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M INUTES OF THE M EETING OF THE FEDERAL ADVISORY COUNCIL Septem ber 13, 1953 The third statutory m eeting of the Federal Advisory Council for 1953 was convened in Room 1032 of the M ayflower H otel, W ashington, D . C., on Septem ber 13, 1953, at 2:20 P.M ., the President, M r. Brown, in the Chair. P resent: D istrict N o. 1 D istrict N o. 2 D istrict N o. 3 D istrict N o. 4 D istrict N o. 5 D istrict N o. 6 D istrict N o. 7 D istrict N o. 8 D istrict N o. 9 D istrict N o. 10 D istrict N o. 11 D istrict N o. 12 Secretary Ernest Clayton Henry C. Alexander Geoffrey S. Sm ith George Gund Robert V. Flem ing Paul M . D avis Edward E. Brown V. J. Alexander Joseph F. Ringland Charles J. Chandler D e W itt R ay John M . W allace Herbert V. Prochnow On m otion duly made and seconded, the mimeographed notes of the m eeting of the Council held on M ay 17, 18 and 19, 1953, copies of which had been sent previously to the members of the Council, were approved. A com plete list of the item s on the agenda for the m eeting and the conclusions of the Council are to be found in the Confidential M e m o r a n d u m to the B o ard of Governors from the Federal Advisory Council , which follows on page 22 and 23 of these m inutes. The m eeting adjourned at 5:05 P.M . HERBERT V. PROCHNOW Secretary 20 MINUTES OF THE MEETING OF THE FEDERAL ADVISORY COUNCIL September 14, 1953 At 10:00 A.M., the Federal Advisory Council reconvened in Room 1032 of the May flower Hotel, Washington, D.C. Present: Mr. Edward E. Brown, President; Messrs. Ernest Clayton, Henry C. Alexander, Geoffrey S. Smith, George Gund, Robert V. Fleming, Paul M. Davis, V. J. Alexander, Joseph F. Ringland, Charles J. Chandler, De Witt Ray, John M. Wallace, and Herbert V. Prochnow, Secretary. The Council reviewed its conclusions of the previous day regarding the items on the agenda and sent to the Assistant Secretary of the Board of Governors the Confidential M em orandum to the Board of Governors from the Federal Advisory Council, which follows on pages 22 and 23, listing the agenda items with conclusions reached by the Council. The M em orandum was delivered to the Assistant Secretary of the Board of Governors at 12 noon on September 14, 1953. The meeting adjourned at 11:45 A.M. HERBERT V. PROCHNOW Secretary 21 C O N F ID E N T IA L M E M O R A N D U M TO T H E BO ARD OF G O VERNO RS FRO M T H E FE D E R A L A D V ISO R Y CO U N C IL RELA TIV E TO T H E A G E N D A FOR T H E JO IN T M E E T IN G ON SE P T E M B E R 15, 1953 1. W hat are the views of the Council with respect to the prospective business situation during the next 3 to 6 m onths and the probable changes in the volum e and purposes of bank loans in that period? Business activity in the last few m onths has held at high levels. Consum er income and spending have been m aintained. Unem ploym ent has remained very low. Industrial production has been high. Disposable personal income has been large. The number of nonfarm housing starts has been substantial. Retail sales have compared favorably with those of 1952. However, impressive as the factors are which now support the econom y, som e significant weaknesses have become apparent. For exam ple large farm surpluses are already creating serious problems, which will increase in the next few m onths. Farm prices and farm income have fallen, accom panied by a very severe decline in the sale of farm machinery. Steel production has begun to turn downward, and indications are that it will decline considerably by the end of the year. Production of household appliances and autom obiles is outrunning demand. Business inventories in m any lines have ac cum ulated beyond desirable levels. The Council believes that the peak of the boom has passed and that in the next three to six m onths the course of business will be m oderately downward. This Fall the banking system will experience the usual seasonal dem and for credit, but the Council believes the increase in the total volum e of bank loans will not be as great as it was in 1952. Should business activity decline in the next few m onths, as the Council anticipates, the tim e necessary for the liquidation of excess inventories will tend to m aintain tem porarily the volum e of bank loans. 2. W hat com m ents does the Council have to m ake w ith respect to the S ystem ’s recent and current credit policies, and what m odifications of those policies does the Council believe m ight be desirable during the balance of the year? The Council thinks the B oard’s actions in the last few m onths in giving relief to the m oney m arket, both by open market operations and by the reduction in reserve require m ents, were highly constructive. The Board’s policy helped stabilize the econom y at a tim e when the m oney market had becom e unduly tight, and m aterially helped the Treasury in its financing. As stated in the answer to the first item of the agenda, the Council believes that the peak of the boom has passed and that a moderate downward trend in business will continue for a tim e. In view of this belief, the m oney market should not be kept so tight as to accelerate the decline in business, but should be eased in the direction of m oderating the decline. On the other hand, m oney should not be made so easy as to create the danger of further inflation. If the decline in business activity is not too severe, the C ouncil believes that open market operations would be adequate to m eet the situation. If, contrary to the expectations of the Council, the rate of business decline threatens to accelerate sub stantially, the Council believes the Board should again reduce reserve requirem ents. 22 3. What, if any, suggestions does the Council have as to legislation that the Board might support or sponsor in the forthcoming session of the Congress? A similar item appeared on the agenda at the meeting of the Board and the Council in February. At that time, the Council stated that it would favor legislation (subsequently passed) giving the System $15 million to $20 million with which to expand its branch facilities to handle the increasing volume of business of the System. The Council also stated that it would favor legislation permitting the reissuance without penalty of all Federal Reserve Notes by any of the Federal Reserve Banks, regardless of which Bank issued the notes. The Council does not know what legislation the Board may wish to support or sponsor in the forthcoming session of the Congress. If the Board will advise the Council as to what legislation it contemplates proposing, the Council will be pleased to express its views regarding the legislation at the meeting with the Board in November. 23 M IN U T E S O F T H E M E E T IN G O F T H E F E D E R A L A D V IS O R Y C O U N C IL September 14, 1953 At 2:20 P.M., the Federal Advisory Council convened in the Board Room of the Federal Reserve Building, Washington, D.C., the President, Mr. Brown, in the Chair. Present: Mr. Edward E. Brown, President; Messrs. Ernest Clayton, Henry C. Alexander, Geoffrey S. Smith, George Gund, Robert V. Fleming, Paul M. Davis, V. J. Alexander, Joseph F. Ringland, Charles J. Chandler, De Witt Ray, John M. Wallace, and Herbert V. Prochnow, Secretary. Dr. Woodlief Thomas, Economic Advisor to the Board of Governors, Dr. Ralph Young, Director of the Division of Research and Statistics of the Board of Governors, and other members of the Board Staff presented a visual-audio report on the “Changing Debt Structure” . Each member of the Council was given a copy of the report. The meeting adjourned at 3:35 P.M. HERBERT V. PROCHNOW Secretary 24 M I N U T E S O F JO I N T C O N F E R E N C E O F T H E F E D E R A L A D V IS O R Y C O U N C IL A N D T H E BO A RD O F G O V ERN O RS OF TH E FED ER A L R E SER V E SY STEM September 15, 1953 At 10:30 A.M., a joint conference of the Federal Advisory Council and the Board of Governors of the Federal Reserve System was held in the Board Room of the Federal Reserve Building, Washington, D.C. Present: Members of the Board of Governors of the Federal Reserve System: Chairman Wm. McC. Martin, Jr.; Governors M. S. Szymczak, R. M. Evans, James K. Vardaman, Jr., A. L. Mills, Jr. and J. L. Robertson; also, Mr. Merritt Sherman, Assistant Secretary of the Board of Governors. Present: Members of the Federal Advisory Council: Mr. Edward E. Brown, President; Messrs. Ernest Clayton, Henry C. Alexander, Geoffrey S. Smith, George Gund, Robert V. Fleming, Paul M. Davis, V. J. Alexander, Joseph F. Ringland, Charles J. Chandler, De Witt Ray, John M. Wallace, and Herbert V. Prochnow, Secretary. The President of the Council read the first item on the agenda and the conclusions of the Council as given in the Confidential Memorandum to the Board of Governors from the Federal Advisory Council as printed on page 22 and 23 of these minutes. A brief discus sion followed. President Brown then read the second item on the agenda, and the conclusions reached by the Council, as expressed in the Confidential Memorandum , previously men tioned. At Chairman Martin’s suggestion, a discussion followed on the relative merits of using reserve requirements compared to open market operations as instruments of control. President Brown then read the third item on the agenda and the conclusions of the Council as expressed in the attached Confidential Memorandum to the Board. Chairman Martin stated that the Board does not have any legislative proposals at present, but it will be pleased to discuss any contemplated legislation with the Council when the proposals are ready. An extended discussion followed, much of it off-the-record, in which members of the Council and Board participated. The meeting adjourned at 12:18 P.M. HERBERT V. PROCHNOW Secretary 25 NOTEi T h is tran sc rip t of the Secretary’ s notes i s not to be regarded as complete or necessarily entirely accurate. The trans cript is for the sole use of the members of the Federal Advisory Council, The con cise o f f ic ia l minutes for the entire year are printed and distributed la te r. Ho Vo P, The Secretary’ s notes on the meeting of the Federal Advisory Council on September 1 3 - 1 5 , 1 9 5 3 , at 2 s 2 0 P o M 0 in Room 1032 of the Mayflower Hotel, Washington, D, C G All members of the Federal Advisory Council were present*, The Council approved the Secretary's notes for the meeting of May 17- 19, 1953. * * * * ITEM I WHAT ARE THE VIEWS OF THE COUNCIL WITH RESPECT TO THE PROSPECTIVE BUSINESS SITUATION DURING THE NEXT 3 TO 6 MONTHS AND THE PROBABLE CHANGES IN THE VOLUME AND PURPOSES OF BANK I,PANS IN THAT PERIOD? Brown reads the three items on the agenda and asks Clayton, representing D is t r ic t 1 , to comment on Item I of the agenda* Clayton0Business in New England continues at a high level after the usual summer slowdown, but there are no sign ifican t in dicatio n s of any higher le v e l being reached. Opinion is divided regarding a decline before the year end or a continuance on a high plateau. Some who see no decline th is year are looking for one in the f ir s t quarter of 195U» Concern over automobile sales is general; new car sales in Massachusetts in August were 50 per cent ahead of 1 9 52 , about 25 per cent ahead of 1951, but only 2 per cent ahead of 1 9 50 , Dealers are having to work harder to dispose of used cars? and many believe that th is is the b e l l wether to a business d e c lin e . Business loans declined very s lig h tly in recent weeks, but are s t il l 11 per cent ahead of a year ago. Loans to finance companies are contributing m aterially to the high loan l e v e l . No r e a l ru no ff is expected slewedo In v en to rie s sales to date. alm ost d e bt w h i l e the h ave b e e n is h ig h . good, Many e m p l o y e r s is g e ttin g is holding farm in c o m e If expect a q u ic k turn id e a is co n tin u e s store good b u s i n e s s re ce iv a b les co uld are sales th is in come w i t h d e cid e to apt to spread go o d in the d ow n are lik e Total but sales co n stru ctio n vo lu m e of m a n u f a c t u r e r s . Cotton t e x t il e b u sin e ss is but in dustry The w ild fire* R e ta il larger of im p r o v e d , Federal Reserve of d e clin e. some b u i l d u p New Y o r k out a m oderate has been down. to surp luses Second D i s t r i c t , sh o w in g fall. get slig h tly . had lo w er p r i c e s has re la tio n There is good. of some b o r r o w e r s in d u stries Farm ers have q u ite c o llec tio n not d an gero u sly h ig h the B u sin ess departm ent steady. is that good, D efense but The but o v e r- n ig h t. A lexander. Em ploym ent soon. h ig h , Som e b e l i e v e d e v e lo p in g H. are d e scrib e s crops, and in v e n to r ie s the the rayon situ a tio n - 2as no l o n g e r of a contest one o f a b a l a n c e b e tw e e n i n f l a t i o n and s t a b i l i t y , b u t one n o w b e t w e e n s t a b i l i t y a n d d e f l a t i o n ,. The a g g r e g a t e dem and fo r goods h a s not bably be l e s s dem and f o r cred it w i l l fall has b e e n in a c tiv ity w i l l is e a sin g w ill the S m ith . slo w . to Gund. are The p riv ate the F e d e r a l credit, in The of lim it the next on consum er credit su pp ly of that few m o n th s. pro ago. ex cred it as b u sin e ss The steel situ a tio n goods are in c r e a s i n g . Three a w ho le is and l o a n s about the sam e, The are sim ila r good. in the to those The u s e d at banks are T h ird departm ent has also in the ca r m arket h ig h . S m it h is states and S e c o n d D i s t r i c t s are down. is are fo r m oderately low er There has been a n d e q u ip m e n t e x p en d itu re s Gund states o f b u y in g short the D istric t p e ssim ism of a d e c lin e w ill that he in p robably endorses term o b l i g a t i o n s exceed to ease from elim in a ted m a in d e r o f for and the 1953 are first a g ri are n o t m o ving o f W ash in g to n there governm ent p e r s o n n e l an d T elep h o n e as in sta lla tio n s a w ho le, E m p lo y m e n t T elep h o n e has The is h ig h . in no u n The in stalla tio n s dem and f o r D istric t, credit fall. the of in crease good. in to total m onths, are con h ig h . w ill There and w ork contracts in in energy So far at M odest stoppages. in larger is som e a the in o f dem and in C o n stru c tio n o f p a rtia l first same p e r i o d is of year g a in s store than and is consum er fo r h i g h e r level the re e xec u tiv es. in 1952. su b stan tially m e tro p o lita n areas. some a r e a s narrowed ac tiv ity total has year. been at a num ber c o n str u c tio n seven m onths last off slig h tly c o m p le tio n o f The v a l u e the not too sp e n d in g hav e sp e n d in g th is at the D i s t r i c t 's slack en in g the D i s t r i c t than slig h tly is co n stru ctio n e m p lo y m e n t r e m a i n e d e arlie r over la s t y e a r . of m ajo r p r o j e c t s lo w er July . and a n t i c i p a t e d b y m o st d e p a r t m e n t th an la s t y e a r because cent O nly (la s t y e a r ). slackened and A u g u st, awarded situ a tio n g o v e r n m e n t a t o m ic p e rio d a year July the C o n su m e r in c o m e stores has been m ain tain ed e ig h t than city s e a s o n a l d e m and t h i s e m p lo y m e n t i s expected in per good. strong. the E ig h th are How ever, a low er l e v e l in D istric t, good l e v e l s . Sales the year the the the c o n tin u e s up. norm al base 1952* h ig h e r l e v e l s In persons n a tio n a l p ic t u r e . departm ent d u r in g good. The F i f t h g r e a t ly when the from at In the been m a in t a in e d , too except a c tiv ity 195U« A lexan der. d iffe re n t is g en erally at the good, the h ig h e r p r ic e d b r a c k e t s down as a r e s u l t . are is is C o n stru c tio n about 1 8 ,0 0 0 are co n tin u e s c o n tin u e about in lo w er. B u sin ess not F ifth in d u stry loan s in d u s tr y sales in sales Bank D a v iso stru ctio n rate Fourth D is t r ic t some p r o b l e m s . but houses store e m p lo y m e n t . s p e n d in g starts te x tile W ashington are th is n o t the next fe w m onths. p o lic y has b e e n a r e d u c t i o n p rob ably in B u sin e ss re a d ily . w as l h 1952. in ste a d There w ill than a y ear necessary. F le m in g . In as New p la n t hom e cu lture in d u s t r y Sales the c o n d itio n s the Reserve if V. in fall A lexan der b e lie v e s D istric t h ig h o utlo o k g o v e rn m e n t o r d e r s . than in B u sin ess a c tiv ity de clin e| in dem and, d urable to p r o d u c t io n . th is sam e. b u s in e ss R e ta il of general, b u s in e ss about th e the d e clin e C o n d itio n s In v e n t o r ie s that, i n credit sm aller than be Stocks Se co n d D i s t r i c t . re la tio n im m e d ia te p a s t . tend now. in bank p ro b a b ly be p a n s io n t h i s it expanded of th is year R e sid e n tia l -3 b u i l d i n g a w a r d s w B r e dow n 1 8 p e r c e n t , w h i l e o t h e r a w a r d s w e r e down ill p e r c e n to M a n u fa c tu rin g p r o d u c t iv it y has b e en w e l l ahead o f a y e a r ago w h e n t h e n a t i o n - w i d e s t r i k e c a u s e d some d i s r u p t i o n ® Two c o n t i n u i n g w eak s p o t s i n t h e D i s t r i c t ’ s n o n d e f e n s e i n d u s t r i e s h a v e b e e n w h i s k y a n d co al* T h es e i n d u s t r i e s have been i n a p e r io d o f d e c l i n i n g p r o d u c t io n f o r some t i m e . D i s t i l l e r s becam e b a d l y o v e r s t o c k e d a s t h e y b u i l t up in v e n t o r ie s a n t i c i p a t i n g cutbacks d u r in g the K o re a n w ar* These in v e n t o r i e s a r e s t i l l f a r a b o v e norm al rr even t h o u g h o n ly fro m o n e - fo u r t h to o n e - h a l f o f t h e d i s t i l l e r i e s h a v e b e e n o p e r a t i n g i n K e n t u c k y , p r i c e s ha v e c o n t i n u e d t o b e d e p r e s s e d * C o a l h a s s u f f e r e d fr o m i n c r e a s i n g s u b stitu tio n o f other fu e ls * M in e o u tp u t h a s b e e n r u n n in g a b o u t o n e - s ix t h le s s than a y e a r ago* D u r i n g J u n e , J u l y , a n d A u g u s t t h e dem and f o r credit at E ig h th fa irly strong* $10 m illio n a t w eek ly c o m p a n ie s m a d e the D istric t B u sin ess m on ths in but 195>2, the w h ic h usu ally re p o rtin g banks sizab le c a p it a l m arket* th re e m onths m em ber b a n k s b y b u s i n e s s e s lo an s, in net repaym ents, ’’O t h e r * 1 ( l a r g e l y grow th w as l e s s im m e d ia te ly dow n a t the th is and D istric t* re fle c tin g consum er) than fo r fo llo w ed the consum ers w a s tim e , in part lo a n s w ere the rose Sales fin a n c e fin a n c in g i n up for c o rre sp o n d in g liftin g the three of R e g u latio n W* Total deposits rose from the end of May through August at District member banks. Most of the increase was in deposits of the United States government| however, savings accounts also rose substantially* Fleming * (Off-the-record discussion) Ringland * Conditions in the Ninth District are generally good* Crop prospects are excellent, although the wheat crop is off somewhat; storage space is tight* Bank deposits are holding up* Farm income is down. Correspondent bank deposits are o ff somewhat. Retail sales for the year are up, but there has been some decline recently, partly due to very hot weather* I f retail sales continue slow, the stores w ill probably curtail buying* Inventories have accumulated. The economy of the D istrict depends in a large measure on agriculture. Some automobile dealers have very large stocks and are making l it t l e money; some actually have losses* Bank loans are above a year ago* The increase in bank loans this f a l l w ill probably be only seasonal* Despite soft spots, business generally looks good* Chandlero Farm income over the country is off about 6 per cent. Retail sales "in the Tenth D istrict are below the national average* The machinery business is very slow. Consumer credit has shown a small decrease in recent weeks* Moisture conditions are somewhat better* Residential starts are down. Employment is good. Crude o il stocks are up considerably. As a whole, the District is in good shape, considering the amount of moisture* Ray. Business is good notwithstanding the drought. Department store sales are above a year ago* There is no unemployment* Housing starts are lower, especially in high priced houses* The cattle industry has had problems, but the big cattle farmer was not seriously h u r t . The "d:ru* sto re” cowboys, those who had a half-dozen cattle as a hobby, have been shaken out. O il production and d r illin g are down* Bank deposits are about 7 ner cent higher than a year ago and loans are U per cent higher than la s t yearo The increase in bank loans this f a l l w i l l prob a b ly not be as great as la st year* The automobile business is o ff substantially. New cars, except Cadillacs, are available at a discount. - uA i r - c o n d i t i o n e d c a r s w i l l b e i n s t r o n g demand i n t h e S o u t h i n t h e f u t u r e . A l t h o u g h we seem t o b e h e a d e d f o r a m o d e r a t e d e c l i n e i n b u s i n e s s g e n e r a l l y , t h e m e r c h a n t s t h i n k d e p a r t m e n t s t o r e s a l e s f o r C h r i s t m a s m ay b e b e t t e r than a y e a r a g o . I n g e n e r a l t h e D i s t r i c t i s i n g ood s h a p e * I f the c o tto n c r o p g o e s i n t o t h e g o v e r n m e n t l o a n , b a n k l o a n s may a c t u a l l y d e c l i n e D W allaceo The o v e r a l l s it u a t io n i n the d i s t r i c t ap p ea rs to b e s t r o n g , an d g a i n s i n i n d u s t r i a l a c t i v i t y h a v e b e e n a b o v e t h e n a t i o n a l a v e r a g e © Th ere h a s b e e n w e a k n e s s i n t h e lum b er in d u s t r y * T h e r e h a v e b e e n some c u t b ac ks i n F e d e r a l jo b s as the W est h as b e en the su pply p o in t f o r U n it e d States a c t i v i t i e s i n the O rie n t* T h e r e h a s a l s o b e e n some s l o w d o w n o n t h e p a r t o f l a b o r ,, B u s in e s s fo r the r e s t o f 1 9 5 3 w i l l p r o b a b ly b e q u it e good. I n th e e a r ly p a r t o f 1 9 5 U 3 the p r o f it m argin w i l l p ro b a b ly n a r r o w » T h e o u t l o o k f o r f o r e i g n t r a d e fr o m t h e P a c i f i c C o a s t i s n o t g o o d * The country i s lo n g on s t e e l , c o a l, a g r ic u l t u r a l p r o d u c tio n an d o ther p r o ducts, and in Brown* past* 'the P ro d u ctio n are sio n but the B u sin ess about now i s co uld face generally some good* s e r io u s p ro blem s* The peak of t h e bo om i s a u t o m o b ile b u s i n e s s i s down* Farm m a c h in e ry s a l e s a re o f f * i n th e h o u s e h o ld a p p l ia n c e in d u s t r y h a s o u t r u n dem and* Crops generally some c o m in g y e a r w e the good* The fu tu re* b u sin e ss re tail trade M ost p erso n s m en t h i n k the is good, expect d e clin e but there a m odest m ay b e m o re is d e clin e se rio u s some a p p r e h e n th is year, next year* Steel production by the end of 1953 may be running at 75 per cent to 80 per cent of capacity* Bank loans should increase seasonally, but the i n crease w il l probably not be as great as it was in 1952* The rate of increase in consumer loans has slackened* Public u t ilit y construction is heavy* I f business declines, industry generally w ill probably be more reluctant to make capital expenditures* The Council may say to the Board that business i s generally good, but that the peak of the boom is past* In the next six months the course of business w ill probably be moderately downward* Business loans this fa l l may show an increase less than the increase la s t year* Employment has continued good* W allace * The breakeven point is much higher than i t was i n the past* Brown* The peak of the boom is past* A moderate downturn in business is probable during the next three to six months* However, at present the d ecline does not threaten to be serious* Bank loans w il l have a seasonal increase ^but the increase w ill probably not be as great as i t was a ye ar ago* ITEM I I WHAT COMMENTS DOES THE COUNCIL HAVE TO MAKE WITH RESPECT TO THE SYSTEM'S RECENT AND CURRENT CREDIT POLICIES, AND WHAT MODIFICATIONS OF THOSE POLIC IES DOES THE COUNCIL BELIEVE MIGHT BE DESIRABLE DURING THE BALANCE OF THE YEAR?_________________ ______________ Brown* Federal Reserve policy in recent month* has been good* If the Council agrees that the peak of the boom has passed and that a moderate decline in business is probable, then the Council may say to the Board that the money market should not be kept so tight as to accelerate the decline* Neither should money be made too cheap, so that the econon^r is again threatened with inflation* - * - Fleming. No further reduction in reserve requirements is desirable at present. The government market is better* The last issue went well with small attrition. The government may need some new money in October or November, depending on Commodity Credit Corporation loans* Brown. (Off-the-record comments on possible new Treasury borrowing' H» Alexander states that he has no quarrel with the Federal Reserve at present* He thinks the Federal Reserve acted wisely in recent months. (Off-the-record comments on Treasury borrowing) Fleming thinks the Board should have a pat on the back for its action in the open market and in the reduction in reserve requirements* H. Alexander* I f the deflationary forces should accelerate, then the Board may find it necessary to reduce reserve requirements further, but at present Alexander has no quarrel with Board policy. Brown* Both the open market operations and the reduction in reserve requirements were good. The Board helped the Treasury with its financing and helped to stabilize the economy when the money market was too tight. As stated in the '’^swer to the first question, Brown believes the peak of the boom has pasje * and that a moderate downtrend w ill con tinue for the balance of the year. Consequently, the Council may state it believes the Board should not keep the money market so tight as to accelerate the decline# On the other hand, the Board should not cheapen money and run the risk of further inflation. At the present time, the Council believes that open market operations are adequate to meet cur rent business trends. I f , contrary to the expectations of the Council, the rate of business decline should accelerate, the Council believes the Board should be ready to reduce reserve requirements further. Fleming. Brown. (Off-the-record comments) (Off-the-record comments' ITEM I I I WHAT, IF ANY, SUGGESTIONS DOES THE COUNCIL HAVE AS TO LEGISLATION THAT THE BOARD MIGHT SUPPORT OR SPONSOR IN THE FORTHCOMING SESSION ____________________________________________ _ OF THE CONGRESS? Brown states that he does not know what, i f any, legislation the Board may have in mind. He then asks the members of the Council for comments. Ringland. The Council may state that it does not know what pro posed le g isla tio n the Board has in mind, but the Council w ill be glad to express its views on any legislative measures the Board may wish to discuss* Brown. The Council may say it does not know what legislation the Board-may wish to propose, but the Council vail be pleased to discuss with the Board any legislation which the Board may be considering. -6 Fleming. The Council may state that a similar question was asked by the Board in February. At that time, the Council stated it would favor legislation (subsequently passed) giving the System $15> million to $20 million with which to expand its branch facilities to handle the increasing volume of business of the System. The Council also stated that it would favor legislation permitting the reissuance without penalty of all Federal Reserve Notes by any of the Federal Reserve banks, regardless of which Bank issued the notes. The Council does not know what legislation the Board may wish to support or sponsor in the forthcoming session of the Congress. If the Board w ill advise the Council as to what legislation it contemplates proposing, the Council w ill be pleased to express its views regarding the legislation at the meeting with the Board in November * The meeting adjourned at P. M. T H E C O U N C IL CONVENED AT 1 0 A . M. ON S E PT E M B ER l U , 1 9 5 3 , I N ROOM 1 0 3 2 OF T H E M AYFLOWER H O T E L , W A S H IN G T O N , D . C . A L L MEMBERS O F THE FE D ER A L A D V IS O R Y C O U N C IL WERE P R E S E N T . The C o u n c il p rep ared M em orandum t o b e agenda f o r the sent jo in t to and ap p ro v ed the a tt a c h e d C o n f id e n t ia l the B o ard o f Governors r e la t iv e to the m e etin g o f th e C o u n c i l and t h e B o a r d on Septem ber 1 5 , 1 9 5 3 • T h e M em orandum w a s d e l i v e r e d to t h e A s s i s t a n t S e c r e t a r y o f t h e B o a r d o f G o v e r n o r s a t 1 2 noon o n Septem ber lli, is listed 1953* It to g e th e r w ith w ill the b e n o t e d t h a t e a c h it e m o f t h e a g e n d a comments o f t h e The meeting adjourned at 11:1+5 A. M. C o u n cil. CONFIDENTIAL MEMORANDUM TO THL BOARD OF GOVERNORS FROM THE FEDERAL ADVISORY COUNCIL RELATIVE TO THE AGENDA FOR THE JOINT MEETING ON SEPTEMBER 1$, 1953 1. What are the views of the Council with respect to the prospective business situation during the next 3 to 6 months and the probable changes in the volume and purposes of bank loans in that period? Business activity in the last few months has held at high levels. Unemployment has remained very low. Industrial production has been high. Disposable personal income has been large. The number of nonfarm housing starts has been substantial. Retail sales have compared favorably with those of 1952. However, impressive as the factors are which now support the econ omy, some significant weaknesses have become apparent. For example, large farm surpluses are already creating serious problems, which w ill increase in the next few months. Farm prices and farm income have fallen, accompanied by a very severe decline in the sale of farm machinery. Steel production has begun to turn downward, and indications are that it w ill decline considerably by the end of the year. Production of household appliances and automobiles is outrunning demand. Business inventories in many lines have accumulated beyond desirable levels. Consumer income and spending have been maintained. The Council believes that the peak of the boom has passed and that in the next three to six months the course of business w ill be moderately downward. This Fall the banking system will experience the usual seasonal demand for credit, but the Council believes the increase in the total volume of bank loans w ill not be as great as it was in 1952. Should busi ness activity decline in the next few months, as the Council anticipates, the time necessary for the liquidation of excess inventories w ill tend to maintain temporarily the volume of bank loans. 2. What comments does the Council have to make with respect to the System's recent and current credit policies, and what modifications of those policies does the Council believe might be desirable during the balance of the year? The Council thinks the Board's actions in the last few months in giving relief to the money market, both by open market operations and by the reduction in reserve requirements, were highly constructive. The Board's policy helped stabilize the economy at a time when the money market frad become unduly tight, and materially helped the Treasury in its financing. -2 A s s t a t e d i n t h e a n s w e r to th e f i r s t it e m o f th e a g e n d a , th e C o u n c il b e l i e v e s t h a t t h e p e a k o f t h e boom h a s p a s s e d a n d t h a t a m o derate downward t r e n d i n b u s i n e s s w i l l c o n t i n u e f o r a t i m e . I n v ie w o f t h i s b e l i e f , t h e m o n e y m a r k e t s h o u l d n o t be k e p t so t i g h t as to a c c e l e r a t e th e d e c lin e i n b u s i n e s s , b u t s h o u l d b e e a s e d i n th e d i r e c t i o n o f m o d e r a t in g the d e c l i n e . O n t h e o t h e r h a n d , m oney s h o u l d n o t be made so e a s y as to crea te th e danger of fu rth er in fla tio n . If the d e clin e in b u s in e ss a c tiv i t y i s n o t to o s e v e r e , t h e C o u n c i l b e l i e v e s t h a t o p e n m ark et o p e r a t i o n s would be a d e q u a t e t o m e e t t h e s i t u a t i o n . I f , c o n t r a r y to th e e x p e c t a t i o n s o f th e C o u n c i l , stan tially , the req u irem e n ts, 3, W hat, the ra te o f b u s in e s s C o u n c il b e lie v e s the if any, su g g estio n s d e c l i n e t h r e a t e n s to a c c e l e r a t e s u b B oard sh o uld a g a in reduce re se rv e does the C o u n c il have l e g i s l a t i o n t h a t t h e B o a r d m ig h t s u p p o r t o r th e fo r t h c o m in g s e s s io n o f the Congress? A sim ilar and t h e C o u n c i l i n ■would f a v o r i t e m a p p e a r e d o n th e a g e n d a at t h e m e e t in g o f t h e B o ard February, A t t h a t t i m e , th e C o u n c i l s t a t e d t h a t i t leg isla tio n to ^ 2 0 m i l l i o n as to sponsor i n (su b s eq u e n tly p assed) w it h w h ic h to expand i t s g iv in g t h e S y st e m $ l £ branch f a c i l i t i e s m illio n to h a n d l e th e i n c r e a s i n g v o lu m e o f b u s i n e s s o f t h e S y s t e m , The C o u n c il also state d th at i t w o u ld f a v o r l e g i s l a t i o n p e r m i t t i n g th e r e i s s u a n c e w it h o u t p e n a l t y o f a ll F e d er a l R e s e r v e N o te s b y any o f o f w h ic h B a n k i s s u e d t h e n o t e s . The C o u n cil support o r sponsor Board w i l l advise p r o p o s in g , the le g islatio n at in the does not the C o u n c i l a s to m e etin g F ederal Reserve know what l e g i s l a t i o n fo rth c o m in g C o u n cil w i l l the the the to it regardless 3 o a r d may w is h to se ss io n o f the C o n gress, what l e g i s l a t i o n be p l e a s e d w ith the Banks, I f the c o n t e m p la t e s e x p r e s s i t s v i e w s r e g a r d i n g th e Bo ard i n Novem ber. - 8THE COUNCIL CONVENED IN THE BOARD ROOM OF THE FEDERAL RESERVE BUILDING AT 2:20 P.M. ON S E PT E M B ER lh, 1953. ALL MEMBERS OF THE FEDERAL ADVISORY COUNCIL WERE PRESENT. Dr* Woodlief Thomas, Economic Adviser to the Board and Dr. Ralph A. Young, Director of the Division of Research and Statistics, together •with other members of the Board Staff, presented a visual-audio report on the "Changing Debt Structure"• Copies of the report were distributed to members of the Council* The meeting adjourned at 3:35 P.M. - 9ON SEPTEMBER 15, 1953 TIJE F ED ER A L ADVISORY COUNCIL HELD A JOINT MEETING WITH THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM IN THE BOARD ROOM OF THE FEDERAL RESERVE BUILDING, W A S H IN G T O N , D .C . A L L MEMBERS O F THE C O U N C IL W E R E P R E S E N T . T H E F O L L O W IN G MEMBERS OF T HE BOARD OF GOVERNORS WERE P R E SEN T: CHAIRMAN M A R T IN , GOVERNORS SZYMCZAK , EVANS, VARDAMAN, MILLS AND ROBERTSON. MR. SHERMAN, A S S I S T A N T S E C R E T A R Y O F THE BOARD O F G O V E R N O R S , WAS A L S O P R E S E N T . IT E M I WHAT A R E T H E V I E W S O F T H E C O U N C IL W I T H R E S P E C T TO THE P R O S P E C T IV E B U S IN E S S D U R IN G T H E N E X T 3 TO 6 MONTHS A N D T H E PR OB ABLE S IT U A T IO N CHANGES I N T H E V O L U M E AN D P U R P O S E S O F BANK L O A N S Brown r e a d s as e x p r e s s e d in B o ard r e c e i v e s a lw a y s the of was i n the d e c lin e th is 1952* M artin to e x p a n d its but that is the also there the the ac tiv ity The o il co m p leted, som e h e s i t a t i o n if the present b eliev es p ro b le m of a a balance the s i t u a t i o n generally betw een between a M artin he of asks has W allace te x tile co n stru ctio n fo r p u b lic fo r heard com m ents a on t h e statem ent the v o lu m e som e w e a k n e s s e s . of in F o re ig n Plan t is states is but is no now a A lexander is poor* and p u b lic on t h e b e lie v es still d iffic u lty situ atio n of there He situ a tio n B u sin ess P a c ific co n tin u e new i n d u s t r i a l correct* m ore u tilities by reluctant c o n tin u e s* the in d u s tr y trade it exp ansion for u t i l i t i e s , co n d itio n s on th e in great as exp en d itu re s sta b ility , having b u s in e ss as e x p e c t e d to and d e f l a t io n * the in a n d e q u ip m e n t co m m itm en ts f o r sum m ary i s are be p lant so r a p i d l y * to d e f l a t i o n * dealers bu sin e ss c o r p o r a t i o n s m ay b e Ba nk b e l i e v e s of b e lie v es are m ore de clin e and the a c cu m u la tin g 19 53 * except in fla tio n is late* c o n s u m e r c r e d i t m ay l e v e l o f f * in b u sin e ss B r o w n 's sta b ility little A u to m o b ile rayon b u s in e s s l a r g e v o lu m e but t h e r e leans good. The now t h a t b alance but o r tw o are The there seaso nal in crease i n d u s t r y m ay b e p lant d e clin e that some of d e clin es, i n m a k in g F e d e r a l Reserve of quarter but a n d m any s t e e l p e o p l e C o u n cil a n t ic ip a t e s fo u rth the C o u n c il , re g ard ing w i l l pro bably not p r o b a b l y w i l l b e no b u s in e ss staff, dow nw ard, som e e v i d e n c e t h a t course in in crease of a m onth currently T h e r e m ay b e but the New Y o r k one v ie w s may b e P E R IO D ? Board a ttac h ed * H o usehold a p p lia n c e s H* A le x a n d e r lon ger cars. re ce iv e the fro m i t s statistics b u t m ay n o t e x p a n d be exp an sio n an alyses THAT co n c lu sio n m ay c o n t i n u e . c o m m it t e d w i l l b e probably w i l l p lan t the p lant f a c il it ie s * e x p lo ra tio n , a lready e c o n o m ic that take if the turned what Brown s t a t e s u tilities, and p ro d u c tio n has There ex p en d itu re s w i l l agenda custom ers. F all, asks the C o u n c il th e ir Steel the b an k l o a n s of excellent from in v e n to rie s * b e lie v e 1 C o n f i d e n t i a l M em orandum to p o ssib ility The m em bers situ a tio n Ite m the IN m o v in g There is a b u ild in g s* on t h e W e s t C o a s t , East Coast* Coast is above the W e st C o ast last year, is o ff. - 10 T h e r e a r e some s t r i k e s n o w a n d more a r e a n t i c i p a t e d ,. B u s i n e s s c a n n o t g iv e f u r t h e r w a g e i n c r e a s e s i n some l i n e s w i t h o u t d i f f i c u l t y . B u sin e ss fo r th e r e s t o f t h e y e a r l o o k s g o o d , b u t some r e a d j u s t m e n t s w i l l p r o b a b l y be necessary by the f i r s t o f the y ea r * I t i s p r o b a b l e t h a t t h e a d ju s t m e n t s w ill come f i r s t D a v is» is in There c o n sid era b le th e ir best is tobacco are p ra c tic a lly b u ild in g however do es n o t U tilitie s raw m a t e r ia l a r e a s . crop a t look no unem ploym ent i n h i s of new p l a n t s . to o good p r i c e s . good. b e h in d w ith The fa r m s i t u a t i o n There w i l l be a la r g e telep ho ne D istric t. T h er e F lo r id a and G e o rg ia have had in sta lla tio n s. generally su rp lus How ever, of cotton. n o tw ith stan d in g th e u t i l i t y e x p a n s i o n , t h e re i s c o n s id e r a b le p e ssim ism . Coke p r i c e s a re l o w e r * L o a n s s e a s o n a l l y w i l l p r o b a b l y b e up t h i s F a l l , b u t may no t i n c r e a s e a s m uch a s t h e y d i d i n th e F a l l o f 1 9 5 2 . D a v is d o e s not, a t present down. lo o k for Szym czak costs a serio u s asks d e c lin e w hether the e a rn in g s D a v is r e p l i e s t h a t e a rn in g s a r e r e a l p r o b l e m s «, M artin Ray» there is asks about There no has early the been frost, in b u s in e ss. and drought is a The level large lo an , the bank but b u s in e s s are b e in g a ir of cotton ca ttle crop* lo an s m en are sold at a p ric es If ca u tio u s . are decreasing. and h ig h e r situ a tio n . in h is seem s f a i r l y w e l l m o st o f t h e c o t t o n c r o p larg e as A u to m o b ile d isc o u n t. ba n k a r e D istric t. cattle If fo o d. out o f the c a t t le in d u s t r y . S m a ll o p e r a t o r s h a v e n o t b e e n too s e r i o u s l y m ay n o t b e a s co n d itio n e d houses taxes D i s t r i c t w i l l have adequate He b e l i e v e s m ost o f th e sq u e e ze i s c a t t le owners a re o u t , and the b ig hurt. b ut c o n s id e r a b l e m o istu re the in h is o f D a v i s ’ bank are are no t down, cattle Loans sta b ilize d . goes i n t o last y e a r . sales are T h e m o rtg a g e m a rk e t i s s e llin g , There governm ent B u sin ess i s good, o f f a n d new c a r s tig h t. L o w - p r ic e d , but h ig h - p r ic e d houses are not m o v in g r e a d i l y 0 Vardam an. costs a g a in st V. h is Does A lexander D istric t. carry the the states A lexander cotton Vardam an co m m en ts cotton cro p w ould in the cotton d istr icts A lexan der th is F le m in g that there crop have any la rg e b e lie v es a r e no l a r g e that th e b a n k s t h a t he a s k e d h i s the V. cotton ca rry - o v e r carry- over co sts in s h o u l d be a l l o w e d to lo an s. if around 1953 it? does resu lt in q u e stio n because he wondered a s u b s t a n t i a l am ount o f lo o se ca sh w h i c h w o u l d be u s e d f o r co nsum er s p e n d i n g . not b e lie v e th ere w i l l be so much f r e e cash F all. th in k s that if the banks w ere g iv e n a s a t is fa c t o r y rate t h e y w o u l d c a r r y t h e c o t t o n a n d o t h e r a g r i c u l t u r a l p a p e r a n d make u n n e c e s s a r y a l a r g e d r a i n on the Com m odity C r e d i t C o r p o r a t i o n , w h ic h reflects itse lf Robertson in asks governm ent b o r r o w in g . to h e a r fr o m t h e Tenth D istric t. - 11.C h an dler. m uch a s they B u sin ess is slo w Denver has The Bank d id a has R ing lan d * is a sales are re tail be sales have an a c c u m u l a t i o n the the Loans The sho uld situ a tio n N in th been th is has had p o ssib ly m a c h in e ry D istric t is better as in the c ities* starts are o ff. good m o is tu re is People but are in the of sam e c o n d itio n s* good. Total som ewhat the of hot hands about in cre ase d d e c lin ed . H o u sin g ago, the not actually rainfall* because in is but g enerally a year have has o ff. norm al satisfacto ry . o ff, farm areas, B u sin e ss above days credit are its D istric t crop. little of cattle h alf reaso nably six ty Consum er on about corn a in last ag ricu ltu ral record in c o m e the in had R e ta il in ago, boom . D istric t There lo an s a year last w e a t h e r ., it is c a u tio u s. th ir ty dealers. as farm days There In in is g eneral, the other D istric ts, Robertson is a m oderate p ro v id ed go t o o that d e clin es do as he d e c lin e not understands w h ic h com e in go too How ever, k ee p in g all If the far, the the d e c lin es they do n o t m ay h e l p C o u n cil has b u sin ess to W HAT C O M M EN TS lin e s DOES THE S Y S T E M 1S RECENT AND P O L IC IE S D U R IN G v ie w s expressed, alto geth er the un h ealth y, at the sam e tim e reads expressed in C o u n c il b e l i e v e s e v id e n c es the under and there do n o t other the of the attached in the the m a r k e t m ore t h a n M ills, to Is banks m oney m ark e t there for P O L IC IE S , ite m lin es, and do situ a tio n s. of the agenda on THE TO AN D WHAT M O D IF IC A T IO N S B E D E S IR A B L E econom y, so the that p o lic y it There w i l l necessary, to such of but the of the the sh o u ld sh o u ld too be p o l i t i c a l be se rio u s. not be C o u n c il The som e the System b eco m e C o u n c il, Board, and w ith does no t the p o lic y to rush pressure b e lie v e s it pressure. general fe elin g seasonal c o n c lu sio n s a c cu m u la tin g , to o m u c h . is to y i e l d any the C o n f i d e n t i a l M em oran dum t o C o u n c il b e lie v e s ad visable second B E L I E V E M IG H T agenda and d e c lin e in and e a se w o u ld n o t b e the in v e n to r ie s to e a s e the all THE YEAR? 2 the in II THE C O U N C IL b u sin e ss hand, fast co ntro l, CURRENT C R E D IT that w ith of weakness to m o d e r a t e On th e Ite m too som e u n h e a l t h y C O U N C I L H A V E T O M AK E W I T H R E S P E C T DOES THE BALANCE OF Brown com e com m ented i n d e c lin e OF T H O SE re lief not correct IT E M as is far. Brown, not states b u sin e ss that the B o a r d w i l l not g iv e needs? Brown. Up t o J u l y 1 t h e r e w a s some f e e l i n g o f t h i s k i n d . The l o c a l F e d e r a l R e s e r v e B a n k s w e r e a s k i n g m any q u e s t i o n s w h e n b a n k s s o u g h t to r e d isc o u n t. a ttitu d e of how ever, the as i t in to d id Brown the fe elin g p rio r Robertson. th e m a r k e t , Brown. but th e re i s states Reserve that to J u l y that Banks the he does not reflected know th e p o lic y B oard w ould n o t extent to w h i c h in W ash in g to n , g iv e re lie f does the At present, not e x ist 1, I s there that i s , a n y f e a r t h a t the B o a r d w i l l e a s e t h e m a r k e t too m uch? put to o much m oney T h e r e i s no f e a r t h a t th e B o a rd w i l l e a s e th e m a r k e t too m u c h , some t a l k t h a t p o l i t i c a l p r e s s u r e m ig h t b r i n g a b o u t e x c e s s i v e e a sin g o f th e m a r k e t . - 12 M artin th e ir asks o p in io n s co m pa red t o t h e m em bers regarding open m arket Flem i n g b e l i e v e s depends that part upon what m a rk e t w a s very tig h t, reserve has u n d o u b t e d l y M artin0 s h o u ld C o u n c il has b u sin e ss a g a in It go f r o m is Brown* w astefu l* The liq u id a te to to It bank tell stated too is c h e a p m oney w o u l d a c tiv ity an tend d e c lin e s to h o ld up If K e y n es t h e o r y a lo ss of that asks Brown* threat of a in in whether the B o a r d s h o u l d novf p u r s u e C o u n cil that the d e b a t e d the the t im e for d e c lin e d ire c tio n is of the id e a sh o uld to d e term in e the Board lo n g - ter m to tell re v iv al also exactly of the resu lt in a n e a s y m oney p o l i c y * of a neutral p o lic y , the bank p e rio d do llar* and the e a sin g reserve b o d ies an d the a neutral p o lic y had passed* here, in problem ? the that m ig h t soundness the m o n ey p o l i c y , The a d eclin e of d u r in g Plan of Board to m ake b u sin e ss* stop rate fe w m onths, d iffic u lt the b u s in e ss sh o u ld w ork d e clin e of Board as s e rio u s felt in The C o u n c il th o u g h t a is the a re d u c tio n tig h t som ewhat r e l u c t a n t c h e a p m o n ey w i l l co n fid e n c e Evans stop a m oney down* m ak e p u b l i c next p u b lic that i t the to tem p o rarily the the cheap a the be Brown a g r e e s if control the The M i l l s easy m atter te n d to in c o rp o ra tio n s w o u ld p r o b a b ly c a p ita l e x p en d itu re s* that o f m a k in g m o n e y to o of re q u irem e n ts, open m arket a c t i v i t i e s in v e n to rie s * to express in s tr u m e n ts d e p o sits ra p id ly , not d e te r m in e d to h a v e steps to req u irem en ts ago e x a c t ly when reserve accelerate both o p e ra tio n s* and the A d m i n i s t r a t i o n w e re w hen to t a k e care reserve in stru m e n t to u s e h o ld in g d iffic u lt to threat loan s w i l l n e v e r t h e l e s s r e q u ir e d to in C o u n cil has from b u sin e ss w ould S e v e r a l m onths open m arket re q u irem e n ts* E x c e s siv e ly If and o p e ra tio n s threatens the they of u sin g a p a rtic u la r was n e c e s s a r y extrem ely change Is of been a factor reserve e x a c t ly w hen to re q u irem e n ts * use and i t open m arket d e c lin e Evans 0 the m arket n e e d s* suggested* reduce m e rits the re q u irem e n ts also the C o u n c il i f re lativ e o p e ratio n s * in co ntro l* of the C o u n cil f e l t The the Board m on ey m a r k e t * v Ho A l e x a n d e r the B o a r d n o w 0 stru c tiv e, and he re d u c tio n in b e lie v in g that c o n tin u a n c e reduce not red u c tio n the in t h a t he has not the to w a it A ss u m in g reserve M artin . If lo n g i f the if under w ay, it situ atio n of open m arket q u a r r e l •'.vith at present is for that th e any r a t e , con a rig h t p o ss ib le to have At h ig h ly C o u n c il is d e sira b le fr o m n o w * to Ju n e was the in a Board it is develops* X am ount o f m oney i s m e rits to be o p e ratio n s put in the m a rk e t, com pared to a re q u ir e m e n ts ? w e assum e c o m m u n it y s a y , th e r e m u s t b e is s i x weeks that about w h ic h c o u l d m ake a c a s e How ever, m ig h t m ake i t or He A l e x a n d e r 0 A re d u c tio n and i n d i c a t e s t h a t t h e B o a r d i s w o u ld t h e he d e c lin e too little B o ard’ s a c tio n i n th in k d e clin e a m o n th re lativ e the re q u irem e n ts* a b u sin e ss of M artin * w hat a r e does reserve reserves advisable states He b e l i e v e s that w ith s o m e t h i n g -wrong n o t se e a n d a b o u t w h i c h the i n r e s e r v e r e q u i r e m e n t s i s m ore d r a m a t i c d o i n g s o m e t h in g a b o u t t h e m a t t e r * th is is a health y a re d u c tio n w ith the B o a r d know s? in d e c lin e reserve econom y w h i c h in b u sin e ss, re q u ir em e n ts , the p u b lic that does - 13 H . A lexander in d ica te that th in k s the R ing lan d . a m oderate Board f e l t The p u b lic re d u c tio n t h a t we w e r e in does no t fo l l o w in re se rv e s w ould no t for rough w e a t h e r . open m arket o p e r a t io n s very carefully. D av is does not b e lie v e the p u b lic R inglan d fe e ls that Evans. understand reserve Peo p le the f a l l m ovem ent d u c tio n in of crops The p u b lic Gund b e l i e v e s it Sm ith a th in k s too in W allace b e lie v es d u rin g is rig h t reserve it M artino the o p e ra tio n s has better. th in k However, w ith that re the loan s. open m arket a c t i v i t i e s . to rush in to that p o ssib le, a re d u c tio n in a case c o u l d n o t b e m ade a lo g ic a l to a c t t im e befo re the p u b l i c to ease t h e m arket, i n a ttitu d e that re d u c in g season. then alon e o n l y tw o and reserve in Board ta k es M onetary p o lic y really if m ig h t b e re q u ir em e n ts w o u l d p r o d u c e f e a r * re q u irem e n ts w h e n i t s h o u l d . The B o a r d m ore c a r e f u l l y . re q u irem e n ts. the h a r v e s t in g Ho A l e x a n d e r . t I f o f crop clo sely. soon. Vardam an. It is necessary, b e lie v e s i t s h o u ld be d o n e . the f a l l care re d u c tio n s reserves re q u ir e m e n ts does not f o llo w A le xan d e r re d u c tio n take in w o u ld n a t u r a l l y w o u ld be a m ista k e re q u ir em e n ts now f o r to reserve re d u c tio n s the p u b lic r e s e r v e s w a s m ad e F le m in g . reserve they fo llo w fo llo w s th e the Board w o u ld n e v e r cannot in stru m e n ts change reserve reduce a n e c o n o m ic reserve trend. a t p r e s e n t — open m arket re q u irem e n ts. IT E M I I I V/HAT, IF ANY, S U G G E S T IO N S DOES T H E C O U N C IL H A V E A S THAT T H E B O A R D M IG H T S U P P O R T OR S P O N S O R I N TO L E G I S L A T I O N T H E F O R T H C O M IN G S E S S I O N OF T H E C O N G R E S S ? Brown r e a d s C o u n c il, as Brovm a s k s w ith t h i s whether M artin re p lie s th in k an y l e g i s l a t i v e M artin the of the the agenda and the c o n c lu sio n s C o n f i d e n t i a l M em orandum to Bo ard h ad any F le m in g . of the th is was s p e c ia l m atter a catch - all q u e stio n d e sira b le . been M artin at present, le g isla tio n be lie v es Board has of th e F e d e r a l s a la rie s in p ro p o sals an y c o n t e m p l a t e d as t h e III in of the the Board a tta c h e d * m in d i n c o n n e c tio n q u e stio n . C o u n c il m ig h t ready. Ite m expressed that w ith th e the states but it fo r w ill be C o u n c il when sa la rie s of dow n- graded r e l a t i v e to any the B o a rd the le g isla tio n p leased to d isc u ss the p ro p o sals are Board sho uld be in c re a se d * other a g e n c ie s and branches governm ent. The C o u n c il is Board. the does no t have co m pletely sy m p a th e tic to F le m in g o u t l in e s some o f t h e steps in c re a sin g the the C o u n c il - lli has ta k en i n th e p a s t to B o a r d 's s a l a r i e s . be h e l p f u l i n th e m a tter o f in c r e a s in g th e Brown* I f t h e B o a r d w i s h e s to p r o p o s e l e g i s l a t i o n w h ic h i t t h i n k s has a c h a n c e o f p a s s a g e , i t w i l l b e a p p r e c i a t e d i f t h e p r o p o s e d l e g i s l a t i o n i s s e n t to t h e C o u n c i l some tim e b e f o r e a m e e t in g w i t h t h e C o u n c i l , r a t h e r t h a n to s u b m i t i t a t t h e tim e the C o u n c i l m e e t s * S u b m ittin g any p r o p o s e d l e g i s l a t i o n i n a d v a n c e o f t h e m e e t in g w i l l e n a b l e th e members o f the C o u n c i l to g iv e it m ore thou ghtful co n sid era tio n . M a r t in s t a t e s t h a t the Board has been d is c u s s in g p re se n t reserve r e q u i r e m e n t s u n d e r t h e l a w , a n d a p o s s i b l e a l t e r n a t i v e to t h e p r e s e n t law . T h e B o a r d h a s n o t b e e n a b l e to come to a n y a g re e m e n t r e g a r d i n g an a l t e r n a t i v e b a s i s f o r d e t e r m i n i n g r e s e r v e s . * Brown t h a n k s f a c i l i t i e s d u r in g to t h e B o a r d f o r p r e s e n t e d on th e F le m in g p resen tatio n M artin freely. M artin g iv e n the that th at he the also h as n o t h e a rd the S t a f f 's Staff has com m ends B o ard from Vardam an t im e c o m m en ts t h a t and he states of the C o u n c il has 3rown to u s e t h e B o a r d s exp resses a p p re c ia tio n t h e c o m p r e h e n s i v e p r e s e n t a t i o n w h i c h th e S t a f f " C h a n g i n g D e b t S t r u c t u r e ''. the that in the been C o u n cil expresses C o u n c i l on t h e to t i m e . He Board, he has b e e n last for the states on t h e e ig h t e e n m onths, to th e ir v alu able a p p re c ia tio n a n aly sis express o f the its o p in io n s h e l p f u l adv ice that i t has th e a d v i c e has an d th e C o u n c i l 's greatly h elp fu l a n d V a r d a n i a n 's The m e e t in g b e e n e n c o u r a g e d to th e been o f g r e a t a s s i s t a n c e to th e g iv e n c a r e f u l c o n s i d e r a t i o n . M a r t i n 's * the Board fo r it s in v it a t io n t h e ABA. c o n v e n t i o n . He a l s o re p lie s but m embers o f * a l s o com m ends t h e S t a f f f o r i t s t h o u g h t f u l a n d co m p le te on th e s u b j e c t o f the "C h a n g in g D ebt S t r u c t u r e " . su b je c t, to * v ie w s a r e B o a rd f o r s i x y e a r s , p a rtic u la rly , the B o a rd . th e a d v i c e He th a n k s th e c o u n s e l and a d v i c e . o f t h e members o f the C o u n cil fo r com m ents. a d jo u rn ed at 1 2 :1 8 P .M . * * # * * The n e x t m e e t in g 17, 1953. of the C o u n c il w i l l be h e l d on N ovem b er 1 5 , 1 6 and
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