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^y
3
^

" ot the SjBcjatary ot the Treasun^
.' .on thei State of 'the Finances ^ '
'

'' y ,

FOB THE FISCAL YEAR ENDED JUNE 30, 1969

TREASURY DEPARTMENT
;

DOCUIVIENT NO. 3248
Secretary

U.S. GOVERNMENT PRINTING OFFICE, WASLIINGTON

1970

For sale by the Superintendenit of Documents. U.S. Gavernmeiiit Printing Office
Wasbiington, D.C. 20402 - Price $2 (pamper cover)

The statistical tahles to this Annual Report will he published in a separate
STATISTICAL APPENDIX.

CONTENTS
Page

Statement by the Secretary..
REVIEW OF TREASURY OPERATIONS
Financial Operations
Summary
Budget receipts and outlays
Cash and monetary assets
Corporations and other business-type activities of the Federal
Govenment
Gov ernment-wide financial management
Federal Debt Management.
Taxation Developments
International Financial Affairs
Law Enforcement Policy
ADMINISTRATIVE REPORTS
Administrative Management
:
Law Enforcement
Comptroller of the Currency, Office of the
Customs, Bureau of
Director of Practice, Office of
Domestic Gold and Silver Operations, Office of
Engraving and Printing, Bureau of
Fiscal Service:
Accounts, Bureau of
PubUc Debt, Bureau of the
Treasurer of the United States, Office of the
Foreign Assets Control, Office of
Internal Revenue Service
Mint, Bureau of the
U.S. Savings Bonds Division
U.S. Secret S e r v i c e . . . .
___„

XV
3
3
4
6
7
8
11
24
36
56

...

59
63
64
68
80
81
83

----,--

90
96
100
107
108
120
123
125

EXHIBITS
PUBLIC DEBT OPERATIONS, REGULATIONS, AND LEGISLATION

1. Treasury notes

Treasury Notes Offered and Allotted
.
'..

135

Treasury Bills Offered arid Tenders Accepted
2. Treasury bills
3.
4.
5.
6.

144

Regulations
Third Amendment, June 13, 1969, of Department Circular No. 300,
general regulations with respect to U.S. securities
Third Supplement, December 12, 1968, of Department Circular No.
653, offering of U.S. savings bonds, Series E
Fifth Amendment, March 25, 1969, to Department Circular No. 653,
Seventh Revision, offering of U.S. savings bonds. Series E
Second Revision, October 25, 1968, of Department Circular No. 750,
regulations governing payments by banks and other financial institutions of U.S. savings bonds and U.S. savings notes (freedom
shares)

153
158
160

167

CONTENTS
i?age

7. Third Revision, October 25, 1968, of Department Circular No. 751,
regulations governing manner of accounting for losses resulting
from the redemption of U.S. savings bonds and U.S. savings notes
(freedom shares)
8. Third Revision, December 10, 1968, of Department Circular No. 888,
regulations governing payment under special endorsement of U.S.
savings bonds and U.S. savings notes (freedom shares)
,
9. Fourth Amendment, December 11, 1968, to Department Circular
No. 905, Fourth Revision, Offering of U.S. savings bonds. Series H .

172
174
182

Legislation
10. An act to extend to savings notes the provisions of the Second Liberty
Bond Act relating to the redemption of savings bonds and the
payment of losses incurred ih connection with such redemption
.11. An act to increase the public debt limit set forth in Section 21 of the
Second Liberty Bond Act

196
196

FINANCIAL POLICY

12. Statement by Secretary Fowler, September 20, 1968, before the National Industrial Conference Board, New York, N.Y., on the
economy
r.
13. Statement by Secretary Barr, Januaiy 17, 1969, before the Joint
Economic Committee
^
14. Statement by Secretarj^ Kenned}^, February 12, 1969, at the Lincoln
Day dinner, Dallas, Tex
---15. Statement by Secretary Kennedy, February 19, 1969, before the Joint
Economic Committee.
16. Excerpts from remarks by Secretary Kennedj'-, April 15, 1969, before
the Executive Committee of the AFL-CIO, White Sulphur Springs,
W. Va., on economic and financial policj^
17. Statement by Secretary Kennedy, June 19, 1969, before the House
Committee on Banking and Currency, on interest rates
18. Remarks by Under Secretary for Monetary Affairs Deming, August
27, 1968, before the Graduate School of Banking, University of
Wisconsin, Madison, Wis., on the domestic and international monetary situations-l
19. Remarks by Under Secretary for Monetary Affairs Deming, October
7, 1968, before the 50th Anniversary Convention, American Gas
Association, Philadelphia, Pa., on the domestic economy and the
balance of payments
20. Statement by Under Secretary Walker, March 26, 1969, before the
Senate Banking and Currency Committee, on interest rates.
_21. Other Treasury testimony pubhshed in hearings before congressional
committees, July 1, 1968-June 30, 1969

196
208
212
214
216
218

220

228
234
235

PUBLIC DEBT AND FINANCIAL MANAGEMENT

22. Statemerit by Secretary Kennedy, March 5, 1969, before the House
Ways and Means Committee, on the public debt ceiling
23. Statement by Secretary Kennedy, March 24, 1969, before the Senate
Finance Commiittee, on the public debt limit
24. Remarks by Under Secretary for Monetary Affairs Deming, October
23, 1968, before the National Convention of the Bank Administration Institute, Atlanta, Ga., on Federal
finance_
25. Statement by Under Secretary for Monetary Affairs Volcker, February
19, 1969, before the Joint Economic Committee
26. Extract of remarks by Assistant to the Secretary, R. Duane Saunders,
March 14, 1969, before the Industrial Payroll Savings Committee,
on savings bonds

235
240
242
248
250

TAXATION DEVELOPMENTS

27. Message from President Nixon to the Congress, April 21, 1969, regarding tax reform.;.
-.
28. Statement by Secretary Kennedy, May 20, 1969, before the House
Committee on Ways and Means, in support of the President's tax
recommendations

257
260

CONTENTS

V
Page

29. Statement by Under Secretary Walker, April 22, 1969, before
the House Committee on Ways and Means, on the need for tax
reform
.
30. Statement by Assistant Secretary Cohen, April 22, 1969, before the
House Committee on Ways and Means, on the administration's
interim program of tax reform and tax relief
'
31. Other Treasury testimony published in hearings before congressional
committees, July 1, 1968-June 30, 1969

266
267
285

INTERNATIONAL FINANCIAL AND MONETARY DEVELOPMENTS

32. Remarks by Secretary Fowler, September 24, 1968, before the 6th
International Conference of the Forging Industry Association
33. Communique of the Ministerial. Meeting of the Group of Ten, September 30, 1968, Washington
34. Remarks by Secretary Fowler as Governor for the United States,
October 1, 1968, at the Joint Annual Discussion of the Boards of
Governors of the International Monetary Fund and the International Bank for Reconstruction and Development and its
affiliates
___,
------35. Memorandum for President Johnson from Secretar}^ Fowler, November 5, 1968, on the economy
36. Communique of the Ministers and Governors of the Group of Ten
Meeting in Bonn, November 20-22, 1968.
37. Exchange of letters, December 16, 1968,, between Secretary Fowler
and Canadian Minister of Finance E. J. Benson.
38. Exchange of letters, December 17, 1968, and December 18, 1968,
bei)ween Secretary Fowler and President Johnson, concerning the
1969 balance of payments program
39. Statement by Secretary Kennedy, March 4, 1969, before the House
Committee on Banking and Currency, on replenishment of the
resources of the International Development Association.
40. Statement by President Nixon, April 4, 1969, on the balance of
payments
41. Remarks bj^ Secretary Kennedy as Governor for the United States,
April 11, 1969, at the 2d annual meeting of the Asian Development
Bank, Sydney, Australia
42. Statement by Secretary Kennedy as Governor for the United States,
April 22, 1969, at the 10th annual meeting of the Inter-American
Ba,nk, Guatemala City, Guatemala
._
43. Remarks by Under Secretary Barr, October 11, 1968, at the 38th
annual Bank Management Conference of the New England Council,
Boston, Mass., on how foreign investors and bankers look at the
United States
44. Remarks by Under Secretary for Monetary Affairs Deming, September
26, 1968, at the annual meeting of the National Association of
Business Economists, New York, on fiscal and other policies affecting
the U.S. balance of payments
45. Exceirpts from statement by Under Secretary for Monetary Affairs
Deming, January 15, 1969, before the Subcommittee on International
Exchange and Payments of the Joint Economic Committee
46. Statement by Under Secretary for Monetar}^ Affairs Volcker, February
27, 1969, before the Joint Economic Committee
.
47. Remarks by Assistant Secretary Petty, September 24, 1968, before the
Fourth Institute for International Engineering, Colorado Springs,
Colo
48. Remarks by Assistant Secretary Petty, November 20, 1968, prepared
for delivery to the Canadian Tax Foundation 21st Annual Conference,
Toronto, Canada, on border tax adjustments and the General
Agreement on Tariffs and Trade
49. Firsi: semiannual report on U.S. purchases and sales of gold and the
state of the U.S. gold stock, covering the period January 1-June 30,
1968 (Released September 10, 1968)
.
50. Second semiannual report on U.S. purchases and sales of gold and the
state of the U.S. gold stock, covering the period Jul}^ 1-December 31,
1968 (Released April 3, 1969)

286
294

294
303
305
306
307
315
317
320
322

325

327
334
344
347

352
361
365

CONTENTS
Page

51. Press release, July 15, 1968, announcing the completion of U.S. action
on the Special Drawing Rights facility
52. Press release, December 20, 1968, announcing the Netherlands prepayment of Marshall Plan loans to ease U.S. balance-of-payments
situation
__._
53. Press release, December 31, 1968, announcing repayment of all U.S.
drawings to the iInternational Monetary Fund
^
54. Press release, January 17, 1969, announcing a Treasury recomrnendation that the interest equalization tax be extended
55. Press release, June 2, 1969, joint United States-German statement following meeting between Treasury Secretary David Kennedy and
Minister of Economics Karl Schiller
56. Press release, June 9, 1969, transmitting Treasury's proposed interest
equalization tax bill of 1969
.
57. Other Treasury testimony published in hearings before congressional
committees, July 1, 1968-June 30, 1969

368
368
368
369
369
370
373

GOLD AND SILVER OPERATIONS

58. Letter to the President from Secretary Fowler, December 20, 1968,
concerning the Joint Commission on the Coinage
.
59. Press release, April 25, 1969, concerning Treasury revision of gold coin
import regulations
.
60. Amendments to gold regulations, April 25, 1969
61. Press release. May 12, 1969, concerning Treasury sales of silver and
transmitting Secretary Kennedy's statement before the Joint Coinage CommissionL____
.
62. Revocation of silver coin regulations, May 12, 1969
63. Amendments to gold regulations governing gold medals, June 10, 1969.

373
377
377
378
380
381

ORGANIZATION AND PROCEDURE

64. Secretaries, Under Secretaries, General Counsels, Assistant Secretaries, and Deputy Under Secretaries for Monetary Afi'airs serving
in the Treasury Department from September 11, 1789, to January 20,
1969, and the Prjesidents under whom they served
65. Treasury Department orders relating to organization and procedure__

382
391

ADVISORY COMMITTEES

66. Advisory committees utilized by the Department of the Treasury
under Executive I Order 11007
INDEX
'

405
427

STATISTICAL APPENDIX
The tables to this Annual Report will he published in ihe separate ''Statistical
Appendix.^'
NOTE.—Details of figures may not add to totals because of rounding.

Secretary, Under Secretaries, General Counsel, Assistant Secretaries, and
D e p u t y U n d e r Secretaries for M o n e t a r y Affairs, Serving i n t h e D e p a r t n i e n t
of t h e T r e a s u r y f r o m J a n u a r y 21, 1969, t h r o u g h N o v e n i b e r 1, 1969 i
T e r m of service
From

J a n . 22,1969
J a n . 27,1969
J a n . 27, 1969
Apr.

1,1969

M a y 15, 1968
Mar. 11, 1969
Apr. 1, 1969
J u n e 23, 1969

F e b . 12, 1968
Apr. 1, 1969

Mar. 31, 1969

J u n e 15, 1962
Sept. 14, 1959

Officials
Secretary of ihe Treasury
David M . Kennedy, Illinois.
Under Secretary
Charls E . Walker, Texas.
Under Secretary for Monetary Affairs
Paul A. Volcker, N e w Jersey.
General Counsel
Paul W. Eggers, Texas.
Assistant Secretaries
J o h n R . P e t t y , New York.
Edwin S. Cohen, Virginia.
Eugene T . Rossides, New York.
M u r r a y L. Weidenbaum, Missouri.
Deputy Under Secretaries of the
Treasury for Monetary Affairs
F r a n k W. Schiff, N e w York.
Bruce K. M a c L a u r y , New Jersey.
Fiscal Assistant Secretary
J o h n K. Carlock, Arizona.
Assistant Secretary for Adininistration
A. E . Weatherbee, Maine.

1 For officials from Sept. 11, 1789, to Jan 20, 1969. see exhibit 64.

VII

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OF THE
DEPARTMENT OF THE TREASURY AS OF NOVEMBER 1, 1969
Secretary of the Treasury
Assistant to the Secretary
Under Secretary of the Treasury
Assistant to the Under Secretary
Staff Assistant to the Under SecretaryUnder Secretary for Monetary Aft'airs
Deputy Under Secretary for Monetary
Affairs
_
Special Assistant to the Secretary (Debt
Management) ,—
General Counsel
Deputy General Counsel
1
Assistant Genera!! Counsel and Chief
Counsel, IRS—i
Assistant General Counsel
Assistant General Counsel
.
Assistant General Counsel—_'__
—__
Assistant General Counsel—
Director of Practice•.—Director, OflSce of Equal Opportunity
Program
Assistant Secretary (Tax Policy)
Deputy Assistant SecretaryDeputy Assistant Secretary and Director Oflace of Tax Analysis
Associate Director. OflSce of Tax
Analysis
.
Assistant'Director .
Assistant Director
Assistant Director Office of Tax
Analysis and Director Office
of International Tax Affairs.
Assistant Director
Chief Excise Taxation Staff
Chief Business Taxation StaffChief
Aggregate
Economic
Forecasting Staff
Tax Legislative Counsel
.
Deputy Tax Legislative Counsel
(International) and Special Assistant to Assistant Secretary
Deputy Tax Legislative Counsel
Associate Tax Legislative CounselAssociate Tax Legislative Counsel
(International) and Deputy Special Assistant to Assistant Secretary
Assistant Secretary (Economic Policy)
Assistant to Assistant Secretary
Director, Office of Domestic Gold and
Silver Operations
Director, Office of Financial Analysis
Director, Office of Debt AnalysisVIII

David M. Kennedy
Donald A. Webster
Charls E. Walker
Edward J. Gannon
Richard D. Chotard, Jr.
Paul A. Volcker
Bruce K. MacLaury
Edward J. Geng
Paul W. Eggers
Roy T. Englert
K. Martin Worthy
Charlotte Tuttle Lloyd
Michael Bradfield
Hugo A. Ranta
Donald L. E. Ritger
William H. Sager
David A. Sawyer
Edwin S. Cohen
John S. Nolan
Vacancy
Gerard M. Brannon
Richard E. Slitor
Thomas F. Lealiey
Nathan N. Gordon
Gabriel G. Rudney
John Copeland
Seymour Fiekowsky
Ralph B. Bristol
Meade Whitaker
Robert T. Cole
Daniel I. Halperin
John E. Chapoton

Robert J. Patrick, Jr.
Murray L. Weidenbaum
Robert L. Joss
Thomas W. Wolfe
John H. Auten
Edward P. Snyder

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS
Assistant Secretary (Enforcement and Operations)
Eugene T. Rossides
Deputy Assistant Secretary
AVilliam L. Dickey
Deputy to the Assistant Secretary
(Customs)
Matthew J. Marks
Special Assistant (Secret Service)
John T.. Sherwood
Special Assistant (Organized Crime)— G. Gordon Liddy
Law Enforcement Coordinator
Thomas Lumbard
Interpol Chief
Kenneth S. Giannoules
Director, L a w Enforcement School
John S. Stemple
Assistant Secretary ( I n t e r n a t i o n a l Affairs)
John R. Petty
Deputy Assistant Secretary—
j . — Vacancy
Deputy to Assistant Secretary for International Monetary Affairs
George H. Willis
Deputy to Assistant Secretary for International Financial and Economic
Affairs
^
Ralph H i r s c h t r i t t
Director, Office of Latin America
E. J a y Finkel
Director, Office of I n d u s t r i a l Nations
F. Lisle Widman
Director, Office of Developing Nations—
Sam Y. Cross
Director, Office of Balance of P a y m e n t s
Programs, Operations and Statistics- Philip P. Schaffner
Director, Office of I n t e r n a t i o n a l Financial Policy Coordination and Operations
Charles R. Harley
Director, Office of International Gold
a n d Foreign Exchange O p e r a t i o n s — T. Page Nelson
Director, Office of I n t e r n a t i o n a l Economic Activities
Robert G. Pelikan
Director, Office of Administration
Leonard S. Dixon
Director, Office of Foreign Assets Control
Mrs. Margaret W. Schwartz
Fiscal Assistant Secretary
John K. Carlock
Deputy Fiscal Assistant Secretary
Hampton A. Rabon
Assistant Fiscal Assistant S e c r e t a r y — Boyd A. Evans
Assistant to Fiscal Assistant Secretary Sidney Cox
Assistant Secretary for Administration
A. E. Weatherbee
Deputy Assistant Secretary a n d Director, Office of Budget and Finance
E r n e s t C. Betts, J r .
Director, Office of Planning and Program Evaluation
Benjamin Caplan
Director, Office of Personnel
Amos N. Latham, Jr.
Director, Office of Management and Organization
J. Elton Greenlee
Director,
Office
of
Administrative
Services
P a u l McDonald
Director, Office of Security
Thomas M. Hughes
Special Assistant to the Secretary (Public
Affairs)
Dixon Donnelley
Deputy Special Assistant to t h e Secretary
Calvin E. Brumley
Special Assistant to the Secretary (National
Security Affairs)
iVnthony J. J u r i c h
Deputy Special Assistant to t h e Secretary
John J. McGinnis
Special Assistant to the Secretary (Congressional Relations)
J a m e s E. Smith
Deputy Special Assistant t o the Secretary
Benjamin L. Brown
Deputy Special Assistant to t h e Secretary
Gene A. Knorr
Senior Consultant
H e n r y C. Wallich
Deputy Assistant t o t h e Secretary (Director, Executive, Secretariat)
P a u l R. Beach

PRINCIPAL ADMINISTRATIVE AND STAFF" OFFICERS
BUREAU OF ACCOUNTS

Commissioner of Accounts
Assistant Commissioner
Comptroller
^
Ohief Disbursing Officer
.Director, Government Financial Operations-

Sidney S. Sokol
L. D. Mosso
Steve L. Comings
Lester W. Plumly
Sebastian Fama

BUREAU OF CUSTOMS

Commissioner of Customs
Myles J. Ambrose
Deputy Commissioner of Customs
Edwin P. Rains
Assistant Commissioner, Office of Administration
.
Glenn R. Dickerson
Assistant Commissioner, Office of Investigations
Vacancy
Assistant Commissioner, Office of Operations
^1
David C. Ellis
Assistant Commissioner, Office of Regulations and Rulings
Robert V. Mclntrye
Chief Counsel
Alfred H. Golden
BUREAU OF ENGRAVING AND .PRINTING

Director, Bureau of Engraving and PrintingDeputy Director, Burefau of Engraving and
Printing

James A. Conlon
Donald C. Tolson

BUREAU OF T H E M I N T

Director of the Mint—;___
Deputy Director of the Mint
'

BUREAU OF T H E PUBLIC DEBT

Commissioner of the Public Debt
Assistant Commissioner
Deputy Commissioner:
Ohief Counsel
i
.,
Deputy Commissioner in Charge, Chicago
Office
:i
I

Mrs. Mary T. Brooks
Frederick W. Tate
Donald M. Merritt
H. J. Hintgen
J. J. Lubeley
Thomas J. Winston, Jr.
Michael E. McGeoghegan

I N T E R N A L REVENUE SERVICE

Commissioner of Internal Revenue
Deputy Commissioner.
Assistant Commissioner (Administration)—
Assistant Commissioner (Inspection)
Assistant Commissioner (Compliance)
Assistant Commissioner (Data Processing)Assistant Oommissioner (Planning and Research)
^1.
Assistant Commissioner (Technical)
'.
Chief Counsel
^^1

Randolph W. Thrower
William H. Smith..
Edward F. Preston
Vernon D. Acree
Donald W. Bacon
Robert L. Jack
Albert W. Brisbin
Harold T. Swartz
K. Martin Worthy

OFFICE OF T H E COMPTROLLER OF T H E CURRENOY

Comptroller of the Currency^
First Deputy Comptroller
,
Administrative Assistant to the ComptrollerDeputy Comptroller-—
Deputy Comptroller—..
Deputy Comptroller for Economics
Chief National Bank Examiner
Deputy Comptroller (Mergers and
Branches)
L—4
Deputy Comptroller (Trusts)
;
Deputy Comptroller (FDIC Affairs)
Chief Counsel
L

William B. Camp
Justin T. Watson
John Nicoll
John D. Gwin
Thomas G. DeShazo
David C. Motter
F. H. Ellis
R. J. Blanchard
D^an E. Miller
Albert J. Faulstich
Robert Bloom

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS

OFFICE OF T H E TREASURER OF T H E U N I T E D STATES

Treasurer of the United States
Deputy Treasurer
Assistant Deputy Treasurer

Mrs. Dorothy A. Elston
William T. Howell
Willard E. Scott

U . S . SAVINGS BONDS DIVISION

National Director
Assistant National Director

Elmer L. Rustad
Thomas Hughes
U . S . SECRET SERVICE

Director
Deputy Director
Assistant Director (Administration)
Assistant Director (Investigations)
Assistant Director (Protective Forces)
Assistant Director (Protective Intelligence)

James J. Rowley
Rufus W. Youngblood
Phil W. Jordan
Burrill A. Peterson
Lilburn E. Boggs
Thomas J. Kelley

C O M M I T T E E S AND BOARDS

Chairman, Treasury Management Committee
Chairman, Treasury Awards Committee—
Principal Compliance Officer
Equal Employment Opportunity Officer
Chairman, Advisory Committee on Ethical
Standards

A. E. Weatherbee
Amos N. Latham, Jr.
Paul W. Eggers
Paul W. Eggers
Paul W. Eggers

ORGANIZATION OF THE DEPARTMENT OF THE TREASURY
Assistant to the Secretary
Dir.. Exec. Secretariat
'

I
'

SECRETARY

UNDER SECRETARY
FOR
MONETARY AFFAIRS

UNDER SECRETARY

Special Assts. to Secretary

Assistant
to the Under Secretary

Assistant Secretary
(Tax Policy)

Assistant Secretary
(Enforcement & Operations)

Assistant Secretary
tor Administration

Fiscal Assistant Secretary

Oflice ol Tax Analysi:

Special Assistant
to the Secretary
(Debt Management)

Congressional Relations
National Security Affairs
Public Affairs

Office of Budget 6 Fin

legal Olvi

Olfice of Oiiecioi of Piactir

Bureau ol Acco

Bureau of the Public Oebl

Olfice cf Equal Oppoiluniiy
Piogiam

Oilice ol Law Enlotcetnent
Training

Olfice of Pers

U.S. Savings Bonds Divisi

Olfice ot Sec

CHART

Deputy Under Secretary
for Monetary Affairs

Assistant Secretary

Olfice of Administratian
Oflice of Balance of Payments
Piograms. Operations & Statistics |
Office of Developing Nations
Office of Financial Policy
Coordination & Operations
Office of Foreign Assets Control
Oftice of Industrial Nations
Oilice of Int! Econoniic Affairs
Office ol International Gold
& Foreign Excliange Operations
Olfice ol Latin Ameiica

Assistant Secretary
(Economic Policy)

Office ol Debt Analysi

Office of Financiaf Analysis

A N N U A L R E P O R T ON T H E F I N A N C E S
TREASURY DEPARTMENT,

Washington., February 4,1970.
: I have the honor to report to you on the finances of the Federal Government for the fiscal year 1969, pursuant to the requirements
of 31 U.S.C. 1027. The main text of this report and its supporting
exhibits provide detailed information on Treasury Department operations and administrative activities during the fiscal year. The supporting tabular data will follow in the separate "Statistical Appendix"
to this annual report. This brief introduction discusses major developments since the present administration assumed office in January 1969.
The most immediate domestic problem facing the incoming administration was an accelerating rate of inflation. Already, rapidly rising
prices had eroded the purchasing power of millions of Americans who
counted on their Government to provide sound money. Internationally,
the dollar remained. strong but continued inflation at home would
eventually undercut the position of the dollar abroad. Therefore, the
situation in the early part of calendar year 1969 clearly required the
firm application of fiscal and monetary restraint.
The administration held no illusions as to the quick and easy success of an anti-infl'ationary policy. By early 1969, the Consumer Price
Index was rising at more than a 5-percent annual rate and inflationary
expectations were widespread. To some considerable extent, the course
of the economy for the calendar year 1969 was already set. There are
lags in the operation of fiscal and monetary policies, aiid restraint
applied early in 1969 could only be expected to exert its effects gradually, over time. But a policy of fiscal and monetary restraint, persistently applied, could bring the economy back onto a noninflationary
course.
I t was recognized that there were risks in seeking to halt the inflation abruptly. Very harsh and restrictive measures could have disrupted productive expansion and caused a prohibitive increase in unemployment. Even though the inflationary psychology might have been
broken, the cost would have been too great. I t was equally clear that
there were risks in doing too little. The experience of 1967 and 1968 had
shown that insufficient and temporary restraint would only be followed
by the resurgence of inflationary pressures. Inflation had been allowed
to build up a great deal of momentum by the beginning of 1969. ThereSIRS

XVI

1969 REPORT OF THE SECRETARY OF THE TREASURY

fore, it was essential that the economy be placed under firm restraint
until there were unmistakable signs that stability had been restored.
This meant that the Federal budget should move into surplus while
the Federal Eeserve pursued appropriate complementary policies in
the monetary area. The Federal budget surplus of $3.2 billion for the
fiscal year 1969 was the first since fiscal year 1960 and the largest since
fiscal year 1957. I t marked a welcome contrast to the massive $25.2
billion deficit of fiscal 1968. Coupled with a shift to monetary restraint,
the improved fiscal position helped to slow the rapid rise of the domestic economy. By mid-1969 the economy was growing in real terms at a
2 percent to 2i/^ percent aimual rate in contrast to the clearly unsustainable pace of a year earlier.
Nevertheless, cost and price pressures continued to be very strong.
The desirability of a Federal budget surplus in fiscal year 1970 was
readily evident. The administration recommended that Congress:
Extend the income tax surcharge at the full 10-percent rate through
the first half of fiscal 1970 and at 5 percent through the remainder of
the fiscal year; postpone the scheduled reductions in excise taxes on
automobiles and telephone services; and repeal the 7-percent investment credit. Along with proposed user charges, these legislative steps
would increase 1970 fiscal year budget receipts by an estimated $4
billion.
I
On the expenditure side, a determined effort was made to hold the
line. I n mid-April, expenditure reductions of $4.0 billion were announced from the corrected January budget totals. The summer review
of the fiscal 1970 budget, completed by mid-September, called for an
additional $3.5 billion in reductions. I n addition, the administration
directed a deferral oi 75 percent of all new direct Federal construction
projects and requested the cooperation of State and local governments
in helping to reduce sectoral inflationary pressures in construction
activity.
Expenditure restraint and congressional approval of the administration tax recommendations were counted on to produce a budget surplus
in fiscal 1970—estimated during the summer at just under $6 billion.
Despite deep cuts in controllable areas of expenditure, it unfortunately
proved impossible tOi achieve a surplus of this size. Overruns in uncontrollable areas pushed expenditures higher and trimmed the estimated
surplus for the fiscal year down to $1.5 billion. Even so, fiscal policy
had exercised an appreciable degree of restraint throughout the year.
The combination of fiscal and monetary restraint began to show
signs of increasing effectiveness during the second half of calendar
1969. Real economic growth continued to run well below the basic
trend rate of capacity growth. The statistical picture was somewhat
mixed but the near term outlook seemed to be one of very moderate

ANNUAL REPORT ON TPIE FINANCES

XVII

growth in real terms. However, relief from rising prices was slow in
coming. Total demand was no longer excessive but costs and prices
were still rising in response to the earlier pressures.
The delayed response in costs and prices was by no means unexpected. Previous experience suggested that costs and prices would be
near the end of the chain of cause and effect after a policy of restraint
had been applied. I t would be important to insure that cost-price
pressures were not self-reinforcing during the period while restraint
was becoming effective. Total demand would have to be held below
the levels that would permit markets to clear themselves at steadily
rising costs and prices.
Other major developments in the fiscal area were the progress made
toward tax reform and the development of administration proposals
for revenue sharing. After only 3 months in ofiice, the administration
presented a set of tax reform recommendations to the House AVays
.and Means Committee as a first step in a thorough review of the Federal tax system.^ These Treasury tax reform recommendations were
largely independent of the efforts to cool down the overheated economy
since the revenue gains and losses were essentially balanced. The
approximately $4 billion in revenue gained hy repeal of the investment credit, enactment of a limit on tax preferences, and correction
of tax abuses would have been approximately offset by the January 1,
1970, phase-down of the surcharge, enactment of a low income allowance, and funding of revenue sharing and tax credit proposals.
The tax refonn legislation developed by the Committee on Ways
and Means and approved by the House of Representatives in August
went somewhat further. I n the House version, reform provisions adding $8.1 billion in longrun revenues would have been more than offset
by $10.5 billion of rate reduction and relief provisions, thereby producing a longrun revenue loss of $2.4 billion. Subsequently the Senate
Finance Committee conducted its own hearings on the proposed legislation and recommended a number of changes in the legislation. I n
terms of longrun revenue loss, the Senate Finance Committee bill was
similar to that passed by the House. During the course of consideration on the Senate floor, however, the legislation Avas amended in a
number of respects. The collective effect of these changes threatened to
have a fairly immediate and higlily inflationary impact. I n the HouseSenate conference, changes were made which reduced the threatened
inflationary impact in fiscal 1971 by some $6 billion. President Nixon
indicated that it was this action that made it possible for him to approve the legislation. The bill was signed into law on December 30^
1969 (Public Law 91-172).
1 See exhibits 27-30.
363-222—70
2

XVIII 196 9 REPORT OF THE SECRETARY OF THE TREASURY

Another major development in the fiscal area was the administration
proposal for sharing of Federal revenues with State and local governments. The details of the program were developed after close consultation with Members of the Congress, Governors, mayors, and county
officials. I n mid-August, President Nixon sent a special message to
the Congress describing the plan. Four major features of the.program
were:
—The size of ifund to be shared would be a stated percentage
of personal taxable income;
—the allocation would be made on the basis of the State share
of population, adjusted for the State's revenue effort;
—within each State the amount a local unit received would be
based on its share of total local government revenue raised in
the State; and
-7—administration requirements would be kept to a minimum.
Given the near term budget outlook, it was essential to limit very
closely the amounts of funds for revenue sharing in the next few years.
Under the administration proposal the fund would rise gradually from
$0.3 billion in fiscal 1971 to $5.1 billion by fiscal 1976, when it would
amount to 1 perceiit of the taxable income base. Thereafter, the fund
would grow in proportion to groAvth in the taxable income base.
I n the domestic financial area, Treasury debt nianagement operations were conducted within an environment of rising interest rates
during much of the year. Short term interest rates fluctuated narrowly
from the beginning of the year until mid-May and then rose sharply
until early October. After a brief respite, rates rose eveii further.
Three-month Treasury bills were 6.14 percent at the beginning of the
^ear, 6.10 percent at mid-May, and rose to 7.17 percent in early
October before receding somewhat. By the end of November, the
3-moiith bill was about 71/^ percent. Market yields on long term governments, corporates, and municipal securities rose fairly steadily from
the beginning of the calendar year to a teniporary peak in early October and were rising again in November. The upward movement in the
entire rate structure during the year reflected strong private demands
for credit, continuing inflation, and the effects of monetary restraint.
In contrast to some other recent periods of rising interest rates,
the Federal budget did not give rise to heavy financing needs. During
the first 6 nionths of the calendar year, there was actually a net
repayment of ddbt t o the public on the unified budget basis of $12.4
billion. This reflected the swing of the Federal budget into surplus
as well as the normal seasonal pattern of debt repayment during the
first half of a calendar year. Seasonal borrowing in the second half of
calendar 1969 took the form of additions to the regular bill strips
as well as sales of tax anticipation bills.

ANNUAL REPORT ON T H E FINANCES

XIX

Wliile the swing into budget surplus had removed the need for
the Treasury to make net demands on the financial markets, it was
still essential to manage the existing debt in a noninflationary manner.
This meant paying the going market rate of interest and placing some
amount of debt outside of the very short term area. Additional complications were introduced by the need to avoid competing too closely
with savings institutions which were already under pressure from
rising market rates of interest.
Financing operations were conducted successfully despite the general environment of rising interest rates. As would be expected in
such an environment, a somewhat higher than normal proportion of
public holdings was presented for cash redemption in the exchange
offerings. For a detailed discussion of Treasury financing operations
during the fiscal year 1969 see pages 11-23.
The savings bond program continued to be a key element in the
sound management of the public debt. I n July the Treasury announced
that legislative action would be requested to permit payment of a 5percent rate of interest on savings bonds because the existing 4 ^ - p e r cent return was not competitive with other investment and savings
opportunities. I t was announced at the same time that the administration would seek the removal of the 4%-p6rceiit interest ceiling on
all Treasury bonds, including marketable issues. Since 1965, interest
rates on longer term Governnient securities have continuously been
above the ceiling level and the Treasury has been limited to shorter
term securities such as bills and notes in its market financings. Removal
of the ceiling would enable the Treasury to conduct debt nianagement
operations much more flexibly and efficiently. Congress approved only
the increase to 5 percent in the rate of interest on savings bonds which
was signed into law by the President on December 1,1969.
I n the international area, the year saw further evolutionary improvement of the international monetary system. Final steps were
taken to establish the Special Drawing Rights facility in the International Monetary Fund. At the time of the Fund and Bank meetings
in late September, general agTcement was reached on the initial
amounts of drawing rights to be activated. Over the next 3 years, the
sizable volume of $9.5 billion of drawing rights will be created. I n
due course, the new asset will take its place alongside gold and reserve
currency holdings in international reserves. The international community of nations will act in concert to create reserves by collective
action, rather than relying on the vagaries of gold production or the
continuance of deficits by reserve currency countries. The final agreement on the Special Drawing Rights, following years of painstaking
study and negotiation, was a landmark in international financial
cooperation.

19 69 REPORT OT THE SECRETARY OF THE TREASURY

A t the same time, the major nations reached general agreement on
the desirability of an increase in I M F quotas. While some details remained to be worked out at the time of this writing, there is every
prospect that an increase of appropriate magnitude and distribution
will be achieved. Any specific proposal for an increase in the U.S.
quota will be subniitted to the Congress for its consideration.
Taken together, the activation of Special Drawing Rights and a suitable increase in I M F quotas will insure that growth in international
reserves and conditional credits will continue to support an expanding
volume of world trade. Another forward-looking step was the decision by major countries to study, within the International Monetary
Fund, the possible usefulness of introducing a somewhat greater degree of flexibility into the exchange rate mechanism.
During the course of the year, the exchange markets were subject
to rather severe strains. Two major exchange rate adjustments occurred. I n August the French franc was devalued by 11.1 percent.
I n late September and early October, during the period between an
election and the installation of the new Government, the German mark
was allowed to float. When the new Government assumed office, a
new parity for the mark was established with the eventual revaluation
amounting to 9.29 percent. As a result of these exchange rate adjustments, the international monetary system appeared to have been placed
on a more secure footing. (A fuller discussion of international financial
affairs during fiscal 1969 will be found on pages 36-55.)
Despite the sometimes unsettled character of the exchange niarkets,
the two-tiered gold system continued to function very successfully
during the year. A pronounced downward price trend developed late
in the year in the major private gold markets. I n the London market,
the gold price rose from a little over $39 in the fall of 1968 to about
$43.50 by the late spring of 1969. With the general improvement in
the intemational monetary atmosphere, the free market price of gold
fell, gradually at first, and then rather sharply. By the end of the
year, the London gpld price had fallen to the levels ruling before the
establishment of the two-tiered market.
By the end of tlie third quarter of 1969, the U.S. gold stock stood
at $11,164 billion. There was a rise of $272 million in the U.S. gold
stock during the first three quarters of 1969 in marked contrast to the
$1,310 billion drop during the same period of 1968.
While the dollar remained strong during the year, progress toward
the achievement of a basic and lasting equilibrium in the U.S. balance
of payments remained disappointingly slow. I n early 1969 the administration liberalized, the controls over capital transactions that had
been imposed in prior years. Further progress along those lines is
desirable when the balance-of-payments position permits.

ANNUAL REPORT ON T H E FINANCES

XXI

I n the first 6 months of the year, there was a seasonally adjusted
surplus of $2.4 billion on the reserves transactions basis but a deficit
of $5.5 billion on the liquidity basis. The large divergence between
these measures was primarily due to the resort of U.S. banks to the
Euro-dollar market under the pressures of domestic monetary restraint.
- The resulting flows tended to exaggerate both the official settlements
surplus and the liquidity deficit, leaving neither as an entirely satisfactory measure of the underlying position. (U.S. balance-of-payments developments through mid-1969 are examined in some detail
on pp. 36-41.)
Preliminary data for the third quarter 1969 showed a decline from
the first half rate of deficit on the liquidity basis but a swing from
surplus into deficit on the official settlements basis. Some improvement
in the trade balance was evident by the third quarter and was expected
to continue into 1970. Tlie general balance-of-payments pattern for the
year had been one of a weak trade balance position offset to some
degree on capital account by the effects of domestic monetary tightening. The restoration of a strong trade balance will be fundamental to a
satisfactory structure of the U.S. balance of payments.
From the standpoint of both the balance of payments and the
domestic economy, the control of inflation remained the chief policy
objective as 1969 drew to a close. Some welcome signs of progress
were evident. But full success was yet to be achieved. Restraint must
be continued until there are clear signs of return to a noninflationary
environment.
DAVID M . KJSNNEDY,

Secretary of the Treasury.
T o THE P R E S I D E N T OF T H E S E N A T E .
T o THE S P E A K E R OF T H E H O U S E OF R E P R E S E N T A T I V E S .

REVIEW OF TREASURY

OPERATIONS

Financial Operations
Summary

On the unified budget basis the surplus for fiscal 1969 was $3.2 billion (compared with a deficit of $25.2 billion for fiscal 1968). Net receipts for fiscal 1969 amounted to $187.8 billion ($34.1 billion over
1968) and outlays totaled $184.6 billion ($5.7 billion over 1968).
Related to the $3.2 billion surplus was a decrease in borrowing from
the public of $11.1 billion (including $10.2 billion attributable to
conversion of certain Government corporations to private ownership)
and an increase in the cash balance of $2.2 billion, offset by an increase
in other means of financing of $10.1 billion (including extraordinary
credits due to the conversion to private ownership of certain Government corporations).
As of June 30, 1969, Federal securities outstanding totaled $368
billion, comprised of $354 billion in public debt securities and $14
billion in agency securities. Of the $368 billion, $279 billion represented
borrowing from the public. The Government's fiscal operations in fiscal
years 1968-69 are summarized as follows:
111 billions of dollars
1968
Budget receipts, expenditures, and lending:
Expenditure account:
Receipts
.,
Expenditures
Expenditure account deficit (—), or surplus...
Loan account:
Netlending
Total budget:
Receipts
Outlaj'S..

153.7
.

Total budget

financing

r Revised.

187.8
183.1

172.8
-19.1

4.7

r6.0

1.5
187.1
184.1

153.7
a78.8

Budget deficit (—), or surplus.
Means of financing:
Borrowing from the public, decrease (—)
Reduction of cash and monetary assets, increase (—)—
other means:
Conversion of certain Government corporations to private ownership
other

1969

-25.2
23.1
-1.3

3.2

-11.1
-2.2
10.2
-.1

3.4

25.2

-3.2

19 69 REPORT OF T H E SECRETARY OF T H E TREASURY

Budget Receipts and Outlays

^$Bil;

Surp/us^

'^' 4 \ , / \ ',^960^;r''1961 / ; ! ' 1962 ^-^ 1963 ,^ :1964,"^" ^ 1965 .r>1966 .,;- J967 -^> 1968, ^;,'1969,/ ^ . /

CHART 2

Receipts

Total receipts have risen in each of the last 10 years, amounting
to $187.8 billion in fiscal year 1969, $34.1 billion above fiscal 1968. Receipts in fiscal 1969 were enlarged by a bunching of receipts in that
year caused by the delaj^ed enactment of the Revenue and Expenditure Control Act of 1968. Fiscal 1969 receipts Avere also increased by
the full-year effects of the 10-percent income tax surcharges, 'assessed
against individual taxpayers effective Aj)ril 1, 1968, and against corporate taxpayers as of January 1,1968.
I n sumniary, Government revenues continued to expand in the fisoal
year 1969 accompanying the general increase in economic activity and
bolstered by the delayed enactment of the 1968 act and the income
tax surcharges. A comparison of net budget receipts by major sources
for the fiscal years 1968 and 1969 is shown below. Estimates of re[In millions of dollars]
Net budget receipts

Individual income taxes
Corporation income taxes
Employment taxes
Unemployment insurance
Contributions for other insurance and retirement
Excisetaxes
Estate and gift taxes
Customs
..Miscellaneous receipts
Total budget receipts i
r Revised.

1968

68,726
28,665
29,224
3,346
»• 2,052
14,079
3,051
2,038
•• 2,491
'•153,671

1969

Increase, or
decrease (—)

87,249
36, 678
34,236
3,328
2,353
15, 222
3,491
2,319
2,916

18,523
8,013
6,012

187, 792

34,121

-17
301

1,143

440
281
425

REVIEW OF TREASURY OPERATIONS

ceipts, required of the Secretary of the Treasury, are shown and explained in the President's budget. The 1970 estimates were reviewed
and revised in Bureau of the Budget releases of May 20, 1969, and
Septeniber 17, 1969.
Individual income taxes.-—Individual income taxes amounted to
$87.2 billion in fiscal 1969, $18.5 billion above the 1968 figure. The increase of 27 percent is extremely large reflecting rising incomes, the
income tax surcharge, and the bunching of receipts caused by the delayed enactment of the 1968 act.
Corporation income taxes.—Corporate income taxes also rose sharply
in fiscal 1969 reaching $36.7 billion, $8.0 billion above 1968. Again, the
increase in receipts was attributed to rising profits, the income tax
surcharge, and delayed enactment.
Corporate profits rose about $11 billion from 1967 to 1968. These
are the calendar year results which most affect the fiscal year 1968 to
1969 comparison of receipts.
Employment taxes.—Employment taxes totaled $34.2 billion in fiscal
1969, $5.0 billion above such receipts in 1968. The rise reflected expanding payrolls and number of people employed, as well as an increase
in the combined tax rate from 8.8 percent to 9.6 percent effective January 1,1969, and an increase in the wage base effective Januaiy 1,1968.
Unemployment insurance.—Receipts from unemployment insurance
again amounted to $3.3 billion in fiscal 1969.
0ontributions for other insurance and retirement.—Such contributions and premiums aniounted to $2.4 billion in fiscal 1969, $0.3 billion
above receipts in fiscal 1968. These receipts are composed of medical
insurance premiums for the aged and Federal employees retirement
deductions. Receipts from each increased in fiscal 1969.
Excise taxes.—Excise tax receipts are detailed in the following table.
(In millions of dollars]
1968

Alcoholtaxes
Tobacco taxes
Documents
Manuf acturers excise taxes
Retailers excise taxes (repealed)
Miscellaneous excise taxes
Undistributed depositary receipts and unapplied collections
Gross excise taxes
Less ref und of receipts
Net excise taxes

....

4,287
2,122
49
5, 714
1
1,859
288
14,320
241
14,079

1969

Increase, or
decrease (—)

4,554

201

267
16
-47
787
-1
289
-88

15,542
320
15,222

1,222
78
1,143

2,138

1
6,501

(*
)
2,148

* Less than $500 thousand.

Excise taxes rose from $14.1 billion in fiscal 1968 to $15.2 billion in
fiscal 1969. The rise in total was $1.1 billion, over $780 million of this

19 6,9 REPORT OF THE SECRETARY OP THE TREASURY

occurring in manufacturers excise taxes. Other significant rises occurred in the alcohol and miscellaneous excise taxes.
Estate and gift taxes.—Estate and gift tax receipts of $3.5 billion,
in fiscal 1969 were $0.4 billion above receipts in 1968.
Customs.—Customs duties continued to advance in fiscal 1969 reaching $2.3 billion, $0.3 billion above 1968. The rise reflected further increases in taxable imports.
Miscellaneous reoeipts.—Miscellaneous receipts amounted to $2.9
billion in fiscal 1969, rising $0.4 billion from receipts of $2.5 billion in
fiscal 1968. The increase was wholly due to deposits of earnings by
Federal Reserve banks.
Outlays
Total outlays iii fiscal 1969 were $184.6 billion (conipared with
$178.8 ^ billion for 1968). The outlays consisted of expenditures in the
expenditure account of $183.1 billion and net lending in the loan account of $1.5 billion. Outlays for fiscal 1969, by major agency, are
compared to those of 196i8 in the following table. For details of the
expenditure account and the loan account see the Statistical Appendix.
[In millions of dollars]
I Agency
Funds appropriated to the President
Agriculture Department
;
Defense Department.
..:
Health, Education, and Welfare Department
Housing and Urban Development Department
Labor Department
\
Transportation Department
Treasury Department
Atomic Energy Commission j
National Aeronautics and Space Administration
Veterans' Administration...'.
other
J
Undistributed intrabudgetary transactions
Total outlays

1968

......
...

1969

4,913
•• 7,307
78,673
40, 576
4,140
'•3,271
5, 732
14, 655
2,466
4, 721
6, 858
'•10,019
«• —4,499

4,967
8,330
79,145
46,599
1, 529
3,475
5,970
16, 924
2,450
4,247
7,669
8,369
-5,117

^78,833

184, 556

Increase, or
decrease (—)
54
1,023

472
6,023
- 2 , 612

204
238
2,269

-15
-474

811
-1,651
-618

5,72

r Revised.

Cash and Monetary Assets

On June 30, 1969, cash and nionetary assets directly related to the
budget aniounted to $13,507 million, an increase of $2,086 million over
fiscal 1968. The balance consisted of $7,544 million in the general account of the Treasurer of the United States (this balance was $760
million more than June 30, 1968, and included $441 million net transactions in transit as .of June 30) ; $4,353 million with other Government officers ($808 million more than 1968) ; and $1,610 million with
the International Monetary Fund ($644 million more than 1968). For
'• Revised.

REVIEW OF TREASURY OPERATIONS

a discussion of the assets and liabilities of the Treasurer's accoimt see
page 102. The transactions affecting the account in fiscal 1969 follow:
Transactions affecting the account of the Treasurer of the Umted States,
fiscal 1969
[In millions of dollars]

Balance June 30, 1968
Less : In transit at June 30, 1968
.
Exce;ss of deposits, or withdrawals ( — ), budget, trust, and
other accounts:
Deposits
201,735
Withdrawals ( - )
201, 491
Excess of deposits, or withdrawals ( —), public
accpunts:
Increase in gross public debt
Deduct:
Excess of Goverhment agencies' investments in public debt issues
Accruals on savings and retirement plan
bonds and Treasury bills (included in
increase in gross public debt above)
Less certain public debt redemptions (included above in withdrawals, budget,
trust, and other accounts)
Net deductions

243

debt
6,142
8,149
6,270
6,337

8, 082 - 1 , 940

Excess of sales of Government agencies' securities in the market
Net transactions in clearing accounts (documents not received or classified by the Office of the Treasurer)
Net transactions in transit
Balance June 30, 1969

6, 785
91

4,034
—1, 928
441
7, 544

Corporations and Other Business-Type Activities of the Federal Government

The business-type programs which Government corporations and
agencies administer are financed by various means: Appropriations,
sales of capital stock, borrowings from either the U.S. Treasury or the
public, or by revenues derived from their own operations.
Corporations or agencies having legislative authority to borrow
from the Treasury issue their formal securities to the Secretary of the
Treasury. Amounts borrowed are reported in the periodic financial
statements of the Government corporations and agencies as part of the
Government's net investment in the enterprise. I n fiscal 1969, borrowings from the Treasury, exclusive of refinancing transactions, totaled
$13,449 million, repayments Avere $12,325 million, and outstanding
loans on J u n e 30, 1969, totaled $28,164 million.
Those agencies having legislative authority to borrow from the
public must either consult with the Secretary of the Treasury regarding the proposed offering, or have the terms of the securities to be
offered approved by the Secretary.
During fiscal 1969, Congress granted new authority to borrow from
the Treasury in the total amount of $1,931 million, and reduced

19 6-9 REPORT OF THE SECRETARY OF THE TREASURY

existing authority by $644 million, resulting in a net increase of $1,287
million. The status of borrowing authority and the amount of corporation and agency securities outstanding as of June 30,1969, are shown
in the Statistical Appendix.
Unless otherwise specifically fixed by law, the Treasury determines
interest rates on its loans to agencies by considering the Government's
cost for its borrowings in the current niarket, as reflected by prevailing market yields on Government securities Avliich have maturities
comparable with the Treasury loans to the agencies. A description of
the Federal 'agencies' securities held by the Treasury on June 30,1969,
is shown in the Statistical Appendix.
During fiscal 1969, the Treasury received from agencies a total of
$897 million in interest, dividends, and similar payments. (See the
Statistical Appendix.)
Quarterly statements of financial condition, income and expense,
and source 'and application of funds are submitted to the Treasury by
Government corporations and agencies. Annual statements of commitments and contingencies are also submitted. These statements serve as
the basis for the combined financial statements compiled by the Treasury which, together with the individual statements, are published periodically in the "Treasury Bulletin." Summary statements of the financial condition of Government corporations and other business-type
activities, as of June 30, 1969, are shown in the Statistical Appendix.
Government-wide Financial Management

New budget concepts.—During the year Treasury staff participated in joint efforts with the Bureau of the Budget and the General Accounting Office to complete the implementation of recommendations made by the President's Commission on Budget Concepts in
October 1967. All but two bf the major recommendations were impleniented in the 1969 budget presented to the Congress in January 1968
and in Treasury's financial reports for fiscal 1968. The two major
longer range recommendations still to be implemented involve (1) the
reporting of receipts and expenditures on the accrual basis instead of
the cash basis and (2) the identification of subsidies involved in Federal direct loan programs in the expenditure account of the budget.
On Feibruary 15, 1969, Secretary Kennedy met with the Director
of the Budget Bureau and the Comptroller General of the United
States to discuss the status of joint efforts on these reconimendations.
They agreed that it would not be possible to achieve the timetable
recommended by the Budget Commission for conversion to the accrual
basis, i.e., in the budget for 1971. I t was also agreed that the conversion
to the accrual basis would be given higher priority than the recom-

REVIEW OF TREASURY OPERATIONS

meiidatioii on loan subsidies. Further efforts to implement the latter
recommendation were deferred so that many agencies involved could
concentrate their efl'orts on the developnient or refinement of accrual
accounting systems.
On February 22, 1969, President Nixon reaffirmed the objective of
converting to the accrual 'basis and directed that the conversion be
made effective with the 1972 budget (to be submitted to the Congress
in January 1971). I n Marcli the Secretary, the Budget Director, the
Comptroller General, and the Chairman of the Council of Economic
Advisers sent a joint letter to all agencies announcing the President's
decision and stressing the need for vigorous action to meet the new
target date.
Reporting accrued revenues and expenditures.—During fiscal 1969
a Government-wide pilot operation was conducted to test agency
capability to report montlily, on a tiraely basis, selected assets and
liabilities forming the bridge between the cash and the accrual bases.
A steering committee representing the three central financial agencies
explored special problem areas through a number of specialized task
groups. Preliminary studies, begun in April 1968, on reporting unbilled contractor costs under the constructive delivery concept and on
reporting accrued expenditures with respect to grant programs were
completed in October 1968. A preliminary study on accruing corporate income taxes and excise taxes was concluded in January 1969.
A central agency followup team was established to provide continuous attention to the matter of Go vernment-wide readiness to report
reliable and timely accrual data. The team will continue to meet with
agencies in fiscal 1970 to advise them on accounting and reporting
problems and keep the steering committee apprised of current developments. I n addition, a special technical advisory committee was
organized to review the progress made by the Department of Defense
in designing a statistical approach for determining the unbilled cost
of contracts under the constructive deliverv concept.
Joint financial management improvement program.—On May 28,
1969, the Secretary met with the Comptroller General, the Director
of the Bureau of the Budget, and the Executive Director of the Civil
Service Commission to review the steering committee's plan of action
under the joint financial managenient improvement program
( J F M I P ) . There was unanimous agreement to give high priority
to staffing joint program projects and the steering comniittee was
authorized to recruit a permanent executive secretary to assist in the
administration of the program. A major project on auditing was
approved in substance. The project is expected to cover auditing of
grants-in-aid programs, auditing of agency financial statements, and

19&9 REPORT OF THE SECRETARY OF THE TREASURY

a review of internal audit facilities. Bureau of Accounts' staff continued
to represent the Treasury on the steering committee and project study
teams of the J F M I P . I n fiscal 1969 the Treasury representative served
as chairman of the steering committee and staff participated in four
interagency project studies, chairing two of them. Projects involving
(1) the financial administration of grants-in-aid programs; (2)
procuring, paying, auditing, and settling civil agency passenger and
freight transportation services; and (3) simplification of intragovernmental billing and collection procedures are expected to be completed
in fiscal 1970. A j)roject to evaluate the application, administration,
and operations of the letter of credit method of financing Federal
programs was completed in fiscal 1969. This study led to revision of
Treasury Department Circular No. 1075 and the issuance of
instructions in the Treasury Fiscal Requirements Manual whicii
provi de:
(1) That a letter of credit is irrevocable (the equivalent of cash
available to the recipient organization) to the extent funds have
been obligated; in good faith in executing an authorized Federal
program (wliich should help to eliminate excessive Federal cash
in State accouiits caused by State laws or regulations requiring
that funds be on deposit in the State treasury before obligations
under Federal programs can be incurred) •
(2) That use of letters of credit require that the recipient organization commit itself to requesting cash drawdowns at approximately the same time checks are issued to cover program liabilities
and to timely reporting required by the prograni agency (failure
to meet these commitments will result in revocation of the unobligated portion of the letter of credit) ;
(3) That where determined to be advantageous, a recipient organization may be asked to authorize its commercial bank to
draw on a letter of credit in its behalf when checks issued by the
recipient organizatioii are presented to the bank for payment;
(4) That advances by primary recipients to secondary recipients shall conform substantially to the standards of timing applicable to advances by Federal agencies to primary recipient
organizations;
(5) That each prograni agency shall furnish the Treasury
with reports concerning cash balances in the hands of recipients
as of each June 30 and December 31; and
(6) That Treasury checks may be used for making large advances only when the benefits equal those which can be achieved
by use of letters of credit.

REVIEW OF TREASURY OPERATIONS

Federal Debt Management
The primary functions of Federal debt management are to provide
the funds needed to meet Federal expenditures and to refund maturing
debt obligations. These objectives should be achieved in a manner
which will contribute to noninflationary growth of the domestic economy and to balance in our international accounts. Secondary objectives are to establish and maintain a well-balanced debt structure, to
provide debt instruments meeting the needs and requirements of an
orderly securities market, to coordinate the growing volume of Federal
agency and federally, spoiisored agency debt operations with Treasury
debt management policy, anci to minimize the cost of Federal
borrowing.
Fiscal year 1969 began amid mounting expectations for a moderation in the pace of economic growth and a reductioii in overall credit
demands. On June 28,1968, the President had signed the llevenue and
Expenditure Control Act of 1968 (Public Law 90-364) whicii imposed
a 10 percent surtax on corporate and individual incomes and provided
specific limitations on 1969 budget authority and outlays. Subsequently, in August 1968 the Federal Eeserve banks lowered the discount rate and in September commercial banks followed with a prime
rate reduction. Plowever, increasingly heavy demands for funds and
renewed inflationary expectations returned interest rates to record
levels as near record amounts were borrowed in the credit markets
during July-December.
In this period the Treasury also continued to make large demands
on the capital markets. While enactment of the Revenue and Expenditure Control Act had reduced the expected budget deficit from $8.0
billion to $5.0 billion, seasonally heavy July-December borrowing
needs remained high in part because of a below normal $5.3 billion
June 30, 1968, cash balance. Treasury demands, however, were partly
offset by a slowing in the pace of borrowing by the Federal Government and federally sponsored agencies.
As the period ended yields on Treasury securities were approaching
6^/2 percent in the 1-year and 5-year areas. In December Federal Reserve banks returned the discount rate to 51^ percent and commercial
banks, under Reserve pressures and a growing loan demand raised the
prime rate twice in the month to a level of 6% percent.
The January budget presentation of the outgoing administration
and the budget review of the new administration showed further
budgetary improvements and the resulting fiscal 1969 surplus of $3.2
billion was a dramatic switch from the fiscal 1968 deficit of over $25
billion. Even so, strains on capital markets continued to increase in
January-June. Yields on Treasury securities, which had risen steadily
363-222—70

196 9 REPORT OF THE SECRETARY OF THE TREASURY

through November and Deceniber remained relatively stable until
early March, when a short-lived decline set in. The upward trend was
renewed in May and June and by the end of the fiscal year the 5-year
rate was near 7 percent and the 1-year coupon rate was in excess of
71/^ percent. Rates in other markets also reached record highs of the
century as private' borrowing demands remained heavy and the Federal Reserve Systiem tightened credit. The commercial bank prime
rate after increases in January, March, and June, reached a record
level of 814 percent.
WSARpi YlELbS^AT CONSTANT R!!ATURfTIES^1963-'69

1 Monthly averages of daily market yields of public debt securities. Bank discount r a t e s of Treasury bills.
CHAKT

I n fiscal 1969, as in other years since niid-19655 the 4^-percent
interest rate ceiling on Treasury issues over 7 years continued to restrict Treasury debt nianagement. Although 6-year or 7-year issues
were offered in each of the major refinancings in fiscal year 1969, the
average length of the marketable debt was shortened by 2 months to
a level of 4 years at the end of the year.
By type

CHANGES IN FEDERAL SECURITIES

Federal securities include Treasury public debt issues and securities
of agencies having an element of Federal ownership. On June 30,
1969, Federal agency securities included the issues of the Federal
Housing Administration, Export-Import Bank, Tennessee Valley
Authority, the participation certificates of the Government National
Mortgage Association, and Defense family housing mortgages. Dur

REVIEW OF TREASURY OPERATIONS

ing the fiscal year (pursuant to Public Law 90-448, approved September 30, 1968) the Federal National Mortgage Association, the banks
for cooperatives, and the Federal intermediate credit banks were
transferred to private ownership, thus removing their securities from
the Federal debt. Excluding the holdings of these agencies, the Federal debt was $368.0 billion at the end of fiscal year 1969.
Public debt securities outstanding increased $6.1 billion during the
fiscal year to a level of $353.7 billion on June 30, 1969. Marketable
issues declined $0.5 billion, special issues to trust funds increased $7.4
billion; and other nonmarketable issues, matured debt, and debt bearing no interest, declined by $0.7 billion.
--—
Ownership of Fedb^cj^securities on selected dates 1969-69
. "^

^^(^(^

[Dolw amounts in billions]

f'-^^e<^

JuneSO, June 30, June 30, June 30,
1959
1967
1968
1969

Estimated ownership by:
Private nonbank investors:
Individuals: i
Series E and H savings bonds
U.S. savings notes 2
Other securities

$42.6
..._•...

Total individuals.
Insurance companies
Mutual savings banks—
Savings and loan associations
State and local governments
Foreign and international
Corporations
Miscellaneous investors 3
Total private nonbank investors...Commercial banks
Federal Reserve banks
Government accounts
Total gross debt outstanding

-..
..-

Change
during
fiscal
year 1969

23.8

$50.4
(*)
20.6

$51.1
.2
22.9

$51.2
.5
24.7

$0.1
.3
1.7

66.3
12.6
7.3
4.4
16.9
10.1
19.8
7.4

70.9
8.6
4.1
7.9
24.9
14.7
11.1
9.9

74.2
8.1
3.9
9.8
26.6
12.9
13.0
10.8

76.4
7.7
3.3
9.5
27.3
11.1
15.1
9.6

2.2
-.4
-.6
-.4
.7
-1.8
2.1
-1.2

144.8
61.5
26.0
52.3

152.2
55.5
46.7
71.8

159.4
59.8
52.2
76.1

159.9
54.9
54.1
84.8

.5
-4.9
1.9
8.7

284.7

326.2

A 347.6

353.7

6.1

•

Percent

Percent owned by:
Individuals
Other private nonbank investors
Commercial banks
Federal Reserve banks
Government accounts

23
28
22
9
18

22
25
17
14
22

21
25
17
15
22

22 .
23.
16 .
15.
24.

Total gross debt outstanding

100

100 .

»Including partnerships and personal trust accounts.
2 U.S. savings notes first offered in May 1967.
3 Includes nonprofit institutions, corporate pension trust funds, nonbank Government security dealers,
and Federal oriented agencies not included in Government accounts.
* Less than $50 mUlion.

Including additions to the regular weekly or monthly bills but excluding the periodic refinancing of outstanding bills, the Treasury
issued $53.1 billion and redeemed $53.6 billion ^ of marketable debt
during the year. Included in both issues and redemptions were $10.8
1 This figure includes the redemiption of $0.4 billion In regular weekly bills and $0.4 billion
of Treasury bonds for estate tax purposes not included in the disposition table on p. 23.

)

19 69 REPORT OF THE SECRETARY OF THE TREASURY

billion of tax anticipation bills issued and redeenied withiii the year
to provide for the seasonal imbalance of budget receipts.
The niaturity structure of the marketable debt showed a slight improvement as the amount of the under-l-year and l-year-5-year debt
declined by $2.5 billion and $1.7 billion respectively. New issues totaling $19.0 billion were placed in the 6-year-7-year maturity area during the year. Even so, the overall average life of tlie marketable debt
shortened by 2 nionths over the course of the year.
June 30,
1968

Class of debt

June 30,
1969

Increase, or
decrease ( - )

In billions of dollars
Public debt securities:
Marketable public issues by maturity class:
Withinlyear
l-5years
5-20 years
Over20years
1.

106.4
64.5
39.2
16.6

103.9
62.8
43.2
16.2

-2.5
-1.7
4.0
-.3

Total marketable issues

226.6

226.1

-.5

51.6
.1
.2
2.5
2.0
1.7
.1

51.7
_
.5
2.5
1.7
2.4
.1

.1
—.1
.3
—.1
—.3
.6
(*)

58.3
59. 5
3.2

58.8
66.8
2.0

.6
7. 3
—1.2

347.6

353.7

6.1

Nonmarketable public issues:
Savings bonds:
SeriesE a n d H . . .
Other series..U.S. savings notes....
Investment series bonds
Foreign series securities
Foreign currency securities
Other nonmarketable debt

Total nonmarketable public issues
Special issues to Goverrmient accounts (nonmarketable)
Noninterest-bearing debtTotal gross public debt.:.-...

•Less than $50 million.

I n the nonmarketable sector principal changes, other than in special
issues to trust funds, were an increase of $0.3 billion in special securities issued to official foreign accounts, and an increase of $0.4 billion
in Series E and H savings bonds and savings notes outstanding. The
savings bonds and note increase was attributable to the automatic
crediting of accrued interest. See the Statistical Appendix. Other interest-bearing nonmarketable debt, including older series of savings
bonds and investment bonds, declined by $0.2 billion. Noninterestbearing debt declined a net $1.2 billion as matured debt increased $0.2
billion and special notes held by the International Monetary Fund
declined $1.4 billion. About $1.0 billion of the I M F reductions resulted
from the continuing conversion of special notes to letters of credit.
The $14.3 billion Federal agency issues outstanding at the end of
June 30, 1969, was $10.1 billion lower than a year earlier. The decline
is entirely accounted for by the conversion to private ownership of
the Federal National Mortgage Association in September 1968 and the
Federal intermediate credit banks and the banks for cooperatives in
December 1968. Adjusting the June 30, 1968, debt levels for the. ex

REVIEW OF TREASURY OPERATIONS

elusion of these three agencies shows a fiscal year 1969 increase of $0.8
billion in the outstanding issues of the remaining Federal agencies.
The principal component of the increase was $0.7 billion in the participation certificates of the Government National Mortgage
Association.
PRIVATE tiOLDINGS OF HflARKETABLE FEDEBAL SECURSTIES

'•

1965..
^

1966" 4967
«^ f ^. ,

1968':^ 1969
;. ^
''

'
- %
1965
'Fiscal Years' ^

;1966
, ",

1967^ '-19^68
'^
,,
'

1969 •:;. -^
"" ^ .
^

1 Export-Import and GNMA participation certificates.
CHART 4

Ownership
At the end of fiscal year 1969 Federal securities outstanding totaled
$368.0 billion, including $353.7 billion of public debt issues and $14.3
billion of Federal agency issues.
.CHANGES m HOLDINGS OF FEDERAL SECURITIES
;$Bil.

^20

•27.3
>

+10

Fiscaf Year
F i s c a l Year 1969

1968

+8 6

F^^
13X

Total

..Gov't ;,
, Accounts'

, Federa!
' Reserve^,

CHART

'Com'l ">'
' ,
Banks * "''

Corpor'ations'•^

^ Other • /
Private ^
;N onbank

1969 REPORT OF THE SECRETARY OF THE TREASURY

Government accounts and Federal Eeserve banks held $141.8 billion
for 39 percent of the total. Sixteen percent or $57.9 billion was in the
hands of the commercial banks and $168.3 billion or 46 percent was
held by private nonbank investors.
Individuals.—^^Holdings of public debt securities by individuals increased $2.2 billion in fiscal 1969 to $76.4 billion. Marketable securities
accounted for $1.8 billion and Series E and H savings bonds and U.S.
savings notes $0.4 billion of the increase. Individual holdings of Federal agency issues declined $2.8 billion to a level of $1.2 billion. This
decline in holdings of agency securities by individuals as well as by
the other investors classes reflects the redefinition of Federal agency
securities.
Insxirance companies.—Public debt securities held by insurance companies declined $0.4 billion during the fiscal year. Life companies
reduced their holdings $0.3 billion to a new postwar low of $3.7 billion
Fire, casualty, and marine companies liquidated $0.1 billion which
reduced their portfolios to $3.9 billion. Life insurance companies still
have a large proportion of their holdings of public debt securities in
long term issues. The average length of their holdings of marketables
is 17 years 4 months, down 6 months from a year earlier. The average
maturity of marketable public debt securities held by fire, casualty,
and marine companies declined 1 month to a level of 6 years 2 nionths
on June 30, 1969. Insurance companies' holdings of Federal agency
issues declined by $0.2 billion to a level of $0.8 billion.
Mutual savings boAilts.—Holdings of public debt securities by mutual
savings banks fell $0.6 billion to a level of $3.3 billion in fiscal 1969,
however, the average maturity of their holdings of marketable debt
increased 1 month to 8% years. Holdings of Federal agency securities
fell $0.5 billion and at the end of the fiscal year mutual savings banks
held $0.8 billion of these securities.
Savings and loan associations,—For the first time since fiscal 1954
savings and loan associations failed to increase their holdings of public
debt securities as holdings declined $0.4 billion in fiscal 1969. Despite
this drop, the average length of savings and loan associations holdings
of marketable debt increased 1 month to 5 years 11 months. On June 30,
1969, savings and loan associations held $0.4 billion Federal agency
issues compared to $6.8 billion a year earlier.
State and local governments.—In fiscal 1969 State and local governments acquired nearly $0.8 billion of public debt securities. Holdings
of State and niunicipal pension funds and holdings of general funds
each increased $0.4 billion. About 80 percent of pension fund public
debt securities are in long term issues. However, the average maturity
of pension fund holdings was 17 years 10 months at the fiscal yearend

REVIEW OF TREASURY OPERATIONS

compared to 18 years 11 nionths on June 30, 1968. State and municipality general funds continued to invest in relatively short miaturities,
mainly Treasury bills. The average length of their holdings of marketable debt fell 3 months during the fiscal year to 3 years 8 months on
June 30,, 1969. At the end of fiscal 1969 State and local governments
held $3.8 billion of Federal agency issues. Holdings declined $0.9
billion in the year.
Foreign and international.—Foreign holdings of public debt securities declined $0.3 billion in fiscal 1969 to a yearend level of $9.2
billion. Special nonmarketable securities issued directly to foreign
nionetary authorities increased $0.3 billion but holdings of marketable
issues declined by $0.6 billion. Major changes in fiscal 1969 by country
were liquidations of $0.4 billion by both France and Italy, while
Jaj)aiiese holdings increased $0.6 billion. On June 30, 1969, foreign
investors held $4.1 billion of nonmarketable public debt issues and $5.1
billion of marketable issues.
Holdings of international and regional institutions fell $1.5 billion
to $1.9 billion. Nearly $1.4 billion of the decline was accounted for
by a drop in special noninterest-bearing notes issued to the International Monetary Fund including the substitution of letters of credit
for $1.0 billion of this amount. There was also a net decline of $0.1
billion in marketable securities held by intemational and regional
institutions. On June 30 total international and regional holdings
amounted to $0.8 billion special noninterest-bearing notes and $1.1
billion of marketable securities. Foreign and international investors
continued to add to their holdings of Federal agency issues and shoAved
little change in fiscal 1969.
Nonfinancial corporations.—Nonfinancial corporations increased
their holdings of public debt securities by $2.1 billion in fiscal 1969.
After reaching a low of $11.1 billion at the end of fiscal 1967, corporations have added an average of $2.0 billion to their holdings of public
debt securities in each of the past 2 years. Short term issues make up
the major portion of their portfolios of Government securities and the
average length of their holdings was 19 months at the end of fiscal
1969. Corporation holdings of Federal agency securities fell $0.7 billion in fiscal 1969 to a June 30 level of $0.4 billion.
Commercial banhs.—To help meet the increased demand for business
loans, commercial banks liquidated nearly $5.0 billion public debt
securities in fiscal 1969. By contrast, in fiscal 1968, commercial banks
increased holdings $4.3 billion. The larger Reserve city banks reduced
their holdings of public debt issues by $2.4 billion, while the smaller
banks liquidated $2.5 billion. The average length of commercial bank
holdings of marketable Treasuries remained at 3 years at the end of
fiscal 1969.

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Federal agency issues held by commercial banks totaled $3.0 billion
at the end of fiscal 1969 after a reduction of $3.5 billion during the
fiscalyear.
Other private nonbanh investors.—Public debt securities held by
this group of investors declined $1.2 billion to $9.6 billion on June 30,
1969. Major changes were a liquidation of $1.0 billion by Federal home
loan banks and a het decline of $0.2 billion in holdings in the hands
of miscellaneous investors. Holdings of Federal agency issues declined
$1.3 billion to a level of $1.5 billion at the end of fiscal 1969.
,•
Federal Reserve System.—In fiscal 1969 the Federal Eeserve System
acquired a net $1.9 billion of public debt issues. This was $3.6 billion
less than the increase a year earlier as the System attempted to slow
down the growth ih member bank reserves. Holdings of Treasury bills
increased $1.1 billion and coupon securities rose $0.8 billion. At the
end of fiscal 1969 holdings of public debt issues in the System Open
Market Account totaled $54.1 billion. The average length of the System's holdings increased 8 months to 2 years 4 months at the end of the
fiscal year.
Govemment accounts.—Government trust funds and accounts increased their holdings of public debt securities $8.7 billion. This was
$2.5 billion more than the total increase in the public debt as Government accounts absorbed part of the $4.4 billion decline in public debt
securities held by private investors. Major increases occurred in the
accounts of the Federal old age and survivors insurance trust fund,
$2.8 billion; the civil service retirenient fund, $1.8 billion; the unemployment trust fund, $1.2 billion; and the Federal disability insurance
trust fund, $1.2 billion.
•,v^^,.OfNERSHp:opiOERALSECpRmES,^jpE\3^^^
'^Bil

Tolal

:i.87.7_|

„

Gov't
Accounts

^300

Private
Nonbank Investors

'200
368 0

Individuals

100

Savings
Instit.

134 8
yy////////.

A l l Other ^ ^ | 4 0 0 |

.i.

.,*' r ^"^ ~*^' r -^
CHAKT G

REVIEW OF TREASURY OPERATIONS

Total Government account holdings of public debt issues at tlie' end
of fiscal 1969 amounted to $84.8 billion. Nearly 80 percent, or $66.7
billion of the total, was special issues. About $16.0 billion of marketable issues, $2.1 billion of nonmarketable Investment Series B bonds,
and a small amount of savings bonds accounted for the remaining 20
percent. Holdings of Federal agency issues fell $0.2 billion during the
fiscal year to a yearend level of $2.8 billion.
FINANCING OPERATIONS

As in the previous year when the cash balance also had been reduced
well below normal end-of-fiscal-year levels, the first cash financing was
announced late in June for payment on July 11. A total of $4.0 billion
of tax anticipation bills evenly divided between the March 24 and
April 22 maturities was offered. The securities included the usual provision for acceptance at face value in payment of income taxes on the
15th day of the maturity-month and coimmercial banks were allowed to
make payment through credit to Treasury tax and loan accounts. The
average issue rates resulting from the auction were 5.40 percent for the
8-month issue and 5.42 percent for the 9-month.
At the same time the Treasury announced its intention to continue
adding $100 million to the weekly sales of 6-month bills. The cycle of
additions which began on April 18 and ended on October 10, 1968,
raised $1.5 billion of new cash during fiscal 1969.
On July 31 the Treasury offered a 6-year 5%-percent note to refund
$8.6 billion of AugTist 15 maturities and to raise $1.5 billion of new
cash. The security was priced at $99.62 to yield 5.70 percent and commercial banks were allowed to credit Treasury tax and loan accounts
for 50 percent of their allotments.
The maturing issues were $5.9 billion 414-percent notes and $2.6 billion of 3%-percent bonds. Private investors who held $3.6 billion of the
inaturing issues were not given preemptory rights to the new offering.
The 5%-percent note was well received by the market and was
heavily oversubscribed allowing the Treasury to make an 18-percent
allotment to large subscribers. The amount of new cash raised was $1.7
billion.
A second offering of tax anticipation bills in the amount of $3.0 billion was made to the market on October 10. The bills were to mature
on June 23 and could be used at face value to pay Federal income taxes
on June 15, 1969. Commercial banks were again allowed full tax and
loan credit and although Treasury rates had again begun to climb the
average auction rate was 5.18 percent. This was 0.22 basis points below
the comparable July offering of tax bills.
I n mid-October prices in the Treasury securities market rallied on
the reports of progress in the Vietnam peace negotiations, but hopes

19 69 REPORT OF THE SECRETARY OF THE TREASURY

wei'Q short lived and rates again rose as the second quarter refunding
approached.
The October 23, 1968, announcement offered the holders of the two
November 15 maturities and the December 15 2i/^-percent bonds the
opportunity to exchange for either a new 5%-perceiit note maturing
in May 1970 or the reopened 5%-percent note of November 1974. For
the exchange the 5%-percent note was priced at $99.85 to yield approximatel}^ 5.73 percent.
' Private investors held $5.6 billion of the $11.9 billion of Noveniber
and Deceniber maturities. They exchanged a total of $3.7 billion for
$2.3 billion of the 5% percent anchor issue and $1.4 billion of the longer
note. The cash attrition was $1.8 billion or nearly one-third of the
private holdings.
Interest rates continued to move higher in the face of persistent
large credit demands and lack of investor interest. The Noveniber cash
offering of $2.0 billion of June tax bills was auctioned at a rate of 5.49
percent—slightly above the June levels. Comniercial banks were again
allowed to credit tax and loan accounts in paynient.
The November offering of tax bills completed the financing operations for the first half of the fiscal year: $20.6 billion of maturing
issues had been refunded or redeemed and $12.3 billion of new cash had
been raised.
The cautious atmosphere in the nioney and capital markets carried
over from November into December and deepened. Yields on a wide
range of obligations, including Treasury, corporate, and tax exempt
securities, moved sharply higher. Early in Deceniber, in the first of two
increases that moiiith, the banks' prime lending rate was increased to
61/^ percent. Later in the month, on December 17, the Board of Governors of the Federal Eeserve System approved an increase in the
discomit rate fromj 514 percent to 51/^ percent effective December 18
for all Federal Eeserve banks except St. Louis, Kansas City, and San
Francisco. The effective date for the latter three banks was December 20. On December 18, major conimercial banks throughout the Nation announced a second round of increases in the prime rate to a
record level of Q% percent.
Following this sharp upward adjustment in interest rates in December market psychology improved and the money and bond niarkets
enjoyed a period of relative stability which Avas only briefly interrupted by another one-quarter of 1 percent increase in the prime rate on
January 7. Contributing to the better tone were projected Federal
budget surpluses for fiscal years 1969 and 1970, progress in Vietnam
Paris peace talks, and the absence of large scale liquidation of securities by comniercial banks.

REVIEW OF TREASURY OPERATIONS

The Treasury again tumed to the short term market for its first cash
off'ering of the J a n u a r y - J u n e period. The June tax bills were reopened
for the second time in an amount of $ 1 % billion. The auction was held
on January 14 and the average rate was 5.94 percent. Comniercial banks
were given tax and loan privileges.
On January 29 the Treasury offered a 15-montli 6%-percent note
and a 7-year 6i/4-percent note in exchange for $10.7 billion 5%-percent
Treasury notes and $3.7 billion 4-percent Treasury bonds maturing on
February 15. Private investors held only $5.4 billion of the February
maturities. The remainder was held by the Federal Eeserve banks and
Government accounts. Private investors exchanged $3.5 billion or 65
percent of their total holdings, taking $2.6 billion of the 6%-percent
note and $0.9 billion of the 614,-percent note. Attrition was $1.9 billion.
Late in February there was again need for additional cash financing,
and the Treasury announced that it would raise $1.0 billion by adding
$200 million to each of the monthend bills maturing from April to
August.
I n this "strip" offering subscribers were required to bid for equal
aniounts of each of the bills being reopened. Commercial banks were
permitted to pay for their own purchases and for their customers'
purchases b}^ crediting Treasury tax and loan accounts. The average
rate for the bills set in the auction was 5.91 percent.
During the second half of February investors grew pessimistic over
the interest rate outlook as they weighed the possibility of further
increases in the discount rate and the prime rate. The February 27
increase in the British bank rate from 7 percent to 8 percent brought
about further investor caution which carried over into March. Expectations of higher rates were confirmed on March 17, when many of
the Nation's leading commercial banks raised their prime rates from
7 percent to 7i/^ percent. This was the fourth increase in this rate since
early December.
The Treasury tumed to the bill market again in Marcli to raise new
cash with the announcement that around $1.8 billion would be raised
in a "strip" offering by adding $300 million to six outstanding weekly
series of bills maturing May 8 to June 12. Subscribers were required
to take an equal amount of each of the reopened issues and commercial
banks were permitted to make full payment in the form of credits
to Treasury tax and loan accounts. The banks bid aggressively and
the bills were auctioned at an average rate of 5.03 percent.
Data on allotments by investor classes will be found in the Statistical Appendix.

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Offerings of marketable Treasury securities excluding refunding of regular bills,
fiscal year 1969
[In miUions of dollars]
Cash offerings
Date

Description
I

1968

Exchange offerings

For new For re- Forma- In ad- Total
money frmding turing
vance
issues refunding

NOTES

Apr.l.
Aug.l5
Oct.l
Nov.15
Nov.15

13^% exchange note, Apr. 1, 1973 1
55^%note, Aug. 15, 19743..
13^% exchange note, Oct. 1,1973 1
55^% note. May, 15, 1970
5M% note, Nov. 15, 1974, additional

1969
Feb. 15
Feb. 15
Apr.l
May 15
May 15

[
6H% note, May 15, 1970
634% note, Feb. 15, 1976
13^% exchange note, Apr. 1, 1974 1
6^% note, Aug. 15, 1970
63^% note, May 15, 1976
Total notes

1,708

^--

1,708

8,576

29
30
4 7,793
4 2,329

9
10,284
30
7,793
2,329

8,764
3,739
6
8 2,329
82,697
27,696

8,764
3,739
6
2,329
2,697
37,980

BiLLS 6 (MATURITY VALUE)

1968

Mar.3

Increase in 6-month bill offerings:
July through September
October through December

1,315
203

Total 6-month bill increase..

1,518

Mar.31

Increase in 1-year bills maturing Apr. 30Aug. 31,1969.
Increase in regular weekly biUs maturing
[
May 8-June 12, 1969

1,000

1968
July 11
July 11
Oct. 24
Dec. 2

Tax anticipation bill offerings:
6.399% 256-day, maturing Mar. 24,1969..
5.426% 285-day, matm-ing Apr. 22, 1969..
5.178% 242-(aay, maturing June 23,1969..
5.489% 203-day, maturing Jtme 23, 1969,
[
additional

2,015
2,003 3,010

Jan. 20

5.940% 154-day, maturing June 23, 1969,
additional
Total tax anticipation bill offerings-Total offerings

'..

1,000
1,800

1,800

. . .

2,015
2,003
3,010
2,001

2,001
1,759

1.759

10.788
16,814

10.788
53,086

8,576

27,696

1 Issued only on demand in exchange for 2^-percent Treasury bonds. Investment Series B-1975-80.
2 Issued subsequent to Juhe 30,1968.
3 A cash offeruig (all subscriptions subject to allotment) was made for the purpose of paying off the
matured securities in cash and to raise new money. Holders of the maturing issues were not offered preemptive rights to exchange their holdmgs, but were permitted to present them in payment or exchange, in lieu
of cash, for the new securities offered. For further details, see exhibit 1.
4 The 23^-percent December 1963-68 bonds are included in the November 1968 refunding.
8 The 2>i-percent Jrme 1964-69 bonds are included in the May 1969 refunduig.
6 Treasury bills are sold on a discount basis with competitive bids for each issue. The average price for
auctioned issues gives an approxunate yield on a bank discount basis as indicated for each series.

On April 3 the Board of Governors of the Federal Eeserve System
announced an increase of one-half of 1 percent in the discount rate
to 6 percent effective April 4, and increased reserve requirements onehalf of a percentage point against demand deposits at all member
banks effective April 17. Subsequently, long term markets were bolstered by the belief that the anti-inflation programs of the Federal
Eeserve and the administration's recommendations for tax action,

REVIEW OF TREASURY OPERATIONS

particularly the repeal of the 7-percent investment tax credit, would
prove effective.
On April 30 the Treasury announced that it would offer holders
of the maturing May 15 and June 15 issues the choice of a 15-month
6%-percent note to yield about 6.42 percent or a 7-year 6i/^-percent
note at par. The maturing issues eligible for exchange were a May 15
5%-percent note, $4.3 billion, and a June 15 2i/^-percent bond, $2.5
billion. Private investors held $3.9 billion of the maturing May issue
and $2.1 billion of the maturing June issue. Private investors exchanged $4.3 billion: $2.1 billion for the 6%-percent note and $2.2
billion for the 6i/^-percent note. Attrition was $0.7 billion.
The exhibits on public debt operations provide further information
on public debt offerings and allotments by issues in tables and representative . circulars. For details on participation sales, retirements,
and those outstanding see the Statistical Appendix.
Disposition of marketable Treasury securities excluding regular bills, fiscal year 1969
[In millions of dollars]

Date of
refunding
or retirement

Securities
Description and maturing date

Issue
date

Redeemed
for cash
or carried to
matured
debt

Exchanged for
new issue
At ma- In ad- Total
turity vance refimding

BONDS AND NOTES

Aug. 15
Aug. 15
Oct. 1
Nov. 15
Nov. 15
Nov. 15
Dec. 15

43^% note, Aug. 15, 1968.
3M% bond, Aug. 15, 1968
13^% exchange note, Oct. 1,1968
5K%note, Nov. 15, 1968
3K%bond, Nov. 15, 1968
23^% bond, Dec. 15, 1968
23^% bond, Dec. 15, 1968.

Feb. 15
Feb. 15
Apr. 1
May 15
May 15
June 15

5 ^ % note, Feb. 15, 1969
4% bond, Feb. 15, 1969..
13^% exchange note, Apr. 1, 1969
5 ^ % note. May 15, 1969.
23^% bond, June 15, 1969
23^% bond, June 15, 1969

. . - . May 15,1967
- - . . Apr. 18,1962
Oct. 1,1963
May 15,1967
Sept. 15,1963
Dec. 1,1942 .
Dec. 1,1942
Nov.
Aug.
Apr.
Feb.
Apr.
Apr.

15,1967
15,1962
1,1964
21,1968
15,1943 .
15,1943

Total coupon secm-ities

1,494
14,442
2,212
1428
115 .
8,345
638
346
811
2965
""822".

1,000
61
826

9,774
2,728
3,451
3 1,575

"""966"

9,444

32,519

5,936
2,640
115
1,158
965
822
10,738
3,728
61
4,277
1,575
966
41,965

TAX ANTICIPATION BILLS 4

1969
Mar. 24
Apr. 22.
June23
June 23
June 23..-.._

5.399% (tax anticipation)
5.426% (tax anticipation)
5.178% (tax anticipation)
5.489% (tax anticipation)
5.940% (tax anticipation)

July
July
Oct.
Dec.
Jan.

11,1968
11,1968
24,1968
2,1968
20,1969

2,015
2,003
3,010
2,001
1,759

Totalbills

10,788 .

Total securities

20,232

2,015
2,003
3,010
2,001
1,759
10,788
32,519

52,753

1 Holders of the maturing issues were not offered preemptive rights to exchange their holdings, but were
permitted to present them in payment or exchange, in lieu of cash, for new securities offered.
2 Included in November 1968 refunding.
3 Included in May 1969 refimding.
4 Including tax anticipation issues redeemed for taxes in the amounts of $826 million in March 1969, $829
million ih April 1969, and $2,099 miUion in June 1969.

196 9 REPORT!' OF THE SECRETARY OF THE TREAStJRY

Taxation Developments
Tax developments in fiscal year 1969 were concerned with (1) measures directed toward control of inflation and (2) a comprehensive tax
reform program.
Control of inflation

Proposal to extend the imcome tax sv/rcharge.—The temporary 10percent surcharge on individual and corporate inconie taxes provided
by the Eevenue and Expenditure Control Act of 1968 was to expire
June 30, 1969, which would mean for both individuals and corporations a surcharge of only 5 percent for the calendar year 1969.
President Johnson in his state of the Union message, January 14,
1969, indicated that the budget for the fiscal year 1970 anticipated the
extension of the IQ-percent surcharge beyond the June 30 expiration
date. H e stated that he had communicated Avitli the President-elect
with respect to the policy of continuing the surcharge beyond June 30
and the President-elect had indicated that until his administration and
the Congress couldj examine the appropriation bills and each item in
the budget, and could ascertain that the facts justified permitting the
surtax to expire or be reduced, he would support the recommendation
that the surtax be continued.
I n the hearings which began on February 18,1969, bef ore the Joint
Economic Committee on the 1969 Economic Eeport of the President,
Secretary Kennedy ^ and the Director of the Bureau of the Budget
emphasized the necessity for a policy of continued fiscal restraint. The
latter stated, "In the absence of any significant change in our commitments in Southeast Asia and in the state of the economy, however, we
continue to support extension of the surcharge as an appropriate and
necessary fiscal policy in our efforts to stem the forces of inflation."
I n his message of Marcli 26, 1969, transmitting notification of proposals to be submitted to Congress relative to reduced spending and
maintaining revenues. President Nixon reaffirmed his support of the
recommendation that the surcharge be extended.
I n addition, he recommended postponement of the scheduled reductions in the automobile and telephone excise taxes and enactment
of user charges equal in revenue yield to those set forth in the budget
message. (In a message of April 16 to the Congress on air transportation the President made specific recommendations for air user charges.
Eecommendations on highway and Avaterway user charges were sent by
the Secretary of Transportation in identical letters of July 28 to the
President of the Senate and Speaker of the Plouse.)
1 See exhibit 15.

REVIEW OF TREASURY OPERATIONS

The PresidenVs proposal to repeal the investment credit.^ extend the
income tax surcharge., and continue certain excises.—In his message
of April 21,1969, to the Congress on tax reform, the President recommended:^ Eepeal of the investment credit, effective April 21, 1969;
extension of the inconie tax surcharge at the full 10-percent rate
through 1969 and at 5 percent until mid-1970; and postponement of
the scheduled reductions in excise taxes on automobiles and telephone
service.
I n his statenient before the Ways and Means Committee on May 20,
1969, on the President's proposals. Secretary Kennedy stated ^ that
the reduction in the surtax on January 1, 1970, Avould be possible because of the proposed elimination of the investment credit. The revenue loss from reduction of the surcharge would almost exactly offset
the revenue gained from repeal of the credit.
Cooigressional action on the President'iS three proposals.—^H.E.
12290, introduced on June 19,1969, reported the next day by the Ways
and Means Committee without amendment, and approved by the
ITouse on June 30, 1969, would have given effect to the President's
three proposals (with the addition of certain other provisions). I t
provided for: (1) Extension of the income tax surcharge at 10 percent
to December 31, 1969, and at 5 percent thereafter to June 30, 1970,
producing a revenue yield of $7.6 billion for fiscal year 1970; (2) repeal of the 7 percent investnient credit, effective as of April 21, 1969,
producing a revenue increase of $1.35 billion in fiscal year 1970 and
more than $3 billion in annual revenue in later years; and (3) continuation for another year of the 10-percent excise on telej^hone service
and the 7-percent tax on passenger automobiles, producing a revenue
increase of $540 million in fiscal year 1970. I n addition, it included one
of the provisions recommended by the President as a part of his tax
reform program—a low income allowance which would remove millions
of poverty level individuals from the tax rolls. I t also allowed 5-year
amortization of air and water pollution control facilities.
I n the absence of final action by the Congress on H . E . 12290, the
surcharge would expire on June 30, 1969, and in order to avoid the
cessation of withholding a measure was approved on June 30, 1969,
which extended withholding at tax surcharge levels through July 31,
1969 (Public Law 91-36).
Although the Senate Finance Conimittee held hearings on H.E.
12290 shortly after the close of the fiscal year (July 8-15) and reported
the bill without amendments on July 17, 1969, no further action was
taken on this bill. Some members of Congress took the position that
the enactment of H.E. 12290 would relinquish leverage and relax
1 See exhibit 27.
2 See exhibit 28.

1969 REPORT OF THE SECRETARY OF THE TREASURY

pressures for tax reform. I t appeared that proposals to extend the
surcharge and repeal the investment credit would be acted upon only
as a part of the tax reform prograni. Secretary Kennedy, however,
urged speedy action on H.E. 12290 in view of the fact that inflation
was imposing a threat to the Nation's economy, and that control of
inflation and tax reform were two distinctly separate problems, the
former requiring immediate and urgent action while the latter, being
a highly complex problem, required careful, contemplated decisions,
and linking these two problems would only invite failure in both.
H.E. 9951, a measure which extended the surcharge through December 31, 1969, at the 10-percent rate, was enacted on August 7, 1969
(Public Law 91-53). This measure, however, did not include provision
for (1) imposing a 5-percent surcharge for the first 6 months of
1970, (2) extending certain excise taxes, and (3) repealing the investment credit. These proposals were added by the Ways and Means
Committee to H.E. 13270, the tax ref o^rm bill, which was reported by
the committee on August 2, 1969, and passed by the House on
August 7, 1969.
Tax reform proposals

Treasury staff proposals developed in 1968.—The Eevenue and
Expenditure Control Act of 1968 provided that the President was to
submit to the Congress no later than December 31, 1968, proposals
for a comprehensive reform of the Internal Eevenue Code of 1954.
I n a letter to the Speaker of the House of Eepresentatives, dated
December 31, 1968, President Johnson formally advised the Congress
of the existence of the studies and proposals which were developed
by the staff of the Treasury Department pursuant to this provision
and of his decision to make no recommendations to the Congress in
the light of the fact that he would be leaving office on January 20.
The President indicated, however, that the studies and proposals
would be made available to the Ways and Means and Senate Finance
committees upon request. In a letter of January 29, 1969, to Secretary Kennedy, Chairman Mills of the Ways and Means Committee
requested that they be made available to the committee. On January 30,
1969, Secretary Kennedy transmitted them to the chairman and
they were published as a committee print in four parts entitled "Tax
Eeform Studies and Proposals," U.S. Treasury Department, a joint
publication of the jCommittee on Ways and Means and the Committee
on Finance, February 3,1969 (91st Cong., first-sess.).
Tax reform proposals of the nem admi/aistration.—The chairman
of the Ways and Means Committee announced on January 29, 1969,
that the committee would hold public hearings on the broad subject
of tax reform, beginning February 18,1969.

REVIEW OF TREASURY OPERATIONS

Under Secretary of the Treasury Walker in testimony before the
Joint Economic Committee on February 19 indicated that the Treasury was interested in pressing forward with a program of tax reform
and mentioned as a first concern the equitable distribution of the
income tax burden.
I n April, after only 3 months in office, the new administration presented to the Ways and Means Committee a comprehensive set of tax
reform proposals. The President in his message to the Congress on
April 21 ^ which outlined the recommendations for reform stated :
"Eeform of our Federal income tax system is long overdue. Special
preferences in the law permit far too many Americans to pay less than
• their fair share of taxes. Too many other Americans bear too much of
the tax burden."
On April 22 Treasury officials presented tlife details of these proposals
to the committee.^ (A summary and technical explanation of the tax
reform proposals were published as vols. 14 and 15 of the hearings
of the Ways and Means Committee which were held during the period
February 18 through April 24,1969.)
The following is a brief summary of the major recommendations
for reform. The net revenue change of the entire package would be
small—the revenue increases of reform measures would be largely
offset by the revenue losses from the relief measures.
Two of the most critical problems which the Treasury believed
should be dealt with promptly were (1) maintaining confidence in
the tax structure by curbing excessive use of tax preferences by some
wealthy taxpayers and (2) removing the burden of the income tax
from those who are below the poverty level.
To deal with the first problem the Treasury recommended a general
restriction on the use of certain tax preferences in two respects:
Li/init on tax preferences {LTP).—A 50-percent ceiling would be
imposed on the amount of an individual's total income which could
be exempt from tax. Total income for this purpose would be determined :
(1) By including appreciation in value of property given to
charity;
(2) Before deducting intangible drilling expenses and percentage depletion in excess of cost depletion;
(3) Before deducting certain farm losses; and
(4) Before deducting the excess of accelerated over straight-line
depreciation on real estate.
1 See exhibit 27.
2 See exhibits 29 and 30.
363-222—70
4

1969 REPORt OF THE SEGRETARY OF THE TREASURY

111 other words, an individual would be able to claim these exclusions
and deductions only to the extent that the aggregate amount does not
exceed one-half of his total income. A minimum amount of allowable
preferences of $10,000 would be permitted.
As an example, assume a taxpayer had $100,000 of salary and $200,000 of other income sheltered from tax by tax preferences. Under
present law he could exclude all the income sheltered by tax preferences and be taxed on only $100,000. Under L T P his total L T P income
would be $300,000. His alloioable preferences would be half of $300,000, or $150,000, this being the maximum amount he could exclude.
He would thus be taxable on $150,000 so that $50,000 of his tax preference would have become taxable.
A 5-year carryover of disallowed tax preferences (an averaging
device) would restrict the effect of this limit to persons who consistently have an excessive aniount of these preferences. A 3-year transition period, establishing the ceiling at 70 percent, 60 percent, and
50 percent, respectively, would phase in the limit gradually. When
fully phased in, the revenue increase would be $80 million.
Allocation of deductions.—An individual with more than $10,000
of tax preferences would also be required to allocate his itemized
(nonbusiness) deductions between taxable income and the nontaxed
or "allowable" portion of tax preference amounts. For this purpose,
tax preferences would include the same four items of tax preference
but with the addition of interest on State and municipal bonds and
the excluded portion of long term capital gains (50 percent). Thus,
itemized deductions could no longer be applied entirely against taxable income where there is also substantial nontaxable income.
The allocation would be phased in generally over a 2-year period.
Thus, in the first year, only one-half of tptal itemized deductions would
be required to be allocated. When fully phased in, the revenue increase,
would be $500 million.
To deal with the second problem, to provide essential relief to persons in poverty, the Treasury recommended a:
Loio income alloioance.—An additional allowance would be granted
to insure generally that families at the poverty level would not be
required to pay any Federal inconie tax. This allowance, whicii would
be automatically built into the tax tables, would completely exenipt
more than 5 million individuals from tax payments, those with income
below the following levels:
"Number of exemptions
Family of 1
Family of 2
FamUy of 3
FamUy of 4

Income
$1, 700
2,300
2,900
3,500

Number of exemptions
Family of 5
Family of 6
Family of 7
Family of 8

Inconie
$4,100
4,700
5,300
5,900

REVIEW OF TREASURY OPERATIONS

Some 7 million additional returns in the low-income group would bear
a reduced rate.
The allowance in excess of the minimum standard deduction would
be phased out as income exceeded the above poverty levels at the rate
of $0.50 for each dollar of income over the levels. Thus, for a single
person the allowance would not exempt inconie over $3,300; for a
family of eight, it would phase out at $6,100. The allowance would be
effective for 1970 and thereafter. The revenue loss from this change
would be only $625 million—less than 1 percent of the individual
income tax revenue.
Other reforms recommended by the Treasury included:
Mineral production payments.—Th^ tax treatment of mineral production payments would be changed. These "production payments,"
sold by oil companies and other mineral producers, represent in effect
advance payment for future extraction of the minerals, and they are
sold to accelerate income to avoid the statutory limitations on credits
and deductions, such as the depletion allowance. Henceforth, these
production payments would be treated as loans, whicii is their true
substance. Similarly, the duplication of tax benefits by such persons
in retaining and selling production payments in so-called ABC transactions would be dealt with in the same way. Bona fide production
payments pledged for exploration or development would not be
affected. The revenue. increase after the first year would be $200
million.
Private foundations aiid exempt organizations.—Certain specific
abuses by private foundations would be prohibited:
—self-dealing between the foundation and related parties;
—failure t o ' distribute income or a reasonable return on assets
annually to charity;
—the control of operating business corporations (with a 5-year
transition period for existing holdings) ; and
•
—engaging in certain political activities, such as voter registration drives.
Penalties for these abuses would be imposed, and power would be
given the U.S. district courts, acting at the instance, of the Justice
Department in the absence of State action, to impose appropriate
sanctions.
Foundations would also be required 'to make available for public
Inspection information as to grants to individuals, the activities of
these individuals, and their work product. .
Certain specific administrative changes would be made to provide
much closer scrutiny and audit of foundation activties.

1969 REPORT 01^ THE SECRETARY OF THE TREAStTRY

Present law taxing income from the direct operation of a business
by certain tax-exempt organizations would be extended to churches
and other tax-exempt organizations not currently covered. The investment income of social clubs and certain similar organizations, now
untaxed, would be taxed. All tax-exempt organizations would be taxed
on the income of any investment assets acquired with borrowed funds
and not related to their tax-exempt functions (so-called Clay Brown
bootstrap cases).
Cliaritable contribution deduction.—The 30-percent limitation on
charitable contribution deductions would be increased to 50 percent,
to apply to all taxpayers beginning in 1969.
The unlimited charitable deduction available to certain persons
would be cut down. Thus, charitable contributions taken together with
all other itemized nonbusiness deductions could not exceed 80 percent of adjusted gross income.
Eecommendations were also made with respect to a number of situations which allow excessive tax benefits for contributions: The
deduction for charitable gifts of property, the sale of which would
have resulted in ordinary income, would be restricted to the cost or
other basis of the property in the donor's hands; no deduction would
be allowed for the rental value of property leased rent free to a
charity; and no charitable deduction would be allowed for gifts of
stock rights unless the shareholder allocates the basis of his old stock
in part to the riglits which are given to charity. The special 2-year
charitable trust rule would be repealed. The repeal would mean that
in all cases a grantor would be taxed on trust income where a reversionary interest will or may be expected to take effect within 10 years.
Similarly, in the case of gifts of short term income interests to charity, the donor would not get a deduction unless he is taxable on
the income.
Corporate securities,—In recent years there has been a rapid increase in the number and the size of mergers or other consolidations
aniong corporations, particularly in the area of so-called conglomerate
combinations. While the reasons for this development are principally
nontax, there are tax aspects which require change.
Treasury recommended legislative action on a number of problems,
including the installment sales reporting treatment of capital gain
recognized on the receipt of bonds, the treatment of original issue
discount on bonds, and the interest deduction on the repurchase by a
corporation of its own convertible bonds at a premium. I n addition,
it was indicated that Treasury is seeking to develop a regulation to
distinguish debt from equity for purposes of the interest deduction.
This distinction is considered to be at the heart of the problem of the
increased use of debt securities in these transactions.

REVIEW OF TREASURY OPERATIONS

Multiple corporations.—The advantage taken by a number of large
corporations of certain tax relief provisions for small business, whereby a reduced corporate tax rate of 22 percent is applied to the first
$25,000 of taxable income, would be ended. The change would be
phased in gradually over 5 years. The revenue increase from this
change, when fully effective, would be $235 million.
F a r m income.—Various provisions whereby farm deductions, frequently representing the cost of assets acquired, are offset against
nonfarm ordinary income, while the sale of farm assets is taxed only as
capital gain, would be amended. The capital gain would be taxed as
ordinary income to the extent of prior farm losses. The hobby (gentleman farmer) loss rules preventing the consistent deduction of very
large losses by individuals from certain enterprises would be
strengthened.
Accelerated depreciation: public utilities and others.—Tax-free
dividends presently being paid out of accelerated depreciation reserves, principally by public utilities but also by some other corporations, would be made taxable after a 3-year adjustment period.
Federal and State regulatory commissions would be prevented
from requiring a public utility to compute net income aftertax for
ratemaking purposes as if accelerated depreciation had been taken
unless the utility voluntarily elects accelerated depreciation. Utilities
are forced by the position of some commissions to claim accelerated
depreciation to reduce their taxes, and the benefits are flowed through
to the consumers at the expense of the Federal revenues generally.
This rule would have preserved the status quo and would have prevented further adoption by regulatory commissions of the "flowthrough" concept except where the utility itself elects accelerated depreciation. This change would prevent an annual revenue loss which
could reach $1.5 billion if this limitation were not imposed.
Stock dividends.—The practice of a number of corporations of issuing dividends in stock which increase the stockholder's interest in
such a way that they are a substitute for cash dividends, rather than
simply being a larger number of shares for the same interest, would
be discouraged by making such dividends taxable.
Capital losses.—Net long term capital gains are in general taxed
by including only one-half of the gain in ordinary income. A net long
term capital loss, however, may be deducted up to an annual limit
of $1,000 in full against ordinary income. The Treasury recommended that each dollar of net long term capital loss be permitted to
offset only 50 cents of ordinary income. I n addition, married persons
filing separate returns would be subjected to an annual limit of $500

196 9 REPORT OF THE SECRETARY OF THE TREASURY

each. I n the long run, this change would increase revenues by $100
million.
Restricted stoch plans.—During the past few years, there has beeii
a rapid growth in the number of restricted stock plans. Under these
plans, an employee receives stock or other property subject to restrictions, on sale or other limitations. Because of these restrictions, tax
is not imposed under existing rules until the employee sells the stock,
and the amount then subject to tax is limited to the value of the
stock when the employee receives it. I n effect, any increase in value
during the period the restrictions are in effect is taxed only if the
stock is sold, and then as a capital gain.
Treasury proposed that, as a general matter, where an employee
receives stock or other property as compensation, he should be subject to tax when his rights in that property become nonforfeitable.
When an employee receives nonforfeitable rights in property subject
to restrictions on sale, these restrictions would be ignored, and the
amount taxed would be the unrestricted full current fair market value
of the property, unless the restrictions are bona fide limitations whicii
continue for the life of the property.
Multiple or accumulation trusts.^—Undi&r present, law, income may
be accumulated in trust and distributed to the beneficiary without tax
to the beneficiary, with certain exceptions, even though t h a t beneficiary pays higher tax than the trust itself. This enables creation of
multiple trusts for the same beneficiary t o avoid the progressive rate
structure.
Treasury proposed that all income accumulated in trust be taxed at
the beneficiary's regular rates, when the inconie from the trust is received by the beneficiary. I n addition, inconie accumulated in trust for
the benefit of the grantor's spouse would be taxed to the grantor as
eamed, as it is under present law when it is accumulated for the grantor's own benefit. This provision would increase revenues by $70
million.
Moving expenses.—The deduction for moving expenses would be
substantially liberalized to include certain indirect costs (house hunting trips, teniporary living expenses at the new location, and the cost
of selling or buying a house) up to a.maximum of $2,500, of which no
more than $1,000 could be for house hunting or temporary living expenses. The reyenue loss for this change would be $100 million.
Small bushiess Subchapter S corporations.—Th.^ existing rules permitting small business corporations to be taxed similar to partnerships
to avoid the double tax on corporate earnings would be substantially
liberalized.

REVIEW OF TREASURY OPERATIONS

Extension of special treatment of banhs holdimg foreign deposits.—
Interest earned on U.S. bank deposits owned by foreigners not resident in the United States and not connected with a trade or business
conducted here is exenipt from income tax, and the bank deposits themselves are exempt from estate tax. However, existing law provides that
these exeniptions shall not continue beyond 1972. The expiration date
was enacted in 1966 as part of the Foreign Investors Tax Act. At the
time, the Congress was concerned that termination of the exemption
would have an adverse impact on foreign balances in the United States
and therefore deferred the effective date for terminating the exemption
for 5 years. The balance of payments continues to be a matter of concern. While the situation by 1973 cannot be forecast, it is clear that the
scheduled termination will make a solution to the problem much more
difficult to achieve. Accordingly, Treasury recommended that the Congress take action in accordance with the President's recommendation
of April 4 that the scheduled termination of the exemption be repealed.
Congressional action on tax reform

Substantially all of these proposals, with some modifications, were
included in H.E. 13270, the tax reform bill, as passed by the Plouse on
August 7,1969.
Other legislation

Other legislation enacted during the fiscal year included the
following:
Public Law 90-607, approyed October 21, 1969, gives an effective
date for the 1966 definition of "earned income" and provides that the
new definition is to apx3ly to pre-1968 years for purposes of the provisions of the Internal Eevenue Code sectioii 401 (e) (3).
Public Law 90-619, approved October 22, 1968, revised some of the
methods permitted to be used in the production of wine.
Public Law 90-621, approved October 22, 1968, permits a corporation to acquire another in a tax-free merger by giving, in exchange for
stock of the acquired corporation, stock of the parent of the acquiring
corporation.
Public Law 90-622, approved October 22,1968, grants tax exemption
to a foreign entity for its earnings from participation in the global
communications satellite system.
Public Law 90-630, approved October 22,1968, allows farmers amortization deductions for assessments for depreciable property levied
by soil and water conservation or drainage districts and provides that
denial of tax-exempt status because of unreasonable accumulations of
income does not apply to an otherwise exempt inter vivos trust created
before January 1,1951, under certain conditions. I t also makes certain

1969 REPORT OF THE SECRETARY OF THE TREASURY

liberalization changes in losses during bottling and packaging permitted to be deducted in determining the tax on distilled spirits.
Public Law 90-634, approved October 24, 1968, amends section
103(c) (6) of the Internal Eevenue Code to permit a governmental
unit to elect, under certain conditions, exempt interest status for
industrial developnient bonds of up to $5 million face value.
Administration, interpretation, and clarification of tax laws

I n connection with the administration of the tax laws, the Treasury
Department, during fiscal 1969, issued 37 final regulations, 1 temporary
regulation, 29 notices of proposed rulemaking and four Executive
orders, relating to matters including alcohol and tobacco taxes.
Among the subjects dealt with in Treasury Decisions published
during the fiscal year were the computation of the percentage depletion deduction allowed against gross income from natural resources,
the integration of qualified pension plans with social security, social
security and withholding taxes on tips, advertising costs in political
convention programs, and returns filed directly with Internal Eevenue
Service centers.
Notices of proposed rulemaking still pending at the fiscal yearend
included those relating to interest on industrial development bonds
issued by State and local governments, the tax imposed upon unreasonable accumulations of earnings by corporations, and the special tax
imposed on personal holding companies.
Federal revenue sharing with the States^

I n his message to the Congress regarding tax reform on April 21,
1969, the President stated: "The gradual increase in revenues resulting
from repeal of the investment tax credit and the growth of the economy will also facilitate a start during fiscal 1971 in funding two high
priority programs to which this administration is committed:
—Eevenue sharing with State and local governments.
—Tax credits to encourage investment in poverty areas and hiring and training of the hard-core unemployed."
International tax matters

Legislation and regulations.—On January 17, 1969, final regulations were issued under section 482 (allocation of income between
related companies),'dealing with the valuation of services, thus completing these regulations except in the case of income from mineral
production.
1 The President in his Ang. 13, 1969, message to Congress presented the details of his
revenue sharing plan. The plan was incorporated in S. 2948, introduced in t h e Congress on
Sept. 23, 1969.

REVIEW OF TREASURY OPERATIONS

Also, on January 17, 1969, proposed regulations were issued under
the Foreign Investors Tax Act of 1966 dealing with income effectively
connected with a trade or business in the United States.
I n January 1969, regulations were issued under the revised income
tax treaty with France which became effective July 11, 1968.
I n April 1969, the President exercised his authority under the
Interest Equalization Tax Act and issued an Executive order lowering
the rate of tax from the interest equivalent of 1'14 percent to %
percent.
Tax treaties.—The interim inconie tax treaty with Trinidad and
Tobago, signed in 1966 was extended, through the exchange of diplomatic notes, for 1 year through December 31, 1969, pending the completion of negotiations on a full scale treaty between the two countries.
Negotiations on a new income tax treaty with Belgium were concluded during the year. The new treaty, when signed and ratified,
will replace the 1948 treaty between the United States and Belgium.
Negotiations were begun and substantially completed with Japan
on a new income tax treaty to replace the existing treaty with Japan,
signed in 1954.
Negotiations were initiated during the year on new income tax
treaties with Iceland, the Ivory Coast, and the three countries of the
East African Community—Kenya, Uganda, and Tanzania.
Agreement in principle was reached during the year with France
for the French Government to refund tax to U.S. shareholders receiving dividends from French corporations equivalent to the credit
{avoir fiscal) granted under French law to French shareholders.
Agreement was reached on an estate tax treaty with the Netherlands, and negotiations were begun on estate tax treaties with France
to replace the existing treaty signed in 1946 and with Israel.
Intemational organizations.—Treasury representatives participated
in the work of the Fiscal Committee of the Organization for Economic
Cooperation and Development ( O E C D ) , which included a reexamination of the provisions of the OECD's 1963 model income tax convention, in light of member countries' experiences with the provisions,
in order to make the model a more useful and relevant document.
Work also proceeded in the Conimittee on the developnient of uniform
withholding tax forms.
Treasury officials participated in a meeting of an ad hoc group of
experts on tax treaties between developed and developing countries,
which was convened under the auspices of the United Nations Economic and Social Council. The meeting provided a forum for a
clarification of the positions of the two groups of countries involved,
and considerable progress was made in developing approaches which
reconcile the differences in views.

1969 REPORT OF THE SECRETARY OF THE TREASURY

The U.S. delegation to the third annual meeting of the InterAmerican Center of Tax Administrators (CIAT) included representatives of the Treasury Department. The central theme of the
conference was "Planning in Tax Administration."
I n t e r n a t i o n a l Financial Affairs
The U.S. balance of payments

I n the first half of fiscal 1969 (July-December 1968) both summary nieasures of the U.S. payments position were in surplus, on
a seasonally adjusted basis, aniounting t o :
—$723 million on the liquidity basis; and
—$464 miilioii on the reserve transactions basis.
These circumstances reflected an unusual combination of favorable
developments in the capital account. Taking U.S. Government and
private U.S. capital outflows together, net of nonspecial long term
foreign capital inflows, the net capital outflow from the United States
was reduced to only $205 million. I n addition, U.S. receipts from
"special" medium term security purchases and deposits of foreign
governnients and international organizations were very large in this
period, totaling $1.0 billion. Also, an unusual, positive, "errors and
omissions" balancing item of $249 million may have been associated
with unrecorded capital inflows to the United States.
This unusual combination of positive capital account developments,
traceable in substantial part to the international currency and political
uncertainties abroad, the first-year effects of the mandatory 1968 U.S.
direct investment prograni, and foreign interest in the buoyant U.S.
stock market, more than offset a substantial deterioration in the
U.S. current account position. Thus, in the first half of fiscal 1969 the
capital accounts were in surplus by $1.1 billion, while the U.S. current account position was in deficit by $330 million. This situation
represented a marked, but in good part temporary, contrast to the
past, which showed, usually, current account surpluses and capital
outflows.
Most of the current account deterioration in July-December 1968
was in the U.S. trade accounts, which were adversely affected by
domestic strikes, and anticipation of strikes, as well as by the development of excessive,! inflationary demand pressures within the United
States. Payments of interest and dividends to foreign residents also
increased, reflecting higher U.S. interest rates and a larger volume of
foreign claims on U.S. residents.

REVIEW OF TREASURY OPERATIONS

I n the following 6 months (January-June 1969) the official reserve
transactions measure and the overall liquidity measure were heavily
distorted, in opposite directions, there was:
—a surplus of $2.4 billion on the reserve transactions basis; and
—a deficit of $5.4 billion on the liquidity basis.
representing a net $7.8 billion divergence for this half year in the two
sumniary measures.
Substantially, this large divergence between the two indicators of
our externah position reflects the differing treatment under these two
measurements of the unprecedentedly large short term Euro-dollar
borrowings—about $7.7 billion—by our domestic banks from their
branches abroad.
On the official reserve transactions basis these U.S. borrowings from
private foreigners are recorded as a capital receipt (a plus item) by
the United States.
On the overall liquidity basis, such short term borrowings are recorded along with changes in our gold holdings, convertible currencies,
and I M F position, as a "below-tlie-line" element financing a deficit,
rather than a capital receipt.
Both nieasures significantly reflect distorting—and possibly temporary—effects attributable to the shift within the United States to
unusually tight financial market conditions.
The large J a n u a r y - J u n e adverse liquidity balance reflected in part
ail outflow of private U.S. capital in response to the high interest
rates on Euro-dollar deposits associated with the unprecedented
volume of Euro-dollar borrowing by U.S. banks.
The substantial surplus on official reserve transactions during the
J a n u a i y - J u n e period reflected the effects of this same demand of U.S.
banks for Euro-dollar funds in attracting to the Euro-dollar market
not only dollars currently passing into foreign hands as a result of
our liquidity deficit, but also dollars previously held in foreign official
accounts.
On merchandise trade, a surplus of $2.1 billion for fiscal 1968 was
followed by a surplus of only $178 million in the fiscal year 1969. The
last three quarters of fiscal 1969 were in deficit.
This erosion of U.S. net earnings on commodity trade reflected both
some special circumstances during fiscal 1969, and the cumulative effects of the excessive demand pressures within the United States.
Excess domestic demand has spilled over into unusually large increases in U.S. imports; and the persistent inflationary forces set in
motion by such excess demand have also had an adverse impact on
U.S. price and cost competitiveness.

1969 REPORT OF THE SECRETARY OF THE TREASURY

A dock workers strike from late December through early March
in east coast and gulf ports affected the U.S. trade balance unfavorably,
with exports being affected relatively more than imports.
Operations under the Canadian Auto Agreement also contributed
to the decline in the fiscal 1969 trade balance.
On travel account, including net tourist and business payments for
transportation as well as expenditures abroad, the U.S. deficit in fiscal
1969 was $1.9 billion, with no significant change between the first and
second halves. Compared with fiscal 1968, U.S. net expenditures on
travel for 1969 were down by $153 million, reflecting among other
factors the return to a more normal situation after Expo 67 in Montreal, whicii had attracted an unusually large number of American
tourists to Canada during calendar year 1967.
On military account, representing the net of U.S. military expenditures abroad and U.S. military sales, net expenditures in the second
half of the fiscal year 1969 were $1.7 billion. For the full fiscal year
net military expenditures abroad were $3.2 billion, about the same as
fiscal 1968, a $258 million rise in U.S. receipts from foreign governments in connection with military sales being slightly exceeded by a
rise in U.S. payments.
On other current account items (principally private and Government receipts and payments of investment income; private remittances
and Government grants and pensions; and freight and other miscellaneous services) the United States had net receipts of $1.9 billion
in the first half of the fiscal year and $2.0 billion in the second half;
this compared with net earnings of close to $4.2 billion in fiscal 1968.
Particularly important were increases in U.S. income on direct
investments, and in U.S. payments of income on foreign long and short
term capital held in the United States. The increases in foreign income
from investments here reflects both the increase in the size of such
investments and higher rates of return.
Taking the current account as a whole, including trade, travel, military expenditures, investment income, other services, and U.S. Government grants and transfers, the U.S. deficit in fiscal 1969 was $1.0
billion, conipared with a surplus of $1.1 billion in the previous fiscal
year.
During fiscal 1969, the current account deficit increased from $0.3
billion in the first half, to $0.7 billion in the second.
On the capital account, the recorded U.S. position shifted from
a very favorable surplus of $0.8 billion in the first half of fiscal 1969,
to a deficit of $2.6 billion in the second half, taking Government and
recorded private capital flows together. LTiirecorded transactions—the
errors and omissions residual (probably also reflecting capital move-

REVIEW OF TREASURY OPERATIONS

ments to an unusual degree during this period)—shifted from an inflow of $250 million in the first half of fiscal 1969 to an outflow of
$2.1 billion in the second half. The net balance on these unrecorded
flows plus the recorded capital accounts showed a surplus in the first
half of the fiscal year of $1.1 billion, and a deficit of $4.6 billion in
the second half.
Total reported outflows of private U.S. capital (on direct investment, bank credits to foreigners, U.S. transactions in foreign securities,
and nonbank credits to foreigners, including short term funds held
abroad by U.S. corporations) were $2.8 billion in the first half of
fiscal 1969 and $3.3 billion in the second half. I n comparison, the outflow of such private capital was $1.1 billion the year before.
Gross direct investment outflows rose substantially in the course of
fiscal 1969—from $1.5 billion for July-December 1968 to $2.0 billion
for the J a n u a r y - J u n e 1969 period. However, some of these outflows
were financed by funds obtained from the sale of U.S. corporate
securities to foreign residents; netting such funds against gross outflows, actual use of U.S.-source funds for direct investment purposes
rose from about $1.0 billion in the July-December 1968 period to $1.7
billion in the J a n u a r y - J u n e period. This increase, however, reflected
the fact that Jul3^-December outflows were substantially reduced by
U.S. corporations, to assure their compliance with the 1968 mandatory
ceiling on investment outflows. As some corporations at the end of
calendar year 1968 were not in a position to determine the size of their
transactions subject to the ceiling before their accounts were closed
for that year, their net outflows from the United States may have been
abnormally reduced at the yearend and subsequently increased again.
Capital outflows reported by U.S. banks were $210 million in the
first half of fiscal 1969 and $404 million in the second half, due entirely
to increased short term credits. F o r the fiscal year as a whole, short
term bank claims on foreigners increased by over $900 million, compared with small reductions the year before. Much of the recent U.S.
outflow was focused on the April-June 1969 period and apparently
was associated to a significant degree with the $2.1 billion surge in
U.S. exports in that period from the strike depressed January-March
level. A substantial part of the increase in bank claims was in trade
acceptances and collections.
Nonbank claims on foreign residents (including short and longterm
credits, funds held abroad in short term form by U.S. corporations,
and net short term claims of U.S. brokerage concerns on foreign residents) increased by $268 million in the July-December 1968 period
and $134 million in the J a n u a r y - J u n e 1969 period. These outflows
were markedly lower than the $1.4 billion outflow recorded for the

1969 REPORT OF THE SECRETARY OF THE TREASURY

fiscal year 1968. The reduction was focused largely on short term U.S.
corporate claims on foreigners, whicii had been reduced markedly
after mid-1968. These short term U.S. corporate claims substantially
represented the proceeds of long term security issues sold by U.S.
corporations to foreign residents to finance U.S. corporate direct investment abroad; pending the direct investment expenditures, a substantial part of the funds had been held in short term form abroad.
With the change in financial conditions here and abroad, such short
term corporate holdings abroad were drawii down, not only for use
for direct investment abroad but also, in part, for use domestically, as
conditions within the United States tightened.
U.S. purchases iof foreign securities were $800 million in the first
half of fiscal 1969 and $750 million in the second half. These net purchases were, substantially, acquisitions of lET-exempt new issues of
Canadian bonds. On redemptions and other transactions in outstanding foreign securities, the United States continued to experience net
capital inflows. However, these inflows fell to $35 million in the second half of the fiscal year. The reduction in net inflows probably was
associated with a number of factors, including speculative U.S. purchases of foreign mining shares, the increasing attractiveness of some
foreign equities, particularly Japanese and those of foreign firms participating in the Alaskan north slope oil discovery. The reduction of
the l E T rate on April 4,1969, may also have been a factor.
Net U.S. Government capital transactions, including foreign repayments of past loans and nonspecial capital receipts associated with
specific transactions, were about $450 million in the first half of fiscal
1969, and $660 million in the second half, a substantial reduction
conipared with the $1.9 billion net outflow on these accounts in the
prior year.
i
U.S. Government and other special receipts of foreign capital (including international organization purchases of U.S. agency obligations, intemational organization and foreign govemment purchases
of long term baiik certificates of deposit, and purchases of special
Treasury securities not associated with specific transactions) were
about $400 million in fiscal 1969. However, there was a sharp turnaround during the course of the fiscal year, from inflows of $1.0 billion
for the July-December 1968 period to outflows of $0.6 billion for
J a n u a r y - J u n e 1969. I n part, this change may reflect the drain of foreign official dollar holdings to finance private foreign investments in
the Euro-dollar market; it also reflects U.S. emphasis on a more fundamental strengthening of the U.S. payments structure.
On other foreign capital (including particularly foreign purchases
of U.S. stocks and corporate bonds and foreign direct investment in
the United States, and excluding special transactions), the United

REVIEW OF TREASURY OPERATIONS

States had a capital inflow of $5.1 billion in fiscal 1969, a further increase over the $3.8 billion inflow of the year before. However, this
inflow decreased during the last half of fiscal 1969. This may have
reflected the effects of continued decline over most of the period in
prices of U.S. stocks, which had attracted substantial foreign purchases during the 1968 market rise; the considerable uncertainty during that period about the fate of the tax surcharge and, thus the
prospects for longer term U.S. interest rates; and the very high Eurodollar market yields on short term dollar deposits which, in this unusually uncertain econoniic situation, offered an attractive temporary
alternative for investible funds. Also, sales of U.S. corporate securities
abroad for direct investment purposes fell sharply during the January-June period.
The framework for a new balance-of-payments policy was set forth
on April 4, 1969, in a statement by President Nixon on the balance of
payments.^ The objectives of that policy are to create the conditions
that make it possible to rebuild the U.S. trade surplus by restoring
stable and noninflationary econoniic growth to the U.S. econoniy, and,
ultimately, to dismantle the network of controls. As an initial step
toward the latter goal,. on April 4 the l E T was reduced from an
effective rate of I14 percent to three-quarters of 1 percent; the controls
on foreign direct investment were relaxed somewhat; and the Federal
Eeserve program was modified to provide more flexibility for commercial banks, particularly smaller and medium sized banks, to finance
U.S. exports.
The international monetary system

Fiscal year 1969 was marked by progress toward the establishment
of a facility for Special Drawing Eights ( S D E ) , as a number of
countries ratified the S D E Amendment to the Articles of Agreement
of the I M F . While there were two speculative flurries on the world's
foreign exchange markets, the two-tier gold market was consolidated
and gold speculation did not beconie an important part of these flurries.
I n the last half of fiscal 1968 the overwhelming majority of the
International Monetary Fund's Governors agreed on the text of the
proposed amendment to the Fund's Articles of Agreement. I t was then
transmitted to member governments for the necessary action to permit
formal acceptance of the proposed amendment and participation in the
new Special Drawing Eights facility. On July 15, 1968, the Secretary
of the Treasury formally notified the Fund that (a) the United States
accepted the proposed amendment and (b) the United States undertook all of the obligations of a participant.^ Throughout the year, other
1 See exhibit 40.
- See exhibit 51.

19 69 REPORT OF THE SECRETARY OF THE TREASURY
U.S. balance of payments, fiscal years, 1968-69
[In millions of dollars]
Fiscal y e a r 1969
Fiscal
year
1968 1

Trade

Seasonally a d j u s t e d
Full year i J u l y - D e c . J a n . - J u n e
1968
1969

2,132

178

238

31,653
-29,521
-2,030

34,343
-34,165
-1,877

17,262
-17,024
-935

17, 057
-17,167
-940

1,947
-3,977
-3,184

2,195
-4,072
-3,223

1,039
-1,974
-1,542

1,158
-2,098
-1,672

1,252
-4,436
6,011

1,510
-4,733
6,047

770
-2,312
3,098

749
-2,421
2,936

Receipts
'
Payments
o t h e r services a n d transfers, i n c l u d i n g G o v e r n m e n t g r a n t s .

8,605
-2,594
—1,858

9,513
-3,466
—2,126

4,617
-1,519
—1,189

4,906
- 1 , 970
-934

C u r r e n t A c c o u n t T o t a l I n c l u d i n g Unilateral Transfers
Direct investment
(Of w h i c h , financed b y t l . S . corporate b o n d issues
a b r o a d , i n c l u d e d in t h e " F o r e i g n c a p i t a l " line
below)3
Bank claims.•

1,071
-3,408

-1,001
-3,529

-330
-1,545

-720
-2,029

(-373)
144

(-860)
-614

Short t e r m
Longterm
N o n b a n k claims
Short t e r m
Longterm
U . S . t r a n s a c t i o n s in foreign securities

32
112
-1,420
-1,373
-47
—1,249

-944
330
-400
-131
-269
—1,541

-379
169
-268
-92
-176
—792

-565
161
-134
-41
-93
-749

Newissues
<.
.-.
O u t s t a n d i n g issues a n d r e d e m p t i o n s
U . S . G o v e r n i n e n t capital, n e t
F o r e i g n capital (excluding l i q u i d liabilities a n d " s p e c i a l "
receipts)
" S p e c i a l " receipts of foreign c a p i t a H
E r r o r s a n d omissions
B a l a n c e on l i q u i d i t y basis, seasonally adjusted
Less: seasonal a d j u s t m e n t
B a l a n c e on l i q u i d i t y basis (seasonally u n a d j u s t e d )
B a l a n c e on oificial reserve t r a n s a c t i o n s b a s i s : ^
Seasonally a d j u s t e d . . !
N o t seasonally a d j u s t e d
B a l a n c e on l i q u i d i t y basis (seasonally u n a d j u s t e d , signs
reversed)
Increase in s h o r t t e r m T r e a s u r y a n d b a n k i n g liabilities
t o f o r e i g n e r a n d in foreign holdings of m a r k e t a b l e
U . S . G o v e r m n e n t b o n d s a n d notes

-1,628
379
-1,873

-1,700
159
-1,113

-917
125
-452

-784
35
-657

3,820
784
—1,119

5,082
405
—1,865

—3,257

—4,575

3,062
1,010
249
723
393
330

2,020
-614
-2,077
-5,364
-459
- 4 , 905

212

2,921

464
—3

2,386
2,924

3,257

4,575

-330

4.905

2,609

6,714

1,427

5,287

Exports.—.
Imports
T r a v e l (including fares)2...
Receipts
Payments
Military

Receipts
Payments
Dividends and interest

Of w h i c h :
T o foreign holders, o t h e r t h a n official
T o foreign official holders
N e t sales of n o n m a r k e t a b l e , m e d i u m t e r m convertible
securities
Decrease in U . S . m o n e t a r y reserve assets
Of w h i c h :
I M F gold t r a n c h position
C o n v e r t i b l e currencies
Gold
1

(5,034)
(-2,425)
437
211
(-536)
(-1,741)
(2,488)

(8,383)
(-1,669)
-145
—1,994
(-646)
(-876)
(-472)

(-308)
-404

(-552.2)
-210

(868)
(559)

(7, 515)
(-2,228)

-110
—1,647

-35
-347

(-387)
(-1,049)
(-211)

(-259)
(173)
(-261)

> Seasonally a d j u s t e d half-fiscal-year d a t a do n o t a d d t o full fiscal y e a r d a t a . Seasonal a d j u s t m e n t factors
were n o t forced.
2 F a r e s are e s t i m a t e d for 1969.
3 D o e s n o t i n c l u d e all U . S : corporate b o r r o w i n g a b r o a d t o finance U . S . direct i n v e s t m e n t a b r o a d ;
4 " S p e c i a l " receipts of foreign c a p i t a l are defined here t o i n c l u d e i n t e r n a t i o n a l organization p u r c h a s e s of
U.S. agency o b h g a t i o n s , p u r c h a s e s of m e d i u m t e r m b a n k certificates of deposit b y i n t e r n a t i o n a l organizations a n d foreign g o v e r n m e n t s , p u r c h a s e s b y foreign g o v e r n m e n t s of special n o n m a r k e t a b l e T r e a s u r y
securities n o t associated w i t h specific t r a n s a c t i o n s , a d v a n c e p a y m e n t s on m i h t a r y sales, a n d n e t extensions
or r e p a y m e n t s of U . S . G o v e r n m e n t credits financing m i l i t a r y sales.
5 B a l a n c e on official reserve t r a n s a c t i o n s basis e q u a l s b a l a n c e on l i q u i d i t y basis m i n u s changes in h q u i d
dollar liabilities t o foreigners o t h e r t h a n official n a t i o n a l i n s t i t u t i o n s p l u s changes in certain n o n l i q u i d liabilities t o official n a t i o n a l i n s t i t u t i o n s .
S O U R C E . — D e p a r t m e n t of C o m m e r c e , " S u r v e y of C u r r e n t B u s i n e s s , " J u n e a n d S e p t e m b e r 1969.

REVIEW OF TREASURY OPERATIONS

countries notified the Fund of their acceptance and deposited instruments of participation. The amendment entered into force on July 28,
1969, when the requirement was met that three-fifths of the Fund's
niembers (67 countries) representing at least 80 percent of the total
voting power notify the Fund of their acceptance. The final step preliminary to establishment of the Special Drawing Eights facility was
completed shortly thereafter, when countries representing 75 percent
of the Fund's quotas deposited instruments of participation. Late in
fiscal 1969, the major industrial countries began to discuss the need for
activitation of the S D E facility. I t was generally agreed that early
activation of the facility in significant amounts Avould be beneficial to
the international monetary system.
The last half of fiscal 1968 was also marked by the dissolution of
the "gold pool" and the institution of the two-tier gold system. The
drain on the gold reserves of monetary authorities ceased. Despite retention by South Africa of a substantial part of new South African
gold supplies, the commodity gold market was not unduly active. The
market price varied between $36.70 and $42.60. During the Annual
Meeting of the International Monetary Fund, the Central Bank Governors of Belgium, Canada, Germany, Italy, Japan, the Netherlands,
Sweden, Switzerland, the United Kingdom, and the United States
met and reaffirmed their support of the Washington Communique of
March 17,1968. They also agreed on a common position to reach agreement with South Africa on this position. While discussions with the
South Africans continued, no agreement was reached during fiscal year
1969.
The Ministers and Central Bank Governors of the Group of Ten met
during the Annual Meeting of the International Monetary Fund, as is
customary. The principal agenda item was the midterm review of the
General Arrangements to Borrow ( G A B ) . The participants agreed
that no changes in the GAB were necessary in the last 2 years of its
current 4-year term. The Ministers and Governors instructed their
Deputies to continue their regular meetings in order to keep the functioning of the international monetary system under close review. Dr.
Schiller, Minister of Economics of the Federal Eepublic of Germany,
was elected Chairman of the Group of Ten for the following year. See
exhibit 33.
During September prior to the Fund's annual meeting, selling pressure on the French franc was renewed, after a lull during the summer.
This reflected some uncertainty as to whether the official franc parity
would be maintained in light of the large wage increases that had been
363-222—70

196 9 REPORT OF THE SECRETARY OF THE TREASURY

negotiated following the "events of May." The pressure was accentuated by rumors that the Deutsche mark would be appreciated. Selling
pressure on the franc and demand for Deutsche marks reached a crescendo in mid-November. Sterling also became subject to selling pressures. To prevent accelerating losses of reserves, the major European
exchange markets were closed beginning November 20, and a special
meeting of the Group of Ten was called by Chairman Schiller.
The primary obj ecutive of the United States, supported by the other
Ministers, was to obtain assurances that the pressures of the crises
would not result in any excessive exchange rate adjustment that would
seriously undervalue any currency and introduce the threat of cumulative or competitive devaluations.
The decisions associated with the November meeting did not result
in any immediate exchange rate adjustments although the Ministers
agreed that a moderate devaluation of the French franc would not
be harmful to the system. The Gernian authorities proposed, as their
principal contribution to reducing the German surplus, an adjustment
in border taxes having effects somewhat similar to a 4-percent revaluation of the Deutsche mark but applicable only to trade in physical
goods. They estimated that this measure would reduce Germany's
trade surplus in 1969 by about one-fourth. The French decided on
November 23, to maintain the value of the franc without change.
France also announced measures of internal restraint, restored tight
exchange controls, and made limited adjustments in border taxes designed to strengthen its trade position. At the same time, a large multilateral credit arrangement, amounting to $2 billion, was established
by the monetary authorities of the Group of Ten, Switzerland, Norway, Denmark, and the Bank for International Settlements, to support
the French franc. The authorities of the United Kingdom introduced
a system of import deposits, increased internal taxation, and imposed
additional credit restraints as a means of assuring their balance-ofpayments objective of a substantial surplus by the end of 1969. See
exhibits 33 and 36.
Foreign exchange operations^

Twice during the fiscal year the international monetary system
was severely strained by massive movements of funds, in November
1968 and again in May 1969, when it appeared to the market that parity
changes in one or more of the major foreign currencies were imminent.
I n contrast with the previous year, there was no significant speculation on a change in the $35 per ounce monetary price of gold, and no
recurrence of the rush by private parties to buy gold. The dollar,
1 Detailed reports on Treasury and Federal Reserve foreign exchange operations are
contained in the March and September Issues of the "Federal Reserve Bulletin" and the
"Monthly Review" of the Federal Reserve Bank of New York.

REVIEW OF TREASURY OPERATIONS

because of its iniportance in financing world trade, and its widespread
use in exchange transactions between other currencies, and by foreign
monetary authorities to maintain the stability of their own currencies, was inevitably involved in the shifts of funds across the exchanges.
The foreign exchange operations of U.S. authorities—the Treasury and
the Federal Eeserve System—mainly supplemented those of other
countries, absorbing dollars temporarily flowing to some while supporting currencies of others experiencing speculative outflows and
reserve drains which threatened the stability of the monetary system.
On the whole, the dollar showed increasing strength in the markets
during the period. Eestrictive credit policies undertaken to combat
inflation in the United States led to short term capital inflows, which
were a major factor in the improvement of the balance of payments
as measured on an official settlements basis. Several other countries,
in order to stem capital outflows, prevent drains on monetary reserves,
and support their currencies in the exchange markets, pursued comparable monetary policies, and as a result there was a sharp increase
in world interest rates, particularly in rates in the Euro-dollar market.
The stronger position of the dollar permitted the United States
to restore its full gold tranche position in the International Monetary
Fund, for the first time since the United States began drawing on the
Fund in 1964, by a series of voluntary repayinents late in 1968; ^
this, in effect, added dollars to the reserves of countries whose currencies were used by the United States for repayments to the Fund.
Following repayment, the United States has gone on to build up a
creditor position in the Fund, further helping to meet the growing
requirements for dollars on the part of other countries and strengthening the overall monetary reserves of the United States.
The principal cause of the uncertainties in the exchange niarkets
was the widespread anticipation of a revaluation of the German mark.
The prolonged and large surplus on current account in the German
balance of payments, combined with the difficult problenis experienced
by a number of other countries in overcoming deficits, called increasing attention to the question of maintaining present currency parities.
Anxieties had been heightened by the French civil disturbances in
May 1968 and the speculative drain on the French franc which followed. I n July the Federal Eeserve increased its swap facility with
the Bank of France from $100 million to $700 million, in connection
with the establishment of an additional $700 million of Central Bank
credit lines provided France by other countries. During the summer
and early fall, France made periodic use of these credit facilities,
and in addition sold gold to finance its balance-of-payments deficit
1 See exhibit 53.

19 69 REPORT OF THE SECRETARY OF THE TREASURY

and obtain dollars to support the franc in the market. The Bank of
England also made periodic drawings on its credit facilities, as pressures on sterling mounted from time to time.
The British balance of payments had been slow to show recovery
following the devaluation of sterling in November 1967. Because
of the special vulnerability of sterling as a reserve currency, negotiations were undertaken on an arrangement, which became effective
in September 1968,1 providing a $2 billion credit line to the Bank of
England during a 3-year period to compensate for declines in sterling
holdings in the Overseas Sterling Area. Following a 2-year grace
period, repayments of any outstanding credits will be made over the
succeeding 5-year period. I n connection with this arrangement, the
Bank of England agreed to guarantee the dollar value of the bulk of
sterling reserves held by such countries. The U.S. commitment under
this arrangement, $650 million, has been undertaken b}^ the U.S. Treasury; none of this was drawn upon during the period. The British
authorities, however, made some use of other resources available under
the arrangement, most of which was repaid by June 1969.
The Belgian franc, the Netherlands gTiilder, and the Italian lira also
tended to weaken in the exchange markets during the summer and
early fall of 1968, while the Swiss franc and the German mark maintained very strong positions. To help finance the cost of supporting
their currency, the Belgians utilized funds drawn on their swap arrangement with the Federal Eeserve for the first time since 1963.
The Federal Eeserve, in turn, drew on its arrangement with the Swiss
National Bank in order to cover inflows to Switzerland. I n October,
the Federal Eeserve and the Bank of Italy increased their reciprocal
swap arrangement from $750 million to $1 billion.
The foreign exchange crisis of November 1968 involved primarily
speculation on a devaluation of the French franc and a revaluation of
the German mark. This was dealt with by a decision on the part of
the Gernian authorities to impose a combination of border taxes on
exports and tax rebates on imports; a French pronouncement that the
franc would be defended at its present level, aided by exchange controls
and a new $2 billion credit package provided by the other members of
the Group of Ten; ^ and by the institution of new domestic credit and
tax nieasures by the United Kingdom to reinforce sterling, which was
also subjected to pressure by the speculative flows into DM.
At the height of the crisis there were substantial drawings by the
Bank of France and the Bank of England under various credit arrangements. The Federal Eeserve drew on its swap line with the
1 As p a r t s of this credit package t h e Federal Reserve increased its swap line with the
Bank of F r a n c e from $70,0 million to $1 billion, and the Treasury provided a $200 million
line of credit to the Bank of F r a n c e . See exhibit 36 for the Communique issued by the
Group of Ten,

REVIEW OF TREASURY OPERATIONS

Bundesbank to finance sales of DM, both spot and forward in the
New York market, and also increased its drawings on the Swiss
National Bank to cover flows to Switzerland. Subsequently, the Bundesbank encouraged reflows to the Euro-dollar market by selling dollars to Gernian banks on a swap basis with forward cover provided at
preferential rates. Sudi operations, as well as long term German capital
outflows, eased the pressures on the DM in the market for several
months and enabled the Treasury and the Federal Eeserve to purchase
DM. I n view of the strength of the dollar in terms of the Belgian franc,
the Netherlands guilder, and the Italian lira, the Treasury acquired
these currencies, in the market as well as directly from the Central
Banks, for use in restoring the U.S. gold tranche position in the International Monetary Fund.
During the first months of 1969 the French and British gradually
reduced their outstanding drawings on the United States and other
nionetary authorities. I n pait, French repayments were financed by
further gold sales. The Treasury and the Federal Eeserve, meanwhile,
continued to purchase both German marks and Italian lira in the
market; DM were used to repay Federal Eeserve indebtedness and to
redeem a DM-denominated Treasury security held by the Bundesbank.
The Federal Eeserve swap indebtedness to the Swiss National Bank
was liquidated by the use of Swiss francs obtained by the Treasury
from the issuance of special franc-denominated securities to the Swiss
National Bank and to the Bank for International Settlements and
by the sale of gold to Switzerland.
There had been some uncertainty, evident in the private gold markets, concerning the policy of the new U.S. administration regarding
the price of gold. These uncertainties were relieved, however, when
Secretary Kennedy, with the approval of the President, declared
that the United States saw no need or reason to change the monetary
price of gold and would not seek an answer to its problems by such an
action.
As reflected in London, prices in the gold markets—which have been
free of official intervention since the so-called two-tier system was
established in Marcli 1968—varied between roughly $38 and $44 per
ounce. Prices were quite steady around $39 until the foreign exchange
crisis of November 1968, rose gradually to over $43 by the time of
the May crisis, and receded to $41 per ounce by the end of June. There
were few periods of abrupt change, trading volumes at no time approached those often experienced prior to Marcli 1968, and the gold
market was little influenced by exchange market developments.
I n April, pressure again developed on the French franc. President
de Gaulle announced that he would resign if the French electorate
rejected constitutional changes submitted to referendum on April 27.

1969 REPORT OF THE SECRETARY OF THE TREASURY

The referendum was defeated. President de Gaulle resigned, and the
franc weakened fuither. Shortly thereafter, official statements in Germany, suggesting that consideration would be given to DM revaluation
in connection with currency changes by other countries, led to a massive
speculative flow of funds to Germany felt by countries throughout the
world. The scramble for DM added further to the pressure on the
Euro-dollar market, because of the demand for dollars with which
to purchase DM. I
A decision, announced by the German Government on May 9, 1969,
that the DM would not be revalued once again halted the speculative
flow and encouraged some reflows, aided, as earlier, by Bundesbank
swap operations with the German banks. The exchange markets nevertheless remained nervous and uncertain.
During the May crisis the United Kingdom, Belgium, Denmark,
Austria, and France all drew on their credit lines with the United
States and other authorities, and France sold additional amounts of
gold. Also, the Bundesbank recycled some of the speculative flows
under arrangements with other Central Banks. The Treasury sold
DM in the market and again used some of its DM balances to redeeni
an outstanding Treasury security held by the Bundesbank. The
French franc remained unsteady until late in June, when it firmed
in response to the announcement of the formation of the new Cabinet
by President Pompidou, and the French market was generally calm
during the succeeding weeks leading up to the announcement of the
French devaluation on August 8.
During the fiscal year, outstanding nonmarketable U.S. Treasury
medium term securities issued to foreign monetary authorities increased by $763 million to $3.4 billion.^ Largest issues were to the
Bundesbank which, under arrangements to neutralize the balance-ofpayments effects of U.S. military expenditures in Germany, invested
the equivalent of $125 million in each quarter in 4i/^-year, DM-denominated Treasury notes. Under the reserve agreement with the Bank
of Canada, a net $170 million of dollar-denominated Treasury notes
was issued to the Canadian authorities.
The U.S. gold stock increased during the fiscal year by $472 million
to $11,153 million, primarily as a result of purchases from France
and the cessation of sales in the private market following establishment of the two-tier system in Marcli 1968. The general shortage of
dollars felt by foreigTi monetary authorities during this period was
also instrumental in curbing official deraands for gold. Total U.S.
reserve assets rose to $16,057 million, because of increases also of $876
million equivalent in convertible foreign currencies and $646 million
in the U.S. reserve position in the International Monetary Fund.
1 Including $125 million equivalent of DM-denomlnated notes Issued to a group of German
commercial banks in June 1968.

REVIEW OF TREASURY OPERATIONS

The International Monetary Fund^

Fiscal year 1969 was relatively quiet for the Fund conipared to the
previous year when currency sales (drawings) reached a record level,
there were 17 clianges in member's par values, and the proposed amendment to the Fund's Articles of Agreement was negotiated and written. I n fiscal 1969 the Fund continued its study on the stabilization
of prices of primary products, in response to resolutions adopted at
the 1967 annual meeting in Eio de Janeiro. In June 1969 the Executive
Directors adopted a decision establishing a facility for assistance in
connection with the financing of international buffer stocks, and transmitted a report to the Governors dealing with the scope for action by
the Fund. The new facility provides that members may make drawings
from the F u n d up to the equivalent of 50 percent of their quota for
the purpose of buffer stock financing. Other features are similar to,
though not identical with, the compensatory financing facility.
During fiscal 1969, the Fund's currency sales (drawings) totaled the
equivalent of $1.1 billion. A drawing by the United Kingdom under
its standby arrangement accounted for $500 million of this. The next
largest drawing was by South Africa which requested its gold tranche
and super-gold tranche, amounting to $128 million. The chief currencies drawn were U.S. dollars ($386 million), Deutsche marks ($127
million), and Canadian dollars ($136 million). Eepurchases during
the year totaled $1,668 million, all in currencies other than the U.S.
dollar. From the beginning of operations to June 30, 1969, cumulative drawings were the equivalent of $18.1 billion, of whicii $6.2
billion was in U.S. dollars. Eepurchases to June 30, 1969, aggregated
$9.6 billion, of which $3.6 billion was in U.S. dollars.
The U.S. indebtedness to the Fund was wiped out in Noveniber
and December 1968, during which time voluntary repurchases by
the U.S. Treasury in the currencies of Belgium and Netherlands
restored our full gold tranche position of $1,290 million. Since then,
further drawings in U.S. dollars have resulted in the United States
becoming a Fund creditor. As of June 30, 1969, the U.S. reserve
position in the Fund amounted to $1,549 million. This included the
U.S. gold tranche of $1,290 million and a super-gold tranche of $259
million.
Once again there was little gain during the year in liberalization
of exchange restrictions. The Fund continued to expand its technical
assistance programs, particularly to meet the needs of its more recent
niembers, many of whicii have just gained independent status. Consultations were held with both Article X I V (inconvertible currency)
and Article V I I I (convertible currency) countries on economic and
financial matters of mutual interest and concern.
1 Fuller discussions of the activities of the International Monetary Fund and the other
interested financial organizations are Included in the National Advisory Council's annual
report for the fiscal year 1969.

1969 REPORT OF THE SECRETARY OF THE TREASURY

The international bank group

The International Bank for Eeconstruction and Development and
its affiliates, the Intemational Development Association ( I D A ) , and
the International Finance Corporation ( I F C ) , committed a total
of about $1.9 billion during the fiscal year-^almost 90 percent greater
than in fiscal year 1968—for financing economic development projects in the member countries. The World Bank made new loans of
$1,399 million ($552 million more than in the previous fiscal year),
mainly to less-developed countries for electric power, roads, railways,
education, agriculture, and industry. I D A credits also showed a sharp
increase to $385 million during the year compared with $106.6 million
in 1968 when arrangements for the second replenishment were at an
earlier stage. I F C investments, which are not guaranteed by governments, were made in private companies on a loan and equity basis to
support increased production of cement, steel, and fertilizer plants.
I n addition, commitments were made in development banking and
a range of other areas including tourism, petrochemicals, textiles, and
animal feed additives. The total, including underwriting commitments, was $92.9 million.
The loan operations of the World Bank are financed by capital
subscriptions, borrowing on financial markets, sales of participations,
repayments and earnings on loans and investments. During the year
the Bank's outstanding funded debt increased by $791.6 million to
the equivalent of $4,081 million. The debt includes 84 separate issues,
denominated chiefly in U.S. dollars ($2,770.5 million), Deutsche mark
($895.3 million equivalent)., and Swiss francs ($187 million equivalent) . There was one public issue in the United States during fiscal
1969 for $250 million (of which $70.9 million was sold under delayed
delivery arrangements). Public issues abroad were denominated in
Deutsche mark ($162.5 million equivalent), Swiss francs ($18.6 million
equivalent), and Kuwait dinar ($42 million equivalent). The Bank
also placed privately abroad bonds and notes totaling the equivalent
of $750.7 million (of which $398.5 million was denominated in deutsche mark). During the year outstanding d^bt was reduced through
retirement of dollar bonds and notes totaling $330 million. I n addition,
securities denominated in other currencies were retired as follows:
Deutsche mark ($81 million equivalent), Belgian francs ($10 million
equivalent), Canadian dollars ($15.4 million), and Swiss francs ($35.1
million). There were also purchase and sinking fund transactions
amounting to $54.3 million.
As the World Bank sought funds in the New York market only
through its public offering of $250 million it was evident that the
Bank's efforts to raise capital in other financial markets met with
increased success. Proceeds of issues on the U.S. market continued

REVIEW OF TREASURY OPERATIONS

to be invested in longer term Treasury obligations until needed for
lending to Bank borrowers. The aggregate effect of IBED operations on the U.S. balance of payments during the year were heavily
favorable.
IDA credits are funded by member subscriptions and contributions,
grants from the net earnings of the World Bank, repayment of credits,
and earnings. IDA's usable resources, cumulative to June 30, 1969,
aniounted to $2,176 million of which Part 1 (developed) countries
contributed $1,817 million; IBED grants $285 million; and earnings
and contributions of Part I I countries, the balance. At the end of the
fiscal year only $5 million was uncommitted.
In Marcli 1968 agreement was reached in principle among Part I
members to provide additional resources to IDA in three annual installments of $400 million each to finance operations during the fiscal
years 1969-71. The U.S. share will be 40 percent or $160 million annually for 3 years. Public Law 91-14 authorizing U.S. participation
in this replenishment was enacted by the Congress and approved by
the President on May 23, 1969. In accordance with the agreed conditions, the IDA announced that the second replenishment would become effective on July 23,1969, following the receipt by IDA of formal
notification of U.S. agreement to participate. The arrangements for
the replenishment included balance-of-payments safeguards whicii
assure that there will be no adverse effects on the U.S. balance of payments resulting from the U.S. participation until at least the beginning of fiscal 1972 unless the United States voluntarily choose to
relinquish those safeguards at an earlier date.
Inter-American Development Bank

The 10th annual meeting of the Board of Governors of the IDB was
held in Guatemala City, April 21-25, 1969.^ (See exhibit 42.) The
Board discussed a broad range of policy issues, including the Bank's
operating policies, the state of the Alliance for Progress, economic
integration, and international trade and financial cooperation. Among
the resolutions adopted were ones recommending that members make
annual voluntary contributions to the IDB's Preinvestment Fund for
Latin American Integration and instructing the Executive Board to
carry out a study on "Financial Principles and Provisions Concerning Development in Effect in the Inter-American System."
In fiscal 1969, the Bank borrowed $230 million net in the United
States, Europe, Latin America,' and Japan. This compared with $64
million in the preceding fiscal year. The Bank's largest source of new
^ The U.S. delegation was headed by David M. Kennedy, Secretary of the Treasury and
U.S. Governor of the Bank. Charles A. Meyer, Assistant Secretary of State for InterAmerican Affairs and U.S. Coordinator, Alliance for Progress and Ralph mrschtritt, Deputy
to the Assistant Secretary for International Financial and Economic Affairs, U.S. Treasury
Department, served as Alternate U.S. Governors.

1969 REPORT OF THE SECRETARY OF THE TREASURY

borrowed funds in fiscal 1969 was Germany—with three offerings
totaling $75 million. The U.S. borrowing consisted of a public offering
in November 1968 of $70 million of 6% percent, 25-year bonds. Other
sources included: An $8.3 million bond sale in the Netherlands; a $13.7
million sale in Switzerland: a $24 million sale in Italy; a $5.8 million
sale in Austria; u new $10 million loan from J a p a n ; $11.1 million in
promissory notes from Finland; United Kingdom and Swedish bank
loans amounting to $5 million and $6.2 million respectively; and $32.4
million of short terin bonds sold in Latin America. As a result of the
above transactions, the Bank's funded debt on June 30 amounted to
the equivalent of $714.1 million (after sinking fund purchases), and
consisted of $395 million borrowed in the United States and the balance
in other markets.
The subscribed resources of the Bank's Fund for Special Operations
totaled $2,321.9 million equivalent as of June 30, 1969. The increase
during the year reflected payments to the Bank by member countries
under a $1.2 billion increase in the resources of the Fund for Special
Operations which became effective in December 1967. U.S. participation in this increase was authorized by the Congress under Public Law
90-88, approved September 22, 1967. The second payment by the
United States under this authorization, amounting to $300 million,
was made to the Bank in October 1968.
As of June 30, 1969, the Bank had approved net loans totaling approximately $3 billion from its own resources and those of the Social
Progress Trust Fund ( S P T F ) . Argentina, Brazil, and Mexico accounted for approximately $1.35 billion of the total. The estimated
cost of projects financed has greatly exceeded the amount of funds
committed. Loan disbursements of $1.5 billion were approximately 50
percent of new commitments through the end of fiscal 1969.
I n terms of the distribution of loans by purpose and source of funds,
approximately $1.3 billion, or 43 percent of total loan commitments
through June 1969 (including loans from other resources made available to the Bank) were channeled into two important productive sectors—industry and mining, and agriculture. Aniong other purposes,
$741 million.was approved for power and transportation projects,
$430 million for water supply and sewerage, and $323 million for the
expansion of housing facilities.
The Asian Development Bank ^

During the fiscal year 1969 the Asian Development Bank approved
11 loans amounting to $71.4 million equivalent from its Ordinary
Capital resources. This brought the Bank loans from Ordinary Cap^ For background on the establishment and early operations of the Asian; Development
Bank, see 1966, 1967, and 1968 annual reports, pp. 64-65, pp. 49-50, and pp. 01-52,
respectively.

REVIEW OF TREASURY OPERATIONS

ital resources as of June 30, 1969, to a total of 13 amounting to the
equivalent of $76.4 million, against which disbursements of $4.37 million were made. I n addition, the Bank approved its first loan from Special Funds resources in June 1969—a loan of $990,000 equivalent to
Indonesia for an irrigation project in Central Java. As of June 30,
1969, the Bank had approved 15 technical assistance projects in eight
countries at an estimated cost of $2.1 million.
On March 27, 1969, Hong Kong was accepted as a member of the
Bank, subscribing to $8 million of stpck. This raised the total subscriptions to $978 million and brought the total membership to 33,
of which 20 are countries of the region and 13 are nonregional
developed countries.
The third of the five U.S. $20 million installments on its paid-in
capital subscription was made during the fiscal year. I t consisted of
$10 million in cash and $10 million in the form of a noninterestbearing letter of credit, whicii may be drawn on in the future when required by the Bank for disbursement. Of the $489 million subscription
on paid-in capital, installments totaling $291.5 million had matured
as of June 30,1969.
I n September 1968 the Bank's Bo^ard of Directors formally established the "Consolidated Special Funds" of the Bank and adopted the
"Special Funds Eules and Eegulations" which constitute a framework
for the administration of such Special Funds. Japan, Canada, Denmark, and the Netherlands offered to contribute a total of $128.1 million to the Bank's Consolidated Special Funds, $33.1 million of which
was made available to the Bank as of June 30,1969. I n his message on
foreign aid of May 28,1969, President Nixon expressed his intention to
submit to the Congress a new proposal for a U.S. contribution to the
Bank's Consolidated Special Funds.
At the Bank's second annual meeting,^ held in Sydney, Australia,
April 10-12,1969,2 the Board of Governors set aside for Special Funds
operations 10 percent of the convertible currency portion of the Bank's
paid-in capital which had been paid by the members as of that date
($14,575 million).
As of June 30,1969, Canada, Denmark, Japan, and the United States
had agreed to contribute a total of $1.98 million to the Bank for technical assistance, against Avhich disbursements totaling $382,149 had
been made. I n addition, Finland, Germany, and the United Kingdom
agreed to contribute unspecified amounts of technical assistance; as
1 See exhibit 41.
2 David M. Kennedy, Secretary of the Treasury and U.S. Governor of the Bank headed
the U.S. delegation, which included Assistant Secretary of the Treasury for International
Affairs John R. Petty and U.S. Director of the Asian Development Bank Bernard Zagorin,
acting as Temporary Alternate Governors, and congressional advisors and other ranking
officials of the Department of the Treasury, the Department of State, and AID.

19 69 REPORT OF THE SECRETARY OF THE TREASURY

of June 30, 1969, the Bank had disbursed $60,264 from these
contributions.
'
.
Trade policy

With the successful completion of the Kennedy Eound tariff negotiation, increased attentioii has been given to the reduction and elimination of nontariff barriers to trade. The Contracting Parties to the
General Agreement on Tariffs and Trade (GATT) have established
committees on trade in industrial products and agriculture to examine
the barriers to trade and consider possible Avays to achieve their elimination. The Industrial Products Committee has developed an inventory
of nontariff barriers and engaged in an indepth discussion of the operations and effects of each country's barriers. The Committee at the
fiscal yearend was examining possible ways of removing these barriers. Department of the Treasury representatives have actively participated in these discussions as members of the U.S. delegation to the
G A T T meetings. The Agriculture Committee was engaged in a similar
exercise and Treasury also participated in policy formulation for those
nieetings.
I n an effort to remove barriers to U.S. exports, and thus aid in the
restoration of balahce-of-payments equilibrium, the U.S. Government
(including representatives of the Treasury) engaged in discussions
with the Government of J a p a n concerning that country's quantitative
restrictions on imports. These discussions will be continued into th©
fiscal year 1970.
The Treasury Department continued to take an active and leading
role in international discussions on the G A T T rules dealing with
border tax adjustment, i.e., the remission of indirect taxes on exports
and the levying of compensatoiy duties on imports. The special G A T T
working party, established at the request of the United States, has
examined the legislatiA^e history of the present rules, the practices of
countries making border tax adjustments, and the trade effects of the
present rules and practices. As the fiscal year ended, working party
consideration of possible Avays of eliminating existing inequities in the
rules was in progress.
A Treasury representative Avas also a member of the U.S. delegation
to the 25tli Session of the Contracting Parties to G A T T and A^arious
other G A T T committees and Avorking parties, as Avell as OECD meetings relating to governnient procurement and preferential tariff treatment for less developed countries.
Organization for Economic Cooperation and Development

The eighth Ministerial Council meeting of the Organization for
Economic Cooperation and Development (OECD) in Paris February

REVIEW OF TREASURY OPERATIONS

13-14, 1969, noted with satisfaction the accession of Finland to the
O E C D Convention. Against the background of strains in the monetary field in 1968, the Ministers called for the Organization to review,
and if possible improve, the effectiveness of its consultative procedures with respect to economic policies. They also instructed the
Organization to intensify its efforts, in consultation with other bodies,
to insure the effective functioning of the adjustment process. Under
Secretary of the Treasury for Monetary Affairs Volcker served on
the U.S. delegation.
With the change in administration. Under Secretary Volcker succeeded Frederick L. Deming as a member of the U.S. delegation to
the Economic Policy Comniittee ( E P C ) of the O E C D and as chairman of the U.S. delegation to its Working Party on Policies for the
Promotion of Better International Payinents Equilibrium (WorkingParty 3). I n December 1968 an experts' study was published on "Fiscal Policy for a Balanced Economy," which had been proposed by
the E P C . Besides reviewing economic and financial developments in
member countries. Working Party 3 examined in depth questions relating to the mutual consistency and appropriateness of balance-ofpayments patterns and objectives,
The Treasury Department also continued to participate actively
in the work of other bodies of the OECD, including the Develppment
Assistance Committee, Trade Committee, Committee for Invisible
Transactions, and Fiscal Committee. I n addition, a Treasury official
regularly represents the United States as an observer at the meetings
of the Managing Board of the European Monetary Agreement.
Treasury foreign exchange reporting system

The "Capital Movements" section of the monthly "Treasury Bulletin" Avas expanded and reorganized to provide a more complete and
useful presentation of the statistics collected by the Treasury on capital movement between the United States and foreign countries.
During the year surveys were conducted of foreign holdings of
U.S. Govemment bonds and notes and of short term direct borrowings by banks from foreigners. Special instructions were issued covering the reporting by securities brokers and dealers of new foreign
issues offered only to nonresidents of the United States and the reporting by nonbanking concerns of deferred payment letters of credit.
As part of the program of improving reporting on Treasury forms,
staff niembers visited several Federal Eeserve banks, which act as
agents of the Treasury in collecting the reports.

19 69 REPORT OF THE SECRETARY. OF THE TREASURY

Law Enforcement Policy
Shortly after the new administration took office, the urgent need
to strengthen the law enforcement functions of the Department became
evident. It is the second largest enforcement agency of the Federal
Governnient.
The proper enforcfMiient of the Federal laAvs is absolutely essential
if the Department of the Treasury is to carry out the responsibilities
assigned to it by the Congress. The role of law enforcement was immediately upgraded by delegating responsibility for it to the Assistant Secretary level, a presidentially appointed officer, in lieu of the
previous secretarially appointed special assistant. The General Counsel was directed to: take a more active role in the law enforcement
efforts, especially Avith the Departnient of Justice. The President, in
reviewing the budget submitted by the previous administration, determined greater efforts should be expended in the drive against
organized crime. So a budget amendment for $9.4 million was prepared providing for 1,200 additional personnel in 1970. The 1970 Appropriation Act also provided for the first time for a consolidated
Federal law enforcement training school.
It was intended that the initial steps taken early in this administration, but late in the fiscal year 1969, Avould provide the ingredients
for a more successful law enforcement program in Treasury. To
fulfill the responsibilities of the Department of the Treasury, it is
hoped that sufficient resources of the Goverment may be allocated
to the collection and protection of the revenue and the essential supportive role of laAV enforcement.

ADMINISTRATIVE

REPORTS

Administrative Management
Management improvement program

The Department realized $22.3 million and 2,013 man-years in
savings during fiscal 1969 from actions to improve management.
While not the result of management improvements, additional benefits amounting to $141.3 million flowed from legislative or administrative policy changes. The largest portion, $56 million, is a computed
interest saving from corporate tax law modifications enacted late in
fiscal 1968. These modifications had the effect of making corporations
more current in their tax payments by increasing the percentage of
estimated taxes to be paid and gradually reducing the amount of the
exclusion authorized in the payment of estimated taxes. Benefits of
$9.6 million are attributable to reductions in borrowing costs because
of requirements for the earlier deposit of withheld taxes whicii
resulted in the earlier availability of these funds. An additional $50.9
million in revenue resulted from the policy change in fiscal year 1968,
which authorized the melting of silver coins and the sale of this silver
by General Services Administration at the going market price instead
of at the former fixed monetary value. Net receipts from the sale of sets
of proof coins and uncirculated coins added $6.5 million to the general
fund.
Additional revenue of $10 million was received in the fiscal year
1969 from partial implementation of the I E S Individual Master File
Delinquency Check Program which enabled the SerAdce to select delinquent cases for concentrated collection effort in accordance with
their potential yield of taxes due the Government. Another $5.4 million
in additional revenue was realized from use by I E S of a computer
program for automatically selecting for examination those individual
income tax returns having characteristics indicating the greatest audit
potential. As a result of a new cooperative program for the exchange
of abstracts of tax audit inforniation with the State of New York, I E S
realized $2.5 million in assessed deficiencies from 25,000 returns.
Special studies and projects

The individual bureau reports which appear later contain details of
studies and projects carried on by the bureaus to promote economy and
efficiency. Among the studies conipleted at the departmental level Avere
those of the organization and management of the Office of Domestic
Gold and Silver Operations and of the Emergency Planning Program
to improve Treasury's state of emergency preparedness. A study Avas
also conducted to improve procedures to accelerate processing of cases
of alleged dumping of foreign products on the domestic market.
A comprehensive review and evaluation of Treasury participation
in the foreign technical cooperation progranis of the Agency for International Development was made by a group of prominent consultants.
Of particular significance in the Anal report that was prepared were
59
363-222—70

19 69 REPORT OF THE SECRETARY OF THE TREASURY

the frequent references to the benefits derived by less-developed countries from the advisory functions covering revenue systems and the
training of foreign participants in tax and customs administration
off'ered by Treasury bureaus. The report strongly recommended that
these efforts be given higher priority by A I D .
Considerable staff effort was devoted to preparation of briefing
niaterials to aid in the transition from the former to the current
Administration. I n keeping with the high priority established by
President Nixon on reorganization of governmental structure. Secretary Kennedy has initiated several special studies having the potential
of achieving financial economies and better administration in selected
Treasury programs„
Emergency preparedness

Documents Avere prepared to provide for coordinating the emergency
activities of Federal credit agencies, and for assuring the consistency
of these activities; Avitli resource allocation decisions. Emergency plans
Avere partially tested during a practice alert, in which the Secretary
participated.
Planning and program evaluation

Planning and program evaluation contributes to improved allocation
and utilization of the Department's budget resources through the
identification and analysis of alternative operational objectives and
management strategies for attaining them in terms of the relative costs
and benefits of alternative courses of action. Staff leadership, coordination, and direction are provided to the program planning and analysis
activities of the Department.
During the fiscal year 1969 this staff:
(1) Prepared the special analytical study "Coin Eequirements and
Capacity in the Seventies," reviewing the long term outlook for coin
demand and capacity as a basis for long term planning and management, with special reference to the potential contribution of the San
Francisco Assay Office ;
(2) Preparea special analyses of Treasury programs for the reduction of crime for Budget Bureau use in the final stages of review of
the President's Biidget for 1970, and for the Budget Director's preliminary review of 1971 budget requirements;
(3) Advised and consulted on the development of special analytical
studies by Secret Service and Internal Eevenue Service requested by
Bureau of the Budget;
(4) Coordinated and monitored on a Department-wide basis the
conduct of special analytical studies requested by the Bureau of the
Budget and the preparation by Treasury bureaus of the fourth annual
program and financial plan, together with supporting analytical
material, as a basis for determinations on fiscal year 1971 program
planning levels;
(5) Continued preparation of the periodic coin sample which provides a basis for estimating the rate of disappearance of coins from
circulation; and,
(6) Continued participation and monitoring of the study for the
determination of an optimum level of examination of mail packages
by the Customs Bureau.

ADMINISTRATIVE REPORTS

Financial m a n a g e m e n t ^

Budgeting.—Under the requirements of Public LaAv 90-364, stringent controls were exercised over obligations, outlays, and employment
levels. Appropriations initially provided by the Congress for fiscal
1969 were reduced by $23 million by establishment of reserves for
budgetary savings. The restriction on the filling of vacant positions—
at first limited to 75 percent, later to 70 percent permitted to be filled—
meant that during fiscal 1969 Treasury was without a total of 4,800
positions expected to have been available for conduct of Treasury
programs. This total consisted of 2,400 jobs that became vacant during
the year and the 2,400 new positions authorized by the appropriation
act. As a result, revenues were lost, backlogs were increased, quality
of service to the public was reduced, and law enforcement efforts
weakened. Controls were continued over size of motor vehicle fleets,
overseas employment, and overseas travel. A supplemental appropriation request for employees' pay increases, principally under Public
Law 90-206, was held to $15 million although they cost $42 million.
Savings principally resulting from loAver personnel levels were applied
to pay costs.
The Johnson administration budget was reviewed, modified, and
reduced from $1,092 million to the Nixon administration level of $1,085
million for presentatioii to the Congress.
Accounting systems.—Administrative accounting systems of the
U.S. Secret Service, the Bureau of Customs, and the Internal Eevenue
Service were submitted for the approval of the General Accomiting
Office. The statement of Department-Avide administrative accounting
principles and standards which apply to all Treasury bureaus was
approved by GAO. A t the close of fiscal 1969 all Treasury administrative accounting systems had either been approved or were under consideration by*GAO for approval.
Management of automatic data processing.—The Department used
69 computers and related A D P equipment, 21,500 man-years, and $170
million in its A D P operations during fiscal 1969. These operations,
Avhich involved 20 percent of the Department's operating resources,
continued to provide significant benefits including net additional revenue of $676.2 million as a result of Internal Eevenue's A D P masterfile system and annual operating saving of 460 man-years and $3.4
million. Accomplisliments in the management of A D P included the
initiation of several new studies on new or expanded use of A D P in
five bureaus, further improvements in acquisition of both new and
excess equipment, increases in the interchange of data between Federal
agencies and State governments, and several steps taken in incorporating Federal and other standards into A D P hardware and software,
some of which are expected to result in several million dollars in
savings over the next 5 years.
I n t e m a l auditing.—The first appraisal of the Bureau of the. Public
Debt under a policy of covering only specific phases of the intemal
auditing function in each bureau and office was made during the year.
Of particular significance was internal audit's role in adAdsing on the
installation of the Office of the Secretary's cost information system
1 See detailed statement in the "Annual Report of the Secretary of the Treasury on
Improvements in Financial Management."

1969 REPORT OF THE SECRETARY OF THE TREASURY

and monitoring its operation. ToAvard the close of the year,
developed a plan for improving the Department's internal
generally. The pliii, AVhicli drcAv largely on the experience of
revieAvs of bureau and office internal auditing activities, is
to be fully implemented in fiscal 1970.

the staff
auditing
previous
expected

Personnel management

Personnel activity during the year in the national headquarters
offices Avas dominated by the necessity to assure an orderly transfer of
administrative operations to Secretary Kennedy. Materials to brief ncAv
officials on the Civil Service system and the personnel systeni within
Treasury, plus expeditious handling of preappointment requirements
for new officials, contributed greatly to a smooth transition and continuity of Treasury operations.
NCAV Civil Service Commission promotion regulations were implemented, to be effective early in fiscal 1970. Treasury Merit Promotion
Guidelines were issued for the guidance of bureaus in Avriting their
specific plans, and' all bureau plans Avere reviewed for compliance with
Commission and departmental requirements.
Equal Employment Opportunity continued to receive special attention. Significant numbers of minority employees have been employed
in, or promoted to, middle-grade positions in a continuing effort to
eliminate a concentration of racial minorities in the loAver grades.
The Department continued to participate in the development of the
Coordinated Federal Wage Board system, approved application of a
number of wage schedules in different parts of the country, and issued
necessary regulations and couA^ersion instructions. Most Treasury
trades and labor employees have been brought under the system; the
rest Avill be converted on an area-by-area basis as new full-scale wage
surveys are completed.
Estimated firstjyear benefits from employee suggestions totaled
$1.5 million and similar benefits recognized by performance aAvards
brought the total to $2.3 million. This Avas an increase of 39.5 percent
oA^er fiscal 1968.
Advances were made in providing needed professional and technical training defended as a result of last year's severe budgetary restrictions. Gains Avere \ also made in overcoming some of the backlog of
supervisory and management deA^elopment training. A Treasury training facility Avas opened at Hofstra University incorporating the most
modern educational features to acconimodate both the Internal Eevenue North Atlantic Training Center and the Bureau of Customs
National Training Center in a building designed for the Department's
needs.
Tangible progress tOAvard greater maturity and stability in the employee management cooperation program Avas achieved. Midyear
statistics showed the number of negotiated agreements nearly double
that of the preceding year, and 65 percent of the work force Avas in
units under exclusive recognition (up from 47 percent).
Administrative services

Exhibit hall.—Planning was continuing at the fiscal yearend toward
a more effective Treasury exhibit presentation. Working with the
Smithsonian Institution and other professional organizations, Treas-

ADMINISTRATIVE REPORTS

ury has been preparing a fully reorganized "Exhibit Hall" to inform
the public of the origin and growth of each Treasury activity and to
relate Treasury's history to the Nation's growth.
Personal property.—From the end of the first quarter 1968 to the
end of the first quarter 1969, over one-half a million dollars worth
of personal property had been reassigned within the Department for
continued utilization. Treasury also obtained personal property valued
at over three-quarters of a million dollars from other Federal agencies
without reimbursenient, and about $44,000 was deposited into the
Treasury as miscellaneous receipts, representing proceeds from the
sale of surplus personal j)roperty. Treasury transferred nearly $ 1 %
million worth of personal property to other Federal agencies for their
use. To assist certain organizations outside the Federal community,
such as Stat^ bodies and nonprofit groups. Treasury donated over
$114 million worth of personal property no longer needed by the Federal Government.
, Space.—In the Metropolitan Washington Area, Treasury reduced
its space needs by nearly 21,000 sq. ft. during fiscal 1969. The consolidated statistics for all Treasury space in the United States shoAved
a total reduction of nearly 74,000 sq. ft.
Security activities

During fiscal year 1969 physical security inspections Avere conducted
within the Office of the Secretary, bureau headquarters offices, and 37
bureau field offices.
I n the personnel security program, 790 sensitive cases, 155 nonsensitive cases, and 171 reinA^estigation cases Avere processed.
Law Enforcement
Department operations

The Department of the Treasury is the Federal Government's second largest laAv enforcement agency. The Department's operations
in this area are basically carried out by the Intemal Eevenue Service,
the Bureau of Customs, and the U.S. Secret Service. The fiscal 1969
activities of these three components are included in the following detailed administrative reports of the respective services.
Since January ,1969, this administration has provided more active
departmental leadership in the laAv enforcement field. The Office of the
Secretary has devoted more manpower and resources to the departmental function and developed.several new approaches to Treasury's
law enforcement role. The supervisory role for law enforcement was
elevated from a special assistant to the Secretary to the Assistant Secretary for Enforcement and Operations. More staff was added to the
office of this Assistant Secretary for day-to-day liaison Avith Treasury
law enforcement staffs and with the Department of Justice. The
participation of the Department in the President's stepped-up war
on organized crime was also increased. The regular Appropriation Act for 1970 provides added resources for all of the law enforcement bureaus in Treasury.
As the fiscal year 1969 closed, plans were being developed for a
greatly increased antismuggling campaign to keep narcotics, rriarihuana, and other dangerous drugs from coming into the United States,

1969 REPORT OF THE SECRETARY OF THE TREASURY

These plans consist of a two-part effort: (a) Within the existing manpower resources of the Customs Bureau to conduct a total inspection
of all persons and cargo crossing the Mexican-United States border;
and (b) to request Congress to provide for substantial increases in
manpower and fabilities to improve the quality of enforcement of
Customs' laws throughout the nation.
Consolidated law enforcement training center

I n the fiscal year 1969, plans were finalized and congressional authorization secured for the development of a consolidated Federal law
enforcement training facility. This center, to be located at Beltsville,
Maryland, will, when completed, provide the facilities to train all of
the Treasury law enforcement personnel, as well as personnel engaged
in law enforcement of the other Federal civilian agencies (except the
Federal Bureau of Investigation which has its OAVU facilities). This
center will be operated by Treasury. As the consolidated center progresses, the Basic Law Enforcement School of the Treasury Department, which has been in existence for many years, will be merged
into the new training unit. The consolidated center concept is the result
of a study of an interdepartmental task force under the leadership of
the Bureau of the Budget, which began in fiscal 1967, based on the
needs of the Secret Service. The present situation in the United States
of laAV enforcement generally demands that greater efforts be made
to train more adequately the cadre of Federal law enforcement
personnel.
Office of the Comptroller of the Currency
The Comptroller of the Currency, as the Administrator of the
National Banking System, is charged with the responsibility of maintaining the public's confidence in the System by sustaining the banks'
solvency and liquidity. An equally important public objective is to
fashion the controls over banking so that banks may have the discretionary power to adapt their operations sensitively and efficiently to
the needs of a growing economy.
Office operations

During fiscal 1969, the Office of the Comptroller of the Currency
experienced many; administrative improvements in its continuing efforts to streamline Office operations to meet the challenge and requirements of the groAving National Banking System. I n Washington,
the staffing of professionals in certain administrative positions has
created a more responsive organization; and refinement in the examining function has enabled the Office to maintain high quality performance with a minimum manpoAver increase in accomplishing its
mission. Procedures and policy are under continual review to make the
examination process more sigTiificant and efficient.
Personnel

Personnel administration continued to play a vital part in the
Office's progress in fiscal year 1969 by broadening its activities to provide a well-rounded personnel management program. Studies were
initiated during fiscal 1969 for purposes of developing Avritten evaluation standards and appropriate distinctions in pay levels. A related

ADMINISTRATIVE REPORTS

project Avas designed to provide a staffing pattern and equitable grade
structure for each region based on an analysis of Avorkload. This Avill
result in greater manpower utilization by determining the responsibility and complexity of the examination assignment and matching these
against the skills levels of national bank examiners.
The Comptroller's Office has been confronted Avith an ever increasing
need for quality manpower due to the rapid growth and increasing
complexity of the banking industry. To meet this demand for professionals, the Office established ambitious recruiting goals and IICAV
recruiting techniques. The results of this effort Avere most gratifying
and successful.
All phases of the Office training program received new attention.
Special schools were established and new training techniques inaugurated. An educational needs survey was conducted and through this
method the Employee Development Office Avas able to structure a
meaningful training program for the Office.
Fiscal management
The mission to improve the Comptroller's financial management
system continued through fiscal 1969. Notable 'achievements included
the conversion of accounting records from a manual to a machine operation, the improved management of the Office's cash position to maximize investment inconie, and the issuance of new and comprehensive
travel regulations.
During this period, the Internal Audit Division was reorganized
into a more effective aid to management. A fresh evaluation resulted
in the establishment of internal audit objectives, the development of
more effective intemal audit practices and reporting procedures, and
the issuance of a new I n t e m a l Audit Manual which outlined prescribed
standards of performance for the Audit Staff.
Information services program

The purpose of this continuing program is to make the policies and
procedures of the Office of the Comptroller of the Currency better
known and to facilitate communications among the Office, the banking industry, and the general public.
Four basic manuals are available to employees, banks, and other
interested parties: "Comptroller's Manual for National Banks,"
"Comptroller's Manual for Eepresentatives in Trusts," "Comptroller's
Policy Guidelines for National Bank Directors," and "Instructions,
Procedures, Forms for National Bank Examiners." The "Directory"
has been uj)dated and contains the address and telephone number of
every decisionmaking official in the Office together with his picture
and a biographical sketch. The "Annual Eeport of the Comptroller
of the Currency" is available to interested parties and contains a general statenient of policy, descriptions of the state of the National
Banking System, of Office operations, and reprints of selected Office
documents relating to crucial public issues in banking.
Status of national banks

A t the end of fiscal year 1969, there were 4,701 national banks in
operation, a decline from the 4,743 of a year before. Mergers accounted
for virtually all of this decline. At the same time, the number of
branches of national banks spurted upAvard from 10,240 to 11,177, an

1969 REPORT OF THE SECRETARY OF THE TREASURY

increase of 9.2 percent. As a result, the total number of national banking offices reached 15,878 on June 30,1969.
Total assets of the 4,701 national banks spurted 15.3 percent during
fiscal 1969, to reach $305.9 billion on June 30,1969. The rate of increase
in total loans was even greater, the 16.2 percent growth leading to
a figure of $166.8 billion at the fiscal yearend. The total deposits of national banks stood at $251.6 billion, made up of $131.0 billion in
demand deposits and $120.6 billion in time and savings deposits. On
the inconie side, net income, aftertaxes, of national banks during
calendar 1968 was $1.93 billion, compared to $1.76 billion in 1967.
Number of national banks and hanking ofiices, by States, June 30, 1969
National banks
Total

UnitedStates
Alabama.
i
Alaska
_•
Arizona
Arkansas
California. _
Colorado
Connecticut
Delaware
'
District of Columbia
Florida.
Georgia
Hawaii
Idaho
'
Illinois..
Indiana
Iowa
Kansas
Kentucky
J
Louisiana
Maine..
Maryland
Massachusetts..
Michigan. _
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
'.
New Mexico
New York
North Carolina
North Dakota..
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
.1
Tennessee
Texas
Utah
Vermont
Virginia
'.
Washington
West Virgmia
Wisconsin
Wyoming.
Virgin Islands
District of Columbia (all)L.

•

With
branches

Unit

4,701

3,135

89
5
4
68
69
119
29
5
11
205
61
1
9
418
123
101
171
80
49
21
47
86
98
198
39
98
48
126
4
52
145
33
173
23
42
217
219
11
322
5
20
34
77
534
12
27
105
27
80
120
40
1
14

49
0
2
. 35

14
119
8
3
1
205
32
0
3
385
52
62
143
37
15
5
14
21
29
196
. 7

78
47
104
1
29
34
9
73
6
33
79
183
4
167
0
4
24
20
534
8
13
27
11
80
90
40
0
1

Number , Number
of
of
branches
offices

1,566
40
5
2
33
55
0
21
2
10
0
29
1
6
33
71
39
28
43
34
16
33
65
69
2
32
20
1
22
3
23
111
24
100
17
9
138
36
7
155
5
16
10
57
0
4
14
78 .

16
0
30
0
1
13

11,177

15,878

169
44
192
75

258
49
196
143

2,254

2,323

0
196
4
64
0
151
.6
104
33
313
52
28
130
160
88
230
395
518
6
122
20
1
22
55
36
555
65

119
225
9
75
205
212
7
113
451
436
153
199
210
209
109
277
481
616
204
161
118
49
148
59
88
700
98

1,127

1,300.

466
9
660
36
237
965
88
219
53
253
0
59
43
419
397
0
52
0
6
97

489
51
877
255
248
1,287

93
239
87
330
534
71
70
524
424
80
172
40
. 7

111

I Includes national and nonnational banks in the District of Columbia, all of which are supervised by the
Comptroller of the Currency.

ADMINISTRATIVE REPORTS
Assets, liabilities, and capital of national banks, selected dates
[In millions of dollars]

June 29,1968 Dec. 31,1968 June 30, 1969
(4,742 banks) (4,716 banks) (4,701 banks)
ASSETS

Cash, balances with other banks, and cash items in process of
collection.
U.S. Government securities
Obligations of states and political subdivisions
Other securities
Total securities
Federal funds sold and secm-ities purchased under agreements to
resell
Direct lease
financing
Loans and discounts
Fixedassets
Customers' liability on acceptances outstandiag. _
Otherassets
:

$44,787
i31,627
1 30,630
1 6,285

$50,953
i35,300
» 34, 704
i 6,867

$52,283
234^355
2 35^640
21^435

i68,542

i76,871

271^430

4,397
542
1 154,862
4,166
1,275
3,528

4,070
647
2 166,832
4,746
1,687
4,211

296,594

305,906

3,113
460
• 1 140,690
3,893
1,250
2,762

Totalassets

265,497
LIABILITIES

Demand deposits of individuals, partnerships, and corporations. _
Time and savings deposits of individuals, partnerships, and
corporations-.'
Deposits of U.S. Government
Deposits of states and political subdivisions..
Deposits of foreign governments and official institutions, central
banks, and international institutions...
Deposits of commercial banks
Certified and officers'checks, etc.
Total deposits
Demand deposits.
Time and savmgs deposits
Federal funds purchased and securities sold under agreements
torepurchase
Liabilities for borrowed money
Acceptances executed by or for account of reporting banks and
outstanding..
Otherliabilities
Totaliiabilities

87, 595

101,765

97,217

98,695
3,010
19,377

107,716
3,288
22,082

107,150
3,722
20,237

2,994
12,441
4,916

3,196
15,303
4,534

2,935
14,337
5,987

229,028

257,884

251,585

117,296
111,732

134,629
123,255

131,015
120,570

4,371
726

5,234
689

7,763
2,132

1,275
9,594

1,290
9,973

1,708
16,701

244,994

275,070

279,889

RESERVES ON LOANS AND SECURITIES

Reserves on loans

, 3,269

R eserves on securities

113

Totalreserves on loans and securities

3,382

CAPITAL ACCOUNTS

Capital notes and debentures
Preferred stock..
Commonstock.Sm-plus
Undivided profits
Reserves..
Total capital accounts...
Total liabilities and capita! accounts

1,390
. 5 9
5,505
9,000
3,840
709
20,503
265,497

1,256
58
5,694
9,747
4,051
718
21,524
296,594

1,142
59
6,090
10,287
4,368
689
22,635
305,906

1 Net of reserves.
2 Gross, reserves not deducted.

Resume

The Office of the Comptroller of the Currency continues to change
and grow with the national economy and the banking industry. Internal operations and administration are undergoing constant refinement and improvement in order to better serve the public whose
demands must be met.

1969 REPORT OF THE SECRETARY OF THE TREASURY
B u r e a u of Customs

The Bureau of Customs has the two-fold task of collecting revenue
on imports, and of enforcing the laAvs regarding both exports and
imports. I t is responsible for the assessment and collection of import
duties and taxes and the control of carriers, persons, and merchandise
entering or departing the United States; for administering the tariff
and related laws affecting international trade and traffic; for detecting
and preventing smuggling and frauds on the revenue; and for regulating vessels in the coastwise and fishing trades. The Customs Service
conducts a continuing program of informing the public and encouraging voluntary compliance by the international trading community
Avith the laws, regulations, and controls established by Customs and
numerous other Federal agencies.
One of the most significant Customs enforcement activities is the
prevention of the illicit introduction into the United States of narcotics, marihuana, and dangerous drugs. This activity Avas intensified
toward the close of the fiscal year 1969 through reassignment of employees and similar measures.
Bureau operations

Collections.—Eevenue collected by Customs during fiscal 1969
reached the alltime high of $3,257 billion, a 12 percent increase over
1968. This included customs duty collections, excise taxes on imported
merchandise collected for the Internal Eevenue Service, and certain
miscellaneous collections. Collections and payments by customs regions
and districts are contained in the Statistical Appendix. The major
classes of all collections made by the Customs Bureau are also shown
in that volume. The cost of collecting each $100 was $3.08 compared
Avith $3.09 in fiscal 1968.
Carriers and persons entering.—Over 227 million persons, arriving
ei ther as pedestrians or on the oA^er 67 million carriers entering, were
subject to customs inspection during fiscal 1969. This represented a 6.4
percent increase in persons arriving and a 5.0 j)ercent increase in
carriers over fiscal 1968. (See Statistical Appendix.)
Entries of merchandise.—Both the A^olume and value of imports
continued to climb with the value of imports reaching $34.1 billion
in fiscal 1969 compared Avith $29.5 billion last year—an increase of
15.6 percent. The volume and type of entries handled during the last
2 fiscal years are shown in the Statistical Appendix.
A total of 20.8 percent of all entries during the year were duty free.
The remaining 79.2 percent were subject to duty.
Automatic data processing.—During fiscal year 1969 the iiationAAude installation of the A D P system for customs revenue, appropriation, and overtime payroll accounting was accomplished. Property
accounting was converted to computer processing; a centralized inbond transit system that pinpoints delinquent shipments was established; budget and personnel reports were converted to computer
processing; and programs for the production of a legal index were
successfully tested.
Audits.—During the year 319 offices were examined and 63 internal
audit reports were made. A total of 286 conimercial audits of brokers
and 28 cost systeni audits (AVOOI) were made; 55,749 liquidations were
verified taking 1,412 corrective actions.

ADMINISTRATIVE REPORTS

SecuHty.—During fiscal 1969, 1,971 personnel investigations and
586 full field investigations were closed. There Avere 51 conduct
investigations opened and 39 closed during the year. Thirty-eight
investigations exonerated customs employees. Prompt and intensive
investigations of allegations of employees' misconduct is essential and
mandatory to a meaningful personnel security program.
A total of 1,531 critical and noncritical sensitive clearances were
done, and 65 offices were inspected.
New security procedures provided for a series of collateral
investigations conducted by several agents reporting independently
instead of the former practice of one agent conducting and coordinating the entire scope of the investigation.
Equal employment opportunity.—Program activity in the area
of Equal Employment Opportunity in fiscal 1969 centered around
development and implementation.
A half dozen formal complaints of discrimination and a greater
number of informal complaints were handled during the year,
indicating employee confidence in the complaint systeni.
The program of conducting E E O seminars for supervisors, whicii
Avas begun 2 years ago, was concluded. Almost every supervisor or
manager in customs has had at least one 2-day session of training.
Foreign customs assistance.—The largest concentration abroad continued to be in Vietnam, where during 1969 there were 11 full-tour
teams. The mission financed by A I D is two-fold, in that customs is
responsible for the improvement of the Vietnamese Customs Service,
as well as for the monitoring of the commercial import program. Subactivities of customs representatives include responsibility in investigating areas relating to the commercial import program as well as
responsibility concerning the customs boat fleet.
During the year squads were formed which specialized in combatting black market and illegal currency activities, fraudulent invoicing, and narcotic activities. The number of seizures tripled in 1969
as compared with 1968.
Approximately 600 Vietnamese customs officers Avere trained in
organizatioii and leadership techniques. Classes in conversational
English were also established for these officers.
Five teams were working in Latin America during the year. A fourman team Avas in Argentina; two full-term advisors in Colombia; one
man in Costa Eica; one man in Panama; and a team at the Eegional
Office for Central America and Panama.
Two customs advisors are in Ethiopia, and one is in Afghanistan.
One man was in Liberia until September 30, 1968, when he was transferred to Afghanistan.
During fiscal 1969, 86 foreign participants from 28 countries came
to the United States for training in Customs operations. They were
trained in various fields, including organization and management,
inspection of baggage and cargo, airpoit, seaport and border port
procedures, merchandise control, investigative techniques, and other
aspects of Customs operations.
I n Marcli 1969, the chief chemist at New Orleans furnished technical
advice for the installation of a customs laboratory at Aqaba, Jordan.
This was made possible by the use of certain equipment acquired

19 69 REPORT OF THE SECRETARY OF THE TREASURY

through GSA, by the New Orleans Laboratory, at the request and cooperation of the Customs Bureau, the Departnient of State, and the
Jordanian Ministry of Finance.
Priority correspondence.—There is a unit in the Office of the Commissioner Avhich is responsible for the expediting of responsive and
appropriate replies to inquiries from Menibers of Congress, Governors
of States, heads of other Federal departments and agencies, and other
high officials, as Avell as inquiries referred from other parts of the
Treasury Department. Eeplies to complaints and commendations are
also handled.
i
During 1969 a total of 2,600 replies Avere sent out; 521 acknowledgements and referrals AA^ere handled; and replies Avere sent to 156 complainants and 44 commendations.
Planning and research.—During fiscal 1969, a customs committee
developed the work statement and evaluated proposals for studying
the feasibility of automating large segments of customs merchandise
processing systemj a special project under the P P B system.
An automated quota systeni Avas developed. All quota transactions
are now "on the line" with the new I B M 1130 data processing unit.
Studies for automating draAvback and bonding procedures Avere being
explored in cooperation Avith other customs offices at the fiscal yearend.
The random time sampling system became operational in all nine
customs regions in February 1969. Data Avas gathered to determine
the optimal examination rate for maximizing both revenue and the
detection of violations in mail packages. A short and simple procedure
for accurately determining the number of foreign incoming mail packages was designed.
Facilities management.—In order to simplify and modernize property accountability, the records were transf erreci to the computer. Complete inventory riuns Avere produced twice during the year. Both a
numerical listing by property nuniber and an alphabetical listing of
property items Avere prepared. This "cross reference" inventory proved
to be a timesaver.
All editorial work involving decisions of the U.S. Customs Court
to be printed in the Aveekly "Customs Bulletin" Avas transferred from
the court to the Bureau.
I n cooperation with GSA and other inspection agencies, a pilot installation of ventilating equipment was made at the San Ysidro, Calif.,
inspection station for the control of air pollutants. Similar systems
Avere being developed for other stations with the same problem, and
by the fiscal yearend GSA had been authorized to install them at
Calexico, Calif., and at Laredo, Tex.
Five new border residences were completed and accepted by the
Bureau during the fiscal year at Coburn Gore, Maine, and Eaymond,
Mont. A contract was aAvarded for a truck weighing station at Boston,
Mass. Standards and specifications Avere developed for a pilot model
of a mirror servic^e for inspecting the underside of motor vehicles at
border stations.
Duriiig^ fiscal 1969 Customs moved to IICAV offices and occupied neAv
examination facilities at Elmendorf A F Base, Anchorage, Alaska.
Construction Avas completed on a IICAV customs office and examination
area at Anchorage International Airport, provided by the State of

ADMINISTRATIVE REPORTS

Alaska. The customs office at the San Francisco International Airport
Avas moved to new, more modern quarters.
Personnel.—Lack of personnel continued to be a source of trouble
to all arms of the Customs Service. There were not sufficient employees
to handle the preclearance facilities at Toronto and Montreal, Canada,
or at Logan International Airport, Boston, Mass. Major personnel
shortages also restricted several operations in New York.
Incentive aioards.—A total of 1,778 suggestions Avere received in
1969, of Avliich 527 were adopted. The tangible savings totaled $252,679, for AA'hich $6,995 was paid in awards.
There were 285 Superior Work Perforniance Awards and 291 Special Act or Service Awards made during the year.
Training.—The major accomplishment of the year was the establishment of the National Training Center at Hofstra University,
Hempstead, N.Y. Although the Center didn't officially open until
June 17, 1969, courses were given beginning in January 1969. The
Center Avas developed jointly with the Intemal Eevenue Service.
A computer systems analyst training program Avas established
during fiscal 1969. This program whicii will begin in fiscal 1970 will
be presented in three phases and will consist of 6 months training.
Training in the accelerated inspection system was given to 152 primary inspectors from Customs, Immigration and Naturalization Service, U.S. Public Health SerAdce, and U.S. Department of Agriculture
at Logan Airport, Boston, Mass. Inspectors at San Francisco, Calif.,
and Portland, Oreg., attended a 4-liour training session in narcotics
and dangerous drugs, places of concealment, search and seizure, and
customs laws relating to enforcenient. Seizure workshops were, conducted in the Baltimore, Md., and Philadelphia, Pa., districts. St.
Albans, Vt., presented a course in narcotics identification that was so
successful that requests were received from the Immigration and
Naturalization Service Border Patrol and the Vermont State Police
to include their personnel. Canadian Customs also sent inspectors to
the course.
Airline personnel at Washington, D . C , and Wilmington, Del.,
were trained in customs procedures in order to expedite clearance of
passengers and aircraft.
The Boston, Mass., region implemented a series of 3-day seminars
for supervisors, during whicii they were brought into the regional
office and given a complete orientation.
Antidwnping and countervailing duties.—A total of 21 dumping
cases were recorded in fiscal 1969 and six cases were closed. One case
Avas referred to the Tariff Comniission. Five findings of dumping
AA^ere issued during the year. At the fiscal yearend, 29 cases remained
on hand.
Fourteen countervailing cases Avere received, three cases were closed,
and 18 remained on hand at the end of fiscal 1969. Three countervailing duty orders Avere issued.
Tariff classification.—Over 7,258 written replies to letters of inquiry
AA'ere made. Of these, 130 Avere of sufficient importance to be published in summary form in the weekly "Customs Bulletin."
A total of 706 applications for free entry of scientific instruments
and apparatus were processed during fiscal 1969.

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Samples which require analysis before a ruling can be issued may
now be sent to customs laboratories other than the one in New York.
A more rapid handling of the samples and a more prompt ruling
on the proper classification of the merchandise has resulted.
Regulations.—The revision of P a r t 30 (Foreign Trade Zones)^ of
the Customs Eegulations was completed and became effective April 7,
1969. P a r t 31 (Customhouse Brokers) was also completed and became
effective December 15,1968.
Under Public Law 90-474 approved August 11, 1968, and upon
receipt through diplomatic channels of assurance from certain foreign
countries that they granted reciprocal privileges to vessels of the
United States, P a r t 4 of the Customs Eegulations was amended to
provide that vessels of Belgium, Denmark, Finland, Ireland, Netherlands, Norway, South Africa, Sweden, and the United Kingdom were
extended reciprocal privileges in this country.
^ Pursuant to Pubhc Law 89-219 (46 U.S.C. 83-83k) Treasury Decision 68-216 was published permitting vessels with a tonnage mark
and dual tonnages the benefit of the loAver tonnage in accordance
with the "Eecommendations on the Treatment of Shelter-Deck and
other 'Open' Spaces" of the Intergovernmental Maritime Consultative Organization.
Treasury Decision 68-217 required that estimated duties be deposited or a bond given to cover duties on foreign repairs and equipment of a vessel of the United States before clearance is given.
The Somali Eepublic was added to the list of nations which are
exempt from the payment of special tonnage tax and light money.
Instructions were issued to update the list of countries which are
parties to the International Convention on Load Lines, 1930, and
the International ConA^ention on Load Lines, 1966; and to advise that
Australia, Belgium, Pakistan, Eepublic of China, Spain, Turkey,
Vietnam, and tihe United Arab Eepublic are now parties to the International Convention of Load Lines, 1966.
Instructions were issued on the entry procedures of snoAvmobiles
which cross the international boundary over frozen lakes and rivers.
The United States on December 3, 1968, deposited instruments of
accession to the following Conventions: Customs Convention on the
Temporary Importation of Professional Equipment; Customs Convention on the A.T.A. Carnet for the Temporary Admission of Goods;
Custom Convention on the E.C.S. Garnets for Commercial Samples;
Customs Convention on Containers.
Two of the Conventions provide for the importation of 2:oods
under coA^er of an international document knoAvn as a "carnet." The
carnet serA^es simultaneously as a customs entry document and as a
customs bond. The payment of customs obligations incurred with
respect to merchandise covered by a carnet is guaranteed under the
carnet system by a domestic guaranteeing association. The United
States Council of the International Chamber of Commerce has been
approA^ed as such an association in the United States.
Draiobach.—The total drawback allowance paid during fiscal 1969
amounted to $40,224,499 as reflected in the Statistical Appendix.
Drawback alloAvance on the exportation of merchandise manufactured
from imported materials amounts to 99 percent of the customs duties
paid at the time the goods are entered.

ADMINISTRATIVE REPORTS

Protests.—Protests filed by im]3orters against the rate and amount
of duty assessed and appeals for reappraisement filed by importers
Avho did not agree with the customs officers on the value of merchandise are shown in the following table.
Protests and appeals

Protests:
Filed with district directors by importers (formal)
Filed with district directors by importers (informal)
Appeals for reappraisement filed with district directors

1969

1968

80,419
110,913
21,010

66, 500
94,041
13, 582

Percentage
decrease (—)

-23.1
-15.2
-35.4

Penalties.—Decisions were made on 678 penalty cases in 1969. A
total of $109,069 Avas paid to 31 informers.
Penalty cases, fiscal year 1969
Type of case

Penalty and forfeiture
Liquidated damages
Total

Number

Full
statutory
liability of
violators

543
135

$125,192,972
4,216,181

678

1129,409,153

1 Subject to some mitigation in appropriate cases by the Bureau or by the courts.

Net liability imposed hy penalty decisions, 1968 and 1969
Type of case
Penalty and forfeiture cases
Liquidated damages
Total

1968

.--.

$3,110,828
149,249
3,260,077

1969
$63,976,548
223,996
64, 200, 544

Cost reduction/management improvement program

During fiscal year 1969 this program resulted in savings of $2,791,000. Of this amount, $617,000 was cost reduction, and $2,174,000 was
cost avoidance. The savings were used in the Customs Service to
handle the workload without adding to staff or to expenditures.
Restricted merchandise.—^Approximately 1,850 cases pertaining to
various import restrictions, prohibitions, or controls under statutes
and regulations were received and handled during fiscal 1969. These
included country of origin marking and various labeling requirements;
use of foreign couAdct labor; trademarks, copyrights, and patents;
obscenity matters, contraceptive devices, lottery or seditious materials;
birds and plumage or eggs, and wild animals; switchblade knives. Federal and State liquor laws; and technical matters arising under the
International Coffee Agreement.
A total of 162 trademarks, trade names, renewals, assignments and
name changes were recorded. Seventy-two copyrights were recorded
and 13 patent surveys or renewals were approved. A total of $48,000
of recordation and related fees Avere collected for these services.

1969 REPORT OF T H E SECRETARY OF THE TREASURY

During fiscal 1969 a procedure Avas approved for the release of noncommercial as well as commercial shipments not exceeding $250 in
value, of articles subject to trademark restrictions, whereunder such
trademarked airicles in the mails were released to the addressee upon
his filing 'a statement that the offending trademarks Avould be removed upon delivery of the parcel.
Entrance and clearance of vessels.—The folloAving table compares
entrances and clearances of vessels for fiscal years 1968 and 1969.
Vessel raovements
Entrances:
Direct from foreign ports
Via other domestic ports
Total
Clearances:
Dhrect to foreign ports.
Via other domestic ports
Total

.
.

1968

1969

Percentage
decrease (—)

50,412
41,121

49,500
36,462

-1.8
-11.3

91, 533

85, 962

-6.1

49,199
40,402

48, 650
36, 396

-1.1
-9.9

89,601

85,046

Containerization.—The increasing use of containerization continued to create problems for customs, especially due to the lack of sufficient personnel to handle the shipments. Baltimore, Md., reported that
the increased use of containers had created a problem in designating
merchandise for this very involved examination.
The Norfolk, Va., district recorded that containerization increased
from 1,730 containers in fiscal 1968 to 4,116 in 1969.
In Los Angeles, Calif., by the end of fiscal 1969 an average of 1,800
containers were being discharged each week at local piers. The Los
Angeles Harbor Commission and the Long Beach Harbor Commission
forecast that a total of one quarter million containers Avould be discharged at local piers within a year. Such rapid development of containerization might change the entire concept of shipping by sea.
Mail operations.—Efficiency in mail operations continued to improve through consolidation of smaller mail divisions into larger
units and the processing of all mail at the port of first arrival.
I n New York greater stress on enforcenient led to the detention of
6,718 parcels for various violations of Customs and other Federal
laws. I n registered mails 416 parcels were held. I n ordinary mails 1,782
parcels were lieldi under Foreign Assets Control Eegulations, 1,709 for
trademark violations, 987 for lack of legal markings, 1,040 for violations of various gun control acts, and 490 for diplomatic releases.
Violations relating to the gift exemptions or to gross undervaluations
accounted for 255iseizures.
I n Chicago a six-line automatic powered belt systeni becanie fully
operational during fiscal 1969. Several blitz operations Avere conducted
in the mail division which resulted in some small marihuana seizures,
but most violations were of undervaluation or false declarations.
At San Francisco there were over 250 marihuana or narcotic detentions; 230 illegal iweapons and parts detained; 120 parcels with explosives or ammunition turned over to the military; over 4,500 parcels of
stolen Government property recovered; 250 switchblade knives seized;

ADMINISTRATIVE REPORTS

and over 165,000 cases of undervaluation, false invoicing, or false
declarations detected. I n addition, approximately 65,000 parcels were
detained for other agencies requirements, such as Foreign Assets Control, Food and Drug, or the Departnient of Agriculture. The most
notable trend in 1969 was the increase in the number of parcels found
to contain narcotics.
Quotas.—In order to cope with the ever increasing volume of importations subject to quota, a computer was acquired early in fiscal
1969. By the end of fiscal 1969 the processing of quotas had been completely automated.
During the fiscal year 154 absolute and tariff-rate quotas Avere administered under specific Presidential proclamations and legislation.
Two quotas were imposed under the International Coffee Agreement of
1965; five quotas were imposeci under the Philippine Trade Agreement
Act of 1955; and, 188 quotas involving 19 foreign countries, were
imposed under the Long Term Cotton Textile Arrangement by directives of the President's Cabinet Textile Advisory Committee, whicii
made a total of 349 quotas.
Presidential Proclamation 3870, dated September 24, 1968, resulted
in the establishment of 33 quotas on cheeses administered on a country
basis. Presidential Proclamation 3884 of January 6, 1969, resulted in
the establishment of eight quotas, also administered on a country basis.
These quotas reverted to the Department of Agriculture for administering on a licensing basis at the close of business on December 31,1968,
and June 30,1969, respectively.
Fibers administration.—The supervision of wool imports was continued in order to determine uniformity in identification, grades, and
condition. I n this connection 9,966 reports were rcAdewed. There Avere
1,199 samples of questionable wools submitted for opinion as to identity, condition, grade, and yield. In addition 119 samples of wool
Avastes, 309 samples of man-made fibers and wastes, and 178 samples
of cotton and animal hair Avere submitted for opinions on identity,
classification, and quota status.
A total of 242 samples of raAv cashmere and raw camel hair were received from official government agencies in the United Kingdom, Belgium, Switzerland, and Czechoslovakia. These samples were submitted
for the purpose of identification of the origin of the fibers for the
Office of Foreign Assets Control.
Bachlogs of entries and invoices.—Total invoices received during
fiscal year 1969 increased 19.4 percent from 4,201,102 to 5,016,797. During this period the backlog of invoices on hand increased 30 percent
from 389,495 U o 506,508.
The backlog of unliquidated entries rose from 904,987 in 1968 to
1,144,145 in 1969, an increase of 26.4 percent. A total of 2,774,821 entries were received this year, 15.7 percent more than 1968. Increases in
backlogs were due in part to the increased workload and in part to personnel shortages resulting from yearlong budgetary restrictions.
Customs Information Exchange.—In 1969, 386 requests for rates of
exchange .for unlisted countries were furnished by C L E . to customs
officers upon request.
' Revised.
363-222—70-

19 69 REPORT OF THE SECRETARY OF THE TREASURY

During the year 1,873 catalogs, price lists, and other value data from
foreign manufacturers and shippers were received, reproduced and
disseminated to customs officers at ports known to have received
importations of such or similar merchandise.
The greatest volume of reports received is the "Eeport of Classification and Value;" during the year these averaged over 78,000. A total
of 117 foreign and local inquiry reports were processed, including
Canadian Query reports. During the year 247 advance reports were
received from various import specialists. The C L E . acted as middleman in order to reconcile differences.
There were 610 reports of significant value changes sent to each
District Director, where shipments had been entered from the same
manufacturer or seller.
Export control.—^^^oxt control activity increased, particularly in
the field of merchandise exported under license, as more material is
moved by direct air shipment abroad. The single export declaration to
cover all automotive parts exportations made in a calendar month by
some of the auto manufacturers is a tremendous aid in cutting doAVii
paperwork, and its use is gradually being expanded to include additional manufacturers.
Laboratories.—In fiscal 1969 a total of 167,834 samples were tested,
as compared to 160^315 in 1968. Consultations, methods development,
court visits, training, and other nonsample activities consumed some
31,422 man-hours in 1969. At the fiscal yearend there were 149 on the
laboratoi^ staffs, compared to 157 in 1968.
The Philadelphia laboratory was closed and its operations consolidated with those of the Baltimore laboratory, as the result of the
recommendation of a Treasury study group.
The volume of narcotic smuggling along the southern border has
been increasing at an accelerated rate in recent years. This has posed
a problem not only for enforcement agents in the area, but also for the
chemists in the Newi Orleans laboratory AVIIO analyze the seizures. The
long distances involved, and the noncentral location of the laboratory,
resulted in much time lost by chemists called as expert witnesses. I n
fiscal 1969 chemists from New Orleans spent 1,698 man-hours in these
activities. Personnel of the laboratory analyzed 11,179 narcotics
seizures during 1969 las compared to 9,301 for 1968.
After an on-the-spot study, it was recommended that a narcotics
testing laboratory be estaiblished in the San Antonio, Tex., area. The
recommendation was approved by the Commissioner of Customs on
May 22, 1969. The new laboratory Avill have a staff of five, and is
expected to be operational during the first quarter of fiscal 1970.
During fiscal 1969, the following large instruments were purchased:
For the Baltimore laboratory a mass spectrometer for $65,000 and an
infrared spectrometer for $22,500; and for the use of the New Orleans
laboratory an X-ray diffraction/fluorescence spectrometer at a cost of
$41,900.
;
Intemational conferences.—Customs participated in the lOth InterAmerican Travel Congress at Quito, Ecuador, on December 14, 1968.
This meeting was a specialized conference of the OAS to promote
tourism in various countries.

ADMINISTRATIVE REPORTS

Customs participated in the Third Port and Harbor Conference at
Vina del Mar, Chile, November 1,1968.
During fiscal year 1969 customs officials represented the United
States as official delegates or observers at a number of international
meetings and conferences, including: The Permanent Technical Committee of the Customs Cooperation Council at Brussels, Belgium; the
Inland Transport Committee and its subsidiary organs of the Economic Commission for Europe in Geneva, Switzerland; and the
Working Group on Facilitation of the Intergovernmental Maritime
Consultative Organization.
Improved services to the public.^-Tho, booklet "Customs Guide to
Private Flyers," which outlines the principal requirements and procedures Avhicli private flyers must follow in making entrances and clearances, Avas revised and updated.
The Accelerated Inspection Service ( A I S ) , installed at the John F .
Kennedy Intemational Airport at New York and at San Antonio,
Tex., in fiscal 1968, Avas initiated at Boston, Mass., Dulles (Washington, D.C.), Seattle, Wash., and Houston, Tex., airports this fiscal year.
The limits of the ports of entry of Bridgeport, New Haven, Hartford, and New London, Conn., were extended, bringing 80 percent of
the bonded carrier facilities within the limits of a port of entry.
On August 15, 1968, the ports of Eichmond and Petersburg, Va.,
were consolidated for greater economy and efficiency with no reduction
in services to the public.
A new port at Tulsa, Okla., Avas opened in May 1969, and in June
the new Houston Intercontinental Airport commenced operations.
Salt Lake City, Utah, was officially opened as a customs port of
entry in April 1969. Its first sizable seizure was 29 pounds of hashish
in an electric organ. Whitelash, Mont., was also established as a fulltime customs port oi entry in April 1969.
Public information.—The information prograni AA'as expanded during the year to aid customs in coping with the greatly increased
number of travelers. A special series of releases were issued carrying
information for Americans traveling abroad and for foreigners
visiting the United States.
I n cooperation Avith the U.S. Travel Service, releases for visitors
Avere distributed overseas, translated into other languages so that
necessary information was available in advance of trips to this country.
"Customs Hints for Nonresidents" is available abroad in English,
French, German, Italian, Spanish, and Chinese editions.
Speakers were proAdded for radio and television appearances, for
clubs and other organizations. A seminar on textiles was arranged for
graduate students attending the University of Maryland, with three
customs technicians explaining the various requirements of the customs
regulations regarding textiles and apparel.
A series of short question and answer columns under the title of "Ask
the Customs Man," were developed especially for tourists and were
sent to the field for distribution.
A customs booth, sponsored jointly by the Buffalo, N.Y., district
office and the Customs Agency Service, was part of an exhibit offered

1969 REPORT OF THE SECRETARY OF THE TREASURY

by 20 Government agencies in Buffalo and Niagara Falls, N.Y.
I t Avas visited by over one million people.
Investigative activities

The Customs Agency Service is the primary investigative and enforcement arm of the Bureau, The form of organization was slightly
modified during the year by the addition of three field offices and
the closing of on^. The IICAV Agency offices Avere opened in Lukeville,
Ariz.; Blaine, Wash.; and Pittsburgh, Pa.;. each serving as suboffices
under the customs agents in charge at Nogales, Seattle, and Philadelphia, respective^. Portland, Maine, was changed to a resident suboffice and placed under the direction of the customs agent in charge at
Ploulton, Maine. The Key West, Fla., office was closed.
During the year 30 customs agents and 92 customs port investigators
attended the Treasury Law Enforcement School in Washington, D.C.
The Customs Agent Training School at Hofstra University was
attended by 94 customs agents, and another 12 agents completed the
course given by the Import Specialist School also at Hofstra.
Improvements and modernization continued to be made in the
radio communications systeni. A new system was designed for the New
York office, assuring complete coverage throughout the area. Eadio
equipnient and a hase station were furnished to St. Thomas, V.I.,
Avliich noAV provides instant communications with the customs agent
in charge at San Juan, P.E. A system of printed fugitive cards Avith
photographs was inaugurated, and the Agency has beconie a subscriber to the National Crime Information Center (NCIC) computer
netAvork through Secret Service facilities. An airplane was acquired
for investigative use. I n its first year of operation its value AA'as firnily
established. The aircraft was used in 28 separate smuggling cases, 14
of which Avere still i n progress at the fiscal yearend. The 14 successfully
concluded cases resulted in 25 arrests, the seizures of 4,260 pounds
of marihuana, 12 pounds of heroin, 2 pounds of cocaine, 11 A^ehicles,
and three aircraft.;
The most significant heroin case of the year was the so-called fish or
paella case, Avhere heroin was concealed in cans of food. That resulted
in the seizure of 115 pounds of heroin, the arrest of nine persons in
the United States and Europe, and the breaking up of an extremely
important international heroin smuggling organization. .
Arrests.—The folloAving table shows the number of arrests and
dispositions during the last 2 fiscal years.
Fiscal j^ears
Activity
Persons under or awaiting indictment at beginning of year..^
Arrests..
Turned over to other agencies.
Prosecutions declined
L.J
Not indicted..
Convictions
Dismissals and acquittals
L
Nolle prossed
L
Persons under or awaiting indictment at end of year

1968
1,887
4,343
1,164
596
11
1,316
346
157
2, 640

1969
2, 639
6,200
2,117

621
13
1, 795

328
38
3,927

Percentage
increase, or
decrease (—)
39.9
42.8
81.9

4.2
18.2
36.4
-5.2
- -75.8
48.8

Cases investigated.—The number of cases investigated under customs, navigation, and related laws enforced by Customs increased

ADMINISTRATIVE

REPORTS

slightly in fiscal 1969 to 28,175 from 27,989 the year before, as sliOAvii
in the Statistical Appendix.
Seizures., general.—^^There were 28,175 seizures made during the year,
excluding narcotics and marihuana.
Seizures., narcotics^ marihuana^ and dangerous di'ugs.—In fiscal 1969
seizures of heroin totaled 141,269 grams (311.43 pounds), an increase
of 26.4 percent over 1968. Other narcotics, mostly cocaine, increased
to 90,213 grams (198.87 poimds) in 1969 from 44,325 grams (98
pounds) in 1968.
An even more dramatic increase in hashish seizures occurred: from
86,638 grams (191 pounds) to the alltime total of 282,771 grams
(623.39 pounds), an increase of 325 percent.
Dangerous drugs increased to 4,763,361 five-grain units in 1969 from
3,936,800 five-grain units the year before.
Marihuana continued to occupy the attention of customs agents
and inspectors, although the number of seizures was below the alltime
high of 1968. I n 1969, there Avere 2,673 seizures of marihuana for a
total of 57,164 pounds, as compared to 2,450 seizures of 70,034 pounds
in 1968. ^
I n achieving these results customs agents conducted 10,562 narcotic
iiiA^estigations, as compared to 9,226 in 1968. The number of arrests
increased from 4,343 to 6,200 in the same period. There were 479 more
coiiAdctions in 1969, up from 1,316 to 1,795. Most of the marihuana
and dangerous drug seizures were along the Mexican border, while
NCAV York and Miami led in the narcotic seizures.
The following table gives the details of narcotic and marihuana
seizures.
Fiscal years

Seizures

Narcotic Drugs:
Heroin:
Grams
Pounds
Number of seizures
opium:
Grams.
Pounds
Number of seizures
Other (mostly cocaine):
Grams...
Pounds
Number of seizures
Hashish:
Grams
Pomids
Number of seizures
Marihuana:
Grams..-..
Pounds
Number of seizures
Dangerous Drugs i (5-grain units).
Number of seizures

1968

1969

Percentage
increase, or
decrease ( - )
in a m o u n t
seized

111, 741
246
265

141,269 .
311.43
240 .

26.4

6, 539
14.2
21

15,347 .
33.88
42 .

134.7

44, 325
98
259

90,213 .
198. 87
253 .

102. 93

86, 638
191
n.a.

282,771 .
623. 39
186 .

325

31, 767, 457
70, 034
2, 450
3, 936, 800
525

25,929,683 .
57,164
2,673 .
4, 631, 925
603 .

-18.4
17.66

n.a. Not available.
1 Consisting principally of amphetamines, and depressants, the barbiturates, tranquilizers, etc.

Seizures., merchandise.—Customs seizures for various violations of
customs laAvs by number and value are showii in the Statistical
Appendix.

1969 REPORt OF THE SECRETARY OF THE TREASURY

Foreign trade zones

Customs duties and intemal revenue taxes collected during fiscal
1969 in the 10 zones in operation amounted to $11,410,154.
During the past year Foreign Trade Zone No. 2 in NCAV Orleans,
La., Avas granted a subzone. This subzone occupies an area of 150,937
square feet and begaii operation in May 1969.
The folloAving table summarizes foreign trade zone operations
during fiscal 1969.
Received in zone
Number
of entries Long tons
Value

Trade zone
New York
New Orleans
New Orleans (subzone) ^
San Francisco
SanFrancisco (subzone)
Seattle
Mayaguez
Penuelas (subzone)
Toledo
Honolulu

3,865
4,832

1,183
219
510
369
11
224
4,002

- ..

26,729
37,166
11,460
5,417
74
1,413
723
360, 648
28,394
2,825

$41,280,862
33,320,058
1,657,328
7,730,161
254,169
1, 616,846
893,895
6,974,988
11,140,297
5,167,304

Delivered from zone
Long tons

31,400
26,467
2,346
4,750
25
1,415
653
228,132
29,070
2,231

Value

$38, 206,255
21,402,242
332,410
6,805, 673
144,410
1,781,695
1,440,497
11,210, 568
11,562,931
4,125,145

Duties and
internal
revenue taxes
collected
$3,171,354
3,103,815
507,349
52, 638
175,892
106,910
19, 639
3, 672,391
600,166

I Due to the nature of the trd,nsactions in this subzone, entries are not required and duties and internal
revenue taxes are not collected.

Cost of administration

Customs operating expenses amounted to $100,185,166, including
export control expenses and the cost of additional inspection reimbursed by the Departnient of Agriculture.
The following table shows man-years employment data in fiscal
years 1968 and 1969.
Operations
Regular customs operations:
Nonreimbursable
Reimbursable •
^
Total regular customs employment
Export control
^
Additional inspection for Department of Agriculture
Total employment

Percentage
Man-years Man-years increase, or
1968
1969
decrease ( - )

8,103
432

8,222
435

8,535
220
271

8,657
208
278

1.4
-5.5
2.6

9,026

9,143

1.3

1 Salaries reimbursed to the Government by the private firms who received the exclusive services ofthese
employees.

Office of Director of P r a c t i c e
The Office of Director of Practice is a part of the Office of the Secretary of the Treasury and is under the immediate supervision of the
General Counsel. Pursuant to the provisions in Treasury Department Circular No. 230 (31 C F E , P t . 10), the Director of Practice
institutes and provides for the conduct of disciplinary proceedings
against attorneys, certified public accountants, and enrolled agents
Avho are alleged to have engaged in disreputable conduct or who are
alleged to have violated the rules and regulations regarding practice
before the Internal Eevenue Service. The Director of Practice also
exercises jurisdiction, as the first level of administrative appeal, in
those cases where the Commissioner of Intemal Eevenue denies an

ADMINISTRATIVE REPORTS

application for enrollment to practice before the Internal Eevenue
Service made by persons seeking enrollment pursuant to Section 10.4
of Circular 230.
On July 1, 1968, there were 50 derogatory information cases pending in the Office under active review and evaluation, three of which
Avere awaiting presentation or decision before a hearing examiner.
During the fiscal year, 130 cases were added to the caseload of the
Office. Disciplinary action was taken in 46 cases, either by the Office
or by order of a hearing examiner. These 46 actions consisted of one
order of disbarment, 15 suspensions, 29 reprimands, and one instance
where an enrolled agent was permitted to terminate by resignation
his enrollment to practice before the Intemal Eevenue Service. The
46 actions affected nine attorneys, 12 certified public accountants, and
25 enrolled agents.
Five proceedings for disbarment or suspension were initiated before
a hearing examiner during fiscal 1969. Therefore, including the three
cases remaining on the examiner's docket on July 1, 1968, there were
eight cases before the examiner during fiscal 1969. Decisions were
rendered in six of these cases. In one case involving an iattorney, the
examiner's initial order that the attorney be disbarred from further
practice before the Service was affirmed on appeal to the Secretary.
In the remaining cases, the examiner issued initial orders for suspension from practice before the Intemal Eevenue Service, one of
Avhich, involving a certified public accountant, was affirmed on appeal
to the Secretary. As of June 30, 1969, one case was pending on the
examiner's docket awaiting decision and one case was awaiting
presentation.
Sixty-nine cases were removed from the Office caseload during the
fiscal year 1969 after review and evaluation showed that the allegations
of misconduct did not state sufficient grounds to maintain a disciplinary proceeding under the regulations of Circular No. 230. Including the two cases pending on the examiner's docket, there were 62
derogatory information cases under consideration in the Office as of
June 30,1969.
During the fiscal year, two applicant appeal decisions were rendered
by the Director of Practice pursuant to Section 10.5(d) (1) of Circular No. 230. In both instances the denials of applications for enrollment by the Commission of Internal Eevenue were sustained. Three
practitioners petitioned the Director of Practice, pursuant to Section
10.75 of Circular No. 230, for reinstatement to practice before the
Internal Eevenue Service. Favorable consideration was given to each
of these petitions and reinstatement accordingly was granted.
Office of Domestic Gold and Silver Operations
The Office of Domestic Gold and Silver Operations, in the Office
of the Under Secretary for Monetary Affairs, assists the Under Secretary and the Assistant Secretary (Economic Policy) in the formulation, execution, and coordination of policies and programs relating
to gold and silver in both their monetary and commercial aspects.
The Office administers the Treasury Department Gold Eegulations
relating to the purchase, sale, and control of industrial gold and gold
coin; issues licenses and other authorizations for the use, import and
export of gold, and for the importation and exportation of gold coin;

1969 REPORT OF THE SECRETARY OF THE TREASURY

receives and examines reports of operations; and investigates and
supervises the activities of users of gold. Also, it administered the
Silver Coin Eegulations relating to the melting, treating, and export
of silver coins of the United States until May 12, 1969, when such
regulations were revoked. Investigations into possible violations of
the Gold Eegulations and the Silver Coin Eegulations are coordinated
Avith the U.S. Secret Service, the Bureau of Customs, and other
enforcement agencies.
Gold
Use of gold for industrial purposes.—Sales of gold by the Treasury
for industrial use and purchases from the private market were terminated on March 18^ 1968. Since that date, gold used in industry, the
professions, and art in the United States has come from new domestic
production and from imports. During the calendar year 1968, 3,555 jOOO
nne troy ounces of gold were imported for commercial use. Another
1,360,000 ounces from U.S. mine production Avere used in domestic
industry. From January 1 until sales were terminated on March 18,
1968, the Mint supplied 1,689,000 ounces of gold to industry. The
estimated use of gold and its allocation by types is shown in the
following table.
Estimated net industrial use of gold for calendar year 1968
';
Jewelry and arts
'
Dental
Industrial, including space and defense
Total

.-.'

Fineounces

Percent

...

3,908,000
771,000
1,925,000

59
12
29

......

6,604,000

100

Gold coins and gold medals.—^Tlie regulations governing imports
of gold coins and gold medals were liberalized during fiscal 1969. On
April 25,1969, new ^regulations were issued permitting imports of gold
coins minted before 1934 without the necessity of obtaining a license.^
A license is still re(juired to iniport gold coins minted during or after
1934. Licenses are issued only for coins of recognized special value to
collectors of rare and unusual coin. Under the amendments, gold coins
minted after January 1, 1960, may not be imported unless the particular coin had been licensed for importation prior to April 30,1969.^
The number of gold coins licensed by the Treasury increased in the
calendar year 1968 to 20,399, as compared with 4,313 gold coins licensed
in calendar year 1967. During the first half of 1969, 3,680 gold coins
Avere licensed. This decrease reflects in part the elimination of the requirement that licenses be obtained for pre-1934 coins.
On June 10, 1969, amendments AA^ere issued Avhich permit the importation of antique gold medals (over 100 years old) and commemorative medals for regular public display by a museum or other institution
serving the public.^
Licensing of gold dealers.—The Office continued licensing banks
and commodity firms to acquire and import gold for sale to domestic
industrial users. Fifteen such licenses were outstanding at the end of
the fiscal year.
•
.
1 See exhibit 59.
2 See exhibit 60.
3 See exhibit 63.

ADMINISTRATIVE REPORTS

Silver.—Sales of Treasury silver for domestic industrial use at going
market rates on a competitive sealed bid basis continued during fiscal
year 1969. The sales are conducted by GSA, as agent for the Treasury.
On May 12, 1969, f olloAving a meeting of the Joint Commission on the
Coinage, the Treasury announced two changes in the program.^ One
reduced the aniount of the weekly offering from 2 million ounces to 1%
million ounces. Under the other change, the silver sales were opened to
all competitive bidders Avithout restriction on the use of the silver
purchased. During the fiscal year 1969, 99,314,409 million ounces of
silver Avere contracted for sale under this program at a profit to the
Government of $46,733,623.
The administrative ban on the melting and export of U.S. silver
coins Avas revoked following the May 12 meeting of the Coinage
Commission.^
B u r e a u of E n g r a v i n g a n d P r i n t i n g
The Bureau of Engraving and Printing is responsible for manufacturing U.S. paper currency, various public debt instruments, and most
other evidences of a financial character issued by the Government,
such as postage and internal revenue stamps, food coupons, and military payment certificates. I n addition, the Bureau prints commissions,
certificates of aAvards, permits, and a wide variety of other miscellaneous items. Tlie Bureau also executes certain printings for various
territories administered by the United States.
Management attainments

Awards program.—On April 1,1969, the Bureau held its first aAvards
ceremony to honor recipients of 237 superior Avork performance
aAvards, 25 high quality pay increases, and 2 special service awards.
Immediate supervisors presented the awards and the Director Avas
present to'extend his personal congratulations to the awardees. Nonrecurring savings of $93,596, or 15i/^ man-years, were realized in fiscal
1969 from the superior work performance phase of the incentive
aAvards program. Under the employee suggestion program, of 374
suggestions received, 140 were adopted. I t is estimated that the Bureau
Avill realize annual recurring savings of $54,148 and nonrecurring
savings of $823 from suggestions adopted in fiscal 1969.
Improved service to the public.—The Bureau continued to improve
communications with and services to the public. I n fiscal 1969, the
Bureau participated in 31 public shows. Participation in these numismatic and philatelic exhibits and conventions serves a dual purpose, in
that, in addition to providing a public service function, it contributes
to counterfeit deterrence, by acquainting the public Avith the unique
characteristics of U.S. currency and other securities.
During the year, 608,323 visitors took the self-guided tour through
the Bureau. Other tours were arranged on an indiAddual basis for special visitors, such as representatives of the Federal Eeserve System,
representatives of foreign firms in the printing industry, representatiA^es of foreign governments sponsored by the Agency for International Development, and writers and staff members of numismatic and
philatelic publications.
Internal audit.—In the interest of maiiitaining efficient and economic operations, the Bureau has carried on an intensive and continu1 See exhibit 61.
2 See exhibit 62.

1969 REPORT OF THE SECRETARY OF THE TREASURY

ing internal audit prograni. During fiscal 1969, 46 reports of audit,
containing 62 recommendations for improvements, Avere released for
consideration by management.
Savvngs.—Estimated savings totaling approximately $287,000 on a
recurring annual basis and $161,000 on a one-time basis Avere reported
for fiscal 1969 as a result of the Bureau's overall cost reduction and
management improvement efforts. All savings realized are applied
against the cost of products produced and are reflected in doAvuAvard
adjustments in product costs and passed on to customer agencies.
Currency program

Deliveries of currency notes increased from 2.1 billion pieces in
fiscal 1968 to 2.4 billion pieces in fiscal 1969. Despite increased costs in
niaterials and labor, the unit cost rate of currency production in 1969
Avas reduced to a noteworthy IOAV of $7.95 per thousand notes. I t is
estimated that currency requirenients will continue to increase substantially over the next few years. To insure adequate production capacity to meet the increased demands, the Bureau, on December 23,
1968, contracted for tAvo new sheet-fed rotary presses, in the amount of
$868,100, for delivery in July and August 1970. Long-range plans call
for the acquisition of additional high-speed intaglio presses, not only to
insure sufficient production capacity for future currency requirements,
but also to provide for the orderly replacement of the Bureau's existing
equipment, as it wears out, with the most modern presses available
and to continue the program of conA^ersion of other Bureau products
from the wet to the dry method of printing.
This year, the Bureau changed its techniques for applying the signatures of the Secretary of the Treasury and of the Treasurer of the
United States on currency notes. Under the wet-print process formerly
used, it was more economical to overprint the signatures and series
typographically, after the face design was intaglio printed. Upon
complete conversion to the dry-print method on its high-speed sheetfed rotary presses, the Bureau found it a more efficient and economical
operation to apply the signatures and series designation as integral
parts of the face intaglio design on the engraved plates. This engravedsignature technique was used in the printing of the $100 U.o. note.
Series 1966, first delivered on October 14, 1968. I t was also used in
the production of $1 Federal Eeserve notes. Series 1963B, bearing
Secretary Barr's signature, thus making it possible to continue the
historical practice of having each Secretary's signature appear on a
currency issue. By the close of the fiscal year, the Bureau had used the
new method in printing all denominations of Federal Eeserve notes
frdm $1 through $100, Series 1969, bearing the signatures of David
M. Kennedy, Secretary of the Treasury, and Dorothy Andrews Elston,
Treasurer of the United States. Conversion to the 1969 Series under
the engraved-signature method was accomplished with a minimum
of difficulty, in substantially less time than would have been required
under the former method, and at lower costs. Savings in fiscal 1969
from this change were estimated at 2 man-years or $48,000.
Confident that thelgreatest economies in currency manufacture can
be achieved through mechanization of associated manual processing
operations, the Bureau has placed a contract for a prototype currency
overprinting and processing machine for delivery in fiscal 1970. I t
has been estimated that, upon successful performance of this prototype equipment and the acquisition sCnd use of production models,

ADMINISTRATIVE REPORTS

annual recurring savings of $2 million should result in currency processing operations.
Postage stamp program

The Bureau also concentrated on improvements in its second major
work program, the production of postage stamps. A great deal of work
has gone into the overall development of the nine-color prototype webfed intaglio press, which was installed late in fiscal 1966 for the printing of multicolor postage stamps. Major trouble items relating to
press performances were identified and corrected. Satisfied with the
progress of the press, the Bureau made final settlement of the contract
on April 17,1969. The press Avas used for printing the 1968 issue of the '
Christmas stamp, as well as stocks of the 6-cent flag stamps issued in
coil form. A t the fiscal yearend the press was being used for the printing of the 1969 Christmas stamp. Use of this press has reduced overtime considerably.
The Post Office Department has evidenced a continuing interest in
the printing of multicolor postage stamps by the gravure process. Two
commemorative postage stamps, the 5-cent Eakins "American Painting" issue of 1967 and the 6-cent Walt Disney issue of 1968, were
printed by this method. I n each instance, not having a gravure printing press, the Bureau served as contracting agent for the printing of
the stamps by private firms. I n order to obtain a flexibility capable of
meetmg the requirements of the Post Office Department for gravure
printed work, the Bureau has made plans to purchase two gravure
presses.
The first of these will be used primarily in the production of aerograms, a product transferred this year from the Government Printing
Office to the Bureau of Engraving and Printing. On August 30, 1968,
the Bureau received its first order from the Post Office Department to
produce 20 million 130 Human Eights 'aerograms, with a first day
sale date of December 3, 1968. Because of the time limitation and the
fact that the Bureau did not have the special equipment required for
this production, the order was subcontracted to private industry. Immediately, the search begaii for the best available presses and equipment for producing future aerogram requirements. On May 19, 1969,
the Bureau ordered a rotogravure press, at a cost of $524,742, for delivery by February 1970. This will be a web-fed press, capable of printing by the gravure method in as many as seven colors and of tagging,
gumming, accumulating, and delivering 100-sheet units of aerograms
at a web.speed of 300 feet a minute. The press will be capable of rollto-roll printing at a web speed of 800 feet a minute.
Specifications for the second press Avere being finalized at the fiscal
yearend for procurement of a Aveb-fed intaglio-gravure press, having
four rotogravure units, a three-color intaglio unit, an imprinting unit,
a perforating unit, and provisions for sheeting and winding. This
press Avill be used primarily for the production of postage stamps.
Deliveries of U.S. postage stamps decreased to about 27.4 billion
pieces in fiscal 1969, as compared to 34.7 billion pieces the previous
year, when-the January 1968 postal rate increase became effective.
New issues of postage stamps delivered in fiscal 1969 are shown in the
Statistical Appendix.
Food coupon program

Food coupon deliveries increased from 397 million pieces in fiscal
year 1968 to 502 million pieces in 1969. With the substantial groAvth

19 69 REPORT OF THE SECRETARY OF THE TREASURY

that has taken place in the production of food coupons in book form,
the Bureau has directed special attention to methods of mechanizing
manual operations associated with the manufacture of this product.
As an alternate consideration for a dual-purpose, roll-fed, bookmaking
machine that would require several years in developing, the Bureau
purchased and installed a less complex, 12-station, sheet-fed, collating
machine for use in the production of food coupons. The machine was
in production at ttlie fiscal yearend, but mechanical problems have
been encountered which prcA^ented it from operating at its rated speed.
Employee-oriented activities

I n addition to a continuing interest in technological improvements,
management evidenced special interest in the Bureau's employee oriented programs during the fiscal year.
Labor-management relations in the Bureau are excellent, Avitli the
various union groups contributing significantly to successful prograni
operations. On Deceniber 17,1968, negotiation Avas concluded of a basic
agreement with Columbia Lodge No. 174, International Association of
Machinists and Aerospace Workers, A F L - C I O . The agreement covers
a unit of approxiniately 1,850 noncraft, nonsupervisory, wage system
employees. This A\^as the seventh formal labor-management contract
negotiated by the Bureau Avith employee unions. I n all, exclusive recognition has been granted to 15 unions, representing 25 craft units,
one noncraft unit, and one GS guard unit, in addition to formal recognition granted to one other union.
Throughout the year, positiA^e steps were taken to iniprove the exchange of information within the Bureau. Periodic issues of the "Employees' Newsletter;," initiated in 1967, were continued. Eegular supervisory staff meetings were initiated in fiscal 1969 in all organizational
components, as a means of keeping supervisors informed, so that they,
in turn, may pass thb inf ormation on to line employees.
Action was initiated to implement early in fiscal 1970 a Supervisory
Intern Program, designed to create increased promotion opportunities
for Bureau employees interested in attaining supervisory status and to
improve the quality of the Bureau's supervisory structure. I t is expected that this program will receive increased emphasis, Avitli a view
to employing a multiple approach to the measurement of successful
supervisory qualities.
The Director instituted a IICAV approach to policymaking and program planning by assigning employee representatives and first-line supervisors to A^arious task.forces, to make detailed studies and reoonimendations on specific matters. Major task force studies related to leave
usage policy and overhaul of the safety prograni.
A new employee career counseling service was set up to provide personal assistance to employees on request. Employees interested in adA^ancement have been encouraged to make full use of the service to
ascertain their potential development Avithin the new promotion policy.
Director'^s report 'to employees.—On June 30, 1969, the Director issued lan "Annual Eeport to Employees," "as shareholders in the
Bureau of Engraving and Printing." Every employee received a copy.
This report, the first of its kind, summarized progress made in the
Bureau during fiscal 1969 and set forth management plans for continued progress in 1970. Throughout, the Director emphasized his
personal 'and intense interest in "people" as management's best tool.
H e defined the Bureau's success in completion of its mission by stating:

ADMINISTRATIVE REPORTS

"My evaluation of 'success' is not, and Avill not be predicated solely
on the number of pieces of product produced nor the fact that the product was produced at reduced costs. This Bureau's completion of its assignment will not be a success unless that assignment is accomplished
in concert with the well-being of Bureau employees."
Training program.—The Bureau's craft training opportunities program continued to progress. The 81 apprentices selected through the
concept of identifying ability to learn, instead of through the traditional concept of requiring attained levels of education and precise
subject matter, have validated this approach in all craft areas. At the
end of the year, 20 apprentices had been promoted to journeyman positions in the plate printing and plate finishing crafts and a former
Bureau guard had been placed as an apprentice in the highly skilled
bank note designing craft, because of his artistic background and
training.
An intemal printing management trainee program was established,
with a graduate from a printing management curriculum appointed
as the first trainee.
I n various other training activities during the year, 1,576 employees
completed Bureau or departmental training courses; 75 employees
completed interagency training courses; and 110 employees attended
specialized seminars, training classes, conferences, and exhibits sponsored by nongovernment organizations.
Equal employment opportunity.—Employee committees established
under the equal employment opportunity program began their second
year of operation in July 1968. Meetings were held with 500 employee
members during fiscal 1969. At one meeting, the Director presented
the Bureau's equal employment opportunity policy and philosophy
and discussed the role of employee committees in the program. Uninhibited discussions on all Bureau practices and operations were
encouraged. As evidence of the importance attached to this program,
the Deputy Director of the Bureau is the Equal Employment Opportunity Officer.
Safety program..—In April 1969, a comprehensive plan to revitalize
the safety program was announced. Significant contributions were
made by employee menibers of the special task force appointed in
connection with this project. The ncAv program encompasses a special "Safety Idea Program," under which the employee making the
most significant contribution to the safety effort each quarter will be
granted a $50 cash award, and a "Safety Action Plan," which has only
one purpose, the prevention of accidents in the Bureau. A special
edition of the "Newsletter" was devoted exclusively to safety matters. I n May, the Bureau achieved a Z E E O accident rate, with no losttime injuries among over a half-million Avork hours. This record continued through the close of the fiscal year. A continuing management
objective will be to sustain the momentum now generated in this
program.
Deliveries of finished work

A comparative statement of deliveries of finished work for fiscal
years 1968 and 1969 appears in the Statistical Appendix.
Finances

Bureau operations are financed by reimbursements to the Bureau of
Engraving and Printing fund, as authorized by laAv. Comparative financial statements follow.

1969 REPORT OF THE SECRETARY OF THE TREASURY
Statement of financial condition June 30, 1969 and\1968
Assets

June 30, 1969 June 30, 1968

Current assets:
Cash on hand
Cash with the Treasury.-..
Accounts receivable.
L
Inventories: i
•
Finished goods
L
Work in process
:
Raw materials
stores
Prepaid expenses

Total current assets-Plant inachinery and equipment
Motor vehicles
i
Officemachines
Furniture and
Dies, roUs, and plates
Building appurtenances...
Fixed assets under construction

fixtures....
•

Less accumulated depreciation
Excess fixed assets (written down to 10 percent and 30 percent of book
value, 1969 and 1968, respectively)
Total fixed assets

Deferred charges
Totalassets

.1....

$40
4,286,418
2,303,317

$4,279,538
3,848,078

2,653,341
3,730,959
1,416,257
1,419,096
153,165

2,039,725
3,211,502
1,475,126
1,211,096
. 131,705

15,962,593

16,196,770

22,635,075
163,862
318,936
494,045
3,955,961
3,694,399
608,987

22,053,504
160,744
313,374
484,681
3,955,961
3,449,951
203,630

31,771,265
17,942,788
13,828,477
(
888

30,621,845
16,548,234
14,073,611

13,829,365

14,081,662

230,070

89,117

30,022,028

30,367,549

8.051

Liabilities and investment of the United States
Liabilities:
Accounts payable...
Accrued liabilities:
Payroll
.:
Accrued leave
.:...
Constructive receipts 3.
Other
Trust and deposit liabilities..
Otherliabilities
'.
Total liabilities 4
Investment of the U.S. Government:
Appropriation from U.S. Treasury
Donated assets, net

•

Accuraulated earnings, or deficit (—) «
Total investment of the U.S. Goverrmient
Total liabilities and investment of the U.S. Govermnent

321,491

564,312

1,329,050
1,993,307
581,150
200,429
304,774
1,631
4,731,832

1,094,515
2,041,457
177,340
1,367,399
307
5,245,330

3,250,000
22,000,930

25, 250,930
39,266

25,250,930
—128,711

25,290,196

25,122,219

30,022,028

30,367,549

1 Finished goods and work in process inventories are valued at cost, including administrative and service
overhead. Except for the distinctive paper which is valued at the acquisition cost, raw materials and stores
inventories are valued at the average cost of the materials and supplies on hand.
2 Plant machinery and equip>ment, furniture and fixtures, office machines, and motor vehicles acquired
on or before June 30, 1950, are stated at appraised values. Additions since June 30, 1950, and all building
appurtenances are valued at acquisition cost. The act of Aug..4, 1950 (31 U.S.C. 181a), which established
the Bureau of Engraving and Printing fund, speciflcally excluded land and buildings valued at about
$9,000,000 from the assets of the; furid. Also excluded are appropriated funds of about $7,184,000 expended
or transferred to GSA for extraordinary expenses in connection with uncapitalized building repairs and air
conditioning. As of June 30, 1969, fixed assets included $6,855,426 of fully depreciated items, principally
plant machinery and eciuipment and building appurtenances. Dies, rolls, and plates were capitalized at
July 1, 1951, on the basis of average unit costs of manufacture, reduced to recognize their estimated useful
life. Since July 1,1951, all costs of dies, rolls, and^plates have been charged to operations in the year acquired.
3 The accrual for constructive receipts is an accounting change instituted in fiscal year 1969. This item
is the estimated value of work performed by contractors to special specification, which had not been delivered to or accepted by the Bureau as of June 30, 1969; contra entries are to raw materials $93,402, stores
$9,376, and fixed assets under construction $478,372.
< In addition, outstanding commitments with suppliers for unperformed contracts and undelivered
purchase orders totaled $19,046,885 as of June 30, 1969, as compared with $6,393,232 on June 30, 1968. Included in the total of $19,046,885 is $15,062,397 representing a 4-year contract entered into with a supplier
of distinctive paper.
i
fi See footnote 2, succeeding table.
.
.
=

ADMINISTRATIVE REPORTS

Statement of income and expense, fiscal years 1969 and 1968
Income and expense
Operating revenue: Sales of engraving and printing
Operating costs:
Cost of sales:
Directlabor
Direct materials used..
Contract printing (postage stamps)
Primecost
Overhead costs:
Salaries and indirect labor
Factory supplies
Repair parts and supplies
Employer's share personnel benefits
Rents, communications and utilities
Other services
Depreciation and amortization
Gains (—), or losses on disposal or retirement of fixed assets
Sundry expense (net)
Total overhead
Total costs 1

Less:
Nonproduction costs:
Shop costs capitalized
Cost of miscellaneous services rendered other agencies
Cost of production....
Net increase (—) or decrease in finished goods and work in process inventories from operations
Costofsales
Operating profit, or loss ( - )
• Nonoperating revenue:
Operation and maintenance of incinerator and space utilized by other
agencies
Other direct charges for miscellaneous services
Nonoperating costs:
Cost of miscellaneous services rendered other agencies.
Net profit, or loss ( - ) for the year 2
'.

1969

1968

$40,271,162

. $39,221,724

17,348,413
6,342,962
515,186

16,016,960
6,037,230
238,261

24,206,561

22,292,451

10,858,029
1,699,643
428,795
1,990,632
879,692
560,689
1,666,450
26,122
86,590

10,032,220
1,718,343
410,567
1,834,383
759,146
581,200
1,665,276
60,277
116,892

18.196,642

17,168,303

42,403,103

39,460,754

482,404
684,441

314,804
642,589

1,166,845

957,393

41,236,258

38,603,361

—1,133,073

670,727

40,103,185

39,174,088

167,977

47,636

544,184
140,257

510,941
131,648

684,441

642,589

684,441
167,977

642, 589
47, 636

1 No amounts are included in the accounts of the fund for (1) interest on the investment of the Government in the Bureau of Engraving and Printing fund, (2) depreciation on the Bureau's buildings excluded
from the assets of the fund by the Act of Aug. 4, 1950, and (3) certain costs of services performed by other
agencies on behalf of the Bureau.
2 The Act of Aug. 4,1950, provided that customer agencies make payment to the Bureau at prices deemed
adequate to recover all costs incidental to performing work or services requisitioned. Any surplus accruing
to the fund in any fiscal year is to be paid into the general fund of the Treasury as miscellaneous receipts
except that any surplus is applied first to restore any impairment of capital by reason of variations between
prices charged and actual costs. Accordingly, $128,711 of the total profit of $167,977 which resulted from operations in fiscal year 1969 will be applied to offset cumulative losses in prior years. The balance, or $39,266,
will be returned to the Treasury as miscellaneous receipts.

19 69 REPORT OF THE SECRETARY OF THE TREASURY
Statement of source and application of funds, fiscal years 1969 and 1968
Funds provided and applied

Funds provided:
Sales of engraving and printing
Operation and maintenance of incinerator and space utilized by other
agencies
0tlrer direct charges for miscellaneous services.._
Total...
•
Less cost of sales and services (excluding depreciation and other charges not
requiring expenditure of funds: Fiscal year 1969, $1,692,572; fiscal year
1968, $1,715,553)...
i

1969

1968

$40,271,162

$39,221,724

544,184
140,257
40,955,603

510,941
131,648
39,864,313

39,095,054

38,101,124

1,860,549

1,763,189

Sale of surplus equipment

15,479

6,727

Total funds provided

1,876,028

1,769,916

1,403,350

962,946

193,357
279,321
1,876,028

68,359
738,611
1,769,916

Funds applied:
Acquisition of fixed assets....
Acquisition of experimental equipment; and plant repairs and alterations
to be charged to future operations
.
Increase in working capital
.
Total funds applied.......

Fiscal Service
BUREAU OF ACCOUNTS

The Bureau's functions are Go vernment wide in scope. They include
central accounting and financial reporting relating to the Government
as a whole; disbursing for virtually all civilian agencies; supervising
the. Government's depositary system; determining qualifications of
insurance companies to do surety business AA^tli Governinent agencies;
a variety of other central fiscal activities, such as investment of trust
funds, agency borrowings from the Treasury, international claims and
indebteciiiess, mid liquidation of the Postal Savings System; and
Treasury staff representation in the joint financial management improvement program.
Management improvement

Savings of $2,012,000 Avere realized during fiscal 1969 under the
cost reductioii and managenient improvement program, attributable
to further improvements in technology and systems, realinement of
organizatioii and staffing, and the benefits of continuing programs for
the development of people in management and operating skills at all
levels.
Personnel

Continued emphasis was placed on achieving better manpower utilization during the year. ToAvard this goal, plans for a reorganization
within the Bureau were completed, to beconie effeotive on the first day
of fiscal 1970. Functions are redistributed and amalgamated, resulting
in three major operating divisions, instead of four, enhancing optimum utilization of manpower and the realization of maximum potential of career personnel.
Systems improvement

Bureau staff continued to represent the Treasury on the steering
committee and study teams of the joint financial management improve-

ADMINISTRATIVE REPORTS

ment prograni. Primary attention AA^as given to implementing the
recommendations of the President's Conimission on Budget Concepts
as described under "GoA^ernment-Avide Financial Management." ^ Other
systems Avork during the year included various studies to improve internal procedures and further codification of Government-wide regulations within the Treasury Fiscal Eequirements Manual. Procedural
requirements were prescribed for Government agencies dealing with
the following matters: (1) the AvithdraAval of cash from the Treasury
for advances under Federal grants and other programs; (2) financial
reporting on Federal lending programs; (3) the deposit of public
moneys in the general account of the Treasurer of the United States;
(4) allotments of pay of Federal employees for savings accounts in
financial institutions and also remittance of net salaries or wages
directly to employee accounts in financial institutions; (5) the withholding of State income taxes from compensation of Federal personnel; and (6) financial reporting of Federal aid payments to State
and local governments.
Central accounting and reporting

The accounting manual covering the Bureau's system of central
accounting for the Government as a whole was approved by the General Accounting Office in October 1968. The separate manual covering
the Bureau's central operations for foreign currency transactions was
approved June 30,1969.
The Annual Eeport of the Secretary of the Treasury for fiscal year
1968 Avas published in two parts, for the first time. P a r t one, covering
the Secretary's statement, review of fiscal operations, administrative
reports, and exhibits, was published in January 1969. P a r t two, the
Statistical Appendix, containing all tables, was published in June
1969. This permitted more timely publication of P a r t one. Historical
data on the IICAV unified budget basis was published for each year back
to 1953.
NCAV tables shoAving monthly trends, receipts by sources and outlays
by function were incorporated in the "Monthly Statement of Eeceipts
and Expenditures of the United States Government" during 1969.
I n addition, the data on capital movements in the "Treasury Bulletin" Avere completely revised to broaden scope and detail.
During the year. Treasury Circular No. 1014 relating to Federal aid
payments to State and local governments Avas revised to achieve greater
consistency with other data on Federal aid. Also, a revision of Treasury Circular No. 966 relating to business-type financial statements was
undertaken with the goal of producing financial statements fully
integrated with the central accounting system, coordinate with the
planned conversion of the Federal budget from the cash to the accrual
basis in measuring receipts and expenditures.
Auditing
During fiscal year 1969, the audit staff conducted nine financial
audits of Bureau activities. I n addition, management surveys Avere
performed in six regional offices.
1 In the "Review of Treasury Operations" section of this report, pages 8-10.

363-222—70-

19 69 REPORT OF THE SECRETARY OF THE TREASURY

. The audit staff made the annual examination of financial statements
of surety companies holding Certificates of Authority as acceptable
sureties on bonds running in favor of the United States (6 U.S.C. 8).
Such certificates are renewable each July 1 and a list of approved
companies (Department Circular 570, Eevised) is published annually
ih the "Federal Eegister" for the information of Federal bond approving officers and pbrsons required to give bdnds to the United States.
As of June 30, 1969, a total of 254 companies held certificates.
A verification of the cash and securities held by the Office of the
Treasurer of the IJnited States Avas made as of the close of business
oh May 8, 1969, the date on which the IICAV Treasurer of the United
States assumed the duties of the office'. General coordination and staff
assistance Avere furnished for the aniiual audit of the Exchange Stabilization Fund.
' .
Disbursing operations

I n fiscal 1969, the Divisioii of Disbursement achieved a unit production cost of 2.6 cents per item, the lowest ever. A total of 455.7
million checks and savings bonds were issued for the programs of more
than 1,400 agency stations. Disbursing operations and various other
services were performed by 11 disbursing offices in major cities of the
contiguous United States, Hawaii, Alaska, and Manila, Philippines.
Also, payroll accounting serAdces for certain small agencies were performed in five disbursing centers equipped with computers. A twelfth
office, a computerized disbursing center in Austin, Tex., Avas organized
during the year, to becoihe operational in August 1969. Conversion
bf the Denver Eegioiial Office to computer operations was undertaken,
to become effective in fiscal 1970.
Measurable standards of production and teclmological advances
have contributed significantly to progress in the central disbursing
function.over many years. A recent example was the installation in
several offices, late in fiscal 1969, of new high-speed inserting and
sealing machines -another was the installation of an automated system
for miscellaneous (one-time) payments in the Washington Disbursing
Center. The latter is the biggest breakthrough in processing miscellaneous payments; since the Masterfax (heat transfer) technique was
installed in 1965.!lnitial savings amounted to $50,000 (with further
savings for General Services Administration, as a result of reduced
space requirenients). Additional savings are anticipated as the system
is extended to other offices aiid greater use is made of system
byproducts.
; ;
ComprehensiA^e stutly of the claims and returned check activity
was initiated, with a Adew to possibly automating many of the
costly manual operations involAT^ed.
The central disbursing function continues to provide impetus for
close interagency coordination. Eegularly scheduled staff consultatidlis
Avitli. maj or agencies such as the Social Security Adniinistration, Internal Eevenue Service, and Veterans' Adniinistration resulted in many
mutually beneficial improvements in operations during the year.
A comparison of the Avorkloads for fiscal 1968 and 1969 is shown in
the following: table.
. ..

ADMINISTRATIVE REPORTS

93
Volume

Classification

1969
Operations financed by appropriated funds:
.
Checks:
Social security benefits
1..^.
Veterans'benefits
Income tax refunds.
........
...:
Veterans' national service life insurance dividends programs
Other
Savings bonds
Adjustments and transfers..:
.:.

...
:'....

Operations financed by reimbursements:
Railroad Retkement Board
Bureauof Public Debt (General Electric Co. bond program)
Total workload—reimbursable items
Total w o r k l o a d . . . .

•
....1.

246,752,214
258,664,062
65,292,702
68,683,466
51,868,895
50,968,396
2,254,582
3,868,129
52,797,084 • 51,610,090
7,273,797
7,497,943
• 252,322
264,368
426,491,596

441,556,454

12,894,907
978,591

13,214,575
1,011,467

13,873,498

14,226,042

~440,365,094

455,782,496

Deposits, investments, and related activities

Federal depositary system.—The types, of depositary services provided and the number of depositaries for each of the authorized
services as of June 30, 1968 and 1969, are showii in the following
table.
Type of service provided by depositaries
Receive deposits from taxpayers and purchasers of public debt securities, for credit in
Treasury tax and loan accounts
Receive deposits from Government officers for credit in Treasurer's general accounts...
Maintain official checking accounts of CJoverrmaent officers
Furnish bank drafts to Government officers in exchange for collections.
Maintain State unemployment compensation benefit payments and clearing accounts.
Operate limited banking facilities:
. In the XJnited States and its.outlying areas
In foreign areas
'.

1968

1969

12,613
1,506
7,273
1,250
53

12,593
1,500
7,576
1,430
53

245
281

233
252

Investments.—The Secretary of the Treasury, under specific provisions of law, is responsible for investing various Government trust
funds. The Department also furnishes investnient services for other
funds of Government agencies. At the end of fiscal 1969, Governmeiit
trust funds and accounts held public debt securities (including special
securities issued for purchase by .the. major trust furids as authorized
by law). Government agency securities, and securities of privately
owned Government-sponsored enterprises. See the Statistical Appendix for table showing the investment holdings by Goverriment agencies
and accounts.
The accounting system for the investment operations was approved
by the Comptroller General of the United States on March 13, 1969.
Loans by the Treasury.—The Bureau administers loan agreements
with those corporations and agencies that have authority to borroAv
from the Treasury. See the Statistical Appendix for tables showing
the status of Treasury loans to Government corporations and agencies
as of June 30,1969.
Surety bonds.—'Executive agencies are required by law (6 U.S.C
14) to obtain, at their own expense, blanket, position schedule, or other
types of surety bonds covering employees required to be bonded. Thie

19 69 REPORT OF THE SECRETARY OF THE TREASURY

legislative and judicial branches are permitted by laAv to folloAV the
same procedure. A summary of bonding activities of Government
agencies follows:
Number of officers and employees covered on June 30,1969
Aggregate penal sums of bonds procured
Total premiums paid by the Government in fiscal year 1969
Administrative experises in fiscal year 1969
Foreign indebtedness

904, 398
$3, 326, 555, 300
$317, 646
$69, 253

World War I.—-The governments of Finland and Greece made payments during fiscal 1969 of $353,542.50 and $328,898.02, respectiA^ely.
For status of World W a r I indebtedness to the United States, see the
Statistical Appendix.
Credit to the United Kingdom.—The installment of principal and
interest due December 31, 1968 (under the Financial Aid Agreement
of December 6, 1945, as amendeci March 6, 1957), was deferred. Payment was made of $8.6 million representing interest on installments
previously deferred. Through June 30, 1969, cumulative payments
totaled $1,660.2 million, of which $938.7 million was interest. A principal balance of $3,028.5 million reniains outstanding; interest installments of $319.9 million whicii have been deferred by agreement also
Avere outstanding at the fiscal yearend.
Japan^ postioar economic assistance.—The Government of Japan
made payments in fiscal year 1969 of $36.5 million principal and $7.4
million interest on its inclebtedness arising from postwar economic assistance. Cumulative paynients through June 30, 1969, totaled $222
million principal and $63.4 million interest, leaving an unpaid principal balance of $268 million.
Payment of claims against foreign governments

The ninth installment of $2 million Avas received from the Polish
Government under the Agreement of July 16, 1960, and pro rata payments on each unpaid aAA^ard Avere authorized.
The. fourth of five annual installmerits of $700,000 was received from
the Government of Yugoslavia under terms of the Yugoslav Claims
Agreenient of JSTovember 5,1964. The Foreign Claims Settlement Commission, continued to certify to the Secretary of the Treasury awards
for paynient under the agreenient. Initial payments up to $1,000 on
all awards certified to be continued to be made during the fiscal year. See
the Statistical Appendix for more details.
Defense lending

Defense Production Act.—Loans outstanding were reduced from
$10.1 million to $7.9 million during fiscal 1969. Further transfers of
$2.7 million Avere made to the account of the General Services Administration, from the net earnings accumulated since inception of the
program, bringing the total of these transfers to $26.5 million.
Federals Civil Defense Act.—Outstanding loans Avere reduced from
$386,375 to $340,586 during fiscal 1969.
Liquidation of Reconstruction Finance Corporation assets.—The
Secretary of the Treasury's responsibilities in the liquidation of E F C
assets relate to completing the liquidation of business loans and securities Avitli individual balances of $250,000 or more as of June 30, 1957,

ADMINISTRATPV^E REPORTS

and securities of and loans to railroads and financial institutions. Net
income and proceeds of liquidation amounting to $54.4 million have
been paid into Treasury as miscellaneous receipts since July 1, 1957.
Total unliquidated assets as of June 30, 1969, had a gross book value
of $8.1 million.
Liquidation of Postal Savings System

Effective July 1, 1967, pursuant to the act of March 28, 1966 (39
U.S.C. 5225-5229) the unpaid deposits of the Postal Savings System
as shown on the books of the Board of Trustees, totaling $56,788,958.29
(including accrued interest), were to be transferred to the Secretary
of the Treasury, of Avhich $50 million was" transferred during fiscal
1968 and the "remainder during fiscal 1969. These deposits are held in
trust by the Secretary pending proper application for payment. Under
interim arrangements, except for certain dormant accounts, local post
offices process applications for withdrawal of funds by depositors and
forward them to the Bureau for payment. Payments totalmg $51,620,291.70 have been made to date, including $16,270,056.92 during fiscal
1969. .
Federal tax deposits

The Federal Tax Deposit System is used for the collection of individual and corporate income taxes, social security taxes, railroad
retirement taxes, and Federal excise taxes. As described on page 11
of the 1967 annual report, the Bureau of Accounts prepares and mails
Federal Tax Deposit fornis quarterly to private enterprises. During
fiscal 1969, five computer offices printed and mailed 82 million forms,
an increase of 32 million over the previous year. The folloAving table
sliOAvs the volume of deposits processed by Federal Eeserve banks for
fiscal years 1961-69.
Individual
income and
social
security
taxes

Fiscal year

1961 - -.
1962
1963 . .
1964
1965
1966
1967
1968..-..
1969-...:

......
.:....
.

9,908,068
10,477,119
11,161,897
11,729,243
12,012,385
12,518,436
15,007,304
17,412,921
23,939,080

Railroad
•retirement
taxes

10,724
10,262
9,937
9,911
9,859
9,986
10, 551
14,596
12,479

Federal
, excise
taxes

618,971
610,026
619,519
633,437
644,753
• 259,952
236, 538
233,083
272,048

Corporate
income
taxes

.
.
.
.
.
.
22,783
394,792
1,297,052

Total

10,537,763
11,097,407
11,791,353
12,372, 591
12,666,997
12,788,374
15,277,176
18,055,392
25, 520,659

NOTE.—Comparable data for 1944-60 will be found in the 1962 annual report, page 141.

Government losses in shipment

Claims totaling $330,988.69 were paid from the fund established
by the Government Losses iri Shipment Act, as aniended. Details of
operations under this act are shown in the Statistical Appendix.
Other operations

Donations and contributions.—During the year the Bureau of Accounts received "conscience fund" contributions totaling $25,929.05
and other unconditional donations totaling $262,173.13. Other Gov-

1969 REPORT OF THE SECRETARY OF THE TREASURY

ernment agencies received conscience fund contributions and unconditional donations amounting to $5,948.26 and $146,757.25, respectively.
Conditional gifts to further the defense effort amounteci to $1,254.80.
Gifts of money and the proceeds of real or personal property donated
in fiscal 1969 for the purpose of reducing the public debt amounted to
$132,327.42.
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 ^ Department of the Treasury circulars offering 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 the 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 Avith owners of registered securities and authorizing the issue of checks in payment of interest thereon, and the handling
of claims on account of lost, stolen, destroyed, or mutilated securities.
The Bureau's principal offiice and headquarters is in Washington,
D.C. Offices also are maintained in Chicago, 111., and Parkersburg,
W. Va., Avliere most Bureau operations related to U.S. savings bonds
and U.S. savings notes are handled. Under Bureau supervision many
transactions in public debt securities are conducted by the Federal
Eeserve banks and their branches as fiscal agents of the United States.
Approximately 18^900 (28,700 outlets) private financial institutions,
industrial organizations, selected post offices, and others cooperate in
the issuance of savings bonds and saAdngs notes; and approximately
16,600 financial institutions (30,200 outlets) act as paying agents for
savings bonds and savings notes.
Management improvement

During fiscal year 1969, the book-entry procedure was applied to
U.S. savings bonds issued to the trustees of various qualified employees'
savings and thrift plahs.^ I n lieu of definitive bonds in the names of the
trustees, issues are represented by entries in the records of the Federal
Eeserve banks and' the Bureau. Provision has been made for the conAversion of bonds from definitive to book-entry form and from bookentry to definitive form. This procedure is distinctly advantageous to
the trustees by eliminating the heed to maintain and control definitive
bonds in relatively large numbers, and it increases the attractiA^eness of
savings bonds to companies administering employee savings or thrift
plans. The Bureauj also realizes benefits through a reduction in the
processing of definitive securities, particularly in the handling of
reissues to effect partial redemption.
A computer system was installed in the Washington office to perform a variety of f^ublic debt accounting and other operations that had
1 See exhibit 3.

ADMINISTRATIVE REPORTS

been accomplished on conventional tabulating equipment. Operations
are being con Averted on a phase basis AAdth priority going to those which
required a major portion of E A M time. I n order to capitalize fully on
potential benefits offered by electronic data processing, data recorders
Avliich enter information directly on tape have been installed to replace
key punch machines.
A Division of Data Processing was established to become fully operational as of July 1, 1969, to operate the computer system in the
Washington office and to provide A D P services to organizational seg-,
ments of that office. The division will also advise the Commissioner
on A D P matters on a Bureau-wide basis; deal with Treasury bureaus
and other agencies regarding the interchange of data; and maintain
a continuous study of developments in the field of A D P to help insure
that Bureau operations are conducted with maximum efficiency and
economy.
A full-scale review of the organizational alinement of functions in
the Washington office resulted in two reorganizations that provide
better utilization of manpower arid more expeditious processing of.
workloads. Functions with respect to the maintenance of registers
of serial numbers for stocks of securities received and issued^ the
authorization of stock shipments, and the development of data on
accountability items in process, were relocated within the Division
of Loans and Currency. I n an int^rdivisional shift, the activity
responsible for developing statistics on the ownership of Government securities was merged with a. section producing reports of public
debt accounting statistics.
Momentum was maintained in the program to have large volume
issuing agents of series E savings bonds and savings notes report issues
on magnetic tape in lieu of submitting registration stubs. Three more
agents converted to the system during the year, bringing the total to
nine with aggregate annual issues approximating 25 million pieces.
Pilot studies were in process at the fiscal yearend with a number of
other agents, including several in the private sector.
The verification of key punching of issue dates in retired savings
bonds in card form has been reduced 90 percent; thorough testingproved that verification of 10 percent of the cards punched is sufficient
as a quality control. Substantial monetary savings will be realized, in
the Parkersburg office through release of ec[uipment and a reduction
in manpower requirements.
Additional functions related to currerit inc^ome savings bond operations in the Chicago office were converted to electronic data processirig,
and more sophisticated programing approaches were applied to existing programs in order to process more data and provide more concise
information.
Accomplishments in the various. continuing management control
programs, particularly those in forins and directiA^es manageriient,'
contributed significantly to the effective performance of the Bureau's
functions. Eecurring annual savings from employee suggestions

19 69 REPORT OF THE SECRETARY OF THE TREASURY

totaled $25,000 which was the highest figure reached in the last 10
years.
'
Bureau operations

The extent of the change in the composition of the public debt is one
measure of the Bureau's Avork. The debt falls into tAvo broad categories: public issues and special issues. Public issues consist of marketable Treasury bills, certificates of indebtedness, notes, and bonds; and
nonmarketable securities, chiefly U.S. savings bonds, U.S. savings
notes, U.S. retirement plan bonds, and Treasury bonds of the investment series. Speciial issues of ceitificates, notes, and bonds are made
by the Treasury 'directly to various Govemment trust and certain
other accounts and are payable only for these accounts.
During the year, 35,467 individual accounts covering publicly held
registered securities other than sayings bonds, savings notes, and retirement plan bonds wfere opened and 31,024 were closed. This increased
the number of open accounts to 227,642 covering registered securities
in the principal amount of $10,762 million. There were 428,328 interest
checks Avitli a value of $391 million issued during the year.
Eedeemed and canceled securities other than savings bonds, savings
notes, and retirement plan bonds receiA^ed for audit included 7,470,191
bearer securities iand 386,804 registered securities. Coupons totaling
16,659,286 AA^ere received.
During the year 21,913 registration stubs of retirement plan bonds
and 12,170 retirement plan bonds were received for audit.
A summary of public debt operations handled by the Bureau appears
on pages 19-23 of this report and in the Statistical Appendix.
U.S. savings bonds.—The issuance and redemption of savings bonds
results in a heavy administrative burden for the Bureau of the Public
Debt, involving: Maintenance of alphabetical and numerical oAvnership records for the 3.2 billion bonds issued since 1935; adjudication
of claims for lost, stolen, and destroyed bonds (which totaled 2.4 million pieces on June 30, 1969); and the handling and recording ofretired bonds.
Detailed information on sales, accrued discount, and redemptions of
savings bonds will be found in the Statistical Appendix.
There were 124 million stubs or records on magnetic tape and microfilm representing the issuance of series E bonds received for registration, making a grand total of 3,122 million, including reissues, received
through June 30, 1969.
All registration stubs of series E savings bonds and all retired series
E savings bonds are microfilmed, audited, and destroyed, after required
permanent record data are prepared by an E D P system in the Parkersburg office. The following table shows the status of processing operations for savings bonds and savings notes in the Parkersburg office.

ADMINISTRATIVE

REPORTS

Balance
Fiscal
year

Received

Microfilmed

ConKey
verted
punched to magnetic
tape

Audited
and
classified

Destroyed

Unfilmed

Not key
punched

N o t converted
Unaut o m a g - dited
netic t a p e

S t u b s of issued card t y p e series E savings b o n d s (in milUons of pieces)
1958-64—.
1965
1966
1967
1968
1969Total 1

608
98
101
104
102
104

604
101
101
104
103
102

601
101
100
105
103
102

1,118

1,115

1,112

601
101
100
105
103
102 .
1,112

598
102
100
103
103
102

532
124
100
103
98
104

1,109

1,061

4.6
2.3
2.3
2.6
1.7
3.1

7.2
4.5
5.5
5.2
4.4
6.1

7.2
4.5
5.9
5.2
4.4
6.6

9.9
6.6
7.5
8.9
8.1
9.7

R e t i r e d c a r d t y p e seriesi E savings b o n d s a n d savings notes ^ (in millions of pieces)
1958-64....
1965
1966
1967
1968
1.969

375
75
82
87
95
111

373
76
81
88
94
110

370
77
80
87
96
108

370
77
80
87
97
108

368
77
80
86
95
106

340
60
92
85
84
98

Total-

824

821

818

813

759

2.3
1.7
2.2
2.0
2.5
3.4

5.0
3.2
5.0
4.9
3.6
6.7

5.0
3.5
5.0
5.5
3.6
6.7

6.8
5.2
6.5
8.3
7.6
11.9

1.4
.9
1.0
.8
.8
.8

2.1
1.3
1.3
1.4
1.3
1.3

R e t i r e d p a p e r t y p e series E savings b o n d s (in millions of pieces)
1962-64 3 . .
1965
1966
1967
1968
1969

45.0
20.4
19.3
16.8
15.2
13.7

44.4
20.5
19.4
16.8
15.2
13.7

Total.

130.4

130.0

43.6
21.0
19.1
17.0
15.3
13.7

43.6
20.9
19.2
17.0
15.2
13.7

42.9
21.2
19.3
16.7
15.3
13.7

28. 5
11.0
33.9
16.0
13.8
18.4

129.7

129.6

129.1

121.6

0. 6
.5
.4
.4
.4
.4

1.4
.8
1.0
.8
.7
.7

S t u b s of issued U . S . savings notes 2 (in millions of pieces) •
1967
1968....— 1969.
Total.

(*)

6.9
11.0

17.9

(*)

6.6
10.9

17.5

(*)

6.5
10.7

. 17.2.

(*)

6.5
10.6

17.2

(*)

6.2
10.6

16.8

(*)

2. 3
9.3

(*)

0. 3
.4

(*)

0.4
.7

. (*)

0.4
.7

(*)

0.7
1.1

11.6 . . . . . . . .

* Less than 50,000.
1 Excludes records received.on magnetic tape: 5.3 million in 1965, 6.4 million in 1966, 12.8 mihion in 1967,
17.2 million in 1968, and 19.9 million in 1969, for a total of 61.6 mhlion.
2 U.S. savings notes were first issued in May 1967.
8 In 1962 (and in prior years) most paper type bonds were processed in other offices manually and on tabulating equipment.

Of the 117.6 million series A - E saAdngs bonds and savings notes
redeemed and charged to the Bureau during the year 114.7 million
(97.5 percent) Avere redeemed by authorized paying agents. F o r these
redemptions these agents were reimbursed quarterly at the rate of 15
cents each for the first 1,000 bonds and notes paid and 10 cents each for
all over the first 1,000 for a total of $14,561,205 and an average of 12.70
cents per bond and note.
For the number of savirigs bonds outstanding as of June 30,1969, by
series and denomination, see the Statistical Appendix.
The following table shows the number of issuing and paying agents
for series A - E savings bonds by classes.
.

100

19 69 REPORT OF THE SECRETARY OF THE TREASURY

June 30

Post
offices 1

Banks

Building
and savings
and loan
associations

Credit
unions

Companies
operating
payroll
plans

All
others

Total 2

Issuing agents
1945
1950.
1955
1960
1965
1966
1967
1968
1969

....

.--..-.
-.
.-

24,038
25,060
2,476
1,093
943
934
901
870
836

15,232
15,225
15,692.
16,436
14,095
14,114
14,181
14,234
14,267

3,477
1,567
1,555
1,851
1,702
1,710
1,717
1,701
1,711

2,081 •
522
428
320
246
241
231
227
230

3 9,605
3,052
2,942
2,352
1,695
1,621
1,541
1,485
1,408

(3)
550
588
643
610
482
460
448
446

54,433
45,966
23,681
22,695
19,191
19,102
19,031
18,965
18,897

57
56
60
15
15
14
79
80

13,466
16,691
17,652
19,153
16,178
16,283
16,327
16,528
16,589

Paying agents
1945
1950..
1955
1960
1965
1966
1967
1968
1969

1
-

13,466
15,623
16,269
17,127
14,190
14,247
14,264
14,304
14,336

874
1,188
1,797
1,816
1,857
1,884
1,970
1,997

137
139
169
157
164
165
175
176

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 Dec. 31,1953, except in those localities where no other
public facilities for their sale were available.
2 Effective Dec. 31, 1960, a substantial reduction was made due to reclassification by Federal Reserve
banks to include only the actual number of entities currently qualified. Does not include branches active
in the savings bond program.
3 "All others" included with companies operating payroll plans.

Interest checks issued on current income-type savings bonds (series
IT and K ) during the year totaled 4,630,223 with a value of
$325,700,776. JSTew accounts established for series H bonds totaled
73,386 while accounts closed totaled 139,322, a decrease of 65,936
accounts.
Applications received during the year for the issue of duplicates
of savings bonds lost, stolen, or destroyed after receipt by the registered
owner or his agent totaled 43,908. I n 25,663 of such cases the issuance
of duplicate bonds was authorized. I n addition 30,602 applications
for relief Avere receiA^ed in cases Avhere the original bonds Avere reported
as not being received after having been mailed .to the registered
owner or his agent.
OFFICE OF THE TREASURER OF THE UNITED STATES

The Treasurer of the United States is responsible for the receipt,
custody, and disbursement, upon proper order, of the public moneys
and for maintaining records of the source, location, and disposition of
these funds. The functions performed by the Treasurer's Office include the verification and destruction of U.S. paper currency; the
redemption of public debt securities; the keeping of cash accounts in
the name of the Treasurer; the acceptance of deposits made by Govermnent officers for credit; and the custody of bonds held to secure
public deposits in commercial banks. I n addition, Federal Eeserve
banks, as depositaries and fiscal agents of the United States, perform
many similar functions for the Treasurer.
Commercial banks qualifying as depositaries provide banking facilities for the Government in the United States and in foreign countries.
Data on the transactions handled for the Treasurer by Federal Eeserve

ADMINISTRATIVE REPORTS

101

banks and commercial banks are reported daily to the Treasurer and
are entered in the Treasurer's general accounts.
The Treasurer maintains current summary accounts of all receipts
and expenditures; pays the principal and interest on the public debt;
provides checking account facilities for Government disbursing officers, corporations, and agencies; pays checks drawn on the Treasurer
of the United States and reconciles the checking accounts of the disbursing officers; procures, stores, issues, and redeems U.S. currency;
audits redeemed Federal Eeserve currency; examines and determines
the value of mutilated currency; and acts as special agent for the payment of principal and interest on certain securities of U.S. GoA^ernment
corporations.
The Office of the Treasurer maintains facilities at the Treasury to:
Accept deposits of public moneys by Government officers; cash U.S.
savings bonds and checks drawn on the Treasurer; receive excess and
unfit currency and coins from banks in the Washington, D.C, area; and
conduct transactions in both marketable and nonmarketable public
debt securities. The Office also prepares the "Daily Statement of the
United States Treasury" and the monthly "Statement of United States
Currency and Coin."
Under the authority delegated by the Comptroller General of the
United States, the Treasurer processes claims arising from forged
endorsements and other irregularities involving checks paid by the
Treasurer and passes upon claims for substitute checks to replace lost
or destroyed unpaid checks.
The Treasurer of tha United States is custodian of bonds held to
secure public deposits in commercial banks, -and miscellaneous securities held for other agencies.
Management improvement

ADP managemerit.—The automated payroll services provided by
the Treasurer's Office were extended in January 1969 to include about
360 employees of the Comptroller of the Currency. This brings to over
5,000 the number of employees serviced in Washington by the Treasurer's Office.
The Treasurer's Office has established an outstanding record in performing ADP services for other bureaus, agencies, and departnients.
The Office extended, through sharing, the usage of its computer systems which were installed and are used primarily to process Government checks. During fiscal year 1969, the computer systems were used
a total of about 9,560 hours by personnel of that Office in performing
services for other bureaus and agencies on a reimbursable basis. In
addition, the computers were used about 869 hours by personnel of
other agencies after regular working hours and on weekends when
the equipment was not needed for operations performed by the Treasurer's Office. The serviced agencies included the Post Office, Labor,
Agriculture, and Navy departments.
About 90 percent of the computer systems were purchased in 1962
and 1963 and were almost fully amortized by the beginning of fiscal
1969. Because of this, the Office Avas able to provide computer time
to other agencies at a cost of about $87,000. Purchase of this time
through a commerciial computer service company Avould have required

102

19 69 REPORT OF THE SEGRETARY OF THE TREASURY

an expenditure of about $328,000,, thus providing a cost, avoidance of
$241,000 to the serviced •departments.
A revision in the computer maintenance serAdce agreements eliminating second shift and weekend coverage, resulted in annual recurring
savings of $8,000.!
Currency and coin services.-—The facilities for providing currency
and coin services to commercial banks in the Washington metropolitan area Avere transferred from the Main Treasury Building to the
Bureau of Engraving and Printing Annex Building. This action
eliminated safety hazards to the public and other employees which
existed under the previous arrangements and perniits the operations
to be perfornied entirely in a secured area.
Assets and liabilities in the Treasurer's account

A summaiy of the assets and liabilities in the Treasurer's account
at the close of the jiscal years 1968 and 1969 appears in the Statistical
Appendix.
>
The assets of the Treasurer consist of gold bullion, coin, coinage
metals including silver, paper currency, deposits in Federal Eeserve
banks, and deposits in comniercial banks designated as Government
depositaries.
;
Gold.—^Tlie Treasurer's gold assets were nearly the same at the
close of fiscal 1969 as at the beginning. This Avas the first fiscal year
since 1957 in Avhich no appreciable outflow of gold occurred.
On the daily Treasury statement basis the oeginning balance of
$10,366.9 million Avas increased by purchases of $353.8 million and
reduced by sales of $351.7 million. The International Monetary Fund
made deposits of $3.2 million and AvithdraAvals of $5.2 million, leaving
a closing balance of $10,367.0 million.
Silver and otlier coinage onetals.—Sales of silver for domestic industrial use Avere more than offset by the increase in silver coin bars obtained from melting silver coins. On the daily Treasury statement
basis silver holdings increased from $85^3 million to $112.9 million
during fiscal 1969. Other coinage metals declined from $129.6 million
to $120.2 million in the same period.
Balances with depositaHes.—The folloAving table shows the number of each class of depositaries and balances on June 30, 1969.

1
Federal Reserve banks and branches
:
Other domestic depositaries reporting directly to the Treasurer
Depositaries reporting through Federal Reserve banks:
General depositaries, e t c . . . .
special depositaries. Treasury tax and loan accounts
Foreign depositaries 3
...,
Total

Deposits to the
Number of
credit of the
accounts
Treasurer of the
with depos- United States
itaries 1
June 30, 1969
36
25

'^%\,^b\,\lb,i%l
8,704,248

2,491
12,593
65

125,353,908
4, 524,840,151
24,226,574

15,210

. 6,334,240,378

1 Includes only depositaries having balances with the Treasurer of the United States on June 30, 1969.
Excludes depositaries designated to furnish official checking account facihties or other services to Government officers, but which are not authorized to maintain accounts with the Treasurer. Banking institutions
designated as general depositaries are frequently also designated as special depositaries, hence the total
number of accounts exceeds the number of institutions involved.
2 Includes checks for $393,210,788 in process of collection.
3 Principally branches of U.S. banks and of the American Express International Banking Corp.

ADMINISTRATIVE REPORTS

103

Bureau operations

Receiving and disbursing public moneys.—Government officers
deposit moneys which they have collected to the credit of the Treasurer of the United States. Such deposits may be made with the Treasurer at Washington, or at Federal Eeserve banks, or at designated
Government depositaries, domestic or foreign. Certain taxes are also
deposited directly by the employers or manufacturers who Avithhold
or pay them. All payments are Avithdrawn from the Treasurer's account. Moneys deposited and withdraAvn in the fiscal years 1968 and
1969, exclusive of certain intragovernmental transactions, are shown
in the folloAving table on the daily Treasury statement basis.
Deposits, withdrawals, and balances in the Treasurer's account

1968

Balance at beginning of fiscal year

$7,758,994,625

Cash deposits:
Internal revenue, customs, trust fund, and other coUections.
165,086,296,205
Public debt receipts 1
303,962,463,920
Less:
Accruals on savings bonds and notes, rethement plan
bonds, and Treasury bills
-..
-5,319,480,407
Purchasesby Government agencies.
-75,264,118,336
Sales of securities of Government agencies in market
21,793,351,288
Total deposits

1969
$6,694,062,122
201,734,755,299
314,836,956,194
-6,269,766,952
-89,894,340,903
26, 550,021,080

410,258,512,669

446,957,624,717

184,581,367,232
282,604,995,288

201,491.323,510
308,695,108,778

—5,315,093,680
-70,956,764,690
18,313,713,142

—6,336, 585,803
-81,745,188,465
22, 515,802,850

409,228,217,292

444,620,460,870

Change in clearing accounts (checks outstanding, deposits in transit,
unclassified transactions, etc.), net deposits, or withdrawals (—) __.. —2,095,227,780

—1,927,687,949

Cash withdrawals:
Budget and trust accounts, etc
Public debt redemptions 1
Less:
Redemptions included in budget and trust accounts
Redemptions by Government agencies
Redemptions of securities of Government agencies in market
Total withdrawals

Balance at close of fiscal year

..-.

6,694,062,122

7,103,538,020

1 For details see Statistical Appendix.

Issuing and redeeming paper currency-.—The Treasury is required
by laAV (31 U.S.C. 404) to issue U.S. notes in amounts equal to those
redeemed. The Treasurer's Office began issuing U.S. notes of the $100
denomination in October 1968 and discontinued issuing $5 U.S. notes
when the supply was exhausted in February 1969. Currency needs for
the $5 denomination are met by issuing Federal Eeserve notes. This
action Avill simplify the sorting of unfit $5 notes in the Treasurer's
Office and in the Federal Eeserve banks in future years, as issuance of
silver certificates, and U.S. notes of the $5 denomination will have
been discontinued and there will be f CAver notes of those types to sort
Avhen they become unfit.
U.S. notes and silver certificates unfit for further circulation are
redeemed and destroyed at the Federal Eeserve banks and branches
and at the Treasurer's Office in Washington, D.C.
Federal Eeserve notes constitute nearly 99 percent of the paper
currency in circulation. Wlien printed by the Bureau of Engraving
and Printing these notes are held in a reserve vault subject to the
order of the Comptroller of the Currency for their delivery. The Bureau ships notes to Federal Eeserve agents and their representatives

104

1969 REPORT OF THE SECRETARY.OF THE TREASURY

at Federal Eeserve banks and branches as needed. Federal Eeserve
banks then obtain notes for issuance to the commercial banking system
by depositing equivalent amounts of collateral with their respective
agents.
As the notes become unfit for further circulation they are redeemed
under procedures prescribed by the Fiscal Assistant Secretary. Notes
of the $1, $5, and $10 denominations redeemed in fiscal 1969 were cancelled, verified, and destroyed at the Federal Eeserve banks and at the
Treasury in Washington without being sorted by bank of issue. The
Federal Eeserve Board of Governors then apportioned the redeniption
of such notes among the banks of issue on a formula basis. Eedeemed
$20 notes Avere sorted by bank of issue until February 1969 Avheii a
formula for apportioning redemptions of this denomination was
adopted and notes! of the $50 and $100 denominatioris were sorted by
bank of issue, theri cancelled, verified, and destroyed at the same locations. The $500, $1,000, $5,000, and $10,000 denominations are sorted
by bank of issue, out in half and the loAver halves forwarded to the
Treasurer's Curreiicy Verification Section in Washington, the banks
retaining the upper halves and adjusting and destroying them after
the Treasurer's verification is completed. I n all cases the Federal Eeserve Board of GoA^ernors serves as a clearing house for effecting
appropriate settlements among the banks.
The Treasurer's Office accounts for Federal Eeserve notes from the
time that they are,delivered by the Bureau of Engraving and Printing
until finally redeemed and destroyed. The accounts show the amounts
for each bank of issue and each denomination of notes held in the
reserve vault, held by each Federal Eeserve agent, or issued and
outstanding.
The Cash Division redeems unfit paper currency of all types received
locally in Washington and from Government officers abroad, as well as
burned or mutilated currency from any source. During fiscal 1969
burned and mutilated currency for 50,985 clainiants was examined and
identified and payments made therefor totaling $11,867,966.
A comparisoii of the amounts of paper currency of all classes, issued,
redeenied, and outstanding during the fiscal years 1968 and 1969
follows.
I
Fiscal year 1968
Pieces
Outstanding July 1
i
Issues during year
..1
Redemptions during year...
Outstanding June 30

4,630.433,420
2,268,619,466
2,074,016,826
4,825,036,000

Amount
$42,495,177, 009
13,074,100,130
10,490,967,086
45,078,310,143

Fiscal year 1969
Pieces
4.825,036,060
2,381,911,597
2,124,197,050
5,082,750,607

$45,078,310,143
13,895,698,395
11,061,247,557
47,912,760,981

Details of the issues and redemptions for fiscal year 1969 and of
the amounts outstanding at the yearend are given by class of currency
and by denoniination in a table in the Statistical Appendix. Other
tables in that volume give further information on the stock and circulation of money in the United States.
Processing Federal tax deposits.—Under provisions of Treasury
Department Circular No. 1079, tax withholders and certain taxpayers
are supplied with partially punched cards Avhich they forAvard to their

ADMINISTRATIVE

105

REPORTS

banks with their tax payments. The cards are then routed to Federal
Eeserve banks which complete the punching and forAvard the cards td
the Treasurer's Office in Washington. The Treasurer's Office enters the
d ata from the cards on magnetic tapes whicii are furnished to the Internal Eevenue Service for reconciliation with taxpayers' returns. This
procedure obviates the need for any handling of tax remittances in
the Department and expedites the crediting of tax payments in the
Treasurer's account. Tax payments received under this procedure in
fiscal year 1969 totaled $133,092.2 million and required the processing
of 25.5 million cards.
Paying grants through letters of credit.—^Treasury Department Circular No. 1075, dated May 28, 1964, established a procedure "to preclude withdrawals from the Treasury any sooner than necessary" in
cases where Federal programs are financed by grants or other payments to State or local governments or to educational or other institutions. Under this procedure Government departments and agencies
issue letters of credit which permit grantees to make withdrawals
from the account of the Treasurer of the United States as they need
funds to accomplish the object for Avhicli a grant has been awarded.
By the close of fiscal 1969,46 Government agency accounting stations
were making disbursements through letters of credit. A total of 61,259
withdrawal transactions, aggregating $21,089.5 million, were processed
during the year, compared with 60,327 transactions, totaling $18,310.8 million in 1968.
Checking accounts of disbursing officers and agencies.—^As of
June 30, 1969, the Treasurer maintained 2,114 checking accounts, compared with 2,128 the year before. The number of checks paid by
categories of disbursing officers during fiscal 1968 and 1969 follow.
Number of checks paid

Disbursing officers

Treasury
Army
Navy
Air Force..
otlier

Total

1968

1969

426,439,674
38,883,267
39,952,041
35,882,940
28,571,971

441,920,785
39,298,690
41,231,278
35,643,468
26,702,633

569,729,893

584,796,854

Settling check claims.—During the fiscal year the Treasurer processed 746,860 requests for stop payment on Government checks and
123,743 requests for removal of stoppage of payments.
The Treasurer acted upon 352,758 paid check claims during the year,
including those referred to the U.S. Secret Service for investigation
Avhich involved the forgery, alteration, counterfeiting, or fraudulent
issuance and negotiation of Government checks. Eeclamation was req[uested from those having liability to the United States on 55,394
claims, and $6,834,943.15 was recovered. Settlements and adjustments
were made on 42,162 cases totaling $7,064,751.61. Disbursements frorn
the check forgery insurance fund, established to enable the Treasurer
to expedite settlement of check clainis, totaled $447,168.80. As recoveries are made, these moneys are restored to the fund. Settlements total-

106

1969 REPORT OF THE SECRETARY OF THE TREASURY

ing $7,145,365.40 liaA^e been made from the Treasurer's check forgery
insurance fund since it was established on November 21, 1941.
Clainis by payees and others involving 178,013 outstanding checks
were acted upon. ;0f these, 150,198 were certified for issuance of substitute checks valued at $55,262,867.05 to replace checks that were not
received or were lost, stolen, or destroyed.
The Treasurer treated as canceled and transferred to accounts of
agencies concerned for adjustment purposes the proceeds of 20,634
unavailable outstanding checks, totaling $36,854,298.93.
Collecting chechs deposited.—Government officers during the year
deposited more than 8,781,932 commercial checks, drafts, money
orders, etc., Avith the Treasurer's Cash Division in Washington for
collection.
Custody of securities.—The face value of securities held in the
custody of the Treasurer as of June 30, 1968, and. June 30, 1969, is
sho Avn below.
June 30

Purpose for which held
1968
As collateral:
i
•
•
To secure deposits of public moneys in depositary banks.
In lieu of sureties
l..In custody for Goverrmient officers and others:
For the Secretary of the Treasury »
For the Comptroller of the Currency
For the Federal Deposit Insurance Corporation
For the Rural Electrification Administration
For the District of Columbia
For the Commissioner.of Indian Affairs
Foreign obligations 2...
1
Others
For Government security transactions:
Unissued bearer securities
Total

$42,439,600
4,622,000

$40,653,200
2,345,500

33,173,227,275 34,643,999,656
• 10,015,000
10,452,500
245,000,000
245,000,000
162,733,373
159,748,818
169,955,879
251,259,879
53,245,650'
47,363,325
12,040,894,451 12,036,695,451
49,087,296
44,290,017

-.-

4,190,314,800

1,652,192,800

50,141,635,324

49,134,001,146

1 Includes those securities listed of Government corporations and other business-type activities reported
in the Statistical Appendix as held by the Treasury.
2 Issued by foreign governments to the United States for indebtedness arising from World War I.
3 Includes U.S. savings bonds in safekeeping for individuals.

Servicing securities for Government corporations and Federal
agencies.—In accordance with agreements betAveen the Secretary of
the Treasury and yarious Government corporations and agencies, the
Treasurer of the United States acts as special agent for the payment
of principal of and interest on their securities. A comparisoii of these
payments during the fiscal years 1968 and 1969 on the daily Treasury
statement basis is as folloAvs.
1968
Payment made for

B anks for cooperatives
L
District of Columbia Armory Board
Federal home loan banks..•.
Federal Housmg Administration.
Federal intermediate credit banks
Federal land banks
Federal National Mortgage Association
Others
;
Total...

-.--

Principal
redeemed
-.

$2,360,260,000

1969
Interest
paid

Principal
redeemed

Interest
paid

5,222,730,000
55,496,660
4,100,310,000
1,666,903,600
638,404,000
169,025

$59,758,851 $2,629,450,000
813,981
226,814,788 4,163,905,000
23,415,580
43,610,350
159,061,722 4,919,240,000
238,231,761 1,508,483,000
120,826,176 • 936,347,000
39,160
119,000

$75,469,956
714,252
266,429,348
23,726,623
' 218,614,873
284,307,908
177,093,853
33,983

14,034,263,275

828,952,018 14,201,154,350

1,046,290,796

•

ADMINISTRATIVE REPORTS

107

Office of Foreign Assets Control
The Office of Foreign Assets Control is responsible for administering the Treasury Department's freezing controls. During fiscal 1969,
the controls under the Foreign Assets Control Eegulations and the
Cuban Assets Control Eegulations with respect to trade and financial
transactions with, and assets in the United States of Communist China,
North Korea, North Vietnam, Cuba and their nationals and the prohibitions relating to the purchase abroad and importation of Communist Chinese, North Korean, North Vietnamese, and Cuban merchandise were continued.
The Office of Foreign Assets Control also administered without
change during fiscal 1969 the Transaction Control Eegulations which
supplement the export controls exercised by the Department of Commerce over direct exports from the United States to Eastern Europe
and the U.S.S.E. These prohibit, unless licensed, any person within
the United States from purchasing or selling or arranging the purchase or sale of internationally controlled strategic commodities
located outside the United States for ultimate delivery to the Soviet
Bloc. As in the case of both the Foreign Assets and Cuban Assets
Control EegTdations, the prohibitions apply not only to domestic
American companies but also to foreign firms OAviied or controlled by
persons within the United States.
The administration of assets remaining blocked under the World
War I I Foreign Funds Control Eegulations which were transferred
to the Office of Foreign Assets Control from the Department of Justice
in fisoal 1966 was also continued. These regulations apply to assets
blocked under Executive Order 8389 of Hungary, Czechoslovakia,
Estonia, Latvia, Lithuania, East Germany, and nationals thereof who
were on January 1, 1945, in Hungary or on December 7, 1945, in
Czechoslovakia, Estonia, Latvia, or Lithuania or on December 31,
1946, in East Germany.
New regulations entitled "The Ehodesian Sanctions Eegulations"
were issued under Executive Order 11419 of July 29, 1968, extending
the mandatory economic sanctions against Southern Ehodesia imposed
to implement United Nations' resolutions. The new regulations superseded the "Ehodesian Transaction Eegulations" which were revoked.^
Under the Foreign Assets Control and Transaction Control Eegulations, the number of specific license applications received (including
applications reopened) during fiscal year 1969 was 4,962. During that
period a total of 4,997 was acted on.
Under the Cuban Assets Control Eegulations, 501 applications for
licenses were received (including applications reopened) during the
fiscal year, and 445 applications were acted on. Comparable figures
under the Foreign Funds Control Eegulations were 110 applications
received and 115 acted on. Under the Ehodesian Transaction Control
Eegulations, 36 applications were received and 36 acted on. Following
the issuance of the new Ehodesian Sanctions Control Eegulations, 650
applications were received and 628 acted on.
Certain broad categories of unexceptionable transactions are covered
by general licenses set forth in the regulations, and such transactions
1 See also exhibit 65, Treasury Order No. 128.
363-222—70^

108

19 69 REPORT OF TI-IE SECRETARY OF THE TREASURY

may be engaged in by interested parties without need for securing
specific licenses.
The enforcement efforts of the Control haA^e resulted in the referral
of three cases to the Department of Justice during the fiscal year for
criminal violations of the Eegulations. Also, violations of the Foreign
Assets Control Eegulations led to the forfeiture to the United States,
under applicable Customs laws, of merchandise totaling $30,000. I n
addition, merchandise tentatively valued at approxiniately $22,000
was seized and is expected to be forfeited after the completion of the
necessary formal procedures. I n other cases where forfeitures and civil
penalties were mitigated as a result of extenuating circumstances,
more than $75,000 was collected in lieu of forfeiture and civil penalties.
I n t e r n a l Revenue Service ^
The Internal Eevenue Service administers the internal revenue laws
embodied in the Internal Eevenue Code (title 26 U.S.C.) and certain
other statutes, including the Federal Alcohol Administration Act (27
U.S.C. 201-212), the Liquor Enforcement Act of 1936 (18 U.S.C.
1261,1262,3615), the Gun Control Act of 1968 (18 U.S.C. chapter 44),
and Title V I I of the Omnibus Crime Control and Safe Streets Act of
1968 (18 U.S.C. App. 1201-1203). I t is the mission of the Service to
encourage and achieve the liighest possible degree of voluntary compliance Avitli the tax laws and regulations and to maintain the highest
degree of public confidence in the integrity and efficiency of the
Service.
Major management activities

Employnaent restrictions.—During 1969 the restriction imposed on
employment by the Eevenue and Expenditure Control Act of 1968
operated as an overriding restraint on accomplishment of Service
programs. This act limited employment by prohibiting the filling of
more than three of every four new vacancies occurring through attrition. This ratio was later cut to seven of ten. As a result the Service
lost many employees whom it could not replace, and so was unaible to
perform all the work which had been identified for accomplishment in
the 1969 appropriation request submitted to the Congress. The fact that
these restrictions followed severely unbalancing expenditure cuts imposed in fiscal 1968 magnified the problem.
Priorities had to be set that Avould ensure the processing of tax
returns^—an uncontrollable volume of Avork—and at the same time
allow other crucial programs to continue at reduced levels. I n addition,
streamlined methods of reporting and control with less detail and
between higher levels of managenient, helped monitor the situation to
ensure that vital operations would not be curtailed to the point where
programs would become ineffective.
Neio accounting systein.—^The administrative accounting system was
revamped during fiscal 1969 to incorporate accrual and cost information and to meet overall financial management and reporting needs.
A few of the changes resulting from study of the financial and accounting systems to become fully implemented in fiscal 1970 are as follows:
(1) The 1970 operating financial plan or internal cost budget provides allocations of funds and manpower by program to major operat1 Additional information will be found in the separate "Annual Report of the Commissioner
of Internal Revenue."

ADMINISTRATIVE REPORTS

109

ing levels. The accounts make readily available to eadh financial plan
manager information on cost and fund allocations as well as the status
of obligating authority.
(2) Flan managers now work from an operating financial plan
which consolidates appropriated and reimbursable funds. Only the
reimbursement program manager in the National Office is responsible
for measuring the execution of the reimbursement plan. H e coordinates
all planning of reimbursable work and advises plan managers on the
status of execution against amounts included in their plans. This procedure provides plan managers some relief and, at the same time, aids
in the planning and control of reimbursable funds.
(3) The system provides accounting data on accruals and costs in the
detail and at the levels required to support the SerAdce's cost-based
budget and to control the execution of the operating financial plan.
The format of reports on plan execution which compare planned with
actual man-year and dollar expenditures have been changed to allow a
more meaningful managerial review. These reports furnish SerAdcewide data on program accomplishments and related costs and supply
financial information required by the Bureau of the Budget.
Use of color in tax pachage.—In January 1969 more than 30 million
taxpayers received Federal income tax packages printed in two colors
of ink, in an effort to minimize taxpayer errors. Approximately 9 percent of all returns filed contain errors whicii in total are expensive to
correct. The use of a strongly contrasting color, highlighting those
areas having the greatest error factor^ was intended to help tne taxpayer.. The significant words in those items appeared in red, with the
remainder of the forms and instructions printed in blue. Approximately 25 million taxpayers received the red and blue forms, while
another five million taxpayers serviced by the North-Atlantic Service
Center received a different, shaded version. Overall taxpayer reaction
to the colored forms was excellent.
Sampling indicated that the use of color reduced errors by 57 percent. This meant the prevention of millions of errors which otherwise
would have cost the Government approximately $2 each to correct.
Informing and assisting taxpayers

To further strengthen the self-assessment system, the Service carries out a broad information program to communicate tax laws to taxpayers and apprise them of their rights and obligations in computing
and reporting their tax liabilities. During the year a broad information program was conducted through the use of the various news media.
I n addition, taxpayer assistance teams staffed with tax experts were
available in each district office to answer questions and provide tax materials. Eegulations, rulings, simplified tax guides, and forms were issued to increase public knowledge and understanding of tax laws and
procedural requirements.
Public information program.—The Service not only provides tax information to persons who ask for it, but reaches out to make information available to individuals who are unaware of tax law requirements.
The basic goal of the I E S public information program continued to
be the prevention of errors on tax returns. InterAvoven into virtually
every message was the reminder that errors delay refunds, require timeconsuming correspondence on the part of taxpayers, or require addi

110

1969 REPORT OF THE SECRETARY OF THE TREASURY

tional research by the Service. Messages pointed out that, for the Govermnent, errors entail increased costs of operation which result in more
expense to the public. The various means of communications included
television, radio, news releases, magazine articles, speeches, slides,
pamphlets, fact^sheets, posters, displays and exhibits.
Through the Service's regional, district, and local offices, approximately 6,400 locally developed television and radio programs were
carried on more than 700 television and 5,500 radio stations. During
the tax filing season television spot announcements and slides, a 27minute color film presentation, and a number of radio spots and program series were made available by the Service. All of these, as well as
about 475 exhibits, concentrated on areas of most frequent taxpayer
misunderstanding and uncertainty.
Taxpayer assistance program.—In fiscal 1969, for the fifth consecutive year, service to taxpayers reached new peaks as almost 29 million
taxpayers either telephoned or Adsited Internal Eevenue Service offices,
an increase of over 2 million (7.7 percent) from 1968. Telephone inquiries increased by some 1.3 million, while 0.7 million more taxpayers
came to SerAdce offices. New highs were recorded for each of these categories: Telephone inquiries accounted for 64 percent of the total (18
million) and more than 10 million taxpayers visited Service offices.
During the fiscal year 1,350 specially selected and trained representatives helped meet the increased requests for taxpayer service. Of these,
843 provided full-time, year-round service in 352 taxpayer service
locations. Additional service was provided on designated days by 57
visiting taxpayer service representatives at 141 service locations not
staffed with full-time taxpayer service employees. During the income
tax filing period, 450 temporary employees were used to provide taxpayer services.
Tax forms and form letters.—Much of the activity in the tax return
forms area in fiscal 1969 resulted from the surtax rate and corporate
estimated filing requirements of the Eevenue and Expenditure Control Act of 1968. A number of new and revised forms also were
required in the interest equalization tax area. Centralized review in
the National Office of all forms issued by field offices was instituted.
By June 30, 1969, a review of all existing National Office and field
office forms was almost complete.
Most individual estimated income taxpayers were placed on a
"voucher" system of filing in 1969. Under this new system, taxpayers
submit each installment with a payment "voucher" that was furnished with the estimated tax form package. This innovation is
expected to eliminate a major source of error and taxpayer complaints
that characterized the former billing system.
Two short form returns were developed for the use of exempt
organizations whose gross receipts for the year and total assets at the
end of the year do not exceed $10,000. These forms reduced the
reporting burden of these small organizations, while continuing to
provide sufficient information for administrative and audit purposes.
Tax rulings.—The Service responds to written inquiries of individuals and organizations, whencA^er appropriate in the interest of
sound tax administration, as to their status for tax purposes and as
to the tax effects of their acts or transactions. A "ruling," which may

ADMINISTRATIVE REPORTS

111

be issued only by the National Office, interprets and applies the tax
laws to a specific set of facts. (A ruling, therefore, is distinguishable
from a "determination letter," which may be issued by a district
director only if the questioii is specifically covered by statute, regulation, or precedent published ruling.)
Letter rulings are requested by taxpayers or their authorized representatives. District directors also request technical advice from the
National Office in connection Avitli the examination or consideration
of a taxypayer's return or claim for refund or credit. During the year
27,827 requests for letter rulings and 2,523 requests for technical
advice were processed.
Regulations program.—Thirty-seven final regulations, one temporary regulation, and 29 notices of proposed rulemaking, relating to
matters other than alcohol, tobacco, and firearms taxes, were published in the "Federal Eegister" during the year. Over 700 persons
attended 13 public hearings on proposed regulations.
Personnel

Concentration of returns processing operations in seven service
centers continued to present staffing problems. More than 90,000 employment applications were processed in hiring 14,000 seasonal card
punch operators, clerks, and tax examiners needed to assist in processing the high volume of tax returns. Major recruitment efforts were
required, since the labor market for clerical employees continued to
be extremely competitive.
The Service continued to carry out the data processing conversion
with minimum adverse impact on affected employees. The Southeast
Eegion completed its phaseout of manual operations in fiscal 1968
and four more regions were scheduled to changeover by the beginning
of fiscal 1970. The Service continued to exert all possible eff'orts to
conclude redeployment with the same degree of success the prograni
has enjoyed to date.
The Service continued its efforts to hire undergraduate accounting
majors and to prepare them for careers as internal revenue agents and
internal auditors. The program Avas structured for alternating
periods of work assignments in Service offices and on-campus study.
Although manpower ceiling restrictions curtailed full-scale participation by many offices, 175 students participated in the program.
Seventy-one percent of the students who completed the program
during calendar year 1968 became full-time Service employees.
Training

The middle-management course offered to newly appointed managers
was completely redesigned. I t presents contemporary management
approaches and theories and explores current Service management
problems and areas of emphasis. Key officials teach a substantial
portion of the revised course. A collection of articles, "Eeadings in
Management" was distributed to all Service managers, as was the new
"Management Training and Development Handbook." The handbook
for the first time systematizes and puts into perspective the wide
variety of training and other activities involved in developing Service
managers at all levels.
The basic training course for new revenue agents was revised during the year to include practical on-the-job training. The curriculum

112

1969 REPORT OF THE SECRETARY OF THE TREASURY

provides initially for a few weeks of desk-side assistance to an experienced agent performing case audits followed by periods of classroom
training and additional practical experience. The trainee is introduced to the whole job sooner than imder the former curriculum and
obtains a base of practical experience to help him get more out of
related classroom sessions.
The Department of the Treasury's Training Center was activated
at Hofstra University, on Long Island, to service the IES NorthAtlantic Eegion and the Customs Bureau.
Internal revenue collections and refunds

Gross collections.T—Gvo^s collections rose to an alltime high of
$187.9 billion, the increase, $34.3 billion (22.3 percent) over fiscal
1968 was the largest ever recorded. More than 70 percent of total
collections were processed through the Federal tax deposit system.
Economic conditions, the income tax surcharge, and an increase in the
rate of Federal Insurance Contributions Act taxes from 7.6 percent
to 8.4 percent were major factors contributing to the record level.
Substantial gains were noted in virtually every class of tax. The
largest increase occurred in indiAddual income tax Avithheld at source
(including FICA taxes) which totaled $103 billion in fiscal 1969,
a gain of $17.5 billioii or 21.3 percent over 1968.
In the fiscal year :1969 corporation income tax payments increased
$8.5 billion or 26.7 percent over 1968, reaching a total of $38.4 billion.
This total exceeded collections for 1967, preAdously the year of the
highest corporation income tax receipts.
Excise tax collections reached $15.5 billion, an increase of $1.2
billion (8.5 percent) over the previous year. This was the first year
that excise revenues had exceeded those of 1965. Collections since
then had been affected by the Excise Tax Eeduction Act of 1965,
Avhich repealed retailers excise taxes and either rescinded or scheduled
for eventual elimination many other excise taxes.
Refunds.—This year 49.6 million refunds valued at $12.8 billion
were issued through the ADP system at an accelerated rate. The number of refunds decreased by 4.5 percent from 1968. This decline was
primarily attributed to the income tax surcharge, which increased the
liability of many taxpayers who otherwise would have been entitled
to refunds. Most taxpayers received their refunds within a 4 week to 6
Aveek period.
The Eevenue Expenditure and Control Act of 1968 provided that
corporations could apply for adjustment (quick refunding) of estimated tax overpayments. Previously, refunding of estimated income
taxes could not be accomplished until the income tax returns had been
filed.
Receipt and processing of returns

Number of returns filed.—A substantial pattern of growth continued
when more than 110 million tax returns of all types were filed in 1969,
an increase of 3 million over last year. The number of forms 1040 and
1040A rose by nearly 2.3 million to 75 million, accounting for 68 percent of the total.
Automatic data processing.—^The gradual implementation of the
systems providing for direct filing of tax returns at service centers

ADMINISTRATIVE REPORTS

113

continued to proceed on schedule. With the exception of a few IOAV volume returns, direct filing becanie mandatory in 1968 for taxpayers
in the Southeast Eegion. The program is expected to be completed in
1970 when it will become mandatory that all individual and major
business returns be filed directly with service centers rather than with
district offices.
Mathematical verification.—A principal benefit derived from the
computer processing of returns for both taxpayers and the Government is the electronic verification of the taxpayers' arithmetic. Errors in
addition, subtraction, and improper use of tax tables or schedules were
common mistakes detected. The verification process resulted in adjusting liabilities upward by $315.1 million, and adjusting others
downward by $140.2 million, for a net tax yield of $174.9 million. The
program included a process for verifying the credits claimed by taxpayers for estimated tax paynients. This resulted in a net yield for the
Government of $213 million, in addition to the assessment of $43 million in statutory penalties for failure to make required estimated
payments.
Enforcement activities

The Service expends a substantial portion of its resources on enforcement activities to insure that tax liabilities have been properly
determined and paid. These major activities include auditing returns,
securing delinquent returns, collecting delinquent accounts, investigating allegations of fraud, and enforcing the laws relating to alcohol and
tobacco products and firearms. Computer technology has been a valuable tool in supplementing the human resources devoted to enforcement and the increased use of the A D P system has been an additional
deterrent to delinquency and fraud.
Examination of returns.—Tax returns are audited either by internal
revenue agents at the taxpayer's place of business (field audits) or by
tax auditors, who interview or correspond with taxpayers from offices
of the Service (office audits). Income tax audits usually involve the
larger and more complex returns and require the broad professional
accounting skills of internal revenue agents. Less complex return
audits are assigned to tax technicians. The continued shift of emphasis
toward more interviews rather than correspondence audits largely accounts for the decline in the number of income tax office audits conducted in 1969. Although interview audits generally require more time
to complete, the time invested is repaid in terms of effectiveness and
improved communications with taxpayers.
During the year, 6.2 percent of total direct examination time Avas
expended on estate and gift tax returns and 2.2 percent on excise tax
examinations. Audit coverage in the employment tax area derives
mainly from income tax audits. Internal revenue agents examining
income tax returns of business taxpayers verify assessed liabilities for
employment taxes. ,
Despite budgetary and personnel limitations, 2.5 million audits were
completed, about 12.4 percent fcAver than recorded for 1968. Additional
tax and penalties recommended totaled $3 billion, 3.1 percent more
than the total for the previous year.
For several years the Service has used computers to review income
tax returns and identify those with high error probability. I n fiscal

114

1969 REPORT OF THE SECRETARY OF THE TREASURY

1969, the "discriminant function," a more sophisticated computer
selection technique was introduced. This method is basically one of assigning numeric weights^—negatiA^e as Avell as positive—^to certain ret u m characteristics. The weights, plus or minus, were determined according to the relative significance of the retum characteristic as an
indicator of error. A substantial number of individual income tax returns Avere selected for audit through this technique during fiscal 1969.
. Collection of past-due accounts.—Almost 2.5 million past-due accounts were established in 1969, an increase^ of nearly 300,000 or 12
percent above last year. The amount of tax involved on past-due accounts established rose 36 percent from 1968 to $2.8 billion in 1969.
Considering personnel shortages brought about by the yearlong hiring restrictions, overall accomplishments were good. Over 2.3 million
past-due accounts were closed in 1969. Although there were somewhat
fCAver closures in 1969, they accounted for $2.4 billion, almost $400 million more than in 1968.
The Service was not able to dispose of as many accounts as were
established, Avliich caused an increase in the yearend inventory for the
first time since 1965. The 1969 ending inventory of 778,000 accounts
Avas approximately 170,000 or 28 percent above the 1968 level of 608,000
accounts, but was only some 30,000 above the 1966 and 1967 levels. The
value of the 1969 inventory totaled $1,786 million, $407 million higher
than last year.
Delinquent returns.—Low past-due account inventories at the beginning of the year permitted the deployment of additional enforcement personnel to delinquent returns activity for an extended period.
The Service secured delinquent returns valued at $309.1 million in tax,
interest, and penalties during the year. Of 740,000 returns assessed,
$253 million was secured through the delinquent returns program. The
remainder was secured as a b37product of auditing returns.
Sumonary of additional taxes from direct enforcement.—A detailed
comparisoii of additional tax assessments resulting from direct enforcement during the last 2 fiscal years is presented below.
Sources

Additional tax, interest, and penalties resulting from examination
Increases in individual income tax resulting fi'om mathematical verification
Increases in individual income tax and penalties resulting from verification of
estunated tax payments claimed
Tax, interest, and penalties on delinquent returns
Total additional tax, interest, and penalties
Claims disallowed

In thousands of dollars
•
1968
1969
2,208,151
266,763
«• 485,829
293,143
'•3^253,886
'362,830

2,383,068
316,103
361,092
309,075
3,368,338
286,962

r Revised.

Tax fraud investigations^ indictments^ and convictions.—A total of
8,273 fraud investigations were completed during the year, with prosecution recommended in 1,139 cases. More than 117,000 allegations of
fraud Avere screened and evaluated in selecting the investigative
caseload.
Indictments Avere returned against 649 defendants in tax fraud cases
in fiscal 1969. Pleas of guilty or nolo contendere were entered for 470

ADMINISTRATIVE

115

REPORTS

defendants in cases reaching the courts, 91 defendants were convicted
after trial, 20 were acquitted, while cases against 244 were nol-prossed
or dismissed including 163 defendants in wagering tax cases.
Strihe forces active.—The Departments of Justice, Treasury, Labor,
Post Office, and the Securities and Exchange Conimission have instituted a new concept in law enforcement known as "The Strike Force,"
with the objective of pooling the resources of various Federal law
enforcement agencies and through their combined efforts, to concentrate and strike out against underworld elements in the major cities.
The Service was participating in the strike forces operating in Buffalo,
Detroit, Philadelphia, Newark, Miami, Chicago, Brooklyn, and New
York City at the fiscal yearend.
Alcohol and tobacco tax administration.—The Service's expanded
responsibilities relating to firearms necessitated redeployment of investigative manpower to implement the Gun Control Act of 1968 and the
firearms provisions of the Omnibus Crime Control and Safe Streets
Act of 1968. This reprograming of resources resulted in a 30 percent
reductioii from 1968 in the manpower expended on illicit liquor investigations, and was a major factor contributing to the 26 percent decrease
(from 4,136 in 1968 to 3,063 in 1969) in seizures of illicit distilleries.
Although the main thrust of the Service's liquor law enforcement
program continued to be centered in the Southeastern States, where 90
percent of all illicit distillery seizures were made in 1969, the concentrated emphasis on Operation Dry-Up could not be maintained.
I n the first 5 years of Operation Dry-Up more than $27 million in
additional revenue was collected resulting from shifts in the consumption of alcoholic beverages to legal markets. The following table provides information on nationwide seizures and arrests during the last
6 fiscal years.
Fiscal year

1964..
1965..
1966..
1967..
1968-.
1969-.

Numberof
stills seized

Gallons of
inash seized

6,837
7,432
7,685
6,608
5,899 •
4,362

3,123,800
3,637,900
3,664,900
3,125,400
2,697,300
1,965, 000

Arrest's for '
liquoflaw
violations
•7,897'
7,171'
6,629
6,148
4,884
4,116

Samples of illicit spirits analyzed in the National and regional laboratories dropped to 3,844 in fiscal 1969 from last year's 8,120. Narcotic
samples decreased to 7,315 from an alltime high of 11^500 in 1968. These
changes reflect, in part, the shift of investigative time from liquor
law enforcement to the critical firearms area, and the transfer of work
to the Bureau of Narcotics and Dangerous Drugs laboratories. Physical
evidence samples and materials examined in connection with criminal
cases rose to 2,758, an increase of 558 from 1968. The greatly expanded
capabilities of the photographic laboratory has resulted ih the annual
production of more than 14,000 color and black and white photographs
of physical evidence, and art objects.
Firearms law enforcement.—Personnel assigned to firearms enforcement was increased 292 during the year. Investigations conducted in

116

19 69 REPORT OF THE SECRETARY OF THE TREASURY

1969 resulted in the completion of 1,595 criminal cases, the arrest of
715 violators, and the seizure of 4,152 firearms. These figures compare
with 919 criminal cases, the arrest of 449 violators, and the seizure of
1,092 firearms in 1968.
The Gun Control Act of 1968 placed responsibility on the Service for
implementing the act's importation provisions. The volume of applications for permits to import firearms and ammunition far exceeded
the Service's original estimates. From October 1968 through June
1969, 19,074 permits were issued to import sporting firearms. During
this same period 270,775 sporting firearms were imported, and 1,428
applications were disapproved covering imports totaling 595,901 firearms Avhicli did not meet the importation criteria.
Appeals and civil litigation.—In fiscal 1969, 33,103 case receipts
were received in appellate offices. Total case disposals were 32,340,
while the June 30, 1969, case inventory was 32,027.
Civil cases in the; trial courts Avon or partially Avon by the Government during fiscal 1969 f OUOAV : I n the Tax Court, 431; in the Court
of Claims, 36; and in U.S. district courts, 252. The Government AVOU,
in whole or part, 283 of the 349 civil tax cases decided by courts of
appeal (exclusive of general litigation and alcohol, tobacco, and firearms legal matters).
The Supreme Court rendered two decisions in Tax Court cases during the year. The Court decided one for the Government and one in
part for the Government. The Supreme Court rendered four decisions
in'tax refund suits, sustaining the Government's position in each case.
International activities

Activities of the Service in the international theater, embrace three
major programs: (1) Administration of the tax laws as they apply to
U.S. citizens living abroad, nonresident aliens, and foreign corporations; (2) negotiation and administration of tax conventions Avith
foreign countries established to prevent double taxation of individuals
and corporations subject to taxation by two or more countries; and
(3) providing assistance requested by developing countries in upgrading and improving their tax administration systems.
Intemational operations.—The Service maintains foreign posts in
Bonn, London, Mailila, Mexico City, Ottawa, Paris, Eome, Sao Paulo,
and Tokyo.
The functions of the foreign posts include district type activities
such as audit, collection, informal conference, and collateral assistance.
Compliance is promoted by assisting U.S. taxpayers and U.S. business firms and organizations abroad. Offices in Chief Counsel of I E S ,
Department of Justice, and other parts of Treasury frequently are
assisted by officers of the foreign posts on tax matters involving foreign areas. The duties of I E S overseas officers are extended to include
such activities as locating and intervicAving witnesses, assisting with
depositions, serving:summonses, arranging contacts, and giving guidance on tax matters to Government officials who travel abroad.
Income tax treaty administration matters are among the important
functions of the foreign posts. Service representatives assist with
settlement of international tax disputes, maintain close liaison with
foreign tax officials, handle informally matters that otherwise might

ADMINISTRATIVE REPORTS

117

become complex, and serve as advocates of U.S. citizens and business
firms when foreign taxation contrary to treaty provisiohs is proposed.
^ Tax conventions.—^The Service participated in negotiations with
eight countries concerning bilateral income tax conventions and with
three countries concerning bilateral estate tax conventions. I n 10
cases the negotiations took place outside the United States. Instruments of ratification of an income tax convention between France
and the United States were exchanged on July 11, 1968.
Foreign tax assistance.—For the past 6 years the Internal Eevenue
Service, through the foreign tax assistance program, has provided
technical assistance to developing countries of the free world at their
request. This program is a joint effort with the Agency for International Development ( A I D ) , in which A I D provides the funds and
the overall development policy, and the Service provides ithe technical
program, direction, and staffing. International and private organizations which have formulated programs for tax reform in developing
countries are continually consulted to insure consistency and to preA^ent duplication in programs. Among those consulted are the Organization of American States, the Inter-American Development Bank,
the International Monetary Fund, the United Nations, and Harvard
University.
The Inter-American Center of Tax Administrators ( C I A T ) , a regional self-help institution composed of the principal tax administrators of Western Hemisphere countries, held its Third Annual General
Assembly in Mexico City in May 1969. Fifty-nine delegates from
member countries participated in various aspects of planning for
tax administration, together with over 50 observers from international
organizations and other countries withiii and without the hemisphere.
Canada became a member during the year, increasing the number of
countries represented to 21.
The other major element of the program continued to be the orientation and training of foreign tax officials. Supervisory and managerial
training, in major foreign languages, was provided in the United
States, while technical training was performed in the host countries.
This year 219 participants from 58 countries were trained in the
United States.
Planning activities

Every aspect of tax administration is subject to planning activities.
The workload of the Service continued to grow during fiscal 1969
necessitating advanced planning to maintain high effectiveness in
collecting the majority of taxes without direct enforcement.
Long-range planning.—As an integral part of the planning-programing-budgeting system ( P P B S ) the Service continued to conduct
several in-depth analyses of significant Service programs to facilitate
the selection of alternative courses of management action. Among the
most significant of these are:
1. A special study of the total "Taxpayer Assistance and Services"
program to reexamine the overall objectives in areas of rulings and
interpretations, forms and publications, printing and distribution of
tax forms, taxpayer assistance and related services, and taxpayer education and public information.

118

1969 REPORT OF THE SECRETARY OF THE TREASURY

2. A complete review to reevaluate the role of office audit in
accomplishing the, overall Service mission of maximizing voluntary
compliance with the internal revenue laws.
3. A study which is to result in a developmental effort aimed at
designing and implementing a data processing system to provide the
capabilities required by tax administration in the 1970's.
Two major program issues were designated by the Budget Bureau
for P P B studies. A study of the "Level of I E S Audit Coverage" was
completed. A long-range study of Service organization, intended to
produce a plan of organization best suited to the tax administration
job of the next decade was initiated.
Service worhload.—Between the calendar years 1960 and 1969 the
number of individual returns rose 24 percent and corporation returns
57 percent. The more complex individual returns, those with incomes
over $10,000, increased from 4.7 million in 1960 to 19.1 million in 1969
(306 percent) and are expected to increase to 44.9 million by 1980.
Current research program.—Eesearch actiAdties continued to be
directed toward advancing the overall administration of the tax laws.
iResearch projects were initiated in fiscal 1969 to assist the Department
of the Treasury in formulating its legislative program. These included:
The periodic updating of appraisals of the impact of tax reform proposals on the Service's costs and resources; the designing of optional
sets of tax tables to implement the various tax rates proposed; and
the reviewing of administrative implications inherent in changes in
legislative proposals, as they evolved in the legislative process.
Surveys continued to be conducted to measure the extent of taxpayer
compliance in reporting specific types of income. Eesearch studies
were designed to effect procedural improvements having a broad
application to the administration of the tax laws. An objective of all
research activities was the simplification of procedures, forms, and
instructions to facilitate the taxpayers task of complying with the tax
laws.
,
The research program also included a review of the present filing
due dates for tax : and information returns, to determine whether
changes would assist the taxpayers and the Service. A t the fiscal yearend a^ study was underway to determine the most effective use of computerization methods to assess penalties for failure to comply with
requirements for timeliness and adequacy of tax deposits for employment, excise, and estimated inconie taxes.
Systems development.—Emphasis in systems development was
placed on-the first; production-installation of the direct data entry
system delivered to the Southwest Service Center in July 1968. This
was successfully used in the processing df 1968 tax returns filed in
1969. The new system makes it possible to enter data from tax returns
directly into a general purpose computer, which provides automatic
verification of most information and makes corrections "on-line."
Since actual achievements in full-scale production validated earlier
estimates of productiAdty increases, it was decided to install additional
production systems at three more service centers for the processing of
1969 tax returns to be filed in 1970.
Tax models in 1969.—DuTmg fiscal 1969, the Service expanded the
uses of the "Tax Models." Originally developed 6 years ago to meet

ADMINISTRATIVE REPORTS

119

the Treasury's need for timely estimates of the revenue effect of proposed tax legislation, these models have proved to be valuable planning
and economic tools.
Each tax model consists of a magnetic tape file containing a randomly selected sample of taxpayer records and computer programs
capable of manipulating these records so that tax (or other returns
items) can be determined under prescribed conditions. The models
are capable of measuring the effect of simultaneous changes on each
tax record and projecting the results to all taxpayers. The 1966 models
for individuals and corporations were recently used to evaluate various
tax reform proposals including repeal of the investment credit, a
minimum income tax, and new individual income tax return filing
requirements.
Inspection activities

The success of the tax system depends upon the public's faith in the
objectiAdty and the integrity of the Intemal Eevenue Service, as the
impartial administrator of Federal tax laws. To ensure that this faith
is not violated the Service conducts continuing inspections into questions of integrity and the adequacy and effectiveness of operations.
All Service activities and functions are subject to internal audit, as an
integral part of the Service's management control system. Major
emphasis is placed on activities most closely related to collection of
tax and enforcement of the tax laAvs. Internal security for the Service
is accomplished by conducting background investigations on applicants and by investigating complaints or allegations of misconduct or
irregularities concerning Service employees. Investigations of persons
outside the Service are made when their actions allegedly constitute
an effort to corrupt Service personnel through bribery or other means.
During fiscal 1969, 8,950 investigations were completed compared to
12,081 last year, this decrease of 3,131 cases completed was a result of
curtailment in hiring due to budgetary restrictions. Police record
checks were made on 3,137 individuals considered for short term temporary appointments and on 1,787 persons hired in connection Avith
economic and education opportunity programs.
The SerAdce also conducts investigations relating to background of
certain applicants for enrollment to practice before the Internal Eevenue Service; charges against tax practitioners; and accidents involving
Service employees or property. Special investigations or studies requested by the Commissioner, the Secretary of the Treasury, or other
officials of the Department of the Treasury are also part of the Service's
internal security responsibilities.
Investigation was continued in the case of 26 employees and former
employees and one accountant, all of whom were arrested in January
1968 on charges of attempting to bribe an internal security inspector.
Twelve additional arrests were made in fiscal 1969. These bribes were
to obtain information contained in inspection files or to circumvent
investigations relating to corrupt activities. Durng the year five persons pleaded guilty, one person died, and the grand jury returned a no
true bill on one of the subjects; at the fiscal yearend 20 were awaiting
trial and 11 were pending grand jury action. Tax examinations initiated
in connection with this investigation have resulted in deficiencies well
in excess of $1 million. At the end of fiscal 1968 investigation Avas con-

120

1969 REPORT OF THE SECRETARY OF THE TREASURY

tinning and it was anticipated that the total tax deficiencies involved
Avould amount to over $2 million.
Bureau of the Mint^
The major functions of the Bureau of the Mint are the manufacture
of coins of the United States and their distribution to the Federal
Eeserve banks and branches. Other functions involve the safeguarding, processing, and movement of gold and silver bullion for the
Treasury; the manufacture of medals of a national character; the
production and sale of proof coins and uncirculated coin sets; and, as
scheduling permits, the manufacture of foreign coins and dies on a
reimbursable basis.
The Headquarters for the Bureau of the Mint is located in Washington, D.C. The operations involved in carrying on the business of the
Mint are performed in the several field offices. Mints are located in
Philadelphia, Pa., and Denver, Colo.; assay offices are in New York,
N.Y., and San Francisco, Calif. ;2 bullion depositories are in Fort
Knox, Ky. (for gold) and in West Point, N.Y. (for silver). The silver
depository at West Point is an adjunct of the New York Assay Office.
Operations of the Bureau of the Mint, fiscal years 1968 and 1969
Selected items

Coins manufactured (millions bf pieces):
Domestic regular issue
Domestic special coins
'
Foreign coins
Total
Newly minted coins issued (millions of pieces): 3
1-cent piece
5-cent piece
Dimes
:....
Quarter dollars
Half dollars
Total

Domestic coinage dies manufactured
Foreign coinage dies manufactured
Medals and distinguishing devices manufactured
Uncurrent U.S. coin received from circulation, pieces
Total assay determinations made
Electrolytic refinery production-gold, fine ounces
Electrolytic refinery productiori-silver, fine ounces
Balance of gold bullion in Mint at yearend, fme ounces
Balance of silver bullion in Mint at yearend, fine ounces

Fiscal year
1968

1969

5,862.6
112.2
249.0

7,018.1
217,3
247.4

6,123.8

7,282.8

3,746.1
143.5
3,808.1
2,136.6
307.3

5,344.7
318.8
1,170.0
337.9
100.0

10,141.6

7,271.4

37,378
6,489
49,063
5,246,559
189,078
2,638,961
2,888,861
278,104,903
76,836,413

53,498
4,423
315,555
10,376,993
181,116
1,763,192
2,865,030
283,890,122
97,404,185

1 6.4 million pieces in proof sets; 5.8 million pieces in special mint sets.
2 Proof coins.
8 Excludes proof coins.
:

Domestic coinage

During fiscal 1969 the three coinage facilities processed approximately 25,390 short tons of coinage metal into 7.0 billion finished coins
Avith a face value of nearly $303 million dollars. These amounts include
1,769,436 proof coin sets dated 1968, and 1,699,508 proof coin sets dated
1 Additional information; Is contained in the separate "Annual Report of the Director of
the Mint."
2 The San Francisco Assay Office also operates as a Mint.

ADMINISTRATIVE REPORTS

121

1969, consisting of 17,344,720 indiAddual coins with a face value of
$3,156,739.04.
Proof coin production continued at the San Francisco Assay Office
Avith all coins bearing the "S" mint mark. The Bureau of the Mint
began accepting orders for the 1969 proof coin sets November 1, 1968,
and by November 6, 1968, orders had been received to fill the planned
production of approximately 3 million sets.
The production by denomination of the fiscal 1969 total varies greatly
from that of the past 3 years due to current requirements of the
economy. The 1-cent coins which continued as the most largely produced, accounted for 76 percent of the total production in fiscal 1969,
increasing from 64 percent in 1968, 40 percent in 1967, and 32 percent
in 1966. The 1-cent production of more than 5.348 billion pieces is the
greatest single year production for this denomination in mint history,
and eclipses the previous high in 1968 by over 42 percent. Quarters, on
the other hand, continued to decrease from 13 percent of total production in 1968, to 5 percent in 1969. The remainder of the 1969 production
was as follows: dimes, 15 percent; 5-cent pieces, 3 percent; and half
dollars, 1 percent.
All subsidiary coin (dimes, quarters, and halves) were of the composite type authorized by the Coinage Act of 1965 (31 U.S.C. 391).
The composite coins consist of three layers of material. For dimes and
quarters the metallic composition of the outer layers is an alloy of 75
percent copper and 25 percent nickel, bonded to an inner core of pure
copper. The composite half dollar has outer layers of 80 percent silver
and 20 percent copper, bonded to an inner core of approximately 20
percent silver and 80 percent copper, giving the coin an overall silver
content of 40 percent. Cents were made from bronze with a 95 percent
copper-5 percent zinc composition. Nickels were made from a 75 percent copper-25 percent nickel alloy.
Tlie Bureau of the Mint delivered 7.272 billion new coins to the
Federal Eeserve banks and branches in fiscal 1969. In addition, over
262 million clad quarters and 288 million clad dimes were returned to
the Federal Eeserve banks and branches for redistribution after they
had been separated from the mixed silver and clad coins.
Foreign coinage

Foreign coinage production of 247 million pieces during fiscal 1969
continued at a rate nearly equal to fiscal 1968 (249 million pieces).
During fiscal 1969 the mint produced coins for Canada, Costa Eica,
El Salvador, Israel, Liberia, Panama, and the Philippines. For
Canada, 85.2 million 10-cent pieces of pure nickel were made. Two
coins of a 75 percent copper-25 percent nickel composition, the 1 colon
and the 50 centimos, were produced for Costa Eica in quantities of
2 million each. For El Salvador, the mint furnished 5 million 1 centavo
of a 95 percent copper-5 percent zinc composition, and 3 million 10
centavos of a 75 percent copper-25 percent nickel alloy.
The mint made 60,000 commemorative peace coins for Israel, 20,000
of which were proof. The composition of the peace coins was 90 percent silver-10 percent copper. For the Government of Liberia, the
mint produced 1.6 million 25 cent coins of a 75 percent copper-25
percent nickel composition; and 14,396 Liberian proof sets containing

122

19 69 REPORT OF THE SECRETARY OF THE TREASURY

one each of the following denominations: 1 dollar; 50 cents; 25 cents;
10 cents; 5 cents; and, 1 cent.
For the Government of Panama, the mint manufactured the following coins for general circulation: 25 million 1 centesimo which
Avere bronze of a 95 percent copper-5 percent zinc composition; 6 million 5 centesimos of a 75 percent copper-25 percent nickel alloy; 5 million %o balboa and 1.20 million 14 balboa, each of 75 percent copper25 percent nickel layers clad onto a core of pure copper; and 1 million
14 balboa which w.ere silver, clad, averaging 40 percent silver-60 percent copper. Also produced by the mint for the Governnient of Panama
AA^ere 23,210 Panamanian proof sets containing one each of the following denominations: 1 balboa; i/^ balboa; 14 balboa; %o balboa;
5 centesimos; and 1 centesimo.
For the Philippine Governnient during fiscal 1969, the mint furnished 40 million 1 sentimos of 95 percent alumiiiium-5 percent magnesium ; 50 million, 5 sentimos which were 60 percent copper-40 percent zinc; 10 million 10 sentimos and 10 million 25 sentimos Avhicli
were 70 percent CG)pper, 18 percent zinc, and 12 percent nickel; and
100,000 one peso coins 90 percent silver-10 percent copper.
I n addition to the finished coins which were produced for foreign
governments in fiscal 1969, the Bureau of the Mint manufactured two
sizes of coinage blanks for the Governnient of Brazil of a 75 percent
copper-25 percent nickel alloy. The blanks were 23 mm. and 25 mm.
in diameter, for the 10-ceiitaA^o and 20-ceiitaA^o coin, respectively.
Deliveries of these blanks during the fiscal year amounted to 55.2
million ounces whicii was approxiniately 126.6 million pieces of the
10-centavo size and 129.8 million pieces of the 20-centavo size.
Silver activities

I n connection Avith the Treasury's program to make silver bullion
available for industrial use, the Bureau of the Mint recoA^ered 131.0
million fine ourices of silver from the melting of $89.8 million of silver
quarters and $93.0 million of silyer dimes Avliich had been separated
from inventories of coins not recirculated b}^ the Federal Eeserve
System. At the end of fiscal 1969 the Bureau of the Mint had in its
inventories circulated coins estimated to contain silver coins equivalent to 58.5 million fine ounces of sih^er. In addition, the Federal
EeserA^e banks and,branches had in their iiiA^entories circulated coins
estimated to contain sih^er coins equivalent to 6.1 million fine ounces
of silver. These inventories were the result of a program initiated
in fiscal 1968, for recoA^ering the silver from sih^er coin. This remaining
silver Avill be recoA^ered during fiscal 1970 and early 1971 as the silver
coins are separated from the clad coins and are melted.
I n accordance with amendments to the sih^er regulations dated September 21,1967, thd handling of sales of Treasury silver for industrial
use was transferred to the General Services Administration.^ Approximately 99 million fine troy ounces were contracted for sale during
fiscal 1969. Most of the silver made available was from the silver coin
melting prograni. The preparation of bars, storage, and processing
for delivery of this silver was accomplished by the Bureau of the
Mint.
1 See 1968 a n n u a l report, page 466.

ADMINISTRATIVE REPORTS

123

Management improvement program

The Bureau of the Mint continued its active management improvement and cost reduction program during fiscal 1969 under the direction of management and operating officials in the Office of the Director, and in each of the mints and assay offices. Major efforts of these
officials Avere directed toward achieving efficient maximum production
of doniestic coins and it has been largely through their efforts that this
has been accomplished for the past several years.
Savings of $781,000 were realized during fiscal 1969 under the
program. These were attributed to further improvements in technology and operating procedures and continuing programs for developing personnel in management and other skills.
New Philadelphia Mint

Ceremonies for the cornerstone laying of the new mint at Philadelphia were held on September 18, 1968. Before June 30, 1969, the
structure was essentially complete and initial tests had been made of
all new inelting and rolling equipment. Conventional coining equipment from the old mint was being relocated in the new building at the
fiscal yearend.^
U.S. Savings Bonds Division
The U.S. Savings Bonds Division promotes the sale and retention of
U.S. savings bonds and U.S. savings notes ("Freedom Shares," first
issued in May 1967) and the sale of savings stamps. The systematic
buying and continued holding of these securities makes an important
contribution to the Government's efforts to finance our national debt
in a noninflationary manner and broadens the ownership of the
Federal debt.
The program is carried out by a relatively small Government staff
assisted by a large corps of sales promotion volunteers. Liaison is
maintained with all types of financial, business, labor, agricultural, and
educational institutions, and with community groups of all kinds.
Their volunteer services are enlisted to sell savings bonds through
banks, savings and loan associations, credit unions, certain post offices,
and thousands of business establishments and other employers operating payroll savings plans.
Sales of series E and H savings bonds and savings notes totaled
$4,876 million in the fiscal year 1969.
Promotional activities

Continued progress was made during fiscal 1969 in promoting the
payroll savings plan among industrial employees; Federal, State, and
local Governnient einployees; and the military services. Over 2,308,000
persons were enrolled during the year and participants in the payroll
savings program as of June 30, 1969, totaled more than 10,000,000.
Mr. James M. Eoclie, chairman of the board. General Motors Corp.,
directs the 1969 payroll savings campaign in industry, which was
formally launched with the annual meeting of the Payroll Savings
Committee in Washington on January 8,1969. As Chairman, he heads
the Committee composed of the six former Chairmen and top execu'•The official opening of the new m i n t was held on Aug. 14, 1969. Details will be included
in the a n n u a l report for fiscal 1970.
363-222—70

124

1969 REPORT OF TI-IE SECRETARY OF THE TREASURY

tives representing 23 key business centers and 28 major industries. Mr.
Eoche addressed the campaign kickoff meetings of top executives in
Detroit and in 13 other cities. He provided for a savings bond float in
the Inaugural Parade, a sound motion picture, "Challenge of Leadership," and a sales brochure for use in selling top executives on the
program. He also sponsored advertising in the "Wall Street Journal"
and the "Journal of Commerce." The successful campaign in General
Motors whicii increased participation from 61 percent to 90 percent
among its almost 600,000 employees underlined Mr. Eoche's involvement in the payroll savings program.
The Executive Committee of State Chairmen of the Savings Bonds
Division met with officials at the Treasury on March 13. On Marcli 14,
approxiniately 400 volunteers from industry, banking, national
organizations, and the Federal Government attended a conference
in Washington, D.C. I n addition to Treasury officials,^ speakers included Mr. Eoche and Mr. Eobert P . Mayo, Director of the Bureau
of the Budget.
Under the direction of Interdepartmental Chairman Eobert PI.
Finch, Secretary of Health, Education, and Welfare, and Vice Chairman Maurice H . Stans, Secretary of Commerce, a successful spring
campaign Avas conducted among both civilian and military personnel
in the Federal Government. Appearances by Hollywood celebrities
marked the opening ceremonies in Washing-ton and at a Pentagon
rally. During the spring campaign, approximately 112,000 civilian
employees and 84,000 additional members of the Armed Forces signed
new bond allotments. Sixty-one thousand employees increased their
allotments. Total enrollment, civilian and military, exceeded 3,540,000
on June 30, 1969. For the third consecutive year, sales to Federal
personnel exceeded $1 billion.
The l l t h Mrs. United States Savings Bonds, J o y Berlemann of Las
Cruces, N.M., was featured on the special Inauguration Day and
Orange Bowl parade floats. To promote the sale of savings bonds, she
toured 17 States and visited military installations in l o u r foreign
countries.
Forty-eight national organizations with a combined membership
of 49,000,000 gave, editorial and advertising support in their national
publications, showed films, and encouraged their local units to devote
• at least one club prograni to savings bonds.
The school program utilized colorful new materials to tie in with
a film, "The Story of Old Glory," and wallet cards, posters, and certificates for students exchanging stamp albums for savings bonds were
Avidely distributed. Almost 5 million pupils were exposed to the program in fiscal 1969, resulting in the purchase of 111,338,000 savings
stamps valued at nearly $19 million.
Directed by the National Labor Committee for Savings Bonds,
organized labor continued their unqualified support and endorsement
for the savings bonds program. A strong policy statement urging that
the payroll savings plan be made availaible to all wage earners was
adopted by the A F L - C I O Executive Council.
Over 13,000 banks distributed 37 million savings bonds leaflets to
their customers. Banks also sponsored newspaper advertising, fur1 See exhibit 26.

ADMINISTRATIVE REPORTS

125

nished volunteers for local campaigns, and served as host to hundreds
of volunteer meetings.
A National Panel on Public Eelations for Savings Bonds, headed by
James T. Coleman, Director of Public Eelations for Tupperware, was
(established in fiscal 1969 to provide guidance and advice on specific
public relations problems. Another new volunteer group, the 47-member National Committee of Newspaper Publishers, headed by Eugene
C. Pulliam, president, Indianapolis and Phoenix Newspaper, Inc., was
initiated to act in a consulting capacity to the Secretary of the Treasury and the SaAdngs Bonds Division and to stimulate and maintain
editorial emphasis on savings bonds, especially in chain newspapers.
The Advertising Council and its task force advertising agencies
continued to give outstanding support to the bond program during
fiscal 1969. The estimated dollar value of advertising contributed by
newspapers, magazines, radio, television, outdoor, and transit companies was nearly $60 million. Daily newspapers carried 20,154 ads
and magazines carried 138,820 lines.
Famous TV and motion picture stars appeared in person for the
program as well as in theatrical and television film messages. The
motion picture industry donated an outstanding savings bonds short
subject, "Eowan and Martin at the Movies," whicii had played in
more than 5,000 theatres by the end of the fiscal year.
Management improvement

One of the most significant improvements in the administrative
management of the Division became effective 'September 29,1968, when
all of the Division's field promotional positions were converted from
the excepted category into the competitive civil service. This action
opened the door to an entirely new approach to personnel management
which will permit the more effective utilization of the Division's human resources.
As a result of a study by a team from the Office of the Assistant Secretary for Administration, the Division has undertaken exploratory
work in realining districts and areas to permit the crossing of State
boundaries by some representatives, when this clearly contributes to
better management and coverage of territory. At the end of fiscal
1969, nine such territories had been estaiblished.
Because of rising costs of printed and other promotional materials
and services the Division reluctantly abandoned an 8-year-old program of direct mail bank letters indorsing the savings bonds program.
During the year some 25 million to 30 million personal bank letters
were mailed from bank presidents to bank depositors at no postage
cost to the Government. Total cost of the promotion amounted to
$92,000 annually. Savings for the segment of fiscal year 1969 affected
through cancellation of this program, amounted to $40,000. Funds
saved were used to procure essential printed and promotional services
that otherwise would not have been possible to acquire.
U.S. Secret Service
The major responsibilities of the U.S. Secret Service defined by
section 3056, title 18, United States Code, are to protect the President
of the United States, the members of his immediate family, the Presi-

126

1969 REPORT OF THE SECRETARY OF THE TREASURY

dent-elect, the Vice President or other officer next in the order of
succession to the office of President, and the Vice-President-elect; to
protect the person of a former President and his wife during his lifetime, the person of the widow of a former President until her death
or remarriage, and minor children of a former President until they
reach 16 years of age, unless such protection is declined; to protect
persons who are determined from time to time by the Secretary of
the Treasury, after consultation with the advisory committee, as being
major presidential or vice presidential candidates, unless such protection is declined; the detection and arrest of persons committing any
offenses against the laws of the United States relating to coins, 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, and Federal land bank associations.
Management improvement

Secret Service headquarters installed a 24-hour communications
center and locator service to insure prompt access to headquarters personnel by the public and others having business with the Service. The
24-liour telephone answering service capability has also been implemented in 18 field offices.
Teletype communications to 15 field offices from headquarters were
operational by the fiscal yearend. This system is connected with the
National Crime Information Center (NCIC) and with the Law Enforcement Teletype Systeni ( L E T S ) . The systeni provides the rapid
and accurate interchange of printed material necessary to accomplish
the Service's law enforcement and protective duties.
A secure voice facility was added for the transmission of classified
telephone calls between the State Department, CIA, the Department
of Defense, The White House, and the Secret Service.
The Counterfeit Note Index, containing data used in identifying
counterfeit notes in circulation, Avas being prepared by the Service
at the end of fiscal 1969.
All protective intelligence case files were computerized for rapid
accessibility.
A study of the several manual systems used by the Service to assemble and maintain key information on employees, indicated that
a more sophisticated approach with expanded capability, for total
personnel management, consistent with the Service's specific requirements was necessary. As a result, an automated personnel information system was developed, which is expected to be fully operational
in January 1970.
The objective of the system is to provide top management with immediate access to any information required for personnel decisions.
During the latter half of the year, system specifications were developed for an automated criminal name index to identify all data
on persons arrested by the Service. Beginning on July 1, 1969, the
pertinent information received from field offices is to be verified,
and forwarded for entry into the computer system.
The automation of the nanies of intelligence subjects provides another step toward the total automation of all names of interest to the
Secret Service.

ADMINISTRATIVE REPORTS

127

Personnel

During;the fiscal year 1969 the Secret Service increased its total
permanent personnel strength by 121, including 80 special agents.
Training

During fiscal 1969, the Service continued to emphasize supervisory
and management development. All White HCouse Police Force personnel with the rank of sergeant and higher completed at least a basic
supervisory development course. Several employees attended various
Civil Service Comniission sponsored courses on budgeting and finance.
Two officials attended the Commission's 2-week planning-programing-budgeting system course, and two others studied at the new
Federal Executive Seminar Center at Charlottesville, Va.
The Secret Service took OA^er operation of the Indoor Firing Eange
in the Main Treasury Building from the U.S. Coast Guard in June
1969. I n preparation for this, those who would be teaching at the
range attended an Instructor Training Course.
During fiscal 1969, the Service trained law enforcement officers
from the North Carolina State Bureau of Investigations and the
Eoyal Canadian Mounted Police in protection techniques. I t also
trained five members of the Baltimore Police Department in ninhydrin processing and members of other laAv enforcement agencies in
questioned documents.
Training programs within the Secret Service for personnel engaged in investigative and protective functions involved 28,976 manhours. I n addition, 5,688 man-hours of interagency training and
10,343 man-hours of nongovernment training were completed. This
made a total of 45,007 man-hours of training completed by the Service during fiscal year 1969.
Inspection and audit program

Improvements were made in procedures, evaluation techniques, and
reporting in connection with the inspection and audit program during fiscal 1969. New protective responsibilities were assigned in connection with the prograni. Personnel also served as special representatives of the Director in the development of special high-level projects.
Protective responsibilities

The protection of the First Family, Vice President, former Presidents and their wives, the widow of a former President until her death
or remarriage, major presidential and vice presidential candidates,
and the minor children of the late President John F . Kennedy continued to be the primary responsibility of the Secret Service.
Investigative responsibilities

Fiscal 1969 was one of the Secret Service's most eventful years in
the investigation of counterfeit U.S. currency. Seizures of counterfeit money reached an alltime high of over $12 million and 1,394 individuals were arrested for counterfeiting violations. I n addition, a
number of counterfeiting operations were stopped before any notes
were produced.
The amount of counterfeit money passed on the public reached approximately $2.9 million. Although the dollar aniount increased 4
percent over fiscal 1968, the number of counterfeit notes passed decreased 1 percent from 1968.

128

1969 REPORT OF THE SECRETARY OF THE TREASURY

These percentages are quite significant when compared to a 17 percent rise in serious crimes recorded during calendar year 1968^ Even
more significant is the fact that during the last few months of fiscal
year 1969, there was a considerable decrease in the amount of counterfeit money being passed to the public.
The decrease in counterfeit activity during this period was due
to intensive enforcement efforts—with a heavy concentration on the
major counterfeiting operations—and not to any cyclical trend. Ten
major operations were eliminated during fiscal year 1969.
The following summaries illustrate the type and scope of counterfeiting activities during fiscal 1969.
In July 1968, an undercover Secret Service agent rendezvoused
at a suburban Cleveland bar with a local criminal who had played a
major role in almost every counterfeiting operation in that area during
the past '20 years.
This individual offered to sell a large quantity of counterfeit $100
notes to the agent, who posed as an attorney with access to several
hundred thousand dollars in the safe deposit box of a client. The "attorney" said that he planned to replace his client's funds with the
counterfeit currency. It was agreed that the "attorney" would receive
an initial delivery of $300,000 in counterfeit notes and a later delivery of $900,000.
Agents observed the suspect and a Cleveland associate arrive at
the Miami International Airport on July 26,1968. The two, who were
met by a member of the Miami underworld, proceeded to a motel
where the undercover agent was staying. At the motel, the suspects
displayed samples of their counterfeit to the "attorney" and he assured them that lie had the funds to complete the transaction. The
counterfeiters were arrested 4 hours later when they returned to deliver
the $300,000 in counterfeits.
While free on bbnd, the two Cleveland defendants hired a Cleveland
printer who produced new counterfeits which were later passed in
large numbers in the Pittsburgh-YoungstoAvn-Cleveland area.
Through an informant, an undercover agent was introduced to four
distributors of these notes. Subsequently, in March 1969, these distributors were arrested at the Cleveland airport while delivering
$500,000 of the new counterfeits.
In June 1969 the printer was arrested and the original Cleveland
defendants rearrested. They were awaiting trial on the new charges at
the fiscal yearend.^
During August 1968, the Secret Service office in Los Angeles was
contacted by an informant who stated that he had been offered an
unlimited number of counterfeit $20 notes, by someone he had met. The
notes had first appeared in the Los Angeles area several days earlier.
The informant arranged for an undercover agent to meet the suspect.
Subsequently, an initial purchase of $2,000 in counterfeit twenties was
made and the undercover agent ordered an additional $200,000.
Two days later, another informant reported having met the same
suspect, who he^ had accompanied to a Los Angeles apartment where
they met the printer of these notes. The apartment was located near a
1 The counterfeiter, who the agent first met in July 1968, was shot to death in New York
City in August 1969, the victim of a gangland slaying.

ADMINISTRATIVE REPORTS

129

]3rint shop operated by a foriner counterfeiter. Investigation revealed
tihat the ex-counterfeiter had recently purchased a supply of the type
of paper used to produce the counterfeit notes.
The first suspect was arrested on August 10 while making the
$200,000 delivery to the undercover agent. An additional $200,000 in
notes Avas discovered at the suspect's apartment where his brother
was also arrested. The printer was arrested at his shop where $400,000
more in counterfeits were seized.
The printer had first been arrested for counterfeiting in Chicago
in 1958, and received a 5-year sentence. He was arrested again in Los
i\jigeles in 1963 and served 4 years of a 9-year sentence. At the time of
his August 1968 'arrest, he was on parole and before June 30,1969, had
received an additional 3-year sentence.
During March 1968, an Ohio printer was arrested for producing a
series of 12 counterfeit notes which had been appearing in the Midwest for over 18 months. After pleading guilty to these charges, he
became a fugitive when he failed to surrender at the time his sentence
was to have begun.
Efforts to locate the fugitive during the following months were
fruitless. Nothing was learned of his whereabouts until he and two
others were arrested during December 1968 while passing a new
counterfeit note at a surbuman New Orleans shopping center. The
printer's new counterfeiting plant, located in a small Florida town,
was seized several days later. The printer received a 4-year sentence to
be served upon completion of the 10-year sentence arising from his
conviction in Ohio.
The investigation of one of the year's most significant counterfeiting conspiracies culminated in December 1968 with the arrest of a
counterfeit notepasser in San Francisco. The passer agreed to cooperate and, subsequently, introduced an undercover agent to his
supplier. Negotiations continued for several weeks without results.
In late January 1969, the agent was able to make a small purchase
of counterfeit notes and to complete arrangements for a later delivery, of $50,000 in Columbus, Ohio. ^
Agents observed the distributor arrive at the Columbus airport on
February 4 and followed him to a motel where he met with the undercover agent to confirm arrangements for the second delivery. Meanwhile, agents had placed the distributor's uncle, a Columbus resident,
under surveillance.
As the distributor left the undercover agent's room to obtain the
counterfeits, other agents were following the uncle's car to the motel.
The two suspects met in the motel parking lot, where the uncle gave an
airline flight bag to the distributor. The bag, containing counterfeit
notes, was taken to the agent's room, Avliere the supplier was arrested
while making the delivery. The uncle was arrested several miles away.
Agents found OA'-er $1.5 million in counterfeit notes, printing plates,
a press, and other equipmerit hidden in a concealed room in the attic
of the uncle's residence following his arrest.
Both defendants entered guilty pleas and received 10-year
sentences.
During July 1968 a counterfeiting operation was suppressed in its
iriitial stages Avlien a passer was arrested in Keansburg, N.J. The

130

1969 REPORT OF THE SECRETARY OF THE TREASURY

arrest was made shortly after the appearance of a new series of
counterfeit $20 notes. This arrest became more significant when unused offset printing plates Avere found hidden at the passer's residence.
Subsequent investigation led to the identification and arrest of two
individuals who had purchased the plates, an offset press, and other
supplies from one printing firm.
On the basis of additional inforniation supplied, by an informant,
agents arrested six more conspirators who had participated in the
manufacture of these notes. This series of arrests resulted in the
seizure of nearly $3 million in counterfeit notes before they could
be placed in circulation.
Late in 1967, an informant reported to the Secret Service that two
Milwaukee printers with prior criminal records were allegedly conspiring to produce counterfeit currency. Investigation, however, failed
to support the allegation.
Continued interest in their activities proved warranted in June
1969 Avheii a second informant provided information linking one
suspect with a delivery of new counterfeit notes in Omaha.
Surveillance was agaiii undertaken, which resulted in the arrest
of the two several days later while they were printing counterfeit
notes in Milwaukee. Nearly $700,000 in $5, $10, and $20 counterfeits
were seized when the arrests were made.
A major counterfeiting conspiracy investigated during fiscal 1969
began in 1967 when three men purchased a printing press and other
equipment from printing supply houses in Atlanta, Ga. Their paraphernalia was delivered to a location in northern Florida, Avhere they
produced nearly $750,000 in counterfeit $20 notes.
Two of these men were arrested AAdien they delivered $250,000 in
these notes to an undercover agent at the Atlanta airport. The third
man became a fugitive.
Nearly a year later, this criminal took a second printing press and
other equipment purchased from a Louisville supplier to a remote
area in southern Alabama. H e and ncAvly recruited associates produced a second series of counterfeits, totaling nearly $1 million. These
notes were distributed throughout the Southeast and MidAvest.
Through the efforts of a special detail of agents assigned to this
investigation, shipments of counterfeit notes for NCAV Orleans, Houston, and Milwaukee, totaling nearly $300,000, Avere seized before they
could be circulated.
Other agents of this investigative team, Avorking undercover, succeeded in infiltrating the gang's hierarchy whicii was operating in
southern Georgia. The leader and several of his associates were
arrested in October 1968, after making a delivery of $32,000 to an
undercover agent.
The principal conspirator Avas facing counterfeiting charges in
Kentuclcy, Louisiana, and Georgia at the fiscal yearend. The notes
produced by the two plants Avere responsible for $333,000 in losses to
the public. A total of 181 persons were arrested for passing his notes.
I n early 1969, the Secret Service Avas advised that a noAdce printer
had visited several Los Angeles supply houses and had purchased a
press and other equipment. A trailer used by the subject was traced
to an address in Las Vegas which had been rented under his assumed

ADMINISTRATIVE REPORTS

131

name. Agents learned the subject's true identity and that shortly
after his release from a California prison he had enrolled in a printing course at a Los Angeles trade school.
At the same time other agents maintained surveillance over the
suspect's activities. A search warrant was obtained and the plant site
raided on February 26, 1969. The subject and three associates were
arrested while producing photographic negatives and offset printing
plates which were intended for use in counterfeiting $10 and $20
notes. These conspirators never had the opportunity to produce a
counterfeit note.
During fiscal 1969 the forgery of Government obligations continued
to represent a substantial part of the investigative responsibilities of
the Secret Service.
The number of forged U.S. Treasury checks referred to the Secret
Service for investigation during fiscal 1969 amounted to 52,411, an
increase of l.,6 percent over the referrals received during fiscal 1968.
I t should be recognized that the number of Government checks issued
during fiscal 1969 increased by more than 15,000,000. During fiscal
1969, a total of 42,923 iuA^estigations involving U.S. Treasury checks
A^ere completed and 2,119 individuals were arrested for check forgery
Adolations.
The nuniber of cases closed and arrests made represents a decrease
from 1968 when 52,667 investigations were completed and 2,422
forgers were arrested. This decrease was attributed to the unusual
workload imposed on Secret Service manpower during fiscal 1969.
These manpower demands were the result of increased protective
responsibilities involving major presidential and vice presidential
candidates.
While most of the forged checks were stolen from home or apartment mailboxes, there was an unusual case in Washington, D.C. involving the theft of approximately 1,000 Civil Service annuity checks
from a U.S. Post Office on or about August 1, 1968. Approximately
300 of these checks were forged and negotiated in the Washington
area. By the fiscal yearend, eight persons had been arrested and
charged with the forgery and negotiation of these checks.
During fiscal 1969, 19,848 Government bonds were referred for
investigation in connection Avith a claim of forgery, an increase of
21.1 percent over fiscal 1968.
The Bureau of Public Debt, as of May 31, 1969, advised that
255,570 bonds, with a face value of $31,153,953, had been reported
stolen and remained outstanding. These totals only include reported
thefts amounting to $1,000 or more. Therefore, theft reports of less
than $1,000 must also be considered as potential forgeries.
Persons handling stolen goods, "fences," Avho have connections with
organized crime figures, often traffic in stolen U.S. savings bonds.
A major investigation into bond forgery activity in the New YorkNew Jersey area was begun in April 1969. A number of forgers were
arrested in connection with this investigation. The arrested forgers
had negotiated approximately $175,000 in savings bonds. The investigation was continuing at the fiscal yearend and further arrests were
anticipated.

132

19 69 REPORT OF TPIE SECRETARY OF TPIE TREASURY

Two men were arrested in Wisconsin in October 1968, while
attempting to negotiate a quantity of bonds which had been stolen
from a Florida motel. These men, with an unknown female accomplice,
Avere responsible for the forgery and negotiation of approximately
$85,000 Avorth of stolen U.S. savings bonds. Most of these bonds had
been stolen from the Chicago area, and had been negotiated in Minnesota, Wisconsin, Texas, Nebraska, and Ohio.
The two forgers were released on bail. I n January 1969, they
renewed their operations with the same female accomplice and a
brother of one of the men. They successfully passed an additional
$15,000 worth of Isavings bonds during January, February, and March.
The original two forgers, together with their female accomplice and
the other man, had been arrested by the end of the fiscal year.
The following tables show the number of criminal and noncriminal
investigations completed and arrests made by the Secret Service in
fiscal years 1968 and 1969.
Criminal and noncriminal cases investigated, fiscal years 1968 and 1969
Cases mvestigated
Counterfeiting
Forged Government checks
Forged Government bonds
Protective intelligence....
Other criminal and noncriminal
Total
,
-

-..
.-

1968

1969

23,025
52,667
11,505
14,614
3,422
105,233

18,177
47,280
14,435
12,380
5,592
97,864

Number of arrests, fiscal years 1968 and 1969
;
Counterfeiting
..;
Forged Govemment checks
Forged Government bonds
Protective intelligence..----.
Miscellaneous
Total....
...'

Offenses

1968
1,370
2,422
146
338
61
4,337

1969
1,394
2,119
113
337
56
4,019

Offenses investigated by the Secret Service resulted in the conviction
of 2,999 persons, 96.1 percent of the cases brought to trial duringfiscal year 1969.
Cooperation

The Secret Service is a participating agency in the Department of
Justice's Organized Crime Task Force project.
The Secret Service appreciates the outstanding assistance it continues to receive from laAv enforcement at all levels, and from
interested citizens in behalf of its protective and investigative
responsibilities.

EXHIBITS

Public Debt Operations, Regulations, and Legislation
Treasury Notes Offered and Allotted
During fiscal year 1969 tliere were no offerings of marketable Treasury certificates of indebtedness or Treasury bonds.
Exhibit 1.—Treasury notes
Two Treasury circulars, one containing an excliange offering and the other
containing a cash offering, are reproduced in this exhibit. Circulars pertaining
to the other note offerings during the fiscal year 1969 are similar in form and
therefore are not reproduced in this report. However, essential details for each
offering are summarized in the first table follOAving the circulars and the final
allotments of the new notes are shown in the second table.
DEPARTMENT CIRCULAR NO. 6-68. PUBLIC DEBT
TREASURY DEPARTMENT,

Washingt07i, August 1, 1968.
1. OFFERING O F NOTES

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, offers $5,100,000,000, or thereabouts, of notes of
the United States, designated 5% percent Treasury Notes of Series •B-1974, at
99.62 percent of their face value and accrued interest. In addition to the amount
off'ered for publie subscription, the Secretary of the Treasury reserves the right
to allot an additional amount of these notes to Government Investment Accounts
and Federal Reserve Banks. The following securities, maturing August 15, 1968,
will be accepted at par In payment or exchange, in whole or in part, to the extent
subscriptions are allotted by the Treasury:
41/4 percent Treasury Notes of Series C-1968; or
3% percent Treasury Bonds of 1968.
The books will be open only on August 5, 1968, for the receipt of subscriptions.
I I . DESCRIPTION OF NOTES

1. The notes will be dated August 15, 1968, and will bear interest from that
date at the rate of 5% percent per annum, payable semiannually on February 15
and August 15 in each year until the principal amount becomes payable. They
will mature August 15, 1974, 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, and notes registered as to principal and interest, will be issued in denominations of $1,000, $5,000, $10,000,
$100,000, $1,000,000, $100,000,000 and $500,000,000. Provision wiU be made for the
interchange of notes of different denominations and of coupon and registered
notes, and for the transfer of registered notes, under rules and regulations
prescribed by the Secretary of the Treasury.
5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, golverning United States notes.
135

136

19 69 REPORT OF THE SECRETARY OF THE TREASURY
I I I . S U B S C R I P T I O N AND A L L O T M E N T

1. Subscriptions accepting the offer made by this circular will be received at
the Federal Reserve Banks and Branches and at the Office of the Treasurer of
the United States,; Washington, D.C. 20220. Only the Federal Reserve Banks
and the Treasury Department are authorized to act as official agencies. Commercial banks, which for this purpose are defined as banks accepting demand
deposits, m'ay submit subscriptions for account of customers provided 'the names
of the customers are set forth in such subscriptions. 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 restricted in
each case to an arnount not exceeding 50 percent of the combined capital (not
including capital notes or debentures), surplus and undivided profits of the subscribing bank. Subscriptions will be received without deposit from banking
inistitutions for their own account, Federally-insured savings and loan associations, States, politieal subdivisions or instrumentalities thereof, public pension
and retirement andi other public funds, international organizations in which the
United States holds membership, foreign central banks and foreign States, and
dealers who make j>r'imary markets in Government securities and report daily
to the Federal Reserve Bank of New York their positions with respect to Government securities and bori:owings thereon. Subscriptions from all others must be
accompanied by payment (in cash or in securities of the issues enumerated in
Paragraph 1 of Section I hereof, which will be accepted at par) of 10 percent
of the amount of notes applied for, not subject to withdrawal until after
allotment. Registered securities submitted as deposits should be assigned as
provided in Section :V hereof. Following allotment, any portion of the 10 percent
payment in excess of 10 percent of the amount of notes allotted may be released
upon the request of the subscribers.
2. All subscribers are 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
notes of this issue at a specific rate or price, until after midnight August 5, 1968.
3. 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.
4. Under the Second Liberty Bond Act, as amended, the Secretary of the
Treasury has the authority to reject or reduce any subscription, to allot less than
the amount of notes applied for, and to make different percentage allotments to
various classes of subscribers when he deems it to be in the public interest; and
any action he may take in these respects shall be final. Subject to the exercise
of that authority subscriptions will be allotted:
(1) in fuU if the subscription is for $250,000 or less:
(2) in full for any State, political subdivision or instrumentality thereof,
public pension and retirement and other public fund, international organization
in which the United States holds membership, and foreign central bank and
foreign state and such subscriber certifies in writing that at 4 p.m., eastern
daylight saving time, July 31, 1968, it owned or had contracted to purchase for
value securities of ithe issues enumerated in Paragraph 1 of Section I hereof, in
an aggregate amount equal to or greater than the amount of such subscription
(any such subscriber may enter an additional subscription subject to a percentage allotment) ; and
(3) on a percentage basis as publicly announced, but not less than $250,000.
Allotment notices will be sent out promptly upon allotment.
IV. P A Y M E N T

1. Payment at 99.62 percent of their face value and accrued interest, if any,
for notes allotted hereunder must be made or completed on or before August 15,
1968, or on later allotment. Payment will not be deemed to have been completed where registered notes are requested if the appropriate identifying number
as required on tax returns and other documents submitted to the Internal Revenue Service (an individual's social security number or an employer identification
number) is not furnished. In every case where full payment is not completed,
the payment with application up to 10 percent of the amount of notes allotted
shall, upon declaration made by the Secretary of the Treasury in his discretion,
be forfeited to the United States. Payment may be made for any notes allotted

EXHIBITS

, .

137

hereunder in cash or by exchange of securities of the issues enumerated in
Paragraph 1 of Section I hereof, which will be accepted at par. A cash adjustment will be made for the difference ($3.80 per $1,000) between the par value
of maturing securities accepted in exchange and the issue price of the new
notes. The payment will be made by check or by credit in any account maintained by a banking institution with the Federal Reserve Bank of its District,
following acceptance of the maturing securities. In the case of registered securities, the payment will be made in accordance with the assignments on the
securities surrendered. Any qualified depositary will be permitted to make
payment by credit in its Treasury Tax and Loan Account for not more than
50 percent of the amount of 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^hen payment
is made with securities in bearer form, coupons dated August 15, 1968, should
be detached and cashed when due. VV'hen payment is made with registered
securities, the final interest due on August 15, 1968, will be paid by issue of
interest checks in regular course to holders of record on July 15, 1968, the date
the transfer books closed.
V. A S S I G N M E N T OF REGISTERED

SECURITIES

1. Treasury securities in registered form tendered as deposits and in payment
for notes allotted hereunder should be assigned by the registered payees or
assignees thereof, in accordance with the general regulations of the Treasury
Department, in one of the forms hereafter set forth. Securities tendered in
payment should be surrendered to a Federal Reserve Bank or Branch or to
the Office of the Treasurer of the United States, Washington, D.C. 20220. The
maturing securities must be delivered at the expense and risk of the holder. If
the new notes are desired registered in the same name as the securities surrendered, the assignment should be to "The Secretary of the Treasury for 5%
percent Treasury Notes of Series B-1974"; if the new notes are desired registered
in another name, the assignment should be to "The Secretary of the Treasury
for 5% percent Treasury Notes of Series B-1974 in the name of
";
if new notes in coupon form are desired, the assignment should be to "The
Secretary of the Treasury for 5% percent Treasury Notes of Series B-1974 in
coupon form to be delivered to
".
VI. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive subscriptions, to make such allotments as may be
prescribed by the Secretary of the Treasury, to issue such notices as may be
necessary, to receive payment for and make delivery 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.
JOSEPH W . BARR,

Acting Secretary of the Treasury.
DEPARTMENT CIRCULAR NO. 3-69. PUBLIC DEBT
TREASURY DEPARTMENT,

Washington, May 1, 1969.
I . OFFERING O F NOTES

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, offers notes of the United States, designated 6%
percent Treasury Notes of Series D-1970, at 99.95 percent of their face value,
in exchange for the following securities :
5% percent Treasury Notes of Series B-1969, maturing May 15, 1969; or
2 ^ percent Treasury Bonds of 1964-69, maturing June 15, 1969, in amounts
of $1,000 or multiples thereof.
Interest will be adjusted on the bonds of 1964-69 as of June 15, 1969. Payments
on account of accrued interest and cash adjustments will be made as set forth

138

1969 REPORT OF THE SECRETARY OF THE TREASURY

in Section IV hereof. The amount of this offering will be limited to the amount
of eligible securities tendered in exchange. The books will be open only on May
5 through May 7,1969, for the receipt of subscriptions.
2. In addition, holders of the securities enumerated in Paragraph 1 of this
section are offered the privilege of exchanging all or any part of them for 6l^
percent Treasury Notes of Series B-1976, which offering is set forth in Department Circular, Public Debt Series—No. 4-69, issued simultaneously with this
circular.
I I . DESCRIPTION OF NOTES

1. The notes wili be dated May 15, 1969, and will bear interest from that
date at the rate of 6% percent per annum, payable on a semiannual basis on
August 15, 1969, and on February 15 and August 15, 1970. They will mature
August 15, 1970, 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, and notes registered as to
principal and interest, will be issued in denominations of $1,000, $5,000, $10,000,
$100,000, $1,000,000, $100,000,000 and $500,000,000. Provision will be made fOT the
interchange of notes of different denominations and of coupon and registered
notes, and for the transfer of registeTed notes, under rules and regulations
prescribed by the Secretary of the Treasury.
5. The notes will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States notes.
I I I . S U B S C R I P T I O N AND A L L O T M E N T

1. Subscriptions accepting the offer made by this circular will be received
at the Federal Reserve Banks and Branches and at the Office of the Treasurer
of the United States, Washington, D.C. 20220. Banking institutions generally
may submit subscriptions for account of customers, but only the Federal Reserve
Banks and the Treasury Department are authorized to act as official agencies.
2. Under the Second Liberty Bond Act, as amended, the Secretary of the
Treasury has the authority to reject or reduce any subscription, and to allot
less than the amount of notes applied for when he deems it to be in the public
interest; and any action he may take in these respects shall be final. Subject
to the exercise of that authority, all subscriptions will be allotted in full.
IV.

PAYMENT

1. Payment for the face amount of notes allotted hereunder must be made
on or before May 15,1969, or on later allotment, and may be made only in a like
face amount of securities of the issues enumerated in Paragraph 1 of Section
I hereof, which should accomipany the subscription. Payment will not be deemed to
have been completed where registered notes are requested if the appropriate
identifying number as required on tax returns and other documents submitted
to the Internal Revenue Service (an individual's social security number or an
employer identification number) is not furnished. Payments due to subscribers
will be made by check or by credit in any account maintained by a banking institution with the Federal Reserve Bank of its District following acceptance of the
securities surrendered. In the case of registered securities, the payment will be
made in accordance with the assignments thereon.
2. 5% percent notes of Series B-1969.—When payment is made with notes in
bearer form, coupons dated May 15, 1969, should be detached and cashed when
due. When payment is m^de with registered notes, the final interest due on May 15,
1969, will be paid by issue of interest checks in regular course to holders of record
on April 15, 1969, the date the transfer books closed. A cash payment of $0.50
per $1,000 on account of the issue price of the new notes will be made to
subscribers.

EXHIBITS

139

3. 2y2 percent bonds of 196J/.-69.—When payment is made with bonds in bearer
form, coupons dated June 15, 1969, must be attached to the bonds when surrendered. Accrued interest from December 15, 1968, to June 15, 1969 ($12.50 per
$1,000), plus the payment on account of the issue price of the new notes ($0.50
per $1,000) will be credited and accrued interest from May 15 to June 15, 1969
($5.45925 per $1,000) on the new notes will be charged and the difference
($7.54075 per $1,000) wiU be paid to subscribers.
V. A S S I G N M E N T

OF REGISTERED

SECURITIES

1. Treasury securities in registered form tendered in payment for notes offered
hereunder should be assigned by the registered payees or assignees thereof, in
accordance with the general regulations of the Treasury Department governing
assignments for transfer or exchange, in one of the forms hereafter set forth,
and thereafter should be surrendered with the subscription to a Federal Reserve
Bank or Branch or to the Office of the Treasurer of the United States, Washington, D.C. 20220. The maturing securities must be delivered at the expense and
risk of the holder. If the new notes are desired registered in the same name as
the securities surrendered, the assignment should be to "The Secretary of the
Treasury for exchange for 6% percent Treasury Notes of Series D-1970"; if
the new notes are desired registered in another name, the assignment should be
to "The Secretary of the Treasury for exchange for 6% percent Treasury Notes
of Series D-1970 in the name of
" ; if new notes in coupon form are
desired, the assignment should be to "The Secretary of the Treasury for exchange
for 6% percent Treasury Notes of Series D-1970 in coupon form to be delivered
to
".
VI.

GENERAL

PROVISIONS

1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive subscriptions, to make such allotments as may be prescribed by the Secretary of the Treasury, to issue such notices as may be necessary, to receive payment, for and make delivery 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.
DAVID M .

KENNEDY,

Secretary of the Treasury.

363-222—70

Summary of information pertaining to Treasury notes issued during the fiscal year 1969
O
Date of
preliminarj'announcement -

Department
circular

Coiicurrent
offeruig
cii'cular
No.

Date

Treasury notes issued for exchange or for cash

1968
JulySl

1968
6-68 Aug. 1

^
5^^ percent Series B-1974 issued at 99.62 for cash »

Oct. "23

7-68 Oct. 24

8-68 5 ^ percent Series B-1970 issued at 99.85 in exchange for
5 ^ percent Series D-1968 notes maturing Nov. 15,1968.
314 percent bonds maturing Nov. 15,1968.
21^ percent bonds maturing Dec. 15,1968.2

Oct. 23

8-68 Oct. 24

1969
Jan. 29

1969
1-69 Jan. 30

7-68 5M percent Series A-1974 issued at par in exchange for
5}i percent Series D-1968 notes maturing Nov. 15,1968.
3]4 percent bonds maturing Nov. 16,1968.
2}^ percent bonds maturing Dec. 15,1968.^

Jan. 29

2-69 Jan. 30

1-69 6J^ percent Series A-1976 issued at 99.75 in exchange for.
5% percent Series A-1969 notes maturing Feb. 15,1969.
4 percent bonds maturing Feb. 15,1969.

Apr.30

3-69 May

Apr.30

4-69 May

Date
subscription
books
closed

1968
Aug.l

S) :

Nov.15

1967
1974
Nov. 158 Nov. 15 Oct. 30

Nov.15

1969
1970
1969
Feb. 15 May 15 Feb. 5

1969
Feb. 17

Feb.

1976
15 Feb. 15 Feb. 5

Feb. 17

4-69 6H percent Series D-1970 issued at 99.95 in exchange for 5
5 ^ percent Series B-1969 notes maturing May 15, 1969.
2>^ percent bonds matm-ing Jime 15,1969.

May

1970
15 Aug. 15 May 7

May 15

3-69 6 3.^ percent Series B-1976 issued at par in exchange for
5% percent Series B-1969 notes maturing May 15, 1969.
21,^ percent bonds maturing June 15,1969.6

May

1976
15 May 15 May 7

May 15

2-69 6 ^ percent Series C-1970 issued at 99.95 in exchange for
5H percent Series A-1969 notes matming Feb. 15,1969.
4 percent bonds maturing Feb. 15,1969.

Dateof
maturity

1968
1974 ' 1968
. . . A u g . 15 Aug. 15 Aug. 5
1970
. N o v . 15 May 15 Oct. 30

1 Holders of Treasury notes and bonds matm-mg on Aug. 15, 1968, were not offered
preemptive rights to exchange thetr holdings for the new notes. See Department Circular No. 6-68 in this exhibit for provisions for subscription and payment.
2 Interest on the 2'?^-percent bonds was adjusted as of Dec. 15,1968. Subscribers were
credited with interest from June 15 to Dec. 15, 19G8 ($12.50 per $1,000), on the bonds
and charged interest from Nov. 15 to Dec. 15, 1968 ($4.66160), on the new notes.
3 Interest was payable from Nov. 15, 1968.
* Interest on the 2^percent bonds was adjusted as of Dec. 15,1968. Subscribers were

Dateof
issue

Allotment
payment
date on
orbefore (or
on later
allotment)

>
O

credited with interest from June 15 to Dec. 15, 1968 ($12.50 per $1,000), on the bonds
and charged interest from Nov. 15 to Dec. 15,1968 ($4.76519 per $1,000), on the new notes,
« See Department Circular No. 3-69 in this exhibit for provisions for subscription
and payinent.
6 interest on the bonds was adjusted as of June 15, 1969. Subscribers were credited
with interest from Dec. 15, 1968, to June 16, 1969 ($12.50 per $1,000), on the bonds and
charged interest from May 15 to June 16, 1969 ($5.47554 per .$1,000), on the new notes.

d
Si

Allotments of Treasury notes issued during the fiscal year 1969, by Federal Reserve districts
[In thousands]
oYs percent Series B-1970 notes issued in exchange for 2

Federal Reserve district

Boston
New York.
Philadelphia,
Cleveland—
Eichmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury..

Total allotments- _ _
Exchanged in concurrent offering.
Total exchanged
Not submitted for exchange
Total eligible for exchange..

Z14 p e r c e n t
b}4 p e r c e n t
b^A p e r c e n t
Series
Series D-1968
Treasury
B-1974
r r e a s u r y notes
b o n d s of
notes 1
maturing
1968 m a t u r i n g
N o v . 15,
N o v . 15,
1968
1968

b% percent Series A-1974 notes issued in exchange for 2-

ZYs p e r c e n t
634 p e r c e n t
2H percent
Treasury
Treasm-y
T o t a l issued Series D-1968
T r e a s u r y notes
b o n d s of
b o n d s of
maturing
1968 m a t m - i n g
1963-68
maturing
N o v . 15,
N o v . 15,
D e c . 15, 1968
1968
1968

23^ p e r c e n t
Treasury
b o n d s of
1963-68
maturing
D e c . 15,1968

T o t a l issued

$254.694
6, 663, 621
193, 709
323, 078
216, 284
314, 204
696, 853
208, 694
118, 656
224,807
170, 561
900,039
823

$46,198
6,714,838
46,729
78,074
68,336
116,089
206,663
96,982
32,095
69, 365
80,922
93,711
14,366

$5,178
266, 768
10,391
12,167
24,261
16, 225
104,399
21,866
34,899
23,721
13,444
31,706
166

$4,423
348,538
16,178
8,144
11, 394
16,132
72,421
30,094
6,236
11,507
16, 340
23,029
2,943

$56,799
6,330,144
71, 298
98, 385
103,990
147,446
383, 373
148,941
73, 229
104, 693
109, 706
148,446
17,466

$47,435
1, 393,405
16,080
26,152
7,555
25, 322
68, 628
30,513
11,470
25,469
12,008
18, 262
68

$3,565
133,389
3,972
13, 261
5,263
6, 870
53,278
8, 621
4,844
8,896
2,339
2,921
238

$2,348
178,885
22,812
7,817
9,784
11,857
69,463
13,033
6,918
9,177
32,298
34,763
368

$63,348
1, 705, 679
42,864
47,230
22,602
44,049
191,369
62,167
23,232
43,642
46,646
65,946
674

10, 283,922

6, 663, 267
1, 682, 367

564,180
247,467

665,378
399,523

7,792,815
2,329, 347

1, 682, 367
6, 663, 257

247,457
564,180

399,523
565,378

2,329,347
7,792, 815

8, 346, 624
638,437

811, 637
346,448

964,901
822,159

10,122,162
1,807,044

8, 345, 624
638, 437

811, 637
346,448

964,901
822,159

10,122,162
1,807,044

8,984,061

1,168,086

1,787,060

11, 929, 206

8,984, 061

1,158,085

1, 787,060

11,929, 206

M
H-(

C/2

Footnotes at end of table.

Allotments of Treasury notes issued duriiig the fiscal year 1969, hy Federal Reserve districts—Continued

di
CO

[In t h o u s a n d s l
J percent Series C-1970 notes issued in
exchange for 2—
4 per cent 5 ^ percent Treasury
Series A-1969
Treasm-y notes b o n d s of 1969
maturing
maturing
F e b . 15, 1969
F e b . 15,1969

F e d e r a l Reserve district

Boston....
NewYork
Philadelphia
Cleveland.
Richmond..
Atlanta
Chicago
St. Louis
Minneapolis
KansasCity
DaUas
SanFrancisco...
Treasury

Total allotments
E x c h a n g e d in concm-rent offering

T o t a l exchanged
N o t s u b m i t t e d for exchangeT o t a l ehgible for exchange

T o t a l issued

634 percent Series A-1976 notes issued in
exchange for 2—
55^ percent
4 percent
Treasury
Series A-1969
T r e a s u r y notes b o n d s of 1969
maturing
maturing
F e b . 15,1969
F e b . 15,1969

$70,289
6,641,695
62,608
107,657
41,661
111,769
254,727
121,201
49,657
93,253
86,934
80,214
15,393

$39,694
1,389,120
50,753
62,345
39,365
39,833
173,785
46,522
33,763
43,007
66,363
47,956
3,961

$109,983
7,030,815
113,361
170,002
81,026
151,602
428,512
167,723
83,420
136,260
143,297
128,170
19,354

$7,813
2,782,016
6,572
32,499
9,970
23,796
80,452
26,144
11,224
24,337
9,505
22,102
223

6,737,058
3,036,653

2,026,467
702,105

8,763,525
3,738,758

9,773,711
963,850

2,728,572
999,417

10,737,561

3,727,989

T o t a l issued

$6,930
410,764
15,487
29,821
11,761
21,782
82,166
22,977
19,659
35,057
17,091
27,661
949

$14,743
3,192,780
22,059
62,320
21,731
45,578
162,618
49,121
30,883
59,394
26,596
49,763
1,172

3,036,653
6,737,058

702,105
2,026,467

3,738,758
8,763,525

12,502,253
1,963,267

9,773,711
963,850

2,728,572
999,417

12,502,283
1,963,267

14,465,550

10,737,561

3,727,989

14,465,550

O
O

m
o
S3
fej

SI
Kl
O

fej

Ul
F o o t n o t e s a t end of t a b l e .

d
K|

Allotments of Treasury notes issued during the fiscal year 1969, hy Federal Reserve districts—Continued
[In thousands]
3 percent Series D-1970 notes issued in
exchange for 2—
Federal Reserve district

5H percent
Series B-1969
Treasury
notes
matm-ing
May 15, 1969

Boston
NewYork
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
KansasCity
Dallas
SanFrancisco
Treasmy
Total allotments
Exchanged in concm-rent offering
Total exchanged
Not submitted for exchange
Total eligiible for exchange
1 Subscriptions from States, political subdivisions or instrumentalities thereof, public
pension and retu-ement and other public funds, international organizations in which the
United States holds membership, and foreign central banks and foreign states were
allotted in full up to the amount that the subscriber certified that it owned a like araount
of inaturing securities that could be used in payment for the notes. Subscriptions from

23^ percent
Treasmy
bonds of
1964-69
maturing
June 15, 1969

Total issued

6H percent Series B-1976 notes issued in
exchange for 2—
5% percent
Series B-1969
Treasury
notes
maturing
May 15, 1969

2H percent
Treasmy
bonds of
1964-69
maturing
June 16, 1969

Total issued

$41,214
814,694
45,752
85,694
30,693
114,014
177,669
107,829
24,282
61,923
70,096
125,199
3,948

$5,562
354,075
9,069
9,808
10,430
40,372
61,886
29,273
5,383
10,790
9,001
87,394
3,433

$46,776
1,168,769
64,821
96,602
41,123
154,386
229,454
137,102
29,665
72,713
79,097
212,693
7,381

$76,887
1,066,988
33,469
63,140
26,371
44,359
145,937
55,069
22,668
46,678
26,549
139,590
1,528

$5,167
601,237
16,613
21,265
17,826
11,492
83,417
19,973
16,186
22,682
15,137
116,563
1,228

$82,044
1,667,225
50,082
84,395
44,197
55,861
229,354
75,042
38,854
69,360
41,686
256,153
2,766

1,702,907
1,748,233
3,451,140
826,117
4,277,257

626,475
948,766
1,576,241
966,412
2,540,653

2,329,382
2,696,999
6,026,381
1,791.529
6,817,910

1,748,233
1,702,907
3,451,140
826,117
4,277,257

948,766
626,476
1,576,241
965,412
2,640,653

2,696,999
2,329,382
6,026,381
1,791,629
6,817,910

fel
td
Ul

Federal Reserve banks and Goverimient accounts were allotted in full. All subscriptions for $250,000 or less were allotted in full. All other subscriptions were allotted 18
percent but with a minimum allotment of $250,000 to any 1 subscriber.
2 All subscriptions were allotted in full.

144

19 69 REPORT OF THE SECRETARY OF THE TREASURY
Treasury Bills Offered and Tenders Accepted
Exhibit 2.—^Treasury bills

During the fiscal year there were 52 weekly issues of 13-week and 26-week
bills (the 13-week bills represent additional issues of bills with an original
maturity of 26 weeks), 13 monthly issues of one-year and 9-month bills (the 9month bills represent additional issues of bills with an original maturity of one
year), 5 issues of tax; anticipation series, and 2 issues of strips of additional
amounts of outstanding issues. Two press releases inviting tenders are reproduced
in this exhibit. The release of May 21, 1969, is representative of releases for
regular weekly, regular monthly, and tax anticipation series issues while the
release of March 18, 1969, is 'representative of the releases for ithe strip issues.
Also reproduced is the press release of May 26, 1969, which is representative of
releases announcing the results of the offerings. Following the press releases is
a table of data for each issue issued during the fiscal year.
PRESS RELEASE OF MAY 21,1969
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $3,000,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing May 29, 1969, in the amount
of $3,002,261,000, as follows :
91-day bills (to maturity date) to be issued May 29, 1969, in the amount of
$1,700,000,000, or thereabouts, representing an additional amount of bills dated
February 27,1969, and to mature August 28,1969, originally issued in the amount
of $1,100,827,000, the additional and original bills to be freely interchangeable.
183-day bills, for $1,300,000,000, or thereabouts, to be dated May 29, 1969, and
to mature November 2^, 1969.
The bills of both series will be issued on a discount basis under competitive
and noncompetive bidding as hereinafter provided, and at maturity 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, $50,000, $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, 1:30 p.m., eastern daylight saving time, Monday, May 26, 1969.
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.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in isuch tenders. 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 each
issue for $200,000 or less 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 29, 1969, in cash or other immediately available funds or in a like face
amount of Treasury bills maturing May 29, 1969. Gash and exchange tenders
will receive equal treatment. Cash adjustments will be made for differences

EXHIBITS

145

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 Intemal 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 retum 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 (current revision) and this notice
prescribe the terms of the Treasurj^ bills and govern the conditions of their
issue. Copies of the circular may be obtained from any Federal Reserve Bank
or Branch.
PRESS REiLEASE OF MARCH 18, 1969
The Treasury Department, by this public notice, invites tenders for additional
amounts of six series of Treasury bills to an aggregate amount of $1,800,000,000,
or thereabouts, for cash. The additional bills will be issued March 31, 1969, will
be in the amounts, and will be in addition to the bills originally issued and maturing, as follows:
Amount of
additional
issues

$300,000,000
300,000,000
300,000,000
300,000,000
300,000,000
300,000,000

Original issue dates

Nov. 7
Nov. 14.
Nov. 21
Nov. 29
Dec. 5
Dec. 12

1968

Maturity dates

May 8
May 15
May 22
May 29
June 5
June 12

Days from
Amount
Mar. 31,1969 currently
to maturity outstanding
(in millions)

1969
38
45
62
69
66
73

$2,702
2,699
2,705
2,702
2,701
2,701

1,800,000,000
»Average of days to maturity.

The additional and original bills will be freely interchangeable.
Each tender submitted must be in the amount of $6,000, or an even multiple
thereof, and one-sixth of the amount tendered will be applied to each of the
above series of bills.
The bills offered hereunder will be issued on a discount basis under competitive and noncompetitive bidding as hereinafter provided, and at maturity 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, $50,000, $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, 1:30 p.m., eastern standard time, Tuesday, March 25,1969. Tenders
will not be received at the Treasury Department, Washington. 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. A single
price must be submitted for each unit of $6,000, or even multiple thereof. A unit
represents $1,000 face amount of each issue of bills offered hereunder, as pre-

146

19 69 REPORT OF THE S'ECRETARY OF THE TREASURY

viously described. 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 and Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. 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.
All bidders are 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 bills
of these additional issues at a specific rate or price, until after 1:30 p.m., eastern
standard time, Tuesday, March 25,1969.
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. Noncompetitive tenders for $180,000 or less (in even multiples of $6,000)
without stated price from any one bidder will be accepted in full at the 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 or Branch in cash or other immediately available funds on March
31, 1969; provided, however, any qualified 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 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
.yea.r for which the retum is made, as ordinary gain or loss. Purchasers of a
strip of the bills offered hereunder should, for tax purposes, take such bills
on to their books on the basis of their purchase price prorated to each of the
six outstanding issues using as a basis for proration the closing market prices
for each of the issues on March 31, 1969. (Federal Reserve Banks will have
available a list of these market prices, based on the mean between the bid and
asked quotation furnished by the Federal Reserve Bank of New York.)
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 26, 1969
The Treasury Department announced that the tenders for two series of Treasury bills, one series to be an additional issue of the bills dated February 27,1969,

147

EXHIBITS

and the other series to be dated May 29, 1969, which were offered on May 21,
1969, were opened at the Federal Reserve Banks today. Tenders were invited
for $1,700,000,000, or thereabouts, of 91-day bills and for $1,300,000,000, or thereabouts, of 183-day bills. The details of the two series are as follows:
91-day Treasury bUls
maturing Aug. 28,1969
Range of accepted competitive bids

High
Low.
Average

Price
(dollars)

98.464
2 98.448
98.452

Approximate
equivalent
armual rate
(percent)
6.076
6.140
4 6.124

183-day Treasury bills
maturing Nov. 28,1969
Price
(dollars)

Approximate
equivalent
annual rate
(percent)

1 96. 862
3 96.831
96.839

6.173
6.234
4 6. 218

1 Excepting 1 tender of $1,450,000.
2 99 percent of the amount of 91-day bills bid for at the low price was accepted.
3 40 percent of the amount of 183-day bills bid for at the low price was accepted.
4 These rates are on a bank discount basis. The equivalent coupon issue yields are 6.31 percent for the
91-day bills, and 6.51 percent for the 183-day bills.

Total tenders applied for and accepted by Federal Reserve districts
Applied for

District
Boston.
New York
Philadelphia
Cleveland
Richmond
Atlanta.
Chicago.
St. Louis.
Minneapolis
KansasCity
Dallas
San Francisco

.-..

Total

$15,646,000
1,989,864,000
37,491,000
51,176,000
14,185,000
41,553,000
149,613,000
52,455,000
32,374,000
30,978,000
23,377,000
151,621,000

Accepted
$15,646,000
1,298,374,000
22,491,000
48,063,000
12,130,000
26,031,000
94,089,000
37,400,000
27,219,000
30,977,000
13,372,000
74,978,000

2,590,233,000 11,700,670,000

Applied for
$3,251,000
1,631,163,000
17,141,000
25,541,000
11,597,000
28,664,000
174,515,000
36,132,000
28,789,000
14,122,000
17,760,000
130,880,000
2,119, 555,000

1 Includes $297,958,000 noncompetitive tenders accepted at the average price of 98.452.
2 Includes $143,474,000 noncompetitive tenders accepted at the average price of 96.839.

Accepted
$3,251,000
,008,163,000
7,141,000
25,641,000
8,797,000
18,314, 000
99,315,000
30,432,000
28,289,000
14,122,000
7,760,000
48,880,000
21,300,005,000

h4^
CX)

Summary of information pertaining to Treasury hills issued during the fiscal year 1969
[Dollar amounts in thousands]
Matmity value

T \ n i ;eof
jjai

issue

D a t e of
matmity

D a y s to
matmity 1

Prices and rates

Tenders accepted
Total
applied
for

Total
accepted

On competitive
basis

On noncompetit i v e basis

F o r cash

Amount
maturing
o n issue
EquivaHigh
Low
d a t e of n e w
Average
lent
I n ex- :price per average P r i c e per E q u i v a - P r i c e p e r E q u i v a - offering
rate
change hundred
hundred lent rate hundred lent rate
('percent)
(percent)
(percent)
T o t a l b i d s accepted

Competitive bids accepted

o
o

EEGULAR WEEKLY

1968
July 6
5
11
11
18
18
25
25
A u g ., 1
1
8
8
15
15
22
22
29
29
Sept . 6
5
12
12
19
19
26
26

O c t . 3,1968
Jan.
2,1969
O c t . 10,1968
J a n . 9,1969
O c t . 17,1968
J a n . 16,1969
O c t . 24,1968
J a n . 23,1969
O c t . 31,1968
J a n . 30,1969
N o v . , 7,1968
F e b . 6,1969
N o v . , 14,1968
F e b . 13,1969
N o v . 21,1968
F e b . 20,1969
N o v . , 29,1968
F e b . 27,1969
D e c . 5,1968
M a r . 6,1969
D e c . 12,1968
M a r . 13,1969
D e c . 19,1968
M a r . 20,1969
D e c . 26,1968
M a r . 27,1969

90 $2,118,537 $1,601,057 $1,321,788
966,889
181 1,981,351 1,100,496
1, 601, 541 1, 286, 610
91 2,637,141
942,699
182 1,995, 745 1,102,029
1, 601, 074 1, 289, 940
91 2,625,339
961,861
1,100, 618
182 2,475, 696
91 2,868, 683 1, 601,125 1, 289,199
964,885
1,100,161
182 2,365,351
91 2, 620, 341 1, 599,373 1,301,313
968, 638
182 2,319, 519 1,100,928
91 2, 532,412 1, 600,437 1, 333, 093
987, 922
182 2, 278, 734 1,103,181
91 2,405, 451 1, 600,179 1,371, 641
975, 966
182 2, 284, 867 1,101,147
91 2, 282, 544 1, 601, 529 1,346,048
982,459
182 2,034, 492 1,101,172
92 2,404, 283 1,600,075 1,333, 757
991,126
182 2, 271, 095 1,104,469
91 2,493,002
1, 601, 915 1,358,188
996,302
182 2, 708, 525 1,102, 679
91 2, 739, 963 1, 601,307 1, 277, 516
971,318
182
1,968, 611 1,100, 203
91 2, 526,110 1, 600,899 1, 287,119
962,314
182 2, 261, 515 1,100,108
91 2,843,306
1, 604,498 1, 293,003
974,071
182 2,031, 266
1,102, 282

$279,269 $1,127,854 $473,203
798,607 301,889
133,607
314, 931 1, 297,971 303,570
858,363 243, 666
159, 330
1,127,976 473,099
311,134
848, 235 252,383
138, 767
1,172,065 429,060
311, 926
797,426 302, 736
135, 276
1,119, 296 480,077
298,060
799,531 301,397
132, 290
267,344
1,143, 282 467,155
115, 259
801, 648 301, 533
228, 538 1,190, 569 409,610
125,191
799,339 301, 808
255,481 1,101,813 4:99, 716
118, 713
799,559 301, 613
266,318
1,098,306 501, 769
851,963 252, 506
113, 344
243, 727 1,132, 733 469,182
821,080 281, 599
106, 377
323, 791 1,398,131 203,176
896,454
203, 749
128, 885
313, 780 1,149, 596 451,303
772, 760 327,348
137, 794
1, 277, 514 326,984
311,495
809,892 292,390
128, 211

98. 650
97.190
98. 643
97. 266
98. 618
97.190
98. 662
97. 287
98. 688
97. 327
98. 760
97. 422
98. 715
97.334
98. 706
97.361
98. 678
97.350
98. 687
97. 346
98. 674
97.332
98. 681
97. 347
98. 698
97. 356

5.401
5.688
5.368
6.410
5.467
5.557
5.293
5.367
5.192
5.288
4.906
5.100
5.083
5.273
5.123
5.219
5.174
6.242
5.196
5.249
5.247
5.277
6.217
5.249
5.150
5.230

98. 665
97.218
98. 660
97. 290
2 98.625
2 97. 204
98.671
97.294
98. 695
97. 344
98. 766
97. 436
2 98. 729
2 97.348
98. 713
97.380
98. 686
2 97.359
98. 693
2 97. 354
98. 682
2 97.362
98. 684
2 97.352
98. 703
97. 362

6.340
5.533
5.301
6.360
6.440
6.631
5.258
6.353
5.163
6.254
4.882
5.072
6.028
6.246
6.091
5.182
6.142
6.224
6.171
5.234
6.214
6.238
5.206
6.238
6.131
5.218

98.625
97.184
98. 636
97. 249
98. 612
97.185
98. 659
97. 281
98. 683
97.320
98. 762
97.413
98. 706
97.329
98. 699
97.352
98. 670
97. 347
98. 680
97.343
98. 665
97. 314
98.678
97.341
98. 696
97. 348

5.500
6.601
6.396
5.442
5.491
5.568
6.305
5.378
5.210
5.301
4.937
6.117
5.119
5.283
5.147
6.238
5.204
6.248
6.222
5.256
5.281
5.313
6.230
5.260
6.159
5.246

$1, 600,433
1,001,047
1, 600, 485
1, 001, 879
1, 602,462
1, 000, 753
1, 601,006
1,002,368
1, 600,432
999,988
1, 600, 291
1, 000,905
1, 600,009
1,001,918
1, 600,680
1,000,178
1, 600,036
1, 000,438
1, 600,368
1, 000,041
1, 600,487
1, 000, 290
1, 600,480
1, 000,051
1, 599,999
1,000, 527

Ul
fel

Si.
fel

Si
K!

O
•=1

fel

>
d
Ul

Oct.

3
10
10
17
17
24
24
31
31
Nov. 7

7
14
14
21
21
29
29
Dec.

6
12
12
19
19
26
26

Jan. 2
Apr. 3
Jan. 9
Apr. 10
Jan. 16
Apr. 17
Jan. 23
Apr. 24
Jan. 30
May 1
Feb. 6
May
8
Feb. 13
M a y 15
Feb. 20
M a y 22
Feb. 27
M a y 29
Mar. 6
June 5
Mar. 13
June 12
Mar. 20
June 19
Mar. 27
June 26

91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
90
181
91
182
91
182
91
182
91
182

2, 338,146
1,829,917
2,105, 256
1,866,187
2,346,580
2,119,468
2, 293,556
2,095,932
2,461,489
1,887,810
2,383,640
2,046,006
2,432,170
1,946,588
2,541,634
2,145, 753
2,474,029
2,031,086
2,380, 974
1,875,862
2,172,593
1,932,428
2,383, 759
2,176,006
2,889,135
2,417,073

1, 601,109
1,101,507
1,600, 755
1,103,127
1, 601,078
1,101, 766
1,600,166
1,100,123
1, 603,104
1,101, 238
1,600,440
1,101,010
1, 603,302
1,102, 720
1, 602, 005
1,102,308
1,599,821
1,100,150
1,600,054
1,100,082
1,600,333
1,100,831
1, 601, 279
1,101, 293
1,606, 738
1,104, 988

1, 313, 642
968,089
1, 276,173
949,694
1, 268, 792
939,024
1, 292,983
953,614
1, 303,870
957,286
1,301,061
972,624
1,334,648
972,829
1, 316, 236
958,003
1, 315,996
948,949
1,323,926
958, 709
1, 276, 642
938, 372
1,285,900
924,822
1, 330,669
948,658

287,467
133,418
324,682
163, 433
332, 286
162, 731
307,173
146,609
299,234
143,952
299, 379
128,386
268, 654
129,891
285, 770
144,306
283,826
161, 201
276,128
141,373
323, 691
162,459
315,379
176,471
276,079
156,430

1,176, 733
768,575
1,215,939
819,134
1,168,075
765,490
1,154,840
787,024
1,099,004
748,161
1,162,421
769,104
1,150,816
770,187
1,132,326
749, 524
1,233,506
812, 705
1,168,367
772, 369
1, 244, 745
835,179
1,175,172
796,864
1.362,864
869,818

424,376
332,932
384,816
283,993
443,003
336, 266
445, 316
313,099
504,100
353,077
448,019
331, 906
452,486
332,533
469,679
352, 784
366, 315
287,445
441, 687
327, 723
355,588
265,652
426,107
304,429
243,874
236,170

98.690
97.329
98. 666
97.289
98.649
97.266
98.636
97.241
98. 617
97. 233
98. 696
97.161
98. 614
97.168
98. 614
97.129
98.638
97.198
98. 576
97.103
98.537
97. 014
98.492
96. 958
98. 413
96. 764

5.182
5.284
6.276
5.363
6.346
5.427
5.396
5.457
6.471
6.472
6.654
6.615
5.482
6.601
6.482
6.679
6.446
5.573
6.633
5.730
6.787
5.906
5.967
6.016
6.279
6.400

98. 698
2 97.342
98. 678
2 97.302
98. 667
97. 284
98. 661
97. 263
2 98. 625
97. 250
98. 617
2 97,184
98. 624
97.186
98. 623
2 97.144
98.649
97. 208
98. 586
2 97.120
2 98. 654
97.029
98. 503
96. 970
98. 434
2 96.810

6.151
6.258
5.230
5.337
5.273
5.372
5.337
6.414
5.440
6.440
6.471
6.670
6.444
6.566
5.447
5.649
5.404
6.553
5.598
6.697
6.720
6.877
6.922
6.993
6.195
6.310

98. 682
97,316
98. 650
97. 277
98.638
97. 250
98.623
97. 234
98. 612
97. 222
98.688
97.154
98. 609
97.160
98. 610
97.120
98.632
97.188
98. 667
97.092
98. 624
97.002
98.484
96.950
98.405
96. 749

5.214
5.309
6.341
5.386
5.388
6.440
6.447
6.471
6.491
5.496
5.586
6.629
6.503
6.618
6.499
5.697
6.472
6.593
5.669
5.752
5.839
6.930
5.997
6.033
6.310
6.431

1,601,057
1,000,448
1,601,541
1, 000,511
1,601,074
1,102, 644
1,601,125
1,100, 682
1,599, 373
1,100,119
1, 600,437
1,101,578
1,600,180
1,101,062
1,601, 529
1,100,119
1,600,075
1,099,821
1,600,054
1,099,439
1,600,333
1,100,121
1,601, 279
1,100,861
W
1,606, 738
M
1,105,037 ffi

Apr. 3
July 3
Apr. 10
July 10
Apr. 17
July 17
Apr. 24
July 24
May 1
July 31
May 8
Aug. 7
M a y 15
Aug. 14
M a y 22
Aug. 21
M a y 29
Aug. 28
June 6
Sept. 4
June 12
Sept. 11
June 19
Sept. 18

91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182

2,133,633
1,879,319
2,643,381
2,096,970
2,674,196
2,615,923
2,666,544
2,587,607
2,647,456
2,450,023
2,797,908
2,189, 630
3,797,945
3,058,749
2,402,649
1,972,717
2,495,446
1,901,852
2, 523,027
2,165,303
2,517,903
2,043,632
2,829,254
2,183,103

1,602.623
1,102,883
1,604, 528
1,101,816
1, 601, 541
1,100,670
1,603,377
1,097,452
1,600,000
1,103,254
1,600,925
1,100,483
1,596,020
1,100,498
1,602, 709
1,104,142
1,601,642
1,100,827
1,600, 505
1,101,060
1,600,404
1,100,151
1,600,940
1,100, 321

1,330,794
942,350
1,235,483
862,323
1,205,515
881,831
1,249,043
896,099
1,269, 566
921,311
1, 275,760
921,802
1,263, 520
926,393
1,279,760
933,804
1,284,885
937,865
1,265,515
939,089
1,234,705
929,720
1, 253,438
934,036

271,829
160,633
369,046
239,492
396,026
218,839
354,334
201,353
330,434
181,943
326,165
178,681
332,600
174,106
322,949
170,338
316,767
162,962
334,990
161,971
366,699
170,431
347,502
106,285

1,224,200
801,216
1,236,076
798, 551
1,266,387
847,449
1,282,815
844,837
1,191,818
821,833
1,155,388
773,324
1,113, 731
778,275
1,167, 707
777,519
1,173,201
807,912
1,226, 579
857,938
1,229, 621
876,248
1,206,184
837, 546

378,423
301,667
368,452
303,264
335,154
253,221
320,562
252,615
408,182
281,421
445, 537
327,159
482,289
322,223
445,002
326,623
428,441
292,916
373,926
243,122
370,883
223,903
394,756
262.776

98.433
96. 799
98.426
96. 782
98.429
96. 777
98.464
96.849
98.441
96.838
98.420
96. 786
98.433
96. 790
98.460
96.831
98.463
96.836
98.429
96. 794
98.471
96.849
98.456
96. 855

6.200
98.461
6.331 2 96.816
6.226
98.443
6.366
96. 798
6.216
98.438
6.374 2 96. 784
6.077
98.471
6.232
96. 853
6.168
98.448
6.255
96.849
6.251
98.429
6.360
96.800
6.199 2 98. 437
6.350 2 96. 793
6.093
98.475
6.269 2 96.850
6.082
98.473
6.260 2 96.848
6.214 2 98.436
6.341 2 96. 797
98.480
6.048
6.233
96.858
6.107 2 98.463
6.220 2 96.868

6.128
6.298
6.160
6.334
6.179
6.361
6.049
6.225
6.140
6.233
6.215
6.330
6.183
6.344
6.033
6.231
6.041
6.235
6.187
6.336
6.013
6.215
6.080
6.195

98.407
96.785
98.421
96. 774
98.425
96. 773
98.456
96.844
98.437
96. 836
98.417
96. 781
98.426
96. 778
98.446
96.814
98.455
96.822
98.424
96.788
98.464
96.840
98.464
96.850

6.302
6.359
6.247
6.381
6.231
6.383
6.108
6.243
6.183
6.260
6.262
6.367
6.227
6.373
6.148
6.302
6.112
6.286
6.236
6.353
6.076
6.251
6.116
6.231

1,601,109
1,100,496
1,600, 755
1,102,029
1,601,078
1,100, 618
1,600,166
1,100,161
1,603,104
1,100,928
1,600,440
1,103,181
1,603,302
1,101,147
1,602,005
1,101,172
1,599,821
1,104,479
1,600,054
1,102,679
1,600,333
1,100,203
1,601,279
1,100,105

1—(

1969
Jan. 2

2
9
9
16
16
23
23
31
31
Feb.

6
13
13
20
20
27
27
Mar.

6
13
13
20
20

Footnotes' at end of table.

W
H
Ul

^_,
yr
Jg

Summary of information pertaining to Treasury hills issued during ihe fiscal year 1969- -Continued
0\
O

[DoUar amounts in thousands]
Maturity value
Date of
issue

Date of
maturity

Days to
maturity!

Prices and rates

Tenders accepted

Total
applied
for
Total
accepted

On competitive
basis

On noncompetitive basis

Amount
maturing
on issue
date of new
Average
In ex- price per
Price per Equiva- Price per Equiva- offering
rate
hundred lent rate hundred lent rate
change hundred
(percent)
(percent)
(percent)
Total bids accepted

Competitive bids accepted

Equivalent

For cash

High

Low

Si
fel

o
Si

REGULAR WEEKLY—Continued
1969
Mar. 27
27
313

Apr.

3
3
10
10
17
17
24
24
May 1
1
8
8
15
15
22
22
29
29
June 5
6
12
12
19
19
26
26

1969
J u n e 26
Sept. 25
May 8
15
22
29
June 5
12
July 3
Oct. 2
J u l y 10
Oct. 9
J u l y 17
Oct. 16
J u l y 24
Oct. 23
J u l y 31
Oct. 30
Aug. 7
Nov. 6
A u g . 14
N o v . 13
A u g . 21
N o v . 20
A u g . 28
N o v . 28
Sept. 4
Dec. 4
Sept. 11
D e c . 11
Sept. 18
D e c . 18
Sept. 25
D e c . 26

91 $2,812,889 $1,600,300 $1,260,980
182 2,244,465
1,100,689
942,938
381
45
521 3,186,234
1,802,814
1,702,836
59
66
73]
1, 601,962 1, 254,603
91 2,383,087
1,100,404
933,785
182 2,164,949
1,602,105
1,218,952
91 2,774,189
925, 752
182 2,369, 263 1,101,261
91 2,605, 758 1, 601, 030 1,189, 770
1,100, 975
924,032
182 2,143,304
1,600,980
1,213, 610
91 2,628,404
933,842
182 2, 502,197 1,102, 578
1,603,353
1,238,169
91 2,963,779
947,704
182 2,190, 532 1,099,921
91 2, 563,989 1, 700,279 1,372,344
1,300,282
1,155,201
182 2,254,992
91 2, 513,098 1, 701, 597 1,372,915
1,300,474
1,149,928
182 2,217,837
1,700,472
1,390, 633
91 2,588,141
1,300,740
1,153,994
182 2,414,938
1,701,307
1,402,714
91 2,590,868
1,300,016
1,156, 531
183 2,119,566
1,391,980
91 2, 635, 519 1,700,954
1,162, 300
182 2, 223,407 1,301,356
1, 700,145 1,360, 258
91 2,646,166
1,300,610
1,127,919
182 2,072,610
1, 277,391
91 2,840, 503 1,600,291
182 2,374,422 1,100,761
909,121
1,600,338
91 2,623,093
1, 212,933
1,100, 270
183 1,895,476
902, 567

$339,320 $1,192,738 $407,562
157, 751
837,421 263,268

o
98.497
96. 918

5. 947
6. 097

98.503
96. 932

5.922
6.069

99.225

5. 030

4. 865

99. 207

98. 467
96. 898
98.441
96.873
98.434
96.870
98.439
. 96. 884
98. 470
96. 945
98.489
96. 935
98.462
96.870
98.446
96.860
98. 452
96.839
98.435
96. 737
98. 334
96.498
98. 315
96. 636
98. 351
96. 510

6.064
6.135
6.168
6.185
6.195
6.191
6.174
6.164
6.052
6.043
6.976
6.062
6.083
6.191
6.147
6.231
6.125
6.218
6.192
6.454
6.590
6.927
6.666
6.654
6.522
6.866

2 98.475
96. 906
2 98. 448
96.880
2 98.447
2 96. 881
98.445
2 96.892
98.473
2 96. 952
2 98.498
96. 951
2 98.480
2 96. 891
98.458
96. 864
98.464
2 96.862
98. 450
96. 766
2 98. 372
2 96.544
98. 321
96. 643
98. 363
2 96. 542

6.033
6.120
6.148
6.171
6.144
6.169
6.152
6.148
6.041
6.029
5.942
6.031
6.013
6.150
6.100
0.203
6.076
6.173
6.132
6.397
6.440
6.836
6.642
6.640
6.476
6.803

98.459
96.892
98.438
96.866
98.430
96.862
98.436
96. 881
98.468
96.940
98.478
96.922
98.451
96.852
98.436
96.836
98.448
96.831
98. 427
96. 722
98. 309
96.463
98. 311
96. 623
98. 344
96. 477

98. 493
96. 912

6.962
6.108

$1, 606, 738
1,102,282
fel

99,978

1,802,814

Ul
fel

o
347, 359
166, 619
383,153
175, 509
411,260
176, 943
387,370
168,736
365,184
152,217
327,935
145, 081
328, 682
150,546
309,839
146,746
298,593
143,485
308,974
139,056
339,887
172,691
322,900
191,640
387,405
197, 703

1,154, 583 $447,379
786, 730 313,674
1,195, 730 406,375
831, 545 269,716
1, 220,177 380,853
837,431 263,544
1,164, 684 436,296
953,743 148,835
1,159, 597 443,756
797,828 302,093
1, 235,713 464,566
948,262 352,020
1, 297,172 404,425
898,317 402,157
1, 225, 235 475,237
948,654 352,086
495,425
1,205,882
922,740 377,276
1,229,692 471,262
999,824 301,532
398,437
1,301,708
996,557 304,053
489,254
1,111,037
806,258 294,503
463,006
1,137,332
796,355 303, 915

6.096
6.148
6.179
6.199
6.211
6.207
6.187
6.169
6.061
6.053
6.021
6.088
6.128
6.227
6.187
6.258
6.140
6. 234
6.223
6.484
6.690
6.996
6.682
6.680
6. 551
6.930

, 602,623
,101,507
, 604,628
, 103,127
,601, 541
,101,755
, 603,377
,100,123
, 600,000
,101,238
, 600,925
, 101,010
, 596,020
, 102,720
, 602,709
, 102,308
, 601,642
,100,150
,600, 505
, 100, 082
, 600,404
,100,831
, 600,940
,101,293
, 600,300
,104, 988

Si
fel

Si
K{

o
fel

fel

>
d

Ul
Si

REGULAR MONTHLY
1968
July
1
16
31
31
Sept. 2
26
30
30
Oct. 31
31
Dec. 2
25
31
31
1969
J a n . 31
31
F e b . 28
28

1969
M a r . 31
J u n e 30
A p r . 30
J u l y 31
M a y 31
A u g . 31
J u n e 30
Sept. 30
J u l y 31
Oct. 31
A u g . 31
N o v . 30
Sept. 30
D e c . 31

Oct.
Jan.
Nov.
Feb.
Apr.
May
Mar. 3 e J u n e
July
Aug.
31
Dec.

31
31,1970
30,1969
28,1970
30,1969
31,1969
30,1969
31,1969
31,1969
31,1969

1970
31 M a r . 31
A p r . 30 J a n . 31
30
A p r . 30
June 2
F e b . 28
26 M a y 31
30
M a r . 31
30 J u n e 30

273 $1,200,228
365 2,205,146
273 1,841,152
366 2,944,932
270
1, 598,616
365 2, 592,016
273 1,343,175
365 2,040,707
273
1,318,465
365
1,990,254
272
1,337,456
365
1,972,729
273
1,254,340
365
1,795,338

$500,328
1,001, 671
500,452
1,000,971
500, 618
1, 000,387
500,675
1,000,607
501,633
1, 002,199
505, 256
1, 000,940
500,400
999,152

$484, 623
961,113
484,653
962,294
480,226
958,775
474,987
955,565
483,709
962,916
483,867
953,268
481,259
943,736

$15,806
40, 558
15,799
38,677
20,392
41,612
25,688
45, 042
17,824
39,283
21,389
47,672
19,141
55,416

273 1,310,040
365
1,839,538
276
1,323,981
366
1,463,876
58 ^
89
119 . 2,961,840
150
181 J
276
1,570,401

500,110
1,000,177
600,061
1, 000,376

476,284
934,874
482,623
963,957

23,826
65,303
17,438
36,419

329,957
735,200
300,054
778,131

1,001,825

936,665

66,160

1,001,826

600,650

482,618

17,932

326,133

174,417

95. 372

6.059

95.387

6.039

95.364

6.069

365
276
365
271
365
274
365

1,000, 636
500,489
1,000, 634
600,164
1,000,225
500,821
1,201,406

955,759
487,130
960,402
485,808
960,975
482,909
1,152,687

44,777
13,359
40,232
14,356
39,250
17,912
48,719

719,796
329,597
700,044
322,176
719,677
378,171
920,152

280, 740
170,892
300, 590
177,988
280,548
122,650
281,254

93. 783
95.418
93.987
95.252
93. 643
94.378
92. 556

6.132
6.976
6.930
. 6.307
6.270
7.387
7.342

93. 825
2 95.443
94. 081
95. 295
2 93.719
2 94.459
2 92. 654

6.090
5.944
5.900
6.250
6.195
7.280
7.245

93. 752
95. 393
93. 936
95. 222
93. 597
94.299
92. 528

6.162
6.009
5.981
6.347
6.315
7.490
7.370

1,759,566
1,427,989
1,877,739
1,438,134
1,814,146
1,177,116
2,416,628

$362,241 $138,087
725, 546 276,125
340,612
159,840
720,522
280,449
383,819
116, 799
738,762
261,625
387,670
113,005
739,364
261,243
350,745
160, 788
751,376
250,823
365,174
140,082
760,354
240, 586
399,512
100,888
797, 624 201,528

95.643
94.189
95. 949
94. 617
96. 066
94. 777
96. 055
94.821
95.870
94. 524
95. 699
94.365
95. 084
93. 499

5.745
5.732
6.342
5.310
6.245
6.151
5.202
5.108
5.446
5.401
6.693
5.567
6.483
6.412

95. 678
2 94. 206
95.958
2 94. 629
2 96. 085
94. 789
2 96. 083
2 94. 844
2 95. 883
2 94. 536
95. 716
94.370
95.147
93. 531

5.699
5.715
5.330
5.297
6.220
5.140
5.165
6.085
5.429
5.389
5.670
5.553
6.400
6.380

95. 624
94.172
95.944
94. 608
96. 056
94. 763
96. 046
94.809
95. 859
94. 506
95. 685
94. 328
95. 059
93.425

5. 771
5.748
5.349
5.318
5.259
5.166
5.214
5.120
5.461
6.419
5.711
5.694
6.516
6.485

$500,005
1,000, 547
600,529
1,000, 551
500,175
1,000,336
500,190
1,000, 206
500,170
1,001, 770
500, 257
1,000, 262
499, 549
999,945

170,153
264,977
200,007
222,246

95.302
93. 771
95.182
93. 679

6.195
6.144
6.307
6. 235

95.319
2 93.816
95. 233
93. 744

6.173
6.100
6.240
6.170

95. 286
93.744
95; 157
93.623

6.216
6.170
6.340
6.290

500,387
1, 000,078
500,444
1,001,786

98.041

6.907

2 98. 058

5.855

98. 035

5.926 .

fel

@
W

iJD
600,328
1, 000,119
^ 500,452
1,000, 784
^ 500, 618
1,002,167
7 500,675
1,001,671

Footnotes at end of table.

Summary of information pertaining io Treasury bills issued during the fiscal year 1969—Continued

CJI

fcO

[Dollar amounts in thousands]
Matmity value
Dateof
issue

Date of
maturity

Days to
maturity!

Total
applied
for

Prices and rates

Tenders accepted

Total

On competitive
basis

On noncompetitive basis

Amount
Competitive bids accepted
maturing
on issue
EquivaHigh
Low
date of new
Average
lent •
In ex- price per average Price per Equiva- Price per Equiva- offering
change hundred
rate
hundred lent rate hundred lent rate
(percent)
(percent)
(percent)
Total bids accepted

For cash

Si
fel
Hd

TAX ANTICIPATION

O
fel
July 11
11
Oct. 24
Dec. 2

Mar. 24
Apr. 22
June 23
23

256 $4,210,480 $2,015,011 $1,736,626
285 4,026,121 2,003,192 1,769,172
242 6,950,766 3,010,446 2,563,880
203 4,372,733 2,001,143 1,646,250

$278,486 $2,015,011
234,020 2,003,192
456,566 3,010,446
355,893 2,001,143

96.161
96.705
96.619
96.905

5.399
6.426
6.178
5.489

2 96.176
295.737
296.545
296.972

5.378
5.335
5.140
5.370

96.147
95.689
96.509
96.891

6.418
6.445
6.193
6.513 . . .

154

206,401

97.459

6.940

97.476

6.900

97.450

5.961

1969
Jan. 20

5,027,721

1,759,499

1,553,C

1,759,499

hj
H
Ul
fel
O
Sl
fel

^
1 The 13-week bills are additional issues of bills with an original matm-ity of 26 weeks,
except that when the date of maturity of either a 13-week or 26-week issue is on the
last day of a month, the biUs are additional issues of bills with an original maturity of
1 year. The 9-month bills are additional issues of bills with an original matmity of
1 year.
2 Relatively small amomits of bids were accepted at a price or prices somewhat
above the high shown. However, the higher price or prices are not shown in order
to prevent an appreciable discontinuity in the range (covered by the high to the low
prices shown) which would make it misrepresentatlve.
8 An additional $300,469,000 each of the regular weekly issues issued as a strip.
< An additional $300,469,000 of the strip of bills issued Mar. 31,1969, matured.
6 Issue date on bills is last day of previous month.
6 An additional $200,365,000 each of the regular monthly issues issued as a strip.
7 An additional $200,365,000 of the strip of bills issued Mar. 3,1969, matmed.
NOTE.—The usual timing with respect to weekly issues of Treasury biUs is: Press
release inviting tenders, 8 days before date of issue; and closing date for the receipt of
^enders and press release announcing results of auction, 3 days before date of issue.

Figures are final and may differ from those shown in the press release announciag
preliminary results.
For each issue of regular weekly (13-week and 26-week bills) and regular monthly
(9-month and 1-year) bills noncompetitive tenders for $200,000 or less from any 1 bidder
were accepted in full at the average price of accepted competitive bids. For each issue
of tax anticipation bills the maximum amount for noncompetitive tenders was $400,000
except for the 154-day issue of Jan. 20 when the amount was $200,000. The maximum
amounts for noncompetitive tenders for the strips of bills were $100,000 for the Mar. 3
issue and $180,000 for the Mar. 31 issue.
All equivalent rates of discount are on a bank-discount basis.
Qualified depositaries were permitted to make payment by credit in Treasury tax
and loan accounts for all of the tax anticipation series issues and the two strip issues
allotted to them for themselves and their customers. Payment by credit in Treasury
tax and loan accounts for the regular weekly and regular monthly bills was not permitted.

^
^
O

fel
fel

EXHIBITS

153

Regulations
Exhibit 3.—^Third amendment, June 13, 1969, of Department Circular No. 300,
general regulations with respect to United States secunties
TREASURY DEPARTMENT,

Washington, June 13, 1969.
Subpart O of Treasury Department Circular No. 300, Third Re^^sion, dated
December 23, 1964, as amended (31 CFR Part 306) is hereby further amended
and revised, effective July 15, 1969, as follows:
SUBPART 0 — B O O K - E N T R Y PROCEDURE

Sec. 306.115. Definition of terms.
In this subpart, unless the context otherwise requires or indicates:
(a) "Reserve Bank" means a Federal Reserve Bank and its branches acting
as Fiscal Agent of the United States.
(b) "Treasury security" means a transferable Treasury bond, note, certificate
of indebtedness, or bill issued under the Second Liberty Bond Act, as amended,
in the form of a definitive Treasury security or a book-entry Treasury security.
(c) "Definitive Treasury security" means a transferable Treasury bond, note,
certificate of indebtedness, or bill issued under the Second Liberty Bond Act, as
amended, in engraved or printed form.
(d) "Book-entry Treasury security" means a transferable Treasury bond,
note, certificate of indebtedness, or bill issued under the Second Liberty Bond
Act, as amended, in the form of an entry made as prescribed in this subpart
on the records of a Reserve Bank.
(e) "Serially-numbered advice of transaction" means the confirmation (prescribed in Sec. 306.116) issued by a Reserve Bank which is identifiable by a
unique number and indicates that a particular written instruction to the Reserve
Bank with respect to the deposit or withdrawal of a specified book-entry Treasury
security (or securities) has been executed.
(f) "Pledge" includes a pledge of, or any other security interest in, Treasury
securities held as collateral for loans or advances or to secure deposits of public
monies or the performance of an obligation.
(g) "Date of call" (see Sec. 306.2) is "the date fixed m the official notice of
call published in the Federal Register * * * on which the obligor will make
payment of the security before maturity in accordance with its terms."
Sec. 306.116. Authority of Reserve Banlcs.
Each Reserve Bank is hereby authorized and directed, in accordance with
the provisions of this subpart, to (a) issue book-entry Treasury securities by
means of entries on its records which shall include the name of the depositor, the
amount, the title of the loan (or the series) and the maturity date; (b) effect
conversions between book-entry Treasury securities and definitive Treasury
securities; (c) otherwise service and maintain book-entry Treasury securities;
and (d) issue serially-numbered advices of transactions with respect to each
instruction relating to 'the deposit or withdrawial of a book-entry Treasury security (or securities) which has been executed. Each such advice shall confirm that
book-entry Treasury securities of the amount, loan title (or series) and maturity
date specified in the depositor's instruction have been deposited or withdrawn.
Sec. 306.117. Scope and effect of book-entry procedure.
(a) The book-entry procedure shall apply to Treasury securities deposited with
any Reserve Bank (1) as collateral pledged to a Reserve Bank (in its individual
capacity) for advances by it, (2) as collateral pledged to the United States
under Treasury Department Circulars No. 92 or 176, both as revised and
amended, and (3) by a member bank of the Federal Reserve System for its
sole account and in lieu of the safekeeping of definitive Treasury securities by
a Reserve Bank in its individual capacity. Any depositor which has definitive
Treasury securities on deposit with a Reserve Bank (in either its individual
capacity or as Fiscal Agent) for any purpose specified above or which hereafter
deposits such securities for any such purpose shall be deemed to have consented
to their conversion to book-entry Treasury securities pursuant to the provisions
of this subpart, and in the manner and under the procedures prescribed by the
Reserve Bank.
(b) (1) A Reserve Bank as Fiscal Agent of the United States may also
apply the book-entry procedure provided for in this subpart to any Treasury

154

19 69 REPORT OF THE SECRETARY OF THE TREASURY

securities which have been or are hereafter deposited for any purpose in accounts with it in its individual capacity under terms and conditions which indicate that the Reserve Bank will continue to maintain such deposit accounts in
its individual capacity, notwithstanding application of the book-entry procedure
to such securities. This paragraph is applicable, but not limited, to securities
deposited: ^
(i) In connection with deposits in member banks of funds of States, municipalities, or other political subdivisions ; or
(ii) In connection with the performance of an obligation or duty under Federal,
State, municipal or local law, or judgments or decrees of courts.
The application of the book-entry procedure under this paragraph ,shall not
derogate from or adversely affect the relationships that would otherwise exist between a Reserve Bank in its individual capacity and its depositors concerning any
deposits under this paragraph. Whenever the book-entry procedure is applied to
such Treasur,y securities, the Reserve Bank is authorized to take all action necessary in respect of the book-entry procedure to enable such Reserve Bank in its individual capacity to perform its obligations as depositary with respect to such
Treasury securities.
(2) The rights of all persons in all Treasury securities (whether pledged or
otherwise) referred to in subparagraph (1) of this paragraph shall in all respect
be the same when those securities are in book-entry form as if definitive Treasury
securities in bearer form in the same amount and of the same loan (or series)
and maturity date had at all times been held in custody by the Reserve Bank
in its individual capacity in accordance with the agreement between such bank
and its depositors.
(c) In addition to applying the book-entry procedure to Treasury securities deposited under paragraphs (a) and (b) of this section, the procedure may be applied by any Reserve iBank, with the approval of the Secretary of the Treasury,
to any other Treasury securities deposited with the Reserve Bank.
(d) No deposits shall be accepted under this section on or after the date of
inaturity or call of the securities.
Sec. 306.118. Pledges.
A pledge of book-entry Treasury securities maintained under Sec. 306.117 is
effected, notwithstanding any provision of law to the contrary, by a Reserve
Bank's making an appropriate entry in its records of the amount of the securities
pledged. The making of such entry (a) shall have the effect of a delivery of definitive Treasury securities in bearer form in the amount of the obligations
pledged; (b) shall have the effect of a taking of delivery by the pledgee; (c) shall
effect a perfected security interest therein in favor of the pledgee; and (d) shall
constitute such pledgee a holder. No filing or recording with a public recording
office or officer shall be necessary to perfect any pledge in any book-entry Treasury
securities under this subpart. Any pledge of definitive Treasury securities existing
at the time of the conversion hereunder of such securities to book-entry form
shall continue to be fully effective notwithstanding such conversion. A Reserve
Bank shall, upon receipt of appropriate instructions, convert book-entry Treasury
securities into definitive Treasury securities and deliver them to the pledgee or
other appropriate party for disposition under the applicable pledge arrangement;
and the pledge interest of the pledgee in such book-entry Treasury securities prior
to conversion to definitive securities shall continue withoiut interruption to be
fully effective with respect to such definitive securities.
Sec. 306.119. Limitations on transfers or pledges.
Except as provided in this subpart, book-entry Treasury securities may not be
assigned, transferred, hypothecated, pledged as collateral, or used as security
for the performance of an obligation, and the Treasury Department will not
recognize any such assignment, transfer, hypothecation, pledge or use.
Sec. 306.120. Withdraivals and transfers.
Withdrawals and transfers of book-entry Treasury securities may be made upon
a depositor requesting (a) delivery of like definitive Treasury securities to itself
or on its order to a transferee, or (b) transfer to any transferee eligible under
Sec. 306.117. The making of any book-entry transfer by a Reserve Bank shall have
the same eff'ect as a delivery to the transferee of definitive Treasury securities in
bearer form. The transfer of book-entry Treasury securities within a Reserve
Bank will be made in accordance with procedures established by the latter not
^ See T.D. 6934, as amended bv T.D. 7015, as set out in the Appendix to this subpart for
rules of identification of book-entry securities for Federal income tax purposes.

EXHIBITS

155

inconsistent with this subpart. The transfer of book-entry Treasury securities
between Reserve Banks will be made through a telegraphic transfer procedure.
All requests for withdrawal or for transfer must be made prior to the maturity or
date of call of the securities. Treasury bonds and notes which are actually to be
delivered upon withdrawal or transfer may be issued either in registered or in
bearer form, except that BA and EO series of Treasury notes will be issued in
bearer form only.
Sec. 306.121. Registered bonds and notes.
No formal assignment shall be required for the conversion to book-entry
Treasury securities of registered Treasury securities held by a Reserve Bank (in
either its individual capacity or as Fiscal Agent) on the effective date of this
subpart for any purpose specified in Sec. 306.117(a). Registered Treasury
securities deposited thereafter with a Reserve Bank for any purpose specified
in Sec. 306.117 shall be assigned for conversion to book-entry Treasury securities.
The assignment, which shall be executed in accordance with the provisions of Subpart F of the regulations in this part, so far as applicable, shall be to "Federal
Reserve Bank of
, as Fiscal Agent of the United States, for conversion to book-entry Treasury securities."
Sec. 306.122. Servicing book-entry Treasury securities; payment of interest,
payment at maturity or upon call.
interest becoming due on book-entry Treasury securities shall be charged in
the Treasurer's account on the interest due date and remitted or credited in
accordance with the depositor's instructions. Such securities shall be redeemed
and charged in the Treasurer's account on the date of maturity, call or advance
refunding, and the redemption proceeds, principal and interest, shall be disposed
of in accordance with the depositor's instructions.
JOHN K . CARLOOK,

Fiscal Assistant Seoretary.
APPENDIX
RECORDS FOR FEDERAL I N C O M E TAX

PURPOSES

Section 1.1012-1 (c) of the Federal Income Tax Regulations provides certain
rules regarding the identification of securities for the purpose of determining
the basis (normally cost) and holding period of assets—data relevant in ascertaining the amount and nature of gain or loss upon the sale or transfer of the
assets.
Subparagraph (7) of section 1.1012-1 (c) of the Income Tax Regulations (added
by Treasury Decision 6934 and amended by Treasury Decision 7015, quoted below)
provides a special rule for the identification of a book-entry Treasury security
directed to be disposed of by the owner.^ The special rule permits the seriallynumbered advice of transaction (required by section 306.116 of this Subpart)
issued by a Reserve Bank upon completion of a transaction, when made pursuant
to written instructions, to be used in identifying the particular security sold
or transferred. The written instruction and advice of transaction constitute adequate identification.
Revenue Ruling 67-419, as amplified by Revenue Ruling 69-416, both set forth
below, particularizes the manner in which the identification may be made b.y
requiring the written instruction to identify the particular book-entry Treasur,y
security either by purchase date and cost or by reference, where applicable,
simply to the serially-numbered advice of transaction relating to its acquisition.
This latter method applies only to a limited class of case—that is, where the
securities are acquired by a Reserve Bank for the owner in book-entry form,
either upon original subscription to a Treasury offering or otherwise.^
1 I t should be noted t h a t t h i s rule is only appropriate where the disposing owner retains
one or more securities of precisely the same description which it had acquired on a different
date or a t a different price. Where a security of precisely t h e same description acquired on
a different date or a t a different price is not retained, there is no problem of identifying
t h e securities being sold or transferred, since either no others of similar description are
owned, or they a r e from the same lot.
2 The serially-numbered advice of transaction issued by a Federal Reserve Bank in this
or any other type of case in or in connection with book entry will not contain price and date
of acquisition but in t h i s type of case t h e advice relating to t h e acquisition can be used to
identify the particular book-entry security involved. Since t h e mere conversion by a Reserve
Bank of definitive Treasury securities owned by a depositor into book-entry form (or vice
versa) occurs after t h e diepositor-taxpayer's boioks of aceount properly should reflect their
acquisition, which raight have been a t different times or at different prices, the number of
a serially-numbered advice of transaction relating to such conversion affords no adequate
means of identifying a p a r t i c u l a r security for purposes of either Section 1012 or Section
1236 of the I n t e r n a l Revenue Code of 1954.
363-222—70
12

156

19 69 REPORT OF THE SECRETARY OF THE TREASURY

It is important for a taxpayer to comply fully with the special rule of section 1.1012^1 (c) (7) of the Income Tax Regulations if it wishes to be certain
that the "first-in, first-ont" (FIFO) rule of section 1.1012-l(c) (1) of the cited
regulations will not apply to its disposition of a book-entry Treasury security.
Although dealers in any securities are not eligible as dealers to hold a Treasury security in book-entry form under the present Fiscal Service Regulations,
if they are otherwise eligible to do so, they may hold such a security in the form
of a book-entry for investment purposes. Since all dealers in securities are subject
to the requirements of section 1236 of the Internal Revenue Code, the Revenue
Ruling set forth below also provides a method for them to use in identifying
a book-entry Treasury security held for investment which satisfies section 1236.
Whenever a book-entry security is acquired on original issue or otherwise for the
account of the owner, ithe Reserve Bank will issue a serially-numbered advice.
The entry on the taxpayer's books of account of the number of the advice, together with a description of the security acquired to which it relates and an indication that it is held for investment, will be sufficient to identify it as being held
for investment purposes.
(T.D. 6934)
• i Title 26—INTERNAL REVENUE
Chapter I—Internal Revenue Service, Department of the Treasury
Subchapter A—Income Tax
PART lr—INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953
Identification of Book-Entry Treasury Securities

In order to modify the identification rules for purposes of determining basis
and holding period of property in the case of certain Treasury securities, paragraph (c) of Sec. 1.1012-1 of the Income Tax Regulations (26 CFR Part 1) is
amended by the addition of subparagraph (7), which, as amended, reads as
follows:
Sec. 1.1012-1 Basis of property.
*

:!:

:}:

(c) Sale of Stock. * * *
(7) Book-entry Treasury securities.
(i) In applying the provisions of subparagraph (3) (i) (&) of this paragraph
in the case of a sale or: transfer of a book-entry Treasury security which is made
pursuant to a written instruction by the seller or transferor, the serially-numbered advice of transaction prescribed by the Fiscal Service of the Department
of the Treasury and furnished by a Reserve Bank shall constitute confirmation as
required by such subparagraph.
(ii) For purposes of i this subparagraph:
(a) The term "book-entry Treasury security" means a transferable Treasury
bond, note, certificate of indebtedness, or bill issued under the Second Liberty
Bond Act (31 U.S.C. 774(2)), as amended, in the form of an entry made as prescribed in 31 CFR Part 306, Subpart O, on the records of a Reserve Bank which
is deposited in an account with a Reserve Bank (1) as collateral pledged to a
Reserve Bank (in its individual capacity) for advances by it, (2) as collateral
pledged to the United States under Treasury Department Circular No. 92 or 176,
both as revised and amended, (3) by a member bank of the Federal Reserve
System for its sole account for safekeeping by a Reserve Bank in its individual
capacity, (4) in lieu of a surety or sureties upon the bond required by section 61
of the Bankruptcy Act, as amended (11 U.S.C. 101), of a banking institution
designated by a judge; of one of the several courts of bankruptcy under such
section as a depository for the moneys of a bankrupt's estate, (5) pursuant to
6 U.S.C. 15, in lieu of a surety or sureties required in connection with any
recognizance, stipulation, bond, guaranty, or undertaking which must be furnished under any law of the United States or regulations made pursuant thereto,
(6) by a banking institution, pursuant to a State or local law, to secure the
deposit in such banking institution of public funds by a State,, municipality, or
other political subdivision, (7) by a State bank or trust company or a national
bank, pursuant to a State or local law, to secure the faithful performance of
trust or other fiduciary obligations by such State bank or trust company or na-

EXHIBITS

157

tional bank, or (8) to secure funds which are deposited or held in trust by a
State bank or trust company or a national bank and are awaiting investment,
but which are used by such State bank or trust company or national bank in the
conduct of its business;
(b) The term "serially-numbered advice of transaction" means the confirmation (prescribed in 31 CFR 306.116) issued by the Reserve Bank which is identifiable by a unique number and indicates that a particular written instruction to
the Reserve Bank with respect to the deposit or withdrawal of a specified bookentry Treasury security (or securities) has been executed; and
(o) TTie term "Reserve Bank" means a Federal Reserve Bank and its branches
acting as Fiscal Agent of the United States.
SECTION 1012—BASIS OF PROPERTY—COST
26 CFR 1.1012-1: Basis of property.

Rev. Rul. 67^19

(Also Section 1236; 1.1236-1.)
Section 1.1012—1(c)!(7) of the Income Tax Regulations provides a special
rule for the identification of a. "book-entry Treasury security" (which is a
"bond" under section 1.1012-1 (c) (6) of the regulations) directed to be disposed
of by the owner who holds securities of precisely the same description which
were acquired on different dates or at different prices. This special rule permits the "serially-numbered advice of transaction" prescribed by the Fiscal
Service of the Department of the Treasury and furnished by a "Reserve Bank"
(as those term's are defined in section 1.1012-1 (c) (7) of the regulations) to
satisfy the requirements of section 1.1012-1 (c) (3)((i) (&) of the regulations for
a written confirmation if made pursuant to a written instruction by the seller
or transferor. In such case, if the written instruction identifies the book-entry
Treasury security to be sold either by purchase date and cost, or by reference
to the 'serially-numbered advice of transaction relating to the acquisition, and
a copy thereof is associated with the serially-numbered advice of transaction
received from the Reserve Bank upon disposition, the identification requirement
of section 1.1012-1 (c) (3) (i) of the regulations ^hall be considered satisfied.
Compare Rev. Rul. 61-97, CB. 1961-1, 394, which provides a rule of identification in the circumistances described therein. Where the identification requirements of section 1.1012-1 (c) (3) (i) of the regulations are satisfied in the manner
provided for above, the rule stated in the first sentence of section 1.1012-1 (c) (1)
of ithe regulations will not be applied.
For the purpose of determining when a security is clearly identified in the
records of a dealer in securities as a security held for investment within the
meaning of section 1236 of the Internal Revenne Code of 1954, section 1.1236-1
(d) (1) of the regulations provides that an investment security is clearly identified where there is an accounting separation of the security from other securities,
as by making appropriate entries in the dealer's books of account to distinguish
it from inventories and to designate it as an investment, and by (i) indicating
with such entries the individual serial number of, or other characteristic symbol
imprinted upon, the individual security, or (ii) adopting any other method of
identification satisfactory to the Commissioner.
Using the definitions found in section 1.1012-1 (c) (7) of the regulations whereever applicable here, the identification of a particular book-entry Treasury security in the dealer's books of account by reference to the serially-numbered advice
of transaction furnished by the Reserve Bank upon the acquisition of such
security is a method of identification isatisfactory to the Commissioner under
section 1.1236-1 (d) (1) (ii) ofthe regulations.
*

•

(T.D. 7015)
Rev. (Rul. 69-416
Treasury Decision 7015, published in the Federal Register dated June 20,
1969, amends section 1.1012-1 (c) (7) (ii) (a) of the Income Tax Regulations
to expand the types of ^transactions to which the "book-entry Treasury security"
rules contained in the regulations under section 1012 of the Intemal Revenue

158

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Code of 1954 are applicable. These identification rules are used in certain circumstances to determine the basis and holding period of book-entry Treasury
securities upon theirisale or transfer.
Revenue Ruling 67-419, CB. 1967-2, 265, specifies the information to be
contained in a written instruction to sell or transfer a book-entry Treasury
security in order that a "serially-numbered advice of transaction" will satisfy
the "written confirmation" requirements of section 1.1012-1 (c) (3) (i) (&) of
the regulations. In addition, Revenue Ruling 67-419 states that for purposes
of section 1236 of the Code and the regulations thereunder (relating to )the
identification of securities held by a dealer for investment), the identification
of a particular book-entry Treasury security in the dealer's books of account hy
reference to the "serially-numbered advice of transaction" furnished by the
"Reserve Bank" (as those terms are defined in section 1.1012-1 (c) (7) of the
regulations) upon the acquisition of such security is a satisfactory method of
identification.
Revenue Ruling 67-419 is hereby amplified to be made applicable to transactions to which the book-entry Treasury security rules have been extended
by the amendment of section 1.1012-1 (c) (7) (ii)i(a) of the regulations.
Exhibit 4.—Third supplement, December 12, 1968, of Department Circular
No. 653, offering of tFnited States savings bonds, Series E
TREASURY DEPARTMENT,

Washington, December 12, 1968.
Table 54, showing the investment yields to maturity for Series E savings
bonds with issue dates June 1 through November 1, 1961, which is a part of
Department Circular No. 653, Seventh Revision, dated March 18,1966, as amended
(31 CFR Part 316), is hereby supplemented by addition of the redemption
values and investment yields for the extended maturity period, as set forth
on the following page.

JOHN K. CARLOCK,

Fiscal Assistant Secretary of the Treasury.

159

EXHIBITS
TABLE 54
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1, 1961
Issue price
Den otn in Bti on..

$18.75 $37. 50
25.00 50.00

Period after issue dato

$75. 00 $150.00 $375. 00
100. 00 200. 00 500. 00

$750. 00
1,000.00

$7,500
10,000

Approximat 0 investment
yi 2ld
(2) On tho
redomption
value at start
of each maturity or
extended maturity period
to beginning
of each halfyear
period
thereafter'

(1) Redemption values during each half-year period:
(values increase on first day of period shown)

(3) On current rederaption
value
from beginning of
oach halfyear
period ' (a)
to maturity
Percent
3 3.75
3 3.89
3 3.96
3 4. 01
3 4.01
3 4.03
3 4.05
3 4. 06
3 4.06

Percent

First }^ year
M6/1/61) $18. 75 $37. 50
y- to 1 year
(12/1/61) 18. 91 37.82
1 to 1>{ years
(6/1/62) .19. 19 38.38
] / , to 2 years
(12/1/62) 19.51 39.02
2 to 2>^ years
(6/1/63) 19.90 39.80
2>Uo Syears
(12/1/63) 20.28 40.56
3 to 3}i years
(6/1/64) 20.66 41.32
Sy> to 4 years
(12/1/64) 21.07 42. 14
4 to 4>^ years
(6/1/65) 21.50 43.00
i y to 5 years
(12/1/65) 21.95 43.90
5 to 5>^ years
(6/1/66) 22.41 44.82
5>< to 6 years
(12/1/66) 22.89 45.78
6 to Qy years
(6/1/67) 23. 38 46. 76
ey to 7 years
(12/1/67) 23.91 47.82
7 to 7y years
(6/1/68) 24.46 48.92
l y years to 7 years and
9 months
(P'1/6S) 25.02 50.04
MATURITY VALUE
(7 years and 9 months
from issue
date)
(3/1/69) 25.34 50.68
reriod after maturity date

$75. 00 $150. 00 $375. 00
7.5. 64 151. 28 378. 20
76. 76 153. 52 383. 80
78.04 156. 08 390. 20
79.60 159. 20 398. 00
81. 12 162. 24 405. 60
82. 64 165. 28 413. 20
84.28 168. 56 421. 40
86.00 172. 00 430. 00
87.80 175. 60 439. 00
89. 64 179. 28 448. 20
91. 56 183. 12 457. 80
93. 52 187. 04 467. 60
95.64 191.28 478. 20
97.84 195. 68 489. 20

$750. 00
756. 40
767. 60
780. 40
796. 00
811.20
826. 40
842. 80
860. 00
878. 00
896. 40
915. 60
935. 20
956. 40
978. 40

$7, 500
7,564
7,676
7,804
7,960
8, 112
8,264
8,428
8,600
8,780
8,964
9, 156
9,352
9,564
9,784

0.00
1.71
2.33
2.67
3.00
3. 16
3.26
3.36
3.45
3.53
3.60
3.66
3.71
3.78
3.83

100. 08

200. 16

500. 40

1, 000. 80

10, 008

3.88

101.36

202. 72

506. 80

1,013.60

10,136

3.92

5. 15

(b) to extended
maturity

EXTEND ED MATUJ^ITY PER OD

First >^ year
(3/1/69) $25. 34 $50. 68 $101. 36 $202. 72 $506. 80 $1, 013. 60 $10, 136
y to 1 year
-(9/1/69) 25.87 51.74 103. 48 206. 96 517. 40 1, 034. 80 10, 348
1 to l>f years
(3/1/70) 26. 40 52.80 105. 60 211. 20 528. 00 1 , 0 5 6 . 0 0 10, 560
l>ao2years
(9/1/70) 26.95 53.90 107. 80 215. 60 539. 00 1, 078. 00 10, 780
2 to 2>^ years
(3/1/71) 27.51 55.02 110.04 220. 08 550. 20 1, 100. 40 1 1 , 0 0 4
2y to 3 years
(9/1/71) 28.08 56. 16 112. 32 224. 64 561. 60 1, 123. 20 1 1 , 2 3 2
3 to 3>^ years
(3/1/72) 28.66 57.32 114. 64 229. 28 573. 20 1, 146. 40 1 1 , 4 6 4
s y to 4 years
(9/1/72) 29.26 58.52 117.04 234. 08 585. 20 1, 170. 40 1 1 , 7 0 4
4 to i y years
(3/1/73) 29. 86 59. 72 119. 44 238. 88 597. 20 1, 194. 40 11,944
4y to 5 years
(9/1/73) 30. 48 60. 96 121. 92 243. 84 609. 60 1,219. 20 12, 192
5 to 5>< years
(3/1/74) 31. 12 62. 24 124. 48 248. 96 622. 40 1, 244. 80 12, 448
5y to 6 years
(9/1/74) 31.76 63.52 127. 04 254. 08 635. 20 1, 270. 40 12, 704
6 to 0>^ years
(3/1/75) 32. 42 64. 84 129. 68 259. 36 648. 40 1, 296. 80 12, 968
ay to 7 years
(9/1^75) 33. 09 66. IS 132. 36 264. 72 661. 80 1, 323. 60 13, 236
7 to 7y years
(3/1/76) 33.78 67.56 135. 12 270. 24 675. 60 1, 351. 20 13, 512
l y to S vears
(9/1/76) 34. 48 68. 96 137. 92 275. 84 689. 60 1, 379. 20 13, 792
Sto 8/. years
(3/1/77) 35. 20 70. 40 140. 80 281. 60 704. 00 1, 408. 00 14. 080
s y t o 9 years
(9/1/77) 35. 93 . 71. 86 143. 72 287. 44 718. 60 1, 437. 20 14, 372
9 to 9>^ years
(3/1/7S) 36. 67 73. 34 146. 68 293. 36 733. 40 1, 466. SO 14, 668
dy to 10 years
(9/1/7S) 37. 43 74.86 149. 72 299. 44 748. 60 1, 497. 20 14, 972
EXTENDED MATURITY
VALUE (10 years from
original maturity
date)5
(3/1/79) 38.58 77.16 154. 32 308.64 771. 60 1 , 5 4 3 . 2 0 15, 432

' 4.44
' 4. 49
' 4. 53
* 4. 61
< 4. 64
4.77

0.00
4. 18
4. 14
4. 15
4. 15
4. 15
4. 15
4.15
4. 15
4.15
4. 15
4. 15
4. 15
4. 15
4.15
4. 15
4. 15
4. 15
4. 15
4.15

6 4.25

' 3-montli period in the case of tho T/i-ycar to 7-ycar and 9-month period.
' Month, day, and year on v/hich issues of June 1,1961, outer each period. For subsequent issuo months add the appropriate number of months.
3 Yield from beginning of oach period to maturity at maturity valuo prior to the Decembor 1,1965, revision.
* Yield from beginning of each period to maturity at maturity value prior to tho Juno 1, 1968, revision.
517 years and 9 months from issuo date. Original and extended maturity value improved by the revision of Juno 1,1968.
« Yield on purchase price from issue dato to extended maturity dale is 4.11 percent.

4.25
4.25
4.26
4.27
4.27
4.28
4.29
4.30
4.32
4. 33
4. 34
4. 37
4. 40
4.43
4.48
4. 55
4. 64
4.80
5. 14
6. 14

160

19 69 REPORT OF THE SECRETARY OF TPIE TREASURY

Exhibit 5.—Fifth amendment, March 25, 1969, to Department Circular No. 653,
Seventh Revision, offering of United States savings bonds. Series E
TREASURY DEPARTMENT,

Washington, March 25, 1969.
Treasury Department Circular No. 653, Seventh ReYision, dated March 18,
1966, as revised and amended, and the tables incorporated therein (31 CFR
Part 316), are hereby further revised and amended as follows:
Sec. 316.8. Extended terms and improved yields for outstanding bonds.
(a) Optional extension privileges. * * *
(3) Bonds with issue dates June 1, 1949, through April 1, 1952. Owners of
Series E bonds with issue dates of June 1, 1949 through April 1, 1952, have the
option of retaining their bonds for a second extended maturity period of ten
years.
(4) Bonds with issue dates of May 1, 1952, or thereafter. Owners of Series
E bonds with issue dates of May 1, 1952, or thereafter have the option of retaining their bonds for an extended maturity period of 10 years.^
(c) Investment yield for second extended maturity period-bonds with issue
dates June 1, 1949, through April 1, 1952. The investment yield for the second
extended maturity period for bonds with issue dates of June 1, 1949, through
April 1, 1952, will be 4.25 percent per annum compounded semiannually if the
bonds are held to the second extended maturity date.^ (See tables 20 through
25 in this exhibit.)
JOHN K . CARLOCK,

Fiscal Assistant Secretary of theTreasury.

1 See tables 26-54 (1966 Annual Report, pages 228-254) for redemption values and investment yields during extended maturity period for bonds with issue dates of May 1, 1952,
through Nov. 1, 1961. See Section 316.8(b) of the Fourth Amendmeoit to this Circular
concerning yields during the extended maturity period for bonds with subsequent issue
dates.
a Under authority' of Section 25 of the Second Liberty Bond Act, as amended (73 Stat. 621,
31 U.S.C. 757C-1), the President of the United States on, Mar. 20, 1969, found it necessary
in the national interest to exceed the maximum investment yield prescribed by Section 22
of the act.

TABLE 20
(For Second Extended Maturity Period)
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1, 1949
Issue price
Denomination..

$7.60
10.00

$18.75
25.00

$37. 50
50.00

$75. 00
100. 00

$150. 00
200. 00

$375.00
600. 00

$760. 00
1, 000. 00

(1) Redemption values during each half-year period
(values increase on first day of period shown)
Period after first extended matmity (beginning 20 years
after issue date)

F i r s t s year
i (6/1/69)
M to 1 year
(12/1/69)
1 to m years
.—
(6/1/70)
lir^ to 2 years...
(12/1/70)
2to2^years
(6/1/71)
2H to 3 years
....(12/1/71)
3 to 3M years
(6/1/72)
33^ to 4 years
-.
(12/1/72)
4 to i ^ years
(6/1/73)
4M to 5 years
-(12/1/73)
6 to 5M years.
(6/1/74)
5M to 6 years.
(12/1/74)
6 to Q}^ years.
(6/1/75)
m to 7 years
(12/1/75)
7 to 7M years
...(6/1/76)
7 ^ to 8 years
(12/1/76)
8 to 8M years....
--(6/1/77)
8J^ to 9 years
(12/1/77)
9 to 93^ years
.-..
(6/1/78)
9M to 10 years
(12/1/78)
SECOND E X T E N D E D M A T U R I T Y VALUE
(20 years from original maturity date) *
..(6/1/79)

(2) On the
redemption value
at start of each
extended maturity
period to the
beginning of each
half-year period
thereafter

SECOND E X T E N D E D M A T U R I T Y P E R I O D 3

&14. 72
15.02
15.34
15.66
15.98
16.31
16.65
17.00
17.35
17.71
18.08
18.46
18.83
19.22
19.62
20.03
20.46
20.87
21. 30
2L74

$36. 80
37.56
38.34
39.14
39.95
40.78
4L63
42.49
43.37
44.27
45.19
46.13
47.08
48.06
49.06
50.08
5L12
52.18
53.26
54.36

$73. 60
76.12
76.68
78.28
79.90
81.66
83.26
84.98
86.74
88.54
90.38
92.26
94.16
96.12
98.12
100.16
102.24
104. 36
106. 52
108. 72

$147. 20
150. 24
163.36
166. 56
159.80
163.12
166.52
169.96
173.48
177. 08
180. 76
184. 62
188. 32
192. 24
196. 24
200. 32
204. 48
208. 72
213. 04
217. 44

$294. 40
300. 48
306. 72
313.12
319. 60
326. 24
333. 04
339. 92
346. 96
364.16
361. 52
369. 04
376. 64
384. 48
392. 48
400. 64
408. 96
417. 44
426. 08
434. 88

$736.00
751.20
766.80
782. 80
799.00
816. 60
832. 60
849. 80
867.40
885. 40
903. 80
922. 60
941. 60
961,20
981. 20
1,001. 60
1, 022. 40
1,043. 60
1,065. 20
1, 087. 20

$1,472.00
1,602.40
1,533. 60
1,565. 60
1,598.00
1,631. 20
1, 666. 20
1, 699. 60
1, 734. 80
1, 770. 80
1,807. 60
1,846. 20
1, 883. 20
1,922.40
1,962. 40
2,003. 20
2,044. 80
2,087. 20
2,130. 40
2,174. 40

22. 41

56.03

112. 06

224.12'

448. 24

1.120. 60

2. 241. 20

1 Month, day, and year on which issues of June 1,1949, enter each period. For subsequent issue months add the appropriate number of months.
2 Yield on purchase price from issue date to second extended maturity date is 3.68
percent.

Approximate investment yield

Percent
0.00
4.13
4.14
4.16
4.16
4.15
4.16
4.15
4.16
4.16
4.16
4.15
4.16
4.15
4.15
4.15
4.15
4.15
4.16
4.15

(3) On current
redemption value
from beginning
of each half-year
period (a) to
second extended
maturity

Percent

4.25
4.25
4.26
4.27
4.27
4.28
4.29
4.30
4.31
4.33
4.35
4.37
4.40
4.43
4.48
4.64
4.64
4.80
6.13
6.14

I-H

24.25

3 Redemption values during second extended maturity period raised to reflect improvement at first extended maturity. Second extended maturity value improved to
provide an investment yield of approximately 4.25 percent from first extended maturity.
4 30 years from issue date.

at)

TABLE 21
(For Second Extended Maturity Period)
BONDS BEARING ISSUE DATES FROM DECEMBER 1, 1949, THROUGH MAY 1, 1950
Issue price
Denomination..

$7.50
10.00

$18. 75
25.00

$37. 50
50.00

$75. 00
100. 00

$150. 00
200. 00

$375. 00
600. 00

(1) Redemption values during each half-year period
(values increase on first day of period sho\^'Ti)
Period after first extended maturitj'- (beginning 20 years
after issue date)

First J^ year
: i (12/1/69)
1^ to l y e a r
(6/1/70)
1 to IJ^ years
.....(12/1/70)
IM to 2 years
(6/1/71)
2 to 2 ^ years
(12/1/71)
21^ to 3 years
(6/1/72)
3 to 3M years
(12/1/72)
3M to 4 years
(6/1/73)
4 to 4M years
(12/1/73)
4Mto5years
(6/1/74)
5 to 5M years
(12/1/74)
5Hto6years
(6/1/76)
6 to 6M years
(12/1/76)
63^to7years
(6/1/76)
7to73>^years
(12/1/76)
73^ to Syears
(6/1/77)
8 to 8K years
(12/1/77)
SM to 9 years
-(6/1/78)
9 to 9M years
....(12/1/78)
9Htol0years
(6/1/79)
SECOND E X T E N D E D MATURITY VALUE
(20 years from original maturity date)^
(12/1/79)

$37. 00
37.77
38.55
39.35
40.17
41.00
41.86
42.72
43.61
44.51
46.44
46.38
47.34
48.32
49.33
60.35
5L39
52.46
53.55
54.66

$74. 00
76.64
77.10
78.70
80.34
82.00
83.70
86.44
87.22
89.02
90.88
92.76
94.68
96.64
98.66
100. 70
102. 78
104. 92
107.10
109. 32

22.54

SECOND E X T E N D E D M A T U R I T Y P E R I O D i

S14.80
16.11
16.42
15.74
16.07
16.40
16.74
17.09
17.44
17.80
18.18
18.65
18.94
19.33
19.73
20.14
20.56
20.98
2L42
2L86

Approximate mvestment yield

$750. 00
1,000. 00

$148. 00
151. 08
154. 20
157. 40
160. 68
164. 00
167. 40
170. 88
174. 44
178. 04
181. 76
185. 52
189. 36
193.28
197. 32
201.40
205. 56
209.84
214. 20
218. 64

$296. 00
302.16
308. 40
314.80
321. 36
328. 00
334. 80
341. 76
348. 88
366.08
363. 62
371. 04
378. 72
386. 56
394. 64
402. 80
411.12
419. 68
428. 40
437. 28

$740. 00
755. 40
771. 00
787. 00
803. 40
820. 00
837. 00
854. 40
872. 20
890. 20
908. SO
927.60
946. 80
966. 40
986. 60
1,007. 00
1, 027. 80
1, 049. 20
1, 071. 00
1,093. 20

$1,480. 00
1,510.80
1,542. 00
1,674. 00
1,606. 80
1,640. 00
1,674. 00
1,708. 80
1,744.40
1,780. 40
1,817. 60
1,855. 20
1,893. 60
1,932. 80
1,973. 20
2, 014. 00
2,055. 60
2,098. 40
2,142. 00
2,186. 40

225. 36

450. 72

1,126. i

2, 253. 60

(2) On the
(3) On cmTent
redemption value redemption value
at start of each fi-om beginning
extended maturity of each half-year
period to the
period (a) to
beginning of each second extended
half-year period
maturity
thereafter
Percent

0.00
4.16
4.15
4.15
4.15
4.15
4.15
4.16
4.15
4.15
4.15
4.15
4.15

Percent

4.25
4.25
4.26
4.27
4.27
4.28
4.29
4.30
4.31
4.33
4.36
4.37
4.40
4.44
4.48
4.65
4.65
4.81
6.14
6.16

2 4.25

Pi
1-3

i
>

Pi
K|

"^
W
pi

>
d

1 Month, day, and year on which issues of Dec. 1,1949, enter each period. For subsequent issue months add the appropriate number of months.
2 Yield on purchase price from issue date to second extended matm-ity date is 3.70
percent.

8 Redemption values during second extended maturity period raised to reflect improvement at fii'st extended matm-ity. Second extended matm-ity value improved to
provide an investment yield of approximately 4.25 percent from first extended maturity.
4 30 years from issue date.

TABLE 22
(For Second Extended Maturity Period)
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1, 1950
Issueprice
Denomination.

$18. 75
25.00

$37. 60
50.00

$75. 00
100. 00

$150. 00
20Q; 00

$375. 00
500. 00

$750. 00
1, 000. 00

(1) Redemption values during each half-year period
(values increase on first day of period shown)

Period after first extended maturity (beginning 20 years
after issue date)

First M year
K6/1/70)
Mto lyear
(12/1/70)
1 to IM years
(6/1/71)
IM to 2 years
.(12/1/71)
2 to 2M years
(6/1/72)
2M to 3 years
(12/1/72)
3 to 3M years...
..(6/1/73)
3Mto4years
(12/1/73)
4 to 4M years
(6/1/74)
4Mto6years
(12/1/74)
5 to 5M years
(6/1/75)
5M to 6 years
(12/1/75)
6to6Myears
(6/1/76)
6M to 7 years...
-..
..(12/1/76)
7 to 7Myears...-...(6/1/77)
7M to 8 years.
(12/1/77)
8 to 8M years
:
(6/1/78)
8M to 9 years
(12/1/78)
9to9Myears
(6/1/79)
9M to 10 years
.(12/1/79)
SECOND EXTENDED MATURITY VALUE
(20 years from original maturity date)<
(6/1/80)

SECOND E X T E N D E D M A T U R I T Y P E R I O D 3

$37.20
37.97
38.76
39.56
40.39
41.22
42.08
42.95
43.84
44.75
45.68
46.63
47.60
48.58
49.59
50.62
61.67
62.74
63.84
54.96

$74.40
75.94
77.52
79.12
80.78
82.44
84.16
85.90
87.68
89.60
91.36
93.26
95.20
97.16
99.18
IOL 24
103.34
105.48
107.68
109.92

$148.80
151.88
155.04
158.24
161.56
164.88
168.32
17L 80
175.36
179.00
182.72
186.52
190.40
194.32
198.36
202.48
206.68
210.96
215.36
219.84

$297.6.0
303.76
310.08
316.48
323.12
329.76
336.64
343.60
360.72
358.00
366.44
373.04
380.80
388.64
396.72
404.96
413.36
42L92
430.72
439.68

$744.00
759.40
775.20
791.20
807.80
824.40
841.60
859.00
876.80
896.00
913.60
932.60
952.00
971.60
991.80
1,012.40
1,033.40
1,054.80
1,076.80
1,099.20

$1,488.00
1,618.80
1,650.40
1,582.40
1,615.60
1,648.80
1,683.20
1,718.00
1,753.60
1,790.00
1,827.20
1,866.20
1,904.00
1,943.20
1,983.60
2,024.80
2,066.80
2,109.60
2,153.60
2,198.40

66.64

113.28

226.56

453.12

1,132.80

2,265.60

Approximate investment yield
(2) On the redemption
value at start
of each
extended maturity period
to the beginning of each
half-year
period
thereafter

(3) On current redemption value
from beginning of each
half-year
period (a)
to second
extended
maturity

Percent

0.00
4.14
4.15
4.14
4.16
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.16
4.15
4.15
4.16
4.15

4.25
4.25
4.26
4.27
4.27
4.28
4.29
4.30
4.32
4.33
4.35
4.37
4.39
4.43
4.48
4.55
4.65
4.81
5.13
6.11

2 4.25 .

3 Redemption values during second extended maturity period raised to reflect im-.
1 Month, days and year on which issues of June 1, 1950, enter each period. For subprovement at first extended maturity. Second extended maturity value improved to
sequent issue months add the appropriate number of months.
2 Yield on purchase price from issue date to second extended maturity date is 3.72 provide an investment yield of approximately 4.25 percent from first extended maturity.
4 30 years from issue date.
Percent.

h-^
Oi
00

TABLE 23
(For Second Extended Maturity Period)
BONDS BEARING ISSUE DATES F R O M DECEMBER 1, 1950, THROUGH MAY 1, 1951
Issueprice
Denomination.

$18. 76
25. 00

$37. 50
60.00

$76. 00
100. 00

$150. 00
200. 00

$375. 00
600. 00

$750. 00
1, 000. 00

(1) R e d e m p t i o n v a l u e s d u r t n g each half-y e a r period
(values increase on first d a y of period s h o w n )

Period after first extended maturity (beginning 20 years
after issue date)
SECOND E X T E N D E D MATURITY PERIOD 3

Fhst M year
i (12/1/70))
Mto lyear.
(6/1/71)1
1 to IM years...
(12/1/71))
IM to 2 years...
(6/1/72))
2 to 2M years.(12/1/72))
2M to 3 years...
-..
....(6/1/73))
3 to 3M years
(12/1/73))
3M to 4 years
(6/1/74))
4 to 4M years
(12/1/74))
4M to 6 years
(6/1/75))
5 to 6M years
...(12/1/76))
6M to 6 years
....(6/1/76))
6 to 6M years
(12/1/76))
6M to 7 years
(6/1/77))
7 to 7M years
....(12/1/77))
7M to 8 years
(6/1/78))
8 to 8M years
(12/1/78))
SM to 9 years
(6/1/79))
9 to 9M years
....(12/1/79))
9Mtol0years-_.
(6/1/80))
SECOND E X T E N D E D M A T U R I T Y VALUE
(20 years from original maturity date) *
(12/1/80)

Approximate investment
yield
(3) O n current redemption v a l u e
from beginn i n g of each
half-year
period (a)
to second
extended
maturity

>^
o

Percent

$37.40
38.18
38.97
39.78
40.60
41.44
42.30
43.18
44.08
44.99
45.93
46.88
47.85
48.85
49.86
50.89
51.95
63.03
54.13
55.25

$74. 80
76.36
77.94
79.56
8L20
82.88
84.60
86.36
88.16
89.98
9L86
93.76
96.70
97.70
99.72
101. 78
103.90
106. 06
108. 26
110. 50

$149.60
152. 72
155. 88
159.12
162. 40
165. 76
169. 20
172. 72
176. 32
179. 96
183. 72
187. 52
191. 40
195. 40
199. 44
203. 56
207. 80
212.12
216. 52
221. 00

$299. 20
305.44
311. 76
318. 24
324.80
331. 52
338.40
345. 44
351. 64
359. 92
367. 44
375. 04
382.80
390.80
398.88
407.12
415.60
424. 24
433.04
442. 00

$748. 00
763. 60
779. 40
796. 60
812. 00
828.80
846. 00
863. 60
881. 60
899.80
918. 60
937. 60
957. 00
977. 00
997. 20
1, 017.80
1, 039. 00
1, 060. 60
1, 082. 60
1,106.00

$1,496. 00
1, 527. 20
1, 558. 80
1, 591. 20
1, 624. 00
1, 657. 60
1, 692. 00
1, 727. 20
1, 763. 20
1, 799. 60
1, 837. 20
1,875. 20
1, 914. 00
1, 954. 00
1, 994.40
2, 035. 60
2, 078. 00
2, 121. 20
2,165. 20
2, 210. 00

0.00
4.17
4.15
4.16
4.15
4.15
4.15
4.15
4.16
4.15
4.15
4.15
4.15
4.15
4.16
4.15
4.15
4.16
4.15
4.15

66.95

113. 90

227. 80

455. 60

1.139. 00

2. 278. 00

2 4.25

iMonth, day, and year on which issues of Dec. 1, 1950, enter each period. For subsequent issue months add the appropriate number of months.

2 Yield on purchase price from issue date to second extended maturity date is 3.74

percent.

fej

(2) O n t h e redemption
value at start
of each
extended m a t u r i t y period,
to t h e beginning of each
half-year
period
thereafter

4.25
4.25
4.26
4.27
4.28
4.28
4.29
4.30
4.32
4.33
4.35
4.37
4.40
4.43
4.48
4.66
4.65
4.81
5.14
6.15

pi
1-3

O
Pi

M
fej

>
d

TABLE 24
(For Second Extended Matm-ity Period)
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1, 1951

Issueprice
Denomination.

$18. 75
25. 00

$37. 50
60.00

$75. 00
100. 00

$150. 00
200. 00

$375. 00
500. 00

$760. 00
1, 000. 00

(1) Redemption values during each half-year period
(values increase on first day of period shown)
Period after first extended maturitj' (beginning 20 years
after issue date)
SECOND E X T E N D E D MATURITY PERIODS

FirstMyear
i (6/1/71)
M t o lyear
(12/1/71)
1 to IJ-^ years.(6/1/72)
IM to 2 years
(12/1/72)
2 to 2M years
(6/1/73)
2Mto3years
(12/1/73)
3 to 3M years
--(6/1/74)
3Mto4years
(12/1/74)
4 to 4M years.
(6/1/75)
4M to 5 years
(12/1/75)
6 to 5M years
(6/1/76)
5M to 6 years
...(12/1/76)
6 to 6M years
-(6/1/77)
6M to 7 years.
(12/1/77)
7 to 7M years
(6/1/78)
7M to 8 years
(12/1/78)
8 to SM years
.(6/1/79)
SM to 9 years.
(12/1/79)
9 to 9M years
-(6/1/80)
9M to 10 years.
(12/1/80)
SECOND E X T E N D E D M A T U R I T Y VALUE
(20 years from original maturity date) 4
(6/1/81)

$37.60
38.38
39.18
39.99
40.82
4L67
42.53
43.41
44.31
46.23
46.17
47.13
48.11
49.11
50.13
51.17
62.23
53.31
54.42
55.55

$75.20
76.76
78.36
79.98
SL 64
83.34
85.06
86.82
88.62
90.46
92.34
94.26
96.22
98.22
100.26
102.34
104.46
106.62
108.84
IIL 10

$150.40
153.52
156.72
169.96
163.28
166.68
170.12
173.64
177.24
180.92
184.68
188.62
192.44
196.44
200.62
204.68
208.92
213.24
217.68
222.20

$300.80
307.04
313.44
319.92
326.56
333.36
340.24
347.28354.48
361.84
369.36
377.04
384.88
392.88
401.04
409.36
417.84
426.48
435.36
444.40

$752.00
767.60
783.60
799.80
816.40
833.40
850.60
868.20
886.20
904.60
923.40
942.60
962.20
982.20
1,002.60
1,023.40
1,044.60
1,066.20
1,088.40
1, IILOO

$1,504.00
1,535.20
1,667.20
1,699.60
1,632.80
1,666.80
1,70L 20
1,736.40
1,772.40
1,809.20
1,846.80
1,885.20
1,924.40
1,964.40
2,005.20
2,046.80
2,089.20
2,132.40
2,176.80
2,222.00

57.26

114.50

229.00

458.00

1,146.00

2,290.00

1 Month, day, and year on which issues of June 1, 1951, enter each period. For subsequent issue months add the appropriate number of months.
2 Yield on purchase price from issue date to second extended maturity date is 3.76
percent.

Approximate investment
yield
(2) On the redemption
value at start
of each
extended maturity period
to the beginning of each
half-year
period
thereafter

(3) On current redemption value
from beginning of each
haK-year
period (a)
to second
extended
maturity

Percent

0.00
4.15
4.16
4.15
4.15
4.15
4.15
4.15
4.15
4.16
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15

4.25
4.25
4.26
4.27
4.27
4.28
4.29
4.30
4.32
4.33
4.35
4.37
4.40
4.43
4.48
4.64
4.64
4.81
6.13
6.12

2 4. 25 .

3 Redemption values during second extended matm-ity period raised to reflect improvement at first extended maturity. Second extended maturity value improved to
provide an investment yield of approximately 4.25 percent from first extended maturity.
4 30 years from issue date.

TABLE 25
(For Second Extended Matm-ity Period)
BONDS BEARING ISSUE DATES F R O M DECEMBER 1, 1951 THROUGH APRIL 1, 1952
Issueprice
Denomination.

$18. 75
25. 00

$37.50
60.00

$75. 00
100. 00

$160. 00
200. 00

$375. 00
500. 00

$750. 00
1, 000. 00

(1) R e d e m p t i o n v a l u e s d u r i n g each half-year period
(values increase o n first d a y of period s h o w n )

Period after first extended maturity (beginning 20 years
after issue date)
SECOND E X T E N D E D MATURITY PERIOD 3

FirstMyear..
i (12/1/71)
M to 1 year
(6/1/72)
1 to iMyeai-s
(12/1/72)
IM to 2 years
(6/1/73)
2 to 2M years
(12/1/73)
2M to 3 years
(6/1/74)
3 to 3M years
-(12/1/74)
3M to 4 years
..(6/1/75)
4 to 4M years
....(12/1/75)
4M to 5 years
(6/1/76)
5 to 5M years..
...(12/1/76)
5M to 6 years.
(6/1/77)
6 to 6M years.-..
.(12/1/77)
6M to 7 years
-(6/1/78)
7 to 7M years
:...
...(12/1/78)
7M to 8 years....
(6/1/79)
8 to SM years....
(12/1/79)
SM to 9 years
--(6/1/80)
9 to 9M years....
.(12/1/80)
9M to 10 years
(6/1/81)
SECOND E X T E N D E D M A T U R I T Y VALUE
(20 years from original maturity date) *
(12/1/81)

$37. SO
38.58
39.38
40.20
41.04
4L89
42.76
43.64
44.55
45.47
•46. 42
47.38
48.36
49.37
50.39
51.44
52.61
53.59
54.71
55.84

57. 56

$75. 60
77.16
78.76
80. 40 .
82.08
83.78
85.52
87.28
89.10
90.94
92. 84
94.76
96.72
98.74
100. 78
102. 88
105. 02
107.18
109. 42
111.68

115.12

1 Month, day, and year on which issues of December 1, 1951, enter each period. For
subsequent issue months add the appropriate number of months.

2 Yield on purchase price from issue date to second extended maturity date is 3.77

percent.

Approximate investment
yield

(2) O n t h e redemption "
value at start
of each
extended mat u r i t y period
to t h e beginn i n g of each
half-year
period
thereafter

(3) On current redemption value
from beginning of each
half-year
period (a)
to second
extended
maturity

Percent

$151. 20
154.32
157. 52
160. 80
164.16
167. 56
171. 04
174. 56
178. 20
181. 88
185. 68
189. 52
193. 44
197. 48
201. 56
205. 76
210. 04
214. 36
218. 84
223. 36

$302. 40
308. 64
315. 04
321. 60
328. 32
335.12
342. 08
349.12
356. 40
363. 76
37L36
379. 04
386. 88
394. 96
403.12
411.52
420. 08
4-^8. 72
437. 68
446. 72

$756. 00
771. 60
787. 60
804. 00
820. 80
837. 80
855. 20
872. 80
891. 00
909. 40
928.40
947. 60
967. 20
987. 40
1, 007. 80
1, 028. 80
1, 050. 20
1, 071. 80
1, 094. 20
1,116.80

$1, 512. 00
1, 543. 20
1, 575. 20
1, 608. 00
1, 641. 60
1, 675. 60
1, 710. 40
1, 745. 60
1, 782. 00
1,818.80
1,856. 80
1,895. 20
1, 934. 40
1, 974. 80
2, 015. 60
2, 057. 60
2,100. 40
2,143. 60
2,188. 40
2, 233. 60

0.00
4.13
4.14
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
4.15

230. 24

460. 48

1,151. 20

2,302. 40

2 4.25 .

pi
fej

pi
1^

O
fej
fej

4. 25
4. 26
4. 26
4. 27
4. 27
4. 28
4. 29
4.30
4.32
4.33
4.35
4.37
4.40
4.43
4.48
4.55
4.64
4.82
5.14
6.16

s
pi
Kj

o
fej

w
fej
fej

d
Hi

EXHIBITS

167

Exhibit 6.—Second revision, October 25, 1968, of Department Circular No. 750,
regulations governing payments by banks and other financial institutions of
United States savings bonds and United States savings notes (freedom shares)
TREASURY DEPARTMENT,

Washington, October 25,1968.
Treasury Departnient Circular No. 750, Revised, dated June 30, 1945, as
amended (31 CFR, Part 321), entitled: "Payments by Banks and Other Financial
Institutions in Connection With the Redemption of United States Savings
Bonds," is hereby retitled 'and otherwise amended to include United States Savings Notes (Freedom Shares), and issued as a Second Revision, as follows,
effective November 1, 1968^
Subpart A—General Information
Sec.
321.0
321.1

Applicability of regulations.
Definition of terms as used in these regulations.
Subpart B—Authority to Act

321.2
321.3
321.4
321.5
321.6

Financial institutions authorized to act.
Application and qualification.
Evidence of authority.
Paying agent fees and charges.
Termination of qualification.
Subpart C—Scope of Authority

321.7
321.8
321.9
321.10
321.11

General.
Payment to individual named as owner.
Redemption-exchange of Series E and J bonds for Series H bonds.
Specific limitations of payment authority.
Forwarding of securities not payable by agent.
Subpart D—Payment

321.12
321.13
321.14
321.15

Payment of securities.
Determination of redemption values and payment procedure.
Accounting for paid securities.
Losses resulting from payments.
Subpart E—Miscellaneous Provisions

321.16 Fiscal agents.
321.17 Preservation of rights.
321.18 Supplements, amendments, etc.
AUTHORITY : The provisions of this Part 321 issued under sec. 22 of the Second Liberty
Bond Act, as amended, 49 Stat. 21, as amended ; 31 U.S.C. 757c.

Subpart A—General Information
§321.0 Applicability of regulations.
The regulations in this part govern payments by banks and other financial
institutions of U.S. Savings Bonds and U.S. Savings Notes.
§321.1 Definition of terms as used in these regulations.
Unless the context otherwise requires or indicates:
(a) "Bond(.s)" or "savings bond(s)" means only U.'S. Savings Bonds of Series
A, B, C, D, or E presented for cash payment, and Series B and J bonds presented
for redemption-exchange for Series H bonds under the provisions of Department Circular No. 1036 as amended (Part 339 of this chapter). Savings Bonds of
Series F, G, H, and K, and bonds of Series J ineligible for redemption-exchange
under Department Circular No. 1036, as amended, are not included.

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19 69 REPORT OF THE SECRETARY OF THE TREASURY

(b) "Federal Reserve Bank(s)" or "Bank(s)" means a Federal Reserve Bank
or Branch acting a s fiscal agent of the United 'States.
(c) "Note(s)" or "savings note(s)" means a U.S. Savings Note (Freedom
Share).
(d) "Owner(s)"* means an individual, i.e., a natural person, whose name is
inscribed as an owner or co-owner in his own right on a bond or note.
(e) "Paying agent(s)" or "agent(s)" means (1) any eligible financial institution duly qualified pursuant to the provisions of this circular, or any previous
revision thereof, to make payments, as herein specified, of U.S. Savings Bonds,
and U.^S. .Savings Notes, and includes branches of such institutions located within the United States, its territories and possessions, the Commonwealth of
Puerto Rico and the Canal Zone and (2) banking facilities of such institutions
established at military installations of the United States and other places with
the specific approval of the Treasury Department.
i(f) "Redemption" and "payment" are used interchangeably for payment of a
bond or note in accordance with the terms of its offering and the regulations
governing said securities, and includes "redemption-exchange," i.e., any authorized redemption of securities for the purpose of applying the proceeds, as provided under the terms of the offering, in payment for other securities offered
in exchange.
(g) "Security(ies)" means a U.S. Savings Bond or U.S. Savings Note.
Subpart B—Authority To Act
§321.2 Financial institutions authorized to act.
Commercial banks, trust companies, savings banks, savings and loan associations, building and loan associations (including cooperative banks), credit unions,
cash depositories, industrial banks, and similar financial institutions which (a)
are incorporated under Federal law or under the laws of a State, territory or
possession of the United States, or the District of Columbia; (b) in the usual
course of business accept, subject to withdrawal, funds for deposit or the purchase of shares; (c) are under the supervision of the banking department or
equivalent authority of the jurisdiction in which incorporated; and (d) maintain
regular offices for the transaction of their business, are eligible to become paying
agents and, subject to the provisions relating to qualification set out in § 321.3,
are authorized to make payments in connection with the redemption of savings
bonds and savings notes, but only in accordance with the provisions of this circular, and any memorandum of instructions, guides, notices, etc., issued by the
Department of the Treasury relating to such authorization.
§ 321.3 Application and qualification.
(a) Authority to qualify. Each Federal Reserve Bank, as fiscal agent of the
United States, is authorized to qualify hereunder any eligible institution located
in its district ^ which possesses adequate authority under its charter tO' act as
paying agent of savings bonds and savings notes.
(b) New applications. An institution not previously qualified which desires to
act as paying agent of savings bonds and savings notes on or after the effective
date of this revision should apply to the Federal Reserve Bank of the district
in which it is located on an application-agreement form available from the Bank.
No application-agreement will be accepted requesting qualification solely as paying agent either for savings bonds or for savings notes. Each application-agreement filed hereunder shall include the provisions prescribed in section 202 of
Executive Order No. 11246, entitled "Equal Employment Opportunity." (42
U.S.C. 2000e note)
(c) Agents previously qualified. Any financial institution qualified and acting
as a paying agent of savings bonds on the effective date of this revision may
continue to so act under its previous qualification, but subject to the terms and
conditions hereof. Such agent will not be required to qualify by separate applica1 For the purpose ofi this circular, eligible institutions in Puerto Rico, the Virgin Islands,
and the Canal Zone shall be considered as being within the Second Federal Reserve District
and shall make application to the Federal Reserve Bank of New York, and eligible institutions in Guam shall be considered as being within the Twelfth Federal Reserve District
and shall make application to the Federal Reserve Bank of San Francisco.

EXHIBITS

169

tion-agreement to pay savings notes. If a paying agent of savings bonds redeems
savings notes, and transmits the same to the Federal Reservie Bank of its district
with a request to receive credit therefor, it shall be presumed thereby that the
governing board or committee of such agent had theretofore undertaken appropriate action to authorize such redemptions and had agreed that the terms and
conditions of its previous qualification as paying agent for savings bonds shall
apply to savings notes as well. The granting of credit for such redemptions by
the Bank shall constitute qualification of the agent to pay savings notes.
§ 321.4 Evidence of authority.
No announcement of or reference to an institution's authority to pay savings
bonds and savings notes, nor acts purporting to have such authority, except as
provided in §321.S(c), may be made until written notice of qualification has
been received from the Federal Reserve Banks, and then only in a form, manner
and substance as may be approved by the Treasury Department or hy the Bank.
§321.5 Paying agent fees and charges.
(a) Scale of rates and procedures. Each paying agent shall receive reimbursement for all bonds and notes paid hereunder which are received by a Federal Reserve Bank and forwarded for the agent's account to the Treasury
Department during each calendar quarter, according to the following scale:
15 cents each for the first 1,000 securities.
10 cents each for all over 1,000 securities, less any securities returned to the
agent because they were ineligible for payment.
The scale of rates shall be applicable separately to the agent and to each of its
branches utilized in making payments under this circular, if the securities paid
by each are separately scheduled and accounted for.
(b) No charge to owners. Paying agents shall not make any charge whatever to owners of savings bonds and savings notes in connection with payments
hereunder.
§321.6 Termination of qualification.
The Secretary of the Treasury, or his delegate, may authorize a Federal
Reserve Bank to terminate, by written notice, at any time and without prior
demand or notice, the qualification hereunder of any paying agent in its district.
A paying agent, upon notice to the Federal Reserve Bank through which it
qualified, and following settlement of its account, may terminate its qualification.
Subpart C—Scope of Authority
§321.7 General.
Savings bonds and savings notes are issued only in registered form, are not
transferable, may not be hypothecated or used as collateral for a loan, and,
except as otherwise specifically provided in the regulations governing them, i.e..
Department Circular No. 530, current revision (Part 315 of this Chapter), are
payable only to the owner or coowner named on the securities. Payment to a
designated beneficiary is not authorized.
§321.8 Payment to individual named as owner.
Subject to the terms and conditions appearing on the securities, to the governing regulations, and to the provisions of this circular, an agent may make
payment of any savings bonds of Series 'A, B, C, D, or E, or of any savings note,
upon presentation and surrender by the individual whose name is inscribed as
the owner or coowner on the security: Provided, The individual is known to the
agent or establishes his identity in accordance with the Department's instructions iand identification guides. (See the Treasury Department's statement to
paying agents on identification, dated Dec. 19, 1947.) This authority to make
payments will be held to include:
'(a) Change of name by marriage. Where the name of the owner as inscribed
on the security has been changed by marriage and the agent knows or establishes
that the presenter and the person whose name appears on the security is one and
the same individual. The signature to the request for payment should show

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19 69 REPORT OF THE SECRETARY OF TPIE TREASURY

both names, for example, "Miss Mary T. Jones, now by marriage Mrs. Mary J.
Smith." An agent is not authorized to pay a security for an owner whose name
as inscribed thereon has been changed in any other manner.
(b) Parent of a minor. Where the name of the owner inscribed on the security
is that of a minor child who is not of sufficient competency and understanding to
execute the request for payment and comprehend the nature of such act but
upon whose behalf request for payment is made by a parent with whom the
child resides : Provided, however. The form of registration does not indicate that
a guardian or similar representative of the estate of 'tlie minor owner has
been appointed or is otherwise legally qualified. The parent requesting payment
must sign the request for payment in the form, for example, "John A. Jones,
on behalf of John O. Jones," and place an endorsement in substantially the following form, which may be typed or imprinted on the back of the security: "I
certify that I am the
(father or mother) of John C. Jones and the
person with whom he resides. He is
years of age and is not of sufficient
competenicy and understanding to sign the request." Such a payment may not
be made to any person other than a father or mother.
§ 321.9 Redemption-exchange of Series E and J bonds for Series H bonds.
Subject to the terms and conditions appearing on the bonds, the governing
regulations, and the provisions of this part, an agent may accept for redemption-exchange Series E and eligible J bonds under the provisions of Department
Circular No. 1036, as amended (Part 339 of this chapter).
§ 321.10 Specific limitations of payment authority.
An agent is not authorized to pay a bond or note:
(a) If presented for payment prior to the end of 2 months from the issue date
in the case of a Series E bond, and of 1 year from the issue date in the case of
a note (the issue date appears on the upper right-hand portion of the face of
the securities). Any payment or advance to an owner before his security is
eligible for redemption is not authorized.
(b) If the agent does not know or cannot establish the identity of the person requesting payment as the owner of the security, including the establishment of the identity of a parent requesting payment on behalf of a minor child,
as set forth in § 321.8(b). (See the memorandum of instructions issued in conjunction with this circular and the Treasury Department's statement to paying
agents on identification, dated Dec. 19,1947.)
(c) If the owner requesting payment does not sign his name in ink as it is
inscribed on the security and show his home or business address. (See, also,
§321.8 (a) and (b).)
(d) If the security bears a material irregularity, for example, an illegible,
incomplete, or unauthorized inscription, issue date, or issuing agent's validating
stamp impression, or if any essential part thereof appears to be altered, or is
mutilated or defaced in such a manner as to create doubt or arouse suspicion.
(e) If the security is registered in the name of an organization or a fiduciary.
(f) If the Treasury Department regulations require the submission of documentary evidence to support the redemption, as in the case of deceased owners,
incompetents or minors under legal guardianship, or the change of an owner's
name as inscribed on a bond or note for any reason other than marriage.
(g) If the owner named on the security and requesting payment is a minor
who, in the opinion of the agent, is not of sufficient competency and understanding to execute the request for payment and comprehend the nature of such act.
(See, also, § 321.8(b).)
(h) If it is known to the agent that the owner has been declared, in accordance with law, incompetent to manage his estate,
(i) If partial redemption is requested.'
§321.11 Forwarding of securities not payable by agent.
Any securities which an agent is not authorized to pay under the provisions
of this part should be forwarded for redemption, after certification of the requests for payment, to the Federal Reserve Bank or Branch of the district, or
the Office of the Treasurer of the United States, Securities Division, Washington,
D.C. 20220. If an agent undertakes to forward such unpaid securities at the
request and in behalf of the person entitled to payment, they must be sent

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171

separate and apart from bonds and notes which the agent has paid. Any documentary evidence required to support the redemption should accompany the
securities when forwarded to the Federal Reserve Bank.
Subpart D—Payment
§321.12 Payment of securities.
(a) Examination. Before making payment of a bond or note, the agent shall
examine it to determine :
(1) That the security is eligible for payment and is one which the agent is
authorized to pay under the provisions of this part, and
(2) That the security does not bear a material irregularity or alteration, and
is not mutilated or defaced.
(b) Identification. The agent shall determine that the individual presenting
the security is the same person whose name is inscribed as owner or coowner
thereon. Unless the presenter is a person whose identity is well known to the
agent, or is an established customer, he should be asked to furnish satisfactory
documentary or personal identification.
(c) Execution of request. The agent shall require that the request for payment
on the back of the security be executed by the presenter in the presence of one of
its officers or authorized employees, and the request shall include the home or
business address of the individual making the request on at least one of the
securities. Where the request has already been executed when the security is
presented, it should ordinarily be reexecuted.
(d) Certification of request. Each agent submitting paid bonds and notes shall
be understood by such submission to have represented and certified that the
identity of the owner or coowner requesting payment has been duly established.
Therefore, an agent will not be required in the case of any security which it pays
to complete the certification form at the end of the request for payment, nor
determine the authenticity of any certification which may appear thereon at the
time it is presented for payment.
§ 321.13 Determination of redemption values and payment procedure.
The redemption value of a security is determined according to the period of
time that it has been outstanding, and the table of redemption values applicable
thereto. After establishing such value for each security presented, the agent shall
place on the face thereof the word "PAID," the amount and date of actual payment and the name, location, and code number assigned to the agent by the
Federal Reserve Bank. The affixing of such data shall constitute a certification by
the paying agent that the security was redeemed in accordance with this circular,
and that the proceeds of redemption were paid to the presenter. Payment shall
be made in cash, a credit to the presenter's checking, savings or share account
with the agent, or a check or similar instrument payable to his order.
§321.14 Accounting for paid securities.
The paying agent shall forward all paid securities to the Federal Reserve Bank
of the district in accordance with latter's instructions. Upon receipt of the paid
securities, the Federal Reserve Bank shall make immediate settlement with the
paying agent for the total amount of payments made thereon, except that such
settlement shall be subject to adjustment if any discrepancies are discovered at a
later date.
§321.15 Losses resulting from payments.
If a loss shall result from a payment made in connection with the redemption
of any security hereunder, the paying agent involved shall have a full and complete opportunity to present all of the facts pertaining thereto. Determination
of losses shall be made pursuant to section 22(i) of the Second Uiberty Bond Act,
as amended (Title 31, United States Code, sec. 757c(i).)
Subpart E—Miscellaneous Provisions
§321.16 Fiscal agents.
The Federal Reserve Banks and Branches, as fiscal agents of the United States,
are authorized to perform such services as may be requested by the Secretary of
the Treasury in connection with this part.
363-222—70

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19 69 REPORT OF THE SECRETARY OF THE TREASURY

§ 321.17 Preservation of rights.
Nothing contained in the regulations in this part shall limit or restrict any
existing rights which holders of savings bonds and savings notes may have acquired under the circulars offering such securities for sale and the regulations
prescribed therefor.
§321.18 Supplements, amendments, etc.
The Secretary of the Treasury may at any time or from time to time revise,
supplement, amend, or withdraw, in whole or in part, the provisions of this part,
or of any revisions, supplements, or amendments thereto.
JOHN K. CARLOCK,

Fiscal Assistant Secretary.
Exhibit 7.—Third revision, October 25, 1968, of Department Circular No. 751,
regulations governing manner of accounting for losses resulting from the
redemption of United States savings bonds and United States savings notes
(freedom shares)
TREASURY DEPARTMENT,

Washington, October 25, 1968.
Treasury Department Circular No. 751, Second Revisidn, dated August 1, 1947
(31 CFR Part 322), entitled: "Replacement out of the Fund Established by the
Govemment Losses in Shipment Act, as Amended, of Any Losses Resulting from
Payments Made in Connection with the Redemption of United States Savings
Bonds and Armed Forces Leave Bonds," is hereby retitled and otherwise amended
to delete reference therein to Armed Forces Leave Bonds and to include U.S.
Savings Notes (Freedom Shares), and issued as a Third Revision, as follows:
Subpart A—General Information
Sec.

322.0 Applicability of regulations.
Subpart B—Report of Loss
322.1 Report of erroneous payment.
Subpart C—Procedure for Investigation of Loss
322.2 Action by Treasury.
322.3 Use of United States Secret Service.
322.4 Opportunity to present evidence.
Subpart D—Determination of Loss
322.5 Advice of final loss.
Subpart E—Certification of Signatures
322.6 Certification of signatures.
Subpart F—Replacement of Losses Out of Fund
322.7 Replacement and recovery in connection with losses.
Subpart G—Miscellaneous
322.8 Supplements, amendments, etc.
AUTHORITY : The provisions of this Part 322 issued under sec. 22 of the Second Liberty
Bond Act, as amended, 49 Stat. 21, as amended ; 31 U.S.C. 757c.

EXHIBITS

173

Subpart A—General Information
§ 322.0 Applicability of regulations.
The regulations in this part govern the manner of accounting for losses to the
United States of America resulting from the redemption of U.S. Savings Bonds
and U.S. Savings Notes (Freedom Shares), (a) by any bank Or other financial
institution duly qualified as a paying agent under Treasury Department Circular
No. 750, or any revision thereof (Part 321 of this chapter), (b) by the Treasurer
of the United States, and (c) by any Federal Reserve Bank or Branch, as fiscal
agent of the United States.
Subpart B—Report of Loss
§ 322.1 Report of erroneous payment.
(a) By qualified paying agent. Upon discovery of an erroneous or unauthorized payment by a qualified paying agent, immediate report thereof should be
made to the Federal Reserve Bank of the district. The payments so reported
to, or otherwise discovered by, a Federal Reserve Bank, shall be adjusted, so far
as possible, between the Federal Reserve Bank and the paying agent concerned.
If no such adjustment is possible,.or if the error LQ payment is discovered after
the account of the Treasurer of the United States has been charged, an immediate report thereof shall be made by the Federal Reserve Bank to the Bureau
of the Public Debt, Division of Loans and Currency Branch, 536 South Clark
Street, Chicago, 111. 60605.
(b) By Treasurer of the TJnited States and Federal Reserve Bank or Branch.
Upon discovery of an erroneous or unauthorized payment by the Office of the
Treasurer of the United States or by a Federal Reserve Bank or Branch, immediate report thereof shall be made by such agency to the Bureau of the Public
Debt, Division of Loans and Currency Branch, 536 South Clark Street, Chicago,
111. 60605.
Subpart C—Procedure for Investigation of Loss
§ 322.2 Action by Treasury.
Following receipt of the report of an erroneous payment, or upon discovery
from its records that an erroneous payment has occurred, the Department of
the Treasury shall notify, unless such action is deemed unnecessary, the agency
through which the redemption was effected, identifying the securities, and furnishing appropriate details and instructions. The Department shall determine
whether or not adjustment may be effected with the persons involved in the
erroneous payment.
§322.3 Use of United States Secret Service.
The Department of the Treasury, and, in appropriate cases. Federal Reserve
Banks, as fiscal agents of the United States, may request the U.S. Secret Service to investigate losses and to assist in the recovery of improper payments. The
Treasurer of the United States, the Federal Reserve Banks, and qualified paying
agents shall be exi)ected to cooperate to the fullest extent therewith.
§322.4 Opportunity to present evidence.
The paying agent, the Treasurer of the United States, or the Federal Reserve
Bank or Branch, involved in any erroneous or unauthorized payment shall be
given during the course of the investigation, or thereafter prior to a determination of final loss, every opportunity to present the full facts relating to the
payment.
Subpart D—Determination of Loss
§ 322.5 lAdvice of final loss.
Upon completion of the investigation, and after consideration of the results
thereof, the Department of the Treasury shall advise the agency through which
the payment occurred:
(a) That no final loss to the United States has occurred, and, accordingly,
that it is relieved from liability therefor, or that no claim for reimbursement
shall be made unless and until a loss has been sustained; or

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19 69 REPORT OF THE SECRETARY OF THE TREASURY

(b) That while a final loss to the United States has occurred, it is not required
to make reimbursement therefor as the Secretary of the Treasury, or his delegate, has determined that such loss resulted from no fault or negligence on
the part of such agency; or
(c) That a final loss to the United States has occurred, and that as the Secretary of the Treasury, or his delegate, has been unable to make an affirmative
finding that such loss resulted from no fault or negligence on part of such
agency, reimbursement must be promptly made, except where credit for the
payment had not theretofore been extended.
Subpart E—Certification of Signatures
§322.6 Certification of signatures.
The regulations in this part shall, to the extent appropriate, apply to losses
resulting from payments made in reliance on erroneous certifications of signatures to any requests for payment of savings bonds and savings notes by an
officer or designated employee of any financial institution or of the Postal
Service authorized to certify such requests.
Subpart F—Replacement of Losses Out of Fund
§ 322.7 Replacement and recovery in connection with losses.
Where a final loss has resulted from the redemption of a savings bond or savings note, and no reimbursement therefor has been or will be made, such loss
shall be sulbject to immediate replacement out of the fund established by the
Government Losses in Shipment Act, as amended. Any recovery or repayment
thereafter received on account of such loss shall be credited to the fund.
Subpart G—Miscellaneous
§322.8 Supplements, amendments, etc.
The Secretary of the Treasury may at any time, or from time to time, supplement, amend, or withdraw, in whole or in part, the provisions of this circular,
or of any amendments or supplements thereto, information as to which will be
furnished promptly to the Federal Reserve Banks and through such Banks, or
directly, to eligible financial institutions qualified to make payments of savings
bonds and savings ndtes under the provisions of Treasury Department Circular
No. 750, Second Revision (Part 321 of this chapter).
JOHN K .

CARLOCK,

Fiscal Assistant Secretary.
Exhibit 8.—Third revision, December 10, 1968, of Department Circular No. 888,
regulations governing payment under special endorsement of United States .
savings bonds and United States savings notes (freedom shares)
TREASURY DEPARTMENT,

Washington, December 10,1968.
Treasury Department Circular No. 888, Second Revision, dated April 7, 1964
(31 CFR, Part 330), entitled: "Regulatipns Governing the Special Endorsement
of United States Savings Bonds of Any Series and the Payment of Matured
Series F, G, J, and K Bonds by Eligible Paying Agents," is hereby retitled and
otherwise amended to include U.S. Savings Notes (Freedom Shares), and issued
as a Third Revision, as follows :
Sec.
330.0
330.1
330.2
330.3
330.4
330.5
^30.6

Purpose of regulations.
Agents eligible to process bonds and notes.
Securities eligible for processing.
Guaranty given to the United States.
Evidence of owner's authorization to agent.
Endorsement of securities.
Securities in coownership form.

EXHIBITS
330.7
330.8
330.9
330.10
330.11

175

Payment or exchange.
Functions of Federal Reserve Banks.
Modification of other circulars.
Other circulars generally applicable.
Supplements, amendments or revisions.

AUTHORITY : The provisions of this Part 330 issued under sees. 330.0 to 330.11 issued
under authority of sec. 22 of the Second Liberty Bond Act, as amended, 49 Stat. 21, as
amended ; 31 U.S.C. 757c.

§330.0 Purpose of regulations.
These regulations in this Part prescribe a procedure whereby qualified paying
agents may specially endorse U.S. Savings Bonds of certain classes, and U.S.
Savings Notes (Freedom Shares), with or without the owners' signatures to
the requests for payment, and pay the bonds and notes so endorsed, or forward
them to the Federal Reserve Bank or Branch servicing their accounts for payment or for any authorized exchange. § 330.2 describes the eligibility of various
classes of bonds for processing under the procedure provided in this circular, and
§ 330.7 sets out which of these classes may be paid by such agents and which
shoiuld be forwarded to a Federal Reserve Bank or Branch. Under no circumstances shall the provisions of this part be used to give effect to a transfer,
hypothecation, or pledge of a bond or note or to permit payment to any person
other than the owner or coowner. Violation of these prohibitions will be cause
for the withdrawal of an agent's privilege to process any bonds and notes under
this part.
§330.1 Agents eligible to process bonds and notes.
(a) New applications. Any institution qualified as a paying agent of U.S.
Savings Bonds and U.S. Savings Notes under the provisions of Department
Circular No. 750, as revised, may establish its eligibility to employ the procedure
authorized by this circular upon application on Treasury Department Form
PD 3902 to the Federal Reserve Bank of the District in which it is located.
This form provides a certification that by duly executed resolution of its governing board or committee the institution has been authorized to apply for the
privilege of processing and paying bonds and notes in accordance with the provisions and conditions of Department Circular No. 888, including all supplements,
amendments, and revisions thereof, and any instructions issued in connection
therewith. If the application is approved, the Federal Reserve Bank will so
notify the institution on Treasury Department Form PD 3903. The Secretary
of the Treasury reserves the right to withdraw from any institution at any
time the authority granted thereto under the regulations in this part.
(b) Agents previously qualified. Any financial institution qualified and acting
under any previous revision of this part will not be required to qualify separately
to process savings notes. If such institution affixes its special endorsement on a
savings note, it shall be presumed that its governing board or committee had
undertaken appropriate action to authorize extension to savings notes of the
terms and conditions of its previous qualification to process savings bonds under
this part. The granting of credit by the Federal Reserve Bank or Branch, acting
as fiscal agent of the United States, for the redemption of any such savings
notes pursuant to special endorsement shall constitute qualification of the
agent.
§330.2 Securities eligible for processing.
The procedure provided in the regulations in this part may be employed in
connection with the redemption or exchange (where authorized) of any savings bond, or the redemption of any savings note, upon the request of its registered owner or either coowner. The term "owner" is defined to include individuals,
and where such registration is authorized, incorporated and unincorporated
bodies, executors, administrators, and other fiduciaries named on a bond or
note. This procedure does not apply, however, to cases where payment (or
exchange in the case of bonds) is requested by a parent in behalf of a minor
named on a security as owner. Also, it does not apply to requests made by
surviving beneficiaries, or to any cases requiring a death certificate or other
documentary evidence.

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19 69 REPORT OF THE SECRETARY OF THE TREASURY

§330.3 Guaranty given to the United States.
A paying agent, by the act of paying or presenting to the Federal Reserve Bank
or Branch for payment a bond or note, or for exchange a bond, on which it has
affixed the special endorsement, shall be deemed thereby to have (.a) unconditionally guaranteed to the United States the validity of the transaction, including the identification of the owner and the disposition of the proceeds or the
new bonds, as the case may be, in accordance with his instructions, (b)
assumed complete and unconditional liability to the United States for any loss
which may be incurred by the United States as a result of the transaction, and
(c) unconditionally agreed to make prompt reimbursement for the amount of any
such loss upon request of the Department of the Treasury§330.4 Evidence of owner's authorization to agent.
By the act of paying or presenting to the Federal Reserve Bank or Branch a
security on which it has affixed the special endorsement described in § 330.5,
the paying agent represents to the United States that it has obtained adequate
instructions from the owner with respect to payment of the bond or note, and
disposition of its proceeds, or exchange of the bond, as the case may be. To
support this representation, agents should maintain such records as may be
necessary to establish the receipt of such instructions, as well as records establishing compliance therewith.
§ 330.5 Endorsement of securities.
Each security processed under these regulations in this part shall bear the
following endorsement:
Request by owner and validity of transaction guaranteed in accordance with
T.D. Circular No. 888, as revised.
(Name and location of agent)
This endorsement must be placed on the back of the bond or note in the space
provided for the owner to request payment. (See § 330.6 for additional instructions covering securities inscribed in coownership form.) The endorsement
stamp must be legibly impressed in black or other dark-colored ink. The Federal
Reserve Bank of the District will furnish rubber stamps for impressing the
above endorsement or, in lieu thereof, will approve designs for suitable stamps
to be obtained by paying agents. Requests for endorsement stamps to be furnished
or approved by the Federal Reserve Bank shall be made in writing by an officer
of the institution. Stamps heretofore in use may continue to be utilized.
§ 330.7 sets out whicli of these classes may be paid by such agents and which
should be forwarded to a Federal Reserve Bank or Branch. Under no circumstances shall the provisions of this part be used to give effect to a transfer,
hypothecation, or pledge of a bond or note, or to permit payment to any person
other than the owner or coowner. Violation of these prohibitions will be cause
for the withdrawal of an agent's privilege to process any bonds and notes under
this part.
§ 330.6 Securities in coownership form.
In addition to the endorsement prescribed in § 330.5. the paying agent shall, in
the case of bonds and notes registered in coownership form, indicate which
coowner requested payment or exchange. This should be done by encircling in
black or other dark-colored ink the name of such coowner (or both coowners,
if a joint request for payment or exchange is made) as it appears in the inscription on the face of the securities.
§330.7 Payment or exchange.
(a) By paying agents—(1) Payment of Series A-E bonds, inclusive, and savings notes for cash. Bonds of Series A to E, inclusive, and savings notes, on which
it has affixed the special endorsement may be paid by a qualified paying agent
pursuant to the authority and subject, in all other respects, to the provisions and
conditions of Department Circular No. 750, as revised, and the instructions
issued pursuant thereto. Bonds and notes so paid will be combined with other
Series A to E bonds and notes paid under that circular and forwarded to the
Federal Reserve Bank or Branch servicing the agent's account.

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177

(2) Payment of matured Series F, G, J, and K bonds. Matured savings bonds
of Series F, G, J, and K on which it has affixed the special endorsement may be
paid by a qualified paying agent, provided they are of a class eligible for this
procedure under § 330.2. Such payments, fees for which will not be paid to the
agents, shall be made in accordance with the following provisions:
(i) A Series F or J bond shall be paid at its face value.
(ii) A Series G or K bond shall be paid at its face value, together with the
final interest due thereon, as shown below:
Amount payable (face
value plus final interest)

Authorized denominations

Series G
$100 (Series G only)
$500
$1,000
$5,000
$10,000
$100,000 (Series K only)...

----

$10L25
606.25
1,012.60
5,062.50
10,125.00

Series K

$506.90
1,013.80
5,069.00
10,138.00
101,380.00

(iii) Each bond shall bear on its face, in the upper right portion, a payment
stamp setting forth the word "PAID" and the amount of the payment (including
the final interest on Series G and K bonds), the date of payment (month, day,
year), and the name and location of the paying agent including the ABA transit
number or other identifying code approved or assigned by the Federal Reserve
Bank of the District (the payment stamp prescribed for use under Department
Circular No. 750, as revised, may be used).
(iv) Paying agents shall be subject to such other instructions governing these
payments as may be issued by the Federal Reserve Bank of the District.
Imimediate settlement, subject to adjustment, will be made with the paying agent
by the Federal Reserve Bank or Branch servicing its account for the total amount
of the paid bonds submitted at any one time.
(3) Payment of Series E and J bonds on redemption-exchange for Series H
bonds. All outstanding Series E bonds, and Series J bonds received not later than
6 months from the month of maturity, presented to a paying agenit for redemptionexchange under the provisions of Department Circular No. 1036, as amended, on
which it has affixed the special endorsement, may be paid pursuant to the authority and subject, in all other respects, to the provisions and conditions of
Department Circular No. 750, as revised, and the instructions issued pursuant
thereto.
(b) By Federal Reserve Banks—(1) General. All securities forwarded by an
agent to a Federal Reserve Bank or Branch for payment or exchange under this
part must be accompanied by appropriate insitructions governing the transaction
and the disposition of the redemption checks or the new bonds, as the case may
be. The bonds and notes must be kept separate from any others the agent has
paid, and they must be presented in accordance with such instructions as may
be issued by the Federal Reserve Bank of the District.
(2)! Payment. The Federal Reserve Bank or Branch servicing an agent's account shall pay securities which it receives from such agent on which the latter
has affixed its special endorsement under the provisions and conditions of this
part. Such securities are (1) those not payable under paragraph (a) of this
section, or (ii) those the agent does not elect to pay, although eligible for payment thereunder.
(3) Exchange. The Federal Reserve Bank or Branch shall pay Series E and J
bonds presented for redemption-exchange which an agent elects to process, but
not to pay, under paragraph (a) (3) of this section, as well as any savings bonds
submitted for exchange, in whole or in part, pursuant to an authorized exchange
offering and processed by special endorsement under this part.
§330.8 Functions of Federal Reserve Banks.
The Federal Reserve Banks, as fiscal agents of the United States, are auithorized
and directed to perform snch duties, and prepare and issue such instructions,
as may be necessary for the fulfillment of the purpose and requirements of this
part. The Federal Reserve Banks may utilize any or all of their branches in the
performance of these duties.

178

19 69 REPORT OF THE SECRETARY OF THE TREASURY

§ 330.9 Modification of other circulars.
. The provisions of these regulations in this part shall be considered as amendatory of, and supplementary to. Department Circulars Nos. 530, 653, 654, 750, 751,
885, 905, and 906, and any revisions thereof, and those circulars are hereby
modified where necessary to accord with the provisions hereof.
§330.10 Other circulars generally applicable.
Except as provided in these regulations in this part, the circulars referred to
in the preceding section will continue to be generally applicable.
§330.11 Supplements, amendments or revisions.
The Secretary of the Treasury may at any time, or from time to time, supplement, amend or revise the terms of these regulations in this part.
MEMORANDUM OF INSTRUCTIONS ISSUED IN CONJUNCTION W I T H
CIRCULAR No. 888, THIRD REVISION

DEPARTMENT

FISCAL SERVICE, BUREAU OF THE PUBLIC DEBT
T H E DEPARTMENT OF THE TREASURY,

Office of the Secretary,
Washington, D.C.
DECEMBER 2 ,

1968.

1. General.— (a) Purpose. This memorandum has been prepared for the guidance of paying agents qualified under Department Circular No. 888, Third Revision, the regulations governing the payment by special endorsement of U.S.
Savings Bonds and U.S. Savings Notes (Freedom Shares). It both explains and
supplements the circular, and acquaints paying agents with the objectives of the
special endorsement procedure.
(b) Liability assumed by agents using special endorsement. An eligible agent
which pays or processes securities by special endorsement, undertakes thereby,
under section 330.3 of Department Circular No. 888, Third Revision, to guarantee
the owner's request arid the Validity of the transaction.
(c) Options available to agents. Each paying agent authorized under Department Circular No. 750, as revised, to redeem savings bonds and notes has the
option of deciding whether or not to apply for qualification to use the special
endorsement procedure, and, even after being qualified, whether or not to exercise
its authority in any given case.
2. Scope of regulations. Department Circular No. 888, Third Revision, prescribes
a special endorsement which a qualified paying agent may place upon any series
of savings bonds and upon notes, except as otherwise provided in paragraph 4
hereof, so that regardless of whether or not the request for payment is signed by
the owner, the paying agent may pay them or present them to a Federal Reserve
Bank for payment or exchange.
3. Meaning of terms. For the purpose of this memorandum (unless otherwise
indicated either specifically or by context) the terms:
(1) "Bond(s)" and "note(s)" mean U.S. Savings Bond of any series, and
U.S. Savings Note (Freedom Share), respectively, referred to collectively as
"securities", which an "eligible agent" is permitted to "specially endorse".
(ii) "Eligible agent(s)" or "agent(s)" means any paying agent of savings
bonds which, upon application, has been duly qualified by the Federal Reserve
Bank of its district to process savings bonds and notes by special endorsement
under the provisions of Department Circular No. 888, as revised.
(iii) "Special endorsement" means the endorsement prescribed in §330.5 of
Department Circular No. 888, Third Revision.
(iv) "Specially endorse" means the affixing by an eligible agent of the si>ecial
endorsement to bonds which are to be paid or exchanged, or to notes which are
to be paid.
(v) "Exchange" refers to the Series H bond exchange offering.
(vi) "Federal Reserve Bank" refers to the Federal Reserve Bank or Branch
servicing the agent's account.
4. Limitations or qualifications on use of special endorsements. An eligible
agent may, at its discretion, specially endorse a bond which the owner has

EXHIBITS

179

requested the agent to pay or exchange or a note for which payment is requested,
subject to the following limitations or qualifications :
(i) A security may not be specially endorsed if documentary evidence is
required in support of its request for payment. (Subparts O and P of Department Circular No. 530, current revision, provide information as to whether
documentary evidence is required to support the request for payment of bonds
registered in the name of a fiduciary, private organization (corporation, association, partnership, etc.), or a governmental agency, unit or officer).
(ii) Documentary evidence is not required where the owner's name has been
changed by reason of marriage.
(iii) No bond or note may be specially endorsed upon a parent's request in
behalf of a minor child named on the security as the owner.
(iv) A bond inscribed in the name of a bank (in its fiduciary capacity, e.g.,
trustee, guardian, etc.) which has changed its name, status or designation by
merger, consolidation or otherwise may be paid upon verification that approved
evidence is on file with the Treasury, and upon advice that such bond is eligible
for payment by special endorsement. Such verification and advice will be
•furnished upon request by the Federal Reserve Bank of the district.
. (v) Notwithstanding the provisions of Department Circular No. 888, Third
Revision, a bond which requires documentary evidence to support payment may
be specially endorsed and presented for exchange without such evidence if the
bond is to be exchanged in the full amount for another security with the identical
registration.
5. Instructions from owners.— (a) Receipt. The Department of the Treasury
does not prescribe the form or type of instruction, if any, which an agent obtains
from each owner in order to process securities belonging to him by special
endorsement. As the agent's liability to the United States for any loss resulting
from an erroneous payment would be strictly based on its endorsement, the
securing of adequate instructions would be a matter entirely between the agent
and its customer. For its protection, agents are cautioned about accepting any
authorization by an owner or coowner with respect to a security in beneficiary or
coownership form which provides for future execution, rather than for immediate payment or exchange, as such authorization generally expires upon the death
of the person giving it.
(b) Retention of evidence. Where agents elect to make notations on the back
of a security to serve as the record of a transaction in whicli the special endorsement procedure is used the Department will undertake to iiroduce, upon request,
such security, or a photocopy thereof, but it will not assume responsibility for
the adequacy of any such notations, the legibility of any photocopy, or for failure
to produce the security or photocopy in any particular case where the Department's records have become lost, stolen, or destroyed.
6. Special endorsement of securities.— (a) Special endorsement stamp. The
Federal Reserve Bank will supply, on the agent's requisition, a limited riumber
of special endorsement stamps described in Department Circular No. 888, Third
Revision. Eligible agents may obtairi their own endorsement stamps at their
expense, provided that (i) the size of the stamp does not exceed a space bdurided
by 1% inches in the vertical dimension and 3 inches horizontally, and (ii) the
wording of the stamp is exactly as prescribed, plus any code number assigned to
the agent by the Federal Reserve Bank. Stamps obtained by an agent may include
space for the initials or signature of the employee approving the trarisaction, the
. date of the transaction, etc. Such stamps must not be obtained prior to notification of qualification.
(b) Placement of stamp. Each endorsement impression must be legibly made
with black or other dark-colored ink, and placed on the back of the security in
the general area provided for signing the request for payment. (See paragraph
•5(b) of this memorandum for additional notations which an agent may make on
the back of a security.)
7. Designation of coowner requesting transaction. Whenever a specially
endorsed security registered in coownership form has not been signed by the
- coowner requesting its payment or exchange, his name (or the names of both
coowners, if a joint request is made) in the inscription on the face of the security
must be circled in black or other dark-colored ink. This practice must be followed
whether the agent pays the security or forwards it to the Federal Reserve Bank
for payment or for exchange.
8. Payment of Series A-E bonds and notes by paying agents. Any bonds of
Series A, B, C, D, and E and notes which are specially endorsed may be paid

180

19 69 REPORT OF THE SECRETARY OF THE TREASURY

by an agent if the securities are otherwise payable under the authority and provisions of Department Circular No. 750, Second Revision, and the instructions
issued in conjunction therewith. However, because of problems relating to tax
withholding, securities held or received by the agent for account of a nonresident
alien individual, or a nonresident foreign corporation, association or partnership,
may not be paid by the agent, but must be forwarded to the Federal Reserve
Bank for payment. Each specially endorsed Series A-E bond or savings note
paid by an agent must have a payment stamp impressed on the face of the
security and show therein the date and amount paid. The paid securities may
be forwarded to the Federal Reserve Bank with other paid bonds of Series A-B
and notes, as prescribed in Department Circular No. 750, Second Revision, and
the instnictions issued in conjunction therewith.
9. Payment of Series F and G and matured J and K bonds by paying agents.—
(a) General. Any bonds of Series F or G, which are all matured, and any matured
bonds of Series J or K, may be paid by special endorsement by a qualified agent
under the authority and provisions of Department Circular No. 888, Third
Revision, and these instructions.
(b) Limitation on payment autliority. (1) Alteration, irregularity, mutilation,
or other defect: An agent may not pay any security bearing a material alteration, irregularity, mutilation, or other defect. There may be instances, however,
in which an agent will be willing to endorse and pay bonds which have minor
errors or defects, assuming full responsibility therefor, because of the reliability
and integrity of the customer, and his explanation of the situation.
(2) Bonds owned by nonresident aliens: An eligible agent may not pay bonds
described in this paragraph which are known to be owned by a nonresident alien
individual or a nonresident foreign eorporation, association, or partnership. Such
bonds must be forwarded to the Federal Reserve Bank for payment.
(c) Amount payable—Series F and J. The amount payable on any matured
bond of Series F or Series J is its denominational or face value.
(d) Amount payable—Series G and K. Any matured Series G or Series K bond
is payable at its face value, plus the amount of the final 6 months' interest due
for each denomination. The total amount payable for each denomination is set
forth in § 330.7(a) (2) (ii) of the circular.
(e) Recording payment data on bonds. The amount paid (including final interest in the case of matured Series G and K bonds), date of payment, and the
name, location and assigned code of the paying agent must be recorded on each
specially endorsed bond. This requirement is designed t o : (i) Facilitate accounting and settlement for paid bonds, (ii) provide permanent supporting evidence
of the payment, and (iii) prevent a second presentation for payment of bonds
which had become lost or stolen. The payment stamp prescribed for use in connection with Series A-E bonds may be used for this purpose, the impression thereof
to be placed upon the face of the bond in the upper right portion thereof. Black
or other dark-colored ink must be used in making stamp impressions and recording the amounts of payment. The impression and notations must be legible and
free from smears and blurs. Care must be taken to prevent defacing the bond
serial number, the name and address of the owner, co-owners, or beneficiary, the
issue date, and the issuing agent's validating stamp.
(f) Forwarding paid bonds to Federal Reserve Bank. Series F and G and
matured J and K bonds paid by special endorsement under Circular No. 888,
Third Revision, must be grouped into batches for transmittal to the Federal
Reserve Bank or Branch servicing the agent's account. Each batch must contain
only bonds of the same letter series paid in the same calendar month and year
and have not more than 200 bonds or $900,000 (redemption value) in amount. A
Form PD 2639 must be prepared as the control and transmittal document for
each batch. The agent must complete the form to show: (i) The type of bonds
("Paper"); (ii) the letter series; (iii) the date of transmittal; (iv) the month
and year the bonds were paid; (v) the number of bonds in the batch; (vi) the
amount paid on the bonds; and (vii) the transaction ("Matured F, G, J, or K").
Shipments may be made each day or less frequently, provided that all paid bonds
on hand on the last business day of a month must be forwarded to the Federal
Reserve Bank not later than the following business day. Specially endorsed bonds
sent to a Federal Reserve Bank for paynient or exchange must not be intermingled in any batch containing bonds paid by an agent.
(g) Manner of shipment. Paid bonds of Series F, G, J, and K, as herein described may be sent to the Federal Reserve Bank in the same manner in which

EXHIBITS

. 181

the agent transmits paid Series A-E bonds. The provisions of the Government
Losses in Shipment Act, as amended, and related regulations, will be applicable
to these shipments.
(h) Claims for loss, theft, destruction, or mutilation of paid bonds. The eligible
agent should promptly notify the Federal Reserve Bank of any loss, theft, destruction, or mutilation of bonds of Series F, G, J, or K which it has paid. To
obtain relief for any such bonds prior to receipt by the Federal Reserve Bank,
the agent must (i) furnish by letter series, the serial number (including prefix
and suffix letters), issue date, amount paid and, if available, the registration of
each bond; (ii) certify that the prescribed endorsement and payment stamps
were duly impressed; and (iii) provide satisfactory evidence of the loss, theft,
destruction, or mutilation. The Treasury does not prescribe the form in which
records necessary to support requests for relief should be maintained. Agents
are authorized to microfilm paid bonds and such film records may be projected
upon a screen, but no prints, enlargements or other reproductions may be made
except by official permission, which may be obtained from ithe Federal Reserve
Bank. To support each claim, affidavits by employees and statements by officers
of the agent as to the circumstances of the preparation and dispatch of bonds,
and any known facts as to the loss, theft, destruction, or mutilation must
ordinarily be furnished.
(i) Settlement for paid bonds. Immediate settlement by credit will be allowed
by the Federal Reserve Bank for the total amount of paid bonds received from
a paying agent, subject to adjustment following audit and examination by the
Bureau of the Public Debt. The credit will be made in the agent's reserve account if it is a member of the Federal Reserve 'System. If the agent is not a
member, credit may be made in the clearing account of the agent, in the reserve
or clearing account of a correspondent of the agent, or, if such an accourit is
not available for credit, by check drawn by the Federal Reserve Bank on the
Treasurer of the United States.
(j) Adjustments for paid bonds. Discrepancies discovered by the Bureau of
the Public Debt in the examination and audit of paid bonds will be referred to
the Federal Reserve Bank for adjustment, which will be made by (i) charging
the reserve or clearing account which an agent has designated for crediting
amounts due for paid bonds or (ii) in those cases where settlement was made
by check, either by reducing the amount of the check to be issued in connection
with a subsequent transmittal or by requiring the agent to reimburse the Federal Reserve Bank for the amount of the adjustment. The Department of the
Treasury will communicate with the agent in the event of an improper payment.
10. Payment of eligible Series E, F, and J bonds by paying agent in exchange
for Series H bonds. Any bonds of Series E or J which are eligible for redemption by a paying agent in exchange for Series H bonds, and are specially endorsed as prescribed in Department Circular No. 888, Third Revision, may be
paid by an agent. The authority of the paying agents to effect redemptionexchanges, as well as complete instructions regarding the conduct of the transactions and the processing of the bonds received for exchange, are contained in
Department Circular No. 750, Second Revision, and in the instructions issued in
conjunction therewith.
11. Payment or exchange of bonds of all series and notes by Federal Reserve
Banks.— (a) General. All specially endorsed bonds or notes which an agent does
not have authority to pay for cash or to exchange for Series H bonds must be
forwarded to the Federal Reserve Bank.
(b) Payment of bonds or notes. All bonds and notes specially endorsed by an
eligible agent which are to be submitted to the Federal Reserve Bank for payment must be forwarded with appropriate instructions regarding disposition of
the check to be issued in payment of the securities. Such securities must be kept
separate from paid bonds and notes which the agent submits for settlement by
credit. Payment will be made by check drawn on the Treasurer of the United
States.
12. Inquiries. All inquiries concerning Department Circular No. 888, Third
Revision, or this memorandum, may be directed to the Federal Reserve Bank
of the district in which the agent is located.

JOHN K . CARLOCK,

Fiscal Assistant Secretary.

182

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Exhibit 9.—Fourth amendment, December 11, 1968, to Department Circular
NO. 905, fourth revision, offering of United States savings bonds, Series H
TREASURY DEPARTMENT,

Washington, December 11,1968.
Treasury Department Circular No. 905, Fourth Revision, dated April 7, 1966,
as revised and amended, and thetables incorporated therein (31 CFR Part 332),
are hereby further revised and amended as follows:
Sec. 332.8. Extended terms and improved yields for outstanding bonds. * * *
(b) Extended maturity period for bonds with issue dates June 1,1959, Uwough
November 1, 1965.^ Owners of Series H bonds with issue dates of June 1, 1959,
through November 1, 1965, are hereby granted the option of retaining their bonds
for an extended matnrity period of ten years.
Subparagraph " ( b ) " of Section 332.8 of the Third Amendment to this circular
is hereby relettered as "(c)."
(d) Investment yield for extended maturity period—bonds with issue dates
of June 1,1959, through Novemher 1,1965. The investment yield for the extended
maturity period for bonds with issue dates of June 1, 1959, through Noveniber 1,
1965, will be 4.25 percent per annum compounded semiannually if the bonds are
held to the extended maturity date.^
JOHN K . CARLOCK,

Fiscal Assistant Secretary.
1 See Section 332.8(b) and footnote 5 of Department Circular No. 905, Fourth Revision,
for earlier yields (1906 annual report, page 261). See the Third Amendment of this circular
for current yields (1968 annual report pages 198-218).
2 Under authority of Section 25 of the Second Liberty Bond Act, as amended (73 Stat.
621, 31 U.S.C. 757C-1), the President of the United States on Nov. 16, 1968, found it
necessary in the natiohal interest to exceed the maximum investment yield prescribed by
Section 22 of the Act.

183

EXHIBITS
TABLE 19
BONDS BEARING ISSUE DATES FROM JUNE I THROUGH NOVEMBER 1, 1959
1 ace vaiue-j^jjgjjgj^pjj^^, ^^^ maturity valu

Period of time bond is held after issue date

y year
lyear
IK years
2 years
-.
2/2 years
Syears
3>^ years
4 years
4/2 years.
5 vears
•
5>i years
6 vears..
6>"^ years
7 years
7K years
Syears
.
8/2 years
9 years
9K years
10 years (maturity)

2 (12/1/59)
..(6/1/60)
..(12/1/60)
(6/1/61)
(12/1/61)
..(6/1/62)
(12/1/62)
(6/1/63)
(12/1/63)
(6/1/64)
(12/1/64)
(6/1/65)
(12/1/65)
...(6/1/66)
(12/1/66)
(6/1/67)
(12/1/67)
(6/1/68)
(12/1/68)
(6/1/69)

Period of time bond is held after maturity date

Kyear
(12/1/69)
1 year
(6/1/70)
l/o years
(12/1/70)
2 years.
(6/1/71)
2K years.
(12/1/71)
Syears
(6/1/72)
3/2 years
(12/1/72)
4 years
(6/1/73)
4/2 years
(12/1/73)
5 years...
(6/1/74)
5/2 years
(12/1/74)
6 years.'.
(6/1/75)
6K years'.
(12/1/75)
7 years
(6/1/76)
7K years
.(12/1/76)
8 years
(6/1/77)
SK years-.
...(12/1/77)
9 years._
...(6/1/78)
9/2 years
(12/1/78)
10 years (extended maturity)»
(6/1/79)

$500
500

$1,000
1,000

$5,000
5,000

$10,000
10,000

(1) Amounts of interest checks for each denomination

$4.00
7.25
8.00
10.00
10.00
10.00
10.00
10.00
10.00
10.00
10 00
10.00
IOOO
10.20
10.20
10 90
10.90
11.70
11.70
12.21

$8.00
14.50
16.00
20.00
20.00
20.00
20.00
20. 00
20.00
20.00
2 0 00
2 0 00
20.00
20.40
20. 40
21.80
21.80
23.40
23.40
24.42

$40. 00
72.50
80.00
IOO 00
100. 00
100. 00
100. 00
100. 00
100. 00
100. 00
100. 00

loa 00
100. 00
102. 00
102. 00
109. 00
109. 00
117. 00
117. 00
122.10

$80. 00
145. 00
160. 00
200. 00
20a 00
200. 00
200. 00
200 00
200. 00
200. 00
200. 00
200. 00
200. 00
204. 00
204. 00
218. 00
218. 00
234. 00
234. 00
244. 20

(2) From issuo
date or maturity (3) From each
date to each
Interest payInterest payment date (a) to
ment date
maturity
thereafter

Percent
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 1
3. (
3. (
3.72
3.76
3.80
3.84
3.88

PercerU

33.88
3 3. 95.
34.00
M. 00
»4. 00
' 4. 00
M. 00
3 4. 00
34. 00
'4.00
'4.00
'4.00
•4.41
«4. 47
«4.55
* 4. 60
*4. 68
4.78
4.88

EXTENDED MATURITY PERIOD

$10 37
10.37
10 37
10.37
10.37
10.37
10.37
10.37
10.37
10 38
10.38
10 38
10.38
10 38
10.38
10. 38
10.38
10.38
10.38
16.53

$20. 75
20.75
20 75
20.75
20.75
20 75
20 75
20.75
20.75
20.75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20.75
20 75
33.05

$103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103.75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
. 103.75
103. 75
103. 75
103. 75
103. 75
165. 30

$207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
330. 50

4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
•4.25

4.26
4.26
4 27
4.28
4.29
4.30
4.32
4.33
4.35
4.37
4.40
4.43
4.48
4.54
4.62
4.74
4.95
5.36
6.61

' At all times, except that bond was not redeemable during first 6 montlis,
» Month, day, and year on which interest check is payable on issues of June 1,1959. For subsequent issue months add the appropriate number of months.
' Yield on face valuo frora each interest payment dato to raaturity based on the schedule of interest checks prior to the December 1, 1965, revision.
* Yield on face valuo from each interest payment date to maturity based on the schedule of interest checks prior to tho Juno 1,1968, revision;
' 20 years after issue date. Final checks at original and extended maturity improved by revision of Juno 1,1968.
« Yield on purchase price from issue date to extended maturity is 4.03 percent.

184

19 69 REPORT OF THE SECRETARY OF THE TREASURY
TABLE 20
BONDS BEARING ISSUE DATES FROM DECEMBER 1, 1959, THROUGH MAY 1, 1960

FacevaIue{g|S«„Pji«
.Redemption' and maturity valiie.

Period of time bond is lield after issue dato

}i year
1 year
IK years..
2 years
2Kyeai-s
Syears
3K y e a r s . . . .
4yeai-s
'.
4K years
Syears
5K years
6 years
6K years
7 years.
7K years
._
Syears.
8K years
:
9 years
9Kyeai-s
10 years (maturity)

-.'

' . . . . 2 (6/1/60)
i _ _ . . (12/1/60)
(6/1/61)
....(12/1/61)
(6/1/62)
..(12/1/62)
.....(6/1/63)
......(12/1/63)
...(6/1/64)
__.....(12/1/64)
.
(6/1/65)
(12/1/6.5)
(6/1/66)
....(12/1/66)
(6/1/67)
....(12/1/67)
'
(6/1/68)
__.__.(12/1/68)
(0/1/69)
(12/1/69)

Period of time bond is licld after maturity dato

Kyear
'_
(6/1/70)
lyear
...(12/1/70)
IK years
(6/1/71)
2 years
.
(12/1/71)
2K years
(6/1/72)
• 3 years
(12/1/72)
SK years
(6/1/73)
4 years
...(12/1/73)
4K years
(6/1/74)
5 years
...(12/1/74)
5K years...
....(6/1/75)
6 years
'...(12/1/75)
6K'years
L...(6/1/76).
7 years
•...(12/1/76).
•7K years
_..•_...(6/1/77)'
Syears
L..(12/1/77).
8K years
L...(6/1/7S)
9.years
....(12/1/78)
9K years
....(6/1/79)
10 years (extended maturity) " L . . (12/1/79)

$500
500

$1,000
1,000

$5,000
5,000

$10, 000
• Io, 000

(1) Amounts of interest checks for each denomination

$4. 00
7.25
8. 00
10 00
IOOO
10 00
10 00
10 00
10 00
10 00
10 00
1000
10 20
10 20
10 80
10 80
10 80
11.85
11. 85
12.62

$S.'00
14. 50
16. 00
2000
20. 00
20 00
20 00
20 00
20 00
20 00
20 00
20 00
20 40
20 40
21.60
21.60
21.60
23. 70
23. 70
25.24

(2) From issue
date or maturity (3) From each
date to each
interest pa'y-r
interest payment date (a) to
ment dato
maturity
thereafter
Percent

$40 00
72.50
80.00
100.00
100 00
100. 00
100 00
100 00
100 00
100. 00

$80 00
14.5. 0 0
160 00
20a 00
200. 00
200. 00
200. 00

100 00
100 00
102. 00
102. 00
108. 00
108. 00
108. 00
118. 50
118. 50
126. 20

200 00
200 00

200 00
20a 00
200 00
204.
204.
216.
216.
216.
237.
237.
252.

00
00
00
00
00
00
00
40

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
3.67
3.71
3.74
3.77
3.81
3.85
3.90

Percent

' 3. SS
' 3. 95
' 4. 00
34.00
' 4 . 00
' 4. 00
'4.00
'4.00
'4.00
'4.00
' 4 . 00
* 4.41
M. 46
* i. 52
* 4.57
* 4. 63
4.84
4. 89
5.05

EXTENDED MATURITY PERIOD

$10 37
10 37
10 37
10 37
10 37
10 37
10 37
10 37
10 37
10 38
10 38
10 38
10 38
10 38
10 38.
10 38
10 38
10 38
10 38
16.53

$20 75
20 75
20. 75
20 75
20 75
20 75
20 75
20 75
20 -75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75.
33.05

$103.
103.
103.
10.3.
103.
103.
103.
103.
103.
10.3.
103.
103.
103.
10,3.
103.
103.
103.
103.
103.
165.

75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
30

$207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. -50
• 207. 50
207. 50
207. 50
207. 50
207. 50
• 207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
• 207.50
330. 50

4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
"4.25

4.26
4. 26
4.27
4. 28
4. 29
4. 30
4.32
4. 33
4. 35
4.37
4.40
4: 43
4. 48
4. 54
4. 62
4. 74
4.95
.5. 36
6.61

• At all times, except that bond was not redeemable during first 6 months.
"•
2 Month, day, and year on which interest check is payable on issues of December 1,1950. For subsequent issue months add the appropriate number of months.
» Yield on face value from each interest payment dato to maturity based on the schedule of interest checks prior to the December 1,1965, revision.
« Yield on face value from each interest payment date to raaturity based on the schedule of interest checks prior to the June 1,1968, revision.
» 20 years after issue date. Final checks at original and extended niaturity improved by revision of June'l, 1908.
«Yield on purchase price from issue date to extended raaturity is 4.0'! percent.

185

EXHIBITS
TABLE 21
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1, 1960
Face value{L««'3e pHce
Redemption! and maturity value.

Period of time bond is held after issue date

K year
1 year
IK years
2 years
2K y e a r s . . . .
Syears...
3K years..
4 years
4K years
5 years
5K years
6 years...
6Kyeai-s
7 years
7K y e a r s . . . .
Syears...
8K years
9 years
9K years
10 years (maturity)..

^ (12/1/60)
(6/1/61)
.(12/1/61)
(6/1/62)
.(12/1/62)
(6/1/63)
(12/1/63)
..(6/1/64)
(12/1/64)
(6/1/65)
.(12/1/65)
(6/1/66)
..(12/1/66)
..(6/1/67)
(12/1/67)
(6/1/68)
(12/1/68)
(6/1/69)
(12/1/69)
(6/1/70)

Period of time bond is held after maturity dato

Kyear
(12/1/70)
lyear
...(6/1/71)
IK years
.(12/1/71)
2 vears
...(6/1/72)
2K years
(12/1/72)
Syears
(6/1/73)
SK years
(12/1/73)
4 vears
(6/1/74)
4K years
(12/1/74)
5 vears
(6/1/75)'
5K vears
..(12/1/75)
6 years
-(6/1/76)
6K vears
(12/1/76)
7 years
(6/1/77)
7K years...
(12/1/77)
8 vears
..(6/1/78)
8V^ years
(12/1/78)
9 vears..
(6/1/79)
9K years
(12/1/79)
10 years (extended maturity) »
(6/1/80)

$500
500

$1,000
1,000

$5', 000
5, 000

$10,000
lOiOOO

(1) Amounts of interest checks for each denomination

$4.00
7.25
8.00
IOOO
IOOO
IOOO
10.00
10. 00
10.00
IOOO
IOOO
10.20
10 20
10 70
10 70
10 70
10 70
12.05
12.05
13.09

$8. 00
14.50
16.00
20 00
20 00
20.00
20 00
20 00
20 00
20 00
20 00
20 40
20 40
21.40
21.40
21.40
21.40
24. 10
24. 10
26.18

$40 00
72. 50
SO 00
IOO 00
IOO 00
IOO 00
100. 00
100. 00
IOO 00
IOO 00
IOO 00
102. 00
102. 00
107. 00
107. 00
107. 00
107. 00
120. 50
120 50
130. 90

$80.- 00
: 145. 00
160 00
•20O00
20O 00
"200 00
20O 00
20O 00
20O 00
200. 00
20O 00
204. 00
204. 00
214. 00
214. 00
214. 00
214. 00
241. 00
241. 00
261.80

(2) From issue
date or maturity (3) From each
date to each
interest payinterest payment dato (a) to
ment date
raaturity
thereafter
Percent
1.60
2. 25

Percent

3 3. 88
' 3. 95

2. 56
2.91
3. 12
3.26
3.36
3.44.
3.49
3.54
3.58
S. 62
3.65
3.69
3.72
3.75
3.78
3.83
3.87
3.93

3 4.' 00

4.15

4.26
4.26
4.27
4.28
4. 29
4.30
4. 32
4.33
4.35
4. 37
4.40
4.43
4.48
4. 54
4.62
4. 74
4.95
•5.36
6.61

'4. 00
'4.00
'4. 00
'4. 00
' 4: 00
'4. 00
'4. 00
<4. 40
* 4. 44
* 4. 50
* i. 54
< 4. 60
4.78

4. 96
5.03
5.24

EXTENDED MATURITY PERIOD

$10 37
10 37
10 37
10 37
10 37
10 37
" 10 37
10 37
10 37
10 38
10 38
10 38
10 38
10. 38
10.38
10 38
10 38
10 38
10 38
16.53

$20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20.75
20 75
20 75
20. 75
20 75
20.75
20.75
• 20 75
20. 75
20 75
20 75
33.05

$103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
10.3. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
165. 30

$207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207.. 50
207. 50
330. 50

4. 15
4. 154. 15
4. 15

4.
4.
4.
4.

15
15
15
15

4. 15

4. 15
6 4.25

' At all times, except that bond was not redeemable during first 6 raonths.
5 Month, day, and year on which interest check is payable on issues of June 1,1960. For subsequent issue months add the appropriate number of months.
' Yield on face value from each interest payment date to maturity based on the schedule of interest checks prior to the December 1,1965, revision."
< Yield on face value from each interest payment date to maturity based on the schedule of interest checks prior to tho Juno 1,1968, revision.
' 20 years after issue date. Final checks at original and extended maturity.improved by revision of June 1,1968,
' Yield on purchase price from issuo date to extended maturity is 4.05 percent.

186

19 69 REPORT OF THE SECRETARY OF THE TREASURY
TABLE 22
B O N D S B E A R I N G I S S U E D A T E S F R O M D E C E M B E R Iv 1960, T H R O U G H M A Y 1, 1961

^ ^ " .® . p r. i c e . _,
IF' aa cc ee vv aa ll uu epr/ 'j>
R e d e m p t i o n ' a n d m a t u r i t y value.

Period of time bond is held after issue date

Kyear.
1 year
IK years
2 years
2K y e a r s
3 years
3K ycai-s
4 years
4K y e a r s
5 years
5K y e a r s
6 vears
e y years
7 years
7><; y e a r s
Syears
SK y e a r s
Oyears
9K y e a r s
10 y e a r s (maturity)

'(6/1/61)
.(12/1/61)
(6/1/62)
...J...(12/1/62)
(6/1/63)
....(12/1/03)
(6/1/64)
....(12/1/64)
.(6/1/65)
....(12/1/65)
(0/1/66)
(12/1/66)
(G/1/67)
(12/1/67)
(6/1/6S)
...(12/1/G8)
(6/1/69)
...(12/1/69)
.....(6/1/70)
...(12/1/70)

Period of time bond is held after maturity date

Kyear
..L...(6/1/71)
lyear
IL..(12/1/71)
iKyeai-s
.....(6/1/72)
2 years
....(12/1/72)
2K y e a r s
.....(6/1/73)
Syears
...(12/1/73)
3>2 y e a r s
(6/1/74)
4 years
(12/1/74)
4K y e a r s .
(6/1 /75)
Syears
(12/1/75)
5K y e a r s
(6/1/76)
0 vears
(12/1/76)
0}1 y e a r s
(6/1/77)
7 years
...(12/1/77)
7>^2 y e a r s . .
....(6/1/7S)
Syears
(12/1/78)
SK y e a r s
....(6/1/79)
9 years
....(12/1/79)
9K y e a r s
....(6/1/SO)
10 y e a r s ( e x t e n d e d m a t u r i t y ) s . . . . ( 1 2 / 1 / 8 0 )

$500
500

$i,ooa
1,000

$5,000
5 , 000

$10,000
10, 000

(1) Amounts of interest checks for each denomination

$4. 00
7. 25
8.00
IOOO
1 0 00
IOOO
IOOO
IOOO
IOOO
1 0 00
1 0 20
1 0 20
1 0 20
11.00
11. 00
11.00
11.00
11. 95
11. 95
13.27

$8.00
14. 50
16.00
2 0 00
2 0 00
2 0 00
2 0 00
2 0 00
2 0 00
2 0 00
20. 40
2 0 40
2 0 40
22. 00
22. 00
22. 00
22. 00
23. 90
23. 90
20.54

$ 4 0 00
72.50
SO 00
100. 00
IOO 00
IOO 00
IOO 00
IOO 00
IOO 00
IOO 00
102. 00
102. 00
102. 00
1 1 0 00
1 1 0 00
1 1 0 00

n o 00
119. 50
119. 50
132.70

SSO. 00
145. 00
160. 00
20O 00
20O 00

2oa 00
200. 00
200. 00
20O 00
20O 00
204. 00
204. 00
204. 00
220 00
220 00
220 00
220 00
239. 00
239. 00
205. 40

(2) From issue
date or maturity (3) From each
date to each.
interest payInterest payment date (a) to
raent dato
maturity
thereafter
Percent
1. 60
2. 25
2.56

2. 91
3. 12
3.26
3.36
3.44
3.49
3.54
3. 5S
3. 62
3.65
3.70
3.74
3. 7S
3. Sl
3.85
3.89
3.95

Percent
' 3. 88
'3.95
'4.00
'4.00
'4.00
'4.00
'4.00
' 4 . 00
' 4. GO
,"4.40
* 4. 44
* 4. 49
* 4.56
* 4. 5 8
4.72
4.81
4.95
5.04
5.31

EXTENDED .MATURITY PERIOD

$ 1 0 37
1 0 37
1 0 37
1 0 37
1 0 37
10.37
1 0 37
1 0 37
1 0 37
1 0 38
1 0 38
10. 38
1 0 38
1 0 38
1 0 38
1 0 38
1 0 38
1 0 38
1 0 38
16.53

$ 2 0 75
2 0 75
2 0 75
2 0 75
2 0 75
2 0 75
20.75
20. 75
2 0 75
2 0 75
2 0 75
2 0 75
2 0 75
2 0 75
2 0 75
2 0 75
2 0 75
2 0 75
2 0 75
33.05

$103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103.75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 7 5
103. 75
103. 75
103. 75
103. 75
165.30

$207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
330.

50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50

4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
"4.25

4; 26
4.26
4.27
4.28
4. 29
4. .30
4.32
4.33
4.35
4. 37
4.40
4.43
4.48
4.54
4. 62
4. 74
4.95
5.36
6.61

1 At all times, except that bond was not redeemable during first 6 months.
' Month, day, and year on which interest check is payable on issues of December 1,1960. For subsequent issue months add tho appropriate number of months.
> Yield on face value from each interest payment dato to maturity based on tho schedule of interest checks prior to the December 1,1965, revision.
« Yield on face value from each interest payment date to maturity based on the schedule of interest checks prior to the Juno 1,1968, revision.
» ?0 years after issue date. Final checks at original and extended matarity Improved by revision of June 1,1968.
« Yield on purchase price from is.sue date to extended maturity is 4.07 percent.
•
'

187

EXHIBITS
TABLE 23
BONDS BEARING ISSUE DATES PROM JUNE 1 THROUGH NOVEMBER 1, 1961
P • I Tissue p r i c e . . . . . '
•
* ace vaiue|jjgjgj^pjjjjjj, ^^^ maturity value.

Period of time bond is held after issue date

K year..
1 year.
IK years....
2 veai-s
2K years
3 years
SK years
4 years
.4
4K years
:
5 vears
5K veai-s
.
Oyears
:
6K years
7 years
7K years
S years
8>'^ years
9 vears.
9K years
10 years (maturity)..

...-....'(12/1/61)
(6/1/62)
(12/1/62)
(6/1/63)
..(12/1/63)
..(6/1/64)
(12/1/64)
(6/1/65)
(12/1/65)
.(6/1/66)
(12/1/6G)
(6/1/67)
(12/1/67)
(6/1/68)
...(12/1/68)
-...(6/1/69)
(12/1/69)
(6/1/70)
i(12/l/70)
..(0/1/71)

Period of time bond is held after maturity date.

Kyear
-(12/1/71)
1 vear.
.:
.
(6/1/72)
IK years
.
.....(12/1/72)
2 years
....(6/1/73)
2K years
(12/1/73)
3 vears
(6/1/74)
SK years
'
(12/1/74)
4 vears
.
(6/1/75)
4>"^ years
(12/1/75)
.5 vears
(6/1/76)
5K years
.
(12/1/76)
6 years
(6/1/77)
e!!^ years
(12/1/77)
7 vears
(6/1/7S)
7K years
(12/1/78)
8 vears
(6/1/79)
8>< y e a r s . . . .
(12/1/79).
9 vears
(6/1/80)
9K years
(12/1/80)
10 years (extended maturity)^
(6/1/81)

$500
500

$1,000
1,000

$5,000
5,000,

$10,000
10, 000

(1) Amounts of interest checks for each denomination

$4.00
7. 25
8.00
10 00
IOOO
IOOO
IOOO
IOOO
IOOO
10.20
10 20
10 20
10 85
10.85
10 85
11. 35
11.35
11. 35
12. 15
13.75

$8.00
14. 50
16.00
20. 00
20 00
20 00
20 00
20 00'
20 00
20 40
20 40
20 40
21.70
21.70
21. 70
22. 70
22. 70
22. 70
24. 30
27.50

$40 00
72. 50
SO 00
IOO 00
IOO 00
100. 00
IOO 00
IOO 00
IOO 00
102. 00
102. 00
102. 00
108. 50
108. 50
108. 50
113. 50
113. 50
113.50
121. 50
. 137. 50

$80. 00
145. 00
160. 00
200. 00
200. 00
20O 00
20O 00
200. 00
20O 00
204. 00
204. 00
204. 00
217. 00
217. 00
217. 00
227. 00
227. 00
227. 00
243. 00
275. 00

(2) From issuo
date or maturity (3) From each
dato to each
interest payinterest payment date (a) to
ment dato
maturity
thereafter

Percent
1.60
2.25
2.56
2.91
3. 12
3. 26
3.36
3.44
3.49
3.55
3.59
3.63
3.68
3.72
3.75
3.80
3.83
3.87
3.91
3.97

Percent
'3.88
'3.95
'4.00
' 4. 00
'4.00
'4.00
'4.00
'4.00
M . 40
M . 44
* 4.48
* 4.54
M. 57
4.71
4.79
.4.85
4. 96
5. 18
5.50

EXTENDED MATURITY PERIOD

$10 37
10 37
10 37
10 37
10 37
10 37
10 37
10 37
10 37
10 38
10 38
10 38
10 38
10 38
10 38
10 38
10 38
10 38
10 38
10:53

$20 75
20 75
. 20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
20 75
33.05

$103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
165.

75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
30

$207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
' 207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
330. 50

4. 15

4. 15
4. 15
4. 15
4. 15

4. 15
4. 15
15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15

4.
4.
4.
4.
4.

15
15
15
15
15

• 4. 26
4.26
4.27
4.28
4.29
• 4.30
4. 32
4.33
4.35
4.37
4. 40
4.43
4.48
4. 54
4.62
4.74
4.95
5.36
6.61

6 4.25

• At all times, except that bond was not redeemable during first 6 months.
'Month, day, and year onwhich interest check is payable on issues of June 1,1961. For subse uent issue months add the appropriate number of months
• Yield on face value from each interest payment date to maturity based on the schedule of interest checks prior to the December 1, 1965, revision.
• Yield on^faco value from each interest payment dato to maturity based on the schedule of interest checks prior to the June 1, 1968, revision.
» 20 years after Issue date". Final checks at original and extended maturity improved by revision of June 1,1968.
« Yield on purchase price from issue date to extended maturity is 4.08 percent.

363-222—70-

-14

188

19 69 REPORT OF THE SECRETARY OF THE TREASURY
TABLE 24
BONDS BEARING ISSUE DAT^S. FROM DECEMBER 1, 1961,' THROUGH MAY 1, 1962

^"«—teeX^S
Redemption' and maturity valu6_
Period of time bond is held after issue date

K-year
1 year..
IK years
2 years
2K years...
Syears
SK years
4 years...
4K years
5. years
5K years
6 years
6K years
7 years
7K years
Syears
8K years
Oyears
9K y e a r s . . .
10 years (maturity)

-M6/1/62)
. . . . L (12/1/62)
u..(6/1/63)
...^(12/1/63)
._(6/l/64)
..(12/1/64)
..^..(6/1/65)
J.(12/1/65)
:....(6/1/66)
(12/1/66)
...(6/1/07)
J.(12/1/67)
...(6/1/68)
..(12/1/68)
...(6/1/69)
^.(12/1/69)
-....(6/1/70)
.-.(12/1/70)
-^..(6/1/71)
1.(12/1/71)

Period of time bond is held after maturity dato

Kyear
...(6/1/72)
lyear
.-(12/1/72)
IK years
....(6/1/73)
2 years
.........•.-.(12/1/73)
2K y e a r s . . . .
...i..(6/1/74)
Syears...^.(12/1/74)
3K years
_.!I..(6/1/75)
4 years
J.(12/l/75)
4K-years
...(6/1/76)
Syears
..(12/1/76)
5K years
J..(6/1/77)
6 years......(12/1/77)
•oKyear^
...(6/1/78)
7 years
,.(12/1/78)
7K years
...(6/1/79)
Syears
,.(12/1/79)
SK years
..-..-(6/1/80)
9.years
....,.(12/1/80)
9K years
. . J . . (6/1/81)
10 years (extended maturity) 5....(12/1/81)

$500 I
50a

$1,000
1,000

$5,000
5,000

$10;000
10,000

(1) Amounts of iiiterest cliecks for each denomina'tloh

$4.00
7. 25
8.00
10.00
IOOO
10.00
IOOO
10.00
10.20
10 20
l a 20
10 75
10.75
10. 75
11. 25
11. 25
11. 25
12.00
12.00
13.89

$8.00
14.50
16.00
20.00
20.00
20.00
2 0 00
20.00
20.40
20.40
20. 40
21.50
21.50
21.50
22.50
22. 50
22. 50
24.00
24.00
27.78

$40 00
72. 50
80. 00
100. 00
IOO 00
100. 00
100. 00

loa 00
102.
102.
102.
107.
107.
107.
112.
112.
112.
120.
120.
138.

00
00
00
50
50
50
5050
50
00
0090

$80 00
145. 00
160. 00
200. 00
200; 00
200. 00
200. 00
200. 00
204; 00
204; 00
204. 00.
215; 00
215; 00
215. 00
225; 00
225. OO
225; OO
240. 00240. 00

277. sa

Approxlraate investment yield on face value

(2) From issue
date or maturity (3) From each
date to each
interest payInterest payment date (a) to
ment date
inaturity
thereafter
Percent
1.60
2.25
2.56
2.91
3. 12
3.26
3.36
S. 44
3.50
3.56
3.60
3.65
3.69S. 7 3
•3.78
•3.82
3.-85
3.89
•S. 9 3
4.00

Percent
'3.88
'3.95
3 4.00
'4.00
'4.00
'4.00
'4.00
* 4 . 40
*4. 43
* 4. 4 7 .
* i . 52
«4. 55
•4. 69
4.76
4.82
•4.90
5.05
5. 17
5.56

.EXTENDED MATURITY PERIOD

$10. 37
10. 37
10.37
10.37
10.37
10.37
10.37
10 37
10 37
10. 38
10 38
10 38
10 38
10 38
10. 38
10 38
10.38
10 38
10.38
16.53

$20. 75
20. 7i5
20 75
20.75
20. 75
20.75
20. 7i5
20 75
20 75
20 75
20.75
20 75
20 75
20 75
20. 75
20.75
20. 75
20.75
20. 7533.05

$103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103.75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
165. 30

$207. 50207; 50207.-50
207. 50
207. 60
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 60
207. 50
207. 50

' 207. 50
207. 50
330.50

•4.15•4.154. 154.-154.154.-154.-15.
4. 15
4. 154.15
4.15
4. 15
4. 154. 15
4. 15
4. 15
4. 15
4. 15
4 15

4.26
4.26
4.27
4.28
4.29
4.30
•4.32
4.33
4.35
"4. 3 7 .
"4.40
4.43
4.48
•4.64
4.62
4.74
4.95
6.36
6.61

6 4.25

> At all times, except that bond was not redoemable during first 6 months.
»Month, day, and year on which interest check is payable on issiies of December 1,1901. For subsequent issue montlis add the appropriate number of months;
• 'Yield on face value from each Iriterest paynient date to maturity based on the schedule of Interest checks prior to tho December.l, 1965, revisio"
• Yield on face value from each intercst'payment date to raaturity basied on the schedule of interest checks.prior td the June 1,1063, revision.
«20 years after issue date. Final checks at original and extended maturity improved by revision of June 1,1968. "
• Yield on purchase price frora issue ddte to extended maturity is 4.10 percent.

189

EXHIBITS
TABLE 25
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1, 1962

maturity value.

Period of time bond is held after is§ue date

K year
1 year
IK years
2 years
2K years
Syears
SK years
4 years
4K years
5 years....
.-5K years...6 years
6K years..-7 years
7K years
Syears
8K years
9 years
9K years
10 years (maturity)

» (12/1/62)
(6/1/63)
(12/1/63)
(6/1/64)
(12/1/64)
(6/1/65)
(12/1/65)
^-(6/1/66)
(12/1/66)
(6/1/67)
(12/1/67)
(6/1/68)
(12/1/68)
(6/1/69)
(12/1/69)
---(6/1/70)
(12/1/70)
--.(6/1/71)
(12/1/71)
(6/1/72)

Period of time bond Is held after maturity date

Kyear
^-(12/1/72)
lyear
(6/1/73)
IK years
(12/1/73)
2 years
(6/1/74)
2K years..
.--(12/1/74)
Syears
_
--(6/1/75)
SK years
(12/1/75)"
4 years
(6/1/76)
4K years—
(12/1/76)
5 years. —
(6/1/77)
5K years
(12/1/77)
6 years
(6/1/78)
6K years—
-..(12/1/78)
7 years
(6/1/79)
7K y e a r s . . . . (12/1/79)
• 8 years
(6/1/80)
8K years
(12/1/80)
Oyears..
(6/1/81)
9K years
— .(12/1/81)
10 years (extended maturity) »
(6/1/82)

$500
500

$1,000
1,000

$5,000
5,000

$10,000
10,000
(2) From issue
date or maturity (3) From each
date to each
interest payInterest pay- ment date (a) to
ment date
maturity
thereafter

(1) Amounts of interest checks for each denomination

$4.00
7.25
8.00

laoo
laoo
laoo
laoo

ia20
10 20
10 20
ia65

laes

ia65
11. 25
11. 25
11.25
11. 25
12.05
12.05
14.23

$8.00
14. 50
16.00
2 0 00
2 0 00
2a 00

$40 00
72.50

2a 00

saoo
loa 00
loa 00
loa 00
loa 00

2 0 40
2 0 40
2a 40
21.30
21.30
21.30
22. 50
22. 50
22. 50
22. 50
24. 10
24. 10
28.46

102. 00
102. 00
102. 00
106. 50
106. 50
106. 50
112. 50
112. 50
112. 50
112. 50
12a 50
12a 50
142. 30

$8a 00
145.00
16a 00
2oa 00
2oa 00
2oa 00
2oa 00
204.
204.
204.
213.
213.
213.
225.
225.
225.
225.
241.
241.
284.

00
00
00
00
00
00
00
00
00
00
00
00
60

Percent
1.60
2.25
2.56
2.91
S. 12
3.26
S. 36
3.45
31 51
3.66
S. 62
3.67
3.71
3.76
3.80
3.84
3.87
3.91
3.95
4.02

Percent
' 3. 88
' 3 . 9§
'4.00
'4.00
'4.00
'4.00
* 4. '40
< 4 . 43
*i. i?
*4.51
* 4. 54
4. 68
4.75
4. 79
4.85
4. 95
5. 10
5.25
5. 69

4.15

4.26
4.26
4. 27
4.28
4.29
4.30
4.32
4.33
4. 35
4.37
4.40
4.43
4. 48'.
4.54
4.. 62
4.74
4.95
5.36
a 61

EXTENDED MATURITY PERIOD

$ i a 37
ia37
ia37
ia37
ias7
ias7
l a 37
ia37
ia37
ias8
lass
lass
lass
lass
ia38
lass
ia38
lass
lass
16.53

$20.75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
33. OS

$103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 76
103. 76
103. 75
103. 75
103. 75
103. 75
103. 76
103. 75
103. 75
103. 75
165.30

$207. 50
207. 60
207. 60
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 60
207. 50
207. 50
207. 50
207. 50
207. 60
207. 60
330. 50

4. 15
4. 15
4. 15
4. 15
4.15
4.15
4.15
4.15
4.15
4.15
4. 15
4. 15
4.15
4. 15
4. 15
4. 15
4.15
4. 15
«4.25

. I At all times, except that bond was not redeemable during first C months.
* Month, day, and year on which Interest check Is payable on issues of June 1,1962. For subsequent issue months add tho appropriate number of months.
• Yield on face value from each Interest payment dato to maturity based on the schedule of Interest checks prior to the December 1,1965, revision.
* Yield on face value from each interest payment dato to maturity based on the schedule of interest checks prior to the June 1,1968, revision.
» 2C years after issue date. Final checks at original and extended maturity improved by revision of June 1,1968.
• Yield on purchase price from issue date to extended maturity is 4.11 percent.

190

REPORT OF T H E SECRETARY OF T H E TREASURY
TABLE 26
BONDS BEARING ISSUE DATES FROM DECEMBER 1, 1962, THROUGH MAY 1, 1963

Face value/'^^"® P"*^®
\Redemption' and maturity value.
Period of time bond is held after issiie date

Kyear
1 year
. IK years
1.
2 years
2K years
3 years..
SK years
4 years.
4K years
Syears
5K years
6 years
6K years
7 years
7K years
Syears
SK years
9 years
9K years
10 years (maturity)

J . : . . . 2 (6/1/63)
.(12/1/63)
....(6/1/64)
......(12/1/64)
(6/1/65)
(12/1/65)
...(6/1/66)
,.(12/1/66)
...(6/1/67)
..(12/1/67)
...(6/1/68)
.(12/1/68)
..(6/1/69)
.(12/1/69)
.....(6/1/70)
.(12/1/70)
(6/1/71)
...'
(12/1/71)
(6/1/72)
(12/1/72)

Period of time bond is held after maturity date
Kyear
1 year
IK years

.:...

.-(6/1/73)
.(12/1/73)
i...!..(6/1/74)

2 years

2K years
Syears
SK years
4 years
4K years
5 years
5K years
6 years
6K years
7 years
7K years

.L(12/1/74)

'.....
,
'

..(6/1/75)
:L(r2/l/75)
1 , . (6/1/76)
.'.(12/1/76)
..!..(6/1/77)
1.(12/1/77)
...(6/1/78)
......(12/1/78)
.-(6/1/79)
-(12/1/79)
-.(6/1/80)

Syears

-L(12/1/80)

8K years:

.;..(6/1/81)

Oyears

IL(12/1/81)

9K years
--(6/1/82)
10 years (extended maturity)'....(12/1/82)

$500
500

$1,000
1,000

$5,000
5,000

$10,000
10,000

(1) Amounts of interest checks for each denomination

$4.00
7.25
S.OO

laoo
laoo
laoo
ia2o
ia2o
ia2o
laoo

10 60
10 60.
11. 15
11. 15
11. 15
11. 15
11. 95
11. 95
11.95
14.43

$8.00
14. 50
16.00
2000
20 00
20 00
2a 40
20 40
20. 40
21. 20
21. 20
21. 20
22. 30
22.30
22. 30
22.30
23.90
23.90
23.90
28.86

i$4a.00
72.50
SO.' 00
100 00
l o a 00

$80 00
145. 00
160 00
20a 00

10a 00
102. 00
102. 00
102. 00
106. 00
106. 00
106. 00
111.50
111.50
111. 50
111. 50
119. 50
119; 50
119. 50
144.30

223; 00

20a 00
20a 00
204. 00
204. 00
204. 00
212. 00
212. 00
212. 00
223. 00
223. 00
223. 00
239. 00
239; 00
239. 00
288. 60

(2) From issuo
date or maturity (3) From each
. date to each
interest payinterest payment date (a) to
ment date
maturity
thereafter

Percent
1.60
2.25
2.56
2. 91
3. 12
3.26
3.37
3.45
3.52
3.58
3.64
3.68
3.74
3.78
3.82
3.85
3.90
3.94
3.98
4.05

Percent
' 3; 88
' 3. 95
'4.00
» 4.00
'4.00
" * 4. 40
* 4. 43
< 4. 46
* i. 50
* 4. 53
4.67
4.73
4.77
4. 82
4.90
5. 02
5. 10
5. 27
5.77

4.15
4.15
4.15
4.15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4.15
4.154. 15
4.15
4.15
4.15
4.15
4.15
4.15
64.25

4.26
4.26
4.27
4. 28
4. 29
4.30
4.32
4. 33
4. 35
4.37
4. 40
4.43
•4. 48
4.54
4.62
4.74
4.95
5.36
6.61

EXTENDED MATURITY PERtOD
$10 37
l a 37
ia37
l a 37
ia37
l a 37
ia37
ia37
ia37

lass

l a 38

lass
lass
l a 38
lass
lass
ias8
lass
lass
16.53

$2a
2a
2a
2a
2a
2a
2a
2a
2a
2a
2a
2a
2a
2a
2a
2a
2a
2a
2a

75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75

33.05

$103. 75
103. 75
103. 75
103. 75
103. 75
1031 75
. 103. 75
103. 75
103. 75
103.75
103.75
. 103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
• 103.75
• 103.75
165. 30

$207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207.50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
330.50

' At all times, except that bond was not redeemable during first 0 months.
»Month, day, and year on which interest chock is payable on issues of December 1,1962. For subsequent issue months add thc appropriate number of months.
' Yield on faco value from each interest payment date to maturity based on the schedule of interest checks prior to the December 1,1965, revision.* Yield on face value frora each interest payment date to maturity based on thc schedule of interest checks prior to the Juno 1,1968, revision.
» 20 years after issue date. Final checks at original and extended maturity improved by revision of Juno 1,1968.
• Yield on purchase price from issue date to extended maturity is 4.13 percent.

191

EXHIBITS
TABLE 27
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1, 1963
Facevalue{{ff,\«J?S
Redemption >^ and maturity value.

Period of time bond is held after issue date

• K year
•1 year
IK years
2 years
• 2K years
. 3 years...
SK years
4 years
4K years
5 years...
. 5K years
• 6 years
.. 6K years
• 7 years
,7K, years
8 years
_
SK. years
9 years
9K years
10 years (maturity)

;.
,

:_..

^ (12/1/63)
(6/1/64)
(12/1/64)
(6/1/65)
(12/1/65)
(6/1/66)
(12/1/66)
.(6/1/67)
(12/1/67)
(6/1/68)
(12/1/68)
(6/1/69)
'..(12/1/69)
(6/1/70)
-(12/1/70)
(6/1/71)
(12/1/71)
-.(6/1/72)
..-(12/1/72)
(6/1/73)

Period of time bond is held after maturity date
Kyear
(12/1/73)
• 1 year
.(6/1/74)
.IK years
.(12/1/74)
2 years
(6/1/75)
2K years
........(12/1/75)
Syears
(6/1/76)
"SK years
..-.
..
(12/1/76)
4 vears
(6/1/77)
4K years
(12/1/77)
5 y.ears
(6/1/78)
•5Kyears
.
(12/1/78)
•6 y.ears
•
(6/1/79)
.6K-years
(12/1/79)
7 years
'
(6/1/80)
7K years
..,(12/1/80)
Syears
...(6/1/81)
. SK years
^
,
(12/1/81)
9. years
•
(6/1/82)'
9K y e a r s . . . . . . .
,(12/1/82)
10 years (extended maturity)*
(6/1/83)

$500
500

$1,000
1, 000

$5, 000
5,000

$10,000
10,000

(1) Amounts of.intcrest checks for eacli denomination

$4.00
7.25
8.00
IOOO
10 00
10 20
10 20
10 20
ia55
ia55
ia55
11.10
11.10
11. 10
11.10
11.10
12. 05
12.05
12.05
14.84

$8.00
14.50
16.00
2a 00
20 00
20 40
20 40
20 40
21.10
21. 10
21. 10
22.20
22.20
22.20
22.20
22.20
24. 10
24. 10
24.10
29.68

$40 00
72. 50
80 00
lOa 00
l o a 00
102. 00
102. 00
102. 00
105. 50
105. 50
105. 50
111. 00
111.00
111.00
111.00
111.00
120 50.
120 50
120 50.
148. 40

$8a 00
145. 00

16a 00
2oa 00
2oa 00
204. 00
204. 00
204.00
211. 00
211. 00
211. 00
222. 00
222. 00
222. 00
222. 00
222; 00
241. 00
241. 00
241. 00
296. 80

(2) From issue
date or maturity (3) From each
interest paydate to each
ment date (a) to
Interest paymaturity
ment date
thereafter

Percent
1.60
2. 25
2.56
2. 91
3. 12
3.27
3.38
3.46
3. 54
3.60
3.65
3. 71
3. 76
3.80
3.84
3.87
3.92
3.96
4.00
4.08

Percent
' 3 . 88
' 3. 95
' 4. 00
' 4 . 00
* 4. 40
* 4.43
* 4. 46
* 4. 49
* 4. 52
4.66
4. 71
4. 75
4.80
4.86
4. 95
5.09
5. 18
5. 37
6.94

EXTENDED MATURITY PERIOD
$10 37
10 37
10 37
10 37.
10 37
10 37
l a 37
ias7
l a 37

lass
l a 38
lass
lass
lass
lass
lass
lass
lass
lass

$2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
20 75
20 75.
33.05

$103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
165.

75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
30

$207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207; 50
207. 50
207. 50
207. 50
207. 50
207. 50
207.50
207. 50
330. 50

4.15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4.15
4. 15
4. 15
4. 15
4.' 15
4.15
4. 15
4.15
4. 15
6 4.'25

4.26
4. 26
4.27
4. 28
4. 29
4.30
4. 32
4.33
4.35
4.37
4. 40
4. 43
4. 48
4. 54
4.62
4. 74
4.95
5.36

a 61

16.53

> At all tiraes, except that bond was not redeemable during flrst 6 months. •
'Month, day, and year on which interest check Is payable on issuesof June 1,1963. For subsequent issuo months add the appropriate number of months.
' Yield on face value from each interest payment date to maturity based on tho schedule of interest checks prior to the December 1,1965, revision.
* Yield on face value from each interest payment date to maturity based on the schedule of interest checks prior to tlie Juno 1,1968, revision.
' 20 years after issue date'. Final checks at original and extended raaturity improved by revision of Juno 1,1968.
• Yield on purchase price frora issue date to extended riiaturity is 4.15 percent. •

192

19 69 REPORT OF THE SECRETARY OF THE TREASURY
TABLE 28
BONDS BEARING ISSUE DATES PROM DECEMBER 1, 1963, THROUGH MAY 1, 1964

F a c e v a l Redemption
u e t e ' S f » and maturity value.

Period of time bond is held after issue dato

Kyear

1 year...
IK years
2 years—
2K years
Syears
SK years
4 years.4K years
5 years
5K years
6 years
6K years
.7 years
7K years
Syears
SK years
9 years
9K years
10 years (maturity).

-2(6/1/64)

...(12/1/64)
...(6/1/65)
.(12/1/65)
...(6/1/66)
..(12/1/66)
(6/1/67)
....(12/1/67)
..(6/1/68)
...(12/1/68)
(6/1/69)
(12/1/69)
...(6/1/70)
(12/1/70)
.".,(6/1/71)
.(12/1/71)
.......(6/1/72)
(12/1/72)
.
...(6/1/73)
.....(12/1/73)

Period of time bond is held after niaturity dato

Kyear
....(6/1/74)
1 year
..(12/1/74)
IK years
..-......(6/1/75)
2 years.(12/1/75)
2K years
(6/1/76)
Syears
..(12/1/76)
3K years
...(6/1/77)
4 years
..(12/1/77)
4K years
-..(6/1/78)
5 years
(12/1/78)
5K years
i..(6/1/79)
6 years
(12/1/79)
6K years
-.(6/1/80)
7 years
..(12/1/80)
7K years
...(6/1/81)
Syears.-....(12/1/81)
SK y e a r s . . — . —
......(6/1/82)
9 years
—
•.....-(12/1/82)
9K y e a r s - . . .
.....-.(6/1/83)
10 years (extended maturity) 5—1.(12/1/83)

$500
500

$1,000
1,000

$ 5 , 000
5,000

$10, 000
10, 0 0 0

(1) Amounts of interest checks for each denomination

$4.00
7.25
8.00

laoo
10 20
10 20
10 20
ia.20
10 75
l a 75
ia75
ia75
11.25
11. 25
11. 25
11.25
12.10
12. 10
12.10
15.21

$8.00
14.50
16.00
2a 00
20 40
20 40
20 40
2a 40
21. 50
21.50
21.50
21. .50
22. 50
22. 50
22. 50
22. 50
24. 20
24.20
24.20
30.42

$4a 00
72. 50

$8a 00

102.
102.
102.
102.
107.
107.
107.
107.
112.
112.
112.
112.
121.
121.
121.
152.

204. 00
204. 00
204. 00
204. 00
215. 00
215. 00
215. 00
21.5.00
225. 00
225. 00
225. 00
22.5. 00
242. 00
242. 00
242. 00
304.20

saoo
loa 00

00
00
00
00
50
50
.50
.50
50
.50
50
50
00
00
00
10

145. 00

16a 00
2oa 00

(2) From issue
date or maturity (3) From each
interest paydate to each
ment date (a) to
Interest paymaturity
ment date
thereafter

Percent
1.60
2.25
2.56
2. 91
S. 14
3.29
• 3.39
3.47
3.56
3.63
3.68
3.73
3.78
3.83
3.86
3.90
3.94
3.99
4.02
4.11

Percent

'3.88
' 3. 95
'4.00
•4.40
*4. 43
M. 46
«4. 49
«4. 53
4. .65
4.69
4.74
4.80
4.85
4.92
5.01
5.14
5.24
5.45
6.08

EXTENDED M.A.TURITY PERIOD

$ i a 37
ia37
l a 37
l a 37
ia37
l a 37
ia37
ia37
ia37
lass
lass
lass
l a 38
lass
lass
lass
lass
lass
lass
16.63

$2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
20 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
33.05

$103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
165.

75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
30

$207.50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
207. 50
330. 50

4.15

4. 15
4.15
4.15
4.15
4. 15
4. 15
4. 15
4.15
4. 15
4.15
4.15
4. 15
4. 15
4. 15
4.15
4. 15
4. 15
4. 15

4.26
4.26
4.27
4.28
.4. 29
4.30
4.32
4.33
4.35
4.37
4.40
4.43
4.48
4.54
4.62
4.74
4.95
5.36
6.61

«4. 25

> At all times, except that bond was not redeemable during first 6 months.
»Month, day, and year on which interest check is payable on issues of December 1,1963. For subsequent issue months add the appropriate number of moaths.
• Yield on face value from each interest payment date to maturity based on tho schedule of interest chocks prior to the December 1,1965, revision. '
• Yield on face value from each interest payment date to maturity based on tho schedule of Interest checks prior to the June 1,1908, revisioa.
' 20 years after Issue date. Final checks at original and extended maturity improved by revision of June 1,1908.
• Yield on purchase price from issue dato to extended maturity is 4.10 percent.

193

EXHIBITS
TABLE 29
B O N D S B E A R I N G I S S U E D A T E S F R O M J U N E 1 T H R O U G H N O V E M B E R 1, 1964

'—»"-teSir

Redemption' and maturity value.

Period of time bond Is held after Issue dato

K year.
1 year
IK y e a r s . . . 2 years
2K y e a r s
Syears
SK y e a r s
4 years
4K y e a r s
5 vears
5K y e a r s
6 vears
OK y e a r s
7 vears...
7K y e a r s
8 years
8K years
9 years..
9K y e a r s
10 y e a r s ( m a t u r i t y )

' (12/1/64)
(6/1/65)
(12/1/65)
-(6/1/66)
(12/1/66)
(6/1/67)
..(12/1/67)
(6/1/68)
.(12/1/68)
(6/1/69)
(12/1/69)
(6/1/70)
(12/1/70)
(6/1/71)
..(12/1/71)
(6/1/72)
(12/1/72)
(6/1/73)
(12/1/73)
(6/1/74)

Jl'criod of time bond is held afler maturity date

Kvear.
..(12/1/74)
1 ye.ar
(6/1/75)
IK years..
-(12/1/75)
2 years
...(6/1/76)
2K veai-s
(12/1/76)
3 vears
..(6/1/77)
3K y e a r s
(12/1/77)
4 years
(6/1/78)
4Kyeai-s
(12/1/78)
Syears
(6/1/79)
5K y e a r s
(12/1/79)
6 veans
(0/1/80)
6K v e a r s
:..(12/1/80)
7 vears
(6/1/81)
7K y e a r s . . . (12/1/81)
Syears
(6/1/82)
SK v e a r s
(12/1/82)
9 vears
(6/1/83)
9K v e a r s
(12/1/83)
10 y e a r s ( e x t e n d e d m a t u r i t y ) »
(6/1/84)

$500
500

$ 1 , 000
1,000

$ 5 , 000
5,000

$10,000
10,000
(2) From issue
date or maturity (3) From each
date to each
interest payinterest payment date (a) to
ment date
maturity
thereafter

(1) Amounts of interest checks for each denomination

$4. 00
7.25
8.00
ia20
ia20
1 0 20
1 0 20
1 0 70
1 0 70
l a 70
ia70
11. 20
11.20
11. 20
11.20
11.20
12. 15
12. 15
12. 15
15.58

$8.00
14. 50
16.00
2 a 40
2 a 40
2 0 40
2 a 40
21.40
21.40
21.40
21. 40
22. 40
22. 40
22. 4 0
22. 40
22. 40
24. 30
24. .30
24. 30
31.16

$40 00
72. 50

saoo
102. 00
102. 00
102. 00
102. 00
107. 00
107. 00
107. 00
107. 00
112.00
112. 00
112.00
112. 00
112. 00
121. 50
121. 50
121. 50
155. 80

$ 8 a 00
145.00
1 6 a 00
204. 00
204. 00
204. 00
204. 00
214. 00
214. 00
214. 00
214. 00
224. 00
224. 00
224. 00
224. 00
224. 00
243. 00
243. 00
243. 00
311.60

Percent
1.60
2.25
2.56
2.93
3. 15
3. 30
3.41
3. 5 1
3.59
3.65
3.70
3.76
3.81
3.85
3.89
3.92
3.96
4.01
4.04
4.13

Percent
' 3. SS
'3.95
* 4 . 40
* 4.42
* 4. 45
*4. 48
•4.52
4.64
4.68
4.72
4. 78
4.82
4.87
4.94
5.04
5. 19
5.31
5.54
6.23

EXTENDED ^fATURITY PERIOD

$ 1 0 37

ia37
ia37
ia37
ia37
ias7
ia37
la 37
ia37
lass
lass
lass
lass
ias8
lass
lass
lass
lass
lass
16.53

$2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
33.05

$103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
103.
165.

75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
30

$207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
207.
330.

50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50

.15
. 15
. 15
. 15
. 15
. 15
. 15
. 15
. 15
4. 15

4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
6 4.25

4.20
4. 20
4. 27
4.28
4.29
4.30
4.32
4.33
4.35
4.37
4. 40
4.43
4. 48
4.54
4.62
4.74
4. 95
5.36
6.61

' At all times, except that bond was not redeemable during flrst 0 months.
2 Month, day, and year on which interest check is payable on Issues of June 1,1904. For subsequent issue months add the appropriate number of months.
' Yield on face value from each interest payraent date to maturity based on the schedule of interest checks prior to the December 1,1965, revision.
* Yield on face value from each interest payraent date to maturity based on the schedule of Interest checks prior to the June 1,1968, revision.
« 20 years after issue dato. Final checks at original and extended maturity Improved by revision of June 1,1968.
• Yield on purchase price from issue date to extended maturity is 4.18 percent.

194

19 69 REPORT OF THE , SECRETARY OF THE TREASURY
TABLE 30
BONDS BEARING ISSUE DATES FROM DECEMBER 1, 1964, THROUGH MAY 1, 1965

F a c c v a l u eRedemption'
{ g f - r 5 - , - and maturity vaiue.

Period of time bond is held after issue dato

Kyear
1 year
IK years
2 years.
2K years
-.
Syears.
SK years
4years
4K years
Syears...
SK years
•.
Oyears...
6K years
7 years
7K years
Syears...
.SK years
9 years
9K years
-10 years (maturity)

M6/1/65)
(12/1/65)
(6/1/66)
(12/1/66)
1..-(6/1/67)
-(12/1/67)
...(6/1/68)
(12/1/68)
(6/1/69)
..(12/1/69)
(6/1/70)
.....(12/1/70)
...(6/1/71)
..(12/1/71)
.....(6/1/72)
..(12/1/72)
(6/1/73)
..(12/1/73)
(6/1/74)
1..(12/1/74)

Period of time bond is held after maturity date

Kyear
.
....(6/1/75)
lyear
:..(12/1/75)
IK years
.--(6/1/76)
2 years.
„-(12/l/76)
2K years
-...-(6/1/77)
Syears
— _i.-(12/1/77)
SK years
.....(6/1/78)
4 yearsi.:.(12/1/78)
4K years
....L..(6/1/79)
Syears
.....(12/1/79)
SK years
^^..(6/1/80)
Oyears
..(12/1/80)
6K years..
(6/1/81)
7 years.
.1.(12/1/81)
7K years
1 . . (6/1/82)
Syears...
--(12/1/82)
SK years
-.(6/1/83)
Oyears
L-(12/l/83)
9K years
L..(6/1/84)
10 years (extended maturity) s..'..(12/1/84)

$500
500

$1,000
1,006

$5,000
5,000

$10,000
10,000

(1) Amounts of interest checks for each denomination

$4.00
7. 25
8. 20
l a 20
ia20
ia20
laes
ia65
l a 65
l a 65
l a 65
11.35
11. 35
11.35
11.35
11.35
12. 15
12. 15
12. 15
15.91

$8.00
14.50

10 40
2a 40
2a 40
2a 40
21.30
21.30
21.30
21.30
21.30
22. 70
22.70
22.70
22.70
22. 70
24. SO
24.30
24.30
31.82

145. 00
164. 00
204. 00
204. .00
204. 00
213. 00
213. 00
213. 00
213. 00
213. 00
227. 00
227. 00
227. 00
227. 00
227. 00
243. 00
243. 00
243.00
318. 20

Percent
1.60
2.25
2. 59
2.95
S: 17
3.31
3.44
3.54
•3.61
3.67
3.72
3.78
3.83
3.88
3.91
3.95
3.99
4.03
4.07
4.16

$207.50
207. 50
207. 50
207. 50
207. SO
207. 50
207. 50
207. 50
207. 50
207. SO
207. 50
207. SO
207. SO
207. 50
207. 50
207. SO
207. 50
207. SO
207. 50
330. 50

4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
4.-15
4. 15
4. 15
4. 15
4. 15
4. 15
4. 15
8 4.25

$8a 00

$40 00
72. 50
82. 00
102. 00
102. 00
102. 00
106. 50

l o a 50
106. 50
l o a 50
l o a 50
113.
113.
113.
113.
113.
121.
121.
121.
159.

(2) From issuo
dateor maturiiy (3) From each
date to each
interest payinterest payment date (a) to
ment dato
maturity
thereafter

50
SO
50
50
50
SO
50
50
10

Percent

• 3 3. 88
^4.35
* .4. 42
<4. 45
<4.48
<4.'51
4. 63
4.67
4. 71
4. 76
4.83
4.86
.4.92
4.98
5. 08
5. 22
5.35
5; 60
6. 36

EXTENDED MATURITY PERIOD

$ia 37
ias7
ia37
ia37
ia37
ia37
ia37
ia37
la 37
lass
la 38
la 38
lass
lass
lass
lass
lass
ia38
ia38
16.53

$2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
33.05

$103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103.-75
103. 75
103. 75
103. 75
103. 75
103. 75
103.75
165. 30

4.26
4. 26
4.-27
4. 28
4.29
4.30
4.32
4.33
4.35
4.37
4. 40
4. 43
4. 48
4. 54
4.62
4.74
4.95
5.36
a 61

' At all times, except that bond was not redeemable during first 6 months.'
2 Month, day, and year on whicli interest check is payable on i-ssucs of December 1,1964. For subsequent issue raonths add tho appropriate number of months.
> Yield on face value from each interest payment dato to maturity based on thc schedule of interest checks prior to the December 1,1905, revision.
* Yield on face value from each interest payment date to maturity based on tho schedule of interest checks prior to the Juno 1,1968, revision,
' 20 years after issue date. Final checks at original and extended maturity improved by revision of June 1,1968.
» Yield on purchase price from issue dato to extended maturity is 4.20 percent.

195

EXHIBITS
TABLE 31
BONDS BEARING ISSUE DATES PROM JUNE 1 THROUGH NOVEMBER 1, 1965
Face value{}f«Ve Price
Redemption' and maturity value.

Period of time bond is held after issue date

Kyear
1 year
IK years
2 years
2K years.
Syears
3K years
4 years
4K years
5 years
5K years
Oyears...
..._
6K years
7 years
7K years
Syears
SK years
9 years
9K years
10 years (maturity)

2(12/1/65)
(6/1/66)
(12/1/66)
...(6/1/67)
(12/1/67)
(6/1/68)
(12/1/68)
..(6/1/69)
...(12/1/69)
(6/1/70)
(12/1/70)
(6/1/71)
..(12/1/71)
(6/1/72)
...(12/1/72)
(6/1/73)
(12/1/73)
(6/1/74)
(12/1/74)
(6/1/75)

Period of time bond-is held ofter mati-rity dato

Kyear
— (12/1/75)
1 year
(6/1/76)
IK years
(12/1/76)
2 years
•
(6/1/77)
2K years
(12/1/77)
3 years
(6/1/78)
SK years
(12/1/78)
4 years
.
- . . (6/1/79)
4K years
(12/1/79)
5 years...(6/1/80)
SK years
...(12/1/80)
Oyears
(6/1/81)
6K years
..(12/1/81)
7 years
(6/1/82)
7K years
(12/1/82)
Syears
(6/1/83)
8K years
(12/1/S3)
Oyears
(6/1/84)
9K y e a r s . . . . ,
..(12/1/84)
10 years (extended maturity)^
(6/1/85)

$500
500

$5,000
5,000

$10,000
10, 000

(1) Amounts of interest checks for each denomination

$4.00
7.45
8.20
10 20
10 20
10 60
10 60

laoo

10 60
10 60
11.30
11.30
11.30
11.30
11.30
12.05
12.05
12.05
12.05
16.15

$8.00
14.90
10 40
20 40
20 40
21.20
21.20
21.20
21.20
21.20
22. 60
22. 60
22. 60
22.60
22. 60
24.10
24. 10
24. 10
24. 10
32.30

$40 00
74.50
82.00
102.00
102. 00
l o a 00
l o a 00
l o a 00
l o a 00
l o a 00
113.00
l i s . 00
l i s . 00
113. 00
113. 00
120 50
120 50
120 50
120 50
161.50

$80 00
149. 00
164. 00
204. 00
204. 00
212. 00
212. 00
212. 00
212. 00
212. 00
22a 00
22a 00
220 00
22a 00
22a 00
241. 00
241. 00
241. 00
241. 00
323. 00

(2) From issue
date or maturity (3) From each
.date to each
interest payinterest payment date (a) to
ment date
maturity
thereafter
Percent
1.60
2.29
2.61
. 2. 97
3. 18
3. 35
3.47
3.56
3.63
3.69
3.76
3.81
3.86
3.90
3.94
3.98
4.02
. 4.06
4.09
4.19

Percent
' 4. 28
'4.37
' 4. 4 5 '
3 .4. 47
'4.51
4.63
4.66
4.70
4.75
4.81
4.84
4.89
4.95
5.02
5.13
5.21
5.35
5.63
a 46

4.15
4.15
4.15
4.15
4. 15
4.15
4.15
4.15
4.15
4.15
4.15
4. 15
4.15
4.15
4.15
4.15
4.15
4.15
4.15
M.25

4.26
4.26
4.27
4.28
4.29
.4.30
4.32
4.33
4.35
4.37
4.40
4.43
4.48
4.54
4.62
4.74
4.95
5.36.
a 61

EXTENDED MATURITY PERIOD

$10 37
10 37
10 37
10 37
10 37
10 37
10 37
10 37
10.37
. l a 38.

lass
lass
lass
ia3s
lass
lass
ias8
lass
lass

16.53

• At all times, except that bond was not redeemable during first 0 months.

$1,000
.1,000

$2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
2a 75
33.05

$103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
103. 75
165.30

$207. 50
207. 50
207. SO
207. 50
207. 50
207. SO
207. 50
207. 50
207. 50
207. SO
207. 50
207. SO
207. SO
207. 50
207. 50
207. 50
207. 50
207. SO
207. 50
330. 50

196

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Legislation
Exhibit 10.—An act to extend to savings notes the provisions of the Second
Liberty Bond Act relating to the redemption of savings bonds and the payment
of losses incurred iii connection with such redemption
[Public L a w 90-595, 90th Congress, H.R. 15114, October 17, 1968]

Be it enacted by the Senate and House of Representatives of
,
the United States of America in Congress assembled, That the redemption
first sentence of section 22(h) of the Second Liberty Bond Act,
as amended (31 U.S.C. 757c ( h ) ) , is amended by inserting "and 59 Stat. 47.
savings notes" after ''bonds".
SEC. 2. The first sentence of section 22 (i) of the Second Liberty
Bond Act, as amended (31 U.S.C. 757c(i)), is amended by inserting ''and savings notes" after "bonds". The second sentence of
such section is amended by striking out "such bonds," and inserting in lieu thereof "such bonds and notes,".
Approved October 17, 1968.
Exhibit 11.—An act to increase the public debt limit set forth in section 21 of
the Second Liberty Bond Act
[Public L a w 91-8, 91st Congress, H.R. 8508, April 7, 1969]

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, That the
first sentence of section 21 of the Second Liberty Bond Act (31
U.S.C. 757b) is amended by striking out "$358,000,000,000" and
inserting in lieu thereof "$365,000,000,000".
SEC. 2. During the period beginning on the date of the enactnient of this Act audi ending on June 30, 1970, the public debt
limit set forth in the first sentence of section 21 of the Second
Liberty Bond Act shall be temporarily increased by $12,000,000,000. Section 3 of the Act of June 30, 1967 (Fublic Law 90-39;
81 Stat. 99), is repealed.
Approved April 7, 1969.

Public debt
i^^dt^
increase.
81 Stat. 99.
anmm/''''^
increase,

Repeal.
gl U.S C.
T57b-2.

Financial Policy
Exhibit 12.—Statement by Secretary Fowler, September 20, 1968, before the
National Industrial Conference Board, New York, New York, on the
economy
In this closing session permit me to speak in a more direct and personal vein
than usual in availing myself of this last of the pleasant privileges the National
Industrial Conference Board has given me to meet with you In an oflSclal capacity.
Having just turned 60 and in the process of completing my eighth and final
year at the Treasury window, I will demonstrate conclusively that there Is a
generation gap.
Indeed, in many ways, I am proud of it.
I am more than a little sick of hearing that America Is a "sick" society.
I am tired of hearing about what is wrong with our country.
It Is time somebody talked about what is right with the United States.
Let me do my part In the area with Avhich I am most familiar by saying that
the U.S. economy—with its free enterprise system and a working partnership
between business, labor, and Government—is providing more prosperity, more
opportunity, more sharing in abundance, ,more educational and health and
cultural advances, than any society since the world began, and at a much higher
and more sustained pace than ever before in its history.
We must not permit the sustained economic progress on which this is based
to be undermined toy a loss of confidence in ourselves and our country. But that
can happen here if our total emphasis is on racial strife, student revolt and
campus unrest, crime, and dissent over U.S. involvement in the maintenance of
free world security and development.
Of course, these problems exist, like the inflationary pressures today that afflict our current economy. These problems must and are being tackled but we

EXHIBITS

197

should not be deluded Into believing that they reflect some ailment peculiar
to the United States—^^some strange virus that surely will bring our system
down.
Indeed, these tensions are observable over the free world wherever liberty
and opportunity permit the eye to see and ear to hear and the voice to speak
out. They exist even in areas where totalitarian order is maintained by repression and tyranny over the individual.
These tensions exist all over the world where people of different races live
under the same flag or where young people of relative affiuence and opportunity enjoy the heady wine of university life and are confronted with the ageold problem of sorting out liberty from license.
.Where, .since Gain slaughtered his brother Abel, has history recorded a
crime-free society?
Whenever did a country stand up for the rights of others, however far away
or close by, at the cost of some bloody or treasure, that a large group within it
didn't urge ithat, in the words of the parable of the Good Samaritan, "We pass
by on the other side ?"
The principal difference between the United States and most of the rest
of the world, in the perspective of these problems, is that the United States
is tackling racial discrimination, student alienation, and crime—and doing
so within a framework of democracy, justice, and order.
And the U.S. Govemment is subjected to outspoken dissent on foreign ^affairs
for two reasons: first, the nation believes in the right of 'dissent and, second,
the United States is doing its share, with many other nations defaulting, in providing the security from aggression that peoples everywhere thonght was guaranteed under the Charter of the United Nations.
And the United States is doing all this in the broad daylight of a free press
and national TV networks aided by commuhications satellites working hard
to give the world the news about the United States which, under the accepted
definition of news, accentuates conflict rather than accomplishment—what is
wrong rather than what is right.
Consider vrhat Australia's Prime Minister Gorton recently said:
"I wonder if anybody has thought what the situation of comparatively small
nations would be if there were not in existence a United States—with a heritage of
democracy and a willingness to see that small nations who otherwise might not
be able to protect themselves are given some shield. Imagine what the situation
in the world would be if there were not a great and giant country prepared to
make those 'sacrifices."
Let those who advocate a return to isolationism ponder what would have
happened to freedom and self-determination in Westem Europe, in Iran, in
Greece, in Turkey, in Korea, in Leibanon, in Taiwan, in The Congo, in India, in
the IVIiddle East, and in Southeast Asia if United States foreign policy had acceded to the views of dissenters—the neoisolationlsts and those who wonld passively watch Communist totalitarianism roll over freedom and self-determination
at will.
The recognition of these sources of divlsiveness in our society makes it all
the mOire important to emphasize and conserve the blessings we 'share in this
good land which is our heritage.
Before I attempt this emphasis in the field of economic affairs, may I invite
other chroniclers to do the same in cultural affairs, in social welfare, in religious
activities, in private charities, in recreation, and in the youth movements we
used to hear about. That may not be the road to winning a Pulitzer or Nobel prize,
but it can give one the isatisfaction of helping to "tell it like it is."
Conserving that which is good is as important as changing that which is undesirable. Continuity as well as change are essential to constructive economic
life and progressive evolution in political and social affairs.
Against that background let us examine the contours of unparalleled economic progress of recent years, its social side effects, the proven tools that have
been employed, and some necessary projections of these proven policies and
programs in 1969. Otherwise, they may be overcome or lost in the sea of change
or threatened change that characteristically engulfs our commonwealth every
4 years under our constitutional system.
92 months of sustained and adequate economic growth
Some 8 years ago the American economy was sliding into recession—its third
within a span of a half-dozen years. The growth rate had been anemic during

198

19 69 REPORT OF THE SECRETARY OF THE TREASURY

this period, unemployment was trending higher in each recession, and private
Investment incentives were inadequate.
In 1960, in the Report of President Eisenhower's Commission on National
Goals, ai>polnted as a nonpartisan body to set goals for vital areas of our national life, there was the following recommendation on economic growth:
"The economy should grow at the maximum rate consistent with primary dependence upon free enterprise and the avoidance of marked inflation. Increased
investment in the public sector is compatible with this goal.
"Such growth is essential to move toward our goal of full employment, to
provide jobs for the approximately 13,500,000 net new additions to the work
force during the next 10 years; to improve the standard of living; and to assure
U.S. competitive strength.
"Public policies, particularly an overhaul of the tax system, including depreciation allowances, should seek to improve the climate for new Investment
and the balancing of investment with consumption. We should give attention
to policies favoring completely new ventures which Involve a high degree of
risk and growth potential."
The time had come to forge new policies, adapt old ones, and restore the sustained and adequate growth to a U.S. economy that was essential to domestic
progress and our international position.
That task was undertaken by President Kennedy, executed by Presiderit
Johnson, with the support of both political parties in the Congress and the leaders of business, labor and flnance.
The economic malaise of the 1950's is almost forgotten after the 92 months
of sustained and adequate economic growth which has followed. This remarkable achievement has dispoised of the boast of Soviet Premier. Khrushchev that
he would "bury us" economically, the concern over the increasing frequency and
length of recessions and the upward drift in the United States of unemployment,
the technological gap, the educational gap, the gloomy prediction that automation
and technological advances would leave a sizeable proportion of our work
force permanently unemployed. Tliese questions have disappeared in large part
because of the astounding performance of the U.S. economy. In short, while the
American people certainly still face problems, the economic gloom of the Fifties
is not one of them.
True, old social problems have taken on a new urgency as part of a rising tide
of expectations induced by this economic progress. The magnitude of these
problems—and the emotions they sometimes arouse—may seem at times to
obscure the achievements of good economic policies. But we would do well to
recall that the American economy has been, and can continue to be, a mighty
engine of social progress.
The lesson of the 1960's is the enormous difference that public policies can
make in creating an atmosphere within which the private economy can flourish.
Whatever our political persuasion or allegiance, this is a lesson we cannot safely
ignore in meetmg the challenges that lie ahead.
Domestic Economic and Financial Developments
It is hardly necessary to remind this audience that the decade of the 1960's
has been a period of domestic economic advance without parallel in our previous experience. By mld-1965 the current expansion was already the longest
and strongest peacetime expansion on record. Most remarkable of all, it had
been achieved with near stability in costs and prices. A 'stubborn balance of
payments problem which had emerged in 1958 seemed near solution.
After mld-1965 and; the intensification of the Vietnam effort, economic policy
could no longer be determined on the basis of economic considerations alone.
The going ibecame tougher. Still, the economy has weathered a diflacult adjust^
ment with less price t inflation than during earlier defense buildups, without
resort to controls, and without tailing off into recession. Our ibalance of payments problem, while 'still very much with us, has been reduced to manageable
proportions. This, I submit, is a good record by any standard.
The current expansion is certainly not without its hlemishes 'domestically.
Prices and costs have recently been rising far too rapidly for our continued
economic health. Interest rates zoomed to undesirable highs. Some sectors of the
economy have had very diflacult adjustments to make in the past few years. But
despite these problems, there has heen no lasting Interruption to the enormous
productive achievements of the American economy. Furthermore, with fisca,l

EXHIBITS

199

restraints now in place and the Federal finances moving toward balance, the
most serious immediate threat to continued expansion has been removed.
Rapid and sustained growth was not jnst a happy accident in the 1960's.
It resulted from a considered decision to employ certain jDolicy tools more actively
and imaginatively than before. Recognition of the need for more active resort
to policy tools—^particularly in the fiscal area—grew out of the relatively disappointing economic performance of the late 1950's.
There wiil, of course, be differences of opinion as to the relative effectiveness
and timing of the policy measures that have been taken. Much can, and sho'uld,
be learned from our inadequacies as well as our successes. But there should
no longer he any fencing about "growthmanship" or gloomy questioning whether
the U.S. economy can realize its full potential. Experience in this decade has
contradicted the pessimism of those who would 'have set our sights too low
and sentenced the American people to another decade of slow growth 'and
rising unemployment.
How much 'difference has faster growth made in the current decade? From
early 1961 to the present, the national growth irate—in terms of real gross
national product—has averaged more than 5 percent per annum. In the previous
8 years, it averaged only a little more than a sluggish 2 percent. Yet, the
average rate of price increase in the two periods is aibout the same.
What idid it mean to more than double the rate of advance in real national
output to over 5 percent during the more recent period?
—^instead of the 4 million new jobs created between 1953 and 1960 there
has been a 10% million rise in civilian employment during the current expansion.
Vigorous growth has made automation and technical progress forces for productivity, not threats to employment.
—Instead of the 9 percent rise of the 1953^60 period an average income per
person after >all taxes and after allowance for price Increases there has been
a rise of 29 percent. This, despite the claim by some that taxes and inflation have
been pnlling us down.
—^^in terms of current prices, the value of the amount added to our gross national product since early 1961 is nearly $350 hillion. This increase in the value
of our production approximates the total national product of the European
Economic 'Community or the Soviet Union in 1967.
To be sure, our prices have risen in the past 8 years, and have risen too
rapidly under the Increasing pressures of the war in Southeast Asia since
mid-1965. But, among the industrialized nations which make up the. Organization for Economic Cooperation and Development, the United States has had
the best record of price stability since 1960. On the average, the 21 other
nations experienced a 46 percent increase in consumer prices since 1960, nearly
three times the increase in this country.
And, the recent record compares very favorably with our own record of
1953-60 when our growth was much slower:
—^wholesale prices rose by 7i/^ percent, compared with a 9 percent increase
in the previous 7% years.
—consumer prices rose 16 percent in the more recent period, 11 percent in
the earlier period.
—the most comprehensive price index, the "GNP deflator," rose 16 percent
in the most recent period and 18 percent in the earlier.
A taible attached to the prepared text of my remarks presents further comparisons between the two periods. So much for the domestic record.
International Economic and Financial Developments
In an interdependent world economy, the better U.S. economic performance
of the 1960's has also had dramatic effect internationally. The gro'wth of the
entire free world has picked up in this decade and the volume of trade has
increased impressively. Just as economic growth has not solved all of our domestic
problems, it still leaves unfinished tasks ahroad. The Intemational gap between
affluence and poverty is still too wide. But a dynamic international economy,
coupled with adequate flows of development flnance, can help the less developed
countries to break out of the vicious circle of poverty and inadequate investment.
I look back with pride to the fact that in 1961 I was a member of the U.S.
delegation to the 'then new Organization for Bconomic Oooperation and Development (OECD). We startled that meeting by proposing that the member

200

19 69 REPORT OF THE SECRETARY OF THE TREASURY

nations adopt la common goal of 50 percent economic growth during the 1960's.
It is scarcely surprising that our caJbles home indicated that the response of
some of our European friends was somewhat patronizing in view of the sluggish U.S. performance from 1953 through 1960, when the growth rate of the
European member countries of OECD averaged 4.8 percent a year, more than
double our own growth rate. But, the ambitious 50 percent target was accepted
by OECD despite the other countries doubts about the United States!
When the OECD conducted its mid-decade review of growth performance in
1966, it foiund that real outimt.in the 21 member countries had risen by 27 percent in the period 1960-65—an average rate of expansion of nearly 5 percent a
year. Excluding Japan (which was not an 'OECD member in 1961) the output
expansion was 4.7 percent—we-ll above the 4.1 percent rate required to meet
the 1970 ohjective that had seemed so ambitious in 1961. As the OECD middecade report stated: "* * * faster expansion in the United States, which
accounts for more than one-half of the GNP in the OECD area, played an overwhelming part in raising the rate for the whole area."
Stronger growth among the member nations of the OECD and the entire world
economy amounts to more than simple addition of the separate achievements
of individual na'tlons. The whole is more than the sum of its parts. A rising
volume of trade hecause of growth stimulates still further growth. Expansion
in each country means greater trade opportunities for all others. As the world's
largest trade nation the United States obviously plays a key role' For example,
the United States absorbed almost one-fifth of the total exports among OEOD
countries in 1965.
The mutual Interaction of growth at home and trade abroad is hasic to continued international economic progress. Recognition of this fact goes back to
the Reciprocal Trade Agreements Act of the 1930's and has found recent expression in the reciprocal reduction of tariff barriers in the Kennedy Round of
trade negotiations.
World trade, as measured by imports, has increased at an annual average
rate of 7.6 percent since 1950. It has advanced from $58 billion in 1950 to over
$200 billion in 1967, an increase of about 246 percent, or about 2^/^ times.
The increase in the national product of the free world has heen commensurate,
and in real terms has more than doubled since 1950. For the postwiar period
as a whole it is estimated to have grown two to three times.
But the big flaw in this record is the disparity between the advance of the
so-called developed countries and the less developed countries—^and even between
some of the latter who have been successful in moving their economies to the
"takeoff" stage and those which have not.
Economic growth and social progress
Economic growth alone will not solve all our problems. But the recent record
demonstrates clearly that vigorous economic growth remains the most powerful
social weapon at our disposal. Consider the benefits that have accrued domestically as a result of the vigorous growth of recent years, from 1960 to 1967:
—thirteen million Americans have moved out of the poverty category.
—eleven million more families achieved yearly incomes above $10,000, 2y2
times the number in 1960.
—five million more Americans own stock than in 1963, 23 million more have
savings accounts.
'
—home ownership has risen to 37 million from 33 million in 1960.
Economic growth does not Insure social justice or end the practice of discrimination. But, the more rapid economic growth of recent years is bringing substantial gains to minority groups and giving an added degree of dignity and
security to millions of Americans. As President Johnson has pointed out, more
Negroes and other nonwhites have risen above poverty in the last 2 years than
in all the previous 6 years of the decade. Between 1960 and 1967:
—the proportion of nonwhlte families earning over $8,000 (adjusted for price
changes) more than doubled—from 13 percent to 27 percent.'
—the number of nonwhlte white-collar workers, craftsmen, and operators
jumped 47 percent. One-half of all nonwhlte workers now hold these better paying jobs.
—and, most significantly for the future, the education gap between young
whites and nonwhites: as measured by years of school experlehce, has been cut

EXHIBITS

201

to less than one-half year (12.2 years for nonwhites compared to 12.6 for whites).
Statistics show that a U.S. Negro is more likely to go on to college than any citizen
in a West European country except for France.
While racial strife and discontent have received the glare of publicity, in recent
years, vast economic gains have been made by previously disadvantaged groups.
This is one of the real domestic "success stories" of the 1960's: the widening of
economic opportunities for all of our citizens. The vehicle for social reform has
been the expansion of the whole economy, not the redistribution of existing income. We have not reduced the living standard of the middle-income and upperincome families to raise the living standard of the poor. Instead all groups have
gained together. The task of future years will be to continue, and even accelerate,
the process which has already given millions of Americans new hope.
Sheer economic growth does not assure advances in the field of education and
health any more than insuring social justice. But the record is clear, the enormous income we have earned in the past 8 years has provided unprecedented
advances in these areas. Of course, we have lived quite a bit better—our expenditures on personal consumption have expanded by about 41 percent. But growth
has made possible an allocation of substantially increased amounts to education
and health. Our total public and private expenditures on education have increased
from $27 billion to $52 billion today. Our total public and private expenditures on
health have increased from $27 billion in 1960 to $50 billion today.
The impressive record of economic growth which the United States has registered in recent years is not only important for the domestic advantages it has
yielded. In addition, the expansion of our economy has provided beneflts for the
developing nations of the world in their struggle for self-suflSciency, self-respect,
and a better life.
Proven tools of economic progress
The experience of the past 7l^ years, and earlier expeiience as well, has proven
the value of the use of a range of key policy tools in the pursuit of economic
progress. Fortunately, such use is ho longer the subject of acrimonious political
debate—and it should not be. Differences of emphasis and interpretation still
remain but there is a widening and significant area of agreement.
For present purposes, the key elements in our economic strategy can he groupedunder four main headings. These are : structural policies, flexible and coordinated
fiscal and monetary policies, cooperation between labor, management, and Government, and International policy coordination and cooperation. Each has made,
and can continue to make, a distinctive contribution to the promotion of our
economic welfare. I will comment briefly on each, before turning to the crucial
question of how continuity of proven policies and programs can be provided in
1969.
Structural Policies
One of the flrst steps taken by the incoming Kennedy Administration was to
redouble the incentives for greater private domestic investment in new plant and
equipment. The Revenue Act of 1962 granted a tax credit of 7 percent on new
Investment in machinery and equipment, and in that same year the Treasury
reformed and liberalized the tax treatment of depreciation. Together with the cut
in the corporate tax rate contained in the Revenue Act of 1964, these measures
raised the profitability of a typical investment in new equipment by more than
one-third. Because of the Vietnam situation, it proved necessary to suspend the
investment tax credit temporarily and also Impose the current surcharge. However, the bulk of that extra incentive remains with the lifting of the suspension
and the use of tax reduction to stimulate Investment incentives and unleash the
productive energies of the private sector has been amply demonstrated.
For example, our total annual investment in plant and equipment, the creative
capital goods area which is the key to both growth and productivity, has rapidly
increased from a .level of approximately $35 billion in 1960 to approximately $65
billion today. Our total annual Investment in manufacturing has Increased from
$14.5 billion in 1960 to about $28 billion today.
The reductions in Federal taxes in 1962, 1964, and 1965 amounted to approximately $24 billion in' terms of 1967 income. Even with the recently enacted
temporary surcharge on income taxes less than one-half of these tax reductions
have been borrowed hack, and income tax rates are much lower than they were
in 1960.

202

1969 REPORT OF THE SECRETARY OF THE TREASURY

Despite the fact that State and local taxes have consistently increased during
this period, the reductions in Federal taxes have kept the United States in the
category of industrial nations with the lowest percentage of gross national
product being drawn off through public taxation.
The Federal tax system must ibe kept fair and equitable in the light of changing
conditions. We have, in the last 8 years, clearly recognized this challenge. The
Revenue Acts of 1962 and 1964 contributed more to tax revision in the interest of
fairness than the total of all measures since the revisions of World War II. In
1965 the excise tax revisions swept away the jumble of discriminatory measiures
that had been a legacy of past needs to raise revenues in wartime situations.
Since then the Treasury has recommended action in a number of areas, such as
foundations, acquisitions of businesses by tax-exempt organizations, revisibn of
the tax treatment of the elderly, and the abuse of industrial development bonds.
The Congress has taken action in some matters such as industrial development
bonds and in other areas the problems are still on the legislative docket.
The combination of sustained and substantial growth in personal and corporate
income, tax reduction, and higher returns on savings have had a dynamic effect
on capital savings. The savings of the American people were $399 billion in 1960
and are $677 billion today. The net working capital of our nonbanking business
institutions came to $132 billion in 1960 and is $205 billion today. The resources
of our commercial banks, savings and loan institutions and mutual savings banks
were $370 billion in 1960 and are $666 billion today.
New initiative, new policies, and new resources devoted to manpower training
and the provision of economic opportunities have assumed significance as an important structural economic policy as well as a means of showing compassion for
those who lack adequate or equal economic opportunity. In recent years, the
development of intensified public policy and Imaginative efforts in private industry in manpower training have constituted an attack on structural unemployment. This makes taxpayers out of tax consumers, reduces the trade-off point
between unemployment and inflation, and lessens the risk of dependence on excessive demand as an answer to the unemployment problem.
Sizable investment in these activities and the underlying educative capacity
that make manpower training meaningful, coupled with the investment in tools
of production, have become recognized as essential to the successful pursuit of
the economics of growth.
Flexible and Coordinated Fiscal and Monetary Policies
The adjustment and coordination of flscal and monetary policies to assure
a stable, balanced, and dynamic economy will be an underlying fundamental for
economic life in the years ahead—as it has been in the years just past. During
the first two-thirds of the current expansion, fiscal and monetary policy, were
geared together to stimulate the domestic economy while keeping short term
interest rates reasonably aligned with key rates abroad. The more active use of
fiscal policy enabled monetary policy to remain in an accommodating posture,
without the sharp swings from ease to tightness that had been characteristic of
the 1950's.
Since mid-1965 fiscal and monetary policy have faced further diflScult tasks.
While there was a difference of opinion in late 1965 as to the appropriate timing
of monetary action, fiscal and monetary policies have continued to he coordinated in the interest of domestic stability and the balance of payments. The
long legislative delay in enactment of the recent fiscal restraint package was
obviously unfortunate. However, fiscal policy has once again assumed a major
role in stabilization policy.
During recent yeiars, it has been demonstrated that fiscal policy can be used
to stimulate and to restrain. Combined with a flexible and responsive monetary
policy, fiscal action can help insure that growth in total spending and productive
capacity will be kept in reasonable correspondence. Without a close degree of
coordination between fiscal and monetary policy, we run the risk of returning
to the old cycle of expansion and contraction: boom and bust. But, the lesson
of recent years is that the economy can be kept in steady expansion.
Cooperation Bettoeen Labor, Management, and Government
A remarkable degree of co ojperation, understanding, and mutual confidence
between business and labor and Government has gradually emerged in recent

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years. As we have pursued policies to fashion a better balance between the
public and private sectors, business and labor and Govemment have moved
together in a growing partnership for progress. They have discovered that by
pulling together they can achieve much more than by pulling apart.
A key problem remains to be solved: wage-price stability at high levels of
employment. Even with sound monetary and fiscal policies, wage-price stability
depends upon the determination of American business and American lab'or to
avoid wage rises that outdistance our gains in productivity and take the national
interest into account in pricing decisions. Wage and price stability is vital to both
our balance of payments and our domestic progress—business and labor and
Government have a joint responsibility to cooperate in its achievement.
International Policy Coordination and Cooperation in Economic and Financial
Areas
Recent years have seen an unprecedented degree of cooperation in the international economic and financial fields. Let me note just a few areas.of cooperation :
—The General Arrangements to Borrow that give a much needed backstop to
the resources of the International Monetary Fund.
—The huge currency swap networks, now totaling almost $10 billion, that
provide a first line of defense against disruptive currency speculation.
—The cooperative arrangements to offset the foreign exchange costs of our
military deployments that have protected our balance of payments from larger
drains.
—The exipansion of multilateral aid to developing nations through the InterAmerican Development Bank and the International Development Association,
and the creation of the Asian Development Bank.
—The cooperative efforts to assist nations that have found themselves in
temporary monetary difficulties—Canada, the United Kingdom, Italy, and, more
recently, France.
I must take particular note of the agreement on drawing rights. This historic
development, at U.S. initiative, took years of patient negotiation and study.
It holds out promise for the first time that eventually the world economy can
be freed from dependence upon increases in monetary gold stocks and balance
of payments deficits of reserve currency countries. It means that the world now^
has a way to expand trade and finance among nations with confidence that
monetary reserves will grow sufficiently to make this flow of trade and finance
possible.
The progress in all these areas has occurred during a period of formidable
pressures on the international financial system and on our own balance of
payments. Even though there is a period of relative calm, let no one assume
that we have solved our own balance of payments problems or completed the
work of improving the international monetary system. This is far from being
true. But as a Nation we have come to grips with the problem: the President
laid down a forceful corrective program on January 1, the Congress has responded
with action for fiscal responsibility, and a substantial part of the remaining
elements of the program is in effect and yielding results.
Cooperation is the common thread running through these and other accomplishments internationally. Increasingly, the advanced countries of the world are
sharing the responsibility on a multilateral free world scale for an improved
trade and payments system, mutual security arrangements that are soundly and
fairly financed, and an expanding system of development aid and finance.
Providing continuity of proven policies and programs in 1969
Now the future requires our attention. Even in a political year, there is
much upon which men of good will can agree. As a Nation we are committed to
the defense of freedom and the enlargement of opportunity—at home and
abroad. Great tasks lie before us. We must keep the economy growing and
productive, the Nation's finances in reasonable balance, and the dollar sound and
respected.
Our basic economic objectives include: an adequate rate of growth, reasonably full employment, and reasonable price stability. Because of the special
role of the U.S. economy and the dollar in the free world monetary system,
a fourth fundamental objective has emerged—the achievement and maintenance
of equilibrium in our international balance of payments.
363-222—70
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19 69 REPORT OF THE SECRETARY OF THE TREASURY

All are agreed that the foundation of all our national efforts will be an
economy moving towards these objectives, providing ever new opportunities and
an ample scope for individual, corporate and collective initiative.
There will be substantial differences as to the choice of means designed to
achieve these objectives. These differences will reflect certain philosophical or
pragmatic preferences.
But all should agree that the immediate task is to provide for continuity of
proven policies and programs in 1969, so that the incoming administration—
whether Democratic or Republican—can press ahead with the Nation's business,
while fashioning the innovations and initiatives that seem desirable.
There are a number of areas in which continuity will be essential, and others
in which continuity appears to be desirable until 'and unless suitable alternatives
are devised and accepted.
First, the immediate problem for 1969 will be to adapt the flscal and monetary
mix to meaningful changes in the international situation 'and the process of
achieving that degree of "dis-inflation" at home that will move the economy
steadily toward reasonable price stability without too much of or too long a
sacrifice in the rate of growth and job creation.
The current policy of fiscal and monetary restraint is directed toward restoring
a reasonable degree of price stability by a moderation of the rate of growth from
the excessive levels of the past year or so.
The task of monetary policy, now conjoined to the massive shift from fiscal
stimulus to fiscal restraint provided by the recently enacted revenue act and
the increases in social security taxes, scheduled for January 1, was indicated
in the recently published June statement of the Federal Reserve Open Market
Committee:
'
"* * * it is the policy of the Federal Open Market Committee to foster
financial conditions conducive to resistance of Inflationary pressures and attainment of reasonable equilibrium in the country's balance of payments, while
taking account of the potential impact of developments with respect to fiscal
legislation."
Apart from the utilization of timely monetary policy, fiscal policy options
which will he availabie to the new administration and the new Congress in the
first 6 months of calendar 1969 are:
(a) The extent to>^hich there will be a fuller funding of pressing domestic
programs, as well a s provisions for built-in or unavoidable Federal spending
increases for social security and salary adjustments for Federal employees
already voted.
,
(b) The decision, unavoidable by reason of the fact the recently enacted 10
percent surcharge expires on June 30, that tax must be extended, reduced or
allowed to terminate.
I will content myself for the present by noting that these extremely important—^even crucial—^decisions will have to be made very early next year and
take into account the state of the private economy and the outlook for defense
expenditures, both Important variables which have a disconcerting way of defying
precise prediction well in advance.
Flexibility is the watchword in this area, as it has been since 1965.
A second area where continuity of policy will be highly important in 1969,
but is far from being mastered, is the coupling of auxiliary or supplementary
policies to complete the process of dis-lnflatlon, now the prime target of the
fiscal-monetary mix to restore reasonable price stability.
Effective price competition, a return to a closer relationship between increases
in wages and productivity, 'SOme temporary absorption of increased costs out of
profits, attacks on some of the structural areas such as construction and medical
costs now being charted by the Cabinet Committee on Price Stability, should be
important elements of program follow-through in 1969.
These programs for restoring price stability are also fundamental to the
achievement of a healthy, enduring equilibrium in our international balance of
payments based on competitive capacity in markets at home and abroad.
The association of' inflation with low levels of unemployment is clearly an
unsolved problem of the first magnitude. Every major Western nation has recognized the unemployment-infiation problem and has experimented with instruments of restraint. Our own experience with the wage-price guideposts developed
by the Council of Economic Advisers was very encouraging until 1966, when
excessive demand and lower rates of productivity resulting in increased prices
and unit labor costs disrupted the previous even pattern of expansion.

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Now that the problem of excessive demand has been tackled, the focus of
scrutiny of the Cabinet Committte on Price Stability is how ta effect a return to
a workable pattem of wage-price stability.
Appropriate monetary and fiscal policies are, of course, absolutely indispensable
in the achievement of rapid economic growth with reasonably full employment
without inflation. But many ask: Can we not achieve these objectives merely
through finer tuning of our monetary and fiscal restraints? Unfortunately, the
answer is "no." The world would be much simpler were it otherAvise. And, there
was a time when many of us were confident that monetary and fiscal policy could
do the job alone. But both American economic history and the experience of every
Western nation speak eloquently that monetary and fiscal policy, alone, are not
enough.
This Administration did not discover this dilemma, nor is it a partisan issue.
After having grappled with it for 7 years. President Eisenhower observed in his
1960 Economic Report:
"* * '" Fiscal and monetary policies, which are powerful instruments for preventing the development of inflationary pressures, can effectively reinforce one
another.
"But these Government policies must be supplemented by appropriate private
actions, especially with respect to profits and wages. In our system of free competitive enterprise and shared responsibility, we do not rely on Government alone
for the achievement of inflation-free economic growth. On the contrary, that
achievement requires a blending of suitable private actions and public policies.
Our success in realizing the opportunities that lie ahead will therefore depend
in large part upon the ways in which husiness management, labor leaders, and
cons'umei^s perform itheir own economic functions."
A 1961 report to the Economic Policy Committee of the OECD noted that "most
governments have now come to believe that, under conditions of full employment,
management of the general level of demand will often need to be supplemented
by more specific measures for promoting price stability." The report specified
policies designed to prevent acute excess-demand conditions in particular sectors ;
policies designed to speed the adaption of supply in excess-demand conditions;
and policies designed to Infiuence determination of incomes and prices.
The guideposts of the Council of Economic Advisers explicitly treated the
problem of discretionary power in the market place. They were a plea for abstention—in money terms, an appeal to accept less than is within their power to
take. If we are free to decide, we must be content to live with our decisions
and to be judged on them. But standards are necessary if the judgment is to be
fair and constructive. The guideposts were an attempt to develop such standards.
Can we advise better standards? Can we create institutions that implement
them more effectively? Questions like these have been raised in all the major
Western capitals. Hard as they are, they cannot be avoided in 1969.
A third area for policy continuity in 1969 is tax reform. After the reforms of
the Revenue Acts of 1962 and 1964 and 1965, the Treasury Department undertook a major effort to prepare tax reform proposals of a comprehensive nature
in 1966 and 1967. The plan was to launch a major legislative effort on the heelF
of the enactment of the temporary surcharge legislation. Because of the delays in
enacting the surcharge legislation and the fact that substantial tax reform
requires extensive legislative consideration, there was no suitable opportunity
to pus'h these proposals on to the legislative calendar.
It is clear that tax reform must be a matter of high priority as respects tax
policy and the work of the Congress. I and my associates in the Treasury have
called attention to some of the areas that we feel should be given consideration.
As one example, there is the impact of our present tax system on those in poverty.
A country concerned about the plight of the poor should certainly be concerned
about not Imposing an inco'me tax burden on them, and indeed the Revenue Act
of 1968 made this principle clear by not imposing the 10 percent surcharge on low
income taxpayers. At the other end of the scale is the serious problem of those
tax'payers with very high annual Incomes who make little or no contribution to
the Federal Government because of the use, singly or in combination, of many
of the tax preferences adopted for particular purposes. There is also need for
an extensive, searching review of the rules under the estate and gift taxes and
the associated question of the treatment of transfers of appreciated assets at
death under the income tax.
Two cardinal principles should guide us in considering tax reform. One is that
the standards of equity and fairness and desirability must be applied in the con-

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19 69 REPORT OF THE SECRETARY OF THE TREASURY

text of the world today. Tax provisions adopted to serve certain needs in the
past must constantly be tested to see if they are still appropriate. We must ask
what is the net benefit to the nation from such a provision in terms of the present
cost—what is the efficiency and effectiveness of the tax provision as contrasted
with other forms of Government assistance that may not have the side-effects of
income tax liberality to individuals or corporations that accompany the use of the
tax route?
The second principle is that change from yesterday's rule to today's new need
must be orderly and fair, so that those who had planned their businesses or lives
on the basis of the earlier provisions may have an orderly transition to the new
standards. But it is orderly transition that I am emphasizing and not stagnation
or indefinite postponement of any change, for tax preferences should not be a
hereditary matter handed down from one generation to the next.
A fourth area where a beginning has been made and more needs to be done is
in manpower training and the encouragement to civilian technology and education. There is still a relatively untapped resource in those of our citizens who are
unemployed and underemployed. The wastes of unemployment are obvious. In
addition, in far too many cases people are working in unskilled jobs and falling
to utilize their full potential. Technological change has an unsatlable appetite
for higher and higher job skills, and before many more decades have passed
there may be little demand and only meager compensation for the services of
the underskllled or the uneducated.
One of the great challenges of our time is to harness the great capacity of the
private sector to our system of public education and training, so as to make it
possible for all of our population to share in the opportunities now available
for the more fortunate. That challenge will not be finally met within 1969. But,
the stakes are so high that there should be no interruption of the national effort
in this area.
A fifth area for policy and program continuity is the reestablishment and
maintenance of stable equilibrium in the U.S. balance of payments. This calls
for a vigorous followthrough on all elements of President Johnson's New Year's
Day program, ratlier than a dismantling of some parts, as some suggest. This
program encompasses; a series of direct action measures on specific accounts as
well as use of fiscal; restraint by the Government and voluntary restraint by
management and labor in price-wage and work stoppages affecting foreign trade.
The President's program—a stern and stiff one—won no Cheers in an election
year. It called for increased taxes, a holddown in domestic spending and decreased Govemment overseas expenditures or 'their neutralization by compensating measures. It urged less spending by Americans touring foreign lands
and restrained money flows from the United States for U. S. investment and
loans abroad, while encouraging combined public and private effort to encourage
foreign tourism and Investment in the United States.
Part of this program has been executed and in those areas it is working.
Indeed, isome of the results could lead to public overconfidence.
The last report on our balance of payments covering the second quarter of
1968 showed a small deficit of $150 million on a liquidity hasis and. a sizable
surplus in 'the official settlements basis. This result was in sharp contrast to
the large and unacceptable deficits in the previous quarter on both bases.
The progress achieved was in the movements of capital and not the current
account which deteriorated with a declining trade surplus and a big tourist
deficit. Welcome as it; is, this progress was unbalanced, and some elements cannot be relied upon consistently. Some parts of the program, such as those designed to restore a healthy trade surplus, are only getting under way, and those
dealing wdth the travel deficit have not been approved by the Congress.
The entire program must be applied. If it is not applied in its entirety this
year, it will have to be applied next year regardless of what national administration is in power. It ^s, quite simply, a problem beyond politics.
The national objective embodied in the program must be pursued in full bipartisanship if the nation is to assure the strength of the dollar and the international monetary system.
The hard, gritty work of continuing to reduce our Govemment expenditures
abroad, or neutralize them through arrangements bilateraily negotiated, should
continue unabated.
The nation must carry through to the full the workable programs of combining private and public effort to increase foreign investment and travel in the
United States which have been submitted.

EXHIBITS

207

Our exports must be helped to rise—^by responsible labor and management
decisions on wages and prices, by continued negotiation of reduction of nontariff barriers of our goods abroad, and by following through on the special
measures for financing and promotion of American exports that have been
initiated.
By doing less than a complete job in these areas of long term significance, we
would be gambling with the future of our own prosperity and that of the free
world and delaying the time when the temporary restraints in capital flows can
be eliminated.
A sixth key area for policy continuity concerns the persistent and steady
effort to provide leadership for and participation in international flnancial cooperation designed to improve constantly the working of the international
monetary system to encourage trade and economic development.
This means in the monetary field the activation in 1969 of the Special Drawing Rights machinery to provide by deliberate decision over the years ahead
new reserve assets, supplemental to gold and dollars. This activation should
provide the degree of liquidity needed to accommodate a growing free world and
facilitate the working of the adjustment process in an environment where monetary authorities of surplus countries are reluctant to lose reserves steadily.
In addition to activating the Special Drawing Rights, continuity of U.S.
policy in 1969 should look to participation in any official multilateral studies
for improving the international monetary system in a world which Includes
Special Drawing Rights.
Another area of international financial cooperation calls not merely for continuity 'Of policy but for an acceleration of effort to improve and Increase the
role and effectiveness of multilateral development finance institutions and private investment in meeting foreign exchange 'and developmental needs of the
less developed countries. Action in this area should go forward to a far greater
degree than has been the case thus far in the sixties.
As a group, the developing countries have, during the 1960's achieved an
average growth of 4.5 percent per year—impressive, hut not significantly improved from the record of growth during the decade of the 1950's, and still
slightly below the U.N. Development Decade target of an annual 5 percent increase in gross national product. Moreover, half of the growth which was
achieved was absorbed by the population increases in the developing nations,
so that on a per capita basis economic growth has averaged only 2.3 percent per
year for the developing world as a whole.
But it can be misleading to try to generalize about the area covering all of
Africa, Asia and Latin America which accounts for two-thirds of the world's
population. These averages mask wide variations in the performance of the
different countries and regions.
A number of those countries which are counted among the wealthier and
more highly developed of the developing nations have made further rapid
strides in recent years. For example, Greece and Israel have achieved an average
growth rate of about Sy2 percent a year or so since 1960, a rate which would
double their national production in 8^/^ years.
There 'have also been major success stories in some of the poorer of the less
developed nations. Among those with per capita income of less than $600 per
year, there are six countries—^Taiwan, Jordan, Panama, Nicaragua, Korea, and
Thailand—which have achieved high growth rates during the 1960's, varying
from 9.7 percent per year for Taiwan, to 7.2 percent for Thailand. This means
that those six countries can double their 1960 GNP within the decade if they
maintain their rate of advance.
These "success stories" represent in population less than 10 percent of the
total. The remainder have seen no such spectacular results and for many the
history of the '60's has been only one of grim disappointment. The whole of
underdeveloped Africa has during this decade recorded a per capita economic
growth of only 1 percent a year. South Asia with a. population larger than the
Continent of Africa and Latin America combined has recorded per capita
growth of only one-half of 1 percent a year. Advancement for many countries
has heen depressingly slow and some have achieved no growth at all.
It is perhaps noteworthy that most countries which have achieved rapid
growth have benefited from sound economic planning, good budgetary and monetary policies and a strong currency that has encouraged domestic savings and
attracted foreign investment. And, importantly, it is apparent that those de-

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19 69 REPORT OF THE SECRETARY OF THE TREASURY

veloping countries who have grown most rapidly have henefited from very large
amounts of foreign assistance or other capital Inflows from abroad.
Against this backdrop, an acceptance of the drastic proposed reduction in
appropriations for foreign aid and a continued failure of the Congress to provide
the U.S. share of a replenishment of the funds of the International Development Association of the World Bank would be tragic. It would destroy worldwide hopes for significant progress in multilateral development finance in 1969
and signal a dlsmar retreat from the realities of the struggle for continued
economic progress.
Conclusion
Now summing up, in the period just ahead there will be a transition and a
time of change, irrespective of which political party wins in November. But
there should also be a continuity in economic policy and in established national
economic objectives. Proven tools of economic and social progress are not the
exclusive property of any administration or political party. In the economic and
financial areas, we must all work together responsibly to Insure that there is
continuity, as well as change.
1961-1 (or February 1961)
to
1968-11 (or June 1968)
Indicator

Absolute
• change ^

Percent
change

1953-1 (or February 1953)
to
1960-11 (or June 1960)
Absolute
change i

Percent
change

Gross national product:
Current prices
:.
-|-$349,000,000,000
-f69.4 -}-$141,000,000,000
+38.6
1968-n prices
-|-$268,000,000,000
-f-46
-i-$94,000,000,000
+19
Industrial production
.:.
-}-59. 5
+18.7
Employment
'
"
-f-10,456,000
+15.9
+4,283, 000
+6.9
Unemployment rate
Down from 6.9% to 3.8%
Up from 2.6% to 5.4%
Number of months below 4 percent.
30 months
19 months
Personal income
J
-l-$272,000,000,000
+66.S +$116,000,000,000
+40.8
Aftertax personal income
'•'..
-{-$232,000,000,000
4-65.2 +$101,000,000,000
+40. 6
Aftertax personal income for family of 4
+$3,908
-i-50.3
+$1,488
+23.7
Per capita disposable personal income (1958
+$171
+9.9
prices)
-f$603
-^32.2
+28.1
+$6,000,000,000
Aftertax corporate profits
•
+$26,000,000,000 +107.8
-10.4
-$1,400,000,000
Net farm income
^
+$2,000,000,000
+15.6
Three
Number of recessions
None
I Current prices except as indicated.

Exhibit 13.- -Statement by Secretary Barr, January 17, 1969, before the Joint
Economic Committee
I appreciate the opportunity to meet with this distinguis'hed com'mittee. I think
it extremely important that the members have the economic rationale for the
financial plan President Johnson has recommended to the Congress^—a plan that
is responsible and realistic in terms of the country's needs and resources, and that
is consistent with our responsibilities to keep the dollar strong and respected.
Before getting into the body of my remarks, I want to take a moment to pay
tribute to you, Mr. Chairman, to the Vice Chairman, Mr. Patman, and to the
members of the committee. Under your leadership, the work of this committee
has contributed greatly to the tremendous growth of public interest in economic
issues, to better informed public attitudes on economic policy, and to the record
economic progress the: United States has achieved.
The economy is now in the 95th month of the most sustained and vigorous period
of economic expansion; in our country's entire history. There is no need for me to
enumerate here the many economic records established during this period of unprecedented prosperity^ I believe that in his state of the Union message and in his
Economic Report to the Congress the President cleailly established that the economy is now stronger and more vigorous than ever before, with production, employment, and aftertax income, including both wages and profits, all at record
highs, far above the levels of a decade ago.
And I want to emphasize that this isn't just a dollar prosperity. The purchasing power of the average American—the real goods he can.huy with his dollar

EXHIBITS

209

Income aftertaxes—has actually increased by 31 percent between 1960 and 1968.
This, gentlemen, is the basic definition of economic progress.'
Perhaps an even more significant aspect of our economic well-being is that it is
probably being shared by a broader segment of our population than during any
previous time of great prosperity. Not only have business profits soared to record
highs but the unemployment rate has been sharply reduced—particularly among
minority groups who have not adequately shared in economic gains of the past.
Much remains to be done in this key area of national policy, but it is clear that
significant progress has been made in removing barriers and expanding job opportunities for our underprivileged citizens.
However, we must recognize that serious economic problems must still be
overcome. The increase in consumer prices in the past year of nearly 4 percent is
certainly larger than we can tolerate for very long. Although a small balance of
payments surplus was achieved in 1968, vigorous efforts must continue to maintain this record in the current year.
Today I want to go beyond the overall indicators of a prosperous economy
and in a sense see whether the financial underpinning of our economy will support continued sound expansion in the years to come. I also want to review
briefly a few items of major, unfinished business that will bear heavily on our
future economic growth and, in some instances, that of the entire free world.
Probably the most important single component of this financial underpinning
of our economy is the Federal budget. A properly designed budget should reflect
wh2it the country needs, what it can afford and what the Congress can be expected
to do. In my judgment President Johnson has presented to the Congress a budget
that fully meets this standard. In fiscal 1969 the budget is expected to be strongly
in the black, with outlays of $183.7 billion, revenues of $186.1 billion and a surplus
of $2.4 billion. For fiscal 1970 we have projected an even larger surplus of $3.4
billion.
In fiscal 1970 budget receipts are estimated at $198.7 billion, an Increase of $12.6
billion over the estimate for fiscal 1969. Outlays in fiscal 1970 are projected at
$195.3 billion. The estimated increase in fiscal 1970 Federal revenue.is due almost
entirely to anticipated economic growth. For calendar 1969 we have projected
a gross national product of $921 billion, personal income of $736 billion and corporate profits of $96 billion.
Now there is nothing inherently good or bad in itself about a budget surplus
or deficit. The test is whether it contributes to the economic strength of our country. And a budget does this only when it is consistent with current and prospective
economic realities.
In the context of the economy as we see it, a Federal budget surplus for fiscal
years 1969 and 1970 is necessary for several important reasons.
First, a budget surplus will tend to restrain overall private demand during a
time when our productive capacity is straining hard to meet the demands thrust
upon it. Second, a budget surplus means that during this period the Treasury will
not on balance be competing for funds in our already hard-pressed credit markets.
In fact, in fiscal 1969 and 1970 taken as a whole, the Treasury will actually be
adding funds to the private credit markets in contrast to the situation in 196?
when $23.1 billion had to be drawn from private investors. This healthy situation
means greater freedom for the Federal Reserve to establish effective monetary
policies, and more ready access to private 'savings by private users of credit and
State and local governments—borrowers who have had a rough time in past tight
money periods. In this context the homebuilding industry in particular should
greatly benefit.
A third important reason for maintaining a Federal budget surplus at this time
is that it will strengthen the hand of our negotiators during the critical period in
which we will be working to improve and modernize the international monetary
structure.
The Federal Government Influences economic activity and the distribution of
income not only through direct expenditures and loan programs but alsoi through
special tax provisions. A dollar foregone through a special tax provision is no
different than a dollar spent through a budget outlay. In other words, these tax
expenditures use budget resources in the same way that.direct expenditures
or net lending do. In most cases, the special tax provisions are alternatives to
direct expenditures or net lending to achieve the same purpose.
The Annual Report of the Secretary of the Treasury for fiscal year 1968,
which was issued this week, contains for the first time a detailed description

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and discussion ofthese tax expenditures and estimates of the amounts involved.^
To bring this material up to date, the Treasury staff has prepared an analysis
of tax expenditures related to the budget for fiscal year 1970 which I am submitting as a supplement to my statement. The revenue costs of the special tax
provisions are presented alongside the budget outlays. This makes it possible
to get a more complete picture of total Government expenditures for various
functions. You may be surprised to find that tax expenditures approach or even
surpass the budget outlay for certain functions.
The purpose of this' special analysis is to present information which will help
us to use budget resources most effectively. We can obtain more efficient use of
resources by the Federal Government if explicit account is taken of all calls
upon budget resources. In this way the importance of different budgetary objectives and the effectiveness of alternative uses, whether through direct expenditures, loan subsidies,; or tax expenditures, may be fully understood, examined,
and reevaluated periodically.
I should Inject a note of warning at this point. As the committee knows, the
whole subject of tax expenditures is highly controversial and the figures presented in this Treasury report are themselves certain to be controversial. The
figures may vary depending on the assumptions used, and we do not claim that
our figures and assumptions are the last word. Perhaps the committee might
want to have its staff analyze this document—perhaps in conjunction with the
staffs of the Joint Committee on Internal Revenue Taxation and the Appropriations Committees. The staff of the Treasury will be pleased to cooperate.
Many of the provisions in the Tax Code are virtually the same as appropriations
and should be considered by the Congress as they review the various Federal
programs.
*
*
*
*
»
«
*
Let me turn now to four areas where I believe there is urgent need for action
by the United States or by those nations whose economic future is closely linked
with our own.
The need for tax reform
We have an income tax system which has demonstrated its strength—$128.3
billion of revenues expected in fiscal year 1970—and its flexibility. The income
tax is one of our country's strongest assets, and we must strive to improve it
and perfect it.
Our income tax system needs major reforms now, as a matter of importance
and urgency. That system essentially depends on an accurate self-assessment by
taxpayers. This, in turn, depends on widespread confidence that the tax laws
and the tax administration are equitable, and that everyone is paying according
to his ability to pay.
We face now the possibility of a taxpayer revolt if we do not soon make
major reforms in our income taxes. The revolt will come not from the poor but
from the tens of millions of middle-class families and individuals with incomes
of $7,000 to $20,000, whose tax payments now generally are based on the full
ordinary rates and who pay over half of our individual income taxes.
The middle classes a.re likely to revolt against Income taxes not because of the
level or amount of the taxes they must pay but because certain provisions of
the tax laws unfairly lighten the burdens of others who can afford to pay. People
are concerned and Indeed angered about the high-income recipients who pay little
or no Federal income taxes. For example, the extreme cases are 155 tax returns
in 1967 with adjusted gross incomes above $200,000 on which no Federal income
taxes were paid, including 21 with Incomes above $1,000,000.
Judging from taxpayers' letters to the Treasury, I would say that many people
are upset and impatient over the, need for correcting these and other situations
which demand our attention. In this connection, I should point out that the 10
percent surcharge has |made many taxpayers more aware of the inequities in our
present tax system and more demanding that reforms be adopted.
I believe puhlic confidence in our income tax system is threatened and that
tax reform should be a top priority subject for the new Administration and the
91st Congress.
1 See 1968 annual report, pages 322-340.

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As you know, we at Treasury have been working on tax reform proposals
for more than 2 years, and they are now ready. They will be turned over to
Secretary-Designate Kennedy and, upon request, to the Congress.
I feel that the enactment of major reforms to substantially improve the fairness, simplicity, and neutrality of our Income taxes are essential to continue and
strengthen public confidence in our tax system.
The need for restoring the U.S. trade position
The international trade position of the United States is rapidly deteriorating.
It is essential therefore that we make a forceful policy response to restore our
trade account to a position of strength. Short of this, we will find a continuing
upsurge in the already growing protectionist sentiment apparent in the country.
The answer to our trade problem does not lie in an overhauling of our tax
system through the introduction of a value-added tax either in addition to or in
lieu of our present taxes. The adverse domestic effects of such a move, would
far outweigh any small trade advantage which we might gain.
What we might well consider instead is our own system of border adjustments,
encompassing both a tax on Imports and a payment to exporters. The level of
these adjustments would be unrelated to our domestic tax system. The rates
would be set at whatever level is necessary to achieve our objective—a healthy
trade surplus. This system should be established under the strict control of the
General Agreement on Tariffs and Trade or other appropriate Internatiohal body.
The need for action on the SDR facility
I would urge the member nations of the International Monetary Fund that
have not yet completed action on the Special Drawing Rights Facility to do so
promptly. Their ratification of the Proposed Amendment to the IMF Articles of
Agreement establishing the SDR facility will bring closer the day when the
world will be assured of an adequate growth in monetary reserves.
The SDR facility m i l be created when 67 member nations having 80 percent
of the weighted votes in the Fund have ratified the Amendment, and when members having at least 75 percent of the quotas in the Fund have deposited with
it an instrument of participation.
The United States completed action on the SDR facility on July 15, 1968. However, as of January 10 of this year, only 29 members of the Fund having 47^/^
percent of the total votes had ratified the Proposed Amendment.
After years of intensive negotiations, nations have neared establishment of a
method for creating the monetary reserves needed by a rapidly growing world
economy. We are near the goal of the most important reform in the International
monetary system since the Bretton Woods Agreements of 1944. I eamestly hope
that other nations and their governments will make it possible for the world
to reach that goal within a period of weeks or months.
The need for support to mutilateral development institutions
I am also deeply concerned about two items of unfinished business in the field
of multilateral development finance. Both—the replenishment of the International Development Association and the provision of special funds for the Asian
Bank—involve institutions that I have been intimately involved with over
the years. What we in the United States do in regard to these two institutions
can have a profound effect on the well-being and the very lives of millions among
the two-thirds of the world's population that has little to possess and still less
to hope for.
As a freshman Congressman, I helped write the legislation for our participation in IDA. I have seen it in action in the field, in Asia in 1963 and in Africa in
1967. I know it is capably guided by the AVorld Bank under Robert McNamara's
sure hand.
IDA is, most importantly, serving in a growing way the primary function we
had in mind in the late 1950's: it is mobilizing a greater share of development
resources from the other advanced countries. It is putting these resources to
work in an efficient and effective manner. Eighteen other countries put up a total
substantially greater than our own. Our share in the effort has been reduced
from 43 percent at the outset to 40 percent currently, meaning a cumulative transfer of the burden of about $150 million.

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The contribution p;roposed for the United States—$160 million in each of 3
years—will have no adverse effect on the U.S. balance of payments, because we
have obtained internationally agreed safeguards to ensure this.
But the entire IDA replenishment package cannot become effective unless the
United States makes its contribution. I consider it of the highest urgency for
the Congress to demonstrate again its consistent attitude of bipartisanship tov^ard
IDA by acting on the legislation that has been reintroduced in recent days.
While IDA'S operations are worldwide, those of the Asian Bank are concentrated in the area of the world that has been torn by intense conflict and wracked
by human misery for all too many years. In December 1965, I was privileged,
along with Eugene Black, to sign the agreement establishing the Asian Development Bank, thus placing us firmly on the path of constructive multilateral development in Asia. Many members of the Congress and congressional staff members participated actively in the events leading up to the creation of the Asian
Bank. It is now in being, with a distinguished staff and with an effective loan
and technical assistance program moving forward.
However, the Bank needs additional resources—beyond its regular funds for
conventional lendlng^for special lending programs on favorable terms in fields
such as agriculture and transportation. The new budget proposes a $25 million
U.S. contribution to Asian Bank special funds in 1969 and 1970, and I consider
this action, already long delayed, as crucial to Asia and our total interests there.
These funds will help to encourage regional cooperation and peaceful develops
ment in Southeast Asia. Like our IDA contribution, we would be putting up only
a minority share; Japan and other advanced countries will bear the major
burden. And this contribution, too, will have no adverse balance of payments
effect since it will finance U. S. goods and services.
I sincerely hope tha;t both these vital programs will promptly receive the congressional support they deserve.

Exhibit 14.—Statemerit by Secretary Kennedy, February 12, 1969, at the Lincoln
Day dinner, Dallas, Texas
I come to you tonight from the "Land of Lincoln" via the Potomac. While we
from Illinois claim Abraham Lincoln as our own, I have found that every State
in the union and Indefed people from all over the world are students of and have
some clalmj to Lincoln. Even in this Texas empire, I am sure there are many
who would say that Mr. Lincoln was truly a great Texan.
As we study history and read more about the man—the President—Lincoln—
we appreciate that he was a true citizen of all our country and that his acts
and statements have become part of all time. Perhaps he realized this as in
December 1862 he wrote the Congress: "In times like the present men should
utter nothing for which they could not willingly be responsible through time
and eternity."
At one point Lincoln confessed to a Kentucky friend: "I have been controlled
by events" yet, at another point he plead with the Congress to break and forget
past traditions—looking to the challenge of the future:
"The dogmas of the quiet past are inadequate for the stormy present We must
think anew, we must.act anew, we must disenthrall ourselves."
Our country has turned again to new leadership to meet the challenge of the
future. On January 20, Richard M, Nixon took the oath of office as the 37th
President of the Unit6d States. In that moment of history, he hecame the President of all our people^—democrats as well as republicans, poor as well as rich,
black as well as white. In his inaugural address, he made it abundantly clear
that he understands our problems and will seek solutions—^and he, like Lincoln,
engaged in war, will seek peace.
"We seek an open world—open to ideas, open to the exchange of goods and
people—a world in which no people, great or small, will live in angry isolation."
I joined the Nixon Administration because I believe in the principles he has
clearly enunciated and I believe he can accomplish peace abroad and unite.our
people at home.
As you know, 'the President is leaving shortly for the continent of Eurppe to
reestablish relationships and undertake discussions which should lead to .better
understanding. Through this personal visit he will demonstrate his interest in
working with our friends in Europe for peace and progress.

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I was pleased—as I know you were—that last week President Nixon gave the
full backing of his office to the Attorney General to take all steps necessary to
make our streets and cities safe. Starting in the Nation's capital where crime nas
become perhaps more serious than in any of our cities, a series of actions have
already been initiated—more patrolmen, more judges, etc. Every major city has
a crime problem. The work of the Attorney General and his staff will require long
and cooperative effort on the part of Federal, State, and local authorities. This is
long overdue. It has the highest of priority.
Another "highest priority" of this Administration is to control inflation. If the
kind of American economy we all want is to become a fact rather than a dream,
inflation must be curbed. The kind of price Increases we have experienced in
recent years and months can carry the economy to the point where recession and
accompanying higher unemployment naturally follow.
Confldence in the soundness of the dollar must be reestablished at home—as
well as abroad. Large and increasing social programs of the so-called Great
Society superimposed on ever Increasing war costs resulted in a budget deficit of
$25 billion in 1968. This caused an overheated economy and set off a wage-price
spiral. I am sure that I do not need to tell any businessman here what that is
doing to his future business prospects. Nor do I have to go into any detail to any
housewife present who is trying to manage the family budget.
Consumer prices were relatively stable in the period 1960-65, rising only 1.3
percent per year. In 1966 and 1967, however, they began a sharp upward climb,
and from the end of 1967 to the end of 1968 they rose by 4.7 percent. In the last
quarter, the annual rate of increase jumped to almost 5 percenit.
The budget released in January by President Johnson calls for a small surplus
in the current fiscal year and for fiscal 1970. This is as it should be. It is, however,
on the assumption that the surtax will be extended.
Federal outlays are expected to rise by $11.6 billion in fiscal year 1970 over the
previous year—on the basis of legislation already passed by the Congress, higher
Federal pay, increased interest on the debt, larger social security payments, etc.
I have said that this is a tight budget and there is very little time between
now and next June to change expenditures for the current fiscal year. Indeed,
some of the expenditures were understated in the budget for this year. There
should be more opportunity for saving in 1970 and in subsequent years.
President Nixon has directed the Budget Director to review with each Department of the Government the expenditure budget item by item in order to redirect
programs, establish priorities, and effect savings.
As I indicated, President Johnson's budget recommends an extension of the
surtax for another year. There is no question in my mind that unless we can
cut budget expenditures sufficiently the Inflationary condition of the economy
requires a continuation of the surtax. Under existing conditions we must have a
reasonable budget surplus.
The Federal Reserve is firmly pursuing a restrictive credit policy designed to
help curb Inflation. Thus both fiscal and monetary policy are joined in an effort
to reduce Inflationary pressures. I believe these efforts can and will be successful.
The measures are designed to slow, not stop, economic activity—to reduce the
pressure on the boiler in a reasonable, gradual way. These actions are designed
to provide a climate for more real, sustainable growth and to restore confidence in
the dollar at home and abroad.
One heavy price we have paid for these inflationary conditions is in higher
interest rates. The highest since the Civil War—Lincoln's time. As inflationary
pressures are brought under control, interest rates should decline to more
normal levels.
Another, area of great concern is our chronic balance of payments problem.
We must not be misled by the small reported surplus for last calendar year.
Confidence abroad in the dollar was increased when the surtax passed last year.
Troubles abroad also perhaps had some effect on the willingness of foreigners to
hold dollars. Also, there were large capital movements into this country into the
stock market. These movements help on a one-time basis. They can be reversed.
When we look behind the figures, we have reason to be concerned. Our favorable
trade balance, which for many years amounted to $4 billion to $5 billion, has
gradually disappeared. Largely because of the inflation of the last few years,
we have become less competitive in world markets, and imports have Increased
substantially. A retum to price stability is absolutely essential if our balance

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of payments is to get into anything like equilibrium and the dollar's strength is
to be maintained.
It will be necessary to ask Congress for an immediate increase in the debt
limit. President Nixon and I discussed this with Chairman Mills and Congressman Byrnes of the House Ways and Means Committee and we will send a request to the Congress shortly. On January 21, the total debt subject to the $365
billion ceiling—or outside limit—was $364.2 billion—a leeway of only $800 million.
Our estimates indicate that in mid-March and again in mid-April—just before
the heavy tax receipts come in—we shall be very low on cash and close to or
above the limit. By June 30, our flgures indicate, we will be within the celling
of $358 billion which is effective on that date. Yet, there is no room for any
contingency. There will be need to increase the limit to meet the projected budget
for fiscal 1970.
A final matter that I will comment on briefly tonight is tax reform. Hearings
will begin this month in the House Ways and Means Committee. President Nixon
has emphasized that tax reform and equitable tax administration will have a
high priority in his administration. He has requested me to begin promptly a
review of the tax structure and submit to the Congress the Administration's
proposals.
First, we have the question of equity. Are all Americans in similar circumstances paying approximately the same amount of taxes? Recent tesitlmony by
the outgoing Secretary of the Treasury suggests that they are not. We are now
developing our own tax reform proposals. We will review and draw on the recently
released Treasury study and proposals prepared by the last Administration. But
the recommendations for tax reform which we expect to present to the Committee
on Ways and Means will be the recommendations of the Nixon Administration.
Second, at President Nixon's direction, the Treasury Department is giving
careful consideration | to proposals for the responsible use of tax incentives to
encourage private business to participate to a greater extent in improving economic and social conditions in poverty areas. Attention is being given especially
to tax incentives to improve employment and Income opportunities for poverty
area residents.
The Treasury Department is giving high priority attention to these two questions of tax reform and tax incentives. We expect to make at least our flrst recommendations on these matters to the President, and as appropriate, to the Congress
as soon as possible.
. Third, our whole tax system—State and local, as well as Federal—would
beneflt from a careful and searching reexamination. These issues are long run in
nature and involve the strength of our domestic economy, our intemational financial and economic position, the capacity to generate revenues to meet national
needs, the appropriate distribution of revenues among the different levels of
government in relation to their fiscal responsibilities, and many other factors.
We shall be discussirig approaches to this long run problem within the Administration and with Congressional leaders in the period ahead.
As I look to the future, I not only have hope, I have confidence that we can—
working together—meet our challenges. This can and will be the heginning of
a new era. Under the leadership of our President, performance will replace
promises, confidence and unity will be restored in our cities and communities
and a way will be found to bring peaceful solutions to world problems.
I am sure each of us has a favorite Lincoln story. I would like to close
with one that I enjoy and one that has meaning to us as we join in this new
Administration.
A certain party came to Mr. Lincoln, saying: "President Lincoln, General
McClellan criticizes you unmercifully. I don't see why you stand for it." President Lincoln responded by saying "General McClellan has his responsibilities on
the field of battle. If it would help him win victories, I would gladly hold
the reins of his horse."
Exhibit 15.—Statement by Secretary Kennedy, February 19, 1969, before the
Joint Economic Committee
It gives me great pleasure to appear
I am accompanied ori this occasion by
Under Secretary for Monetary Affairs
are to concentrate mainly on domestic

before your distinguished committee.
Under Secretary Charls Walker and
Paul Volcker. I understand that we
economic matters this morning. Your

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215

committee has already received testimony earlier this week from the Council
of Economic Advisers and the Bureau of the Budget. Therefore, we will not
attempt to review the economic and fiscal situations in great detail. Our prepared
statements are fairly short. I will begin by giving you my own general appraisal
of the current situation. The Under Secretaries will then comment briefly on
specific issues in tax policy and debt management.
It is no secret that there are serious flaws in the economic picture. Strong
inflationary pressures and an unsolved balance of payments problem require
corrective action. But, there are also elements of great strength. American productive achievements in recent years have kept real income rising while also
meeting the requirements of a rapidly expanding defense effort. Unemployment
has been reduced to the lowest levels in nearly two decades. The dollar is strong
and respected in the world in spite of recent inflationary trends and a deteriorating trade balance.
As a nation, we are rich in material resources and responsive to the needs
we see around us. Our conscience has been awakened to the existence of poverty
amidst plenty and the need to make equality of opportunity a reality for all
of our citizens. These heavy responsibilities must be met. To do so, the flrst
priority must be to place the current expansion on a sounder and more sustainable basis. Otherwise, we run the risk of trying to do too much and end up
by doing top little.
Any Incoming Administration encounters unsolved problems and we have our
share. We have inherited a serious Inflation. It is distorting the economy and
weakening our international competitive position. If unchecked, this inflation
will undercut the dollar at home and abroad. Already, rapidly rising prices have
eroded the purchasing power of millions of Americans who counted on their
Govemment to provide sound money.
We recognize that there are risks in attempting to stop inflation too abruptly.
If the economy were to be halted in its tracks, unemployment would rise prohibitively. Even though the inflationary psychology might be broken, the cost
would be too high.
There are also risks in doing too little. Insufficient restraint would mean
only a brief slowing down of the economy and no lasting reduction of Inflationary
pressures. Something very much like this occurred during the course of 1967,
when expansionary policies were pressed so vigorously as the economy slowed
that the inflationary trend was never broken as a result. Inflation has built up
a considerable momentum in recent years. The lesson is that the economy must
be placed under flrm restraint until there are unmistakable signs that we are
headed back on a noninflationary path. There will, of course, have to be a continuing review of policies as the adjustment proceeds.
For the present, given the economic outlook as outlined to you by the Council
of Economic Advisers, a combination of fiscal and monetary restraint is clearly
required. The budget should be kept in surplus while the Federal Reserve
pursues appropriate complementary policies. While the Administration has
reached no final decision with regard to extension of the 10 percent surcharge
beyond this June 30th, a budget surplus will continue to be needed if inflation is
to be combatted without extreme credit stringency. Unless flscal 1970 Federa.1
expenditures can be cut back appreciably from the levels now apparently in
prosi>ect, there will be no choice, in my opinion, but to continue the surcharge
for another year.
Other matters for legislative consideration will be described by the Under
Secretaries. As you know, President Nixon has emphasized that tax reform
and equitable tax administration are to have a high priority. Hearings begin
this month in the House Ways and Means Committee and in due course we
will be submitting the Administration's proposals.
The balance of payments continues to be a cause for concern. A small surplus
was recorded last year on the liquidity basis of calculation. But this statistical
improvement reflected a massive inflow of foreign capital^both private and
official. Inflows are unlikely to continue on that scale. Meanwhile, our merchandise trade surplus dwindled to the vanishing point last year. A major
reason for the steadily worsening trade position since 1965 is the sharp increases
in imports caused by overexpansion of the domestic economy. A return to noninflationary growth is essential to the restoration of our trade surplus and the
maintenance of confldence in the dollar.

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In conclusion, I will only note that much the same ecoriomic policies are needed
to promote internal and external equilibrium of the economy. Both the domestic
economy and the balance of payments are badly in need of relief from inflationary strains and distortions.
Exhibit 16.—-Excerpts from remarks by Secretary Kennedy, April 15, 1969, before
the Executive Committee of the AFL-CIO, White Sulphur Springs, West
Virginia, on economic and financial policy
At the outset, let me recall Samuel Gompers' response when he was asked,
"Exactly what do you want for the American working man?" His reply, as you
well know, was: "More! More! More!"
Within the bounds of reason and fiscal prudence, so do I. .And so does the entire
Nixon Administration.; However, we don't want it to stop with labor. We want
more—and more—and more^—for every segment of our population.
This evening, I want to discuss the most serious obstacle to achieving more
and more and more fOr all Americans. You know very well that I'm referring
to infiation—to that irisidious enemy of prosperity that riddles the economy and
threatens the pay envelopes and living standards of all of us including labor.
President Nixon and the economic and financial policy team I represent have
assigned the defeat of Inflation the highest priority.
In all candor, an insidious inflation is close to having our great economy by
the throat. But I assure you of my deep conviction, shared by the others who
advise the President in such matters, that for the task of breaking the grip
there is strength to spare in both the economy and the people who make it go.
We should not panic. But neither should we underestimate, as has happened in
the past, the diverse and persistent forces with which we are dealing.
I do not really belieye that labor leaders like yourselves need to be reminded
of labor's stake in a successful outcome of the flight against Inflation. Nonetheless it is instructive to contemplate for a moment what has happened to takehome pay since 1965. There is broad agreement that 1965 was the year in which
inflation began to get away from us.
Looking at data from the Bureau of Labor Statistics we find that in terms
of constant dollars—meaning what the money will buy—^the spendable average
weekly earnings of production and nonsupervisory workers (in private nonagricultural employment and with three dependents) climbed steadily through
1964, when it stood at $76.38.
But between 1965 and 1968 as inflation began to do its work, the figures for
these same earnings level off, holding for the 4 years at an average of $78.42
in a range between $78.13 in 1967 and $78.61 in 1968.
Now I fully realize that these data are but one measure of the problem but
they are representative of what has happened. They are simply not consistent
with the reasonable arid feasible goal of steadily improving fortunes of American workers in a healthy, soundly expanding economy.
They are a measure of the trouble inflation has caused and a signal of
deterioration to come if we do not act with prudence and firmness—above all with
firmness.
And I would remind you that the fi^gures I have cited tell nothing about what
is happening in that sector of the labor force where unemployment is highest
because the potential workers in it lack the skills that spell a steady job.
Familiar, too, are what inflation does to the kind of savings that are most
commonly made by low! and middle Income families. Under present circumstances
they are lucky if they get the same value out that they put in, much less realize
a legitimate profit from letting others use their money.
As I have so often 'said, this administration has made up its mind to slow
inflation down signiflcantly and to show progress on the problem this year. The
fiscal tool at hand for this purpose is increasing revenues and lowering expenditures in order to exert some spending restraint by the Federal Government on an
over heated economy. The President said: "The Government must be willing to
impose upon itself the same new discipline that inflation and rising taxes have
imposed upon the American wage earner and his family."
You gentlemen may have noticed that the Nixon Administration has been
accused in some quarters of too much talk about intentions to solve problems and
too little action to get on with the actual solutions. It is not really a very perceptive

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217

criticism, but in any case I would argue that it certainly has no merit with regard
to fiscal or budgetary matters.
This administration intends to live within its means.
The first order of business in our battle with inflation is to assure a strong
budget surplus. This requires extension of the income tax surcharge, plus carrying
out the President's proposed budgetary reductions.
The budget proposals call for a total reduction in expenditures of $4 billion in
flscal 1970 from the revised budget inherited by the Nixon administration. Military cuts account for $1.1 billion of total savings. Other sample reductions
include: $185 million in foreign aid spending; $140 million in outlays by the
Atomic Energy Oommission, and the space program; $345 million in agricultural
and natural resources outgo; $420 million in postal and transportation budgets;
and $150 million from other programs.
There are also readjustments in projected human resources spending. By paring
judiciously and reorganizing to gain efficiency we have managed to budget $390
million less for these programs than was projected. Bear in mind, however, that
the 1970 budget provides for an increase of $6.5 billion over 1969 in domestic
programs.
These proposals will be submitted to Congress and, of course, are subject to
disposition by your elected Senators and Representatives.
While projecting revenues is an Inexact science, we expect a budget surplus of
at least $5.8 billion, the largest in 18 years and the fourth largest in our history.
As the President said, we believe a surplus of this size is a clear signal that we
are getting our house in order.
A second tool which will assist us in our efforts to control inflation, will be a
monetary policy pointed toward restraint, which will work in harness with fiscal
policy. Toward this objective, the Federal Reserve Board recently further limited
expansion in the supply of money and credit by again raising the discount rates,
and as a new step raising reserve requirements of member banks.
The efforts of a restrictive monetary policy already had heen refiected in slower
growth in bank credit and the money supply in the first quarter, as compared with
a very strong Increase in the monetary aggregates during 1968.
There is no doubt in my mind that the economy can take this strong medicine.
Nor should you doubt that we are sincere about moving to stop it—to let the
surcharge die—as soon as an end of the Vietnam War, or other changed factors,
will permit. Meantime, however, we would be derelict indeed if we did not insist
that the medicine be swallowed. The alternative to curbing inflation, which is
simply a further spiral ending in a "bust," would be catastrophic.
If that happened, efforts to solve the social problems of poverty, urban blight,
unequal opportunity, and all the rest would simply go glimmering. Indeed these
problems are one reason we are in such deadly earnest about curbing inflation. It
is only from the platform of a healthy economy that effective social improvement
programs can be launched with any real hope of success.
Now before I speak of what we propose to do on reforming the tax structure,
let me touch briefly on the prominent question of whether we can throttle down
inflation without throwing people out of work. My answer here is that if we keep
our nerve in doing the things that must be done, and stressing that we are talking
about temporary measures, we think we can bring it off without a significant or
substantial rise in unemployment.
Of one thing I am convinced: Unless we do succeed in bringing inflation under
control this year the problems will increase to the point where it can only be
changed at a very heavy cost in terms of unemployment.
I would point out that labor is generally scarce these days and that a fair
amount of the time would pass before employers, having acquired and trained
a work force, would lay workers off. Of course, my view is well known that the
real employment problem is not in numbers, but their distribution and in the
skills which the economically disadvantaged need to be taught if we are truly
to progress in this fleld.
And now for a word about taxes, which may be singularly appropriate since
some of you may have less than 4 hours in which to send a certain piece of mail,
check enclosed, to one of my employees.
There are many, including some members of Congress, who believe that for
reasons of equity and justice, tax preferences should be closed before, or coincident with, extending the surcharge.

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We agree, equity and justice demand that preferences be closed. But this is a
very tough thing to do. To repeat a well known phrase, "One man's loophole is
another man's living." Permanent revision of the tax laws is a long, tedious
process, and it cannot and should not be considered an economic substitute for
the extension of the surtax.
In terms of priority, our mission is simple: in putting the needs of the nation
first, we must have the surcharge now, before it expires. At the same time we will
begin the arduous task of revising our tax structure.
Let there be no riaistake in the minds of the American people: As our tax laws
stand today, unfair burdens are imposed on some, while special preferences
granted to O'thers are just as inequitable. We know this, and we intend to do
something about it.
This administration,; working with the Congress, is determined to bring equity
and. fairness to its tax code. Our goal is meaningful reform legislation in this
session of Congress.
President Nixon will send a special Message to Congress very shortly, outlining
in general terms the scope of our reform proposals. Next week, the Treasury will
present those proposals, in detail, to the Congress.
While I cannot go into specific details of these proposals, let me touch upon a
few areas the Treasury staff has been intensively studying since January.
There have been mariy reports about a Treasury plan to assure that no wealthy
person can escape paying his fair share of taxes. These reports are true.
The proposal being looked at for a tax on persons with large amounts of currently sheltered income would place a 50 percent ceiling on that amount of an
individual's total income that could enjoy tax-preferred status.
The belief is that our proposal limits preferences while it also takes a giant
step toward simplicity and equity.
There are also other areas under study, including the problems of allocation
of personal deductions, the tax treatment of conglomerate mergers, the abuse of
the special tax exemption for small corporations, exempt organizations, including private foundations, the rules affecting charitable deductions, and the tax
treatment of mineral production payments.
Now, let me make it as clear as one can, this brief recital of areas under
careful scrutiny since January is not necessarily an outline of what will be
Included in the President's tax reform proposals announced later this week.
It does indicate the breadth of our studies, and it means that these and many
more areas will all be dealt with during the course of the coming months.
I think it is appropriate here to point out that the revenues derived from
possible changes I have described would probably make possible the extension
of some benefits to taxpayers in the lower and middle income brackets. We
have under intensive study several proposals to lighten the tax burden of as many
of these people as we can, and in the course of the next few months our proposals in this area will be made public.
Our mission is to keep faith with the American people. We will not promise
what we cannot deliver. We are committed to take every step necessary to
protect the wage earner, the farmer and husinessman. We will take every step
necessary to protect real income from erosion.
Only a combined policy of a strong budget surplus, and a coordinated monetary policy of restraint, can now be effective in battling inflation. This is fundamental, and as President Nixon has said on many occasions, we intend to deal
with fundamentals.
I thank you.
Exhibit 17.—Statement by Secretary Kennedy, June 19, 1969, before the House
Committee on Banking and Currency, on interest rates
I understand the purpose of today's hearing is to seek answers to two important questions:
(1) What were the reasons behind the recent increase in the bank prime
lending rate of S^/^ percent?
(2) What policies should the Federal Government follow to create conditions
that will result in a lower level of interest rates?
It is essential that we consider these questions, and I welcome this opportunity
to offer some observations on them.
The high level of interest rates which exists today is largely the result of
three major influences.

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219

First, the overall demand for credit remains strong. This large demand is
stimulated by continued economic expansion in a broad range of economic
activities, especially for the financing of capital investment. The demand is
reinforced by the expectation of continued inflation.
Second, the behavior of interest rates is peculiarly distorted by the impact of
inflation, both actual and expected. Interest is the price paid by a borrower for
the advantage of using a fixed sum of money now and repaying the same fixed
sum at a future date. When there is an expectation of stable prices, the interest
rate reflects a normal return on capital and a risk adjustment based on the
borrower's credit worthiness. But when the expectation of unabated inflation is
widespread, the unprotected lender must charge—and the borrower is willing
to pay—a premium to compensate for the decline in purchasing power of the
funds to be repaid. The incorporation of this inflation-adjustment charge into
credit contracts is a major factor in today's high level of rates.
Third, the large role played by monetary policy in the effort to control Inflation
has put substantial upward pressure on Interest rates. Monetary policy influences
real economic activity through changes in bank credit and money supply. A
program of economic restraint which relies heavily on monetary policy, thereby
restricting the supply of money and credit, is likely to lead to higher Interest
rates in the short run. Of course, as inflation is brought under control. Interest
rates can logically be expected to decline.
I believe these three influences—strong demand for credit, excessive inflation,
and heavy reliance on monetary policy—basically explain the general level of
interest rates.
My primary concern is with the second question under consideration today—
what policies should the Government follow to create conditions that will result
in a lower level of interest rates? I assure you that no one in this hearing room
is more anxious to see lower interest rates than the Secretary of the Treasury.
This Administration is determined, therefore, to pursue anti-inflationary policies
which offer the most promise for achieving effective relief from the current
rates.
The appropriate policy prescription for achieving the desired reduction in
the level of interest rates is clearly dependent upon the real nature of the current
problem. If, for example, today's rates were the result of concerted discretionary
action hy large banks with the power to escape normal market tests, which I
do not believe is the case, then a possible course of policy would be to seek
legal remedies. If, on the other hand, these high rates are fundamentally the
result of the three major influences I have outlined, then the proper policy is
one of strong flscal restraint, expenditure reduction, and surtax extension—
such as this Administration has proposed.
I have a deep appreciation for the widespread concern expressed over the
recent prime rate Increase. Indeed, I have previously made clear my serious
doubts as to the ahillty of interest rate Increase to effectively ration credit at
this time, and I would today urge all lenders to use other methods to make those
difficult credit allocation decisions which the present situation clearly demands. We are entitled to expect such responsible behavior from our flnancial
institutions. They, in return are entitled to expect the Government to take the
actions that are necessary to restrain inflation.
I do not, however, favor reliance upon a strategy of selective application of
administrative pressures to force particular firms in competitive industries to
reduce prices. This approach merely treats symptoms, not basic causes, and
provides no effective or lasting relief from the problem of inflation.
A policy of selective Govemment intervention to roll back price increases
knows no limits in actual application. Where does one draw the line? The Administration has been urged not only to roll back the prime rate, but also to take
direct action against increases in certain commodity prices, and in construction industry wages. This arbitrary approach is ineffective, without legal sanction, and devoid of clear guidelines or effective remedies for the flrms involved.
Moreover, such action in the case of Interest rates can increase demand and
inflationary pressures and 'adversely affect certain sectors of the economy, such
as housing.
All of this emphasizes the pressing need for full extension of the surcharge,
as reported by the House Ways and Means Committee, and enactment of the
other fiscal measures proposed by this Administration. Inflation and inflationary
expectations have taken a very strong hold on the economy. The prime rate
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increase is the latest dramatic evidence of that fact. Any backing away now
from our policy of restraint—'any reduction in tax rates while prices are climbing
at a rate of 6 percent a year—^is simply an invitation to more and more inflation and, ultimately, a severe and painful economic adjustment.

Exhibit 18.—Remarks by Under Secretary for Monetary Affairs Deming,
August 27, 1968, before the Graduate School of Banking, University of Wisconsin, Madison, Wisconsin, on the domestic and international monetary
situations
The theme of this talk might well be—"When you are Number One you
have to try harder." Superpower status, leadership of the free world and the
biggest and strongest economy in the world bring unquestioned benefits to the
United States and its people. But they also bring great responsibilities. In the
international field, these involve using the power and leadership wisely and
constructively, including the honoring of commitments. They involve operat-.
ing the domestic economy so that it grows steadily and sustalnably, not only for
domestic benefit but also because it is a major factor in world economic growth.
In the domestic field, these responsibilities involve just Government under
law and the equitable sharing of the fruits of a growing economy.
These responsibilities are not easy to carry—either at home or abroad. They
are particularly difficult to carry in periods of rapid change. For,, in such
periods, 'attainment of some expectations brings greater expectations. A major
tenet of economics is ;that man's wants are insatiable—this provides the drive
for economic growth. The expression of this point in raw political terms is:
"What have you done for me lately?" Record breaking is an old American
habit, and the drive to surpass is a major factor in American life. All of this is
as it should he, but it does not make life comfortable for Number One or its
leadership.
I am here to talk to you tonight on the domestic and international monetary
situations. It seems desirable to do this against the broad background of eco^
nomic developments in this period of rapid change and against the background
of prospective future change—and of what needs to be done in the future. For
what we have achieved so far provides a base for greater and necessary achievements in the years ahead.
. I need not—in fact, I cannot—^cite all of the problem areas of the future.
We have made great progress over the past several years. But change begets
change; new needs and new problems that cannot now be foreseen will emerge.
On the domestic side, we have attained extraordinary economic growth, and
one broad economic problem now is to insure that growth is at a sustainable
rate, so as to avoid both the problems of Inflation and deflation. But our prosperity has not solved the problems of our urban ghettos, and we need to improve much more the environment of our rural life. We face ever increasing
demands for better health facilities, for better transportation facilities, for
expanded educational facilities, for improved public safety.
On the international side, we have made great progress in economic cooperation, in expanding wqrld trade, and in improving the intemational monetary
system. But we still have a balance of payments problem; we need to improve
our own trade posltiori; and the monetary system will undoubtedly need further
improvements.
The record of the sixties
You will recall that, when this decade opened, there were two broad economic
themes under discussion. One expressed dissatisfaction and concern.
—Soviet Premier Krushchev had said in the late 1950's that Russia would
"bury us" economically.
—^The U.S. growth rate was compared unfavorably with that of Western
Europe and Japan.
—Economists were worried about the frequency of recessions and the upward
drift of unemployment.
—People talked about the "technology gap," the "educational gap," and the
problems of automation.
The other theme was optimism over the prospects for the "Soaring sixties."

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—There was room for economic expansion.
—The New Economics could insure much greater growth.
—Few regarded the halance of payments as a serious or continuing problem.
—The intemational monetary system seemed strong, almost impregnable.
Basically, except for views on the balance of payments and the international
monetary system, the optimists were right. The sixties did soar; by mld-1965,
the broad economic problem was that of preventing prosperity from becoming
inflation and the better sharing of that prosperity.
Let me give you a few details.
From early 1961 to mid-1968:
—Our gross national product at current prices rose almost $350 billion, or
69 percent.
—In real terms, adjusting for price increases, the rise was $267 billion, or 46
percent.
—.Jobs Increased by 1 0 ^ million; total employment in July 1968, was 77.7
million persons.
—The unemployment rate fell from 6.9 percent to 3.8 percent.
—'Industrial production increased almost 60 percent.
—Aftertax personal Income grew by $232 billion, or 65 percent.
—Aftertax corporate profits rose by $26 billion, or more than doubled.
What did we do with this growing abundance? Were we profligate or prudent?
—Personal consumption spending rose $200 billion, or 60 percent.
—But, liquid savings of the American people increased from $400 billion in
1960 to $675 billion today.
—And nonbank business net working capital was $132 billion in 1960 and is
$205 hillion today.
—And public and private expenditures on education rose from $27 billion to
$52 billion; on health from $27 billion to $50 billion.
—And annual investment in manufacturing rose from $14l^ billion to $27^2
billion.
On balance, I think you would say that Americans were prudent rather than
profligate. And the record becomes even more impressive when we consider that,
in the sixties, this bigger economic pie that was baked enabled 13 million Americans to move out of the poverty category and enabled 11 million more families
to reach more than $10,000 in annual Income, two and a half times the number
enjoying such incomes in 1960. The benefits were shared by both blacks and
whites. Complete sharing may not have been attained, but two statistics tell a
lot. Between 1960 and 1968, the percentage of nonwhites tn poverty dropped
from 55 percent to 35 percent, and the percentage of nonwhlte high school
graduates rose from 39 percent to 58 percent.
These are solid achievements, and they came primarily from American economic growth—the bigger pie—rather than from Income redistribution. They
came from an American economy operating efficiently and at close to capacity—:
sometimes a bit over capacity. They came from economic policies that, on the
whole, were well conceived and well executed. We did, of course, have delays both
on tax cuts and tax increases—the record is not perfect—but Federal income
taxes were cut by 20 percent in 1964 and stimulated growth, and were Increased
by 10 percent in 1968 and will help contain inflation.
Let me now turn briefly to the international side. Here the basic policies
established at the close of World War II and pursued by four Presidents evolved
further in the 1960's. The American program was to work toward building a
growing world economy in which trade and payments can expand soundly and
move freely. The major shift in the 1960's was Increased emphasis on cooperation with the nations which we had helped rebuild their economic strength. This
development was a natural outgrowth of our policy of help for the world, which
we had pursued almost singlehanded for many years. As other nations could
assume more responsibilities, we welcomed their help and worked cooperatively
to attain it.
In this international area, I list these achievements:
—Increased resources in the Intemational Monetary Fund, backed up by the
General Arrangements to Borrow.
—The swap networks—^the Federal Reserve network alone is now $10 billion.
—^Expansion of multilateral aid through Increased resources of the World
Bank, and the emergence of the Inter-American Development Bank, the International Development Association, and the Asian Development Bank.

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—The new iSpecial Drawing Rights—a new form of internatipnal reserve.
—The reciprocal reduction of tariff barriers in the Kennedy Round.
—Cooperative arrangements to offset the foreign exchange costs of our military deployments abroad undertaken in the common defense.
—Cooperative efforts to meet monetary crises—in the United Kingdom, Canada, Italy, and, very recently, France.
This is a notable record on both the domestic and international sides. The
fact that we have not solved all of the old problems and that new ones have
emerged should not detract from it—but it also should remind us that we have to
continue not only to try harder but to achieve more.
Now, against this broad background, let us look at the domestic and international monetary situations.
The domestic financial situation
The key factor in both domestic and international monetary developments
recently was the passage of the tax increase—expenditure restraint legislation.
The significance of this legislation goes far beyond its specific fiscal effects, even
though these are important in themselves. The tax increase and its accompanying
expenditure restraint offer real prospect of restoring more balance to domestic
economic growth and should help Improve our foreign trade position. If the fiscal
package can be coupled with more restraint on wage and price policies by business
and labor, it should help to restore a substantial degree of price stability within
a reasonable period of time.
But, in both domestic and international financial markets, the tax-expenditure
legislation has had effects on atmosphere and expectations beyond its purely fiscal
impact. Both here and abroad, there had been increasing concern about the U.S.
will and ability to check its twin deficits—in the domestic budget and the balance
of payments. The long delay in enactment intensified that concern. But the final
action, in an election; year, almost magically dispelled much, if not all, of that
concern. It showed courage and responsibility and demonstrated the will and
capacity to manage Airierican financial affairs with prudence.
The dollar showed strength on the intemational exhanges, and the domestic
money and capital markets reacted with a remarkable Improvement in atmosphere and expectations. Key interest rates eased significantly. From the highs
of late May, when confidence in passage of the legislation was at its low point,
to last Friday, the 3-irionth bill rate fell 77 basis points. Treasury coupon issues
declined in rate from 50 to 90 basis points. One-year agency yields dropped almost
three-quarters of a point; Aa corporates were 69 basis points lower in yield;
and municipals were down 44 basis points. Only the traditionally sticky mortgage
rates had shown little sign of downward movement by last week.
The recent one-quarter percent cut in the discount rate of the Federal Reserve
gave further concrete evidence of an easier monetary climate. I cannot, and
would not, attempt to forecast the course of Federal Reserve policy or interest
rate developments. Nevertheless, it seems evident that, as fiscal restraint works
its way through the economy, there will be less need to pursue a highly restrictive monetary policy.; There is real reason to believe that the possibility of another credit crunch like that of the summer of 1966 has become highly remote.
The changed financial atmosphere has helped debt management operations
considerably, and the realities of Treasury demands in fiscal 1969 should help it
in the future. Our last financing was highly successful. We placed more than
$5 hillion in 6-year securities in public hands mthout undue market strain or
any visible signs of disintermediation—and at a yield 30 basis points below our
last similar, but much smaller, offering.
In fiscal 1968, the Federal budget deficit—on the new unified budget basis—was
$25.4 billion. We do not yet have a firm estimate for fiscal 1969, but the deficit
will most likely be at least $20 billion to $22 billion smaller, and that measures
the change in pressure the Federal budget will be putting on the market in fiscal
1969 as against fiscal 1968. This reduction in Federal Govemment demands means
that much more room to meet other demands for credit from bo'th private and
public—^State and municipal—sources. If there should be—as is widely expected—
some lessening in overall business credit demand, this would increase chances
for further easing of market conditions and in interest rates.
In the current half-year, July-December 1968, our total new money requirements are around $14.5 billion. This Includes both direct Treasury and net
agency needs. The bulk of this, $12.5 billion, is the seasonal deficit typical of the

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first half of each fiscal year. Expenditures are spread fairly evenly throughout
the fiscal year, but revenue collections in the first half are smaller than in the
second half.
Not only is the Federal Government requirement smaller for fiscal 1969 as
a whole, but we have already done a good share of the heavy first half's needs.
Of the $12 billion Treasury new cash needs in the first half, we have done $7
billion—$4 billion in tax anticipation bills in July, $1.5 billion in new cash in
August, plus $1.5 billion in the current expanson in 6-month bills. We also have
done about half the new agency cash borrowing. The Treasury does not need to
go to market for new money before late October and, most likely, will be able
to cover its remaining cash needs in this half year through tax anticipation bill
issues.
All of this makes life for a Treasury debt manager considerably easier than
it was in fiscal 1968 and much easier than during the 1966 credit crunch.
Financing new needs
But, if life is easier now and prospects are for lesser problems in Treasury
and agency finance throughout fiscal 1969, there are some major financing problems that lie ahead of us. I have referred to the problems of the urban areas;
obviously, we must find ways to meet them and to meet them in sound financial
style.
In a talk I gave in St. Louis in November 1965, I discussed in some detail
problems of coordinating the offerings of the multiplicity of Federal agencies
dealing directly with the market, each with its own scheduling problems and
each with fairly specific financing objectives or requirements. I also discussed
the growth and diversity of the underlying Federal credit assistance activities
which gave rise to these agencies. I suggested that we give pretty free rein to
the imagination in considering alternative approaches to improve the coordination of the financing of these activities and, thus, to -minimize the financing costs
and the impact on financial markets.
In October 1966, in New York, Under Secretary Barr also spoke of the problem
of coordinating the financing of the myriad Federal credit program agencies. He
suggested that perhaps the next step in this area might be the establishment of
a new central Federal lending corporation, which would obtain funds, for programs economically and efficiently by issuing its own obligations in the private
market.
On July 2, 1968, Vice President Humphrey suggested the establishment of a
National Urban Development Bank to help solve the central problems of financing the needs of American cities. This would be essentially a program for Federal underwriting of loans. The bank would be financed initially by an appropriation of Federal funds and then through subscription of private funds. It
would issue its own obligations in the market and would make loan funds
available through affiliated regional banks at varying interest rates to help finance publicly sponsored projects, especially, but not exclusively, in the inner
cities. Federal appropriations would be provided to cover the differential between
the interest rate paid in the market by the Bank and the subsidized rate to the
borrowers.
I believe that such an approach offers a basic solution to the long standing
problem of providing effective Federal financial aid to State and local public
bodies. The interest on obligations issued in the market by the bank would be
subject to Federal income taxation without involving the direct taxation by the
Federal Government of obligations issued by States and localities themselves.
This is the way we conduct our present programs of direct loans—since these
programs are, in effect, financed in the market with taxable Treasury bonds—
except that direct Federal loans require immediate Federal budget outlays.
The proposed new urban bank may require an initial Federal contribution but
would then require budget outlays only as necessary for interest subsidy payments over the term of the bank's borrowings. Since the bank would not require
actual Federal stock ownership, it would not be included in the Federal budget.
This broad-purpose urban bank would go a long way in meeting the financing
needs of the cities. It also would help avoid further proliferation of Federal
lending agencies and would have the advantages of size and flexibility in its marketing operations which would assure orderly financing at the lowest possible
borrowing rates.

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The urban bank proposal may also suggest the proper future Federal role in
the necessary Federal-State-local partnership to meet the growing credit
demands for public facilities. I believe that the Federal role should be primarily
that of guarantor. There is no reason why the Federal Government, itself, should
be getting ever deeper into the essentially administrative chores of loan origination and servicing which can be performed just as well or better by existing
private financial institutions or by new non-Federal institutions such as the
proposed urban bank. Nor is it necessary or practical for the Federal Government itself to build up a large portfolio of loans. The essential Federal contribution can be provided in. the form of debt service subsidies over the term of
the loans and Federal assumptions of the unusual loan risks.
While a Federal backstop behind the Bank's obligations is an appropriate
means of assuring the investor in these obligations against loss and /thus minimizing the Bank's borrowing costs, the Federal guarantee should not be expected
to be used, or looked upon as a means of providing further subsidy or protection
to the local communities themselves. The defaults on State and local bonds over
the past several decades have been virtually nonexistent, and I believe this
record should be maintained. The Bank can serve as a useful channel for Federal
interest and other subsidies for the benefit of local community projects; these
subsidies should be in predetermined amounts sufficient to make the local projects
economically viable. Any loan made by the Bank should have a reasonable assurance of repayment. The management and staffing of the Bank should be of the
highest caliber. I think these principles are essential to the establishment of the
Bank in the private market on a businesslike and fully self-supporting basis.
The Bank should also not be viewed as a substitute for sources of credit already
available in the private market. As the Vice President stated in his July 2 speech,
the funds of the Bank would be available for programs which cannot be financed
through other means.
There should be firrii control by the Congress over any subsidies provided to
local commnnltles through the Bank. While it would be essential to the efficient
m'arketlng of the Bank's obligations to provide advance assurance that Federal
interest subsidies will be forthcoming in a timely manner to meet the Bank's
own debt service requirements, this can be done without any loss of oongressional
control by requiring regular approval by the Congress of the dollar volume of
new obligations Issued by the Bank with a Federal commitment to pay part of the
debt service.
The U.S. balance of payments
I turn now to the: international side and want to talk first about the U.S.
balance of payments. And, to provide proper perspective, I want to go back to
the World War II period.
Here, for the record, I must Interject a brief technical note. In discussing the
balance of payments, I find it useful to consolidate the various and numerous
receipt and payment accounts into three broad categories—trade and service,
military and Government, and capital. The measurement of deficit or surplus
does not change, and I use the so-called liquidity concept. In the capital account, .
I include all private outflows on direct and portfolio investment and all public
and private Inflows. But I also Include all Government and public income receipts
and payments and th^ catchall "Errors and Omissions." The military and Government account Includes mainly Government grants and capital plus military
transactions net of military sales, but also Government pension payments to
recipients living abroad and some Government receipts and payments for miscellaneous services. The trade and service account includes everything else—
nonmilitary exports and imports, both privately and publicly financed, travel,
transportation, miscellaneous services, and pensions and remittances. The primary differences from conventional accounting are the inclusion of income on
Investments on the capital account and the consolidation of most military and
. Government expenditures and receipts. From my point of view, these groupings
make it easier to see the picture.
In the 17 years from 1941 to 1957, the United States had a cumulative deficit
on the liquidity basis of less than $10 billion, or less than $600 million per year
on the average. We had a cumulative surplus on trade and services of $89 billion,
or $5.2 billion a year. We had a deficit on military and Government transactions
of $112 billion, or $6.6 billion per year. From 1946 to 1957 alone, we extended
economic assistance in grants and loans of $42 billion net. On capital account, we

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225

had a surplus of $13 billion, or $800 million per year. And, despite our overall
deficit, we gained gold reserves which, at the end of 1957, were $800 million
larger than at the ibeglnning of 1941.
The point, of course, is that the United States was not in a real balance of
payments deficit throughout that period, even though, on an accounting basis,
we ran deficits in 11 out of 17 years. Both in the war years and the postwar
years, we employed our great economic strength first to assist our allies and then
to help rebuild a wartorn world. In that process, we loaned or gave away a lot
of money which went first to buy our goods, since only the United States had
major production resources virtually untouched by the war, and, second, to
buildup the international reserves of the rest of the world. Most of that reserve
buildup was in the form of dollar claims—as noted, we actually gained gold
reserves. The dollar was not only as good as gold—it was better.
We were not patsies during this period; we exercised the responsibilities of
a great 'power and helped rebuild the world. We suffered discrimination against
our trade, but it meant little, for we had most of the goods to sell abroad. There
was a dollar shortage. The only reason foreigners did not buy more from us was
that they did not have more money. Our capital markets were open and we
encouraged their use. We picked up most of the checks for insuring free world
security. We tried to increase our foreign private investment. We encouraged
our tourists to go abroad and make substantial purchases there.
But during this period, two things were occurring. On the one hand, we were
experiencing a fairly steady shrinkage in net Inflow on trade and services account.
This was a joint product of some decline in our trade balance, as imports rose
more than exports, and some further deterioration in our service balance as
travel and tourism rose. The net trade and service balance averaged $6.9 billion
from 1946 through 1949 but only $2.4 billion from 1950 through 1957. The annual
average of military and Government outpayments net dropped by $1.7 billion
from 1946-49 to 1950-57, but this obviously did not offset the trade and service
decline. On the other hand, neither we nor the rest of the world did much of anything about the consistent deflcit. The rest of the world began to worry atoout the
U.S. deflcit hut did not want to stop having surpluses. We apparently just continued to be willing to run deficits.
The next 10 years saw a far different set of circumstances. We ran a cumulative deficit of $27 billion, or more than four times the annual average of the
1941-57 period. We lost $11 billion in gold and financed most of the rest of the
deficit by increasing dollar claims against us. Thus, we not only lost gold reserves
but our liquidity ratio deteriorated quite sharply.
By the close of 1960, it was painfully evident that the U.S. deficit was no longer
regarded as a blessing but as a destablizing element in the world moneitary system. Our trade and service balance had shrunk further, and our small surplus
on capital account had turned into a small deficit. Military and Government
account deficits, which had been declining, were moving back up to bigger figures.
The overall deficit in the three years, 1958-60, totaled $11 billion, or $3.7 billion
per year.
With the American economy operating well below capacity in 1960 and 1961,
there was nothing to be gained and much to be lost by following the classical
remedy for balance of payments improvement—deflation. One thing we, and the
rest of the world have learned is that sharp deflation is not an acceptable balance
of payments cure. It hurts the world as a whole, as well as the deficit country.
Curbing inflation, of course, is another matter—that is still good doctrine, and
we are trying to employ it now.
But there is another reason for not depending solely on sharp deflation to
cure balance of payments ills for the United States. Much of our difficulties came
from adverse balances on military account, on tourism, and on capital outflow.
The foreign exchange costs of our worldwide defense alliances simply are not
susceptible to being reduced by general fiscal and monetary policy. Gross outlays
in this account amount to about $4.3 billion per year, and the impact on our
payments position, even after netting receipts from sales of military goods, is
about $3.3 billion. The only logical way to reduce the net drain is to implement
further—as we are doing to some extent—the accepted principle that the foreign
exchange costs of common defense efforts should be neutralized.
Tourist expenditures also are not closely related to fluctuations in economic
activity but more to the growing number of people with high Incomes. Our net
tourist deficit last year was about $2 billion. And, while some capital flows are
closely related to interest rates, much capital export reflects other factors.

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The flrst actions to reduce the U.S. payments deflcit took the form of reducing
the foreign exchange costs of Government spending overseas. Savings in this
area, plus improvement in our trade account, reduced the deflcit from $3.9
billion in 1960 to $2.2 billion in 1962. But then capital began to flow out in
increasing volume—'partly beca'use we generated large savings and had large
capital markets; partly because of investment opportunities overseas; and
partly hecause the long campaign to increase U.S. foreign investment had gradually won many converts. The net capital outflow -was less than $500 million
in both 1962 and 1963; it jumped to $2.6 billion in 1964. The Interest Equalization Tax, in 1963, and the voluntary programs to restrain direct investment and
foreign lending in 1965 turned the net capital outflow into net Inflow in 1965,
1966, and 1967.
But the trade and services inflows were cut back sharply in those same years
and, from mild-1965| the rising foreign exchange costs of Vietnam Increased
the deficit on military and Government account. Finally, the unsettled condition of the pound sterling caused us trouble in 1967. The result was that, after
reducing our payments deficit to about $1.3 billion in both 1965 and 1966, it
skyrocketed up to $3.6 billion in 1967.
It was in that setting that President Johnson announced, on New Year's Day
this year, a new, complete and balanced program to eliminate the payments
deficit. The prograin was in two major parts.
—First, and of key importance, was the tax increase and expenditure restraint
to cool off the American economy and help restore our trade position. In addition, the President asked business and labor to exercise wage and price
restraint and requested avoidance of crippling work stoppages to prevent import increases or export reductions.
—^Second, five programs were aimed at particular and vulnerable segments
of our balance of payments. Two were in the capital field and were aimed at
reducing foreign borrowing in the United States and U.S. Investment abroad.
These were tailored selectively to have major impact on the surplus countries
of Western Europe and least impact on the developing countries. One aimed at
reducing the foreign exchange costs of Government expenditures overseas, with
heavy emphasis on neutralization of military expenditures Incurred in the
common defense. One was aimed at increasing exports, and one at reducing the
net outflows on tourism.
The program wlas an overall program, but not all of it has been put into
effect. The tax increase-expenditure restraint program was not enacted until
midyear. Nothing has been done to reduce tourist expenditures. The two major
capital programs came into force January 1 and have proved very effective.
The reduction in the foreign exchange costs of Govemment has also worked
out well.
The net result, so far, has been encouraging, but there is no cause for relaxation of our efforts. On a seasonally adjusted basis, the deficit in the last
quarter of 1967 was $1.8 billion. In the first quarter of 1968, it was cut to $660
million and, in the second quarter, to $150 million.
- :
In announcing the second quarter results. Secretary Fowler said:
"The program to date demonstrates that hold wise action can influence events
and developments. Complete pursuit of the full program, in full bipartisan
partnership, is the only course that will achieve and maintain equilibrium in
the U.S. balance of payments and thereby assure the soundness of the free
world monetary system."
That is the real point in seeking to bring the U.S. payments position into
balance. The long string of deficits had become a destabilizing factor in the
International monetary system and had eroded our own reserve and liquidity
position. It is in our interest and that of the world monetary system to come
into balance.
Passage of the tax increase-expenditure reduction legislation has improved
confidence in the dollar. It has been further improved by the strong measures
taken and the results achieved in our payments balance. But we cannot relax
our efforts until we attain sustainable balance.
The international monetary system
The international 'monetary system rests on four pillars:
—A strong and well-balanced U.S. economy with a strong dollar which holds
its puchasing power. As such, it can be invested profitahly in the U.S. money and

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capital markets and, thus, can be held as a safe international reserve or as a
safe and usable means for making international commercial payments.
—A fixed $35 per ounce official price of gold and a dollar convertible into gold
at that price by monetary authorities.
—Convertibility of other currencies into dollars at stated rates of exchange.
—Adequate international reserves and credit facilities to support the system.
I have already discussed the need to maintain a strong and well-halanced
U.S. economy and a strong dollar. The economic record of the sixties is a good
one; the recent fiscal legislation provides insurance for that record and for
the future.
I have also cited the achievements in international monetary cooperation during the sixties: the strengthening of the International Monetary Fund, the
development of the swap networks, the rescue operations, and the new Special
Drawing Rights plan now in process of legislative ratification in the member
countries of the Fmid. The United States too'k a leading position in developing this
new reserve asset; it should serve the world well when it comes into actual
existence.
There were two major reasons why worldwide agreement was reached on a
new reserve asset—^the Special Drawing Right. The first reason was that the
world needs fairly steady and assured growth in international reserves in
order to avoid a scramble for existing reserves and possible restrictive actions
to preserve reserve positions. World economic growth and international trade
growth require growth in world reserves. The second reason was that the
existing sources of reserve growth were inadequate or inappropriate to meet
demand. Most of the growth in world reserves in the postwar era has come
from U.S. balance of payments deficits. We have already noted that continued
large U.S. deficits were not desirable either from the viewpoint of the United
States or of the world. The U.S. balance of payments program aims at equilibrium; that means that additional dollars cannot be counted on to fulfill the
demand for reserves. And additions to monetary gold stocks have been inadequate
in amount for a number of years.
Fortunately, work on the new Special Drawing Right was in its latter stages
when the international monetary system underwent major crises in the fall
and winter of 1967 and 1968. The greatest factor of instability was the weakness
in sterling which culminated in devaluation at mid-November 1967. But the
Middle East crisis and the return to large deficit in the United States also added
to uncertainty. In this setting, a number of people became convinced that the
price of gold would have to be increased, and free market gold sales rose very
sharply.
The immediate outbreaks in late Novemher and December were not unexpected, following the devaluation of a major currency. The monetary authorities, acting quickly and with the cooperation 'and efficiency gained from
experience, contained the devaluation and its direct impact to relatively few
countries. They hoped that determination to hold the free market, as well as
the official price of gold, would restore stahility, give time to set firmly in place
the plan for the new reserve asset, and thus demonstrate the reduced reliance
of the world's monetary system on gold.
But the sporadic runs into gold continued, even after the sterling crisis
subsided and the new U.S. balance of payments program was announced. The
monetary authorities operating the Gold Pool began to question the desirability
of continuing to peg the free market price of gold. Following the renewed
heavy gold rush in March, they decided to take other action.
By their action in Washington on March 17, 1968, the members of the Gold
Pool effectively separated the private gold markets from what might be termed
the monetary gold market, composed of the existing stock of monetary gold.
"They no longer feel it necessary to buy gold from the market," said the March
17 statement, "in view of the prospective establishment of the facility for
Special Drawing Rights."
In Stockholm, at the end of March, the final touches were put on the new
Special Drawing Rights plan, and, as noted, it is now in process of legislative
ratification by IMF member countries. Possi'lbly by the end of this year, almost
certainly by early in 1969, the plan will be formally in place as the various
legislatures act.
Both at Washington and in Stockholm, the monetary authorities of the hig
countries reasserted their determination to keep the official price of gold at

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$35 per ounce. A large number of IMF member countries commented publicly
on the Washington Communique and pledged their backing to the official price and
to the "rules" of the two-tier gold system. Among the proposed amendments to
the Articles of Agreement of the IMF, the key document now in process of
ratification by all member parliaments, there is one that makes it much harder
procedurally to change the gold price. This move was originally suggested by the
Common Market countries and supported by the other members of the IMP.
Taken all together, I think it is crystal clear that the world's monetary authorities have nailed down hard the answer to the gold-price problem—there
will be no change in the official price.
The new two-tier system has worked very well. The free market price of
gold went as high as $42.60 in London in May. It subsequently receded to as low
as $37.50 and currently is around $39.50. You might note that even with heavy
speculation and increased hoarding, the free market gold price did not rise very
much. Market performance certainly does not indicate that the two-tier system is
very fragile.
Prance is the most recent case to demonstrate the strength and solidarity
of international monetary cooperation and the determination of the countries
of the world to make the world monetary system work. The riots and unrest of
late spring and early summer in France created another confidence problem
for the system, and the authorities moved quickly and decisively to meet it.
Prance drew on the IMP, and the big countries established a swap network
to ease the strain on French reserves. U.S. participation in this network is
$700 million.
Taken all together,; the world monetary system has performed well over the
postwar period, and monetary cooperation has increased and become even more
effective in recent years. The new plan for Special Drawing Rights will improve and further strengthen the system.
Conclusion
To conclude this talk, I return to my opening theme. Progress brings problems
but also makes possible the solutions to problems. We must try harder both to
attain continued progress and to resolve our current problems and those that
will emerge in the future. We will not attain all we want at once. But the
way to progress is to .progress. Change is the order of the day. It should and will
come quickly, but it should and will come in orderly and coherent form. To keep
this country strong is of key Importance. This means that change will come in
a climate of fiscal and monetary responsibility.
The United States,; if it is strong at home, will be strong abroad, and the
dollar will remain the key currency of the world. And, in that world, a strong
United States is an absolute must. But, in that world, we need to foster the theme
of cooperation, which has proved so useful in the past and will, without question, prove even more useful in the future.

Exhibit 19.—Remarks by Under Secretary for Monetary Affairs Deming,
October 7, 1968, before the 50th Anniversay Convention, American Gas Association, Philadelphia, Pennsylvania, on the domestic economy and the balance
of payments
The United States is presently in a period of political transition, with a new
Administration scheduled to take office in less than 4 months. Both major
parties have advisors and task forces busily engaged in appraising the current
scene, domestically and intematlonally, delineating the problem areas of today
and tO'morrow, and, hopefully, outlining policies to deal with them.
I propose to discuss with you two key areas—the domestic economy and the
balance of payments—and to cite to you two major financial problem areas of
the future.
In a period like the present, it is useful to take a double sighting—one into
the past and one into the future. The present high ground we have reached gives
us an excellent vantage point to look back over the path we have traveled.
It is obviously more difficult to see the path ahead, partly because we have to
look upward and partly because we have to build the path as well as travel it.

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The domestic economy
At the conclusion of the 1950's, most people looked forward to the glowing
prospects of the next decade—the soaring sixties. The major domestic economic
problems of the 1950's were slow economic growth—stop and go economic expansion with three recessions—and either sharp or creeping inflation. Not until
late in the period was the inflationary situation brought under reasonable control, and the decade ended with a recession. In real terms, economic growth averaged just over 3 percent from 1950 to 1960, which period includes the sharp
expansion of the Korean War. From early 1953 to early 1961, the real growth rate
was only 2 percent.
Prom early 1961 until now, the real growth rate has averaged 5.3 percent,
as the economy picked up to its full potential. This 92-month expansion has been
the longest and strongest in the Nation's history. And this has been accomplished with an average price increase no greater than in the previous eight
years.
Of course, part of this acceleration in growth of output was due to "makeup"
from the recession trough of early 1961—^putting idle resources to work. With
a full employment economy and little, if any, slack, the growth rate for the next
eight years will be smaller, since it. wiir have to rest almost entirely upon
growth—both in quantity and quality—of new capacity and increased manpower.
But, even so, this should permit an annual rate of real growth in the 4 percent to
4l^ percent range. Whether we achieve that range depends upon how well
both the 'public and the private sectors manage their economic affairs.
Let me illustrate what the costs of slower growth are and what we have
obtained from faster growth.
If the economy had grown from early 1961 through 1967 at the growth rate of
the previous 7 years, output in real terms would have run $120. toillion below its
actual level. That flgure is larger than the current total 'of Federal expenditures
on goods and services.
If the economy can be kept on a growth path of 4 percent tO' 4% percent for
the next 10 years, we can Increase national 'output by more than $400 Milion.
That figure is more than the current total output of the Common Market or
the 'Soviet Union.
Strong U.'S. growth in this decade so far has brought great material gains
both at home and abroad.
At home, since early 1961:
—'11 million new jobs have been created.
—Average income per person, aftertaxes and corrected for price changes,
has risen by one-third.
—13 million Americans have moved out of the poverty area.
—^In the past 2 years alone, more Negroes and other nonwhites have risen
ahove poverty than in the previous 6 years.
Abroad, the more vigorous American economy in the 1960's has naeant a more
vigorous expansion of world trade and a faster rate of growth in world output.
In an increasingly interdependent world economy, the economic performance in
each country is linked, in greater or lesser degree, with the economic performance of all countries.
So, the soaring sixties have been characterized by economic growth. With
proper policies, we should be able to continue on that growth path. And, if we
do, the American economy, running at capacity cruising speed, can continue to
be a mighty engine of economic and social progress.
But there are some problems^—both old and new.
The current expansion was unique in the virtual stability of costs and prices
up to mid-1965. Since then, costs and prices have risen far too rapidly and have
threatened to disrupt the domestic expansion and to undercut our competitive
position internationally.
A major factor in the recent imbalance has been the Federal budget deficit.
We had near balance in the Federal budget in fiscal 1965 and a deficit of less
than $4 billion in fiscal 1966. But, in fiscal 1967, the budget deficit was $8.8 billion, and, in fiscal 1968, it was $25.4 billion. These deficits, which had to be financed by borrowing, placed heavy pressure on domestic money and capital
markets already under pressure from rising demands of private enterprise and
State and local governments. Interest rates rose sharply in 1966, receded temporarily in early 1967, and then rose to new heights in the first part of this year.

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There was some fiscal restraint and sharp monetary restraint in 1966. We had
a crunch in the financial markets in the late summer of 1966. In January 1967,
the President's budget message called for Increased taxes for fiscal 1968, and,
in early August, a specific request for additional taxes went to the Congress.
Action was slow, but finally a tax increase-expenditure restraint program was
enacted into law in late June 1968. While the program was delayed, it finally
passed strongly, withj bipartisan support in an election year—an act of considerable political courage.;
The legislation, plus certain other fiscal actions, will reduce the Federal budget
deficit by some $20 billion from fiscal 1968 to fiscal 1969. This will mean a roughly
equivalent reduction; in Federal financing requirements and should produce a
significant lessening of pressures on the financial markets and some reduction in
interest rates.
'
It also should produce—as it is designed to—a needed "cooling-off" in the
economy, a measured slowing in the pace of domestic expansion and a reduction
in cost-price pressures.
Some observers profess to see dangers of fiscal "overkill" in the program of
fiscal restraint. While these dangers should not be dismissed out-of-hand, they
are unlikely to eventuate. The move to fiscal restraint has restored a much better
balance of effort between fiscal and monetary policy. Adaptation of the fiscalmonetary mix to changing circumstances can be done.
A major piece of unfinished business in the economic area is an effective program for cost-price stability. The association of low levels of unemployment
with price inflation is not a problem peculiar to the United States. All major
countries have souglit to devise some means to insure a workable pattern of
wage-price stability. None of these efforts can, as yet, be regarded as completely
successful. Some have worked very well—such as our own wage-price guideposts—until subjected to excessive demand pressures. But in no case has a completely successful approach been devised.
Formerly, it had been hoped that effective use of monetary and fiscal policy
might be sufficient to achieve full employment without inflation. But both our
own experience and that of every Western nation suggest that monetary and
fiscal policy, alone, are not enough. A Cabinet Committee on Price Stability, appointed by President Johnson, has been heavily engaged in a study of how to
effect a return to a workable pattern of wage-price stability. With fiscal restraints
in place, the economic environment next year should permit substantial progress
toward wage-price stability. The efforts of an incoming Administration in this
area will deserve full support.
Another set of problems—not new, but newly recognized—is in the social
area. Indeed, the contrast between affluence and poverty, between promise and
reality, has been sharpened by the demonstration that the economy can produce
relative abundance. A rising tide of expectations has threatened at times to outpace even the vast productive achievements of later years.
I shall speak later of specific financial problems in this area. Here, I merely
want to point out again that the American economy, running at full cruising
speed, has great capacity to produce social as well as economic progress. It will
be the task of the new Administration to insure continued capacity operation.
The balance of payments
I have spoken elsewhere, and in some detail, about the history and anatomy of
the U.S. balance of payments. Here, it is necessary only to give a brief backward
glance.
In any real sense, the United States did not have a balance of payments problem until the late 1950's. We did have statistical deficits in 11 of 17 years between 1941 and 1958, but the cumulative deficit, on the liquidity basis, was less
than $10 billion, or not quite $600 million per year. We actually gained gold
reserves in that period. The entire deficit, and more, was financed by increased
dollar holdings of foreigners. The dollar was not only as good as gold; it was
better, because the dollar holder eamed interest.
The basic reasons for our balance of payments strength were our overwhelmingly strong economy^ relative to a world just recovering from the ravages of
global war, and our equally overwhelming strength in our international reserves.
We had a large surplus on trade and services and a modest surplus on capital
account, if we consider the Income on foreign investment as well as the outfiow.
We spent heavily on foreign aid—both grant and loan—and we carried almost
all of the burden of free world defense.

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In other words, we acted the part of a great, a strong, and a responsible nation.
But, after 1957, there was a changed situation. The rest of the world had grown
stronger and more competitive—particularly the industrial countries of Western
Europe and Japan. Our surplus on trade and services shrank. We managed to cut
back some on Government and military expenditures abroad, but we continued
to carry a disproportionate burden of free world defense. And capital flowed out
in increasing volume. Even with rising returns on our foreign Investment, we
went from surplus to deficit on capital account—a deficit which totaled $2.5 billion in 1964, the worst year.
In just 3 years, 1958-60, we had a balance of payments deficit of more than
$11 billion—more than the total for the previous 17 years. Prom 1961 through
1964, the deficit was cut back, mainly by reduced expenditures abroad for military
and Government account and by a better trade surplus, as our costs and prices
were held steady. The average deficit for 1958-60 was $3.7 billion; for 1961-^, it
was $2.5 billion.
The balance of payments programs of 1965 and 1966 led to improvement in the
capital account, and the deficits were cut again—to an average of $1.3 hillion.
Then, in 1967, a whole series of events—most particularly the uncertainties in
the international exchanges, a rise in capital outflows and in the foreign exchange
costs of Vietnam, and some deterioration in our trade and service account—
brought the deflcit back to $3.6 billion.
The President's January 1, 1968, program was designed to bring us back into
balance of payments equilibrium, to restore confidence in the dollar, and to
strengthen the international monetary system.
The program was in two primary parts. First, and of key importance, was the
President's call for tax increase and expenditure control, wage and price restraint, and the avoidance of crippling strikes that would inhibit exports and
increase imports. Second was a series of five programs: two designed to lessen
net capital outfiow for direct investment, portfolio investment, and foreign loans;
one aimed at further net reduction in our expenditures abroad on Government
and military account; one aimed at export expansion; and one aimed at reduction in our tourist expenditures abroad.
All parts of the program were and are necessary. We, and the rest of the world,
have learned that proper fiscal and monetary policies are a necessary—vital, if
you will—but not sufficient condition for balance of payments equilibrium. A lot
of capital outflow, military expenditures, and tourist expenditures are not responsive to fiscal and monetary policies.
Here it is Important to recognize three facts.
Pirst, we should not weaken our security efforts in any substantive or real
sense, but we should work toward full implementation of the principle that the
foreign exchange costs of the common defense should be neutralized—there
should be no windfall gains or losses. We have done a lot in this field, but we need
to do more—our net costs are still far too high.
Second, the program on direct investment has not aimed at reducing gross
investment abroad but at reduction in the financing flows from the United
States. The volume of our direct investment has continued to increase substantially, but more of it is being financed by borrowing abroad. The goose that
lays the golden eggs is very much alive—and the eggs have gotten bigger.
Third, our net deficit on tourist account was about $2 billion last year. The
longrun solution is to increase tourism by foreigners in the United States. But
it is Important to cut the net drain now.
Our payments position has shown sharp improvement so far in 1968. On a
seasonally adju.sted liquidity basis, the last quarter 1967 deficit was $1.7 billion.
In the first quarter of 1968, it dropped to $660 million and, in the second quarter,
to $170 'million. Preliminary indications for the third quarter are encouraging.
Thus, the program—to the extent it has been carried out—is working well. I
have already noted that the fiscal program was not put into force until mid-year.
It had an immediate effect on confidence, and it should have a favorable effect
on the trade balance, as it works to cool off the economy. With an overheated
economy in the first half of this year and with strikes, or anticipated strikes, in
key areas—^on the docks, in copper and in steel—our imports rose sharply, and
our trade surplus was virtually destroyed. It should improve in future months,
as a better balanced economy reduces the excessively swollen volume of our
imports. But we need to improve exports as well. That means we must hold and
improve our intemational competitive position.

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The gains we have registered so far this year have come mainly in the capital
accounts. We have reduced the outflow from bank lending and on direct investment account—the latter, as noted, by borrowing abroad. We have benefited solidly by the heavy Inflow of foreign capital- into American equities—reflecting
confidence in the U.Sl economy and in the dollar. And we have had considerable
success.in reducing the net foreign exchange costs of Government and military
spending abroad.
But it is both premature and Immature to talk of dismantling any elements
of the balance of payments program. We need large and sustained Improvement
in our trade surplus; we need effective action to contain the travel deficit; and
we need fuller cooperation to neutralize the foreign exchange costs of our
military and Government expenditures abroad. It would be the height of irresponsibility to relax any part of our program now.
The strength of the dollar internationally, and the structure of the international monetary syste-m, require that we reach sustainable and reasonable balance
in our international accounts.
Gold.—Following the devaluation of sterling in November 1967, the gold markets came under heavy speculative pressure. Of the total U.S. gold outflow
last year of $1.2 billion, more than $1 billion came in the fourth quarter. In the
first quarter of 1968, the outflow Increased to $1.4 billion. In March, the United
States and her Gold Pool partners took action to arrest the drain on monetary
gold stocks and the Washington Communique of March 17 effectively, separated
the private gold market from the monetary gold circuit.
On September 24, 1968, Secretary Fowler, in a major speech, restated the
U.S. position on the international monetary system and the role of gold in the
system. He noted that the international monetary system rests on four pillars:
"—A strong and well-balanced U.S. economy with a strong dollar * * *
—A fixed $35 per ounce official price of gold and a dollar convertible into
gold at that price by monetary authorities.
—Convertibility of other currencies into dollars at stated rates of exchange.
—Adequate international reserves and credit facilities to support the system."
The Gold Pool countries recognized these points in their Washington Communique when they stated that "as the existing stock of monetary gold is sufficient in view of the prospective establishment of the facility for Special Drawing Rights, they no longer feel it necessary to buy gold from the market." Two
weeks later at Stockholm, the Ministers and Governors of the Group of Ten
countries "reaffirmed their determination to cooperate in the maintenance of
exchange stability and orderly exchange arrangements in the world based on
the present official price of gold."
In his September 24 speech. Secretary Fowler said:
"The international monetary system has a vital stake in maintaining the
value of gold in existing monetary reserves at $35 an ounce—neither less nor
more. * * * It is clearly within the capabilities of the system to provide such
an assurance, and the United States believes it is Important to the stability of
the system that this be done. But, for gold producing countries, that assurance
must run only to their monetary reserves and only after they have disposed of
their newly mined gold, and any price stability assurance that is provided should
not apply to newly mined gold or that held in private hands.
"In giving assurance on existing monetary reserves, we will not accede to any
proposal that puts a floor under the private market, thereby assuring the speculators who have built up their hoards of gold that they may unload it at no less
than the monetary price.
:{:

it-

Jl:

rji

"Given the unique ppsition of gold as both a commodity and a monetary instrument, special problenis could still arise in the two-tier system. It should be
possible to devise solutions for such problems—provided such solutions are
designed to strengthen and do not threaten to weaken the two-tier system for
gold and the monetary system as a whole."
The two-tier gold system has worked well since its birth last March. In large
part, that has been due to the widespread support for the system among the
countries of the free world, as well as those countries which issued the Washington and Stockholm^ statements. In part, it has been due to the strengthened
confldence in the U.S. economy and the dollar.
The signatories of the Washington and Stockholm Communiques recognize
the point made by Secretary Fowler that there may be some special problems

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233

that could still arise in the two-tier system for gold producing countries, and
particularly for South Africa, which depends heavily on gold as an export product. Last Friday, in Washirigton, they issued the following statement:
"The Central Bank Governors of Belgium, Canada, Germany, Italy, Japan,
the Netherlands, Sweden, Switzerland, the United Kingdom, and the United
States met during the meetings of the Bank and Fund. Representatives of the
International Monetary Fund and the Bank for Intemational Settlements also
attended the meeting.
"The Governors unanimously agreed on a common position based on the Washington declaration of March 17, 1968, regarding, the disposalof newly mined
gold. It has, however, not proved possible to reach agreement with South Africa
at this meeting."
The statement, of course, speaks for Itself. The central point is the unanimous
agreement on a common position based on the Washington declaration. These
Important countries are united and, I am sure, are supported by the vast majority
of countries belonging to the IMP.
Financial problems of the future
During the next 10 years, two major problem areas of flnance will challenge
the best efforts of the United States and one, perhaps both of them, will require
concentrated attention by other advanced countries of the world.
For the United States, the first problem—bigger by far than the second in terms
of financial requirements—is to find ways to provide capital finance for public
purposes designed to strengthen and improve what might be called social welfare
infrastructure. By this term, I mean urban redevelopment, the renovation of
the ghettos, the provision of public housing, the enlargement of public education
and health facilities, the restructuring of transportation facilities, and the provision of clean water and air.
In one sense, the problem is not a new one; in a more realistic sense, it is a
brand new one by virtue of its recognition and by virtue of the very size of its
financial requirements. Let me give you some indication of its size.
Net State and local debt in 1947 was less than $15 billion. Last year, it was $113
billion—almost $100 billion larger than 20 years earUer. Mere continuance of that
trend would make it $240 billion 10 years from now. Add in the new programs
noted above, and it is not difficult to visualize another $150 billion requirement. It
is clear that requirements of this order of magnitude will demand the most efficient, imaginative, and sound means of mobilizing capital that we can devise.
I have spoken elsewhere of one approach to this problem—a National Urban
Development Bank. O'ther suggestions have been made^—for a Municipal Bond
Guarantee Corporation; for a Community Development Bank; for a Domestic
Development Bank. Bach is aimed at the basic objective of providing an efficient
means of mobilizing the Nation's capital resources. We shall need to come to a
consensus on a particular approach.
That approach should embody two basic principles:
—^Development of one efficient marketing instrument with broad investment
appeal.
—Coordination of issues and control over programs requiring finance.
A development institution would issue its own securities, backed by Federal
guarantee, and relend the proceeds to program agencies—either Federal lending
agencies or dlrectty to State and local agencies, depending on congressional decisions as to individual program structure and control. Aside from the Federal
guarantee, which would help marketing and minimize interest costs, a Federal
Government contribution, to the extent necessary and desirable, could come from
Interest rate subsidies—clearly identified—^provided by direct congressional
appropriations.
The second problem, which will affect both the United States and other advanced countries, is to find ways to provide increased developmental capital
finance for the less-developed countries of 'the world—both for infrastructure
and for expansion of the agricultural and industrial base.
,The financial requirements for the United States, or for any other country, are
significantly less than those for domestic social welfare infrastructure, but there
are other protolems—^^perhaps most notably the balance of payments problem.
Methods must he devised to fit these financing needs into the balance of payments
adjustment process so that, when a country is in surplus, it can export more
capital to developing countries and, when in deficit, it can export less. At the same

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time, it is desirablei to increase the total amount of capital export and assure
that volume for a period of time.
The United States proposed an approach of this type in the current replenishment of funds for the International Development Association. The Organization
for Economic Cooperation and Development, composed of some 20 countries, suggested, in a 1966 report on the adjustment process, that surplus countries open
their capital markets more freely to borrowings by international financial institutions, such as the World B;ank or the regional development banks. Both of these
approaches need further development and implementation through International
agreement. Both will lead to more multllateralization of development finance,
which should be more efficient, both in terms of raising the capital and in terms
of channeling it where it can do the most good.
Finally, I should riote two points. Both of these financial protolems—domestic
social welfare Infrastructure and development finance—can be resolved only
within a framework: of a strongly expanding domestic and world economy. That is
an absolute requirement to generate the savings and the tax revenues for the
needed finance. And growing economies, themselves, need the thrust of dynamic
new Investment, which itself, requires high savings.

Exhibit 20.—Statement by Under Secretary Walker, March 26, 1969, before the
Senate Banking and Currency Committee, on interest rates
Interest rates are' at the highest levels in modern times, not as a result of
current policies to cool an overheated economy, but as a result of the Inadequate
fiscal and monetary policies which permitted inflation to gain control of economic
events.
:
It follows that interest rates should recede to more normal levels as the economy is cooled and—more importantly in the short run—inflationary expectations
diminish.
It is tempting to seek out scapegoats for unpopular events. For rising interest
rates, such scapegoats Include the Federal Reserve, banks and other lenders,
or the Administration in office.
The fact is that today's ultrahigh rates can be traced directly to two significant
errors in Federal ecoriomic policy :
(1) An unwillingness to pay, through taxes or lower domestic spending, for
the escalation in Vietnam, a reluctance that handed us a huge $25 billion Federal
deficit in the last fiscal year;
(2) Ari excessive rate of monetary growth in 1967 and 1968 when money supj^ly
narrowly defined—that is, demand deposits and currency—advanced at a rate
of 61/^ percent, and money supply hroadly defined, including time deposits at
commercial banks, grew at an annual rate of 10 percent.
The contribution of Federal deficits to rising Interest rates is widely understood. They directly raise the cost of money as the Federal Govemment borrows
more than It pays bapk. In addition, such deficits fuel inflationary flres and lead
to the economic overheating that in turn stimulates heavy borrowing by businesses, consumers, 'and State and local governments.
Less understood is: the contribution of an expansive monetary policy to rising
interest rates. In years gone by, an easy money policy was thought to mean lower
interest rates. Today most economists think an excessively expansionary monetary policy results in higher rates in the long run. How does this work?
In this way. When employment is high and little slack exists, additional and
excessive injections of bank reserves, leading to a high rate of monetary growth,
do little to Increase production. They result primarily in higher prices.
Rising prices and economic overheating generate still stronger demands for
funds. They also tend to reduce the willingness of lenders to lend. Both actions
push interest rates higher. If the Federal Reserve injects still more funds in
an attempt to slow the rise in interest rates, the result is just the reverse.
Rates rise even faster as inflation gains strength and inflationary expectations
mount.
One should not be too critical of tho overly expansive monetairy policies during periods of high Treasury deficits. It is very difficult for the Federal Reserve
to contain monetary growth when Treasury borrowings are large and frequent.
But in the latter part of 1968, when the Federal budget was moving toward

EXHIBITS

235

balance, money supply grew at an annual rate of 6 percent to 12 percent (depending on the definition). This high rate of monetary growth can be viewed as a
significant factor accounting for today's high interest rates.
The past is behind us. What matters now is current and future policy. What
should it be?
Fiscal -and monetary policies of today are appropriately geared to the
economy's needs. The budget is in surplus and we are determined to keep it there.
Monetary policy is clearly restrictive, and I understand that the Federal
Reserve authorities are determined to maintain that posture.
But is this correct, why do we not see some easing of infiationary pressures,
some cooling of the economy, some fallback in Interest rates?
We must be patient. The imbalances, distortions, and disruptive expectations
resulting from four years of Inflation cannot be corrected overnight. But they
can and will be corrected, if only we persist In restraint.
Our goal is to achieve a significant reduction in inflationary pressures this
year. But this does not mean that some relief from current high interest
rates must 'await that event.
The fact is that the Inflationary expectations of borrowers and lenders are
what added the extra push to the interest rate structure. Borrowers are seeking funds now in order to avoid both the higher prices and thie higher Interest
rates they expect later. Lenders are reluctant to commit their funds so long
as they fear a combination of higher rates and lower-valued dollars.
This means that pressures on interest rates iS'hould begin to subside when
borrowers and Investors flnally conclude that 'this Administration is indeed
detennined to bring inflation to a halt. This conclusion on the part of market
participants could come relatively soon.
The ending of inflation and inflationary expectations is the key to all the
goals described in these hearings. The real enemy of the home buyer is inflation
because it has raised the cost of the home he purchases by over one-sixth in the
last 4 years alone. And the 'higher interest rates that have resulted from that
Inflation have added to his tourden.
Primarily, the small businessman can in the long run only gain from a halt
to inflation and the lower interest rates that are sure to result. As Interest rates
fall back, the State and local governments which recently have been cut out
of the bond market will be able to obtain the funds they seek. Farmers, heavily
dependent on debt, will toenefit too.
To recapitulate: The ultrahigh interest rates of today are not primarily the
refiection of current policy but the result of the inappropriate policies of the
past which permitted inflation to Infect the economy. Ourrent policies are
properly attuned to ending that inflation. When this occurs. Interest rates will
recede—to the beneflt of all groups that rely heavily on credit.

Exhibit 21.—Other Treasury testimony published in hearings before congressional committees, July 1, 1968-June 30, 1969
Secretary Kennedy
Testimony on H.R. 6778, a bill to amend the Bank Holding Company Act of
1956, published in hearings before the Committee on Banking and Currency,
House of Representatives, 91st Congress, 1st session, Part I, April 17 and 24,
1969, pages 8^193 and 399-487.

Public Debt and Financial Management
Exhibit 22.—Statement by Secretary Kennedy, March 5, 1969, before the House
Ways and Means Committee, on the public debt ceiling
The President in his message to the Congress on February 24, 1969, requested
the prompt enactment of legislation to revise the debt celling. Specifically, he
proposed a new permanent statutory celling for the Federal debt of $300 billion
under a definition according with the unified budget concept. This new statutory
debt ceiling is designed to take care of our needs indefinitely into the future for
as long as we are successful in riiaintaining a balance in the budget.
363-222—70

236

19 69 REPORT OF THE SECRETARY OF THE TREASURY

The new ceiling is required to meet three specific objectives :
First, the proposed ceiling will enable the Treasury to meet anticipated
cash requirements in an orderly way through the middle of April of this year.
Second, the proposed limit will meet requirenients anticipated for fiscal
year 1970.
Third, by bringing the debt ceiling into accord with the budget presentations
now used by the Federal Govemment and hy focusing attention oh total borrowings from the public, the proposal will promote a better understanding of
public finance and contribute to more effective control of the debt.
Under existing law the Treaisury has been operating very close to the temporary celling of $365 billion. At the end of January and February, debt subject
to the limit was within $3 billion to $3% billion of the statutory ceiling and
on individual days the leeway has been less than $1 billion. Assuming normal
cash balances of $4 billion, our latest projections—while reflecting better-thananticipated tax collections over the past month—^^still indicate flnancing needs
that would bring usi above the legal celling by minor amounts for 6 days in
March and by substaritial amounts for 7 days in April.
By permitting our; cas'h balance to decline below the levels required by prudent flnancial management, 'by exercising close control on those balances by
borrowing from the; Federal Reserve on a day-to-day basis, and by making
maximum use of agency borrowing that does not co'me under the debt limit,
we might be atole to squeeze through this period without disturbing the orderly
flow of expenditures: or tax refunds. However, the margin in March and April
is extremely tight. Unforeseen expenditure increases above projecitions or declines
in revenues below projections, even of relatively minor proportion, would impair
our ability to get through the April period without extraordinary measures to
conserve cash. Essentially, we have no leeway for emergencies.
With expenditures and tax receipts running about $750 million per day, even
the most careful projections need to be revised frequently, and some deviation in
the actual results are normal and expected. Fortunately, recent results have
Indicated receipts are flowing somewhat more strongly than the projections
availatole when I took office. But prudent management of the Government's
financial affairs simply does not warrant undertaking the risk of confining
our margins of flexibility under the debt ceiling to a few hundred million dollars.
After mid-April, we should readily get through the remainder of this fiscal
year. The outstanding debt will be declining sharply, and our financing pattern
will permit us to be comfortably below the celling for the rest of the year.
However, an increase in the ceiling will certainly be required in the early part
of fiscal 1970. The situation can be illustrated by using the numbers in the
budget message subniltted by the prior Administration. As you remember, that
budget forecast a surplus on the unified budget basis of $2.4 billion in fiscal year
1969 and $3.4 billion in fiscal year 1970. Assuming these projected surpluses can
be realized, our estimates Indicate that at the seasonal peak in fiscal 1970 the
debt subject to the limit under its current definition will be $374 billion, far in
excess of the present seasonal limit of $365 billion.
As the Budget Director will explain in more detail, we have some reservations concerning the expenditure figures in the budget and anticipate spending
in some categories will be greater than estimated by the outgoing Administration. Because our review is not yet completed, we cannot now tell the extent to
which urgent efforts to achieve further economies will off'set these higher costs.
But it is evident thati no practical savings can avoid the need for an increase in
the debt celling next year.
Our debt projections have been constructed on the basis of an assumed $4 billion operating cash balance as is the usual practice in these hearings. That more
or less arbitrary amount, I might point out, was first established for debt limit
projections years ago when Federal expenditures were less than half the current
annual totals. In the latest fiscal year, 1968, even with tight cash management our operating balances averaged $5.1 billion. Our average balance has not
averaged $4.0 billion or less since fiscal year 1958. Nevertheless, even with no
further allowance for contingencies, the current debt celling will be Inadequate
to take care of our nee.ds.
It has long been recognized in past hearings and legislation that prudent management of the Government's finances requires adequate allowance for contingencies beyond the assumption of a $4.0 billion cash balance. In reviewing the
problem this time, we are particularly conscious of several special factors in the
situation.

EXHIBITS

237

Perhaps most Important quantitatively, the surtax on individuals and corporations is scheduled to expire on June 30, 1969. As best we can now look ahead,
we anticipate that this surtax AVIII need to be retained to maintain an appropriate budgetary posture. However, we must consider the consequences of expiration. The revenues that the surtax would supply in fiscal year 1970 are estimated
at $9.0 billion, and there would be an earlier shortfall of $0.5 billion in fiscal year
1969. This contingency alone, were it to materialize, would be several times the
projected surplus for 1970 shown in the budget.
There are also the uncertainties of revenue shortfall that could occur from a
more moderate rate of economic growth. The budget for 1970 included $10.7 billion of higher revenues attributable primarily to higher individual and corporate
income from economic growth and Inflation. A full measure of success in our
efforts to moderate rising prices could result in a reduction of this estimated
gain in revenues.
These possibilities, on top of all the more or less normal uncertainties in anticipating cash needs more than a year ahead, in our judgment justify a larger than
normal contingency allowance. We are, therefore, requesting a margin of $8
billion over the projected peak debt totals. We feel that this is the smallest allowance that we can, with prudence and reason, request in setting a debt limit
that we hope to be able to maintain for the indefinite future. It is smaller than
the contingency allowance provided in 1967. I believe a still larger allowance
could certainly be justified.
With this allowance, the need for the statutory debt limit on the present basis
amounts to $382 billion. The President has, however, proposed that we now
change the statutory definition of the debt limit to conform to the unified budget
concept. We strongly support this redefinition and urge its acceptance. On this
basis we will need a celling of $300 billion to provide the same margin for
contingencies as would be provided by the $382 billion figure on the present
definition.
The statutory debt limit can, of course, be defined in any way that the Congress
sees fit. As I understand it, the main purpose of the statutory debt limit and these
hearings is to provide the Congress an opportunity to review in a comprehensive
way the outlook for the Government's finances and to authorize the Treasury to
issue Indebtedness in the light of this review. It seems to me that, to facilitate
this review and to best achieve the congressional purpose, the changes in debt
subject to limit should be related as nearly as possible to the net budget results'.
This would greatly clarify congressional appraisal of the impact of Government finances on the debt limit and contribute greatly to better understanding
by the public. Thus, we do see a clear public interest in placing the debt limit
within the frame of the present unified budget presentations.
The unified budget has been used in both the last two budget messages. It was
designed to avoid the confusion over various budget concepts formerly given wide
publicity: (1) the administrative budget, (2) the cash budget, and (3) the national income accounts budget. Each of these served a different analytical need,
but the net result was confusing. The unified budget concept was designed to
eliminate this confusion and to enforce a consistent discipline on budgetary
presentations, thus maintaining year-to-year comparability and facilitating
analysis of the economic implications of Federal finances.
I had the honor of serving as Chairman on the President's Commission on
Budget Concepts. As you know, that Commission was comprised of men of
different political affiliations and experience from both the public and private
world. They engaged in an intensive review of all the, problems and unanimously
recommended the adoption of the new budget concept.
Although the President's Commission on Budget Concepts did not specifically
recommend a change in the statutory debt limit Itself, the Commission did suggest that the limit be reexamined with the new debt concepts in mind. That is
what the President has done. He concluded that the appropriate policy would be
to make the debt limit consistent with the unified budget presentation.
This consistency is achieved partly by eliminating from the ceiling Federal
securities owned by trust funds and other agencies. The laws establishing various
trust funds require that we invest their surplus funds in Government securities.
The interest on these investments provides additional earnings for the trust funds.
But this investment accounting is internal; it does not affect the net surplus or
deficit on the unified budget and no funds flow from or to the public on these
transactions. Nevertheless, the securities provided the tmst funds are included in

238

19 69 REPQRT OF THE SECRETARY OF THE TREASURY

the present statutory definition and this results in the anomaly of the ceiling needing to be raised at a time when the overall budget is operating at a surplus.
The fact is that, so long as the trust funds are operating at a surplus and thus
acquiring additional Treasury Issues, the debt subject to the ceiling will increase
even if ithe overall budget is in balance. The trust funds are projected to provide
surpluses of $9.4 'billion and $10.3 billion in the fiscal years 1969 and 1970,
respectively. That alone is the reason why the debt on the present statutory
basis will continue rising, even though the unified budget is in surplus and the
debt heldtoythe public is projected to decline.
Conversely, if at some time In the future the trust funds happened to operate
at a deficit, the debt, on the present definition might decline, even though the
unified budget had no surplus.
Clearly, this situation could give rise to results out of keeping with the intent
of the Congress in setting a debt limit. Por Instance, a larger-than-antlclpated
surplus in the trust funds, which as trustee I must Invest in public debt, could
result in a tighter ceiling on public borrowing than the Congress intended. A
smaller surplus or deficit in the trust funds, on the other hand, would provide
more leeway.
The second general way in which the new debt limit will importantly improve
understanding and control of public finances is to Include the debt issues of
agencies in which the U.S. Government has an ownership interest. This will add
the d^bt issues of TVA, the Export-Import Bank, Defense family housing, and
the participation certificates issued by FNMA before and after the fiscal year
1968. In contrast, the present limit includes only the FNMA participation certificates issued in 1968 and lesser amounts of debentures or bonds issued hy the
Federal Housing Administration and the District of Columbia.
This change to a uniform treatment of all agency issues slde-by-slde with
direct Treasury debt will for the first time relate the debt celling to the total of
Federal borrowing demands in the financial markets'. This Is the totai appropriate for governing and controlling these aggregate demands.
Your committee in prior hearings has focused intensively on the problems generated by use of agericy and participation certificate financings as a substitute
for direct financing by the Treasury. Under the proposed concept, the choice
between agency Issues and direct Treasury Issues has no effect on the debt limit.
Thus, the appropriate financing mechanism, whether by direct Treasury issues
or agency borrowing, can be considered entirely on its own merits without any
suspicions that the choice has been affected by a desire to finance in ways that
will not show in the debt limit. There have been allegations in recent years that
the Govemment was using agency financing to get around the statutory debt
limit and for budget "gimmickry." Whether true or false, the important thing is
to eliminate the possilbillty and provide for the treatment of the debt that best
assures puiblic confidence in the integrity of the Government's financial arrangements.
I would emphasize that the exclusion of the holdings of Government accounts,
including trust funds, from the debt celling in no way effects the operations or
investments of the Federal trust funds. These funds operate under statutory
provisions covering their revenues, 'benefit payments, and investments. The statutes thus assure that these funds will continue to operate as they have in the
past and, as the managing trustee of many of these funds, I pledge that their
investment management will be carried out in full accordance with the law and
the Intent of the law.' Indeed, removal of these securities from the debt limit
should provide an additional element of protection for the trust funds, for it
assures that a Secretary of the Treasury will never be faced with a conflict
between his statutory duty to remain within the debt celling and his responsibility
to maintain full investment ofthe monies in the trust funds.
In conclusion, we have examined the need for prompt debt limit action and
the need for a redefinition of the debt subject to the limit. We urge the prompt
enactment of legislation providing a new permanent ceiling of $300 billion as
recommended by the President.
The following tables show our estimates of the semimonthly debt totals through
June 1970 on the new basis consistent with the January budget presentation-

239

EXHIBITS

T A B L E I . — P u h l i c debt subject to proposed new limitation, fiscal year 1969
[In billionsl
Operating
Public debt
cash balance subject to
(excluding
limitation
free gold)

Operating
Public debt
cash balance subject to
(excluding
limitation
free gold)

1968
J u n e 30
J u l y 15
J u l y 31
Aug. 15.
A u g . 31
Sept. 15
Sept.30
Oct. 15
Oct. 31

.--

$5.2
5.6
5.9
5.4
4.5
1.3
8.5
4.4
6.4

$2c 0. 6
294.8
294.6
296.6
297.5
297. 7
292.9
293.0
296.1

Nov.
Nov.
Dec.
Dec.
Jan.
Jan.
Feb.
Feb.

i56S—Continued
15
30
...
15
31
1969
15
31
15.
28

$2.0
2.7
1.0
4.6

$295.1
295.4
296.6
291.9

1.8
7.1
4.0
4.8

291.9
293.5
291.6
291.7

ESTIMATED

[Based o n c o n s t a n t m i n i m u m operating cash b a l a n c e of $4.0 billion]
1969
Mar.
Mar.
Apr.
Apr.

15.
31.
15.
30

$4.0
4.0
4.0
4.0

$293.6
291.2
294.8
285.1

May
May
June
June

1555—Continued
15 . . . . .
31
15..
30

$4.0
4.0
4.0
4.0

$287. 5
287.1
286.8
278.4

T A B L E I I . — E s t i m a t e d public debt subject to proposed new limitation, fiscal year 1970
[In billions. Based on constant minimum operating cash balance of $4.0 billion]
Operating
cash balance
(excluding
free gold)

Public debt
subject to
limitation

Allowance to provide
flexibility in
financing and for
contingencies
;.o

8.0

1969
June 30
July 15.
July 31
Aug. 15
Aug. 31
Sept. 15
Sept.30
Oct. 15
Oct. 31
Nov. 15
Nov.30
Dec. 15
Dec. 31

S4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0

$278.4
282.3
282.0
285.3
285.0
288.3
28L9
286.3
287.8
29L3
288.9
29L4
286.8

281.4
285.3
285.0
288.3
288. 0
29L3
284.9
289.3
290.8
294.3
29L9
294.4
289.8

286.4
290.3
290.0
293.3
293.0
296.3
289.9
294.3
295.8
299.3
296.9
299.4
294.8

4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0

290.3
287.8
290.0
287.6
29L1
288.4
29L7
283.5
286.3
284.5
282.5
274.4

293.3
290.8
293.0
290.6
294.1
291.4
294.7
286.5
289.3
287.5
285.5
277.4

298.3
295.8
298.0
295.6
299.1
296.4
299.7
29L5
294.3
292.5
290.5
282.4

1970
Jan. 15
Jan. 3 1 . .
Feb. 15
Feb.28
Mar. 15
Mar.31
Apr. 15
Apr.30
May 15
May 31
June 15
June 30

240

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Exhibit 23.—Statement by Secretary Kennedy, March 24, 1969, before the Senate
Finance Committee, on the public debt limit
I appreciate the opportunity to appear before your committee in regard to our
request for action to raise the limit on the public debt. It is especially urgent
that we secure prompt action on this request as we otherwise could be above the
legal celling during the mid-April period.
. iThe situation is illustrated by our experience in March. On the 14th of March
we had securities outstanding in the amount of $364,717 million. We were within
$283 million of the statutory ceiling, not much more than a third of one day's
expenditures. We were able to do this only by reducing our cash balance to a
level of $2.4 billion, far below the daily average of $5.1 billion in the fiscal year
1968. T'he position has improved somewhat, but we will be going into a far
tighter situation in early April. On April 15, with the conventional $4.0 billion
cash balance assumption used in these hearings in the past, our projections
Indicate that we will be over the ceiling by $2.2 billion! We can stay under the
existing $365 billion celling only by drawing down our cash balances to a level
of $1.8 billion. I might add that the ceiling is even tighter on the day before the
mid-month point.
It is possible, by finer adjustment of our borrowing through daily drawings
on the Federal Reserve System, that we could get through the April problem, but
we will have no margin for any contingencies. With receipts and expenditures
averaging nearly $750 million a day, you can see how any change in timing of
either receipts or expenditures carries the risk of putting us over the statutory
limit with the only alternative being a failure to pay our bills.
I hesitate to contemplate, as I am sure you 'do, the potential harm to the Nation's economy and to our position in the world economy from a failure to pay
our legal and contractual obligations. Unless the debt limit is increased promptly,
we face this prospect as a real possibility.
We are asking at this time for a revision in the debt limit to a permanent
ceiling of $365 billion and a temporary allowance above that permanent ceiling
of $12 billion through June 30, 1970. Tills was the bill that passed the House of
Representatives. Because the April problem is almost upon us there is little time
for action.
According to our projections for fiscal year 1970, the debt outstanding on
March 15 will total $374.0 billion with an assumed cash balance of $4.0 billion.
The bill before you provides a minimal leeway of $3 billion above that amount.
I believe that a larger allowance for contingencies than $3 billion can he justified.
However, we are willing to try on this basis to meet the problems in fiscal year
1970—fully aware that we may be back before this committee a year from now
with another request for an increase in the debt limit.
The debt projections used in the attached tables are based on the January
budget as presented by the previous Administration. As you know, that budget
provided for a continuation of the surtax on individuals and corporations, which
is scheduled to expire on June 30, 1969. It also Included $10.7 billion of higher
revenues attributable primarily to higher Indhddual and corporate Income from
economic growth and iriflation.

241

EXHIBITS
T A B L E I.—Public debt subject to present limitation, fiscal year 1969
[In bUlions]
Operating
cash
balance
(excluding
free gold)

1968
J u n e 30
July-15....
July 3 1 . . .
A u g . 15...
A u g . 31
Sept. 15
Sept.30...
Oct. 15
Oct. 31
Nov. 15.

.... ,

$5.2
5.6
5.9
5.4
4.5
L3
8.5
4.4
6.4
2.0

Operating
cash
balance
(excluding
free gold)

Public
debt
subject to
limitation

$350. 7
354.8
354.3
357.2
357.5
358.7
357.9
358.9
360.4
360.5

i 558—Continued
Nov.30
D e c . 15
Dec. 3 1 - . . .
Jan.
Jan.
Feb.
Feb.
Mar.
Mar.

1969
15
31...
15
28
14
17....

Public
debt
subject to
limitation

$2.7
LO
4.6

$360.1
363.4
36L2

L8
7.1
4.0
4.8
2.4
2.1

362.9
362.6
362.9
362.0
364.7
364.1

$4.0
4.0
4.0

$36L 9
362.7
354.6

ESTIMATED

[Based on constant minimum operating cash balance of $4.0 billion]
1969
Mar.31
Apr. 15
Apr.30
May 15

$4.0
4.0
4.0
4.0

i 555—Continued
$362.1
367.2 May 31.
356.9 June 15...
36L 1 June 30

T A B L E II.—Estimated public debt subject to present limitation, fiscal year 1970
[In billions. Based on constant minimum operating cash balance of $4.0 billion]
O p e r a t i n g cash
balance (excluding free
gold)

Public debt
subject t o
limitation

$3.0

$8^

$4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0

$354.6
359.4
358.3
362.8
363.3
367.6
360.6
365.9
366.0
370.7
368.4
373.3
366.6

357.6
362.4
36L3
365.8
366.3
370.6
363. 6
368.9
369.0
373.7
37L4
376.3
369.6

362.6
367.4
366.3
370.8
37L3
375.6
368.6
373.9
374.0
378.7
376.4
38L3
374.6

4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0

371. 7
367.3
370.2
368.7
374.0
369.5
373.7
365.4
370.6
369.2
368.3
36L4

374.7
370.3
373.2
371.7
377.0
372.5
376.7
368.4
373.6
372.2
37L3
364.4

379.7
375.3
378.2
376.7
382.0
377.5
38L7
373.4
378.6
377.2
376.3
369.4

1969
June 3 0 . . .
July 15
July 31
Aug. 15
Aug. 31
Sept. 15..
Sept.30
Oct. 15
Oct. 31
Nov. 15
Nov. 30.
Dec. 15
Dec. 31

Allowance t o p r o v i d e
flexibility in
fmancing a n d for
contingencies

1970
Jan. 15
Jan. 31
Feb. 15
Feb.28
Mar. 15.
Mar.31
Apr. 15
Apr.30
May 15
May 31
June 15
June 30

242

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Exhibit 24.—Remarks by Under Secretary for Monetary Affairs Deming,
lOctober 23, 1968, before the National Convention of the Bank Administration
Institute, Atlanta, Georgia, on Federal finance
My talk today deals with the shortrun outlook for Federal finance and with
some long term aspects of the growing capital requirements for public purposes.
The shortrmi period is fiscal 1969—July 1, 1968, through June 30, 1969. The
longer period cannot ibe so precisely defined in terms of time but may be thought
of as covering the next 10 years to 12 years—through the 1970's.
Both short and long term aspects are important. They both have implications
for markets, for interest rates, for debt management, for fiscal policy, and for
monetary policy.
The shortrun outlook for Federal finance
To comprehend the shortrun outlook for Federal finance, it is highly Important
to grasp two fundamental background points^—one substantive and the other
technical.
The substantive point is that the Federal Government's budget deficit will
swing from $25.4 billion in fisoal 1968 to less than $5 billion in fiscal 1969. That
is the key economic point which I want to develop in detail.
The technical point has to do with the new unified budget concept introduced
In January of this year, based cm the recommendatio'ns of the presidentially
appointed Commission on Budget Concepts chaired by David M. Kennedy, Chairman of the Continental Illinois National Bank and Trust Company. In general,
the new unified budget makes it much easier to analyze and understand the
impact of Federal fiscal policy decisions on the money and capital markets.
Nevertheless, since some Federal lending agencies were in the budget in fiscal
1968 but either are or will be out of it in fiscal 1969, when I talk of the differing
market impact of Federal finance in these 2 fiscal years, I shall do some reconciliation. I'll go into that point in a bit more detail later.
Let us look first at the key point of substance.
Enactment and approval in June of the Revenue and Expenditure Control Act
of 1968 initiated a major turnabout in the fiscal position of the Federal Government and a reversal of its impact upon the money and capital marketsi
The budget deficit for fiscal 1968 was $25.4 billion. The January budget message estimated the fiscal 1969 deficit at $8 billion, with expenditures projected
at $186.1 billion and revenues at $178.1 billion. The latter figure assumed legislaitive passage of the requested 10 percent surcharge on corporate and individual
income taxes, continuation of the excise taxes originally scheduled for reduction on April 1, 1968, and the scheduled increase in Social Security taxes on
January 1,1969.
As passed, the legislation included the surcharge and excise tax actions. It
also included a celling on expenditures for fiscal 1969 and required, in addition,
a $10 billion cut in new obligational authority.
The ceiling on fiscal 1969 expenditures, in effect, requires a $6 billion cut in
spending. By the time the legislation was passed, the original expenditure estimate of $186.1 billipn, which included net Federal lending, had been raised
by $4.4 billion, due mainly to increased costs in four categories—Vietnam ($2.3
billion), interest payments ($900 million), veterans' benefits ($400 million), and
various payments from social security trust funds ($800 million). While the
spending ceiling was set in the legislation at $180.1 billion, increases in these
areas were exempted, so that the effective ceiling became $184.4 billion. Subsequent exemptions v^ere given ceritain TVA expenditures. Commodity Credit
programs, and certain matching grants to the States for social welfare. The
exemptions mean that nonexempted programs will not have to be cut further
if exempted expenditures run above estimates. But cuts of $6 billion have to be
made in the nonexempted spending categories.
The midyear budget review, completed just a month or so ago, estimated fiscal
1969 outlays, including Federal lending, at $184.4 billion—the effective ceiling
level. Revenues were estimated at $179.4 billion, up from the original estimate
mainly because late passage of the tax legislation had the effect of throwing
some revenue originally expected in fiscal 1968 into fiscal 1969. The deficit for
fiscal 1969 thus was forecast at $5 billion.
That figure is likely to be reduced. Even with the exemptions noted above,
it is expected that fiscal 1969 outlays will stay roughly in line with the ceiling

EXHIBITS

243

figure and run in the neighborhood of $185 billion. Revenues in September and
October, however, have been running significantly higher than expected. Therefore, I expect the fiscal 1969 deficit to be appreciably below $5 billion. I shall note
later what effect this has on our borrowing plans for the remainder of this
calendar year.
A budget swing of more than $20 billion will have a major effect upon the
course of the economy in fiscal 1969, as well as on the volume of Federal financial
demand in the money and capital markets. I cei^tainly do not expect the economy
to shrug off, without notice, the tax-expenditure package any more than I expect it to be thrown into a recession by fiscal overkill.
The economy was and is stronger than was believed when fiscal overkill was
talked about. Such weaknesses as were stressed seemed to be transitory, rather
than fundamental. They probably reflected as much as anything the undesirable
imbalance in our policy measures which resulted from the long delay in enactment of the tax-expenditure legislation.
Certainly no one responsible for policy expects recession to come from the
fiscal measures. The goal is to slow down ^the economy to a safe cruising speed—
not to slam on the brakes for an abrupt stop. The adjustment seems to be proceeding smoothly, rather than abruptly, but it is proceeding. The third quarter GNP
Increase was down from the second quarter rise, but by less than I had hoped.
Fourth quarter figures should indicate further slowdown. I expect—indeed, we
should all hope—that the retardation will be gradual but also positive and
effective.
I turn now to the second background point—^the technical one.
The new unified budget draws all Federal accounts into one budget. It thus
is much more meaningful than the former budget presentations in measuring the
overall economic Impact of Federal fiscal operations.
The new unified budget Includes in its outlay totals tlie net lending of Federal
agencies—but only those agencies in which there is an element of Federal
ownership. Prom a budget standpoint, the net lending concept is measured by the
difference between loan disbursements and repayments. The latter includes prepayments and direct sales of assets. It does not include the issuance of participation certificates, which are treated as a means of financing, rather than as
negative expenditures.
From a broad economic viewpoint, there is another concept of net lending by
Federal agencies. That concept recognizes that, while agency activity affects the
overall allocation of credit, on a net basis it is essentially neutral. What is borrowed in one sector of the market is used to supply funds to another.
•For my purposes, I shall treat the total of 'Federal finance demand on the
markets as including direct Treasury borrowing and agency borrowing without
reference to it being inside or outside the budget.
The 'Federal land banks and the Federal home loan banks are not included
in the budget totals because they are outside the budget;—since there is no
Federal ownership Involved. The Budget Commission's test for Inclusion or
exclusion was Federal ownership. That recommendation was accepted by the
Government. The fiscal 1968 and 1969 budget totals do not include the activities
of these two agencies. Neverthless, I include their borrowings in my figures on
Federal finance demand.
A complicating factor is that Fannie Mae's Secondary Market Operations
went private in September. Its net lending consequently is in the fiscal 1968
budget total, but the activity of only one quarter is in the 1969 bndget total I
have given you. Just passed legislation permits the Federal Intermediate Credit
Banks and the Banks for Oooperalives to retire their Government-O'wned stock,
and they are expected to be outside the budget by yearend, although their activities are included in both the fiscal 1968 and 1969 totals I have cited. But,
for my purposes, I include these agency borrowings in the total of Federal
finance demand.
By these inclusions, I conform more to market appraisal than to real economic
impact or to budget concept. In this transition period, this approach—for market
purposes—seems appropriate.
Now, with these important background points out of the way, I turn to the
specifics of the shortrun outlook for Federal finance.
It is useful to look at this in half-year periods, simply because there is a strong
seasonal factor operating on revenues. The first half of. each fiscal year—the
July-December period—typically sees only about 45 percent of the entire fiscal

244

19 69 REPORT OF THE SECRETARY OF THE TREASURY

year revenues. The second half—the January-June period—brings in the other
55 percent. Apart from any rising or falling trend, expenditures are spread
fairly evenly throui^hout the fiscal year. Thus, even with a budget in balance,
there would be a deficit in the July-December period, matched by a surplus
in the January-June period. The Treasury would borrow in the first half-year
and repay in the second. This is a major reason why we finance a lot of our
first half requirements with tax anticipation bills.
Now, let us look at the contrast between the two half-years of fiscal 1968
and the two half-years of fiscal 1969. Remember that the budget deficit for fiscal
1968 was $25.4 billiori. While I expect the 1969 deficit to be less than $5 billion,
I use the $5 billion figure because it is the latest official figure.
The swing between the two full fiscal years thus is $20.4 hillion, and it is
divided about equally between the half-years. The deficit between July-December
1967,-was $19.7 billion ; this half-year, we estimate it at $10.1 billion, a favorable
swing of $9.6 billion. In the January-June 1968, period, the deficit was $5.7
billion; in the first half of calendar 1969, we expect a surplus of $5.1 billion,
a favorable swing of $10.8 billion.
We need to translate these budget figures into market operations. That means
that we have to adjust them for changes in Treasury cash position, for sales
of securities—mainly specials or nonmarketables—^^to the Government investment accounts, for sales of nonmarketable securities to other holders, and for
Federal Reserve Open Market operations. In addition, it will be useful to split
borrowings between direct Treasury Issues and agency issues—^and add in not
only the agency issues that are .reflected in the hudget but those outside the
budget also. As noted, the latter adjustment is made solely for market Impact
comparability—^the market still tends to view all agency finance as part of overall
Government finance demand, whether or not it is technically within or without
the budget.
The first comparison is between July-December 1967, and the same period in
1968. After all of the adjustments noted above, the net market demand of Federal
finance—direct Treasury borrowings, plus agency borrowings—^^both in and out
of the budget—was almost $15 billion in the 1967 period, as against an estimated
$8.5 hillion in the 1968 period—a swing of more than $6 billion. Net Treasury
borrowings in the last 6 months of calendar 1967 were about $13 billion; in
the similar period of 1968, they will be just $5.5 billion. Agency borrowings net
in the two periods were or will be $1.7 billion and $3.1 billion.
But 'the real difference shows up when we break down the figures into
quarters. In the third quarter of calendar 1967, net market borrowings on direct
treasuries and agencies totaled about $8 billion. The third quarter of 1968 saw
comparable borrowings of close to $7 billion—not much less than in the same
period of the previous year. But, in the fourth quarter of last year, net Treasury
and agency borrowings combined were almost $7 billion. In the fourth quarter
of this year, they will net out to about $1 billion.
It is highly important to note this point. The peak demand of Federal finance
on the markets is over. The Treasury has already raised all of the net new cash
it needs in calendar 1968.
In effect, all it needs to do for the balance of this year is to rollover its
maturing debt. This afternoon, the Treasury will announce its debt operations
for* the remainder of 1968. That announcement will Indicate that, in view of
increased revenues, net cash borrowing for the remainder of 1968 will be
unnecessary.
The picture for January-June 1969, is even more favorable. In the first 6
months of this year, direct Treasury borrowing, plus agency borrowing—both
inside and outside 'the budget—was almost $8 billion. In the first half of calendar
1969, it will be only $1.5 billion. And, after adjustment for Treasury cash, investment of Government Investment Accounts, assumed Federal Reserve Open
Market purchases, 'and sales of nonmarketables, the swing will be almost $9
billion. That is. Federal finance, in effect, will be repaying the market $8 billion
in the first 6 months of calendar 1969, rather than the net borrowing of about
$1 billion in the comparable period of 1968.
To summarize, fourth quarter 1967, plus first half 1968, resulted in net market
demand for Federal finance of about $9 billion. This was after adjustment for
Treasury" cash, purchases of Government Investment Accounts and the Federal
Reserve, and sales of nonmarketables. It Included all direct Treasury finance,
plus all agency borrowings, whether within or without the budget.

EXHIBITS

245

Fourth quarter 1968, plus first half 1969, will result in a net market paydown
of about $7 billion—on the same basis. That swing of $15 billion in lessened
market demand measures the real impact of the fiscal package on Federal
finance. It is a real swing, and a very significant one.
Given this picture, what is the outlook for interest rates? At a minimum, it
is certainly hard to see upward pressure on them. In fact, with the economy
expected to be running at a lower and safer speed, and with the sharply
lessened requirements for Federal finance, it would seem reasonable to expect
somewhat lower rates over the next six to nine months.
This should be healthy for the economy and for Federal finance.
Financing public requirements over the longer term
The preceding discussion clearly suggests that, over the near term future, the
pressure on the securities market exerted by the public sector should, in the
aggregate, diminish very markedly. The technical task of financing these requirements, moreover, should not present undue difficulties.
When we look ahead to the longer term, however—for the next 10 years or
beyond—the picture is different. For here, the financing requirements that can be
envisaged are truly formidable, and there is a pressing need for finding more
imaginative and efficient means of mobilizing the needed capital.
The area that presents the greatest challenge relates to the financing of what
I call the infrastructure for social welfare. In this area, needs have riseri with
dramatic force in the recent past—and promise to advance even more sharply
in the years ahead. I Include in this category urban redevelopment and renovation of ghettos, enlargement of public housing, restructuring of public transportation facilities, combating air and water pollution, and enlarged and
improved education and health facilities.
Some of these tasks involve continuation of past actlvitlesi. Others are essentially new in character. But, in the total, the magnitude of the financing requirements will be massive. It may almost be said that the change in quantity is
prospectively so great as to make the financing problem a change in kind, as well
as in amount.
Some of the activities I have cited may be undertaken and financed entirely
by State and local governments. Some others may be wholly within the sphere
of Federal responsibility. But, for the most part, these activities will require
some form of Federal 'assistance to, and Federal partnership with, the State
and local governments.
What is needed now—and is, indeed, beginning to take place—is a searching
and comprehensive look as to how this partnership can be developed in the most
effective and satisfactory fashion. It will require a proper balance between
orderly overall direction and financial discipline and ample scope for local
independence and fiexibility. It will call for broad decisions on the absolute and
relative amounts of the new needs to be financed directly from taxation and the
extent to which they can be met initially by borrowing, Where taxation is
involved, an optimum sharing of the burden between the Federal Government
and States and localities is required. In the case of borrowing, questions arise
as to the optimum mix between direct Federal borrowing, traditional State and
local debt financing, and resort to other, and partly new, types of borrowing
arrangements.
In all cases, there is a need to search for the most efficient, economical, and
equitable means of financing—means that will optimize the benefits and minimize
the overall costs to the taxpayer, means to permit the raising of funds in the
capital markets at the lowest cost feasible, and means that can be flexibly
adapted to changing needs. And, in my judgment, it is important that the
financing procedure be clear and visible, so that Intelligent choices among
alternative methods can be made and subsidy elements can be clearly Identified.
Let me concentrate here on those spending needs that are likely to be financed,
at least in the first instance, largely through the issuance of debt, rather than by
tax funds. Clearly, a major share of the emerging needs will have to be financed
in this way. That does not mean, of course, that the Federal share can be met
without a significant contribution from the tax side. This tax-financed contribution
may come about in the form of debt service grants, involving payments of interest
or of capital—or both—on locally issued debt; it may entail outright tax-financed
Federal subsidies granted for projects that also require large public borrowing;
it may result simply because States and localities can issue tax-exempt securities.

246

19 69 REPORT OF THE SECRETARY OF THE TREASURY

How large are the capital needs of the types considered here that are likely to
arise over the next few years ? How can they best be financed ? And what impact
is such financing likely to exert on capital markets generally?
The magnitude of the task.—In 1947, net State and local debt was less than $15
billion. By 1957, it had grown to $47 billion ; and last year, it stood at $113 billion.
A mere continuance of this growth trend would raise the level of outstanding
State and local debt 10 years from now by about $120 billion—to a level of $240
billion.
But this is only part of the story. On top of the normal growth projected, it
appears that there will be a very substantial increase in State and local debt as
a result of new and expanded programs involving Federal financial assistance.
Estimates of the likely magnitude of this increase vary widely, not only because
the costs of different programs to solve our urgent social and environmental problems are often very difficult to project, but also because of different assessments
as to how fully the States and localities will actually seek to meet these problems.
Let me just cite one type of calculation that illustrates this point. In 1968, the
Congress enacted, or came close to enacting, provisions for Federal capital assistance in the form of debt service grants for a series of new or greatly expanded
State and local programs. It is useful to look at the congressional authorizing
legislation for such assistance and then to calculate what it implies for the
growth of State and local debt financing.
Por example. Congress authorized additional debt service grants for public
housing of $150 million a, year for the next 2 years. This will make possible a total
of about $3 billion a year in additional local debt financing for this purpose. If
one assumes that additional congressional authorizations will be maintained at
the same level over the next decade, the total added debt from this program
alone would come to $30 billion. I am not including projected Federal assistance
to low income housing under this heading—this would be a much larger sum,
since it would encompass private as well as public housing.
Using similar calculations for three other program areas on which Congress
completed action in 1968, one finds a potential net increase in State and local debt
over the next decade of about $20 billion for college housing, academic facilities,
and the vocational education program, although some of this will presumably be
for private nonprofit institutions.
The debt service grant approach was also authorized for the antlwater pollution
program in legislatipn which passed both the House and the Senate this year,
though it did not survive the adjournment rush. Assuming a continuation of the
annual level of new dollar authorizations in the enabling legislation, the potential
increase in State and local debt for these purposes over the next decade is $40
billion.
In addition, the Senate passed a bill in 1968 which authorized debt service
grants on obligations issued by State and local bodies, as well as nonprofit institutions, for hospital modernization. The needs in this area have been estimated
at over $10 billion. i
Thus, assuming that the Congress follows through on the debt service grant
approach in just these six program areas, the potential increase in State and
local debt over the next decade is about $100 billion..
To this amount, one would need to add new financing requirements for mass
transit, other urban redevelopment activities, municipal airports, anti-air pollution efforts, and other areas in which Federal programs have been established
and are expected to be increased. Taking all this into account, it is not at all
difficult to visualize a total rise in State and local debt over the next 10 years of
$150 billion or more, in addition to the "normal" growth of $120 billion cited
earlier. That would mean that, in 10 years. State and local debt would be rising
by $30 billion to $35 billion or more a year, rather than hy $10 billion, or less, as
at present.
To some extent, the new programs cited may substitute for what I have
counted as "normal" growth. But this overlap may not be large; the new programs cited will deal essentially with new types of needs. Also, the annual new
dollar authorizations which Congress has now provided for the next few years
may not be contiuued at 'the same level for a decade. Given the pressure of
underlying needs, however, it seems at least as likely that, on balance, we will
see increases rather than reductions in congressional authorizations as the decade
progresses.
'
•
In citing these potentially very large figures, it has not been my purpose to
suggest that the indicated requirements cannot be financed through debt Issues.

EXHIBITS

247

My hunch is, in fact, that, in a strongly growing economy and with continued
progress in tapping new sources of savings, the task will, in the end, prove manageable. If the economy expands at a rate in real terms of 4 percent to 4^/^ percent over the next decade—which is quite practicable under intelligent economic
policies in both public and private sectors working together—we would have a
GNP in 1978 of some $1.3 trillion, which would generate a lot more tax revenues
and a lot more savings. But there can be no doubt that, even so, the task will be
more manageable only if we have major improvements in methods of mobilizing
capital.
27te need for new financing approaches.—In calling for such improvements, I
assume that the traditional means of financing State and local government needs
will have a continued role, particularly in the financing of tasks that have
customarily been entirely in the province of such governments. But I do not
think that these means alone will be adequate to cope with the huge additional
demands generated by new types of programs or that they can fully satisfy
the criteria of maximum efficiency and economy.
As I have indicated previously, by far the most promising approach for mobilizing the needed new capital in a more efficient manner would seem to lie in the
establishment of a new central fin'ancing institution for domestic development—
such as a "National Urban Development Bank."
Many different proposals for such a central development financing institution
have recently been offered, and the need is to reach agreement on the more precise characteristics of such an institution.
As I see it, the new institution would issue its own securities, backed by Federal
guarantee and relend the proceeds to program agencies^—either to Federal lending agencies or directly to State and local bodies, depending on congressional
. decisions as to individual program structure and control. Aside from the Federal
guarantee, which would help marketing and minimize interest costs, a Federal
contribution, to the extent necessary and desirable, could come from clearly
identified interest rate subsidies given borrowers from the institution and provided by direct congressional appropriations.
The advantages of the new approach would be manifold.
First, the new institution could develop one efficient marketing instrument—
or family of Instruments—with broad appeal to various investor classes. It could
thus tap a much wider market than the many Instruments now being issued by
a great variety of Federal agencies and State and local agencies receiving Federal
assistance. The market for such instruments would also be likely to attain much
greater depth than alternative financing means for urban development purposes.
Thus, secondary markets should develop which would allow 'ready "shiftabllity"
of the securities among investors. In speaking of "one" efficient marketing instrument, I do not necessarily mean that the institution would issue only a single
type of instrument. It could offer a number of closely related types of securities,
but tailored in ways that broaden the range of reachable Investors, similar to the
spectrum of offerings now used in Federal debt management, itself. But these
Instruments should be carefully designed to fit into a coherent whole. Probably
variations in types should be relatively few for some time; and their relation to
the Treasury's debt, itself, would have to be carefully considered.
Second, in contrast to the present fragmentation of financing efforts, the new
institution would automatically provide for coordination of issues and control
over programs requiring finance. Thus, a central financing institution would have
the greatest fiexibility in going to th'e market at the best time and with the
volume, maturities, and other terms and conditions which would enable it to
borrow at a significantly lower interest rate than could be obtained by several
smaller, special purpose institutions, each with its own special problems of
timing, seasonal factors and other program considerations.
I do not think. Incidentally, that the answer to the financing problems over the
next decade will be to establish a separate new institution for each problem area,
such as an education bank, a pollution control bank, a transportation bank, etc.
The difficulty with this approach—in addition to the duplication of effort and
the problem of finding that much financing talent—is the proliferation of financing instruments which would develop and the problem of coordinating these
Issues in the market. Of course, even a central financing institution could decentralize its lending activities, either in terms of loan purpose or geographic
region. But I think there is a persuasive case for a centralized approach to
mobilizing capital funds.

248.

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Third, the new approach permits the most economical financing of the growing
new needs, looked at either from the viewpoint of the Federal Government or
from the viewpoint of State and local governments.
If all of these new needs were to be financed in the tax-exempt municipal
bond market, which^l by its very nature, is limited in capacity, the additional
volume of financing would tend to have the effect of significantly increasing
State and munldpal borrowing costs, not only for these new programs but acrossthe-board for all State and municipal government programs. The proposed new •
Institution would avoid these problems by operating in a far broader market.
The net cost to the Federal budget, moreover, would be minimized through the
use of the proposed development bank, which would issue taxable securities.
These considerations give the Federal Government and State and local governments a community of interest in finding the financing means that will be most
economical for all levels of government combined. And I am confident that means
can, be found which iwill not Impinge in any way on the ultimate fiscal independence of State and local governments, which now rely mainly on the taxexempt concept.
!
Some implications ifor capital markets.—Even if the burgeoning new needs
that we now envisage are financed in a much more efficient fashion than is now
the case, such financing will be bound to have a major impact on capital and
securities markets generally. Added to continuing large piivate requirements—
and notably the likelihood that new housing needs will exert much greater pressures on the general capital markets than in the past—^it will almost certainly
mean that the average level of long term interest rates will be higher than in
the 1950's and early 1960's, when they were quite low.
This is not to imply that rates will not come down from tlieir very high recent
levels. But it does raise questions as to how long we can afford to continue
accepting attitudes and practices that were essentially developed in periods when
average interest rates;were substantially below the levels indicated for the future.
It suggests that continued maintenance of the statutory 4% percent ceiling on
long term Government bonds could become an Increasingly troublesome obstacle
to sound Federal debt management.
Concluding comment
So there you have the short and long of it. For the shortrun, the pressure of
Federal finance demand will diminish sharply, with consequently less pressure
on interest rates. Over the longer run, the needs for social welfare infrastructure
will place very heavy demands on the capital markets.
I welcome the lessened shortrun pressure and wish my successors well in
meeting the hard finaricial problems of the future.

Exhibit 25.—Statement by Under Secretary for Monetary Affairs Volcker,
February 19, 1969, before the Joint Economic Committee
I appreciate this opportunity to accompany Secretary Kennedy and Under
Secretary Walker on our first appearance before your committee. As Under
Secretary for Monetai-y Affairs, a good part of my own time will be devoted to
the balance of payments and international finance. I understand that you plan to
devote a later meeting exclusively to those matters. Consequently, my brief
remarks this morning will be directed toward some problems of domestic financial policy related to my responsibilities for Treasury financing.
Virtually my first official act upon my return to the Treasury 3 weeks ago
was to announce the terms by which the Treasury would refund some $14%
billion of maturing debt. By necessity, those terms Included the highest rates of
interest available on a Treasury note or bond since the Civil War. As it turned
out, even those record; rates—6.42 percent for a 15-month issue and 6.29 percent
for a 7-year issue—failed to attract much enthusiasm among potential investors.
IVIore than a third of the maturing securities held by the general public had to be
paid off in cash.
That experience refiects in a concrete way the strains pervading the domestic
credit markets as we took office. You are, I am sure, familiar with other signs
of pressure and imbalances: for example,, the relative shortage and high cost of
residential mortgage money, the sharp Increases in Interest expense for our State

EXHIBITS

249

and local governments, and the growing tendency of some lenders to require an
element of equity participation before committing loan funds.
My purpose today is not to elaborate these facts. Rather, I would like to
suggest how, in managing the Treasury's finances and debt, we might contribute
toward restoring better balance in financial markets.
The main responsibility, I should make plain, must lie elsewhere—in responsir
ble budget and fiscal policy and in appropriate monetary policy. These are the
principal policy tools for restoring sustainable, noninflationary balance to the
economy as a whole. This kind of balance in the economy generally is a prerequisite for any lasting reduction of tensions and interest rates in financial
markets.
There are two ways in which debt management can and should play a supporting role in this effort to achieve better balance. In the first place, Treasury
financing can at times provide some positive support to restrictive fiscal and
credit policies hy absorbing funds that might otherwise simply fuel excessive
private demand. The precise means of achieving this result will always be dependent upon the particular set of economic and market circumstances prevailing at the time of a financing. It would be an oversimplification to measure the
economic impact of Treasury financing entirely by the maturity of the securities
sold. Nevertheless, there can be no doubt that inability to offer longer-term
securities eliminates one highly Important option in debt management, and thereby sharply limits its potential effectiveness as a tool of general economic policy.
The second way in which debt management can support the. alms of stabilization policy is at least as significant. In the best of circumstances, the necessitous nature of Treasury financing and the potential impact of these large borrowings on credit markets create difficult problems for the conduct of monetary
policy. These problems can—and should—be minimized by orderly spacing of
financings, by reducing the size of maturing issues, and by use of financing techniques that avoid undue reliance on sales to the commercial banking system or
exposure to market fiuctuations. Again, the maturity of the securities offered is
not the only consideration. But it is a relevant and important variable,.
These circumstances explain why we shall ask the Congress at an early date
to review the 4^^ percent interest rate ceiling on Government bonds. This has been
a contentious issue in the past, and I have no desire to open that debate prematurely this morning.
I will only observe that the average maturity of the privately-held debt has
shortened steadily since mld-1965, when it stood at 5 years 9 months. By the end of
last month, it had declined to a postwar low of 4 years. This continuous shortening of the debt increased liquidity in the economy, and thus tended to add to
the inflationary potential. And the net result has been to force the Treasury
into the market for refunding in such large amounts as to immobilize monetary
policy for extended periods. In 1965, for example, the average amount of privately
held, marketable Treasury debt maturing each quarter was $3 billion; the average amount maturing in each quarter of this year, $5% billion, is very substantially larger.
I would also note, in this connection, that our savings bonds—sold to millions
of individuals in relatively small amounts—are subject to a 41^4 percent celling.
The savings bonds 'programi has been a part of the Treasury's debt management
effort since before World War II. In some ways, the value of this program is
greatest precisely in an Inflationary period like the present. Yet, we are all
conscious that these same inflationary pressures that have so profoundly
permea'ted other sectors of the credit market have, for the time being, reduced
the relative attractiveness of savings bonds. This is also a matter that we will
be reviewing urgently in coming weeks.
In conclusion, I can make no promise of immediate relief from the heavy pressures on domestic financial markets, or from high Treasury interest costs. That
is certainly a part of our ultimate objective. Moreover, with fiscal and monetary
policy both geared to a noninfiationary path, it seems to me a reasonable hope
for the not-too-distant future. But to put low interest rates and better availability
of money first on our list of priorities would be self-defeating. Por the attempt
could only add more fuel to the fire of inflation and, thus, to the distortions
and strains in financial markets.

250

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Exhibit 26.—Extract of remarks by Assistant to the Secretary, R. Duane
Saunders* March 14, 1969, before the Industrial Payroll Savings Committee,
on savings bonds
As a financial economist, I probably look on this program somewhat differently
than many of you do.
To understand the; savings bond program from a financial viewpoint requires
a little different approach than you may normally encounter.
Por many people the program is simply a payroll deduction and a periodic
receipt of a $25, $50, or $100 bond.
Others vaguely understand that this program, somehow, helps the Government.
Just how, is a mystery.
Still others remember that savings bonds were the war bonds of World War II
and helped finance the national war efforts, and they recall the advertisements
saying that the $18.75 purchase price of a $25 bond bought a carbine for a
soldier.
These ideas are all related to the importance of savings bonds but oversimplify the real story.
Savings bonds were first actively promoted in May 1941 when the Series E bond
went on sale.
The war in Europe threatened to expand into a wider conflict and our defense
expenditures meant the Treasury would have to finance larger deficits.
When we were finally drawn into the War, war costs enlarged to the limits
of the productive capacity of our economy. It was clear that 50 percent or more
of the costs were going to have to be financed by borrowings in spite of a dramatic, large increase in taxes, and a financial plan was needed. .

fORLD WAR n RECEIPTS A i D EXPEWDITORE
Fiscal Years 1942 - 1946
$Bil.

150

Expenditures

100

1942

1943

1944

1945

EXHIBITS

251

The first requirement was to finance war expenditures; the second part of the
program was to mop up savings which otherwise might have been spent, adding
to infiationary pressures.
Successive deficits in fiscal years 1942, 1943, 1944, 1945, and 1946 produced
a cumulative deficit of $183 billion.
In addition, we had an increase in our cash balance during the war years of
some $12 billion, meaning a total financing requirement upon the economy of
about $195 billion.
Twenty-two billion dollars of this requirement was met by the Federal Reserve
System in providing the monetary base. We went to the private market for the
balance of $173 billion.
A good part of this could be raised by selling conventional securities to savings
institutiions, corporations, and foreign and other accounts plus individuals and
corporate business.
However, at the outset we faced a very serious problem since we did not have
an instrument designed for the small individual saver until the Series E savings
bond came into existence in May 1941. By the end of the War, savings bonds provided some $30 billion, or 17 percent, of the total of $173 billion of demands we
placed on private markets.
This still meant that we had to go to the commercial banks for, roughly, $65
billion of our financing.
This is the World War II picture. Savings bonds gave us a tremendous assist
by meeting 17 percent of our needs.
The postwar picture, basically, has not been well understood.

WORLO w m 1 FEDERAL DEBT

363-222—70-

-18

252

1969 REPORT OF THE SECRETARY OF THE TREASURY
POST WAR RECEIPTS AMD EXPEiyOSTURES

$Bil.

150
Expenditures *v.

1947-'51

1952-'56

1957-'61

1962'66

1967-'69

Fiscal Year Averages

Most of these years, except for 'the first few surplus years, have been characterized by smaller deficits than during the War years. As a matter of fact, in
contrast to World War II where we had to finance some 50 percent of the expenditures, in the postwar years we have had to look to the markets to finance only
about 21/^ percent of our expenditures through borrowing operations.
The total cumulative deficit that has had to be financed by the capital market—
outside of the Government—has totaled some $54 billion. We have met this $54
billion requirement, in part, by reducing our end-of-war cash, leaving a balance
of $44 billion to finance. The Federal Reserve System, in providing the credit
base for the vast postwar years, acquired some $31 billion of these securities,
so that our demands on the private sector, where we compete with mortgages,
corporations, State and local and other demands, were $13 billion.

EXHIBITS

253

POSTWAR FEDERAL DEBT
Borrowing
from the
Public
$Bil.
60,

Decrease
in cash
etc.

10
40

54
20

19i 7 - 6 9
eficit
Det t
Increi\se

-10

Fiscal Years 1947-1969

* 1969 Based on January Budget esiimaies.

Still, even this has created problems. The Federal Government, when it runs
larger deficits in periods of very rapid growth, produces strains upon capital
markets and infiationary pressures, although the strains have not been anything
like those of World War II.
Prom our standpoint as debt managers, however, the Important thing has been
that of this $13 billion that has had to be financed in the private sector, $22
billion of it has come from the savings bonds program. This is more than the total
and has permitted us to retire some $9 billion of debt in the hands of other
investors.
Nine billion dollars, of course, is made up of a lot of pluses and minuses—
a decline in the holdings of savings institutions, business corporations, but most
importantly, a $22 billion decline in commercial bank holdings of our securities.
To get this into a little closer perspective, let's look at what the program did
in, say, fiscal year 1968.

254

19 69 REPORT OF THE SECRETARY OF THE TREASTJRY

FEDERAL DEBT i=lSCAL YEAB 1S68
Borrowing
from the
Public

—

Private Investors
Federal
Reserve

Total

Savings
Bonds

All Other

In the fiscal year 1968, as you may recall, we had a deficit—the largest peacetime deficit in our history—of some. $25 billion. We were able to drawdown our
cash balances by $2 billion, but we still had to go to the capital market outside
of the Government for $23 billion of debt financing.
Five and a half billion dollars was taken up by the Central Bank in carrying
out its monetary function, but we still had to go to the private sector for some
$17% billion. This is a significant piece of the total of $54 billion postwar financing
total.
Savings bonds, because they move slowly in terms of sales growth, cannot be
expected to meet problems of this nature.
As a matter of fact, savings bonds and freedom shares outstanding rose close
to $1 billion, leaving some $16i/^ billion to be raised in private sector financing.
You have seen a part of the consequences in the vast rise—and I would call it
purposely *'vast" because it was vast—in interest rates in all sectors of the
economy.
Now we are over the hump of that $25 billion deficit in 1968 and into the current year in which—using the budget surplus of some $2i/^ billion estimated in
the January budget and anticipating no change in our cash balance—we will be
repaying debt to the public.

255

EXHIBITS

•FEDERAL DEBT FISCAL YEAR 1968'
Borrowing irjbm
the Public

Private Investors
Federal Reserve
Total

Savings Bonds

All Other

$Bil.

-2

n
-51/2

•6V2

n January Budget estimates and cunent trends in owneiship

While we can't know precisely what the Federal Reserve System will take
during this fiscal year, so far their increase over a year ago is $3 billion. If this
continues, then we will be a net repayer of something like $5^/^ billion. And if
savings honds, projecting ahead again, give us perhaps $1 billion of assist, then
we will be able to repay $6% billion in marketable securities.
Thus, we can look forward during this fiscal year to a net reduction in our
demands on the capital market area of $6^/^ billion.. This should do a good bit
to relieve the pressure upon capital markets, especially as we look through the
balance of this fiscal year.
This is the kind of assist that we have seen come out of this program. It is the
financing job that you have done that has given us the margin, leeway, elbow
room, call it what you will, that has enabled us to keep abreast of the problem
of managing a debt in an economy that, in the last few years, has been full of
infiationary expectations.

256

19 69 REPORT OF THE SECRETARY OF THE TREASURY

— DES^ORflliyATION TRENDS IN E AND U BOND SALES$Bil.

'55

'57
'59
Fiscal Years

I might also take the liberty to spend just a brief moment on the kind of market
that you will be encountering.
Denomination trends in savings bonds sales in the postwar years have
changed significantly. The growth has been in the small denomination bonds. The
larger denomination bonds have gradually drifted down, and this is very marked
in H bonds which initially were a good part of the market.
The H bond market, which once was about 20 percent of the total, has now
declined to a'bout 6 percent. The large denominations, which at the end of the
War were providing some 50 percent of the total market, are now down to
about 20 percent of the E program.

257

EXHIBITS

DENOMINATION TRENDS IN E AND H BOND SALES
Percentage Distribution

%
100

54%

-50

59%

46%

^^ ^

_^ I.

59% 59%

E Bonds and Savings Notes:
$200's and Under

J
1947

\
'49

L
'51

'53

I
I
I
'55
'57
'59
Fiscal Years

J
'61

\
'63

I
'65

L
'68

The small denomination bonds, essentially payroll savings, were about' 46
percent of total market at the end of the War.
Since the time the Indus'trial Payroll Savings Co'mmlttee was established,
small denomination bonds have grown from 63 percent to 74 percent of the
market.
This is the market that we see you reaching and getting for us. As we reexamine product design, a'bout which some comments have been made earlier, we
vtdll have to keep this market in mind.
In closing, we in the Treasury Department, are aware of the fact that we are
not the ones who have sold these bonds. All we have done is to provide some
of the selling tools.
The sales effort has been yours, and all I, as one of the debt management
team, can do is to say thank you for a job well done and we trust we can repeat
the same thank you in the future.

Taxation Developments
Exhibit 27.—Message from President Nixon to the Congress, April 21, 1969,
regarding tax reform
Reform of our Federal Income tax system is long overdue. Special preferences
in the law permit far 'too many Americans to pay less than their fair share of
taxes. Too many other Americans bear too much of the tax burden.
This Administration, working with the Congress, is determined to bring
equity to the Federal tax system. Our goal is to take iinportant first steps in
tax reform legislation during this session of the Congress.
The economic overheating which has hrought inflation into its fourth year
keeps us from moving immediately to reduce Federal tax revenues at this time.
Iriflation is Itself a tax—a cruel and unjust tax that hits hardest those who can

258

19 69 REPORT OF THE SECRETARY OF THE TREASURY

least afford it. In order to "repeal" the tax of inflation, we are cutting hudget
spending and have requested an extension of the income tax surcharge.
Although we must maintain total Federal revenues, there is no reason why
we cannot lighten the burden on those who pay too much, and increase the taxes
of those who pay too little. Treasury oflacials will present the Administration's
Initial group of tax reform proposals to the Congress this week. Additional
recommendations will be made later in this session. The overall program will be
equitable and essentially neutral in its revenue impact. There will be no substantial gain or loss in Federal revenue, but the American taxpayer who carries
more 'than his share of the burden will gain some relief.
Much concern has been expressed because some citizens with incomes of more
than $200,000 pay no Federal income taxes. These people are neither tax dodgers
nor tax cheats. Many of thC'm pay no taxes because they make large donations
to worthy causes, donations which every taxpayer is authorized by existing law
to deduct from his Income in figuring his tax hill.
But where we can prevent it by law, we must not permit our wealthiest
citizens to he 100 percent successful at tax avoidance. Nor should the Government limit its tax reform, only to apply to these relatively few extreme cases.
Preferences built into the law in the past—some of which have either outlived
their usefulness or were never appropriate—^permit many thousands of individuals and corporate taxpayers to avoid their fair share of Federal taxation.
A number of present tax preferences will be scaled down in the Administration's proposals to be submitted this week. Utilizing the revenue gained from
our present proposals, we suggest tax reductions for lower-income taxpayers.
Further study will he necessary before we can propose changes in other preferences ; and 'as these are developed we will recommend them to the Congress.
Specifically, the Administration will recommend:
—Enactment of what is in effect a ''minimum, incow^e tax'' for citizens loith
substantial incomes by setting a 50 percent Umitation on the use of the principal
tax preferences which are subject to change by law.
This limit on tax preferences would be a major step toward assuring that all
Americans hear their fair share of the Federal tax burden.
—Enactment of a ''low income allowance,'' which will remove more than
2,000,000 of our low ineome families from the Federal tax rolls and assure that
persons or families in: poverty pay no Federal incom^e taxes.
This provision will also benefit students and other young people.
For example, the person who works in the summer or throughout the year
and earns $1,700 in taxable Income—^^and now pays $117 in Federal Income
taxes—^would pay nothing.
The married coupler-college students or otherwise—with an income of $2,300
and current taxes of $100 would pay nothing. A family of four would pay no tax
on income below $3,500—the cut-off now is $3,000.
The "low income allowance," if enacted by the Congress, wUl offer genuine
tax relief to the young, the elderly, the disadvantaged and the handicapped.
Our tax reform proposals would also help workers who change jobs by
liberalizing deductions for moving expenses and would reduce specific preferences in a number of areas:
—^taxpayers who have certain nontaxable income or other preferences would
have their nonbusiness deductions reduced proportionately.
—^certain mineral transactions (so-called "carved out" mineral production
payments and "ABC" transactions) would be treated in a way that would stop
artificial creation of net operating losses in these Industries.
—exempt organizations, including private foundations, would come under
much stricter surveillaLnce.
—the rules affecting charitable deductions would be tightened—^but only to
screen out the unreasonable and not stop those which help legitimate charities
and therefore the nation.
—the practice of using multiple subsidiaries and aflSliated corporations to
take undue advantage of the lower tax rate on the first $25,000 of corporate
income would be curbed.
—farm losses, to be included in the "limitation on tax preferences," would be
subject to certain other restrictions in order 'to curb abuses in this area.
I also recommend that the Congress repeal the 7 percent investment tax credit,
effective today.

EXHIBITS

259

This subsidy to business investment no longer has priority over other pressing
national needs.
In the early 60's, America's productive capacity needed prompt modernization
to enable it to compete with Industry abroad. Accordingly, Government gave
high priority to providing tax incentives for this modernization.
Since that time, American business has invested close to $400 billion in new
plant and equipment, bringing the American economy to new levels of productivity and efiiciency. While a vigorous pace of capital formation will certainly
continue to be needed, national priorities now require that we give attention to
the need for general tax relief.
Repeal of the investment tax credit will permit relief to every taxpayer through
relaxation of the surcharge earlier than I had contemplated.
The revenue effect of the repeal of the investment tax credit will begin to be
significant during calendar year 1970. Therefore, I recommend that investment
tax credit repeal be accompanied by extension of the full surcharge only to
January 1,1970, with a reduction to 5 percent on January 1. This is a reappraisal
of my earlier recommendation for continuance of the surcharge until June 30,
1970, a t a 10 percent rate. If economic and fiscal conditions permit, we can look
forward to elimination of the remaining surtax on June 30, 1970'.
I am convinced, however, that reduction of the surtax without repeal of the
investment tax credit would be imprudent.
The gradual increase in Federal revenues resulting from repeal of the investment tax credit and the growth of the economy will also facilitate a start during
fiscal 1971 in funding two high-priority programs to which this Administration is
committed:
—Revenue sharing with State and local governments.
—Tax credits to encourage investment in poverty areas and hiring and training
of the hard-core unemployed.
These proposals, now in preparation, will be transmitted to the Congress in
the near future.
The tax reform measures outlined earlier in this message will be recommended
to the House Ways and Means Committee by Treasury oflScials this week. This is
a broad and necessary program for tax reform. I urge its prompt^enactment.
But these measures, sweeping as they are, will not by themselves transform the
U.S. tax system into one adequate to the long range future. Much of the current
tax system was devised in depression and shaped further in war. Fairness calls
for tax reform now; beyond that, the American people need and deserve a
simplified Federal tax system, and one that is attuned to the 1970's.
We must reform our tax structure to make it more equitable and efficient; we
must redirect our tax policy to make it more conducive to stable economic growth
and responsive to urgent social needs.
That is a large order. Therefore, I am directing the Secretary of the Treasury
to thoroughly review the entire Federal tax system and present to me recommendations for basic changes, along with a full analysis of the impact of those
changes, no later than November 30', 1969.
Since taxation affects so many wallets and pocketbooks, reform proposals are
bound to be controversial. In the debate to come on reform, and in the even
greater debate on redirection, the nation would best be served by an avoidance of
stereotyped reactions. One man's "loophole" is another man's "incentive." Tax
policy should not seek to "soak" any group or give a "break" to any other—it
should aim to serve the nation as a whole.
Tax dollars the Government deliberately waives should be viewed as a form of
expenditure, and weighed against the priority of other expenditures'. When the
preference device provides more social benefit than Government collection and
spending, that "Incentive" should be expanded; when the preference is inefficient
or subject to abuse, it should be ended.
Taxes, often bewailed as inevitable as death, actually give life to the people's
purpose in having a Government: to provide protection, service and stimulus to
progress.
We shall never make taxation popular, but we can make taxation fair.
RiCHAED N I X O N .

T H E WHITE HOUSE, April 21,1969.

260

19 69 REPORT OF THE SECRETARY OF THE TREASURY

Exhibit 28.—Statement by Secretary Kennedy, May 20, 1969, before the House
Committee on Ways and Means, in support of the President's tax
recommendations
It is a pleasure to be here with Dr. McCraeken and Mr. Mayo in support of
the President's tax recommendations.
First, to extend the income tax surcharge at the full 10-percent rate throughout
1969 and at 5 percent until mid-1970 ;
Second, to postpone the scheduled reductions in excise taxes on automobiles
' and telephone services; and
Third, to repeal the 7 percent investment credit.
The case for these proposals is compelling. More than 3 years of infiation have
distorted our economy, robbed the thrifty of part of their savings, and eliminated
our favorable trade balance. A continuation of the infiationary boom ultimately
is likely to lead to a sharp contraction in economic activity, accompanied by a
painful level of unemployment. Inflation must be stopped—and it can only be
stopped by continued fiscal and monetary restraint.
Federal spending for the coming fiscal year has been cut back sharply from the
levels proposed in January by the preceeding administration. Further cuts would
imperil programs vital to meeting our national needs. In these circumstances, the
needed budgetary surplus requires that we not permit the surcharge to expire.
An extension of the surcharge would, according to current estimates, result
in Federal budget receipts of $199.2 billion in fiscal 1970. With spending reduced
to $192.9 billion, the result would be a surplus of $6.3 billion. Given the size of
the inflation problem, that surplus would be none too large. But failure to extend
the surcharge and excises would convert the surplus to a deflcit.
Mr. Chairman, I would now like to turn to Mr. Mayo, who will discuss the
budget situation, and then to Dr. McCraeken, who will present the economic case
for the President's tax proposals. Following these statements I would like to
discuss the proposed repeal of the 7-percent investment credit and to make some
concluding remarks. ;
*

I would like to make a few concluding remarks. The President is committed to
the removal of the surtax just as soon as economic and military conditions permit.
However, it is possible at this time to recommend a halving of the surtax as of
January 1, 1970.
Such a reduction in the surtax, bringing some measure of relief to all income
taxpayers, would be possible only because of the proposed elimination of the 7percent investment tax credit. The revenue lost from reduction of the surcharge
would almost exactly offset the revenue gained from repeal of the credit.
Although elimination of the credit would help curtail the demand for business
equipment—and thus relieve Inflationary pressures'—that is not the only reason
for suggesting its removal. This subsidy to business Investment ranks below other
pressing national needs.
The revenues released by repeal of the credit can be used—beginning in flscal
year 1971—to help fund the administration's forthcoming programs, including
revenue-sharing with State and local governments and tax credits to encourage
investment in poverty I areas and hiring and training of the hardcore unemployed.
Stated simply, the > case for removal of the investment credit rests primarily
upon the fact that the social needs and economic conditions of the 1970's will be
greatly different from those of a decade ago. Stimulation of a sluggish rate of
business Investment was a high priority goal in the early 1960's. Since that time,
business has Invested close to $400 billion into new plant and equipment. Even
without the credit, a high rate of Investment is expected to continue because the
fundamental incentive to invest—good prospective markets for Industry's products—is likely to remain very strong over the period ahead. Instead of inducing
still more business investment, additional resources will be available to meet
pressing needs for housing, to aid State and local governments, and to improve
the lot of the poor.
Let me conclude by discussing briefly three of the arguments that have been
advanced against extension of the surcharge.
Pirst, there are a few who argue that the degree of fiscal and monetary restraint is now too great and that extension of the surcharge risks economic overkill. The data now available, as reviewed today by Dr. McCraeken, refutes this
view. The slight abatement in the pace of advance, although gratifying, is surely

EXHIBITS

261

not sufficient to justify relaxation of our efforts at this time. What we are seeking in this legislation is not to turn the anti-lnfiatlon screw another notch, but to
retain approximately the budget position we have now achieved. Indeed, as has
already been pointed out, failure to extend the surcharge would significantly
boost the inflationary expectations that now pervade the economy.
Second, there are those who argue that enactment of the surcharge failed to
cool the economy last year and will fall again this year. Dr. McCraeken has also
met this argmnent. Our tax program must be viewed as part of a coordinated
approach, and with this legislation fiscal and monetary policies will remain
properly synchronized. Failure to extend the surcharge would shift too much of
the burden to monetary policy, with the unhappy prospect of even higher Interest
rates and tighter credit conditions than now prevail.
Finally, there are those who argue that extension of the surcharge should be
postponed until a comprehensive tax reform bill has been reported out of this
committee.
The administration is fully committed to achieving significant tax reform at
the earliest possible date. We made a substantial downpayment on this commitment by presenting to the committee, after only 3 months in office, a comprehensive set of tax reform proposals of major substantive significance. They are
not simply proposals of the Treasury or of its staff. They were studied carefully
in the White House; They enjoy the full support of the President.
We recognize that additional tax reform proposals are needed. Further recommendations are now being prepared by the Treasury. The Initial package,
however, should be a convincing demonstration of the depth and strength of this
administration's commitment to far-reaching and meaningful reform.
Whatever package of tax reforms Congress enacts this year can be balanced
so as to be consistent with the budget position established by the measures under
consideration today. The administration reform proposal is balanced in that way.
Linking tax reform with the problem of restoring economic stability through
fiscal responsibility and restraint can only jeopardize both goals.
I, therefore, urge the committee to formally act upon the President's proposals
promptly to extend the surcharge and excises and to repeal the Investment credit.
Any protracted period of uncertainty about the fiscal plan of the Government
will strengthen the infiationary expectations with which we now contend, will
seriously complicate the problem of monetary management, and will undermine
confidence at home and abroad in our intent and ability to maintain a stable
dollar.
In acting promptly on the President's recommendation, we shall demonstrate
that we can face up to our fiscal responsibilities and mount an effective prograin
to halt Inflation.
At this point, I am submitting a supplementary statement, which includes a
general explanation of the provisions relating to the surcharge. Investment credit
repeal, and the excise taxes, and a technical explanation of those proposed
tax changes, and a proposed bill. Tables are Included showing: (1) the revenue
consequences of the surcharge extension and Investment credit repeal; and (2)
the changes in tax liability for individuals and families resulting from the proposed surcharge extension for 1969 and 1970. If they could be included in the
record, I would appreciate it.
GENERAL EXPLANATION
1. In general
The President's proposal would amend provisions relating to the surcharge,
the investment credit, and the excise taxes on automobiles and telephone service.
The surcharge would be extended at the rate of 10 percent for 1969. Under
present law the surcharge rate for 1969 is 5 percent, representing a surcharge
of 10 percent for half the year from January 1, 1969, to June 30, 1969. Under the
proposed extension most taxpayers will pay this surcharge through withholding
rates about 10 percent above the regular rates until December 31,1969.
The surcharge would be enacted at a rate of 2% percent for 1970, to be paid by
most taxpayers through withholding at rates 5 percent above the regular rates
until June 30, 1970. This will represent a reduction in the withholding rate from
10 percent to 5 percent in January.
Under the proposal the surcharge would expire after June 30, 1970, and withholding rates would be restored to their basic levels at that time.

262

19'69 REPORT OF THE SECRETARY OF THE TREASURY

In addition, the investment credit would be repealed with respect to property
constructed or acquired after April 20, 1969, except for property on which construction had hegun or which had been contracted for by that date.
The present schedule of reductions in the excise tax rates on automobiles and
on telephone service beginning January 1, 1970, would be extended for an additional year. On this basds the automobile tax would drop from 7 percent to 5
percent on January 1, 1971, and the telephone tax would drop from 10 percent
to 5 percent on January 1, 1971. The other reductions now scheduled will each
take place 1 year laterl
This program will produce approximately the same revenue through fiscal
year 1970 as would have been provided by the extension of the surcharge at 10
percent through June 1970 as proposed by the previous Administration. Since
repeal of the investment credit would be permanent, the revenue after June 1970
will be substantially 'higher under this program than it would be under present
law. The revenue details are set out in table I.
2. The proposal in detail
A. The surcharge.^The President's proposal contemplates continuation of
present withholding rates, as recommended by the previous Administration, until
December 31, 1969. The extra withholding would then be reduced in half from
January 1, 1970, through June 30, 1970, when the surcharge would expire. In
all other respects the surcharge would be continued as it has been in operation
for the past year.
B. Excise tax on automobiles and telephone service.—The continuation of the
excise rates on automobiles and telephones at present levels also is required by the
budget situation. At the current time the demand for automobiles as well as
telephone service is strong, and continuation of the present excise will not be
burdensome on either industry. Under the proposal, the reductions in these excise
tax rates will be deferred for 1 year.
In the case of both 'the surcharge and the excise extension, prompt passage
is important. If the rates are permitted to lapse temporarily due to failure of
the bill to be enacted before July 1, there will be difficult conditions facing employers, particularly in having to change their withholding schedules on July 1,
and again when the surcharge is enacted. Moreover, if there were a time gap
between July 1 and the date of enactment, either withholding would have to be
set at a higher rate for the balance of 1969 or additional tax would have to be
paid by employees on filing their final 1969 returns in April 1970.
C. The investment credit.—The terms of repeal of the Investment credit should
include a rule that assets acquired pursuant to a bindiug contract executed on
or before April 20, 1969^—that is, before the President's announcement—^would
qualify for the credit. Contracts entered into after that date would not qualify
for the credit. Por these purposes a contract would be considered binding if,
under the applicable local law, the taxpayer is legally bound to perform. In addition, specific property on which construction began prior to April 21 would
qualify for the credit.'
These rules will achieve the most equitable results in that those who commenced construction of property or legally bound themselves to acquire property
in reliance on the -credit will receive the benefit of the credit for such property.
On the other hand, those who committed themselves after the President's message on April 21,1969,; will not receive a benefit 'at the expense of other taxpayers.
We emphasize that any change in the proposed cutoff date or transition rules
could not only seriously affect the revenue Impact of repeal, requiring reconsideration of the extent of the surcharge reduction, but could also discriminate
unfairly /between those who did and those who did not act with regard to the
President's message.
The situation with respect to the present proposal for repeal of the credit
differs from that involved in the temporary suspension that was enacted in 1966.
In the case of the temporary suspension a special equity problem existed because construction going on during the suspension would in the future compete
with projects built after the suspension that would qualify for the credit.
In a repeal of the credit, future investors will not have the credit. Thus fairness
requires that the law allow no credit to particular future Investments unless
they were acquired pursuant to contracts that were binding on April 20, 1969.
Fair provisions should also be made with respect to existing unused investment credit carryovers. Under present law taxpayers are allowed to carry

EXHIBITS

263

forward for 7 years any ambunt of investment credit in excess of the statutory
limitation of $25,000 plus 50 percent of their tax liability above $25,000' for
the year. By the end of 1968 taxpayers held an estimated $2 billion of such
unused credits and some equitable disposition of these credits is necessary when
the Investment credit is repealed. It is proposed that taxpayers he allowed to
carry forward and take as credits against their income tax liabilities for years
ending after April 20, 1969, as much of their unexpired unused credits from prior
years as they would have been able to claim in the event the investment credit
had not been repealed.
Under this provision, taxpayers would compute for each year ending after
April 20, 1969, a simulated tentative investment tax credit based upon the cost
of all property put in service during that year that would have qualified for the
credit but for repeal. This simulated credit plus the credit available for property
acquired pursuant to a binding contract entered into prior to April 21, 1969, or
property the construction of which was commenced before that date (both of
which may be referred to as prerepeal property) would then be compared to
the taxpayer's limitation on the credit ($25,000 plus 50 percent of the tax in
excess of $25,000). If the total were less than the limitation, the full credit
for prerepeal property would he allowed, and any unused investment credit
carryover would be allowed to the extent of the difference hetween the limitation,
reduced hy the credit allowed for prerepeal property, and the simulated credit.
If the total were more than the limitation, the credit for prerepeal property would
be allowed on a pro rata basis, and any remaining unused credit on the prerepeal
property would be added to the taxpayer's unused carryovers to be carried over
to subsequent years.
Of course, if there were no credit for prerepeal property, the carryover would
be allowed to the full extent of the excess of the limitation over the simulated
credit.
This system provides a fair allowance for both unused credit carryovers and
credits for prerepeal property. As stated, this system results in allowance of the
credit for both prerepeal property and for unused carryovers to the same extent
as would have been allowed if the credit had not been repealed. It is considerably
fairer than the 1966 suspension period rules which first reduced the limitation by
the full amount of the simulated credit, resulting in many cases of complete
denial of the credit for property acquired pursuant to binding contracts entered
into prior to the suspension. Our proposed simulated credit approach eliminates
this inequity.
This method has the added advantage of providing an incentive to taxpayers
to defer expenditures on qualified property and thus generally to strengthen the
Administration's anti-inflation program. By deferring such expenditures, there
will be 'a smaller simulated credit, and unused carryovers can be utilized to a
greater extent.
In addition, the proposal contains a rule to protect property which is purchased after repeal as a replacement for property on which the credit has previously been claimed hut which is destroyed hy casualty or is stolen. To the
extent the property is replaced, there would he no reduction of heneflt from the
credit through either recapture or the simulated credit.
A final topic related to the investment credit repeal is the issue of exceptions.
The situation regarding repeal is different from that involved in 1966 under
temporary suspension. Under a temporary suspension there was reason to allow
small husiness to have the credit on assets acquired during the suspension period
because they would be competing in the future with large companies that would
get the credit on investment after the suspension. To provide permanently that
small husiness should get the credit would introduce a discrimination that may
he unwise. A decision to favor small husiness by some minimum credit would,
for example, need to be compared with other techniques for dealing with small
business, such as the additional first-year depreciation allowance in section 179
of the code; and it would have to be allowed under limitations so that it could
not be enjoyed on a multiple basis hy chains of corporations.
Further, continuation of an Investment credit with a dollar limitation would
not be an efficient way to help small business. The large hulk of small business is
in the retail and wholesale trade lines where much of their Investment must he
in inventories and receivables. Where a small business does involve a heavy
investment in assets 'that would be covered by the investment credit, this typically occurs early in the husiness life when the credit is apt to be very large relative

264

19 69 REPORT OF THE SECRETARY OF THE TREASURY

to the tax and is thus apt to be largely wasted. An investment credit limited
in dollar amount is likely to be a far less viable assistance to new business than
Government efforts to make loans available to new and small firms.
Other recommend'ations have been made to preserve the investment credit for
particular kinds of assets, such as airplanes or railroad freight cars. This would
be a very unwise decision to make in the context of the present repeal legislation.
This would be a complete change in the character of the investment credit from
an across-the-board encouragement to equipment Investment in general to a
specialized subsidy to certain investments in certain industries. The Congress
should not decide to preserve a discriminatory credit for, say, airplanes without
studying this as a specific problem in transportation policy. Whether an airplane
investment should get a special assistance not available to other assets would
need to -be studied in terms of more detailed investigation of the national Interest
Involved and the total relationship of the Federal Government to the Industry.
We have argued for several years that there should be additional charges on
airway users for the free services Government already provides.
iPurther, it does not appear desirable for the Congress to provide a credit
permanently for special categories of Investment, such as investment in antipollution equipment, by simply excluding them from the proposed repeal. Legislation regarding such equipment should be separately considered on its own
merits, and if tax credits are to be used in some degree to achieve these objectives, they should be specially designed to achieve their intended purpose without
undue revenue loss. In many situations the appropriate business response may
not be in new investment. It may, for example, be in the form of incurring extra
costs for a desulfurlzed fuel. It may not be advisable to introduce a Federal
subsidy for antipollution investments but not for other antipollution costs. These
are matters to which the present Administration is giving careful attention at
the present time.
If the Congress sees fit to modify this proposal as to repeal of the investment
credit by creating exceptions or liberalizing the terms of the repeal, so as to
significantly reduce the revenue expected in the fiscal year 1970, a smaller reduction of the surcharge in 1970 would be necessary.
TABLE I.—Increase in revenue from extension of surcharge at 10 percent to Dec. 31,
1969, and at 6 percent to June SO, 1970, combined with repeal o^ investment credit
compared with increase from extension of surcharge at 10 percent to June 30, 1970
[In billions of dollars]
Fiscal year 1970
Individual Corporation

Total

Fiscal year 1971
Individual Corporation

Total

A. Extend surcharge at 10 percent to Dec. 31, 1969, and at 5 percent to June 30, 1970; repeal investment
credit effective Apr. 20,1969
Increase from extension of
surcharge..5.6
2.0
7.6
0.4
0.8
1.2
Increase from repeal of
investment credit
-..
.4
1.1
1.5
.6
2.3
2.9
Totalincrease

.—

6.0

3.1

9.1

1.0

3.1

4.1

, B. Extend surcharge at 10 percent to June 30,1970
Increase from extension of \
surcharge
.-Increase (-h), decrease (—),'
AoverB
—.

7.2

2.3

9.5

0.9

1.5

2.4

-1.2

+.8

-.4

+.1

-j-1.6

4-1.7

EXHIBITS

265

TABLE II.—Comparison of tax liabilities under proposed surcharge change ^
[Single individual]
W a g e income

1968 t a x 2

1969 tax 3

C h a n g e from
1968

1970 tax 4

$1,000
1,900
2,000
3,000
5,000
7,500
10,000
12,500
15,000
20,000
25,000
35,000

$16
147
166
358
721
1,256
1,873
2,578
3,391
5,287
7,506
12,499

$16
147
167
366
738
1,285
1,916
2,638
3,469
5,410
7,680
12,790

$0
0
1
8
17
29
43
60
78
123
174
291

$16
147
164
341
688
1,197
1,786
2,458
3,233
5,041
7,157
11,918

C h a n g e from
1969
$0
0
-3
-25
-50
-88
-130
-180
-236
-369
-523
-872

1 Tax liabilities assume minimum standard deduction or deductions equal to 10 percent of income whichever is greater. Tax liabilities from optional tax table where income is under $5,000.
2 Includes 10 percent tax surcharge effective from Apr. 1,1968 to Dec. 31,1968 (i.e., 7 ^ percent for calendar
year). Surcharge liability from tables contained in the Revenue and Expenditure Control Act of 1968.
3 Includes 10 percent tax surcharge proposed for full year. Surcharge liability computed as 10 percent of
adjusted tax, but not to exceed 20 percent of adjusted tax in excess of $145 for single returns and $290 for joint
returns.
* Includes 5 percent surcharge proposed for one-half year, effective from Jan. 1,1970, to June 30,1970 (i.e.,
23/^ percent for calendar year). Surcharge liability from proposed surcharge tables for 1970.
NOTE.—There is no surcharge for a single person whose regular tax is less than $145.

TABLE III.—Comparison of tax liabilities under proposed surcharge change ^
[Married couple, no dependents]
Wage income

1968 tax 2

1969 tax 3

C h a n g e from
1968

1970 tax 4

C h a n g e from
1969

$2,000
3,000
3,600
5,000
7,500
10,000
12,500
15, 000
20,000
26,000
35,000

$58
204
295
533
983
1,443
1,968
2,510
3,745
5,156
8,697

$58
204
295
543
1,005
1,476
2,014
2,569
3,832
5,276
8, 797

$0
0
0
10
22
33
46
58
87
120
200

$58
204
294
512
937
1,376
1,877
2,393
3,571
4,916
8,197

$0
0
-1
-31
-68
-100
-137
-175
-261
-360
-600

1 Tax liabilities assume minimum standard deduction or deductions equal to 10 percent of income whichever is greater. Tax habilities from optional tax table where income is under $5,000.
2 Includes 10 percent tax surcharge effective from Apr. 1,1968, to Dec. 31,1968 (i.e., 73^ percent for calendar
year). Surcharge liabihty from tables contained in the Revenue and Expenditure Control Act of 1968.
3 Includes 10 percent tax surcharge proposed for full year. Surcharge liability computed as 10 percent of
adjusted tax, but not to exceed 20 percent of adjusted tax in excess of $145 for single returns and $290 for
joint returns.
4 Includes 5 percent surcharge proposed for one-half year, effective from Jan. 1, 1970, to June 30, 1970
(i.e., 2}^ percent for calendar year). Surcharge hability from proposed surcharge tables for 1970.
NOTE.—There is no surcharge for a married couple whose regular tax is less than $290.

266

196 9 REPORT OF THE SECRETARY OF THE TREASURY

TABLE IV.—Comparison of tax liabilities under proposed surcharge change ^
[Married couple, two dependents]
Wage income

1968 tax 2

$3,000
6,000
7,600
10,000
12,600
16,000
20,000
26,000
35,000

$4^
290
737
1,198
1,685
2,217
3,397;
4,743;
8,094

1969 tax 3

C h a n g e from
1968

1970 tax 4

C h a n g e from
1969

$4
290
755
1,225
1,724
2,268
3,476
4,853
8,282

$0
0
18
27
39
51
79
110
188

$4
290
703
1,142
1,606
2,114
3,239
4,522
7,717

$0
0
-62
-83
-118
-154
-237
-331
-665

1 Tax liabilities assume minimum standard deduction or deductions equal to 10 percent of uicome whichever is greater. Tax liabilities from optional tax table where income is under $6,000.
2 Includes 10 percent tax surcharge effective from Apr. 1,1968, to Dec. 31,1968 (i.e., 7M percent for calendar
year). Surcharge liability frpm tables contained in the Revenue and Expenditure Control Act of 1968.
3 Includes 10 percent tax surcharge proposed for full year. Surcharge liability computed as 10 percent of
adjusted tax, but not to exceed 20 percent of adjusted tax in excess of $146 for single returns and $290 for joint
returns.
* Includes 6 percent surchai'ge proposed for one-half year, effective from Jan. 1, 1970, to June 30, 1970 (i.e.,
2 ^ percent for calendar year). Surcharge liability from proposed surcharge tables for 1970.
NOTE.—There is no surchalrge for a married couple whose regular tax is less than $290.

The technical explanation of the Revenue Act of 1969 is printed in the hearings before the House Committee on Ways and Means, May 20,1969, on the President's proposal to repeal the investment tax credit and to extend the income tax
surcharge and certain excise tax rates.

Exhibit 29.—Statement by Under Secretary Walker, April 22, 1969, before the
House Committee on Ways and Means, on the need for tax reform
As President Nixon stated in his message to ithe Congress yesterday: ^
"Reform of our Federal income tax system is long overdue. Special preferences
in the law permit far too many Americans to pay less than their fair share of
taxes. Too many other Americans bear too much of the tax burden."
The program which Assistant Secretary Cohen and his deputy, Mr. Nolan,
join with me in presenting today is a highly important first step in reshaping the
Federal tax system to make it fair and efficient.
As important as this step is, however, it should be recognized only as the first
stage of our program. Many of our proposals are aimed directly at correcting
abuses which permit wealthy people and prosperous businesses to avoid a fair
share of the tax burden; these proposals have been carefully prepared and evaluated. But time has not permitted the careful study and analysis necessary before
all existing preferences can be evaluated and, if appropriate, adjusted or eliminated. The proposal for a "limitation on tax preferences," which Secretary Cohen
will describe to you, is a fair and effective approach to preventing abuse by the
beneficiaries of such preferences. We recognize that this proposal is not the final
answer—but w6 maintain that it is quite appropriate as an interim measure.
As our study of the income tax system got underway—and it has been assigned
the highest priority—it became clear that the existing Income tax structure results
in a paradox for social policy. On the one hand, public policy is pledged to relieving the lot of all those American citizens who live in poverty. On the other
hand, the existing system forces many of these people to pay Federal income
taxes.
The "low income allowance," which we propose for adoption will assure that
persons or families in poverty will not pay any Federal income taxes—in effect,
more than 2,000,000 families will be removed from the tax rolls. The allowance
is structured in such raanner, however, Ithat the revenue Impact is relatively small.
President Nixon's recommendation for repeal of the 7-percent investment
credit is also a tax reform measure. It recognizes the fact that a subsidy to business investment, however desirable in the early 1960's, no longer outranks other
1 See exhibit 27.

EXHIBITS

267

important national needs. The revenue released by repeal of the credit will permit
earlier tax relief to all individual taxpayers, including those in the middle- and
upper-income brackets, by reducing the 10-percent surcharge to 5 percent on
January 1, 1970. This represents a reappraisal of the President's earlier decision
to request extension of the full 10-percent surcharge until June 31, 1970.
In addition, within a few weeks we shall request consideration of two high
priority programs—which also can be funded with part of the revenues released
by repeal of the Investment credit—^to inaugurate Federal revenue sharing with
State and local governments and to provide tax credits to encourage investment
in poverty areas and hiring and training of the hard-core unemployed.
The tax reform proposals which we 'shall discuss with you today are independent of the Administration's firm program to cool our overheated economy. It is
true that repeal of the investment credit will tend to dampen demand in a sector of the economy that is moving much too fast—the market for business equipment, but it should be emphasized that in the enitire set of proposals outlined by
the President yesterday revenue gains and losses are essentially balanced. The
approximately $4 billion in revenues gained by repeal of the credit, enactment of
the limit on tax preferences, and correction of abuses, will be approximately
offset by the January 1 phase down of the surcharge, the enactment of the low
Income allowance, and the funding of the revenue sharing and new tax credit
proposals.
The lights have been burning late at the Treasury Deparitment and the program of continued tax study and reform ordered by the President will result in
much more midnight oil being consumed in the weeks and months ahead. The
President has directed Secretary Kennedy to 'thoroughly review the entire
Federal tax system and present recommendations for basic changes no later than
November 30,1969.
As the President said, that is a large order—but we are determined to do our
best, not only in studying and evaluating the many preferences that we have not
been able to attack directly now because of shortage of time, but also to move
toward basic structural changes that go beyond reform. To sum up, in the words
of the President:
"Fairness calls for tax reform now; beyond -'that, the American people need and
deserve a simplified Federal tax system, and one that is attuned to the 1970's.
"We must reform our tax structure to make it more equitable and efficient;
we must redirect our tax policy to make it more conducive to stable economic
growth and responsive to urgent social needs."
Mr. Chairman and Members of the Committee, we are dedicated to those goals.
I now turn to Mr. Cohen and Mr. Nolan for their summaries of our proposals.

Exhibit 30.—Statement by Assistant Secretary Cohen, April 22, 1969, before the
House Committee on Ways and Means, on the Administration's interim
program of tax reform and tax relief
I join in Dr. Walker's statement, and it is my pleasure to present to you
our interim program of tax reform and tax relief.
The most critical problems, which we believe should be dealt with promptly,
are, first, maintaining confidence in the tax structure by curbing the excessive
use of tax preferences by some wealthy taxpayers and, second, removing the
burden of the income tax from those who are below the poverty level.
To deal with these two problems we recommend:
.(1) A general restriction on the use of certain tax preferences through adoption of:
(a) A Limit on Tax Preferences which would in general limit preferred
income to 50 percent of total income, and
(b) A requirement for allocating itemized deductions between taxable and
preferred income.
(2) Adoption of a special "low income allowance" to exempt from Federal
income tax persons whose incomes are helow the poverty level. Our ability to
pay for this provision depends in substantial part upon enacting the restrictions
on tax preferences.
Our interim program also deals with a substantial number of other situations
that involve a pressing need for tax reform or tax relief. These Include :
(3) The use of mineral production payments to avoid statutory limitations
on credits and deductions.
363-222—70

268

19 69 REPORT OF THE SECRETARY OF THE TREASURY

(4) The control of the tax exemption privilege of foundations and the taxation of certain unrelated Income of charitable organizations.
(5) An increase in the limit on the charitable contribution deduction from
30 percent to 50 percent; a restriction on the use of the unlimited charitable
contribution deduction; and structural changes to prevent undue advantage
being taken of charitable deductions.
(6) The tax problems of certain corporate securities frequently associated
with corporate acquisitions.
(7) The use of the special exemption provided for small corporations by
large corporate groups using chains or families of corporations to enjoy multiple
surtax exemptions. ,
(8) Various provisions dealing with the reporting of farm income which
permit losses to offset ordinary Income while related gains are capital gains.
(9) The payment of tax-free dividends by various companies from accelerated
depreciation reserves. Related to this is the treatment of the accelerated
depreciation election in the public utility regulatory process.
(10) Application of the stock dividend rules to make tax-free, corporate
distributions which are substitutes for cash dividends.
(11) The deduction of long-term capital losses in full against ordinary income.
(12) The use of restricted stock plans to defer and limit Income tax treatment
of compensation arrangements.
(13) The achievement of income splitting through accumulation trusts, especially multiple trusts.
(14) An Increase in deductible moving expenses.
(15) Relaxation arid simplification of the rules affecting Suhchapter S "small
business" corporations.
We also recommend:
(16) Elimination of the scheduled termination of certain exemptions now
accorded bank deposits owned by foreigners.
The revenue impact of our proposals are shown in tables I and II. These
tables refiect our judgment that several of the tax increase provisions should
he put into effect gradually because taxpayers have made important business or
investment decisions in reliance on present law. The program will produce
approximately balanced revenue Impacts in the first 2 years. -Eventually these
items will produce a larger net gain. How these longer run revenue gains will
be related to .the total revenue picture can be decided at a later stage in our
reform work. The important thing is that in view of the past reliance on these
long-standing provisions, the changes have to be phased in, and unless these
changes are started now the revenue will not be available in 1972 and later
years to finance other tax reliefs.
;

TABLE I.—Tax reform proposals

[In millions of dollars. Estimated increase or reduction (—) in calendar year tax liabilities i]
Calendar years
1969
IA.
IB-.
2.
3.
4.
6.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

Limitation on tax preferences
Allocation of deductions.
Low income allowances
Mineral production pajnnents.
Foundations and exempt organizations
Charitable deduction changes.
Corporate securities.
Multiple surtax exemptions
Farm income rules
Tax-free dividends from accelerated depreciation
Stock distributions.
Capital loss limitation..
Restricted stock plans..
Multiple trusts
•
Moving expenses.
Subchapter S changes...
Net increase (4-) or reduction ( - )

20
276
0
95

1970
40
600
—665
140

Long-run
effect,
1975
80
500
-665
200

(2)

-10

(?)

10
0
0

(2)

26
10
0

235
50
80

(2)

100

(2)

56
-110

70
-100

(2)

-}-400

+90

-{-540

(2)

1 Based on cm'rent income levels with no provision made in long-run estimates for effect of income growth.
Estimates include a 10-percent surcharge for 1969 and a 2>^percent surcharge for 1970.
2 No basis for estimating revenue effect. In some cases, however, these measures will prevent substantial
future revenue loss.

EXHIBITS

269

TABLE II.—Tax reform proposals
[In millions of dollars. Estimated increase or reduction (—) in revenues—budget basis—fiscal years]
Fiscal years
1970

IA.
IB.
2.
3.
6.
7.
8.
11.
13.
14.

Limitation on tax preferences
Allocation of deductions
Low income allowances
Mineral production payments
Charitable deduction changes
Multiple surtax exemptions
Farm income rules
Capital loss limitation
Multiple trusts
_
Moving expenses

Net increase (-f-) or reduction (—)

1971

25
325

50
600

-286

-665

110
-10
10
0
66
55

145
-10
30
10
80
70

-110

-100

-{-185

-[-110

We believe the proposals presented today make inroads on the major tax
preferences. In several of these areas we are making recommendations for
permanent changes that will suhstantlally eliminate any abuse. In the Limit on
Tax Preferences (LTP) and allocation of deductions proposals, we are not taking
away the preference as such. We are curbing their excessive use by any individual taxpayer. The outright elimination or reduction of any of these provisions
would require careful economic judgments based on extensive data and studies.
They support in some degree Important segments of our business community,
the financing of State and local government activities, and charitable educational
institutions.
Before deciding whether any Incentive should be retained in the tax law or
modified, we need to compare its cost to the revenue .with the benefit the
public derives from its existence. These are questions on which the Treasury
staff is deeply involved. We have instituted. a series of meetings with representatives 'Of the industries and other entities affected hy the incentives;
we 'are collecting data; and we will report to the Committee as soon as practicable.
These provisions have been deliberately kept in the tax law over many
years, and they constitute standing invitations for taxpayers to erect new buildings, drill for oil, or embark on programs of charitable contributions. Even if we
should conclude that it would be unwise to continue some of these benefits or if we
should alter some of them, it wonld not be appropriate to remove the preference
precipitously after taxpayers have embarked on programs which they might
not have adopted except for these provisions. For this reason we would not
be able to raise significant revenue for the next fiscal year from basic revision
of these provisions to meet any appreciahle part of the revenue need which
can be met by the surcharge.
I now offer more detail on each of these current or interim proposals.
(1) The problem of low taxes on persons with high incomes
It offends the sense of equity of most taxpayers that some individuals with
high incomes pay little or no tax. In large part this is due to a series of proyisions
in the tax law which are clearly tax preferences. These include:
(a) Percentage dejpletion on minerals and intangible drilling and exploration
expenses to the extent 'they exceed what would be normal deductions under
regular accounting rules.
(b) Deduction of the excess of accelerated depreciation over straight-line
depreciation on buildings.
(c) Deduction against nonfarm Income of farm losses arising from unrealistic
accounting methods.
(d) Deduction of the excess of market value over basis of property contributed
to charity.
Under present law taxpayers not only offset a large portion of their gross
Income by combinations of these preferential provisions but the advantage is accentuated hecause the itemized personal deductions can be offset completely
against the remaining taxable income. Furthermore, this latter advanitage also
exists in cases where taxpayers have tax-exempt interest on State and municipal
bonds and long-term capital gains (one-half of which are excluded from tax-

270

19'69 REPORT OF THE SECRETARY OF THE TREASURY

able income). Itemized personal deductions allocable to these income sources
are also fully offset against taxable income under existing law.
We recommend the adoption for individual taxpayers of a Limit on Tax
Preferences (LTP) which would place an overall limitation on the amount
of specified tax preferences in any one year. We also recommend requiring
the allocation of Itemized deductions between income subject to tax and the
tax preferences including also tax-exempt interest and the excluded portion
of long term capital gains. LTP is an important and needed measure of tax
reform which will insure that the tax preferences which the law provides may
not be used to excess by any taxpayer. They could no longer be used to relieve
those who can afford; it from contrihuting in part to the maintenance of the
Federal Government. The allocation of deductions proposal is an equally important, basic reform which will assure that certain taxpayers do not derive a double
benefit from tax preferences hy offsetting the entire amount of their personal
deductions against taxable Income only. Together, these two provisions will
take us a long way toward tax fairness and equity.
A. Limit on tax preferences.—Under our LTP proposal a 50 percent celling
would be imposed on that amount of an individual's total Income which could
enjoy a tax-preferred status. For this purpose, total LTP income would be
computed Iby including appreciation on gifts to charity 'but without deducting
for intanglhle drilling expenses, the excess of percentage over cost depletion,
certialn farm losses, and the excess of accelerated over straight-line depreciation on buildings. Farm losses would be Included only to the extent that
such losses on the cash basis of accounting exceed the amount of such losses
on an accrual hasis of accounting after capitalizing all capital expenditures.
In other words, an: individual would he able to claim these exclusions and
deductions only to the extent that his aggregate amount does not exceed onehalf of his total income. Stated another way, tax preference amounts will become taxahle only to the extent that they exceed income subject to tax from all
other sources.
The proposal would, however, in no case reduce an individual's allowable
total of tax preferences below $10,000. As a practical matter, the limitation
of LTP to amounts exceeding Income from taxable sources, plus this $10,000
floor, will mean that taxpayers who do not have excessive amounts of tax
preference income will not be affected.
Por example, assume a taxpayer had $100,000 of salary and $200,000 of tax
preferences. Under existing law, he could exclude all the tax preferences, and he
would he taxed on only $100,000. Under LTP, his total LTP income would be
$300,000. His allowable preferences would he half of $300,000, or $150,000, this
being the maximum amount he could exclude from his tax hase. Since the
amount of allowable tax preferences exceeds $10,000, the floor would not apply.
He would thus be taxahle on $150,000, so that $50,000 of his tax preferences
would have become taxable—^i.e., would havebeen disallowed.
Note that if his tax preference amounts had not exceeded $100,000, the
amount of his taxable salary, LTP would not have any effect.
If the (taxpayer's income from taxable sources were $8,000 and his tax
preference amonnts were $10,000, LTP would have no effect because he is
entitled to a minimuni of alloioable tax preferences of $10,000.
Furthermore, our proposal provides, in effect, for a 5-year averaging provision
through the mechanism of a carryover of disallowed preferences. A taxpayer
who exceeds the 50 percent limitation in one year, and thus 'has some of his
tax preferences disallowed and included in taxahle Income, will be able to
take advantage of this carryover provision if, in the next five years, the
amount of tax preferences claimed falls below the 50 percent level. This averaging feature of our proposal is an Important one since it assures that the limit
on tax preferences affects primarily those who, year after year, take undue
advantage of these preferences.
A 3-year transition period is provided whereby the maximum limit on tax
preferences will become effective gradually so that investment decisions and
planning can he made on the hasis of these new provisions. In 1969, a taxpayer
would he able to claim preferences equal to 70 percent of his total income;
and this percentage w'ould^ be reduced .to 60 percent in 1970 and finally to 50
percent in 1971. Thus, in 1971 and thereafter no individual could claim more
than one-half of his total income as tax-preferred items.

EXHIBITS

271

Tax-exempt interest has not been included in the list of tax preferences for
LTP purposes because we have been advised by the Department of Justice that
there Is doubt whether such inclusion would be constitutional.
'Capital gain income has not heen included as an item of tax preference for
LTP. Those taxpayers who do not use the alternative tax of 25 percent on
capital gain pay tax on one-half Of their income from capital gains at their regular rate. This is in accord with the intent of the LTP proposal. In order to
preclude capital gains from further sheltering income, long term capital gains
would not be counted in computing the amount of total income in calculating the
50 percent limit on tax 'preferences. Thus, if a taxpayer has net husiness income of $100,000, which reflects an excess of accelerated over straight-line depreciation on real estate of $200,000, and long term capital gains of $80,000,
his limit on tax preferences would he $150,000 (one-half of $300,000) and his
adjusted gross income would be $190,000.
On the other hand, those taxpayers who use the alternative rate in effect exclude more :tlian one-half of their capital gains. We are not prepared at present to
recommend that the exclusion of such gains be subject to the 50 percent overall
limit on tax preferences. The effect would be to raise the alternative tax in some
cases above 25 percent to as much as half of the taxpayer's top rate. This could
have a serious economic impact, the ramlflcatlons of which would have to be
thoroughly considered as a part of a review of capital gains taxation generally.
This proposal has some similarity to the "minimum income tax." The "minimum
Income tax" as proposed in the Treasury Studies was broadly designed to have
the effect of limiting certain exclusions to 50 percent of a revised adjusted gross
income (AGI). It did so, however, in a way that required a special alternative tax
base. This separate tax base would itself be a source of complexity. More importantly, the separate base made it so difficult to deal with matters of timing that
items such as accelerated depreciation and intangible drilling expenses were left
out of the minimum tax proposal. These as well as certain farm losses are covered
by LTP. Further, we believe LTP is preferable to the minimum tax in that it
achieves an averaging effect, as previously explained, so that it operates only
against those taxpayers who consistently achieve an imbalance of tax preferences in relation to taxable Income.
B. Allocation of deductions proposal.—We also recommend that an allocation
of deductions be required whereby an individual with more than $10,000 of tax
preference Income would be required to allocate his Itemized deductions (other
than business expenses) proportionately between his taxable income and his
excluded income. The latter portion would not be allowed as a deduction.
The items of tax preference to which itemized deductions would be allocated
and thus disallowed would be the same four items of tax preference which are
included in LTP, but with the addition of the excluded one-half of capital gains
and tax-exempt interest.
Tax-exempt interest is included as an item of tax preference in the allocation
proposal because it is reasonable to assume that such nontaxable income is used
along with taxable income to flnance nonbusiness deductions. There is no constitutional problem because the proposal is in no sense a tax on such interest; it is
merely a disallowance of a portion of itemized deductions. Precedent for such
allocation with respect to tax-exempt interest exists in present provisions of the
Intemal Revenue Code.
It is also appropriate to allocate deductions to the one-half of capital gains that
is excluded from the tax base since it can fairly be assumed that expenses which
are Incurred in a particular year in which capital gain is also realized are financed
in part from such excluded income. The effect of this allocation of deductions
proposal on capital gains is the same as would be achieved by subtracting from
long term capital gains the allocable amount of the nonbusiness deductions before
calculating the 50 percent of long term capital gains that is included in ordinary
Income.
Itemized deductions will be allocated to items of tax preference only to the
extent that, under the Limit on Tax Preferences proposal, such preference
amounts are not required to be added back to income under that proposal. The
amounts so added back to income will be treated the same as other taxable
amounts in the allocation fraction, and deductions allocable to this total taxable
amount will be allowable.
An exemption of $10,000 would be granted so that individuals with $10,000 or
less of tax-preferred income (including the excluded half of long term capital
gains) would not have to allocate their deductions. This threshold will relieve

272

19 69 REPORT OF THE SECRETARY OF THE TREASURY

the vast majority of taxpayers from having to make the allocation calculation and
will assure that only cases of significant tax reduction are affected. However, for
those taxpayers with substantial amounts of tax preferences who are required
to allocate their nonbusiness deductions, the calculation will be a relatively
simple one that lends itself to the existing tax retum forms quite easily.
The LTP proposal in the first year, 1969 (fiscal year 1970 receipts), will increase revenues by $20 million. In the second year the increase will be $40 million,
and in the third year with LTP in full effect at the 50 percent rate the increase
will be $80 million.
The allocation proposal when fully in effect In 1970 will raise revenue of $500
million. In the first year, 1969, allocation would be required for only one-half of
Itemized deductions, with a revenue effect of $275 million, after allowing for the
10 percent surcharge.
We are not now recommending that LTP and allocation be applied to corporations. A major difference is that in the corporate area the characteristic problem
is not an unintended combination of tax preferences but simply intensive use
usually of a particular preference which the Congress deliberately legislated as
an incentive measure; for certain kinds of business. Whether this should be
changed necessarily involves a basic reconsideration of the specific preference and
the economic effects of iits removal or limitation in that industry. This is a project
that we are engaged in as part of our present tax reform studies. At the present
time, for example, LTP and allocation would have quixotic effect on corporations
incurring intangible drilling costs. It might have more serious effects on companies with a single business than on conglomerate-type companies. LTP and
allocation serve their purpose well in the case of individuals using preferences in
combination to excess, but their application to corporations requires further
careful consideration, i
This is a proper point to comment on the publicity concerning the 155 returns
filed in 1967 with adjusted gross incomes over $200,000 on which no Federal income taxes were paid, Our LTP and allocation of deductions proposals, along
with our restriction oh use of the unlimited charitable contribution, will result
in payment of tax in a great many of these cases. We are taking administrative
steps to Identify clearly the causes of non-payment in these cases generally.
As a first step. Treasury cooperated with the staff of the Joint Committee on
Internal Revenue Taxation in preparing brief statistical analyses of each of the
1.54 nontaxable individuals reporting adjusted gross income of $200,000 or more
in 1966, indicating sources of income and losses and major itemized deductions.
This study is being made avallahle to this Committee. I am including at the end of
this testimony some summary data on these cases.
Of the $112.1 million of adjusted gross income (AGI) reported on the 154
returns, $78.6 million (or 70 percent) was given to charity and deducted, indicating (since the normal limit on charitable contributions is 30 percent) that a substantial, number of these persons qualified for the unlimited charitable contribution permitted by law.,Interest paid deductions amounted to $27.8 million (or 25
percent of AGI). The deduction for State and local taxes paid totaled $8.7 million
(or 7.8 percent of AGI).
There are limitations, however, to this type of analysis. Por example, data available on individual tax: returns do not generally Include tax-exempt interest on
State or local bonds. Nor is full information available as to the nature of income
or losses derived from partnerships, Subchapter S corporations, etc. Thus, the tax
return is not now a complete indicator of taxpaying capacity. Moreover, more
startling cases are frequently found among taxpayers who do pay a relatively
small amount of tax than among those who pay none. To develop meaningful data
not only as to taxpayers with high adjusted gross income and no tax but also on
taxpayers with high real income not refiected in "adjusted gross Income," we are
taking a number of administrative steps. Thus,
1. A substantial number of 1968 returns recently filed showing large Income but
low tax are being duplicated and brought to the National Office promptly for
analysis.
2. We are designing an additional schedule for the 1969 return to show a revised gross income amount which will Include various tax preferences as a basis
for analysis and statistical work.
3. A research study is being conducted to bring together data for a representative sample of taxpayers for three consecutive years to determine the degree of
recurrence in returns ^of particular taxpayers of certain items of income and
deduction, such as capital gains, investment losses, farm losses, and other items.

273

EXHIBITS

W e will make available to this committee and to the Congress additional d a t a
developed a n d the results of our studies as quickly as they become available.
These actions will provide information which will be a sound base for further
legislation and administrative action.
As I have noted, the problem is not solely wealthy persons who pay no tax,
b u t also the wealthy who pay comparatively little in relation to their income.
Among t a x p a y e r s with adjusted gross income of $1 million or more, about 650
of the more 'than 1,000 with t h a t income—about 65 percent—pay a t a x of less
t h a n 30 percent of their income (including t h e full amount of capital gains).^
Among t a x p a y e r s with income between $500,000 to $1,000,000, there a r e about
1,300—'about 55 percent—who pay t a x less t h a n 30 percent of their income.
And among t a x p a y e r s in the $100,000 to $500,000 range 30 percent, or about
25,000 persons, pay less t h a n 30 percent of their income in tax. Our L T P and
allocation proposals would serve to reduce these disparities in t a x burdens.
(2) Low income relief
F i r s t priority for reducing the present burdens of Federal income t a x should
be given to removing 'the t a x on people in poverty. This should be done in such
a way as to Involve minimum t a x reduction for people a t above poverty Incomes.
We recommend t h a t a n additional deduction for a low-income allowance be
extended to certain low-income t a x p a y e r s who use t h e minimum s t a n d a r d
deduction. This deduction would be designed so t h a t persons whose Income is
below the poverty level would be free of Federal income tax. The combination
of 'the low-income allowance and the minimum s t a n d a r d deduction would total
$1,100, to which would be added the personal exemption of $600 per person.
Table I I I provides more detail on the operation of t h i s provision. I t will be seen
t h a t for a single t a x p a y e r the proposal would make income t a x free up to $1,700,
which is substantially equal t o the estimated poverty level income of $1,735.
A family of four would pay no t a x on Income u p to $3,500.
The low-income allowance would be decreased by $1 for each $2 by which
the t a x p a y e r ' s adjusted gross income exceeded the maximum nontaxable amount
(including the personal exemption). Thus the low-income allowance will phase
out as income increases above the maximum non-taxable amount. F o r the single
person t h e added relief would decline a t income levels above $1,700 and disappear a t $3,300 of income. P o r the family of four it would phase out between
$3,500 and $4,500.
All of this would be built into the optional t a x table, which is t h e only w a y t h a t
low-income t a x p a y e r s can use the s t a n d a r d or minimum s t a n d a r d deduction.
T h u s the provision would not require any additional computation on the taxpayer's part. H e simply would read h i s t a x from t h e table, a s he does now.
The e x t r a provision would provide maximum t a x relief of $117 for a single
person, t h e t a x now payable on a $1,700 income. I n aggregate it would affect
about 13 million taxpayers, providing an average t a x saving of about $51. I t
would relieve of all t a x about 5 million families who now pay t a x on below
poverty level incomes.
I t is recommended t h a t the optional t a x tables be extended from t h e present
ceiling of $5,000 to an Income of $6,100, so t h a t t h i s provision would operate
entirely on the optional t a x tables.
T A B L E III.—Low-income relief proposal

Number in family

Poverty
level 1

Present level
at which
tax starts

New level
at which
tax starts

Level at
which
benefit
disappears

(Col. 1)

(Col. 2)

(Col. 3)

(Col. 4)

(Col. 6)

1..
2..
3..
4..
5..
67..

$1,735
2,240
2,766
3,535
4,166
4,676
5,180
6,785

$900
1,600
2,300
3,000
3,700
4,400
5,100
5,800

$1,700
2,300
2,900
3,500
4,100
4,700
5,300
6,900

Present
tax on
income in
col. 4

$3,300
3,700
4,100
4,600
4,900
5,300
5,700
6,100

» The 1969 poverty levels are assumed to be 6 percent above the HEW nonfarm level for 1966.

(Col. 6)
$117
100
86
74
60
46
28
14

274

19 69 REPORT OF THE SECRETARY OF THE TREASURY
CHART 1

PROPOSED LOW-ISyCOME TAX RELIEF:
MAXIMOIVI TAX-FREE INCOiViES
$7,000 - -

$6,000

i i i

PROPOSED LOW-INCOn^E ALLOWANCE

M I N I M U M STANDARD DEDUCTION

• ^

PERSONAL EXEMPTIONS
«

$5,000

PRESENT LAW M A X I M U M
TAX-FREE INCOMES^

DOTS REPRESENT 1969
POVERTY LEVEL

$4,000
PROPOSED M A X I M U M
TAX-FREE INCOMES

$3,000

io $2,000
$1,000

5
6
FAMILY SIZE

PROPOSED LOW-l!^COiyiE TAX REUEF:
mCQmE RAMGE OF PHASE-OUT OF BENEFITS
$7.000TAX REDUCTION IN PHASE-OUT OF PROPOSED
LOW-INCOME ALLOWANCE

$6.000-

$5,000

—

ADDITIONAL TAX-FREE INCOME
(proposed low-income allowance)
TAX-FREE INCOME UNDER
PRESENT LAW
(exemptions and minimum"
standard deduction)

CO $4,000

5
FAMILY SIZE

EXHIBITS

275

(3) Mineral production payments
The sale of production payments in the extractive Industries results in acceleration of depletable Income, a failure to match operating expenses with
operating income, and a distortion of the Federal income tax results intended by
Congress. This distortion permits the avoidance of limitations Congress has
placed on the depletion allowance, the foreign tax credit, the investment credit,
and the net operating loss deduction. Among other effects, it may also result in
creation of artificial net operating losses in subsequent years which may be
carried hack to earlier years for purposes of obtaining income tax refunds. The
net result may be that over a period of years, a corporation may pay no Income
taxes on its mineral operations, even though it has reported a profit to
shareholders each year.
The production payment has also been used in so-called ABC transactions to
distort the normal operation of the Federal income tax provisions by creating
an unwarranted exclusion of income of the owner of the property, or as others
see it, a distortion of the deduction of "lifting" or operating costs of the mineral
property.
Originally confined largely to oil and gas transactions, the sale of mineral
production payments has spread in recent years to other extractive industries
and is resulting in significant reductions in tax liabilities.
The Treasury recommends that these production payments be treated as loan
transactions, both with respect to carved-out production payments and ABC
transactions. This treatment would not apply to production payments pledged
for exploration or development.
The tax reform proposals of the previous Administration recommended that
this change be made with respect to transactions entered into after the date of
enactment. We believe that the distortions of Income tax liability involved in
these transactions, and increasing utilization in various extractive industries,
indicate that these distortions should be terminated promptly. Otherwise there
will be an acceleration of such transactions prior to the enactment of the legislation. We recommend, therefore, that this provision be enacted as promptly as
possible and be effective with respect to transactions consummated, or covered
by a binding contract entered into, on or after April 22, 1969. The industries
involved have had adequate notice that the tax treatment of production payments was under reconsideration (see, for example, IRS Technical Information
Release 999, Oct. 28,1968).
This provision will produce an annual revenue gain of $200 million in the long
run, and $95 million in the first year of operation.
(4) Private foundations and exempt organizations
A major area requiring immediate congressional attention is the treatment
of private foundations. We are convinced that these instruments for receiving
and investing wealth are a useful source of flexibility in achieving new levels of
thought and action and in supporting the most effective existing operating charities. They enrich the pluralism of our social order. The very fact, however, that
a major direct responsibility of private foundations is wealth and its management
imposes a special responsibility on the tax system, which was partly responsible
for the existence of the foundation. This responsibility is to see to it that the
wealth is managed with scrupulous regard for its charitable charge.
In many ways, however, the clear intent of present law to require devotion of
the property of foundations to charitable purposes is not achievable under existing statutory standards. We offer the following proposals to help achieve this
purpose and to Improve the system of taxing exempt organizations in general.
1. Eliminate "self-dealing" through a general prohibition against financial
transactions between a foundation and its founders, contributors, officers, directors or trustees.
2. Require that all of the net income of a foundation be distributed to charity
on a relatively current basis. Moreover, the foundation would be required to
distribute amounts equal to 5 percent of the value of its investment assets if this
amount is larger than realized Income. This rule will insure current charitable
benefits commensurate with the tax advantages granted to foundations and
their donors.
3. Require that foundations sell or contribute to a publicly supported charity
enough of their interests in particular businesses controlled by the foundation

276

19 69 REPORT OF THE SECRETARY OF THE TREASURY

or the donor to bring the remaining interest below the control limits that would
be set out in law. Foundations would have five years from the present time with
respect to existing holdings, and five years from the time of receipt of such a
controlling Interest as a result of a gift or bequest in the future, to mal^e this
disposition. The five-year period would be subject to extension for good cause
shown. A controlling; Interest would be defined as 35 percent of the combined
voting power of a corporation (or interest in an unincorporated business), except that holdings between 20 percent and 35 percent could be considered controlling, if control is in fact found to exist.
4. Prohibit private foundations from engaging in activities which directly affect
political campaigns, such as voter registration drives.
5.1 Require private foundations which make direct grants to individuals for
educational and other programs to make public the terms of the grants and
resultant work product of recipients of these grants.
6. Provide effective; sanctions with respect to private foundations. Disallowance
of the exempt status of an organization upon audit of its return after disqualifying transactions h^ive occurred is frequently an Inadequate penalty. It often
penalizes charity while imposing no detriment upon the private individuals
responsible for its disqualifying acts. Also it is an inflexible provision, imposing
light or heavy penalties regardless of the seriousness of the prohibited activity.
In order to impose appropriate sanctions for violations of the new requirements
of private foundations, we propose a specific set of dvll penalties against foundation management, against private persons who Improperly deal with foundations
and, in some cases, against the foundation Itself. In addition, we propose that the
Federal District Courts be given jurisdiction to enforce the obligation of a
federally tax-exempt organization to devote funds properly to charitable purposes. Thus, the Internal Revenue Service will be authorized to forward to the
Department of Justice a recommendation for such action if other remedies are
inadequate. Action in the Federal courts seeking equity relief would be deferred
during the time the State Attorney General seeks appropriate relief under State
law! to correct the abuse. This system should serve to bolster the efforts of State
Attorneys General to protect the public Interest, efforts which now vary widely
from State to State.
7. Extend the provisions for taxation of "unrelated business income" to
churches and other exempt organizations not now subject to those provisions.
Taxation of the churches to the extent that they enter into the commercial
transactions of the market place in direct competition with taxpaying businesses
is consistent with the protection of the tax exemption of churches with respect
to their passive investment Income and the income related to their primary
activities.
8.; Enact pending legislation to overcome the effect of the Supreme Court decision in the.Clay Brown case to prevent a charitable organization from borrowing
to purchase investment assets-. The effect of such transactions is often to pass
the benefit of the taxi exemption on to the seller, a nonexempt party, in the form
of an artificially high price. There is no warrant in any event for a tax-exempt
organization borrowing money to purchase income producing assets unrelated to
its charitable function.
9. Tax as unrelated business income the Investment income of social clubs and
beneficiary societies. When this income is used to pay for services to members, it
should be regarded as taxable to the same extent as if it were earned by the
members directly and used to pay for their social recreation. The unrelated
income provision should not, however, apply to the investment Income associated
with fraternal insurarice.
In addition, I would like to indicate that we consider that the provisions of
the tax law with regard to exempt organizations need to be given thorough study.
We plan to reexamine both the criteria by which exemption is granted and the
requirements for continued tax-exempt status. In addition to the difficulties inherent in vague statutory standards, such as "charitable" or "educational," the
present justification for exemption of business-oriented organizations will be
explored. Further attention needs to be given to the problem of the consequences
of loss of exemption. In many situations, it can be to the advantage of an exempt
• organization to surrender exempt status. After a taxpayer has obtained a benefit
for a contribution to a charitable organization, there is frequently no effective
penalty imposed on anyone from the subsequent denial of exemption and no
effective control at the Federal level once exemption has been lost.

EXHIBITS

277

We have reviewed with Commissioner Thrower the creation of an advisory
group on exempt organizations, made up of persons of stature and diverse backgrounds. The group would advise with the Commissioner regarding major policy
issues concerning the appropriate activities and methods of operation of exempt
organizations. Such a group, we understand, will soon be appointed.
We would like to assure this committee that the Internal Revenue Service
will bend every effort to supervise the exempt organization area as effectively
and efficiently as possible within the confines of the statute. Over the past several
years the Service has brought the benefits of automatic data processing to the
exempt organization field. An Exempt Organization Master File has been assembled containing at the present time 450,000 organizations. The master file provides
invaluable aid in auditing and developing meaningful statistics reflecting the
nature of the exempt organization world. Furthermore, exempt organization
information returns are now all filed in one Service Center.
Several years ago the Service made a policy decision to achieve the same level
of audit coverage for exempt organizations that it achieves in connection with
other returns. Since 1964 the Service has completed 65,000 examinations of
exempt organizations. Each of these audits represents 14 returns actually
screened. During this period 1,180 revocations were recommended and total tax
change aggregated $134.3 million.
Further, the structure of the Exempt Organization Branch, a specialized unit
mthin the National Office, has been significantly improved, and published ruling
activity was Increased substantially. Thus 168 rulings in this area were published
in 1968 as compared to 18 in the years 1961-63. Other improvements in the
handling of these cases were made.
Notwithstanding the significant improvements in the administration of exempt
organizations, a major further step will soon be undertaken. A centralized unit
in the National Office will select the large tax-exempt organizations to be audited
and will assist in planning and executing the audits themselves. The unit will
also provide a quality check on the audit of smaller exempt organizations in the
field by review of completed reports. This program should produce greater uniformity of treatment, and make the experience gained thereby readily available
for changes in legislation, regulations and rulings policy.
(5) Charitable contribution deductions
The vital role that charitable organizations fulfill in our society is recognized
by the charitable contributions deduction—a very strong incentive for charitable
giving. We are recommending certain structural Improvements in the deduction,
but we feel it is appropriate to couple these reforms with an Increase in the
limitation on the charitable contribution deduction from 30 percent to .50 percent.
This will Increase the incentive effect of the deduction without permitting any
taxpayer to avoid tax on a fair share of his income. The Increased limitation for
the charitable gifts is justified, however, only if these other reforms are enacted.
With respect to the unlimited charitable contribution deduction, which is
available only to persons who make very large contributions over a series of
years, we believe that some limitation is in order. We recognize that persons who
make a significant long-run commitment of a very large part of their Income to
a charity make a contribution to the charitable activities that would be difficult
to replace. At the same time, every taxpayer should be required to make some
significant payment to the maintenance of the Federal Government as opposed
to distributing all his income to charity. To balance these considerations, we
propose that a taxpayer meetirig the present requirements as to the unlimited
deduction be permitted to deduct contributions only to the extent that his contributions, plus his other itemized personal deductions, do not exceed 80 percent
of his adjusted gross income. This provision applies to taxable years beginning
in 1969.
. . ,
Under the present law deductions for contributions to charity may be in the
form of cash or property, taken at its fair market value. Except with respect
to donations of Installment obligations, gain is not recognized to the donor on
the making of a charitable gift in property. The charitable contribution deduction is reduced in the case of gif ts of certain depreciable and mineral properties
which would, if sold, result in ordinary Income. However, there are still a number
of major areas in which gifts of property to .charity produce unwarranted tax
benefits to the donor beyond the Intended Incentive effect of the deduction. It is

278

19'69 REPORT OF THE SECRETARY OF THE TREASURY

important that the benefit of the deduction operate uniformly between taxpayers
who substantively have the same income and make the same contribution to
charity. The following changes are designed to accomplish this purpose.
In 1958 the Advisory Group on Subchapter C recommended to this Committee
that any deduction for charitable contribution of Section 306 stock be reduced
by the amount of ordinary income that would have been realized on its sale to
a third party. We believe that this recommendation should be adopted by the
Congress and that the principle should be extended to charitable donations of
all property which, if sold, would produce ordinary income to the seller. The
benefits to the charitable organization from the present rule are not commensurate with the loss to the Treasury from the elimination of ordinary income tax
on the profit.
We recommend that the statute be amended to insure that no deduction be
allowed for the rental value of property leased rent-free to a charity. The donor
in such a case has no' Income from the rental value and should not get a double
benefit in the form of a charitable contribution deduction, any more than a person
donating his services to charity.
We recommend that the special 2-year charitable trust rule be repealed. This
rule permits a taxpayer to avoid the percentage limitations on the charitable
contribution deduction. The repeal will mean that in all cases a grantor will
be taxed on trust Income where a reversionary interest will or may be expected
to take effect within ten years. He will, of course, get a charitable contribution
deduction for the value of the income Interest going to charity.
Under existing law in cases where the income interest goes to charity and
the remainder goes to noncharitable beneficiaries, such as the donor's family,
the donor is not taxed on the income if he has no reversionary interest (or if
any reversion is postponed for more than 10 years). He also is entitled to a
charitable contribution deduction for the value of the income Interest going to
charity. We recommend that this double benefit be ended by allowing the deduction only if the grantor includes the income in his gross income.
Further, we recommend that no deduction be allowed for a gift to charity of
stock rights unless the shareholder allocates the basis of his stock in part to the
distributed rights. Under existing law, a taxpayer can purchase stock carrying
stock rights, contribute the rights to charity and deduct their value, allocate
none of his cost to the rights, and then take a loss on sale of the stock which, of
course, will have less value without the rights. Our proposal would end this
double deduction.
With respect to dohations of property which, if sold by the donor, would produce long term capital gain to the donor, we are not now prepared to recommend
that the deduction be reduced by the amount of the untaxed gain. We do recommend, however, that the gain on capital assets so transferred be Included with
other items that in the aggregate are subject to the limit on tax preferences
(LTP).
(6) Corporate securities
In recent years there has been a rapid increase in the number and the size of
mergers or other consolidations among corporations, particularly in the area of
so-called "conglomerate" combinations. The Congress must regard this development with great concern for it constitutes a threat to the competitive climate for
U.S. business and to growth opportunities for new firms. The total congressional
concern should be reflected in a number of areas, including possible extension of
the antitrust laws, revision of security regulation and accounting rules, and
regulation of bank loans to the extent that present loan limitations facilitate
new consolidations. It is also appropriate to investigate the question whether
the present tax laws offer special inducements to combinations.
From the evidence presented to this committee, and from data acquired by
the Treasury, it is apparent that the basic tax provision encouraging the merger
movement is that which accords tax-free treatment to reorganizations. Over 90
percent of the mergers in recent years have employed some form of tax-free
reorganization. The Treasury is beginning an immediate study of the application
of the reorganization provisions to see if the rules developed some years ago
are still appropriate to current conditions and practices.
Present concern is also expressed about transactions in which debt is a significant element of the acquisition price. Tax policy should focus on the appropriateness of the interest deduction with respect to the Issued debt. It appears, however,

EXHIBITS

279

that the greatly increased use of debt in recent acquisitions is motivated primarily by factors other than the desire to obtain an interest deduction for tax purposes. Thus, testimony before this committee and information obtained by the
Treasury indicates that the greatly expanded use of debt is occassioned by the
desire to hedge against inflation, to obtain "leverage" to obtain a riiore favorable
earnings per share ratio, to enable sellers of stock to acquire a prior claim on
earnings and assets, and to obtain price stability in the package offer that is
made for the stock of the target corporation.
In our tax structure, an interest deduction is properly disallowed only if the
underlying obligation constitutes equity rather than debt. We consider that the
first section of H.R. 7489 does not address itself to this basic question. The
Treasury is presently seeking to develop rules or a regulation that will aid in
distinguishing debt from equity and disallow the interest deduction where the
interest payments represent in substance a return on equity. These rules would
apply whether the instrument comes into existence in an acquisition, in a recapitalization, or in any other manner, and whether the company is closely held
or publicly held. Special attention will be given to securities such as subordinated
debentures and convertible debentures. Accountiag for acquisitions as a "pooling
of interest" rather than as a purchase may suggest equity treatment. Convertible
debentures that are noncallable for long periods may truly evidence an equity
position rather than a creditor status. Other factors which may be significant
in the conglomerate area will also be considered. Any new regulations promulgated in this area would, however, have prospective application only.
In addition, we propose that the following immediate steps be taken' by
legislative action. These steps will impede mergers and acquisitions in which
debt securities are used to gain tax advantages, and they are based on sound
tax policy.
(1) The Treasury supports adoption of a rule which would deny installment
sale treatment under Section 453 for indebtedness issued in registered form or
with Interest coupons attached. The reason for this change is self-evident: such
instruments, freely traded on the market, do not justify tax deferral.
(2) To achieve consistency of treatment between bondholders and the issuing
company where bonds are issued at a discount, we recommend that Section 1232
be amended to require that original issue discount be treated as additional
Interest Income to the bondholders to be reported ratably over the life of the
bonds. This rule would not apply to bonds issued by any government or political
subdivision. This rule will decrease what we regard as a serious potential area
for revenue loss on the issuance of debentures with warrants attached. The bonds
are treated as issued at a discount if the warrants have value; the issuer claims
a deduction annually for amortization of the discount element; and the holders
obtain deferral of substantial amounts of ordinary income. There may be doubt
whether this discount income is ultimately being reported as ordinary income
on redemption or sale of the bonds. Thus, under the present structure of Section
1232, the income is not characterized as interest income, cannot be made subject
to information reporting to the bondholders and the Intemal Revenue Service,
and is not subject to tax for what may be a long period of time until the bond
is sold or redeemed.
(3) The Treasury recommends that Section 163 of the Internal Revenue
Code be amended to exclude from the deduction allowable to a' corporation on
repurchase of its convertible bonds at a premium the amount attributable to the
conversion feature of the bonds. Present regulations reach this result, hut court
cases have been filed to test them. Any doubt in this area should be elimiDated
by legislation.
Other measures are being taken in regulations or rulings to Insure proper,
consistent tax treatment with respect to debt securities. While the legislative
measures recommended by the Treaisury at this time and these other actions are
not specifically directed at acquisitions, whether of a conglomerate nature or
otherwise, we believe that they will attack some of the basic tax problems
Involved in combinations and decrease the impetus toward creation of unusual
security interests that are difficult for investors to evaluate.
(7) Multiple surtax exemptions
Presently our corporate tax law provides a relief to small business in the form
of a rate of 22 percent, in lieu of the regular 48 percent, on the first $25,000 of
corporate income. It is a clear miscarriage of the intent of this provision for

280

19 69 REPORT OF THE SECRETARY OF THE TREASURY

one corporate chain to take advantage of the fact that its operations are carried
on through the legal form of separate corporations to permit many tlnaes $25,000
to be taxed at a low rate. Some corporate groups have hundreds of separate
corporations. The present law imposes a small penalty rate of 6 percent on the
first $25,000 of income lof the separate corporations. This has been grossly inadequate as a penalty. The large chain which can pay tax at a rate of only 28 percent
on a large portion of its income has an unintended advantage over the local
Independent organized; as one corporation that pays tax on 48 percent of any
Income in excess of $25,000.
The sequence of corporate income tax statistics from 1964 through 1966 shows
a dramatic Increase in the number of corporate entitles which are paying the
6 percent penalty rate (Imposed by the Congress in 1964 on the multiple surtax
privilege). Between 1964 and 1966, the number of corporations in total Increased
by only 3 percent but the number in controlled groups electing to use the multiple
surtax exemptions and pay the additional 6 percent rate rose by 20 percent A
full solution of this unintended extension of the small business privilege is
imperative.
i
The transition to this rule would be accomplished by limiting the permissible
number of exemptions in a corporate group in 1969 to 100. This number would
be reduced to 50 in 1970, 25 in 1971, 10 in 1972, 5 in 1973, and 1 in 1974. The
revenue gain when the revision is fully operative would be $235 million.
(8) Farm income rules
In addition to the inclusion of certain excessive amounts of farm loss in the
Limit on Tax Preferences (LTP) provision, further explicit changes in the tax
law relating to farm iricome are essential to deal with the capital gain problem
in this area, whether or not the total farm losses are excessive in relation to
Income.
;
We recommend that livestock which is subject to depreciation also be subject
to recapture of excess depreciation at the time of sale under Section 1245, just
as other depreciable personal property.
We also recommend that the holding period for livestock, other than race
horses, be extended to 2 years or two-thirds of the expected useful life of the
animal, whichever is shorter, before sales can qualify for capital gains.
Further, we recommend that race horses in the hands of a breeder qualify
for capital gain only if: (1) They are breeding animals, which would be demonstrated by the taxpayer's having bred them; or (2) they are used in the racing
business for 2 or more years.
We recommend that a taxpayer with farm operations be required hereafter
to keep 'an "excess deduction account" (EDA) in years in which his farm loss
exceeds $5,000. This account would Include the amounts by which the ordinary
farm deductions in any year exceed by more than $5,000 the total of the ordinary
income from farm operations. The $5,000 exclusion would prevent the proposal
from having an impact on the small farmer. The amount in the account would
be reduced by net ordinary farm Income realized in subsequent years. The effect
of this excess deduction account would be that any subsequent capital gain
associated with the sale of the farm, or of assets used in connection with the
farm, would be treated as ordinary income to the extent of the balance in the
excess deduction account.
Gain attributable to increases in land values would, however, be excepted
from this general rule and would be treated as ordinary Income only to the
extent that prior deductions of amounts which would have been capitalized but
for special statutory provisions have served to create that gain. Thus, the
ordinary Income on sale of the land would be limited to the lesser of (a) the
excess deductions account (EDA), or (b) the amount of deductions under
Sections 175, 180, and 182, allowed with respect to the parcel sold.
A taxpayer would not be required to maintain an EDA if he adopted an
accounting method which accounted properly for Inventory costs and required
capitalization of capital costs.
These changes will help prevent excessive advantage being taken under the
present liberal farm accounting rules. This advantage exists under present law
because it is the nature of farm cash accounting not to distinguish between
current costs and many capital investments. A wealthy taxpayer thus finds it
attractive to Invest in farms in a situation in which most of his deductible farm
"loss" is really a capital Investment which can be recovered later at capital gains

EXHIBITS

281

rates. This is particularly attractive when farm losses can be offset against
ordinary Income from other sources, but on occasions it also produces unintended
benefits for the wealthy person with only farm income. To the extent that the
investment is economically sound and thus produces a net economic gain, this
net gain would still be capital gain even with our changes if it met the other
tests of a capital gain.
Finally, we propose to strengthen the "hobby loss" provisions. Presently,
losses are disallowed if a loss of over $50,000 is Incurred for five consecutive
years. Even if a hobby business is consistently losing over $50,000 a year there
is too much opportunity to rearrange Income and deductions to break the string
of five years. The new rule would disallow the deduction of losses if losses exceeed
$50,000 in any three out of five consecutive years. Other structural changes would
also be made in these provisions.
(9) Tax-free dividends from accelerated depreciation and public utilities
Under existing law, some companies, particularly regulated utilities, are able
to make regular tax-free distributions^—primarily as a result of the use of
accelerated depreciation. These are advertised as "tax-free dividends."
The problem arises because accelerated depreciation is used for tax purposes
while straight-line depreciation is used for book purposes, resulting in smaller
tax profits than the book earnings available for distribution of dividends. Such
dividends would appear to represent distributions of corporate income and not
a return of capital, and they should be taxed. Accordingly, we recommend that
accelerated depreciation not be taken into account In the computation of earnings
and profits unless accelerated depreciation is used for book purposes. This rule
would apply generally, and not just to public utility companies. It would be
similar to the present rule requiring use of cost depletion rather than percentage
depletion In computing earnings and profits. In order to permit adequate adjustment to the new Tules, it is recommeaided that the proposal be applied beginning
after the third year following enactment. At current levels this would Increase
revenue by $80 million.
The use of accelerated depreciation by public utilities raises additional tax
problems which require attention. Regulated public utility companies in general
account for depreciation on a straight-line basis for purposes of tiie regulatory
process. Where accelerated depreciation is taken for tax purposes, the actual
Federal tax paid is lower than the tax liability that would result from the
straight-line depreciation taken for regulatory purposes. Often the regulatory commissions permit taxpayers to "normalize" their tax, that is, to treat as a cost
the tax consistent with straight-line depreciation and treat the difference between
this and the actual tax 'as a reserve for future taxes, since accelerated depreciation Involves tax postponement. This reserve is treated as a customer contribution to the capital of the company, and no rate of return is permitted on it. In
other situations the regulatory commissions require companies to take into account as the income tax cost of their operations only the actual tax paid with
the result that the tax reduction due to accelerated depreciation is "flowed
through" to the customer as a reduction in price.
Legislation has been Introduced to provide that the regulatory commissions
should not be able to require companies to take these tax benefits nor to require
that the benefits be "flowed through."
The Treasury Department does not believe that the Internal Revenue Code
should deal with the regulatory process to the extent of specifying how the tax
savings should be handled if a particular corporation freely adopts accelerated
depreciation.
On the other hand, the tax law quite explicitly provides a choice for taxpayers
between the use of accelerated depreciation and straight-line depreciation. We
feel that a regulatory commission should not take advantage of this election by
providing that it will only give an allowance in the rate calculation for the
Federal tax that would be due if the company had adopted accelerated depreciation. Where a taxpayer has already elected accelerated depreciation, the regulatory commission should have the leeway to continue to make the allowance for
Federal tax on the basis of continued use of accelerated depreciation.
If the Congress takes no action in this situation and if utility commissions
generally proceed to treat companies as though they had adopted accelerated depreciation and require this amount to be flowed through, the total impact on the
revenues, over the next few years, could build up to an annual loss of $1.5 billion.
If on the other hand, the Congress enacted legislation that would in all circum-

282

19'69 REPORT OF THE SECRETARY OF THE TREASURY

stances prohibit utility commissions from flowing through tax savings proceeds
of accelerated depreciation, there could be a short-term revenue loss as high as
$0.6 billion due to somp companies feeling free to adopt accelerated depreciation.
In view of the large revenue loss that is possible in any change from the present
situation, we think it |appropriate for this Congress to enact legislation which
would tend to preserve! the present state of affairs. This can best be done by preserving the option to use straight-line depreciation to companies that have so far
been using a straight-line depreciation. Accordingly, we recommend that Federal
and State regulatory commissions be precluded from requiring a company to adopt
accelerated depreciation or computing its Income for ratemaking purposes as if
it had done so unless the utility voluntarily elects accelerated depreciation for
tax purposes.
i
(10) Stock distributions
The tax law has recognized for a Jong time that a distribution of common stock
dividends on common stock does not normally represent a taxable event to the
shareholder. He is simply receiving additional shares to represent his same
unchanged equity interest in the corporation. The law has, however, recognized
cases where such a distribution of stock dividends does change the equity interest
of the shareholder just as though he had received a cash dividend and reinvested
it in more stock. Present law does not draw this distinction properly, and we
need a general provision to Identify changes in equity ownership associated with
stock dividends. A proposal as to the stock dividend problem was made by the
Advisory Group on Subchapter C established by this committee in 1956.
Our proposal substantially follows the recoimmendation of your Advisory
Group. We recommend that Section 305 -be amended to make clear that an increase in a shareholder's interest in a corporation, when related to a taxable
dividend paid to other shareholders, is to be taxed.
The new section will have the result that in the case of the so-called two class
common stock, in which one group gets cash dividends and another gets comparable stock dividends, the stock dividends will be taxable. These stock dividends represent an increase in the relative equity share of the investors holding
the stock dividend-stock just as though they had received cash dividends and had
reinvested them in more common stock. The new rule also would treat as a
dividend the Increase in the equity interest of common stockholders associated
with redemption of stock pursuant to a periodic plan of redemptions. For
example, an offer by a corporation to redeem 5 percent of any shareholder's
stock each year results in increasing the proportionate interest of those who do
not redeem—similar in effect to paying a cash dividend on some shares and a
stock dividend on others. Further, all stock dividends on preference shares would
be taxed. The amendment should apply upon enactment to stock issues after
April 22,1969, and to existing issues on and after January 1,1991.
(11) Capital losses
Net long term capital gains in general are taxed by including only one-half
of the gain in ordinary income. A net long term capital loss, however, may be
deducted in full against ordinary income up to an annual limit of $1,000. This
is not only inconsistent but leads to tax planning of asset sales to separate gains
and losses into alternate years. We recommend that each dollar of net long term
capital loss be permitted to offset only 50 cents of ordinary income. The limit
of the annual deduction should be kept at $1,000 with the present unlimited
carryover, except that married taxpayers filing separate returns should be
subject to a limit of $500 each. This provision should be effective for 1969 and
later years. In the long run this change will increase revenues by $100 million.
(12) Restricted stock plans
During the past few years, there has been a rapid growth in the number of
so-called restricted stock plans. Under these plans, an employee receives stock or
other property which he is barred from selling immediately or which is subject
to other restrictions. Because of these restrictions, tax is not Imposed under
existing administrative rulings until the restrictions expire—^for example, when
the employee may sell the stock—but the amount then subject to tax is limited
to the value of the stock when the employee received it. In effect, any increase
in value during the period the restrictions are in effect is taxed only if the stock
is sold and then ias a capital gain.

EXHIBITS

283

Last October, the Treasury proposed to change these rules to provide that the
amount subject to tax when the employee may sell the stock would be its value
at that time. We have carefully reviewed this proposal. We believe that it
provides the correct result in many cases but may lead to an unwarranted result
in others. We 'think that a fresh approach is warranted in this area and that this
may best be accomplished by new legislation. New legislation also will have the
advantage of eliminating the existing uncertainty.
We propose that, as a general matter, where an employee receives stock or
other property as compensation, he should be subject to tax when his rights in
that property become nonforfeitable and that the amount subject to tax at that
time should be the full, current fair market value of that stock or other property.
Thus, we recommend that restrictions barring sale for a specified number of
years not be given any effect for tax purposes. On the other hand, restrictions
under shareholders' agreements which do not expire by lapse of time, and thus
are prompted by bona fide business rather than tax considerations, would be
taken into account. Also, restrictions imposed by law would be taken into account.
In these cases, the stock or other property would be taxed at a value determined
after giving effect to the restrictions.
The rules we propose are comparable to those which have applied for over 25
years to nonqualified pension and profit-sharing plans. Because of the similarity,
we believe that the same rules should apply to restricted stock plans.
(13) Accumulation of income in trusts
A widely used device for the avoidance of the progressive rate scale for individuals is the creation of trusts to accumulate Income at low ratesL The numerous
exceptions to the "throwback" rule, which is Intended to apply additional tax at
the time that a trust distributes accumulated income to a beneficiary, have permitted many individuals to escape substantial taxes. This is particularly acute
when multiple trusts are created.
We recommend that all trust distributions of accumulated income be taxed to
the beneficiary. The beneficiary would credit against his tax his share of the
taxes previously paid by the trust on such Income. A simplified computation
procedure would be provided, as is now applied to distributions from foreign
trusts. The grantor of a trust would also be taxed on all income accumulated for
the benefit of his wife. This proposal should become effective for distributions
after April 22, 1969, and subsequent years. It will Increase revenue by $70 million
a year.
(14) Moving expenses
We recognize the need to deal with the problems arising under present law
in connection with reimbursement of employee moving expenses. These are, in
an Important sense, costs of earning Income, although they do have strong personal elements. Because of this dual nature of the expenses, we believe that the
miscellaneous costs of moving including the costs of house hunting trips, the
costs of temporary living quarters at a new location, and the costs of selling a
house (or buying a new one) should be allowed as a deduction subject to a dollar
ceiling. We propose a celling of $1,000 for these, miscellaneous costs with the
proviso that deductions be allowed up to an additional $1,500 to the extent that
costs of selling or buying a house or breaking a lease are also involved. T'o
provide uniform treatment of old and new employees, an employer reimbursement
for moving expenses should always be Included in income, and the employee
should take deductions within the above-stated limits for expenses actually
incurred. This provision should become effective January 1, 1969. The revenue
cost of this provision is $100 million.
(15) Small business corporations (Subchapter S)
We recommend that the Congress enact a set of revisions in the treatment of
so-called Subchapter S corporations which would make the tax rules for these
small business corporations and their shareholders conform more closely to the
partnership rules. The changes would make the rules simpler and easier to
comply with. The availability of this treatment for small business corporations
to avoid the double tax on corporate earnings would also he broadened by
removing certain existing limits on its use.
The substance of these changes has been worked out through extended discussion with a committee of the American Bar Asociation. It was the Intention
363-222—70

284

19 69 REPORT OF THE SECRETARY OF THE TREASURY

of the Congress in enacting Subchapter S to provide that a number of small
corporations should be able to avoid the impact of the corporate tax if they
provided that the full corporate inoome would be reflected on the returns of the
stockholders in the same general way in which partnership Income is shown on
the: returns of the partners. Unfortunately, the utilization of Subchapter S has
been restricted because of the considerable complexity of the provision. Under
the amendments a simpler set of rules will be available, particularly to a corporation which was always a Subchapter S corporation.
These changes would require that certain limitations now applicable to partnerships be made applicable to Subchapter S corporations also, such as the
limitation with respect to pension plan contributions on behalf of shareholder
employees.
For the longer run this Administration believes that the Subchapter S option
should be made more broadly applicable than it is now. Conceptually, this is a
far more reasonable \yay of dealing with small businesses than is the extension,
or even continuation, of a corporate surtax exemption. We expect to give serious
study to possibilities for enlarging the application of Subchapter S in ways that
will preserve the Important element of simplification, and we hope to report back
to this Oommlttee shortly in this area.
(16) Extension of speciaT treatment of banks holding foreign deposits
Interest earned on U.S. bank deposits owned by foreigners not resident in the
United States and not connected with a trade or business conducted here is
exempt from Income tax, and the bank deposits themselves are exempt from
estate tax. However, existing law provides that these exemptions shall not
continue beyond 1972.' The expiration date was enacted in 1966 as part of the
Foreign Investors Tax Act. At the time, the Congress was concerned that
termination of the exemption would have an adverse Impact on foreign balances
in the United States, and the effective date for terminating the exemption was
therefore deferred for six years.
The balance of payments continues to be a matter of concern. While we cannot
forecast what the situation will be by 1973, it is clear that the scheduled termination will make a solution to the problem more difficult to achieve. Withdrawals
are likely to be made long before the effective date for terminating the existing
exemptions. Once impelled to consider withdrawal of their deposits by the
prospective taxation of these deposits, foreign depositors are likely to be alert to
alternative investment opportunities and will take advantage of them as and
when they occur. It is, therefore. Important that cancellation of the termination date for the Income and estate tax exemptions be undertaken at an early
date, if it is to be undertaken at all. Accordingly, we recommend that the
Congress take action ;in accordance with the President's balance of payments
statement recommendation of April 4 and that the scheduled terinination of the
exemptions be repealed.
Conclusion
T^hese, then, are our present proposals. We believe these proposals will materially strengthen the structure of our tax system and provide increased equity.
We will return with further proposals as soon as we can make good judgments
on the basis of further data, study and discussions. For example, we are proceeding to study intensively application of the estate and gift tax laws, the treatment of assets appreciated at the time of death, the operation of the foreign tax
credit; and tax problems of particular industries and types of Investment.
To achieve an equitable tax structure, action is required, both in the short
run and in the long run. In the short run we need to Impose limits on the excessive use of tax benefits and incentives that produce disproportionate tax burdens
among our citizens. And we must lift the income tax burden from those in
poverty.
:
In the longer run, we have to apply a stringent analysis to the tax incentives
and preferences which our law contains. We need to develop a program of penetrating research and analysis of these provisions so that we can proceed with confidence to save what is good in our tax system and to Improve or eliminate what
is bad. That will proVe to be a challenging task, but we shall move promptly
and we shall persevere.
Let me conclude with some thoughts from President Nixon's statement
yesterday:
'

285

EXHIBITS

"Reform of our Federal income tax system is long overdue. Special preferences
in the law permit far too many Americans to pay less than their fair share of
taxes. Too many other Americans bear too much of the tax burden.
"This Administration, working with the Congress, is determined to bring equity
to the Federal tax system."
TABLE IV.—Sources of income and itemized deductions for the 164 nontaxable
individuals with adjusted gross income of $200,000 or more, 1966
[Amounts to nearest thousand dollars]
Income category

Gain

Adjusted gross income (AGI).
(Adjusted gross income plus
excluded capital gains).
Investment income.
Dividends...
Taxable interest
Capital gains (including
50 percent of long-term
gains).
Estate and trust income
Royalty income
Business income
_,
Wages and salaries
Farm
Other business
Partnership
Subchapter S Corp
Rental income
Other income

Loss

112,145 _137,169
85,015
10,457
26, 504
2,246
1,035

126
2
274

6,536
32
1,899
797
133
1,150

2,655
10,125
8,761
1,151
613

1,460

1,172

Deduction category-

Net

Amount

112,145 Total itemized deductions
130,458
78,580
137,169 Contributions
Cash
24,015
125, 257 Noncash
54,948
85, 015 Interest.
27,802
Home mortgage
1,102
10,457
Other
27,699
Taxes.
-..-,..8,681
26,478
State and local income
4,657
2,244
Realestate
2,072
761
Other
1,953
-12,758 Medical
239
6,536
' 15,156
- 2 , 623 Miscellaneous
- 8 , 226 Tax computation and
credits:
- 7 , 964
Taxable income
1,505
-1,018
Tax before credits....
836
537
Tax credits 2
838
Tax after credits...
288
Depletion 3
927
Depreciation 3
3,559

1 Capital loss after $1,000 limitation.
2 Principally investment credit and foreign tax credit.
3 Limited to depletion and depreciation reported on individual income tax return.

TABLE V.—The 154 nontaxable individual income tax returns reporting AGI of
^,000 or more in 1966, classified by major tax reducing factors ^
Major tax reducing factor

Deductions:
Charitable contributions
Interest
Taxes:
State and local income
Realestate
Not specified
Miscellaneous, not specified . . .
Credits 2
Total

Over
$1 million
AGI

$500,000
to
$1 million
AGI

$200,000
to
$500,000
AGI
19
55
12 .
1 .
1 .
12
3
103

13
16

17
1

49
72
12
1
1
15
4

1 .
33

All
nontaxable
returns over
$200,000 AGI

154

1 Returns are classified according to the principal factor reducing tax from a high adjusted gross income
base.
2 Primarily tnvestment credits and foreign tax credits.

Exhibit 31.—Other Treasury testimony published in hearings before congressional committees, July 1, 1968-June 30, 1969
Under Secretary Walker
Statement before the Joint Economic Committee, February 19, 1969, on the
Economic Report of the President.

286

19'69 REPORT OF THE SECRETARY OF THE TREASURY

International Financial and Monetary Developments
Exhibit 32.—Remarksi by Secretary Fowler, September 24, 1968, before the 6th
International Conference of the Forging Industry Association
The financial statesmen at Bretton Woods served us well. The foundation
they laid, on which has been built an everlncreasing degree of international
policy coordination lri;e,conomlc and financial affairs, has helped make the past 20
years a period of unprecedented prosperity and development in the free world.
Next week the Ministers of Finance and Central Bank Governors of the 111
member countries will be in Washington to attend the Annual Meetings of the
World Bank and the International Monetary Fund. Here ways and means of
further improving the structure of international financial cooperation will he on
the agenda for public comment and informed discussion.
Gold and its relationship to the international monetary system is part of that
structure and I thought it might he useful to explore that subject with you today.
The association of gold with recurrent crises in the international monetary
system together with its proven inadequacy as a reliable source of international
liquidity in a growing world economy have made desirable a public reexamination of the role of gold and the international monetary system. Gold has had a
long and honorable service as a means of settling International payments. But
the current reexamination of the role of gold can be viewed as a contemporary
echo of passions out of the past; to paraphrase William Jennings Bryan, the
issue today is to make sure that the international monetary system is not crucified on a cross of gold.
The need to make gold the servant and not the master of our economic destiny
is part of the continuing effort to strengthen the international monetary system.
It is, and can only be; met by putting international policy coordination on a sufficiently consistent, persistent and flexible basis to avoid the disruptions and minimize the risks of the unpredictable that have characterized past crises. This
is a never-ending effort.
The adjustment of | international financial cooperation to a moving tide of
events and developments is solidly based on the common recognition by the
financial authorities of the overwhelming majority of countries in the free world
that the internationar monetary system rests on four pillars:
—A strong and well--balanced U.S. economy with a strong dollar which holds its
purchasing power and can be profitably invested in the U.S. money or capital
markets and, therefore, can be held as a safe international reserve or as a safe
and useable means for making International commercial payments.
—A fixed $35 pea: ounce official price of gold and a dollar that is convertible
into gold at that price by monetary authorities.
—Convertibility of other currencies into dollars at stated rates of exchange.
—Adequate international reserves and credit facilities to support the system.
The U.S. Government is solidly committed to these principles. It is a solid
commitment because these principles have had long-standing bipartisan support
in the United States. This bipartisan support has been essential to the strength
and position of the United States in the international financial arena.
The bipartisan character of our position in international financial affairs can
be graphically Illustrated by specific actions over the past 10 years.
The decisive vote, with majorities from both parties in both Houses, under
the responsible leadership of both parties in both Houses, to enact the recent
Revenue and Expenditure Control Act of 1968, is a current example. This action
to increase taxes and cut projected public expenditures^—both unpopular measures in an election year—^was designed to keep the U.S. economy strong and wellhalanced and to strengthen the dollar at home and abroad.
In his message to the nation last New Year's Day President Johnson emphasized that the need for action to bring our balance of payments to, or close
to, equilibrium in the year ahead "is a national and International responsibility
of the highest priority." This statement was paralleled by the recent Republican
Platform commitment "that the balance of payments crisis must be ended and the
international position of the dollar strengthened."
The policy to maintain the existing official price of gold and convertibility of
gold into dollars at that price has been the subject of public commitments by
three adminlstratlons^Eisenhower, Kennedy, and Johnson.

EXHIBITS

287

When, in the last year of the Eisenhower Administration, the flurry in the
London gold market in October 1960 raised questions about the U.S. position on
the official price of gold, the Treasury Department, on October 20,1960, Issued the
following statement:
"The United States will continue its policy of buying gold from and selling
gold to foreign governments, central banks and under certain conditions, international institutions, for the settlement of international balances or for other
legitimate monetary purposes, at the established rate of $35 per fine troy ounce,
exclusive of handling charges.
"As Treasury Secretary Anderson has stated many times in the past, it is
our firm position to maintain the dollar at its existing gold parity."
To close ranks with the Republican Administration on this question, on October 30, 1960, Senator John F. Kennedy, then the Democratic candidate for the
Presidency, issued a statement isaylng "We pledge ourselves to maintain the
current value of the dollar. If elected President, I shall not devalue the dollar
from the present rate. Rather, I shall defend its present value and its soundness."
As President, John F. Kennedy repeated that commitment and devoted his second message to the Congress to measures designed to make good on that
commitment.
In February 1965, shortly after his inauguration, President Johnson said in
his balance of payments message, "The dollar is and will remain as good as
gold fully convertible at $35 per ounce."
In his balance of payments message on New Year's Day last January, President Johnson repeated "The dollar will remain convertible into goid at $35 an
ounce, and our full gold stock will back that commitment." Congress acted to
remove the remaining statutory restriction on the use of U.S. monetary gold for
that purpose in March.
It is noteworthy that legislation to authorize additional International credit
facilities through quota increases in the International Monetary Fund in 1960
and 1965 and authorizing participation in the General Arrangements to Borrow
in 1962 have been approved with strong bipartisan support in both Houses of the
Congress.
But perhaps the most dramatic illustration of bipartisan support for international financial cooperation was the action of the Congress last May in the
field of reserve assets. President Johnson requested that the Congress authorize
U.S. participation in a program to build up international reserves through multilateral arrangements looking to the deliberate creation of Special Drawing
Rights in the International Monetary Fund as a supplement to gold and the
reserve currencies.
This type of program has had solid bipartisan backing since 1965 in the Joint
Economic Committee of the Congress. This action of the Congress providing U.S.
approval and support of an amendment to the Articles of Agreement of the International Monetary Fund was passed by a vote of 236 to 16 in the House of Representatives, -and by a voice vote in the Senate after overwhelming bipartisan sup^
port from the House Banking and Currency Committee and the Senate Foreign
Relations Committee.
II
I have set out the record on the position of the United States because there
is a tendency in 'some foreign quarters to misunderstand, misstate, or underestimate it.
Because of its key role in the system, the United States has special responsibility, hut it does not iseek to dictate. In dealing with the problem of gold and
the international monetary system, as in dealing with all problems relating to
the international monetary isystem, the United States is dedicated to the principle of multilateral decisionmaking rather than unilateral 'action. Our objective is to maintain and improve an international monetary system that will
better serve its fundamental and only valid purpose—^to foster the continued
growth of trade and the movement of capital and people among nations to the
benefit of all.
Our gold policies must contribute to, and be consistent with, this purpose.
This is the test by which they should be judged.
In these terms, I would like to outline the central points underlying the
policies of the United States on gold.

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19 69 REPORT OF TPIE SECRETARY OF THE TREASURY

First, the United States believes that gold has, and will continue to have,
an important role in the system. Existing gold reserves are about $40 billion.
This is more than half: of total international reserves. The loss of these monetary
reserves or n substantial diminution in their value as monetary reserves woula
be undesirable. Their relative proportion in world reserves will diminish over
time, but they will continue to be a key element in international liquidity and
In the operation of the international monetary system.
Second, the United Stiates believes that the maintenance of the existing official price of gold fort monetary purposes and the convertibility of the dollar
into gold at that price is the backbone of the monetary system; that to increase
or decrease the official price of gold would be a highly destabilizing factor;
that any change in the official price of gold would result ia gross inequities and
would needlessly endanger the international economic cooperation built up
over the postwar period.
Third, the, United States believes we can no longer rely on gold production
as a source of future ladditions to international liquidity. The Special Drawing
Rights facility under the IMF is designed to meet this need.
Fourth, the United i States believes that neither gold, nor gold markets, nor
gold speculators iShould be permitted to unsettle and Interfere with international
economic stability. Nor should the international monetary system—or the world
economy—^be placed at the mercy of arbitrary forces that would result from
sole or undue reliance on gold for monetary reserves.
. We believe these points add up to a policy that 'Safeguards the legitimate
interests of countries which hold substantial amounts of gold in their monetary
reserves as well as those which do not. We do not believe it will cause any
difficulty for the gold-producing countries—nor any change in their position compared with what it has been for the past 30 years. But the system cannot accommodate the desire of gold producers, private gold holders and hoarders, gold
speculators, or investors in gold stocks, for an increase in the monetary price
of gold. Their desire for windfall profits is understandable but it has nothing
to do with the principles of international financial management and it is inconsistent with the stability of the international monetary system.
Contrary to 'Some 'assertions, the United States is waging no war with gold
producers. The commodity they produce is a useful commodity and they are
entitled to the hest price they can get for it. But I must point out that this
also has nothing to do with international financial management or the international monetary isystem.
)
I recognize that an -active and worldwide gold lobby exists which seeks to
promote the view that an increase in the official price of gold is necessary and
inevitable. I will go into the subject of the price of gold on its merits later on.
At this point I want only to emphasize that the existence of this self-interested
propaganda is a factor in the equation that must be kept in mind.
The profits could be very high:
—for the major producing countries,
. —for business and piivate banking institutions dealing in gold,
—^for the stockholders of gold mining companies, where they are privately
owned,
—^for governments, as in the U.S.S.R., where gold production and sale is
handled by a state organization, and
—^for those who have hoarded or speculated in gold on the hope or expectation of a rise in the official price.
In markets which are highly sensitive to rumor and vulnerable to manipulation it is of particular importance that one recognize these factors of self-interest
when they are at work.
^
. The public should be aware of these Influences, as are the officials who deal
with- these problems. The public should have the knowledge, awareness and
skepticism in ^appraising analyses 'and proposals dealing with gold and the
monetary system to separate propaganda and self-interest from the overriding
international public interest in a viable international monetary system.
Private gold interests would certainly gain heavily from ^an Increase in the
monetary price of gold. It is our conviction that the World Economy and international monetary system would lose. In 'this basic point—as in the other central
points of our position on gold—we share a common view with almost all the
other free world countries.
^

EXHIBITS

289

III
The results of two very important monetary meetings which took place
in March of this year make clear the almost unanimous consensus of major
industrial nations on this issue.
I refer to the March 17 meeting in A'\''iashington ^ of the heads of the Central
Banks of the gold pool countiies and the March 30 meeting in Stockholm of
the Finance Ministers and Central Bank Governors of the leading financial
nations known ^as the Group of Ten.^
A key premise of both the Washington Communique establishing the twotier gold system and the adoption of the Special Drawing Rights proposal at
Stockholm was that the monetary price, of gold would remain unchanged. This
premise, abundantly evident, has still apparently not been understood or accepted
by some.
The only reasonable justification that could be claimed for an Increase in
the monetary price of gold stems from the need for an increasing supply bf
international liquidity. This argument, however, depended upon the assumption
that no preferable way could be devised to provide for the needed increase in
world monetary reserves.
The Washington and Stockholm meetings demonstrated that this assumption
was not valid. The Washington Communique of the Central Bank Governors
stated that "as the existing stock of monetary gold is sufficient in view of the
prospective establishment of the facility for Special Drawing Rights, they no
longer feel it necessary to huy gold from the market."
Agreement on the creation of the Special Drawing Rights followed swiftly
at Stockholm. Moreover, the Stockholm 'Communique was explicit in its reference
to maintaining the $35 monetary price for gold—paragraph 4 stated, "The Ministers and Governors reaffirmed their determination to cooperate in the maintenance of exchange stability and orderly exchange arrangements in the world
based on the "present official price of gold." All countries represented, save one,
subscribed to that paragraph.
Agreement on this essential point by the Central Bank representatives of
the gold pool nations meeting in Washington, the subsequent expressions of
support by most of the rest of the free world, the agreement among government
representatives of the Group of Ten countries in Stockholm, and the expected
ratification of the Special Drawing Rights plan by the member nations of the
IMF demonstrate the support of an overwhelming majority of the nations of
the free w^orld for two fundamental operating principles :
—the official price of gold must remain at $35 an ounce; and
—the new Special Drawing Rights facility (and not new gold production nor
an Increase in the price of gold) will provide the necessary regular additions
to international liquidity.
This agreement represents a fundamental decision on the future of international monetary policy building istrongly on the foundation of the Bretton
Woods Charter. It provides dramatic evidence of the strength of intemational
economic cooperation which has developed so swiftly and pervasively during
the 1960's.
Now let me review briefly the events and emerging forces w-hich led to these
agreements.
Prior to the 1960's, the private gold markets operated without interveution
by monetary authorities. In the early postwar period of the late 1940's and
early 1950's the price fluctuated widely, generally well above the monetary
price. This spread was a. manifestation of the lack of confidence in currencies
in some areas of the world. There was no doubt, however, about the strength
of the dollar or the 35 to 1 relationship between it and an ounce of gold.
As greater stahility was attained and more newly produced gold became available to the market, the miarket price stabilized near the monetary price and
fluctuated narrowly both above and below the $35 monetary price until.the
fall of 1960 when there was a brief but Intense speculative outburst in the private gold markets, including the principal one in London.
This attack was quickly curbed. Actions, including the supplying of gold
from the official monetary reserve of the United States through the Bank of
England to the private market, kept the price in line with the official price.
1 See 1968 annual report, page 370.
2 See 1968 annual report, page 372.

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19'69 REPORT OF THE SECRETARY OF THE TREASURY

This single-handed undertaking by the United States in late 1960 to keep
the two prices in line was extended in the fall of 1961 into a multilateral arirangement which heca^me known as the gold pool.
The gold pool arrangement, which encompassed the United States and the
seven major industrial countries of Europe, was one of the first of many cooperative multilateral arrangements to be worked out during the 1960's to deal with
speculative attacks on the markets involving gold and currencies

Full text of Annual Report of the Secretary of the Treasury on the State of the Finances : Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1969

FRASER