investment accounts, primarUy in social security and
unemployment trust funds, veterans' insurance funds, and Government retirement funds.
CHART 7.
_OWNERSHIP OF THE PUBLIC DEBT JUNE 3 0 , I 9 5 9 _
TOTAL
Gov't. Invest
Accounts
Banks
Nonbank Investors
$Bil.
\54/2;
200
Corps.^
100
/si'/al
^•;*jtjt;t;J;«j
Com'l
/
All Ottier/
'.^W/.
/
Federal
Reserve
;;26^
The major change in the ownership of Federal securities during
the year, the increase of $13.0 biUion by the private nonbank investor
group, not only absorbed the $8.4 bUlion increasie in the total debt
but also the $3.3 bUlion decrease in holdings by the banking system
and the $1.3 billion reduction in Government investment account
holdings. The significant increases in holdings of the private nonbank
investors were $2^ bUlion by individuals, $6 bUlion by nonfinancial
corporations, and slightly more than $4 billion by miscellaneous
investors which was held principally by foreign and international
accounts. The banking system decrease reflected a $3.9 bUlion decline
in commercial bank holdings and an $0.6 billion increase on the part
of the Federal Reserve System. The following table presents figures
on bank and nonbank ownership together with detaUs on the holdings
of Federal securities by the various other investor classes. Chart 7
also presents ownership by class of investor as of June 30, 1959.
525622—60-
34
1959 REPORT OF THE SECRETARY OF THE TREASURY
Ownership of Federal securities ^ by investor classes on selected dates, 194-1^59
[DoUars in billions]
J u n e 30,
1941
E s t i m a t e d ownership b y ;
P r i v a t e n o n b a n k investors:
Individuals 3
I n s u r a n c e companies ...
. _^>_M u t u a l savings b a n k s
^.-^__i_
Corporations * .
_ _
S t a t e and local governrnents
MisceUaneous investors ^
._
T o t a l p r i v a t e n o n b a n k investorsF e d e r a l G o v e r n m e n t i n v e s t m e n t accounts
Commercial banks
_ ..
F e d e r a l Reserve B a n k s
T o t a l gross d e b t o u t s t a n d i n g
F e b . 28,
1946 2
J u n e 30,
1958
J u n e 30,
"1959
Change
during
fiscal year
1959
$11.2
7.1
3.4
2.0
.6
.7
$64.1
24.4
11.1
19.9
6.7
8.9
r $64.2
'12.2
7.4
'13.9
16.9
15.2
$66.8
12.5
7.3
20.0
16.7
19.4
25.0
135.1
' 129.9
142.8
13.0
8.6
19.7
2.2
28.0
93.8
22.9
55.9
r65.3
26.4
54.6
61.3
26.0
-1.3
-3.9
.6
55.3
279.8
276.4
284.8
8.4
$2.fi
.3
—. 1
6.1
-.2
4.2
P e r c e n t of total
P e r c e n t owned b y :
P r i v a t e n o n b a n k investors:
Individuals
Other
i._^
Total
Federal G o v e r n m e n t i n v e s t m e n t accounts
„_
Commercial banks
Federal Re^^erve B a n k s
T o t a l gross d e b t o u t s t a n d i n g
20
25
23
25
'23
'24
23
27
46
48
47
50
15
36
4
10
34
8
20
24
9
19
22
9
100
100
100
100
' Revised.
1 Gross public debt, and guaranteed obligations of the Federal Government held outside the Treasury.
2 Immediate postwar peak of debt.
8 Includes pa.'tnerships and personal trust accounts. Nonprofit institutions and corporate pension trust
funds are included under "MisceUaneous investors."
* Exclusive of banks and insurance companies.
8 Includes savings and loan associations, nonprofit institutions, corporate pension trust funds, dealers
and brokers, and investments of foreign balances and international accounts in this country..
Within the nonbank group, individuals increased their holdings from
$64.2 bUlion in June 1958 to $66.8 billion in June 1959, and became
the largest single investor group in the Federal debt ownership structure. Over two-thirds of individuals' holdings were in savings bonds,
with the E and H Series accounting for the major share. (The E and
H Series are the only savings bonds now being sold.) Individuals
iacreased their holdings of E and H bonds by $0.4 billion in 1959
(slightly less than in 1958) and redeemed $1.4 billion of Series F, G, J,
and K bonds, a net decline of nearly $1.0 bUlion in their holdings of
all savings bonds. Individuals' holdings of other United States
Government securities, principally marketables, rose $3.6 bUlion
during the year.
H Federal securities held by insurance companies at the end^of the
fiscal year amounted to $12.5 biUion, an increase of $0.3 bUlion during
the year. Life insurance companies accounted for $7.2 bUlion, or
almost 60 percent of total insurance holdings of Federal Government
REVIEW OF FISCAL OPERATIONS
35
obligations at the end of the year. During 1959 these companies increased their Federal security holdings by $0.1 billion, reversing the
consistent downward trend of the previous 12 fiscal years. Fire,
casualty, and marine insurance companies held $5.3 bUlion of Federal
seciurities on June 30, $0.2 bUlion more than a year earlier. This was
the first increase since fiscal 1954 for these companies.
Mutual savings banks' holdings of Federal securities at the end of
the fiscal year were $7.3 billion, $0.1 billion lower than on June 30,
1958. These banks have continued to increase their mortgage and
corporate securities portfolios and during the year liquidated some
of their holdings of Federal securities to aid in financing these
acquisitions.
By the end of fiscal 1959 life insurance companies and mutual savings banks had acquired $0.3 bUlion of the $1.5 bUlion of over 10-year
bonds issued during the year; nevertheless, the average maturity of
their portfolios of Federal securities declined. The average maturity
of life insurance companies' holdings of marketable issues declined
about 6 months to an average of 9 years, and those of mutual savings
banks dropped about 12 months to an average of about 7 years.
The $6.1 billion increase in Federal securities held by nonfinancial
corporations brought their holdiags to $20.0 bUlion on June 30, 1959.
This increase can be attributed to higher corporate profits following
the recession, the resulting higher corporate tax liabilities against
which many corporations hold Federal securities as a reserve, and an
increase in corporate liquidity.
Holdings of Federal securities by State and local governments
amounted to $16.7 billion at the close of the fiscal year, $0.2 bUlion
lower than a year earlier. Almost one-third of the Federal security
holdings of these governmental units are in State and local government
employee retirement funds.
The holdings of all other private nonbank investors amounted to
$19.4 billion on June 30, 1959, an increase of $4.2 billion. Ownership
of Federal securities by foreign and international accounts rose more
than 50 percent over the June 30, 1958, amount of $6.4 billion to an
alltime high of $9.9 billion on June 30, 1959. Special notes to the
International Monetary Fund accounted for $1.4 billion of the $3.5
billion increase, with the bulk of the remainder representing acquisitions by foreigiGL governments and official institutions. Savings and
loan associations increased their holdings of Federal securities during
the fiscal year by almost one-third, or $1.1 billion, to a June 30, 1959,
level of $4.4 bUlion, Corporate pension trusts increased their holdings
of Federal securities by $0.2 billion, bringing them up to $2.6 billion
at the close of the year. Holdings of the remaining classes in this
36
1959 REPORT OF THE SECRETARY OF THE TREASURY
group (nonprofit associations, dealers and brokers, and certain smaUer
institutional groups) decreased $0.6 biUion during the year.
Government investment accounts decreased their holdings of
Federal securities by $1.3 billion. This decrease reflected heavy
outlays on the part of the unemplojment trust fund associated with
the 1958 recession, increased payments by the Federal old-age and
survivors insurance trust fund largely as a result of new legislation,
and a heavy rate of withdrawals from the highway trust fund. Of
the $54.6 biUion held by all Government investment accounts, $44.8
bUlion, or more than 80 percent, was in the form of special issues held
only by these accounts. DetaUs on the ownership of securities by
Government investment accounts are shown in table 61.
To illustrate the decrease in the holdings of Federal securities by
banks and the increase by private nonbank investors, an analysis of the
estimated changes during fiscal 1959 in bank versus nonbank ownership is given by type of issue, in the foUowing table.
Estiinated changes in ownership of Federal securities ^ by type of issue, Hscal year 1969
[In biUions of dollars]
Change accounted for by
Total
changes
Marketable securities:
Treasury biUs:
13-week
26-week
Tax anticipation
Other
Total bills
Treasury certificates of indebtedness...
Treasury notes
Treasury bonds, etc
Totalmarketable
Nonmarketable securities, etc.:
U.S. savings bonds
Special issues to Government investment accounts
. .
._
Treasury bonds, investment series
Other
Total nonmarketable, etc ._
Total change
...
Private
nonbank
investors
Government investment
accounts
Commercial
banks
-.1
-2.5
.4
.2
1.6
Federal
Reserve
Banks
-2.9
6.5
3.0
4.0
1.0
4.7
2.8
2.2
9.6
.9
6.9
-6.1
10.7
1.8
2.8
-1.0
-.1
-.1
.2
.3
-.3
.5
1.0
-6.1
-1.3
2.9
11.4
14.3
.4
-3.9
.6
-1.5
-1.5
(*)
(*)
(*)
-1.3
.4
(*)
.2
-.7
-.3
(*)
-1.5
-1.3
1.2
-1.5
-.2
-1.1
1.2
-3.0
-1.4
-1.6
8.4
13.0
-1.3
^l
(*)
-3.9
.6
*Less than $50 million.
1 Gross public debt, and guaranteed obligations of the Federal Government held outside the Treasury.
CORPORATIONS AND CERTAIN OTHER BUSINESS-TYPE
OF THE UNITED STATES GOVERNMENT
ACTIVITIES
The operations of Government corporations and certain other
business-type activities are financed according to law from their own
receipts, from capital stock subscriptions or by appropriations, and
from sale of their obligations to the public, or from borrowing from the
REVIEW OF FISCAL OPERATIONS
37
United States Treasury. The Secretary of the Treasury is authorized
not only to purchase obligations of many of the agencies, but he is
also, under certain circumstances, authorized to approve the terms
and conditions of such obligations. Under provisions of the Government Corporation Control Act (31 U.S.C. 868), the obligations of most
agencies issued to the public must be approved by the Secretary of the
Treasury; the few agencies which are exempt from this requirement
must consult with the Secretary of the Treasury before issuing
obligations to the public. Most Government corporations and all
other business-type activities are required to maintain their checking
accounts with the Treasurer of the United States, although, with the
approval of the Secretary of the Treasury, such accounts may be kept
with the Federal Reserve Banks or with private banks designated as
depositaries or fiscal agents of the United States.
Financial statements submitted to the Treasury
Financial data, consisting of balance sheets, statements of income
and expense, and statements of source and application of funds, are
required to be submitted to the Treasury by aU Government corporations and business-type activities as well as certain other agencies.
These reports are required, under the provisions of Department
Circular No. 966 and Supplement No. 1 thereto, to be submitted
quarterly and a statement of long-range commitments and contingencies is required to be furnished semiannually. The reports serve
as a basis for combined statements designed to provide full disclosure
regarding the operations as well as the financial condition and investment of the United States in these enterprises. The total combined
assets of Government corporations and certain other agencies reporting
under Circular No. 966, consisting primarily of inventories, loans and
accounts receivable, and fixed property (land, structures, and equipment), amounted to $106,228 million as of June 30, 1959, compared
with $101,563 miUion on June 30, 1958. The combined liabilities
as of June 30, 1959, consisting primarUy of accounts payable and
borrowings from the pubhc,, amounted to $6,467 mUlion, compared
with $6,680 mUlion on June 30, 1958. Borrowings from the Treasury
are reported as part of the Government's investment. The combined
total of the Government's investment as of June 30, 1959, amounted
to $99,761 mUlion and to $94,883 mUlion on June 30, 1958. The
Government's iavestment is exclusive of the U.S. interest in mixedownership or Government-sponsored corporations amounting to
$2,569 mUlion on June 30, 1959, and $2,405 mUlion on June 30, 1958.
Individual and combined statements of the financial condition and
operations of the reporting agencies are published periodically in the
Treasury Bulletin. The combined financial statements as of June 30,
1959, are shown in tables 124, 126, and 126 in this report.
38
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Borrowing authority and outstanding obligations
In accordance with statutory provisions, certain Governnaent corporations and agencies are given authority to borrow funds for their
operations and the Secretary of the Treasury is authorized to purchase
the obligations of many of the agencies. New borrowing authority
made avaUable during fiscal 1959 amounted to $909 mUlion, whUe
reductions in authority amounted to $611 mUlion, a net increase of
$298 mUlion. The unused borrowing authority as of June 30, 1959,
amounted to $19,406 million as compared with $22,592 mUlion oil
June 30, 1958. Data on the outstanding obligatipiis and status of
borrowing authority of these corporations and agenciiss are shown in
table 120.
Advances by the Treasury
The Secretary of the Treasury is authorized by legislation to advance
funds to certain Government corporations and agencies by the purchase of obligatibris oi* by the acceptance of notes of these agencies.
Such loans or advances are generally applicable to the bbrrowihg
authority of the corporation or agency.
As indicated iii the section on the financial statements submitted tp
the Treasury, the balaiice sheets of Governnient corporations and
agencies show the borrowings and advances from the Treasury as
part of the net investment of the United States iti the enterprise.
The advances by the Treasury generally are seciired by formal obligations or agreements executed between the Secretary of the Treasury
and the head of the ageiicy involved. Excluding refiiiaiicing transactions, advances by the Treasury during the fiscal year 1959 amounted
to $8,584 miUioti, compared with $7,302 million in 1958, aiid repayments amounted to $5,099 million, compared with $8,170 inillion iii
the preceding year. The outstanding loans aiid advances as of JUiie
30, 1959, amounted to $25,343 million, compared with $21,859 miilioii
on June 30, 1958. DetaUs of the loans and advances are showii in
table 119.
Interest and other payments made to the Treasury
The rates of interest on borrowings from the Treasury, except
where fixed by statute, are determined by the Treasury from moiith
to month, tiaking into account the cost which the Treasury would
have to pay to borrow money in the current market, as reflected by
prevaihng market yields on Government obhgations with liiaturities
corresponding to the approximate duration of the advances to be used
by the agencies for their programs. Information on ainounts of borrowing from the Treasury outstanding as of June 30, 1959, a description of the securities held, and the applicable rates of iiiterest are
given in table 1 2 2 /
REVIEW OF FISCAL OPERATIONS
39
On the basis of operating results of aii enterprise, or as may be re^
quired by statutCj Government corporations and agencies make payments into the Treasury representing interest, dividends, and other
earnings. Interest paid to the Treasury amounted to $415 million,
and other payments amounted to $62 million during fiscal 1959^ compared with $641 million and $56 mUlion^ respectively^ during 1958.
Information covering these payments to the Treasury is given in
table 128.
Guaranteed obligations of Government agencies
Certain Government corporations and agencies have statutory
authority to issue obligations which are guaranteed as to principal
and interest by the United States. Currently, the issuance of such
guaranteed obligations is confined to notes of the District of Columbia
Armory Board and to Federal Housing Administration debentures
issued in exchange for foreclosed mortgages on behalf of its various
mortgage insurance funds. Issues of guaranteed obligations amounted
to $72 miUion and redemptions to $62 million during fiscal 1959, compared with $53 mUlion and $59 mUlion respectively, during 1958. As
of June 30, 1959, the total outstanding was $111 mUlion, compared
with $101 million a year earlier. The amount outstanding on June
30, 1959, included $0.6 mUlion of matured obligations of the now
liquidated Federal Farm Mortgage Corporation and Home Owners'
Loan Corporation. Funds are on deposit with the Treasurer of the
United States for the payment of the principal and interest on these
matured obligations. Details regarding the outstanding guaranteed
obligations are given in table 26.
Nonguaranteed obligations of Government agencies
Under their available borrowing authority, certain mixed-ownership
and Government-sponsored corporations issue nonguaranteed obhgations to the public. Corporations issuing such obligations include
the banks for cooperatives. Federal intermediate credit banks. Federal
land banks. Federal home loan banks, and the Federal National
Mortgage Association. Issues amounted to $6,197 mUlion, and
redemptions and other reductions amounted to $4,887 inillion during
fiscal 1959, compared with $7,021 miUion and $6,611 mUlion respectively during 1958. The total outstanding amounted to $6,768
million as of June 30, 1959, and ^ $5,458 inillion on June 30, 1958.
Subscriptions to and repayments of capital stock of Government corporations
During fiscal 1959 subscriptions to capital stock of Governmentowned and Government-sponsored corporations amounted to $11
million representing subscriptions to capital stock of the Federal
intermediate credit banks. Repayments and other reductions in the
' Revised.
40
1959 REPORT OF THE SECRETARY OF THE TREASURY
Government-held capital stock amounted to $36 mUlion, as foUows:
Federal Savings and Loan Insurance Corporation, $25 mUlion; the
banks for cooperatives, $7 mUlion, and the Federal intermediate credit
banks, $5 miUion. The amount of Government-held capital stock
outstanding as of June 30, 1959, and the changes in holdings during
the year are given in table 119.
SECURITIES OWNED BY THE UNITED STATES GOVERNMENT
The Government's ownership of, or participation in the financing
of, certain business-type enterprises and programs authorized by
Congress is evidenced by various types of securities. They include
certificates of capital stock, bonds, and notes of corporations and
agencies; notes covering loans to home owners, farmers, railroads,
foreign governments, etc.; mortgages acquired from the sale of Government property; and securities attesting United States participation in
international organizations.
During the fiscal year 1959 the United States Government subscription to the International Monetary Fund was increased by $1,375,000,000 pursuant to Public Law 86-48, approved June 17, 1959. The
increase was effected by delivery to the Fund of gold in the value of
$343,750,000.40 and noninterest-bearing special notes, dated June 23,
1959, and due June 23, 1964, in the amount of $1,031,249,999.60 (see
also page 55).
D a t a on the securities holdings of the Government as of June 30,
1959, are shown in table 119 and in parts C and D of table 124,
exclusive of those held by Government trust funds and certain other
accounts.
TAXATION DEVELOPMENTS
The 1957-58 economic contraction had largely run its course when
the fiscal year 1959 began. Its budgetary impact, however, was then
only approaching its peak and increased expenditures with reduced
revenues combined to produce a $12.4 billion deficit for the fiscal
year. As the year progressed, most of the ground lost by the economic
contraction was regained. Administration policy was directed to
keeping the recovery on a sound basis and promoting sustained longterm expansion with price stability. In the conviction that the
principal contribution the Government could make to this goal is to
manage its own fiscal affairs prudently, the President's budget for
fiscal 1960 called for a balance between expenditures and receipts at
a level of $77 billion.
To implement this policy, the President recommended the extension of existing tax rates on corporation profits and certain excise
taxes beyond their scheduled expiration on June 30, 1959. To
41
REVIEW OF FISCAL OPERATIONS
strengthen the revenues and to make tax laws more equitable, he
urged the Congress to enact a new plan for taxing the income of life
insurance companies and to add corrective amendments to the laws on
taxation of cooperatives and income from mineral products. To preserve the pay-as-we-go principle in financing the highway construction program, he recommended an increase in the motor fuel excise
tax, and to defray the rising costs of operating the Federal airways,
an increase in the tax on aviation fuel.
The President transmitted his Budget message to the Congress on
January 19, 1959. That same day the Secretary of the Treasury
sent the President of the Senate and the Speaker of the House a draft
of proposed legislation. As approved by the President on June 30,
1959, the legislation (Public Law 86-75) provided for the extension
of corporate and excise tax rates until July 1, 1960, for the reduction
of the 10 percent tax on transportation of persons to 5 percent, and
for the repeal of the 10 percent tax on general telephone service as
of that date. The effect of this legislation on the Government's
revenues is shown in detail in the following table.
Estimated net increase in revenue ^ resulting from extension of present corporation
income and excise tax rates for one year beyond June 80, 1959, and reduction of
certain excise taxes as of July 1, 1960
[In mUlions of dollars]
Increase, or decrease
(—) in receipts
Scheduled rate reduction
Corporation income tax
...
Excise taxes:
Alcohol:
DistUled spirits
Beer
Wines
Total alcohol
Tobacco, cigarettes (small)
Manufacturers' excise taxes:
Passenger automobUes
Parts and accessories for automobUes
1961
52 percent to 47 percent
1,000
21, 200
2,200
$10.50 to $9.00 per gallon
$9.00 to $8.00 per barrel
Various
157
72
8
3
1
160
73
8
$4.00 to $3.50 per thousand..
237
201
4
4
241
206
315
60
375
60
10
60
365
70
435
-320
-430
-98
-117
-418
-547
803
208
-340
334
2,011
860
2,534
10 percent to 7 percent of
manufacturers' price.
8 percent to 5 percent of
manufacturer's price.
10 percent, repeal July 1,
1960.
10 percent to 6 percent
Total miscellaneous excise taxes
Total excise taxes
Decrease in refunds of excise taxes.
Total estimated increase in receipts
?
^ At levels of income estimated forthe calendar year 1959 and fiscal year 1960.
2 Includes small receipts in succeeding years.
FuU
year
1960
Total manufacturers* excise taxes
Miscellaneous excise taxes:
General telephone service
Transportation of persons
Fiscal year
42
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Life insurance companies
A major development of the year was the enactment of legislation
on June 30, 1959 (Public Law 86-69), providing a long-range basis
for the taxation of life insurance companies. I t embodies the substance of recommendations first made by the Secretary of the Treasury
in identical letters to the Chairmen of the Ways and Means and
Finance Committees on April 10, 1958. (See exhibit 26 in the 1958
annual report, pages 285-288.)
This legislation brought to fruition several years' efforts to obtain
permanent legislation ia the life insurance area. Life insurance
companies will now be taxed on an income basis consisting of three
parts: The taxable investment income margin above policyholder
interest needs; one-half the excess of net operating gain over the
investment income margin (chiefly underwriting gain); and to the
extent distributed to stockholders or accumulated beyond stated
limitations, the other half of the underwriting gain excluded from
part 2. Beginning in 1959 the long-term capital gains of life insurance companies will be taxed separately at the 25 percent rate generally applicable to the capital gains of corporations. For this purpose
gains wUl be measured with reference to market value on December 31,
1958, or cost, whichever is higher.
The new legislation is expected to result in about $500 mUlion of
revenue with respect to the 1958 income of life insurance companies,
or about the same as the previously applicable law enacted in 1942.
This is about $180 million, or 57 percent, more than the 1955 stopgap
law would yield if extended to 1958. Since life insurance companies
were granted an extension for flling their 1958 returns until September
15, 1959, final payment of 1958 liabilities otherwise due on June 15
was deferred to September 15, 1959. This shifted about $200 mUlion
of revenue collections from fiscal 1959 to fiscal 1960.
Highway financing
The 1956 highway legislation established the principle of paying
for the Federal-aid highways as they are built with the proceeds of
highway user taxes. Legislation enacted in 1958 increased the rate
of spending from the fund without increasing its revenues. Therefore,
in order to maintain the planned construction schedule without
jeopardy to the pay-as-we-go basis of the program, the President
recommended a temporary increase of IK cents a gallon in the Federal
tax on motor fuels for a period of five years, effective July 1, 1959.
At the same time, to help defray the rising cost of operating the
Federal airways, he recommended an increase from 2 to 4}^ cents
a gallon in the excise tax on aviation gasoline, the imposition of a tax
of 4K cents a gallon on jet fuels (now tax free), and the retention of
REVIEW OF FISCAL OPERATIONS
43
collections from the aviation fuel excises in general budget receipts.
The President communicated to the Congress on the ne^ed for this
legislation agaiii on May 13 and August 26, 1959.
The Secretary of the Treasury sent to the President of the Senate
and the Speaker of the House, on April 3, 1959, a draft bUl embodying
the President's recommendations. The Secretary utUized the occasion to make clear to the Congress that the apportionment of funds
among the States for iaterstate highways would be virtually eliminated
for fiscal 1961 unless additiorial revenues were provided to offset the
large anticipated deficits in the highway trust fund.
Public Law 86^342, approved on September 21, 1959, provided
for the imposition of an additional 1 cent per gallon tax on gasoline,
diesel fuel, and special motor fuels for the 21-month period beginning
October 1, 1959^ and ending June 30, 1961. This, it is estiinated, wUl
increase the receipts of the highway trust fund by $300 mUlion for
fiscal year 1960 and by $575 million on a fuU-year basis. The legislation provided also for the allocation to the highway trust fund of
5 percentage points of the manufacturers' excise tax on passenger
automobUes and of 5 percentage points of the tax on automotive parts
arid accessories for the 3-year period ending June 30, 1964. This,
it is esthnated, will transfer from the general fund to the highway
trust fund (on a full-year basis) $700 inillion froin the proceeds of
the tax on passenger cars and $115 million from^ the proceeds of the
tax on autoinobUe parts arid accessories.
Section 209(g) of the Highway Revenue Act of 1956 requires the
Secretary of the Treasury to inake a determination whether the
amount expected to be available iii the trust fund will be adequate to
defray experiditures required as a result of the apportionnient. After
approval of the 1959 legislation, he deterniined that the arriourits in
the fund wUl be sufficient to defray. On a fiscal year basis, the expenditures required to cOver a fiscal year 1961 apportionment of
$1.8 billion for the entire State S3^stem.
Another provision of Public Law 86-342 permits wholesale distributors of gasoline to be treated as ''producers" when they are registered
and bonded for purposes of the gasoline tax.
Excise tax revision
Experience under last year's extensive excise tax legislation revealed
that the new provisions required modification and clarification in
several respects. These revisions were embodied in Public Law
86-344, approved Septeinber 21, 1959, which: Exempted ''coral"
from the tax on jewelry when sold as a stone aLiid riot as a part of a
pieOe of mounted jewelry; clarified the exemption of purchases by
nonprofit educational organizations, including parochial schools, from
44
1959 REPORT OF THE SECRETARY OF THE TREASURY
the retaUers' and manufacturers^ excise taxes and from the taxes on
communications, transportation of persons, and admissions; modified
the exemption of capital improvements of social clubs from the tax on
club dues; restored the exemption for certain telephone lines or channels used by common carriers and communication companies from
the taxes on communication services; modified the applicabUity of
documentary stamp taxes to transfers of stock rights; and reduced the
occupational tax applicable to certain gambling machines.
Other legislation (Public Law 86-319, approved September 21,
1959) broadened the admissions tax exemptions for athletic games
benefiting crippled or retarded children to cover games played by
a team composed of students who attended school or college at any
time during the 8-month period ending on the date of the athletic
game. StUl another item, Public Law 86-37, approved May 29,
1959, suspended untU July 1, 1960, the 3 cents tax (per pound) imposed on the first domestic processing of palm oU and related products
in order to remove a competitive tax disadvantage.
Corrective legislation
During the year some progress was made in developing legislation
to improve the provisions of the Internal Revenue Code governing the
allowable treatment processes in determining gross income from
mining which is the basis for computing the amount of percentage
depletion. The need for this legislation arose from a series of Court
decisions which, in the view of the Treasury, accord a considerably
broader interpretation of gross income from mining than intended by
Congress. The point at issue is the stage in production at which to
measure the amount of income which is derived from mining or mineral extraction.
The need for corrective legislation was caUed to the attention of the
Congress by the Secretary of the Treasury on January 26, 1959. The
Department submitted two drafts of proposed legislation. One pertained to gas and oU; the other to other minerals. The Committee on
Ways and Means conducted public hearings on the proposal relating
to minerals other than oil and gas to hear industry witnesses and
representatives of the Treasury. In its testimony, the Treasury
emphasized that the proposed legislation would restore revenue already
lost and would prevent very substantial additional revenue losses.
It would also help resolve difficult and complex problems in determining for many mineral industries the stage at which taxpayers first
obtained a commerciaUy marketable mineral product.
The President's Budget message in January 1959 caUed attention to
the need for corrective amendments in the taxation of cooperatives.
Specific suggestions were made by the Secretary of the Treasury on
REVIEW OF FISCAL OPERATIONS
45
January 19, 1959, to implement the intent of Congress in the Revenue
Act of 1951 to tax cooperative income in the year in which it is earned
at either the cooperative or the patron level. This iatent of the Congress was made largely ineffective by a series of Court decisions which
held that patrons were not required to report as income patronage
refunds received in the form of certificates without a fair market value,
although such certificates are permitted to be excluded from the income of the cooperatives.
The Department proposed that cooperatives be permitted to deduct amounts paid to patrons during the taxable year only if paid in
cash, or in the form of "qualified" patronage certificates. Qualified
certificates would have to bear interest at the rate of at least 4 percent
and be redeemable in cash within 3 years, and would in fact have to
be redeemed in cash within the 3-year period. A cooperative would
not be permitted a deduction for a nonqualified certificate untU the
document was redeemed in cash. Patrons would be required to include in income only cash amounts received, either current cash distributions or distributions ia redemption of qualified or nonqualified
certificates.
A bUl embodying the Department's suggestions (H.R. 7875) was
introduced on June 19, 1959, but the Congress took no action on the
proposed legislation during its first session.
Public Law 86-346, approved September 22, 1959, relating to debt
management, contaias an amendment to the Revenue Code to provide
t h a t no gain or loss shall be recognized on the exchange of United
States obligations when authorized by regulations.
Administrative interpretation and clarification of tax laws
In furtherance of the progi-am to increase public understanding of
the tax laws, nearly a hundred separate regulations (in the form of
Treasury decisions) were published during the year.
Temporary rules, pending the publication of final regulations, were
issued under the Technical Amendments Act of 1958 (Public Law
85-866 approved September 2, 1958) and the Excise Tax Technical
Changes Act of 1958 (Public Law 85-859 approved September 2,
1958). Three complete new regulations were published under the
1954 Code relatiag to the gift tax, the documentary stamp taxes, and
the wagering tax. Other Treasury decisions published during the
year deal with such aspects of income taxation as inventories, reporting
and substantiation of traveliag and other business expenses of employees, accumulated earnings tax, exemption from tax of civic
organizations and of educational, religious, and charitable organizations, amortization of grain storage facUities, rules for allocating in-
46
195 9 REPORT OF THE SECRETARY OF THE TREASURY
come from sources partly within and without the Uriited States, and
personal holdiag companies^
A new income tax return form, 1040W, was introduced in 1959 to
serve the needs of individual income taxpayers not eligible to use
punch-rcard form 1040A, but whose affairs do not require all the detaU
specified on regular foriri 1040. The new form may be used by taxpayers whose incomes consist of salaries and wages regardless of
amount, and not more than $200 of dividends and interest, and no
other items of income.
Social security and unemployment legislation
The authority to make teiiiporary uiiemployment conipensation
paynients to uneinployed persons who had exhausted their benefits,
provided under legislation enacted in 1958, was scheduled to expire
on April 1, 1959. Public Law 86-7, approved March 31, 1959,
extended this prograin for three months to July 1, 1959.
Public Law 86-28, approved May 19, 1959, amended the railroad
retirenient and railroad unemployraent insurance statutes to liberalize
and increase retirement and survivors' benefits, as well as unemployment arid sickness benefits, and increased raUroad retirement taxes
to cover the additional costs. The legislatiori increased the 6K
percent employer and employee tax under the Railroad Retirement
Tax Act to 6% percent on conipensation paid for services rendered
before January 1, 1962, and to 7% percent thereafter. I t increased
th^ monthly ceiling QU taxable oorapensation for both taxes from $350
to $400, arid increased these taxes on a contirigQnt basis any tinie
after December 31, 1964, by the same number of percentage points
as the then current social security tax rate exceeds the 2% percent
rate which had been scheduled under the Social Security Amendments
of 1956 for the calendar years 1960 to 1964. Corresponding increases
were made in the tax rate on employee representatives.
Public Law 86-284, approved September 16, 1959, permits certaia
State agreemerits under Section 218 of the Social Security Act to be
modified to secure coverage for nonprofessional employees. I t also
extends to additional States the applicability of the provision of the
social security law which permits social security coverage to be
extended to policemen and firemen covered by State and local
retirement systems.
Federal-State tax relations
The Treasury Depai'tment participated extensively in the work
of the Joint Federal-State Action Cominittee, composed of Governors
arid Federal representatives, which had been created in 1957 by the
Governors' Conference and the President to strengthen State
governments.
REVIEW OF FISCAL OPERATIONS
47
To enable the States to accept complete financial responsibUity
for vocational education and the construction of waste treatment
facUities, the committee proposed that a portion of the Federal excise
tax on local telephone service be placed at the disposal of the States
through the instrumentality of a Federal credit for taxes paid to the
States. The President endorsed this recommendation in his Budget
message. Subsequently, however, in connection with the 1959 tax
rate extension legislation. Congress provided for the repeal of the tax
on local telephone service on July 1, 1960. The Action Committee
has also considered ways and means to increase the Federal estate
tax credit for death taxes paid to States, in order to increase the
States' share in this revenue. The Department has taken the lead
in developing alternative methods for increasing the credit and in
assembling factual information on how the revenues of the individual
States would be affected. I t has also investigated opportunities for
simplifying and standardizing Federal and State death taxes.
During the year Congress enacted legislation (Public Law 86-272,
approved September 14, 1959) on the subject of State tax jurisdiction
over income derived from interstate commerce. The legislation
was prompted by decisions of the U.S. Supreme Court ^ holding that
where a foreign corporation comes into a State solely to solicit sales,
that State may tax its income "provided the levy is not discriminator}^
and is properly apportioned on local activities within the taxing State
forming a sufficient nexus to support the same." Following these
decisions, several States revised their statutes to permit full taxatiori
of out-of-State corporations doing business within their borders.
The new Federal legislation exempts from State taxation income
derived from the sale of tangible personal property in interstate
commerce where the only business activity withiri the State by the
out-of-State company is solicitation of orders. I t provides also that
an out-of-State business shall not be considered to be conducting
business activities within the State by reason of solicitation, or
orders, or sales in that State in its behalf by an independent contractor,
even if such an independent contractor maintains an office withiri
the State.
Legislation (Public Law 86-380, approved September 24, 1959)
was also enacted providing for the creation of a permanent Commission on Intergovernmental Relations to give continuing attention and
study to the numerous phases of Federal, State, and local relationships and to advise all units of Goverriment on intergovernmerital
problems. Public Law 86-371, approved September 23, 1959,
amended the legislation which authorized the withholding of State
1 Norihivesiern Staies Portland Cement Company v. State of Minnesota; T. V. Williams, as State Tax
Commi.<isioner V. Stockham Valves and Fittings, Inc., 358 U.S. 450, 79 Sup. Ct. 357.
48
1959 REPORT OF THE SECRETARY OF THE TREASURY
income taxes from Federal employees by providing that no department or agency of the United States shall accept compensation from
any State or Territory for withholding State or Territorial income
taxes.
International tax matters
In December 1958 the Subcommittee on Foreign Trade Policy of
the Committee on Ways and Means held hearings on private foreign
investment at which the Treasury and other Government agencies
presented their views on tax and other changes to promote a freer
flow of private capital to foreign countries. Followiag the hearings
a bill was introduced, H.R. 5, which provided, among other things,
for: Deferment of United States tax on income derived abroad by
certain domestic corporations (so-called "foreign business corporations"); a reduction in the 52 percent corporate tax rate to 38 percent
on income from foreign sources—this would extend the Western
Hemisphere trade corporation provisions on a world-wide basis; and
a relaxation of the restrictions concerning the tax-free transfer of
assets to foreign corporations. The Treasury Department took the
position that this bUl required substantial modification to prevent
excessive loss of revenue. The committee adopted some of the
proposed changes, but redrafting of the bill had not been completed
at the time the Congress adjourned.
The Treasury submitted draft legislation on September 24, 1959,
to exempt foreign central banks from the tax on the interest from
Government securities. Under existing law the exemption of a
foreign central bank may turn on whether it is an integral part of a
foreign government or has a corporate existence that is separate from
the government. The biU was designed to achieve uniform treatment
of foreign central banks.
Discussions on income tax agreements were held with a number of
foreign countries. Negotiations were completed on a technical level
with the United Arab Republic, Israel, and Ceylon. A treaty with
India was signed on behalf of both governments and readied for
submission to the Senate for advice and consent to ratffication.
Although similar to the twenty-one other income tax conventions of
the United States, the convention with India is unique in providing
that the United States will allow a credit for tax exemption granted
by India to promote industrial investment. Preliminary discussions
were held with Thailand and the Republic of China on an income
tax convention. Possible changes in the income tax treaty with
Germany and Japan were considered. A tax convention with Cuba
was negotiated on a technical level but the change in government
resulted in the reopening of a convention. A draft convention with
REVIEW OF FISCAL OPERATIONS
49
Mexico was advanced substantially. Preliminary talks were also
held with Canada on a new estate tax convention arising out of a
basic change in the Canadian death duties.
Ratifications were exchanged on three income tax conventions.
One was with Pakistan; another extended the British convention to
certain of its overseas territories; the third extended the tax convention
with Belgium to the Belgian Congo.
International Financial and Monetary Developments
The downturn of economic activity which had been experienced in
varying degrees in most areas of the world in the fiscal year 1958,
had, by the beginning of fiscal 1959, given way to a new period of
economic growth and financial stability generally throughout the
industrialized regions. The level of world trade, which had declined
in 1958, showed some growth in the spring of 1959. United States
payments for foreign goods and services were higher than in the previous fiscal year, whUe foreign payments for United States goods and
services declined. The trade position of the other industrialized
countries generally improved, and the international reserves of these
countries in the form of gold holdings and liquid dollar assets in the
United States reached a level higher than at any earlier time during
the postwar period. Many of these countries removed the remaining
restrictions on external convertibUity of their currencies.
Notable progress in the currency field during the year highlighted
the seriousness of other impediments to international trade, in particular the continued widespread use by many countries of quotas
and other discriminatory restrictions. The question whether the
maintenance of such restrictions was justified, especially by countries
no longer having balance of payments difficulties, was a subject on
which great importance was placed during meetings of international
organizations.
The economic progress of many of the less-developed countries
continued to be inhibited by inflationary pressures and a shortage of
investment capital. The international reserve positions of these
countries generally showed no marked improvement.
While the outflow of United States private capital declined somewhat from that during the previous fiscal year, public grants, loans,
and other capital outflow continued at the 1958 level (exclusive of
the $1,375 million payment to the International Monetary Fund for
the increase in the United States quota), as the United States, directly
and through international institutions, strongly supported stabilization efforts and economic development of other countries. In accordance with its statutory authority, the National Advisory Council
525622—60
5
50
195 9 REPORT OF THE . SECRETARY OF THE TREASURY
on International Monetary and Financial Problems, of which the
Secretary of the Treasury is the Chairman, continued to coordinate
the policies and operations of the representatives of the United
States on the International Monetary Fund, the International Bank
for Reconstruction and Development, the International Finance
Corporation, and of all agencies of the Government which make or
participate in making foreign loans.or which engage in foreign financial,
exchange, or monetary transactions.
Dm-ing the fiscal year the Congress approved legislation providing
for an increase in the United States quota in the International Monetary Fund and an increase in the United States subscription in the
International Bank for Reconstruction and Development. The
increased United States participation in these institutions was made
in conjunction with general and special increases in the participation
of the other member countries.
The United States Government participated in the drafting of an
agreement to establish the Inter-American Development Bank and,
in August 1959,, the Congress authorized, the President to accept
United States membership in this new institution.
Secretar}^ of the Treasmy Anderson, in his capacit}^ as United
States Governor of the three institutions, headed the United States
Delegation to the Fourteenth Annual Meeting of the Boards of Governors of the International Monetar}^^ Fund and the International
Bank for Reconstruction and Development and the concurrent Third
Annual Meeting of the Board of Governors of the International
Finance Corporation, held in Washington in September 1959.
Under Secretary of State Douglas Dillon served as United States
Alternate Governor; Under Secretary of the Treasury T. Graydon
Upton (United States Executive Director of the International Bank)
and Special Assistant to the Secretary of the Treasur}^^ Frank A.
Southard, Jr. (United States Executive Director of the International
Monetary Fund) served as temporary Alternate Governors. The
delegation also included members of the Senate Foreign Relations
Committee and of the House Banking and Currency Committee,
members of the National Advisory CouncU on International Monetary
and Financial Problems, a member of the White House staff and a
member of the CouncU of Economic Advisers, and the President of the
Federal Reserve Bank of New York.
During the annual meeting the Board of Governors of the International Bank unanimously approved a United States resolution
calling for the formulation of articles of agreement of an International
Development Association, to be affiliated with the International
Bank, for submission to the member governments.
REVIEW OF FISCAL OPERATIONS
51
The United States balance of payments and gold and dollar movements ^
During the fiscal year total United States payments to foreigners,
excluding about $1.4 billion transferred to the International Monetary
Fund for the increase in the United States quota, amoimted to $27.7
billion, a rise of $1.2 billion over tHe previous year.^ The increase
in total payments was due primarily to higher imports of goods and
services. Nonmilitary imports rose by $1.4 biUion to $18.9 bUlion
in the fiscal year 1959, and military expenditures abroad for goods and
services increased by about $130 mUlion to a total of $3.3 billion for
the year. As in 1958, net United States Government nonmilitary
grants and loans and other capital outflow totaled $2.5 billion (exclusive of the payment to the International Monetary Fund for the
increase in the U.S. quota), and net remittances and pensions again
totaled about $700 million. In contrast, U.S. net private capital
outflow, $2.3 bUlion in the year, declined by about $350 million.
Foreign payments in the United States for goods and services,
$22.9 billion, declined by $1.6 billion from the preceding fiscal year.
This decrease was almost entu-ely accounted for by a reduction in
United States nonmilitary merchandise exports. In addition, foreign
long-term investment in the United States rose by $225 million over
the previous fiscal year, amounting to about $290 million, while transactions not accounted for rose by a similar amount to a total of over
$700 milhon.
The financial transactions betweea the United States and the rest
of the world during the fiscal year 1959 (exclusive of the pa37-ment to
the International Monetary Fund), thus resulted in a recorded gain
by foreigners of $3.8 billion in gold and liquid dollar assets compared
with a gain of $1.5 biUion in the fiscal year 1958. Exclusive of the
$344 million gold payment to the International Monetary Fund for
part of the increase in the United States quota, these figures reflected
declines ia the United States gold stock of $1.3 billion in each of the
fiscal years 1958 and 1959.
The gold aad short-term dollar assets ^ of foreiga countries (excluding gold holdings of the U.S.S.R., other Eastern European
countries, and Chiaa Mainland) amounted to an estimated $34.3
billion on June 30, 1959, an increase of about $3.8 billion over the
$30.5 bUlion held on June 30, 1958. (See table 111.) Continental
Western European countries and their dependencies gained $3.0
bUlion of this total, more than double their gain during the previous
fiscal year; the largest gain was made by Italy ($1 billion). Japanese
1 Figures for 1959 are preliminary. Differences between 1968figm-espublished in the 1958 Annual Report
and those cited in this section are due to revisions made during the year.
2 These figures exclude net transfers of military supplies and services financed by U.S. Government
military grant aid.
3 Includes official gold reserves and official and private holdings of short-term doUar assets as reported
by United States banking institutions.
52
1959 REPORT OF THE SECRETARY OF THE TREASURY
holdings rose by roughly $450 million, out of a total increase of about
$550 mUlion in Asia, a considerably higher gain than in the previous
year. Canadian holdings increased by about $120 mUlion, only
one-third of the previous year's increase. Latin American gold and
short-term dollar holdings declined by roughly $100 million, about
half of last year's decline; losses by Venezuela and Cuba more than
offset gains by other Latin American countries.
As of June 30, 1959, foreign countries held $1.1 billion in United
States Government bonds and notes, a gain of about $120 million
from the end of the fiscal year 1958. Almost the entire amount of
the increase accrued to Western European countries.
The gold and liquid dollar assets of international institutions rose
by $2.0 billioa during the fiscal year, amounting to $5.2 billion as of
June 30, 1959. The gain mainly reflected gold and dollar payments
by member countries toward their increased quotas in the International Monetary Fund, and included the payment of $1,375 million
by the United States for this purpose.
Total estimated world official gold holdings on June 30, 1959 (exclusive of the U.S.S.R., other Eastern European countries, and
China Mainland) were $40.3 billion, of which the United States held
$19.7 billion and international iastitutions held $1.9 billion.
Liberalization of international trade and payments
Gradual progress in recent years by most of the European countries
in reducing the extent of restrictions on current international payments, the strengthening of their balance of payments and reserve
positions, and the achievement of flnancial stability and confidence
provided the setting, during the closing days of December 1958, for
the movement to external convertibility of the major European currencies. By this action the monetary authorities of these countries
made an official commitment that current earnings of their currencies
by nonresidents would, upon demand, be exchanged into dollars (and,
in effect, into any convertible currency) within official margins.
The European Payments Union, which had served since 1950 as a
clearing and credit mechanism for transactions among seventeen
European countries, was dissolved when most of its members established currency convertibUity for nonresidents. These countries,
members of the Organization for European Economic Cooperation,
entered into the European Monetary Agreement, which provided
that a portion of the assets of the European Payments Union would
be placed into a European Fund to be used, on a case-by-case basis,
to provide stabilization credits to members judged in need of assistance to meet temporary balance of payments difficulties. Pursuant
to arrangements made during the drafting of the European Monetary
REVIEW OF FISCAL OPERATIONS
53
Agreement in 1955, the United States agreed to the transfer to this
Fund of $123 million contributed originally to the European Payments
Union.
The general movement to nonresident convertibUity in Europe was
accompanied by formal devaluation of the French franc. During
the following months the Federal Republic of Germany removed its
remaining foreign exchange restrictions on capital transactions and
those on transactions of residents as well. Many other countries,
in particular those in the monetary areas of Western European countries, took steps further to liberalize their own exchange restrictions.
In discussing the Annual Report of the International Monetary
Fund at the Annual Meeting of the Board of Governors in September
1959, Secretary Anderson noted the movement to convertibility of the
major European currencies and the very substantial improvement in
the balance of payments position and reserves of these and other industrial countries. (See exhibit 31.) He said that such countries
still, however, maintained substantial discriminatory restrictions
against the trade of dollar countries. He urged the International
Monetary Fund to declare its position on this matter and also to
examine various policy questions related to the formal acceptance by
many of these countries of their full obligations under the Fund Articles of Agreement. Secretary Anderson also pointed out that the
other industrial countries had substantial payments surpluses with
the less-developed areas, in which there was a serious capital shortage,
that this was not a satisfactory pattern of world payments, and that
these countries would need to increase their share in the provision of
such capital.
On October 25, 1959, the Executive Directors of the International
Monetary Fund announced the adoption of a decision that there was
no longer any balance of payments justffication for discrimination by
members whose current receipts are largely in externally convertible
currencies, and that such countries should elioiinate discriminatory
restrictions with all feasible speed.
Argentina, Chile, and Turkey undertook major financial programs
under which their exchange systems were greatly simplified. The
United States supported the efforts of these and other countries, and
provided important financial facilities which supplemented the assistance made available by the International Monetary Fund. The
Argentine and Chilean programs were supported by Treasury exchange agreements, described below, and by credits extended by
United States commercial banks. To assist the Turkish stabUization
program, the United States made available various financial facilities
totaling $234 mUlion, the International Monetary Fund agreed to a
54
195 9 REPORT OF THE SECRETARY OF THE TREASURY
$25 million drawing by Turke}^, and credits equivalent to $100 million
were extended by member governments of the Organization for
European Economic Cooperation and b}^^ the European Payments
Union. As a part of this program there was a standstill agreement in
connection with a substantial part of Turkey's external debts during
Avhich new schedules of payment were negotiated.
The European Economic Community (Common Market), on
January 1, 1959, applied the first tariff and quota measures called
for under the Rome Treaty. With respect to trade within the Community, there was a 10 percent reduction in duties and a 20 percent
average increase in quotas, with minimum quotas of 3 percent of
national production. The 10 percent reduction in duties was extended also to all member countries of the General Agreement on
Tariffs and Trade, including the United States, except in cases where
such a reduction would reduce the duty below the future common
external tariff' of the Common Market. At the close of the fiscal jesir,
seven European countries not belonging to the Common Market
(Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the
United Kingdom) were discussirig the establishment of a free trade
area among themselves. On November 20, 1959, representatives of
these countries initialed the text of a convention establishing such an
association for submission to their governments for ratification.
At the thirteenth and fourteenth sessions of the Contracting Parties
to the General Agreement on Tariffs and Trade (GATT) held during
the fiscal 3^ear, the attention of the Contracting Parties was directed
to governmental restrictions which impede the expansion of international trade. The United States delegations emphasized in particular the extent to which convertibilit}^ measures and the widespread
improvement in payments positions had eliminated any balance of
payments justification for the continuance of such restrictions. Subsequentl}^, at the fifteeiith session held during October and November
1959, the Contracting Parties reaffirmed that the removal of discriminatory restrictions was a vital step toward the achievement of the
objectives of the General Agreement and the expansion of international trade, and agreed that the remaining discriminatory restrictions should quickly be eliminated.
Acting under the authority to reduce tariff's granted to the President
by the Trade Agreements Extension Act of 1958, the United States
proposed at the thirteenth session that another general round of
multilateral tariff negotiations,be held in 1960-61. The necessary
steps were taken by the Contracting Parties to provide for the provisional accession of Switzerland and Israel to the General Agreement
and for bringing Yugoslavia into a liinited form of association.
REVIEW OF FISCAL OPERATIONS
55
A working party was established at the fourteenth session to examine
the feasibility under the General Agreement of some closer relationship with Poland.
Increased resources of the International Monetary Fund and the International
Bank
Major increases in the resources of the International Monetar}^
Fund and of the International Bank for Reconstruction and Development became eft'ective on September 15, 1959, when sufficient member
coimtries had consented to the increases. The Fund's total quotas
were increased from about $9 billion to about $15 billion, and the
authorized capital of the bank was increased from $10 billion to
$21 billion.
In recognition of the need for an increase in the resources of these
institutions, the Boards of Governors, at the Thirteenth Annual Meeting held at New Delhi in October 1958, had unanimously adopted United
States resolutions calling upon the Executive Directors of each
institution to consider these questions and to submit appropriate
proposals. The Executive Directors, reporting in December 1958,
concluded that substantial enlargement of resources would be desirable, and put forth proposals for the enlargement which were adopted
by the Boards of Governors in February 1969.
The proposals for the increased resources of the Fund were that
the quotas of members be increased by 50 percent; that a number
of the smaller countries be given the opportunity to increase their
quotas beyond 50 percent according to a special formula; and that
special increases be3^ond 50 percent be made in the quotas of Canada;
the Federal Republic of Germany, and Japan. I t was provided in
all cases of members consenting to an increase in quota that 25 percent of the additional subscription be payable in gold and the balance
in the member's currency.
While the general increase of Fund quotas was under consideration,
several of the smaller countries requested that their quotas be increased
beyond the recommended increases set forth in the proposals previously described. Following a favorable recommendation by the Executive Directors on March 6, 1959, the Board of Governors approved
a resolution also recommending these additional increases for fourteen
countries, including Argentina, Brazil, Denmark, Norwa}^, Mexico,
Turkey, and Venezuela.
The proposa,ls for the increased resources of the International Bank
provided for a doubling by member governments of their subscriptions and of special additional subscriptions by certain member governments, including Canada, Germany, and Japan, along the lines
of the schedule for quota increases in the Fund. With the exception
of a portion of the special additional subscriptions, necessitating cer-
56
195 9 REPORT OF THE SECRETARY OF THE TREASURY
tain payments of gold and currency by these members, the increased
capital subscriptions are subject to call only to meet the Bank's obligations and no payments by members are now required. By this
action, the major effect of which is to increase the Bank's guarantee
fund, the Bank's ability to borrow funds for financing loans for economic development has been strengthened.
Legislation providing for the 50 percent increase in the United
States quota in the Fund (as well as the increased U. S. capital subscription to the International Bank) was approved in June 1959
(Public Law 86-48). (See exhibits 25 and 27.) One quarter of the
increase of $1,375 million, or $344 million, was paid to the Fund in
gold; the remainder is represented b.y noninterest bearing notes of
the United States which are held by the Fund. The new United
States quota has thus become $4,125 million. Other major Fund
quotas, as increased, are those of the United Kingdom ($1,950 million), France ($787.5 million), Germany ($787.5 million), India
($600 million), Canada ($550 million), and Japan ($500 million).
The Inter-American Development Bank
A number of important steps were taken during the fiscal 3^ear
toward the establishment of an Inter-American Development Bank.
The idea that the American Republics should have a financial institution of their own had been in evidence for a number of years. At
the Economic Conference of the Organization of American States,
held in Buenos Aires during the latter part of 1957, the United States
joined with the Latin American countries in approving a resolution
recommending the formation of a specialized committee of government representatives to study problems of financing economic development in Latin America, including consideration of proposals for an
inter-American financial institution. In August 1958 the United
States announced that it was prepared to consider the establisliment
of such a regional financial institution.
The United States and the twenty Latin American Republics formed
the Specialized Committee for Negotiating and Drafting the Instrument of Organization of an Inter-American Financial Institution,
which met in Washington from January 8 untU AprU 8, 1959. The
United States delegation was headed by Assistant Secretary of the
Treasury T. Graydon Upton.
The Specialized Committee completed the draft of a charter for the
Inter-American Development Bank which was then submitted to each
government for final acceptance or ratification. The charter provides
that the Bank wUl come into existence if countries representing 85
percent of the subscriptions foreseen for the Bank have indicated final
approval by December 31, 1959.
REVIEW OF FISCAL OPERATIONS
57
Under the provisions of the charter, the Bank's primary purpose is
to accelerate the economic development of its member countries by
maldng loans and guarantees, by promoting the investment of public
and private capital for economic development, and by providing
technical assistance. The charter calls for total resources equivalent
to $1 bUlion. Of this, $850 mUlion represents authorized capital which
can be used only to make loans repayable in the currency lent. Part
of the authorized capital is provided in the form of callable capital
constituting a guarantee of member govermnents for securities that
the Bank is authorized to sell in capital markets. The balance of the
resources, equivalent to $150 mUlion, would constitute a Fund for
Special Operations, administered by the Bank. Loans frpm this fund
could be made repayable wholly or in part in the currency of the
borrower. Paid-in subscriptions to the capital and to the Fund for
Special Operations are payable in installments. The U.S. subscription to the Bank's capital amounts to $350 mUlion, of which $200
mUlion represents callable capital, and the U.S. subscription to the
Fund for Special Operations amounts to $100 mUlion.
United States membership in the Inter-American Development
Bank was authorized by Public Law 86-147, approved August 7, 1959.
(See exhibit 26.) Following the approval of the necessary appropriations (Public Law 86-213) Secretary Anderson, on behalf of the
United States, signed the agreement on October 14, 1959.
The proposed International Development Association
The President of the United States, in his welcoming address at the
opening joint session of the meeting of the Boards of Governors of the
International Monetary Fund, the International Bank, and the
International Finance Corporation, held in Washington in September
1959, pointed to the recent action by the member governments to
increase the resources of the Fund and the Bank as an indication of the
great confidence there is in these institutions. Stressing the importance of economic development throughout the world, President
Eisenhower said it is recognized, however, that many sound projects
cannot be financed by existing international institutions, and that to
meet this situation the United States was proposing the creation of an
International Development Association which would be affiliated with
the International Bank.
Secretary Anderson, in his address to the opening joint session,
(see exhibit 30), made fmother reference to the proposed International
Development Association and to the informal discussions on the
proposal which had been held during the past year among representatives of the member governments. These discussions. Secretary
Anderson said, encouraged the United States Government to f^el
5.8
195 0 REPORT. OF. THE'SECRETARY OF THE TREASURY
that this institution would be;.both feasible and desirable. As a
result,' the basic framework of an International Development Association had been outlined in a letter from Secretary Anderson to the
President of the Bank, and, at the Secretary's request, this letter was
circulated by the President'of the Bank to the member governments.
(See exhibits 28 and 29.) The United States Governor introduced a
resolution requesting the International Bank's Executive Directors
to formulate articles of agreement of the International Development
Association, as an affiliate of the Bank, having regard to all aspects
of the matter. Many Governors of the Bank indicated the support
of their governments, and the resolution was unanimously adopted.
Upon completioii of the work of the Executive Directors, the articles
of agreement will be submitted to the member governments for
approval.
Other international meetings and discussions
Secretary Anderson headed the United States Delegation to the
fourth meeting of the Joint United States-Canadian Committee
on Trade and Economic Affairs held at Ottawa, Canada, on January
5 and 6, 1959. A wide range of subjects of common interest to the
two countries was discussed, including lead and zinc quotas, voluntary
limitations on petroleum imports into the United States, Canadian
customs legislation, agricultural surplus matters, and relations
between Canadian subsidiaries and their parent companies in the
United States.
In July 1958 Assistant Secretary Tom B. Coughran accompanied
Dr. Milton S. Eisenhower on his fact-finding trip to the five republics
of Central America, Panama, and Puerto Rico. In April 1959
Assistant Secretary T. Graydon Upton, who succeeded Mr. Coughran
during the fiscal year, attended the second meeting of the Special
Committee to Study the Formulation of New Measures for Economic
Cooperation (''Committee of 21") of the Council of the Organization
of American States, in Buenos Aires, Ai'gentina.
Also during the year the Treasury was represented on United States
delegations to the Organization for European Economic Cooperation,
various United Nations bodies, the Southeast Asia Treaty Organization, and the Colombo Plan Organization.
Private investments and public capital movements
Private investments.-—In the calendar year 1958 American private
investment abroad increased by about $4 billion (including reinvested
earnings), slightly above the increase in the previous year. As
economic activity slowed in many countries, the rate of investments
by U.S. companies in their foreign branches and subsidiaries generally
dechned in 1958, and earnings also were somewhat lower. Portfolio
REVIEW OF FISCAL OPERATIONS
\
5'9
investments, however, were substaritially higher than in the previous
year. At the end of 1958 total U.S. private irivestments abroad
amounted to $40.8 billion compared with $36.8 billion at the end of
1957 and $33.0 billion at the end of 1956. The book value of U.S.
direct investments abroad at the end of 1958 was over $27 billion, an
increase of less than $2 billion for the year compared with an increase
in 1957 of over $3 billion. Other long-term investments (principally
portfolio holdings) rose by almost $2 bilhon, compared with aa
increase of only about $500 million in 1957. Short-term investments
amounted to $3.5 billion at the end of 1958, a rise of roughly $300
million.
Direct investments in the petroleum industry had shown extraordinary growth in 1956 and 1957, and a drastic falling oft' in petroleum
investments was mainly responsible for the lower direct investments
in 1958 ($1.8 billion compared with $3.1 billion in 1957, including
reinvested earnings). Manufacturing investments abroad were also
substantially lower, although earnings and amounts of earnings
reinvested remained strong. Mining investments declined slightly,
but investments in public utilities and those to expand trade and distribution facilities increased.
After a record growth of $1.3 bUlion in 1957, the increase in direct
investments in Latiri America fell to $0.4 billion in 1958;
such investments in Canada amounted to $0.6 billion, although here,
too, there was some decrease from 1957 levels. While new direct
investments in the United Kingdom were also smaller, particularly
in the petroleum industry, investments in the Common Market
countries of Em-ope were up substantially over the year, and, with
the renewed advance of economic activity, capital outfiows to both the
United Kingdom and continental Europe showed a strong upswing
in the early months of 1959. United States companies generally
accelerated their investment activities in Africa and Asia during 1958.
The value of foreign-owned long-term assets in the United States
increased by $2.4 bUlion to a total of $15.2 billion at the end of 1958,
and continued to increase during the early months of 1959. Most
of the increases, however, resulted from the upswing in the value of
United States corporate stocks.
Foreign indebtedness to the United States Government.—During the
fiscal year 1959 the outstanding indebtedness of foreign couritries to
the United States Government under various loan and credit agreements, concluded principally since the end of World War I I , increased
by $0.6 bUlion to a total of $12.8 billion. These agreements include
lend-lease, surplus property, and simUar settlements, the AngloAmerican Financial Agreement, Export-Import Bank, loans, . and
60
1959 REPORT OF THE SECRETARY OF THE TREASURY
obligations arising under the mutual security and other foreign aid
legislation. (See table 117.)
On December 31, 1958, the United Kingdom paid to the United
States $141.4 mUlion, in payment of interest and principal for 1958
and interest on deferred installments for 1957 and 1956, due on its
obligations under the Anglo-American Financial Agreement, as
amended, (See pp. 48 and 49 and exhibits 18-21 of the 1957 Annual
Report of the Secretary of the Treasury and pp. 55 and 56 of the 1958
Annual Report concerning the deferment of the 1956 interest and
1957 principal and interest installments, respectively.)
In March 1959 the Federal Republic of Germany made an advance
payment of $150 mUlion against its $1 bUlion debt to the United
States for postwar economic assistance. Under the terms of an
agreement signed in London in 1953, which established the principal
of the German debt to the United States, the.United Kingdom, and
France for such aid, Germany had begun regular amortization payments in 1958. The advance payment to the United States fulfilled
a requirement of the 1953 agreement that proportionate treatment
be accorded the United States in the event of German prepayment
on corresponding debts to either the British or French Governments.
The Federal Republic had agreed to make such a prepayment to the
British Government as part of an agreement on financial assistance
to cover a portiori of the costs of supporting British troops stationed
in Germany,
As part of the Second Supplemental Appropriation Act of 1959
(Public Law 86-30), Congress appropriated $23.8 mUlion for payment
to the PhUippines, representing final settlement of a claim in connection with the reduction in the weight of the gold dollar in 1934. The
payment, which had been authorized by Congress in 1934, was made
ori August 4, 1959. At the time of payment the PhUippine Government was informed that its other ''Omnibus" claims against the
United States had, with specified exceptions, been finally rejected.
The Export-Import Bank.—During the fiscal year, which marked
the completion of twenty-five years of operations of the ExportImport Bank, the Bank authorized 123 new. credits totaling $885
million; disbursements under credit authorizations totaled $708 million. Private loans and investments accompanying Bank credits,
without the guaranty of the Bank, totaled $296 million.
During its history until June 30, 1959, the Export-Import Bank
authorized 1,645 credits in 69 countries totaling $10.2 billion, (including $1.7 billion in cancellations and expirations, and participations by
others of $0.4 billion). Active credits at the end of the period totaled
$6.8 billion, against which $1.3 billion had not yet been disbursed.
The Bank's uncommitted lending authority was $2.2 billion. During
REVIEW OF FISCAL OPERATIONS
61
the fiscal year the Bank had an income of $128 million and a net
profit of $85 million; dividends of $22.5 million were paid on the
capital stock of the Bank held by the Secretary of the Treasury.
The Export-Import Bank continued its lending operations under
Section 104(e) of Public Law 480, the Agricultural Trade Development and Assistance Act of 1954, as amended, (7 U.S.C. 1704e).
Under these provisions the Bank may receive up to 25 percent of the
proceeds in foreign currencies of sales of agricultural commodities
under Public Law 480 for making certain lands of loans to foreign
affiliates of United States firms or to foreign firms. Foreign currencies
were first made available to the Bank for such purposes in June 1958.
Since that time the Bank has authorized 70 credits in eleven currencies
equivalent of $33.5 million.
The Development Loan Fund.—As authorized by the mutual security
legislation, the Development Loan Fund makes financial facilities
available to less-developed countries on a flexible basis; its loan terms
may provide for repayment in local currencies as well as in dollars
and for longer periods of maturity and lower interest rates than are
provided under other financing. Completing its first full year of
operations, the Development Loan Fund made loan commitments
amounting to $591 million during the fiscal year 1959, bringing total
commitments as of June 30 to $771 million to assist in developing the
economic resources of 39 countries. Total disbursements under these
commitments amounted to $67 million.
The International Bank.—-The level of activity of the International
Bank for Reconstruction and Development continued high during the
fiscal year and in some ways surpassed previous levels. Thirty new
loans to nineteen countries were made, totaling $703 million; disbursements were $583 million.
Participation of private capital in the loan operations of the International Bank reached a new high. Portfolio sales to other investors
totaled $148 million, compared with $87 million during the previous
fiscal year. Joint operations, under which the Bank's lending coincides with an approach by the borrower on the United States investment market, resulted in private loans totaling $130 milliori; joint
operations in one case included also the European Investment Bank.
As of June 30, 1959, the International Bank had made loans (original
principal less cancellations) totaling $4,426 million, of which $555
million had been sold to other investors and $264 million repaid to the
Bank by borrowers. The funded debt of the Bank amounted to $1,905
million, an increase of $247 million during the year. Most new
borrowing by the Bank during the year occurred from investors
outside the United States. The Federal Republic of Germany was
the largest single source of borrowed funds, and a placement of the
62
195 9 REPORT OF THE SECRETARY OF THE TREASURY
equivalent of over $47 million of deutschemark bonds on the German
market represented the largest public offering of non-dollar bonds so
far made by the Bank.
The International Finance Corporation.—'DuTing the fiscal year new
investments committed b,y the International Finance Corporation
totaled $10.4 million for projects, located in ten countries; disbursements during the 3^ear were $6.6 million. As an institution investing,
without government guarantee, in productive private enterprises in
member countries and their dependent territories, the Corporation
endeavors to stimulate the flow of private investment capital toward
less-developed areas, in part b}^ securing the participation of private
capital. Since the beginning of its operations in July 1956, the
Corporation had committed investments of about $20 million in 21
companies located in eleven countries; more than three times this
amount of private funds is being invested in these projects. As of
June 30, 1959, the Corporation, which is closely affiliated with the
International Bank, had 57 member governments and a subscribed
capital of $93.7 million, all in United States dollars.
The International Monetary Fund
During the fiscal year fourteen member countries made drawings
totaling $157 million on the resources of the International Monetary
Fund, including $17.5 million in currencies other than the U.S. dollar.
These transactions take the form of a member's purchase, with its
own currency, of another member's currenc}^ temporarily needed to
assist ia the solution of foreign exchange payments problems.
All drawings this 3^ear were made by less-developed countries and
were . considerably smaller in total amount than during the two
preceding years. In a majority of the cases the drawings were made
under standby arrangements, under which the Fund, after having
determined that a member country is taking appropriate steps to
overcome its payments problems within a short period, assures the
member that drawings up to specified amounts ma}^ be made without
special Fund consideration during the period of the arrangement.
Such standby arrangements have become increasingly important in
recent years and are considered symbolic of Fund confidence in the
special stabilization eft'orts of a member country; whether or not
drawings are made under these arrangements, the knowledge
that specified Fund resources are immediately available is considered
helpful in instituting and carrying out stabilization programs.
Repayments to the Fund, nearly all as the result of the repurchase
by countries of their own currencies, totaled $530 mUlion during the
year, the largest volume ever made. Repayments by the United
kingdom ($200.0 inillion), Japan ($125.0 million), the Netherlands
•
'
REVIEW OF FISCAL OPERATIONS
.
63
($63.8.mUlion), Belgium ($50.0. million), and Denmark ($8.5 million)
reflected the success of. these countries in overcoming balance of
payments difficulties and contributed significanth^ to replenishment
of the Fund's gold and hard currency holdings. The Fund's ability
to support the stabilization efforts of the less-developed members was
thereby strengthened, and the revolving character of. the Fund's
resources was again demonstrated.
,
As of June 30, 1959, of the industrial coimtries which had drawn
against the resources of the Fund, onty the United Kingdom and
France had drawings outstanding. France, in the previous year, had
utilized a $131 million standb}^ arrangement in conjunction with other
external assistance to alleviate a critical payments situation, and under
an agreement with the Fund is to commence repurchase operations
in 1961. The United Kingdom notified the Fund that the outstanding
sterling balance would be repurchased in monthly installments duriag
1960 and 1961; as of June 30, 1959, this balance amounted to $345
million. To the exteat that other members, in the meantime, draw
French francs or sterhng, the obligations of France, and the United
Kingdom to repurchase their currencies would be. correspondingly
reducedThe movement to external convertibility of the major Em'opean
currencies has significance for the exchange operations of the International Monetary Fund, because these currencies may now become
more widely demanded by members which draw upon the resources
of the Fund. As of June 30, 1959, Fund holdings of such currencies
totaled about $3,000 million.*
The Fund's holdings of gold and
United States and Canadian dollars increased during the je£i;r by
$446 million to a total of $2,764 milhon,* largely as the result of the
high level of repayments. Under standb}'^ arrangements as of June 30,
1959, there was available $1,106 miUion to ten countries. Drawings
outstanding at that time by 24 countries totaled $1,507 million.
During the year two additional countries, Spain and Libya, became
members of the International Monetary Fund (and of the International Bank for Reconstruction and Development). Since July 1958,
Egypt and Syria have been regarded as a single member, the United
Arab Republic. The effect of these changes was to raise total membership to 68.
Treasury exchange a g r e e m e n t s
During the fiscal year a Treasury exchange agreement was negotiated with Argentina, aad agreements with Chile, Peru, and Paraguay
were renewed. An agreement with Mexico continued in effect, and
an agreement with Bolivia expired during the year. As of June 30,
* Not including subscription payments made in anticipation of increase in quotas.
64
1959 REPORT OF THE SECRETARY OF THE TREASURY
1959j therefore, agreements were in effect with five countries, all in
Latin America, in the total amount of $163 million. No drawings
were made under any of the agreements in effect duriag the year.
Oa December 29, 1958, a one-year Treasury exchaage agreement in
the amount of $50 million was signed with Argentina. The agreement
formed part of financial facilities aggregating $329 mUlion provided
by the International Monetary Fund, the Export-Import Bank, the
Development Loan Fund, eleven United States commercial banks,
and the Treasury designed to assist Argentina in its efforts to achieve
financial stabilization and to promote economic development. Under
the terms of the Treasury agreement, the United States Exchange
Stabilization Fund undertook to purchase Argentine pesos up to the
equivalent of $50 million, if the occasion for such purchase should
arise. Argentine pesos so acquired by the Treasury would subsequently be repurchased by Argentina for dollars.
A Treasury exchange agreement with Chile was announced in May
1959, in the amount of $15 million; it is scheduled to expire on December 31, 1959. This agreement replaced a similar agreement in the
amount of $10 million, which had been renewed periodically since
April 1956. The Chilean Government also entered into a standby
arrangement with the International Monetary Fund for $8.1 million,
also to expire on December 31, 1959. Further credits of $28.9 million
for Chile were granted or renewed by the Export-Import Bank and
the International Cooperation Administration. In addition ChUe also
negotiated agreements with eleven United States commercial banks
for new credits aad refunding of previous obligations in the total
amount of $53 million. These arrangements were designed to support
the Chilean Government's comprehensive program to achieve a
greater measure of fiscal and financial stability while also assisting in a
program of capital investments for public facilities and services.
Under a one-year Treasury exchange agreement of Febraary 27,
1959, Peru may request the United States Exchange Stabilization
Fund to purchase Peruvian soles up to the equivalent of $17.5 million
if the need for such purchase should arise. This agreement renewed
similar arrangements which had been in effect since February 1954.
The agreement is designed to assist Peru in continuing its efforts to
achieve economic stabUity and freedom for trade and exchange transactions. In connection with this program, the International Monetary
Fund announced a standby arrangement in the amount of $13 million
to replace the previous agreement of $25 million, under which $12
million had been drawn. Peru also renewed lines of credit in the
amount of $17.5 million with United States commercial banks.
65
EEVIEW OF FISCAL OPERATIONS
Lend-lease silver
During World War I I the United States transferred a total of
410.8 mUlion ounces of Treasury sUver to certain foreign countries
under authority of the Lend Lease Act of March 11, 1941. Although
the agreements differed somewhat in detail, they provided that the
debtor countries were to return a like kind and quantity of silver
within five years after termination of the National Emergency, as
determined by the President. Accordingly, the lend-lease silver was
due to be returned by April 27, 1957, although the agreements with
several of the countries permitted a postponement of part of the repayment for an additional two years. (See Annual Reports for 1957,
pages 49-50, and 1958, pages 56-57.)
In the course of fiscal 1959 a total of 83.3 million fine troy ounces of
sUver, consisting of 65.3 mUlion ounces from India, 8.3 million ounces
from Pakistan, 5.4 mUlion ounces from Ethiopia and 4.3 million
ounces from the Netherlands, were returned and taken into the
account of the Treasurer of the United States.
Lend-lease silver transactions as of June SO, 1959
[In mUlions of fine ounces]
Country
Australia
Belgium
Ethiopia
Fiji
India
_
Netherlands
Pakistan
_ _
Saudi Arabia
United Kingdom
^
.
-
. ._
._
Total , -
SUver transferred from
the Treasury
to lend-lease
for accoimt
of foreign
governments
Silver returned and
taken into
the account
of Treasurer
of the United
States
n.8
11.8
.3
5.4
.2
164.6
56.7
23.3
.3
6.4
.2
172.6
56.7
63.6
122.3
88.1
1 410.8
Silver being
returned
7.9
30.2
88.1
350.4
Silver to be
returned
38.1
22.3
22.3
1 Includes 1,031,250 ounces lost at sea while in transit.
Foreign Assets Control
The Foreign Assets Control Regulations prohibit aU transactions,
direct or indirect, with Communist China and its nationals. For the
purpose of preventing Communist China from obtaining foreign
exchange through the exportation of merchandise to the United
States, the Regulations prohibit the unlicensed purchase and importation into the United States of Communist Chinese or North Korean
merchandise, as well as numerous other commodities therein specified
which are of types that have historically come from China in the past.
525622—60H
66
195 9 REPORT OF THE SECRETARY OF THE TREASURY
The Control does not issue licenses authorizing importation of Chinesetype merchandise unless satisfactory evidence of its non-Communist
Chinese origin is presented.
Importation under general licenses is authorized with respect to
specific shipments of Chinese-t^T^pe merchandise certified to be of nonCommunist Chinese origin by the government of a foreign country
from which they were directly exported, provided that the country in
question has set up procedures for certification pursuant to standards
agreed to by the Treasury Department. , The following governments
now have such certification procedures: Australia, Formosa, France,
Hong Kong, India, Italy, Japan, the Netherlands, Switzerland, VietNam, and the Republic of Korea. Notices of the availability of
certificates of origin for particular commodities and of the governments prepared to issue them are published from time to time in the
Federal Register. During the year a number of additional individual
items became available for certification under existing agreements.
The enforcement measures of the Control resulted in a number of
successful criminal prosecutions. A total of $82,000 was collected b}^
the Government in forfeitures, fines, and other penalties as a result of
proceedings under the Foreigri Assets Coritrol Regulations.
Pursuant to legislation passed during the fiscal year (Public Law
85-604), the blocked funds received from the sale of a Czechoslovakowned steel mill, sold pursuant to an order issued by the Secretar}^
on A4arch 25, 1954, were centralized in an account in the Treasury.
These funds will be available for the payment of awards to Americans
whose claims with respect to property nationalized by Czechoslovakia are ajDproved by the Foreign Claims Settlement Commission.
ADMINISTRATIVE
REPORTS
Management Improvement Program
In addition to many intangible benefits, the Treasury's management improvement efforts during the fiscal year 1959 resulted in
annual recurring savings of $7.8 million, the highest in several years.
An additional $232 thousand was saved on a one-time basis. Many
of the improvements produced more effective use of manpower,
enabling the Treasury to continue to reduce employment whUe keeping abreast of a worldoad which increased in several important areas.
There were 1,456 fewer civUian employees on the roUs as of June 30,
1959, than on the same date a year earlier, a reduction of about
2 percent.
Some of the more important improvements in organization, methods,
and procedures are discussed in the administrative reports of the
individual bureaus. Progress in a few special programs common to
all bureaus is outlined below.
Incentive awards program
Of the savings mentioned above, $830 thousand resulted from the
incentive awards program. This represented a decrease from 1958
when a special appeal from Secretary Anderson increased the number
of suggestions submitted by employees to an alltime record. A comparison of overall results for fiscal 1958 and 1959 appears in table 133.
During 1959 the Treasury planned a new six-point program to
recognize performance of employees at lower grade levels and to
stimulate participation in the suggestion system. One feature is an
annual award to be given by the Secretary to the bureau showing
the best average results in the incentive awards program. The program also wUl give additional recognition to employees for extensive
participation in the awards program and for length of service.
Training and executive development
The Department continued to encourage employees to take advantage of outside training opportunities as well as to develop and improve its own internal training methods. Employees participated in
executive development programs of such organizations as the American
Management Association, American Society for Public Administration, and Brookings Institution, as well as the CivU Service Commission. For the first time a Treasury employee was chosen for one
of the RockefeUer Public Service Awards, which are given to enable
outstanding public servants to advance their knowledge by university
training or special study projects.
The larger Treasury bureaus bave active training programs, which
are discussed in the bureau reports which follow. In addition, the
Treasury Law Enforcement School, which cuts across bureau lines
to include enforcement personnel from all parts of the Department,
trained 384 Treasury officers and several persons from other Federal
agencies and from State and local governments. Most of those
69
70
195 9 REPORT OF THE SEGRETARY OF THE TREASURY
attending took the school's basic 6-week course in law enforcement
and criminal investigation. In the Fiscal Service a carefully selected
group of eight persons from the three fiscal bureaus participated in
the executive development program for interns, bringing to 62 the
number trained since the program began in 1951.
Safety program
The number of disabhng injuries in the Treasury per million manhours worked (frequency rate) in the calendar year 1958 was the
lowest ever recorded—4.3, or an 8.5 percent reduction from the low
level of 4.7 in calendar 1957.
In January 1959 a new program was iaitiated in the Treasury to
award a safety plaque for the greatest improvement in the accident
frequency rate to tlie bureau emplo^nng 1,000 or more personnel,
and a separate plaque to the bureau employing less than 1,000 personnel. In addition, awards of honor will be given to individuals
nominated either by the Safety Council or their bureau heads for
outstandiag contributions to bureau, department, or the overall
Federal safety program. At the annual May meeting of the Safet}^
CouncU and bureau heads. Secretary Anderson presented awards to
the Bureau of the Public Debt and to the Office of the Secretary for
calendar 1958.
Space and property
The Treasury's continuous review of property holdings and needs
has resulted in monetary savings and improved coordiaation of the
Department's activities. A major aim. of the Treasury's space management program has been to consolidate Treasury offices in one
buUding, particularly in field locations. In some cities, offices even
of the same bureau are widely scattered. This not only is inconvenient to the public but has seriously affected operatiag efficiency.
During'the past fiscal year the several units of the office of the Regieaal
Commissioner of Internal Revenue in Philadelphia were brought
together in one building, and similar consolidations were m.ade of
scattered units of a number of district director's offices.
Other space improvements included the release to the Atomic
.Energy Commission of 10,500 square feet of space by the Bureau of
Customs in New York, which saved the Government $30,500 annually.
Also, real properties having an acquisition cost of $217,000, principally in the Coast Guard, were declared excess and reported to the
General Services Administration for disposal.
Projects planned
The Treasury bureaus have under way or planned a large variety of
projects to improve further internal operations and services to the
public. Examples of a few of these projects follow.
The Internal Revenue Service is introducing a new streamlined
tax form (1040W) for persons whose income consists of salary and
wages with not more than $200 of dividends and interest, and no
other items of income. The new two-page form with instructions
will be mailed in a 12-page package to some 17 mUlion taxpayers
who formerly received the regular four-page 1040 in a 28-page package.
The Bureau of Customs has initiated several studies of methods
and procedures for controUing the entry, transshipment, and in-bond
ADMINISTRATIVE REPORTS
.
71
movement of air cargo. The objective is to facUitate air commerce
b}^ improving service to carriers and the importing public, and to
expedite processing of commercial air shipments. The Bureau also
is studying and testing methods of making precise value, rate, and
quantity determinations at the tim,e duties are iaitially collected so
that further duty collections or refunds will be unnecessary.
The Division of Disbursement of the Bureau of Accounts is collaborating with the Veterans' Administration in combining multiple
payments to individual insurance beneficiaries into a single check.
These are cases in which beneficiaries have been receiving two or
three separate checks on the same due date. The consolidation of
multiple payments will result in a reduction of over 900,000 checks
to be issued per year.
The Division of Disbursement also is working closely with the
Veterans' Administration in coordinating plans for centrahzing their
benefit accounting and statistical functions in Chicago. To handle
the big job of maintaining payment files and issuing checks, the
Division will install an electronic computer. As a preliminary, som.e
15 management analysts of the Division wiU be trained in various
aspects of automatic data processing systems. This is part of a
nationwide project to mechanize accounting of benefit payments.
The Office of the Secretary has created a Treasur}'' Directives
Review Committee with a working staff to review the present system
of controlling and issuing directives and circulars and to make recommendations for improvement. All such directives are now under
review and a system of control is being devised.
Bureau of the Comptroller of the Currency ^
The Bm-eau of the Comptroller of the Currency is responsible for
the execution of laws relating to the supervision of national banldng
associations. Duties of the office include those incident to the formation and chartering of new national banking associations, the examination of all national banks, the establishment of branch banks, the
consolidation of banks, the conversion of State banks into national
banks, recapitalization programs, and the issuance of Federal Reserve
notes.
Changes in the condition of active national banks .
The total assets of the 4,559 active national banks in the United
States and possessions on June 10, 1959, amounted to $126,255 million,
as compared with the total assets of 4,606 banks amounting to $122,469
million on June 23, 1958, an increase of $3,786 mUlion during the year.
The deposits of the banks in 1959 totaled $112,659 million, which was
$2,253 million more than in 1958. The loans in 1959 were $55,816
million, exceeding the 1958 figure by $4,913 million. Securities held
totaled $44,166 million, a decrease of $1,120 million during the year.
Capital funds of $10,041 mUlion were $565 million more than in the
preceding year.
' More detailed information concerning the Bureau of the Comptroller of the Ourrency is contained in
the separate annual report of the Coraptr.oller bf the Currency.
72
1959 REPORT OF THE SECRETARY OF THE TREASURY
Abstract of reports of condition of active national banks on ihe date of each report from
J u n e 23, 1958, to J u n e 10, 1959
[In t h o u s a n d s of dollars]
J u n e 23,
1958 (4,606
banks)
Sept. 24,
1958 (4,599
banks)
D e c . 31,
1958 (4,585
banks)
M a r . 12,
1959 (4,569
banks)
J u n e 10,
1959 (4,559
banks)
ASSETS
L o a n s a n d discounts, including overdrafts
_
U . S . G o v e r n m e n t securities, direct
obligations
Obligations g u a r a n t e e d b y U . S . Government
Obligations of States a n d political s u b divisions
__.
Other b o n d s , notes, a n d d e b e n t u r e s . . . .
C o r p o r a t e stocks, including stocks of
F e d e r a l Reserve B a n k s .
T o t a l loans a n d securities
Cash, balances w i t h other b a n k s , including reserve balances, a n d cash
i t e m s in process of collection
B a n k premises owned, furniture a h d
fixtures
—
Real estate owned other t h a n b a n k
premises
I n v e s t m e n t s a n d other assets indirectly representing b a n k premises or
other real estate
C u s t o m e r s ' liability on acceptances
I n c o m e accrued b u t n o t y e t collected..
Other assets
T o t a l assets
50,902,433
60, 664, 772
52, 796,224
53, 217,140
55, 815, 846
34, 599,192
35,281,644
35,821,327
34, 787,430
33,147, 723
2,813
3,430
3,433
3,045
4,604
8, 364, 896
2, 046,247
8, 688, 802
1, 948, 482
8, 845, 522
1, 836, 523
9,005, 281
1, 769, 676
9, 071, 985
1, 650, 551
274, 438
277, 829
281, 419
288, 263
291, 561
96,189, 019
96, 864,969
99, 584, 448
99, 070, 835
99, 982, 270
24, 032, 436
23, 361, 568
26, 864, 820
24,198, 819
23, 834, 503
1, 252, 651
1, 292, 535
1, 326,352
1, 365, 748
1, 399, 86S
40, 858
38, 664
33, 575
35, 941
38, 935
766
949
311
825
126,150
288, 394
272, 093
210, 456
127, 075
321, 852
538, 844
125, 461
272, 213
611, 462
130, 657
261, 640
606, 918
122, 468, 815
122,454, 819
128, 796, 966
125, 580, 479
126, 254, 791
121,
334,
263.
233,
LIABILITIES
D e m a n d deposits of i n d i v i d u a l s , p a r t nerships, a n d corporations
T i m e deposits of i n d i v i d u a l s , p a r t n e r ships, a n d corporations
D e p o s i t s of U . S . G o v e r n m e n t a n d
postal savings
D e p o s i t s of States a n d political s u b divisions
Deposits ofbanks
O t h e r deposits (certified a n d cashiers'
checks, etc.)
T o t a l deposits
D e m a n d deposits
T i m e deposits
Bills p a y a b l e , rediscounts, a n d other
h a b i h t i e s for borrowed m o n e y
Mortgages or other liens on b a n k
premises and other real estate
Acceptances o u t s t a n d i n g
I n c o m e collected b u t n o t y e t e a r n e d . . .
Expenses accrued a n d u n p a i d
O t h e r habilities
Totaliiabilities
65,116, 496
56, 580, 477
61, 786, 222
69, 483, Oil
58, 917, 809
31, 329, 692
32, 215, 034
32, 614, 707
33, 229, 040
33, 779, 747
4, 994, 800
2, 569, 006
2, 574, 937
1, 632, 249
1,764,845
8,611,982
8, 686,161
8, 042, 579
8, 959, 581
8, 426, 763
9, 809,186
8,168, 870
8, 585, 962
8, 072. 361
8, 522, 813
1, 669, 619
1,430, 623
1, 876, 313
1, 618,181
1, 601, 688
110, 406, 749
109, 797, 300
117, 086,128
112, 717, 313
112, 659, 263
75, 681,195
34, 725, 554
74, 333, 601
35,463,799
81, 351, 799
35, 734,329
76,442, 827
36, 274, 486
491, 502
998, 291
43, 035
917, 898
1,062
345, 382
593, 004
621, 317
634,145
1,476
299, 253
620, 649
682, 941
434,126
1,626
330, 616
1,549
281, 628
112, 993,161
112, 834,036
2,867,869
4, 614, 486
1, 839,600
2, 930, 469
4, 558, 635
1, 862, 819
1, 666, 760
119,128,165
1, 802,034
75, 776, 926
36, 882, 337
1,419,817
1.566
270, 010
1, 863, 497
115, 720, 322 116, 214,153
CAPITAL ACCOUNTS
Capitalstock
Surplus
U n d i v i d e d profits
Reserves a n d r e t i r e m e n t account for
preferred stock
T o t a l capital accounts
T o t a l liabilities a n d capital accounts
253, 710
268, 871
9, 475, 654
9, 620, 784
122, 468, 816
2,951, 279
4, 718,459
1, 711,435
287, 628
9, 668, 801
3, 054, 467
4, 821, 012
1, 712, 066
3, 078, 876
4, 857, 509
1, 843, 558
272, 623
260,696,
9, 860,167
10, 040, 638
128, 796, 966 125, 6S0, 479 126, 264, 791
73
ADMINISTRATIVE REPORTS
Summary of changes in number and capital stock of national banks
The authorized capital stock ofthe 4,563 national banks in existence
on June 30, 1959, consisted of common stock aggregating $3,087
million, and preferred stock aggregating $3.1 million. The common
stock of the 4,603 national banks in existence a year earlier amounted
to $2,870 million and preferred stock to $3.5 million. During the
year charters were issued to. 31 national banks having an aggregate of
$21.8 million of common stock. There was a net decrease of 40 in the
number of national banks in the system by reason of voluntary
liquidations, statutory consolidations and mergers, and conversions
to and mergers or consolidations with State banks under the provisions
of the act of .A.ugust 17, 1950 (12 U.S.C. 214).
More detailed information regarding the changes in the number and
capital stock of national banks in 1959 is shown in the following table.
Organizations, capital stock changes, and liquidations of national banks, fiscal year
1959
Number
of banks
Capital stock
Common
Charters in force June 30, 1968, and authorized capital stock
Increases:
Charters issued
Capital stock:
221 cases by statutory sale
482 cases by statutory stock dividends
27 cases by statutory consolidation
22 cases by statutory merger
' 4,603
Preferred
>• $2,870,183,030 $3, 508,170
21,840,000
49, 537, 528
136, 411, 626
11,356,800
6,448,250
._
Total increases..
225, 594,204
Decreases:
Voluntary liquidations
Statutory consohdations
Statutory mergers
Conversions into State banks
Merged or consolidated with State banks.
Capital stock:
2 cases by statutory reduction
3 cases by statutory consolidation
3 cases by statutory merger
3 cases by retirement
2, 545,000
75,000
6, 730,000
89,000
197, 500
420,000
417, 500
Total decreases.
9,066,500
Net change
-40
Charters in force June 30,1959, and authorized capital stock.
4,563
216, 537, 704
-417, 600
3,086,720, 734
3,090,670
' Revised.
Bureau of Customs
The Bureau of Customs is responsible for the assessment and collection of duties and taxes on imported merchandise and baggage;
prevention of smuggling, undervaluations, and frauds on the customs
revenue; apprehension of violators of the customs and navigation
laws; entry and clearance of vessels and aircraft; issuance of documents
and signal letters to vessels of the United States; admeasurement of
vessels; collection of tonnage taxes on vessels engaged in foreign com-
74
195 9 REPORT OF THE SECRETARY OF THE TREASURY
merce; supervision of the discharge of imported cargoes; inspection
of international traffic; control of the customs warehousing of imports;
determination and certification for payment of the amount of drawback due upon the exportation of articles produced from duty-paid
or tax-paid imports; enforcement of the antidumping and export
control acts; regulation of the movement of merchandise into and out
of foreign trade zones; and enforcement of the laws and regulations
of other Government agencies affecting imports and exports.
Collections
Revenue collected by the Customs Service during the fiscal 3^ear
1959 totaled nearly $1,304 mUlion, the largest volume on record, over
16 percent more than the $1,122 million collected in 1958. In addition
to customs collections, the total included certain taxes collected for
the Internal Revenue Service and some collectipns for other Government agencies.
'
Customs collections alone amounted to over $954 million, 18.4
percent more than the $806 million collected in 1958. They included
duties, tonnage taxes, fees, and fines and penalties for the violation of
customs and navigation laws. Of the customs collections more than
$948 mUlion was derived from duties (including import taxes) levied
on imported m.erchandise. The sources of duty collections are shown
in table 15. Collections of customs duties were higher in each month
of fiscal 1959 than ever before. Collections by Custom.s of internal
revenue taxes on im,ported liquors, wines, perfumes, etc., amounted
to $349 million, 10.4 percent more than the $316 million collected in
1958, continuing the rise in recent years.
Considerably less than one-half of all imports into the United States
were duty free and included some commodities such as copper and iron
and steel scrap imported free for Government stockpUe purposes or
authorized by special acts of Congress for free entry although dutiable
under the Tariff Act of 1930, or taxable under the Internal Revenue
Code. The 60 percent which was dutiable constituted the basis of
customs duties on imports.
Values and collections on dutiable imports b}^^ tariff schedule and
country for fiscal 1958 which were omitted from, last year's report
because of technical difficulties wUl be found in tables 91 through 97.
By customs districts.—Larger customs collections than in 1958 were
reported by 34 customs districts. The collections for each of the 45
customs districts from which collections are covered into the Treasuiy
of the United States are shown in table 90.
By commodities.—For the eighth consecutive year, imports of
metals and manufactures were the largest single source of customs
revenue in fiscal 1959, with an Uicrease of 25.8 percent more in duty
collections than in fiscal 1958. The simdries schedule rose to second
place with an uicrease of 29 percent, followed by the agricultural
products schedule with an uicrease of 7.7 percent. The value of
dutiable and taxable imports for consumption and duties and taxes
collected by tariff schedules for fiscal 1958 and 1959, wUl be found
in table 92. Comparable data covering fiscal 1957 and 1958, which
were omitted in the report for fiscal year 1958, will be found in
table 91,
ADMINISTRATIVE REPORTS
75
Tables 94 and 95 show the value of and duties collected on imports
for consumption by calendar years 1947 through 1958, and from
January to June 1959. The trends in value and duty yield for imports dutiable at specific, ad valorem, and compound rates by fiscal
3^ears 1943 through 1959 are shown in table 93.
By countries oj origin.—Imports from Japan were again the largest
source of customs revenue. Duties collected were 37.6 percent more
than in 1958. The United Kingdom ranked second with an increase
of 26.4 percent. West Germany, with an increase of 24.3 percent,
ranked third, and Canada retained fourth place although duty collections decreased by 7 percent. A comparison of the value of dutiable
imports for consumption and the amount of duties collected by
countries for fiscal 1957 and 1958, and 1958 and 1959, wUl be found
in tables 96 and 97.
Extent of operations
Vehicles and persons e7itering.—Move than 41 million vessels, aircraft, automobiles, buses, trains, and other vehicles entered U.S.
harbors or crossed U.S. borders during fiscal 1959, bringing almost
144 million persons, and .nearly 28 million persons walked across the
borders. All were subject to customs inspection. The various types
of vehicles and the number of persons entering the United States
during 1958 and 1959 are shown in table 99, and the number of aircraft
and passengers arriving in districts where this mode of travel is most
prevalent is shown in table 100.
Entries oj mercliandise.—^Im.ports into the United States in fiscal
1959 broke all records. Formal entries of merchandise (consumption
and warehouse and rewarehouse entries) exceeded 1 milhon for the
fourth consecutive 3^ear; the 1,312,279 entries filed were 11.7 percent
more than in 1958. Informal entries and baggage declarations, covering both mail im,portations and other shipments valued at less than
$250, rose 5.9 percent over 1958 to a record of 4,001,652. AU other
types of entries, with the exception of m.aU, showed similar increases.
The number of each t3^pe of entiy filed during the past 2 fiscal years
is shown in table 98.
Drawback transactions.—Drawback, which is allowed on the exportation of merchandise manufactured from imported materials and for
certain other export transactions, usually amounts to 99 percent of
the custom.s duties paid at the time the goods are entered. More than
95 percent of the drawback allowed in 1958 was due to the export of
products manufactured from imported raw materials. The principal
imported materials used in manufactured exports in 1959 were iron
and steel semimanufactures; petroleum and products; tobacco, unmanufactured; sugar; aluminum; paper and m.anufactures; chemicals;
cotton cloth; watch movements; lead ore, matte pigs and bars; and
tungsten ore.
Tables 101 and 102 show the drawback transactions for the fiscal
3^ears 1958 and 1959.
Appraisement oj merchandise {including Customs Injormation Excliange).—There Avere 2,043,000 invoices filed in fiscal 1959 compared
with 1,822,000 in 1958, an increase of 12.1 percent. This extraordinaiy rise was responsible for a 25 percent increase during 1959
76
1959 REPORT OF THE SECRETARY OF THE TREASURY
in the bacldog of unappraised invoices, from 176,000 to 222,000.
Packages examined by appraisers' personnel increased 7 percent,
from 1,375,000 to 1,454,000.
As a result of the enactment of Public Law 85-630 (19 U.S.C.
160-171) containing major amendments to the Antidumping Act
(effective Aug. 14, 1958), the Washington headquarters office has for
some m.onths been engaged in revising the regulations pertaining to
dumping.
Forty-five complaints of dumping under the Antidumping Act were
received during the fiscal year 1959 as compared with 13 received in
1958. The probable cause of the increase was the enactment of the
new legislation and increased awareness on the part of domestic
industry of competitive foreign imports. Thirty-four dumping cases
were disposed of during the year, leaving 37 cases under investigation
at the end of 1959 as compared with 26 a year earlier.
The volume of countervailing duty cases was lower in fiscal 1959
than in 1958. Six complaints were received, compared with seven in
1958. Five countervailing duty cases were disposed of during the
year and five remained on hand at its close.
The operations of the Customs Information Exchange, New York
City, continued their upward trend as indicated by the number of
reports received from and disseminated to appraising officers. Appraisers' reports of classification and value, covering a cross section
of importations of merchandise received at each port, totaled 70,000
in fiscal 1959, as compared with 63,000 in 1958. These reports indicate the relative number of commodity items received at any given
port for the first time, as well as regular items received at new prices
or subject to different terms of sale from previous shipments.
Differences in classification and value indicate the number of
instances where information varied at different ports as to value or
classification and in which additional study and analysis were required before establishment of a uniform value or rate. There were
9,922 reports of value differences in fiscal 1959 as compared with 6,886
in 1958. Differences in classification numbered 3,996 in 1959 compared with 3,355 in 1958, indicating an increase in the number of new
commodities received.
Foreign inquiries requiring detaUed investigations abroad to secure
information for appraisement purposes decreased from 454 in 1958 to
308 in 1959. This 32 percent decline may be attributed to the
elimination of foreign value as a basis of appraisement under the
terms of the Customs Sunplification Act of 1956 (19 U.S.C. 1402) and
to the current instructions which authorize the use of a foreign inquuy only after other means of securing value information have been
exhausted.
Technical services.—This branch of the Customs Service furnishes
chemical, engineering, statistical weighing and sampling, and other
scientific and technical services; provides proper weighing and gauging
equipment; designs and oversees the construction of border inspection
stations; and directs the field operations of customs laboratories.
In 1959 the laboratories analyzed more than 120,000 samples,
about one-half of which consisted of ores and metals, sugar, and wool.
A slight overall decrease from 1958 was concentrated mainly in ores,
ADMINISTRATFVE REPORTS
77
minerals, smelter by-products, and raw sugar. Significant increases
occurred in samples of coal-tar products, plastics and resins, narcotics,
petroleum products, textiles, and wool. Most of the analyses were of
^ i m p o r t " samples of dutiable merchandise analyzed to develop and
report facts needed for tariff classification. Other types tested
included those taken from customs seizures, mostly narcotics and
other prohibited articles; preshipment samples of merchandise intended for shipment to the United States analyzed to assist in establishing proper classification; and samples tested for other Government
agencies.
The Marquis reagent is now widely used by law enforcement
officers to test for the presence of an opium alkaloid in suspected
material. This test does not discriminate among the several opium
alkaloids and, in addition, gives the pm-ple ^'opium" color with certain
nonnarcotic adulterants, such as some common antihistamines.
Customs chemists have developed a new and simple field test which,
when used in conjunction with the Marquis test will denote the
presence of heroin hydrochloride but wUl not be affected by the nonnarcotic adulterants. Materials for the new test will be distributed
in a field kit. The new test will eliminate much of the embarrassment
now caused by the use of the Marquis test alone when a suspect is
detained and materials seized in which narcotics are not actually
present.
Statistical quality control of sample weighing operations was continued during the year by analyses of cargo sample weighing data to
assure accuracy and precision within control limits. There were 793
such operations, consisting of 556 cargoes of raw sugar, 159 cargoes of
refined sugar, and 78 cargoes of cigarette tobacco. Statistical control
was continued also over the verification of liquidations by comptrollers
(final determination of duties and taxes due).
Automatic sampling devices of two fluorspar plants were checked
by a series of tests on replicate samples and a new manual sampling
tool was designed and built by a customs laboratory. A proposed
refinery method of testing fluorspar was evaluated by collaborative
testing in the laboratories.
A contract was awarded for the construction and installation of a
50-ton truck scale at the U.S. Army Base, Boston, Mass. In cooperation with the General Services Administration and the Immigration and Natm-alization Service plans were developed for the
construction of temporary inspection facilities at Cordova Island,
El Paso, Tex. Assistance was given the General Services Administration in plans for the construction of various projects for use by Customs and other Federal agencies. These included 5 locations scheduled for early construction and 12 locations for which preliminary
plans have been made. Work was continued on the procurement of
the six sites in anticipation of construction of border stations.
Export control.—There was a decline in 1959 for the second consecutive year in the number of export declarations authenticated.
Shipments examined also declined. Although the number of seizures
made was less than in 1958, the value was higher. The following
table shows the volume of export control activities during fiscal 1958
and 1959.
78
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Activity
Export declarations authenticated
Shipments examined
Number of seizures
Value of seizures
Export control employees
1958
4, 562, 437
564, 530
358
$460, 005
194
1959
4, 234, 916
444, 821
352
$759, 783
184
Percentage
increase, or
decrease (—)
-7.2
-21.2
-1.7
65.2
-5.2
Protests and appeals.—There was an increase in the number of protests filed by importers against the rate and amount of duty assessed
and other decisions by the collectors. However, appeals for reappraisement filed by importers who did not agree with appraisers as
to the value of merchandise were 29.3 percent less in 1958. The following table shows the number of protests and appeals filed and acted
on during the fiscal years 1958 and 1959.
Protests and appeals
Protests:
Filed w i t h collectors b y i m p o r t e r s
Allowed b y collectors
D e n i e d b y collectors a n d forwarded to c a s t o m s court
A p p e a l s for r e a p p r a i s e m e n t filed w i t h collectors
1958
37, 787
3,182
25, 643
28, 664
1959
41, 343
3,540
33, 737
20, 270
Percentage
mcrease, or
decrease (—)
9.4
11.3
31.6
—29 3
Entry and value.—Public Law 86-99, approved July 17, 1959, continued until July 1, 1961, the provisions of law which permit the entry
free of duty of bona fide gifts sent to the United States by members
of the Armed Forces stationed abroad. Previous periodic enactment
of such legislation had provided for the extension of the privilege until
July 1, 1959.
In order to comply with a provision of an act approved September
1958 (19 U.S.C. 1201), which permits U.S. residents to import rented
automobiles free of duty for limited periods, it is not necessary that
a bond be given for the exportation of the automobile, and the resident may arrange for someone else to return the rental car to the
foreign renter or the resident may have a representative of the automobile rental agency in the United States arrange the return. The
responsibility for timely return of the automobile rests in every case
upon the importer.
If a U.S. resident, while still in the United States, makes a purchase
agreement to secure an automobile, or other articles abroad at a later
date, that automobile or articles may not be exempted from duty or
taxes under regular personal exemptions. A recent ruling stated,
however, that the establishing of a credit rating with a representative
of a foreign manufacturer in the United States whereby a U.S. resident
while abroad may purchase articles at the factory or from an authorized dealer on the strength of the credit rating does not, of itself, affect
the resident's entitlement to the exemptions from duty and internal
revenue taxes on the value of the articles imported.
ADMINISTRATIVE
79
REPORTS
- Marine activities.—-On June 30, 1959, there were 47,157 vessels in
the documented fleet of the American merchant marine, compared
with 46,071 a year earlier. In fiscal 1959, 2,580 vessels never before
documented were added, which number roughly corresponds to the
total of new vessels of all sizes built, and 1,494 vessels were removed
from documentation. Of the documented total, slightly more than
4,200 were documented as yachts, while nearly 43,000 were authorized
through documentation to be used in commercial activities in the
foreign, coasting, or fishing trades. The following table shows the
volume of marine documentation during the fiscal years 1958 and 1959.
Activity
Total vessels documented at end of year
Documents issued (registers, enroUments, and licenses)
Licenses renewed and changes of master endorsed
Mortgages, satisfactions, notices of lien, biUs of sale, abstracts
of title, and other instruments of title recorded
Abstracts of title and certificates of ownership issued
Navigation fines imposed
.
Tonnage tax payments
1958
. 1959
Percentage
increase, or
decrease (—)
46, 071
14,277
46,153
47,157
14, 065
45, 983
2.4
-1.5
-.4
12, 456
5,849
2,496
23,363
13, 966
6,650
2,646
22, 642
12.1
13.7
6.0
-3.1
The first meeting of the Subcommittee on Tonnage Measurement
of the Intergovernmental Maritime Consultative Organization was
held in London during June 1959. The U.S. delegation, headed h j a
Customs representative, proposed a new approach to tonnage problems
which could simplify the system of admeasming vessels, an artificial
and cumbersome system in effect for more than a hundred years.
Fm'ther data are being compiled and will be presented at a subsequent
meeting of the subcommittee, after review by representatives of both
the Government and the shipping industry.
A study initiated by the Bureau of Customs with the cooperation
and assistance of the U.S. Coast Guard, has culminated in a draft
of legislation to simplify the tonnage measurement of small vessels.
The draft bill, under study, would enable persons untrained in the
highly technical procedures of admeasurement to make tonnage computations, and would provide a firm standard of gross tonnage for
application of vessel safety laws.
The admeasurement systems adopted and in force in the Federal
People's Republic of Yugoslavia and the State of Israel were found
sufficiently similar to those of the United States to warrant recognition
of the tonnages expressed in registers issued in those countries. I t was
established also that reciprocal privileges are granted to vessels of the
United States. The names of both countries accordingly were added
to the list of nations whose measurement systems are recognized.
Vessels of the listed nations are not required to be admeasured upon
arrival in the United States and the tonnages shown on their registers
are accepted as the basis for the computation of tonnage tax.
80
1959 REPORT OF THE SECRETARY OF THE TREASURY
The following tabiUation shows the number of entrances and clearances of vessels in fiscal 1958 and 1959.
1958
Vessel movements
Entrances:
Direct from foreign ports
Via other domestic ports
._
Total..
Clearances:
Direct to foreign ports
Via other domestic ports
Total.
_
1959
Percentage
increase, or
decrease ( - )
51,822
33,057
48, 928
3.^ 267
—5.6
6.7
84, 879
84,195
-.8
46,447
32, 945
45, 966
37, 880
—1.0
15.0
79, 392
83, 846
5.6
The Shipping Coordinating Committee, sponsored by the Department of State to assist in the preparation of United States positions
on shipping problems considered by the Intergovernmental Maritime
Consultative Organization, created a subcommittee in May 1959 to
work on a program to simplify shipping documents and procedures
involved in the arrival, loading, discharging, and departure of vessels
engaged in international trade. The subcommittee with the Bureau of
Customs, other Government agencies, and the shipping industry is
conducting a study of the possibUities.
The procedure whereby shipping lines may report crew members'
purchases abroad, to insure payment of applicable customs duties,
by means of an individual crew member's declaration rather than by a
combined listing for all crew members, was extended during the year
to vessels proceeding to other domestic ports. Heretofore the procedure had been limited to vessels retm-ning to foreign ports dhectly
from the port of first arrival.
The 1958 annual report (page 83) noted the practice of certain
nations in providing vessels with papers showing two separate tonnages in the case of open and closed shelter-deck vessels and oil and
ore carriers. At that time instructions had been issued to charge
tonnage tax upon the higher of the two net tonnages shown. Since
then arrangements have been worked out through appropriate diplomatic channels whereby the governments have agreed to certify, upon
any given arrival of the vessel, which of the two tonnages is applicable.
Appropriate instructions have been issued accordingly, which authorize
the assessment of taxes on the applicable tonnages of vessels of foreign
countries as certified by their governments.
After the opening of the Saint Lawrence Seaway, a meeting of the
marine officers of Great Lakes ports and representatives from the
Washington headquarters office was held at Milwaukee, Wis. The
primary purpose was to afford the conferees an opportunity to compare
the practices of the various other districts and to develop more uniform
procedures in their marine transactions. Vessel operators, shippers,
and other shipping industry personnel will benefit.
A waiver of the navigation laws for 1 year was granted to permit the
transportation of Weather Bureau and Civil Aeronautics Administra-
ADMINISTRATIVE REPORTS
81
tion personnel and certain merchandise between Tampa and the Swan
Islands on scheduled sailings of foreign-flag vessels.
The Department forwarded to the Congress during the year certain
draft legislation which would repeal existing statutes prohibiting the
collection of fees in connection with the admeasm^ement, documentation, and inspection of vessels. If the proposed legislation is enacted
into law, uniform charges will be prescribed under existing general
authority to recover the Government's cost for the services provided.
The act of August 14, 1958, further amended section 4153 of the
Revised Statutes (46 U.S.C. 77) by authorizing the exclusion from
gross tonnage of ballast water spaces even though such spaces msiy be
used for the carriage of ballast water for underwater drilling, mining,
and related purposes including production. This legislation has
particular application to the fleet of small vessels used in the offshore
oil industry in the Gulf of Mexico. Appropriate regulations to give
effect to the provisions of law were issued.
Public Law 85-902, approved September 2, 1958, added section 27A
to the Merchant Marine Act of 1920 (46 U.S.C. 883-1), to permit
domestic corporations meeting certaia qualification requirements to
be deemed citizens of the United States for the purpose of documentation and operation of vessels, without regard to the extent of control
of such corporations by aliens. A qualifying corporation owning a
vessel built in the United States which is non-self-propelled or which,
if self-propelled, is of less than 500 gross tons is authorized to document
the vessel imder the laws of the United States and to engage in the
coastwise trade subject to specific restrictions set forth in the act.
Heretofore, a domestic corporation having a substantial percentage
of alien stock ownership could not qualify as a citizen of the United
States and thus was not able to document vessels owned by it or
engage in the coastwise trade. Regulations were issued governing
the documentation of vessels owned and operated as provided for in
the act.
Legal problems and proceedings.—The Office of the Chief Counsel
considers legal problems and questions arising in connection with the
administration and enforcement of the customs and navigation laws
and other related laws. Among these in 1959 were problems relating
to classification and appraisement of imported merchandise; interpretation of enforcement provisions; rights and duties of Customs
employees; delegations of authority to Customs officers; activities of
customs brokers; settlement of tort claims; legal problems arising
from the acquisition of sites for customs border stations; drafting
proposed legislation; preparing and reviewing reports on pending
legislation; and preparing and reviewing customs regulations. A
substantial number of the questions considered were concerned with
amendments of the Tariff Act and other new legislation. Especially
considered were those bearing on the interpretation and implementation of the Antidumping Act; laws relating to insular possessions; and
various matters relating to reimbursement for services and other
benefits furnished to parties in interest.
Assistance was given to the Office of the Assistant Attorney General
in charge of the trial and appeal of customs cases in the Customs
Court and the Court of Customs and Patent Appeals, and also to the
525622—60
7
82
1959 REPORT OF THE SECRETARY OF THE TREASURY
Department of Justice in connection with litigation involving custoins
matters in the Court of Claims, the United States District Courts,
and other Federal courts.
Law enjorcement and investigative activities.—During fiscal 1959 the
Customs Agency Service conducted 16,632 investigations, compared
with 16,282 in 1958. Some of the investigations related to customs,
navigation, and related laws administered by the Bureau of Customs;
others to certain laws administered by other Government agencies
but enforced by customs. Table 104 shows the investigative activities
for the fiscal years 1958 and 1959. Major enforcement problems
involved the smuggling into the United States of narcotic drugs,
marihuana, and psittacine birds; and the smuggling out of the country
of arms, ammunition, and implements of war, and the use of fraudulently undervalued invoices when filing customs entries for imported
merchandise.
Customs seized 38,195 ounces of narcotic drugs and marihuana in
fiscal 1959, a decrease of 3,651 ounces from fiscal 1958, which decrease
was spread among all categories of narcotics seized.
Mexico continues to be the principal source of marihuana smuggled
into the United States, and it is apparent from recent seizures on the
California-Mexico border that Mexico is also becoming a major source
of heroin. Heroin continues to be smuggled into the United States
also by crew meinbers of freighters engaged in trade with the Far
East and Europe.
Opium is almost a thing of the past; the only substantial seizure
consisted of 22 pounds of crude opium made jointly by local police,
narcotic and customs agents in New York City following a lead
originated by customs agents. This contraband had been smuggled
ashore from a vessel at Baltimore, Md., by Chinese crew members
who were later arrested. The smuggling of psittacine birds, chiefl}^
along the California-Mexico border, continues to be a problem.
Notwithstanding the substantial reductions in the ad valorem rates
of duties brought about by the several trade agreements with foreign
governments, many importers, with the connivance of foreign manufacturers and exporters, are continuing their attempts to make customs
entry for imported merchandise with the use of false invoices which
fraudulently undervalue the imported merchandise. During fiscal
1959 customs agents investigated 1,919 cases involving undervaluation,
false invoices, and other irregularities in customs entries. Action was
taken under the civil provisions of Title 19, U.S.C. 1592 and in many
cases the violations were referred to the U.S. attorney having jurisdiction for criminal prosecution under the provisions of 18 U.S.C.
542 and 1001.
The smuggling of arms, ammunition, and implements of war out
of the country due to conflicts in Cuba and other Caribbean countries
continued as a serious problem for customs officers. Practically all
of these activities are centered in and around Florida. The Mutual
Security Act, under which these attempted exports are prohibited,
is administered by the Department of State and enforced by the
Bureau of Customs.
ADMINISTRATIVE
83
REPORTS
Seizures of merchandise throughout the country during 1959 for
violations of laws enforced by the Customs Service numbered 13,116
with an appraised value of $10,876,858, compared with 18,807 seizures
in 1958, appraised at $8,443,569.
There was a decrease of 30.3 percent in the number of seizures
but an increase of 28.8 percent in the appraised value. Title to only
a small fraction of these seizures actually passes to the Government,
as the maj orit}^ are destro}^ed or remitted to the owners upon pa37^ment
of fines or penalties. Details of seizures are shown in table 103.
There were 1,255 arrests for violations of laws enforced b3^ the Bureau
of Customs in 1959, onl37' 13 fewer than were made during the alltime
record year 1958.
The following tabulation shows the number of arrests and dispositions during fiscal years 1958 and 1959.
Activity
Arrests
Convictions
Acquittals
".
Nolle pressedDismissed
Not indicted
Under, or awaiting indictment
1958
Percentage
increase, or
decrease (—)
1959
1,268
1,255
704
25
61
247
13
372
674
36
88
241
31
440
-1.0
-4.3
44.0
44.3
-2.4
138.5
18.3
Foreign trade zones.—All activities at Foreign Trade Zone No. 1
at Staten Island, N.Y., increased during the fiscal 3^ear. The value
of merchandise received rose by almost $11 million, the value of merchandise delivered from the zone, by over $8 million, and the amount
of duties and taxes collected, by ahnost $2 million. Fifty-five ships
berthed to laden domestic ship's stores and 23 ships used the zone
facilities for discharging cargo from foreign countries. The largest
operation of the year was the arrival of the Russian vessel ^.'^. Ivan
Moskvin, laden with exhibits for the Russian fair at the New York
Coliseum. Some exhibits were assembled at the zone and the balance
went directly to the coliseum. The value of merchandise delivered
from Foreign Trade Zone No. 2 at New Orleans, La., rose almost $6
million more than in 1958. There were also increases in the tonnages
of merchandise received in and merchandise delivered from the zone.
There was a decrease in the number of entries, however, in the value
of merchandise received and in the duties and taxes collected. There
are 435 damaged military vehicles in the zone having no Department
of Commerce license to import. These will be repaired and exported.
At Foreign Trade Zone No. 3 in San Francisco, Calif., there was an
increase in the value of merchandise received, in the tonnage delivered,
and also an increase of over $1 million in the value of merchandise
delivered. All pther activities decreased. The number of entries
and the amount of duties and taxes collected, at Foreign Trade Zone
No. 5 at Seattle, Wash., increased over 1958. All other activities in
this zone were considerably less than in 1958.
84
1959 REPORT OF THE SECRETARY OF THE TREASURY
The following table contains a brief summary of foreign trade zone
operations during fiscal 1959.
New York
New Orleans
San Francisco
Seattle
Received In zone
Number
of
entries
Trade zone
Long
tons
6,700
4,366
6,673
658
_
35,103
37,726
1,676
389
Value
$30.836,708
19,189,079
2, 621,392
360,021
Delivered from zone
Long
tons
27,340
37,876
2,131
399
Value
$27,402,499
20.040, 025
3,334, 523
368,424
Duties and
intemal
revenue
taxes
collected
$6, 277,101
1,183,057
144, 682
71, 897
Customs ports oj entry, stations, and airports.—Morgan City, La.,
Jackman, Maine, and Massena, N.Y., were designated ports of entry.
The designations of Holeb-Jackman, Maine, San Ysidro, Calif., and
Rooseveltown, N.Y., as ports of entry were revoked. The limits of
the following ports were extended to include areas not heretofore
covered: Burlington, Vt.; Cleveland, Ohio; San Diego, Calif., and
Buffalo, N.Y. The name of Tok Junction, Alaska, was changed to
Tok, Alaska, and the name of Port O'Minot Airport, Minot, N. Dak.,
was changed to Minot International Airport. The location of headquarters for the appraiser of merchandise for the Dakota district has
been transferred from Noyes, Minn., to Pembina, N. Dak.
Cost of administration
During 1959 regular nonreimbursable employment, and export
control employment financed by funds from the Department of Commerce decreased. These decreases were partially offset by increases in
regular reimbursable employment, and in employment financed by
funds transferred from the Department of Agriculture. Total
employment decreased nearly three-quarters of one percent despite
continuing sharp increases in workload.
The following table shows employment data during the fiscal years
1958 and 1959.
operation
1968
Regular customs operations:
Nonreimbursable
Reimbursable ^
-
-
Total regular customs employment
Export control
Additional inspection for Department of Agriculture
Total employment
-_
-
1969
Percentage
increase, or
decrease ( - )
7,187
291
7,119
296
—1 0
17
7,478
194
170
7,415
184
190
— 8
—6 2
11 8
7,842
7,789
—1 0
1 Salaries reimbursed to the Government by the privatefirmswho received the exclusive services of these
employees.
Customs operating expenses totaled $54,604,936, including export
control expenses for which the Bureau was reimbursed by the Department of Commerce, and the cost of additional inspection reimbursed
by the Department of Agriculture.
ADMINISTRATIVE REPORTS
85
Management improvement program
Savings resulting from actions taken under the Customs management improvement program amounted to $271,000 during fiscal 1959.
Of this amount, $239,000, the equivalent of 42.7 man-years, was
annual recurring savings.
The bulk of the recurring savings was obtained through various
improvements resulting in more effective use of personnel. Reassignment of personnel contributed to meeting the demands of the
highest annual worldoad increase since 1953. At the same time total
employment was substantially reduced.
The Customs management improvement program continued to
emphasize the facilitation of international trade and travel and the
development of an efficient customs organization. Marked progress
was made during the year in both areas by improvements through
administrative action and legislation sponsored by Customs.
Proposed legislation,—Legislation has been submitted to Congress to
amend certain administrative provisions of the Tariff Act of 1930,
several of which are intended to facilitate international trade and
travel. Important provisions of the bill would permit an administrative review of the values found by appraisers on imported merchandise simUar to that now permitted when protests are made against
collectors' final computations of duties and taxes of imported merchandise; permit final determinations of duties and taxes of imported
merchandise without awaiting final appraisement; provide more
realistic exemptions from duty for articles brought into the United
States by returning residents and nonresidents; allow language provisions in Customs term bonds which will permit such bonds to run
indefinitely with a new principal sum each year; and repeal several
obsolete provisions of law.
Trade and travel.—When a request for tariff classification of a
prospective import is received and the appropriate customs field
officer is satisfied that the article is properly classifiable under an
established or uniform practice, he may now advise the inquirer of
the proper classification, and state that the specified classification
will not be changed by an administrative ruling which imposes a
higher rate without prior notice. Also, if the Washington headquarters office receives a request for classification of the type usually
referred to the United States Appraiser of Merchandise at New York
for a report on practice, the U.S. Appraiser will reply directly to the
inquirer if the merchandise is being classified under an established
practice. Previously, only the Commissioner of Customs could issue
classification rulings of this type.
Formal entries of unconditionally free merchandise no longer have
to disclose the detailed computations by which the importer arrived
at his entered value, e.g., gross amounts, deductions, and additions to
invoice value, and other information previously required.
The circularization of a list of Japanese manufacturers and sellers
who offer merchandise for sale both at an ex-factory and an ex-warehouse price has substantially reduced the time required by customs
appraisers to establish the proper basis of appraisement and has
resulted in more uniformity of appraisement. Appraising officers
were furnished also with an exj)lanation of the kind and quantity of
86
1959 REPORT OF THE SECRETARY OF THE TREASURY
information required from a Japanese manufacturer seeking"to have
his name added to the list. The Customs representative injTokyo
now prepares and forwards periodic price quotations on Japanese food
products most frequently exported to the United States. These
quotations are circulated quickly to the customs appraisers concerned
with the result of an almost immediate appraisement. The importer
is benefited by expedited entry, aind Customs benefits because it is
no longer necessary to maintain expensive value records on these
commodities.
Customs procedures have been simplified for an individual importing
shipments for his personal or household use. After a satisfactory
showing that the shipment is in fact noncommercial, the importer in
most cases may use the informal entry procedure, even though the
value of the shipment exceeds $250 and a formal entry normally
would be required. The new procedure, previously applicable only
to mail importations, now applies to all such noncommercial shipments
without regard to mode of arrival. The need for a special customs or
commercial invoice and much traveling between offices at the larger
ports have been eliminated.
Cording and sealing have been discontinued for: Baggage examined
in a contiguous foreign territory by United States Customs personnel
and shipped to the United States as checked baggage; and domestic
baggage shipped between two ports in the United States through a
foreign territory. Such cording and sealing already had been eliminated for baggage shipped in bond or in transit through the United
States between two ports in Canada or Mexico.
When security and accounting controls are adequate, reasonable
quantities of customs seals in excess of immediate requirements are
being issued to commercial bonded carriers to facilitate the sealing
of in-bond and in-transit shipments. The new procedure eliminates
numerous petty transactions required before when only enough seals
were issued to meet immediate requirements. Restrictions which
limited the purchase of seals to bonded carriers have also been modified
to permit commercial associations to purchase in-bond seals for
bonded carrier members.
U.S. manufacturers exporting finished products of medicinal
preparations and flavoring extracts may now file claims with the
collector of customs for drawback of internal revenue taxes paid on
domestic alcohol used. Heretofore, the collector of customs determined the amount of drawback due and the exporter filed his claim
for payment with the Internal Revenue Service.
One of the most popular customs publications, the booklet Customs
Injormation jor Exporters to the United States, was revised to incorporate
all recent legislative and procedural changes. This booklet, designed
to assist American importers and foreign exporters to the United
States, explains in plain nontechnical language customs requirements
such as marking and invoicing for the importation of merchandise.
Public Law 86-14, approved April 22, 1959, permits articles imported for exhibition or for use in constructing, installing, or maintaining foreign exhibits at trade fairs to be entered free under bond.
Before its enactment a separate law was required for each trade fair.
Other procedures established to expedite transactions include
delegation of authority to collectors of customs to: Correct customs
ADMINISTRATIVE REP.ORTS
87
entries, appraisements, liquidations, or other transactions in which a
clerical error, a factual mistake, or other inadvertence had occurred;
approve general term bonds for the entry of merchandise; and approve
additional types of supplemental drawback schedules.
Preflight customs clearance for persons departing on direct flights
to the United States, a procedure already in effect at Toronto and
Montreal, was inaugurated at Winnipeg, Canada. Clearing air
passengers through U.S. Customs prior to departure enables them to
JDro ceed without delay upon their arrival in the United States.
Private aircraft operators frequently carry passengers for hire to
Canada or depart for Canada to pick up passengers for hire, in neither
case carrying export cargo. Aircraft clearance for such departures
from the United States may now be made by telephone with subsequent filing of documents by mail. Formerly, such documents had
to be filed personall3^ with the nearest customs officer even though it
might require flying many miles out of the way.
A standard baggage examination counter, similar to those installed
at N^w York International Airport, has been designed for installation
at airports handling commercial international, traffic. Uniform designs and speciflcations are being furnished to airport authorities in
connection with the construction of new terminal buUdings or substantial modification and renovation of existing buUdings. Installation of this type of equipment will insure the most modern facilities
for examination and clearance of air passengers and their baggage
upon arrival in the United States.
Under certain conditions an informal list of passengers in the form
of a ^'souvenir list" is now acceptable for customs purposes instead
of a formal passenger manifest. The new procedure is optional with
the shipping lines and was developed for their benefit. I t will be
accepted when the Immigration and Naturalization Service uses the
individual admission card rather than the formal passenger manifest.
A nonresident crew member of a vessel or aircraft, discharged in
the United States and returned to his home either as a passenger or
member of the crew of another vessel or aircraft, frequently experienced great difficulty and expense in avoiding pa3^ment of duty when
he shipped his personal articles home. These difficulties have been
eliminated by treating the crew member as an in-transit passenger
and allowing him the exemption provided for in paragraph 1798 fb) (3),
Tariff Act of 1930, as amended (19 U.S.C. 1201), when the collector
is satisfied that the articles will be taken out of the United States.
Internal operations.—Conveyor systems installed in the Chicago
and Honolulu mail divisions to facilitate the examination of foreign
mail parcels increased the productive capacit37- without additional
personnel. At Chicago the increased capacity permitted that port
to begin processing all ordinary and insured mail consigned to a
12 Midwestern State area, instead of only those parcels consigned
to the States of Iowa and Illinois as before. The availability of
greater capacity in the conveyor system in New York enabled that
port to expand operations to include the processing of all ordinary
and insured mail arriving there by vessel and destined to any place
in the United States except the West Coast, Alaska, Iowa, Illinois,
and the District of Columbia.
88
1959 REPORT OF THE SECRETARY OF THE TREASURY
A new system was devised for controlling collections of duties and
taxes assessed on merchandise not exceeding $250 in value imported
by mail. Formerly, collections of duties on this type of mail entry
were sent by the postmaster making the collection to the customs
port where the maU entry was issued. Now postmasters deposit
such collections in postal accounts and render a report to the regional
postal comptroller. The comptroller periodically sends a check for
total collections deposited by the postmasters in his region to the
customs accounting office in New York. The new system transferred the function of disbursing duty collections from 38,000 postmasters to the 15 postal regional comptroller offices and wUl reduce
the number of checks issued annually from 500,000 to approximately
200.
Instructions formulated for the guidance of customs field officers in
forfeiture cases arising from the seizure of merchandise for violation
of the export control laws have resulted in uniformity of treatment
for violators and expedited the settlement of these cases. The
instructions outline conditions under which a seizure is warranted,
when and to what extent a forfeiture may be remitted under delegated authority, and which cases require attention of the Washington
headquarters office.
^^Liquidation" is the final determination of duties and taxes on
imported merchandise. Continued efforts were made to increase
liquidations per man and to reduce the backlog of unliquidated entries.
Unconditionally free entries totaling 37,000 were liquidated at district subports, and 21,000 entries were transferred from ports with
heavy backlogs to ports with seasonal surpluses of manpower. Even
so, the very sharp rise in the number of entries filed resulted in a
substantially larger bacldog of unliquidated entries at the end of
fiscal 1959.
Management teams and officials from the Washington headquarters
office inspected 37 customs districts during the year. Manpower
requirements were re-evaluated in terms of existing and anticipated
worldoads, simplified procedures were installed, and other improvements made, which, together with other major projects involving
management personnel, produced savings of more than $120,000. A
total of 849 employee suggestions were received, of which 266 were
adopted with awards of $13,170. Identifiable savings resulting from
the suggestions amounted to $43,000.
A formal program was established for the future training of customs
personnel on a systematic, nationwide basis, and a full-titne training
officer was appointed to direct it. As part of this program a supervisory training course was developed to meet customs needs and wUl
be given to supervisory officers throughout the Service. The first
group to receive this training was assembled in June 1959 at Detroit,
from Great Lakes and midwestern ports. A 3-month training course
for new employees hired to fill customs examiner vacancies also was
developed. The first session wUl be held at Boston early in fiscal
1960. After successful completion, the graduates wUl be assigned to
various ports throughout the country for further on-the-job training.
The new program of intensified classroom work, plus on-the-job
training, is a considerable improvement over the old program which
was limited almost entirely to on-the-job training.
ADMINISTRATIVE REPORTS
89
The first major change in 20 years has been made in the uniform
worn by customs employees. I t has been completely redesigned and
will be the same for all areas throughout the Customs Service. Customs inspectors, wearing the new uniform, will be easily distinguishable
from the inspectional force of other Government agencies. The neat
appearance of the uniform should make a better first impression on
foreign visitors.
In 1959 there were 12,642 cubic feet of records disposed of and
24,403 cubic feet were transferred to Federal Records Centers.
Records holdings on June 30, 1959, totaled 140,611 cubic feet, of
which 103,122 were scheduled for disposal.
As a result of changes in requirements, procedural improvements,
and employee suggestions, 44 customs forms were revised, 6 new forms
adopted, and 6 abolished.
OflBce of Defense Lending
The Office of Defense Lending was estabhshed on July 1, 1957, by
Treasury Order No. 185. Assigned to this Office were the followhig
functions which had been transferred to the Secretary of the Treasury.
Activities under the Defense Production Act
The making and administering of loans to private business enterprises under the authority of section 302 of the Defense Production
Act of 1950, as amended (50 app. U.S.C. 2153), were assigned to the
Secretary of the Treasury by Executive Order No. 10489, dated
September 26, 1953. Under section 302, this Office can consider only
applications for loans which are certified as essential for national
defense purposes by the Office of Civil and Defense Mobilization.
During the fi.scal yea/r 1959 a certificate of essentiality was issued in the
amount of $850,000 for an additional loan to a borrower. This loan
was disbursed by a bank and this Office executed a deferred participation agreement with the bank coveriag 90 percent of the loan. No
disbursement of Treasury funds is expected on account of this $765,000
commitment.
On July 1, 1958, there were loans outstanding amounting to $181.7
million and deferred participation commitments of $17 million. By
the close of the fiscal year 1959 these loans had been reduced to $169.4
million and commitments to $15.8 million.
Civil defense loans
The lending functions under section 409 of the Federal Civil Defense
Act were transferred to the Secretary of the Treasury on September
28, 1953, pursuant to section 104 of the Reconstruction Fiaance Corporation Liquidation Act (50 app. U.S.C. 2261). Beginning with the
fiscal year 1956 no administrative expense allowance has been authorized for this program, and no applications for new loans have been
accepted. I t was necessary, however, during fiscal 1959 to approve an
increase of $135,000 in a deferred participation commitment in a loan
authorized before fiscal 1956. No disbursement of Treasury funds is
anticipated on account of this commitment.
90
1959 REPORT OF THE SECRETARY OF THE TREASURY
On July 1, 1958, there were loans outstanding amounting to
$1,111,033 and deferred participation commitments of $2,538,994.
By June 30, 1959, these loans had been reduced to $1,008,920 and the
commitments to $2,436,727.
Liquidation of Reconstruction Finance|Corporation assets
Pursuant to the provisions of Reorganization Plan No. 1 of 1957
the Reconstruction Finance Corporation was abolished effective at the
close of June 30, 1957. Its remaining assets, liabilities, and obligations
were transferred to the Secretar3^ of the Treasury, the Administrator
of the Small Business Administration, the Housing and Home Finance
Administrator, and the Administrator of General Services.
The Secretary of the Treasury, functioning through the Office of
Defense Lending, is responsible for completing the liquidation of
business loans and securities with individual balances of $250,000 or
more, securities of and loans to railroads, securities of financial
institutions, and the windup of corporate affairs.
During fiscal 1959 there was paid into the Treasury as miscellaneous
receipts $12,375,000, representing net income and proceeds of liquidation on the various loans, securities, and commitments. This brought
to $24.5 miUion the total paid into the Treasury since July 1, 1957.
On June 30, 1959,.the portfolio of R F C loans, securities, and commitments amounted to $34 million, a reduction of $11.3 million from
the $45.3 million outstanding on July 1, 1958. This brought the
total of reductions effected to $21.5 million or approximately 40 percent of the portfolio of $55.5 million transferred to the Secretary of the
Treasury on July 1, 1957.
Except for a few items of acquired collateral from which some
further minor recoveries are expected, the liquidation of loans to and
securities of financial institutions has been completed. The last
issue of securities of an open bank was retired at the beginning of fiscal
1959. More than $3.9 billion was invested in this program by the
R F C during its 25-year existence.
In accordance with the requirements of section 6(c) of Reorganization Plan No. 1 of 1957, a final report on the corporate affairs of the
R F C from inception through June 30, 1957, was submitted to.the
Congress during June 195'9. This report reviews the 25-year history
of the R F C and covers all of its lending in World War I I and other
programs.
Bureau of Engraving and Printing
The Bureau of Engraving and Printing designs, engraves, and
prints United States currency. Federal Reserve notes, securities,
postage and revenue stamps, and various commissions, certificates,
and other forms of engraved work for Government agencies. The
Bureau also prints bonds and postage and revenue stamps for the
governments of insular possessions of the United States.
• . ADMINISTRATIVE REPORTS
91
Dehveries of all classes of work in the fiscal year 1959 totaled
53,856,308,156 pieces, as: compared with 49,231,137,328 pieces in
1958, an increase of 4,625,170,828 pieces, or approximately nine
percent, in the overaU deliveries of Bureau products. This increase
was accomplished although there was a reduction in employees from
3,479 as of June 30, 1958, to 3,335 as of June 30, 1959.
Organizational changes
Two organizational changes were made in fiscal 1959 to provide the
appropriate management structure for more efficient operations. On
August 5 a reorganization of the Office of Industrial Relations took
eft'ect which merged four branches into three, the Employment and
Training Branch, Employee Relations and Safety Branch, and Labor
Relations and Wages Branch. On September 19 the Office of Engraving and Plate Manufacturing and the Office of Surface Printing
and Ink Manufacturing were established, replacing the former Office
of Reproduction and Surface Printing.
Management attainments
Management and supervisory personnel from all organizational
units have cooperated as a team in meeting various problems encountered from day to day and in working continuously toward
maldng improvements in all operations of the Bureau.
Continued eftorts to effect further modifications and improvements
in equipment and processing operations used in 32-subject currency
production have resulted this year in an estimated recurring annual
saving of $848,000. This saving is additional to the $1,000,000 reported in fiscal 1958. I t includes associated benefits derived from:
(1) The adoption of the use of new note counting machines, which has
practically eliminated the hand counting of notes and increased the
number of notes processed by single note examiners; and (2) the
installation of reverse sequence numbering wheels on the currency
overprinting presses, which, synchronized with procedural changes in
sheet examining methods, has contributed significantly to increasing
the daily production of the individual sheet examiners.
The greatest stamp printing arid processing job in the history of
the Bureau was accomplished during July 1958 in order to meet the
unprecedented demand for postage stamps resulting from the postal
rate increase eft'ective on August 1, 1958.
During fiscal 1959 certain components of the new coil stamp manufacturing equipment purchased in the previous year were clelivered
and installed. This equipment was used, as required, to augment the
production of the prototype model equipment. Deliveries processed
on the new equipment totaled 1,758,642,400 stamps. This work was
produced at an average manufacturing cost of $.2796 per thousand
stamps as compared with $.5272 (exclusive of administrative and
general overhead) under the former method. Based on fiscal year
1959 deliveries, it is estimated that the reduction in the manufacturing
unit cost rate of $.2566 per thousand stamps will result in recurring
annual savings of $451,268.
92
1959 REPORT OF THE SECRETARY OF THE TREASURY
Establishment of improved work methods in postage stamp book
operations, including the elimination of machine coUating and the
subsequent strip examining operation, has resulted in estimated recurring annual savings of $92,102.
On February 21, 1959, following extensive planning, study, and
meetings with Post Office Department representatives, the Bureau
began processing postmasters' punch-card requisitions for postage
stamps. The conversion from paper to punch-card Post Office
Department requisitions was made with a minimum of difficulty.
Conferences and correspondence between Post Office Department and
Bureau production and planning officials have brought agreement on
several remaining problems of policy and procedure relating to the
electric accounting machine system for processing the requisitions.
From experience gained since the inception of the system the Bureau
has modified the initial procedures for processing the requisitions and
is incorporating the modified procedures into a manual.
On May 7, 1959, the Director issued a bulletin notifying employees
of a reduction in the Bureau's work program due to the discontinuance of the use of cigarette and certain other internal revenue stamps,
effective June 23, 1959. This change reduced the amount of Internal
Revenue work produced in the Bureau by approximately 90 percent.
However, the Director assured all employees engaged in these activities that they would be reassigned to other positions in the Bureau
without loss in rate of pay. Printing of the affected internal revenue
items was discontinued immediately, with the exception of items for
which there was insufficient stock in the Bureau to fill requisitions.
Immediate steps were taken to have the paper contractor stop production and shipment of all internal revenue paper; all orders for
associated materials, such as corrugated boxes and chipboard, were
canceled; and the ordering of other related supplies was reduced
accordingly. Clearance was obtained to make blue watermarked
internal revenue paper a nonsecurity item. A portion of the paper on
hand was sold to a private concern and the remaining paper will be
used by the Bureau.
Considerable effort was expended during the year in planning and
effecting necessary emergency repairs to the stone facing on the
Annex Building, occasioned by the falling early in the morning of
October 11, 1958, of large pieces of limestone facing, weighing several
tons. The emergency repairs, made by a private contractor, were
completed in June. A purchase order has been placed with the
General Services Administration to cover engineering services and
preparation of plans and specifications for the repair of the stone
facing on the entire Annex Building.
The Bureau has continued its efforts to improve paperwork management. Through the records management program approximately 746
cubic feet of obsolete records were disposed of. Through the forms
ADMINISTRATIVE REPORTS
93
management program a total of 1,218 requests for form services were
processed, resulting in the preparation of 136 new forms, the elimination of 95 forms, and the improvement and revision of 345 forms.
Instructions governing administrative and production operations were
issued in manuals, ^Trocedure Issuances," and other written instructiODS.
Through the Bureau's training program, employees have participated in technical trainiag courses relating to matters such as air
conditioning, practical electronics, punch-card techniques, and heliarc welding: in various courses designed for office workers, such as
office administration and letter writing practices; in supervisory development courses; and in the Civil Service Commission's management intern programs. The program has included training and
orientation inside and outside the Bureau.
The safety program has continued to be one of vital interest and
concern to the Director of the Bureau. I t is the program's aim to
instill the same interest in all supervisors and employees.
Under the Bm'eau's incentive awards program 554 contributions
were processed dming fiscal 1959. Of these contributions 154
suggestions were adopted, 15 of which will result in recurring annual
savings of $5,065. For the third consecutive year the participation
rate in the employee incentive awards program has moved upward,
with a rate of 118 suggestions per 1,000 employees, compared with
115 for the preceding year. The adoption rate also increased to 33
percent of the total suggestions received from 28 percent in 1958.
In addition 91 superior work performance awards were made.
In fiscal 1959, 80 internal audit reports were made containing 154
recommendations, of which 116 have been cleared. In addition 34
recommendations made in prior years were cleared.
Wage increases aff'ecting approximately 2,766 ungraded employees,
and amounting to approximately $504,682 annually, were made to
keep wage rates for Bureau jobs aligned with those for comparable
jobs in the Government Printing Office and the American Bank Note
Company.
Throughout fiscal 1959 the Bureau has carried on an active research
and development program in the interest of effecting refinements of
inks, materials, equipment, and procedures wherever possible.
The estimated savings resulting from management improvement
efforts for the fiscal year 1959 total 145 man-years and approximately
$1,452,394 on a recurring annual basis. All savings realized have been
applied against the cost of production and have been reflected in
billing rates and in inventory valuations.
New issues of stamps and deliveries of finished work
New issues of postage stamps are shown in table 105. A comparative statement for 1958 and 1959 of deliveries of finished work appears
in table 106.
94
1959
REPORT OF T H E SECRETARY OF T H E
TREASURY
Finances
The Bureau operations are financed by reimbursements to a working
capital fund authorized by law. A statement of income and expense
and balance sheets as of June 30, 1958 and 1959, follow.
Statement of income and expense for the fiscal years 1958 and 1959
1958
Operating r e v e n u e : Sales of engraving a n d p r m t i n g
O p e r a t i n g costs:
Cost of sales:
Direct l a b o r . . .
D i r e c t materials u s e d .
.__
P r i m e cost
_.
.
O v e r h e a d costs:
Salaries a n d indirect l a b o r .
F a c t o r y supplies
Repair parts and supplies.
-'...
E m p l o y e r ' s c o n t r i b u t i o n s for retii'ement a n d life insurance
U t i l i t y services
Other contractual s e r v i c e s . .
_
Depreciation a n d a m o r t i z a t i o n
Losses on disposal or r e t i r e m e n t of lixed assets
S u n d r y expense (net) __
T o t a l overhead
.
__
.
T o t a l costs
Less:
N o n p r o d u c t i o n costs:
Shop costs capitalized
Cost of miscellaneous services r e n d e r e d other agencies
. N e t increase in finished goods a n d work in process inventories
Cost of sales
1..
-.-. ..
Operating loss
Nonoperating revenue:
Sales of card checks
Operation a n d m a i n t e n a n c e of incinerator a n d space utilized b y other
T r e a s u r v activities
Other s e r v i c e s . .
N o n o p e r a t i n g costs:
P u r c h a s e s of card checks
_
_
F r e i g h t out-card checks.
Other costs of miscellaneous services r e n d e r e d other agencies
N o n o p e r a t i n g profit
N e t loss for t h e year
_
.
. - .
1959
$25, 890, 982
$26, 295, 282
10, 265,006
4, 987, 203
10,367,930
5, 200, 772
15,252,209
15, 568 702
6, 793, 268
1,114,485
342, 374
1, 059, 269
415, 859
403, 606
1, 519, 239
124, 722
73,679
7, 002, 626
1,210.032
278, 298
1,126, 925
400 094
509, 205
1.846 714
353. 302
276 640
11,846,501
13,003, 836
27, 098, 710
28, 572, 538
369, 585
451, 323
363,375
266,157
454, 661
1, 547, 092
1.184, 283
2, 267, 910
25, 914, 427
26, 304, 628
23, 445
9, 346
1,104, 245
1, 252,051
334. 687
106,093
362, 893
76, 921
1, 545, 025
1, 691,865
925,106
168,410
451,323
1, 043. 502
193,503
454. 661
1, 544.839
1,691,666
186
199
23, 259
' 9,147
1 In accordance with the act approved August 4,1950'(31 U.S.C. 181-181e), the net losses will be recovered
from any surplus accruing in a subsequent year before the balance of such surplus is deposited into the
general fund of the Treasury as miscellaneous receipts.
ADMINISTRATiyE
95
REPORTS
Balance sheets as of J u n e 80, 1958 and 1959
Assets
C u r r e n t assets:
Cash with Treasury
Accounts receivable
Inventories:
R a w materials
Goods in process
Finished goods
S t o r e s . . .P r e p a i d expenses
..
.
-..
J u n e 30, 1958
.
. ._.
... .
.
-
. . . . .
- .
.
Total ourrent assets
Fi.xed a s s e t s : '
Plant machinery and equipment
M o t o r vehicles
Office machines
Furniture and
fixtures..
Dies, rolls, a n d p l a t e s . . . .
....
Building a p p u r t e n a n c e s
Fixed assets u n d e r construction
...
- ..
..
..
. .
.. .
. .
. ..
Less portion charged off as depreciation
.
..
Excess fixed assets (estimated realizable value)
T o t a l fixed asFcts
Deferred charges
-.
T o t a l assets
"Liabilities and i n v e s t m e n t of t h e U n i t e d States
Liabilities:
A ccoun t.'=! p a y a b l e
Accrued liabilities:
Payroll . .
A ccrued leave
Other
T r u s t a n d deposit liabilities
Otherliabilities
Totaliiabilities.
. ..
.
.. -
. .
I n v e s t m e n t of t h e U n i t e d States G o v e r n m e n t :
Principal o f t h e fund:
A p p r o p r i a t i o n from U n i t e d States T r e a s u r y
D o n a t e d assets, n e t
-.T o t a l principal
•
E a r n e d surplus, or deficit (—) ^
$4, 350, 258
1,175, 087
$3, 200, 234
1, 233, 527
993, 701
2, 379,216
1, 498,882
1,290, 977
69, 242
996, 520
3, 279,407
2,145, 783
1, 272, 061
144,188
11, 757, 363
12,271, 720
17, 583, 313
67, 970
169, 381
437,275
3, 955, 961
1, 593, 244
76, 624
18, 467,312
68, 402
181, 931
448,030
3, 955, 961
1, 735, 409
172,442
23, 883, 768
7, 307, 078
25, 029,487
8, 370, 069
16, 576, 690
3,045
16, 659, 418
20, 882
16, 579, 735
16, 680, 300
281, 816
216, 705
28, 618, 914
29,168, 725
J u n e 30, 1958
.....
..-
T o t a l i n v e s t m e n t of t h e U n i t e d States G o v e r n m e n t
T o t a l liabilities a n d i n v e s t m e n t of t h e U n i t e d States Government
J u n e 30, 1959
J u n e 30, 1959
$433,188
$979, 364
910, 438
1, 265, 983
99, 758
712,110
1,428
823,913
1, 262, 472
207,179
699, 405
9,530
3, 422, 905
3, 981, 863
3, 250, 000
22, 000, 930
3, 250, 000
22, 000, 930
25, 250, 930
- 5 4 , 921
25, 250, 930
- 6 4 , 068
25,196, 009
25,186. 862
28, 618, 914
29,168, 725
1 Fixed assets acquired prior, to July 1, 1950, are capitalized at appraised values (estimated replacement
cost as of July 1, 1951, reduced to recognize the depreciated condition of the a.ssets being capitalized); subsequent additions have been capitalized at cost, except that on and after July 1,1951, all costs of manufacturing dies, rolls, and plates have been charged to current operations.
The act approved August 4, 1950 (31 U.S.C. 181.-181e), which established the Bureau of Engraving and
Printing Fund, specifically excluded from the assets of the fund the land and buildings occupied by the
Bureau. In accordance with the Comptroller General's decision of October 4, 1951 (B-104492), however,
replacements of building facilities and improvements to buildings made on and after July 1,1951, have been
financed by the fund. Such items of significant dollar amounts have been capitalized at cost and appear
in the foregoing balance sheets under the caption "Building Appurtenances."
2 Earned surplus or deficit arises through billing for products at unit prices established prior to the development of actual costs. Section 2(e) of the act of August 4, 1950, requires that any surplus accruing to the
revolving fund during any fiscal year be deposited into the general fund of the Treasury as miscellaneous
receipts during the ensuing fiscal year, provided that such surplus may first be applied to offset any deficit
resultmg frora operation in prior years.
96
1959 REPORT OF THE SECRETARY OF THE TREASURY
Fiscal Service
The Fiscal Service consists of the Office of the Fiscal Assistant
Secretary, the Bureau of Accounts, the Bureau of the Public Debt,
and the Office of the Treasurer of the United States and is under the
general supervision of the Fiscal Assistant Secretary of the Treasury.
The Fiscal Assistant Secretary, under the general direction of the
Under Secretary for Monetary Affairs, is responsible for the administration of the financing operations of the Treasury; preparation
of estimates for the future cash position of the Treasury for use of the
Department in its financing; direction of the distribution of funds
between the Federal Reserve Banks and other Government depositaries; preparation of calls for the withdrawal of funds from the
special depositaries to meet current expenditures; administration of
Treasury responsibilities under Executive orders with respect to the
purchase, custody, transfer, and sale of foreign currencies acquired
under international agreements in connection with United States
programs operated abroad; and direction of fiscal agency functions in
general.
Additional responsibilities of the Fiscal Assistant Secretary include
continuous liaison with other departments and agencies of the Government with respect to and the coordination of their financial operations
with those of the Treasury; supervising the administration of accounting functions and related activities of all units of the Treasury Department through the Commissioner of Accounts; and carrying out the
Treasury's participation in the joint accounting improvement program
of the Secretary of the Treasury, the Director of the Bureau of the
Budget, and the Comptroller General of the United States pursuant
to the provisions of the Budget and Accounting Procedures Act of 1950.
More detailed explanations of the operations involved under the
responsibilities of the Fiscal Assistant Secretary are given in the
reports of the Bureau of Accounts, the Bureau of the Public Debt,
and the Office of the Treasurer of the United States which follow.
BUREAU OF ACCOUNTS
Under delegation of authority, the Bureau of Accounts performs
many functions that relate to statutory responsibilities of the Secretary
of the Treasury. Most are of Go vernment-wide significance. Principally, they consist of the maintenance of a system of central accounts;
the preparation of central financial reports of the Government;
participation in the joint program for improvement of Government
accounting and reporting; the accounting and reporting for foreign
currencies in the custody of the Secretary of the Treasury; the coordination and appraisal of the internal audit activities in the Department;
the issuance of checks in payment of obligations incurred by agencies
in the executive branch of the Government, with certain exceptions;
administrative work relating to the designation of Government
depositaries; the determination of qualifications and underwriting
limitations of surety companies to write fidelity and other surety bonds
covering Government activities; the investment of social security
and other Government trust funds; and the administration of the
ADMINISTRATIVE REPORTS
97
loans and advances by the Treasury to corporations and other agencies
of the Government.
The Bureau of Accounts also administers payments of claims under
certain international agreements; maintains accounts and collects
amounts due from foreign governments under lend-lease and other
agreements; and furnishes Treasury bureaus and other executive
agencies with technical guidance and assistance in accounting and
reporting matters.
Accounting, Reporting, and Related Operations
Central accounting
Pursuant to Section 114 of the Budget and Accounting Procedures
Act of 1950 (31 U.S.C. 66b), the Bureau of Accounts through the
Division of Central Accounts maintains the central system of accounting for the Federal Government, including summary controlling
accounts for cash assets, certain liabilities, receipts, expenditures,
and a related set of subsidiary budgetary, trust, and deposit accounts
classified by appropriations and funds. Through this S3^stem the
central summary accounts of the Federal Government are effectively
integrated with the cash account of the Treasurer of the United
States and the accounts of the administrative agencies of the Government. The Division of Central Accounts prescribes official appropriation, other fund, and receipt account symbols and titles, and
issues all Treasury warrants establishing amounts appropriated
pursuant to law.
The central accounts show the Government's receipts classified by
sources and by collecting agencies, expenditures according to the
related appropriations and funds made available to the several departments and agencies authorized by law to administer the funds; and
certain assets and liabilities of the Government which primarily are
derived from cash operations of the Treasurer of the United States,
disbursing officers, collecting agents, and other fiscal officers accountable for the collection, custody, and disposition of the cash resources
of the Federal Government.
The central accounts provide the accounting basis for the preparation of financial statements and reports covering the Government's
receipt and expenditure transactions and balances for publication in
official financial statements. These statements and reports include
the Monthly Statement oj Eeceipts and Expenditures oj the U.S. Government; the monthly Treasury Bulletin; the Annual Beport oj^ the Secretary oj the Treasury; and the actual financial data relating to the
immediately preceding fiscal year required annually for the Budget
oj the U.S. Government; and various other financial statements prepared for official use.
A new classification of general fund receipt s3mibols and titles was
developed during the year, effective beginning July 1, 1959, as prescribed in Department Circular No. 1027, dated May 25, 1959. A
substantial reduction was made in the number of accounts previously
prescribed. The new classification, which meets the requirements
for central accounting and reporting, is the product of a study conducted by representatives of the Treasury Department, Bureau of
525622—60
8
98
1959 REPORT OF TPIE SECRETARY OF THE TREASURY
the Budget, and General Accounting Office in consultation with
several other departments and agencies.
The volume of accounting items processed b}^' the central and
regional accounting offices of the Division of Central Accounts
decreased in 1959 from 1958 as follows:
Classification
Work volume
1959
1958
Number
Peceipts
Expenditures. -.
Other items
1,621, 582
3,081,618
13,536
1, 590, 059
2, 910,410
14,066
Total
4, 716, 736
4,514, 535
The decrease resulted principal^ from simplifying procedures and
increasing the average number of expenditure items contained in
each document.
Accounting systems
The Accounting Systems staff of the Bureau of Accounts provided
assistance to the office of the Fiscal Assistant Secretary, the Secret
Service, the Bureau of Customs, the Office of Administrative Services,
and the Bureau of Accounts in conducting surveys, studies, and work
projects leading to the development or revision of Department
circulars, fiscal procedures, and accounting systems. The staff also
conducted an appraisal of the progress of Treasury bureaus and offices
in the program for improvement of financial management, and contiuued to encourage and assist other Treasury bureaus toward the
development of more effective accounting systems.
Other matters participated in by members of the staff included
study or implementation of requirements for: Withholding by the
Federal Government of State income taxes by agreements between
the Treasury and the States involved; deposits of social security
contributions by States under agreements reached with the Social
Security Administration for coverage of State employees; deposits of
withheld taxes and other receipts with depositary banks; and procedures for establishing within the unemployment trust fund the
'^Railroad Unemployment Insurance Administration Fund," as
authorized by Pubhc Law 85-927, approved September 6, 1958
(72 Stat. 1778).
Central reporting
The Division of Central Reports is responsible for the preparation
of the Annual Report of the Secretary of the Treasury, the annual
Combined Statement of Receipts, Expenditures and Balances of the U.S.
Government, the Monthly Statement oj Receipts and Expenditures oj the
U.S. Government, the monthly Treasury Bulletin, the m.onthly statement of Budgetary Appropriations, and Other Authorizations, Expenditures and Unexpended Balances, and various reports on foreign currency
operations. Improvements in content and timeliness are made in
ADMINISTRATIVE REPORTS
99
these and other periodic central reports prepared by the Bureau to
meet changing conditions and to serve the special needs of congressional committees, staff members of the Government agencies, and the
public. Departmental and agenc}^ reporting is continuously evaluated
by the Division and is coordinated with central financial reporting
through liaison with Government agencies and collaboration with the
Bureau of the Budget and the General Accounting Office. Progress
was made during the yeai in planning and providing for central reports
in several broad economic areas.
In response to congressional inquiries, special data were compiled
on Federal lending programs and authorizations to expend from public
debt receipts. The supplying of these data disclosed the need for
additional information on a continuing basis from the agencies involved. An amendment to Department Circular No. 966 is in preparation to require the reporting of such data to the Treasury. Department CirciUar No. 965 was revised, effective for the fiscal year 1959,
to require reports by agencies on their unexpended balances stated in
terms of availability as well as data on the withdrawal of unobligated
balances and subsequent restorations. These reports are to replace
those furnished under provisions of sec. 1311(b) of an act approved
August 24, 1954 (31 U.S.C. 200(b)), which were amended by section
210(a) of Pubhc Law 86-79, approved July 8, 1959.
Control of foreign currencies
The custodial control of foreign currencies acquired by the U.S.
Government without the payment of dollars is a responsibility of the
Treasury Department. Legislation enacted in 1959; additional agreements negotiated with foreign governments by the Secretary of State
under the provisions of Public Law 480, as amended; and the collections of maturing interest and prmcipal on loans under the Mutual
Security Act, as amended, resulted in a greater accumulation of
foreign currencies as reported in Treasury statements. In addition
to the special section on foreign currency accounts in the annual
Combined Statement of Receipts, Expenditures and Balances, periodic
reports are prepared showing the status of operations cumulative
from inception under Public Law 480, as amended. A quarterly
report of the fiscal 3^ear transactions and balances in accounts of the
Secretary of the Treasury for all foreign currencies acquired without
the payment of dollars is prepared also.
Foreign currency collections or acquisitions, without payment of
dollars, from all sources amounted to the equivalent of $1,282.6 million
during the fiscal ^^^ear 1959. Withdrawals and transfers of currencies
for authorized uses without reimbursement were the equivalent of
$951.5 million. Currencies sold to U.S. Government agencies for
dollars were in the equivalent of $238.8 million. Balances of foreign
currencies in Treasury accounts were in the equivalent amount of
$1,514.6 million as of June 30, 1959. Of.the currencies transferred
without reimbursement and held for account of the various Federal
agencies, the unexpended balances were equivalent to $565.1 million
as of June 30, 1959. Summary statements showing the dollar equivalents of collections, withdrawals, and balances for the fiscal year 1959
and balances by countries as of June 30, 1959, are included in this
report as tables 113 and 114.
100
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Internal auditing
The Bureau has a dual responsibility for internal auditing, first, the
general administration and coordination of fiscal internal auditing in
the various bureaus of the Treasury Department, and second, making
an internal audit of the Bureau's own operations.
Staff operations during the year included reviews of the internal
audit systems in operation in the Office of the Treasurer of the United
States, the Bureau of the Mint, and the Bureau of Narcotics; and the
giving of constructive assistance where needed; dissemination of
internal audit information to the bureaus; holding two general meetings of the head internal auditors of the bureaus for exchange of ideas
and information; and liaison between the audit staff of the General
Accounting Office assigned to the Treasury and the Treasury staff.
Internal audits made during the year of the Bureau of Accounts'
own operations encompassed the large Government trust funds (Federal old-age and survivors insurance trust fund. Federal disability
insurance trust fund, highway trust fund, etc.), the examination work
of the Surety Bonds Branch in connection with determining qualifications of insurance companies to do surety business with the United
States, the Bureau of Accounts purchase and supply function, and
various administrative and other accounts. A comprehensive field
audit was made of the Kansas City regional office and partial audits
were made of a number of other regional offices.
Pursuant to Treasury Department Order No. 174, Amendment
No. 1, dated October 10, 1958, the annual audit of the unissued stocks
of Federal Reserve notes, previously performed by the Office of the
Comptroller of the Currency was transferred to the Bureau of Accounts. In accordance with that order, the Bureau completed its
first audit of the stocks as of February 13, 1959.
Commodity Credit Corporation appraisal
Under the act of March 8, 1938, as amended (15 U.S.C. 713 a-1),
the Secretary of the Treasury is required as of June 30 of each year,
to appraise all of the assets and liabilities of the Commodity Credit
Corporation to determine the Corporation's net worth. The amended
act defines asset values, for the purpose of determining the net worth,
as the cost of such assets to the Corporation, and therefore the appraisal figure is stated in terms of realized losses or gains. Losses
from certain programs of the Corporation for which the Congress has
provided specific appropriations are not included in the amount of the
impairment.
The appraisal disclosed an impairment of $1,535,424,413 in the
Corporation's capital during the fiscal year ended June 30, 1958.
By Public Law 86-80, approved July 8, 1959, the Congress appropriated $1,435,424,413, which was $100,000,000 less than the amount of
the capital impairment.
Disbursing Operations
The Division of Disbursement is the Government's principal checkissuing organization and provides centralized disbursing service for
the executive branch of the Government, except the mUitary services
of the Department of Defense, the Post Office Department, and cer-
ADMINISTRATIVE REPORTS
101
tain Government corporations. Through its 21 regional offices, the
Division processed payments and issued U.S. savings bonds for more
than 1,500 separate Government offices located throughout the United
States, its Territories, and the Philippines. Under arrangements with
the Department of State, payments were made for all civilian agencies
of the U.S. Government requiring foreign disbursing service. The
Division also exercised technical supervision over all disbursing operations delegated by authority of the Chief Disbursing Officer to foreign
disbursing offices and branches at embassies and consulates in foreign
countries, assistant disbursing officers attached to agencies in the
United States, South and Central America, in other foreign countries,
and cashiers who make cash payments in the United States, the Territories, and foreign countries.
Appreciable savings were realized in the fiscal year 1959 through
further advances in mechanical processes and improved procedures
effected under the management improvement program. Recurring
annual savings to the Division of Disbursement in 1959 amounted to
$504,491.
In cooperation with the administrative agencies served, significant
improvements were made possible in several areas of operation. These
included: Microfilming U.S. savings bonds instead of preparing bondissuance schedules; mechanization of Veterans' Administration benefit
payment accounting functions which permitted regional disbursing
offices to use a predetermined balance control procedure;, further
elimination of bookruns and utUization of check lists as vouchers
through the punching of claim numbers into the checks from special
addressograph plates or using punch-card payment files for veterans
and social security benefits; mechanization of veterans' due-date
insurance recurring payments which reduced disbursing office paj'^ment
files approximately 12 percent; use of tabulating cards to prepare
veterans' training allowance checks; elimination of certain special
devices on tabulating equipment; extension of high-speed electronic
check-processing equipment in regional disbursing offices; and development of a single item transfer printing device which reduces the
number of typed"checks and processing costs.
The completion of the social security rate change for payments due
January 1, 1959, required the seven regional disbursing offices making
these payments to change approximately 1 OK mUlion payment file
plates and cards concurrently with the continued issuance of the regular monthly checks. All payments were made on scheduled dates.
The regional disbursing office at Birmingham, Ala., was reestablished in September 1958, terminating the test operation at that point
for social security benefit payments. Based upon a determination
that the work of the New Orleans regional office could be handled
more economically in Birmingham and Dallas without impairing
essential service, the New Orleans regional office was closed on
March 1, 1959, and the work transferred. The retransfer of the workload of Veterans' Administration and other agencies' payments from
the Atlanta regional office to Birmingham, effective March 1 and
AprU 1, 1959, also resulted in savings to the Government.
In cooperation with the Veterans' Administration, plans were completed for the centralization in Chicago during the calendar year
102
195 9 REPORT OF TPIE SECRETARY OF THE TREASURY
1960 of veterans' benefit payments. The transfer of the veterans'
check-issuance work from the various regional disbursing offices to
the Chicago regional disbursing office will result in the closing of
several regional offices where the remaining volume wUl no longer
justify their continuance.
For fiscal 1959 the unit cost for processing checks was 4.28 cents as
compared with 4.16 cents in 1958. This includes unusual costs, such
as the nonrecurring cost of the social security benefit rate change, as
well as the recurring additional costs for salary increases for the full
fiscal year.
The volume of work completed during fiscal 1959 compared with
that of 1958 was as follows:
Number
Classification
1958
Payments made:
Social security
Veterans' benefits.
_
Income tax refunds
Veterans' national service life insurance dividend program.
Other
•
Adjustments and transfers.Savings bonds issued
Total
1959
115,804,163
63, 665,850
36, 794,293
3, 843, 530
41, 753, 268
278,458
2, 933, 491
122,993,153
63,183, 679
36, 461,382
4, 252, 556
43, 820,407
253, 930
3,322, 721
265,073,053
274, 287, 828
Deposits, Investments, and Related Operations
Federal depositary system
Government depositaries provide the various departments and
agencies with certain banking and financial services other than those
provided by the Office of the Treasurer of the United States. The
depositaries consist of the Federal Reserve Banks and branches and
qualified commercial banks. The supervision of the depositaries,
under the general direction of the Fiscal Assistant Secretary, is
exercised through the Bureau of Accounts and is administered through
Department regulations covering the authority, qualifications, and
other requirements applicable to depositaries. The Bureau also supervises the procedures for the deposit in depositaries of certain
income and excise taxes and withheld taxes collected for old-age insurance and for raUroad retirement.
As the principal fiscal agents of the United States, each Federal
Reserve Bank maintains an account in the name of the Treasurer of
the United States. Ultimately, nearly all Government receipts are
credited in these accounts and from them nearly all payments are
made. As the facilities of the Federal Reserve Banks and branches
are available at only 36 points in the United States, however, it has
been necessary to supplement them by designating more than 11,500
commercial banking institutions at other points. Of these banks
authorized to provide one or more of the following services: 11,377
receive proceeds from deposits of taxpayers and the sale of public
debt securities for credit in Treasury tax and loan accounts; 800
receive deposits from directors of intemal revenue, postmasters, mUi-
ADMINISTRATIVE REPORTS
103
tary finance officers, and others for credit to the Treasurer of the
United States; 3,000 maintain official checking accounts of postmasters, clerks of the United States Courts, and other Government
officers; 2,266 furnish bank drafts to Government officers in exchange
for collections, thereby facilitating the transmission of such collections
for subsequent deposit to the credit of the Treasurer of the United
States; and 75 service State unemployment compensation benefit
payment and clearing accounts. They also operate limited banking
facUities at 281 military posts aiid reservations in the continental
United States and at 159 militaiy installations overseas.
A complete description of the operations of each type of depositaiy
appears in exhibit 44 in the Annual Report of the Secretary of the
Treasury for 1955.
Investments
The Secretary of the Treasury under specific jprovisions of law is
charged with the responsibility of investing trust and other Federal
funds in obligations of the United States. The Investments Branch
processes investment transactions and maintains administrative accounts and records. Records of .securities held in safekeeping by the
Treasurer of the United States and the Federal Reserve Banks subject
to the order of the Secretary of the Treasury also are maintained.
Facilities of the Treasury Department are available also for handling
investments for other agencies of the Government, for quasi-governmental funds, and for the Government of the District of Columbia.
Table 61 shows the investments accounts handled primarily by the
Treasury.
Highway trust jund.—Section 209(a) of the Highway Revenue Act
of 1956 (23 U.S.C. 173), approved June 29, 1956, established the
highway trust fund. The act requires the Secretary of the Treasury
to estimate the amounts of collections of Federal excise taxes on gasoline, tires, trucks, and other highway-user levies to be transferred from
the general fund to the highway trust fund, subject to adjustment to
actual tax receipts, and to invest any of these receipts, iii his judgment;
not needed for current highway expenses. The act also requires the
Secretary, after consultation with the Secretary of Commerce, to
report annually to the Congress on the financial condition and the
results of operations of the trust fund for the preceding year and give
estimates of its anticipated condition and operations through fiscal
1973.
The report for fiscal 1958 was made on February 27, 1959 (House
Document No. 92). Appropriations made to the trust fund during
fiscal 1959 amounted to $2,171,015,864.15 and interest on investments amounted to $13,583,651.19. Expenditures amounted to
$2,709,476,166.05. Table 71 shows the status of the fund as of June
30, 1959.
Loans and advances by the Treasury
Loans are made to Government corporations and agencies by the
Secretary of the Treasury pursuant to specific provisions of law.
The Secretary of the Treasury determines the interest rate on such
loans if the rate is not established or specified in legislation. Loan
agreements are prepared, ledgers aa'c established and maintained,
104
1969 REPORT OF THE SECRETARY OF THE TREASURY
and repayment transactions are handled by the Investments Branch.
Transactions are processed and records maintained relating to other
advances and subscriptions to capital stock of Government corporations by the Secretary of the Treasury. Table 119 shows the status
of loans made by the Treasury, including the repayments and other
reductions in the fiscal year 1959.
Saint Lawrence Seaway Development Corporation.—The Corporation
was created under the provisions of the act of May 13, 1954 (33 U.S.C.
981-985), for the purpose of constructing part of the Saint Lawrence
Seaway in U.S. territory in the interest of national security. To
finance its activities, the Corporation issues revenue bonds to the
Secretary of the Treasury who is authorized and directed to purchase
obligations of the Corporation up to a maximum of $140 million. The
maximum which may be issued in any 1 year, however, is 50 percent
of that amount. During the fiscal year the Secretary of the Treasury
purchased bonds totaling $15,800,000. As of June 30, 1959, the bonds
of the Corporation held by the Treasury amounted to $112,500,000.
Rejugee reliej.—The Refugee Rehef Act of 1953 (50 app. U.S.C. 1971n)
expired on December 31, 1956. Under the loan agreements the borrowing agencies have until June 30, 1963, to make interest free repayments. After that date the loans bear interest at the rate of three
percent per annum on the unpaid balance. During the year ended
June 30, 1959, the agencies repaid $62,000, and the balance outstanding was $139,000. Table 86 shows the amounts due from each of the
three borrowing agencies having balances outstanding.
District oj Columbia.—The Commissioners of the District of Columbia are authorized by the act of June 2, 1950 (sec. 43-1540 D.C.
Code, 1951 edition), to borrow an amount not to exceed $35 mUlion
from the U.S. Treasury to finance the expansion and improvem^ent of
the water system in the District of Columbia. The loans are repayable over a period of 30 jesus from the borrowing date and bear
interest rates of 2% percent to 3% percent. Loans made during the
fiscal year 1959 amounted to $3,250,000 and repayments amounted
to $123,581.62. As of June 30, 1959, the principal outstanding
amounted to $13,072,770.01 and the accrued interest amounted to
$340 032.29.
Under the act of June 6, 1958 (9 D.C.C. 220), the Treasury is
authorized to make loans not to exceed $75 mUlion prior to June 30,
1968, to the District of Columbia for financing the cost of constructing facUities. Loans are repayable over a period of 30 years and bear
interest at a rate to be determined by the Secretary of the Treasury.
No loans were made during fiscal 1959.
Surety bonds
Certificates of authority are issued by the Secretary of the Treasury under the act approved July 30, 1947 (6 U.S.C. 8), to qualified
sureties making application and qualifying to execute bonds in favor
of the United States. A list of companies holding such certificates
of authority (Circular 570, Revised) is published by the Treasury
annually in the Federal Register on or about May 1. The Surety
Bonds Branch examines the applications of companies requesting
authority to write Federal bonds and currently reviews the qualifications of the companies so authorized. The branch also examines
ADMINISTRATFVE
105
REPORTS
and approves as to corporate surety all bonds in favor of the United
States, except certain bonds of the Post Office Department and the
Department of the Army, and has custody of the bonds examined
with the exception of contract bonds and some special type bonds.
As of June 30, 1959, there were 178 companies holding certificates
of authority, qualifying them as sole sureties on recognizances, stipulations, bonds, and undertakings permitted or required by the laws
of the United States, to be given with one or more sureties. There
were also 23 companies holding certificates of authority issued under
Department Circular No. 297, as amended, as acceptable reinsurers
only. During the fiscal year certfficates of authority to act as sole
sureties were issued to 11 companies and the authority of 9 was
revoked. Certfficates were issued to 4 companies as acceptable reinsurers only, and the authority of 1 reinsurer was extended to that of
a sole surety. Three companies changed names. A total of 41,601
bonds and consent agreements cleared through the Bureau for approval
as to corporate surety.
The head of each department and independent establishment in
the executive branch of the Federal Government is required to obtain,
under the provisions of Public Law 323, approved August 9, 1955
(6 U.S.C. 14), and regulations promulgated by the Secretary of the
Treasury, blanket, position schedule, and other types of surety bonds
covering civUian officers and employees and military personnel of
each department or independent establishment who are required to
be bonded. The law permits officials of the legislative and judicial
branches a t their discretion to obtain appropriate types of surety
bonds covering officers and employees under their respective jurisdictions. The law further authorizes agencies to pay bond premiums
from any funds avaUable for administrative expenses.
A summary of the information reported by agencies, for transmittal to Congress by the Secretary of the Treasury, showing bonds in
force at the close of the last 2 years follows.
J u n e 30, 1958
N u m b e r of ofBcers a n d employees covered:
Executive branch
Legislative a n d judicial b r a n c h e s
Total
_
.
Aggregate p e n a l s u m s of b o n d s procm-ed:
Executive branch
Legislative a n d judicial b r a n c h e s - . _ . . .
Total
Total premiums paid b y Government:
Executive branch
Legislative a n d judicial b r a n c h e s
Total
.
A d m i n i s t r a t i v e expenses:
Executive branch
Legislative a n d judicial b r a n c h e s
Total
_
J u n e 30, 1959
944,595
1,275
916, 798
1,334
945, 870
918,132
$3, 405, 432, 311
10, 280,000
$3, 221,792, 413
10, 523, 400
3,415, 712, 311
3, 232, 315. 813
293, 459
4,494
209,120
4, 579
1 297, 953
273, 699
29, 050
456
25, 502
571
29, 506
26, 073
• Premiums on bonds are shown on the basis of the proportionate cost for 1 year, together with the premiums on 1-year bonds in order to arrive at an annual rate.
106
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Foreign Indebtedness
World War I
The Treasury received semiannual payments of principal and interest from the Government of Finland during the fiscal year 1959 in the
total amount of $396,641.86, due under funding and moratorium agreements covering indebtedness growing out of World War I. This
amount was made available to the Department of State for financing
educational exchange programs between Finland and the United
States in accordance with provisions of the act of August 24, 1949
(20 U.S.C. 222).
Tables 115 and 116 show the status of the World War I indebtedness
of foreign governments to the United States.
World War II
Under the lend-lease and surplus property agreements, the Treasury
Department received pa3niients from foreign governments during fiscal
1959 in U.S. dollars amounting to $106.8 million, foreign currencies
having airi equivalent value in U.S. dollars of approximately $53.6
mUlion, and real property and improvements to real property having
an estimated value of $1 million, resulting in total credits amounting
to $160.6 million. From inception of the lend-lease and surplus property programs, payments in foreign currencies and real property and
improvements represent a total estimated value received of $507.6
mUlion, whUe the total U.S. dollar receipts and other credits have
amounted to $2,634.8 mUlion.
Pursuant to the Lend-Lease Act of March 11, 1941 (22 U.S.C.
411-419), sUver bullion totaling 409,782,670.64 fine troy ounces and
valued at $291,401,010.16 was transferred by the Treasury to certain
foreign governments during World War I I for coinage and industrial
use. A total of 83,305,226.70 fine troy ounces of sUver, valued at
$59,274,827.86 was returned to the Treasury as repayments on these
accounts during the fiscal year. Through June 30, 1959, foreign governments have returned a total of 350,318,695.86 fine troy ounces
having a U.S. dollar value of $249,151,072.54. In addition 19,747,081
ounces of sUver valued at $14,042,368 were received by the Bureau
of the Mint, but as of June 30, 1959, had not been documented for
recording in the central accounts of the Treasury.
The status of indebtedness of foreign governments under lend-lease
and surplus property agreements is shown in table 118. As of June 30,
1959, the accounts receivable amounted to $1,816 miUion, including
the silver transferred under the lend-lease program.
On January 30, 1958, the Governments of France and the United
States entered into an agreement under which France could elect to
postpone untU 1981, 1982, and 1983 the annual installment pa3''ments
due on July 1, 1958, 1959, and 1960, respectively, to the United States
on account of lend-lease and surplus property purchases. Accordingly
France elected to postpone to July 1, 1981, the installment payment
of $29,112,102.65 which became due July 1, 1958.
Credit to the United Kingdom
The United States made a loan to the United Kingdom under the
terms of the financial agreement dated December 6, 1945, amounting
to $3,750,000,000, On March 6, 1957, the agreement was amended
ADMINISTRATIVE REPORTS
107
allowing the United Kingdom to defer any principal and interest
installment due after 1956, with interest at the rate of'2 percent per
annum, but limiting such deferrals to a total of seven. As of June
30, 1959, the United Kingdom had exercised its right to defer payment of the interest installment of $70,385,447.48 due December 31,
1956, and the principal and interest installments due December 31,
1957, amounting to $119,336,250. The installment due December
31, 1958, was paid. The balance of the indebtedness of the United
Kingdom as of June 30, 1959, totaled $3,559,185,035.93, of which
$139,791,878.93 represents deferred interest.
Germany, postwar (World War II) economic assistance
Under the External Debt Settlement Agreement of February 27,
1953, the Federal Republic of Germany agreed to pay $1 bUlion to
the United States for postwar (World War II) economic assistance.
During the fiscal year 1959, the Treasury received payments of
principal in the amount of $172,721,125 (which included an advance payment of principal amounting to $150 million) and interest
amounting to $24,858,875. The principal outstanding as of June
30, 1959, amounted to $827,278,875.
Claims Against Foreign Governments and Nationals
Foreign Claims Settlement Commission
Public Law 85-604, approved August 8, 1958 (22 U.S.C. 1641c),
further amended the International Claims Settlement Act of 1949 to
extend to August 8, 1958, the date for acquisition of citizenship for
those individuals who had filed claims with the Foreign Claims
Settlement Commission against the Government of Ital}^ The law
(22 U.S.C. 1642) also authorized the Foreign Claims Settlement
Commission to determine the validit}^^ of claims of American nationals
against the Government of Czechoslovakia for losses resulting from
the nationalization or other taking of property on or after January 1,
1945. A Czechoslovakian claims fund is authorized to be established
in the Treasury for payment of awards of the Commission. In the
event that the Government of Czechoslovakia does not provide funds
by August 8, 1959, the Secretary of the Treasmy is authorized to
cover into the claims fund the heretofoie blocked net proceeds of
certain Czechoslovakian steel mill equipment sold by the Treasury
under Executive order. Funds available for this purpose amount to
$8,990,282.54 and are held in a special account in the Treasury.
The Foreign Claims Settlement Commission continues to certify
awards to the Treasury for payment from the various international
claims funds established in the Treasury on account of claims of
American nationals against the Governments of Bulgaria, Hungary,
Italy, Rumania, and the Soviet Union. The Commission is required
to resolve the claims and to certify to the Treasury not later than
August 9, 1959, the amounts awarded for payment from the fund
established for each country in accordance with the International
Claims Settlement Act, as amended. Payments on awards certified
are subject to a system of priorities prescribed in the act. Subject to
the adequacy of the particular fund, all awards in principal amounts
of $1,000 or less are required to be paid in full, and an amount of
108
1959 REPORT OF THE SECRETARY OF THE TREASURY
$1,000 is required to be paid on the principal of higher awards.
Additional payinents are made on a pro rata basis untU the fund is
exhausted or until the principal amounts of all awards have been
paid in full. Any funds remaining, after payment of principal in
full, are then applied to interest when allowed.
The origin and history of the claims of American nationals against
these five governments are summarized in the 1958 annual report,
page 112. The status as of June 30, 1959, of each of the five claims
funds and their operations since inception are shown in the table
following.
Bulgaria
Hungary
Awards certified to Treasury:
1,213
Number
219
Amount (principal)
$3,650,775. 79 $19,850,963.14
Rumania
518
$9,717,487.01
Italy
U.S.S.R.
1,821
536
$1,846,078. 97 $22,010, 568. 75
5,000,000.00
9,114,444. 66
119,847.39
41,472. 89
1,035,897. 65
250,000.00
455,722. 23
Amount available for
payment on awards.
Payments on awards —
2,277,100. 54
141,124. 21
787,984.15
19,682,055. 53
376, 798.27
4,750,000.00
429, 435. 45
8,658,722. 43
1,890,051. 47
Balance in claims funds
2,135,976. 33
787,984.15
19,305,257. 26
4,320, 564. 55
6,768, 670. 96
Deposits in claims funds
Statutory deduction for administrative expenses
2,396,947.93
829,457. 04 20,717,953.18
Mixed Claims Commission, United States and Germany
On AprU 1, 1959, the Federal Republic of Germany made the
annual payment of $3,700,000 which was due under the terms of the
agreement between the United States and Germany, signed at London
on February 27, 1953, in partial settlement of German debts arising
from World War I. A summary of the terms of this agreement was
included in the annual report for 1954, page 109.
The Treasury Department was able to authorize a further distribution of 7.2 percent for the interest accrued on Class I I I awards (those
over $100,000) of the Mixed Claims Commission, United States and
Germany, and payments under Private Law No. 509, approved
July 19, 1940.
Payments on awards and the status of the accounts as of June 30,
1959, are shown in table 107.
American-Mexican Claims Commission
Payments amounting to $2,406.05 were made under this program
dming fiscal 1959 to claimants who had not previously submitted
an appropriate voucher for the final distribution authorized in 1956
or who had faUed to present satisfactory evidence of their right to
receive payment. A statement of the fund appears in table 108.
Yugoslav claims fund
Payments to holders of awards by the Foreign Claims Settlement
Commission on account of claims against Yugoslavia continued into
the fiscal year 1959 with $4,217.14 paid to award holders. The
status of the fund as of June 30, 1959, is shown in table 109.
Divested property of enemy nationals
Under Public Law 285, approved August 9, 1955 (22 U.S.C. 163(b)),
the net proceeds of any property vested in the Alien Property Cus-
ADMINISTRATFVE REPORTS
109
todian or the Attorney General after December 17, 1941, pursuant
to the Trading with the Enemy Act, as amended, and which at the
date of vesting was owned directly or indirectly by Bulgaria, Hungary, or Rumania, or any national thereof, shall, after completion
of the administration, liquidation, and disposition of such property,
be covered into the Treasury, except that proceeds of property owned
by a natural person at the date of vesting shall be divested and carried in blocked accounts with the Treasury in the name of the owner
thereof subject to claim.
As of June 30, 1959, moneys of 503 individuals had been divested,
certffied, and deposited in the Treasury. These funds, totaling
$522,968.48, were credited to Treasury accounts as follows: For
nationals of Bulgaria, $76,758.70; for nationals of Hungary, $266,970.99; and for nationals of Rumania, $179,238.79.
Claims for payment of the proceeds of liquidation of vested assets
of individuals are being received in the Department of Justice and
procedures for payment are being formulated.
Other Operations
Management improvement program
The continued search for additional operating economies resulted
in the adoption during the year of improvements involving annual
recurring savings of $512,718 (129.1 man-years). Nonrecurring savings amounted to $152,055. Examples of the money-saving achievements are cited in the preceding sections.
The Bureau continued its efforts to provide effective training of its
employees and to develop replacements to meet future needs. Also
vigorously continued was the program of safety training. Seven
divisions and branches in the departmental service and twelve regional
offices received the Secretary's Safety Award in 1959.
Participation in the Incentive Awards Program increased in fiscal
1959, with 330 suggestions submitted compared with 221 in 1958.
The 144 suggestions adopted in 1959 compared with 90 in 1958.
Donations and contributions
During 1959 conditional gifts amounting to $19,597 were received
to further the defense effort. So-called conscience fund contributions
totaling $65,218 and other unconditional donations to the U.S. Government totaling $226,388, including a single bequest of $160,764,
were deposited into the general fund of the Treasury. Other Government agencies received and deposited into the general fund ^'Conscience fund" contributions and unconditional donations amounting
respectively to $218,255 and $10,785. There was also deposited in
the Treasury $686,562 to the credit of the |Library|of [Congress ^trust
funds, permanent loan account, representing cash donations and
proceeds from sale of securities belonging to these funds.
Government lossesjinjshipment
The ' T u n d for the Payment of Government Losses in Shipment"
was established in the Treasury Department under the provisions of
the Government Losses in Shipment Act (5 U.S.C. 134-134h; 31
U.S.C. 528, 738a, 757c(i)), approved July 1, 1937. From this re-
110
195 9 REPORT OF THE SECRETARY OF THE TREASURY
volving fund are paid the losses sustained by the Government in the
course of shipping money, bullion, securities, and other valuables
between Government departments and agencies, and depositaries,
losses incurred in the erroneous payment of U.S. savings bonds by
paying agents, and certain losses incurred by the Postal Service.
The adniinistrative work in connection with processing the claims
filed under the act is supervised by the Bureau of Accounts.
During the fiscal year 1959 claims amounting to $29,574 were paid
from the revolving fund, while recoveries amounted to $2,990, making
a net disbursement of $26,584 for losses. Claims allowed and in the
process of payment amounted to $34,371. DetaUed statements relating to the operations of the Government Losses in Shipment Act
are found in table 129.
Payments to Federal Reserve Banks for industrial loans
The act of June 19, 1934 (48 Stat. 1105), added to the Federal
Reserve Act, section 13b which authorized the Secretaiy of the
Treasury to advance to the Federal Reserve Banks for industrial
loans an amount not exceeding $139,299,557, the par value of the
holdings of the twelve Federal Reserve Banks of Federal Deposit
Insurance Corporation stock. Under this authorization the Treasury
advanced $27,546,311 to the Banks, detaUs of which may be obtained
in the annual reports of the Secretary beginning with 1935 and 1936.
The industrial loan program was established to assist financial
institutions to meet the working capital needs of their industrial and
commercial customers during the period of recover}^ from the depression of the'early 1930s. Although originally designed as an emergency
measure rather than a program of continuing assistance to business
enterprises, some loans were made during World War I I and later.
Section 601 of Public Law 85-699 (12 U.S.C. 352a) approved
August 21, 1958, repealed section 13b of the Federal Reserve Act
to be effective August 21, 1959. Consequently, the authority for
the Federal Reserve Banks to make industrial loans under the act
expired on that date. Under section 602(a) of the act each Federal
Reserve Bank was required to repay the aggregate amount which
the Secretary of the Treasury had heretofore paid to each bank
under the provisions of section 13b. On September 2, 1958, the Banks
deposited the total sum of $27,546,310.97 into a special fund in the
Treasury where it was made available for grants under section 7(d)
of the Small Business Act, as provided for under section 602(b) of
Public Law 85-699 (72 Stat. 698). Pubhc Law 86-88 (73 Stat. 209),
approved July 13, 1959, and Public Law 86-367 (73 Stat. 647), approved September 22, 1959, had the net effect of striking out the provisions under section 602(b) of Public Law 85-699 as the}^^ pertain to
making the amount returned to the Treasury by the Banks available
for grants under the Small Business Act. The amount of $111,753,246.02, representing the unexpended balance available for pa^^ment to
the banks for loans, was deposited into miscellaneous receipts of the
Treasury on September 22, 1958.
Deposits of interest charged on Federal Reserve notes
The Board of Governors of the Federal Reserve System is authorized
by section 16 of the Federal Reserve Act, as amended (12 U.S.C. 414),
ADMINISTRATIVE REPORTS
111
to charge Federal Reserve Banks interest on the amount of unredeemed
Federal Reserve notes issued to the Banks in excess of gold certificates
held as collateral against the notes. By the exercise of this authority,
annual interest payments equal to approximately 90 percent of the net
earnings of the Federal Reserve Banks have been made to the U.S.
Treasury beginning in 1947.
The amount deposited in fiscal 1959 was $491,220,608.88 as compared with the deposit of $663,728,837.41 in 1958. The total deposits
since 1947 have amounted to $3,725,891,907.54 as shown in table 16.
Withholding of income taxes for States and Territories
The act of July 17, 1952 (5 USC 84b, 84c), authorizes the Secretary
of the Treasury to enter into agreements with States and Territories
for the withholding of income taxes from the compensation of Federal
employees regularly employed in the States or Territories. Since
the passage of the act, agreements have been entered into with 16
States and Territories, including those entered into during the fiscal
year 1959 with Massachusetts, New York, and Utah. The District
of Columbia entered into an agreement pursuant to the act of March
31, 1956 (77 Stat. 77).
Payment of pre-1934 Philippine bonds
Funds deposited by the Philippine Government are held in a trust
account established in the U.S. Treasury for payments of principal
and interest on pre-1934 bonds of the PhUippines, as provided in the
act of August 7, 1939, as amended (22 U.S.C. 1393(g) (4) (5)). Table
79 shows the status of the trust accoimt as of June 30, 1959.
Withheld foreign checks
The delivery of U.S. Government checks issued to the order of
payees residing in certain foreign areas continued to be restricted
during 1959, in accordance with Treasuiy Department Circular No.
655, dated March 19, 1941, as amended by supplements 1 through 11.
These restrictions applied during the 3^ear to Albania, Bulgaria,
Communist-controlled China, Czechoslovakia, Estonia, Hungary,
Latvia, Lithuania, Rumania, the Union of Soviet Socialist Republics,
the Russian Zone of Occupation of Germany, and the Russian Sector
of Occupation of Berlin.
Delivery of checks to nationals of North Korea without appropriate
licenses is prohibited by Foreign Assets Control regulations issued
by the Treasury Department on December 17, 1950.
BUREAU OF THE PUBLIC DEBT
The Bureau of the Public Debt, in support of the management of
the public debt, has responsibility for the preparation of circulars
off'ering public debt securities, the direction of the handling of subscriptions and making of allotments, the formulation of instructions
and regulations pertaining to each security issue, the issuance of the
securities and conduct or direction of transactions in those outstanding. The Bureau is responsible for the final audit and custody of
retired securities, the maintenance of the control accounts covering
all public debt issues, the keeping of individual accounts with owners
of registered securities and aiitliorizing tlic issue of checks in payment
112
1969 REPORT OF THE SECRETARY OF THE TREASURY
of interest thereon, and the handling of claims on account of lost,
stolen, destroyed, or mutilated securities.
Four offices are maintained. The principal office, including the
headquarters of the Bureau, is in Washington, D.C. This office
issues public debt securities and conducts subsequent transactions in
those outstanding (including governmental agency securities) other
than savings bonds, and audits and maintains custody of these
securities as they are retired. A departmental office in Chicago, 111.,
conducts transactions relating to savings bonds outstanding and maintains the issue and retirement records of the paper type savings
bonds. A field branch audit office in Cincinnati, Ohio, audits redeemed
paper type savings bonds and transmits records of their retirement to
the Chicago office. All issue and retirement records of the new
punch-card type savings bonds are prepared and maintained in a
departmental office in Parkersburg, W. Va., where the major recording and accounting operations are performed through a large scale
electronic data processing system.
Under Bureau supervision many transactions in public debt securities are conducted through nationwide agencies, which are, principally. Federal Reserve Banks, as fiscal agents of the United States,
and their branches; selected post offices, private financial institutions,
industrial organizations, and others, approximately 23,000 in all,
which cooperate in the issuance of savings bonds; and nearly 19,000
financial institutions that redeem savings bonds.
Bureau administration
Management improvement.—Reduction in cost of any function
wherever possible without diminishing adequate service to the public
or impairing the integrity of public debt records is the constant aim
of management. The Bureau management program regularly operates through continuing projects related to activities requiring day-today attention, and through special studies in selected areas. Two
major projects with widespread functional implications were culminated during 1959.
In October 1958 the Parkersburg office began full application of a
large scale, general purpose, electronic data processing system to the
operations and the maintenance of records on Series E punch-card
savings bonds. The system, composed of integrated business machines employing high-speed computer principles, is designed to expedite all phases of record keeping and accounting. I t introduces
new concepts of speed, capacity, and versatUity for audit and classification of all card bond transactions, development of accounting data
reflecting those transactions, and the establishment and maintenance
of alphabetic records of card bond issues and numerical records of card
bond issues and retirements.
Evaluation of the system under actual operating conditions led to
a number of refinements in the basic programs and routines. These
have produced savings in related key punching and balancing operations and have reduced the central processor time required for current
work. This reduction in running time will ultimately permit more
economical operation than originally estimated. More immediately
it has freed the processor for liquidating substantial backlogs which
antedate the installation of the equipment. I t is anticipated that
ADMINISTRATIVE REPORTS
113
the work will be current in all phases by June 30, 1960, and that full
benefits of the system will then be realized.
Of equal importance and complexity are the installation and mechanization of a new public debt accounting system. Initiated as a
result of a survey by the Division of Public Debt Accounts and Audit
confirming its practicability in October 1954, it was completed during
1959. The Division of Public Debt Accounts and Audit was reorganized June 5, 1959, to align the organizational structure v/ith functions under the revised sj^stem. The procedures followed in maintaining accounts and preparing reports make full use of punch-card
equipment and techniques.
The new system combines all financial and securities accounts
having to do with the public debt, at the detail level, into one doubleentry system administered by this Bureau. Provision has been made
for the regular balancing of these accounts with the summary financial
accounts of the Treasurer of the United States. The accounting information required is developed from daily reports of cash and securities transactions from Treasury offices and Federal Reserve Banks.
Development and installation of the new system were accomplished
by an orderly series of transitional steps from old to new without any
loss of accountuig control. The daily reporting method for cash
transactions was adopted in June 1956; and, on July 1, 1957, this
Bureau was assigned responsibility for maintaining detailed cash
accounts of public debt receipts, redemptions, and outstanding and
preparing the public debt portion of the dail}^ Treasury statement,
the monthly statement of the public debt, and various annual reports.
At the same time this Bureau undertook preparation of the monthly
report of public debt principal transactions used by the Bureau of
Accounts in mamtaining the central summary accounts of the Government. Daily reporting of transactions in securities other than savings
bonds began in December 1956, and complete conversion of these
accounts was indicated by the discontinuance in September 1957 of
the fiscal agency reports of cumulative monthly figures on securit}^
stock transactions, which were replaced by one line reports of stock
balances. As a related development, the Federal Reserve Banks also
discontinued accumulating accounting data on public debt securities
transactions for the life of each loan and have simplified their stock
accounting procedures. Extension of the system of daily reporting
to savings bonds transactions began in March 1958 and was completed
in October 1958. The monthly fiscal agency reports on savings bonds
were discontinued in November 1958. This was the final step of the
conversion of public debt accounts to the new system and relieved the
Federal Reserve Banks of keeping cumulative transaction accounts
for any public debt securities. The Bureau now has a modern doubleentry accounting system, maintained with punch-card equipment,
capable of providing current information and reports, and responsive
to the needs of Department officials charged with responsibility for
debt management.
The Chicago office workload has been materially reduced by the
establishment of the Parkersburg office to service the punch-card
savings bond. To permit the most effective employment of personnel,
equipment, and space the organizational structure of the Chicago
office was realigned as of July 1, 1959. The Registration Section was
525622—60
9
114
1959 REPORT OF THE SECRETARY OF THE TREASURY
abolished and its remaining active functions were transferred to other
segments, and changes were made also in the Claims and Ruling Section, and in the Office of the Deputy Commissioner.
Significant savings in reimbursable Federal Reserve Bank costs are
being realized as a result of adoption of a new combined transmittal
letter and control card for processing retired savings bonds. The form
is prepared by the paying agents, and copies are provided for. controlling, accounting, and settlement purposes as the bonds and covering form are routed through the Banks to the Bureau. Several intermediate processing steps have been eliminated.
Under the new safety awards program the Secretary of the Treasur}^
on May 1, 1959, presented to the Bureau the first of the awards
planned to be given annually to a Treasury bureau employing more
than one thousand persons. The award was given for the most outstanding improvement in injury frequency rate between 1957 and 1958.
The Bureau has continued its efforts to provide effective training
for its employees by both outside and on-the-job training. Emphasis
has been placed on executive and supervisory training in academic
and supervisory training courses.
During the fiscal year 261 employee suggestions were received and
145 were adopted with savings estimated at $77,067. Cash awards
distributed for suggestions totaled $2,950. Fifty-six employees with
outstanding performance ratings also were given cash awards amounting to $8,400 and $14,925 was distributed to 277 employees for sustained superior work performance. The Bureau has been active in
establishing standards and developing plans under the incentive
awards program for recognizing sustained superior performance on
measurable work, and more than 20 percent of the Bureau's employees
are now working in positions covered by such plans.
Bureau operations
The public debt.—The public debt of the United States falls into
two broad categories: (1) public issues, and (2) special issues. The
public issues consist of marketable obligations, chiefly Treasuiy bills,
certificates of indebtedness. Treasury notes, and Treasury bonds;
and nonmarketable obligations, chiefly United States savings bonds
and Treasury bonds of the investment series. Special issues are
made by the Treasury directly to various Government funds and are
payable only for account of such funds.
During fiscal 1959 the gross public debt increased b}^ $8,363 million
and the guaranteed obligations held outside the Treasury increased
by $10 million. The most significant changes in the composition of
the outstanding debt during the 3^ear were the net increase of $11,352
million in interest-bearing marketable public issues, principally Treasury bills and notes, and the net decrease of $2,726 million interestbearing nonmarketable public issues which was almost equally divided
between United States savings bonds and Treasury bonds of the
investment series. Total public debt issues, including issues exchanged for other securities, amounted to $199,885 million during
1959, and retirements amounted to $191,522 million.
A .summary of public debt operations handled by the Bureau
appears on pages 25 to 32 of this report, and a series of statistical
tables dealing with the public debt will be found in tables 19 to 52.
ADMINISTRATIVE
115
REPORTS
The following statement gives a comparison of the changes during the
fiscal years 1958 and 1959 in the various classes of public debt issues.
Classification
Increase, or decrease (—)
(in millions of dollars)
1958
Interest-bearing debt:
Treasury bonds, investment series
United States savings bonds
Marketable obligations
Special issues
other
Total interest-bearing debt
Matured debt and debt bearing no interest.
Total
-1, 514
- 2 , 638
10,970
-581
-25
6,212
-396
5,816
1959
-1, 256
- 1 , 482
11, 352
-1, 490
12
7,136
1,227
8,363
United States savings bonds.—In volume of work, the issuance and
redemption of savings bonds represent the largest administrative
problems of this Bureau. The registered form of these bonds and
o^vnership by millions requires the setting up and maintaining of
alphabetical and numerical o^vnership records for over 2.0 billion
bonds, which have been issued continuously since 1935. The adjudicating of claims and replacing lost, stolen, and destroyed bonds,
handliag and recording retired bonds, and conducting the related
accounting operations are also a considerable undertaking.
Receipts from sales during the year were $4,506 million and accrued
discount charged to the interest account and credited to the savings
bonds principal account amounted to $1,228 million, a total of $5,734
million. Expenditures for redeeming savings bonds charged to the
Treasurer's account during the year, includiag about $3,621 million
of matured bonds, amounted to $7,249 million. The amount of
unmatured and matured savings bonds of all series outstandhlg on
June 30, 1959, including accrued discount, was $50,834 million, a
decrease of $1,515 million from the amount outstanding on June 30,
1958. Detailed information regarding savings bonds will be found
in tables 38 to 43, inclusive, of this report.
During fiscal 1959, 89.6 million stubs representing issued bonds of
Series E were received for registration, making a total of 2,083.1 million, including reissues, received through June 30, 1959. Original
stubs of paper t3''pe bonds are first arranged alphabetically in semiannual blocks, by name of owner, and microfflmed. They are then
arranged in the numerical sequence of their bond serial number in a
full calendar year file and microfilmed, afterlwhich they are destroyed.
These microfilms are permanent registration records. The original
issue of paper bonds has been discontinued.
j
The issue stubs of the new punch-card type bonds are microfilmed
by batches as they are received by this Bureau. Before bemg destroyed, the stubs are audited and recorded by electronic processing
equipment. Magnetic tape ffles of the bond issues, in both alphabetical and numerical sequence, are established and maintained with
each bond file item containing information indicating the location of
the microfilm which contains the complete image of the original
bond stub.
116
1959 REPORT OF THE SECRETARY OF THE TREASURY
The following tables show the processing, by steps, of registration
stubs of paper type and card type Series E savings bonds. The table
on card t^^pe bonds also shows steps taken in retiring these bonds.
S t u b s of issued]paper]typei;SerieslE ^savings b o n d s i n Chicago office
(in millions of pieces)
Period
A l p h a b e t i c a l l y sorted
Stubs
received
C u m u l a t i v e t h r o u g h J u n e 30,
1954 Fiscal y e a r :
1955
1956
1957
1958
1959_
Total
—_
Alphabetically
filmed
Numerically
filmed
Destroyed
after
filming
Restricted
basis
sorti
F i n e sort
prior to
filming 2
1,627. 3
1,607.0
1,550.3
1,519.9
1,432.1
1,427.9
87.0
91.6
91.1
37.1
2.1
88.4
87.2
88.9
62.1
2.5
99.3
85.0
90.4
85.7
24.4
88.1
88.0
108.1
89.9
41.1
25.7
5.8
192.3
178.3
100.9
191.3
184.1
101.9
1,936.1
1,936.1
1, 935.1
1,935.1
1, 935.1
1,935.1
29.9
1 Not in complete alphabetical arrangement but sorted to such a degree that individual stubs can be
located. Includes those stubs fine sorted.
2 Completely sorted.
Balance
Fiscal year
Received
Microfilmed
Converted Audited
and
Keyto m a g classipunched
netic
fied
tape
Unfilmed
N o t conN o t key- v e r t e d
punched to magnetic
tape
Unaudited
S t u b s of issued card t y p e Series E savings b o n d s i n P a r k e r s b u r g office
(in millions of pieces)
59.5
87.5
57.8
88.2
41.4
103.4
5.7
119.0
34.7
106.9
1.7
1.0
18.1
2.2
53.8
22.3
24.8
5.4
147.0
146.0
144.8
124.7
141.6
1.0
2.2
22.3
5.4
1958
1959
Total
R e t i r e d card t y p e Series E savings b o n d s recorded i n P a r k e r s b u r g office (in millions
of pieces)
1958
1959
Total
17.5
45.2
16.7
45.5
10.5
51.4
0.1
53.2
7.3
52.8
0.8
.5
7.0
.8
17.4
9.4
10.2
2.6
62.7
62.2
61.9
53.3
60.1
.5
.8
9.4
2.6
There were 93.9 mUlion retired savings bonds of all series received
during the year. Retired paper bonds of all series are processed
through a branch audit office where they are audited, microfflmed,
and destroj^ed. A list of the bond serial numbers is transmitted to
the Chicago departmental office for posthig of retirement reference
data to numerical ledgers as a permanent record. Retired card
bonds, issued only in Series E, are handled in the Parkersburg office
117
ADMINISTRATrVE REPORTS
where, after microfflming, the bonds are permanently recorded and
audited by an electronic data processing system prior to being destroyed.
The following statements show the status of these operations for
the paper type bonds.
Retired paper type savings bonds of all series in the branch audit oflSces
(in millions of pieces)
Period
Bonds received
Cumulative through June 30,
1954
Fiscal year:
1955
1956
1957
1958
-_
1959
Total
766.6
99.0
97.4
100.2
81.8
48.7
1,193.7
Audited
Microfilmed
Balance
Destroyed
lUnaudited; Unfilmed i|:
750.9
3.1
4.6
677.6
98.1
96.5
102.1
81.2
49.1
98.7
96.0
99.8
82.6
47.7
4.0
4.9
3.0
3.6
3.2
4.9
6.3
6.7
5.9
6.9
102.0
117.9
100.0
79.3
72.4
1,190.5
1,175.7
3.2
6.9
1,149.2
763.5
' Beginning June 30,1954, excludes 9.4 million pieces of unfilmed spoiled stock transferred to permanent
storage and 1.7 million pieces of unissued stock to be destroyed without microfilming.
Retired paper type savings bonds of all series recorded in
Chicago office (in millions of pieces)
Period
Cumulative through June 30,1954
Fiscal year:
1955
1956
1957 —
_ 1958
1959
TotaL.
Number of
retired
bonds
reported
Status of posting
Posted
Verified
Unposted
Unverified
1,224.3
1,219.6
1,215.7
4.7
3.9
101.3
98.2
100.1
84.6
50.3
102.7
96.7
99.0
87.2
50.4
123.7
93.4
102.3
64.0
86.2
3.3
4.8
5.9
3.3
3.2
8.1
4.8
28.0
3.3
1, 658.8
1,655.6
1,585. 3
3.2
23.3
1 During the period October 1954 to June 1955, only a 7 percent test verification was made of the postings.
2 Represents balance unverified on current work. Excludes 67.1 million pieces received in 1954 and 1955
which were not verified.
Of the 89.6 million Series A-E savings bonds redeemed prior to
release of registration and received in the audit offices during the
year, 86.2 million, or 96.2 percent, were redeemed by nearly 19,000
paying agents. These agents were reimbursed for this service in each
quarter year at the rate of 15 cents each for the first 1,000 bonds
paid and 10 cents each for aU over the first 1,000. The total amount
paid to agents on this account during the year was $10,910,111, which
was at the average rate of 12.66 cents per bond.
118
1959 REPORT OF THE SECRETARY OF THE TREASURY
The following table shows the number of issuing and paying agents
for Series A-E savings bonds by classes.
Fiscal year
Post
offices 1
Banks
Building
a n d savings a n d
loan
associations
Credit
unions
Companies
operating
payroll
plans
All
others
Total
Issuing agents
1945
1950
1955._.__
1956
1957
1958
1959
.
.__
24,038
25,060
2,476
1,768
1,401
1,178
1,120
15,232
15, 225
15, 692
15, 845
15, 978
16, 047
16,178
3,477
1,557
1,555
1,606
1,665
1,702
1,778
2,081
522
428
411
379
357
336
2 9, 605
3,052
2,942
2,898
2,788
2,640
2,401
550
588
626
611
587
688
54, 433
45, 966
23, 681
23,154
22, 822
22, 511
22, 501
57
56
54
59
59
60
13, 466
16, 691
17, 652
17, 933
18, 282
18, 554
18, 778
P a y i n g agents
1945
1950
1955 __.
1956
1957
1958
1959
.__
_•
_.
.
13,466
15, 623
16, 269
16,441
16, 613
16, 744
16, 860
874
1,188
1,300
1,438
1,580
1,690
137
139
138
172
171
168
1 Estimated by the Post Office Department for 1955 and thereafter. Sale of Series E savings bonds was
discontinued at post offices at the close of business on December 31,1953, except in those localities where no
other public facilities for their sale were available.
2 Includes all others.
During fiscal 1959, 5,442,592 interest checks with a value of
$287,061,461 were issueci on current income type savings bonds.
This was a decrease of 306,569 checks from the number issued during
1958, and a decrease in value of $25,855,680. A total of 230,910 new
accounts was established compared with 215,136 in 1958. As of
June 30, 1959, there were 2,056,659 active accounts with owners of this
type savings bonds, a decrease of 85,800 accounts during the year.
There were reductions of 230,810 in accounts of Series G bonds which
have been maturing since May 1, 1953, and 11,264 in accounts of Series
K which were first sold on May 1, 1952, and discontinued eft'ective at
the close of business April 30, 1957, and an increase of 156,274 in accounts of Series H bonds, which were first sold on June 1, 1952.
Applications during the year for the issue of duplicates of lost, stolen,
or destroyed savings bonds amounted to 46,691. These, together
with 1,877 cases on hand at the beginning of the year, totaled 48,568
cases. In 29,218 cases the bonds were recovered, and in 17,881 cases
the issuance of duplicate securities was authorized. On June 30,
1959, 1,469 cases remained unsettled.
Other United States securities.—During the year 20,564 individual
accounts covering publicly held registered securities were opened and
22,420 were closed. This reduced the total of open accounts on June
30, 1959, to 194,296 covering registered securities in the principal
amount of $16.6 billion. There were 358,838 interest checks with a
value of $461,984,951 issued to owners of record during the year.
This was a decrease of 20,220 checks from the number issued during
1958, and a decrease in value of $48,338,819.
ADMINISTRATFVE REPORTS
119
Redeemed and canceled securities received for audit included
3,894,000 bearer securities and 191,000 registered securities, a total
of 4,085,000, as compared with 3,692,000 in 1958; and 16,281,000
coupons were received, which was 1,006,000 more than in 1958.
OFFICE OF THE TREASURER OF THE UNITED STATES
The Treasurer of the United States is charged by law with the
receipt, custody, and disbursement, upon proper order, of the public
moneys and is required by law and administrative authority to
maintain records and make periodic reports on the source, location,
and disposition of these funds.
Although the Treasurer does not maintain branch or field offices, the
Federal Reserve Banks, as fiscal agents of the United States, perform
many fiscal functions for the Treasurer throughout the country.
These include the verffication and destruction of United States paper
currency, the redemption of public debt securities, keeping operating
cash accounts in the name of the Treasurer, which includes charging
these accounts for the great majority of the checks drawn on the
Treasurer and accepting deposits made by Government officers for
credit therein, and maintaining custody of bonds held to secure public
deposits in commercial banks.
Commercial banks within and without the United States which have
qualified as depositaries provide banking facUities for local activities
of the Government. Information on the transactions handled in
the name of the Treasurer by the Federal Reserve Banks and commercial banks flows into Washington where it is taken into the
Treasurer's general accounts.
Specifically, the Treasurer maintains current accounts of all receipts
and expenditures; pays the principal and interest on the pubhc debt;
provides checking account facilities for Government disbursing officers,
corporations, and agencies; pa^^s checks drawn on the Treasurer of
the United States; procures, stores, issues, and redeems United States
currency; audits redeemed Federal Reserve currency; examines and
determines the value of mutilated currency; acts as special agent for
the payment of principal and interest on certain obligations of corporations of the United States Government, Puerto Rico, and the
Philippine Islands; and maintains facilities in the main Treasury
building for (a) the deposit of public moneys by Government officers,
(b) the cashing of United States savings bonds and checks drawn on
the Treasurer, (c) the receipt of excess and/or unfit currency and
coins from local concerns and banks, and (d) the conduct of transactions in both marketable and nonmarketable public debt securities
for banks and for the public. The Office of the Treasurer prepares
the Daily Statement oj the United States Treasury .and the monthly
Circulation Statement oj United States Money.
Under authority delegated by the Comptroller General of the
United States, the Treasurer acts upon claims arising from the forgery
of endorsements and other irregularities involving checks paid by the
Treasurer and, in the case of unpaid checks which are lost or destroyed,
passes upon claims for substitute checks.
The Treasurer of the United States is also Treasurer of the Board
of Trustees of the Postal Savings System., and custodian of bonds held
120
1959 REPORT OF THE SECRETARY OF THE TREASURY
to secure public deposits in commercial banks, bonds held to secure
postal savings on deposit in such banks, and miscellaneous securities
and trust funds.
Management improvement and internal audit
The Office continued to appraise operations and methods during
1959 and numerous changes resulted in increased efficienc}^ and
economies. The following are among the more noteworthy improvements.
The Treasurer is now settling paid check claims involving repetitive
payments without waiting for completion of a full field investigation
in certain cases where the funds have been recovered from the presenting bank. This has improved service to the public.
Through the use of accounting machines intercoupled with ke}^
punches, the sorting, proving, controlling, and classification of credit
and debit documents have been combined into one operation in check
pa3rment and reconciliation. As a byproduct, tabulating cards for
certain types of documents are punched sim.ultaneously. Personnel
and monetary savings have resulted.
More effective programming, improved procedures, and more efficient utilization of the electronic equipment in the check payment
and reconciliation s^^stem enabled the processing of all tax refund
checks in the spring of 1959 without renting additional equipment, as
was necessary in the past. The timing of the reconciliation cycle was
revised to permit more checks to be paid and more blocks of checks
to be cleared before reconciliation, thus permitting more of the work
to be done mechanically.
Fiscal 1959 was the first full fiscal year in which all checks drawn
on the Treasurer were paid and reconciled under the new electronic
system which had been started in fiscal 1957. A comprehensive
study was made, comparing costs under the new system with what
the costs would have been if the former system were still in effect—
a system which had involved pa3^ment operations in the Federal Reserve Banks and the Treasurer's Office and separate reconciliation
operations in the General Accounting Office. The study disclosed
Government-wide annual savings of almost $3 million, exceeding by
about $800,000 the original expectations when the system was installed. There are now 418 fewer emplo3^ees engaged in the check
pa3^ment and reconciliation work than there were engaged in this
work in the Treasurer's Office and General Accounting Office combined in fiscal 1956, and 331 fewer in the Federal Reserve Banks,
notwithstanding a 15 percent increase in workload since then. Widespread recognition has been given to the progressive manner of handling the personnel problem by the operating organizations in converting to the new S3^stem, which directly affected 753 employees then
in the Treasurer's Office and the General Accounting Office. Formal
reduction-in-force proceedings were eatirely precluded in the Treasurer's Office b}^ promptly informing these employees of the plans, by
ofl'ering them opportunities to qualify for training and placement in
ADMINISTRATIVE REPORTS
121
the more technical positions under the new system, and by assisting
in placing them ia vacant positions elsewhere within the Treasurer's
Office and m other agencies throughout the Government.
Improved methods and procedures in currency redemption reduced
the backlog of mutilated money cases from a peak of 416 to 50 at the
end of June 1959. This improvement has resulted in faster service
to the public.
Eleven Federal Reserve Banks and ten branch banks, acting as
fiscal agents of the United States, redeem, verify, and destroy unfit
United States currency. A representative of the Treasurer's Office
visits each bank at least once a year to inspect and discuss the operations with responsible officials. These inspections afford an opportunity to determine (1) whether the internal controls are adequate
and in conformity with regulations, and (2) whether the banks are
following the established standard of fitness when sorting United
States currency to determine which is fit for return to circulation and
which should be destroyed. The banks are satisfactorily performing
this currency function.
Internal audits provide management with independent appraisals
of the fiscal activities. During the year the internal audit program
was expanded to include all nonexpendable property in the Office.
Audits were made of cash, securities, and other assets in the custody
of the Treasurer, and various money operations were studied by the
auditors. More frequent audits were made of tellers' operations.
Recommendations resulting from the audits were adopted to improve
accountability for and control over the assets for which the Treasurer
is responsible.
Employee training, forms and reports analysis and control, records
management, and periodic safety inspections are all continuing
programs.
Under the incentive awards program, cash awards were made as
follows: 29 for suggestions adopted, 56 individual and 3 group awards
for superior performance, 7 for outstanding performance, and 4 individual and 2 group awards for special acts or services.
Assets and liabilities in the Treasurer's account
The assets of the Treasm-er consist of gold and silver bullion, coin
and paper currency, deposits in Federal Reserve Banks and in commercial banks designated as Government depositaries.
A summary of the assets and liabilities in the Treasurer's accouni
at the close of the fiscal years 1958 and 1959 is shown in table 53.
Gold.—The gold assets, which stood at $21,356.0 million on the daily
Treasury statement basis on June 30, 1958, (leclined steadily throughout the 3^ear as disbursements totaling $1,817.6 million were offset by
receipts of only $166.0 million. The final balance of $19,704.4 million
on June 30, 1959, was held to cover liabilities of $19,447.2 million in
gold certificates or credits payable in gold certificates and $156.0 million for the gold reserve against currency, leaving a free gold balance
of $101.2 million.
122
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Silver.—Transactions in silver bullion during the 3''ear are summarized, in millions of dollars, in the following table.
Silver bullion held at
Fiscal year 1959
O n h a n d J u l y 1,1958
Received ( n e t ) . .
Revalued
Used in c o i n a g e . . .
.
O n h a n d J u n e 30, 1959.
_. .
l...
Monetary
value
Cost value
$2,228.3
$125. 7
+69.5
-16.2
-24.4
$1.0
+2.2
154.6
.2
+23.1
2, 251. 4
Recoinage
value
-3.0
The $2,251.4 million in silver bullion at the monetary value of
$1.29+ per ounce, was held, together with $195.8 million in silver
dollars, to secure outstanding silver certificates of $2,412.1 million and
outstanding Treasury notes of 1890 of $1.1 million on June 30, 1959.
This left a free balance of $34.0 million in monetized silver.
Balances with depositaries.—The following table shows the number of
each class of depositaries and balances on June 30, 1959.
Class
Federal Reserve Banks and branches
Other banks;in continental United States:
General depositaries
Special depositaries, Treasury tax and loan accounts.
Ensulai' and territorial depositaries
Foreign depositaries 3 •
Total
Number of Deposits to the
accounts
credit of the
with de- Treasurer of the
positaries ' United States
June 30, 1959
36
2 $807, 265, 901
1,506
11,121
42
57
329, 068, 692
3, 744, 302, 686
42, 705, 940
56, 929, 751
12, 762
,980,272,970
1 includes only depositaries having balances with the Treasurer of the United States on June 30, 1959.
Excludes depositaries duly designated for this purpose but having no balances on that date and those designated to furnish official checking account facilities or other services to Government oflicers but which are not
authorized to maintain accounts with the Treasurer. Banking institutions designated as general depositai'les are frequently also designated as special depositaries; hence the total number of accounts exceeds the
number of institutions involved.
, 2.Includes checks for $272,670,964 in process of collection.
8 Principally branches of institutions in the United States.
Review of operations
Receiving and disbursing public moneys.—Mone3^s collected by
Government officers are deposited with the Treasurer at Washington,
in Federal Reserve Banks, and in designated Government depositaries
for credit to the account of the Treasurer of the United States, and all
payments are withdrawn from this account. Moneys deposited and
withdrawn for the fiscal years 1958 and 1959, exclusive of intragovernmental transactions, are shown in the following table on the basis of
the Daily Statement oj the United States Treasury.
ADMINISTEATIVE
Deposits, withdrawals, and balances in the Treasurer's account
Cash deposits (net) (includes internal revenue, customs, trust funds,
etc.)
Public debt receipts i
.
--...
Less accrued discount on U.S. savings bonds and Treasury bills..
Total net deposits
.
Balance at beginning of fiscal year
Total
123
REPORTS
_...
Cash withdrawals (includes budget and trust accounts, .etc.)
Net transactions in:
Investments of Government agencies in public debt securities,
excess of investments, or redemptions (—)
Sales and redemptions of obligations of Government agencies in
market, excess ofredemptions, or sales (—)
Public debt redemptions '
Less redemptions included in cash withdrawals
Total net withdrawals
'.
Balance at close of fiscalyear
1958
1959
$82, 093, 702, 765
$81, 611, 694, 221
213,716, 956, 869 .2 198,853,820,389
- 1 , 890, 245,129
- 2 , 218, 284, 670
293, 920, 414, 505
278, 247, 229,940
5, 589, 952,362
9, 749,102, 978
299,510,366,867
287, 996,332, 918
83,. 188, 037, 485
94,041,924^037
713, 880, 040
-1,129,567,636
48, 445,690
207, 900, 911, 020
- 2 , 090, 010, 346
-698, 961, 939
191,522,381,057- 1 , 089, 834, 364
289, 761, 263, 889
9, 749,102, 978
282, 645, 941,155
5, 350, 391, 763
1 For details for 1959, see table 30.
2 Excludes $1,031,250,000 of noninterest bearing notes issued by the United States as part of the payment
of its subscription to the International Monetary Fund.
Issuing and redeeming paper currency.—By law the Treasurer is the
agent for the issue and redemption of United States currency. The
Cashier of the Treasurer's Office procures all United States paper
currency from the Bureau of Engraving and Printing and places it"in
circulation as needed, chiefly through the facilities of the Federal
Reserve Banks and their branches.
The Federal Reserve Banks and branches as agents of the Treasury
redeem and destroy most of the United States currency as it becomes
unfit for circulation. Unfit Federal-Reserve notes which the Banks
redeem are not destroyed by them but are cut in half and the halves
forwarded separately to Washington for verification and destruction.
The Currency Redempti()n Division of the Treasurer's Office
verifies the lower halves of Federal Reserve notes redeemed by the
Banks (the upper halves are verified by the Office of the Comptroller
of the Currency); redeems unfit paper currency of aU types received
from local sources in Washington and from Government officei^s
abroad; and examines and identifies for lawful redemption all burned
and mutilated currency received from any source. The last operation
requires special techniques and unlimited patience on the part of
sldlled examiners as the currency received may be charred, discolored,
moldy, ia fragments, or in claylike chunks. During fiscal 1959 such
currency was examined for over 47,000 claimants and payment made
therefor to the extent of $7.1 million.
A comparison of the amounts of paper currency of all classes, including Federal Reserve notes, issued, redeemed, and outstanding,
during the fiscal years 1958 and 1959 follows,
.
"'
124
1959 REPORT OF THE SECRETARY OF THE TREASURY
1968
Pieces
Outstanding July 1
Issues d u r i n g year
R e d e m p t i o n s during year
O u t s t a n d i n g J u n e 30
3,368, 064,093
1, 751, 734, 454
1, 731, 429, 644
3,388,368,903
1959
Amount
$33, 442,835, 288
7, 563, 339, 000
7, 690, 707, 583
33,315,466,705
Pieces
Amount
3, 388, 368,903
1, 765, 752, 437
1, 600, 652,302
3, 553,469,038
$33, 315, 466, 705
8, 221, 735,188
7, 461,171,355
34, 076,030, 538
Table 60 shows by class and denomination the value of paper
currency issued and redeemed during the fiscal year 1959 and the
amounts outstanding at the end of the year. For further details on
stock and circulation of money in the United States, see tables 55
through 58.
Checking accounts oj disbursing officers and agencies.—As of June 30,
1959, the Treasurer maintained 2,369 disbursing accounts as compared
with 2,430 accounts on June 30, 1958. The number of checks paid,
by categories of disbursing officers, during the fiscal years 1958 and
1959 foUows.
N u m b e r of checks paid
D i s b u r s i n g officers
1958
Treasm'y
.
Army
Navy
.A tr Force
Other
.
. .
.
267,
28,
35,
33,
31,
1959
457, 016
825, 786
933, 564
880, 664
492, 796
271,978,244
27, 670, 554
33, 997,162
32, 211,139
31, 653, 940
397, 589, 826
397, 511, 039
Settling check claims.—During the fiscal year the Treasurer processed
287,000 requests for stopping payment against Government checks,
including requests for information and for photostatic copies of paid
checks.
The Treasurer acted upon 183,250 paid check claims during the year,
referring to the United States Secret Service those which involved
the forging, altering, counterfeiting, or fraudulent issuance and
negotiation of Government checks. Reclamation was requested from
those having liabUity to the United States on 34,280 claims, and
$3.1 mUlion was recovered. Settlements and adjustments were made
on 26,842 forgery cases totaling $2.7 miUion. Disbursements from
the check forgery insurance fund, estabhshed by Congress to enable
the Treasurer to expedite settlement of check claims, totaled over
$227,000. Claims for the proceeds of approximately 62,500 outstanciing checks were processed and certified for settlement resulting
in the issuance of substitute checks totaling $15.9 mUlion by the Chief
Disbursing Officer to replace checks that were not received or were
lost, stolen, or destroyed.
The Treasurer also adjudicated 250 forgery claims for the proceeds
of the Philippine War Damage Commission and Veterans' Administration checks payable to residents of the PhUippines in that
country's currency and certified 106 disbursements totaling approximatel3^ 64,000 pesos.
125
ADMINISTRATIVE REPORTS
Collecting checks deposited by Government officers.—^Almost six
mUlion commercial checks, drafts, money orders, etc., were deposited
by Government officers with the Cash Division in Washington for
coUection during the fiscal year.
Sale oj uncirculated coin sets.—The Cash Division also packaged
and sold to collectors over 50,000 sets of uncirculated coins minted
at the Philadelphia and Denver mints in 1958. This service was
rendered at no expense to the Government as, ia addition to the face
value of the coins, a fee of 50 cents a set was charged for the cost of
assembling and handling the coins.
Custody oj securities.—The face value of securities held hi the
custody of the Treasurer as of June 30, 1958 and 1959, is shown in
tbe following table.
June 30—
Purpose for which held
1958
As collateral:
To secure deposits of public moneys in depositary banks
To secure postal savings funds...
In lieu of sureties .
In custody for Government officers and others:
Secretary of the Treasury i
Board of Trustees, Postal Savings System
Comptroller of the Currency
Federal Deposit Insurance Corporation .
Rural Electrification Administration
District of Columbia
- -.,
,. ..
Commissioner of Indian Affau's
Foreign obligations 2 _
_
Others
For servicing outstanding Government issues:
Unissued bearer securities
Total
.
1959
$194,646,600
25,795, 200
6,370,600
$202,053,100
22,828, 500
5, 593,100
26,170, 785,087
829,137,000
12, 575, 500
1,267,900,000
73, 543,411
38, 259,371
37, 571, 795
12,079, 782,132
85, 246,106
29,852,300,796
676,137,000
11,973,000
1,264,300,000
77,963,411
41, 519,896
42,496, 570
12,075, 941,132
90,321,026
1, 223,914, 250
1,080,378,050
42,045, 527,052
45,443,805, 581
1 Includes those securities listed in table 119 as in custody of the Treasury,
2 Issued by foreign governments to the United States for indebtedness arising from World War I.
3 Includes United States savings bonds in safekeeping for individuals.
Servicing securities jor Federal agencies and jor certain other governments.—In accordance with agreements between the Secretary of the
Treasury and various Government corporations and agencies and
Puerto Rico, the Treasurer of the United States acts as special agent
for the payment of principal of and iaterest on theh securities (including pre-1934 bonds ol the PhUippine Government). The amounts
of such payments during the fiscal year 1959, on the basis of the daUy
Treasury statement, were as follows:
Principal
Payments made for
Federal home loan banks
Federal land banks
Federal Farm Mortgage Corporation
Federal Housing Administration
Federal National Mortgage Association
Home Owners' Loan Corporation
Philippine Islands
Puerto Rico
Total
..
* On the basis of checks issued.
..-.--
Interest paid
with principal
Registered
interest i
Coupon
interest
$518,680,000
638,484,100
25, 800
62,094,900
929, 507, 000
43, 525
25,000
480,500
$7,017,180
96.422
20
545,400
21, 547,826
6,030
46,375
71,157,321
2,726
132,413
190,075
2,149,340,825
29,212,878
8,773. 587
135,400,932
$4,398,492
4,328,720
$8 821,834
55,094, 223
2,340
.126
1959 REPORT.OF THE SECRETARY OE THE TREASURY
Internal Revenue Service ^
The Internal Revenue Service is responsible for the collection of
the internal revenue and for the enforcement of the internal revenue
laws and certain other statutes. These other statutes include the
Federal Alcohol Administration Act (27 U.S.C. 201-212); the Liquor
Enforcement Act of 1936 (now 18 U.S.C. 1261, 1262, 3615); and the
Federal Firearms Act (15 U.S.C. 901-909).
Review of operations
Collections.—Internal revenue collections for the fiscal year 1959
totaled $79.8 billion, a slight decrease from the 1958 total of $80.0
billion. Collections of corporation income taxes decreased as a result
of the sharp decline in corporate profits in the first half of calendar
19.58. However, this decrease was largely offset by gains in collections
of individual income taxes and employment taxes.
Collections by tax sources for the fiscal years 1929-59 are shoAvni
in detail in table 13 in the tables section of this report. Collections
from the principal sources of tax revenue for the fiscal years 1958
and 1959 are summarized in the foUowing table.
In thousands of dollars
Source
1958
Income and profits taxes:
Corporation
Individual:
Withheld by employers '
Other 1
1959
20, 533, 316
18,091, 509
27,040, 911
11, 527, 648
29, 001, 375
11, 733, 369
Total individual income taxes
38, 568, 559
40, 734, 744
Total income and profits taxes
59,101, 874
58, 826, 254
7, 733, 223
335, 880
575, 282
8, 004, 355
324, 020
525, 369
8, 644, 386
8, 853, 744
1, 410,925
1, 352, 982
2, 946, 461
1, 734, 021
6,133, 786
3, 002, 096
1, 806, 816
5, 950, 637
10, 814, 268
10, 759, 549
Employment taxes:
Old-age and disability insurance i
Unemployment insm'ance
Railroad retirement
Total employment taxes
Estate and gift taxes..^
Excise taxes:
Alcohol taxes
Tobacco taxes
Other excise taxes
Total excise taxes
Taxes not otherwise classified 2
Total collections
.
^
_
7,024
79, 978, 476
6,444
79, 797, 973
NOTE.—Collections are adjusted to exclude amounts transferred to the Government of Guam under the
act approved August 1, 1950 (48 U.S.C. 1421h). Excluded for 1959 was $3,967,000 in individual income tax
withheld.
1 Estiinated. Collections of individual income tax withheld are not reported separately from old-age and
disability insurance taxes on wages and salaries. Similarly, collections of individual income tax not withheld are not reported separately from old-age and disability insurance taxes on self-employment income.
The amount of old-age and disability insm-ance tax collections shown is based, on estimates made by the
Secretary of the Treasm'y pursuant to the provisions of section 201(a) of the Social Secm'ity Act as amended
(42 U.S.C 401(a)), and includes all old-age and disability insurance taxes. The estimates shown for the two
classes of individual income taxes were derived by subtracting the old-age and disability insm'ance tax estimates from the combined totals reported.
2 Includes amounts of unidentified and excess collections and profits from sale of acquired property.
1 More detailed information will be found in the separate armual report of the Commissioner of Internal
Revenue.
ADMINISTRATIVE REPORTS
127
Receipt and processing oj returns.—The number of tax returns filed
dm-ing fiscal 1959 totaled 92.9 mUlion, which was slightly below the
1958 total of 93.5 million returns. Individual and fiduciary income
tax returns, the largest category of returns filed, decreased from
60.8 million in 1958 to 60.0 million in 1959, because of economic
factors. The use of the sunplffied card return. Form 1040A, was
expanded substantially through administrative efforts to encourage
its use, and through a revision in its coverage to include salary and
wage incomes up to $10,000. In previous years Form 1040A could be
used only by persons with salary and wage incomes under $5,000.
The number of information documents received totaled approximately
302 million.
Upon receipt in internal revenue offices, the tax returns are processed
through a series of operations which include the assessment of the
taxes reported, verification of tax credits, computation or verification
of tax liability, issuance of bills for unpaid accounts, and the scheduling of tax refunds. Centralized machine processing of returns at the
three service centers was expanded during 1959 to cover all districts
except Honolulu. The service centers handled a larger portion of the
individual income tax processing workload and undertook the processing of other classes of returns on an experimental basis. Service
center facilities also were utilized in the matching of information
documents, the mailing of tax return packages to taxpayers for the
next year's filing, and in the processing of claims for refund of Federal
tax on gasoline used on farms.
Machine processing of individual income tax returns also enabled
the Revenue Service to act promptly on the refund claims of taxpayers
who overpaid their tax for 1958. Nearly $4.0 billion in excessive
prepayments was refunded to more than 35 million taxpayers during
fiscal 1959, with the bulk of the refunds scheduled by the end of May,
just six weeks after the April 15 filing deadline.
Verification of the tax com.putations on 52,465,000 individual income
tax returns disclosed errors in 1,800,000 returns. Correction of the
errors resulted in tax increases aggregathig $84,688,000 and tax
decreases totaling $42,268,000.
Enjorcement activities.—The volume of returns examined was increased dming 1959 for the fourth consecutive year, notwithstanding
the fact that there was a slight decrease in audit personnel. Income
tax examinations rose to 2,595,000 as compared with 2,496,000 in 1958.
The gain resulted from steps taken to streamline audit operations and
permit more effective utilization of manpower. Emphasis was concentrated on audit procedures to accelerate the closing of older cases and
assure prompt examination of returns currently filed. Savings in
clerical manpower were achieved through expanded use of service
center machine facilities in the preparation of questionnaires to taxpayers and in the compUation of audit management reports. Postaudit review operations also were strengthened to provide for a more
effective coordination of audit work throughout the district offices.
A comparison of the number of returns examined during the last two
fiscal years follows.
128
1959 REPORT OF THE SECRETARY OF THE TREASURY
(In t h o u s a n d s of returns)
T y p e of r e t u r n
1958
I n c o m e tax:
Corporation
Individual and
159
2,336
173
2,422
2,496
28
^306
2,595
29
264
r 2, 829
2,888
fiduciary
T o t a l income tax
.
E s t a t e a n d gift taxes
Excise a n d e m p l o y m e n t taxes i
G r a n d total
1959
»• Revised.
I Excludes examinations resulting in no tax change where such examination was made from the taxpayers'
copies of returns in the course of an audit covering both income and excise and/or employment tax.
The additional tax, interest, and penalties resulting from audit
totaled $1,619,148,000 for 1959, showing a gain of nearly 12 percent
over last year's total of $1,449, 564,000 and marking the highest total
reached since the reorganization of 1952. The amount saved through
the audit and disallowance of improper refund claims totaled
$259,002,000 as compared with $271,168,000 in the preceding year.
Approximately one million investigations were completed in 1959
in cases where preliminary information indicated that the persons or
firms involved had failed to file required returns for income, employment, excise, or other taxes. Through these investigations and the
canvassing operations undertaken to discover nonfilers, 761,000
delinquent returns were secured, involving approximately $92 million
in tax, penalties, and interest. Inquiries made in the course of tax
audits also produced delinquent returns, with taxes aggregating
over $25 mUlion, bringing the total amount of delinquent returns
secured to more than $117 million.
A comparison of the enforcement results for the fiscal years 1958
and 1959 follows.
(In t h o u s a n d s of dollars)
Source
1958
A d d i t i o n a l tax, interest, a n d penalties resulting from a u d i t
Increase in income tax resulting from m a t h e m a t i c a l verification '
T a x , interest, a n d penalties on d e l i n q u e n t r e t u r n s 2
T o t a l a d d i t i o n a l tax, interest, a n d penalties
Claims d i s a U o w e d . . .
.
_
_. _
...
1959
1,449,564
109,674
»• 128,433
1,619,148
85,233
117, 235
•• 1, 687, 671
271,168
1, 821, 616
259,002
*• Revised.
1 Consists almost entirely of individual income tax; amounts from fiduciary and corporation income tax
returns, which comprised oidy about 2 percent of the 1958 figure, are not available for periods subsequent to
December 31,1958.
2 Delinquent returns secured by Audit Division are included for both years.
The number of past-due accounts on hand was reduced in 1959 to
the lowest poiat reached in nearly seven years. Dollar amounts outstanding also showed a substantial reduction, with the year-end
figure droppiag below that of any year since 1954. The inventory on
June 30, 1959, totaled 1,202,000 cases involving $1,206,000,000 in
unpaid taxes. This represents a reduction of 20 percent in number and
18 percent in amount, compared with a year ago. The accounts
ADMINISTRATIVE
REPORTS
129
closed by collection, abatement, or other action during 1959 totaled
2,960,000 cases and $1,456,000,000, differing from 1958 only by a
slight increase in amount. Collections amoimted to $978,000,000,
representing a slight decrease from 1958. The collection of delinquent
accounts b3^ office collection methods was further expanded, permitting
the revenue officer staff to concentrate on the more difficult cases. In
order to bring this work as nearly up-to-date as possible, efforts were
contiaued to reduce the number of old accounts, without diminishing
the attention given to current cases.
A higher degree of selectivity was achieved in fraud investigations
in furtherance of the objective to create a greater deterrent effect.
Efforts were concentrated on cases of substance, with signfficant prosecution potential, and provision was made for special agents to withdraw from investigations promptly when it is determiaed that a prosecution recommendation is not warranted. The concentration of
effort on significant cases, coupled with a slight reduction hi special
agent man-37^ears, resulted in a decrease in the number of full-scale investigations from 4,184 in 1958 to 3,969 in 1959. The investigations
completed in. 1959 included 1,640 cases in which prosecutions were
recommended, as compared with 1,946 in 1958. Indictments were
returned against 1,185 defendants during 1959 compared with 1,359
defendants indicted in 1958. In the cases reaching the courtroom, 796
defendants pleaded guilty or nolo contendere, 113 were convicted after
trial, 72 were acquitted, and 177 were dismissed. The following table
presents for the years 1953 through 1959 the record of convictions,
including pleas of guilty or nolo contendere, in cases involving all classes
of internal revenue taxes except alcohol or tobacco taxes.
Number of
individuals
convicted
Fiscal year
929
1,291
1,339
1,572
1953
1954 ._.
1955
1956
Fiscal year
1957
1958
1959
Number of
individuals
convicted
1,256
1,096
909
International operations.—International operations of the Service
are centralized in the International Operations Division with headquarters in Washington, D . C , and permanent field offices in France,
England, Canada, the Philippines, and Puerto Rico. Through these
offices and through brief visits made by revenue agents to other
countries, the Service supplies information and assistance to United
States taxpayers abroad, conducts a program of enforcement activities, and obtains information needed in tax cases under consideration
in its domestic offices. Compliance with U.S. tax laws by citizens
residing abroad was facilitated by enactment on September 2, 1958,
of the Technical Amendments Act of 1958 (Public Law 85-866) which
requires such persons to file U.S. tax returns and report all of their
income, including earned income subject to exclusion under Section
911 of the Internal Revenue Code, even though no tax may be due.
Alcohol and tobacco tax administration.—Pressure of the preventive
raw materials program during 1959 caused increasing disruption of
the ^'moonshiner's" traditional sources of supply. The cost of sugar
525622—60-
-.10
130
1959 REPORT OF THE SECRETARY OF THE TREASURY
used in the manufacture of non taxpaid distilled spirits rose to a level
exceeded only during World War I I sugar rationing. This new
enforcement approach, combined with a concentrated drive to detect
and prosecute organized groups of large-scale operators, has resulted
in more convictions and longer sentences.
Seizures and arrests for violations of alcohol and tobacco tax laws
decreased slightly in 1959, as shown in the following table.
Number
of stills
seized
Fiscal year
1940.
1945
1950
1955
1956
1957.
1958
1959
.--
- --
10,663
8,344
10,030
12, 509
14,499
11,820
9,272
9,225
Gallons
of mash
seized
6,480,200
2,945,000
4,892,600
7,375,300
8,643,200
6,756,600
5,140,800
4,655,600
Number
of arrests
made i
25,638
11,104
10,236
10, 545
11,380
11, 513
11,631
10,912
1 Includes arrests for firearms violations and, beginning 1955, tobacco tax violations, Arrests involving
these two classes of violations during 1959 numbered 597 and 42, respectively.
The Excise Tax Technical Changes Act of 1958 (Pubhc Law 8 5 859), enacted on September 2, 1958, incorporated the Revenue Service's recommendations for modernization of the distilled spirits
provisions of the Internal Revenue Code, together with minor revisions in the wine, beer, and tobacco statutes.
The Liquor Enforcement Act of 1936 (now 18 U.S.C. 1261, 1262,
3615) ceased to apply to an3^ State, upon the repeal of the Oklahoma
Prohibition Ordinance and the Enabling Act by a vote of the electorate on April 7, 1959, and the signing of House Bill 825 of the Oklahoma legislature on June 23, 1959, by the Governor.
Rejunds.—The total amount of internal revenue refunds, plus
interest, for the fiscal year 1959 was $5,156,969,000 ^ as compared with
$4,651,656,000 in 1958 and individual income tax refunds accounted
for approximately 80 percent of the amount for each year. Interest
payments included in these totals amounted to $69,480,000 in 1959
as compared with $73,675,000 in 1958. The amounts refunded and
the interest thereon, as required by law, are paid out of appropriations
separate from that covering Internal Revenue Service administrative
expenses.
Appeals and civil litigation.—Cases in which an agreement cannot
be reached in the district audit divisions are referred at the taxpayer's
request to the regional appellate divisions for consideration of protests. The volume of protests referred to the appellate divisions in
1959 was somewhat higher than 1958, but showed a leveling off of the
upward trend which has prevailed in recent years. As of June 30,
1959, the inventory of protested income, profits, estate, and gift tax
cases pending in the appellate divisions totaled 14,628 as compared
with 14,268 cases on hand at the beginning of the year. Notwithstanding the larger workload, the policy of considering protested
1 Figures have not been reduced to reflect reimbursements from the Federal old-age and survivors insurance trust fund amounting to $83,430,000 in 1969 and $76,466,000 in 1968, and from the highway trust
fund amounting to $96,900,000 in 1969 and $89,913,000 in 1958.
ADMINISTRATIVE REPORTS
131
cases promptly has continued with the result that disposals increased
and the inventory at the close of the year was in a substantiaUy current condition.
The number of petitions filed with the Tax Com't bf the United
States rose during the year as a result of the increases in audit activity
and in the volume of protests considered. Disposals of petitioned
Cases likewise showed gains but did not equal receipts. Accordingly,
the inventory of docketed Tax Court cases, in which the Service
endeavors to reach agreements with taxpayers prior to trial, increased from 10,395 cases at the beginning of the year to 11,748 cases
at the close of 1959.
In cases other than those appealed to the Tax Court, taxpayers
who have paid a disputed tax can, if they wish, sue for refund in the
Court of Claims or in a United States district court. Disposals of
cases in courts other than the Tax Court exceeded receipts and backlogs were reduced slightly from 2,813 cases as of July 1, 1958, to 2,761
cases pending June 30, 1959.
Technical services.—Technical services include the interpretation of
statutory provisions, the preparation and issuance of rulings and advisory statements to the public and revenue officials, the preparation
of regulations and other tax guide materials, technical advice and assistance in the preparation and issuance of tax forms, continuing
research of tax inequities, and the development of programs for clarification and simplification of tax rules. Technical assistance also is
provided in programs for legislative revision and in conducting the
negotiation of tax treaties.
Among the regulations published during the year were four new
regulations under the Internal Revenue Code of 1954. This group
consisted of gift tax regulations (T.D. 6334), documentary stamp tax
regulations (T.D. 6351), wagering tax regulations (T.D. 6370), and
a tobacco regulation (26 CFR Part 296).
Other important regulations published related to exempt organizations (T.D. 6301 and T.D. 6391); reporting and substantiation oi
business expenses by employees (T.D. 6306); extension of the bonding
period on distilled spirits from 8 to 20 years (T.D. 6307); disaster losses
of taxpaid alcohol and tobacco products (T.D. 6315, T.D. 6316, T.D.
6325, and T.D. 6392); public inspection of applications for tax exemption (T.D. 6331); and adjustments required by changes in method of
accounting (T.D. 6366).
Enactment of the Technical Amendments Act of 1958 (Public Law
85-866) and the Excise Tax Technical Changes Act of 1958 (Pubhc
Law 85-859) required the issuance of numerous temporary rules,
pending the issuance of final regulations, to permit taxpayers to conclude necessary business transactioas, make tax elections, etc.
Requests for tax rulings and technical advice totaled 38,596, comprised of 33,670 from taxpayers and 4,926 from field offices.
Revenue rulings and revenue procedures published in the Internal
Revenue Bulletin duriag the year totaled 546, compared with 687 in
fiscal 1958.
Approximately 236 tax return forms, instructions, and publications
were reviewed and revised to conform with recent legislation or to incorporate other changes under a continuing program seeking to achieve
more simplicity and to promote more efficient processing and audit.
132
1959 REPORT OF THE SECRETARY OF THE TREASURY
Personnel.—The employees on Internal Revenue Service rolls at the
close of the year numbered 50,200, consisting of 2,633 employees in
the national office and 47,567 in the regional and district offices. At
the close of the preceding year the number of persons employed totaled
50,816, comprising 2,638"" national office employees and 48,178 regional
and district office employees.
The number of employees in the various branches of the Internal
Revenue Service at the close of the fiscal years 1958 and 1959 is shown
in the following table.
Location and type
Number on payroll at close
of fiscal year
1968
1969
BY LOCATION
National office
Regional and district offices *_
'2,638
' 48,178
2,633
47, 667
BY TYPE
Permanent personnel:
Supervisory personnel
647
666
Enforcement persormel:
Revenue officers
Oflice auditors
Returns examiners
Revenue agents
Special agents
Alcohol tax inspectors
Alcohol tax investigators
Storekeeper-gaugers.-
5,476
2,095
1,604
10,510
1,470
438
912
771
5,172
2,003
2,062
10,171
1,423
411
884
730
Total enforcement persormel
Legal personnel
Other technical personnel
Clerical persormel, messengers, and laborers
23,276
513
4,252
21,246
22,856
489
6,059
19,002
49,834
47,972
2,228
50,816
50,200
Total permanent personnel
Temporary personnel
Grand total
«• Revised.
1 Includes International Operations Division personnel (headquarters and field offices) numbering 271
for 1968 and 305 for 1959.
Cost oj administration.—The entire cost of Internal Revenue Service
operations during the year, including all items of expense except
amounts refunded to taxpayers, was $355,469,000 as compared with
$337,429,000 for 1958. Over $15 million of the approximately $18
inillion increase over 1958 was attributable to full-year costs of the
Go vernment-wide salary increase effective in January 1958. The
1959 total includes $819,000 in advance procurement made available
prior to the beginning of the 1959 fiscal year through special legislation.
Management improvements
Increased attention was given to long-range operational and financial planning in order to define future goals more clearly, as a guide
in the preparation of annual work-plans and budgets. Efforts were
continued during the year through improvements in organization,
procedures, and facilities, to achieve more effective utilization of
manpower in the adininistration of internal revenue taxes. Estimated
r Revised.
ADMINISTRATIVE REPORTS
133
annual savings from these improvements totaled over $3.5 million
which was applied to help m.eet increasing workloads hi essential activities. The principal management actions are summarized below.
Organizational changes.—The new organizational alignment of collection division office branches, which had been developed and tested
ia the Pittsburgh and Phoenix districts during 1958, was extended td
all districts prior to the 1959 filing period.
Changes in the organizational structure of district audit divisions
were authorized in May 1959 to provide greater fiexibility, a more
effective span of control, and better utilization of both supervisory
and technical personnel. The new organization provides for variations in the number of branches and the extent of intermediate supervision to fit the size and scope of the district's audit mission.
Advisory group.—An advisory group, consisting of 12 outstanding
representatives of the legal, accounting, and tax teaching professions
was organized. This group wUl serve as a clearing-house for suggestions from practitioners and the public for improving tax administration and will also provide valuable advice on general problems facing
the Service.
Executive development.—^Emphasis during the year was on maintaining and extending the ''Blue Ribbon"• career service program. For
the fourth consecutive year the Service continueci the successful
operation of its executive development program. Participants in
this program, carefully selected for their executive potentiality, are
assigned to the position of assistant district director or other key
positions in the Revenue Service upon completion of a 6-month
training course. Basic and specialized supervisory trainiag also was
provided under local office sponsorship for both incumbent and
potential management personnel throughout the Service.
Promotion guidelines.—Service-wide promotion guidelines were
issued under the Civil Service Comraission's Federal merit promotion
program, effective January 1, 1959. I t was already the polic3^ of
the Service to make promotions based upon merit but the new guidelines require a more formal application ahd documentation of merit
principles in the selection of employees for promotion.
Return system jor alcohol and tobacco taxes.—A semimonthly return
system for the payinent of alcohol and tobacco taxes was instituted
on June 24, 1959, thereby eliminating the use of stamps for this
purpose. The abolition of the historic stamp system, (in use siace
1868) marked a signfficant change in the method of collecting these
taxes, from the purchase of stamps before removal to a return system
simUar to that employed for most other excise taxes. This change
wUl save about $1.6 mUlion annually in printing, distribution, and
accounting costs.
Coordination oj postaudit review.—A program has been initiated
to improve the coordination of the regional postaudit review operations and to achieve a high level of uniformity in the application
of the Code, regulations, and procedures. Information obtained wUl
provide an improved basis for appraising the "quality of audit work,
134
1959 REPORT OF THE SECRETARY OF THE TREASURY
preparing training materials, and determining the needs for changes
in the Code or regulations.
Mechanization.—Studies of large-scale electronic data processing
equipment were initiated to determine the avaUability of types having
potential application to Revenue Service procedures and to determine
the feasibility of adapting and modifying Service operations to utilize
such equipment.
•
The mechanization of payroll operations was completed by the
transfer of pa3rrolls for the four western regions to the Western
Service Center. Mechanization has not only reduced the cost of
payroll processing but has also made it possible to obtain related
employment data at relatively small expense for use in financial
planning and personnel management.
Relocation and consolidation oj space.—^Upgrading and consolidation
of office space were accomphshed in the Los Angeles, Milwaukee, and
Cincinnati district offices and in the Philadelphia regional office.
The new office buUding for the Baltimore distiict office is scheduled
for completion by the end of calendar 1960. Internal Revenue
Service space requirements are included in Federal office buUdings
now under construction or scheduled for construction in Albuquerque,
N. Mex.; Burlington, Vt.; Little Rock, Ark.; Omaha, Nebr.;
Parkersburg, W. Va.; and Richmond, Va.
Other improvements.—A system was installed for identifying Service
policies which derive from the discretionary powers of the Commissioner and procedures were formalized for establishing or modifying
such policies. Manpower expended on taxpayer assistance during
1959 was reduced by 14 percent through improved operational
techniques, combined with a comprehensive educational program,
an improved series of tax guides and related publications, and
expanded use of the simplffied card return. Form 1040A. Taxpayer
understanding of Service activities and requirements was promoted
through the production of a documentary film, ''Since the Beginning
of Time," which was televised to audiences estimated at more than
40,000,000 and was also distributed widely for showings to schools
and civic groups. The need for on-premises supervision and inspection of alcohol and tobacco manufacturers was reduced as a result
of revisions in procedures. Adoption of a simplffied payment method
for official maUing eliminated costs previously incurred in postage
meter rentals, purchase orders, accountabUity records aiid reports,
and in weighhig, rating, and affixing of postage. Through standardization of district office forms, the number in use was reduced by 32
percent.
Office of International Finance
The Office of International Finance assists the officers of the Department in the formulation and execution of policies and programs in
international financial and monetary matters.
By direction of the Secretary, the responsibilities of the Office of
International Finance include the Treasury's activities in relation to
international financial and monetary problems, covering such matters as^the^convertibility of currencies, exchange rates and restrictions.
ADMINISTRATIVE REPORTS
135
and the extension of stabUization credits; gold and silver policy; the
Bretton Woods Agreements Act, and the operations of the International Monetary Fund, the International Bank for Reconstruction
and Development, the International Finance Corporation, the proposed Inter-American Development Bank, and the proposed International Developnient Association; foreign lending and assistance;
the North Atlantic Treaty Organization; the activities of the
National Advisory CouncU on International Monetary and Financial
Problem^s; the Anglo-American Financial Agreement; the United
States Exchange StabUization Fund; and the Foreign Assets Control.
The Office also acts for the Treasury on the financial aspects of international treaties, agreements, and organizations in which the United
States participates,, and it takes part in negotiations with foreign governments with regard to matters included within its responsibilities.
I t assists the Secretary on the international financial aspects of problems arising in connection with his responsibilities under the Tariff
Act. The Office also represents the Treasury in the work of the subordinate organs of the National Advisory Council on International
Monetary and Financial Problems, of which the Secretary of the
Treasury is chairman.
The Office of International Finance advises Treasury officials and
other departments and agencies of the Government concerning exchange rates and other financial problems encountered in operations
involving foreign currencies. In particular, it advises the Department
of State and the Department of Defense on financial matters related
to their normal operations in foreign countries and on the special
financial problems arising from defense preparation and military
operations. In conjunction with its other activities the Office studies
the financial policies of foreign countries, exchange rates, balances of
payments, the fiow of capital, and other related problems.
The Division of Foreign Assets Control administers certain regulations and orders issued under section 5(b) of the Tradiag with the
Enemy Act. The Foreign Assets Control Regulations block all
property in the United States in which any Communist Chinese or
North Korean interest exists and prohibit all trade or other financial
transactions with those areas or their nationals. The Control carries
on hcensing activities in connection with transactions otherwise prohibited and takes action to enforce the regulations.
The Control also administers regulations which prohibit persons in
the United States from purchasing, selling, or arranging the purchase
or sale of strategic commodities outside the United States for ultimate
shipment to the Soviet bloc. These latter regulations supplement the
export control laws administered by the Department of Commerce'
Bureau of the Mint ^
The principal functions of the Bureau of the Mint include the manufacture of coin, both domestic and foreign; the distribution of domestic
1 More detailed information concerning the Bureau of the Mint is contained in the separate annual report
of the Director of the Mint.
136
1959 REPORT OF THE SECRETARY OF THE TREASURY
coin between the mints, the Federal Reserve Banks and branches, and
the Treasurer of the United States in Washington, D . C ; the custody,
processing, and movement of gold and silver bullion; the admiaistration of the regulations issued under the Gold Reserve Act of 1934, as
amended (31 U.S.C. 440-446), and section 5b of the act of October 6,
1917, as amended (12 U.S.C. 95a), including the issuance and denial
of licenses, the purchase of gold, and the sale of gold bullion for industrial use; the administration of silver regulations issued under the
acts of July 6, 1939 (31 U.S.C. 316c), and July 31, 1946 (31 U.S.C.
316d); the manufacture of historic and special Government medals;
and other technical services.
In addition to the Office of the Director of the Mint in Washington,
D . C , six field institutions were in operation during the fiscal year
1959, including the PhUadelphia and Denver mints where coins are
manufactured; the San Francisco Mint, operating as an assay office
and bullion depository; the Fort Knox Gold Bullion Depository; the
New York Assay Office; and the West Point SUver Bullion Depository
which operates as an adjunct of the New York Assay Office.
Coinage
The mints manufactured 1.6 billion domestic coins during the fiscal
year 1959, compared with 2.0 billion coins in 1958. A change of design
was made in the 1-cent piece at the beginning of January 1959. The
portrait of Abraham Lincoln on the obverse side of the coin remains
unchanged. The reverse side is that of the Lincoln Memorial in
Washington, D . C , in honor of the Lincoln Sesquicentennial observance. The change is a permanent one to remain in effect for not less
than 25 years as provided by law. The Lincoln-Wheat Wreath design
1-cent piece, minted continuously from June 1909 through December
1958, will continue to circulate. A table follows showing production
of the five denominations coined during the fiscal year.
Production 2
Denomination i
M:etamc composition
Number
of, coins
Face
value
In millions
1-cent pieces...
5-cent pieces
Dimes
Quarter doUars
Half dollars
Total .
__. .Bronze (95% copper, 5% zinc and t i n ) . . .
Cupronickel (75% copper, 25% nickel)
900 parts silver, 100 parts copper . _ .
do
r
. . do
-
31,127.3
124.0
239.6
63.4
21.4
1, 576. 7
Standard
gross
weight
Short
tons
$11.3
6.2
24.0
15.9
10.7
3,865
684
660
437
294
68.0
4 5, 940
1 No silver dollars were coined during the yeai-; the last dollar coinage was in September 1936.
2 Includes 988,784 sets of proof coins.
3 Consists of 564.9 million coins with Lincohi-Wheat Wreath design manufactm'ed July-December 1958,
and 662.4 milUOn coins with Lincoln-Lincoln Memorial design manufactm'ed January-June 1969.
* Consists of 1,253 tons of silver, 4,323 tons of copper, 171 tons of nickel, and 193 tons of zinc and tin.
ADMINISTRATIVE
137
REPORTS
In addition to domestic coinage the Philadelphia Mint manufactured
137.4 million coins for four foreign governments, as follows:
Government
Denomination
Costa Rica
10 centimos
6 centimos
Chrome stainless-steel
do
Total
Cuba
Honduras
1 centavo . _
20 centavos
75% copper, 25% nickel
900 parts silver, 100 parts copper
Philippines
50 centavos
25 centavos
10 centavos
5 centavos
1 centavo
Number of
coins produced
(in millions)
Metalhc composition
_.-
10.5
19.9
30.4
50.0
2.0
.
70% copper, 18% zinc, 12% nickel
. . . do.-..
do
80% copper, 20% zinc
95% copper, 5% zinc
5.0
10.0
10.0
10.0
20.0
Total
55.0
Grand total
137.4
During the fiscal year 1959 the mints issued 1.7 billion U.S. coins
for circulation. As in 1958, the 1-cent pieces and dimes were in
greatest demand. The six denominations issued are shown in the
following table.
Number of
coins issued i
Denomination
Face value
In millions
1-centpieces
5-ccnt pieces
Dimes.
Quarter dollars
Half dollars
Silver dollars
. _
_ __
.
._
_
__
Total
Gross weight
Short tons
1,195.4
196.6
213.2
93.0
27.2
18.9
$12.0
9.8
21.3
23.2
13.6
18.9
4,098
1,084
587
641
375
558
1, 744. 3
98.9
7,343
1 Includes 976,256 sets of proof coins sold by the Philadelphia Mint. A set is composed of five coins (minor
and subsidiary silver denominations).
The total stock of domestic coins, comprising the
the mints and other Treasury offices, in Federal
commercial banks, and in the hands of the public,
the close of the past two fiscal years in the following
amount held in
Reserve Banks,
is compared at
statement.
Face value (in millions)
stock of U.S. corns
Minor corns _..
_ __
Subsidiary silver coins
Silver dollars
.
June 30,1958 June 30,1959
.
.
Total
_.
_
Increase, or
decrease ( - )
$509.8
1,448.8
488.2
$526.9
1, 497. 0
488.0
$17.1
48.1
2, 446. 8
2, 511. 9
65.1
1—.2
1 Decrease represents the amount of uncurrent; (worn) silver dollars withdrawn from circulation and
returned to the mints.
138
1959 REPORT OF TPIE SECRETARY OF THE TREASURY
Gold
The three mints and the New York Assay Office received 4.8
million fine ounces of gold valued at $166.3 million during fiscal 1959.
Issues of gold totaled 51.9 million ounces valued at $1,817.9 million.
Included were sales of 1.4 million ounces valued at $49.2 milhon for
domestic industrial, professional, and artistic use; and 9.8 million
ounces valued at $343.8 million withdrawn for payment of the United
States increase in its gold subscription to the International Monetary
Fund as authorized by Public Law 86-48, approved June 17, 1959.
The amount of gold stored in the Fort Knox Depository remained
unchanged at 356.7 million ounces valued at $12,483.4 million.
Total holdings in custody of the five mint institutions and transactions
of the mints and the assay office for the 3^ear are shown in the following
table.
Gold holdings and transactions (excluding intermint transfers 0
Holdings on June 30, 1958.
Receipts
Issues
Holdings on June 30, 1959
Net decrease
1, 651. 6
1 Intermint transfers amounted to 38.3 million ounces valued at $1,338.9 million during fiscal 1959.
Silver
Silver bullion transactions made at the three mints, the New York
Assay Office, and the West Point Depository, and beginning and endof-year holdings of the five institutions are summarized in the following
statement.
Silver bullion holdings and transactions (excluding intermint transfers 0
Holdings on June 30, 1958
_-.
Fme ounces
(in millions)
-..
Receipts during fiscal year 1959:
Newly mined domestic silver, act of July 31,1946 (31 U.S.C. 316d)
Lend-lease silver from foreign governments:
Ethiopia
India
Netherlands
Pakistan
Total lend-lease silver
Recoinage bullion from uncurrent United States silver coins
Other miscellaneous silver
20.4
5.4
57.0
4.3
8.3
75.1
1.6
L7
Total receipts
Issues during fiscal year 1959:
Manufactured into United States subsidiary silver coins
Sold under act of July 31, 1946 (31 U.S.C. 316d)
Other miscellaneous issues
Total issues
Holdings on June 30,1959
Net increase in silver bullion
_.
36.5
n.2
2.0
-._
31,889.0
49.1
1 Intermint transfers of silver bullion, includmg physical and book transfers, amounted to 64.2 million
ounces during fiscal 1959.
2 Includes 1,658.7 million ounces held as security for silver certificates.
3 Includes 1,676.6 million ounces held as security for silver certificates.
ADMINISTRATIVE REPORTS
139
Revenue and monetary assets
Revenue deposited by the Bureau of the Mint into the general fund
of the Treasury totaled $47.5 million during the fiscal year. Seigniorage on the 324.4 million subsidiary sUver coins manufactured amounted
to $22.7 mUlion and on the 1,251.3 million minor coins manufactured,
$14.5 million. Seigniorage on 17.9 million dunces of sUver buUion
revalued from cost to monetary value as security for silver certificates
amounted to $6.9 million. In addition to the $44.1 million in seigniorage, other miscellaneous deposits totaled $3.4 mUlion.
Monetary assets of gold and sUver bullion, silver and minor coins,
and other values in the six mint institutions totaled $23.8 bUlion at
the beginning of the fiscal year and $22.2 bUlion at the close of the
year.
United States gold and silver production and consumption
The estimates of United States gold and silver production and issues
of gold and sUver for domestic industrial, professional, and artistic
use, made annually by the Office of the Director of the Mint, are on a
calendar year basis.
Domestic gold production totaled 1,759,000 fine ounces, and sUver
production, 36,800,000 fine ounces during the calendar year 1958,
compared with 1,800,000 fine ounces and 38,720,200 fine ounces,
respectively, in 1957. Gold issued for domestic industrial, professional, and artistic use amounted to 1,833,251 fine ounces in 1958,
and silver issued for the same purposes, to 85,500,000 fine ounces.
These compare with 1,450,000 fine ounces of gold and 95,400,000 fine
ounces of sUver issued in 1957.
Management improvement
The management improvement program of the Bureau of the Mint
continued to progress in all the mint locations. Modernization of the
Philadelphia Mint continued to receive considerable attention. Some
alterations were made to the breakdown rolling mill at the end of
1959, and this equipment will be in operation during 1960, when it is
expected that results will be considerably improved. Improvements
made at the Denver Mint included: Increased capacity of breakdown
rolling mill; reduction in blank reviewing; extension to slab coU annealing furnace; X-ray gauge on finish rolling mill; and increased
melting capacity.
Reduction in manpower requirements during fiscal 1959 amounted
to 47 employees. Savings of $304,000 resulting from improvements
made in melting and rolling operations at Philadelphia, reduced the
requirement for appropriated funds below the amounts which otherwise would have been required. Additional savings of $37,800 at
Philadelphia and Denver served to offset p a r t i a l ^ per diem employee
wage increases and increased costs of supplies and materials.
Continuing Bureau-wide attention was given to the incentive awards
program, records management, safety, control of communication costs,
and forms and reports control. Cash awards to employees amounted
to $1,275 for suggestions resulting in intangible benefits and savings
of $25,386.31 per year.
140
1959 REPORT OF THE SECRETARY OF THE TREASURY
Bureau of Narcotics ^
The Bureau of Narcotics administers a program designed to accomplish the aims of the Federal statutes and international conventions relating to narcotic drugs and marihuana.
The principal objectives of the Bureau are: (1) To suppress the
illicit traffic in such drugs and thus avoid the spread of addiction;
(2) to control the legitimate manufacture and distribution of narcotic
medicines and prevent their diversion for addiction pm'poses; (3) to
cooperate through the State Department with other governments in
control of the international drug traffic and the discharge of the obligations of the United States under the several narcotics conventions
and protocols; and (4) to cooperate with the several States in narcotic
drug legislation and local law enforcement.
Law enforcement
To suppress illicit traffic the Bureau concentrates its efforts as far
as possible on: (1) Eliminating foreign sources of supply of clandestine
drugs and preventing their entry into the United States; (2) the
detection and prevention of illicit interstate traffic; (3) the detection
and elimination of wholesale traffic within the States; and (4) cooperating with State and local officials to accomplish the elimination of
retail peddling and the treatment and cure of addicts.
In foreign countries investigation, surveillance, and negotiation are
undertaken to detect and locate narcotic drugs intended for illicit
traffic and prevent their entering this country. During the fiscal
year 1959 through cooperation with the Canadian, French, Greek,
Italian, Lebanese, Swiss, Syrian, and Turkish governments large
seizures of crude, semiprocessed, and finished products destined for
the United States were eff'ecteci, leading in some instances to the
closure of large clandestine laboratories. The Bureau continues on
guard against the large supplies of opium and heroin which are available in Communist China.
In the United States important and eft'ective aid in discouraging
illicit traffic continues to be afforded by the Narcotics Control Act of
1956 (21 U.S.C. 174). The effects of this law are reflected in the increased sentences imposed. In Federal courts the average sentence
per conviction for unregistered narcotic violators was 6 years 7 months
in 1959 as compared with 6 years 1 month in 1958; and for marihuana
violators it was 5 years 7 months as compared with 4 years 11 months
in 1958. The gradual stift'ening of penalties at both national and
State levels is slowly but steadily producing a deterrent to iUicit
traffic in jurisdictions where the policy of heavier sentences applies.
In the course of its enforcement activities during the fiscal year the
Bureau seized a total of 94,223 grams of narcotics as compared with
82,272 grams in 1958. Seizures of marihuana amounted to 343 kilograms 194 grams bulk and 607 cigarettes as compared with 299
Idlograms 236 grams bulk and 1,620 cigarettes in 1958.
The following table shows for the fiscal year the number of violations of the narcotic laws reported by Federal narcotic enforcement
officers. Violations by persons registered to engage in legitimate
narcotic and marihuana activities are shown separately from those
i Further information concerning narcotic drugs is available in the separate report of the Bureau ci Nar«
cotics entitled Traffic in Opium and Other Dangerous Drugs for the Year Ended December Sl, 1958.
141
ADMINISTRATIVE REPORTS
by persons who were not qualified by registration to possess or handle
the drugs.
Number of violations of ihe narcotic and marihuana laws reported during ihe fiscal
year 1959 wiih iheir dispositions and penalties
Narcotic laws
Registered persons
Federal
Court
Total to be disposed
of.Convicted:
Federal
Joint
Acquitted:
Federal.Joint
Dropped:
Federal
Joint
Federal
Court
Total disposed of.—
711
104
146
30
2,311
260
1
89
38
1
66
22
3
6
232
76
1
24
1
8
1,464
170
847
80
Yrs. Mos. Yrs. Mos. Yrs
.6 1,157
6,340
6 1,167
5,340
Total
-
262
10
_
Average sentence per conviction:
806
20
8
Total
Fines imposed:
Federal
Joint
St ate
Court
1,600
Yrs Mos.
8
Sentences imposed:
Federal
Joint
Federal
Court
State
Court
8
18
-
Nonregistered per sons
22
1
Pending June 30,1959
1959
1968.
Nonregistered persons
State
Court
Pending July 1, 1 9 6 8 . . - Reported during 1969:
Federal i
Joint L—
Marihuana laws
Mos. Yrs. Mos.
8
500
10
8
500
10
Yrs. Mos.
131
10
2
133
10
1 $155,724
$2,708
$6,453
$2,362
50
155,724
2,708
6,463
2,412
Yrs. Mos. Yrs. Mos. Yrs. Mos. Yrs Mos. Yrs. Mos. Yrs. Mos.
3
6
7
5
7
4
8
6
5
2
4
11
1
2
1
3
10
6
3
3
10
Average fine per convicviction:
1959
1968
-
$2.065r
$193
135
$10]
46.
$73
21
$62
182
1 Federal cases are made by Federal oflQcers working independently while joint cases are made by Federai
and State officers working in cooperation.
Control of manufacture and medical distribution
In its control of legitimate trade the Bureau issues permits for iinports of crude materials, for exports of finished drugs, and for intransit
movement of narcotic drugs and preparations passing through the
United States from one foreign country to another. I t supervises the
manufacture and distribution of narcotic medicines within the country
and has authority to license the growing of opium poppies to meet the
medicinal needs of the country if and^when their production should
become in the public interest.
142
1959 REPORT OF THE SECRETARY OF THE TREASURY
The importation, manufacture, and distribution of opium and coca
leaves and their derivatives are subjected to a system of quotas and
allocations designed to insure their proper distribution for medical
needs. During the year 175,073 kilograms of raw opium were imported from Turkey and India and 135,186 kilograms of coca leaves
were imported from Peru to meet medical requirements for opium
derivatives and cocaine and to supply nonnarcotic coca flavoring extracts. The latter were obtained as a byproduct from the same leaves
from which the cocaine was simultaneously extracted.
The quantity of narcotic drugs exported during 1959 was somewhat
more than was exported during 1958. However, the export total is
not significant in comparison with the quantity used within the United
States. The manufacture of narcotics continued high, principally
because of the high medical consumption of pethidine, codeine, and
papaverine.
There were 1,325 thefts of narcotics reported during the year from
persons authorized to handle the drugs as compared with 1,147 the
previous year. The quantities reported stolen amounted to 51,399
grams during 1959 and 38,698 grams in 1958,
Approximately 319,000 persons registered to engage in lawful
narcotic and marihuana activities, practically all of whom were engaged in the manufacture, wholesale or retail distribution, or dispensing or prescribing of narcotic drugs for legitimate medical uses. The
industrial and scientific uses of narcotic substances are comparatively
few in number and such use is insignificant in volume.
International cooperation
The Bureau submits to appropriate agencies of the United Nations
advance estimates of annual requirements for each basic drug covered
by the several international conventions and, after the 3^ear has ended,
full and complete statistics of manufacture, distribution, imports,
exports, and stocks of all such drugs. I t applies a S3^stem of import,
export, and intransit permits which conforms to the requirements of
these conventions as well as to our own Narcotic Drugs Import and
Export Act. I t exchanges, direct with the narcotics control authorities of other governments, information relating to movements of drugs
under such permits, as well as information relating to illicit traffickers
and illicit movements of narcotics between countries. Through the
State Department the Bureau cooperates in matters of narcotic polic37'
with other governments and with the United Nations. The Commissioner of Narcotics is the American Representative on the United
Nations Commission on Narcotic Drugs, which meets annual^'^ to review the work of the various international agencies concerned with
narcotics and make recommendations on narcotic matters to the
Economic and Social Council.
Cooperation with States and municipalities
Excellent cooperation continues between Federal, State, and municipal narcotic law enforcement agencies in the exchange of law enforcement information and in local law enforcement activities. Many
types of minor violations and routine inspections formerly handled by
the Bureau are now referred to local or State authorities for investigation and prosecution, or investigated jointly with them.
ADMINISTRATIVE REPORTS
143
The names of 46,266 active addicts were recorded in the Bureau's
central index as of December 31, 1958, many of whom were reported
by State and municipal agencies.
Scope of activities
The scope of the Bureau's operations continues to enlarge as additional drugs are made subject to the narcotic laws. Opium and
coca leaves and their derivatives have been under national control
since 1915; marihuana has been under control since 1937; isonipecaine,
a synthetic known more generaUy as meperidine and internationally
as pethidine, was brought under control in 1944; and under the act of
March 8, 1946 (26 U.S.C. 4731(g)), a total of 34 other synthetic narcotics have been brought under control through findings by the Secretar3^ of the Treasury, proclaimed by the President that the drugs
possess addiction liability similar to morphine.
Internationall3^, opium, coca leaves, marihuana, and their more
important derivatives have been under control by the terms of the
Opium Conventions of 1912, 1925, and 1931. In addition under
Article I I of the 1931 Convention and the international Protocol of
November 19, 1948, two secondary derivatives of opium and 37 synthetic drugs have been found to have addicting qualities similar to
morphine or cocaine and have been brought under international
control by a procedure similar to that provided in our national legislation. The agreement to limit the production of opium to world
medical and scientific needs signed at the United Nations on June 23,
1953, and approved by the United States Senate August 20, 1954,
was followed by Senate Resolution 290 of June 14, 1956, urging other
governments also to ratify. This Protocol requires the ratifications
of 25 states including any three of seven named producing countries
and any three of nine named manufacturing countries. As of June 30,
1959, 32 ratifications had been deposited including six from manufacturing countries, but only one from a producing country. When
two additional producing states have deposited their ratffication, the
Protocol will become effective and should then accomplish a much
further reduction in the amount of opium available to the illicit
traffic.
Narcotics training school
The Bureau's narcotics training school, staffed by 20 experts in
narcotic law enforcement, has now graduated 500 State and municipal
law enforcement officers, representing 189 separate agencies from 39
States and Puerto Rico. Officers from Afghanistan, Canada, Ecuador,
Indonesia, Iran, Iraq, Japan, Jordan, Korea, Lebanon, Mexico,
Thailand, and Turke37' also have attended, representing 19 separate
agencies from the 13 countries.
Management improvement
DmTug the fiscal year one Bureau field district was abolished and
its territory assigned to adjoining districts, for better utilization of
manpower. The procedure for handling forfeitures of seized automobiles was streamlined and shortened to effect quicker forfeitures
and dispositions with substantial savings in time and costs of automo-
144
1959 REPORT OF THE SECRETARY OF THE TREASURY
bUe storage. A blanket lump sum postage contract with the Post
Office Department has simplified maUing procedures. A system of
monetary property accounting was instituted under which the
Bureau's nonexpendable property is under continuous accounting
control. The Bureau changed from the avoirdupois system of
pounds, ounces, and grains to the more flexible metric system (kilograms, grams) for reporting and accounting for seized narcotics. A
beginning was made in transferring addict records to punch cards for
accurate and rapid identification of addicts and machine compilation
of addiction statistics. Courses in the Treasury Department law
enforcement school were completed by 29 narcotics officers. Cash
awards were paid 15 employ^ees for management improvement suggestions or for especially meritorious services.
United States Coast Guard
Enforcing or assisting in enforcing Federal laws on the high seas
and waters within the jurisdiction of the United States is a basic
duty of the United States Coast Guard. These laws govern navigation, shipping and other maritime operations, and the allied protection of life and property. The Service also promotes the safety
and efficiency of merchant vessels; develops, establishes, maintains,
and operates aids to maritime navigation for commerce and the
Armed Forces; maintains a state of readiness to function as a specialized service in the Navy in time of war; and trains and maintains
an adequate reserve force. Marine casualties from unsafe and Ulegal
maritune practices are prevented not only by strict law enforcement
but also by an educational program enlisting the cooperation and
self-regulation of shipowners and boatmen. Title 14 of the United
States Code prescribes the basic duties.
Search and rescue operations
The rapid growth of the Nation's waterborne and airborne commerce
and pleasure boating continues to make ever-increasing demands on
the Coast Guard's search and rescue facilities. Lifeboat stations,
air stations, and fioating units along the coasts, the inland waterways,
Alaska, Hawaii, Bermuda, Puerto Rico, and Newfoundland are integrated into an effective search and rescue network by radio stations,
communication centers, and rescue coordination centers. All Coast
Guard air and surface craft are available for search and rescue duties
primarily, or in conjunction with regular assignments.
The new Atlantic merchant vessel position reporting program,
effective July 1, 1958, is aimed at encouraging domestic and foreign
merchant vessels to send voluntary position reports and navigational
data to Coast Guard shore based radio stations and ocean station
vessels. Relayed to a ships' plot center in New York and processed
by machine, these data provide up-dated position information for
Coast Guard rescue coordination centers. The centers may then
direct only those vessels which can be of eft'ective aid to craft or
ADMINISTRATIVE REPORTS
145
persons in distress. Thus, diversion of all merchant ships in a large
area becomes unnecessary. During the first operational year of this
system, 3,993 merchant ships representing 46 nations participated.
Typical examples of assistance rendered by the Coast Guard during
the fiscal year 1959 were as follows:
Tanker collision.—A collision on August 7, 1958, of the merchant
tankers Guljoil and Graham in heavy fog in the entrance to Narragansett Bay, R.I., set fire to both vessels. Navy, Coast Guard,
and commercial units fought the fires for three days, searched for
missing crewmen, and assisted in directing traffic through the area.
The U . S . C G . C Laurel directed all on-scene operations.
Train wreck.—A New Jersey Central passenger train plunged into
Newark Bay through an open drawbridge, on September 15, 1958,
submerging two engines and two coaches. Coast Guard small craft
and helicopters assisted in rescuing 43 survivors and recovering 29
bodies.
Helicopter rescue.—A 590-foot tanker, the Ajrican Queen, ran
aground on December 30, 1958, and split in two ten miles off Ocean
City, Md. Within two hours all 47 crew members were evacuated
successfully by 15 helicopters from nearby Navy, Marine, and Coast
Guard bases. Operations were coordinated by the Coast Guard
Rescue Coordination Center at New York.
Arctic search.—The Danish motor vessel ^^7^,5 Hedtojt, on her
maiden voyage, struck an iceberg 60 miles south of Cape Farewell,
Greenland, on January 31, 1959, and presumably sank shortly thereafter with all 93 persons on board. The U . S . C G . C Campbell rushed
to the scene from Ocean Station Bravo and directed an intensive
nine-day coordinated air and surface search. Hampered by high
winds, heavy seas, pack ice, and icebergs, searching units found no
trace of the ship or survivors.
Airplane crash.—A Lockheed Electra, with 67 passengers and 5
crew members, crashed in the East River about midnight on February 3, 1959, while making its final approach for landing at La Guardia
Ah-port. Two Coast Guard helicopters, three vessels, and 13 small
craft assisted throughout the night in rescuing nine smwivors and
recovering 22 bodies.
Medical evacuation.—On April 7, 1959, the U . S . C G . C Storis was
dispatched to evacuate an injured seaman from the Russian refrigerator ship Pischavaya Industriya 140 mUes north of Dutch Harbor,
Alaska. After picking up an interpreter and doctor, a rendezvous
was made and the injured patient taken to Cold Bay where a waiting
Coast Guard plane completed the evacuation to the Elmendorf Air
Force Base Hospital without incident.
Jet plane collision.—Two U.S. Air Force jet planes collided on May
22, 1959, near Ocean Station Echo, occupied by the U . S . C G . C
Mendota. An Air Force weather plane spotted both .pUots in the
water and within two hom^s of collision the Mendota had rescued them.
A statistical summary of search and rescue assistance follows:
525622—60
11
146
1959 REPORT OP THE SECRETARY OF THE TREASURY
Rescue operations
Vessels assisted:
Refloated (number)
Towed (number)
_
Otherwise aided (number)
-_
._
Property involved (value including cargo)
Miles towed
Aircraft assisted:
Escorted (number)
Otherwise aided (number)
Property involved (value including cargo)
Miles escorted
_Persons assisted.
Miscellaneous assisted (floods, forest fires, etc.)
Attempts to assist (no physical assistance rendered)..
Persons involved (number):
Lives saved or rescued from peril
Medical assistance fm'nished
Other assistance - . _-__
Menaces to navigation removed
Miscellaneous property involved (value)
By
aviation
units
By
vessels i
By other
equipment 2
82
208
661
161
1,970
735
• 1,449
7,898
2,319
4.60
116
3
20
30
209
571
101
• 2,007
406
145
1, 679
Total
1,692
10, 076
3, 715
$405,102, 700
97, 794
493
. 345
$1, 067, 604,100
64,164
1,389
2,366
911
-1,157
4,812
8,498
2,552
1,986
66,631
1, 862
$10, 285,100
1 Vessels 56-foot and over iu length.
2 Small boats, vehicular, and other equipment. .
Rescue and survival training programs for overseas aircraft
This program is conducted by the Coast Guard to instruct and train
civil and military air carrier organizations. Flight crews and others
directly concerned with overwater operations, including those of communications and air traffic control, are indoctrinated in all subjects
which may contribute to safety and ultimate survival. Coordination
between distressedaircraft and search and rescue agencies, procedures
for making emergency landings at sea, use of survival equipment, and
rescue techniques are emphasized. Participating organizations in
fiscal 1959 numbered 208 and 4,187 persons attended.
Marine inspection and allied safety measures
- The Federal Boathig Act of 1958 (Public Law 85-911), providing for
the promotion of boating safety, and coordination and cooperation
with the States in the interest of boating laws, was approved September 2, 1958. Under the act all undocumented vessels propelled by
machinery of more than ten horsepower using the navigable waters of
the United States and its Territories are required to be numbered in
accordance with an overall S3^stem established by the Secretary of the
Treasury. State numbering systems are approved by the Commandant of the Coast Guard under authority delegated by the Secretary. In those States not having approved numbering systems by
AprU 1, 1960, the Coast Guard will administer a numbering program
for owners of vessels requhing a certificate of number.
The Council of State Governments, as a result of conferences with
representatives of the Coast Guard, drafted a ^'State Boat Act" with
explanatory statement which it distributed to all States as a suggested
model for enactment. Before the close of the fiscal year 18 States had
enacted vessel numbering laws. Four applications for formal approval
of State numbering systems had been received by the Coast Guard and
one had been approved by June 30, 1959. Although the effective
date of the numbering provisions of the Federal Boating Act of 1958
under the act are not effective until April 1, 1960, instructions effective
March 10, 1959, were issued to implement the accident reporting
sections.
ADMINISTRATIVE REPORTS
147
• The act of May 10, 1956 (46 U . S . C 390 a-g), has brought approximately 3,057 additional small passenger vessels under inspection and
certification, since June 1, 1958. This law and the large number of
biennial inspections of cargo vessels during the year caused a peak in
inspections for certffication, but these are expected to decrease in
future years.
•
..
There were 5,018 marine casualties reported and investigated during
the period. Ten, considered major, were investigated by marine
boards of investigation, which determined that 558 persons lost their
lives due to vessel casualties, 363 from personal accidents not connected with vessel casualties, and 215 from miscellaneous causes
including naturah deaths, suicides, and homicides. There were no
passengers' lives lost durhig the year as a result of casualties tp
inspected passenger vessels or their equipment.
>^
The most serious casualty during the year involved the jGreat Lakes
bulk carrier S.S. Carl D. Bradley, which broke in two and.sank in
Lake Michigan with the loss of 33 of the vessel's 35 crew mernbers.
Weather conditions at the time, although severe, were not considered
of sufficient force to be the sole cause of the casualty. I t was concluded, therefore, that the vessel possibly had developed an undetected
structural weakness or defect. Because of this possibility, a program
has been initiated which will increase early detection of structural
weaknesses, particularly in older vessels of design simUar tp the
Bradley.
.
.
. .
Ship design and shipbuilduig have continued extremely active,
although there has been a notable drop in new passenger vessel
construction. Three large passenger vessels, the S.S. Brazil, S'S.
Argentina, and S.S. Santa Paula, were completed, leaving only the
N.S. Savannah (atomic powered) still under' construction. In contrast, tanker and cargo vessel. construction and conversion have
increased. I t is noteworthy that new. ship designs reflect the general
advancement in technology and represent a radical departure from the
conventional design of the past..
.
" ,
. Completed in fiscal 1959 was the conversion of the S.S. Methane
Pioneer, the first vessel designed- for carrying liquefied inethane at
atmospheric pressure, which requires the cargo to be maintained at
.approximately 250° F . below zero. The Methane Pioneer, converted
on an experimental basis, has proved the feasibilty of transporting
methane long distances by water, thus opening up markets for natural
gas which often had been a nuisance waste product. I t also indicates
the possibility of a more economical method of transporting other
liquefied petroleum gases such as propane and butane. Various
shipyards, designers, and prospective owners have been working on
schemes to build a more practical vessel to carry these products. Contributing to the growing number of nonconventional ships is the
^^Contahier Ship." This type permits the carrying of containers of, a
fixed size which can be transported by trailer to and from the ship^
At present, four conversion, designs for container service are being
studied.
- i Emphasis also is being placed on the roll-on, roll-off type vessel,- in
which traUers and other vehicles are driven aboard"instead of'bemg
lifted aboard by conventional cargo gear. This change requires the
solving of unique problems to provide safe access to the ship from the
148
195 9 REPORT OF THE SECRETARY OF THE TREASURY
dock and access throughout the vessel by means of ramps and
elevators.
In the past few years tank vessels have been increasing in size, thus
creating new problems in design, construction, and operation.' At
present plan approval work is being performed on a tanker 940 feet
long and of over 100,000 deadweight tons. In comparison, the
T2-type tanker, the workhorse of World War II, was only 525 feet
long and had a deadweight tonnage of 16,000 tons.
During the year the Industry Advisory Panel on the Carriage of
Ores and Ore Concentrates, appointed by the Commandant in 1957
as a result of casualties, completed its task and submitted ^'The Code
of Good Practice for the Stowage of Bulk Cargoes; such as. Ore, Ore
Concentrates, and Similar Cargoes When Carried in General Cargo
Vessels." Industry has made increasing demands for the bulk movement of various chemicals, previously restricted because of theh
poisonous, corrosive, or flammable nature. Based on recommendations of a joint industry-Coast Guard advisory panel, conditions
under which the carriage in bulk of four such commodities will be
permitted have been established, and four more are being considered.
At the request of the Coast Guard, the Atomic Energy Panel of the
Society of Naval Architects and Marine Engineers has developed
recommendations for the safe application of nuclear power to merchant
shipping. These recommendations will be used as a guide in the design approval, manning, and inspection of nuclear merchant vessels.
The Joint Inter-Agency Committee, consisting of representatives
from the Atomic Energy Commission, Maritime Administration,
Public Health Service, and Coast Guard, was organized early in 1959
to develop operating procedure^ for the N.S. Savannah and to identify
safety responsibUities of the agencies involved in the nuclear ship
program.
In March 1959 a Merchant Marine Technical Section was established in the Coast Guard District Office in San Francisco. This
Section will handle the approval of plans and other technical matters
which arise concerning merchant ship construction, conversion, and
alteration for the entire Pacific Coast area, including Alaska and
Hawaii. This should speed up and improve plan approval procedure
and facilitate discussion between industry and the Coast Guard
regarding problems of merchant marine safety and application of
vessel regulations.
A digest of certain marine inspection activities for the fiscal year
follows:
Number of
vessels
Vessel inspections completed
_
._
__
Drydock examinations
_
_
,
Reinspections
.
Miscellaneous inspections
Undocumented vessels numbered under provisions of the act of June 7, 1918, as
amended (46 U.S.C. 288)
.._
Violations of navigation and vessel inspection laws
_
Factory inspections
Merchant vessel plans reviewed
_._
6,259
5,673
3,243
23, 879
521,361
10,019
1,053, 228
19, 564
Gross
toimage
13, 389,945
14, 558, 081
6, 759,851
ADMINISTRATIVE REPORTS
149
The Merchant Marme Council held ten regular committee meetings
and two public hearings, supplemented by numerous Coast Guard
District Commanders' meetings and discussions with affected parties,
to consider proposed regulations implementing new legislation or
amending present requirements. The regulations promulgated covered the following: Implementation of the Federal Boating Act of
1958, including numbering standards for undocumented vessels; reckless or negligent operation of vessels; vaporizing-liquid type fire extinguishers; rules of the road interpretive rulings; lights and day
signals for vessels working on wrecks or obstructions, etc., on certain
inland waters or western rivers; specffications for work vests and
authorization to use such approved vests on inspected vessels; and
miscellaneous amendments to regulations including those relating to
vessel inspection, dangerous cargo, and load line.
The Coast Guard participated in meetings and conferences promoting marine safety, including the marine section, and the general
interest session relative to recreational boating safety, of the National
Safety Council's Exposition and Congress in Chicago, 111.; the American Merchant Marine Conference sponsored by the U.S. Propeller
Club at San Francisco, Calif.; the Western Rivers Panel of the Merchant Marine Council at St. Louis, Mo.; the Motorboat and Yacht
Advisory Panel of the Merchant Marine CouncU at New York, N.Y.;
and the Advisory Panel of State Officials of the Merchant Marine
CouncU at Washington, D . C
A pamphlet entitled Pleasure Crajt was prepared which includes
highlights of the Federal Boating Act of 1958, minimum legal requirements for the operation of pleasure craft, and suggestions for safety.
The pamphlet was printed, and 1,200,000 copies have been distributed
to the public. During the year 21 publications containing rules and
regulations or informational material were issued (16 revisions, 5
reprints). In addition approximately 14,200 copies of the publication Proceedings oj the Merchant Marine Council were distributed
monthly to persons interested in marine safety activities administered
b37' the Coast Guard.
The Coast Guard is vitally concerned with the 1960 Conference to
revise the 1948 Convention on Safety of Life at Sea, which will be
attended by representatives from more than 50 signatory nations.
The Commandant of the Coast Guard has overall responsibility for
initiating and coordinating the preparation of the United States proposals for the 1960 Convention. In January of 1959 the inaugural
meeting of the Intergovernmental Maritime Consultative Organization
was held in London. The Commandant of the Coast Guard attended
as a delegate, and two other Coast Guard officers were present as
advisers. In June 1959 there was a meeting of the Tonnage Measurement Committee of IMCO to which the Department of State requested that the Coast Guard furnish an adviser.
Merchant marine personnel.—Merchant marine personnel were
issued 75,746 documents during the fiscal year, and shipping commissioners supervised the execution of 8,232 sets of shipping articles in
connection with the shipment and discharge of seamen.
Merchant marine investigating sections in major United States
ports and merchant marine details in certain foreign ports investi-
150
1959 REPORT OF THE SECRETARY OF THE TREASURY
gated 14,295- cases , involving negligence, incompetence, and misconduct. Charges were preferred and hearings held on 1,148 cases
by Civilian examiners. Security checks were made of 19,307 persons
desiring employment on merchant vessels.
Significant revisions of licensing regulations were made during the
fiscal year to reflect changes in qualification requirements for certain
types. of merchant mariners' documents. The licensing program
required by Public Law 519 (46 U.S.C. 390 a-g) was fuUy developed
and approximately 1,000 examination questions were compiled, edited,
and distributed to the field offices.
Law enforcement
The entry of merchant vessels into United States ports is controlled
under the port security program of the Coast Guard. Part of this
program consists also of supervising the loading of Class A explosives
and administration of regulations relating to dangerous and hazardous
cargoes. The service has the additional responsibility of screening
merchant seamen employed on certain categories of United States
vessels, as well as waterfront workers for admittance to waterfront
facilities under specified conditions. Selected vessels and waterfront
facilities in designated port areas are protected from the waterside,
and by spot check from the-shoreside.
. The Coast Guard also assisted the Federal agencies having primary
responsibility for enforcing the Oil Pollution Act (33 U.S.C 431-437),
anchorage regulations, laws relating to internal revenue, customs,
immigration, quarantine, and the conservation and protection of wildlife and the fisheries.
, The following statistics reflect the volume of enforcement work of
the Coast Guard during the fiscal year:
Vessels boarded
Waterfront facilities inspected
Vioiatioiis of Motorboat Act reported
Violations of port security regulations reported
Violations of the Oil Pollution Act reported
Violations of other laws reported
Explosives loading permits issued
Explosives loadings supervised
Explosives covered by above permits (tons)
Other hazardous cargoes inspected
Anchorage violations
Cooperation with other Federal agencies
181, 415
20, 221
._ 13, 911
621
214
275
1, 024
1, 096
136, 781
6, 279
16
The Coast Guard performed services for other Federal agencies as
follows:
Alcohol Tax Unit, Treasury (aircraft days)
Coast and Geodetic Survey (aerial surveys days)
Fish and Wildlife (censuses taken)
Weather Bureau:
;
(a) Reports furnished
(b) Warnings disseminated
Aids to navigation
\
70
265
331
79, 795
21, 036
On June 30, 1959, there were 39,932 aids to navigation maintained
in the navigable waters of the United States, its Territories and
ADMINISTRATIVE
REPORTS
151
possessions, the Trust Territory of the Pacific Islands, and at overseas bases. During the year 11,615 new aids to navigation were
established and 11,675 aids were discontinued. A summary of those
maintained at the close of each of the last two fiscal years follows:
Kind of aid
Loran transmitters
Radiobeacons
Fog signals (except sound buoys)
Lights (including lightships)
Daybeacons
Buoys, lighted (including sound)
Buoys, unlighted sound
Buoys, unlighted metal
Buoys, Mississippi River type...
Buoys, spar
Total
39,932
i Includes three experimental loran-B and three experimental loran-C stations.
On June 30, 1959, the world-wide loran system contained 70 stations, of which 60 were operated by the Coast Guard. Sixty-one of
the total are loran-A, three are loran-B (experimental), and six are
loran-C. Two replacement loran-A, three loran-B, and three loran-C
stations were constructed during fiscal 1959, while three temporary
loran-A stations were disestablished. One replacement loran-A had
been previously constructed. Five stations are planned for completion
during fiscal 1960.
The Coast Guard, in cooperation with the St. Lawrence Seaway
Development Corporation and the Corps of Engineers, U.S. Army,
completed the installations of the aids to navigation to mark the main
channel of the St. Lawrence Seaway between St. Regis, N.Y., and Lake
Ontario. This entire system includes 88 minor lights, 42 lighted
buoys, and 33 unlighted buoys.
Ocean stations
Throughout fiscal 1959 the Coast Guard maintained four ocean
stations in the North Atlantic Ocean and two in the North Pacific.
From August 31, 1958, to February 1, 1959, an additional and special
ocean station was maintained for the Department of Defense in the
North Atlantic Ocean. Ocean station vessels at strategic points
provided meteorological services for air and marine commerce; communications for transoceanic traffic; air navigation facilities in the
ocean areas regularly traversed by aircraft of the United States and
other cooperating governments; and search and rescue facilities.
During the year these Coast Guard vessels rendered assistance in 94
cases, and cruised approximately 525,543 miles in this program.
International ice patrol
The
North
aerial
season
International Ice Observation and Ice Patrol Service in the
Atlantic Ocean for calendar year 1959 began operations with
reconnaissance during January 1959. The severe iceberg
of 1959 required the use of two surface patrol vessels, the
152
1959 REPORT OF THE SECRETARY OF THE TREASURY
U . S . C G . C Acushnet and the U . S . C G . C Androscoggin beginning in
mid-April 1959. Iceberg activity drove shipping to the extra
southerly track ''ALFA" in April for the first time since 1946.
The U . S . C G . C Evergreen carried out scientific oceanographic
work beginning in early April.
Bering Sea Patrol
The Bering Sea Patrol was carried out by the U . S . C G . C Northwind
during June, July, and August 1958. This patrol performs certain
law enforcement duties and assists other Federal agencies in law
enforcement; aids distressed persons, vessels, and aircraft; provides
logistic services to outlying Coast Guard units; performs aids to navigation duties and marine inspection; and collects hydrographic,
oceanographic, and meteorological data. Dming this patrol, the
Northwind cruised 7,368 miles, carried three passengers on missions in
the public interest, and supplied medical treatment to 557 persons
and dental treatment to 565 persons in remote areas contiguous to the
Bering Sea and Arctic Ocean.
Facilities, equipment, construction, and development
Floating units.—Large ships in active commission at the end of the
year consisted of 180 cutters and buoy tenders of various types, 80
patrol boats, 32 lightships, 39 harbor tugs, and 10 buoy boats. During
the year 3,073,711 miles were cruised as compared with 2,950,118
miles the previous year. Included in the 180 cutters are two special
units, the U . S . C G . C Courier and the U . S . C G . C Eagle. The Courier,
a 339-foot vessel equipped with radio broadcasting facUities, is
manned and operated by the Coast Guard for the United States Information Agency. The Eagle, a 295-foot bark, is used exclusively for
training purposes. The program of replacing overage 83-foot wooden
patrol boats with new steel 95-footers will be terminated this fiscal
year. A new program has been started to replace the remaining
47 wooden boats with a newly designed 82-foot steel boat.
Shore establishments.—Group Office and Captain of the Port, New
York, facilities were moved into their new quarters at Battery Park.
RehabUitation of the newly acquired Coast Guard Reserve Training
Center at Yorktown, Va., was started, and completion of the work is
expected early in fiscal 1960. One air detachment and a section office
were established to support an overseas loran chain of three transmitting stations and one monitor station.
Five lifeboat stations were discontinued; two being replaced by
seasonal manned moorings and two b3^ light attendant stations. One
new lifeboat station was established. Three light attendant stations
were disestablished. Twelve manned light stations were eliminated
either by conversion to automatic, unattended operation, or b3^ outright discontinuance. Other changes were the addition of one manned
mooring and one recruiting station.
Aviation and aircrajt.—During fiscal 1959 the Coast Guard operated a total of 128 aircraft; approximatel3^ one-third of which were
helicopters. The aircraft are deployed at nine air stations and fourteen air detachments. In addition to these permanent air units, helicopters were redeployed on a temporar3^ basis to Los Angeles, Calif.,
ADMINISTRATIVE REPORTS
153
and Rockland, Maine, for search and rescue duties, and to the
U . S . C G . C Northwind for support of the Bering Sea Patrol.
The procurement and disposal program for aircraft during the past
3^ear has, except where modified b37' new loran requirements and fund
limitations, followed the schedule in the Joint Report on the Reguirements oj Coast Guard Aviation. This report, presented to Congress on
Februar37- 26, 1957, by the Secretary of the Treasury and the Commandant of the Coast Guard, contained a plan for aircraft replacement
and for meeting the increased demands upon Coast Guard aviation.
This year the Coast Guard acquired six aircraft. Two were new
Bell helicopters (HULs) which replaced two small overage utility aircraft, and four were C-123Bs acquired from the Air Force to meet
expanding logistic support requirements for new loran stations. In
addition, six Sikorsky helicopters (HUS) to replace overage helicopters
were scheduled for delivery the latter part of this year. Technical
difficulties, however, delayed the delivery of the helicopters until
shortly after July 1, 1959. The HUS helicopter is essentiall3^ an all
weather vehicle which should substantially improve the search and
rescue capabilities of the Coast Guard.
A new air detachment was established at Naples, Italy, earl3^ this
year to provide logistic support for new loran stations in the Mediterranean. This unit was equipped with two of the C-123B aircraft
acquired from the Air Force.
In connection with aerial support of the International Ice Patrol,
tests were conducted this year to determine if the normal process of
destruction of icebergs could be accelerated b37' aerial bombing. For
these tests thermite bombs were dropped from a U F aircraft. Although the results of these tests were not conclusive, the method
appears promising.
This year for the first time the Coast Guard used a helicopter instead
of a small fixed wing aircraft to support law enforcement activities of
the Alcohol and Tobacco Tax Division of the Treasury Department.
The helicopter proved to be considerabty more eft'ective than the
fixed wing aircraft in locating ''stills." Future plans call for their
continued use.
The Coast Guard continued the installation of towing equipment
in H 0 4 S type helicopters and carried out an extensive training program. Operational experience acquired thus far indicates a definite
need for this equipment.
Communications.—The Coast Guard has been participating actively
in the preparation for the Ordinaiy Administrative Radio Conference
to convene in Geneva on August 17, 1959, under the auspices of the
International Telecommunications Union. A Coast Guard officer has
been named principal spokesman for Operating Regulations, one of
four major committees of the U.S. delegation.
Engineering developments
Some of the more significant engineering projects completed or
underway are as follows:
A program for modernizing and standardizing radiobeacon installations has been initiated. New t3^pe transmitters and amplifiers have
been obtained. Procurement of new dual-carrier radiobeacon transmitting equipment is in process, which will provide single side band
154
1959 REPORT OF THE SECRETARY; OF THE TREASURY
transmission.. Procurement has been initiated for two types of microwave radiobeacon systems, one featuring both omnidirectional ,and
directional range capabilities and the other a talking beacon. The conversion of F M communications equipment • to higher frequency for port security operations has progressed satisfactorily. Installation of teletypewriters on ocean station vessels was started, with
two completed during 1959 and installation of eighteen more expected
during 1960. Experimental use of single side band cornmunications
equipment has. progressed during the 3^ear. Modification of the
AN/FRT-23 transmitters for single side band capabilit3^ is..under consideration. The AN/SPS-29 radar has been selected as the most
desirable equipment for replacing the obsolete, overage air search
radars now on ocean station vessels.; The Department of the Navy
has agreed to furnish this equipment.
To reduce midair collisions and to make aircraft more visible to
persons in distress the high visibility painting scheme for aircraft was
adopted. Comparative evaluation of lifeboat radar reflectors was
completed. Approval tests of fire fighting and lifesaving equipment
for use on merchant vessels were conducted. Fog detection equipment
and transistorized flashers for lighted aids to navigation are under
study, and a solar battery for powering these aids is being tested.
A structural restoration program for 125-fo6t WSC and 16.5.; foot
W P C patrol craft was begun. Two of each class were so reconditioned
during fiscal year 1959, and 10 more are scheduled for restoration during fiscal 1960, as these old, obsolete hulls have deteriorated to an
alarming extent. The U . S . C G . C Bonham (WSC-129) and the
U.S.C.G.C Pandora (WPC-113) required immediate replacement,
which was accomplished by borrowing from other agencies for an
indefinite period two ATA's, the Modoc and the Comanche.
Three 110-foot WYTs were re-engiued with Navy surplus diesels,
and the remainder of this class are scheduled for simUar re-engining
during fiscal!960.
Tests were completed on a prototype plastic, self-bailing motor
surfboat, and on a high speed, shallow draft surfboat.' A prototype 40'.
utUity boat with a fiberglass-reinforced plastic hull has been constructed and is being- tested. I t has a single propeller and is Resigned
as unsinkable even when fully flooded. Twenty-nine 16'rf6Qt^ outboard motor boats with plastic hulls have been constructed'. Twentyfive 16-foot boats with similar hulls but with inboard gasoline:eiighies
are now in the construction stage. All of these boats h a y e e p o x y
resin hulls reinforced with fiberglass and promise to reduce small boat
hull maintenance costs.
; " .'.
Plans are being completed for 3 twinscrew 600 H.P. 65-foot steel
pusher tenders with greatly, improved accommodations, aiid three 70foot steel work barges for use on the smaller tributaries of the Mississippi-Missouri Rivers. The improved buoy handling,-greater storage
space, and improved habitability of this combination will ultimatel3^
reduce the number of tender-barges now required in this area.
The smallest laiown high speed, controllable pitch propeller was
designed, constructed, and installed on a dieselized 83-foot patrol boat.
The purpose of this installation is to gain experience in this method of
ship speed control and to explore its suitability for small vessels.
ADMINISTRATIVE
155
REPORTS
Preliminary reports of tests, trials, and in-service evaluation are
encouraging.
•
The Ship Structure Committee, whose mernber agencies are Coast
Guard, Navy, Maritime Administration, and American Bureau of
Shipping, published the results of four completed research projects and
of several continuing projects. Many of these resulting techniques
will be applied directly to the construction of improved ships.
• The overall Coast Guard industrial establishment was the subject
of close examination aimed at reducing maintenance costs. A requirement for industrial budgeting was introduced at bases. "
Coast Guard Reserve
The mission of the Coast Guard Reserve is to provide trained units
and qualified persons available for active duty in time of war or national emergency or at other times as may be required for national
security. In the administration of the Reserve program, the Coast
Guard conforms in general with policies outlined in Department of
Defense directives implementing the various laws relative to the
Reserve components.
An extensive training program was carried out during this fiscal
year for approximately 7,500 Reserve personnel. A majority received
port security training and the remainder received afloat training or
individual specialty training at schools and on-the-job.
New Organized Reserve training units commissioned during the
year numbered 45, making a total of 190 units as of June 30, 1959.
Although the majority were port security and vessel augmentation
units, additional Rescue Coordination Center units were established at
three new locations and electronics specialty training units at four
locations. An aviation ground support unit was established in Miami,
Fla., and is expected to be duplicated in other districts during fiscal
1960.
Personnel
The following table enumerates the Coast Guard personnel as of
June 30, 1958 and 1959:
1958
1959
Number
Military personnel:.
Commissioned officers
"Chief warrant officers
Warrant officers.
. .
Cadets... 1
Enlisted men...
. . . . .
• Total
_
2,824
556
_
.
.
.
___
Total (exclusive of vacancies)...
._ .
Total
.
4-19
417
25,912
• 30,128
Civilian persormel:
Salaried (General Service)
Wageboard
Lamplighters
Ready reservists:
Officers.. __
Enlisted men... .
. . _
_.
•._
....
I'i S97
638
336
464
.
26,113
• 30,448
2,2442,379
•347-
2, 336
2,180
4,970
4, 756
3,216
26,402
3,382
30, 985
29, 618
34,367
240
156
1959 REPORT OF THE SECRETARY OF THE TREASURY
Throughout the year enlisted Reservists without previous active
duty were called up for service. On June 30, 1959, there were an
estimated 2,700 Reservists on active duty.
Changes in the numbers of officers on active duty as of June 30 in
1958 and 1959, are shown below. The net gain of 66 during 1959 was
just sufficient to meet the increased commitments at the beginning of
fiscal 1960:
1958
1959
Number
Additions of commissioned officers:
Coast Guard Academy graduates
Officer Candidate School graduates
Reserve officers called to active duty
Former merchant marine officers appointed.
TotaL...
Losses of commissioned officers:
Regular i
Reserve (on completion of obligated service)
TotaL.
Net gain.
79
203
21
20
80
216
22
13
323
331
78
169
100
165
247
265
76
66
' Through retirements, resignations, revocations, and deaths.
Of the 377 graduates of the Officer Candidate School during the
3^ear, 293 civilians were commissioned as ensigns in the Coast Guard
Reserve and 84 from enlisted and warrant status received temporary
commissions in the regular Coast Guard. Twelve naval aviators
were commissioned in the rank of lieutenant, junior grade, and called
to active dut37'. The program to procure licensed officers of the
merchant maiine resulted in the appointment in December 1958 of 17
commissioned officers and 9 commissioned warrant officers in the
regular Coast Guard. The direct commissioning program which
provides Reserve officers for assignment to Reserve training units
resulted in 165 recommendations for appointment.
During 1959, 245 recruiters manned 52 main stations and 18 substations. Four mobile recruiting trailers were eliminated, because of
high operating costs and low procurement quotas.
Also during 1959, 18,000 persons applied for enlistment in the regular Coast Guard and 4,530 were enlisted. Of the applicants for enlistment in the Coast Guard Reserve 4,110 were enlisted, the majority
under the training program of six months' active duty. Personnel
enlisting in the regular Coast Guard are assigned to one of the two
recruit receiving centers for 12 weeks of recruit training. During
1959, 1,553 recruits were trained at Cape May, N.J., and 703 at
Alameda, Calif.
Coast Guard education program.—The education and training programs sponsored by and participated in b3^ the Service are summarized
for 1958 and 1959 in statistical form as follows:
157
ADMINISTEATIVE REPORTS
1958
1959
Number
Coast Guard Academy:
Applications
Applications approved
Appointments..
Cadets.
Graduates (bachelor of science degrees)
Officer Candidate School graduates
Enlisted men graduated from basic petty officer schools:
Coast Guard
Navy and otber
2,616
2,137
21(
417
7(
21-
3,347
2,797
203
464
80
377
1,568
713
1,644
21
Total graduates of basic petty officer schools..
2,281
1,665
Advanced schools (Navy and other)..
.
Coast Guard Institute com'ses:
New enrollments
Completed
United States Armed Forces Institute courses:
New enrollments
Completed-.
Naval correspondence schools courses completed by:
Enlisted men
Officers
Other training:
Postgraduate (officers)
Entered flight (officers)
Helicopter pilot, 8-week (aviators)..:
Jet aircraft familiarization (officers) *
476
802
16, 551
5,680
16, 925
6,091
2,650
341
1,601
366
364
964
314
1,054
42
35
27
41
36
26
9
1 At Olathe, Kans.
Approximately 75 visitors from foreign countries, under the sponsorship of other Government agencies, were extended the use of Coast
Guard facilities for training in aids to navigation, loran, search and
rescue procedures, merchant marine safet3^, vessel inspection, port
security, and law enforcement.
Public Health Service support.—On June 30, 1959, there were 85
Public Health Service personnel on duty with the Coast Guard
serving at ocean weather stations, Bering Sea Patrol, Deep Freeze
IV operation, and numerous shore stations.
Military justice.—The 830 court-martial cases recorded during
1959 represented a decrease of 155 from those in 1958. The official
Court-Martial Reports issued during the year included opinions on
ten Coast Guard cases. A numerical summary of cases received and
settled follows:
Recorded
Cases
Summary com-ts-martial
Special courts-martial
General courts-martial
Total
___
Final deci- Appellate
sions by review comGeneral
pleted in
Counsel
field by
ofthe
district
Treasury i commanders
643
185
2
39
40
696
93
2 830
79
689
1 In his capacity as Judge Advocate General of the Coast Guard.
2 Of which 54 cases were referred to the Coast Guard Board of Review for appellate consideration (in
accordance with Article 66 of the Uniform Code of Military Justice, 10 U.S.C. 866). In 5 cases petitions
were submitted to the U.S. Court of Military Appeals for grant of review of the Board of Review decision.
All 5 petitions were denied.
158
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Board oj .Review, Discharges and .Dismissals.—In .conioTmsmce with
10 U.S.C 1553, and 33 C.F.R. 51 the following actions were taken
during fiscal 1959.:
Changed t o Discharges of formei enlisted men
Under honorable conditions
Undesirable
._
Bad conduct
Total. __ _
__
.
Reviewed
_.
...
No
change
Under
Honorable honorable
conditions
23
16
12
21
11
10
2
1
51
42
3
4
2
6
Personnel sajety program.—During the calendar year 1958, 1,007
lost-time injuries were reported. The Coast Guard had an exposure
of approximately 10,946,430 military man-days and 10,047,249 civilian
man-hours. The accident frequency rate for 30,214 military personnel
was 9.02 per 100,000 man-days, and 7.66 per 1,000,000 man-hours
for 4,627 civilian workers.
Fiscal and supply management
Mess management was emphasized service-wide during the fiscal
37-ear 1959. With careful management review at aU levels and improved procurement practices, including cross-servicing agreements
with the single manager for subsistence, the average cost of the ration
was reduced approximately $0,037 or a projected estimated savings
of approximately $250,000 annually. Coast Guard personnel continued to be fed the same nutritious and balanced diet as before.
Significant economies have been reahzed by arrangements with the
Departments of the Army, Navy, and Air Force for common supply
items and commissaiy items, and for the overhaul, repair, and parts
support for Coast Guard aircraft.
Coast Guard inventories were decreased approximately $1,430,000
through the disposal of excess materials during the year. Additional
material with a book value of approximately $1,890,000 awaits
disposal.
Coast Guard Auxiliary
The primary purpose of this voluntary, nonmilitary organization
is the promotion of safety in the operation, navigation, and maintenance of small boats. Functioning in over 500 communities, the
Auxiliary conducts public instruction courses in basic seamanship and
safe boat handling. These courses had an enrollment of 73,902
during the fiscal year. Another phase of the Auxiliary is the courtesy
motorboat examination wherein qualified Auxiliarists check the vessels
of fellow boatmen. Examinations of 84,976 motorboats were conducted during the year. The Auxiliary also assisted the Coast Guard
in patrolling 659 regattas and voluntarily cooperated with its parent
organization-in answering 2,328 calls for assistance. On June 30,
1959, the organization had 18,407 members and 11,517 facilities consisting of boats, aircraft, and radio stations.
159
ADMINISTRATIVE REPORTS
Funds available, obligations, and balances
The following table shows the amount of funds available for the
Coast Guard during the fiscal year 1959, and the amounts of obligations and unobligated balances:
Funds
available i
Appropriated funds:
Operating expenses..
Reserve t r a i n i n g
Retired p a y .
.
.
__
'
Acquisition, construction, a n d i m p r o v e m e n t s
T o t a l a p p r o p r i a t e d funds
Reimbursements:
O p e r a t i n g expenses
Acquisition, construction, a n d i m p r o v e m e n t s
Total reimbursements
T r u s t fund. U n i t e d States Coast G u a r d gift fund
G r a n d total
_
N e t total
obligations
Unobligated
balances
_-_ $178,388, 644
..
15,000,000
28, 500, 000
13, 227, 324
$178, 345, 044
14,890,376
28,095, 367
10, 631,009
$43, 600
• 109,624
404,633
2, 596,315
235,115, 968
231, 961, 796
3,154,172
30, 427,938
23,492, 541
30, 427,938
17, 421,'617
6, 070, 924
53, 920, 479
47, 849, 555
6,070, 924
11, 497
4,084
7, 413
289,047,944
. 279, 815, 435
9, 232, 509
1 Funds available include unobligated balances brought forward from prior year appropriations as
follows:
Acquisition, construction, and improvements:
Reimbm-sements
$3,430,884
United States Coast Guard gift fund
.
6,344
Funds available do not include fiscal year 1959 appropriated funds obligated m fiscal year 1958 for advance
procurements as follows:
Operating expenses
$1,111,356
Acquisition, construction, and improvements
.'
4, 922, 676
Management improvement
During fiscal 1959 the management improvement program of the
Coast Guard led to more effective use of manpower, funds, and
facilities, alleviating personnel shortages and offsetting increased
operating costs. Major improvements, some of which have been
described earlier in this report, were: Significant improvements in
mess administration; use of plastic for small boat construction; conversion of light lists to 'Toto-List" S37-stem; reorganization of shore
units; and replacement of older vessels.
Incentive awards.—Civ:Uian employees submitted 295 suggestions
and militar3^ personnel approximately 98. Suggestions adopted
totaled 113, bringing estimated first 3^ear monetary savings of $69,860,
with valuable intangible benefits.
Recognition of superior work performance was given to 52 civilian
employees who contributed materially to efficienc3^ and econom3^, and
to 7 others for special acts or services.
Paperwork management.—There were 22 recmTing reports eliminated and 30 were revised, resulting in estimated annual savings of
$12,000. Through obsolescence or consolidation, 52 forms were
eliminated.
United States Savings Bonds Divisioii
The United States savings bonds program—with tens of millions of
American bond owners—continues to be the keystone of the Treasury's efforts to manage soundly our public debt by attracting long-term
savings into Government bonds. I t also continues to be an important
160
195 9 REPORT OF THE SECRETARY OF THE TREASURY
part of the Government's efforts to encourage the increased savings
in all forms which are needed to finance soundly our growing economy.
Over the 24 years' existence of the savings bonds program, it has
served our Nation well in both respects. At the close of the 1959
fiscal year. Series E and H bonds outstanding had grown to over
$42)^ bUlion, representing 15 percent of the $285 bUlion total public
debt outstanding on June 30, 1959. The E and H bonds program is,
in fact, the only broad area in debt management where the Treasury
has been successful in attracting long-term savings into Government
securities during the period since the close of World War I I . Holdings of Government securities by individuals outside of the E and H
bonds program declined by $13 billion during the last 12 years, while
holdings by savings institutions went down by more than $10 billion.
During the same period the volume of E and H bonds outstanding
rose by almost $12 bUlion.
Over the years the savings bonds program has also served a unique
purpose in encouraging people to save in many ways. There is no
way of estimating how much the thrift and savings habit taught
through the program has contributed to the total of well over $300
bUlion which individuals have saved in this country during the past
two decades, but there is no doubt that the contribution has been
very large.
The United States Savings Bonds Division is a small Government
staff which plans and directs the promotional activities of a large
corps of volunteers. They consist of thousands of public-spirited
men and women who serve voluntarUy as a sales promotion force and
as issuing agents. They have been primarily responsible for the
success of the program over the years.
Experience has shown that the payroll savings plan is the most
effective method of channeling regular, systematic savhigs into Series
E bonds—the most popular Government security. Almost half of
the current E and H bonds sales are accounted for by purchases on
payroll savings plans by some eight mUlion Americans throughout
industry and Government. Many of these savhigs grow out of the
convenience of the payroll plan, savings which would not be taking
place in such volume if it were not for the savings bonds program.
Corporations throughout America, large and small alike, are ad-^
ministering these payroll savings plans on a voluntary basis because
they realize their importance and the benefits to their employees of
regular habits of thrift. SimUarly, thousands of banks and other
financial institutions across the country sell bonds every day without
compensation because it is a program in which they sincerely believe.
Also, all advertising thne and space costs of the program are borne
by private industry as a public service at no cost to the Government.
Currently the value of the advertising contributed amoimts to more
than $50 miUion a year.
There are many reasons why so many millions of Americans buy and
hold Series E and H savings bonds. In addition to the convenience
of buying bonds on the payroll savings plan, owners of savuigs bonds
never need worry about market fluctuations; savings bonds redemption
values at all times are known in advance and are guaranteed by the
Treasury. Furthermore, unlike savings accounts where rates may
move either up or down from year to year, the Treasury guarantees
ADMINISTRATIVE REPORTS
161
whatever rate of interest it puts on the bond for the full term of that
bond. Americans also know that savings bonds are perfectly safe;
the Treasury has replaced over a mUlion of those which have been
lost or destroyed since the program began. These are attributes of
savings bonds which have not changed over the years, quite apart
from the relative attractiveness of the interest rate.
Savings bonds sales efforts were hampered in the 1959 fiscal year,
however, by a rising trend in interest rates generally which provided
a more favorable interest return on some other forms of savuig. The
less favorable rate on Series E and H bonds—3}^ percent when held
to their maturity as compared with, for example, more than 4 percent
on long-term Treasury marketable securities and average rates paid
of about 3% percent on savhigs and loan shares during this period—
was reflected, particularly in the latter half of the year, in declining
sales and increased redemptions. WhUe total cash purchases of E
and H bonds combined during the full fiscal year 1959 amounted to
$4,506 million and were only 3.5 percent below 1958, in the last half
of the year sales were off 7.4 percent as compared with January-June
1958. For the 1959 fiscal year as a whole, redemptions of E and H
bonds totaled $5,107 mUlion (including accrued interest in the amount
of $771 mUlion) but were below those in the fiscal year 1958 by 1.5
percent. However, in the last half of the fiscal year, redemptions
increased sharply and were 10 percent above the simUar months of
the preceding year. Nevertheless, the cash value of E and H bonds
outstandhlg rose by $574 mUlion in fiscal 1959 since the $1,174 mUlion
in interest accumulations on outstanding E bonds during the year,
when added to cash sales, more than offset the redemptions.
In June of 1959, the President transmitted to the Congress a group
of legislative proposals to facUitate the sound management of the
public debt. Included in the savings bonds proposals was a request
for removal of the 3.26 percent statutory interest rate ceUing on
savhigs bonds and a request for removal of the 10-year limitation on
E bond extension. The Treasury promptly announced that if the
enabling legislation was passed, it would increase to 3% percent the
interest return on all Series E and H bonds issued on or after June 1,
1959, when held to their maturity, and further, all E and H bonds
outstanding (includhig E bonds already in the extension period)
would also earn approximately ji percent more than previously if held
to their maturity, beginning with their first semiannual interest
period starting on or after June 1, 1959. Also, the Treasury announced that with the enabling legislation it would offer a second
10-year extension on E bonds issued from May 1941 through May
1949, and all outstanding unmatured E bonds would be given a
10-year extension privUege. (For details of the Treasury's announced changes, see exhibit 16, Secretary Anderson's letter of
June 8, 1959, to the Speaker of the House of Representatives.)
While the interest rate ceiling on savings bonds was not removed.
Congress took action shortly before it adjourned to raise the statutory
limit to 4)^ percent. I t also removed the 10-year limitation on E bond
extension. The savings bonds legislation was signed by the President
on September 22, 1959, and immediately, with the President's approval, the Treasury put into effect, retroactive to June 1, 1959, its
announced revisions to increase the interest yield attractiveness of
525622—60
12
.,.^^!^1^
162
19 59 REPORT OF THE SECRETARY OF THE TREASURY
new as well as outstanding issues of Series E and H bonds and its
announced changes in E bond extension.
The interest rate increases apply only to Series E and H savings
bonds. They do not apply to outstanding issues of Series F, G, J, or
K bonds, the investment-series type of savings bonds which was discontinued from sale in April 1957. However, all' investors (except
commercial banks) are now permitted to reinvest the proceeds of
matured F and G bonds in E and H bonds without regard to the
$10,000 (maturity value) annual purchase limits now in effect for
each series.
.
With the new savings bonds legislation, .the Savings Bonds Division
and its host of volunteer workers are moving forward with a reinvigorated program to bring to the attention of all Americans the added/
attractions of savings bonds investments and their importance to the
econorhic stability and financial strength of bur Nation and its
people.
.
:
;
Promotional efforts to increase savings stamp sales:are also an
integral part of the Treasury's efforts to bring new savers into the
savings bonds program. Through the purchase of stamps, students
at school, and others buy savings bonds on the installment plan.
In the autumn of 1958 a brand new 25-cent stanip was offered, showing
the Nation's flag in red, white, and blue, ^vith the familiar volunteer—
the Minute Man—in the foreground. A t t h e same time, gift stamp
books of ten or twenty of the new 25-cent stamps (costing $2!50 and
$5.00) went on sale. Purchases of the new 25-cent stamps are at
record levels. In 1959, 25-cent stamp sales exceeded every one of the
past ten years. The total dollar sales of all denominations in 1959
amounted to approximately $19 million, representing some 110
million individual stamps.
Management
Headed by a National Director, the United States Savings Bonds
Division is composed of three principal branches: Sales, Planning,
and Advertising and Promotion. The chiefs of these branches,
together .with the National Director and Assistant National Director,
comprise the Division's management committee, whose main objective is the improvement of services of the Division.
.
Management improvement
.:
During 1959 decentralized regional organizations were further
strengthened. In some instances, the area manager's post of. duty
was relocated and local sales territories within the States :redrawn.
More economical and effective work schedules resulted in bietter manpower utilization. Reorganization of the printing plant in the Distribution Center in Chicago thus far has resulted in the elimination of
four positions. Savings from these improvements are estimated at
$64,105...'
.
.
- ..
Improved controls were devised through procedural guides developed for headquarters and field staffs, including uniform filing and
records systems. Consolidation of certain types of printed materials
and more selective distribution methods reduced the volume of promotional material and circular mailings. These improvements will
bring estimated savings of $68,184 on an annual recurring basis.
-;.:.
• ; '
ADMINISTRATIVE REPORTS
'
163
Training courses for personnel throughout the year emphasized upto-date sales techniques and efficient administrative methodology.
United States Secret Service
The rnajor functions of. the United States Secret Service are the
protection of the President pf the United States and members of his
immediate family, the President-elect, and the Vice President at his
request; the detection and .arrest of persons committing any offenses
against the laws of the United States relating to obligations and
securities of the United States and of foreign governments; and the
detection and arrest of persons violating certain laws relating to the
Federal Deposit Insurance Corporation, Federal land banks, joint^
stock land banks, and national farm loan associations. These and
other duties of the Secret Service are defined in Section 3056 of Title
18, United States Code.
. • . .
Management improvement
Some of the improvements made in administrative procedures
during the year included the following.
,
An accounting system designed to meet requirements of the Budget
and Accounting Procedures Act was developed in cooperation with
the Accounting Systems Staff, Bureau of Accounts, and was placed
in operation July,. 1; 1959.
A comprehensive financial management manual was compiled embod3Tng detailed procedures and regulations for all segments of
financial operations, including internal audit, budget, purchase and
supply, accounting system, payroll procedures, voucher examination,
reports and statements, and the filing system.
A determination that there is no legal requirement for redemption
of paper mone3^ and coins altered with intent to defraud permitted
the discontinuance of redemption procedures resulting in a savings of
approxiniately $3,000 per year..
.
. A S37^stem of classifying and coding handwriting was developed as
an aid in associating forgeries of common authorship and identifying
forgers engaged in. interstate traffic in forged Government checks.
This original system was installed in the headquarters office, effective
August 1959.
Protective and security activities
During the year Secret Service agents rendered the usual protection to the President, members of his family, and the Vice President
while in residence and during trips within the United States and
abroad. • Trips abroad included those of the President to Ottawa,
Canada, in July 1958, to Acapulco,-Mexico, in February 1959 and to
Canada in" June 1959 to • participate with Queen Elizabeth in the
dedication^ of the Saint Lawi^erice Seaway. Iri Jurie 1959 advance
agents of the Secret Service were in Russia making security arrangements for the scheduled visit of the Vice President.
Investigations concerning the protection of the President decreased
by 33.7 percent, or 640 cases, in fiscal 1959 against 965 in 1958, and
the number of such cases pending at the close of the year was 54.4
percent less than at the end of the previous year. Arrests in these
164
1959 REPORT OF THE SECRETARY OF THE TREASURY
cases increased from 78 in 1958 to 90 in 1959, or an increase of 15
percent.
Enforcement activities
Counterfeiting cases received increased by 38.9 percent and Secret
Service agents seized a total of $1,924,536 in counterfeit notes, an
increase of 174 percent over 1958. Of this amount, $1,664,207 was
captured before it could be placed in circulation and $260,329 was
passed on merchants and cashiers.
Representative value of counterfeit coins seized was $7,173.57, of
which $6,766.32 was passed. There were 308 new issues of counterfeit notes, and for violating the counterfeiting laws 343 persons
were arrested.
Summaries of some of the investigations follow.
In one case involving counterfeit $100 notes, 25 persons were
arrested and $726,200 in the notes were seized before being placed
in circulation. Approximately $25,000 of the notes had been passed
in 22 States. Those arrested included three major Chicago distributors who had sold more than half a miUion dollars of the
counterfeits to undercover agents.
In another case the owner of a chain of supermarkets and furniture
stores in North Carolina and one of his employees were arrested for
the manufacture and possession of. counterfeit $20 notes. After
several months of investigation, agents obtained a search warrant
and staged a raid on a furniture store in Jacksonville, N.C. In a deep
freezer bearing a tag marked ^^sold," agents found $776,680 of these
counterfeit notes, none of which were ever placed in circulation.
The investigation of a ring of counterfeiters making counterfeit
$10, $20, and $50 notes resulted in the arrest of 40 persons and the
seizure of $138,660 of the counterfeit notes. Notes of this type had
circulated in 38 States. The maker of the notes was arrested in
Tennessee after delivering $72,000 to an undercover agent, and all
of the counterfeiting paraphernalia was seized. Among the distributors arrested was a notorious Tennessee racketeer and fence for
stolen goods.
A S3mdicate counterfeiting U.S. Treasury checks was broken up
with the arrest of two ringleaders when they delivered 753 of the
counterfeit checks to two undercover agents of the Secret Service
who met them at the Washington National Ahport. Along with
the counterfeit Treasury checks, couDterfeit Defense Department
identification, counterfeit social security cards, counterfeit driveis'
licenses, and counterfeit bank checks were seized by agents from the
two ringleaders, both of whom were armed when arrested. Fortyone of the counterfeit Treasury checks had been passed in an area
extending from Florida to Texas. Two others were arrested as a
part of this conspiracy and arrest warrants have been issued for other
members of the ring. This gang had plans for realizing over half a
million dollars from the counterfeit Treasury checks.
The following table summarizes seizures of counterfeit money during the fiscal years 1958 and 1959.
165
ADMINISTRATIVE REPORTS
Counterfeit money seized, fiscal years 1958 and 1959
Counterfeit a n d altered n o t e s :
After circulation
Before circulation
Total
-—
Counterfeit coins seized:
After circulation
Before circulation
Total
Grand total
--..
1958
1959
Increase,
or
decrease (—)
$134,^503.45
568,249. 25
$260,329. 25
1,664,207. 35
$125,825.80
1,095, 958.10
94
193
702,752. 70
1,924, 536. 60
1,221,783. 90
174
8,118. 81
421. 35
6,766. 32
407. 25
-1,352.49
-14.10
—17
—3
8, 540.16
7,173.57
-1,366.59
-16
711,292. 86
1,931,710.17
1,220,417.31
171.6
Percentage,
increase, or
decrease (—)
During the fiscal year 1959 the number of cases involving the forgery of Government checks continued to rise. The Secret Service
received 40,655 such cases, an increase of 20.8 percent over 1958,
which, in turn, had increased 35.4 percent over those in 1957. Agents
completed investigation of 32,173 check forgery cases, 17 percent
more than in 1958. There had been 16,177 forged check cases on
hand at the beginning of the year, and at its close there was a backlog of 24,659, an increase of 52.4 percent. Forged checks investigated
had a representative value of $3,015,304. There were 2,878 arrests
for forging Government checks.
The Secret Service received 5,232 cases concerning the forgery of
United States savings bonds, 29.4 percent more than in 1958. Agents
closed 3,618 such cases, the bonds involved having a representative
value of $518,190. There were 67 offenders arrested for bond forgery At the beginning of the year, 2,027 such cases were pending,
and at its close 3,641 were pending, an increase of 79.6 percent.
One of the largest check forgery rings ever encountered by the
Secret Service was broken up in Dallas with the arrest of 18 members of the ^'Red Fox Cafe Gang." This ring was responsible for the
theft and forgery of numerous Treasury checks, many of which had
been altered to higher amounts. Several other members of the
gang are being sought.
Agents in Richmond, Va., while investigating some 80 Treasury
checks bearing forgeries of apparent common authorship learned that
in one instance the forger had been driving a new Oldsmobile. Agents
checked all OldsmobUe dealers in the vicinity and compared the forged
endorsements with handwriting on all sales contracts. Through this
tedious process agents eventually identified and arrested the forger
who was sentenced to three years. He admitted forgeries totaling
over $9,000.
Cases of all types received for investigation, including Presidential
protection, counterfeiting, and forgery cases, aggregated 53,271, a
rise of 20.8 percent. At the beginning of the year, there were 19,060
cases pending, and although 42,816 were closed during the year,
there were 29,515 cases pending and 1,086 defendants awaiting
prosecution as of June 30, 1959.
166
195 9 REPORT OF THE: SECRETARY OF THE TREASURY
Secret Service agents arrested 167 persons for crimes other than
counterfeiting and forgery, making a totalof 3,455 offenders arrested.
There were'3,163 convictions, representing 98.1 percent of all cases
prosecuted, some of which had been pending from 1958.
The following tables show comparative case and arrest statistics
for the fiscal years 1958 and 1959:
Criminal and noncriminal cases-received, closed, and pending, fiscal years ^
1958 and 1959
1958
Received:
Protective research
...
Counterfeiting
...
Forged Government checks.
Forged Government bonds.
Miscellaneous criminal
Miscellaneous noncriminal..
Total
.
Closed:
Protective research
Counterfeiting
Forged Government checks.
Forged Government bonds.
M iscellaneous'criminaL.:...
Miscellaneous noncriminal..
Total
Pending:
Protective research. J ^
Counterfeiting
. Forged Government checks.
Forged Government bonds.
Miscellaneous criminal
Miscellaneous noncriminal.
Total
Percentage
increase, or
decrease (—)
1959
• 965
3,173
33,648
4,043
464
1,809
6404,408
40, 655
5,232
438
1,898
-33.7
38.9
20.8
29.4
-5.6
4.9
44,102
53, 271
20.8
1,092
2,978
27,505
4,205
• 436
1,818
^ 683
4,197
32,173
3,618
430
1,715
-37.5
40.9
17.0
-14.0
-1.4
-5.7
38,034
42, 816
12.6
79
452
16,177
2,027
125
200
36
663
24, 659
3,641
133
383
-54.4
46.7
52.4
79.6
6.4
91.5
19,060
29, 515
54.9
Number of arrests, fiscal years 1958 and 1959
Arrests
Arrests for:Counterfeiting
'
Forged Government checks...
. Violation of Gold Reserve Act.
Stolen or forged bonds
Protective research
Miscellaneous—:
"Total
'...:..-
1958
1959
Increase, Percentage
or •
increase, or
decrease(—)
335
2,763
4
. 72
78
"91
343
2,878
... -gy6
90
71
115
2
^5
12
-20
2.4
4.2
50.0
-7.0
^ 15.4
-22. 0
3,343
3,455
112
13.4
EXHIBITS
Public Debt Operatioms, Calls of Guaranteed Obligations, Regulations,
and Legislation
Treasury Certificates of Indebtedness, Treasury Notes, and Treasury Bonds
Offered and Allotted
ExmBiT 1.—Treasury certificates of indebtedness
Two Treasury circulars containing representative certificate offerings during the
fiscal year 1959 are reproduced in this exhibit. The first circular is an exchange
offering of the regular series of certificates and the second is a cash offering of tax
anticipation certificates. Circulars pertaining to the other offerings are similar
in form and therefore are not reproduced in this report. However, the essential
details for each issue are summarized in the first table following the circulars and
the final allotments of new certificates issued for cash or in exchange for maturing
securities are shown in the second table.
DEPARTMENT CIRCULAR NO. 1012. PUBLIC DEBT
TREASURY
DEPARTMENT,
Washington, July 21, 1958.
1. OFFERING OF CERTIFICATES
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions from the people of the
United States for certificates of indebtedness of the United States, designated 1%
percent Treasury certificates of indebtedness of Series C-1959, in exchange for
which any of the following listed securities, singly or in combinations aggregating
$1,000 or multiples thereof, may be tendered:
4 percent Treasury certificates of indebtedness of Series C-1958, maturing
August 1, 1958
2J4 percent Treasurv bonds of 1956-59, called for redemption on September
15, 1958
2y% percent Treasury bonds of 1957-59, called for redemption on September
15, 1958.
Exchanges will be made par for par in the case of the maturing certificates and
in the case of the called bonds, at par with interest allowed to September 15 on the
bonds and interest charged from August 1 to September 15 on the new certificates. The amount of the offering will be limited to the amount of the eligible
securities of the three issues enumerated above tendered in exchange and accepted. The books will be open only on July 21 through July 23 for the receipt of
subscriptions for this issue.
II. DESCRIPTION OF CERTIFICATES
1. The certificates will be dated August 1, 1958, and will bear interest from that
date at the rate of m percent per annum, payable semiannually on February 1
and August 1, 1959. They, will mature August 1, 1959. They will not be subject
to call for redemption prior to maturity.
2. The income derived from the certificates is subject to all taxes imposed
under the Internal Revenue Code of 1954. The certificates are subject to estate,
inheritance, gift, or other excise taxes, whether Federal or State, but are exempt
from all taxation now or hereafter imposed on the principal or interest thereof by
any State, or any of the possessions of the United States, or by any local taxing
authority.
3. The certificates will be acceptable to secure deposits of public moneys.
They will not be acceptable in pajanent of taxes.
169
170
195 9 REPORT OF THE SECRETARY OF THE TREASURY
4. Bearer certificates with interest coupons a t t a c h e d will be issued in denominations of $1,000, $5,000, $10,000, $100,000, $1,000,000, $100,000,000, and
$500,000,000. T h e certificates will n o t be issued in registered form.
5. T h e certificates will be subject to t h e general regulations of t h e Treasury
D e p a r t m e n t , now or hereafter prescribed, governing IJnited States certificates.
III. SUBSCRIPTION AND ALLOTMENT
." ' "
1. Subscriptions will be received a t t h e Federal Reserve Banks and branches
and a t t h e Office of t h e Treasurer of t h e United States, Washington. Banking
institutions generally m a y s u b m i t subscriptions for account of customers-, b u t
only t h e Federal Reserve Banks and t h e Treasury D e p a r t m e n t are authorized to
act as official agencies.
2. T h e Secretary of t h e Treasury reserves t h e right to reject or reduce any
subscription, a n d to allot less t h a n t h e a m o u n t of certificates applied for; and
any action he m a y t a k e in these respects shall be final. Subject to these reservations, all subscriptions will be allotted in full. Allotment notices will be sent oiit
p r o m p t l y upon allotment.
. '
IV. PAYMENT
1. P a y m e n t a t par for certificates allotted hereunder m u s t be m a d e on or
before August 1, 1958, or on later allotment, and m a y be made only in Treasury
certificates of indebtedness of Series C-1958, m a t u r i n g August 1, 1958, T r e a s u r y
bonds of 1956-59, called for redemption on September 15, 1958, or Treasury bonds
of 1957-59, called for redemption on September 15, 1958, which will be accepted
a t par, and should accompany t h e subscription. Coupons dated August I , 1958,
should be detached from t h e m a t u r i n g certificates and cashed when due. Coupons dated September 15, 1958, should be detached from both series of bonds
and cashed when due. All subsequent coupons should be a t t a c h e d to coupon
bonds when surrendered. P a y m e n t of accrued interest on t h e new certificates
from August 1 to September 15, 1958 ($1.98709 per $1,000), should be made by
all subscribers tendering coupon bonds in exchange when t h e subscription is
tendered. I n t h e case of registered bonds, t h e accrued interest will be deducted
from t h e amount, of t h e check which will be issued in p a y m e n t of final interest on
t h e bonds surrendered.
. ' ' V. ASSIGNMENT OF REGISTERED BONDS
- ^
'
1. Treasury bonds of t h e two eligible issues in registered form tendered in pay-r
m e n t for certificates offered hereunder should be assigned by the registered payees
or assignees thereof to " T h e Secretary of t h e Treasury for exchange for 1% per^
cent Treasury certificates of indebtedness of Series C-1959 to be delivered to
, " in accordance with t h e general regulations of t h e T r e a s u r y ' D e p a r t m e n t governing assignments for transfer or exchange, and thereafter should
be presented and surrendered with t h e subscription to a Federal Reserve ^Btek
or branch or to t h e Office of t h e Treasurer of t h e United States, Washington!
T h e bonds m u s t be delivered a t t h e expense and risk of t h e holders.
.' ..
VI. GENERAL PROVISIONS
1. As fiscal agents of t h e United States, Federal Reserve Banks are authorized
and requested to receive subscriptions, to m a k e allotments on t h e basis and up to
t h e a m o u n t s indicated by t h e Secretary of t h e Treasury to t h e Federal Reserve
Banks of t h e respective districts, to issue allotment notices, to receive p a y m e n t
for certificates allotted, to make delivery of certificates on full-paid subscription's
allotted, and t h e y m a y issue interim receipts pending delivery of t h e definitive
certificates.
".' ' '
2. T h e Secretary of t h e T r e a s u r y m a y a t a n y time, or from t i m e to time, prescribe supplemental or a m e n d a t o r y rules a n d regulations governing the) offering;
which will be communicated p r o m p t l y to t h e Federal Reserve Banks., -J
ROBERT B . ANDERSON,
Secretary of the Treasury.
.
. v. EXHIBITS
• . ;
'
.:
171
DEPARTMENT CIRCULAR NO. 1013. PUBLIC DEBT
.•
•
TREASURY
- •
DEPARTMENT,
Washington, July 29, 1958.
I. OFFERING OF CERTIFICATES
1. The Secretary of the Treasury, pursuant to the authority.of the Second
Liberty Bond Act, as amended, invites subscriptions from the people of the
United States for tax anticipation certificates of indebtedness of the United States,
designated IK percent Treasury certificates of indebtedness of Series D-1959.
The amount of the offering is $3,500,000,000, or thereabouts. The books will
be open only on July 29 for the receipt of subscriptions.
II. DESCRIPTION OF CERTIFICATES
1. The certificates will be dated August 6, 1958, and will bear interest from that
date at the rate of IK percent- pQv annum, payable on a semiannual basis ori
March 24, 1959. They wiU mature March 24, 1959. They will not be subject
to call for redemption prior to maturity.
• ,
2. The income derived from the certificates is subject to all taxes imposed under
the Internal Revenue Code of 1954. The certificates are subject to estate,
inheritance, gift, or other excise taxes, whether Federal or State, but are exempt
from ail taxation now or hereafter imposed on the principal or interest thereof by
any State, or any of the possessions of the United States, or by any local taxing
authority.
3. The certificates will be acceptable to secure deposits of public moneys. They
will be accepted at par plus accrued interest to maturity in payment of income
and profits taxes due on March 15, 1959.
4. Bearer certificates with one interest coupon attached will be issued in denominations of $1,000, $5,000, $10,000, $100,000, and $1,000,000. The certificates will not be issued in registered form.
5. The certificates will be subject to the general regulations of the Treasury
Department, now or hereafter prescribed, governing IJnited States certificates.
III.
S U B S C R I P T I O N AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks and branches
and at the Office of the Treasurer of the United States, Washington. Commercial banks, which for this purpose are defined as banks accepting demand
deposits, may submit subscriptions for account of customers, but only the Federal
Reserve Banks and the Treasury Department are authorized to act as official
agencies. Others than commercial banks will not be permitted to enter subscriptions except for their own account. Subscriptions from commercial banks for
their own account will be received without deposit. Subscriptions from all others
must be accompanied by payment of 2 percent of the amount of certificates
applied for, not subject to withdrawal until after allotment. Following allotment,
any portion of the 2 percent payment in excess of 2 percent of the amount of
certificates allotted may be released upon the request of the subscribers.
2. Commercial banks in submitting subscriptions will be required to certify
that they have no beneficial interest in any of the subscriptions they enter for the
account of their customers, and that their customers have no beneficial interest
in the banks' subscriptions for their own account.
3. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, and to allot less than the amount of certificates applied for; and any
action he may take in these respects shall be final. Allotment notices will be
sent out promptly upon allotment.
IV.
PAYMENT
1. Payment at par and accrued interest, if any, for certificates allotted hereunder must be made or completed on or before August 6, 1958, or on later allot-
172
1959 REPORT OF THE SECRETARY OF THE TREASURY
ment. In every case where payment is not so completed, the payment with
application up to 2 percent of the amount of certificates allotted shall, upon
declaration made by the Secretary of the Treasury in his discretion, be forfeited
to the United States. Any qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any
amount for which it shall be qualified in excess of existing deposits when so notified
by the Federal Reserve Bank of its district.
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive subscriptions, to make allotments on the basis and up to
the amounts indicated by the Secretary of the Treasury to the Federal Reserve
Banks of the respective districts, to issue allotment notices, to receive payment
for certificates allotted, to make delivery of certificates on full-paid subscriptions
allotted, and they may issue interim receipts pending delivery of the definitive
certificates.
2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve Banks.
ROBERT B . ANDERSON,
Secretary of the Treasury,
Summary of information per^taining io Treasury certificates of indebtedness issued during ihe fiscal year 1969
Department
circular
Date of
preliminary announcement
Number
Date
1968
July 17
1012
July 21
July 25
Nov. 18
1013
1017
July 29
Nov. 19
29
1021
1959
Feb. 2
A p r . 30
1025
May 11
1958
1969
Jan.
Concurrent
offering,
circular
number
1018
Certificates of indebtedness issued for cash or in exchange for maturing or called securities
m percent Series C-1959 issued in exchange for—
4 percent Series C-1958 certificates maturing Aug. 1, 1958.
2K percent Treasury bonds of 1956-59 called for redemption Sept. 15,1958.
2% percent Treasury bonds of 1957-59 called for redemption Sept. 15,1958.
V/^ percent Series D-1959 (tax anticipation series) issued for cash
3^^ percent Series E-1959 issued in exchange for—
3% percent Series D-1958 certificates maturing Dec. 1, 1958.
2H percent Treasury bonds of 1958 maturing Dec. 15, 1958.
3H percent Series A-1960 issued in exchange for—..
23.^ percent Series A-1959 certificates maturing Feb. 14, 1959.
VA percent Series A-1959 Treasury notes maturing Feb. 15, 1959.
4 percent Series B-1960 issued in exchange for—
IH percent Series B-1959 certificates maturing May 15,1959.
i See D e p a r t m e n t Ciruclar N o . 1012, sees. I l l a n d I V , in t h i s exhibit, for provisions
for subscription a n d p a y m e n t of interest.
2 See Department Circular No. 1013, sees. I l l and IV, in this exhibit, for provisions
for subscription and payment of certificates alloted. Qualified depositaries were permitted to make payment for certificates allotted to them and their customers by credit
in Treasury tax and loan accounts.
3 Following acceptance of surrendered certificates, Dec. 1, 1958, coupons detached,
discount of $0.50 per $1,000 on certificates allotted was paid to subscribers and in the case
Date of
issue
Allotment
Date payment
date
on
Date of subscription
or before
maturity
books
(or on
closed
later
allotment)
1958
Aug. 1
1959
Aug. 1
1958
July 23
Aug. 6
Dec. 1
Mar. 24
Nov. 15
July 29 Aug. 6
Nov. 21 3 Dec. 1
1959
Feb. 15
1960
Feb. 15
1959
1959
Feb. 4 4 Feb. 16
May 15
May 15
May 12
1958
Aug. 1
td
ZP
May 15
of surrendered bonds, Dec. 15, 1958, coupons attached, accrued interest from June 15 to
Dec. 1,1958 ($11.54372 per $1,000) plus discount of $0.50 per $1,000 on certificates allotted
was paid to subscribers.
4 Following acceptance of surrendered certificates, final coupons detached, discount
of $0.07 per $1,000 on certificates allotted was paid to subscribers.
5 Following acceptance of surrendered certificates. May 15, 1959, coupons detached,
discount of $0.50 per $1,000 on certificates allotted was paid to subscribers.
CO
174
1959 REPORT OF THE SECRETARY OF THE TREASURY
AUotments of Treasury certificates of indebtedness issued during
[In thousands
I H percent Series C-1959 certificates issued in
exchange for—
4 percent
Series C 1958 certificatesmaturing
A u g . 1,
1958
F e d e r a l Reserve district
Boston _ _
New York
Philadelphia
Cleveland
_
Richmond-...
Atlanta
Chicago
St. Louis
Minneapolis
_
Kansas City
Dallas
San Francisco
Treasm'y
Government investment
-_
2 \ i percent 2 % percent
Treasury
Treasmy
b o n d s of
b o n d s of
1956-59
1957-59
called for
called for
redemption redemption
Sept. 15,
Sept. 15,
1958
1958
Total
issued
l } i percent
Series D 1959 certificates
(tax anticipation
series)
issued for
cashi
106, 589
8, 720,164
94,069
194,125
70, 751
171, 828
526,107
182, 638
117, 523
135,893
74 422
229,962.
10 355
80 016
1,035,161
63,974
85, 473
29,888
69,234
376,879
43, 621
38, 531
63,130
65 161
252, 261
2 482
11,127
476,183
4,598
13, 901
4,035
6,082
32, 566
6,300
9,848
8,089
7,057
78,455
1,909
197,732
10, 231; 508
162, 641
293, 499
104, 674
247,144
935, 552
232; 559
165, 901
207,113
146, 639
560, 679 •
14, 746
125,251
1,309,296
125, 629
299, 649
116, 483
147, 945
562, 834
107, 361
70,808
111, 399
178, 091
412, 303
T o t a l certificate a l l o t m e n t s
M a t u r i n g securities: E x c h a n g e d in conc u r r e n t offerings
10, 634, 426
2, 205, 811
660,150
13, 500, 387
3, 567, 049
T o t a l exchanged
_
R e d e e m e d for. cash or carried to m a tured debt
_
10, 634, 426
2,205,811
660,150
13, 500- 387
- 884, 651
1, 612,189
266, 661
2, 763, 501
11, 519, 077
3, 818, 000
926, 811
16, 263^ 888
.
_
_ .
_ _
_ __
•.
accounts
T o t a l m a t u r i n g securities.
_
1 Subscriptions for $100,000 or less were allotted in full and subscriptions in excess of $100,000 were allotted
59 percent but not less than $100,000.
175
EXHIBITS
the fiscal year 1959, by Federal Reserve districts
of dollars]
3 H percent Series E-1959 certificates issued
in exchange f o r -
3f€percent
Series D-1958
certificates
maturing
D e c . l , 19582
2)^ percent '
Treasury
b o n d s of 1958
T o t a l issued
maturing
D e c . 15, 19582
.'•35,'742.
34,186
5,966; 217
--•
717,072
'52,'207 /
23,076
57,177.
.79,011
••
8,839
19,122
• • 23, 823
28,540
, 140,926
156, 533
36,776
47, 530
' • y : .* 21,'014
35,726
• -36,787
41, 394
^ •.,- , 15,199. . . . . 22,671
.;. •.' 34,876'
68, 219
3, 492
4,401
6,433,075
^ 1,277,481
3,299,940
>78, 433
• .,9,733,015
3 % percent Series A-1960 certificates issued
IE exchange f o r -
2},i percent
V/i percent
Series A-1959 Series A-1959
certificates
Treasury
maturing
notes m a F e b . 14, 19593 t u r i n g F e b .
15, 19593
T o t a l issued
193,872
8, 793, 610
184, 505
212, 008
59, 749
202, 431
704, 452
175,194
97, 229
170,291':
^96, 698
437, 575
35, 012
69,928
6, 683, 289
' 75. 283
136,188
27,961
52, 363
297, 459
84, 306
56, 740
78,181
37, 870
103, 095
7,893
107,748
7, 014,047
126, 686
124,894
25,168
93,563
. . 330, 987
98, 083
56, 969
71,171
63, 214
176, 604
25, 541
86,124
1, 779, 563
57,819
87,114
34, 581
108,868
373, 465
. 77,111
40,260
99,120
33, 484
260, 971
9,471
. 7,710,556
8, 314, 675
3,047,951
11, 362, 626
4,078,373
579, 370
855, 616
. 1, 434, 986
•^
4 percent
Series B-1960
certificates
issued in
exchange for
I H percent
Series B-1959
certificates
maturing
M a y 15, 1959
38,865
764, 754
18,199
49,907
22, 586
•
22,889
166, 419
28, 511
^ 35,262
. ..- 54,588
.
24,588
33, 445
' 9,448
•
1,269,461
2, 055, 914
11, 788, 929
8, 894, 045
3,903,567
12, 797, 612
99, 704
312,'452
412,156
875, 846
1,198, 710
2, 074, 556
547, 056
- , 9, 832, 719
2,368,366
12, 201, 085
9,769,.891
5,102, 277
14,872,168
1, 816, 517
••
•
1, 269, 461
2 Series B-1961 Treasury 3^^ percent notes also offered ih exchange for this maturity; see exhibit 2.
3 Series D-1962 Treasm-y 4 percent notes also offered in exchange for this maturity; see exhibit 2.
176
1959 REPORT OF THE SECRETARY OF THE TREASURY
EXHIBIT 2.—Treasury notes
Two Treasury circulars, one containing a cash and the other an exchange note
offering during the fiscal year 1959, are reproduced in this exhibit. Circulars
pertaining to the other note offerings during 1959 are similar in form and therefore are not reproduced in this report. However, the essential details for each
iss.ue are summarized in the first table following the circulars and the final allotments of the new notes issued for cash or in exchange for maturing securities are
shown in the second table.
DEPARTMENT CIRCULAR NO. 1016. PUBLIC DEBT
TREASURY DEPARTMENT,
Washington, September 29, 1958.
I. OFFERING OF NOTES
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at par and accured interest,
from the people of the United States for notes of the United States, designated
3}^ percent Treasury notes of Series B-1959. The amount of the offering under
this circular is $1^000,000,000, or thereabouts. In addition to the amount offered
for public subscription, the Secretary of the Treasury reserves the right to allot
up to $100,000,000 of these notes to Government investment accounts. The
books will be open only on September 29 for the receipt of subscriptions for
this issue.
II. DESCRIPTION OF NOTES
1. The notes will be dated October 10, 1958, and will bear interest from that date
at the rate of 2^2 percent per annum, payable on a semiannual basis on May 15
and November 15, 1959. They will mature November 15, 1959, and will not be
subject to call for redemption prior to maturity.
2. The income derived from the notes is subject to all taxes imposed under
the Internal Revenue Code of 1954. The notes are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local taxing
authority.
3. The notes will be acceptable to secure deposits of public moneys. They will
not be acceptable in payment of taxes.
4. Bearer notes with interest coupons attached will be issued in denominations
of $1,000, $5,000, $10,000, $100,000, $1,000,000, $100,000,000, and $500,000,000.
The notes will not be issued in registered form.
5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing IJnited States notes.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks and branches
and at the Office of the Treasurer of the United States, Washington. Commercial banks, which for this purpose are defined as banks accepting demand
deposits, may submit subscriptions for account of customers, but only the Federal Reserve Banks and the Treasury Department are authorized to act as offical
agencies. Others than commercial banks will not be permitted to enter subscriptions except for their own account. Subscriptions from commercial banks
for their own account will be received without deposit, but will be restricted in
each case to an amount not exceeding 25 percent of the combined capital, surplus
and undivided profits, of the subscribing bank. Subscriptions from all others
must be accompanied by payment of 2 percent of the amount of notes applied
for, not subject to withdrawal until after allotment. Following allotment, any
portion of the 2 percent payment in excess of 2 percent of the amount of notes
alloted may be released upon the request of the subscribers.
2. Commercial banks in submitting subscriptions will be required to certify
that they have no beneficial interest in any of the subscriptions they enter for
the account of their customers, and that their customers have no beneficial
interest in the banks' subscriptions for their own account.
EXHIBITS
177
3. The Secretary of the Treasury reserves the right to reject or reduce any
subscription, and to allot less than the amount.of notes apphed for, and.to make
different percentage allotments to various classes of subscribers; and any action
he may take in these respects shall be final. The basis of the allotment will
be publicly announced, and allotment notices will be sent out promptly upon
allotment.
IV. PAYMENT
1. Payment at par and accrued interest, if any, for notes allotted hereunder
must be made or completed on or before October 10, 1958, or on later allotment.
In every case where payment is not so completed, the payment with application
up to 2 percent of the amount of notes allotted shall, upon declaration made by
the Secretary of the Treasury in his discretion, be forefeited to the United States.
Any qualified depositary will be permitted to make payment by credit for notes
allotted to it for itself and its customers up to any amount for which it shall be
qualified in excess of existing deposits when so notified by the Federal Reserve
Bank of its district.
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive subscriptions, to make allotments on the basis and up
to the amounts indicated by the Secretary of the Treasury to the Federal Reserve
Banks of the respective districts, to issue allotment notices, to receive payment
for notes alloted, to make delivery of notes on full-paid subscriptions alloted,
and they may issue interim receipts pending delivery of the definitive notes.
2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve Banks.
ROBERT B . ANDERSON,
Secretary of the Treasury»
DEPARTMENT CIRCULAR NO. 1018. PUBLIC DEBT
TREASURY DEPARTMENT,
Washington, November 19, 1958.
I. OFFERING OF NOTES
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at 99% percent of their face
value, from the people of the United States for notes of the United States, designated SYs percent Treasury notes of Series B-1961, in exchange for a like face
amount of 3% percent Treasury certificates of indebtedness of Series D-1958,
maturing December 1, 1958, or 2}^ percent Treasury bonds of 1958, maturing
December 15, 1958, singly or in combinations aggregating $1,000 or multiples
thereof., Interest will be adjusted as of December 1, 1958, in the case of the
Treasury bonds of 1958, maturing December 15, 1958. In all cases a cash adjustment representing the discount from the face value of the new notes will be made
in favor of the subscriber, as provided in Section iv, PAYMENT, hereof. The
amount of the offering under this circular will be limited to the amount of maturing
certificates and bonds tendered in exchange and accepted. The books will be open
only on November 19 through November 21 for the receipt of subscriptions for this
issue.
2. In addition to the offering under this circular, holders of the maturing securities are offered the privilege of exchanging all or any part of such securities for
3% percent Treasury certificates of indebtedness of Series E-1959, which offering
is set forth in Department Circular No. 1017, issued simultaneously with this
circular.
II. DESCRIPTION OF NOTES
1. The notes will be dated December 1, 1958, and will bear interest from that
date at the rate of 3^^ percent per annum, payable on a semiannual basis on May
15 and November 15, 1959, and thereafter on May 15 and November 15 in each
year until the principal amount becomes payable.- They will mature May 15,
1961, and will not be subject to call for redemption prior to maturity.
525622—60
13
178
1959 REPORT OF THE• SECRETARY OF THE TREASURY
2. The income derived from the notes is subject to all taxes imposed under the
Internal Revenue Code of 1954. The notes are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State,
or any of the possessions of the United States, or by any local taxing authority.
3. The notes will be acceptable to secure deposits of public moneys. They will
not be acceptable in payment of taxes.
4. Bearer notes with interest coupons attached will be issued in denominations of
$1,000, $5,000, $10,000, $100,000, $1,000,000, $100,000,000, and $500,000,000.
The notes, will not be issued in registered form.
5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States notes.
III. SUBSCRIPTION A N D ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks and branches
and at the Office of the Treasurer of the United States, Washington. Banking
institutions generally may submit subscriptions foi; account of customers, but only
the Federal Reserve Banks and the Treasury Department are authorized to act
as official agencies.
2. The Secretary of the Treasury reserves the right to reject or reduce any subscription, and to allot less than the amount,of notes applied for; ahd any action he
may take in these respects shall be final. Subject to these reservations, all subscriptions will be allotted in full. Allotment notices will be sent out promptly
upon allotment..
IV. PAYMENT
1. Payment for the face amount of notes allotted hereunder must be made on or
before December 1, 1958, or on later allotment, and may be made only in a like
face amount of Treasury certificates of indebtedness of Series D-1958, maturing
D'ecember 1, 1958, or Treasury bonds of 1958, maturing December 15, 1958, which
should accompany the subscription. "Coupons dated December 1, 1958, should be
detached from the Series D-1958 certificates by holders and cashed when due.
The discount of $1.25 per $1,000 on notes allotted will be paid subscribers following
acceptance of the certificates, lii the case of the bonds, coupons dated December
15, 1958, must be attached to the bonds when surrendered and accrued interest
from June 15, 1958, to December 1, 1958 ($11.54372 per $1,000), plus the discount
of $1.25 per $1,000 on notes allotted will be paid subscribers, in the case of bearer
bonds following their acceptance, and in the case of registered bonds following
discharge of registration.
V. A S S I G N M E N T OF REGISTERED BONDS
1. Treasury bonds of 1958 in registered form tendered in payment for notes
offered hereunder should be assigned by the registered payees or assignees thereof
to ''The Secretary of the Treasury for exchange for 3% percent Treasury Notes
of Series B-1961 to be deliveredto
," in accordance with the general
regulations of the Treasury Department governing assignments for transfer or
exchange, and thereafter should be presented and surrendered with the subscription to a Federal Reserve Bank or branch, or tb the Office of the Treasurer of
the United States, Washington. The bonds must be dehvered at the expense and
risk of the holders.
VI. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive subscriptions, to make allotments on the basis and up to
the amounts indicated by the Secretary of the Treasury to the Federal Reserve
Banks of the respective districts, to issue allotment notices, to receive payment
for notes allotted, to make dehvery of notes on full-paid subscriptions allotted, and
they may issue interim receipts pending delivery of the definitive notes.
2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve Banks.
ROBERT B . ANDERSON,
Secretary of the Treasury.
Summury of information pertaining io Treasury notes issued during the fiscal year 1959
Department cu'c'ular
Concm'Date of
rent
prelimoffering,
inary ancircular
nouncer
number
ment
Number
Date
1958
Sept. 25
1016
Sept. 29
Nov. 18
1018
Nov. 19
1969
l&n. 8
1019
1969
Jan. 12
Jan. 29
1022
Feb.
Mar. 19
1023
Mar. 23
2
Treasury notes issued for cash or in exchange for maturing securities
. 1959 •
1958
1968
Sept. 29 1 2 Oct. 10
1
1961
May 15
Nov. 21 3 Dec. 1
1959
Jan. 21
1960
May 15
1969
1969
Jan.; 12 2*Jan.21
4 percent Series D-1962 issued in exchange for^23^ percent Series A-1959 certificates maturing Feb. 14, 1959.
V/i percent Series A-1959 Treasury notes maturing Feb. 15, 1959.
Feb. 15
1962
Feb. 15
Feb. 4 « Feb. 16
4 percent Series'B-1963 issued for cash.:.\;_:'_-__l'-_____:__'_._____'
Apr.
1963
May 15
Mar. 23
3 ^ percent Series B-1961 issued in exchange for—
•.
• 3 % percent Series D-1958 certificates maturing Dec. 1, 1958.
2}^ percent Treasury bonds of 1958 maturing Dec. 15,1958.
3H percent Series B-1960 issued for cash..
1021
1958
Oct. 10
Nov. 15
3H percent Series B-1959 issued for c a s h . . .
1017
Date of
issue
Allotment
Date sub- payment
Date of scription date on
maturity
books or before
(or on
closed
later allotment)
Dec.
1
CQ
6 Apr. 1
1 See Department Circular No. 1016, sees. I l l and IV, in this exhibit for provisions ! undivided profits of the subscribing bank. Payment for notes allotted was made at
. 99% and accrued interest, if :any.
tor subscription and payment for notes allotted.' •
- '
5 Following acceptance of' surrendered certificates of Series A-1959, with final cous Qualified depositaries were permitted to make payment for notes allotted to them
pons detached, discount of $0.07 per $1,000 on notes allotted was paid to subscribers.
and their customers by-credit in Treasury tax and loan accounts.
» See Department Circular No. 1018, sees. I l l and IV, in this exhibit for provisions
6 Commercial banks were permitted to subscribe, without deposit, for their own acfor subscription and payment of interest.
• count for an amount not exceeding 50 percent of the combined capital; surplus, and
* Commercial banks were permitted to subscribe, without deposit, for their own ac- undivided profits of the subscribing bank.
count for an amount not exceeding 50 percent of the combined capital, surplus, and
CO
00
O
Allotments of Treasury notes issued during the fiscal year 1959, by Federal Reserve districts
[In thousands of dollars]
3 % p e r c e n t Series B-1961 T r e a s u r y notes
issued i n exchange for—
3 H percent
Series B-1959
Treasury
3M p e r c e n t
2H percent
notes issued Series D-1958
Treasury
for cash i
certificates
b o n d s of 1958 T o t a l issued
maturing
maturing
D e c . \ i 1958 2 D e c . 4 5 , 1 9 5 8 2
F e d e r a l R e s e r v e district
Boston.
NewYork
Philadelphia
Cleveland
Richmond .
_
Atlanta
.
Chicago.
_
St. Louis
Minneapolis
_
Kansas City
.:
Dallas.. _
San Francisco
Treasury _
G o v e r n m e n t i n v e s t m e n t accounts
_
->
>
Total note allotments
M a t u r i n g securities:
E x c h a n g e d in c o n c u r r e n t offerings _
T o t a l exchanged
R e d e e m e d for cash or carried to m a t u r e d
debt-—
-
4 p e r c e n t Series D-1962 T r e a s u r y notes
issued in exchange for—
3|4 percent
Series B-1960
V/i p e r c e n t
Treasury
2]^ p e r c e n t
notes issued Series A-1959 Series A-1959
Treasury
certificates
T o t a l issued
for cash 3
• notes
maturing
F e b . 14, 1959 4 m a t u r i n g
F e b . 15, 1959 <
«o
4 percent '
Series B-1963
Treasury
notes issuedfor cash «
50,253
326,633
38, 503
58,452
53, 252
49,706
197,077
69,918
39, 111
66,867
52,425
80, 928
449
100,000
5,820
3,176,604
2,479
12, 735
1,401
6,362
47, 735
6,195
15, 708
6,056
6,375
11,417
1,053
14,423
264,500
12, 578
46,120
17,455
23,517
160, 530
33,892
47,896
54, 698
35,686
59,196
7,942
20,243
3, 441,104
15, 057
58.855
18.856
29,879
208, 265
40,087
63, 604
60, 754
42, 061
70, 613
8,995
95,115
955, 628
119,900
207, 802
108, 301
158,028
440,972
101, 521
99,175
126,117
119, 529
205, 076
471
40, 630
150, 387
24,285
56, 725
7,711
35, 624
116,144
29, 471
42,113
31,667
11, 736
27, 938
4,939
27,150
245,488
10,062
44,496
25,625
47,131
208,415
43,104
57, 711
59,230
32,969
50,320
3,915
67,780
395, 875
34,347
- 101, 221
33, 336
82,755
324, 559
72, 575
99,824
90,897
44,705
78, 258
8,864
84,702
415,896
52,088
90,963
80, 541
99, 762
393, 530
66, 973
64, 372
75, 873
102, 692
114, 281
1,367
100,000
1,183, 574
3, 299, 940
778,433
4, 078, 373
2, 737, 635
579, 370
855, 616
1, 434,986
1, 743, 040
6,433, 075
1, 277,481
7, 710, 556
8, 314, 675
3, 047, 951
11, 362, 626
9, 733, 015
2,055,914
11, 788,929
8, 894, 045
3, 903, 567
12, 797, 612
99, 704
312, 452
412,156
875,846
1,198, 710
2, 074, 556
9,832, 719
2, 368, 366
12, 201,085
9, 769, 891
5,102, 277
14, 872,168
W
W
o
o
CD
O
O
>^
y ^
SJ
T o t a l m a t u r i n g securities
1 Subscriptions for $50,000 or less were allotted in full and subscriptions ui excess of
$50,000 were aUotted 35 percent but not less than $50,000.
2 Series E-1959 Treasury 3 ^ percent certificates also offered in exchange for this
maturity; see exhibit 1.
8 Subscriptions for $100,000 or less were allotted in full and subscriptions in excess of
$100,000 were allotted 47 percent but not less than $100,000.
4 Series A-1960 Treasury 3M percent certificates also offered in exchange for this maturity; see exhibit 1.
6 Subscriptions for $100,000 or less were allotted in full and subscriptions in excess of
$100,000 were allotted 50 percent but not less than $100,000.
>
Ul
2
3
"^
EXHIBITS
181
EXHIBIT 3.—^Treasury bonds
A Treasury circular containing a cash bond offering during the fiscal year 1959
is reproduced in this exhibit.. The circular pertaining to the other bond offering
during 1959 is similar in form and therefore is not reproduced in this report.
However, the essential details for each, issue are summarized in the first table
following the circular and the final allotments^ of new bonds issued for cash are
shown in the second table. There were no bond offerings in exchange for maturing securities during fiscal 1959.
DEPARTMENT CIRCULAR NO. 1020.. PUBLIC DEBT
TREASURY
DEPARTMENT,
Washington,. January 12, 1959.
I. OFFERING OF BONDS
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at 99 and accrued interest,
from the people of the United States for bonds ofthe United States, designated 4
percent Treasury bonds of 1980. The amount of the offering under this circular
is $750,000,000, or thereabouts. In addition to the amount offered for public
subscription, the Secretary of the Treasury reserves the right to allot up to $75,000,000 of these bonds to Government investment accounts. The books will be
open only on January 12 and January 13 for the receipt of subscriptions for this
issue.
2. Deferred payment for bonds allotted hereunder may be made as provided
in section IV hereof by any of the following subscribers, who for this purpose are
defined as savings-type investors:
Pension and retirement funds—public and private
Endowment funds
Insurance companies
Mutual savings banks
Fraternal benefit associations and labor unions' insurance funds
, Savings and loan associations
Credit unions
Other savings organizations (not including commercial banks)
States, political subdivisions or instrumentalities thereof, and public funds.
II. DESCRIPTION OF BONDS
1. The bonds will be dated January 23, 1959, and will bear interest from that
date at the rate of 4 percent per annum, payable on a semiannual basis on August
15, 1959, and thereafter on February 15 and August 15 in each year until the
principal amount becomes payable. • They will rhature February 15, 1980, and
will not be subject to call for redemption prior to maturity.
2. The income derived from the bonds is subject to all taxes imposed under
the Internal Revenue Code of 1954. The bonds are subject to estate, inheritance,
gift, or other excise taxes, whether Federal or State, but are exempt from all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local taxing
authority.
3. The bonds will be acceptable to secure deposits of public moneys.
4. Bearer bonds with interest coupons attached, and bonds registered as to
principal and interest, will be issued in denominations of $500, $1,000, $5,000,
$10,000, $100,000, and $1,000,000. Provision will be made for the interchange
of bonds of different denominations and of coupon and registered bonds, and for
the transfer of registered bonds, under rules and regulations prescribed by the
Secretary of the Treasury.
5. Any bonds issued hereunder which upon the death of the owner constitute
part of his estate, will be redeemed at the option of the duly constituted representatives of the deceased owner's estate, at par and accrued interest to date of
payment,! provided:
1 An exact half-year's interest is computed for each full half-year period irrespective of the actual number
of days in the half year. For a fractional part of any half year, computation is on the basis of the actual
number of days in such half year.
182
195 9 REPORT OF THE SECRETARY OF THE TREASURY
(a) that the bonds were actually owned by the decedent at the time of his
death; and
(b) that the Secretary of the Treasury be authorized, to apply the entire
proceeds of redemption to the payment of Federal estate taxes.
•Registered bonds submitted for redemption hereunder must be duly assigned to
''The Secretary of the Treasury for redemption, the proceeds to be paid.to the
District Director of Internal Revenue at
for credit on Federal
estate taxes due from estate of _'______'_____.'' Owing to the periodic closing
of the transfer books and the impossibility of stopping payment of interest to
the registered owner during the closed period, registered bonds received after the
closing of the books for payment during such closed period will be paid only at
par with a deduction of interest from the date of payment to the next interest
payment date; 2 bonds received during the closed period for payment at a date
after the books reopen will be paid at par plus accrued interest from the reopening of the books to the date of, payrnent. In either case checks for the full six
months' interest due on the last day oif the closed period will be forwarded to the
owner in due course. All bonds submitted must be accompanied by Form PD
1782,3 properly completed, signed, and certified, and by proof of the representatives' authority in the form of a court certificate or a certified copy of the representatives' letters of appointment issued by the court. The certificate, or the
certification to the letters, must be under the seal of the court, and except in the
case of a corporate representative, must contain a statement that the appointment is in full force and be dated within six months prior to the submission of
the bonds, unless the certificate or letters show that the appointment was made
within one year immediately prior to such submission. Upon payment of the
bonds appropriate memorandum receipt will be forwarded to the representatives,
which will be followed in due course by formal receipt from the District Director
of Internal Revenue.
6. The bonds will be subject; to the general regulations of the Treasury Department, noAv or hereafter prescribed, governing United States bonds.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks and branches
and at the Office of the Treasurer of the United States, Washington. Commercial
banks, which for this purpose are defined as.banks accepting demand deposits, may
submit subscriptions for account of customers, but only the Federal Reserve Banks
and the Treasury Department are authorized to act as official agencies. Others
than commercial banks will not be permitted to enter subscriptions except for
their own account. Subscriptions from commercial banks for their own account
will be. received without deposit but will be restricted in each case to an amount
not exceeding 4 percent of the combined amount of time certificates of deposit
(but only those issued in the names of individuals, and of corporations, associations, and other organizations not operated for profit), and of savings deposits, or
10 percent of the combined capital, surplus, and undivided profits, of the subscribing bank,-whichever is greater. Subscriptions from States, political subdivisions or instrumentalities thereof, and public pension and retirement and other
public funds also will be received without deposit. Subscriptions from all others
must be accompanied by payment of 15 percent of the amount of bonds applied
for, not subject to withdrawal until after allotment; provided, however, that all
subscriptions up to a malximum of $25,000 will be allotted in full if accompanied
2 The transfer books are closed from January 16 to February 15, and from July 16 to August 15 (both dates
Inclusive) in each year.
3 Copies of Form PD 1782 may be obtained from any Federal Reserve Bank or from the Treasury Department. Washington 25, D.C-
EXHIBITS
1
183
by 100 percent payment at the time of entering the subscriptions. Following
allotment, any portion of the 15 percent payment in excess of 15 percent of the
amount of.bonds allotted may be .released, up.on..the. req.uesl..of the subscribers..
2. All subscribers will'be required to agree not to purchase or to sell, or to make
any agreements with respect to the purchase or sale or other disposition of any
bonds of this Jssue, until after January 13, 1959.
3. Commercial banks ih submitting, subscriptions will be required to certify
that they have no beneficial interest in any of the subscriptions they enter for the
account of their customers, and that their customers have no beneficial interest in
the banks' subscriptions for their own account.
4. The Secretary of the Treasury reserves the right to reject or reduce any subscription, to allot less than the amount of borids applied'for, arid to make different
percentage allotments to various classes of subscribers; ,and any action he may
take in these respects shall be final. The basis of the allotment will be publicly
announced and allotment notices will be sent out promptly upon allotment.
; IV. PAYMENT
'
:
1. Payment at 99 and accr.ued interest, if any, for bonds allotted hereunder must
be made or, completed on or before January 23, 1959; provided, however, that
where a subscriber eligible to defer payment under section I hereof elects to defer
payment for part of the bonds allotted, not less than. 25 percent of the bonds
allotted must have been paid for by January 23, 1959, hot less than 50 percent
must have been paid for by February 24, 1959, not less than 75 percent must have
been paid for by March 23, 1959, and full payment must be completed by April 23,
1959. All payments made subsequent to January 23, 1959, must be accompanied
by accrued interest from that date, at the rate of $0.1096 per $1,000 per'day.
Where partial payment for bonds, allotted is to be deferred beyond January 23,
1959, delivery of 5 percent of the total par .amount of bonds allotted, adjusted to
the next higher $500, will be withheld from all subscribers (except States, political
subdivisions or instrumentalities thereof, and public pension and retirement and
other public funds) until payment for the-total amount ..allotted has been com-.,
pleted. In every case where payment is not so completed the 5 percent so withheld shall, upon declaration made by the Secretary of the Treasury in his discretion, be forfeited to the United States. In all other cases,'where payment is not
completed on or before; January 23, 1959, or on later allotment, the payment with
application up to 15 percent of the amount of bonds allotted shall, upon declaration
made by the Secretary of the Treasury in his discretion, be forfeited to the.United..
States. Any quahfied depository will be permitted to make payment by credit
for bonds allotted to it for itself and its customers up to any amount for which it
shall be qualified in excess of existing deposits, when so notified by the Federal
Reserve Bank of^itsl'district.
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive subscriptions, to make allotments on the basis and up to
the amounts indicated by the Secretary of the Treasury to the Federal Reserve
Banks of the respective districts, to issue allotment notices, to receive payment for
bonds allotted, to make delivery of bonds on full-paid subscriptions allotted, and
they may issue interim receipts pending delivery of the definitive bonds.
2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve Banks.
ROBERT B . ANDERSON,
Secretary of the Treasury.
184
1959 REPORT OF THE SECRETARY OF THE TREASURY
Summary of information pertaining to Treasury honds issued during the fiscal year
1969
Department
circular
Date of
preliminary announceNumber
ment
Date
Treasury bonds issued for cash
Date of
issue
Allotment
Date sub- payment
Date of scription date on
maturity
books or before
(or on
closed
later
allotment) *
1959
Jan. 8
1020
1959
Jan. 12
1959
4 percent of 1980 issued for cash.. Jan. 23
1980
Feb. 15
1969
1959 .
Jan. 13 12 Jan. 23
Mar. 19
1024
Mar. 23
4 percent of 1969 (additional
issue) Issued for cash.
1957
Oct. 1»
1969
Oct. 1
Mar. 23 2 4 Apr. 1
' See Department Circular No. 1020, sees. I l l and IV, in this exhibit for provisions for subscription and
payment of bonds allotted.
2 Qualified depositaries were permitted to make payment for bonds allotted to them and their customers
by credit in Treasury tax and loan accounts.
3 Accrual of interest from Apr. 1,1959.
* Commercial banks were permitted to subscribe, without deposit, for their own account for an amount
not exceeding 5 percent of the combined amount of time certiflcates of deposit (but only those issued in the
names of individuals, and of corporations, associations, and other organizations not operated for profit),
and of savings deposits, or 16 percent of the combined capital, smplus, and undivided profits of the subscribing bank, whichever was greater. Subscriptions from States, political subdivisions or instrumentalities
thereof, and public pension and retirement and other public funds were also received without deposit.
Allotments of Treasury bonds issued during ihe fiscal year 1959, by Federal Reserve
districts
[In thousands of dollars]
4 percent
4 percent
Treasury
Treasmy
bonds of 1980 bonds of 1969
(additional
issued for
cash 1
issue) issued
for cash 2
Federal Reserve district
Boston
New York .
Philadelphia
Cleveland
Richmond
Atlanta. .
__
.
Chicago
St. Louis. _
.
.
Minneapolis
Kansas City
Dallas
San Francisco.-.
Treasury.
_ _.
Government investment accounts..
.
_.
.
.
.
Total bond allotments
Maturing securities: Exchanered in concurrent offerings
_
____..
50, 412
310, 544
31, 544
54, 608
38,188
42, 819
95, 632
19, 347
13, 595
35, 238
44, 283
97,145
761
50, 000
25, 527
216, 957
22, 852
43, 206
21, 573
16, 289
94, 791
14, 872
18,924
15, 585
21,188
67, 603
94
50, 000
884,116
619, 461
Total exchanged
Redeemed for cash or carried to matured debt
Total maturing secur i t i e s . . . . . . . . . . .
_
1 70 percent allotment to savings-type Investors, a 35 percent allotment to commercial banks for their own
account, and a 15 percent allotment to all other subscribers were made. Subscriptions up to $25,000 were
allotted in full where accompanied by 100 percent payment at the time subscriptions were entered. All
other subscriptions for $5,000 were allotted in full and subscriptions in excess of $5,000 were allotted not less
than $5,000.
2 A 65 percent aUotment to savings-type investors, a 35 percent allotment to commercial banks for their
own account, and a 20 percent allotment to all other subscribers were made. Subscriptions for $25,000 or
less from savings-type investors and commercial banks and for $10,000 or less from all others were allotted
in full. Subscriptions for more than these minimums were allotted not less than the minimums.
EXHIBITS
185
Treasury Bills Offered and Aceepted
EXHIBIT 4.—Treasury bills
During the fiscal year 1959 there were 81 weekly issues of regular 13-week and
26-week Treasury bills (including 16 issues of 13-week bills, beginning March 12,
1959, which represent additional issues of bills with an original maturity of 26
weeks), 3 issues of the tax anticipation series, and 3 other issues of 219-, 289-, and
340-day bills. Five press releases and one Department circular inviting tenders
and six releases announcing the acceptance of tenders are reproduced in this
exhibit.. The press releases of November 13 and November 18, 1958, are in a form
representative of a weekly single issue of regular Treasury bills. Press releases
of February 17 and February 21, 1959, are representative of a weekly double
issue of regular Treasury bills (91- and 182-day) on the same issue date, while
press releases of May 14 and May 19, 1959, are representative of a weekly double
issue of regular bills (91- and 182-day) in which there is an additional issue of a
currently outstanding issue of 182-day bills having 91 days remaining before
maturity and a new issue of 182-day bills. The press release of December 1,1958,
announced the inauguration of this new cycle of 13,-week and 26-week bills. The
tax anticipation series is represented by the releases of April 30 and May 8, 1959.
Department Circular No. 1015,. dated September 29, 1958, and the press release
of October 7, 1958, contain information on the offering of Treasury bills for cash
only and issued at a fixed price, and press releases, of April 30 and May 7, 1959,
are in a form representative of bills offered for cash only and issued on a discount
basis under competitive and noncompetitive bidding. The essential details
regarding each issue of Treasury bills during the fiscal year 1959 are summarized
in the table following the documents.
PRESS RELEASE OF NOVEMBER 13, 1958
The Treasury Department, by this public notice, invites tenders for $1,800,000,000, or thereabouts, of 91-day Treasury bills, for cash and in exchange for
Treasury bills maturing November 20, 1958, in the amount of $1,799,824,000,
to be issued on a discount basis under competitive and noncompetitive bidding
as hereinafter provided. The bills of this series "^ill be dated November 20,
1958, and will mature February 19, 1959,, when the face amount will be payable
without interest. They will be issued in bearer form only, and in denominations
of $1,000, $5,000, $10,000, $100,000, $500,000, and $1,000,000 (maturity yalue).
Tenders will be received at Federal Reserve Banks and branches up to the
closing hour,, one-thirty o'clock p.m., eastern standard time, Monday, November 17, 1958. Tenders will not be received at the Treasury Department, Washington. Each tender must be for an even multiple of $1,000, and
in the case of competitive tenders the price offered must be expressed on the
basis of 100, with not more than three decimals, e.g.,. 99.925. Fractions may
not be used. It is urged that tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve Banks
or branches on application therefor.
Others than banking institutions will not be permitted to submit tenders
except for their own account. Tenders will be received without deposit from
incorporated banks and trust companies and from responsible and recognized
dealers in investment securities. Tenders from others must be accompanied by
payment of 2 percent of the face amount of Treasury bills applied for, unless
the tenders are accompanied by an express guaranty of payment by an
incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at-the Federal
Reserve Banks and branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders in whole or in part, and his action in any such respect shall
be final. Subject to these reservations, noncompetitive tenders for $200,000 or
less without stated price from any one bidder will be accepted in full at the
186
1959 REPORT OF THE/SECRETARY OF THE TREASURY
average price (in three decimals) of accepted competitive bids. Settlement for
accepted tenders in accordance with the bids must be made or completed at the
Federal Reserve Bank on November 20, 1958, in cash or other immediately
ayailable funds, or in a like face amount of Treasury bills maturing November
20, 1958. Cash and exchange tenders will receive equal treatment. Gash adjustments will be made for differences between the par value of maturing bills
accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the
sale or other disposition of the bills, does not have any exemption, as such, and
loss from the sale or other disposition of Treasury bills does not have any special treatment, as such, under the Internal Revenue Code of 1954. The bills
are subject to estate, inheritance, gift, or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United
States, or by any local taxing authority. For purposes of taxation the ampunt
of discount at which Treasury bills are originally sold by the United States is
considered to be interest. Under sections 454(b) and 1221(5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued hereunder
are sold is not considered to accrue until such bills are sold, redeemed, or otherwise disposed of, and such bills are excluded from consideration as capital assets.
Accordingly, the owner of Treasury bills (other than life insurance companies)
issued hereunder need include in his income tax return onl}^ the difference between
the price paid for such bills, whether on originahissue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made, as ordinary gain or loss.
Treasury Department Circular No: 418, Revised, and this notice, prescribe
the terms of the Treasury bills and govern the conditions of their issue. Copies
of the circular may be obtained from any. Federal Reserve Bank or branch.
PRESS RELEASE OF NOVEMBER 18, 1958
The Treasury Department announced last evening that the tenders for $1,800,000,000, or thereabouts, of 91-day Treasury bills to be dated November 20, 1958,
and to mature February 19, 1959, which were offered on November 13, were
opened at the Federal Reserve Banks on November 17.
The details of this issue are as follows:
Total applied for
$2, 998, 074, 000
Total accepted (includes $301,272,000 entered on a noncompetitive basis and accepted in full at the average price
shown below)
--_-_
1, 802, 871, 000
Range of accepted competitive bids:
High, equivalent rate of discount approximately -2.769% per annum
:__ 99.300
Low, equivalent rate of discount 2.880% per annum
99. 272
Average, equivalent rate of discount approximately 2.876% per'
annum
L
99. 273
(76 percent of the amount bid for at the low price was accepted.)
T o t a l applied
for
F e d e r a l .Reserve district
Boston.'
New York...
Philadelphia.
Cleveland
Richmond
Atlanta.......
Chicago
_.
St. Louis
Minneapolis.-_._
KansasCity...
Dallas
SanFrancisco
_
•.
:._.
..
...,_-..:
j . .
Total..
_
'__
......^
.
,
-
_.
_. --
--- -.-
T o t a l accepted
$34,342,000
2,105,307,000
54,890,000
69, 797,000
36, 555,000
32,025, boo
382,625,000
25,034,000
21,817,000
64,390,000
24.796,000
156,496,000
$16,087,000
1,165,596,000
19,055,000
31,538,000
20,755,000
•' 27,923,000
326,095,000
.21,301,000
16,'853,,000
• 34,930,000
23,846,000
•98,892,000
• 2,998,074,000
1, 802j 871,000
'•'""'••"•'
EXHIBITS"''-•' '•'" ' : • [ . - : - ' : - • : ]
Jgy
PRESS RELEASE OF FEBRUARY 17, 1959
The Treasury Department, by this pubhc notice, invites tenders for two series
of Treasury bills to the aggregate amount of $1,800,000,000, or thereabouts, for
cash andin exchange for Treasury bills maturing February 26, 1959, in the amount
of $1,802,782,000, as follows:
91-day bills for $1,400,000,000, or thereabouts, to be dated February 26, 1959.
and to mature May 28, 1959.
182-day bills for $400,000,000, or thereabouts, to be dated February 26, 1959,
and to mature August 27, 1959.
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at raaturity their face
amount will be payable without interest. They will be issued in bearer form
only, and in denominations of $1,000, $5,000, $10,000, $100,000, $500,000, and
$1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and branches up to the
closing hour, one-thirty o'clock p.m., eastern standard time, Friday, February 20,
1959. Tenders will not be received at the Treasury Department, Washington.
Each tender must be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100, with not more than
three decimals, e.g., 99.925. Fractions may not be used. It is urged that
tenders be made on the printed forms and forwarded in the special envelopes
which will be supphed by Federal Reserve Banks .or branches on. apphcation
therefor.
Others than banking institutions will not be permitted to submit tenders except
for their own account. Tenders will be received without deposit from incor^
porated banks and trust companies and from responsible and recognized dealers
in investment securities. Tenders from others must be accompanied by payment
of 2 percent of the face amount of Treasury bills applied for, unless the tenders
are accompanied by an express guarantee of payment by an incorporated bank
or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and branches, following which public announcement will be made
by the Treasury Department of the amount and price range of accepted bids.
Those submitting tenders will be advised of the acceptance, or. rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject any
or all tenders, in whole or in part, and his action in any such respect shall be final.
Subject to these reservations, noncompetitive tenders for $200,000 or less for the
91-day bills and noncompetitive tenders for $50,000 or less for the 182-day bills
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues.
'Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank on February 26, 1959, in cash or other
immediately available funds, or in a hke face amount of Treasury, bills maturing
February. 26, 1959. Cash and exchange tenders will receive, equal treatment..
Cash adjustments will be made for differences between the par value of maturing
bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the sale
or other disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special treatment, as such, under the Internal Revenue Code of 1954. The bills are subject
to estate, inheritance, gift, or other excise taxes, whether Federal or State, but
are exempt from all taxation now or hereafter imposed on the principal or interest
thereof by any State, or any of the possessions of the United States, or by any
local taxing authority. For purposes of taxation the amount of discount at which
Treasury bills are originally sold by the United States is considered to be interest.
Under sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is not considered to
accrue until such bills are sold, redeemed, or otherwise disposed of, and such bills
are excluded from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than hfe insurance companies) issued hereunder need include
in his income tax return only the difference between the price paid for such bills,
whether on original issue or on subsequent purchase, and the amount actually
received either upon sale or redemption at maturity during the taxable year for
which the return is made, as ordinary gain or loss.
188
1959 REPORT OF THE SECRETARY OF THE TREASURY
Treasury Department Circular No. 418, Revised, and this notice, prescribe
the terms of the Treasury bills and govern the conditions of their issue. Copies
of the circular raa-y be obtained from anv Federal Reserve Bank or branch.
PRESS RELEASE OF FEBRUARY 21, 1959
The Treasury Department announced last evening that,the tenders for two
series of Treasury bills to be dated February 26, 1959, which were offered on
February 17, were opened at the Federal Reserve Banks on Februarv 20. Tenders
were invited for $1,400,000,000, or thereabouts, of 91-day bills and for $400,000,000, or thereabouts, of 182-day bills. The details of the two series are as follows:
91-day Treasury bills
maturing May 28, 1959
Range of accepted competitive bids
Approximate!
equivalent
aimual rate
Price
99. 366
99. 340
99.346
High.....
Low
Average
182-day Treasury bills
maturing Aug. 27, 1959
Price
2. 508%
2. 611%
2.589%
Approximate
equivalent
annual rate
1.508
1.483
1.494
2. 951%
3.001%
2. 978%
79 percent of the amount of 91-day bills bid for at the low price was accepted.
33 percent of the amount of 182-day bills bid for at the low price was accepted.
Total tenders applied for and accepted by Federal Reserve districts
District
Boston
New York...'.
Philadelphia..
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Miuneapolls..
Kansas City..
Dallas...
San Francisco.
Totals...
Applied for
Accepted
$29,876,000
1,710,137,000
25,988,000
37, 554,000
16,048,000
19,305, 000
203,038,000
29,170,000
11,348,000
40,113,000
16,499,000
$19, 540,000
946, 047,000
10, 957,000
32, 554,000
12, 148,000
16, 221,000
163, 868,000
23, 170,000
9, 843,000
39, 987,000
16, 499,000
109, 260, 000
$2,361, 000
594,411,000
6,317,000
18, 608,000
2, 002,000
5, 865,000
74,183,000
3, 576,000
6, Oil, 000
10,488,000
2,323,000
33,131,000
$2,076.000
271,393,000
1,317,000
13, 508,000
530,000
5,865,000
59,983,000
3,526, 000
2,911, 000
10,455,000
2,323,000
26,121,000
2, 257,436,000 ^ 1,400,094,000
759, 276,000
« 400,008, 000
118,360,000
Applied for
Accepted
tt Excepting two tenders totaling $120,000.
b Includes $197,738,000 noncompetitive tenders accepted at the average price of 99.346.
0 Includes $29,964,000 noncompetitive tenders accepted at the average price of 98.494.
PRESS RELEASE OF MAY 14, 1959
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $1,400,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing Mav 21, 1959, in the amount of
$1,399,999,000, as follows:
•
•91-day bills (to rnaturity date) to be issued May 21, 1959, in the amount of
$1,000,000,000, or thereabouts, representing an additional ainount of bills dated
February 19, 1959, and to mature August 20, 1959, originally issued in the amount
of $401,127,00(), the additional and original bihs to be freely interchangeable.
182-day bills, ror $400,000,000, or thereabouts, to be dated May 21, 1959.
and to mature November 19, 1959.
.
'*
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
aniount will be payable without interest. Thev will be issued in bearer form only,
and in denominations of $1,000, $5,000, $10,000,.$100,000, $500,000, and $1,000,000 (maturity value).
EXHIBITS
189
Tenders will be received at Federal Reserve Banks and branches up to the
closing hour, one-thirty o'clock p.m., eastern daylight saving time, Monday,
May 18, 1959. Tenders will not be received at the Treasury Department,
Washington. Each tender must be for an even multiple of $1,000, and in the
case of competitive tenders the price offered must be expressed on the basis of
100, with not more than three decimals, e.g., 99.925. Fractions may not be
used. It is urged that tenders be made on the printed forms and forwarded in
the special envelopes which will be supplied by Federal Reserve Banks or branches
on application therefor.
Others than banking institutions will not be permitted to submit tenders except for their own account. Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers
in investment securities. Tenders from others must be accompanied by payment
of 2 percent of the face amount of Treasury bills applied for, unless the tenders
are accompanied by an express guarantee of payment by an incorporated bank
or trust company.
Immediately after|the|'closing hour, tenders will be opened at the Federal
Reserve Banks and branches, following which public announcement will be
made by the Treasury Department of the amount and price range of accepted
bids. Those submitting tenders will be advised of the acceptance or rejection
thereof. The Secretary of the Treasury expressly reserves the right to accept
or reject any or all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders for $200,000
or less for the additional bills dated February 19, 1959 (91 days remaining until
maturity date on August 20, 1959), and noncompetitive tenders for $50,000 or
less for the 182-day bills without stated price from any one bidder will be accepted
in full at the average price (in three decimals) of accepted competitive bids for
the respective issues. Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on May 21, 1959,,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing May 21, 1959. Cash and exchange tenders will receive equal
treatment. Cash adjustments will be made for differences between the par value
of maturing bihs accepted in exchange and the issue price of the new bills. .
The income derived from Treasury bills, whether interest or gain from the sale
or othier disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Code of 1954. The bills are
subject to estate, inheritance, gift, or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on the principal
or interest thereof by any State, or any of the possessions ofthe United States,
or by any local taxing authority. For purposes of taxation the amount of discount
at which Treasury bills are originally sold by the United States is considered to be
interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code of
1954 the amount of discount at which bills issued hereunder are sold is not considered to accrue until such bills are sold, redeemed, or otherwise disposed of,
and such bills are excluded from consideration as capital assets. Accordingly,
the owner of Treasury bills (other than hfe insurance companies) issued hereunder
need include in his income tax return only the difference between the price paid
for such bihs, whether on original issue or on subsequent purchase, and the
amount actually received either upon sale or redemption at maturity during the
taxable year for which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418, Revised, and this notice, prescribe
the terms of the Treasury bills and govern the conditions of their issue. Copies
of the circular may be obtained from any Federal Reserve Bank or branch.
PRESS RELEASE OF MAY 19, 1959
The Treasury Department announced last evening that the tenders for two
series of Treasury bihs, one series to be an additional issue of the bills dated
February 19, 1959, and the other series to be dated May 21, 1959, which were
offered on May 14, were opened at the Federal Reserve Banks on May 18.
Tenders were invited for $1,000,000,000, or thereabouts, of 91-day bills and for
190
1950 REPORT OF THE SECRETARY OF THE TREASURY
$400,000,000, or thereabouts, of 182-day bills.
as follows:
The details of the two seiies are
182-day T r e a s u r y bills
m a t u r i n g N o v . 19> 1959 .
91-day T r e a s u r y bills
•maturing A u g . 20, 1959
R a n g e of accepted competitive bids
Approximate
equivalent
annual rate
Price
High.
Low...
Average
.
.
.
.
_
.
,
.
.
99. 282
99. 270
99.275
Price
2. 840%
2.888%
2. 869%
Approximate
equivalent
annual rate
« 98.310
98. 280
98. 293
• 3.343%
3.402%
3.376%
34 percent of the amount of 91-day bills bid for at the low price was accepted.
53 percent of the amount of 182-day bills bid for at the low price was accepted.^
Total tenders applied for and accepted by Federal Reserve districts
Applied for
District
Boston,
N e w York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago.'..
St. Louis
Minneapolis.
.Kansas C i t y
Dallas
S a n Francisco
_
. .
_
....
Totals
$23,089, 000
1, 567, 441, 000
28, 237, 000
33, 612, 000
9, 565, 000
24, 721, 000
180, 507, 000
15, 003, 000
, 7,619,000
34, 654, 000
15,885,000
55, 266, 000
1, 995, 599, 000
Accepted
$11,959,000
728, 741, 000
12, 892, 000
18, 437, 000
9, 515, 000
16,947,000
99, 527, 000
14, 903, 000
7, 019,000
22, 654, 000
15, 860, 000
41, 924, 000
fr 1, 000, 378, 000
Applied for
Accepted
$4,092,000
674,422, 000
12, 654, 000
19,140, 000
670, 000
1, 900, 000
66,103, 000
2, 992, 000
2, 913, 000
4, 891,000
2, 237, 000
39,930,000
$4,069, ood
304, 962, 000
7, 504, 000
9,- 056, 000
670, 000
1,900,000
29, 848, 000
2, 942, 000
2, 819, 000
4, 544,000
2, 037, 000
29, 766..000
831, 944, 000
«400,117,000
a Excepting one tenderer $35,000.
«> Includes $210,749,000 noncompetitive tenders accepted at the average price of 99.275.
e Includes $21,827,000 noncompetitive tenders accepted at the average price of 98.293.
PRESS RELEASE OF DECEMBER 1, 1958
The Treasury Department announced today further details of its program to
move gradually from the present cycle of 13-week Treasury bills aggregating $23.4
billion, to a new cvcle which will include both 13^week and 26-week bills amounting
to $26.0 billion.
On Thursday, December 4, 1958, the Treasury will invite tenders for $1.6 billion,
or thereabouts, of 91-day Treasury bills, and $0.4 billion, or thereabouts, of 182-day
Treasury bills, to be issued on a discount basis under competitive and noncompetitive bidding. Tenders for both series will be received on Monday, December
8, 1958. The bills of both serieslwill be dated December 11, 1958, and will mature
March 12, 1959, and June l l , 1959, respectively. ;
The Treasury expects to issue both 13-week and 26-week Treasury bills each
week, although both the aggregate amount of bills and the relative proportion of
13-week and 26-week bills may be varied from week to week. It is presently
contemplated that by the end of the first 13 weeks under the new program the
aggregate amount of Treasury bills outstanding will be increased by $2.6 billion.
After this additional cash is raised, the aggregate amount of the two weekly
issues of biUs to be offered is expected to. be $1.6 billion.
PRESS RELEASE OF APRIL 30, 1959
The Treasury Department, by this public notice, invites tenders for $1,500,000,000, or thereabouts, of 221-day Treasury bills, to be issued on a discount
basis under competitive and noncompetitive bidding as hereinafter provided.
The bills of this series will be designated tax anticipation series, they will be dated
May 15, 1959, and they will mature December 22, 1959. They will be accepted
'•:•'.":•"•;
"• •• •.•• '"".'EXHIBITS v\."^ -
:.-r-^
'^•.-•
191'
at face value in p a y m e n t of income and profits taxes due on December 15, 1959,
and to t h e extent they are not presented for this purpose t h e face a m o u n t of
these bills will be payable without interest at m a t u r i t y . Taxpa3^ers desiring to
apply thesebills. in p a y m e n t of December 15, 1959, income and profits taxes have
t h e privilege of surrendering t h e m to any Federal Reserve Bank or branch or to
t h e Office of t h e Treasurer of t h e United States, Washington, not more t h a n
fifteen days before December 15, 1959, and receiving receipts therefor showing
the-face a m o u n t of t h e bills so surrendered. These receipts may be submitted
in lieu of t h e bills on or before December 15, 1959, to t h e District Director of
I n t e r n a l Revenue for t h e district in which such taxes are payable. T h e bills
win be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000,
$100,000, $500,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and branches up to the
closing hour, one-thirty o'clock p.m., eastern daylight saving time, Thursday,
M a y w , 1959. Tenders will not be received at the Treasury D e p a r t m e n t , Washington. E a c h tender m u s t be for an even multiple of $1,000, and in the case of
competitive tenders the price offered m u s t be expressed on t h e basis of 100, with
not m o r e t h a n three decimals, e.g., 99.925. Fractions may not be used. I t is
urged t h a t tenders be m a d e on- t h e printed forms and forwarded in t h e special
envelopes which will be supplied by Federal Reserve Banks or branches on application therefor.
' Others t h a n bankihg institutions will not be permitted to submit tenders except
for their own account. Tenders will be received without deposit from incorporated banks and t r u s t companies and from responsible and recognized dealers in
investment securities. Tenders from others must be accompanied by p a y m e n t
of 2 percent of the face a m o u n t of Treasury-bills applied for, unless the tenders
are accompanied by an express g u a r a n t y of p a y m e n t b}^ an incorporated bank or
trust company.
All bidders are required to agree not to purchase or to sell, or to make any
agreements with respect to t h e purchase or sale or other disposition of any bills
of this issue, until after one-thirtv o'clock p.m., eastern davlight saving time,
T h u r s d a y , M a y 7, 1959.
Immediately after t h e closing hour, tenders will be opened at t h e Federal
Reserve Banks and branches, following which public announcement will be made
by t h e Treasury D e p a r t m e n t of the a m o u n t and price range of accepted bids.
Those submitting tenders w i l l b e advised of t h e acceptance or rejection thereof.
T h e Secretary of the TreasurA^ expressly reserves the right to accept or reject
any or all tenders, in whole or in part, and his action in any such respect shall be
final.
Subject to these reservations, noncompetitive tenders for $400,000 or less
without stated price from any one bidder will be accepted in full at t h e average
priqe, (in three decimals) of accepted competitive bids. Pa^^ment of accepted
tenders at t h e prices offered must be made or completed at the Federal Reserve
Bank in cash or other immediately available funds on M a y 15, 1959.
T h e income derived from Treasury bills, whether interest or gain from t h e sale
or other disposition of the bills, does not have any exemption, as such, ahd loss
from t h e sale or other disposition of Treasury bills does not have any special
t r e a t m e n t , as such, under the I n t e r n a l Revenue Code of 1954. The bills are
subject to estate, inheritance, gift, or other excise taxes, whether Federal or State,
b u t are exempt from all taxation now or hereafter imposed on t h e principal or
interest thereof by any State, or any of t h e possessions of the United States, or
b}^ any local taxing authorit^^ For purposes of taxation the a m o u n t of discount
at which Treasury bills are originally sold by t h e United States is considered to be
interest. Under sections 454(b) and 1221(5) of t h e Internal Revenue Code of
1954 t h e a m o u n t of discount at which bills issued hereunder are sold is not considered to accrue until such bills'are sold, redeemed, or otherwise disposed of, and
such bills are excluded from consideration as capital assets. Accordingly, t h e
owner of Treasury bills (other t h a n life insurance companies) issued hereunder
need include in his income tax return only the difference between t h e price paid
for such bills, whether on original issue or on subsequent purchase, and t h e a m o u n t
actually received either upon sale or redemption a t m a t u r i t y during t h e taxable
year for which t h e return is made, as ordinary gain or loss.
Treasury D e p a r t m e n t Circular No. 418, Revised, and this notice, prescribe the
terms of t h e Treasury bills and govern t h e conditions of their issue. Copies of t h e
c i r c u l a r mav be obtained from any Federal Reserve Bank or branch.
192
1959 REPORT OF THE SECRETARY OF THE TREASURY
PRESS RELEASE OF MAY 8, 1959
The Treasury Department announced last evening that the tenders for
$1,500,000,000, or thereabouts, of tax anticipation series 221-day Treasury bills
to be dated May 15, 1959, and to mature December 22, 1959, which were offered
on April 30, were opened at the Federal Reserve Banks on May 7.
The details of this issue are as follows:
Total applied for_
._
$1, 699, 421, 000
Total accepted (includes $110,167,000 entered on a noncompetitive basis and accepted in full at the average
price shown below)
1, 500, 025, 000
Range of accepted competitive bids (excepting one tender
of $15,000,000):
High, equivalent rate of discount approximately 3.501% per
annum
97.851
Low, equivalent rate of discount approximately 3.655% per
annum.
.:.
97. 756
Average, equivalent rate of discount approximately 3.565% per
annum
97. 811
(98 percent of the amount bid for at the low price was accepted.)
Total applied
for
Federal Reserve district
Boston. __
New York
Philadelphia.Cleveland
. . .
Richmond
Atlanta
Chioaeo
St. lyouis
Minneapolis . .
Kansas City
DaUas
SanFrancisco . .
___._.
. . __
..
_
.
...
_
..
. . . .
_
_
.--....
_
.
.
_
. .
__ .
Total
Total accepted
$21,451,000
1,257,054,000
30,029,000
91,231,000
9,586,000
34,116,000
170,801,000
13,404,000
8,227,000
13,404,000
4,131,000
45,987,000
$5,451,000
1,124,954,000
15,029,000
72,231,000
9, 586,000
31,016,000
166,801,000
13,404,000
8,077,000
13,368,000
4,121,000
35,987,000
1,699,421,000
1,500,025,000
DEPARTMENT CIRCULAR NO. 1015. PUBLIC DEBT
TKEASURY DEPARTMENT^
Washington, September 29, 1958.
i : OFFERING OF BILLS
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, and under the applicable terms and conditions of
Treasury Department Circular No. 418, Revised, invites subscriptions at 98.023
(equivalent rate of discount approximately 3.25 percent per annum) for 219-day
Treasury bills. The amount of the offering under this circular is $2,500,000,000,
or thereabouts. The books will be open only on September 29 for the receipt of
subscriptions for this issue.
II. DESCRIPTION OF BILLS
1. The bills of this issue will be dated October 8, 1958, and will mature May 15,
1959, when the face amount will be pavable without interest. They will be issued
in bearer form only, and in denominations of $1,000, $5,000, $10,000, $100,000
$500,000, and $1,000,000 (maturity value). Each subscription must be for an
even multiple of $1,000 at the price stated above.
2. The income derived from Treasury bills, whether interest or gain from the
sale or other disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury biUs does not have any special
treatment, as such, under the Internal Revenue Code of 1954. The bills are
subject to estate, inheritance, gift, or other excise taxes, whether Federal or State,
EXHIBITS
193
but are exempt from all taxation now or hereafter imposed on the principal or
interest thereof by any State, or any of the possessions of the United States, or by
any local taxing authority. For purposes of taxation the amount of discount at
which Treasury bills are originally sold by the United States is considered to be
interest. Under sections 454(b) and 1221(5) of the Internal Revenue Code of
1954 the amount of discount at which bills issued hereunder are sold is not considered to accrue until such bills are sold, redeemed, or otherwise disposed of, and
such bills are excluded from consideration as capital assets. Accordingly, the
owner of Treasury bills (other than life insurance companies) issued hereunder
need include in his income tax return only the difference between the price paid for
such bills, whether on original issue or on subsequent purchase, and the amount
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made, as ordinary gain or loss.
3. The bills will be acceptable at maturity value to secure deposits of public
moneys. They will not be acceptable in payment of taxes.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks and branches and
at the Offi.ce of the Treasurer of the United States, Washington. Commercial
banks, which for this purpose are defined as banks accepting demand deposits,
may submit subse .'iptions for account of customers, but only the Federal Reserve
Banks and the Treasury Department are authorized to act as official agencies.
Others than commercial banks will not be permitted to enter subscriiDtions except
for their own account. Subscriptions from commercial banks for their own
account will be received without deposit, but will be restricted in each case to an
amount not exceeding 50 percent of the combined capital, surplus, and undivided
profits of the subscribing bank. Subscriptions from all others must be accompanied by payment of 2 percent of the face amount of bills applied for, not subject
to withdrawal until after allotment. Following allotment, any portion of the
2 percent payment in excess of 2 percent of the amount of bills allotted may be
released upon the request of the subscribers.
2. Commercial banks in submitting subscriptions will be required to certify that
they have no beneficial interest in any of the subscriptions they enter for the
account of their customers, and that their customers have no beneficial interest
in the banks' subscriptions for their own account.
3. The Secretary of the Treasury reserves the right to reject or reduce any subscription, and to allot less than the amount of bills applied for, and to make different percentage allotments to various classes of subscribers; and any action he
may take in these respects shall be final. The basis of the allotment will be publicly announced, and allotment notices will be sent out promptly upon allotment.
IV. PAYMENT
1. Payment for bills allotted hereunder must be made or completed on or before
October 8, 1958, or on later allotment. In every case where payment is not so
completed, the payment with application up to 2 percent of the amount of bills
allotted shall, upon declaration made by the Secretary of the Treasury in his discretion, be forfeited to the United States. Any qualified depositary will be permitted to make payment by credit for bills allotted to it for itself and its customers
up to any amount for which it shall be qualified in excess of existing deposits when
so notified by the Federal Reserve Bank of its district.
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive subscriptions, to make allotments on the basis and up to
the amounts indicated by the Secretary of the Treasury to the Federal Reserve
Banks of the respective districts, to issue allotment notices, to receive payment for
bills allotted, to make delivery of bills on fuh-paid subscriptions allotted, and they
may issue interim receipts pending delivery of the definitive bills.
. 2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve Banks.
ROBERT B . ANDERSON,
Secretary of the Treasury.
525622—60
14
194
1959
REPORT OF T H E SECRETARY OF TPIE TREASURY
P R E S S R E L E A S E O F O C T O B E R 7, 1958
T h e Treasury D e p a r t m e n t t o d a y announced t h e subscription and allotment
figures with respect to t h e current cash offering of $1 billion Of 3% percent Treasury
notes and $2>^ billion of 219-day special Treasury bills priced to yield 3.25 percent:.'
T h e notes will be d a t e d October 10, 1958, a n d will m a t u r e November 15, 1959.:
T h e bills wih be dated October 8, 1958, and will m a t u r e May 15, 1959. In addi-:
tion, $100 million of t h e notes were allotted to Government investment accounts.
Subscriptions and allotments were divided among t h e several Federal Reserve
districts and t h e Treasury as follows:
•'•••••.
Series B - L959 notes
219-day T r e a s u r y biUs "
Federal Reserve district
T o t a l subscrip- T o t a l subscrip- T o t a l subscrip- T o t a l subscriptions allotted
tions received
tions received
tions allotted
Boston
NewYork
.
Philadelphia
.
Cleveland .
.
.
Richmond.
A,tlanta
Chicago.
St. Louis
_
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
G o v e r n m e n t i n v e s t m e n t accounts
Total
___
$127,770,000
892,810,000 •
93,968,000
141,182,000
131,497,000
110,357,000
469, 618,000
158,401,000
75,591,000
136,145.000
128,116,000
219, 453,000
1,228,000
2, 686,136,000
$50,253,000
326,633,000
• 38,503,000
•58,432,000
53,409,000
49,839,000
197,075,000
70,034,000
39,111,000
66,867,000
52,474,000
80,928,000
448,000
100,000,000
$310,894,000
1,716,968,000
278, 503,000
530,659,000
251,910,000
323,939,000
961,539,000
209,346,000
167, 799,000
244,873,000
313, 594,000
495,407,000
200,000
$143,075,000
769,087,000
129,572,000
243,964,-000
122,345,000
158,419,000
460,442,000
109,387,000
92,964,000
132,279,000
149, 255,000
224, 506,000
100,000
1,184,006,000
5,804, 631,000
2,735,395,000
P R E S S R E L E A S E O F A P R I L 30, 1959
T h e Treasury D e p a r t m e n t , b}^ this public notice, invites tenders for $2,000,000,000, or thereabouts, of 340-day Treasury bills, to be issued on a discount basis
under competitive and noncompetitive bidding as hereinafter provided. T h e
bills of this series will be dated M a y 11, 1959, and will m a t u r e April 15, 1960, when
t h e face a m o u n t will be payable without interest. They will be issued in bearer
form only, and in denominations of $1,000, $5,000, $10,000, $100,000, $500,000,
and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and branches up to t h e closing
hour, one-thirty o'clock p.m., eastern d a y h g h t saving time, Wednesday, M a y 6,
1959. Tenders will not be received at t h e Treasury D e p a r t m e n t , Washington.
E a c h tender m u s t be for an even multiple of $1,000, and in t h e case of competitive
tenders t h e price offered must be expressed on t h e basis of 100, with not more t h a n
three decimals, e.g., 99.925. Fractions may not be used. I t is urged t h a t tenders
be made on t h e printed forms and forwarded in t h e special envelopes which will
be supplied by Federal Reserve Banks or branches on application therefor.
Others t h a n banking institutions will not be permitted to submit tenders except
for their own account. Tenders will be received without deposit from incorporated
banks and t r u s t companies a n d from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by p a y m e n t of 2
percent of t h e face a m o u n t of Treasury bills apphed for, unless t h e tenders are
accompanied by an express guarantee of p a y m e n t by an incorporated b a n k or
t r u s t company.
All bidders are required t o agree not t o purchase or to sell, or t o m a k e any agreements with respect to t h e purchase or sale or other disposition of any bills of this
issue, until after one-thirty o'clock p.m., eastern daylight saving time, Wednesday,
M a y 6, 1959.
Immediately after t h e closing hour, tenders will be opened at t h e Federal Reserve Banks and branches, following which public announcement will be made by
t h e Treasury D e p a r t m e n t of t h e a m o u n t and price range of accepted bids. Those
submitting tenders will be advised of t h e acceptance or rejection thereof. T h e
Secretary of t h e Treasury expressly reserves t h e right to accept or reject a n y or all
tenders,' in whole or in part, a n d his action in any such respect shall be final. Subject to these reservations, noncompetitive tenders for $400,000 or less without
195
EXHIBITS
stated price from any one bidder will be accepted in full at the average price (in
three decimals) of accepted competitive bids. Payment of accepted tenders at
the prices offered must be made or completed at the Federal Reserve Bank in cash
or other immediately available funds on May 11, 1959, provided, however, ,any
quahfied depositary will be permitted to make payment by credit in its Treasury
tax and loan account for Treasury bills allotted to it for itself and its customers up
to any amount for which it shall be qualified in excess of existing deposits when so
notified by the Federal Reserve Bank of its district.
The income derived from Treasury bills, whether interest or gain from the sale
or other disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special treatment, as such, under the Internal Revenue Code of 1954. The bills are subject to
• estate, inheritance, gift, or other excise taxes, whether Federal or State, but are
exempt from all taxation now or hereafter imposed on the principal or interest
thereof by any State, or any of the possessions of the United States, or by an}^
local taxing authority. For purposes of taxation the amount of discount at which
Treasury bills are originally sold by the United States is considered to be interest.
Under sections 454(b). and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is not considered to
accrue until such bills are sold, redeemed, or otherwise disposed of, and such bills
are excluded from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder need include
in his income tax return only the difference between the price paid for such bills,
whether on original issue or on subsequent purchase, and the amount actually
received either upon sale or redemption at maturity during the taxable year for
which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418, Revised, and this notice, prescribe the
terms of the Treasury bills and govern the conditions of their issue. Copies of
the circular may be obtained from any Federal Reserve Bank or branch.
PRESS RELEASE OF MAY 7, 1959
The Treasury Department announced last evening that the tenders for $2,000,000,000, or thereabouts, of 340-day Treasury bills to be dated May 11, 1959, and
to mature April 15, 1960, which were offered on April 30, were opened at the
Federal Reserve Banks on May 6.
The details of this issue are as follows:
- Total applied for_
$3, 460, 864; 000
Total accepted (includes $297,414,000 entered on a noncompetitive basis and accepted in full at the average price
shown below)
2, 000, 289, 000
Range of accepted competitive bids (excepting one tender at $1,300,000):
High, equivalent rate of discount approximately 3.740% per
annum
96.468
Low, equivalent rate of discount approximately 3.865% per
annum
96. 350
Average, equivalent rate of discount approximately 3.835% per
annum
96. 378
(75 percent of the amount bid for at the low price was accepted.)
Total applied for
Federal Reserve district
Boston., u
New York
Philadelphia
Cleveland.
..
Richmond
Atlanta
.
Chicago
_.
St. Louis...
_
Minneapolis
^.^
Kansas City. ;.
Dallas
...
San Francisco...
Total.
.
.
. _ _
.
'
_
.•
$145, 841,000
1, 427, 339, 000
170, 568, 000
381,150, 000
95,310, 000
142, 780, 000
499, 871, 000
86,458,000
80, 919, 000
87, 436,000
128,983,000
214,209,000
3,460,864,000
Total accepted
$84,141,000
822, 214, 000
131, 918, 000
154, 000,000
63, 035,000
88, 730, 000
323, 896, 000
52, 308, 000
60, 319, 000
64, 336. 000
103,383, 000
62, 009, 000
2,000,289,000
Summary of information pertaining io Treasury bills ^ issued during ihe fiscal year 1959
[Dollar amounts in thousands]
CO
M a t u r i t y value
Prices a n d rates
T o t a l b i d s accepted 2
T e n d e r s accepted
D a t e of
issue
Additional
issue
of bills
dated
D a t e of
maturity
D a y s to
maturity
Total
applied
for
C o m p e t i t i v e b i d s accepted
High
Total
accepted
On competitive
basis
On noncompetitive
basis 3
In
exchange
Average E q u i v a price
lent
per
average
Price
hundred 3 rate 4
per
(percent) h u n d r e d
Amount
maturmg
on issue
d a t e of
new
offering
Low
EquivaPrice
lent
per
hundred
rate*
(percent)
Equivalent
rate*
(percent)
CO
w
O
O
Regular Weekly
1968
July 3
10
17
24
31
Aug. 7
14
21
Sept. 4
11
18
25
Oct. 2
9
16
23
30
Nov. 6
13
20
28
Dec. 4
1119
11
18
18
. 26
FRASER
26
w
1968
Oct. 2
9
16
23
30
Nov. 6
13
20
28
Dec. 4
11
18
26
91
91
91
91
91
91
91
91
92
91
91
91
92
1969
Jan.
2
8
15
22
29
Feb.
5
13
19
26
Mar. 5
12
J u n e 11
M a r . 19
J u n e 18
M a r . 26
J u n e 25
92
91
91
91
91
91
92
91
90
91
91
182
91
182
90
181
Digitized for
$2,329,271 $1,699,816 $1,479, 393 $220, 423
233,158
2,320, 915
1, 700,110 1,466,952
296,949
2,652, 278
1,402,205
1,699,154
284. 922
2, 593,401
1,415,489
1,700,411
2,753,952
1, 700, 297 1,444, 696 255, 601
251, 529
2,429, 312
1, 700,012 1,448,483
2,481, 817
284, 776
1,699, 217 1,414,441
2,615,279
1, 799, 824 1, 514, 594 285, 230
2,463,298
1, 799, 938 1, 527, 714 272, 224
2,667, 764
1, 800, 317 1, 665,038 235, 279
2,549,457
363, 716
1,446,352
1,800,067
2,635, 580 1,800,120
355,998
1,444,122
2,675, 693
359,484
1,799,811
1,440,327
$239, 391
20,263
30, 340
29, 659
23, 211
21, 705
22, 042
230, 225
226,871
127, 371
33,016
31, 623
143, 431
99. 806
99.764
99. 713
99. 750
99. 751
99. 706
99. 616
99. 521
99. 448
99. 378
99. 404
99. 342
99. 368
0.768
0.934
L136
0.988
0.984
1.164
L524
1.896
2.161
2.461
2.359
2.604
2.611
99. 815
99. 793
8 99. 724
6 99. 757
99. 767
^ 99. 729
8 99. 640
9 99. 539
10 99. 469
11 99.400
99. 419
12 99. 368
99. 376
0.732
0.819
1.092
0.961
0.922
1.072
L424
1.824
2.078
2.374
2.298
2.500
2.446
99. 800
99. 748
99. 706
99. 746
99. 746
99.696
99.602
99. 612
99. 436
99. 369
99. 398
99. 331
99. 362
0.791
0.997
1.163
L005
1.005
L203
L576
1.931
2.207
2.496
2.382
2.647
2.536
$1, 700,087
1,700,140
1, 701,300
1,699,865
1, 701, 714
1, 700,410
1, 700,027
1,800, 750
1,800, 230
1,800, 204
1,700, 209
1,701,012
1,700,384
236, 063
264,606
260,855
364,454
299, 507
300,615
334, 698
301, 343
282, 812
279,913
336, 534
-46,125
316, 405
38, 733
303,283
32,170
131, 608
67, 575
20, 291
26, 872
96, 718
162,490
23, 780
119,155
276, 428
69,494
65,313
10,401
34, 787
3,907
128, 888
2,119
99.254
99. 326
99. 260
99.291
99. 331
99.330
99. 291
99. 273
99. 319
99. 291
99. 291
98.442
99. 266
98.435
99. 315
2.920
2.668
2.927
2.804
2. 647
2.649
2.774
2.876
2.723
2.806
2.805
3.081
2.904
3.095
2.739
3.017
13 99. 292
99. 360
1* 99. 267
15 99. 300
99. 335
16 99. 335
" 99. 330
99. 300
99. 326
18 99. 297
99. 305
20 98. 450
99.295
21 98. 450
99. 320
22 98. 492
2.770
2.632
2.900
2.769
2.631
2.631
2.622
2.769
2.696
2.781
2.749
3.066
2.789
3.066
2.720
2.999
99. 233
99. 306
99. 267
99.289
99. 328
99. 329
99. 288
99. 272
99. 317
99. 288
99. 287
98.437
99. 263
98. 427
99. 313
98.480
3.001
2.745
2.939
2.813
2.658
2.655
2.786
2.880
2.732
2.817
2.821
3.092
2.916
3.111
2.748
3.023
1, 699, 816
1, 700,110
1,699,164
1,700,411
1,700, 297
1, 700,012
1,699,217
1,799,824
1, 799,938
1,800,317
1,800,067
291,462
381,614
088,408
986, 773
871, 781
814,432
856,554
998,145
830,520
794,676
407,446
072,877
475,630
764,282
393, 505
833, 796
1,801,327
1, 800,069
1, 803,037
1,799, 712
1,802, 702
1,802,029
1, 800,617
1, 802, 955
1,802, 782
1, 799, 836
1, 599, 851
400,311
1,600, 423
400,101
1,600, 759
399,593
1, 565,264
1, 535,463
1,542,182
1,445,258
1,603,195
1, 601,414
1,465,919
1,501,612
1, 519,970
1,519,923
1,263, 317
354,186
1,285,018
361,368
1,297,476
367,423
1,800,120
"i,"799,"8ii
fei
O
o
»^
>
CO
d
1969
Jan. 2
2
8
8
15
15
22
22
29
29
Feb. 5
5
13
13
19
19
26
26
Mar. 6
6
Apr. 2
July 2
Apr. 9
July 9
Apr. 16
July 16
Apr. 23
July 23
Apr. 30
July 30
7
.... May.
Aug. 6
May 14
Aug. 13
May 21
Aug. 20
May 28
Aug. 27
June 4
1968
1231 Dec. 11
12
19
19
26
26
Dec. -18
Dec. 26
Sept.. 3
90
181
91
182
91
182
91
182
91
182
91
182
90
181
91
182
91
182
91
182
2,478,873
754,856
2, 608,228
680,002
2,178,447
733,832
2,375.099
593,053
2,625,868
, 780,920
2,299,876
716,112
2,303,623
726,262
2,394,816
922,130
2,267,271
764,629
2,089, 659
724, 241
1,600,275
400,059
1, 599,337
400,038
1, 599,667
400, 676
1,400,834
400,073
1,399,273
400,063
1,399, 734
399,912
1,401,266
399,998
1,399,999
401,127
1, 399, 930
396, 362
1, 600,249
400,147
1,379,496
380,917
1,334,691
377,794
1,299,682
369,676
1,102,659
373,225
1,116,708
373,650
1,134,167
371,685
1,128,622
373, 558
1,138,443
372, 585
1,202, 357
370,045
1,264,862
375,251
220, 779
19,142
264.646
22,244
299,975
30,901
298, 275
26,848
282,565
26,413
266, 667
28,227
272,644
26,440
261, 556
28, 642
197, 573
25, 317
235,387
24.896
11,880
2,175
161,734
2,447
24,835
2,082
103,119
2,617
.130,330
21,212
219,936
20,656
95,565
21,396
in, 371
6,090
193,376
3,934
58,014
14,600
99.327
98. 532
99.323
98. 504
99.290
98.466
99.233
98.366
99.248
98. 313
99.312
98.429
99. 298
98. 328
99. 311
98.356
99. 346
98. 494
99.288
98.427
2.690
2.920
2.678
2.969
2.808
3.034
3.034
3.232
2.976
3.337
2.721
3.107
2.809
3.326
2.726
3.253
2.689
2.978
2.816
3.111
June 11
Sept. 10
June 18
Sept. 17
June 25
Sept. 24
91
182
91
182
91
182
2,254,183
967,445
2,019,435
726,962
2,122,402
670, 549
1,300,917
400,299
1, 300, 587
400,017
1,300,115
400,149
1.041.105
372,103
1,023; 789
372,151
259, 812
28,196
276, 798
27, 866
259,009
24,634
36,861
1,242
40,574
1,283
75,180
16,975
99.226
98. 294
99: 302
98. 454
99. 301
98.436
3.062
3.376
2.763
3.058
2.766
3.093
July 2
Oct. 1
July 9
Oct. 8
July 16
Oct. 15
July 23
Oct. 22
July 30
Oct. 29
Aug. 6
Nov. 5
Aug. 13
Nov. 12
Aug. 20
Nov. 19
Aug. 27
Nov. 27
Sept. 3
Dec. 3
Sept. 10
Dec. 10
Sept. 17
Dec. 17
Sept. 24
Dec. 24
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
183
91
182
91
182
91
182
91
182
1, 716,904
696, 707
2,074,113
765,147
2,036,871
792,154
1,975, 738
819,344
1,926, 929
862,670
1,910, 880
760,532
2,058,239
867,634
1,995, 719
832,014
1,953,476
858, 660
1,999, 534
946, 772
1, 958,281
811,312
1,924,903
751, 565
2,047,912
855,342
1,200,254
400,057
1,200,055
400,047
1,199, 786
400,002
1,000,883
400,070
1,002,008
400,218
1,000, 970
400,032
1,000,929
400,206
1,000,498
400,187
1,000,244
399,979
1,100,646
400,244
1, 200,021
500,072
1, 200, 695
600,103
1,200,062
500,242
182,847
16,193
211,063
22,475
252,806
23, 973
267,020
23,606
240,428
21,368
216,565
16, 777
246,191
24,019
210,869
21.897
179,028
18,630
177,836
17,496
221,363
40,843
247,956
50,240
253,179
62,279
20,770
682
151,877
20,902
17, 556
892
106,439
21,608
102,933
20,653
194,390
43,625
100,031
26,153
133,156
20,690
181, 665
22, 640
65,728
• 20; 398
53,116
14,047
72,682
22, 408
68, 312
22,052
99.282
98. 364
99. 255
98.357
99.223
98. 306
99.216
98.301
99.284
98. 388
99. 258
98. 324
99. 312
98. 277
99. 275
98.293
99.273
. 98. 285
99. 204
98.236
99.170
98.198
99.172
98. 238
99.171
98.188
2.841
3.236
2.948
3.260
3.075
3.351
3.105
3.361
2.831
3.189
2.936
3.316
2.722
3.408
2.869
3.376
2.878
3.373
3.149
3.489
3.283
3.565
3.276
3.486
3.281
3.585
1.041.106
375,615
99.335
98. 542
99. 331
98. 637
99. 325
23 98.480
99.300
2* 98.458
25 99.267
26 98. 332
99. 333
98.468
. 99.340
98.445
99. 319
27 98. 380
99.366
28 98. 508
29 99. 305
30 98.443
99.288
32 98. 312
99. 308
98. 464
33 99.306
98.483
99. 324
2.660
2.900
2.647
2.894
2.670
3.007
2.769
3.060
2.900
3.299
2.639
3.030
2.640
3.093
2.694
3.204
2.508
2.951
2.749
3.080
98. 528
99.319
98.494
99.280
98.458
99. 230
98.330
99.245
98.306
99. 309
98.408
99. 296
98. 304
99. 309
98. 352
99. 340
98.483
99. 280
98. 418
2.704
1,801,327
2.928
2.694 ""i,'800,'069
2.979
1, 803,037
2.848
3.050
1,799, 712
3.046
3.303
2.987 .- 1,802,702
3.351
1,802,029
2.734
3.149
2.820 . . 1,800,617
3.373
2.734
1,802,955
3.260
2.611
1, 802,782
3.001
1, 799,836
2.848
3.129
2.817
3.339
2.738
3.038
2.745
3.001
99. 223
98. 292
99. 297
98.445
99. 297
98.414
3.074
3.378
2.781
3.076
2.781
3.137
2.801
3.169
2.927
3.224
2.947
3.323
3.060
3.351
2.801
3.177
2.900
3.284
2.702
3.303
2.840
3.343
2.840
3.338
3.125
3.454
3.166
3.521
3.244
3.450
3.244
3.549
99. 265
98. 354
99. 251
98. 350
99. 219
98. 301
99. 214
98. 297
99. 283
98. 382
99. 256
98. 306
99. 310
98. 266
99. 270
98. 280
99. 270
98. 278
99. 200
98.232
99.162
98.186
99.170
98. 230
99.166
98.176
2.908
3.256
2.963
3.264
3.090
3.361
3.109
3.369
2.836
3.200
2.943
3.351
2.730
3.430
2.888
3.402
2.888
3.388
3.165
3.497
3.316
3.688
3.284
3.601
3.299
3.608
1,699,851
1,600,423
1,600, 759
1959
Apr. 2 Jan. 2
2
9 Jan. 8
9
16 Jan. 15
16
23 Jan. 22
23
30 Jan.- 29
30
May 7 Feb. 5
7
14 Feb. 13
14
21 Feb. 19
21
28 Feb. 26
28
June 4 Mar. 5
4
11 Mar. 12
11
18 Mar. 19
18
25 Mar. 26
25
Footnotes at end
of table.
1,017,407
383,864
989,002
377, 572
946,979
376,029
743,863
376,464
761,680
378, 850
784, 405
383,255
754, 738
376,187
789, 629
378,290
821, 216
381,349
922,810
382,749
978, 658
459,229
952, 739
449,863
946,883
447, 963
3* 99.292
35 98. 398
36 99. 260
37 98. 370
99. 255
98. 320
38 99. 229
39 98. 306
99. 292
98. 394
40 99. 267
*i 98. 340
99. 317
98. 330
99. 282
42 98. 310
43 99. 282
44 98. 303
45 99. 210
46 98. 264
47 99. 200
48 98. 220
99.180
98. 256
99.180
49 98. 206
1,600,275
1,699,337
CQ
1,699,667
1,400, 834
1,399,273
1, 399,734
1,401,266
1,399,999
1,399,930
1, 600,249
1,701,228
1, 700,688
1,699,708
CO
CO.
OD
Summary of information pertaining to Treasury hills ^ issued during the fiscal year 1969—Contmued
[Dollar amounts in thousands]
Prices a n d r a t e s
M a t u r i t y value
O
T o t a l b i d s accepted 2
T e n d e r s accepted
Date.of
issue
Additional
issue
ofbUls
dated
D a t e of
maturity
Days to
maturity
Total
applied
for
Total
accepted
O n competitive
basis
On noncompetitive
basis 2
In
exchange
C o m p e t i t i v e b i d s accepted
High
Low
Average E q u i v a lent
price
Price
EquivaPrice
Equivaaverage
per
per
lent
per
hundred 3 rate*
(percent) h u n d r e d
hundred
rate*
rate 4
(percent)
(percent)
Amount
maturing
on issue
d a t e of
new
offering
o
W
•
1968
Nov. 2050
1969
June 22
1969
Feb. 1650
May 15
Sept. 21
Dec. 22
5,950,347
2,996,699
2,249,339
747,360
98.217
2.999
61 98.276
2.900
98.193
3.040
2,984,435
1,699,191
1,501, 759
1,499,795
1,297,645
1,389,858
204,114
109,937
98.015
97.811.
3.293
3.665
98.106
»2 97.851
3.142
3.501
97.983
97.756
3.346
3.655
K!
217
221
1958
Oct. 850
1959
M a y 15
219
5,804,804 53 2,735,421
. m9
1960
J a n . 15
A p r . 15
289
340
3,444,887
3,463, 889
2,006,171
2,003,314
54 98.023
1,733,274
1,703,375
272,897
299,939
o
W
Other
A p r . 150
M a y 1150
ZP
o
Tax Anticipation
97.282
96.378
3.25
3.386
3.835
S3
55 97. 391
59 96.468
3.250
3.740
97.242
96. 350
3.436^
3.865
>
ZP
1 The usual timing with respect to issues of Treasury bills is: Press release.inviting
tenders, 7 days before date of issue; closing date on which tenders are accepted, 3 days
before date of issue; and press release announcing acceptance of tenders, 2 days before
date of issue. Figures are final and differ in many instances from those shown in press
release announcing preliminary details of a particiilar issue.
2 Noncompetitive tenders, without stated price, from any one bidder for $200,000 or
less in the case of the 90-, 91-, and 92-day issues, and for $50,000 or less (increased ro
$100,000 or less for issues dated June 11 thrbugh June 25, 1959) in the case of the 181-,
182-, and 183-day issues were accepted in full at the average price for accepted competitive bids. For the tax anticipation series dated Feb. 16, 1959, the amount was
$300,000 and for the tax anticipation series dated Nov. 20, 1958, and May 15, 1959, and
other issues dated Apr. 1 and May 11, 1959, the amount was $400,000.
5 Price.at which noncompetitive tenders were accepted.
* Bank-discount basis.
5 Except $550,000 at 99.800, $1,000,000 at 99.770, $215,000 at 99.765, $1,000,000 at 99.750,
and $400,000 at 99.743.
3 Except $100,000 at 99.793 and $300,000 at 99.765.
7 Except $300,000 at 99.755, $600,000 at 99.761, $300,000 at 99.750^ $25,000 at 99.747, and
$200,000 at 99.746.
8 Except $210,000 at 99.706 and $400,000 at 99.696.
9 Except $350,000 at 99.545.
11 Except $200,000 at 99.539, $300,000 at 99.520, $650,000 at 99.502, and $100,000 at 99.49011 Except $300,000 at 99.521, $300,000 at 99.464, $100,000 at 99.452, and $100,000 at 99.448.
12 Except $2,340,000 at 99.404, $100,000 at 99.400, $100,000 at 99.390, and $100,000 at
99.380.
13 Except $50,000 at 99.358 and $50,000 at 99.321.
" Except $13,000 at 99.368, $215,000 at 99.341, $500,000 at 99.324, and $1,000,000 at
99.290.
16 Except $16,000 at 99.368, $3Ck).000 at 99.343, $200,000 at 99.330, and $1,000,000 at
99.325.
i'i Except $400,000 at 99.342.
17 Except $2,000,000 at 99.343 and $200,000 at 99.335.
18 Except $800,000 at 99.326.
19 New cycle of 13-week and 26-week bills inaugm'ated. See press release dated Dec.
1, 1958, in this exhibit.
20 Except $200,000 at 99.291, $150,000 at 98.510, and $200,000 at 98.483.
21 Except $150,000 at 98.468.
22 Except $150,000 at 98.516.
« Except $150,000 at 98.500, $2,250,000 at 98.498, and $50,000 at 98.488.
2< Except $200,000 at 98.500.
25 Except $1,175,000 at 99.328.
20 Except $50,000 at 98.400, $400,000 at 98.378, $250,000 at 98.366, and $50,000 at 98.350.
27 Except $50,000 at 98.483.
'
28 Except $20,000 at 99.330 and $100,000 at 98.533.
29 Except $200,000 at 99.346.
30 Except $750,000 at 98.500 and $265,000 at 98.494.
31 For free interchangeability, all bills maturing on the same date to be the same
issue regardless of whether they have 91 or 182 days to run at the time of original
issuance.
. 32 Except $150,000 at 98.427 and $50,000 at 98.365.
33 Except $300,000 at 99.317.
34 Except $100,000 at 99.390.
35 Except $50,000 at 98.445 and $160,000 at 98.435.
36 Except $400,000 at 99.2S2 and $58,000 at 99.280.
37 Except $250,000 at 98.398.
38 Except $350,000 at 99.241.
39 Except $1,000,000 at 98.325.
40 Except $300,000 at 99.304.
41 Except $.50,000 at 98.394 and $50,000 at 98.382.
42 Except $35,000 at 98.330.
43 Except $400,000 at 99.290.
44 Except $500,000 at 98.350.
<5 Except $185,000 at 99.287, $50,000 at 99,270, and $5,000 at 99.234. '
49 Except $300,000 at 98.331, $200,000 at 98.285, and $100,000 at 98.280.
47 Except $365,000 at 99.242 and $10,000 at 99.241.
48 Except $100,000 at 98.236.
.49 Except $50,000 at 98.238 and $300,000 at 98.230.
50 Qualified depositaries were permitted to make payment for bills allotted to them
and their customers by credit in Treasury tax and loan accounts except that in the case
of the 217-day tax anticipation series dated Feb. 16, 1959, payment by credit in tax
and loan accoimts was limited to not more than 75 percent of the bills allotted.
51 Except $50,000 at 99.460 and $2,000,000 at 99.331.
52 Except $16,000,000 at 97.888.
63 Subscriptions in excess of $100,000 were allotted 44% but not less than $100,000 and
subscriptions for $100,000 or less were allotted in full.
34. Fixed price. See Department Circular No. 1015 in this exhibit.
66 Except $600,000 at 97.544 and $60,000 at 97.421.
59 Except $1,300,000 at 96.500.
X
ZP
CO
CO
200
1959 REPORT OF THE SECRETARY OF THE TREASURY
G u a r a n t e e d Obligations Called
E X H I B I T 5.—Calls for partial redemption, before maturity, of insurance fund
debentures
During the fiscal year 1959 there were eighteen calls for partial redemption,
before maturity, of insurance fund debentures, ten dated September 19, 1958, a n d
t h e others dated March 24, 1959. The notices of call were published in t h e
Federal Registers of September 27, 1958, a n d March 31, 1959. The notice covering t h e sixth call of t h e 2}^, 2%, 2%, 2%, 3, 3%, a n d 3% percent Series AA mutual
mortgage insurance fund debentures is shown in this exhibit. Since the other
notices of call are similar to this exhibit, they have been omitted b u t the essential
details are summarized in the table following t h e notice of call.
N O T I C E O F CALL. F E D E R A L R E G I S T E R OF S E P T E M B E R 27, 1958
To Holders of 2}^, 2%, 2%, 2^%, S, S]i, and 3% Percent Mutual Mortgage Insiirance
Fund Debentures, Series A A :
N O T I C E O F CALL F O R P A R T I A L R E D E M P T I O N , B E F O R E M A T U R I T Y , OF 21.^2, 2^^, 2%, 2%,
3, 3 H , A N D 3 ^ P E R C E N T M U T U A L M O R T G A G E I N S U R A N C E F U N D D E B E i N T U R E S ,
S E R I E S AA
P u r s u a n t to the a u t h o r i t y conferred by the National Housing Act (48 Stat.
1246; U . S . C , title 12, sec. 1701 et seq.) as amended, public notice is hereby
given t h a t 2}^, 2%, 2%, 2%, 3, 3J4, and 3% percent m u t u a l mortgage insurance fund
debentures, Series AA, of the denominations and serial numbers designated below,
are hereby called for redemption, a t par and accrued interest, on J a n u a r y 1, 1959,
on which date interest on such debentures shall cease:
2y2, 2Ysj.2y4, 2Vz^ 3, 3y4, and 3y% percent mutual mortgage insurance fund debentures,
ri .
A A
Series A A
Serial numbers
( a l l numbers
inclusive)
Denomination
$50
1, 170 to 1,411
$100
-3, 809 to 4, 895
$500
1, 137 to 1,478
$1,000
- - 2, 737 to 3, 505
$5,000
1, 240 to 1, 555
$10,000
731 to 1,375
The debentures first issued as determined by the issue dates thereof were selected
for redemption by t h e Commissioner, Federal Housing Administration, with t h e
approval of the Secretary of the Treasury.
No transfers or denominational exchanges in debentures covered by the foregoing call will be made on t h e books maintained by the Treasury D e p a r t m e n t on
or after October 1, 1958. This does not affect the right of t h e holder of a debenture to sell a n d assign t h e debenture on or after October 1, 1958, and provision
will be made for t h e p a y m e n t of final interest due on J a n u a r y 1, 1959, with the
principal thereof to the actual owner, as shown by the assignments thereon.
The Commissioner of the Federal Housing Administration hereby offers to
purchase any debentures included in this call a t a n y time from October 1, 1958, to
December 31, 1958, inclusive, a t p a r and accrued interest, to date of purchase.
Instructions for t h e presentation a n d surrender of debentures for redemption
on or after J a n u a r y 1, 1959, or for purchase prior to t h a t d a t e will be given by the
Secretary of the Treasury.
N V V ^ O N ^ ' D : September 23, 1958.
F R E D C . SCRIBNER, JR.,
N O R M A N P.
MASON,
Acting Secreiary of ihe Treasury.
Commissioner.
Final interest will be paid with principal at t h e rate of $12.50 per $1,000 for
the 2/2%; $13,125 per $1,000 for t h e 2 ^ % ; $13.75 per $1,000 for the 2 % % ; $14,375
per $1,000 for t h e 2 % % ; $15.00 per $1,000 for the 3 % ; $16.25 per $1,000 for the
3)4%; and $16,875 per $1,000 for t h e 3 % % debentures redeemed on J a n u a r v 1,
1959.
Final interest will be paid with principal at the rate of $0.067935 per day for
each $1,000 for t h e 2^^%; $0.071332 per day for each $l,00Ofor t h e 25/8%.; $0.074728
per day for each $1,000'for t h e 2 ^ 1 % ; $0.078125 per day for each $1,000 for the
2 % % ; $0.081522 per day for each $1,000 for the 3 % ; $0.088315 per day for each
$1,000 for the 3>^%; and $0.091712 per day for each $1,000forthe 3 % % debentures
from July 1, 1958, to date of purchase on those purchased between October 1 and
December 31, 1958.
Summary of information contained in ihe notices of callfor partial redemption of insurance fund debentures during thefiscal year 1959
N o t i c e of call
Redemption date
Serial n u m b e r s called b y
denominations:
$50
$100
$500
—$1^000
$5,000
$10,000
F i n a l d a t e for transfers
or d e n o m i n a t i o n a l exchanges ( b u t n o t for
sale or a s s i g n m e n t ) .
R e d e m p t i o n on call d a t e ,
a m o u n t of interest per
$1,000 p a i d in full w i t h
principal.
Presentation^for^purchase prior to call d a t e :
Period
A m o u n t of accrued
interest per $1,000
per day paid with
principal.
2 ^ , 2^4, 2 H , 2%, 3, 3 H ,
a n d 3H percent m u t u a l mortgage insurance f u n d d e b e n t u r e s ,
Series A A , sixth call
21^, 2 H , 2%, 2 ^ , 3, 3 H ,
3 H , a n d 3}^ p e r c e n t
m u t u a l m o r t g a g e ins u r a n c e fund debentures.
Series A A,
s e v e n t h call
23^, 2 H , a n d 3 percent
housing insurance
fund d e b e n t u r e s . Series B B , t h i r d call
3H percent section 221,
housing insurance
fund d e b e n t u r e s . Series D D , first call
2 l i a n d 3 p e r c e n t servicemen's m o r t g a g e
i n s u r a n c e f u n d debent u r e s . Series E E , t h i r d
call
2 ^ , 3, 3K, a n d 3 H
p e r c e n t servicemen's
mortgage insurance
fund d e b e n t u r e s . Series E E , fourth call
S e p t . 19, 1958
J a n . 1, 1959
M a r . 24, 1959
J u l y 1, 1959
Sept. 19, 1968
.Tan. 1, 1959 _
M a r . 24, 1959
J u l y 1, 1959
Sept 19, 1958
J a n . 1, 1959
M a r 24, 1959
J u l y 1, 1959.
1170-1411-_
3809-4895
1137-1478
2737-3506
1240-1555
731-1375i.__
S e p t . 30, 1958
1412-1669
4896-6069
1479-1744
3506-4374
1556-1918
1376-1502
M a r . 31, 1959
4-19
__ 40-91
6-60
25-129
10-37
616-813
S e p t . 30, 1958 .
9-12_
3
11-13
5
M a r . 31, 1959
4-8
• 21-35
3-6
19-28
2-4
3-6
'_
Sept. 30, 1958 -
9.
36-53.
7-10.
29-45.
5-6.
_. 7-13.
M a r . 31, 1959
H
LJ
C
W
$12.50 for 2 1 ^ % , $13,125f o r - 2 ^ % , $13.75 for
23/4%, $14,375 for 2 ^ % ,
$16.00 for 3 % , $16.25
for 3 H % , $16,875 for
334%.
$12.50 for 21/2%, $13,126
for 2 ^ % , $13.75 for
2 % % , $14,375 for 2 % % ,
$15.00 for 3 % , $16.25
for 3 H % , $16,875 for
3^^%, $17.50 for 3 1 ^ % .
O c t . l - D e c . 3 1 , 1 9 5 8 . . . - A p r . 1-June 30, 1959
$0.067935 for 2 } ^ % ,
$0.069061 for 2 ] ^ % ,
$0.071332 for 2 % % ,
$0.072514 for 2 % % ,
$0.074728 for 2 % % ,
$0.075967 for 2 % % ,
$0.078125 for 2 ^ % ,
$0.079420 for 2 ^ % ,
$0.081622 for 3 % ,
$0.082873 for 3 % ,
$0.088315 for 314%,
$0.089779 for 3 H % ,
$0.091712 for 3 % % ,
$0.093232 for 3 H % ,
from J u l y 1, 1958, to
$0.096685 for 3 H % ,
from J a n . 1, 1959, to
d a t e of p u r c h a s e .
d a t e of p u r c h a s e .
$12.60 for- 23^%, $13.75
for 2H7o, $15.00 for
3%.
$17.50
$14,375 for 2 % % ,
$15.00 for 3 % .
$14,376 for 2 ^ % ,
$15.00 for 3 % ,
$16.25 for 314%,
$16,875 for 3 H % .
1-^
ZP
•
Oct. 1-Dec. 31, 1 9 5 8 . . . - A p r . 1-June 30, 1959
$0.067935 for 2 1 ^ % ,
$0.096685 from J a n . 1,
1959, to d a t e of pur$0.074728 for 2 H % ,
chase.
$0.081522 for 3 % ,
from J u l y 1, 1958, to
d a t e of p u r c h a s e .
Oct. 1-Dec. 31, 1958--- A p r . 1-June 30, 1959.
$0.079420 for 2 % % ,
$0.078125 for 2 ^ % ,
$0.082873 for 3 % ,
$0.081522 for 3 % ,
$0.089779 for 3 K % ,
from J u l y 1, 1958,
to d a t e of p u r c h a s e . • $0.093232 for 3 H % ,
from J a n . 1, 1959, to
d a t e of p u r c h a s e .
fcO
o
bO
o
bO
Summary of information contained in the notices of call for partial redemption of insurance fund debentures during the fiscal year 1959—Con.
21^ and 2% percent
armed services housing mortgage insurance fund debentures, Series F F ,
third call
Sept. 19, 1968—
Notice of calL
Jan. 1,1959
Redemption date
Serial numbers called
by denominations:
$50 $100
$500 •
$1,000
$5,000 $10,000
684-1015
yinal date for transfers Sept. 30,1958—
or denominational exchanges (but not for
sale or assignment);
Redemption on call $12.60 for 2 ^ % , $13.75
for 2%%.
date, amount of interest per $1,000 paid in
• full with principal.
Presentation for purchase prior to call date:
Oct. 1-Dec. 31, 1968
Period
Amount of accrued $0.067935 for- 2}^%,
$0.074728 for 2%%,
interest per $1,000
from July 1, 1958, to
per day paid with
principal.
date of purchase.
23^ percent armed services housing mortgage insurance fund
debentures. Series
F F , fourth call
Mar. 24,1959
July 1,1959
2H percent war housing insurance fund
debentures, Series H
2 ^ percent Title I housing insurance fund
debentures, Series L
C
Twentieth call
_ Sept. 19,1958
Jan. 1,1959
28-32
7
.
35-38
11
1021-1167
Mar. 31,1959
^
4041-4238
12372-13241
3079-3172
13464-14320
3446-3634
34838-36198
Sept. 30,1958--
Twenty-first call
Mar. 24,1959
July 1,1969
4239-4307
13242-13809
3173-3464, 3630
14321-15875
3635-3813
36199-37962
Mar. 31, 1959
Ninth call
Sept. 19,1958
Jan. 1,1959
149-163
_ . ' 206-213 _
102-105
435-446
__
Sept. 30,1958
Tenth call
Mar. 24,1959.
July 1, 1959.
154-159.
214-253.
106-116.
447-477.
47-60, 62-67.
ZP
Mar. 31,1959.
o
$12.50.
$12 50
$12.50
$12.50.--
$12.50.
Apr. 1-June 30, 1959
$0.069061 from Jan. 1,
1959, to date of purchase.
Oct. 1-Dec. 31, 1958
$0.067935 from July 1,
1958, to date of purchase.
Apr. 1-June 30,1959
$0.069061 from Jan. 1,
1959, to date of purchase.
Oct. 1-Dec. 31, 1968..- Apr: 1-June 30, 1959.
$0.067935 from July 1, $0.069061 from Jan.-1,
1959, to date of pur1958, to date of purchase.
chase.
o
ZP
d
to
S u m m a r y of information contained in the notices of call for partial redemption of insurance fund debentures during the fiscal year 1959—Con.
. 21^ p e r c e n t n a t i o n a l defense housing insurance fund
debent u r e s . Series P , t h i r d
call
Notice of call
i Sent.'19, 1958-.
Redemption date
J a n . 1, 1959
S e r i a l ' n u m b e r s called
b y denominations:
$50-..
..— 46-80
36-192
. . . ...
iioo
11-42'
$500
$1,0{)0
59-191
_
6-59
$6,000
38&-1004
$10,000F i n a l d a t e for transfers Sept. 30, 1^58
or d e n o m i n a t i o n a l exchanges ( b u t n o t for
sale or a s s i g n m e n t ) .
R e d e m p t i o n on call d a t e . $12.50
a m o u n t of interest per
$1,000 p a i d i n full w i t h
principal.
P r e s e n t a t i o n for purchase prior to call d a t e :
Period
.
Oct. 1-Dec. 31. 1 9 6 8 — A m o u n t of accrued $0.067935 from J u l y 1,
1958, to d a t e of p u r i n t e r e s t per $1,000
per d a y p a i d w i t h
chase.
principal.
3 percent Title I housing insurance
fund d e b e n t u r e s . Series T
2% p e r c e n t T i t l e I housing i n s u r a n c e
fund d e b e n t u r e s , Series R
E i g h t h call
S e v e n t h call
Sept. 19,1958
J a n . 1, 1969
204-214....
270-334
.66-82
76-84 ,
•
81-98
Sept. 30, 1968
M a r . 31, 1959
161-194
696-712 - .
234-302
213-286..
186-225
7-11 . _.
Sept. 30 1958
$13.75..
$13.76
$15.00
__
215-233-.
335-412
83-118
86-106
99-130
M a r . 24, 1959
J u l y 1, 1 9 5 9 -
Sept. 19, 1958
J a n . 1, 1959
M a r . 2 4 , 1959..
J u l y 1, 1959
_ -
S e v e n t h call
Sixth call
--
-
2% p e r c e n t n a t i o n a l defense housing insurance fund
debent u r e s . Series Y , second call
. Sept. 19, 1958.
J a n . 1, 1959.
195-218
. . - 713-823
303-346
286-377-226-251
- — . . . . . 9-67.
^ 27-243.
12-92.
25-292.
..8-118.
238-602.
M a r . 31, 1959
Sept. 30, 1968.
_ $15.00
Oct. 1-Dec. 31, 1 9 5 8 . . , . A p r . 1-June 30, 1959..... Oct. 1-Dec 31, 1958
$0.074728 from J u l y 1 , ' $0.075967 from J a n . 1, $0.081622 from J u l y 1,
1958, to d a t e of p u r 1958, to d a t e of p u r 1969, to d a t e of purchase.
chase.
chase.
X
ZP
$13.76.
A p r . 1-June 30, 1959.-. Oct. 1-Dec. 31, 1958.
$0.082873 from J a n . 1, $0.074728 from J u l y 1,
1958, to d a t e of p u r 1959, t o d a t e of p u r chase.
chase.
o
cc
204
1959 REPORT OF THE SECRETARY OF THE TREASURY
Regulations
E X H I B I T 6.—First a m e n d m e n t , May 1, 1959, to D e p a r t m e n t Circular No. 418,
Revised, regulations governing Treasury bills
TREASURY DEPARTMENT,
Washington, May 1, 1959.
D e p a r t m e n t Circular No. 418, Revised, dated F e b r u a r y 23, 1954 (31 C F R 309),
is hereby amended by revising sections 309.3 and 309.5 as follows:
SEC. 309.3 Denominations and exchange.—Treasury bills will be issued in denominations (maturity value) of $1,000, $5,000, $10,000, $100,000, $500,000, and
$1,000,000. Exchanges from higher to lower and lower to higher denominations
of t h e same series (bearing t h e same issue and m a t u r i t y dates) will be permitted at
Federal Reserve Banks and a t t h e Office of t h e Treasurer of t h e United States,
Washington. Insofar as applicable, t h e general regulations of t h e Treasury Dep a r t m e n t governing transactions in bonds and notes will govern transactions in
Treasury bills.
SEC. 309.5 Acceptance as security for public deposits and in payment of taxes
(when specifically provided for by the Secreiary of the Treasury).—Treasury bills will
be acceptable at m a t u r i t y value to secure deposits of pubhc moneys. T h e Secretary
of t h e Treasury, in his discretion, when inviting tenders for Treasury bills, m a y
provide t h a t Treasury bills of any series will be acceptable a t m a t u r i t y value,
whether a t or before m a t u r i t y , under such rules and regulations as he shall prescribe or approve, in p a y m e n t of income and profits taxes payable under t h e
provisions of the Internal Revenue Code. Any Treasury bills which by the terms
of their issue m a y be accepted in p a y m e n t of income and profits taxes m a y be
surrendered to any Federal Reserve Bank or branch, acting as fiscal agent of t h e
United States, or to t h e Office of t h e Treasurer of t h e United States, Washington,
fifteen days or less before t h e date on which t h e taxes become due. T h e Federal
Reserve Bank or branch or t h e Office of the Treasurer of the United States will
issue receipts to t h e owners showing t h e face a m o u n t of t h e bills so surrendered.
These receipts m a y be submitted in lieu of t h e bills on or before the specified tax
p a y m e n t dates to the District Director, I n t e r n a l Revenue Service, with t h e
owners' t a x returns. Notes secured by Treasury bills are ehgible for discount or
rediscount a t Federal Reserve B a n k s by member banks, as are notes secured by
bonds and notes of t h e United States, under t h e provisions of section 13 of t h e
Federal Reserve Act. T h e y will be acceptable a t m a t u r i t y , b u t not before, in
p a y m e n t of interest or of principal on account of obligations of foreign governm e n t s held by t h e United States.
JULIAN B . BAIRD,
Acting Secretary of the Treasury.
ExfflBiT 7.—First a m e n d m e n t , August 15, 1958, to D e p a r t m e n t Circular No. 530,
Eighth Revision, a m e n d i n g the provisions limiting the holdings of United States
savings bonds
TREASURY DEPARTMENT,
Washington, August 15,1958.
Section 315.11(c) of D e p a r t m e n t Circular No. 530, Eighth Revision, (31 C.F.R.,
1957 Supp., 315) dated December 26, 1957, is hereby amended and revised to read
as follows:
(c) Bonds ihat may he excluded from computation.—There need not be t a k e n
into account:
(1) Bonds on which t h a t person is named beneficiary;
(2) Bonds in which his interest is only t h a t of a beneficiary under a t r u s t ;
(3) Bonds to which he has become entitled under sec. 315.66 as surviving
beneficiary upon t h e d e a t h of t h e registered owner, as an heir or legatee of t h e
deceased owner, or by virtue of t h e termination of a t r u s t or t h e happening of
any other event;
(4) Bonds of Series E purchased with t h e proceeds of m a t u r e d bonds of
Series A, Series C-1938, and Series D, where such m a t u r e d bonds were presented
for t h a t purpose;
(5) Bonds of Series E bearing issue dates from May 1, 1941, to December
1, 1945, inclusive, held by individuals in their own right which are not more t h a n
$5,000 (maturity value) in excess of t h e prescribed limit;
EXHIBITS
205
(6) Bonds of Series E or Series H reissued under sec. 315.60(b)(1);
(7) Bonds of Series E or Series H reissued in the name of a trustee of a
personal trust estate which did not represent excess holdings prior to such reissue;
(8) Bonds of Series E or Series H purchased with the proceeds of bonds of
Series F or Series G, maturing on and after September 1, 1958, where such matured bonds are presented for that purpose by individuals, legal guardians, committees (and similar representatives of the estates,, of minors and incompetents)
and trustees of personal trust estates, subject to the terms of sec. 316.1a of Department Circular No. 653, Fourth Revision, as amended, offering bonds of Series
E, and sec. 332.1a of Department Circular No. 905, Revised, as amended, offering
bonds of Series H.
ROBERT B . ANDERSON,
Secretary of the Treasury.
EXHIBIT 8.—Second amendment, October 31, 1958, to Department Circular No.
530, Eighth Revision, further amending the provisions limiting the holdings of
United States savings bonds
TREASURY DEPARTMENT,
Washington, October 31, 1958.
Section 315.11(c) of Department Circular No. 530, Eighth Revision, as amended
(31 CFR, 1957 Supp., 315), dated December 26, 1957, is hereby further amended
by revising it as follows:
(c) Bonds that may be excluded from computation.—There need not be taken
into account:
(1) Bonds on which that person is named beneficiary;
(2) Bonds in which his interest is only that of a beneficiary under a
trust;
(3) Bonds to which he has become entitled under sec. 315.66 as surviving
beneficiary upon the death of the registered owner, as an heir or legatee of the
deceased owner, or by virtue of the termination of a trust or the happening of
any other event;
(4) Bonds of Series E purchased with the proceeds of matured bonds of
Series A, Series C-1938, and Series D, where such matured bonds were presented
for that purpose;
(5) Bonds of Series E bearing issue dates from May 1, 1941, to December
1, 1945, inclusive, held by individuals in their own right which are not more than
$5,000 (maturity value) in excess of the prescribed limit;
(6) Bonds of Series E or Series H reissued under sec. 315.60(b)(1);
(7) Bonds of Series E or Series H reissued in the name of a trustee of a
personal trust estate which did not represent excess holdings prior to such reissue;
(8) Bonds of Series E or Series H purchased with the proceeds of bonds
of Series F or Series G, at or after maturity, where such matured bonds are presented for that purpose in accordance with the provisions of Department Circular
No. 653, Fourth Revision, as amended, offering bonds of Series E, and Department
Circular No. 905, Revised, as amended, offering bonds of Series H.
JULIAN B . BAIRD,
Acting Secreiary of ihe Treasury.
EXHIBIT 9.—Second amendment, August 15, 1958, to Department Circular No.
653, Fourth Revision, extending to individuals and personal trust estates the
privilege of reinvesting proceeds of Series F and G savings bonds maturing on
and after September 1, 1958, in Series E savings bonds without regard to the
limitation on holdings
TREASURY DEPARTMENT,
Washington, August 15, 1958.
Department Circular No. 653, Fourth Revision, dated April 22, 1957, as
amended (31 CFR, 1957 Supp., 316) is hereby suppljBmented and further amended
by the addition of the following new section:
Sec. 316.1a. Special offering to owners of maturing savings bonds of Series F
and G.—(a) General.—The Secretary of the Treasury, pursuant to the authority
of the Second Liberty Bond Act, as amended (31 U.S.C. 757c) hereby offers owners
of bonds of Series F and Series G maturing on and after September 1, 1958, the
206
195 9 REPORT OF THE SECRETARY OF THE TREASURY
privilege of applying t h e proceeds of their m a t u r e d bonds to t h e purchase of bonds
of Series E without regard to t h e limitation on holdings prescribed in sec. 316.8
of this circular.
(b) Restrictions and conditions.—This offering is subject to the following
restrictions and conditions:
(1) I t extends only to individuals, t h a t is, n a t u r a l persons in their own
right, legal guardians, committees, and similar representatives of estates of minors
and incompetents, and to ''personal t r u s t estates.'' For this purpose t h e term
''personal t r u s t estates", means trusts established by natural persons in their own
right, for t h e benefit of themselves or other such natural persons, in whole or in
part, and common t r u s t funds comprised in whole or in p a r t of such t r u s t estates.
(2) I t is subject to t h e restrictions prescribed in sec. 315.6 of t h e savings
bond regulations. 1
(3) T h e m a t u r e d bonds m u s t be presented to a Federal Reserve Bank or
branch for t h e specified purpose of taking a d v a n t a g e of this offering.
(4) Bonds of Series E m a y be purchased with t h e proceeds of t h e m a t u r e d
bonds only up to the denominational a m o u n t s t h a t such proceeds will fully cover;
any difference between the redemption value of the m a t u r e d bonds and the purchase price of bonds of Series E will be paid to t h e owner.
(5) The bonds of Series E will be registered in the name of t h e owner in
any authorized form of registration.
(6) They will be dated as of the first daj^ of t h e m o n t h in which the
m a t u r e d bonds are presented to a Federal Reserve Bank or branch.
(c) Termination of offering.—This offering will continue until terminated b}^
t h e Secretary of the Treasury.
ROBERT B .
ANDERSON,
Secretary of the Treasury.
E X H I B I T 10.—Third a m e n d m e n t , October 3 1 , 1958, to D e p a r t m e n t Circular No.
653, Fourth Revision, extending to all bondowners, except commercial b a n k s ,
the privilege of reinvesting proceeds of Series F and G savings bonds at or after
maturity in Series E savings bonds without regard to the limitation on holdings
TREASURY
DEPARTMENT,
Washington, October 31, 1958.
D e p a r t m e n t Circular No. 653, F o u r t h Revision, dated April 22, 1957, as
amended (31 C F R , 1957 Supp., 316), is hereby further amended, effective December 1, 1958, by revising sec."316.la as follows:
Sec. 316.1a. Special offering to owners of ouistanding matured and maturing savings bonds of Series F and G.—(a) General.—-The Secretary of t h e Treasury,
p u r s u a n t t o t h e authority of t h e Second Liberty Bond Act, as amended (31 U.S.C.
757c), hereby offers owners of outstanding bonds of Series F and Series G t h e
privilege of applying t h e proceeds of t h e bonds, a t or after m a t u r i t y , to t h e purchase of bonds of Series E without regard to t h e limitation on holdings prescribed
in sec. 316.8 of this circular.
(b) Restrictions and conditions.—This offering is subject to t h e following restrictions and conditions:.
(1) I t extends to all owners of m a t u r e d and m a t u r i n g bonds of Series F
and Series G, except bonds registered in t h e names of commercial b a n k s in their
own right (as distinguished from a representative or fiduciary capacity). For this
purpose commercial b a n k s are defined as those accepting demand deposits.
(2) I t is subject to t h e restrictions prescribed in sec. 315.6 of t h e savings
bond regulations. 1
(3) T h e m a t u r e d bonds must be presented to a Federal Reserve Bank or
b r a n c h for t h e specified purpose of taking a d v a n t a g e of this offering,
(4) Bonds of Series E m a y be purchased with t h e proceeds of t h e mat u r e d bonds only u p to t h e denominational a m o u n t s t h a t t h e proceeds thereof will
fully cover; any difference between such proceeds and t h e purchase price of bonds
of Series E will be paid to t h e owner.
(5) T h e bonds of Series E will be registered in t h e name of t h e owner in
any authorized form of registration.
1 Department Circular No, 530.
EXHIBITS
207
(6) They will be dated as of t h e first day of t h e m o n t h in which t h e
m a t u r e d bonds are presented t o a Federal Reserve Bank or branch.
(c) Termination of offering.—This offering will continue until t e r m i n a t e d by
t h e Secretary of t h e Treasury.
JULIAN B^ BAIRD, .
. Acting Secretary of ihe Treasury.
E X H I B I T 11.—Second a m e n d m e n t , August 15, 1958, to D e p a r t m e n t Circular No.
905, Revised, extending to individuals and personal trust estates the privilege
of reinvesting proceeds of Series F a n d G savings bonds maturing on and after
S e p t e m b e r 1, 1958, in Series H savings bonds without regard to the limitation
on holdings
TREASURY DEPARTMENT,
Washington, August 15, 1958.
D e p a r t m e n t Circular No. 905, Revised, dated April 22, 1957, as amended (31
C F R , 1957 Supp., 332) is hereby supplemented and further amended b y t h e addition of t h e following new section:
Sec. 332.1a. Special offering to owners of inaturing savings bonds of Series F and
G.—(a) General.—The Secretary of t h e Treasury, p u r s u a n t t o t h e authority of
t h e Second Liberty Bond Act, as amended (31 U.S.C. 757c), hereby offers owners of
bonds of Series F and Series G m a t u r i n g on and after September 1, 1958, t h e
privilege of applying t h e proceeds of their m a t u r e d bonds t o t h e purchase of bonds
of Series H without regard t o t h e limitation on holdings prescribed in sec. 332.9
of this circular.
(b) Restrictions and conditions.—This offering is subject t o t h e following restrictions a n d conditions:
(1) I t extends only t o individuals, t h a t is, natural persons in their own
right, legal guardians, committees, and similar representatives of estates of minors
and incompetents, and t o "personal t r u s t estates." F o r this purpose t h e term
"personal t r u s t e s t a t e s " means trusts established b y n a t u r a l persons in their own
right, for t h e benefit of themselves or other such n a t u r a l persons, in whole or in
part, and common t r u s t s comprised in whole or in p a r t of such t r u s t estates.
(2) I t is subject to t h e restrictions prescribed in sec. 315.6 of t h e savings
bond regulations.^
(3) T h e m a t u r e d bonds m u s t be presented t o a Federal Reserve Bank or
branch for t h e specified purpose of taking a d v a n t a g e of this offering.
(4) Bonds of Series,H m a y be purchased with t h e proceeds of t h e m a t u r e d
bonds only u p t o t h e denominational a m o u n t s t h a t such proceeds will fully cover;
any difference between t h e redemption value of t h e m a t u r e d bonds and t h e purchase price of bonds of Series H will be paid t o t h e owner.
(5) T h e bonds of Series H will be registered in t h e name of t h e owner in
any authorized form of registration.
(6) T h e y will be dated as of t h e first d a y of t h e m o n t h in which t h e m a t u r e d bonds are presented t o a Federal Reserve Bank or branch.
(c) Termination of offering.—This offering will continue until terminated by
the Secretary of t h e Treasury.
ROBERT B . ANDERSON,
Secreiary of the Treasury.
E X H I B I T 12.—Third a m e n d m e n t , October 3 1 , 1958, to D e p a r t m e n t Circular N o .
905, Revised, extending to all bondowners, except commercial b a n k s , the privilege of reinvesting proceeds of Series F and G savings bonds at or after m a turity in Series H savings bonds without regard to the limitation on holdings
TREASURY DEPARTMENT,
Washington, October 3 1 , 19.58.
D e p a r t m e n t Circular N o . 905, Revised, d a t e d April 22, 1957, as amended (31
C F R , 1957 Supp., 332) is hereby further amended, effective December 1, 1958,
b y revising section 332.1a as follows:
Sec. 332.1a. Special offering to owners of ouistanding matured and maturing
savings bonds of Series F and G.—(a) General.—The Secretary of t h e Treasury,
1 Department Circular No. 530.
208
195 9 REPORT OF THE SECRETARY OF THE TREASURY
p u r s u a n t to t h e authority of t h e Second Liberty Bond Act, as amended (31 U.S.C.
757c) hereby offers owners of o u t s t a n d i n g bonds of Series F and Series G t h e
privilege of applying t h e proceeds of t h e bonds, a t or after m a t u r i t y , to t h e purchase of bonds of Series H without regard t o t h e limitation on holdings prescribed
in sec. 332.9 of this circular.
(b) Restrictions and conditions.—This offering is subject to t h e following
restrictions a n d conditions:
(1) I t extends to all owners of m a t u r e d and maturing bonds of Series F
and Series G, except bonds registered in t h e names of commercial banks in their
own right (as distinguished from a representative or fiduciary capacity). For this
purpose commercial b a n k s are defined as those accepting demand deposits.
(2) I t is subject to t h e restrictions prescribed in sec. 315.6 of the savings
bond regulations.1
(3) T h e m a t u r e d bonds m u s t be presented to a Federal Reserve Bank
or branch for t h e specified purpose of taking a d v a n t a g e of this offering.
(4) Bonds of Series H m a y be purchased with t h e proceeds of t h e
m a t u r e d bonds only up to t h e denominational a m o u n t s t h a t t h e proceeds thereof
will fully cover; any difference between such proceeds and the purchase price of
bonds of Series H will be paid to t h e owner.
(5) T h e bonds of Series H will be registered in t h e n a m e of t h e owner
in any authorized form of registration.
(6) T h e y will be d a t e d as of t h e first day of t h e m o n t h in which t h e
m a t u r e d bonds are presented to a Federal Reserve Bank or branch.
(c) Termination of offering.—This offering will continue until t e r m i n a t e d by
t h e Secretary of t h e Treasury.
JULIAN B .
BAIRD,
Acting Secretary of ihe Treasury.
E X H I B I T 13.—Supplement, J a n u a r y 30, 1959, to D e p a r t m e n t Circular N o . 300,
Revised April 30, 1955, general regulations with respect to United S t a t e s
securities
TREASURY
DEPARTMENT,
Washington, J a n u a r y 30, 1959.
To Owners of United States Securities, and Others Concerned:
T h e following sections of D e p a r t m e n t Circular N o . 300, Revised April 30, 1955,
have been amended a n d revised, effective December 25, 1958 (except as otherwise
noted), to read:
S E C . 306.2(9). T h e words "assigned in b l a n k " refer to assignments of bonds
by or on behalf of t h e owner, b u t without t h e space provided for t h e name of the
assignee being filled in. T h e words " b o n d s so assigned as to become, in effect,
payable t o bearer," refer to bonds assigned in blank or t o " b e a r e r " or those
on which t h e assignment form or forms have been signed by or on behalf of the
owner, and t h e words " T h e Secretary of t h e Treasury for exchange for coupon
b o n d s " (or substantially similar words), or in t h e case of Treasury Bonds, Investm e n t Series B-1975-80, the words " T h e Secretary, of t h e Treasury for exchange
for t h e current Series E A or E O Treasury n o t e s , " have been inserted in t h e space
provided for t h e n a m e of t h e assignee, w i t h o u t inserting also t h e n a m e of t h e
person to whom t h e bearer securities are to be delivered.
SEC. 306.3(a). Registered securities.—Transferable registered bonds are p a y a ble, according t o their terms, only t o t h e designated payees or "registered assigns"
(including assignees or successors in title), and are transferable by delivery purs u a n t to assignments duly executed by t h e m or their duly authorized representatives. Nontransferable securities, which are issued only in registered form, are
payable according to their terms to t h e registered owners or recognized successors
in title, b u t are not transferable by assignment or otherwise, except to t h e extent
a n d in t h e m a n n e r provided in t h e offering circulars or applicable regulations.
T h e interest due on registered bonds to which these regulations apply, in whole
or in p a r t , is paid by checks drawn on t h e Treasurer of t h e United States to t h e
order of t h e owners of record. Bearer bonds m a y be exchanged for registered
bonds and holders m a y wish to t a k e a d v a n t a g e of this privilege for their own protection, particularly where a d e q u a t e facilities for safekeeping are not available.
1 Department Circular No. 530.
EXHIBITS
209
Relief m a y be granted on account of t h e loss, theft, or destruction of transferable
or nontransferable registered securities upon compliance with t h e applicable
provisions of Subpart L of this part.
SEC. 306.11(a)(2). Natural guardians of minors.—A bond m a y be registered
in t h e name of a n a t u r a l guardian of a minor for whose estate no legal guardian
or similar representative has been appointed by a proper court or is otherwise
legally qualified. Either parent with whom t h e minor resides or, if he does not
reside with either parent, t h e person who furnishes his chief support, will be recognized as his n a t u r a l guardian for t h e purposes of this paragraph, for example:
" J o h n Jones as natural guardian of H e n r y Jones, a minor."
T h e person recognized as natural guardian will be considered as a fiduciary.
Registration in t h e name of a minor himself (as distinguished from registration
in t h e name of a legal or natural guardian) as owner or coowner is not authorized,
except to t h e extent provided in section 306.57(a)(3) or (c).
SEC. 306.11(a)(7). Private organizations {corporations, unincorporated associations, and partnerships).—A bond m a y be registered in t h e name of any private
corporation, unincorporated association, or partnership. T h e full legal name of
t h e organization, as set forth in its charter, articles of incorporation, constitution,
partnership agreement, or other a u t h o r i t y from which its powers are derived, as
t h e case m a y be, must be included in t h e registration, and m a y be followed, if
desired by a parenthetical reference to a particular book account or fund other t h a n
a t r u s t fund, in accordance with the rules and examples given below:
(i) A corporation.—The name of a business, fraternal, religious, or other
private corporation must be followed by the words "a corporation,".unless t h e
corporate status is shown in t h e name or t h e n a m e is t h a t of an organization which
is required by Federal law to be incorporated such as national banks. Federal
building and loan associations, or Federal credit unions, for example:
" S m i t h Manufacturing Company, a corporation.
T h e Standard Manufacturing Corporation.
Jones and Brown, Inc.
First National Bank of
"
SEC. 306.12. Forms or registration for nontransferable securities.—The forms
of registration set forth in sec. 306.11 are authorized upon authorized reissue
of Treasury Bonds, Investment Series B-1975-80.
SEC. 306.15. GeneraL—Transferable registered bonds are eligible for transfer,
denominational exchange, and exchange for coupon bonds, except t h a t P a n a m a
Canal bonds are eligible for transfer and denominational exchange only. Treasury
Bonds, I n v e s t m e n t Series B-1975-80, are eligible for transfer by way of authorized
reissue and denominational exchange, and for exchange for t h e current series
of iy2 percent 5-year Treasury notes. Coupon bonds and other bearer securities,
other t h a n P a n a m a Canal bonds, are eligible for denominational exchange, except
t h a t Treasury bills m a y be exchanged only from higher to lower denominatons.
Coupon bonds of any loan or issue are eligible for exchange for registered bonds.
T h e securities submitted for a n y transaction must be presented and surrendered
to a Federal Reserve Bank or branch or the Bureau of t h e Public Debt, Division
of Loans and Currency, Washington 25, D . C . If t h e securities presented are in
order for t h e transaction requested, they will be retired and new securities in an
equal face a m o u n t in authorized denominations will be issued and delivered.
Except as otherwise specifically provided, the new securities will be of t h e same
loan and issue as those presented. Specific instructions for t h e issuance and
delivery of t h e new securities, signed by t h e owner or his authorized representative, must accompany t h e securities presented. Securities presented for any t r a n s action described in this section, except denominational exchange, must be received
by t h e agency authorized to complete the transaction not less t h a n one full m o n t h
before t h e d a t e on which t h e securities m a t u r e or become redeemable p u r s u a n t to a
call for redemption before maturity, and any security so presented which is received
too late t o comply with this provision will be accepted for p a y m e n t only or redemption-exchange if new securities are offered.
. S E C . 306.16. Transfers of registered securities.—Registered bonds which are
eligible for transfer from ohe person to another and presented for t h a t purpose
must be properlj^ assigned in accordance with subpart F , except t h a t no assignment will be required for transfer to a succeeding fiduciary or other legal successor,
including a guardian or equivalent representative, representative or distributee
of a decendent's estate or a t r u s t estate, or a corporation with which another
corporation, has merged or consohdated, but satisfactory proof of successorship
525622—60
15
210
195 9 REPORT OF THE SECRETARY OF THE TREASURY
will be required. Assignments for transfer should be made to t h e transferee.
Assignments in blank will also be accepted, but should be used with caution:
See sec. 306.42. Specific signed instructions for t h e issuance and delivery of t h e
new bonds must accompany t h e bonds presented. (Form P D 1644 may be
used.) The new bonds will bear interest from the interest p a y m e n t date next
preceding the date of presentation, except as provided in sec. 306.37(b).
SEC. 306.17. Denominational exchanges of registered securities.—No assignment
or endorsement will be required for t h e authorized exchange of registered Treasury
bonds for like securities in the same names in other authorized denominations, as
no change of ownership is involved. Specific signed instructions for the issuance
and deliverv of t h e new securities must accompany t h e securities presented.
(Form P D 1827 may be used.)
SEC. 306.19. Reissue of nontransferable securities.—Nontransferable securities
governed by these regulations m a y be reissued only in t h e names of (a) successors
in title, including, but not limited to, succeeding organizations, persons entitled
upon t h e dissolution of an organization, and succeeding trustees or persons entitled upon termination of a trust, or (b) persons entitled upon t h e death of the
owner as legal representatives or distributees of t h e estate, except t h a t Treasury
Bonds, Investment Series A-1965, m a y be reissued only as provided in Department Circular No. 815, and Treasury Bonds, I n v e s t m e n t Series B-1975-80, may
also be reissued in t h e names of State supervisory authorities in pursuance of
any pledge required of t h e owner under State law, or upon termination of t h e
pledge in t h e names of t h e pledgors or their successors. Bonds presented for
reissue must be properly assigned for t h a t purpose in accordance with subpart F
and must be accompanied by specific signed instructions for the issuance and delivery of t h e new bonds.
Footnote " 3 " to sec. 306.25 is deleted.
SEC. 306.25(d).—As to any other securities which are not specifically provided
for in paragraphs (a), (b), and (c) of this section, the following will govern:
(1) One year in t h e case of securities issued for a t e r m of five years or longer.
(2) Six months in t h e case of securities issued for a t e r m of one year or more
but less t h a n five years.
(3) Three months in the case of securities issued for a t e r m of less t h a n one
year.
(Effective December 2, 1958.)
SEC. 306.28(a). General.—Treasur}^ bonds of certain issues are redeemable
at par and accrued interest upon the death of t h e owner, a t the option of the
representatives of, or persons entitled to, his estate, for the purpose of having
the proceeds applied in p a y m e n t of t h e Federal estate taxes on the decedent's
estate, in accordance with t h e terms of t h e offering circulars cited on t h e face of
t h e bonds. 1 All bonds to be redeemed for this purpose must be presented and
surrendered to a Federal Reserve Bank or branch or t h e Bureau of the Public
Debt, Division of Loans and Currency, Washington 25, D . C . They must be
accompanied by F o r m P D 1782, fully completed and duly executed on P a r t I by
the representatives of or persons entitled t o t h e estate, and by proof of their appointment or entitlement. Proof of appointment or entitlement should comply
with t h e provisions of subpart H . P a r t I I of t h e form should be executed by t h e
appropriate persons as indicated thereon. Redemption will be made at par plus
accrued interest from t h e last preceding interest p a y m e n t date to t h e date of
redemption, except t h a t if registered bonds are received by a Federal Reserve
Bank or branch or t h e Bureau of t h e Public D e b t within one month preceding
an interest p a y m e n t date for redemption before t h a t date a deduction will be
made for interest from t h e date of redemption to t h e interest p a y m e n t date, and
a check for the full 6 m o n t h s ' interest will be paid in due course. T h e proceeds
of redemption will be deposited to t h e credit of t h e District Director of Internal
Revenue designated in F o r m P D 1782, t h e representatives of t h e estate will be
notified of t h e deposit, and t h e District Director will in due course forward a
formal receipt for the payment.
SEC. 306.28(c). Restriction on amount redeemable; transactions after death of
owner.—The face a m o u n t of the bond or bonds which m a y be accepted for redemption a t par, plus any accrued interest thereon, may not exceed t h e a m o u n t
of t h e tax. The entire proceeds of redemption of bonds a t par, including any
accrued interest, must be applied in p a y m e n t of t h e Federal estate tax, but if t h e
1 A current list of eligible issues may be obtained from any Federal Reserve Bank or branch or the Bm-eau
of the Public Debt.
EXHIBITS'
211
bond or bonds available are in excess of the amount of the tax and are not in the
lowest authorized denominations, they may be exchanged for bonds of lower
denominations in accordance with sec. 306.17 or sec. 306.22, as applicable, in
order that the maximum amount may be selected for redemption at par. In
addition to such denominational exchange, other transactions in bonds owned
by the decedent and constituting part of his estate which may be conducted after
the death of the owner without affecting the eligibility of the bonds for redemption at par, if no change of ownership is involved, include: (1) exchange of registered bonds for coupori bonds, (2) transfer to the names of the representatives of
his estate, and (3) exchange of coupon bonds for bonds registered in the names of
the representatives of the estate, but all such transactions must be explained on
Form PD 1782 or in a supplemental statement.
SEC. 306.37(b). Closing of transfer books.—The transfer books of the Treasury
Department are closed for one full month preceding interest payment dates for
the purpose of preparing interest checks. If the date set for the closing of the
transfer books falls on Saturday, Sunday, or a legal holiday, the books will be
closed at the close of business on the last business day preceding that date.
Interest on outstanding registered bonds is paid on the interest payment date
to the owners of record on the closing dates. Transactions in registered bonds of
the loans involved, other than denominational exchanges (see sec. 306.17j, may
not be effected during the closed period except that exchanges of Treasury Bonds,
Investment Series B-1975-80, for the current series of EA or EO 1}^ percent
5-year Treasury notes, as provided in sec. 306.20, or optional redemption of
bonds at par as provided in sec. 306.28, may be made at any time. If registered
bonds forwarded for transfer or for exchange for coupon bonds or coupon bonds
forwarded for exchange for registered bonds are actually received by the Bureau
of the Public Debt after the day fixed for closing the books, the transfer or exchange thereof will not be made until the first business day following the date
on which interest falls due, when the books are reopened for all purposes.
SEC. 306.37(e). Endorsement of interest checks by voluntary guardians of incompetents.—Any checks, drawn to the order of an incompetent (as defined in Sec.
306.58(a)) for whose estate no legal guardian or similar legal representative has
been or is to be appointed, in payment of interest on bonds registered in the name
of the incompetent, without reference to a yoluntar}^ guardian, should be returned
to the Bureau of the Public Debt, Division of Loans and Currency, Washington
25, D . C , with a full explanation of the circumstances. The relative responsible
for the incompetent's care and support, or some other proper person, may apply
on Form PD 1461 for authorization to collect the interest. To facilitate the collection of future interest checks, the applicant should also request the reissue of
the bonds in the name of the incompetent, followed by that of the voluntarj^
guardian, in the form "A,-an incompetent under voluntary guardianship of B."
(Effective December 2, 1958.)
SEC. 306.41. A^ssign^neni forms.—Unless otherwise authorized by the Treasury
Department or a Federal Reserve Bank, all assignments must be made on the
backs of the bonds. Where all the assignment forms on the back of a bond have
been used or spoiled and further assignment is to be made, a similar form, including the witnessing officer's certificate, may be written, typed, or stamped in any
convenient space on the back of the bond. If there is not sufficient space for an
additional form, in any particular case, instructions may be obtained from the
Bureau of the Public Debt, Division of Loans and Currency, Washington 25,
D . C , or any Federal Reserve Bank or branch.
SEC. 306.43(a)(5). Officers of Federalland banks, Federal intermediate credit
banks, and banks for cooperatives, all located in Springfield (Mass.), Baltimore,
Columbia (S.C), Louisville, New Orleans, St. Louis, St. Paul, Omaha, Wichita,
Houston, Berkeley, and Spokane, and the CentralBank for Cooperatives, Washington, D.C.
SEC. 306.43(b)(1).—Postmasters, acting postmasters, assistant postma.sters,
inspectors-in-charge, chief and assistant chief accountants, and superintendents of
stations of any post office, but only for assignments of securities for redernption
for the account of the assignor or for redemption-exchange for securities to be
registered in his name.
SEC. 306.43(b)(4).—Officers of Federal savings and loan associations or other
organizations which are hiembers of the Federal Home Loan Bank System who
have been authorized generally to bind their respective organizations by their
212
1959 REPORT OF THE SECRETARY OF THE TREASURY
acts, under the corporate seal, for assignments by the organizations or any of their
regular customers of bonds of any class for any authorized transaction.
If an assignment is witnessed, under the corporate seal of an organization
designated in subparagraph (4) of this paragraph, by the chairman of the board,
the president, any vice president, the secretary or assistant secretary, or the
treasurer or assistant treasurer, it will be presumed he was acting within the scope
of his authority.
SEC. 306.43(c)(2).—Managers, assistant managers, and other officers of foreign
branches of banks or trust companies chartered by or incorporated under the laws
of the United States^ or any State, Commonwealth, or Territory of the United
States.
SEC. 306.44. Duties of witnessing ofiicers and responsibility for their acts.—The
assignor must appear before the witnessing officer, satisfactorily estabhsh his
identity, execute the assignmentj and acknowledge it to be his free act and deed.
The officer must complete the certification provided, by inserting the date, his
signature, and his ofl&cial title and address, and must impress or imprint the
proper seal or stamp, if any. An officer of a corporation must use the corporate
seal except as provided in sec. 306.43(a)(7), A clerk or judge of court must use
the seal of the court. The signature of any post office official, other than a postmaster, must be in the following form: "John Doe, Postmaster, by Richard
Roe, Superintendent of Station." Any post office official must use the official
stamp of his office. Any other witnessing officer must use his official seal or stamp,
if any, but, if he has neither, his official position and a specimen of his signature
must be certified by some other authorized officer under official seal or stamp or
otherwise proved to the satisfaction of the Treasury Department. No officer
of the United States, except a clerk of a United States court, is authorized to
charge a fee for witnessing an assignment of a United States bond, and banking
institutions generally impose no charge for the service. The witnessing officer,
and, if he is an officer of a corporation, the corporation, will be held responsible
for any loss which the United States may suffer as the result of his fault or
neghgence.
SEC. 306.48. Voidance of assignments.—If an assignment to or for the account
of another person has not been and is not to be completed by delivery of the
security, the assignment may be voided by obtaining from that person a disclaimer
of interest which should be executed in the presence of an officer authorized to
witness assignments of bonds as provided in sec. 306.43. Unless otherwise
authorized by the Treasury Department or a Federal Reserve Bank the disclaimer must be written, typed, or stamped on the back of the bond, in substantially the following form:
The undersigned as assignee of this bond hereby disclaims any interest therein.
(Signature)
I certify that the above-named person as described, whose identity is well
known or proved to me, personally appeared before me the
day
of
at
and signed the above dis(Month and year)
claimer of interest.
(SEAL)
(Place)
'
(Signature of witnessing oflficer)
(Oflicial designation)
In the absence of a disclaimer, affidavits should be submitted explaining why a
disclaimer could not be obtained, setting forth all other material facts and circumstances relating to the transaction, and stating specifically that the bond
was not delivered to the person named as assignee and that he acquired no right,
title, or interest, in the bond. If an assignment to or for the account of another
person was not properly witnessed or is otherwise imperfect, but has been completed by delivery, it cannot be considered void and must not be altered or
erased. A new assignment must be executed in favor of the same assignee,
unless the assignment can otherwise be perfected as directed by a Federal Reserve Bank or the Treasury Department.
SEC. 306.50. Nontransferable securities.—The provisions of this subpart, with
the exception of those of sees. 306.42 and 306.48, shall apply to Treasury Bonds,
Investment Series B-1975-80, and Treasury savings notes, provided, that sec.
306.46 shall apply with respect to assignments of the bonds or requests for payment of the notes. In applying these provisions to Treasury savings notes
appropriate substitutions in terms should be made, as follows; "Note(s)" or
EXHIBITS
213
"Treasury savings note(s)" for "bond(s)" or "registered bond(s)"; "request(s)
for payment" for "assignment (s)"; "requestor (s)" for "assignor (s)"; "certify"
for "witness"; and "certifying officer" for "witnessing officer."
SEC. 306.55. Signatures, minor errors, and change of name.—The registered
owner's signature to an assignment should be in the form in which his or her
name has been inscribed on the face of the bond, unless the name as so inscribed
is incorrect or has been changed since the bond was issued. In case of a minor
error in inscription (not sufficient to raise any doubt in the mind of the witnessing
officer in regard to the identity of the owner), the signature to the assignment
should be in the following form, for example, "John Smythe, erroneously inscribed John Smith." In case of a more serious error in inscription, the procedure
prescribed in sec. 306.13 should be followed. In case of a change in name, the
signature to the assignment should show both names and the manner in which
the change was made, for example "John Young, formerly John Jung (changed
by court order)." Satisfactory proof of change of name will be required, but for
reissue in the new name no assignment will be necessary. However, if the change
resulted from marriage, no proof of the change is required to support an assignment if the signature is written, for example "Mrs. Mary J. Brown, before marriage Miss Mary Jones," and an authorized officer duly witnesses the assignment,
thereby certifying that he is satisfied the assignor is the registered owner.
SEC. 306.57(a)(1). For redemption or for exhange for bearer securities, if
satisfactory proof is furnished that the proceeds of the bonds are necessary and
will be used for the support or education of the minor and the total face amount
of Treasury bonds registered in the name of the minor for which redemption or
such exchange is requested in any 90-day period does not exceed $1,000.
(Effective December 2, 1958.)
SEC. 306.57(a)(3). For redemption for reinvestment in other transferable
bonds to be registered in the minor's name in the form "Miss Mary Smith, a
minor," if the total face amount of bonds so registered exceeds $500 or if such
amount does not exceed $500 but the minor is not of sufficient age and competency to sign his name and understand the nature of the transaction.
SEC. 306.57(C). Assignments by minors.—Bonds registered, before the effective
date of these regulations, in the name of a minor for whose estate no guardian or
similar representative has been appointed by a proper court or is otherwise legally
qualified, may be assigned by the minor at maturity or call for redemption or
redemption-exchange for new bonds to be registered in his name in the form
"Henry Smith, a minor," if the total face amount of matured or called bonds so
registered does not exceed" $500, and if the minor, in the opinion of the witnessing
officer, is of sufficient age and competency to sign his name to the assignments
and understand the nature of the transaction. Payment will be made by check
drawn to the order of the minor.
SEC. 306.58(C) (1) and (2). Assignments by voluntary guardians.—Bonds belonging to an incompetent for whose estate no legal guardian or similar representative
has been appointed by a proper court or is otherwise legally qualified may be
assigned by the relative responsible for his care and support or some other proper
person as voluntary guardian:
(1) For redemption or exchange for bearer securities, if the proceeds of
the bonds are necessary and will be used for the care or support of the incompetent or that of his legal dependents and the total face amount of registered
Treasury bonds belonging to the incompetent for which redemption or such
exchange is requested in any 90-day period does not exceed $1,000.
(2) For redemption if the bonds are matured or have been called and the
proceeds are to be reinvested in other securities to be registered in the incompetent's name followed by that of his voluntary guardian in the form "A, an
incompetent, under voluntary guardianship of B."
(Effective December 2, 1958.)
SEC. 306.59. Attorneys in fact.—Assignments by attorneys in fact for individual owners or coowners will be recognized if supported by adequate powers
of attorney. The use of Form PD 1001 or 1002 is suggested but any form sufficient in substance may be used. Every power must be executed in the presence
of an officer authorized to witness assignments of the bonds for the desired transactions. A power may be either general or specific, depending on whether the
214
195 9 REPORT OF THE SECRETARY OF THE TREASURY
owner desires to authorize execution of assignments of all his bonds assignable
under these regulations or to limit the authority to bonds of designated issues or
to certain designated bonds. The original power must be filed with the Treasury
Department, except that a photocopy certified by an officer of a Federal Reserve
Bank or branch, or by an officer of a bank or trust company under its corporate
seal, will be accepted, if the seal on the original power is legible on the copy or
is copied by the certifying officer. An assignment by a substituted attorney in
fact must be supported by an appropriate power of substitution, which must be
supported in turn by an appropriate authorizing power of attorney. The use of
Form PD 1005, 1006, 1007, or 1008 (the particular form depending on whether
the power is to be general or specific and whether an individual or a corporation
is to be named as attorney in fact) is suggested but any form.sufficient in substance may be used. An assignment by an attorney in fact or a substituted attorney in fact for the apparent benefit of either will be accepted only if expressly
authorized in both the power of attorney and power of substitution. A power of
attorney or of substitution will be recognized until, but not after (unless the
power is coupled with an interest) the Bureau of the Public Debt, Division of
Loans and Currency, Washington 25, D . C , receives proof of revocation or proof
of the grantor's death or incompetency, except that a pending transaction will be
temporarily suspended on receipt of a request from the grantor of the power, by
wire or otherwise, and except further that the Secretary of the Treasury may
require evidence in any case that a power is still in full force at the time the
Department is requested to act under it. If there are two or more joint attorneys
in fact or substitutes all must unite in the assignment unless the power authorizes
less than all to act or the bond has matured or been called, in which case less
than all may assign for redemption for the account of the bond owner or for
redemption and application of the proceeds in payment for new bonds offered in
exchange to be registered in the name of the owner. An attorney in fact should
execute an assignment with the signature written in the form "A, by B, attorney
in fact."
SEC. 306.60. Nontransferable securities.—The provisions of this subpart, except
those of sees. 306.56(a), 306.57(a)(1), and 306.58(c) relating to transfers, shall
apply to Treasury Bonds, Investment Series B-1975-80, provided, that the term
"exchange" as used in sees. 306.56(a), 306.57(a)(1), and 306.58(c)(1) shall be
deemed to refer to the exchange of these bonds for the current series of IH percent 5-year Treasury notes. The provisions of this subpart with respect to assignments of bonds except those of sec. 306.56 and those of sees. 306.57(a)(1) and
306.58(c) (1) relating to transfers or exchanges shall apply to requests for payment
of Treasury savings notes.
SEC. 306.70. Nontransferable securities.—The provisions of this subpart except
those of sec. 306.66(b) relating to transfer shall apply to Treasury Bonds, Investment Series B-1975-80, provided, that the term "exchange" shall be deemed to
refer to the exchange of these bonds for the current series of IJ^ percent 5-year
Treasury notes. The provisions of this subpart with respect to assignments of
bonds shall apply to requests for payment of Treasury savings notes, provided,
that the term "redemption," as used in sec. 306.66(a), shall be deemed to refer
to payment of Treasury savings notes.
SEC. 306.82. Nontransferable securities.—The provisions of this subpart with
respect to assignments are applicable to assignments of Treasury Bonds, Investment Series B-1975-80, and to requests for payment of Treasury savings notes.
SEC. 306.88. Political entities and public corporations.—Bonds registered in the
name of a State, county, or other political entity, or in the name of an incorporated
city, town, village, school district, or other public corporation or body may be
assigned for any authorized transaction by a duly authorized officer or officers in
accordance with the provisions of sees. 306.85 and 306.86, so far as applicable,
except as otherwise provided herein. If evidence of authority derived from a
municipal ordinance, charter of a public corporation or special act of a State
legislature is required, a copy of the pertinent provision must be certified to the
Department by the proper public officer under official seal. If evidence of authority derived from a State constitution or from a public law is required, the
pertinent provision must be cited. If a certificate of incumbency is required, it
must be executed by the proper public officer under official seal.
EXHIBITS
215
S E C . 306.89. Public officers.—Bonds registered in t h e title of a public officer
who is t h e official custodian of public funds, for example, "Treasurer, State of
N o r t h C a r o h n a , " m a y be assigned by t h e designated officer except t h a t no assignm e n t will be necessary for reissue in t h e title of t h e successor upon submission of
evidence of succession by operation of law. N o evidence will be required in supp o r t of an assignment for redemption for t h e officer's official account or for redemption a n d application of t h e proceeds in p a y m e n t for new bonds offered in
exchange to be registered in his official title or in t h e n a m e of t h e political entity
or public corporation for. which he is acting. Any other assignment m u s t be supported by satisfactory evidence t h a t t h e assignor is t h e i n c u m b e n t of t h e design a t e d office, except t h a t an assignment for his individual benefit will not be recognized. T h e evidence m u s t be in t h e form of a certificate of incumbency executed
by t h e proper public officer under official seal.
S E C . 306.90. Partnerships.—An assignment of a bond registered in t h e n a m e
of a partnership m u s t be executed by a general p a r t n e r in t h e form, for example:
"Smith a n d Jones, a partnership
By (signed) J o h n Jones, a general p a r t n e r . "
An assignment for t h e benefit of one of t h e p a r t n e r s individually m u s t be executed
hy another p a r t n e r . Upon t h e d e a t h of a p a r t n e r and t h e resulting dissolution
of t h e partnership, assignment by all t h e surviving p a r t n e r s and b y t h e persons
entitled to assign in behalf of t h e decedent's estate will be required, unless t h e
laws of t h e particular jurisdiction authorize t h e surviving partners to assign without regard to t h e decedent's estate." T h e assignment should be supported by an
affidavit duly executed by a surviving p a r t n e r identifying all t h e persons who
had been p a r t n e r s immediately prior to t h e dissolution. Upon voluntary dissolution of a partnership, an assignment by a liquidating partner, as such, m u s t be
supported by a duly executed agreement among t h e p a r t n e r s appointing t h e
liquidating p a r t n e r .
S E C . 306.91. Nontransferable securities.—The provisions of this s u b p a r t shall
apply to Treasury Bonds, I n v e s t m e n t Series B-1975-80, and to requests for
p a y m e n t of Treasury savings notes.
S E C . 306.95(a). General.—The Treasury D e p a r t m e n t assumes no responsibility for t h e protection of t h e interest of any person in securities not in his possession, and neither t h e D e p a r t m e n t nor any of its agencies will accept notice of any
claim or of pending judicial proceedings by any such person, except as specifically
provided in these regulations. (See S u b p a r t L for information in regard to t h e
conditions under which caveats m a y be entered against transactions in securities
of certain classes a n d rehef granted on account of t h e loss, theft or destruction
thereof.) These limitations are based on t h e fact t h a t t h e ready marketability
of t h e securities, especially bearer securities, depends in p a r t upon t h e promptness
a n d freedom with which transactions therein m a y be effected.
S E C . 306.100. Nontransferable securities.—The provisions of this subpart, with
t h e exception of those of sees. 306.95, 306.96, and 306.98, shall apply to Treasury
Bonds, I n v e s t m e n t Series B-1975-80, provided, t h a t t h e reference in sec. 306.97(2)
to assignment by a sheriff, marshal, or other court officer, a trustee in b a n k r u p t c y ,
or a receiver or similar officer other t h a n for redemption, shall be deemed to refer
t o assignment of t h e bonds for exchange for 1}^ percent 5-year Treasury notes of
E A or E O Series, and t h a t the reference in sec. 306.99 relating to transfer of title
and to an implied w a r r a n t y of a presenter is n o t apphcable.
T h e provisions of
this s u b p a r t , w i t h t h e exception of those of sees. 306.95, 306.96, and 306.98 shall
apply to T r e a s u r y savings notes, provided, t h a t reference to assignment in sec.
306.97 shall be deemed to refer to a request for p a y m e n t .
S E C . 306.117. Nontransferables.—The provisions of this s u b p a r t apply t o
all nontransferable securities, other t h a n United States savings bonds, subject
only to the hmitations imposed b y t h e terms of the particular issues.
JULIAN B .
BAIRD,
Acting Secretary of ihe Treasury.
216
195 9 REPORT OF THE SECRETARY OF THE TREASURY
Legislation
EXHIBIT 14.—An act to increase the amount of obligations, issued under the
Second Liberty Bond Act, which may be outstanding at any one time
[Public Law 86-74, 86th Congress, H.R. 77491
Be it enacted by the Senate and House of Representatives of the
Uriited Staies of America in Congress assembled. That the first
sentence of section 21 of the Second Liberty Bond Act, as
amended (31 U.S.C, sec. 757b), is amended to read as follows:
"The face amount of obligations issued under authority of this
Act, and the face amount of obligations guaranteed as to principal
and interest by the United States (except such guaranteed
obligations as may be held by the Secretary of the Treasury),
shall not exceed in the aggregate $285,000,000,000 outstanding
at any one time."
SEC. 2. During the period beginning on July 1, 1959, and ending on June 30, 1960, the public debt limit set forth in the first
sentence of section 21 of the Second Liberty Bond Act, as
amended, shall be temporarily increased by $10,000,000,000..
SEC. 3. This Act may be cited as the "Public Debt Act of
1959".
Approved June 30, 1959.
f^^^^^ ^^^^ ^^* °^
^^^" , .,„ ^
H gj|*; \ll
73 Stat! 157!
short title.
Public Debt Management
EXHIBIT 15.—Message to Congress by the President, June 8, 1959, requesting
the removal of the ceilings on interest rates for savings bonds and new issues
of Treasury bonds, and an increase in the statutory debt limitation
To the Congress ofthe United States:
Successful management of the debt of the Federal Government is one of the
most important foundation stones of the sound financial structure of our Nation.
The public debt must be managed so as to safeguard the public credit. It
must be managed in a way that is consistent "with economic growth and stability.
It must also be managed as economically as possible in terms of interest costs.
The achievement of these goals is complicated today by several factors, despite
the fact that U.S. Government securities are the safest investment in the world.
Our growing prosperity, combined with Government programs to support mortgages and other types of debt obligations, has strengthened the position of these
mortgage and other investments with which the Treasury must compete when
it sells Government securities.
,
In addition, the rapid growth in borrowing demands of corporations, individuals, and State and local governments (which issue tax-exempt obligations)
tends to diminish the amount of funds available for investment in direct Federal
Government securities. Furthermore, the market for all fixed dollar obligations has been affected by a recent preference among some buyers for common
stocks.
The achievement of a fiscal position that allows our revenues to cover our
expenditures—as well as to produce some surplus for debt retirement—will improve substantially the environment in which debt management operates.
Greater flexibility of debt management action is required, however, under presentday conditions if a reasonable schedule qf maturities is to be maintained and the
safeguards against inflation strengthened.
I am, therefore, asking the Secretary of the Treasury to transmit to the Congress
today proposed legislation designed to improve significantly the Government's
ability to manage its debt in the best interest of the Nation.
The legislation provides principally for—
(1) Removal of the present 3.26 percent interest rate ceiling on savings bonds.
This, together with other changes, will reinvigorate the savings bond program.
(2) Removal of the present 4>^ percent interest rate ceiling on new issues of
Treasury bonds. The present ceiling seriously restricts Treasury debt management and is inconsistent with the flexibility which the Secretary of the Treasury
has on rates paid on shorter term borrowing.
EXHIBITS
217
(3) An increase in the regular public debt limit from $283 bilhon to
billion, and an increase in the temporary limit from $288 billion to $295 billion.
These increases are essential to the orderly and prudent conduct of the financial
operations of the Government, even with expenditures covered by revenues in the
fiscal year 1960, as the Budget proposes.
Savings bonds
Removal of the present 3.26 percent maximum limit on savings bond interest,
together with certain other changes, will permit the Treasury to improve the
terms of savings bonds. This will strengthen the contribution of the program
both to habits of thrift throughout the Nation and to a better structure of the
public debt.
The Treasury is proposing the following revisions in the savings bond program,
subject to approval of enabling legislation: A 3% percent interest rate to maturity
for all series E and H savings bonds sold on or after June 1, 1959; an improved
interest rate on all series E and H bonds outstanding and continued to be held;
and imi^roved extension terms for outstanding series E bonds.when they mature.
Four and one-quarter percent maximum interest rate on new bond issues
There is no statutory maximum on the interest rate which can be paid by the
Treasury for marketable borrowing of 5 years or less (bills, certificates, and
notes). The Secretary of the Treasury should have similar fiexibility with
regard to Treasury bonds (which run 5 years or more to maturity).
The Treasury always tries to borrow as economically as it can, consistent with
its other debt management objectives. But in our democracy no man can be
compelled to lend the Government on terms he would not voluntarily accept.
Therefore, when the Government borrows, it can do so successfully only at
realistic rates of interest that are determined by the supply and demand for
securities, as reflected in the prices and yields of outstanding issues established
competitively in the Government securities market.
I am aware of the fact that many proposals have been made which are designed
to produce lower interest rates. However, any debt management device which
would seek to interfere with the natural interaction of the competitive forces of
our free economy and produce unnatural reductions in interest rates would not
only breach the fundamental principles of the free market, but under current
conditions could be drastically inflationary. The additional cost of the Government alone from increased prices of the goods and seryices it must buy might
far exceed any interest saving. The ultimate harm to the entire Nation of such
a price rise could be incalculable.
Market yields on a number of Treasury bonds are already above 4,K percent.
With one exception all bonds which have 5 years or more to run to maturity
have market yields above 4 percent. The Treasury recently has done substantial short-term borrowing. But it must avoid undue shortening of the public
debt and therefore should continue to sell intermediate and longer term bonds
whenever market conditions permit. It should not be prohibited from doing
so by the existence of an artificial ceiling which under today's conditions makes
it virtually impossible to sell bonds in the competitive market.
Debt limit
The Treasury's current estimates, assuming that revenues cover expenditures
for the fiscal year 1960 as a whole, indicate the need for an increase in the
regular (or permanent) statutory pubhc debt hmit from $283 billion to $288
bihion. The $288 bihion figure is $13 billion above the permanent limit of
$275 bilhon in effect at the beginning of the fiscal year 1959. This $13 billion
increase is approximately equal to the Federal Government deficit during the
current fiscal year, as estimated in the Budget submitted in January.
The Treasury expects the debt to approximate $285 billion on June 30, 1959,
leaving about $3 billion leewaj^ under the proposed $288 billion regular ceiling—
a leeway which is essential to protect the Government in case of unforeseen
emergencies and to provide necessary flexibility in debt management operations.
Even with budget receipts covering expenditures in the next fiscal year the
debt is expected to rise considerably above $288 billion next fall and. winter
as the Treasury borrows to cover seasonal needs. This seasonal borrowing
can then be repaid before the end of the fiscal year. I am asking, therefore,
for a temporary increase of $7 bihion in the public debt limit beyond the $288
billion permanent ceiling to cover these seasonal borrowing needs. This tem-
218
195 9 REPORT OF THE SECRETARY OF THE TREASURY
porary limit would expire J u n e 30, 1960, a n d can be reviewed prior to t h a t time.
Certain other technical proposals t o improve t h e m a n a g e m e n t of t h e public
debt are also included in t h e proposed legislation.
T h e e n a c t m e n t of this program is essential to sound conduct of t h e Governm e n t ' s financial affairs. I t will contribute significantly to t h e Treasury's ability
to do t h e best possible job in t h e m a n a g e m e n t of t h e public debt. I urge,
therefore, t h a t t h e Congress give p r o m p t consideration to this request.
There is another m a t t e r to which I wish to call your attention, quite a p a r t
from t h e legislative program discussed above. When I s u b m i t t e d m y budget t o
you in J a n u a r y interest cqsts on t h e public debt for t h e fiscal year 1960 were
estimated at $8 bihion. T h e increase in interest rates t h a t has t a k e n place
since t h a t estimate was m a d e is now expected to a d d a b o u t half a billion dollars
,to this figure.
At t h e same time, however, I a m informed t h a t , because of t h e strength of
economic recovery and growth beyond our earlier expectations, our revenue estimates for fiscal year 1960 will be sufficient t o offset t h e increased interest cost
on t h e public debt.
DWIGHT D .
THE
W H I T E H O U S E , J u n e 8,
EISENHOWER.
1959.
E X H I B I T 16.—Letter of Secretary of the Treasury Anderson, J u n e 8, 1959, to
the Speaker of the House of Representatives transmitting drafts of two bills
to facilitate m a n a g e m e n t of the public debt and an analysis of t h e proposed
new savings bond program
TREASURY
DEPARTMENT,
Washington, J u n e 8, 1959.
D E A R M R . S P E A K E R : I n accordance with t h e President's message t o d a y on
p u b h c debt management, there are t r a n s m i t t e d herewith drafts of two bills t o
facilitate m a n a g e m e n t of t h e public debt ( a t t a c h m e n t s A and B).
As mentioned in t h e President's message, these bihs provide primarily for
three major steps designed to strengthen t h e public debt m a n a g e m e n t program,
as follo^Ts:
'''"'- "']
(1) Removal of t h e present 3.26 percent interest r a t e ceiling on savings
bonds which, together with other changes, will permit t h e Treasury t o go forward
with a reinvigorated savings bonds program;
(2) Removal of t h e present 4>4 percent interest r a t e ceiling on new Treasury
bond issues; and
.
, "
(3) An increase in t h e regular public debt limit from $283 billion to $288
billion, with a t e m p o r a r y increase to $295 billion t h r o u g h J u n e 30, 1960.
T h e bills also provide certain technical a m e n d m e n t s designed t o improve t h e
m a n a g e m e n t of t h e public debt.
.'
As an a t t a c h m e n t to t h e proposed legislation, I a m also t r a n s m i t t i n g herewith
further details on t h e new savings bonds program, most of^ which I plan to p u t
into effect as of J u n e 1, 1959, if t h e proposed legislation isie'na;cted ( a t t a c h m e n t C).
As t h e President stressed in his message,' this program is urgently needed in
t h e public interest to allow t h e Treasury to operate with appropriate flexibility
in meeting its debt m a n a g e m e n t responsibilities within t h e context of competitive
m a r k e t s a n d without resort to improvident procedures or controls.
I t is hoped t h a t the Congress can consider the proposed bills with reasonable
promptness. We will be glad to present further details and all of t h e information
concerning t h e proposals which Avill enable the Congress to effectively consider
these important proposals.
Sincerely yours,
ROBERT B .
ANDERSON,
Secreiary of the Treasury,
ATTACHMENT A
"..•.•'
A bill to facilitate management of ihe public debt, and for other purposes
Be it enacted hy the Senate and House of Representatives of ihe United States of
America in Congress assembled. T h a t section 1 of the Second Liberty Bond Act,
as araended (31 U.S.C. 752), is amended by striking out tbe following: ", n o t
exceeding 4 ^ per centum per a n n u m , " .
•
iEXHIBITS
219
SEC. 2. (a) T h e first sentence of section 21 of the Second Liberty Bond Act, as
amended (31 U . S . C 757b), is amended to read as follows:
" S E C . 2 1 . The face a m o u n t of obligations issued under authority of this
Act, and the face a m o u n t of obligations guaranteed as to principal and interest by
the United States (except such guaranteed obligations as m a y be held by the
Secretary of t h e Treasury), shah not exceed in the aggregate $288,000,000,000
outstanding at any one t i m e . "
(b) During the period beginning on the date of the enactment of this Act and
ending J u n e 30, 1960, the pubhc debt limit set forth in the first sentence of section
21 of the Second Liberty Bond Act, as amended, shall be temporarily increased
by $7,000,000,000.
SEC. 3. Paragraphs (1) and (2) of subsection (b) of section 22 of the Second
Liberty Bond Act, as amended (31 U.S.C. 757c(b) (1) and (2)), are amended to
read as follows:
.:
"(b)(1) Savings bonds and savings certificates may be issued on an interestbearing basis, on a discount bksis, or on a combination interest-bearing and discount basis. Such bonds and certificates may be sold at such price or prices and
rate or rates of interest and in such denomination or denominations and may be
redeemed before m a t u r i t y upon such terms and conditions as the Secretary of t h e
Treasury may prescribe.
" (b) (2) The Secretary of the Treasury, with the approval of the President, is
authorized to provide by regulation:
" ( i ) t h a t owners of series E and H savings bonds may, at their option, retain the bonds after maturity," or after any period beyond m a t u r i t y during which,
they have earned interest, and continue to earn interest upon t h e m ;
" (ii) t h a t series E and H savings bonds on which the rates of interest have
been fixed prior to such regulations will earn interest at higher r a t e s . "
SEC. 4. Subsection (i) of section 22 of the Second Liberty Bond Act, as amended
(31 U . S . C 757c(i)), is amended by inserting after the third sentence thereof the
following:
"Relief from liability shall be granted in all cases where the Secretary of the
Treasury shall determine, under rules and regulations prescribed by him, t h a t
Avritten notice of liability or potential liability has not been given, within ten
years from the date of the erroneous payment, to any of the foregoing agents or
agencies whose liability is to be determined: Provided, T h a t no relief shall be
granted in any case ih which a qualified paying agent has assumed unconditional
liability to the United States."
SEC. 5. (a) Section 3701 of the Revised Statutes (31 U.S.C. 742) is amended by
adding at the end the'reof the following:
' ' T h i s exemption-extends to every form of taxation t h a t would require t h a t
either t h e obligations or t h e interest thereon, or both, be considered, directly or
indirectly, in t h e cornputation. of the tax, except franchise or other non-property
taxes in lieu thereof imposed ori corporations and except estate taxes or inheritance
taxes."
\
(b) The following provision^ of the Second Liberty Bond Act, as amended, relating to the tax-exempt status of obligations of the United States, are repealed,
without changing the status of anj^ outstanding obligation:
(1) Subsection (b) of section 5 (31 U . S . C 754(b));
(2) The second and third^sentences of section 7 (31 U . S . C 747);
(3) Subsection (b) of section 18 (31 U . S . C 753(b));
(4) The first sentence of subsection (d) of section 22 (31 U.S.C. 757c(d)).
SEC. 6. T h e following provisions of law are amended by striking out the words
" o n original issue at p a r " and inserting in heu thereof the words ''on original issue
at t h e issue price":
(a) Section 6(g)(5) of the Act of March 24, 1934, as amended (22 U . S . C
1393(g)(5));
;
:
(b) Section 201(d) of t h e Act of August 14, 1935, as amended (42 U . S . C
4.01(d));
(c) Section 904(b) of the Act of August 14, 1935, as amended (42 U . S . C
1104(b));
•
(d) Section 15(b) of the Act of August 29, 1935, as amended (45 U . S . C
2280(b));
(e) Section 209(e)(2) of the Act of J u n e 29, 1956 (23 U . S . C 173(e)(2)).
.SEC. 7. T h e amendments made by section 3 shall be effective as of J u n e 1, 1959.
220
1959
REPORT OF T H E SECRETARY OF T H E
TREASURY
S E C T I O N - B Y - S E C T I O N A N A L Y S I S OF A B I L L TO F A C I L I T A T E
OF T H E P U B L I C D E B T
MANAGEMENT
Section 1 would remove t h e present limit of 4K percent on the rate of interest
on new issues of Treasury bonds.
Section 2 would provide a p e r m a n e n t increase in the debt limit to $288 bihion
a n d would provide a t e m p o r a r y debt limit of $295 billion through June 30, 1960.
Section 3 would remove the present limit of 3.26 percent on the rate of interest
on savings bonds, it would remove t h e present limits on maturities of savings
bonds, it would authorize further extensions of Series E savings bonds which have
been authorized to earn interest after m a t u r i t y , it would authorize similar extensions of Series H savings bonds, a n d it would authorize the increasing of interest
rates upon Series E a n d H savings bonds after rates of interest have been fixed
by contract.
Section 4 would reheve agents authorized to make p a y m e n t s in conriection with
the redemption of savings bonds from liability to the United States for erroneous
p a y m e n t unless written notice of potential liability is given within ten years from
the date of the erroneous p a y m e n t .
Section 5 would make it clear t h a t present provisions of law exempting obligations of the United States from State a n d local t a x a t i o n cover State income taxes.
Section 6 would permit certain Government t r u s t funds which can now acquire
Government securities on original issue only at par to acquire t h e m at the issue
price like any other purchaser from the Treasury.
Section 7 would provide an effective date of J u n e 1, 1959, for a m e n d m e n t s
authorizing increased interest rates on savings bonds.
ATTACHMENT
B
A bill to permit the Secretary of the Treasury io designate certain exchanges of
Government securities io be without recognition of gain or loss for income tax
purposes
Be it enacied by ihe Senate and House of Representatives of the United States of
America in Congress assembled. T h a t p a r t I I I of subchapter 0 of chapter 1 of the
I n t e r n a l Revenue Code of 1954 (relating to common nontaxable exchanges) is
amended by adding a t the end thereof t h e following new section:
" S E C . 1037.
C E R T A I N E X C H A N G E S OF U N I T E D S T A T E S O B L I G A T I O N S .
"(a) General rule.—When so provided by regulations promulgated by the
Secretary in connection with, the issue of obligations of the United States, no gain
or loss shall be recognized on the surrender to the United States of obligations of
the United States issued under the Second Liberty Bond Act in exchange solely
for other obligations issued under such. Act. For rules relating to t h e recognition
of gain or loss in a case where t h e preceding sentence wbuld apply except for t h e
fact t h a t t h e exchange was not made solely for other obligations of t h e United
States, see subsections (b) and (c) of section 1031.
"(b) Application of section 1232.—Notwithstanding any provision of this
section, section 1031(b), or section 1031(d), section 1232 shah apply to any recognized gain to which it would otherwise apply, except t h a t in t h e case of an exchange
of a transferable obligation for another transferable obligation, the issue price of
t h e obligation received by the taxpayer in exchange shall be considered to be the
same as the issue price of the obligation given by the taxpayer in exchange. For
purposes of this section, the holding period of any transferable obligation received
b y the taxpayer in exchange for another transferable obligation shall include t h e
holding period of t h e obligation given by t h e taxpayer in exchange except with
respect to a n y gain recognized a t t h e time of t h e exchange.
"(c) Cross references.—For rules relating to t h e basis of obligations of t h e
United States acquired in an exchange for other obligations described in s u b section (a), see subsection (d) of section 1031."
(b) The table of sections for p a r t I I I of s u b c h a p t e r O of chapter 1 of t h e I n t e r n a l
Revenue Code of 1954 is amended b y adding a t the end thereof the following:
^'SEC. 1037.- C e r t a m exchanges of United States obhgations."
(c) Section 1031(b) (relating to gain from exchanges of p r o p e r t y n o t solely in
kind) is a m e n d e d b y striking out " t h e provisions of subsection (a), of section
EXHIBITS
221
1035(a), or of section 1036(a)," and inserting in lieu thereof " t h e provisions of
subsection (a), of section 1035(a), of .section 1036(a), or of section 1037(a),".
(d) Section 1031(c) (relating to loss from exchanges of property not solely in
kind) is amended by striking out " t h e provisions of subsection (a), of section
1035(a), or of section 1036(a)," a n d inserting in lieu thereof " t h e provisions of
subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a),".
(e) Section 1031(d) (relating t o basis in t h e case of exchanges of property held
for productive use or investment) is amended by striking out "this section,
section 1035(a), or section 1036(a)," in t h e first sentence thereof and inserting in
lieu thereof "this section, section 1035(a), section 1036(a), or section 1037(a),".
SEC. 2. Section 4(a) of t h e Public D e b t Act of 1941, as amended (31 U.S.C.
742a), is amended by striking out "under t h e I n t e r n a l Revenue Code," and
inserting in lieu thereof "except as provided under t h e I n t e r n a l Revenue Code,".
SEC. 3. T h e a m e n d m e n t s made by this Act shaU be effective for taxable years
ending after t h e date of enactment of this Act.
S E C T I O N - B Y - S E C T I O N ANALYSIS OF A B I L L T o P E R M I T T H E SECRETARY OF THE
T R E A S U R Y T o D E S I G N A T E C E R T A I N E X C H A N G E S OF G O V E R N M E N T S E C U R I T I E S
T o B E W I T H O U T R E C O G N I T I O N OF G A I N OR L O S S FOR I N C O M E T A X P U R P O S E S
Section 1 would permit t h e Secretary of t h e Treasury to designate certain
exchanges of Government securities upon which recognition of gain or loss would
be deferred for Federal income tax purposes. T h e characterization of the gain or
loss so deferred, however, would not be affected except as t h e actual holding
period would convert short-term gain or loss into long-term gain or loss. Also,
a special rule is provided to eliminate t h e possible creation of original issue discount in t h e case of exchanges of transferable Government securities.
Section 2 would conform t h e Public D e b t Act of 1941 t o accord with t h e
a m e n d m e n t s of t h e I n t e r n a l Revenue Code proposed in section 1.
Section 3 would provide an effective date.
ATTACHMENT
C
Treasury savings bond program if proposed legislation is enacied {June 1959)
At t h e present time approximately $42^/^ billion Series E and H bonds are
outstanding, owned by perhaps as m a n y as 40 million Americans. Approximately
8 million Americans are buying bonds currently on payroll savings plans in
industry and Government t h r o u g h o u t t h e Nation. M a n y of these savings grow
out of t h e convenience of t h e payroll plan and are savings which would not be
taking place in such volume if t h e savings bond program did not exist.
T h e E a n d H program is t h e only broad area in t h e debt m a n a g e m e n t picture
where t h e Treasury has been successful in attracting long-term savings into
Government securities during t h e period since t h e close of World War I I . Holdings of Government securities by individuals outside of t h e E and H program
have declined by $13 billion during t h e last 12 years, while holdings by savings
institutions have gone down by $10^/^ billion. During t h e same period t h e volume
of E and H bonds outstanding has risen by $12% billion.
I n recent years t h e E and H program has been a t t r a c t i n g a declining share of
individuals' liquid savings. I n 1958, for example, only 6 percent of these savings
(in saving accounts in banks, savings and loan shares, and E and H bonds) was
accounted for by t h e savings bond program, as against 24 percent in t h e early
postwar years.
Savings bonds are attractive to m a n y investors largely because of their safety
and their convenience of purchase and redemption. However, with interest rates
on savings bonds lagging behind t h e increases in interest paid on other forms of
saving it is a p p a r e n t t h a t in all fairness t o present holders, as well as t o new
purchasers of savings bonds, some upward revision in interest rates is called for.
I n addition to increased rates, certain other features are being added to t h e program
which will make it a m u c h more positive force in stimulation of savings t h a n it
has been for m a n y years. An increased volume of savings is i m p o r t a n t to the
welfare of our Nation and contributes effectively to t h e sound financing of industry
and government. I t reduces t h e pressures leading t o excessive increases in
bank credit, which in t u r n result in an expansion of money supply beyond t h e
normal needs of a growing economy. •
222
1959 REPORT OF THE SECRETARY OF THE TREASURY
T h e new savings bond program has three major features (subject, of course
t o t h e e n a c t m e n t of enabling legislation):
(1) All E a n d H bonds sold beginning J u n e 1, 1959, will earn 3% percent if
held to maturity—>^ percent higher t h a n at present—with lesser improved yields
for shorter periods of holding.
(2). All E and H bonds outstanding will also earn approximatelyl^^ percent more
t h a n they do now if held to m a t u r i t y beginning with their first semiannual interest
period which s t a r t s on or after J u n e 1, 1959, with, lesser improvement if redeemed
earlier.
.: *
(3) All E bonds on which an extension has already been promised and which
h a d not yet reached first m a t u r i t y (before J u n e 1, 1959) will be offered an improved
extension on which 3% percent will be paid if held t h e full additional ten years,
with lesser yields (starting at 31^ percent) for shorter periods of holding.
.Each of these three items is discussed in t h e paragraphs which follow.
(1) One-half percent increase on new bonds.—The increase in interest earnings
from 3>4 percent to 3^^ percent for full t e r m of holding on E bonds is realized b}^
shortening t h e t e r m to m a t u r i t y from t h e present 8 years and 11 months to 7
years and 9 months. T h e purchase price of t h e bond will continue to be 75
percent of its m a t u r i t y value, t h u s preserving the. advantages of the present
well-ingrained system of bond purchases through: pa3^rqil .savings.
T h e amouni: of interest earned if the new E bond is redeemed before m a t u r i t y
will also be improved. The rate of interest earned at the 1-year point will be increased from 2.28 percent to 2.33 percent, at t h e 2-year point from 2^^ percent
to 3 percent, and at the 3-year point from 3 percent to 3K percent. This modest
increase in earnings for short-term holdings reflects the desire of the Treasur}^
not to compete unfairly with the rates paid on accounts in private savings institutions for short periods of time. At t h e same time, 'the increased incentive to hold
t h e new bond to m a t u r i t y to earn t h e full 3^^ percent emphasizes even more
strongly t h e Treasury's desire to appeal primarily to longer-term savers.
T h e planned .increase in rates returns t h e relationship between E bonds and
other forms of saving roughly to the. same position they, held when t h e E bond
r a t e was increased from 2.90 percent to 3 percent seven years ago. T h e increase
makes no a t t e m p t , however, to restore fully t h e 1952 relationship between t h e
3 percent E bond r a t e a t t h a t time and the 2.6 percent average rate on long-term
marketable Treasury bonds. Even the new 3% percent rate is more t h a n %
percent below comparable marketable bond yields a t the present time (See
Appendix 1 for detail on t h e new E. bond).
T h e new H bond, like its predecessor, will continue to be a current income
bond issued at par, redeemable at p a r on one month's notice at any time after
six m o n t h s ' holding, and maturing a t . p a r at t h e end of its 10-year life. The H
bond will continue to have approximately t h e same' increasing schedule of interest
earnings as t h e E bond by means of increasing interest checks up to two years,
with a constant a m o u n t thereafter (See Appendix 2;for detail on t h e new H bond).
T h e present interest r a t e ceiling on savings borids is 3.26 percent. Thus, t h e
ceiling will have to be lifted in order to p u t t h e new rates into effect. A retroactive effective date of J u n e 1 has been requested, however, so every bond bought
on or after t h a t date will benefit by t h e riew terms regardless of what is stated on
t h e bond. This procedure is similar to t h a t followed wheri E and H bond terms
were changed a little over two years ago.
(2) Increased earnings for outstanding E and H bonds.—In all previous savings
bond revisions t h e Treasury has t a k e n t h e position t h a t no change should be made
in t h e t e r m s of savings bonds already outstanding. I n both 1952 and 1957 it
was pointed out to holders of such bonds t h a t if t h e y felt t h e y could do better
by turning in their old bond and buying a new one,they were free to do so; but it
was also pointed out t h a t in t h e vast majority of cases it was still to their benefit
to retain t h e existing bonds. I n 1957, for example, this was true for continued
holding of all bonds which had not yet reached first m a t u r i t y , except for those
purchased in t h e 2% years preceding t h e change in terms. I t was true also for
most of t h e holders of bonds in t h e extension period who would in m a n y cases
be dissuaded from buying t h e new bond since they woiild .have to p a y upon redemption whatever taxes were due on t h e accumulated interest on t h e old bond.
On t h e other hand, continued holding would defer t h e taxes, as well as permit
continued earning of interest on the a m o u n t of deferred tax.
This position was quite satisfactory under conditions where t h e changes were
only }io percent as in 1952, of K percent as in 1957'. Under t h e conditions applying to a more substantial increase in t h e interest r a t e on E and H bonds, however—•
' :
EXHIBITS "
223
particularly when added t o the'earlier increases—the volume of potential switches
out of the old bond in order to buy the new one is much larger and could reach
significant proportions. 'Siich switches would be costly enough from t h e standpoint of t h e Treasury even if they would indeed result in purchases of t h e new
bonds. As a practical m a t t e r it is recognized, however, t h a t once the incentive
to redeem the old bond is increased m a n y holders, despite the more attractive
interest rate, will prefer either to spend their money or invest it elsewhere at even
higher rates of interest and would be lost to the savings bond program. This
tendency would be accentuate-d by t h e fact t h a t it is rarely possible to reinvest
the exact proceeds bf a redeemed bond in a new bond since the number of available denominations is limited:
There is, in addition, an i m p o r t a n t question of equitable t r e a t m e n t of all bondholders. The Treasury has something of a trusteeship function on behalf of
millions of individuaL savers who do not follow interest rate trends closely.
They buy bonds and hold JDon'ds with understandable faith t h a t the Government
is giving t h e m a square deal. "•'
T h e new plan provides, therefore, for improved yields to start with t h e first
6-month interest period beginriing J u n e 1, 1959, or thereafter. Only future earnings will be affected; no retroactive increase in interest rates for past periods is
involved. To bring t h e future earnings of bonds bought since J a n u a r y 1957—
which are on a 3)1 percent basis if held for t h e full t e r m to maturity—in line with
t h e new 3% percent bond, )^ pefcent per year will be added to the interest earnings
of such bonds for t h e remaining period to m a t u r i t y if held until t h a t maturity,
with lesser increases of interest for each future period if redeemed before maturity.
Similarly, bonds issued frorn M a y 1952 through J a n u a r y 1957 will have' K of
1 percent added to t h e yield .of their present 3 percent bonds from now until
maturit}^ if t h e y are held until t h a t date. Bonds sold from December 1949
through April 1952 will have an increase of .60 percent above their original r a t e
of 2.90 percent, so t h a t t h e y tob, in effect, will earn 3% percent from the beginning
of the next interest accrual period until m a t u r i t y if held t h a t long (For list of
categories of E bonds Outstanding see Appendix 3 on revision of existing E bbnds,
taMeV).
The Treasury's decision to increase gradually the interest rate on outstanding
bonds, rather t h a n giving each bond a full ^ percent or .60 percent increase be-,
ginning with the next interest earning period, again reflects a desire to encourage
continued holding of these securities.
The increased interest returri on Series E bonds will be achieved through an
improvement in the. guaranteed redemption value on each bond over and above
the schedule of redemption values printed on the bond. No action by the bondholder is necessary. In the first period the increased interest adjustment m a y
be as little as 4^ on a $100 bond, but in all cases a full half percent (or .60 percent,
as t h e case m a y be) will be earned for future periods if t h e bond is held t o its
first m a t u r i t y date (For- example see Appendix 3 on revision of existing E bonds,
tables V I I I - X ) .
• 1
•
A similar adjustment will b e m a d e for ah bonds which have passed their original
m a t u r i t y date and are in t h e extension period. I n t h e case of bonds purchased
from M a y 1942 through May 1949—bonds which alreadv have a 10-year extension
a t 3 percent—the r a t e will be raised to approximately 3/4 percent for t h e remaining
number of 6-month interest periods to m a t u r i t y if held for the full term. Similarly,
t h e rates on bonds sold from May 1941 through April 1942, which have a 10-year
2.90 percent extension, will be "raised by .60 percent so t h a t they also, in effect,
wih earn 3^2 percent if held to t h e second m a t u r i t y date (For examples, see
Appendix 3 on revision of existing E bonds, tables VI and A^II).
T h e only outstanding bonds remaining are those sold from June through
November 1949. These will be reaching first m a t u r i t y on, or within t h e first
6 m o n t h s thereafter, t h e effective date of the revision and t h u s will be entitled
t o t h e new 10-year extension described below.
T h e improved interest on Series H bonds will be paid directly to t h e holder
as p a r t of his regular semiannual interest check, "beginning with interest checks
payable on December 1, 1959. As in t h e case of interest earned on E bonds,
t h e full y. percent improvement in earnings from now until m a t u r i t y will be
realized only if t h e H bond is held until m a t u r i t y (See Appendix 4 on revision of
existing H bonds, tables X I I I - X V , for list of categories and examples).
(3) Improved extension terms on bonds which have already been promised a further
extension.—All u n m a t u r e d bonds (before J u n e 1, 1959) issued J u n e 1949 through
April 1957 have already been promised a 10-year 3-percent extension, which
224
1959 REPORT OF THE SECRETARY OF THE TREASURY
period had not yet begun. There will be a 3% percent extension for all of these
bonds if t h e bonds are held for t h e full 10-year extension period, with lesser yields
(beginning a t 3% percent) if redeemed before t h e end of t h e 10-year extension
period. T h e decision to offer a gradually increasing r a t e on t h e future extension
of these bonds reflects again t h e Treasury's desire to give an added interest
incentive for longer-term holding (See Appendix 3, table X I , for detail on revised
extension of E bonds).
When t h e Treasury started issuing t h e present 3>{ percent E bond in t h e spring
of 1957, it offered no extension beyond t h e original m a t u r i t y of 8 years and 11
m o n t h s . T h e Treasury is now announcing t h a t a 10-year extension will be
provided after m a t u r i t y for t h e 3% percent E bonds issued M a y 1957 through
May 1959, as well as t h e new 3^1 percent E bonds with issue dates beginning J u n e
1959. However, other terms and conditions (including interest rates) pertaining
to t h e 10-year extension will not be announced until t h e first of these bonds
approaches m a t u r i t y .
T h e first extended savings bonds will reach t h e end of their extension period
in May 1961 (bonds originahy sold in May 1941). T h e Treasury is announcing
t h a t , as t h a t . d a t e approaches, t h e holders of all bonds which reached first m a t u r i t y
before J u n e 1, 1959 (issued May 1941 through May 1949) will have t h e opport u n i t y to extend their bonds for a further 10-year period, with other terms and
conditions (including interest rates) to be announced prior to M a y 1961. As
p a r t of its legislative program, therefore, t h e Treasury has asked for removal of
t h e present 10-year limitation on E bond extension, t h u s permitting this program
to go forward a t t h e appropriate time.
T h e Treasury also has asked t h a t its present authority to extend Series E
bonds be broadened to include Series H bonds. T h e Treasury has not reached
any decision whether or not to extend H bonds when they begin coming due in
F e b r u a r y 1962. Broadening of t h e present authoritj^ will permit the Treasury
to t r e a t these securities in t h e same manner as t h e Congress has approved with
regard to Series E bonds if it is deemed advisable.
T h e above three-pronged program is designed to m a k e savings bonds more
attractive and will add materially both to t h e encouragement of desirable habits
of thrift throughout the country and to t h e abflity of the Treasury to achieve a
better balanced structure of t h e public debt. T h e attached appendices present
further detail on each aspect of t h e new program;
A P P E N D I X 1 ( S U B J E C T TO E N A B L I N G
LEGISLATION)
Revised Series E savings bond—new purchases on or after J u n e 1, 1959
S u m m a r y of t e r m s and conditions
(1) Date of announcement.—June 8, 1959 (Treasury Circular N o . 653—Fifth
Revision).
(2) Effective date.—The revised t e r m s apply to all bonds sold on or after
J u n e 1, 1959.
(3) Issue price.—75 percent of m a t u r i t y (par) value.
(4) Issue date.—First day of m o n t h in which p a y m e n t is received by an
authorized issuing agent.
(5) Maturity date.—7 years and 9 m o n t h s from issue d a t e .
(6) Interest.—Accrues, to p a r to provide an investment jdeld of 3% percent
compounded semiannually if held to m a t u r i t y ; lesser yields if redeemed a t earlier
dates.1
(7) Redeemability prior to maturity at option of Treasury.—None.
(8) Redeemability prior to maturity at option of holder.—At any time not less
t h a n 2 m o n t h s from issue d a t e .without notice, a t stated redemption values, a t
any qualified b a n k or other paying agent, any Federal Reserve Bank or branch,
or a t t h e United States Treasury.^
(9) Negotiability.—None.
1 For schedule of redemption values and investment yields see table I attached.
225
EXHIBITS
(10) Eligibility as collateral for loans.—None.
' *
(11) Eligible subscribers.—For cash, any investor other than commercial banks.
In exchange for matured and maturing Series F and G savings bonds, any holder
other than commercial banks.
'
(12) Limits on subscriptions by eligible subscribers.—AnnuSil limit for cash
$10,000 (maturity value). Series E bonds obtained in exchange for matured and
maturing Series F and G savings bonds are excluded from this limitation.
(13) Denominations.—$25, $50, $100, $200, $500, $1,000, and $10,000 (maturity
value). (Also $100,000 denomination for certain employee savings plans).
(14) Bearer or registered.—Registered form only; may be registered in name of
single owner (with or without beneficiary) or in coownership form.
(15) Extension privileges.—A 10-year extension will be provided if owner
wishes to hold his bond beyond maturity. Other terms and conditions (including
interest rates) of the extension will not be announced until bonds approach
maturity.
(16) Handling of subscriptions before new bonds are printed.—Old stock will
be used until new bonds are available. In all cases the regulations will apply
the new terms and conditions to all bonds purchased on or after June 1, 1959.
If the purchaser wishes, he may exchange any bond issued on or after June 1, 1959,
on old stock for a new bond with the same dating when new stock is available,
although his rights would be in no way impaired if he does not do so;
TABLE I.—Revised Series E savings bond—new purchases on or after June 1, 1969,
Schedule of redemption values and investment yields
[Based on $100 bond maturity value; $75, issue price]
Approximate investment yields »
Period after issue date
First half year.._
_
H to 1 year
__
1 to IH years
IH to 2 years
2 to 2H years
___
2H to 3 years..3 to 3}4 years
_
3H to 4 years..
4 to 4H years
4H to 5 years
5 to 5H years
_
5H to 6 years
_
6 to 6H years...
6H to 7 years
_
7 to 7H years
7H to 7 years and 9 months
Maturity value (7 years and 9 months from issue date)
' Compounded semiannually.
525622—60-
-16
Redemption value
during
each
period
$75.00
75. 6476.76
78.04
79.60
81.12
82.64
84.28
86.00
87.80
89.60
9L44
93.28
95.16
97.08
99.00
100.00
On current
On issue redemption
price to value from
beginning beginnmg
of each
of each
period to
period
maturity
Percent
L71
2.33
2.67
3.00
3.16
3.26
3.36
3.45
3.63
3.59
3.64
3.67
3.70
3.72
3.74
3.75
Percent
3.75
3.89
3.96
4.01
4.01
4.03
4.05
4.06
4.06
4.04
4.03
4.02
4.01
4.01
3.99
4.06
226
19 59 REPORT OF THE SECRETARY OF THE
TREASURY
T A B L E II.—Revised ^ and present Series E bond first maturity period redemption
values and investment yields
[$100 b o n d , face value]
R e d e m p t i o n value
Yield for a
Period after issue d a t e
(years)
Period held 3
Revised
Revised
O-H
H-l—
1-lH
lH-2
2-2H
2H-3
3-3H
3H-4-——
4-4H
4H-5
5-5H
5H-6
6-6H
6H-7
7-7V^..
7H-7M
7H-8
7H (maturity)
8-8H
8H-8IM2
81H2 ( m a t u r i t y ) .
$75.00
75.64
76.76
78.04
79.60
81.12
82.64
84.28
86.00
87.80
89.60
91.44
93.28
95.16
97.08
99.00
R e m a i n i n g period to
maturity *
Increase
Present
$75.00
75.60
76.72
77.92
79.24
80.60
82.00
83.40
84.84
86. 28
87.76
89.24
90.72
92.24
93.76
$0.04
.04
.12
.36
.52
.64
.84
1.16
1.52
1.84
2.20
2.56
2.92
3.32
1.71
2.33
2.67
3.00
3.16
3.26
3.36
3.45
3.53
3.59
3.64
3.67
3.70
3.72
3.74
Present
Increase
1.60
2.28
2. 56
2.77
2.90
3.00
3.06
3.11
3.14
3.17
3.19
3.20
. 3.21
3.21
Percent Percent Percent Percent
3.75
3.25
0.50
3.89
3.35
0.11
.54
3.96
3.38
.05
.58
4.01
3.39
.11
.62
4.01
3.39
.23
.62
4.03
3.39
.26
.64
4.05
3.38
.26
.67
4.06
3.38
-.30
.68
4.06
3.37
.34
.69
4.04
3.37
.39
.67
4.03
3.36
.42
.67
4.02
3.36
.45
.66
4.01
3.37
.47
.64
4.01
3.37
.49
.64
3.99
3.39
.51
3.22
95.32
100. 00
Revised
Pi-esent
4.06
Increase
3.41
3.75
3.23
3. 23
3.25
96.88
98.44
100.00
3.49
3.81
1 B o n d s issued after M a y 31,1959.
2 Compounded semiannually.
3 F r o m issue d a t e to t h e b e g m n i n g of a n y s u b s e q u e n t H year period.
* O n currerit r e d e m p t i o n value from t h e begiiming of each H year period to m a t u r i t y .
CHART
.
A
SERIES E BOND YIELDS FOR PERIOD HELD.
First Maturity Period
Yf8.-Wlos.-^7:9
8-11 9-1
10-0
June 1959 on
2.9%
'^Mayl94l-Apr.l952
4
5
6
-Years to RedempHon or Maturity-
10
EXHIBITS
227
A P P E N D I X 2 ( S U B J E C T TO E N A B L I N G LEGISLATION)
Revised Series H savings bond—new purchases on or after J u n e 1, 1959
S u m m a r y of t e r m s and conditions
(1). Date of announcement.—June 8, 1959 (Treasury Circular No. 905—Second
Revision).
(2) Effective date.—The revised terms apply to all bonds sold on or after J u n e 1,
1959.
(3) Issue price.—Par.
(4) Issue date.—First day of m o n t h in which p a y m e n t is received by a Federal
Reserve B a n k or branch, or t h e United States Treasury.
(5) Maturity date.—10. years, from issue date..
(6) Interest.—Varying semiannual interest checks to provide an investment
yield of approximately 3^4 percent per a n n u m if held to m a t u r i t y , lesser yields
if redeemed a t earlier dates. ^
(7) Redeemability prior io maturity at- option of Treasury.—None.
(8) Redeemability prior to maturity at 'option of holder.—On first day of any
m o n t h after 6 m o n t h s from issue date o n l m o n t h ' s notice, a t par, at any Federal
Reserve B a n k or branch, or a t t h e United-States Treasury.
(9) Negotiability.—None.
(10) Eligibility as collateral for Zoans.r—None.
(11) Eligible subscribers.—For cash, any investor other t h a n commercial banks.
I n exchange for m a t u r e d a n d maturing F"and G savings bonds, any holder other
t h a n commercial banks.
'
(12) Limits on subscriptions by eligible subscribers.—Annual limit for cash
$10,000 (maturity value). Series H bonds obtained in exchange for m a t u r e d
a n d m a t u r i n g Series F a n d G savings bonds are excluded from this limitation.
(13) Denominations.—$500, $1,000, $5,000, and $10,000.
(14) Bearer or registered.—Registered form only; m a y be registered in the n a m e
of single owner (with or without beneficiary) or in coownership form.
(15) Extension privileges.—None.
(16) Handling of subscripiions before new bonds are printed.—Old stock will be
used until new bonds are available. I n all cases t h e regulations will apply t h e
new terms and conditions to all bonds purchased on or after J u n e 1, 1959. If t h e
purchaser wishes, he m a y exchange any bonds issued on or after J u n e 1, 1959,
on old stock for a new bond with t h e same dating when new stock is available,
although his rights would be in no way impaired if he does not do so.
1 For schedule of varying amounts of checks and investment yields see table III attached.
228
195 9 REPORT OF THE SECRETARY OF THE TREASURY
T A B L E IIL—Revised Series H savings bond—new purchases on or after J u n e 1,
1959 ^—Schedule of semiannual interest checks and investment yields
[Based on $1,000 bond 2]
Approximate investment yields 3
Period of time bond is held after issue date
Interest
check
From issue From eac h
date to
interest
each
payment
mterest
date to
payment
maturity
date
Percent
At is.sue date
Hyear
1 year
_.
IH years
2 years
2H years
_.
3 years
3H years
4 years...
4H years
5 years
5H years
6 years
6H years
._
7 years...
7H years...
8 years...
8H years
9 years
9H years...
_.
10 years (maturity).
$8.00
14.50
16.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
1.60
2.25
2.56
2.91
3.12
3.26
3.36
3.44
3.49
3.54
3.58
3.61
3.64
3.66
3.68
3.70
3.71
3.72
3.74
3.75
Percent
3.75
3.88
3.95
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
1 With mvestment return approximating return on revised series E bond.
2 Redemption value at all times=$1,000.
3 Compounded semiannually.
." .
T A B L E IV.—Revised ^ and present Series H bond interest checks and investment yields
[U,060 bond 2]
Yield for 3
I n t e rest
checks
Period after issue d a t e
(years)
P e r i o d held <
R e m a i n i n g period t o
maturity
Revised P r e s e n t Increase Revised P r e s e n t Increase Revised P r e s e n t Increase
0 -
H
1 .IH
2
2H—
3
-
3H—
4
4H
5
5H
6
6H
7
-—
——
7H -
8
8H
9„..:::::::::::::::::::::::
9H
10 ( m a t u r i t y )
$8.00
14.50
16.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
$8.00
0
14. 50
0
16.90 $ - 0 . 9 0
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16. 90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
16.90
3.10
1 Bonds issued after May 31,1959.
2 Redemption value at all times=$1,000.
3 Compounded semiannually,
* From issue date to any interest payment date.
Percent Percent Percent Percent Percent Percent
3.25
3.75
.50
3.35
.53
3.88
1.60
L60
0
3.38
3.95
.57
2.25
2.25
0
3.38
.62
4.00
2.56
2.62
-.06
3.38
.62
4.00
2.91
2.80
.11
3.38
4.00
.62
3.12
2.92
.20
3.38
4.00
.62
3.26
2.99
.27
3.38
4.00
.62
3.36
3.04
.32
3.38
4.00
3.44
.62
3.08
.36
3.38
4.00
3.49
.62
3.11
.38
3.38
4.00
3.54
.62
3.14
.40
3.38
4.00
3.58
.62
3.16
.42
3.38
4.00
3.61
.62
3.18
.43
3.38
4.00
3.64
.62
3.19
.45
3.38
4.00
.62
3.66
3.20
.46
3.38
4.00
.62
3.68
3.21
.47
3.38
4.00
.62
3.70
3.22
.48
3.38
4.00
.62
3.71
3.23
.48
3.38
4.00
.62
3.72
3.24
.48
3.38
4.00
3.74
.62
3.24
.50
3.75
3.25
.60
EXHIBITS
A P P E N D I X 3 ( S U B J E C T TO E N A B L I N G
229
LEGISLATION)
Revision of existing Series E savings honds, outstanding bonds issued before
J u n e 1, 1959
S u m m a r y of revisions in t e r m s a n d conditions
(1) Date of announcement.—June 8, 1959 (Treasury Circular No. 653—Fifth
Revision).
(2) Effective date for start of increased yields.—June 1, 1959, for all existing
bonds dated J u n e and December of any issue year; for all others t h e next date
on which their redemption values increase. Therefore, the first change in redemption values from t h e schedules published in 4th revision of Treasury Dep a r t m e n t Circular No. 653 dated April 22, 1957, will take place K year after June
1, 1959, in t h e case of bonds dated J u n e and December of any year and ^ year
after t h e next date (after J u n e 1959) pn which redemption values increase in t h e
case of all other bonds.
(3) Revision of future yields until next niaturity date.—Beginning December 1,
1959, on bonds issued in J u n e and December of any year (all other bonds on t h e
next date of increase in value), f u t u r e ' r e d e m p t i o n values will be increased t o
provide an increase in investment yields for t h e remaining period t o next m a t u r i t y .
At next m a t u r i t y date the a m o u n t of t h e increase in investment yield (compounded
semiannually) will be: ^ o of 1 percent per a n n u m on bonds now earning more t h a n
2.90 percent per a n n u m for their full current m a t u r i t y period; and YIQ of 1.percent
per a n n u m on bonds now earning 2.90 percent per a n n u m for their full current
m a t u r i t y period, with lesser increases in investment yields if bonds are redeemed
before next maturity.^
(4) Extension privileges at firsi maturity.—On bonds which have not already
reached first m a t u r i t y before t h e effective date of this revision.
(a) Bonds issued J u n e 1949 through April 1957—if owner does not wish
to cash his bond at m a t u r i t y he m a y hold his bond for a period of 10 years more
with interest accruing a t a rate of approximtaely 3}^ percent per a n n u m (compounded semiannually) for the first }f year period of holding during t h e 10-year
extension and increasing gradually to approximately 3% percent per a n n u m
(compounded semiannually) for t h e entire 10 years if held to the end of the extension period.2 (The redemption value of any bond a t thd beginning of t h e new
extension will be t h e base upon which interest will accrue during t h e 10-year
extension period.)
;
•
(6) Bonds issued M a y 1957 through M a y 1959—a ;10-year extension wih
be provided if owner wishes to hold his bond beyond rnaturity. ;. Other terms
and conditions (including interest rates) of; t h e extension 'will not be announced
until bonds approach m a t u r i t y .
(5) Second extension privileges.—On bonds which have jreached first m a t u r i t y
before J u n e 1, 1959 i(issuediMay 1941 through May 1949), a second 10-year
extension will be provided if; owner wishes :to hold his bond beyond second mat u r i t y (20 years from issue date). Other terms and conditions (including interest
rates) of t h e extension will not be announced until bpnds approach second
maturity.
'
\
' '
\
\ .
(6) No changes in cither t e r m s or conditions.
'
1 The categories of outstanding E bonds are shown in;table V attached. For examples of redemption
values and investment yields in each!category see tables; VI through X attached.
2 Schedule of redemption values and investment yields during extension sliown in table XI.
230
1 9 5 9 REPORT OF T H E SECRETARY OF T H E TREASURY
T A B L E , v.—Ca^e(7ones of ouistanding Series E bonds, M a y 3 1 , 1959
Current maturity period
Yield for
full
current
raaturity
period
Issue year and month
Percent
2.90
3.00
Bonds in extension period:
May 1941-April 1942
May 1942-May 1949
Maturing bonds:
June 1949-November 1949.
Bonds in first maturity period
December 1949-April 1952.
May 1952-January 1957....
February 1957-May 1959..
Range of
Yields
during
time to
new extennext
sion 2
maturity '
(years)
Range of yields for remaining time to next
maturity=1
Present
Revised
Percent
4.17-4.26
3.00-3.07
Percent
4. 77-4.86
3.50-3.57
4.08-4. 26
3. 28-3.89
3.35-3.39
4. 68-4.1
3.78-4. i
3.85-3.1
Percent
1H-2H
2H-9H
2.90
Percent
(3)
(3)
3.50-3.75
2.90
3.00
3.25
H-2H
2H-7H
3. 50-3.75
3. 50-3.75
6M2-8M2
1 Based on next date of increase in redemption values.
2 For schedule of redemption values and investment yields during extension see table X I .
8 A 10-year second extension wiU be provided. Other terms and conditions (Including interest rates)
of the second extension will not be announced until bonds approach next maturity.
< Bonds issued February through April 1957 have the same exteiision privilege as bonds issued May 1952January 1957. For remaining bonds a 10-year extension will be provided: other terms and conditions
(including interest rates) of the extension will not be announced until they approach maturity.
T A B L E VI.—Example of revision i n existing Series E savings bonds, category of
bonds issued M a y 1941 through April 1942 ^—redemption values and investment
yields of bonds issued J u n e through November 1941
[Based on $100 face value bond]
. Approximate investment yield 2 on:
Redemption
value during
each period
Period after first matmity
(years)
Original
O-H
H-l
i-iH
iH-2
2-2H
2H-3.
-^3H
3H-4 .
---.
4-4H
414-5
5-5H51^6
- 6-6H
6H-7
7-7H
7H-8
8 (June 1-Nov. 1,1959 3)-8H8H-9
9-9H
9H-10
10 (2d maturity)
Revised
$100.00
101.25
102.50 .
103.75
105.00
106.25
107. 50
108.75
110.00
111.25
112. 50
113.75
115.00
116. 25
117. 50
120.00
122.67
125.33
128.00
130. 67
133.33
125.44
128.40
131. 56
134.92
Value at effective date of revision to beginning
of each period
Original
Revised
Percent
4.34
4.30
4. 26
4.21
Issue price to
beginning of
each period
Original
Percent
2.90
2.88
2.86
2.84
2.82
2.81
2.79
2.77
2.75
2.74
2.72
2.71
2.69
2.67
2.66
2.70
2.75
4. 52
4. 62
4. 72
4.82
2.79
2. 83
2.87
2.90
1 For categories of outstanding Series E bonds see table V.
2 Compounded semiannually.
8 Effective date of revision for bonds issued June through November 1941.
Revised
Current redemption value from
beginning of
each period to
maturity
Original
Revised
Percent Percent
2.90
2.92
2.94
^ 2.97
3.01
3.05
3.10
3.16
3.23
3.32
3.43
3.56
3.73
3.96
4.26
4.26
4.21
4.82
2.80
2.85
2.90
2 Qfi
4.17
4.12
4.08
4 92
5 02
5 11
231
EXHIBITS
T A B L E V I I . — E x a m p l e of revision i n existing Series E savings bonds, category of
bonds issued M a y 1942 through M a y 1949 ^—redemption values and investment
yields of bonds issued J u n e through November 1942
[Based on $100 face value bond]
A p p r o x i m a t e i n v e s t m e n t yield 2 on:
Redemption
value during
each period
Period after first m a t u r i t y
(years)
Origmal
Revised
Value a t effective d a t e of revision to, beginning
df each period
Original
Revised
PerceiU
0-1^
H-l
1 134
lH-2
2-2H
2H-3
3-334"
- - .3L<_4"" .
4-434
'
414-5 •
:
5-534 ' "
...
5i%-6
6-6i^
634-7
7 ( J u n e ' f - N o v . 1. l'95'9 3)-7H7H-8
8-8H-------8H-9.
9-914
9H-10
10 (2d m a t u r i t y )
$100.00
101. 50
103.00
104. 50
106.00
107.60
109. 20
110.80 "
112.40
114. 00
115. 80
117. 60
119.40
121. 20
123.00
124. 80
126. 60
128. 60
130. 60
132. 60
134.68
124. 84
126. 80
129. 08
131.48
134. 00
136.68
2.93
2. 91
2. 99
3.02
3. 03
•3.05
2.99
3. 07
3. 24
3.36
3.46
3. ."^5
Issue price t o
beginning of
each period
Original
Percent
2.90
2.90
2. 90
2.91
2. 90
2.91
2.91
2.91
2.91
-2.91
2.92
2.92
2.93
2.93
2.93
2.93
2.93
2. 94
' 2.94
2. 94
2. 95
1 For categories of outstanding Series E bonds see table V.
2 Corapounded seraiannually.
3 Effective date of revision for bonds issued June through Noveraber 1942.
Revised
2.93
• 2.94
2. 96
2.98
3. 00
3. 02
C u r r e n t rederaption value from
beginning of .
each period to
raaturity
Original
Revised
Percent
3.00
3.00
3.00
3.01
3.02
3.02
3.02
3. 03
3.04
3.05
3.04
3.04
3.03
3.04
3.05
Percent
3.07
3.12
3.10
3.10
3.14
3 55
3.66
3.79
3.85
3.92
4 00
232
195 9 REPORT OF THE SECRETARY OF THE TREASURY
T A B L E V I I I . — E x a m p l e of revision in existing Series E savings bonds', category, of
bonds issued December 1949 through April 1952 ^—redemption values and investment yields of bonds issued J u n e through November 1950
[Based on $100 face value bond]
Approximate investment yield 2 on:
Period after issue date
(years)
Redemption
value dm-ing
each period
Original
O-H-—.
H-1-—1
1-lH
lH-2
.
2-2H
2H-3
3-3H
3H-4
4-^H
4H-5
5-5H
5H-6
—6-6H
6H-7
-:
7-7H-...
734-88-8H-—
—.—.8H-9
9 (June 1-Nov. 1,1959 3)9H-10
10 (maturity)
Revised
$75.00
76.00
75.50
76.00
76.50
77.00
78.00
79.00
80.00
81.00
82.00
83.00
84.00
86.00
88.00
90.00
92.00
94.00
96.00
98.00
100.00
98.16
100.60
Value at effective date of revision to beginning
of each period
Original
Revised
Percent
Issue price to
beginning of
each period
Original
Revised
Percent
.67
1.06
L31
1.49
1.62
1.72
1.79
1.85
1.90
2.12
2.30
2.45
2.57
2.67
2.76
4.17
4.12
4.50
4.74
2.84
2.90
1 For categories of outstandmg series E bonds see table V,
2 Compounded semiaimually.
3 Effective date of revision for bonds issued June through November 1950.
2.85
2.96
Current redemption value from
beginning of
each period to
maturity
Original
Revised
Percent Percent
2.90
3.05
3.15
3.25
3.38
3.52
3.58
3.66
3.75
3.87
4.01
4.18
4.41
. 4.36
4.31
4.26
4.21
4.17
4.12
4.74
4.97
233
EXJEHBITS
TABLE IX.-—Example of revision in existing Series E savings bonds, category of
bonds issued May 1952 through January 1957 ^—redemption values and investment
yields of bonds issued June through November 1962
[Based on $100 face value bond]
Approximate investment yield 2 on:
Redemption
value during
each period
Period after issue date
(years)
Original
$75.00
75.40
76.20
77.20
78.20
79.20
80.20
8L20
82.20
83.60
85.00
86.40
87.80
89.20
90.60
O-H
H-l 1-lH
lH-2
„
2-2H
2H-3
3-3H
334-4,
4-4H
434-5
5-5H
53^6
6-6H
634-7
7 (June 1-Nov. 1,19593)-7H7H-8
8-8H
8H-9
— fr-9H
9H-9%
9% (maturitv)
-
.
.
Revised
92.00
92.04
93.60
93.76
95.20
95.66
96. 80
97.44
98.40 W 99.40
100.00 Mim.32
Value at effective date of revision to beginnhig
of each period
Original
ReVised
Percent
Issue price to
beginning of
each period
Orig.
inal
ReVised
Percent
L07
L69
L94
2.10
2.19
2.25
2.28
2.30
2.43
2.52
2.59
2.64
2.69
2.72
3.09
3.28
3.33
3.34
3.33
3.74
3.18
3.46
3. 59
3.67
3.74
4. 24
2. 74
2. 79
2. 83
2. 86
2.88
3.00
1 For categories of outstandmg Series E bonds see table V.
* Compounded semiannually.
8 Effective date of revision for bonds issued June through November 1952.
2. 75
2.81
2.87
2. 93
2. 99
3.14
Current redemption value from
beguming of
each period to
maturity
Original
Revised
Percent
3.00
3.10
3.16
3.19
3.23
3.28
3.34
3.41
3.49
3.60
3.61
3.54
3.58
3.64
3.74
Percent
3.89
4.01
4.26
4.94
9.92
4.24
4.48
4.71
5.08
5.94
11.81
234
1^59 REPORT OF THE SECRETARY OF THE TREASURY
TABLE 'X.—Example of revision in existing Series E savings bonds, category of
bonds issued February 1957 through May 1969 ^—redemption values and investment
yields of bonds issued February through May 1967
[Based on $100 face value bond]
A p p r o x i m a t e i n v e s t m e n t yield 2 o n :
Redemption
value d u r i n g
each period
Period after issue d a t e
(years)
Original
Revised
Value a t effect i v e d a t e of revision t o beginning
of each period
Original
Revised
Percent
O-H
H-l
i-lH
13^2
2-2H
2 H (Aug. l - N o v . 1, 1959 8)-3
3-3H
3H-4
4-4H
4H-5
5-5H- —5H-6
:
6-6H6H-7
:
7-7H
73^8
8-8H
8H-8i3/i2
813^2 ( m a t u r i t y )
-
-.
Issue price t o
beginning of
each period
Origmal
Percent
$75.00
75.60
76.72
77. 92
79.24
80.60
82.00
83.40
84.84
86.28
87. 76
• 89. 24
90. 72
92. 24
93. 76
95.32
96.88
98. 44
100.00
82.04
83.48
85.00
86. 56 •
88. 20
89.84
91. 56
93. 36
95. 24
97.16
99.12
101.16
103. 2n
Original
Revised
Percent
Percent
• • 3. 25
L60
2.28
2.56
2.77
2.90
3.47
3.44
3.45
3.43
3.43
3.42
3. 41
3.40
3.39
3.38
3.37
3. 36
3.39
3. 57
3. 54
3. 58
3. 60
3. 64
3. 65
3. 68
3. 71
3. 74
3. 77
3.80
3.82
3.89
3. 00
3.06
3.11
3.14
3.17
3.19
3. 20
3. 21
3. 21
3. 22
3. 23
3. 23
3.25
1 For categories of outstanding Series E bonds see table V.
. .
2 Compounded semiannually.
BP*^!'s^'«ffli!^i
3 Effective date of revision for bonds issued February through May 1957.
Revised
Current redempt i o n value from
beginning of
each period to
maturity
3.01
3.08
3.15
3. 21
3.27
3.31
3.35
3.40
3.44
3.48
3. 52
3. 55
3. 61
3.35
3.38
3.39
3.39
3.39
3.89
3.38
3.38
3.37
3.37
3.36
3.36
3.37
3.37
3.39
3.41
3.49
3.81
3.92
3.95
3.99
4.02
4.05
4.10
4.15
5.19
4.23
4.30
4.45
4.85
-
-
235
EXHIBITS
T A B L E XI.—Revised extension on Series E savings bonds reaching first inaturity
J u n e 1, 1959, through Septernber 1, 1966 {bonds issued J u n e 1949 through April
1957)^—summary of redemption values and investment yields on bonds issued
J u n e through November 1949
[Based on $100 face value bond i]
Approximate investment
yields 2
Period after first raaturity date
First half year
H to 1 year
1 to IH years
IH to 2 years
2 to 2H years
2H to 3 years
.
3 to 3H years
3H to 4 years
4 to 4H years
4H to 5 years
5 to 5H years
5H to Oyears
6 to 6H years
6H to 7 years
7 to 7H years
734 to 8 years
8 to 8H years
8H to 9 years
9 to 9H years
9H to 10 years
Extended maturity value (10 years frora first raaturity)
Rederaption
value dm^Lng
each period
On current
On first raa- redemption
turity value value frora
to beginning begiiming of
of each period each period
to extended
raatm'ity
Percent
$100. 00
101. 76
103. 56
105. 40
107. 32
109. 24
111.24
113. 28
115. 36
117. 52
119. 72
121. 96
124.28
126. 64
129. 04
131. 56
134.12
136. 72
139. 40
142.16
145. 00
3.52
3.53
3.54
3.56
3.57
3.58
3.59
3.60
3.62
3.63
3.64
3.66
3.67
3.68
3.69
3.70
3.71
3.73
3.74
3.75
Percent
3.
3.
3.
.3.
3.
3.
3.
3.
3.
3.
3.
3.
3.
3.
3.
3.
3.
3.
3.
4.
> Bonds reaching first maturity beginning Dec. 1, 1959, will have maturity values higher than then* face
value. The ratio of the value at first maturity to the redemption value for any given period of holding will
be approximately equal in all cases.
2 (Compounded semiannually.
236
1959 REPORT OF THE SECRETARY OF THE TREASURY
T A B L E XIL—Revised^ and present Series E bond extension period redemption
values and investment yields
[$100 bond, face value 2]
Yield for: 3
R e d e m p t i o n value
Period after first m a t u r i t y
d a t e (years)
P e r i o d held *
Revised
O-H
H-l
1-1H-lH-2
2-2H
2H-3
3-3H 334-4
4-4H
4H-5
5-5H
5H-6
6-6H
6H-77-7H
7H-8
8-8H
--8H-9
9-9H
9H-10
10 (2d m a t u r i t y )
.
Present
- $100.00 $100.00
101.76 101. 50
103.56 103.00
105.40 104. 50
107. 32 106.00
109. 24 107.60
111.24 109. 20
113. 28 110. 80
115. 36 112.40
117. 52 114.00
119. 72 115. 80
121. 96 117. 60
124. 28 119. 40
126. 64 121. 20
129. 04 123. 00
131. 56 124.80
- 134.12 126. 60
136. 72 128. 60
139. 40 130. 60
142.16 132. 60
145.00
134. 68
—
Increase
0
$.26
.56
.90
1.32
1.64
2.04
2.48
2.96
3.52
3.92
4.36
4.88
5.44
6.04
6.76
7.52
8.12
8.80
9.56
10.32
Revised
Present
R e m a i a i n g period to
second m a t u r i t y
Increase
Revised
Present
Increase
Percent Percent Percent Percent Percent Percent
0.75
3.75
3.00
3.52
3.76
76
3.00
0.52
3.00
3.53
3.77
2.98
.55
3.00
77
3.54
78
3.79
2.96
.58
3.01
3.56
78
3.80
2.93
.63
3.02
3.57
3.81
79
2.95
.62
3.02
80
3.58
3.82
2.96
.62
2.02
3.59
80
3.83
2.95
.64
3.03
3.60
81
3.85
2.94
.66
3.04
3.62
3.86
81
2.93
.69
3.05
3.63
83
3.87
2.96
.67
3.04
3.64
84
3.88
2.97
.67
3.04
3.66
3.89
86
2.98
.68
3.03
3.67
3.91
2.98
.69
3.04
87
3.68
3.93
88
2.98
.70
3.05
3.69
3.93
86
2.98
.71
3.07
3.70
3.94
8?
2.97
.73
3.12
3.71
3.96
86
2.98
.73
3.10
3.73
3.98
88
2.99
.74
3.10
86
3.74
4.00
2.99
.75
3.14
3.75
3.00
.75
1 Bonds reaching first raaturity after May 31,1959 (bonds issued June 1949 through April 1957).
2 For bonds reaching first raaturity June-November 1959. Later maturing bonds will have first raaturity
values higher than their face value (see footnote 1, table XI).
. .3 Compounded semiannually.
* On first maturity value to begiiming of any subsequent H-year period.
APPENDIX 4
( S U B J E C T TO E N A B L I N G
LEGISLATION)
Revision of existing Series H savings bonds, outstanding bonds issued before J u n e 1,
1959
S u m m a r y of revisions in t e r m s and conditions
(1) Date of announcement.—June 8, 1959 (Treasury Circular No. 905—Second
Revision).
(2) .Effective date for start of increased interest.—June 1, 1959, for existing borids
dated J u n e and December of any issue year; for all others t h e next date on which
interest checks are due. Therefore, t h e first change in t h e a m o u n t of interest
checks from t h e schedules published in Treasury D e p a r t m e n t Circular No. 905—
revised, dated April 22, 1957, will t a k e place J^ year after J u n e 1, 1959, in the case
of bonds dated J u n e and December of any year and y year after t h e next date
(after J u n e 1959) on which interest checks are due in t h e case of all other bonds.
(3) Revision of interest payable in ihe future until inaturity.—Beginning with
interest checks due on December 1, 1959, for bonds issued J u n e and December of
any year (all other bonds on interest checks due y year after the effective date of
the revision for such bonds) t h e a m o u n t of each check until m a t u r i t y will be
increased to provide a graduated increase in investment yield for t h e remaining
period to m a t u r i t y . At m a t u r i t y t h e increase in investment yield will a m o u n t t o
approximately ^ of 1 percent (compounded semiannually), with lesser increases
in investment yields if bonds are redeemed before m a t u r i t y . ^
(4) No changes in other t e r m s or conditions.
1 The categories of outstanding H bonds are shown in table XIII attached. For examples of changes in
amounts of interest checks and investment yields see tables XIV and XV attached.
EXHIBITS
237
TABLE XIII.—Categories of outstanding Series H bonds. May 31, 1969
Current maturity period
Yield for Range of yields for refull curmainmg time to next
rent
maturity i
maturity
period
Present
Revised
Issue year and month
June 1952-January 1957 ^
February 1957-May 1969
Percent
3.00
3.25
i—
Percent
3.34-3.81
3.35-3.38
Range of
time to
next maturity 1
(years)
Percent
3. 8^4. 31
3.85-3. 88
2%-7H
7H-9H
Extension
yields
(2)
(2)
J Based on next date interest checks are due.
2 No extension planned at this time.
TABLE XIV.—Example of revision in existing Series H savings bonds, category of
bonds issued June 1952 through January 1957 ^—interest checks and investment
yields on bonds issued June through November 1952
[Based on $1,000 bond 2]
Approximate iiivestment yields«
Interest check
From; effective
date df revision
to each interest
payment date
From issue date
to each iaterest
payment date
From each interest payment date
to maturity
Original Revised
Original Revised
Original Revised
Original Revised
Percent
Percent
Percent Percent
3.00
3.13
3.18
3.22
3.27
3.34
3.41
3.49
3.68
3.60
3.63
3.66
3.69
3.74
3.81
4.31
Period after issue date
(years)
0
H
1. _._
IH
2
2H
—
3._.
__
3H
4
_
4H
5
5H
- 6 ::::::::::::::::::::::::::
6H---.
7 (June 1-Nov. 1,1959 *)
7H .
8
8H
—9.!
:
9H
9^i (maturity).--
$4.00
12.50
12.50
12.50
12.50
12.60
12.60
12.60
17.00
17.00
17.00
17.00
17.00
17. 00
17. 00
17.00
17.00
. 17. 00
- 17.00
._ 17. GO
0.80
L65
L93
2.07
2.15
2.21
2.25
2.28
2.40
2.49
2.67
2.63
2.69
2.73 .
.
17. 50 3.40
17.60 3.40
3.40
20.20
20. 20 3.40
20. 20 . 3. 40
20. 20 3.81
. 3.60
3.60
3.68
3.76
3. 82
4. 31
2.77
2.81
2.84
2.87
2.89
3.00
1 For categories of outstandhlg Series H bonds see table X I I I .
2 Redemption value at all times=$l,000.
3 Compounded semiannually..
< Effective date of revision for bonds issued June through November 1962.
2.78
2.82
2.88
2.94
2.99
3.12
3.91
4.07
4.36
5.10
10.37
4i61
4.83
5.18
6.06
12.37
238
19 59 REPORT OF T H E SECRETARY OF T H E TREASURY
TABLE XV.—Example of revision in existing Series H savings bonds category of
— bonds issued February 1957 through May 1969 ^—interest checks and investment
yields on bonds issued February through May 1957
[Based dh $1,000 bbnd 2]
A p p r o x i m a t e i n v e s t m e n t yields 3
I n t e r e s t check
F r o r a effective
d a t e of revision
t o each m t e r e s t
p a y m e n t date
F r o m issue d a t e
to each interest
payment date
F r o m each interest p a y m e n t date
to m a t u r i t y
Original R e v i s e d
Original Revised
Original Revised
Original Revised
Percent
Percent
Period after issue d a t e
(years)
0
14
1
134
---
2
•
_
.__
2 H (Aug. 1-Nov. 1, 1959 <)._.
3
3H4
4H
5
5H -
6
6H
7
7H -
8
8H-.
_
-- —
9H
10 ( m a t u r i t y )
16. 90
^—^— 16. 90
16. 90
- 16.90
16.90
16. 90
'.. 1__- 16. 90
16.90
_ 16. 90
16.90
16. 90
16. 90
—
16.90
- 16. 90
16.90
.
17. 40
17. 40
17. 40
17. 40
17.40.
19. 80
19. 80
19. 80
19. 80
19.80
21.00
21.00
21.00
22.10
22.10
Percent
3.25
3.35
. 3.38
3.38
3.38
3.38
L60
2.25
2.62
2.80
2.92
$8.00
14. 50
16. 90
16.90
16. 90
3. 38
3.38
3.38
3.38
3.38
3. 38
3.38
3.38
3.38
3. 38
3.38
3. 38
3. 38
3. 38
3.38
3.48
3.48
3.48
3.48
3. 48
3. 56
3.61
3. 65
3. 68
3. 71
3.75
3. 78
3. 81
3. 85
3.88
2.99
3. 04
3. 08
3.11
3.14
3.16
3.18
3.19
3. 20
3. 21
.3. 22
3. 23
3. 24
3. 24
3.25
3. 01
3. 07
3.12
3.16
3.19
3. 25
3.30
3. 35
3. 39
3. 42
3. 46
3. 50
3. 53
3. 57
3.61
3.38
3.38
3.38
3.38
3.38
3.38
3.38
3.38
3.38
3.38
3.38
3.38
3.38
3.38
Perceiit
" • -
3 88
3.92
3.95
4.00
4.05
4.11
4.13
4.16
4.19
4.23
4.29
4.31
4.35
4.42
4.42
• 1 For categories of outstanding Series H bonds see table X I I I .
• 2.Redemption value at all times=$l,000.
. . 3.Compounded semiaimually.
4.Effective date of revision for bonds issued February through Mas'-1957.
EXHIBIT 17.—Statement by Secretary ofthe Treasury Anderson, June 10, 1959,
before the House Ways and Means Committee in support of improving the
savings bond program, removing the ceiling on interest rates on new issues of
Treasury bonds, and increasing the statutory debt limitation
I-appear this morning to support policies I sincerely believe to be in the best
interests of 176 million Americans. I do so, in the realization'that all thoughtful
people share common objectives. We realize there are honest differences cf
opinion as to the methods by which these objectives may be attained;
Fundamentally, we Americans endeavor to achieve sustainable; economic
growth in terms of real goods and services. We seek a sustainable rate of growth
that would promote maximum job opportunities, continuity of employment, and
Teal earnings. We-seek as well to-insure that-the process of saving,^ which underlies the growth of this or any other country, is not diminished but encouraged.
We seek to protect the welfare of those individuals who now depend for their
livelihood on accumulated savings, the proceeds of insurance policies, benefits of
retirement systems, the aid of social security payments, and similar accumulations from a lifetime of effort.
We seek also to insure that those who plan for the education of their children,
who guard against adversity, and who provide for their own economic well-being
through an}^ process of accumulated savings shall not have the rewards of their
diligence and thrift diminished.
We live in a world of tensions and in a world where new nations with new
freedoms are seeking to improve their standards of living and their economic
well-being, where all eyes are turned toward America. A sound domestic economy is essential if we are to maintain sufficient military strength to preserve
freedom and liberty for ourselves and our friends abroad. If we are to witness
.EXHIBITS
,
^,
.,
_
239
the growth of better conditions for our neighbors all over the world, we must
adopt and stanchly support enduring sound monetary and fiscal policies, the same
policies that we have strongly encouraged them to adopt in their own interests.
We must not be unmindful of the lessons to be learned from the financial history
of others who have tried methods less demanding and less exacting, nor must we
succumb to the belief that real wealth is created by any other means than by the
physical and mental labor of human beings working with the physical resources
with which each country is blessed.
It is with this belief that we support the proposals which have been laid before
3^011 by the President. In a world of economic complexities, there is a constant
interrelationship between fiscal policy, monetary policy, and the individual and
collective actions of all who participate in our economic structure. We cannot
isolate one and set it apart as controlling, but we can say that each, in its own
sphere, is a sine qua non to the achievement of our total objectives.
It is because of my belief that the people of our country are willing to subscribe
to the disciplines which freedom exacts from government and individuals that I
have confident faith in the security and well-being of our Nation's future.
I should like now to address myself to one important element of our economic
life, the management of our national debt.
The public debt rose last month to an alltime high of $287.2 billion and is now
only slightly below that figure. This represents over $1,600 for each man, woman,
and child in America. The Federal Government owes as much money as all of
the corporations in the United States put together. Our debt is as large as the
debts of all the individual borrowers in the country put together plus the debts
of all of our State and local governments.
The U.S. Government, therefore, owes about onethird of all of the debt in the
United States and is the largest single borrower. In the calendar year 1958, the
Treasury issued $69 billion of new marketable securities—$19 billion for cash and
$50 billion in refinancing maturities, quite apart from the continuing rollover of
about $22 billion of weekly bill maturities. All of the corporations in America
issued slightly under $10 billion of new bonds and notes last year while State and
municipal new security issuances amounted to $7^ billion.
In the year ahead, the Treasury faces the refinancing of $76 billion of shortterm securities that will mature. In some ways, the volume of this short-term
debt is as important a factor in our financing picture as the size of the total debt.
Each time the Treasury goes to the market—either for refunding operations or
for new cash borrowing needed to cover seasonal requirements or retirement of
other securities—it is a significant event in all financial markets. Both the size
of our borrowing requirements and the frequency of our trips to the market tend
to interfere with the smooth marketing of new corporate and State and local government securities.
Another problem related to the large size of the debt maturing within 1 year
is that such debt is only one step away from money. It should be realized, however, that in this country we have a large active and continuous demand for shortterm debt instruments outside of the banking system inasmuch as corporations,
State, and local governments, foreign accounts, and many other investors invest
their short-term funds in this manner. Almost 60 percent of our under-1-year
debt, therefore, is held outside of the banks—a larger percentage than in any other
country we are aware of.
Even though it is preferable to have large amounts of short-term securities in
the hands of nonbank investors rather than in commercial banks, we must never
lose sight of the fact that a well-balanced debt structure calls'for continued offerings of intermediate and longer term securities, whenever conditions permit, if
debt management is to be conducted in a manner consistent with economic growth
and stability.
The quest for a balanced structure of the debt is never-ending since the passage
of time brings more and more of the outstanding debt into the short-term area.
The high point of our under-1-year debt was reached at the end of 1953 when the
total was $80 billion. The total is now $76 billion, having dropped below $60
billion for short periods in 1955 and 1956.
If the Treasury should be able to do nothing but issue under-1-year securities
to replace maturing issues between now and December 1960, instead of the present
$76 billion, we would have almost $100 billion of under-1-year debt outstanding
at that time.
240
1969 REPORT OF THE SECRETARY OF THE TREASURY
The Treasury does not intend this to happen. We must, therefore, continue
to sell intermediate and longer t e r m bonds whenever appropriate as we t r y to
>keep t h e short-term debt from growing. The only reason we have been able to
keep the short-term debt from growing since December 1953 is t h a t since then
we have issued $34 billion of 5- to 10-year bonds, $2 billion of 10- to 20-year bonds,
and $6>^ billion of over 20-year bonds.
T h e competition which we face
Let us look at some of the competitive phases of our problems. Federal
Government programs to guarantee home mortgages for veterans and to provide
F H A insurance on various types of mortgages have contributed to t h e unprecedented volume of homebuilding in America since World War I L B u t they have
also fostered a marked improvement in the quality of mortgages as investments
for the billions of dollars t h a t Americans each year save out of their earnings—
savings which they invest directly or which insurance companies, savings banks,
savings and loan associations, or pension funds invest in their behalf.
There are a great m a n y other debt obligations outstanding today which our
Government also aids in one way or another, including securities issued by m a n y
Federal Government agencies, even though those securities are not actually guaranteed by t h e U.S. Government. While the volume of long-term Governmentaided obligations has been growing, the volume of long-term Treasury bonds has
been declining. At the end of 1946, for example, there were $117 billion of U.S.
Treasury bonds outstanding which originally bore maturities of over 10 years.
In contrast, there was $6>^ billion of w h a t might be called long-term " Governmentaided" debt outstanding. Twelve years later—December 31, 1958—the $117
billion total of long-term Government bonds had shrunk to $65>^ billion, while
the $6K billion Government-aided total h a d grown to $58>^ billion—$55 billion
of which "is in F H A and VA mortgages alone.
I n addition, t h e continuation of high individual and corporate income tax rates
in t h e postwar period has made the complete exemption from Federal income taxes
which is enjoyed by State and local government securities very valuable. State
and local debt .outstanding has increased from $16 billion in 1946 to $59 billion
in 1958. Tax exemption has contributed to the ability of State and local governCHART
B
.LONGER TERM U.S. TREASURY AND GOVERNMENT AIDED.
DEBT OUTSTANDING
$Bir
Original M a t u r i t i e s Over 10 Y e a r s
120
Bonds
Dec. 31,
1946
Dec. 31,
1958
80
I "^Misc.
Invest Series
Bonds
Marketable''
40
^\
Treasury
Gov't
Aided
^
2'/2'
Treasury
Gov't
Aided
Public
Housing
EXH3ITS
241
ments to sell their securities, b u t it has also m e a n t t h a t Federal securities are
relatively t h a t much less attractive.
Competition for funds available for investment has also been increased in other
ways. A high corporate income tax rate has made corporations more inclined to
borrow t h a n to issue stock, since interest paj^ments are deductible for income tax
purposes b u t dividend p a y m e n t s are not. Moreover, from t h e standpoint of the
average small saver. Federal insurance of bank deposits and savings loan shares
has practically eliminated any dift'erence in risk between private savings and
Government bonds.
T h e problem of encouraging more long-term investors to buy and hold T r e a s u r y
securities is also increased by the tendency among some investors to prefer stocks
to fixed dollar obligations because of what I believe to be a mistaken conviction
t h a t t h e purchasing power of t h e dollar will decline further. I t is in this environm e n t t h a t t h e sale of enough long- and intermediate-term Treasury securities
sufficient to keep the debt from getting shorter must also compete with large and
growing demands for borrowing by State and local governments, by corporations
for plant and equipment needs, and by homebuilders and buyers.
M a n y investors h a v e also become increasingly confident in the continued growth
potentials of our Nation. As this grows, the high quality of Government securities
becomes relatively less i m p o r t a n t t h a n in t h e p a s t a n d t h e safest bonds in t h e
world—U.S. Government securities—are more difficult to sell.
In recent years there has been substantial liquidation of long-term Government
securities by investors who bought large a m o u n t s of such securities during World
W a r I I , based on t h e improvement in t h e relative attractiveness of other
investments.
Long-term T r e a s u r y securities are held primarily by three broad classes of
private investors other t h a n commercial banks. The first group consists of
savings institutions such as insurance companies, m u t u a l savings banks, savings
a n d loan associations, corporate pension funds, a n d State and local government
pension funds. These investors, in the aggregate, held only $31 billion of Governm e n t securities in December 1958, as compared with $41}^ billion 12 years ago.
When t h e rapid growth of institutional assets generally is taken into consideration t h e decline in their holdings of Government securities is even more striking.
In 1946, life insurance companies h a d 45 percent of their assets invested in Government securities; t h e percentage now is 7 percent, far below the 18-percent level
back in 1939.
Twelve years ago m u t u a l savings banks h a d 63 percent of their assets invested
in. Government securities; t h a t has now been reduced to 19 percent. Savings
a n d loan associations now h a v e only 7 percent of their assets in Governments,
although their percentage h a s never been much higher.
Corporate pension funds have 12 percent of their assets in Governments as
against 30 percent just a few years ago. Even in State and local pension funds,
where s t a t u t o r y requirements are much less favorable to investments outside of
Government securities, t h e percentage invested in Governments has fallen from
54 to 35 percent in t h e last 6 years alone.
T h e second group of long-term investors includes principally personal t r u s t
accounts a n d individuals in t h e upper income brackets. Their holdings of
Governments h a v e also declined substantially in t h e postwar years—from $34
billion in December 1946 to $21 billion now. I t is in this group where competition
with tax-exempt State and local obligations becomes most important.
B y contrast, there is a t h i r d group whose holdings have been growing. This
group includes t h e millions of small savers who b u y and hold series E and H savings
bonds. Through t h e savings bond p r o g r a m they have added substantially to
their holdings of Government securities in t h e postwar period—from $30 billion
in 1946 to more t h a n $42?^ billion now.
There is also a fourth area of long-term investment demand for Government
securities a p a r t from private investors—Federal Government investment accounts.
These accounts—social security funds, veterans' life insurance funds, civil
service a n d railroad retirement funds, et cetera, added substantially to their
holdings during t h e entire postwar period a t an average r a t e of about $2}^ billion
a year until last year. During t h e fiscal year 1959, however, t r u s t fund expenditures are exceeding receipts, serving to complicate further t h e Treasury's task .of
keeping t h e short-term debt from growing.
. .
We are just completing a fiscal year in which the largest peacetime deficit in the
history of our country h a d to be financed. In contrast, we are looking forward to
h a v i n g sufficient budget receipts next year to cover our expenditures. T h a t
525622—60
17
242
1959 REPORT OF THE SECRETARY OF THE TREASURY
CHART C
.FEDERAL SECURITIES HELD BY NONBANK INVESTORS!
^oV
^Shorter-term
Holders
Savings
31 "^Institutions
Individuals:
21 < » ^
\
'
'52
^ ^
Marketables,
Otlier Sav.
Bonds,etc.
Bonds
'54
-Calendar Y e a r s —
^Excluding Government Investment Accounts.
fact, in itself, should brighten significantly the opportunities to improve the
debt structure. Budgetary soundness has a pervasive effect in improving the
environment in which we operate. The confidence which grows out of proving
that we can live within our means is contagious.
Our willingness and ability to act soundly in managing our debt and in conducting our fiscal affairs is important also to our friends throughout the free
world who have a right to look to the United States as an example of fiscal
integrity.
While the gold movements of the past 18 months have been in response to the
normal functioning of gold in international exchange, the correction of prior
adjustments, and the historical rebuilding of monetary reserves, they should
serve as a reminder that the postwar dollar shortage has long since disappeared,
although there remains a shortage of capital resources in many of the less-developed
countries. These gold movements should remind us that other nations have
built strong financial and industrial communities and that we must reorient
our thinking in order to perform our full responsibility in the conduct of our
internal and international economic affairs.
We have demonstrated the ability of a free economy to come out of an economic
recession; it remains for us to demonstrate the willingness to pursue appropriate
policies during a period of high and rising business activity. Under current
conditions, such policies would include at least a balanced budget and sufficient
flexibility for the Treasury to permit sound management of the public debt.
We would be less than frank, however, to suggest that living within our means
as a national government will automatically cure the entire problem of managing
the public debt. We would also be less than frank if we suggested that the
legislation which you have before you will solve all of our problems. We feel
very strongly, however, that the proposed legislation can contribute significantly
to a fuller realization of our goals of managing the debt in a way that is consistent
with sound economic progress.
The President has already outlined his program to you, incorporating principally improvements in the savings-bond program, removing the 4K percent
ceiling on Treasury bond interest rates, and an increase in the debt limit. Proposed legislation on these three parts of the program is incorporated in sections
EXHIBITS
243
1 through 3 of the first of the bills we have placed before you. With your permission I should like to discuss each of these three items with you, and also to
take up the second proposed bill.
Sections 4, 5, and 6 of the first proposed bill deal with three somewhat technical
matters on which I am submitting a short written statement for the record.
These sections would provide a iO-year statute of limitations on tbe liability of
paying agents who in rare instances may redeem savings bonds by erroneous
payments;-clarify the statute which exempts U.S. obfigations from State and
locaLtaxes, and authorize the issuance of bonds to the Government's various
trust funds at the same prices as bonds are issued from time to time to the public.
If there are any questions on these provisions, one of mj^ associates will be glad
to answer them later.
Improvements in the savings bond program
The statement on the savings-bond program which was attached to my letter
to the Speaker Of the House of Representatives on June 8,1959, contains a complete
description of our savings bond plans, if the first proposed bill is enacted.
As I pointed out in that statement, the new savings bond program has three
major features.
. .
(1) All series E and H bonds sold beginning June 1, 1959, will earn interest
of 3% percent per annum if held to maturity—one-half percent more than at
present—with lesser improved yields for shorter periods of holding.
(2) All series E and H bonds outstanding will also earn approximately onehalf percent per annum more than they do now, if held to maturity, starting with
their first full semiannual interest period which starts on or after June 1, 1959,
with lesser improvement if redeemed earlier.
(3) All series E bonds on which an extension has already been promised and
which had not yet reached first maturity before June 1, 1959, will be offered an
improved extension on which 3^1 percent will be paid if held the full additional
10 years, with lesser yields (starting at 3y percent) for shorter periods of holding.
The savings bond program is a program that every American has a right to be
proud of. it puts more of the public debt in the hands of long-term investors—
few people reahze that the average dollar invested in these bonds stays with the
Treasury approximately 7 years. It also encourages desirable habits of thrift
throughout the Nation. Almost half of the current E- and H-bond sales are
accounted for by purchases on payroll savings plans by some 8 million Americans
throughout industry and Government. Many of these savings grow out of the
convenience of the payroll plan, savings which would not be taking place in such
volume if it were not for the savings program.
Corporations throughout America, large and small alike, are administering
these payroll savings plans on a voluntary basis because they realize their importance and the benefits to their employees of regular habits of thrift. Similarly
thousands of banks and other financial institutions across the country are selling
bonds every day without compensation because this is a program they sincerely
beheve in.
As you know, series E and H bonds are designed particularly for small savers.
We have more than $42}^ billion of E and H bonds outstanding at the present
time—$38 billion in the accrual-type series E bonds issued at 75 percent of their
face value with the interest reflected in successively higher redemption values
each 6 months to maturity—and $4}^ billion in Series H bonds which pay interest
currently by semiannual check to give a sliding scale of investment yields approximating E bond yields for similar periods of holding. These are the only series
of saving bonds which the Treasury has currently on sale, although approximately
$8K billion of the old series F, G, J, and K bonds (sales of which were discontinued
3 years ago) are still outstanding.
There are many reasons why so many millions of Americans buy and hold
series E and H savings bonds. I have already mentioned the convenience of
buying bonds on the payroll savings plan, and j'-ou are familiar with the convenience of savings bond redemption privileges throughout the country. Owners of
savings bonds never need to worry about market fluctuations; their redemption
values at all times are known in advance and are guaranteed by the Treasury.
Furthermore, unlike savings accounts, where rates may move either up or down
from year to year, the Treasury guarantees whatever rate of interest it puts dn
the bond for the full term of that bond.
.Americans also know that savings bonds are perfectly safe; the Treasury has
replaced over a million of them which have been lost or destroyed since the
244
195 9 REPORT OF THE SECRETARY OF THE TREASURY
program began. These are a t t r i b u t e s of savings bonds which have n o t changed
over t h e years, quite a p a r t from t h e relative attractiveness of t h e interest rate.
Current savings bond t r e n d s
Sales of Series E a n d H bonds improved slightly from 1957 t o 1958 b u t were still
behind sales for 1955 a n d 1956. Redemptions in 1958 declined significantly
from t h e 1957 peak. B u t t h e 1959 record t o date has not been good. Sales for
t h e first 5 m o n t h s are 6 percent behind a year ago, with a worsening trendi
Similarly, 1959 redemptions through M a y are 9 percent above a year ago, also
with a worsening trend. T h e a m o u n t of E a n d H bonds outstanding (including
accumulated interest on E bonds) declined by $36 million in April a n d M a y — a
greater decline t h a n in any 2-month period since t h e a u t u m n of 1950.
Furthermore, on a cash basis, t h e net drain on t h e Treasury of an excess of
redemptions over sales of E a n d H bonds in t h e current quarter is expected t o
a m o u n t t o approximately $300 million—equal t o t h e cash drain a t t h e low point
in t h e t h i r d quarter of 1957. This decline will undoubtedly become m u c h more
serious as time goes on unless t h e present t e r m s of these bonds are improved.
Furthermore, we can expect enthusiastic cooperation of financial groups a n d
employers in sponsoring t h e program only when they can conscientiously recommend savings bonds t o themselves, t o their customers, a n d t o their employees.
T h e r a t e of interest return on E a n d H bonds is now m u c h less favorable in
comparison with savings accounts, as well as with other types of securities—
b o t h Government a n d p r i v a t e — t h a n in earlier years. A t t h e end of World W a r I I
series E-bonds paid 2.90 percent for a full 10-year t e r m of holding, as compared
with 2]^! percent on long-term maturities of marketable Government securities,
an average of 2% percent on savings a n d loan shares, 1% percent on m u t u a l savings
bank deposits, a n d less t h a n 1 percent on commercial b a n k savings deposits.
At t h e present time t h e rate on E a n d H bonds held t o m a t u r i t y is 3)4 percent
as compared with more t h a n 4 percent on long-term Treasury marketable securities, a n d average rates paid of 3Ji percent on savings a n d loan shares, 3>^ percent
on m u t u a l savings b a n k accounts, a n d 2>4 percent on accounts in commercial
banks. Furthermore, t h e holder of a n E bond has t o wait 3 years t o get as m u c h
CHART
D
.E AND H BONDS-CASH SALES AND REDEMPTIONS.
Quarterly, Calendar Years 1955-'59
*EstimQte based on April and Moy 1959,
EXHIBITS
CHART
246
E
^MATURITY YIELDS ON E BONDS AND MARKET RATES—,
May 23:59
Quarterly Averages, 1941-*59
4.0
M
.SeriesE
S.0
f
I
IpatBBISSflBBniSllBBSBiai
V
BBBB9BBBBaDiGi
2.6-
Long-Term Treasury
Bonds
2.0Qi
I
I
I
1941
I
L...J
I
l
l
1945
l
l
l
I
I
1950
^
•
I
I
1955
"• Colendar Yeors
•
I
I—a.
1959
•
*
'^AIsoH bonds beginning June 1952.
CHART
F
.INTEREST RATES ON E BONDS AND SAVINGS ACCOUNTS%
EBonds
at Original Maturity^
Insured Savings f
and Loan Assns
' ^ Of utual
Savings Banks
«»—•-*
1945
'47
'49
^
I ^Insured Commercial Banks
'51
'53
Oecember 31
'55
'57
'59
246
1959 REPORT OF THE SECRETARY OF THE TREASURY
CHART G
TRENDS IN INDIVIDUALS' SAVINGS
Amounts Outstanding, l953-'58
Com'l Bank
Savings Accounts
^
52
1953
'56
'58
Savinas and Loan
Shares
479
44
, - L Mutual Savings
^ ^ ^ Bank Deposits
'58
^ 1953
Calendar Years
34X)
'56
'58
as 3 percent on his money, whereas t h e applicable rates on savings accounts
apply t o a far shorter period of holding.
This is t h e principal reason, therefore, t h a t t h e growth of savings bonds in
recent years has been far overshadowed b y t h e rapid expansion of savings in
m u t u a l savings banks, commercial banks, and—particularly—savings a n d loan
associations.
T h e percentage increases during t h e past 6 years shown on t h e chart are revealing: 52 percent for commercial b a n k savings, 50 percent for accounts in m u t u a l
savings banks, 150 percent for savings a n d loan shares, a n d only 21 percent for
E a n d H bonds.
Overall Series E savings bond rates were improved from 2.90 t o 3 percent in t h e
spring of 1952, and from 3 t o 3.25 percent early in 1957. I n neither case did t h e
increased r a t e m a k e u p for t h e increased return on competing savings since t h e
preceding change.
Some features of t h e n e w savings bond program
T h e Treasury's present plan a t t e m p t s t o correct this situation by bringing t h e
savings bond program back approximately t o t h e same competitive position t h a t
it held in 1952. I t would, b y so doing, contribute both t o a greater awareness of
t h e advantages of thrift throughout t h e country a n d t o a better structure of t h e
public debt.
Two of t h e three features in t h e new program—a higher r a t e on new bonds being
sold a n d a n improved extension t e r m for bonds reaching maturity—follow t h e
same p a t t e r n as in earlier savings bond revisions. You will note t h a t we would
like t o m a k e these changes effective as of J u n e 1, 1959, regardless of when t h e legislation is approved, so t h a t purchasers will know it is unwise t o stop buying
bonds on t h e false grounds t h a t b y waiting they could b u y a better bond.
T h e other feature of our savings bond program is new a n d altnough it is rather
completely described in t h e a t t a c h m e n t t o which I h a v e been referring, I w a n t t o
call i t particularly t o your attention, We feel quite strongly t h a t t h e Government
has a n obligation t o t h e milhons of Americans who hold E a n d Bt bonds t o
improve t h e future earnings of bonds already outstanding. We plan no additional
EXHIBITS
247
interest on holdings of savings bonds for a n y period in t h e past. B u t we do feel
t h a t each holder of an outstanding bond is entitled to an increase of approximately
one-half percent per a n n u m on t h e future earnings of his bond if he holds it to
m a t u r i t y just as we are planning now to p a y one-half of 1 percent more to t h e
buyers of new bonds.
T h u s , present holders of E or H bonds Avould have little or no incentive to cash
present bonds aiid b u y new ones. Such switching operations would be costly
both to t h e investor and to t h e Treasury.
T h e Treasury has, however, an even more i m p o r t a n t reason for taking this
step^—a reason which relates to the equitable t r e a t m e n t of all bondholders. T h e
Treasury has something of a trusteeship function on behalf of millions of individual savers who do not follow interest r a t e trends closely. They buy bonds and
hold bonds with understandable faith t h a t t h e Government is giving t h e m a
square deal.
T h e new savings bond program is expected to add $30 to $35 million to the
savings bond p a r t of t h e budget cost of interest on t h e public debt for t h e fiscal
year 1960. Approximately $5 million of this increased cost is a t t r i b u t a b l e to t h e
higher r a t e on new bond sales and to improved extension t e r m s . T h e remainder
is accounted for by increased interest on outstanding E and H bonds.
I n assessing t h e t r u e cost of t h e new program, however, in t e r m s of overall
budget costs of interest on t h e public debt, ahowance should be m a d e for some
expectation of increased sales and decreased redemptions as a result of t h e new
program in comparison with a continued deterioration of t h e savings bond picture
if present t e r m s are continued.
T h e Treasury can borrow more economically through t h e proposed increase in
savings bond t e r m s a t t h e present time t h a n it can by borrowing through m a r k e t able securities. We believe, therefore, t h a t t h e net addition to next year's budget
costs for interest on t h e public d e b t because of t h e new savings bond p r o g r a m
m a y be less t h a n $10 mihion, and could quite conceivably result in no net increase
a t all.
I t is realized, of course, t h a t t h e gross cost on savings bonds will tend to build
up in later years, b u t t h e saving in comparison with alternative borrowing would
very likely continue to be a sizable offset.
T h e inauguration of t h e new savings bond program will depend on t h e
favorable consideration by t h e Congress of section 3 of t h e first proposed bill.
Section 3 will p e r m i t t h e Treasury to pay interest in excess of t h e present maximum
interest r a t e of 3.26 percent, to p a y increased interest on bonds already outstanding, and to permit future extensions of bonds for more t h a n 10 years (the
present limit) beyond their original m a t u r i t y dates.
Background of the 4^4 percent interest r a t e ceiling
. I should like to consider next t h e 4^4 percent interest r a t e ceiling currently applying to all new issues of Treasur}^ bonds, which includes all new Treasury issues
m a t u r i n g in more t h a n 5 years. Section 1 of t h e first proposed bill would repeal
t h e present limit.
T h e earliest of all p u b h c d e b t statutes, in 1790, authorized t h e President t o
borrow money on t h e credit of t h e United States for t h e specific purposes of p a y m e n t of t h e foreign debt, funding of t h e existing domestic debt, and assumption
of t h e debts of t h e several States.
T h e President delegated this a u t h o r i t y to t h e Secretary of t h e Treasury,
Alexander Hamilton, and this p a t t e r n of responsibility continued in general until
t h e early Civil War period. At t h a t time (1861) t h e Congress directly authorized
t h e Secretary of t h e Treasury to conduct t h e financing of t h e war through t h e
issuance of bonds, 1-year notes, and demand notes.
Prior to World War I, however, t h e Secretary of t h e Treasury had little discretion in t h e actual carrying out of t h e public debt operations. T h e acts of
Congress authorizing t h e issuance of U.S. Government obligations usually specified
t h e terms and conditions applicable to each individual issue.
World W a r I brought a change in this situation. Because of t h e large a m o u n t s
of borrowing involved and t h e expectation t h a t a number of loan operations would
be required, Congress departed from its previous policy of specifying t h e t e r m s
and conditions of t h e obligations to be issued. Instead, in t h e first and succeeding
Liberty Bond Acts, Congress gave t h e Secretary of t h e Treasury broader a u t h o r i t y
t o determine t h e terms and conditions of issue, conversion, redemption, maturities,
p a y m e n t , and t h e r a t e and time of p a y m e n t of interest in respect t o t h e several
classes of obligations authorized to be issued. Interest r a t e ceilings on Treasury
248
1959 REPORT OF THE SECRETARY OF THE TREASURY
bonds were still set forth in t h e statutes, however; t h e last one was t h e present
4:}i percent r a t e ceiling.
I n making these changes, Congress proceeded in several steps. I n t h e first of
the war-financing operations of World War I, authorized by the First Liberty
Bond Act in A p r l 1917, Congress departed from its policy of determining t h e
specific terms and conditions of each Treasury issue. The Secretary of t h e
Treasury was authorized, with the approval of the President, to issue securities to
the extent of $5 billion a t a rate of interest on bonds issued under this authorization not to exceed 3% percent. The bonds were to be offered a t not less t h a n p a r
and no commissions were to be paid; other terms were left to t h e discretion of t h e
Secretary.
There was an expectation t h a t wartime rates might move higher. I t was provided, therefore, t h a t these first Liberty loan bonds could be converted into bonds
bearing a higher r a t e t h a n 3y percent, if any subsequent series of bonds should be
issued a t a higher r a t e before t h e termination of t h e war. I t m a y be noted t h a t t h e
effective r e t u r n on t h e new bonds was actually higher t h a n 3}i percent for m a n y
owners in comparison with corporate bonds or mortgages, since both principal a n d
interest were exempt from all taxation—Federal, State, and local—except estate
and inheritance taxes.
In the same act, authorization was given to t h e Secretary of the Treasury to issue
up to $2 billion of certificates of indebtedness, 1 year or less to m a t u r i t y . The
interest r a t e ceiling of 3M percent and the tax-exemption privileges provided for the
bonds applied also to the certificates.
The Second Liberty Bond Act in September 1917 in effect increased t h e Treasury's bond-issuing authority under both acts to $7.5 billion and increased the
interest r a t e ceiling on bonds to 4 percent. The conversion privilege was retained
for t h e new bonds except t h a t in this instance t h e privilege was to arise only once
instead of each time new bonds were issued a t a r a t e higher t h a n 4 percent. I n
this act and thereafter, t h e rate of interest payable on certificates was left to
t h e discretion of t h e Secretary. Tax exemption was retained under t h e Second
Liberty Bond Act, b u t to a lesser degree.
By t h e spring of 1918, when a t h i r d Liberty loan was under consideration, t h e
bonds of t h e previous loans were sehing below p a r and industrial and other
securities were yielding a r e t u r n much in excess of the rate on Government bonds.
The Third Liberty Bond Act (April 1918), therefore, authorized t h e issue of 4}^
percent nonconvertible bonds. The tax exemption status of the new bonds was
virtually unchanged from t h e second Liberty loan.
The ^}'i percent interest rate ceiling was retained for the $7 billion of bonds issued
under t h e F o u r t h Liberty Bond Act (July 1918). In order to make the r a t e more
attractive, however, tax exemption privileges were considerably extended with
respect to surtaxes, excess profits taxes, and war-profits taxes payable during
the war and within a fixed time after the termination of the war.
During t h e early m o n t h s of 1919 it became clear t h a t new financing would again
be required in the near future. A complicating element in the situation was t h e
fact t h a t t h e final session of t h e 65th Congress would terminate on March 4, 1919,
considerably before t h e expected date of the new financing. Carter Glass, then
Secretary of t h e Treasur}^, wrote to t h e chairmen of b o t h t h e House Committee
on Ways and Means and the Senate Committee on Finance and presented a strong
case for giving t h e Treasur}^ greater leeway in setting t h e terms of new issues.
He cited at length t h e difficulty under conditions t h e n prevailing of fixing t h e
terms of loans considerably in advance of the offering.
I n a s t a t e m e n t before t h e Ways and Means Committee on F e b r u a r y 13, 1919,
t h e Secretary made a number of specific requests in connection with the forthcoming Victory loan, including thc request t h a t the interest r a t e ceiling be removed for notes and for bonds having maturities of less t h a n 10 years.
To withhold from the Secretary of the Treasury the power to issue honds or notes bearing such rate of
interest as may be necessary to make this refunding possible [i.e., refunding the mterim certificates issued
between the fouj'th and fifth (Victory) loans] might result in a catastrophe—
t h e Secretary stated.
He added t h a t :
To specify in the act the maximum amount of mterest at a figure sufficient to cover all contingencies would
be costly, because the maximum would sui-ely be taken by the public as the minimum.
I t m a y be noted t h a t t h e interest rate on certificates issued in anticipation of the
third Liberty loan h a d risen to 4>^ percent a year earlier (February 1918) a n d had
remained a t t h a t figure on subsequent issues in anticipation of t h e fourth a n d
Victory loans. Certificate rates later rose to 6 percent.
EXHIBITS
249
Before its adjournment, Congress responded to the Secretary's appeal in March
1919 with the Victory-Liberty Loan Act. This act granted increased discretion
to the Secretary of the Treasury to enable him to deal with the situation as it might
develop as far as notes were concerned, but his request on bonds was not granted.
A note issue (one of the possibihties previously suggested by the Secretary) was
authorized in the amount of $7^bilhon—
* * * containing such terms and conditions and at such rate or rates of interest as the Secretary of the Treasury may prescribe.
The notes were to run not less than 1 year nor more than 5 years from the date
of issue. In April 1919, the Treasury offered $4^ bilhon 4f4 percent 3-4 year gold
notes, exempt from State and local taxes (except estate and inheritance) and from
normal Federal income taxes, and convertible at the option of the holder into 3?^
percent 3-4 year gold notes exempt from all Federal, State, and local taxes (except
estate and inheritance). The 4}^ percent interest rate ceiling on bonds was thus
not involved in the final financing of World War I, but only because no bonds were
authorized or issued.
The 4Vi percent ceiling in our current environment
Until recently, the trend of interest rates in the past 25 years has made the 4]^^
percent ceiling a somewhat academic problem. Except for a short period in the
early 1930's, interest rates were low all through the depression. (Confidence in
the future had been seriously shaken and available savings exceeded the demand
for borrowed funds. In World War II, interest rates were held down artificially
on Federal borrowing and the demands for borrowed funds by State and local
governments, businesses and individuals were reduced to a minimum by rationing
and other direct controls.
After World War II the demand for funds by non-Federal borrowers began to
grow again and interest rates started to rise. This was aided by the fact that the
Federal Government has not been able to reduce its debt in the postwar period
as a whole. Budget surpluses in the 1920's allowed the Federal Government to
reduce the pubhc debt by more than one-third (from $26 billion in 1919 to $16
billion in 1930). As a direct result, interest rates declined during a period of
general prosperity.
Today, current demands for funds by businesses, homebuilders, State and local
governments, and other borrowers continue to push heavily against a relatively
modest volume of savings, and interest rates have risen further.
At the present time it is extremely unlikely that the Treasury would be able to
issue bonds in any volume at a rate of 4}i percent or less. This is particularly
true of the intermediate term area (5-10 years), where the volume of new bonds
which the Treasury can sell is usually substantially larger than the more limited
market for bonds in the long-term area. By the end of May 1959, a number of
bonds with more than 5 years to run were selling in the market with yields
above 4>^ percent.
Chait H on the market pattern of rates on outstanding bonds reveals that a
large part of the ''market curve" is above 4K percent. Furthermore, since the
market for longer bonds is very thin (very little buying or selling) the "market
yield curve" in the longer area is low as an index of what the Treasury would have
to pay for a long bond if one were to be issued today.
To date the Treasury has been able under the 4>1 percent ceihng to sell bonds
beyond 5 years to maturity. Last January we sold more than three-quarters of
a billion dollars of 21-year bonds to yield 4.07 percent and in March we sold more
than half a billion dollars of 4 percent bonds due in lOH years. But the market
has moved down further since these offerings (down in price, up in yield) and with
the present level of inteiest rates the Treasury would be seriously restricted by
the present ceihng from taking advantage of reasonable opportunities to improve
the structure of the public debt by issuing intermediate and longer term bonds.
It should be mentioned that since March 1942 the Treasury has had the right
to offer securities at a discount. It is permissible under present statutory authority, therefore, for the Treasury to issue a bond with a 4>1 percent coupon
rate at a price below par to yield any rate of interest to the investor above 4}4
percent which may be requiied by market conditions. The Treasury has not
believed it appropriate, however, to circumvent the 4>4 percent ceiling in this way
and is taking the direct approach to the problem by requesting appropriate
legislation.
As the President stressed in his message the Tieasury borrows at the lowest
interest rate at which it can successfully sell the securities it should issue. How-
250
195 9 REPORT OF THE SECRETARY OF THE TREASURY
CHART
H
.MARKET YIELDS ON GOVERNMENTS
5
l l l l
l l l l
10
15
I
Years to Maturity
20
25
I I I I I I I I
I
I I
30
35
I I I I I I I I I I I I I I
\^ May 29,1959
'"Estimatedyields al constant mal ur Hies.
ever the Treasury m u s t secure its funds in t h e competitive m a r k e t for credit as it
exists at t h e time it needs t h e money. I t m u s t seh its securities at rates sufiicient
to a t t r a c t buyers who always have t h e alternative opportunity to buv outstanding
securities or new issues of corporate or municipal securities. "
These are conditions which are true of both Government and private borrowing.
Typically, over recent years, t h e average new highest grade corporate
security, for example, has cost the borrower a b o u t three-tenths of 1 percent more
t h a n t h e m a r k e t rate on outstanding issues. The Treasury's pricing of new issues
has been even closer to the m a r k e t p a t t e r n of rates on outstanding issues t h a n
corporate pricing, as is shown in chart I, in comparison between the new Treasury
issue ^interest cost a n d the estimated m a r k e t rates. All borrowers—including
t h e T r e a s u r y — t r y to do their borrowing as cheaply as possible, b u t each newissue m u s t be a t t r a c t i v e or fail.
Interest yields on long-term Government securities are higher today in t h e
United States t h a n a t any time since t h e 1920's except for a very brief period in
t h e early 1930's. T h e y are stih, however, among t h e lowest in t h e world.
Long-term Government-bond yields in C a n a d a average approximately 5 percent; long-term yields in t h e United Kingdom are almost t h e same, and h a v e been
as high as 5 ^ percent within t h e p a s t 2 years.
Any comparison between present interest rates in t h e United States and t b e
rates on Government bonds in 1918, a t t h e time t h e 4K percent r a t e was originahy
estabhshed, should also recognize t h a t t h e original 4^" percent r a t e was in large
p a r t a tax-exempt rate, whereas ah Treasury bonds issued since F e b r u a r y 1941
h a v e been fully taxable—and a t income t a x rates which are substantiahy higher
t h a n in 1918.
T h e request for removal of t h e h m i t refiects an honest appraisal of m a r k e t
conditions for w h a t t h e y are—conditions which have now m a d e t h e 4>1 percent
ceihng a barrier to effective debt m a n a g e m e n t . Under current conditions, continuation of t h e ^ i percent ceihng would not only deny t h e Government t h e
o p p o r t u n i t y to extend debt, b u t also could easily increase reliance on short-term
financing to such an extent as to result in further imbalance in the debt s t r u c t u r e
251
EXHIBITS
C PI ART I
INTEREST COST ON NEW LONG-TERM CORPORATE BONDS
And Comparable Market Yields
%
""Moody's Investors Service.
CHART J
.INTEREST COST ON NEW LONG-TERM TREASURY BONDS.
And Comparable Market Yields
4.5
Newissue
interest Cost ^
\
40
Estimated Market Rate
?
at New Issue Maturity -^"-^^ Q
1952
'53
'55
'56
- Calendar Yeors -
May 2 9
1
252
1959 REPORT OF THE SECRETARY OF THE TREASURY
CHART K
LONG-TERM INTEREST RATES SINCE 1920
Yields on High-Grade Bonds
May
1959^
US Treasury
[Partially ^
Tax-Exempt
J
Tn.ntsi.r
Taxable
^
I
1920
'25
'30
I
'35
^Moody's Investors Service.
\
^
: \
/s
• • ^ State and Locar
I
'40
'45
'50
'55
'^Standard ond Poor's Municipal Average.
add to inflationary pressures, and push short-term rates to relatively high levels.
It has been aheged that the removal of the 4>^ percent ceiling would raise
interest rates. This is simply not the case. The inflationary aspects of debt
management policy under the present ceihng would raise increasing apprehension
both here and abroad as to the future value of the dohar. Nothing contributes so
strongly to forcing interest rates upward as fear of inflation. Those investors who
want to invest in fixed-dohar obligations (rather than in stocks) wih demand
higher interest rates to compensate for their expectation of a shrinking purchasing
power of the future repayments of principal and interest.
Those who feel that removing the 4}^ percent ceihng would raise rates need
only look to the market for shorter term issues, where no ceiling applies.
Treasury 91-day bih rates in a competitive market have moved up and down
with the business cycle—up to almost 2H percent in 1953, down to five-eighths of
1 percent a year later, up to 3 ^ percent in 1957, down to five-eighths of 1 percent
a year ago, and up again to over 3 percent now. Even the 5-year rate has fluctuated from below 2 percent to more than 4 percent within the last business cycle.
The President has requested that the limit be removed, not just raised to a
higher figure. If the principle of flexibility has any meaning at ah, it is clear that it
apphes here. Any figure selected for a new hmit would carry with it the connotation that the Government thought that is where interest rates should properly go.
As Secretary Glass said in 1919—such a ''maximum would surely be taken by the
public as the minimum."
How interest rates operate
Popular discussion of interest rates is often clouded by misunderstanding of
their nature in a free market economy. It is often incorrectly stated that the level
of rates is determined by actions of the Federal Reserve authorities, or that the
Treasury determines general interest rate policy each time it issues a new security.
The view is also incorrectly expressed that interest rates somehow are fixed at
high levels by large financial institutions.
253
EXHIBITS
CHART
L
.CHANGES IN MAJOR FORMS OF DEBT.
Fiscal Years l 9 5 4 - ' 5 9
$Bil.
Corporate Bonds and Notes,
State and Local Securities,
and Bank Loons
$Bil.
Mortgages
r
15
10
30
15.6
5
0
20
10
15.7
1801
125;
12.2
lOX)
1954 '55
'57
'59
Federal Government
5
10
0
-5
1954 '55
1954 '55
'57
•59
*Excluding debt held by FederalReserve Banl(s ond Government Investment Accounts.
T h e rise in interest rates which has occurred since last summer—following a
rather sharp decline in t h e preceding 8 months—has been incorrectlv a t t r i b u t e d
JDy some to h a v e been t h e result of Federal Reserve and Treasury policies, a n d it
is said t h a t these policies have, in effect, cost the Treasury large sums in interest
p a y m e n t s on t h e pubhc debt. This view is followed with the suggestion t h a t
interest rates are ' ' t o o high" and t h a t something m u s t be done to bring t h e m
down.
A supplemental s t a t e m e n t t h a t I a m submitting contains a description of t h e
factors affecting interest rates in our free m a r k e t economy, a discussion of t h e
forces causing higher interest rates during t h e current fiscal year, and an analysis
of t h e various courses of action which might be effective in inducing lower rates
of interest. I shah simply summarize briefly a t this point the major conclusions
reached in m y supplemental statement.
T h e interest r a t e is a price—the price of borrowed money. I t responds to forces
t h a t operate through demand and supply in free credit markets. This being t h e
case, t h e p r i m a r y determinants of interest rates are the actions of milhons of
individuals and institutions rather t h a n those of t h e Treasury or t h e Federal
Reserve. T h e rise in interest rates since t h e end of World War I I has resulted
primarily from unprecedented demands for credit on t h e p a r t of individuals,
businesses, and State and local governmental units. I n addition, t h e Federal
d e b t has expanded, rather t h a n contracting as it did during t h e prosperity of t h e
1920's.
A major factor contributing to t h e rise in interest rates since last summer has
been t h e record peacetime Federal budget deficit of approximately $13 bihion.
As is shown in the chart, during t h e current fiscal year expansion in several cate-^
gories of debt—which reflect d e m a n d pressures in credit m a r k e t s — h a v e been
moderate in comparison with other recent years. Mortgage debt has increased
substantially since last summer, b u t t h e total expansion in corporate bonds and
notes, S t a t e and local government securities, and b a n k loans has been less t h a n
in any fiscal year since 1954. I n addition, growth in consumer credit, except for
recent months, has been moderate. On t h e other hand, t h e rise of almost $9
254
1959 REPORT OF THE SECRETARY OF THE TREASURY
billion in publicly held Federal securities is in sharp contrast to t h e moderate increases in fiscal years 1954, 1955, and 1958 and t h e decrease in 1956 and 1957.
These figures support t h e j u d g m e n t t h a t t h e Federal deficit, rather t h a n debt
m a n a g e m e n t or monetary policies, has been an i m p o r t a n t major factor promoting
higher interest rates during this fiscal year, a fact which my supplementary statem e n t treats in detail.
Is there, as some suggest, some practicable way of inducing lower interest rates
in this country without causing great h a r m to our Nation?
T h e interest burden on t h e public debt—now about $8 billion per year—is, of
course, of deep concern. Of much more concern, however, is t h e need to maintain
freedom and flexibility in our economy and, a t t h e same time, avoid more erosion
in t h e purchasing power of t h e dollar. T h e causes of inflation in a highly industrialized, free-market economy are m a n y and complex. Consequently, a pror
gram of inflation control m u s t be broad gaged, and cannot rely on monetary and
fiscal policy alone.
Nevertheless, monetary and fiscal policy are indispensable instruments in our
a t t e m p t s to protect t h e value of t h e dollar. Logic and experience show t h a t
a t t e m p t s to maintain interest rates a t artificially low levels—either through creation of high-powered money by t h e central bank or by legislative a t t e m p t s to
maintain artificially low interest-rate ceilings—foster inflationary pressures.
Inflation works its greatest hardships on people of modest means, whose savings
are primarily in savings accounts, savings bonds, insurance policies, and similar
types of fixed-dollar assets. Furthermore, an inflationary upsurge is usuall}^
followed by recession—the greatest enemy of sustained, rewarding economic
growth.
Therefore, in any a t t e m p t s to promote lower rates of interest, I would strongly
counsel against some suggested techniques (discussed in detail in my supplemental statement) t h a t would rely upon t h e ability of t h e Federal Reserve System
to create large a m o u n t s of high-powered dollars.
This does not mean, however, t h a t we cannot t a k e actions whicb, although
perhaps not leading immediately to lower levels of interest rates, would remove
some of t h e significant pressures in t h e Government fiscal field t h a t have tended
to push rates higher during t h e p a s t year.
i n particular, we m u s t have a clear demonstration of our willingness to maintain fiscal and monetary discipline. A period of high and rising business activity,
such as t h e present, requires a surplus in Federal fiscal operations for debt retirement, and freedom for Federal Reserve authorities to conduct flexible credit
policies. A budget surplus in t h e coming fiscal year can convert t h e Federal Government from a net borrower in credit markets to a net supplier of funds through
debt retirement. Pressures bn interest rates can be considerably less t h a n if t h e
Treasury h a d to comp».te strongly with other borrowers for funds to finance a
deficit.
As I h a v e said before, t h e clearly mistaken view t h a t inflation is somehow
inevitable has tended to push interest rates higher. Inflationary expectations
generate higher rates primarily because borrowers are anxious to obtain funds
t h a t they expect to repay in cheaper dollars, whereas m a n y individuals and institutions with funds to invest prefer equities over debt obligations, or will make
loans or purchase bonds onl}^ if interest rates are high enough to compensate for
t h e expected rise in prices.
Any actions t h a t would let borrowers and lenders know t h a t t h e value of t h e
dollar will be preserved would remove one of t h e pressures promoting higher
interest rates. This can be done only b}?- means of a broad-gaged a t t a c k on all of
t h e forces and practices t h a t stimulate inflationary pressures. I would reeniphasize, however, t h a t under current conditions t h e most i m p o r t a n t single action
would be a clear demonstration of our determination to maintain fiscal and
monetary disciphne.
Coupled with this demonstration is t h e need for greater flexibilit}^ in debt m a n agement, so t h a t a better balance in t h e d e b t structure can be achieved, and so
t h a t m a r k e t s wih not become unsettled over such m a t t e r s as an impinging interest
r a t e ceiling. T h e removal qf t h e 4}1 percent ceiling on new issues of Treasury
bonds would be an i m p o r t a n t and necessary step in this direction.
T h e overriding a d v a n t a g e of this approach to reducing pressures on interest
rates stems from t h e fact t h a t t h e actions would be consistent with t h e requirem e n t s of sustainable economic growth, and would also transmit effects t h r o u g h
m a r k e t forces of demand and supply rather t h a n by means of Government decree
or regulation.
EXHIBITS
255
By proceeding in this way, t h e Federal Government would be promoting
" m a x i m u m employment, production, and purchasing power," as required in t h e
E m p l o y m e n t Act of 1946, in a manner consistent with those crucially i m p o r t a n t
b u t often overlooked words in t h e act which stipulate t h a t such actions be carried
out "in a m a n n e r calculated to foster and promote free competitive enterprise
a n d t h e general welfare."
N e e d e d increases in the debt limit
I t u r n now to t h e third p a r t of my discussion of t h e major elements in our
public debt legislative package; namely, t h e President's request for an increase
in t h e public debt limit, as provided for in section 2 of t h e first proposed bill.
T h e existence of a restrictive debt limit plays an i m p o r t a n t p a r t in our struggle
for fiscal soundness. Unlike m y views on the 4>{ percent interest r a t e ceiling,
I believe a specific dollar ceiling on t h e public debt serves a useful purpose and
can be effective in focusing attention in a unique way on t h e p a r t of t h e executive
departments, t h e Congress, and t h e public to t h e problems of sound Government
finance.
Such a limit should be restrictive enough to accomplish this purpose,
yet not so rigid as to impede t h e normal operations of t h e Treasury. T h e debt
limit changes the President has requested meet this test.
Last July the President recommended enactment of legislation to increase t h e
regular (permanent) s t a t u t o r y debt limit from $275 billion to $285 billion and
t o provide for an additional temporary increase of $3 billion to expire J u n e 30,
1960. Instead, t h e act of Congress approved September 2, 1958, increased t h e
regular s t a t u t o r y debt limit to $283 billion and the t e m p o r a r y increase of $5
bihion for t h e period ending J u n e 30, 1959, provided for in t h e act of F e b r u a r y
26, 1958, was allowed to continue in effect. As a result, t h e s t a t u t o r y debt limit
will revert to $283 billion on J u n e 30, 1959, with no provision for any t e m p o r a r y
increase in t h e limitation beyond t h a t time.
On J u n e 30, 1957, after 2 fiscal years of budget surpluses aggregating more
t h a n $3 billion, t h e public debt subject to t h e s t a t u t o r y debt limitation was
$270.2 billion. However, as a result of the recession in late 1957 through early
1958, t h e Treasury incurred a budget deficit of $2.8 billion in the fiscal year 1958
and will incur a budget deficit of almost $13 billion during t h e year t h a t will
end on J u n e 30, 1959, based on the President's J a n u a r y budget estimates.
T h e financing of these budget deficits is now expected to bring t h e public
debt subject to limit to approximately $285 bihion on J u n e 30, 1959—$2 billion
over t h e present regular ceiling. As a result t h e President is proposing an increase
in t h e regular s t a t u t o r y limit to $288 billion, an increase equal to t h e $275 billion
debt limit in effect a t t h e beginning of t h e fiscal year plus t h e estimated deficit
for t h e current year.
This will enable t h e Treasury to conduct its debt operations with a margin of
$3 billion to allow t h e flexibility in debt management operations and contingencies.
A $3 billion margin is essential to proper handling of the Government's operations.
The Treasury has been operating on an average cash balance of about $4>^ billion
during each of t h e last 3 fiscal years. This is relatively small; the average
operating cash balance this year has averaged only 69 percent of average monthly
budget expenditures—the lowest percentage for any recent year, as is shown
on t h e right side of t h e chart below. T h e Treasury's cash balance is no higher
today t h a n it was a decade ago, when budget spending was half its present rate.
T h e efficient use of cash balances in this way has, however, gone about as far
as it can without impairing efficiency of Treasury operations. There are times
when a somewhat larger cash balance would have given t h e Treasury m u c h
needed flexibility in timing its borrowing operations so t h a t it could ride out
a period of m a r k e t a p a t h y for new issues, rather t h a n forcing t h e Treasury to
borrow in an unfavorable atmosphere because it was running out of cash.
I n addition to maintaining an a d e q u a t e cash balance, t h e Treasury should also
be prepared to sell new issues of securities a week or so in advance of t h e m a t u r i t y
of old securities if such action would add materially to t h e success of a particular
financing operation. This was true, for example, of t h e recently completed M a y
1959 financing. As p a r t of this financing t h e Treasury sold $2 billion of 11-month
Treasury bills with an issue d a t e of May 11 to provide most of t h e funds necessary
to p a y off a $2.7 billion Treasury bill issue maturing on M a y 15. For t h e intervening 4 days, therefore, there was an increase in debt of $2 bihion. This was
possible only because t h e Treasury h a d some flexibility under t h e $288 billion
t e m p o r a r y ceiling—flexibility which we requested and which the Congress
approved last summer.
256
195 9 REPORT OF THE SECRETARY OF THE TREASURY
CHART
,
M
THE TREASURY CASH BALANCE PROBLEM
$Bil.
Operating Cosh Balance as % of
Budget Expenditures
Monthly Averages. Fiscal l949-'59
140
Operating
Cash Balance O l
t...f?f{
Rfrfl...
[Budget Expenditures
1949
'53
'56
'59*
1949
-Fiscal Years
* Estimate on basis of January 1959 Budget Message.
A third reason for our firm belief that a $3 bilhon debt leeway is a minimum
relates to the possibility which always exists that there may be sudden demands
on the Treasury in event of a national emergency, when the Congress- might not
be in session.
Our debt projections for fiscal 1960
The outlook for the fiscal year beginning July 1, 1959, is for a level of budget
receipts sufficient to cover budget expenditures. Even with this improvement in
our fiscal outlook, however, there wih stih be a large seasonal deficit in the first
half of the fiscal year, offset by a heavy seasonal surplus next spring.
There is no distinct seasonal pattern in budget expenditures between the two
halves of the year, as indicated by the chart below, which is based on the January
budget estimates.
On the other hand the budget receipts fohow a distinct seasonal pattern. Even
when the speedup in corporate tax collections, growing out of revisions in the Revenue Code of 1954, is completed there wih stih be a substantial seasonal disparity
in tax receipts. As you know, smaller-sized corporations wih continue to concentrate payments in the spring which, together with the concentration of individuals'
declarations and final payments, whl stfll result in relatively high tax receipts in
January-June of each year. Again, the January budget estimates provide the
basis for these figures. We expect, therefore, that even with a balance between
expenditures and receipts for the fiscal year as a whole expenditures wih exceed
receipts by approximately $6 bihion during the July-December half of the year.
The July-December 1959 deficit wih be only slightly more than half of the $11
billion deficit in July-December 1958.
At intermediate points, such as December 15 and January 15, the cumulative
deficit—and, therefore, borrowing needs—wih reach or exceed $7 bihion. That
is why the President has requested a temporary debt ceihng of $295 bihion. We
are asking that this temporary hmit be provided only through June 30, 1960,
although a valid case can be made for a provision that would, for a longer period of
time, control the debt at fiscal yearends and yet provide for seasonal requirements
257
EXHIBITS
CHART
N
BUDGET EXPENDITURES-SEMIANNUAL.
Fiscal Years 1956-'60
JulyDec.
Jan.June
— 1956—'
JulyDec.
Jan.June
'—1957—'
JulyDec.
Jan.June
'—1958—'
JulyDec.
Jan.June^
'—1959—'
*Estimate on basis of January 1959 Budget Message.
CHART
0
BUDGET RECEIPTS-SEMIANNUAL
^Estimate on basis of January 1959 Budget Message
525622—60
18
JulyOecf
Janr
June^
'—1960—'
258
1959 REPORT OF THE SECRETARY OF THE TREASURY
CHART P
.BUDGET SURPLUS OR DEFICIT-SEMIANNUAL.
Fiscal Years 1956-60
$Bil.
Budget Surplus
+6
JulyDec.
JulyDec.
JulyDec.
Jan.June
Jan.June
JulyDec.
Jan.June
-57;
Jan.June*
Jan.June*
-1.9
-5.9
-67i
-7.9
JulyDec*
-11.0
-6h
BudgetDeficit
-12
1956
1957
1958
1959
I960
*Estimate on basis of January 1959 Budget Message.
CHART Q
.MONTHLY RANGE OF PUBLIC DEBT SUBJECT TO LIMIT.
$Bil.
Estimated*
Actual
Proposed Temporary c j ^
increase
. A.
-I 7V'\^
290
If $3Bil.
I i Flexibility
Temporary Increase
In Limit
^
Proposed
Regular Limit
280
Debt: 0
EndofMonth
270
1956
1957
1958
• Fiscal Years -
I.. •,I I
1959
*Semimanlhly,assuming $3.5 billion operating balance excluding free gold
I960
EXHIBITS .
259
within t h e year. It. is entirely appropriate for t h e Congress to review t h e debt
limit situation each year, however, if it so desires.
Table I, a t t a c h e d a t t h e end of this statement, indicates in detail our current
semimonthly projection of t h e debt subject to t h e limit during t h e fiscal, year
1960, assuming a constant $ 3 ^ billion operating cash balance.^ T h e projections
are stated both before and after t h e allowance for $3 billion flexibility. As you
will note from t h e table, and also from chart Q above, on December 15, for
example, even t h e $295 billion temporary debt limit would appear to be insufficient
for a few days, b u t we will be able to operate within t h a t limitation without u n d u e
impairment of our flexibility^
C h a r t Q also indicates t h e wide fluctuations in t h e a m o u n t of d e b t outstanding
within each m o n t h during t h e fiscal year just ending.
T h e fiscal 1960 estimates on which t h e current request for an increase in t h e
d e b t limitation is based are t h e same as those contained in t h e budget which t h e
President submitted to you earher this year—budget receipts of $77.1 billion and
budget expenditures of $77 billion.
Those estimates were prepared 6 months ago and as t h e President indicated
in his message on public debt management, it now appears t h a t interest on t h e
public debt during t h e forthcoming year will a m o u n t to a b o u t $8)^ billion instead
of t h e $8 billion included in t h e budget.
As I pointed out earlier, only a negligible a m o u n t of this half-billion-dollar
increase, perhaps less t h a n $5 million, represents t h e net additional cost of t h e new
savings bond program. For all practical purposes t h e entire increase is a t t r i b u t able to t h e rise in interest rates which has taken place since t h e earlier estimate
was m a d e . T h e President also m a d e it clear in his public debt message t h a t t h e
strength of our economic recovery beyond earlier expectations has improved t h e
revenue outlook for t h e fiscal year 1960 sufiiciently to offset the increased interest
cost.
Facilitating exchanges of Treasury securities
Before discussion of t h e remaining sections of t h e first proposed bill, I would
like to complete m y s t a t e m e n t by discussing briefly t h e provisions of t h e second
proposed bill.
I have already spelled out in some detail t h e problem of an ever-shortening public
debt and t h e Treasury's determination to issue intermediate and long-term bonds
whenever m a r k e t conditions are appropriate.
Typically, new Treasury bond issues arise either from a new issue sold for cash
or a new issue offered in exchange to holders of securities which are maturing
within a m a t t e r of weeks. M a n y of these m a t u r i n g securities were originally longt e r m bonds, bought initially by long-term investors such as individuals, personal
t r u s t accounts, life insurance companies, m u t u a l savings banks, or pension funds.
When t h e bonds approach maturity, however, most of these longer t e r m investors
have already liquidated their holdings and at m a t u r i t y t h e bonds are usually held
largely b y commercial banks or by nonfinancial corporations or other short-term
investors. Therefore, both of the traditional methods of issuing long-term
securities which t h e Treasury uses involve a substantial a m o u n t of churning in t h e
m a r k e t as long-term investors seek to raise t h e cash to pay for a new cash issue or
to buy t h e m a t u r i n g issue which gives t h e m t h e right to exchange t h e m a t u r i n g
issue for the new one.
There is a third approach, however, to the problem of selling longer t e r m securities to long-term investors, and it is an approach which we believe would add
materially t o t h e Treasury's abihty to encourage such investors to maintain
investment in long-term securities. This approach m a y be characterized as
''advance refunding." I t is a technique which was used in t h e Canadian conversion loan operation last summer, whereby $6 billion of securities having from
6 m o n t h s to 8 years yet to run to m a t u r i t y were exchanged for securities with
maturities ranging from 3 to 25 years—an operation involving about 40 percent of
t h a t country's national debt.
Because of fundamental differences in the financial systems of t h e two nations,
t h e U.S. Treasury has no intention of embarking on such an ambitious program in
a t t e m p t i n g to solve our debt problem. T h e basic t h o u g h t behind t h e Canadian
operation should be given careful consideration, however, as to its possible application in t h e United States in a much more limited way.
1 Similar data for the fiscal year 1959 are showoi in table II at the end of the statement.
260
195 9 REPORT 01^ THE SECRETARY OF THE TREASURY
One of many possibilities in this direction, when and if market conditions are
appropriate at some time in the future, is to offer new long-term bonds to the holders
of the large amount of 2>^ percent bonds sold immediately before or during World
War II.
Such a new issue, or issues, would be sold on terms that would be attractive to
the present holders and would permit the Treasury to do a substantial amount of
debt extension on a straight exchange basis with existing holders, and, therefore,
with a minimum of effect on the Government securities and capital markets.
These are investors who already hold substantial amounts of Government securities. We want to keep them invested in Governments if we can.
Under present law, however, the exchange of one Federal security for another
in any refunding operation requires that the gain or loss from the exchange must be
recognized for tax purposes if value of the old security bn the books of the investor
is above or below the market value of the new issue^jas of the date of exchange.
In practice, this type of advance refunding operation would be expected to establish a loss for tax purposes to most holders because the Treasury would be likely to
engage in advance refunding only if the obligations to be exchanged are selling
below par in the market. The 2y percent bonds referred to, for example, were
selling at prices ranging from $83 to $88 per $100 bond as of end of May. The
terms of the new, longer issue would, of course, be set so that it would be worth
approximately the same price in the market as the issue being turned in. Whether
an investor would accept such an offer or not would be entirely his own decision.
No holder can be compelled to give up his present contract rights by taking an
exchange issue unless he wants to.
Under these circumstances, the present taxable character of the exchange
represents an immediate tax advantage to any taxable holder since he may take
a loss which he can employ for tax purposes. If he holds the new issue to maturity
or sehs at a higher price, he may realize a corresponding gain on the new security.
He will then have to pay a tax on this gain, but in the meantime he has had the
benefit of postponing the tax on the loss deduction under present law.
Under the proposed bill postponing the recognition of gain or loss, the reason
that an investor may find an exchange more attractive, despite the denial of a tax
advantage, is because of his balance sheet and reserve position. So long as gain
or loss on the exchange must be recognized for tax purposes many governmental
authorities who supervise financial institutions require that the institution record
the loss on its books. This means a corresponding reduction in earnings and in
surplus, which is understandably distasteful to many investors.
If recognition of gain or loss were to be postponed until the ultimate disposition
of the new security, however, it would become possible on the assumption that
governmental supervisory authorities approve, for the institutional investor to
carry the new securities at the same basis of valuation that he has been carrying
the old ones. Thus, removal of the need to accept a book loss would make the
exchange more attractive to many investors. Any investor who would benefit,
under present law, from taking a tax loss could sell the old security and buy the
new issue in the market.
Enactment of the second proposed bill would permit the investor to carry over
the valuation basis of the bonds which are directly exchanged for the new bonds
in this way. This could be done only under rules which we would prescribe for
each exchange of securities so that the recognition of gain or loss for tax purposes
could be deferred. There would be no change in present provisions of law where
exchanges of obligations other than U.S. Government securities are involved.
I would like to emphasize again that the practical application of this bill at the
time of any such exchange—to the extent that the bondholder is a taxpayer in
the first place—is to postpone recognition of a tax loss and, therefore, would tend
initially to increase rather than reduce revenues.
Actually, the effect on tax revenues will be small because of the character of
many of the institutions involved—pension funds, mutual savings banks, savings
and loan associations, and charitable organizations
I thank you for your patience in bearing with me through my long statement.
I hope it has given you some insight into our problems and why we feel prompt
enactment of both proposed bills is essential.
261
EXHIBITS
TABLE I.—Forecast of public debt outstanding, fiscal year 1960, based on constant
operating cash balance $8.5 billion {excluding free gold) (based on 1960 Budget
document)
[In billions]
Operating balance,
Federal Reserve
Banks and depositaries (excludiQg
free gold)
July 15,1959
July 31
Aug. 15
Aug.31
Sept. 15
Sept. 30
Oct. 15
Oct. 31
Nov.15
Nov. 30
Dec. 15
Dec. 31
Jan. 15,1960.
Jan. 31
Feb. 15
Feb. 29
Mar. 15
Mar.31
Apr. 15
Apr. 30
May 15
May 31
June 15
June 30
Public debt
subject to
limitation
$3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
3.5
$287.1
287.6
287.5
288.9
290.8
286.7
289.7
290.0
292.5
290.6
293.5
290.2
292.6
290.9
291.7
289.8
291.3
286.1
288.9
288.3
289.3
288.3
290.6
284.4
Allowance to provide flexibility in Total public
financing and for debt limitacontingencies
tion indicated
$3.0
3.0
3,0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
$290.1
290.6
290.5
291.9
293.8
289.7
292.7
293.0
295.5
293. 6
296.5
293.2
295.6
293.9
294.7
292.8
294.3
289.1
291.9
291.3
292.3
291.3
293.6
287.4
NOTE.—When the 15th of a month faUs on Saturday or Sunday, the figures relate to the following business
day.
TABLE II.—Actual cash balance and public debi ouistanding, July 1958-May 1959
[In biUions]
Operating balance, Federal
Reserve Banks
and depositaries
(excluding free
gold)
Actual:
July 15,1958.
July 31
Aug. 15
Aug. 31
Sept. 15
Sept.30
Oct. 15
Oct. 31
Nov. 15
Nov. 30
Dec. 15
Dec.31
Jan. 15, 1959.
Jan. 31
Feb. 15
Feb. 28
Mar. 15
Mar.31
Apr. 15
Apr. 30
May 11
May 15
May 31
$5.5
3.9
5.3
6.3
L5
3.9
4.7
3.3
2.2
5.3
2.1
3.8
L7
4.5
2.8
3.9
2.1
3.2
4.2
4.4
6.1
4.2
4.7
Public debt
subject to
limitation
$275.2
275.1
277.8
278.2
276.3
276.4
280.0
279.9
279.9
282.7
282.2
282.6
282.6
285.5
284.8
284.8
284.6
281.7
285.4
285.0
286.8
285.0
286.0
NOTE.—From Feb. 26 to Sept. 2,1958, the statutory debt limitation was $280,000,000,000 iacluding a temporary increase of $5,000,000,000 which was scheduled to expire June 30, 1959. The act approved Sept. 2,
1958, increased the limitation to $288,000,000,000, which will revert to $283,000,000,000 on June 30,1959.
When the 15th of a month falls on Saturday or Sunday, the figures relate to the following business day.
262
1 9 5 9 REPORT OF T H E SECRETARY OF T H E TREASURY
S U P P L E M E N T A L S T A T E M E N T BY SECKETARY OF T H E T R E A S U R Y A N D E R S O N , J U N E
10, 1959, ON P U B L I C D E B T M A N A C E M E N T B E F O R E T H E H O U S E W A Y S AND
M E A N S COMMITTEE
I n t e r e s t r a t e s in a free m a r k e t economy
As I observed in t h e main portion of m y s t a t e m e n t before this committee,
popular discussion of interest rates is often clouded by misunderstanding of their
n a t u r e in a free market economy. T h e purpose of this supplementary statement
is t o discuss in some detah t h e nature of interest rates—particularly t h e factors
t h a t cause t h e m t o rise or fall; t h e reasons for t h e increase in rates since last
s u m m e r ; a n d several alternative courses of action t h a t might be eft'ective in inducing a lower level of interest rates.
D e m a n d a n d supply in credit m a r k e t s
Speaking broadly, t h e interest r a t e is nothing more nor less t h a n a price, namely,
t h e price of borrowed money. As a price, t h e r a t e reacts t o t h e same sort of
influences as other prices in a free m a r k e t economy—influences t h a t operate
through t h e demand for a n d supply of funds available in credit markets. J u s t
as a n increase in t h e demand for goods or services tends t o increase t h e prices of
these items, so does an increase in t h e demand for funds t e n d t o increase interest
rates. And an increase in t h e supply of funds avahable in credit markets has
t h e same basic effect as a n increase iii t h e supply of a n y good or service in a n y
m a r k e t ; price tends t o fall. This is t r u e under our present market arrangements;
it will remain t r u e so long as credit markets remain free a n d borrowers a n d
lenders are permitted t o manage their affairs with a minimum of interference
and regulation.
F r o m t h e side of demand, t h e principal impact on interest rates reflects t h e
actions of four groups of borrowers: individuals, corporations. State a n d local
governmental units, and t h e Federal Government. As is shown in t h e chart,
t o t a l indebtedness of these borrowers has almost doubled since 1946.
CHART
R
.PUBLIC AND PRIVATE DEBTL
$Bil.
600
^Corporate
300
23%J.47'/2l
1939
V
\/lndividual
41 43 45
46
47 49 '51 '53 '55 '57 '58
Oec.3l
''Gross debt
EXHIBITS
263
Individuals, borrowing t o finance purchases of a variety of goods and services
and t o construct or purchase homes, increased their gross indebtedness from
$ 6 0 ^ bihion t o $240 bilhon between 1946 and 1958. T h e gross debt of business
corporations, which seek credit to finance working capital needs and for longerrun purposes in expanding and modernizing plant and equipment, rose from
$11 OK billion t o $298 billion. State and local governmental units, confronted
with growing needs for schools, highways and streets, and a variety of other
facilities, have borrowed heavily in t h e postwar period; their gross debt expanded
from $16 bilhon in 1946 t o $59 bflhon in 1958. The Federal Government, t h e
fourth major borrower in credit markets, seeks funds t o meet seasonal needs and
to finance a deficit. T h e p u b h c debt increased from $259J^ billion in 1946 to
$283 billion in December 1958. As of t h e end of June, t h e debt is expected t o
total $285 bilhon. •
T h e postwar pressure on interest rates arising from t h e d e m a n d for credit is
apparent. Concomitant with t h e large expansion in demand, however, has been
a growth in t h e supply of funds available in credit markets. These funds come
ultimately from two sources: savings or money creation. I t makes little difference t o t h e borrower whether t h e ultimate source is one or t h e other; dollars
flowing out of money creation are fully as spendable as those made available
from savings. T h e ultimate source m a y be of crucial importance from t h e standpoint of achieving price stability and sustainable economic growth, however,
simply because dollars generated through money creation represent an increase
in t h e t o t a l pool of dollars available for spending and, if not matched by a more
Or less equal increase in o u t p u t of goods and services, tend to force prices up.
I t is no accident t h a t consumer and wholesale prices have more t h a n doubled
during t h e past t w e n t y years, in view of t h e fact t h a t a fourfold increase in t h e
active money supply was only partly matched by an approximate doubling of
real production of goods and services.
There is no need t o go in detail into t h e various forms of saving—by individuals,
business firms, and governmental units—or to dift'erentiate sharply between funds
flowing from current saving and those t h a t represent savings of earlier years t h a t
subsequently are made available to borrowers. T h e really i m p o r t a n t point relates t o t h e distinction between funds obtained from existing pools of dollars a n d
those generated by money creation.
H o w does money creation t a k e place? Largely through t h e lending and
investing activities of t h e more t h a n 13,000 con:imercial banks in this country.
Suppose t h a t John Doe wants funds for use in his business, or to improve his
liome, or to meet medical or other expenses. And suppose t h a t he applies for
a loan from a commercial bank to obtain, t h e funds. If t h e loan is granted, John
Doe simply signs his promissory note and acquires a credit to his deposit account
in t h e bank. This transaction represents no transfer of existing dollars; quite
t h e contrary, John Doe has an extra $100, $1,000, or $10,000, depending on t h e
a m o u n t of the loan, b u t no other individual or institution has any less money.
Money creation has indeed t a k e n place. Moreover, not only John Doe, b u t
thousands of business firms, man}^ State and local governmental units, and t h e
Federal Government also borrow, directl}^ or indirectly, from commercial banks.
E a c h bank credit extension of this t y p e which is not offset by a reduction in
other bank loans or investments results in an equivalent a m o u n t of new money
creation.
Do commercial b a n k s have unlimited ability to create money in this fashion?
N o t by any means. People borrow money primarily in order to spend, and the
banker who makes such loans knows t h a t within a relativeh^ short period of time
t h e newly created deposit will probably be withdrawn from his bank. This will
probably t a k e the form of a transfer to another bank, perhaps in t h e same city,
perhaps somewhere else in t h e Nation. But, t h e i m p o r t a n t point is t h a t t h e
banker m u s t be able to meet a drain of cash out of his b a n k ; and his ability to
do so depends on his cash reserve position. I n other words, he cannot afford to
make large extensions of credit unless he has extra cash on hand (or on deposit
with his Federal Reserve Bank) to meet t h e resulting drains, or unless he is in a
position to obtain additional cash as t h e drains t a k e place.
This is where t h e Federal Reserve System comes into t h e picture. Through
various devices (e.g., discount policy, open m a r k e t operations, and control over
member b a n k s ' reserve requirements). Federal Reserve authorities can influence
t h e cost and availability of bank cash reserves. I n so doing, the willingness and
264
195 9 REPORT OF THE SECRETARY OF THE TREASURY
ability of commercial banks to make new loans and investments—and t h u s add
to t h e flow of funds available in. credit markets—is very much affected.
T h e resiliency of bank credit expansion and contraction can. serve as an imp o r t a n t balancing wheel in credit markets—or, it can operate as a serious destabilizing factor in our a t t e m p t s to achieve a stable price structure and relatively full
and efficient use of our economic resources. T h e critical question is, of course,
the r a t e a t which bank deposits come into or go out of existence. During a period
of high and rising business activity, when credit demands are especially strong,
and when men, machines, and materials are being used a t high capacity, an
excessive a m o u n t of money creation tends to add to inflationary pressures.
Spending in t h e economy as a whole m a y expand rapidly but, with resources in
relatively full use, t h e volume of goods and services t h a t can be produced can
only be increased slowl}^ Inflation is then t h e result. And judging by past experience, an inflationary upsurge is likely to be followed by readjustment and recession,
so t h a t our end objective of achieving m a x i m u m economic growth is actually
impeded.
Since recession is a serious deterrent to sustained economic growth, bank credit
expansion m a y be desirable when economic activit}^ is lagging. Under these
conditions, t h e men, machines, and materials necessary to support increases in
production are available. Greater spending by consumers and business firms
is to be desired.
Consequently, sustained and rewarding economic growth—which requires
reasonable price stability and relatively full and efficient use of our economic
resources—can be attained only if the aggregate flow of credit is consistent with
t h e ability of t h e economy to absorb t h a t flow, when translated into spending,
a t a given time. And, t h e Federal Reserve System, in fulfilling its s t a t u t o r y
obligations, is constrained to employ its monetary powers flexibly. I n a free
m a r k e t economy, an inevitable result of t h e interaction of demand and supply
forces in credit markets—including the impact of Federal Reserve actions—is
fluctuations in interest rates.
Stated simply, flexible credit policies, a t t u n e d to t h e business situation as it
unfolds over time, can be effective only if interest rates are free to respond to the
forces of demand and supply in credit markets. B u t it m u s t be emphasized t h a t
t h e major forces affecting those rates stem from actions of free and independent
lenders of funds. T h e law of supply and demand is a powerful a n d inescapable
economic force; a t t e m p t s to t h w a r t it in t h e past have inevitably led to greater
difficulties later on.
At times interest rates seem to decline faster t h a n might be expected in view
of basic trends in credit demands, savings, and t h e availability of bank credit.
At other times they seem to rise faster t h a n might seem warranted in view of
these forces. For example, t h e sharp decline in rates in late 1957 and early 1958
seemed to outrun basic forces of demand and supply, and t h e same can be said
of t h e sharp increase in rates in t h e summer of 1958.
T h e explanation of such sharp shifts can be found primarily in t h e impact of
expectations on credit markets. I n late 1957 it became clear t h a t recessionary
forces were gathering strength. T h e Federal Reserve System, consistent with its
responsibility to conduct its operations flexibly, shifted from t h e restrictive policy
of t h e preceding 2>^ years toward a pohcy of monetary ease. I n view of t h e shift
in t h e business situation, which implied a slackening demand for funds in credit
markets, and in view of t h e reversal of Federal Reserve policy, which implied an
increase in availability of bank credit, m a r k e t participants reasoned t h a t t h e
u p t r e n d in interest rates t h a t had prevailed since 1954 would be reversed, and
t h a t t h e outlook for some time to come was for declining rates.
Declining interest rates are synonymous with rising prices for outstanding
Government and other types of bonds. Consequently, individuals and institutions
with funds to invest tended to step up purchases of such instruments—the supply
of funds available in credit markets expanded sharply; and individuals and
institutions with bonds for sale became more reluctant to p a r t with t h e m — t h e
demand for funds subsided, relatively speaking. T h e result: sharp declines in
interest rates (or increases in bond prices), stimulated largely by expectations
of lagging business and easy money.
T h e decline in business activity came to an end m u c h sooner t h a n m a n y observers anticipated. I n J u n e 1958, t h e strengthening business picture gave rise
to rumors t h a t Federal Reserve policy might be in t h e process of shifting away
from t h e aggressively expansive pohcies of preceding months. M a n y investors in
debt instruments, including Government bonds, became anxious to dispose of
EXHIBITS
265
the securities before interest rates rose and bond prices declined; potential buyers
became less anxious to buy. T h e result: sharp increases in interest rates, stimulated largely by expectations.
T h u s , one t y p e of expectation is related primarily to t h e swings in business
activity a n d t h e impact of flexible monetary policies. B u t a t times other types
of expectations exert i m p o r t a n t influences. D u r i n g t h e past year, t h e increase
in inter.est rates has been stimulated partly b}^ a growing—but, in my judgment,
mistaken—conviction t h a t inflation is inevitable. M a n y investors have been
reluctant to purchase debt instruments, which carry a fixed interest r e t u r n and
principal p a y m e n t , as opposed to equities. This reluctance to purchase bonds,
a n d t h e preference for equities, has contributed to relatively low bond prices
(high interest rates) a n d high stock prices.
I t is i m p o r t a n t to emphasize, however, t h a t effects of expectations are likely
to be short-lived, unless later ratified by t h e expected events. T h e sharp decline
in interest rates in late 1957 and early 1958 could not have been sustained h a d
it not been for t h e fact t h a t recession did occur, credit demands did subside, a n d
m o n e t a r y policy did assume a posture of aggressive ease. Again, t h e sharp rise
of last s u m m e r was later ratified, in part, by t h e vigorous expansion of business
activity, with t h e accompanying demands for credit, and t h e impact of a $13
billion Federal deficit on credit m a r k e t s . Finally, t h e impact of inflationary
expectations on t h e level of interest rates can be minimized onl}^ when it becomes
clear t o participants in free credit m a r k e t s t h a t t h e integrity of t h e dollar will
be preserved.
I n s u m m a r y , interest rates in a free m a r k e t economy are influenced by a n u m b e r
of factors which can best be understood in terms of t h e forces working through
d e m a n d a n d supply in credit m a r k e t s . Of primary importance on t h e demand
side are borrowings b y individuals, businesses. S t a t e a n d local governmental
units, a n d t h e Federal Government. T h e supply of funds available in credit
m a r k e t s is mainly a reflection of t h e availability of financial savings, coupled
with net changes in commercial b a n k credit. Federal Reserve policy, by influencing reserve positions of commercial banks, affects t h e r a t e of flow of b a n k
funds into credit markets.
Before examining t h e reasons for t h e rise in interest rates in this country
since last surnmer, it might be worthwhile to discuss briefly two popularly held
views concerning t h e n a t u r e of interest rates t h a t , in my judgment, are mistaken.
One often hears t h e s t a t e m e n t t h a t increases in interest rates are necessarily
inflationary, in t h a t interest is a cost of doing business and sellers of goods t e n d
t o pass on r a t e increases in t h e form of higher prices. T h e people who hold this
view overlook t h e fact t h a t rising interest rates are indicative of pressures in
credit m a r k e t s growing out of strong demands for funds relative to t h e supply.
I n a s m u c h as individuals a n d institutions borrow money primarfly to facilitate
spending, rising interest rates reflect an inability of all potential borrowers t o
obtain as m u c h credit as t h e y would hke to have. In other words, spending is
impeded, and t h e rise in interest rates is one measure of t h e degree of restriction
on spending. And, under normal circumstances, anything t h a t tends to d a m p e n
spending when business activity is high a n d rising tends to diminish—not to
augment—inflationary pressures.
Moreover, available figures indicate clearly t h a t interest, as a cost of doing
business, is a decidedly minor expense. I n 1957, for example, net interest costs
of all manufacturing corporations were only ){o of 1 percent of gross sales. T h u s ,
of t h e cost of an article selling for $100, only 40 cents represented interest cost.
Admittedly, interest expenses of wholesalers and retailers, who al,so m u s t finance
some of their operations by borrowing, would add slightly to total interest cost
included in items b o u g h t by final consumers. Stih, however, the contribution
of interest expense to total cost would be small.
I t has been suggested t h a t public u t i h t y rates are influenced significantly by
interest Costs, since such firms rely heavilj^ on bonded indebtedness. I n this
case, however, net interest expense is estimated to be less t h a n 4K percent of
gross revenues.
T h e evidence seems clear t h a t an increase in interest rates exerts only a small
direct effect on prices of goods and services, and t h a t this impact is far outweighed b y t h e restrictions on total spending stemming from limited availability
of funds in Credit m a r k e t s .
There is also a rhisconception concerning t h e identity of t h e recipients of
interest p a y m e n t s on t h e Federal debt. Some observers appear to believe t h a t
large financial institutions are not only t h e major recipients of such p a y m e n t s .
266
1959 REPORT OF THE SECRETARY OF THE TREASURY
but that their share has increased as interest rates have advanced in the postwar years.
The accompanying table, which presents estimates of the distribution of
interest payments on the public debt in 1946 and 1958, indicates clearly that
such is not the case. In 1946, the major financial institutions—commercial
banks, mutual savings banks, and insurance companies—received an estimated
$2.1 bihion in interest on holdings of Government securities, or about 45 percent
of the total of such payments. By 1958, the share of these institutions had
declined to $2.0 bihion, representing only 26 percent of total payments.
Estimated distribution of the interest on the public debt, fiscal years 1946 and 1958.
[In billions of dollarsl
Budget expenditures
1946
Investor classes:
Individuals:
Savings bonds
Other securities
Subtotal
Commercial banks
Mutual savings banks
Insurance companies
Nonfinancial corporations
State and local governments
Miscellaneous investors
Federal Reserve B anks
Government investment accounts
Total
1958
.7
.5
1.5
.4
1.2
L4
.2
.5
.2
.2
.2
.1
.7
L9
1.5
.2
.3
.6
.4
.4
.8
1.5
7.6
Moreover, a significant portion of the interest income of banks has been passed
on to customers in the form of higher rates on time and savings deposits. For
example, in 1946 member bank interest payments to depositors were only 20
percent of interest income on their holdings of Treasury securities. Reflecting
the sharp increase in rates paid on time and savings deposits in the past few
years, member banks in 1958 paid almost 90 percent of their interest income on
Governments to depositors.
Other important trends brought out by the table include an $800 million
increase in interest payments on savings bonds, held mostly by individuals; a
$700 million expansion in payments to Federal Reserve Banks, which returned
90 percent of their net earnings to the Treasury; and an $800 million increase in
payments to Government investment accounts, which are operated almost wholly
for the benefit of individuals.
These figures indicate, therefore, that a substantial portion of payments on
the debt accrue directly or indirectly to the benefit of individuals, many of whom
are of relatively modest means. Moreover, the increase in interest payments
since 1946 reflects increased payments primarily to individuals. Federal Reserve
Banks, and Government investment accounts, rather than to private financial
institutions.
The rise in interest rates since last summer
Trends in interest rates over a period of several years, or of several months, can
be understood only in terms of the major demand and supply forces at work.
Accordingly, it might be worth while to examine closely the increase in rates
that has occurred during the current fiscal year in order to gain an understanding
of the factors underlying the advance.
Interest rates on Treasury and other securities have risen considerably from
the lows reached during the "recession of 1957-58. Yields on long-term Treasurj^
bonds, which averaged 3.12 percent in April 1958, had risen to an average of
4.08 percent in May 1959. Average issuing rates on 3-nionth Treasury bills,
which fell below 1 percent in the spring and summer of 1958, have recently
risen above 3 percent. Similarly, rates on commercial paper, bankers' acceptances,
prime bank loans, corporate and municipal bonds, and other debt instruments
have advanced substantially during the past year.
267
EXHIBITS
CHART S
MARKET YIELD TRENDS
OF SHORT AND LONO-TERM SECURITIES
I
91-Day
A.
^^
^Treasury Bills ^ V \ J
• ' ' • > • • • ' • ' " ' "
'52
' ' f
llllllt'lMlllI
' f
•53
*54
'55
'56
'57
'58
•59
^Federal Reserve Bank o f New York.
What factors lie behind this rise in rates? First, let's look at the demand for
credit.
The growth of consumer credit in the current fiscal year has been less than in
most recent years. Thus, pressure on interest rates from this source has been
moderate, except for the past few months, in which demand for consumer credit
has risen substantially. Individuals have indeed been active borrowers of
fundsj primarily in the form of mortgage credit. Total real estate mortgages,
consisting largely of individuals' borrowings, are expected to increase $18 billion
this fiscal year, a greater rise than in any of the past five fiscal years. This
increase can be viewed as having contributed to demand pressures in credit
markets. (See page 253 for chart showing changes in major forms of debt, fiscal
years 1954-59.)
Total corporate bonds and notes, State and local government securities, and
bank loans have increased less than in any fiscal year since 1954. Thus, these
credit demands have not exerted significant pressures on financial markets.
The demand for credit on the part of the Federal Government, to finance a
record peacetime deficit of approximately $13 billion, has been much greater than
in any of the preceding five fiscal years. The publicly held Federal debt will
increase by almost $9 billion in this fiscal year, as contrasted with increases of
$3.1 to $3.3 billion in fiscal years 1954, 1955, and 1958, and declines of $4.7 and
$3.5 billion, respectively, in 1956 and 1957. (The difference between the $13
billion deficit and the $9 billion increase in Federal debt in this fiscal year results
primarily from a reduction in the Treasury's cash balance.)
These figures detnonstrate clearly that the more important demand pressures
on interest rates during the past year have stemmed from the increase in mortgage
debt and the record peacetime Federal deficit. However, the rise in mortgage
debt, although substantial, is not much greater than in fiscal years 1955 and
1956. Thus, it appears that a major factor contributing to the sharply rising
demand for credit in fiscal 1959 has been the record peacetime Federal deficit.
The addition of almost $9 billion in Federal securities to what might be viewed
268
1959 REPORT OP THE SECRETARY OF THE TREASURY
as more or less normal aggregate credit demands could only exert strong pressure
on interest rates.
As I noted earlier, however, trends in interest rates are also influenced by
forces working through the supply of funds available in credit markets. While
data on savings are diflicult to interpret in terms of impact on credit markets,
there appears to be no evidence that a shift in the availability of savings has contributed to the rise in rates during the past year.
As to the timing of the events in the summer of 1958, it is important to note
that member bank reserve positions and short-term money market rates reflected
a continuation of monetary ease until August—a full two months following the
reversal of market rates on intermediate- and longer-term Government bonds.
Thus, the market appears to have led monetary policy and, as stated earlier,
the market shift resulted primarily from radical changes in expectations. The
shift in expectations resulted, in turn, from: (1) a growing comprehension that
the recession had ended and that vigorous recovery was under way, with its consequent impact on demand for credit; (2) a belief that Federal Reserve credit
policies, in view of the shift in the business situation, would soon move toward
restraint in keeping with the requirements of flexible administration of such
policies; (3) a realization that in fiscal year 1959 the Federal Government would
be confronted with a deficit of $10 to $15 billion, with its strong impact on demand
for credit; and (4) a growing—even if unfounded—conviction on the part of
investors that further infiation would probably occur, stemming from the rigidity
of prices during the recession, the impact of business recovery, and the inflationary ramifications of a record peacetime deficit during a period of rising business
activity. In addition, market pressures were increased significantly bj'- liquidation of heavy speculative holdings of Government and other seciirilies, built up
earlier in the year and in June, sometimes on relatively thin margins.
It should be emphasized again, however, that the increases in rates arising from
expectations could not have been sustained had not the expectations later been
ratified. And most of them were indeed ratified. Business activity has expanded
vigorously; a $13 billion deficit was confirmed by official sources; and Federal
Reserve credit policy did shift away from the strongly expansive policies of early
1958. The expectation of continuing inflation has not been confirmed; whether
or not it will be depends in no small measure on the degree of fiscal and monetary
discipline that is maintained during this period of high and rising business activity.
Furthermore, the available evidence points only to a mild degree of credit
restraint since last summer. For one thing, the strong upward trend in production, employment, and income with, as yet, absence of strong inflationary pressures, indicates that credit has been sufficiently available to meet the needs of
the economy. Moreover, monetary growth since last summer, as measured by
the annual rate of expansion in the seasonally adjusted money supph^, has been
at least equal to and perhaps slightly greater than what is usually thought of as
a normal rate.
All things considered, it seems to me clear that the major. factor contributing to the rise in interest rates during the past year has been the $13 billion
Federal deficit. It has exerted a twofold impact: First, by stimulating expectations in the summer of 1958 of strong credit demands and of a further erosion in
the value of the dollar; and, second, by adding almost $9 billion in Federal securities to the demand side of credit markets.
Consequences of various proposals to induce lower interest rates
Are there any courses of action, open to Congress, the executive branch, or
the Federal Reserve System, which might be successful in inducing lower interest
rates? It must be emphasized that any such actions, to be effective without
leading to later difficulties, must operate through the basic forces of demand and
supply. As I stated earlier, the law of supply and demand is a powerful economic
force. Any attempt to hold interest rates to artificially low levels would be doomed
to ultimate failure unless appropriate steps were taken to adjust demand and
supply forces consistent with the selected level of rates. And even then, later
difficulties may well arise. The situation is parallel to attempts to maintain
price ceilings on goods and services during national emergencies; prices ean be
prevented from rising,' if inflationary pressures are strong, only through resort to
rationing, allocation of materials and labor, and so on. Similarly, interest rates
can be kept from responding to the forces of demand and supply only through
direct intervention in credit markets and a consequent abridgement of economic
EXHIBITS
269
freedorn. I t is therefore assumed t h a t any courses of action to be considered
would involve influencing d e m a n d a n d supply.
With this stipulation accepted, six proposals might be mentioned. Several of
these proposals, however, would so h a r m t h e Nation t h a t responsible people
would be unwilling even to consider t h e m . T h e y are presented solely for t h e
purpose of bringing forward issues which a p p a r e n t l y are often misunderstood.
(1) One approach would be for t h e Government, t h r o u g h various means, to
p r o m o t e recessionary pressures in t h e economy. I n t e r e s t rates commonly decline during recessions, p a r t l y because of a slackening d e m a n d for funds on t h e
p a r t of individuals and businesses, p a r t l y because of a relative increase in availability of financial savings, and p a r t l y because of greater availability of b a n k
credit in connection with a flexible shift of m o n e t a r y policy t o w a r d credit ease.
This first alternative is, of course, absurd; no responsible government would
a t t e m p t t o induce recession—with its accompanying loss of production a n d rise
i h unemployment—simply to produce lower rates of interest. B u t the introduction of this alternative highlights t h e fact t h a t high and rising interest rates are
a'sign of expanding business. F o r a responsible government, the choice between
high levels of business activity and employment as opposed to low interest rates
is actually no choice a t all. Stated differently, high interest rates are not an end
in themselves; rather t h e y are t h e usual accompaniment of t h e active credit
demands t h a t characterize expansion in production, employment, and income.
(2) I t has been suggested t h a t interest rates could be reduced if t h e Federal
Reserve Banks were directed by Congress to purchase all new issues of Governm e n t securities; this would t e n d to reduce pressures on interest rates, since the
Federal Reserve Banks would in effect create t h e funds necessary for the purchase
of t h e securities. T h e actual process would involve credit to t h e Treasury's
deposit balance in Federal Reserve Banks in return for the newly issued Governm e n t securities.
There are at least two serious objections to this course of action. I n t h e first
place, t h e prohibition of direct sales of securities by t h e Treasury to the central
bank, except under unusual and very limited circumstances, has been an i m p o r t a n t
characteristic of our financial mechanism ever since t h e establishment of t h e
Federal Reserve System in 1913. As one adjunct to their primary function of
infiuencing t h e flow of money and credit, t h e Federal Reserve Banks were
envisaged, by t h e framers of the act, as fiscal agents for the Government—to
hold Treasury working balances; to clear Treasury checks; to issue, redeem a n d
p a y interest on Government securities; and so on—not as a source of credit to
finance t h e Government's needs. Experience in a number of foreign countries
has demonstrated t h e dangers of easy access to central b a n k credit on the p a r t
of t h e branch of Government t h a t has t h e responsibility for financing t h e (Gove r n m e n t ' s requirements. Fiscal discipline is especially difficult to preserve if t h e
exchequer has, in effect, a ''blank check" on t h e money-creating authority.
A second major objection to sale of new Treasury issues directly to the Federal
Reserve Banks arises from t h e fact t h a t t h e transaction would provide t h e basis
for a highly inflationary expansion of t h e money supply. T h e recipients of
Treasury checks drawn on t h e newly created deposits at t h e Reserve Banks would
deposit most of t h e proceeds in Federal Reserve member banks, and t h e member
banks in t u r n would send t h e checks to their district reserve banks for p a y m e n t .
P a y m e n t would be effected in the usual way, by crediting—or increasing—the
reserve balances of t h e b a n k s on t h e books of t h e Reserve Banks. Bank reserves
would be increased by the a m o u n t of t h e credits; this would provide a basis for
additional lending and investing by t h e banking system by an a m o u n t equal to
about six times t h e increase in reserve balances. Growth in t h e money supply
would, therefore, be strongly stimulated. Interest rate pressures would have
been restrained only a t t h e cost of highly inflationary increases in b a n k credit
a n d t h e money supply. Moreover, as I pointed out in t h e main portion of my
statement, strong inflationary pressures t e n d to promote even higher levels of
interest rates.
Recognizing t h e objection t h a t large-scale purchases of Government securities
b y t h e Federal Reserve Banks would be highly inflationary, advocates of this
course of action sometimes maintain t h a t t h e inflationary growth in the money
supply could be avoided simply by raising member b a n k reserve requirements.
I n other words, t h e new reserves created by t h e Federal Reserve purchases would
be immobilized immediately by increasing t h e percentages of idle funds t h a t
rnember banks must hold in relation to deposits.
270
1959 REPORT OF THE SECRETARY OF THE TREASURY
There is an i m p o r t a n t practical objection to this proposal. T h e purchase of,
say, $5 bilhon of new Government securities by t h e Federal Reserve Banks
would result in t h e creation of $5 billion in new b a n k reserves, b u t these reserves
would flow into t h e banking system, and be disseminated among individual banks,
in accordance with m a r k e t forces. N o one could predict t h e ultimate distribution
of t h e new reserves in advance. Some banks would receive a large portion,
some a smaller portion; t h e ultimate distribution would depend primarily upon
t h e location of t h e individuals and institutions w^ho received t h e Government
p a y m e n t s financed by t h e deficit borrowing.
An increase in member b a n k reserve requirements, however, affects all banks
in a given classification (central reserve city, reserve city, and ''country") equally
in terms of percentage points of reserve requirements. Consequently, a blanket
increase in reserve requirements of t h e magnitude required to neutralize t h e
reserve-creating impact of large-scale Federal Reserve purchases of Governnients
might well lead to severe dislocations and disturbances in credit markets. Some
b a n k s would have ample reserves, others would find themselves severely pinched.
I t can be argued t h a t m a r k e t forces would t e n d t o correct these imbalances, and
t h e y would—over time. B u t in t h e short run, forces might well be set in motion
leading to a b r u p t swings in interest rates and availability of credit; credit
" d r o u g h t s " in one p a r t of t h e country and "surpluses" in another; and so on.
And, in any event, t h e credit market, while highly efficient, by no means operates
with complete perfection in transferring funds from areas of plenty to areas of
shortage.
To this i m p o r t a n t practical objection against selhng Government securities to
t h e Reserve b a n k s and t h e n offsetting t h e inflationary impact by raising member
b a n k reserve requirements can be added a more basic objection, if it is assumed
t h a t one purpose of t h e action would be to prevent interest rates from rising;
As I noted earlier, purchases of $5 billion of Federal securities by the Reserve
Banks would result in an equivalent increase in t h e money supply as the recipients of t h e checks deposited t h e proceeds in their commercial banks. I n t h e flrst
instance, then, there would be an i m p o r t a n t inflationary impact, resulting from
t h e spending of t h e funds by t h e Government and t h e expansion in t h e money
supply.
A large increase in reserve requirements could indeed nullifj^ t h e growth in t h e
money supply, b u t only b y severely restricting t h e lending and investing activities
of commercial banks. This, in t u r n , would exert pressure on individuals, business
firms, and S t a t e and local governments, and t e n d t o force interest rates for such
borrowers t o higher levels. T h e inflationary impact of t h e increase in money
supply resulting from Treasury borrowing from t h e Reserve Banks can be offset
only if credit contraction occurs in other segments of t h e economy; t h e $5 billion
increase in deposits held by recipients of t h e Treasurj^ checks m u s t be offset by a
$5 billion decline in funds of other individuals and institutions. This can be
achieved, in free credit markets, onl}^ t h r o u g h credit restriction, which implies
additional pressure on interest rates. T h u s , during a period of prosperity a n d a
growing d e m a n d for credit-, t h e choice is either between a somewhat higher level
of interest rates, or stimulation of inflationary pressures t h r o u g h m o n e t a r y expansion. There are no other choices.
T h e recommendation t h a t Federal Reserve Banks b u y all or substantial portions
of new issues of Treasury securities involves one other aspect t h a t deserves discussion. Specifically, it has been recommended t h a t t h e Federal Reserve Banks be
required to purchase only t h a t portion of a new issue t h a t investors other t h a n
commercial banks would not purchase; t h u s , t h e Reserve Banks, in effect, would
replace commercial b a n k s as buyers of Goverments. This recommendation is
based partly upon t h e assumption t h a t commercial b a n k s do not perform a necessary service in buying Government obligations. Their ability t o create rhoney,
it is maintained, p e r m i t s t h e m to b u y t h e s e securities; b u t in fact t h e a u t h o r i t y
over money creation is constitutionally vested in (Congress. Thus, it is argued
t h a t t h e Government should perform this function, t h r o u g h t h e Federal Reserve
B a n k s , w i t h o u t burdening taxpayers with interest charges.
T h i s a r g u m e n t deserves several comments. I n t h e first place, as noted earlier,
purchases of Governrnent securities directly by Federal Reserve B a n k s would be
highly inflationary. Secondly, whether or not t h e commercial banks perform a
" n e c e s s a r y " service in creating money, there is little d o u b t t h a t they perform an
i m p o r t a n t economic function. JDemand deposits in commercial b a n k s have assumed a m o n e t a r y function simply because people prefer t o hold funds a n d m a k e
p a y m e n t s in t h a t form, r a t h e r t h a n in t h e form of'cui^rency. Moreover, money
EXHIBITS
271
is essential to efficient performance of a highly industrialized market economy
and, if the commercial banks did not perform the money-creating function, some
other institution or agency would have to do so.
Furthermore, commercial banks do indeed perform a useful service in purchasing
and holding Government securities. The business of commercial banking, in
essence, is that of holding relatively illiquid assets—principally loans and investments—against liabilities that are largely redeemable on demand. This involves
risk and, in assuming that risk, stockholders of commercial banks are entitled to
a return for a service performed. The fact that an asset is a Government security
rather than a commercial loan is not germane; marketable Government securities,
while devoid of risk relating to interest and principal payments, do possess risk
as to the price at which they can be sold in the market. Because of the nature of
their liabilities, banks must be prepared—and at times may be compelled—to
liquidate assets in order to meet deposit drains. They are therefore providing an
economic service by holding liquid assets which the public does not desire to
hold at the time, and in return furnishing the public with the liquidity—or money—
that it desires.
There are at least two important reasons why the money-creating function
should not be assigned whohy to the Federal Reserve Banks. In the first place
under our institutional arrangements the money-creating function is closely allied
with that of granting credit to a wide variety of borrowers. It is a cardinal
principle of our type of government that private institutions should dominate
credit-granting activities; otherwise, the ability to obtain credit might rest less
on credit-worthiness and more on noneconomic factors.
Secondly, lodgment of the money-creating authority wholly in the Federal
Reserve Banks, along with expanded authortiy for the Reserve Banks to lend
directly to the Government, would permit the Government to finance its residual
needs through the Reserve Banks and thus by-pass the market. This would
violate the basic principle set forth earlier, namely, that direct entry of the Governinent to the central bank for purposes of meeting fiscal requirements should be
severely limited.
In many respects, the question of transferring in whole or in part the moneycreating function from the commercial banks to the Federal Reserve Banks is
actually a question of whether the banking system should be nationalized. When
it is said that "the commercial banks do not perform a necessary service in purchasing Government securities," it should be realized that there are many other
services that the Government could perform for itself. It could, for example,
organize its own construction crews to build the interstate highways, rather than
encouraging the States to undertake this work through private contractors; it
could establish its own transportation network for carrying mail and other Government property; it could set up manufacturing establishments to produce
missiles, airplanes, warships, and a variety of items now purchased from private
industry—it could, in short, perform many of the economic functions now performed by the private sector of the economy. The crucial question is, of course,
whether it could perform those functions as efficiently as private enterprise and—
of prime importance—whether the act of doing so would not ultimately destroy
economic and political freedom in our Nation.
(3) A third suggestion for inducing lower interest rates would involve a congressional directive forcing the Federal Reserve Banks to "peg" prices of Government securities at some predetermined level, presumably par. Then, if market
holders decided to sell Government securities, purchases by the Federal Reserve
Banks would provide a floor under which bond prices could not fall (interest rates
on Governments could not rise).
The unfortunate experience with this technique between the end of World War
II and 1951 should convince serious observers pf the dangers involved; the Federal
Reserve System could indeed be transformed into an "engine of inflation" rather
than a responsible central bank attempting to promote sustainable economic
growth. Once market yields on Governments rose to the predetermined levels,
the System would be able to operate in only one direction; as a creator of bank
reserves, through purchases of the securities, in whatever amounts market holders
might desire. Flexible administration of credit policies would be impossible.
The dangers of this course of action, especially during a period of high and
rising business activity, are obvious. Nor is it at all certain that, in the long run,
the Federal Reserve Banks could be successful in keeping interest rates from rising.
As inflationary pressures mounted, borrowers of funds would be strongly encouraged to borrow heavily as soon as possible, in order to repay the debts in
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eroded dollars. Lenders would be encouraged t o cut back on lending, realizing
t h a t t h e dollars t h e y received in p a y m e n t would be w o r t h less in reah t e r m s .
Consequently, the pressure on interest rates to increase would magnify—borrowers would be willing to pay higher rates, lenders would be willing to lend only
a t higher rates. I n order to stem the tide, t h e Federal Reserve Banks would h a v e
to buy more a n d more Governments from m a r k e t holders, a n d t h u s create even
more bank reserves and provide a basis for further inflationary credit expansion.
T h e spiral could ultimately come to a halt only as a result of a crisis and subsequent
readjustment.
Some observers point to experience in this country in 1947 a n d 1948, when t h e
Federal Reserve was indeed pegging prices of Government securities at predetermined levels, as an illustration of a n instance in which t h e consequences were not
too bad. B u t it should be recalled t h a t t h e Federal Government experienced a
t o t a l cash surplus of almost $14 billion in calendar years 1947 a n d 1948. T h e .
lesson of t h a t experience is t h a t a n inflationary m o n e t a r y policy can be offset in
p a r t by large cash surpluses in Federal fiscal operations; but, if t h e cash surpluses
had not existed, inflationary pressures would have been m u c h more severe, t h a n
they were. A disastrous spiral might well have occurred. Nowadays, advocates
of System pegging of Governments most often do so because of a desire to facihtate
easy Federal financing of deficits. The combination of a large Federal deficit, a n d
unbridled creation of bank reserves, in a period of high and rising business activity,
could only result in t h e severest t y p e of inflationary pressures, ultirnate reaction
a n d recession, a n d disruption of t h e process of economic growth.
(4) A fourth alternative t h a t should perhaps be mentioned in passing relates
to t h e apparent preference of some investors t o purchase equities r a t h e r t h a n
debt instruments. To t h e extent this preference prevails, stock yields t e n d t o be
low and bond yields t e n d to be high. I t might be, therefore, t h a t some action
which would contribute t o a severe break in t h e stock m a r k e t would in t u r n contribute to a shift from stocks to bonds; interest rates would t e n d to decline.
To suggest t h a t a break in t h e stock m a r k e t be induced either t h r o u g h Federal
regulation or otherwise would, of course, be irresponsible. Moreover, t o t h e
extent t h a t preference for equities over bonds reflects a fear of inflation, t h e
answer t o t h e problem is to remove t h e bases of t h e fear of inflation. As s t a t e d
earlier, this would require, in part, a clear demonstration of t h e determination
of t h e Government t o maintain fiscal a n d monetary discipline. Conviction on t h e
part of investors t h a t t h e value of t h e dollar will be protected would do more t h a n
any other single thing to increase t h e attractiveness of debt instruments a n d
thereby reduce pressures on interest rates.
(5) I n a s m u c h as Treasury securities occupy an important position in credit
markets, interest rates could perhaps be reduced if significant progress were m a d e
in retiring p a r t of t h e public debt. I n this respect, there have been several proposals over t h e past few months to set aside a specified portion of Government
revenues each fiscal year; these funds would be earmarked for debt retirement.
During a period of prosperity, retirement of some jDortion of our huge public
debt is certainly desirable; if we cannot achieve some debt reduction when incomes
are high and rising, there is serious question as to whether we shall ever be able to
do so. Consequently, all proposals to establish a fixed annual percentage of d e l t
retirement should be given serious consideration.
M a n y of t h e proposals, however, fail to drive to t h e heart of t h e problem, in
t h a t no provision is made for assuring t h a t Government revenues would actually
exceed expenditures by an a m o u n t large enough to permit t h e selected percentage
of debt retirement. T h e use of, say, $2.8 billion of tax revenues to effect a 1
percent reduction in t h e debt would, in the absence of a surplus in the budget,
achieve nothing; additional borrowing would be necessary to supplant the tax
revenues used for debt retirement. I n essence, therefore, t h e securities retired
would be replaced in the market by an equivalent a m o u n t of new securities;
interest rate pressures would not be reduced. Moreover, total pubhc debt would
actually grow, instead of decline, if t h e revenue-tax relationship continued to
reflect a n overall deficit. Again, I should like to repeat t h a t these plans are
laudable in purpose; b u t undue attention to t h e m tends to obscure the hard, basic
fact t h a t meaningful debt retirement can be effected only by means of an overall
surplus'of budget receipts over expenditures.
(6) There is a sixth a n d final alternative for reducing pressures on interest rates,
although it must be a d m i t t e d t h a t success in pursuing this sixth course of action
would not necessarily result in lower rates. This is because t h e basic trends in
demand and supply in free credit markets reflect the actions of millions of indi-
EXHIBITS
273
viduals and institutions, a n d these actions might work toward higher rates even
though some of the more significant pressures were reduced.
T h e sixth alternative can be summarized quite simply, as fohows:
(a) Convert t h e Federal Government from a net borrower to a supplier of funds
in credit m a r k e t s by achieving a surplus in the budget during periods of high a n d
rising business activity. A net surplus permits the Treasury to retire debt, on
balance; consequently, Government actions would result in a net supply of funds
available for private borrowers, not a subtraction as is t h e case when t h e Federal
Government borrows to finance a deficit.
(b) Convince investors t h a t t h e value of t h e dollar will be protected, t h u s removing t h e pressures for higher interest rates stemming from a conviction t h a t
further inflation is likely to occur. This can be done only by means of attention
to all of t h e factors and practices t h a t stimulate inflationary pressures. B u t it
should be re-emphasized t h a t t h e most i m p o r t a n t single action would be a clear
demonstration of the Government's determination to maintain fiscal and monetary
discipline. During periods of high and rising business activity, fiscal and m o n e t a r y
discipline requires a surplus in t h e budget, for debt retirement, and freedom for
Federal Reserve authorities to pursue flexible monetary policies.
(c) Provide t h e Treasury with sufficient flexibility for sound management of the
public debt, so t h a t a better balance in debt structure can be achieved—including
larger a m o u n t s of longer-term securities outstanding—and so t h a t bond markets
will not become unsettled over such things as an impinging interest-rate ceiling.
T h e Government securities m a r k e t is understandably sensitive to t h e existence
of an artificial interest-rate ceiling; this is one reason why t h e President has proposed t h a t t h e 4}i percent limit be removed completely, rather t h a n merely
raised. An increase in t h e limit would only act as a signal to investors t h a t t h e
new ceiling is t h e new " n o r m a l " level as defined by Government action.
As I emphasized in t h e main portion of my statement, t h e interest burden on
t h e public debt—now close to $8 billion—is of deep concern to me. B u t t h e
alternative to sound fiscal and monetary policies—further shrinkage in t h e purchasing power of t h e dohar—concerns me even more. I n the long run, no one
benefits from infiation; by stimulating t h e excesses t h a t develop in a period of
business expansion, and t h u s sowing t h e seeds of readjustment and recession,
inflation actually hinders t h e a t t a i n m e n t of a high r a t e of economic growth.
Moreover, inflation strikes hardest at those groups in our society least able to
protect themselves. T h e m a n of modest means, not the rich m a n or the large
business institution, is t h e primary victim of a shrinking dollar.
T h e overriding a d v a n t a g e of this sixth and final approach to reducing pressures
on interest rates stems from t h e fact t h a t t h e actions it requires would not only be
directly beneficial in terms of economic growth, b u t would also t r a n s m i t effects
through m a r k e t forces of demand and supply rather t h a n by means of Governm e n t decree or regulation. And I would like to repeat t h a t , in proceeding in this
way, t h e Federal Government would be promoting " m a x i m u m employment,
production, and purchasing power," as required in the E m p l o y m e n t Act of 1946,
in a manner consistent with those crucially i m p o r t a n t b u t often overlooked words
in t h e act which stipulate t h a t such actions be carried out "in a manner calculated
t o foster and promote free competitive enterprise and the general welfare."
STATEMENT B Y SECRETARY OF T H E T R E A S U R Y A N D E R S O N , J U N E 10, 1959 ON
T E C H N I C A L P H A S E S OF P R O P O S E D D E B T M A N A G E M E N T LEGISLATION B E F O R E
THE H O U S E W A Y S AND M E A N S COMMITTEE
Sections 1 through 3 of t h e first proposed bill have been discussed in t h e opening
s t a t e m e n t ; this s t a t e m e n t reviews sections 4 through 6.
Section 4 of t h e bill would amend section 22 (i) of t h e Second Liberty Bond Act,
as amended (31 U.S.C. 757c(i)), to direct t h e Secretary of t h e Treasury to reheve
any authorized agent from liability to the United States for a loss incurred in
savings bonds redemptions where written notice of liability or potential hability
h a s not been given by t h e United States to the agent within 10 years after the date
of the p a y m e n t . This limitation would be similar to the limitation upon t h e time
within which t h e Government m a y proceed against a person who cashes a Govern525622—GO
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1959 REPORT OF THE SECRETARY OF THE TREASURY
m e n t check upon a forged endorsement. I n t h a t case the time limit imposed upon
t h e Government is six years.
Presently t h e law directs t h e Secretary to relieve an agent from hability only
when he can determine t h a t the loss resulted from no fault or neghgence on the
agent's p a r t , regardless of the length of time between t h e date of p a y m e n t and t h e
d a t e t h e loss is discovered. I n some cases t h e time lapse m a y be considerable
because the owner of t h e bonds m a y not discover their loss or theft until their
m a t u r i t y or thereabouts, and would have no reason to expect t h a t they might have
been fraudulently negotiated. I t should be emphasized t h a t this proposed legislation in no way hmits t h e time within which t h e real owner m a y m a k e a claim
upon a savings bond which was fraudulently negotiated.
Where there is a long lapse of time between t h e date of t h e p a y m e n t and t h e date
t h e United States discovers it has, or m a y have, incurred a loss resulting therefrom,
it would be extremely difficult for a paying agent to prove t h a t t h e loss resulted
from no fault or neghgence on its part. I n view of this, as well as the fact t h a t t h e
risks involved arise from the assumption of a task which was urged upon t h e m by
t h e United States and which was not related to the ordinary course of their business,
the Treasury .Department believes t h a t so-called "qualified" paying agents, t h a t is,
commercial banks, t r u s t companies, savings and loan associations, building and
loan associations, and similar financial institutions, should have some limitation
upon t h e time during which they m a y be liable.
Because t h e y would have t h e same problem of proof, and for t h e sake of uniformity and orderly administration, t h e proposed legislation would give t h e same
i m m u n i t y to t h e Treasurer of t h e Uriited States, t h e Federal Reserve Banks, and
t h e Post Office D e p a r t m e n t or t h e Postal Service, which are also accountable for
losses incurred by t h e United States in savings bond redemptions.
T h e proposed legislation excludes cases arising under special regulations issued
by t h e Treasur}^ D e p a r t m e n t which authorize qualified paying agents to pay
savings bonds \ \ i t h o u t obtaining the signatures of the owners on t h e bonds, if the
agents unconditionally assume liability to t h e United States for ari}^ loss resulting
from such payments. I n making p a y m e n t s under these regulations, which paying
agents requested for their own and their customers' convenience, they represent
t h a t they have the owners' instructions to redeem the bonds, and guarantee
t h e validity of the transactions.
*
H:
*
*
*
*
^
Section 5 of the bill would a m e n d section 3701 of t h e Revised Statutes (31
U.S.C. 742) to clarify the exemption it accords to the interest on obligations of the
United States from State and local income taxes.
Section 3701 of the Revised Statutes provides t h a t obligations of t h e United
States shall be exempt from taxation by or under State or local authorit3^ T h e
Supreme Court of t h e United States has held t h a t t h i s provision also exempts the
interest on obligations of the United States from taxation by or under State or
local a u t h o r i t y {N.J. Realty Title I n s . Co. v. Div. of Tax Appeals (1950), 338 U.S.
665).
I n recent years the State of Idaho has taken the position t h a t its income t a x
law enacted in 1933 has required the inclusion of interest on obligations of t h e
United States in computing gross income (from which taxable net income was
determined), a n d t h a t t h e Federal s t a t u t e s have not precluded this requirement.
T h e Idaho s t a t u t e provided t h a t there shall be levied "upon every individual . . . a
t a x which shall be according to a n d measured by his net income." The t e r m
"gross income" (from which taxable net income was determined) was defined to
include, among other items, "all interest received from federal, state, municipal or
o t h e r b o n d s . " The law elsewhere provided, however, t h a t "all income, except . . .
income not permitted to be taxed under . . . t h e constitution or laws of the
United States, shall be included a n d considered in determining net income of
taxpayers."
I t has apparently been the position of t h e State of Idaho not t h a t t h e Federal
Government is without power to exempt t h e interest on its obligations from State
income taxes, but rather t h a t it has not exempted t h a t interest from a tax such as
the Idaho tax.
T h e reasoning of the I d a h o authorities appears to have been as follows: T h e
Federal s t a t u t e has exempted the interest on Federal obligations from State
taxation, a n d the State tax s t a t u t e excluded income not permitted to be taxed by
t h e Federal exempting s t a t u t e , b u t t h e Idaho s t a t u t e did not a t t e m p t to t a x t h i s
income. E a t h e r it carefully provided t h a t there should be levied " u p o n every
EXHIBITS
275
individual . . . a tax . . . measured by his net income." Apparently their
position has been that this has a different effect from the State statute before 1933,
which provided that there should be levied "upon the net income of everj- individual . . . a tax," which was therefore a tax not permitted under the Federal
exempting statute.
The Treasury and the Department of Justice have felt that the position of the
State of Idaho rests upon a distinction of words which is without substance.
We have not, however, been able to persuade the Idaho authorities to change their
position. Since this position does not rest upon a theory of lack of congressional
power to exempt interest on Federal obligations from a tax such as Idaho has had,
but rather upon the theory that Congress has not exercised its power, the Treasur}^
and the Department of Justice believe that the simplest resolution of the matter
would be through congressional action which would clarify the exemption by
expressly exempting Federal obligations and the interest on them from every
form of State and local income taxes. The proposed provision would accomplish
that purpose.
It should be mentioned that on March 20, 1959, the State of Idaho adopted a
new income tax law. The new law declares it to be its intent to impose a tax
identical as far as possible to the income tax imposed by the Federal Internal
Revenue Code. Since the Federal Internal Revenue Code imposes a tax "on the
taxable income of every individual" it has been suggested that Idaho may no longer
attempt to maintain its position that the Federal exemption statute does not
extend to its income tax. We have communicated Avith responsible State authorities, however, and have been unable to obtain assurances that the State will discontinue requiring the inclusion of interest on obligations of the United States
in computing State income taxes.
In these circumstances, we beheve it to be highly desirable for the Congress to
make the exemption statute more specific at this time. If positions such as Idaho
has held are adopted by other States the resulting taxation could have a serious
adverse effect on the sale of United States savings bonds, which are so widely held
by individuals, and could have undesirable effects on Treasury financing operations
in general.
Section 6 of the bill would authorize the issuance of obligations of the United
States to Government trust funds at the issue price. The Congress has established
some fifty Government trust funds. Portions of any of these funds not currently
needed may be invested in obligations of the United States. With respect to six
of these trust funds, however, the Congress has specified that Government obligations may be acquired on original issue only at par. Thus in the act of August 14,
1935, establishing the unemployment trust fund, it was provided that "such obligations may be acquired (1) on original issue at par, or (2) by purchase of outstanding obligations at the market price." Substantially identical language has
been used in four other provisions dealing with five other trust funds. The trust
funds and the citations to the pertinent provisions governing them are: Federal
old-age and survivors insurance trust fund and the Federal disability insurance
trust fund (42 U.S.C. 401(d)); the railroad retirement account (45 U.S.C. 2280(b));
the special trust account for the payment of bonds of the Philippines (22 U.S.C.
1393(g)(5)); and the highway trust fund (23 U.S.C. 173(e)(2)). The reason for
providing in these relatively few cases that acquisition op. original issue must be at
par is not known.
When the first of these provisions was enacted in 1935 the Treasury could not
issue interest-bearing bonds at a discount. In 1942 the law was amended to
permit issuance at a discount, but none were issued in this manner before last
November. Therefore the requirement that obligations be acquired on original
issue only at par has not created a problem until recently. With the possibility
of more obligations being issued at a discount or at a premium in the future,
however, the requirement that these six trust funds acquire obligations on original
issue only at par is highly discriminatory against them. For example, the
Treasury recently issued 4 percent bonds of 1980 at 99; the public could subscribe
for these bonds at 99 and any of the trust funds other than these six could acquire
them at 99, but the law prohibited any of these six trust funds from acquiring
them on original issue except at 100. If the Secretary of the Treasury had issued
these bonds at par on original issue for account of these funds, they would have
earned interest at a lower effective rate than any of the other trust funds or any
member of the public acquiring them on original issue.
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1959 REPORT OF THE SECRETARY OF THE TREASURY
There does n o t appear to be any sound reason for this result. I t has therefore
been recommended t h a t these provisions of law be amended to authorize these
t r u s t funds to acquire obligations of t h e United States on original issue a t t h e
issue price, which is t h e price t h e other t r u s t funds or t h e public would p a y .
E X H I B I T 18.—Message to Congress by the President, August 25, 1959, again r e questing the removal of the ceiling on interest r a t e s on new issues of T r e a s ury bonds.
To th e Congress of the United States:
On J u n e 8, I t r a n s m i t t e d to Congress a message requesting legislation t h a t
would (1) remove t h e artificial limitation which t h e law now imposes on t h e
interest r a t e at which t h e Treasury is allowed t o borrow money for more t h a n
five years, and (2) remove a similar limitation on t h e r a t e t h e Government can
pay on savings bonds.
Last week, t h e Committee on-Ways and Means of t h e House of Representatives
voted to suspend consideration of these proposals for t h e remainder of this session.
This action was a grave disappointment to me.
T h e American people have a tremendous stake in this proposed legislation.
Failure to enact it means that—millions of thrifty Americans cannot be fairly
treated, since t h e Treasury will be unable to pay a fair r a t e of interest on savings
bonds; t h e cost of living m a y rise further, as t h e Treasury will be forced t o manage
our $290 billion debt in a way t h a t adds t o pressure on prices; responsible people
at home and abroad can only conclude t h a t we have not yet determined to manage
our financial affairs as soundly as we should.
I would like t o make two things absolutely clear:
First, t h e administration is whling to assume full responsibility for managing
the F e d e r a h G o v e r n m e n t ' s debt if it is allowed to do so free from artificial restrictions and on a parity with other borrowers.
Second, if t h e requested legislation is not enacted, those in t h e Congress who
are unwilling t o pass it must assume full responsibility for t h e possibly serious
consequences.
This country's outstanding public debt of almost $290 billion is held by our
citizens and financial institutions, and by foreign central banks and investors
who have accumulated dollars as p a r t of their reserves. E a c h investor has his
own investment requirements. H e buys different kinds of securities in order to
meet those needs. Common t o all investors, however, is t h e requirement t h a t t h e
r a t e of interest paid on t h e securities be fair and equitable in t h e light of other
investment opportunities and, secondly, t h a t t h e purchasing power of their
invested dollars will not be impaired.
These considerations apply directly to t h e way in which t h e Government
handles its debt. There can be no question as t o t h e Government's obligation t o
deal fairly and justly with t h e mihions of its citizens who invest a portion of their
savings, sometimes as a patriotic duty, in Government bonds. And there should
be no question as t o our determination to manage our debt soundly and in t h e
best interests of all of t h e people.
We have worked tirelessly for a balanced budget. We need this balance so
t h a t we can avoid t h e deficits t h a t lead t o higher prices, to a rising cost of living,
and t o an eating away of t h e value of t h e billions of dollars t h a t thrifty and farsighted Americans have saved. B u t congressional inaction on our debt managem e n t proposal could do m u c h to offset the progress we have made toward fiscal
responsibility.
T o manage t h e public debt in a sound manner t h e Treasury m u s t be able to
borrow money for long as well as short periods of time. A 1918 s t a t u t e now prescribes, however, t h a t we cannot pay more t h a n Ayi percent for long-term money.
So long as t h e present prosperity contributes t o a strong demand for credit, and
t h u s keeps t h e cost of new long-term borrowing higher t h a n 4}i percent, we will
not be able to borrow for periods longer t h a n five years.
Let me suggest one simple parallel to show why t h e Treasury should be able t o
borrow for longer periods. Suppose t h a t an individual h a d a mortgage on his
home t h a t h a d to be renewed every few months. H e would be exposed to every
shift in the economy and to every change in financial conditions. Yet, t h e
Congress in effect is forcine; the Treasury into this t y p e of exposed position. I t is
saying t o t h e Treasury, " W h e n you have any borrowing t o do, do it all on a shortt e r m basis."
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Within the next twelve months the Government must borrow $85 bilhon to
cover maturing securities, redemptions, and seasonal cash needs. This Government, with its great financial resources, can normally carry a sizeable amount of
short-term debt. But it cannot afford to rely exclusively on borrowing that must
be continually renewed. Yet, if the Congress insists that we continue to finance
wholly with short-term securities, the whole $290 billion debt will grow shorter
and shorter. This will make it even harder to handle in the future.
The vital interests pf all Americans are at stake because excessive reliance on
short-term financing can have grave consequences for the purchasing power of the
dollar. The issuance of a large amount of short-term Treasury debt would have
an effect not grea,tly different from the issuance of new money. Because these
securities are soon to be paid off, their holders can treat them much like ready
cash. Moreover short-term securities are more likely to become lodged in commercial banks. When a commercial bank acquires a million dollars of Government securities, bank deposits rise by a million dollars. This is the same as a
million dollar increase in the money supply. When the money supply builds up
too rapidly relative to production, infiation is the result. The piling up of an
excessive amount of short-term debt poses a serious threat that may generate
both the fear and the fact of future inflation at an unforeseeable time.
Now, while the Nation is enjoying a period of rapid economic advancement,
we want to keep the cost of living steady. And, if we act wisely, we should be
able to do so. We must live within our means and. we must exercise all the necessary precautions in the use of credit. We have made good progress toward preventing excessive Government spending. But we may fail in our efforts to keep
prices' from rising if we do not handle our debt in the proper way. This is why
the Treasury must have the capacity to finance the Government's requirements
in free credit markets without artificial restrictions.
The need for sound debt management stems not only from domestic considerations. Foreign investors have substantial holdings of our securities, as well as
other claims on this Nation. With so large a financial stake in our economy, these
foreign central banks and other foreign investors have a very practical interest
in the manner in which we handle our affairs. It is essential that they, too,
continue to view the American dollar as a strong and stable currency. In a free
market economy, confidence is not the simple result of legislation. It is earned
by adherence to sound practices.
Let me state as plainly as I can that this is not legislation to increase interest
rates. This administration is not in favor of high interest rates. We alwaj^s seek
to borrow as cheaply as we can without resorting to unsound practices. The
Treasury already has the authority to borrow at any rates of interest on obligations up to five years. What we are seeking is the authority, already possessed
by all other borrowers, to obtain funds for longer periods as well. To prohibit the
Treasury from paying the market price for long-term money is just as impracticable as telling the Defense Department that it cannot pay the fair market price
for a piece of equipment. The result would be the same in either case: the
Government could not get what it needs.
The need for congressional action with respect to the existing 3.26 percent
interest rate ceiling on savings bonds is equally pressing. The Government
occupies a dual trusteeship position with respect to the 40,000,000 Americans who
own savings bonds and the 8,000,000 people who purchase them regularly. The
average holder looks to the Government for a fair rate of return, reasonably competitive with other savings opportunities. The Treasury has announced that
when the ceiling is removed, it will immediately raise the rate from 3.25 percent
to 3.75 percent on ah newly issued E and H bonds, if held to maturity. Whenever
legislation is enacted, this rate increase will be made retroactive to June 1, 1959.
In addition, the future return to the investor on savings bonds purchased before
June 1 and held to maturity would be increased by y of one percent. These
actions would result in fair and equitable rates of return on savings bonds.
The second part of the trusteeship relationship of the Government with respect
to holders of savings bonds involves the purchasing power of the dollars invested
in the bonds. The savings bond holder expects the Government to try to insure
that the future value of his savings will not be eaten away by progressive erosion
of the dollar. To help assure that the value of the dollar will be protected, the
whole debt management proposal should be enacted.
Each of these trusteeship considerations is vital; the thrifty American is entitled to both.
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1959 REPORT OF THE SECRETARY OF THE TREASURY
T h e issue with respect to our legislative proposals is whether we are going to
demonstrate responsibility in t h e m a n a g e m e n t of our Federal debt. Ours is t h e
richest economy in t h e world. We have a large public debt, b u t we can certainly
handle it soundly and efficiently if we remove t h e artificial obstacles to borrowing
competitively in t h e free market. By adopting t h e administration's proposals,
t h e Congress would be demonstrating to people a t home and abroad t h a t we h a v e
t h e determination to preserve our financial integrity a n d to p r o t e c t our currency.
No issue of greater importance has come before this session of Congress. I n
t h e best interests of t h e American people, I urge t h e Congress to enact t h e administration's proposals at this session.
DWIGHT D .
T H E W H I T E H O U S E , August 25,
EISENHOWER.
1959.
E X H I B I T 19.—Statement by Secretary of the Treasury Anderson, September 3,
1959, on the proposal to remove interest rate ceilings on Government securities
T h e bill providing for t h e p a y m e n t of interest rates above t h e present ceiling
on United States savings bonds, while inadequate, should be promptl}^ enacted
if this is all t h a t is achievable a t this time. However, this view should not be
regarded as any compromise of t h e administration's firm position on t h e need
for removing t h e interest r a t e ceiling on marketable bonds.
T h e entire debt management legislation requested by t h e President almost
three m o n t h s ago is even more i m p o r t a n t today t h a n when first presented. T h e
responsibility for t h e consequences which could occur if t h e full proposal is not
enacted would have to rest with those who opposed it.
T h e holders of Government securities—both savings bonds and marketable
issues—are entitled to a fair r a t e of r e t u r n on their investment. B u t the}^ m u s t
also be assured t h a t t h e Government's financial policies are helping to prevent
t h e purchasing power of their invested dollars from being impaired b y inflation.
Although t h e present measure provides needed relief for savings bonds purchasers a n d holders a n d makes certain technical improvements, we shall continue
to urge t h a t t h e ceiling on t h e marketable debt be removed in order t h a t t h e
Government m a y act most prudently in managing t h e debt, so as t o maintain
confidence both at home and abroad in our determination to handle our financial
affairs soundly.
E X H I B I T 20—Statement by Secretary of the Treasury Anderson, July 24, 1959,
before the Joint Economic Committee and a joint statement by the Secretary
and Chairman of the Board of Governors of the Federal Reserve System r e lating to the Treasury-Federal Reserve study of the G o v e r n m e n t ' s securities
market
Our national economic objectives can be summarized under three
broad headings: (1) continuity of employment opportunities for
those able, willing, and seeking to work; (2) a high and sustainable
rate of economic growth; and (3) reasonable stability of price levels.
Each of these objectives is important; each is related to the others.
The rapid upsurge in economic activity of the past 15 months provides an appropriate background for your study of these national economic goals and the best methods of achieving them. The recent
resurgence in output, income, and employment to record levels has
once again demonstrated the basic strength and resilience of our free
choice, competitive economy. Thus, we visualize the task with which
your committee is confronted not as one of devising drastic changes in
our techniques for achieving our economic goals. Rather, it is to evaluate, within the perspective of developments of the past few years and
during the postwar period as a whole, the existing teclmiques toward
the end of sharpening their use. There may perhaps be weapons not
now in our arsenal that should be developect. There are, no doubt,
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279
ways in which existing teclmiques can be improved. But the performance of our economy supports the judgment that basically our economy is sound and healthy.
Much could be said about government economic techniques, their
nature, interrelationships, strengths, and shortcomings. I am sure,
however, that your committee will explore these matters thoroughly,
drawing both from current thinking and from the vast body of earlier
study performed both by committees of the Congress and by private
individuals and organizations.
Before discussing the Treasury-Federal Reserve study of the Government securities market, in which you have expressed particular
interest, I should like to consider briefiy economic growth as a goal of
public policy.
Some in our country express a belief that the Government should
undertake the primary role in promoting economic growth. I t is my
belief that in our system the Government is not the predominant
factor in our Nation's economic advancement. I t must foster and
facilitate economic progress; it cannot force it.
What we all seek is sound substantial growth, not any kind of
growth, or growth at any cost.
Should our efforts to spur progress lead to inflation it will bring
only disappointment and hardship. But when growth is in terms of
goods and services that people need and can buy, it will bring great
rewards.
Only within the past decade has economic growth been explicitly
recognized as a major goal of public policy. This recognition, coupled
with considerable public discussion of the importance of growth to our
economy, provides an important reason for taking a careful look at
growth as a national economic objective.
What is economic growth ? What determines the rate of economic
growth in a free-choice market economy ? And, finally, what is the
proper role of government in promoting a high and sustainable rate
of economic growth ?
W h a t is economic growth ? The most commonly cited definition of
economic growth is in terms of the annual advance in real gross
national product; that is, growth in the dollar value of total output,
adjusted for changes in price levels. For some purposes this is a
good measure of economic growth; for others it is not.
An overall measure of growth tells us nothing about its nature. For
any period, we must get behind the broad figures to determine what
type of growth has taken place. This is simply another way of saying that promotion of growth for its own sake may well result in
eitlier fictitious or unsustainaHe growth. An increase in output, to
be meaningful, must consist of the goods and services that people want
and are able to buy. I t is not enough to select some hypothetical maximum of growth. The actual growth that occurs must consist of useful and desirable things as opposed to unwanted or undesirable goods.
Thus, ill trying to decide whether growth over a period of years
was at an adequate rate, we would first have to look within the total,
to get behind the figures, and try to determine the characteristics of
the growth.
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Some of the questions we would ask would be:
How much did personal consumption expand relative to Government use of goods and services? AVithin the Government component, what portion consisted of defense spending as opposed to schools,
highways, and other public facilities?
How much of the increase in output consisted of goods the people
did not want, and thus ended up in Government warehouses, being
given away or destroyed?
W h a t portion of total output was devoted to investment in the instruments of production, to modernization of plant and equipment,
and to research?
How much of our effort had to be devoted merely to maintenance
of our productive plant, as opposed to net new additions?
There are other important questions.
How were the fruits of the growth in output distributed among
various groups in the economy?
Did the growth carry with it certain imbalances that would hamper
future growth?
To what extent was temporary growth fostered by reliance on
actions that impinged directly on the free choice of individuals and
institutions ?
These are but a few of the questions we should ask. They indicate
that economic growth, in terms of a broad, aggregate figure, is not
necessarily an end in itself. I t must be growth of the right kind;
it must be sustainable growth.
W h a t determines the rate of economic growth? The role of public
policy in fostering a high and sustainable rate of economic growth
in a free-choice, competitive economy can be properly assessed only
on the basis of an understanding of the determinants of growth.
The factors influencing the rate of growth are manifold and complex. Among those of major importance is the pace of technological
advance. No one can study the economic history of this or any other
advanced industrial nation without being impressed by the vital
contributions of the inventor, the innovator, and the engineer. A
stagnant technology is likely to be accompanied by a stagnant economy. Man's ingenuity in tackling and solving his problems lies at
the heart of the growth process.
This is perhaps another way of saying that growth and change
are inseparably intertwined. If we would enjoy maximum growth,
we must not only be willing to improve the production process through
accepting new ways of doing things, but we must also actively seek
out such techniques. Moreover, the integral role played by change
and technological advance in the growth process contributes to unevenness in growth over time. Technological advance does not come
at a steady, constant rate. Thus we cannot expect grpwth, to the
extent it reflects such forces, to proceed at a steady rate year in and
year out.
Teclmological advance, however, cannot alone assure a high rate of
growth. The best ideas and the best techniques are of little benefit if
the means are not available to translate them into operating productive processes. This requires real capital, which can only grow out
of saving and productive investment. Thus, real capital formation—
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281
which consists of the machinery and instruments of production, tools
of all sorts, and new plant buildings—is a basic ingredient of economic growth. An economy in which additions to the stock of capital equipment are small caimot be a rapidly growing economy.
The importance of an adequate rate of capital formation in the
growth process deserves special emphasis. Broadly speaking, current output can be directed either into consumption goods, represented by durable and nondurable consumer goods and services, or intp
investment goods, represented principally by new industrial plant and
equipment. So long as our economic resources are being utilized close
to capacity, as has indeed been the case almost continuously since
1941, the more of our output we devote to capital formation, the less
that is available for current consuniption. The more we consume,
the less we can devote to capital formation.
This is a basic but apparently little understood principle of economics. There appear to be some observers who believe that, on top
of providing adequately for national defense and devoting a considerably larger volume of current output to public projects, we can
still achieve uninterrupted future growth in the private sector of
the economy at a rate higher than ever before realized in this country.
Perhaps this is possible, but it seems clear to me that it can occur only
at the expense of current consumption. I t can take place, in other
words, only if we are willing to accept a lower current standard of
living. With our pressing needs for adequate national defense, we
cannot have an ultrahigh "maximum" rate of economic growth in the
future, requiring as it does heavy current investment in plant and
equipment, without restricting current consumption. We cannot have
our cake and eat it, too.
A third important requisite for a high and sustained rate of growth
is reasonably full, efficient, and continuous use of our economic resources. Economic recession is the No. 1 enemy of sustained growth
in this country. Idle manpower and idle equipment represent production that is irretrievably lost. Moreover, inefficiencies in use of
resources can also carry a heavy toll in terms of lost output.
I t is important to emphasize that success in achieving high and sustained employment, and in providing useful job opportunities for our
growing population is closely related to our success in promoting an
adequate rate of capital formation. In our highly industrialized
economy, workers must have the machines with which to work. These
machines will come into existence only to the extent that productive
investment takes place.
In short, economic growth in a free-choice, competitive economy
tends to vary more or less directly with the pace of teclmological advance, the rate of capital formation and the extent to which economic
resources are effectively employed. To be effective, any government
program designed to foster growth must operate largely through these
basic determinants.
Government's role in fostering growth: Government can play an
important role in fostering a high and sustainable rate of economic
growth. One basic principle should be clear, however. In an economy in which major reliance is placed on individual initiative and decisions and in which the alternative uses of economic resources respond
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1959 REPORT OF THE SECRETARY OF THE TREASURY
through the market mechanism, primarily to consumer demand, government can and should play only a facilitating, not a predominant,
role in the growth process.
The moving forces which promote growth in a free-choice market
economy are oasically the same as those that account for economic
progress on the part of the individual.
Thus, the individual's
desire for a higher and more secure standard of living for himself
and for his family is the basic stimulus. This is the prime mover.
To this end he studies, plans, works, saves, and invests. He searches
out new ways of doing things, developing new teclmiques and processes. Where such instincts as these are strong, the forces promoting
growth in society as a whole are strong. Where they are weak, the
impetus for growth is also weak.
The first role of Government in promoting growth is to safeguard
and strengthen the traditions of freedom in our economy. Stated
differently, the proper and effective role of Government is to provide
an atmosphere conducive to growth, not directly to attempt to force
growth through direct intervention in markets or through an improvident enlargement of the public sector of the economy. Indeed, governmental efforts to promote growth that rely on, or subsequently lead
to, excessive intervention in and direction of market processes can
only impede growth in the long run.
The case for this approach to promoting growth is strengthened by
the fact that teclmological advance flourishes in an atmosphere of
freedom. Basic to teclmological advance is pure research, and a
fundamental belief in our society that pure research makes its
greatest contribution when minds are free to meet the challenges of
the future.
Government can also promote rapid, healthy growth by fostering
competition in the economy.
Competition sharpens interest in reducing costs and in developing more efficient methods of production.
I t places a premium on skills in business management. I t stimulates
business investment, both as a means of economizing in the production process by use of more efficient machinery and by enlarging capacity in order to capture a larger share of the market. Healthy
and widespread competition, in short, is the primary stimulant to
efficiency in use of our economic resources, both human and material,
through teclmological advance and by stamping out waste and inefficiency in productive processes.
Our tax system may hamper growth in a number of ways. One of
the objectives of the study recently initiated by the House Ways and
Means Committee, and in which the Treasury is cooperating, is to
determine what changes can be made that will be conducive to healthy
and sustainable economic growth. I am hopeful that this study will
lead to significant results.
All of these methods of aiding growth are important. I am conduced, however, that Government can make a most significant contribution to growth primarily by using its broad financial powers—
fiscal, debt management, and monetary policies—to promote reasonable stability of price levels and relatively complete and continuous
use of our economic resources.
EXHIBITS
283
As noted earlier, a high rate of saving is indispensable in achieving a high rate of economic growth. Under conditions of nearcapacity production, resources can be devoted to capital formation
only to the extent that they are freed from output of goods for current consumption. This, in turn, is possible only to the extent that
saving occurs.
I n the years since the war, incentives to save in traditional fomis—
in savings accounts, bonds, and through purchasing insurance—have
been somewhat impaired by the conviction of some that inflation is
inevitable. I n my judgment, this is a mistaken conviction. But
the fact remains that if we allow a lack of confidence to develop in
the future value of the dollar, the desire to save will be weakened.
Full confidence in the future value of the dollar can be maintained
and strengthened only by a concerted, broad-gage attack on all of
the forces and practices that tend to promote inflation. Some of
these forces and practices may be new and thus require further study
before they can be identified and before appropriate policies to control them can be devised. But there should be little doubt in our
minds as to the proper role of general stabilization policies. Under
present-day conditions, with production, employment, and income advancing rapidly to record levels, such policies should be directed
toward self-discipline and restraint. This requires Federal revenues
in excess of expenditures to provide a surplus for debt retirement,
flexible management of the public debt, and monetary policies directed toward preventing excessive credit expansion from adding
unduly to overall demand for goods and services.
Some observers have argued recently that we are not now confronted with monetary inflation or with a situation in which "too
much money is chasing too few goods."
They point to the high degree of price stability during the past
year as proof of this contention.
This same argument could well have been made in mid-1955, when
that recovery was also merging into the boom phase of the cycle.
At that time the Consumer Price Index had actually declined slightly
during the preceding 18 months; the wholesale price index had
been stable for about 30 months.
We failed to recognize at that time, just as we may be in danger
of failing to recognize now, that the high levels of demand generated in the recovery had sown the seeds of later increases in prices.
Thus, wholesale prices rose moderately in the last half of 1955, at
a steady aind relatively rapid rate throughout 1956, and moderately
during 1957. Consumer prices, exhibiting the customary lag, did
not begin to advance until the spring of 1956, but thereafter rose
steadily until early 1958.
The important point is that effective control of inflation requires
actions to restrain inflationary pressures at the time that such pressures are developing. To wait until the pressures have permeated
the economy and have finally emerged in the form of price increases
is to delay action until the situation is much more difficult to cope
with.
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Effective stabilization actions to limit inflationary pressures during this period of rapid business expansion, in addition to promoting stability of price levels, will stimulate sustained growth in still
another important way. Such policies, by helping to assure that
the current healthy advance in business activity does not rise to an
unsustainable rate and then fall back, would promote relatively full
and continuous use of our economic resources. I am firmly convinced that the degree of severity of a business recession reflects to a
considerable extent the development of unsustainable expansion in
the preceding boom. By exercising restraint and moderation during periods of prosperous business we can keep booms from getting
out of hand, and, in so doing, minimize the impact of later adjustments.
Appropriate current governmental policy to promote growth must
be consistent with long-range objectives and not resort to quick
expedients that endanger sustainable development. We must reject
the arguments of those who would attempt to force growth through
the artificial stimulants of heavy Government spending and excessive
expansion of money and credit.
If we would foster growth—not of the temporary, unsustainable
type, but long-lasting and rewarding—we need first to reinforce our
efforts to maintain reasonable price stability and relatively full and
continuous use of our economic resources.
Both logic and experience demonstrate clearly that heavy reliance
on Government spending and monetary and credit excesses during a
period of strong demand, rather than promoting growth, can lead
only to inflation. Inflation tends to dry up the flow of savings and
leads ultimately to recession, the No. 1 enemy of growth.
We live in what is basically a free-choice economy. Within rather
broad limits we are free to dispose of our labor, property, and incomes
as we see fit. I n disposing of our incomes we are free to spend or to
save, to invest or to hoard. So long as we maintain the basic freedoms
that foster competitive enterprise and stimulate teclmological advance,
and so long as we use our broad financial powers to promote stability
in the value of our currency and to avoid the extremes of economic
recession, I am confident that economic growth will proceed at a
high and sustainable rate. The strength of our economy lies in its
very reliance on the integrity, wisdom, and initiative of the individual. We must not weaken this basic strength.
The Government securities market study: I will now make some
brief observations on the Treasury-Federal Reserve study of the
Government securities market.
Our national economic objectives are, of course, fundamental. I t
is only in relation to the successful achievement of these objectives
that the financial policies pursued by our Government can have real
meaning. Furthermore, fiscal, debt management and monetary policies can make their maximum contribution to national economic goals
only if they can operate in a market which is responsive to policy
actions both in terms of basic understanding of those actions by the
investing public and in terms of the efficiency and maximum usefulness of market organization.
EXHIBITS
285
The Government securities market is the largest financial niarket
in the world, with a daily trading volume of more than $1 billion.
I t is an extremely complex market and is sharply competitive. I t is
very responsive to trends and expectations as to business activity.
Government policies and international developments.
Its responsiveness and competitiveness, under widely varying circumstances, mean that it can provide the proper environment for the
successful flotation of the tremendous volume of frequent Treasury
security offerings to the public, which last year alone totaled almost
$50 billion, exclusive of the rollover of weekly Treasury bill maturir
ties. Similiarly, it can provide an efficient mechanism through which
Federal Reserve monetary policy can operate. Moreover, it must
provide for the smooth transfer of large amounts of Government securities among investors as liquidity and investment needs are satisfied.
The Treasury, the Federal Reserve and the entire business and
financial community, therefore, have a joint responsibility, collectively and individually, to encourage the market to resist any forces
which threaten to impair its maximum performance. If market techniques become distorted or restrictive practices arise, the consequences
can extend far beyond any immediate impact on investors, speculators
or suppliers of credit. I t can undermine the basic contribution which
a smoothly functioning Government securities market should make to
the national welfare.
I t is with this realization of the importance of the Government securities market that the Treasury and Federal Reserve last spring
undertook their joint study of the way in which the market operates,
with particular reference to the market's performance around the
time of the reversal of the economic downturn a little more than a year
ago.
A study of market mechanisms is necessarily technical. The results
of any such study are understandably less dramatic than studies of the
broad aspects of fiscal, monetary, and debt management policy which,
together with general economic trends and expectations, provide the
environment in which these market mechanisms operate.
Our joint Treasury-Federal Reserve study group has been working
continuously toward the objectives which were laid out when the
project was announced on March 9,1959. P a r t I of the study group's
factual report is now in final form; parts I I and I I I are only in preliminary form. All three parts are being made available for public
release.
Your committee already has a joint statement by Chairman Martin
and myself relating to the study. The virtual completion of the
factual study by the study group provides a background which Federal Reserve and Treasury policy officials can now carefully review
as we work toward official conclusions and recommendations growing
out of the study.
These conclusions cannot be prejudged. Treasury and Federal Reserve officials have been following the progress of the study group with
great interest, but, because of the late completion of the report, we
have had little opportunity to examine the factual material which the
study group has assembled.
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1959 REPORT OF THE SECRETARY OF THE TREASURY
As Chairman Martin and I state in the concluding paragraphs of
our joint statement, markets are dynamic institutions which require
adaptation to changing needs. The public interest is served only if
the study of these adaptations is continuous, even though it may be
intensified from time to time as in the present study.
We both recognize—and I want to emphasize it again—that improvements in market mechanisms, helpful though they may be, cannot be expected to solve the basic financial problems which our Nation
faces—the problems of fiscal imbalance during prosperous times, the
tendency for the public debt to grow shorter in its maturity structure,
the need for continuous flexibility in adapting monetary policies to
varying circumstances, the need to encourage increased savings to
finance soundly the Nation's heavy capital requirements, and the
problem of the instability of financial markets as they react to turning
points in economic cycles.
These are basic problems. We are glad to work with your committee in seeking their solutions in the best interest of the public.
J O I N T STATEMENT RELATING TO T H E TREASURY-FEDERAL RESERVE STUDY OF T H E
GOVERNMENT SECURITIES MARKET BY ROBERT B . ANDERSON, SECRETARY OF T H E
TREASURY, AND W I L L I A M M C C H E S N E Y M A R T I N , J R . , C H A I R M A N OF T H E BOARD
OF GOVERNORS OF T H E FEDERAL RESERVE SYSTEM
(Presented for the record in connection w i t h Secretary Anderson's appearance
before the J o i n t Economic Committee, J u l y 24, 1959)
T h e objectives of national financial policy as pursued by both the Treasury
and t h e F e d e r a l Reserve System have meaning, of course, only a s they cont r i b u t e to the sound functioning of our Nation's economy. F o r our economy to
remain healthy and growing, m a r k e t mechanisms must perform their essential
function of providing a meeting place where t h e forces of supply and demand
can operate to achieve the best utilization of resources. One of the problems
which h a s constantly confronted us as a Nation h a s been how to protect freely
competitive m a r k e t s from forces which would hamper or restrict the performance of this essential function. Only as everyone concerned remains alert to
new developments in m a r k e t i n g techniques and organization can we be assured
t h a t distortions and restrictive practices have not crept in, to the detriment of
healthy growth. This is, of course, j u s t a s iinportant a n d necessary in the
financial sector as it is in other areas of t h e economy.
Developments in t h e Government securities m a r k e t a year ago led the
T r e a s u r y and the Federal Reserve System to u n d e r t a k e a joint study of current
techniques and organization in t h a t market. This joint statement is devoted to
a discussion of the progress of the study t h u s far.
OBJECTIVES AND CONDUCT OF STUDY
T h e immediate background of our joint study w a s t h e wide and rapid price
fluctuation in t h e Government securities m a r k e t during t h e economic recession
and revival of 1957-58. These m a r k e t movements were naturally a m a t t e r of
concern to the T r e a s u r y in view of its debt management responsibilities. They
were of equal concern to the Federal Reserve because of its responsibilities for
overall credit and monetary conditions.
I n u n d e r t a k i n g the study our purposes were to find out how organization and
techniques in t h e Government securities m a r k e t might be improved, and by
w h a t means the danger of future speculative excesses in this m a r k e t might be
lessened. The first step, we felt, was to provide the widest possible basis of
factual information. Accordingly, we undertook a detailed and analytic study
of the underlying causes of the 1957-58 movements. At the same time we undertook a broad reexamination and reconsideration of the market's general organization.
EXHIBITS
287
While exi)erience of the Government securities market during a particular
recent period thus provided a specific occasion for initiating this special study,
both the Treasury and the Federal Reserve have recognized for some time the
need for such a study. The last such study, with somewhat more restricted
objectives, was made in 1952 under the auspices of the Federal Reserve's Open
Market Committee. The Treasury did not participate in that study since it was
primarily concerned with the interrelationship of the market and Federal
Reserve operations. Since that time there have been many new developments in
the market's machinery and practices, and both the Treasury and the Federal
Reserve felt that these developments needed careful evaluation.
The published version of our study will consist of three parts. Part I, which
is being made available for public release next Monday, consists, first, of-a
summary of informal consultations—some conducted in person and some through
written communication—held with informed observers of the Government securities markets and important participants in that market. Part I also includes
a special technical study of the possibilities of an organized exchange, or auction
market, to take care of the major part of the huge volume of Government securities transactions. These are handled at present, as you know, in the over-thecounter or dealer market, where more than $1 billion of transactions are handled
in a typical trading day.
The informal consultations represented one of the major phases of our study
program. These consultations had three objectives: First, to obtain informed
impressions and judgments on basic causes of last year's market experience,
especially toward midyear and after; second, to find out how market observers
and participants viewed and appraised existing market processes and mechanisms ; and third, to get the benefit of whatever suggestions might be made for
improving and strengthening the market. While our consultations were limited
by the special purposes of the study to those who were thoroughly acquainted
with market practices, our aim throughout was to seek out the means whereby
the Government securities market could function best in the public interest. In
our inquiry the needs of the small buyers and sellers were considered carefully,
along with those of the Government and of institutional and other large
investors.
Consultants included various officials of large commercial banks, of insurance
companies and savings banks, and of investment banking firms; primary dealers
and intermediary brokers in the Government securities market; financial officers
of several large nonfinancial corporations; a number of members and officials of
the New York Stock Exchange; a group of financial economists; and a group of
academic economists. In all, approximately 75 persons participated in individual
or group consultation and about 30 others provided written comments. The
individual and group consultations were held in Washington, D.C, and in New
York City, and each lasted from an hour to a full day. The discussions with
financial and academic economists were on a panel basis, but the remaining consultations were held separately on an informal basis with one or more individuals
from a single organization.
Part II of our study is a factual analysis of the performance of the Government securities market from late 1957 to late 1958. Rapidly changing market
conditions in this period presented an unusually wide range of problems. To
obtain the most complete information possible on the market forces at work,
special questionnaire surveys were addressed to all major lenders and participants in the market. On the basis of the answers received, we were able to compile much new data relating especially to market developments from spring
through early f aU of 1958.
Concerning this second part of the study, it is gratifying to report that the
responses to our detailed requests for new statistical information were exceptionally good—indeed, virtually 100 percent.
Part III of the joint project consists of four supplementary and technical
studies growing out of the suggestions and findings of the first two parts. We
comment later on their particular focus and scope. Neither part II nor part III
has been printed as yet, but both are being made available in preliminary form
also for release Monday morning.
Before turning to the substance of the entire study itself, a word should be
added about how the project was staffed. Both the Treasury and the Federal
Reserve System assigned to the study senior personnel experienced in the observation and analysis of the Government securities market. In addition, the Treas-
288
195 9 REPORT OF THE SECRETARY OF THE TREASURY
ury retained the services of a former staff official, having both debt management experience in the Treasury and practical experience in the market, as
technical consultant on the study. Federal Reserve personnel were drawn mainly
from staffs of the Board of Governors and the New York Federal Reserve Bank,
but selected personnel from other Reserve banks also shared in the work. A
central Treasury-Federal Reserve staff group was given full responsibility for
carrying but the project, and since early spring the members of this group
have devoted a major share of their time to it.
I N T E R P R E T A T I O N O F T H E 1 9 5 7 - 5 8 MARKET EXPERIENCE
As noted earlier, our study of the Government securities market was focused
on the wide swings in market prices and yields of Government securities from
late 1957 through the fall of 1958, with special attention paid to the mid-1958
market experience. Through systematic reexamination of available data and the
development of new data, we endeavored to find out what lessons could be
derived from this experience which would be of benefit to investors generally
as well as to those who are responsible for fiscal policy, debt management policy,
and monetary policy.
We have not had sufficient time as yet to make a complete evaluation of all the
data which have been brought to light by the joint study. Four general observations relating to private investment and credit extension, fiscal policy, debt
management, and monetary policy, however, are pointed out by the staff
group, as follows:
First, for purchasers of marketable Government securities and for lenders, the
risks of speculation on anticipated cyclical price movements of fixed-income Government securities, and particularly of speculation on slim margin, creditfinanced holdings, have been widely learned.
Second, in the area of fiscal policy, there is the problem that recession deficits
often run to very large size and are delayed beyond the turn in the economy;
as a result, they provide stiff financing competition when growing demands for
the financing of recovery must be satisfied from a more slowly growing savings
supply, and this competition for savings funds may have significant, but largely
unavoidable, effects on securities prices and interest rates.
Third, in the area of debt management, there is the problem as to whether, in
periods when easy; credit conditions lend investor favor to longer term, higher
yielding issues, a large and rapid shift in the maturity structure of the debt
may result in supply and demand distortions, which may later have upsetting
and disruptive effects on the market.
Fourth, in the area of monetary policy, there is the problem as to whether easy
credit conditions and accelerating monetary expansion for countercyclical objectives may be carried to the point where banks and other lenders respond too
actively to speculative demands for credit, so that lenders, in their zeal to keep
their funds employed to fullest advantage, may too easily relax the credit
standards which long experience has taught to be sound.
These broad conclusions arising out of our study point up a major financial
dilemma which is faced in coping with recession in a free enterprise, market
economy.
We all agree that reduction of economic instability is one of our major objectives. National financial policy—which refers to fiscal policy, debt management
policy, and monetary policy in combination—is the primary means available to
the Federal Government for cushioning recession and stimulating recovery.
Yet, the vigorous use of financial policy to promote economic stability runs the
risk of being accompanied by instability in the financial markets, where flexible
movement is an essential part of market mechanism. This appears to be a risk
which we must take, while doing everything we can to minimize the incidence
of instability in these markets.
We know, of course, that many difficulties arise in the effective use of fiscal
policy in recession. Deficits in recession are incurred either automatically because of reduced tax receipts and increased social insurance payments or because
of specific public policy actions taken to combat recession. These in turn have a
direct impact on the prices of Government securities.
The additional burden of increasing debt in such periods—particularly when
preceded by inadequate budget surpluses for debt reduction during the preceding
rise in the economy—^may also have a psychological effect on investors. This
EXHIBITS
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289
may be expected because of the fact that investors are concerned about future
budgetary policies as well as the size of the particular financing needs of the
moment.
There are other perplexing dilemmas in periods of general economic instability
which arise from the very flexibility of our market mechanisms. Investors, for
example, are faced in recessionary periods with either keeping their funds
highly liquid (with low earnings) or attempting to obtain higher yields available
only on longer term investments and thus sacrificing liquidity. Concentration on
liquidity would, of course, accentuate recession tendencies, while emphasis on
higher yields would help to counteract such tendencies.
The Treasury faces difficult choices during a recession. The orthodox theory
of debt management emphasizes short-term financing when resources are not
fully employed. At such times, however, the long-term market is receptive to
offerings—perhaps for the first time since the middle part of the previous upswing in the business cycle. When the Treasury enters such a period with a
large and growing floating debt, it would seem advantageous to refinance some
part of this debt at longer term. Such a course is also desirable to provide
greater leeway in choosing financing alternatives when the recession-induced
deficit is sooner or later encountered. And since a recession deficit when it
occurs must be financed within a relatively short period of time, the Treasury
must look forward to making heavy calls on available savings during the deficitfinancing period. In the second half of 1958, for instance—a recovery period, but
one coinciding with heavy deficit financing requirements^—the Treasury was
obliged to absorb the equivalent of a third or more of the total new savings funds
then available. The Treasury's problem of maintaining a debt structure adaptable to changing circumstances without itself contributing to instability of the
economy is a formidable one.
Monetary policies, if they are to contribute to resolving our problems of general economic instability, must be deliberately and appropriately adjusted to
combating recession and they must be shifted when an upturn is evident. The
timing and extent of monetary actions—Uke those in the fiscal field—must surely
be determined by other considerations in addition to their impact upon interest
rates and the prices of securities. Again, however, such effects are not to be
ignored.
SOME
FINDINGS
ABOUT
MARKET
FUNCTIONING
While the study indicated certain broad lessons from the 1957-58 experience
for both investors and national financial policy, and also highlighted some of
the fundamental and conflicting dilemmas inherent in such a period, it focuses
on the functional and mechanical aspects of the Govermnent securities rnarket
in this setting of recession and recovery. A specific interest was the speculative
and credit excesses that developed. Our objective in studying these developments was to arrive at possible adaptations of public policy and also of market
institutions which might lessen the market's exposure to such excesses in the
future.
The excesses which occurred last year were associated with the buildup in
the Government securities market prior to the Treasury's offering in late May
1958 of 2% percent, 7-year bond as one option available in its June 15 refinancing of $91/^ billion of maturing obligations held by the public. The other
option was a 1-year 1^/4 percent certificate. Altogether the holders of about $7%
billion of the maturing issues prefered the 2% percent bonds—a figure which was
more than double what had been estimated by the financial community or by
Government agencies as true investor demand. This was a surprise to the
market and suggested that a sizable amount of the newly acquired securities
were speculatively held. Nevertheless, there was general market agreement
after the announcement was made that the market would be able to absorb
the excess supply over a period of time.
About this same time, however, market observers were beginning to realize
that the Federal deficit in the year ahead would be the largest since World War
II, and that most of it would have to be financed in the second half of 1958,
coinciding with the period of heavy Treasury seasonal borrowing. At least part
of the flow of economic information in the first half of June had been mildly
encouraging; but it was not until around mid-June that market observers took
into account that economic recovery might soon begin and that conditions of
active ease in credit markets might be coining to an end. In this setting, liqui525622—GO
20
290
1959 REPORT OF THE SECRETARY OF THE TREASURY
dation of temporary holdings of 2% percent bonds began and gathered rapid
momentum, with an accompanying sharp decline in market prices of Government securities and an associated sharp rise in security yields. As you know,
the opportunity for either profits or losses on the price behavior of a longer
term bond is much greater than on short-term securities for a given change
in interest rates.
This liquidation period, you may recall, occasioned intervention in the market,
first by the Treasury in late June and early July to relieve the market of some
of the excess supply of 2% percent bonds issued at mid-June, and second by
the Federal Reserve later in July to correct a disorderly condition which developed around the time of the international crisis in the Middle East and a
Treasury financing.
Many observers have placed principal blame for this upsetting market episode
on excessive speculation in the June refundings, financed by the use of credit
extended on unduly thin margins. Our study shows that there was indeed a
substantial volume of credit-financed participation in the June refunding—about
$1.2 billion. Considering that $71/2 billion of the 2% percent bonds were issued,
it is obvious that at least four-fifths of the subscriptions represented outright
holdings. A significant share of these were probably also temporary holdings
purchased in the hope of speculative gain. The outright holdings largely represented subscriptions on the part of commercial banks and business corporations.
In retrospect, one key to this widespread speculation may have been the absence of adequate information about current tendencies in the Government securities market itself, which is, of course, the pivotal market in this economy's
financial organization. Much more important, however, is the fact that too
many speculatively motivated exchanges into the 2% percent bonds were apparently based on investor judgments that recession would continue for some
time, and that long-term interest yields would decline further.
Speculation financed by credit created a particular problem in this instance because there were large blocks of holdings acquired by newcomers to the market
who bought or made commitments to buy Government securities on very thin
margin—or in many cases on no margin at all. Several stock exchange houses
made large commitments themselves and acted between lenders and speculators. Some commercial banks and business corporations, actively seeking higher
yielding outlets for funds than were provided by Treasury bihs and other shortdated securities, directly or indirectly helped to finance these operations.
The activities of one stock exchange member specializing in money brokerage
facilitated the financing of a substantial volume of the June rights. These operations were found to be in violation of stock exchange rules. The enforced
unwinding of these very large positions came at a particularly sensitive stage of
the market decline and, combined with other liquidation of speculative holdings,
put the market under severe supply pressure. The New York Stock Exchange
has since modified its rules so as to prevent a repetition of this kind of speculative financing activity in the future.
While positions financed on credit were not the largest speculative element in
the market at the time of the June refunding, they were certainly important in
initiating and accentuating the June-July decline in market prices which accompanied the economic upturn. Once liquidation of the new Treasury bonds
was underway and prices were declining sharply, it was inevitable that some
margin calls and related selling to protect lenders' positions would occur. At
the same time, there was substantial liquidation by holders who had done no
borrowing at all as they realized that profits were not in prospect and sought to
minimize or avoid losses by selling out. The development of the Lebanon crisis
in mid-July and the growing awareness of the prospects of large Treasury deficit financing in a period of rising private demand for loan funds and accompanying expectations of tightening credit conditions, based in part on rumors of a
shift in Federal Reserve policy, heightened market uncertainties during this
period of liquidation. There also was considerable uneasiness due to fears that
the large budgetary deficit would induce renewed inflationary pressures.
Over this entire period of rapid market change, the figures compiled for the
study indicate that dealers operated chiefly in their normal primary function as
intermediaries. As the June financing approached, dealers were called upon to
absorb large amounts of short-term issues that were being sold to meet corporate
liquidity needs over dividend dates and the June tax period. As a result, dealers'
holdings of Government securities increased substantially. The enlargement
EXHIBITS
291
occurred mainly in Treasury bills and in June "rights" (maturing issues eligible
for the exchange), and these rights were largely exchanged for the 2% percent
bonds.
To make matters more difficult over the period covered by the June financing,
dealers had to meet large maturities of repurchase agreements which they had
made with nonfinancial business corporations. Under these agreements, corporations accumulating funds in earlier months invested a large portion of them by
arrangements to buy Government securities and, at the same time, agreeing
to resell the securities to dealers on a fixed date in June—again to cover cash
needs related to dividend and income tax disbursements at that time. The shortterm securities underlying these arrangements had to be refinanced in June
through placement by dealers with banks or other lenders.
When the June exchanges were completed dealers undertook to accomplish
a distribution of their underwriting holdings of the new 2% percent bonds.
Such underwriting can result in losses as well as profits to dealers because of
the market risks assumed by them. These risks proved to be real in the June
financing. Normally, the distribution of the securities acquired in underwriting would have proceeded throughout the remainder of June and July. In view
of the then existing market uncertainties, dealers intensified their distribution
efforts and cut back on their total positions generally. These activities also
contributed to supply pressures in the market.
Once market decline had set in, investors, speculators, and dealers were
obliged to luake market judgments in the light of their own portfolio and speculative situations and their individual appraisal of current and future uncertainties. There were times in this period, we were told by market participants,
when dealers in order to protect their own capital positions would accept
large-size orders to sell only on an agency basis, promising to make the best
eff'ort possible to carry out the customers' requests. The volume of Government security transactions by the dealer market, however, continued large
throughout the decline.
The question still to be answered from our examination of the 1957-58 market
experience is just what specific findings and interpretations may be drawn about
market excesses and mechanisms. While any specific conclusions at this stage
are subject to later modifications or supplement, the following are the main
ones drawn by the study group in the preliminary version of part II of the
study (ch. VIII).
"(1) Investor and speculator judgments in the late spring period preceding
the June refunding were made largely in the light of information pertaining
to an economic situation of 1 to 2 months earlier. This lag in the flow of economic information was a factor of basic import in conditioning expectations in
this critical period of market development. The role of changing market expectations as to the economic outlook in this period of 1958 clearly emphasizes
the need for an adequate supply of current information about trends in the
economy generally to facilitate the orderly functioning of financial markets.
"(2) Underlying the late spring speculative positioning of Government securities was a very low absolute level of short-term market interest rates, as
well as an unusually wide spread between short- and long-term market yields.
This low short-term rate level, together with the prevailing yield structure,
vitally influenced the shaping of market expectations of further increases in
Government bond prices. It further provided the incentives that led to unsual
adaptations of customary credit instruments and terms, which facilitated a
rapid swelling in the market's use of credit. This development made the market vulnerable to liquidation pressures.
"(3) These conditions in the market, along with investor expectations of still
higher prices of Government bonds, resulted in a situation whereby market participants in the June refunding were encouraged to convert an undue amount
of short-term issues into longer term issues, thus oversupplying the longer term
area of the market and at the same time sharply reducing the maiket supply
of short-term instruments. Pressure on earnings created by the low level of
short-term yields led many banks and some corporations to reach out for the
higher yields available in the June financing in an effort to protect their earnings.
"(4) Speculative positioning of 'rights' to the June refunding on the part
of outright owners, together with the conversion into 2% percent bonds of a
disproportionate amount of their investment holdings of the maturing issues,
292
1959 REPORT OF THE SECRETARY OF THE TREASURY
was of greater volume than speculative positioning by investors who financed
by credit. A large number of banks and business corporations participated in
this outright speculative positioning.
"(5) Although speculation on an outright basis in the June financing was
larger than credit-financed speculation, the latter was excessive considering the
size of the refunding operation. Moreover, liquidation of credit-financed positions appeared almost immediately upon the settlement date for the refunding
for various reasons and both triggered and accentuated the declining phase of
the market.
"(6) The equity margins put up in this period by credit speculators were, in
too many instances, either nonexistent or too thin. Despite the low margins,
the losses suffiered on credit-financed transactions were incurred chiefly by the
borrowers rather than the lenders.
"(7) In the speculative market buildup, the use of the repurchase form of
credit financing as a vehicle to carry the speculative positions of nonprofessional
and unsophisticated participants proved to be unsound. Use of this particular
type of financing instrument, in effect, resulted in lenders advancing credit to
unknown borrowers of unknown credit standing or capacity.
"(8) Even among known borrowers of professional standing the use of the
repurchase agreement device was stretched in terms of the types of the security
which it covered. In the past this instrument was employed in the dealer
market mainly to finance securities of the shortest term. In its 1958 market
usage the instrument was extended in numerous instances to longer term securities where the maturity bore little or no relationship to the date of termination
of the ag:reement.
"(9) Where used in the mid-1958 period to finance holdings of longer term
securities, the repurchase agreement technique in some cases provided a convenient means to circumvent owners' equity requirements that would have been
applicable on loans through margins required by lenders.
"(10) The use of forward dehvery contracts in the pre-June market buildup
involving 'rights' to the June exchange offerings, though of lesser magnitude
than repurchase financing, nevertheless facilitated an excessive amount of speculative positioning in this issue without any commitment of purchaser funds.
"(11) In the pre-June market buildup, dealers and brokers were not always
aware that their credit standing was in effect used by others to underwrite
speculation with no equity. The preponderance of June 'rights' among the
forward delivery contracts would suggest a strong preference for 'new' Treasury issues as the mechanism for this speculation.
"(12) The total number of commercial banks outside New York City and
also the total number of nonfinancial corporations drawn into the credit financing of the mid-1958 speculative buildup was relatively small, and the major
portion of the credit extended was from only a few banks and business corporations.
"(13) In the late spring market buildup some lending by New York City
banks, collateraled by Government securities, was at rates and margins that
under the prevailing market psychology and the then existing conditions was
conducive to the financing of speculative positions.
"(14) The sizable increase in dealer positions prior to the Treasury's June
1958 financing was partly associated with the heavy volume of market trading
in that period. Although largely concentrated in short-term securities, the
expanded dealer positions did provide a market for these issues which facilitated the lengthening of portfolios and speculative positioning by many investors during the period, particularly banks.
"(15) Even though dealer positions at the time of the June refunding were
heaviest in the short-term maturities in the market, liquidation of these positions in the following 3 months, though largely necessary to protect dealer capital positions, did add significantly to the supply pressures otherwise present in
the market during this liquidation phase.
"(16) The extensive use of the repurchase instrument for financing all
types of Government securities in late spring of 1958 resulted in very large repurchase maturities in mid-June coincident with other churning in the money
market in connection with settlement for the Treasury refunding. The necessity of refinancing the securities underlying these repurchase transactions put
the Government securities market under heavy internal strain at that time.
"(17) The absence of a Treasury tax anticipation security maturing at mid-
EXHIBITS
293
June led to much corporate interest in the June maturities as corporations made
use of these issues to invest accumulating funds to meet their June tax and
dividend needs. This accounted for a considerable part of the market churning
at the time of the refunding.
"(18) The availability of regularly issued statistical information about the
market itself might have succeeded to some extent in forewarning market participants and interested public agencies of potential speculative dangers around
mid-1958. The fact of the matter, however, is that no such objective information was available to either group to gage the extent of the speculative forces
that were present in the market.
"(19) In the closing months of 1958, when many commercial banks were experiencing seasonal credit demands, study data show a movement of funds from
the Government securities market to the banks effected through the vehicle of
the repurchase agreement. In other words, some dealers were functioning
as money brokers, acting as principals in obtaining funds from business corporations under repurchase arrangements and in turn supplying funds to banks
under a reverse repurchase arrangement (resale agreement) with them. Question can be raised regarding the appropriateness of a money brokerage function
as part of the dealer operation.
"(20) Most of the decline in market interest rates on Government securities, following confirmation in the late fall of 1957 that economic recession had
set in, was effected within a short-time span—less than 4 months. The sharp
rise in market rates on Treasury issues, following confirmation after mid-1958
that economic recovery had begun, was likewise effected in a short-time span—
about 4 months. Although liquidation of Government security positions, built
up in hopes of speculative gains in the June refunding, played a central role
in accentuating the rise in market interest rates after mid-1958, it does not
necessarily follow that the upward interest rate movement of the entire recovery period would have been smaller if the earUer speculative distortions had
been avoided. Upward pressures on interested rates from cyclical Federal deficit
financing in combination with expanding private demands for financing, given
the savings supply over these months, would still have resulted in a substantial,
if not identical, rise in market interest rates."
A N ORGANIZED E X C H A N G E OR A DEALER M A R K E T ?
At the hearing of the Joint Economic Committee earlier this year on the President's Economic Report, there was some discussion of the functioning of the
Government securities market. The question was raised whether the market
might not be more effective if it were a formally organized exchange or auctiontype market, with maximum current publicity on transactions rather than an
informal over-the-counter dealer market subject to more limited public observation.
As part of this current study of the Government securities market, accordingly,
we not only raised this question with market participants but asked our study
group to provide a special technical evaluation of the suggestion. The New York
Stock Exchange also gave very careful consideration to the question and reported its conclusions to us.
A specialized market tends to develop in a particular form as the individual
participants compete to serve more efficiently and economically the needs of
buyers and sellers of the kind of security or commodity traded. The present
market mechanism for Government securities has grown as a specialized market
ever since World War I. Transactions in Treasury issues in the 1920's were
carried out both on the New York Stock Exchange and through the over-thecounter dealer market. Even during the early 1920's, however, a steady decline
in transactions on the auction market represented by the exchange and a steady
rise in the volume handled on dealer markets was taking place. By the mid1920's, the dealer market was dominant and agency transactions of the Federal
Reserve Bank of New York for the account of the Treasury were moved to the
dealer market.
Only marketable Treasury bonds are listed on the New York Stock Exchange
and this has been true throughout its history. Therefore, the Introduction of
the Treasury bill in 1929 and its subsequent development as the primary liquidity
instrument of the money market—a development accelerated by war and postwar
financial trends—further added to the importance of the over-the-counter dealer
294
195 9 REPORT OF THE SECRETARY OF THE TREASURY
market. The growth in the Federal debt in the 1930's and during the war years,
together with the broader participation of large financial institutions in the
market, greatly increased the size of typical market transactions in Governments. Large transactions are more efficiently managed in a dealer-type market,
and consequently the number of transactions that could be effectively handled
through the auction mechanism of the exchange continued to decline. By 1958
trading in Government bonds on the exchange had dwindled to an insignificant
volume in comparison with trading in such securities in the over-the-counter
dealer market.
The standards of performance to be applied in evaluating the present dealer
market are, of course, related to the specific job which the market has to do as
well as to the public interest in a well-functioning market economy. The job
to be done first of all is the matching up of purchases and sales by investors
and traders. But it also involves the Treasury as issuer of new securities and
the Federal Reserve through the execution of its monetary policies. It is the
conclusion of our joint study to date that both the broad public interest and the
special interests of the Treasury and the Federal Reserve—which are, of course,
designed only to serve the public interest—are being effectively served through
the present market. Those who participated in our study, including a broad
range of investors as well as dealers and brokers, were virtually unanimous in
the view that the present type of over-the-counter dealer market in Government
securities is preferable to an exchange, auction-type market. Even if confined
to bonds, and therefore excluding bills, certificates, and notes, the exchange-type
market was regarded as an unsatisfactory alternative.
Probably the most important standard of performance required of the Government securities market in serving existing interests is its ability to handle
without disruptive price effects the typically large transactions that arise as
large institutional holders adjust their liquidity and investment positions. These
individual transactions—by commercial banks in adjusting their reserve and
portfolio positions, by corporations adjusting to their cash flow needs around
dividend and tax dates, or by savings institutions or other institutional investors
in making portfolio changes—often run to many millions of dollars, particularly
in short-term issues. If these holders were unable to purchase and sell readily
in such large amounts, their interest in Treasury issues would decline.
The dealers in Government securities appear to have developed better facilities and techniques for handling large transactions promptly and without excessive price effects than would be possible in an organized exchange. They do
this by purchasing and selling for their own account; by maintaining substantial inventories of securities in different maturity categories; by a chain of
transactions with other dealers—purchases, sales, and exchanges or swaps;
and by keeping themselves informed, through their nationwide organizations
or correspondent networks, of major sources of supply and demand for Government securities throughout the country. In its operations, the dealer market acts as a buffer to equalize hourly and daily movements in supply and demand, and to absorb the impact of large individual transactions that might
otherwise result in abrupt price effects or undue delays in execution of orders.
The specialized dealer market provides a number of other services that institutional customers consider to be valuable. The cost of a transaction in this
market is very small because of the large volume of business, because of keen
competition among dealers, and because dealer profits do not depend solely on
trading margins. A significant part of dealers' earnings is derived from managing their own portfolios and from supplying, through repurchase agreements,
investment instruments which have the exact maturity date needed by customers. Such operations also, of course, involve risk of loss.
The dealer market is effectively organized to serve customers throughout the
country even though its organization is informal. Transactions are completed
promptly by telephone and customers know the price or price range when the
order is placed for execution. Moreover, through their intimate experience with
the highly technical aspects of each Treasury issue as well as the ways in which
the Treasury, the Federal Reserve, and the money market operate generally,
dealers provide specialized market advice that customers value. The primary
dealers further provide important services in the secondary distribution of new
Treasury issues. They also provide a convenient point of contact for Federal
Reserve open market operations in short-term Government securities.
EXHIBITS
295
The major defects attributed by some critics to the dealer market in U.S.
Government securities reflect three features: First, the market is concentrated
in a relatively small group of primary dealers, and therefore may not be as
competitive as an organized exchange market; second, there is little information
about its operations, without supervision or formal rules governing its practices, despite its special publie interest; and third, the market is not geared to
handling small and odd lot transactions nor is it especially interested in them.
As to competition, there is no question that the primary dealer market is
very highly competitive, even though it comprises only 12 nonbank firms and 5
bank dealers, most of whom have central offices in New York City. There is
necessarily spirited competition between the dealers for the available volume
of trading business. Any offers to sell at a price even slightly below the market usually are quickly taken advantage of, as are offers to buy at anything above
whatever the price may be at the moment. In volume, the Government securities market is by far the largest financial market in the country. It handles
each year a dollar volume of transactions approximating $200 billion, or more
than 3 times as much as the dollar volume of transactions in all corporate
stocks as well as bonds on the New York Stock Exchange.
The dealers are principally wholesalers and their customers consist of several hundred nonfinancial corporations, several thousand commercial banks who
submit orders both for their own account and for customers, other security
brokers and dealers handling transactions for customers, hundreds of insurance
companies, mutual savings banks, pension funds, and savings and loan associations thoughout the country, the special funds of State and local governments,
personal trust accounts, and some individual investors of substantial means.
These investors and traders who use the market to buy or sell are generally
themselves expertly informed and experienced in investment matters. Each is
seeking the best return on the funds he places in Government securities; each
is continuously comparing these returns with those on alternative investment
opportunities; and each of the larger investors, who regularly use the services
of several dealers, is constantly comparing the relative performance of the
dealers with whom he is in contact.
In this type of highly competitive market, the dealer who succeeds must
execute the buy or sell orders of these numerous and varied investors promptly
and efficiently and the business must be handled in accordance with high
ethical standards. Moreover, if he is to obtain future business, such investment advisory services as the dealer renders his customers must stand the
test of time.
Each of the primary dealers, through one means or another, operates throughout the country because broad coverage is essential to the maintenance of a
sufficient volume of business for profitable operations. This is probably a major
reason why there are not more dealer firms active in the market. Another
reason, according to information received in this study, is that the number
of qualified and experienced personnel available to staff new firms is relatively
small.
Regarding the criticism of market mechanics, it is true that the dealer market
makes available to the public practically no information on its operations other
than market bid and offer quotations. There is no requirement for making
available either to the public or to a duly constituted authority the records of
dealer net positions in securities or amounts borrowed, such as are required of
members of the New York Stock Exchange.
The lack of formal rules, supervision, and adequate information leaves the
market open on occasion to suspicion that it may not always be operating in the
public interest. It has been suggested that in instances dealers' interests may
conflict with those of customers, that dealer operations may unduly accentuate
swings in securities prices, and that dealer advice may not be entirely accurate.
There was, however, little or no evidence gathered in the study that such problems are common in the dealer market. All of the market customers consulted
in the present study expressed their full confidence in the Government securities
dealers, individually and as a group, and testified to their high standards of
integrity and business practice.
Concerning small transactions in the market, consultants to the study have
indicated that they generally go through other brokers and dealers and commercial banks, and that when they reach the market they are handled promptly
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by dealers at a relatively low cost that is in part subsidized by the large transaction. As the dealers are organized primarily to handle large transactions, it
is understandable that they view the small deals as an accommodation, and
do not actively encourage them. It seems clear that if facilities designed more
specifically to serve small investors' interests in marketable bonds are to be
established, there would have to be some additional incentive provided.
The New York Stock Exchange, prompted by our study, reviewed the potentialities for reestablishing a vigorous auction-type market in Government securities on the exchange. After extended consideration of the matter, however,
exchange officials concluded that, even though such a development was theoretically possible, problems raised by the suggestion would be insurmountable
unless both the Government and the exchange shifted a number of fundamental
policies.
One specific problem to be resolved is the difficulty under existing conditions
of encouraging exchange specialists to take the financial risk of making a market
in Government securities. The specialists would be in competition with established Government securities dealers. In addition, they might on many occasions
need to build up very large positions in Government securities, since this is a
heavy volume market and, when sharp price movements occur, quotations on
maturities throughout the list tend to move together much more so tban in
the market for specific corporate stocks or bonds. Finally, because of the publi'"'
nature of transactions at exchange trading posts, specialists taking positions
to make orderly and continuous markets would be unduly exposed to possible
raids by nonmember dealers and other large traders.
There is also the problem of developing an adequate incentive for handling
Government securities on the exchange through a commission schedule that
would be competitive with narrow spreads prevailing in the dealer market.
Other conditions set by the exchange for an effective auction market under
its auspices would be—
(a) A larger supply of long-term Government bonds in the market,
especiaUy of bonds attractive to individual investors through tax exemption
or other special features since these investors now find only limited interest
in Governments other than savings bonds.
{!)) The placing on the exchange of all Federal Reserve agency transactions in bonds, possibly plus official support of the exchange market; and
(c) A potential requirement for the execution of all transactions of member firms in Government bonds on the exchange, except for some off-flavor
trades in special circumstances.
{d) Some protection of the position of member firms who are acting as
Government security dealers.
The exchange did not suggest that its facilities could be adaptable at all to
trading in Treasury bills, certificates of indebtedness, or notes, which together
constitute more than half of the outstanding marketable Federal debt and are
also the issues in which the overwhelming volume of market transactions takes
place.
These conditions make it clear to us that it would be difficult to develop an
auction-type market for Government securities on a broad scale under the existing organized exchange mechanism.
The alternative approach of improving the mechanism and institutions of
the present Government securities market, by carefully studying and remedying
defects in the dealer market as they come to light, appears to us to promise
results that will serve the public interest. At the same time, the New York Stock
Exchange should be encouraged to develop further the auction facilities it now
provides for transactions in Govermnent bonds. The total market cannot be
harmed and may indeed be improved by more active competition between the
exchange market and the dealer market in bond trading.
AREAS FOR IMPROVING
MARKET
MECHANISMS
AND
FUNCTIONING
Our study was launched, as stated earlier, in the hope that the suggestions
advanced and problems revealed might indicate certain improvements in the way
the Government securities market operates, with particular emphasis on the
prevention of future speculative excesses in the market. In the light of consultants' suggestions and of findings of our factual review of the 1957-58 market
experience, our study group initiated four supplementary studies to evaluate
EXHIBITS
297
possible means of improving the market's functioning. These are in the nature
of working papers for consideration by Treasury and Federal Reserve officials.
As their preparation has just been completed iri preliminary form, they have
not yet been reviewed. Hence, they cannot be interpreted as reflecting any official recommendations for market improvement. There may also be other supplementary studies undertaken as we reexamine market processes and mechanisms and we naturally intend to pursue this phase of our inquiry as far as will
serve a constructive purpose.
A first area of supplementary study pertains to the adequacy of statistical and
other information relating to the dealer market. As mentioned earlier, it is
commonly recognized that openly competitive and efficient markets are characterized by informed buyers and sellers. A broad range of objective information
needs to be available to serve effectively the interests of all market participants,
including the Treasury as issuer of securities for the market and the Federal
Reserve as it participates in the market in regulating overall credit and monetary conditions. In this light the present flow of information relating to the
market is inadequate, a point that was agreed to by many of our study consultants.
As a result, our study group undertook a thorough analysis of the information
that ought to be regularly available. We were encouraged in this by the excellent cooperation received from dealers and other market participants in
supplying information for our review of market experience in 1957-58. We
believe, therefore, that a reporting program can be worked out by the Federal
Reserve and Treasury staffs to put an adequate information program into active
operation in the not too distant future.
A second area of supplementary study is the credit financing of Government
securities transactions. Last year's market experience has clearly indicated
that at times an undue amount of speculation financed on thinly margined
credit can be detrimental to the market and that competition of lenders in
extending credit to prospective holders may result in deterioration in appropriate equity margin standards. This experience raises the question of the
need for some action to assure that sound credit standards will be consistently
maintained by lenders in credit extension backed by Government securities
and also to keep the total volume of such credit from expanding unduly at
times.
Our study has indicated that there are three approaches which the Government might consider in dealing with this problem: First, a statement by bank
supervisors to each lending institution within its jurisdiction indicating minimum margins to be adhered to as standard; second, a requirement that each
investor participating in the exchange of maturing Treasury issues for new
issues state his equity position in those securities in compliance with Treasury
standards (plus the continuing requirement by the Treasury of appropriate
deposits on subscription to its new issues offered for cash) ; and, third, the
introduction of special margin regulation, similar to that now applicable under
the Federal Reserve Board regulations T and U to the purchasing or carrying of corporate securities. The latter type of regulation would, of course,
require congressional action, since present law specifically exempts Government securities from this type of credit regulation. It must be reemphasized
here that these are merely possible approaches; they have not yet been fully
appraised by either Treasury or Federal Reserve officials and other alternatives
may be developed in the light of additional study.
A third area for special study is the use of the repurchase arrangement
in credit financing of Government securities. This is not a new method of
credit financing, but it is a method that is easy to apply to Government securities transactions and, because of its fiexibility and adaptability, has become much more popular in recent years. Government securities market activity
last year brought to light certain uses of repurchases that were not in the
public interest when such financing was arranged without the borrower putting
up adequate margin. The study discusses various alternatives which might
be applied to prevent future abuse.
A fourth area of special study of the existing mechanism of the Government securities market relates to its present lack of formal organization. In
our consultations, a number of market participants and observers suggested
that the market might be improved and strengthened through cooperative ac-
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tion of primary dealers themselves, working through a dealers' association.
Various specific functions that an association might perform to improve the
market's functioning were indicated, including: {a) the adoption of standard
rules to assure fair treatment of buyers and sellers in both large and small
transactions; (6) the development of standard practices to help maintain dealer
solvency; and (o) greater liaison between the Treasury and the dealers in
Treasury financing operations. It was also suggested that a dealers' association could be useful in identifying primary dealers in Government securities both
to improve dealer service and to apply any market rules which may be adjudged
in the public interest. Since the possible advantages of such an organization
as well as its possible disadvantages obviously require careful and detailed
examination, the task of this supplementary study has been to make this muchneeded evaluation.
A question that naturally arises at this point is whether in the light of the
present study there will be any occasion later for special legislative requests
pertaining to the operation of the Government securities market. This question cannot be answered yet. Before it is, we must try to determine what can
be accomplished in improving market processes and mechanisms without legislative action and then ask whether these improvements are enough. The fact
of the study itself, together with educational efforts undertaken by the Treasury
and Federal Reserve System, has already set in process a fuller appreciation
on the part of market participants of the undesirable effects of certain market
practices. If we find that desired improvement of market mechanisms and
institutions requires new statutory authority, we will propose appropriate
legislation to the Congress.
Markets are dynamic economic institutions. They require succesive adaptation
to changing needs. From the standpoint of the public interest, study of these
adaptations is never ending. Study efforts may be intensified from time to time
as the case of the present Treasury-Federal Reserve study, but they are basically
continuous. Continuing observation and study of the Government securities
market is a responsibility which both the Treasury and the Federal Reserve
recognize.
In conclusion, we repeat that improvement in the processes and mechanisms of
the Government securities market will in no way solve our problems of fiscal
imbalance. Nor can they correct our problems of too much short-term public
debt; of our need for continuous fiexibility in our approach to monetary policies;
of attaining a volume of savings which will match our expanding investment
needs: or of the cyclical instability of our financial markets. These are basic
problems. We must all work toward their ultimate solution in the public
interest.
Taxation Developments
EXHIBIT 21.—Statement by Secretary of the Treasury Anderson, February 5,
1959, before the Joint Economic Committee on the Government's fiscal outlook
and some of its implications for the Nation's economy
I welcome the opportunity to appear before your committee and to discuss the
Government's fiscal outlook and some of its implications for the Nation's economy.
First, I should like to discuss the budget for the fiscal year 1960. We estimate
total receipts of $77.1 billion. Of this total $40.7 billion is expected to come from
individual income taxes, and $21.4 billion from corporation income taxes. The
assumptions for the calendar year 1959 underlying these figures are $374 bilhou
for personal income, and $47 billion for corporate profits.
These income assumptions were arrived at after careful studies and consultations
utilizing all data and judgment available both inside and outside the Government.
The increases they represent imply a continued vigorous recovery, but at a
slightly lesser rate than we experienced after the 1954 recession. Somewhat
larger revenue gains, too, were attained in moving out of the recession of 1954,
if we adjust the timing of corporate tax payments for comparability. The personal income figure of $374 billion compares with a rate for December 1958 of
$359 bilhon; the corporate profits assumption of $47 billion for 1959 compares
with a rate for the fourth quarter 1958 of $44 billion.
I present these estimates with the full realization that the revenue results for
fiscal 1959 will turn out to be substantially less than we originally estimated.
EXHIBITS
299
1 believe, however, t h a t our assumptions^'forjfiscal 1960 are sound and will
t u r n out m u c h closer to t h e mark. T h e y are within t h e range of calculations
made by private estimators, and I understand t h a t similar figures have also
been mentioned by some of t h e experts t h a t have testified before your committee.
Let us now look at our present situation in a broader perspective. We are well
along in t h e recovery from a recession which is now substantially contributing
to t h e largest peacetime deficit in our history—$12.9 billion a t present estimates.
Of this deficit, about half will result from a shortfall in revenues. T h e remaining
is t h e result of increases in expenditures over original budgetary estimates.
T h e drop in revenues in fiscal 1959 is t h e direct result of t h e recession. T h e
increase in expenditures reflects for t h e most p a r t increases t h a t came about
automatically or through actions not primarily related to t h e recession. Among
these are t h e higher^cost of|the|agricultural program because of larger crops, t h e
Federal Government p a y increases, higher defense expenditures, and the proposed subscription to t h e International M o n e t a r y F u n d . Some $2 billion of
spending, chiefly F N MA mortgage purchases, t h e extension of unemployment
benefits, and direct housing loans by t h e Veterans' Administration, represent
actions designed to combat the recession.
W h a t conclusions seem to follow from this experience? First, it seems to me
t h a t t h e economy has once more demonstrated remarkable resilience and resistance to recession. This is indicated by t h e f a c t - t h a t personal income declined
very little, and that^theirecovery^^set in very quickly. I a t t r i b u t e this good performance to t h e inherent qualities of our economy, to the confidence and good
sense maintained by our people, and to t h e automatic stabilizers t h a t have become
a p a r t of t h e economy.
Second, I a m concerned with the size of t h e deficit t h a t t h e recession in large
p a r t produced and with its continuation in a period of growing prosperity. A
deficit of this magnitude, unless quickly corrected, can produce serious inflationary
pressures in t h e longer run, even though in t h e short run these pressures are held
in check by excess p l a n t capacity and other factors. T h e extended unemploym e n t benefits proved timely, b u t t h e economy t u r n e d around before several of
t h e others could have their full budget effect. Meanwhile these expenditures
will continue as we move closer to increased prosperity.
Third, t h e decision by t h e administration and t h e Congress to avoid a major
t a x cut last spring has been justified by events. H a d we resorted to a tax cut
we would not have had this demonstration of the economy's inherent recuperative
powers. We would have helped develop a philosophy t h a t tax relief was necessary
to pull us out of a downturn. Also, a tax cut would have increased our present
deficit and our public debt, and with t h e m the danger of inflationary pressures
in t h e future.
I fear, however, t h a t price pressures may eventually revive, if we do not finally
close t h e budget gap. I sincerely believe t h a t a nation as rich and productive as
ours must, in times of prosperity, at least p a y its way. We can afford to do all
t h a t is necessary, and much t h a t is desirable, and pay for it. But we should
not reach for everything a t the same time. Even a rich country can get into
trouble if it keeps spending beyond w h a t it pays for currently.
Some people seem to feel t h a t to be for meeting current expenses from current
revenues means to be " a g a i n s t " or " n e g a t i v e . " Let us not be misled. The fact
of t h e m a t t e r is there is almost nothing which is more positive and more important
to be for t h a n fiscal soundness. This is an essential condition of our economic
health, without which we can have neither adequate military security nor the
a d e q u a t e provision of other needed governmental services. Meeting our expenses
currently and all t h a t t h a t means in t h e way of fiscal soundness and a healthy
economy is a highly positive objective which deserves the support of everyone.
Growth recj[uires capital formation, through saving and investment. As a
consequence, we should meet our expenditures out of current revenues in prosperous times. A Federal deficit financed outside t h e banks tends to absorb resources t h a t could otherwise go into private capital formation. A deficit, during
prosperity, which is financed through the banks, in itself of course brings inflationary consequences.
A current deficit and t h e fear of future deficits can keep people from saving
because of possible loss of these savings to inflation. If we ever reach t h e point
where people believe t h a t to speculate is safe b u t to save is to gamble then we are
indeed in trouble.
If rising prices which will follow from continued deficits cut into saving habits,
t h e result will be further to diminish t h e supply of capital for economic growth.
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1959 REPORT OF THE SECRETARY OF THE TREASURY
We cannot jindefinitely expect people to continueJ;their''saving if jthey [expect'prices
to go on rising indefinitely,
Our habits of saving, our financial institutions, our
monetary system, must not be jeopardized.
. Our needs for capital will increase as our labor force begins to expand more
rapidly in the early sixties. This expanding labor force, the result of t h e high
birth r a t e of t h e forties, will igive a powerful impetus to t h e econom3^ B u t if
job opportunities are to be found, with 'a [rising degree :of productivity, investment
in plant and equipment will have to advance correspondingly.
Finalty, orderly finances in our country are a key to maintaining the strength
of the free world, and our role in it. Our prestige in the world is not enhanced
if we fail to practice w h a t we preach. The world watches us very closely. On
my trip to and from New Delhi, for the annual meetings of the International
Bank and Monetary Fund, I was impressed to discover how well informed foreign
oificials are about even t h e details of our budget.
B u t more t h a n prestige is at stake here. If we run continuing large deficits
in prosperit}^ and so almost inevitabl}^ drive up prices, we m a y price ourselves out
of world markets. Aside from the losses t h a t this will mean to us, how are we
to discharge our world-wide responsibilities if our international economic position
weakens?
Because we are for sustainable and healthy growth, because we are for increasing job opportunities, because we look to the long run and a possibly long period
of world tension, we must be for the maintenance of orderly finances and a stable
dollar. I believe t h a t t h e time to face this issue is now. Americans have faith
in their money. T h a t faith is justified. Confidence, if shaken, is hard to reestablish. T h a t is why we must keep our expenditures under control, and the budget
in hand.
Your committee has asked me to deal with certain questions. I would now
like to t u r n to the first three of these. With your permission, I shall then ask
Mr. Charles Gable, who assists Under Secretary Baird and myself in debt managem e n t m a t t e r s to discuss with you t h e fourth question, relating to t h e management
of the public debt.
Question 1.—What would j^ou regard as the proper division of labor between tax
policy and monetary policy as instruments of economic stabilization during t h e
coming year?
Answer.—The first consideration of tax policy is, of course, to keep intact t h e
system by which t h e United States Government raises its revenues to finance
the Government service t h a t the Nation requires.
Tax policy and monetary policy should continue to work closely to foster economic health with stability of prices as our econom}^ grows.
After a deficit of $12.9 bilhon expected for fiscal year 1959, t h e President's
budget proposes a budget balance for the fiscal year 1960. For quite a few months
ahead, t h e net effect of fiscal policy will still be to stimulate the economy. As
prosperity advances, so will our revenues until t h e deficit is eliminated a t a high
level of economic activity if spending is under control.
At t h e income levels projected in t h e budget, t h e tax system is expected to produce revenues approximately equal to proposed expenditures in fiscal 1960. If
we achieve our objectives there will be no need, conseciuently, for an increase
in taxes.
By eliminating t h e deficit, tax policy will greatly ease t h e task of monetary
policy. If we fail to keep 1960 expenditures within income, we contribute to
inflationary pressures and complicate the problems of monetary management.
Tax policy will render additional assistance to monetary pohcy b}^ avoiding further
permanent borrowing by t h e Treasury in t h e market. This will also facilitate
the Treasury's own job of h a n d h n g the public debt.
Question 2.—Is the present structure of t h e Federal tax system adequate in
light of the Nation's economic growth and stability requirements? If not, what
changes would you recommend?
Answer.—I believe t h a t any tax structure can alwaj^s be improved. By t h a t I
do not mean to say t h a t we cannot live with our present taxes. We certainly can.
If new imperative revenue needs should arise, we could live with higher taxes
t h a n the present. Ours is the most productive economy in t h e world and I do
not believe t h a t it would be crushed b}^ its tax burdens, if we are reasonable.
We m u s t constantly evaluate in terms of continuing economic growth both
elements of tax reform and, when proper, tax reduction. While these are closely
related, t h e y are not necessarily identical.
EXHIBITS
301
The Treasury has been studying and continues to study various improvements
in the tax system and in tax administration. In this we are cooperating, and shall
continue to cooperate, with the appropriate committees of Congress. Many of the
adjustments under review are of a technical character. Their application depends
in many cases on the resolution of administrative difficulties. It depi9nds further
on future business conditions and other factors that cannot now be foreseen. As
this is a continuing study both in the Treasury and the committees of the Congress,
it would be premature to attempt any detailed discussion.
The committee questions deal also with the relation of taxes to the stability
of the economy. I take it that this refers principally to the cushioning effect
that declining tax collections can have during a recession. Illustrative of this"
effect, of course, is the sharp decline in cohection of corporate taxes growing out
of the recent recession. It also focuses our attention on the fact that deficits may
well continue after the economy has moved up and is advancing toward full
prosperity. This sort of complex problem deserves, and will have, our continuing
study.
The high degree of resilience which our economy has just demonstrated seems
to suggest that we should be cautious and analytical in our evaluations and flexible
enough, if some future downturn should require it, to be willing to use whatever
instrument seems most appropriate to the occasion. In this connection, some advance planning is proper so that the right decisions can be appropriately taken
when we are confronted with cyclical movements in our economy.
Question 3.—Under what circumstances can we reduce Federal taxes? What
are the prospects for realizing these circumstances?
Answer.—The circumstances and prospects of tax reduction would first depend
very much on future expenditures and the maintenance of our economic growth.
Economic growth can be expected to raise our revenues, but it will produce no
surplus if we do not control expenditures. Unless we spend wisely we will have
trouble taking care of such new requirements as may prove really essential.
Next, tax reduction must be weighed against debt reduction out of surplus.
I believe that in years of prosperity we should endeavor to achieve some debt
reduction. This policy commends itself as an act of fiscal soundness. It would
ease the task of monetary policy and the management of the public debt.
Chcumstances for a tax reduction would depend further upon the degree to
which we can succeed in avoiding inflation. At times of inflationary pressure we
should aim at some budget surplus.
I would not now want to prescribe a precise formula or to try to predict a precise
time when tax reduction might properly be considered. I have tried to point
out the varying factors which would influence our judgment at the time when such
a judgment seems to be appropriate.
EXHIBIT 22.—Statement by Deputy to the Secretary of the Treasury Smith
December 1, 1958, before the Subcommittee on Foreign Trade Policy of the
House Committee on Ways and Means on the existing tax treatment of foreign
income
• I am glad to be here today on behalf of the Treasury Department to discuss
with you some of the tax aspects of the very important problem that your subcommittee is considering. We look forward to the testimony that will be presented before your subcommittee. We believe that out of it will emerge a significant contrilDution toward facilitating the flow of private capital especially to
the less developed countries and will help to establish an increasingly firm bond
between free institutions here and free institutions in the other countries.
A free flow of capital funds is important for economic development. -The
general investment climate is by far the most important influence on the flow
of funds. Inherently unattractive situations cannot be made attractive by
artificial stimulants. But at the same time, barriers and impediments to the
fiow of funds should be kept to a minimum and private capital should be encouraged to fulfill its proper role in economic development.
The administration is giving intensive study to various proposals designed to
promote our foreign economic policy. At this time, however, while the budget
and general legislative recommendations are still being developed, it is not
possible to make specific recommendations in this area. We believe that these
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195 9 REPORT OF THE SECRETARY OF THE TREASURY
hearings will be most helpful in the formulation of any recommendations that
may be made.
As this subcommittee, perhaps more than any other, is aware, on almost every
occasion that something in the public interest is to be achieved through private
business activity, proposals are made for tax incentives to encourage the desired
action. This is true in connection with the present issue. It seems appropriate
therefore to review briefiy the present method of taxing income from abroad, and
to show the factors in the law today that encourage international trade and
investment.
The existing tax treatment of foreign income rests on the basic tenet that all
income, irrespective of source, shall be taxed equally. This is achieved by the
inclusion of foreign income in the tax base and by the allowance of a credit against
the U.S. tax for the taxes imposed by foreign countries on income derived within
their borders. Without a foreign tax credit, income from foreign sources would
bear an aggregate tax load substantially above that imposed on domestic income.
The foreign tax credit provision reflects the view that each country has a primary
right to tax income originating within its borders. One effect of the provision is
to eliminate U.S. tax completely in many cases, for where a foreign country's
taxes are equal to or exceed those of the United States, no additional tax on income
derived within its borders is collected by the United States. In other cases, the
United States collects only small amounts of tax, the difference between the
foreign rate and our own.
It may be of interest to note that this treatment of foreign taxes is considerably
more favorable than the treatment accorded taxes imposed by the State governments. A foreign income tax (whether national or local) is treated as if it had
been paid to the United States, but State income taxes are considered a cost of
doing business, deductible from gross income rather than from the tax itself.
It may be noted in passing that, for reasons that are largely accidental, the
method of computing the credit for foreign taxes is such that income derived
abroad through the medium of foreign subsidiaries is frequently taxed at a combined foreign and domestic rate which falls short of the tax rate that applies to
income derived from domestic business operations.
The treatment of income derived abroad by American companies operating
through foreign subsidiaries merits attention. A corporation which is created
under the laws of a foreign country and derives its income abroad does not fah
within the scope of our tax system, irrespective of the fact that ownership rests
in the United States and its management and control are also located in the
United States. This has been a basic feature of our income tax structure since
its enactment, but it is not a universal rule for the tax treatment of companies.
In some countries, a corporation that is managed and controlled by residents of
the country is considered to be a legal entity of that country and subject to its tax
laws. This is true not only in the United Kingdom and countries influenced by
British law, but in a number of the continental countries as well. One result of
our approach is that a substantial proportion of the income each year from investments made abroad by U.S. firms does not fall within the scope of our tax system.
Consequently investments through foreign subsidiaries benefit from whatever
advantages foreign countries are prepared to offer by way of tax rate concessions,
development allowances, accelerated depreciation, and the like.
Despite the underlying philosophy of uniformity in our tax system there is
in our tax structure a rate differential for certain investments abroad. The
principal provision is the Western Hemisphere trade corporation deduction which
provides a rate reduction of 14 percentage points. A corporation that qualifies
is taxed at a rate of 38 percent instead of the 52 percent imposed on corporate
income generally. The application of this differential rate has spilled over into
other activities somewhat removed from the type of enterprise for which the
provision was originally intended. The combination of the reduced rate and the
credit for foreign taxes means that income from the Western Hemisphere, even
more so than from other parts of the world, produces little revenue for the United
States Government.
The basic provisions of the tax law applicable to income from foreign sources
are supplemented by a network of 21 income tax treaties, which help eliminate
tax barriers to the international movement of trade and investment. Their
principal purpose is to set forth agreed rules of source, either explicitly or implicitly
through reciprocal tax rate reductions and exemptions, which reduce the cases
in which two countries impose tax on the same income without either one giving
EXHIBITS
303
recognition to t h e t a x imposed by t h e other. Let me illustrate t h e problem.
While we allow a credit for t h e tax imposed by Country X on income derived
in t h a t country, our concepts of source m a y differ from those accepted in t h e
foreign country. As a result there m a y be a flow of income to an American
firm which is considered under U.S. law to be income from sources within t h e
United States, b u t which under t h e laws of t h e foreign countr}^ m a y be considered
income from sources within its borders. Both countries would impose a tax on
t h a t income, b u t we would not allow a credit for t h e foreign tax, since t h e income
does not have its origin in t h a t country so far as t h e U.S. law is concerned. With
t a x rates as the3^ are, t h e combined tax burden in such a case might well exceed
t h e t o t a l income involved. This problem arises, in greater or lesser degree,
in connection with various types of international transactions, including trading
activities, t h e rendition of personal services, licensing arrangements, and t h e like.
Of late we have u n d e r t a k e n another step in connection with t h e tax t r e a t y
program which holds considerable promise of facilitating t h e international movem e n t of investment. I refer to t h e credit for " t a x incentives" or " t a x sparing"
which some less developed countries have chosen to use as p a r t of their programs
to a t t r a c t capital and know-how from abroad and to encourage reinvestment
of profits. T h e tax credit mechanism designed to achieve equality of tax burdens
operates so as to offset, to some extent, tax incentives granted bj^ a foreign
country. For as t h e tax imposed in a foreign country is reduced, whatever t h e
reason ma}^ be, t h e a m o u n t of t h e tax credit allowed against U.S. tax is also
reduced. When t h e tax credit declines, t h e a m o u n t of IJ.S. tax paj-able tends
to increase and t h u s to negate t h e tax reduction offered by t h e foreign country.
This has been a source of irritation among some foreign countries. Though it
m a y not be desirable from t h e point of view of an ideal t a x system, uniformly
administered, to give a credit for an a m o u n t of t a x which has not been collected
by a foreign government, it is our view t h a t in t h e interest of foreign economic
policy we should recognize, rather t h a n nullify, t h e revenue sacrifices made by
a foreign government under certain conditions. This question is developed
more fully at a later point.
F r o m this brief sketch it is evident t h a t our tax systeni offers several inducements to foreign investment as compared with domestic investment. Nevertheless various proposals have been made in recent years to modif,y further t h e
U.S. tax t r e a t m e n t of income from foreign sources. Doubtless new ones will
emerge in t h e hearings before 3^our committee. B.y way of introduction some
of t h e main proposals t h a t have been m a d e m a y be listed and some of their
features discussed.
T h e suggestion t h a t has probably evoked most interest in recent m o n t h s is
t h a t there be created a special class of domestic corporation for tax purposes
which would be permitted to conduct business operations abroad or otherwise
derive income from foreign sources without incurring an}^ liability for t a x in
t h e United States unless and until its income is repatriated to t h e United States.
So-called base companies can now be created under t h e laws of certain other
countries, and can, through subsidiaries or directly, carry on business outside
t h e couniJrj^ of incorporation under favorable tax conditions. Indeed, a n u m b e r
of other countries are making a determined effort to a t t r a c t t h e formation of
such corporations within their jurisdiction. T h e proposal to create a special
class of foreign business domestic corporations is to make possible t h e creation
of a so-called base company under United States law.
Your committee will recall t h a t t h e administration's tax recommendations in
1954 included t h e deferral of tax on income derived abroad through a branch of a
domestic corporation. Of course a domestic corporation t h a t was engaged
exclusively in business abroad would have qualified for deferral just as under t h e
proposals currently under discussion. T h e major argument for such a domestic
base company, or foreign business corporation, or overseas trading corporation,
is t h a t it would give some impetus t o foreign investment without appearing to
make any serious incursion into t h e principle t h a t equal amounts of income
should bear equal t a x burdens. A supplementary argument is t h a t American
firms are now in a position t o create such a company abroad and no sound public
purpose is served by requiring American firms to subject themselves t o foreign
jurisdictions. I t is argued t h a t they should be able to organize such companies
under U.S. law. This would at t h e same time bring under t h e scrutiny of our own
t a x authorities transactions t h a t might otherwise go unnoticed. Whatever the
merits of t h e proposal, it should be borne in mind t h a t as a practical m a t t e r t a x
deferment is tax exemption to t h e extent t h a t t h e income of a base company is not
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195 9 REPORT OF THE SECRETARY OF THE TREASURY
distributed. Given t h e reinvestment policies of American firms, therefore, a
substantial portion of profits would in fact be exempt for an indefinite period from
U.S. tax. Attention m a y also be called in passing t o t h e m a n y questions which
must be answered if a foreign business corporation law were adopted. W h a t
kind of operations could such a company engage in? Would it have t o be engaged
in business operations directly in foreign countries, or could it own stock in other
companies which are engaged in business? If t h e latter, must it have a substantial equity interest in t h e foreign operating company or could it have a small
portfolio interest? Should t h e company be allowed to transfer its profits freely
from one company to another or from one country to another, or should it be
required to restrict its investments in certain channels? I n other words, should
it be possible for a company deriving profits from mining in a high-risk country
to invest excess funds in portfolio investment in a low-risk country. At w h a t
stage would its profits become subject to U.S. tax? When dividends are declared
to a U.S. shareholder, or when it transfers assets to a bank account in t h e United
States or invests t h e m in the United States in some other way? If t h e company
is to engage in operating activities, should these activities be restricted in any
way? Should a firm which exports goods from t h e United States qualify? And
if such an enterprise can qualify, should a company which manufactures for export
also qualify? If passive portfolio investment is to be encouraged, should other
income fiows be similarly treated—such as interest or ro3^alties from p a t e n t s and
copyrights? These are some of t h e questions t h a t would have to be resolved
in connection with t h e enactment of any legislation along this line. A more
fundamental question is whether enactment of this legislation would in fact
promote t h e kind of investment flows t o t h e regions of t h e world where U.S.
investment could do t h e greatest good.
This question of how much additional foreign investment will be generated by
a particular course of action applies equally t o other proposals besides tax deferral.
A second frequently proposed suggestion is to reduce t h e tax r a t e on income derived from foreign sources. I n its most extreme form, this proposal involves
complete tax exemption for income derived abroad. I n its more common form,
t h e suggestion is t h a t t h e rate on foreign income be reduced by 14 percentage
points, just as in t h e case of Western Hemisphere t r a d e corporations. While it
is often referred to as an extension of t h e Western Hemisphere provisions to a
world-wide basis, t h e Treasury proposal of 1954 on this subject contained certain
i m p o r t a n t restrictions. One was t h a t the corporation eligible for t h e reduced
r a t e could not also t a k e a percentage depletion deduction. I t was also our recommendation t h a t t h e reduced r a t e should apply only where a taxpayer was engaged
in an active business role abroad through t h e firm commitment of tangible resources. Passive portfolio investment did not appear to merit special t r e a t m e n t
any more t h a n portfolio investment in domestic enterprises. To be sure, t h e
risks associated with portfolio investment in some foreign countries are greater
t h a n t h e risks in t h e United States. But this is not uniformly true in foreign
countries and there is also great differentiation in risk among domestic investments.
I n addition foreign income eligible for t h e preferential r a t e was so defined as to
exclude profits derived from t h e export of domestic goods. This was deemed
essential to avoid giving a t a x subsidy to exports and unfairly undermining t h e
position of other countries in international markets.
These considerations apart, it should be noted t h a t while a general tax r a t e
reduction for foreign income m a y arouse new interest in foreign investment, it
m a y not have t h e incentive effect t h a t first appears. A reduction in the U.S.
tax r a t e of 14 percentage points on foreign income m a y produce an incentive
effect of only 7 percentage points in a country which has a 45 percent tax rate.
I n a country with a tax r a t e of 50 percent, it may have t h e incentive effect of only
a 2-point reduction. I t is ironic to note in this connection t h a t some of t h e
countries most in need of capital both from foreign and from domestic sources
impose taxes at rates t h a t are higher t h a n those in t h e United States: A tax
reduction would have no impact on investments in such countries over t h e long
haul, and if a generally applicable rate reduction were adopted with these countries
in mind, it would merely provide windfalls for investors in other countries where
new investment m a y need no special stimulus.
In appraising a 14 percent rate reduction it is necessary to keep in mind t h a t
it would apply uniformly across the board to income from both old.investment and
new and to all countries unless made specially selective. Tax rate reduction m a y
have an effect quite opposite to t h a t intended by its proponents so far as concerns
t h e reinvestment abroad of income derived in foreign countries. If t h e U.S. tax
EXHIBITS
305
rate on dividends from a foreign subsidiary is to be 38 percent, the incentive to
repatriate profits rather than to plow them back in the business venture abroad
will be greater than is the case today when a 52 percent rate may apply to such
income. Thus a rate reduction, instead of promoting investment abroad, ma3^
have a contrary result.
It should not be inferred from these comments that a general 14 percent tax
rate reduction might not have a beneficial effect on investment flows abroad.
The foregoing comments are intended to bring out certain aspects of the problem
which are often overlooked.
Another proposal which has received some attention in the past is to scrap
completely the present method of taxing foreign income, including- the credit for
foreign income tax, and to levy a special corporate tax at the rate of, say, 5 or 10
percent on such business income, whether in the form of dividends from a foreign
corporation, profits from the active conduct of a trade or business, interest,
royalties, and so on. The tax base would be foreign income after the deduction
of foreign taxes. Depending upon the rate imposed, such a tax could either
produce the same amount of revenue that we now get from taxes on foreign income
or it might even provide for a modest increase.
The simplicity of this proposal has much to commend it. Such a low fiat rate
tax would leave considerable scope for whatever tax inducements might be offered
by a foreign country to new investment. Any dollar of foreign tax saved would
be subject to the U.S. tax, but in view of the low rate the major portion of any
foreign tax rate reduction would accrue to the benefit of the investor. All foreign
income would pay some tax to the United States, including income which is now
exempt because of the effect of the foreign tax credit. But this advantage also
reveals the principal disadvantage of this plan. Since all foreign income would
be subject to tax, profits derived abroad which are already subject to a tax of 52
percent, or 38 percent, or even 60 percent would bear an additional tax.
The arithmetic may be clarified by an illustration. Suppose that Country X
imposed a tax of 30 percent on income derived within its borders. One hundred
dollars of income derived in that country would leave $70 available to the
American investor, and this $70 would be subject to the flat rate tax of, say, 10
percent, or a liability of $7. The total foreign and U.S. tax on the $100 of profits
would come to $37. Suppose the foreign tax rate were 10 percent, then the combined tax on such $100 of profit would be $10 abroad and $9 in the United States,
or a total of $19.. If the foreign tax rate were 60 percent, then the combined tax
liability would be $60 to the foreign country and $4 to the United States. This
type of tax on foreign income would doubtless involve a tax reduction in some
cases, but in other instances it would mean an increase in the aggregate taxes now
imposed. In general, it may be said that if the U.S. tax were fixed at 10 percent
this approach would involve a tax reduction where the foreign tax rate is 46.7
percent or lower, and would involve a net addition to tax where the foreign rate
is above that figure. In the Western Hemisphere the comparable breakeven
point is 31.1 percent. Whether the benefits to be derived from this approach
are significant enough to justify its adoption is a matter to which your subcommittee will want to give careful consideration.
One objective of the tax proposals under review is to make it possible for
American firms investing abroad to benefit from the tax inducements offered by
foreign governments to attract new capital. As previously noted, such inducements can now be taken advantage of by a foreign subsidiary engaged in business
abroad and seeking to plow back its earnings. However, if a business is conducted
abroad through a branch, or if the opportunity and desire to reinvest are lacking,
then the tax incentives offered b3^ a foreign country are offset by operation of our
tax system. This .problem has already been mentioned, but the declaration of
policy which the administration has made in connection with the tax treaty
program may be repeated at this point. It has announced that we are prepared
to consider the inclusion in tax treaties with less developed countries of a provision
by which recognition would be given to tax incentive schemes under so-called
pioneer industries legislation or laws for the development of new and necessary
industries. Briefly, what we are proposing is this: If a country believes that by
giving up tax revenues in certain cases, it will be serving the cause of economic
development, we will forego the opportunity to increase our tax revenues by
nullifying their concessions. However, we would be prepared to forego this only
under certain conditions. First, there should be a firm commitment to eliminate
unnecessary and inequitable tax barriers to the flow of private investment in
accordance with sound rules of taxation such as are generally embodied in our
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1959 REPORT OF THE SECRETARY OF THE TREASURY
income tax treaties. This includes agreement not to discriminate against American business enterprises. Second, its tax incentive laws should be of general
application, t h u s assuring m a x i m u m benefit to t h e economy from such legislation.
Third, t h e conditions a n d terms under which the tax incentives are available
should be those provided in an existing law with full disclosure of t h e conditions
under which t h e y are granted, a n d with procedures for granting or withholding
t a x incentives which involve a minimum of administrative discretion. F o u r t h ,
t h e tax incentive should be for a limited duration of time, a n d preferably limited
in a m o u n t . Finally, t h e t a x from w-hich exemption is granted m u s t be a genuine
p a r t of the country's tax structure and not a spurious levy created for the occasion.
Whatever one m a y think about a credit for "taxes spared" as an element in an
ideal tax system, a n d there are some who have misgivings, it is our view t h a t this
is a sensible way to approach an issue t h a t is of considerable importance to foreign
countries and t h a t has t h e seeds of substantial growth in promoting private
i n v e s t m e n t abroad a t a minimum cost.
I t m a y be said of t h e t a x t r e a t y program t h a t a credit for taxes spared permits
foreign governments to determine t h e tax burden imposed on American firms
a n d to var3^ t h a t tax burden among American firms in different ways. I n a broad
sense, this is quite correct. However, it is a charge t h a t is equally true of any
method of taxing foreign income which in any way removes income from t h e scope
of t h e U.S. tax. I t is t r u e in large measure t o d a y of income derived abroad
t h r o u g h foreign subsidiaries.
Another suggestion which appears to merit careful a t t e n t i o n Avould extend the
principle of t h e loss t r e a t m e n t found in t h e Small Business Tax Revision Act of
1958 to certain foreign corporations. Under the 1958 legislation, losses incurred by
an individual or partnership on stock issued to the shareholder by a small business
corporation m a y be t r e a t e d as an ordinary loss within certain limits. However,
only a domestic corporation can qualify as a small business corporation. You
m a y wish to consider whether this limitation should be removed so t h a t business
ventures abroad conducted t h r o u g h foreign corporations could also qualify. Or
conditions other t h a n those applicable under t h e Small Business Tax Act might
be made to apply where a foreign corporation was involved. This would mean
t h a t losses incurred in connection with business venture abroad would be deductible from ordinar3^ income, b u t gains would be t r e a t e d as a capital gain. The loss of
revenue is kept to a minimum by the self interest of t h e investor, while t h e opport u n i t y of offsetting losses against other income might represent a significant step
in promoting foreign investment.
You will recall t h a t in the case of certain regulated investment companies
which devote more t h a n 50 percent of their assets to investments in foreign corporations, a so-called pass-through of t h e foreign t a x credit to shareholders is permitted which t h e corporation would itself be entitled to t a k e if it were a taxed
entit3^ T h e suggestion has been made t h a t this pass-through of t h e foreign t a x
credit should be expanded to include companies which have a smaller proportion
of their assets in foreign securities. This might stimulate some interest in
foreign investment by regulated i n v e s t m e n t companies which now place their
funds largely,, if not exclusively, in domestic investment outlets. On t h e other
hand, t h e complaint has been made t h a t t h e a m o u n t of tax credit passed through
to a shareholder in a regulated investment company which qualifies under existing
law is so small in view of t h e complexity involved t h a t it is not much of an incentive
to t h e ordinary shareholder. The tax credit t h a t would be available in t h e case
of a regulated investment company with more diversified investments m a y involve
an even smaller credit and be correspondingly less a t t r a c t i v e to its shareholders.
Another proposal, incorporated in a bill introduced by t h e chairman of this
subcommittee, would permit a domestic corporation to transfer assets without
an3^ tax consequences to a foreign corporation if such assets are connected with
business activities conducted abroad. Such a step would introduce greater
uniformity of t r e a t m e n t as between companies t h a t are engaged in business
abroad through domestic subsidiaries or branches and companies engaged in
business abroad through foreign subsidiaries which are controlled by a foreign
holding company. If legislation authorizing a foreign business corporation of
the t3^pe previously discussed were to be adopted, consideration would have to be
given as to whether to permit t h e transfer of p r o p e r t y to a foreign business
corporation as if it were a tax-free reorganization. If it adopts such an approach
t h e n transfers to foreign corporations would presumably not need to be encouraged.
B u t if t h e subcommittee does not a d o p t t h e foreign business corporation device,
t h e n t h e tax-free transfer of assets to foreign corporations will continue to be of
EXHIBITS
307
interest to many firms. In our view the issue is not very different from that
which involves tax-free reorganizations of domestic corporations. However, to
prevent such reorganizations from becoming avenues of tax avoidance through
the transfer of appreciated property to a foreign corporation and the subsequent
liquidation of the foreign corporation either tax-free or at capital gain rates,
your subcommittee would want to consider whether the gain on liquidation or
otherwise should be taxed at ordinary rates. In 1950, when the Ways and Means
Committee was considering legislation relating to the hquidation of foreign subsidiaries, the Treasury then recommended such ordinary income treatment.
Finally, I would draw your attention to the proposal that an election be
permitted taxpayers to choose between the per country limitation in computing
the foreign tax credit and the overall limitation. The per country limitation
gives companies operating at a loss in some countries the right to continue to
take tax credits for the taxes paid in countries where they operate profitably
without having to offset for losses in the other countries. The overall limitation
would give companies operating in countries with tax rates above the United
States rates the right to offset those higher taxes against income tax in other
countries where the tax rates are lower than the United States rates. Prior to
1954, both limitations applied. In that year the overall limitation was removed
to eliminate the tax barrier which discouraged companies from going into ventures
in new countries where they might be expected to have a loss in the first few
years. This was a sound change in the law. It is questionable whether it would
be reasonable to permit higher taxes than those imposed in the United States to
be offset, indirectly, against U.S. taxes, as would be possible if the overall limitation
were now established as an alternative to the per country limitation.
The theoretical justification for the overall limitation appears to be that
taxpayer income can be separated into two baskets, one of which includes domestic
income only and the other includes foreign income only. One may doubt whether
this type of separation is indeed a valid one. There would seem to be little in
common between income derived in, Canada or the United Kingdom and income
derived in Iran. In any event, if such a dichotomy were to be adopted, consistency
would require the elimination of the per country limitation and, indeed, of the
deduction of foreign losses from domestic income. Moreover, the need for making
the choice involved in this proposal seems largely to have disappeared as a result
of the recent legislation allowing the carryover of foreign tax credits.
This list of tax proposals to promote private foreign investment is likely to
be expanded by subsequent witnesses before your subcommittee. As you may
know, there are several groups in the executive branch of the Government giving
intensive study to various proposals. It is our hope that these hearings will
assist in this purpose. The Treasury Department will be glad to cooperate with
the subcommittee in whatever way it can in the further work in this area.
EXHIBIT 23.—Letter from Secretary of the Treasury Anderson, May 6, 1959, to
the Chairman of the House Committee on Ways and Means on a bill, H.R. 5.
to provide tax relief for foreign income
MY DEAR MR. CHAIRMAN: This is in reply to your request for the comments
of the Treasury Department on H.R. 5, a bill entitled "Foreign Investment
Incentive Tax Act of 1959," introduced on January 7, 1959, by Mr. Boggs. The
purpose of this bill is to provide in certain areas tax relief for foreign income in
order to provide incentives for the expansion of United States investment abroad.
The need to enlist the vast resources and talents of American enterprise in
helping to improve the economies of the less developed countries is particularly
important today- with a hostile Communist bloc actively pressing a massive
economic offensive against the free world. The Departments of State, Commerce, and Treasury have given careful study to various proposals designed to
promote this country's foreign economic policy, with a view to facilitating the
flow of private capital abroad and especially to the less developed countries of
Asia, Africa, the Middle East, and Latin America. As indicated by adininistration witnesses during the hearings last December before the Subcommittee on
Foreign Trade Policy, many of these proposals are aimed at the creation of a
more favorable investment climate abroad through removal of present barriers
impeding private investment. Such obstacles include problems of currency convertibilit3^, customs diffiiculties, political instability, threats of expropriation,
308
1959 REPORT OF THE SECRETARY OF THE TREASURY
inflation, a n d t h e like. I n recent years various proposals have been m a d e for
changes in our t a x laws in order to encourage investment abroad by American
busine,ss. A n u m b e r of these proposals are embodied in H . R . 5.
These are: Broadened deferral of t a x on foreign income (sec. 2); t h e liberalization of present restrictions on tax-free transfers of property to foreign corporations (sec. 3); a 14 percent reduction in t a ^ rates (sec. 4); modification of t h e
foreign t a x credit to include an "overaU" limitation (sec. 5); a credit for taxes
spared b y foreign countries t o a t t r a c t American i n d u s t r y (sec. 6); a n d nonrecognition of gain on t h e involuntary conversion of p r o p e r t y of foreign subsidiaries
(sec. 7).
While recognizing t h a t t a x incentives alone cannot successfully stimulate
p r i v a t e investment in t h e critical underdeveloped areas of t h e free world where
t h e need is greatest, t h e Treasury D e p a r t m e n t has given sympathetic consideration to these and other proposals for changing t h e present methods of taxing
income from abroad. I n this connection, we have reviewed t h e hearings before
t h e Subcommittee on Foreign T r a d e Policy of t h e Committee on Ways a n d
Means held in December 1958, t h e special report prepared a t t h e request of t h e
D e p a r t m e n t of State on " E x p a n d i n g Private I n v e s t m e n t for Free World Economic
G r o w t h , " which was prepared under t h e direction of Ralph I. Straus, a special
consultant to t h e Under Secretary of State for Economic Affairs, a n d a report
of t h e Committee on World Economic Practices of t h e Business Advisory Council,
dated Januar3^ 22, 1959, which committee was chairmanned b y Mr. Harold
Boeschenstein.
While private U.S. investments abroad nearly doubled between 1950 a n a
1957, t h e real problem is t h a t almost half of our private investments are in Canada
and Western Europe, 35 percerit are in Latin America with extractive industries
such as petroleum, iron ore, and bauxite predominating, and less t h a n 9 percent
of our direct private investments (again mostly in t h e extractive industries) are
in t h e critical areas of t h e Middle East, Asia, and Africa. T h e Treasury Dep a r t m e n t would favor adoption of legislation which would in fact promote the
flow of United States investment into t h e less developed regions of t h e free world,
including Latin America, Asia, t h e Middle East, and Africa. Measures to bring
about this desirable result, which t h e Treasury would support, include:
(1) T h e deferral of tax on income derived by a foreign business corporation
which obtains substantially all of its income from investments in one or more
of t h e less developed areas of the free world.
(2) Ordinary loss t r e a t m e n t for losses incurred by original investors on stock
of such a foreign business corporation.
(3) T h e early implementation; by t r e a t y or b3'- negotiated agreement authorized
by legislation, of t h e principle of tax sparring in order to make it possible for
American firms investing in an underdeveloped country to benefit from t h e t a x
inducements offered by such country to a t t r a c t new capital.
I n t h e interest of fiscal soundness, however, the Treasury D e p a r t m e n t m u s t
oppose at this time t h e enactment of legislation providing tax benefits to encourage foreign investment in t h e more industrialized areas of t h e world. I t
h a s been argued t h a t United States private investment in industrialized countries
will eventually result in more private investment in the less developed countries.
Even if this should occur to some extent, it would seem to be an inefficient means
of stimulating economic growth in the less developed areas where a relatively
small a m o u n t of capital is required to o u t a laborer to useful work as compared
with t h e situation in t h e highly industrialized countries. I n practice tax deferral
on income earned in industrialized countries would result in substantial tax
benefits to existing U.S. investment in those countries at considerable cost to
t h e revenue.
I n presenting herein t h e Treasury views on t h e provisions of this bih, we shah
set forth t h e position of t h e Treasury on each section of t h e bill in order, and
include where appropriate certain additional recommendations.
Tax deferral, general comments (section 2)
This provision would permit t h e creation of a special domestic corporation,
referred t o as a foreign business corporation, which would be entitled t o t a x
deferral on its foreign earnings until they are repatriated. T h e Treasury D e p a r t ment favors, on a basis limited to t h e less developed countries of t h e free world,
deferring t h e imposition of t a x on income earned by a U.S. foreign business
corporation from t h e active conduct of a business abroad until such time as the
earnings are distributed in 'this country.
EXHIBITS
309
The postponement of tax provides an effective incentive for companies to
reinvest their profits abroad for a longer period of time, without relieving them
of their obligation to share in the tax burdens of this country when the profits are
eventually brought back. Moreover, under existing law American firms are able
to defer United States tax on income earned abroad by operating throug
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