Full text of Press Releases of the United States Department of the Treasury : Volume 132

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t*'

LIBRARY
Pf>OM 5030
JUN 1 5 1972
TREASURY DEPARTMENT

. , United States Savings Bonds Issued and Redeemed Through April 3 0 , 1962
(Dollar amounts in millions - rounded and will not necessarily add to totals)
Amount
Amount
Amount
Outstanding
2/
Redeemed
i
/
Issued 1 /
MATURED
Series A-1935 - D-1941 .<
Series F & G-1941 - 1949
U1MATUHED
Series E:
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
Unclassified ...
Total Series E

5,003
26,082

4,987
25,867

16
215

Series H-1952 - 1962 2/
Total Series E and H
Series F and G:'
1950 .
1951
1952
Unclassified
Total Series F and G
Series J and K-1952 - 1957
Total Series F, G, J and K ....
Total matured
All Series <; Total unmatured ....
j Gi
Grand Total ....;...
1/
2/
2/

1,811
'8,003
12,886
14,996
11,734
5,264
4,950
5,097
5,006
4,358
3,774
3,942
4,447
4,499
4,667
4,485
4,203
4,053
3,783
3,754
3,756
613
317
120,397

1,500
6,613
10,703
12,363
9,455
4,005
3,574
3,561
3,400
2,858
2,432
2>397
2,612
2,577
2,625
2,517
2,242
1,992
1,764
1,531
1,059
25
370
82,175

311
1,390
2,183
2,633
2,279
1,259
1,376
1,536
1,606
1,499
1,342
1,545
1,834
1,922
2,042
1,969
1,961
2,061
2,020
2,223
2,697
588
-53
38,222

8,225

1,609

6,616

128,622

83,784

44,839

2,428
792
211

1,947
415
102
43

3,,431

2,507

924

3,678

1,860

1,818

7,109

4,367

2,742

31,085

30,854
88.151
119,0C5

231
47,-581
47,812

166,817

481
377
109
-43

Includes accrued discount.
OFFICE OF FISCAL ASSISTANT SECRETARY
Current redemption value.
At option of owner bonds m a y be held and will earn interest for additional periods
after original maturity dates.
_./ Includes matured bonds which have not been presented for redenrotion.

United States Savings Bonds Issued and Redeemed Through April 30, 1962

(Dollar amounts in millions - rounded and will not necessarily add to tota
Amount
Amount
Issued 1/ Redeemed \J
MATURED
Series JUL9J5 -D-1941
Series F & G-1941 - 1949

5,003
26,082

4,987
25,867

% Out stand inj
Amount
Outstanding 2/ of Amt.Issue<
$

16
215

.32
.82

311

17.17
17.37
16.94
17.56
19.42
23.92
27.80
30.14
32.08
34.40
35.56
, 39.19
41.24
42.72
43.75
43.90
46.66
50.85
53.40
59.22
71.81
95.92

UTMATUKED /
Series E: -*
1,811
'8,003
12,886
.
•L/nrfy
.....................
14,996
•L/*irS . . . . . . . . . . . « « . . . . . . . a
11,734
1946
"...
•
5,264
1947 [
4,950
1948
5,097
1949:
5,006
1950
4,358
1951
3,774
1952*.
3,942
1953!
'
4,447
1954'..............
4,499
1955
f
4,667
1956 ...............
4,485
M M H H H
1957;
4,203
..........
— •.? O ! . . . . . . . . . . .
4,053
.................
1959*
v* .
3,783
1960
«..«.......«a>..«.
'
3,754
1961*;.... ........ «..«...«»
3,756
1962>...
613
Unclassified J * • • •..............
317
Total Series E
120,397

1,500
. 6,613
10,703
12,363
9,455
4,005
3,574
3,561
3,400
2,858
2,432
2,397
2,612
2,577
2,625
2,517
2,242
1,992
1,764
1,531
1,059
25
370
82,175

38,222

31.75

8,225

1,609

6,616

80.44

128,622

83,784

44,839

34.86

2,428
792
211

1,947
415
102
43

481
377
109
-43

19.81
47.60
51.66

Total .Series F and G ..........

3,431

2,507

924

26.93

5eries^Ja_4-K-1952 - 1957 • • • • •
Total Series F, G, J and K ....

3,678
7,109

1,860
4,367

1,818
2,742

49.43
38.57

31,085
1??,7?2
166,817

30,854
88,151
119,005

231
^7r58l
47,812

.74
___06
28.66

— y^+—

.....................

1942 '
1943

;

Series H-I952 - 1962 #
Total, Series E and H
Series F and G: '•
1950
•—•••—

X./s&

. . . . . . . . .

........

Unclassified ••••••

1 Series

Total matured .,
Total unmatured
Grand Total ....

1,390
2,183
2,633
2,279
1,259
1,376
1,536
1,606
1,499
1,342
1,545
1,834
1,922
2,042
1,969
1,961
2,061
2,020
2,223
2,697

^S&
-53

Includes accrued discount.
OFFICE OF FISCAL ASSISTANT SECRETARY
Current redemption value.
At option^of owner bonds may be held and will earn interest for additional periods
after original maturity dates.
Includes matured bonds which have not been presented for redemption.

TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR IMMEDIATE RELEASE

April 26, 1962

TREASURY TO REFUND $11.7 BILLION OF SECURITIES
MATURING MAY 15 AND JUNE 15
The Treasury is offering holders of Treasury securities maturing May 15 and
June 15, 1962, aggregating $11,683 million, the right to exchange them for any of
the following securities:
3-1/4$ Treasury certificates of indebtedness to be dated May 15,
1962, and to mature May 15, 1963, at par;
3-5/8$ Treasury notes to be dated May 15, 1962, and to mature
February 15, 1966, at 99.80, to yield about 3.68 percent to
maturity; or
3-7/8$ Treasury bonds to be dated May 15, 1962, and to mature
November 15, 1971, at 99.50, to yield about 3.94 percent to
maturity.
Cash subscriptions for the new securities will not be received. The maturing
issues eligible for exchange are as follows:
$5,509 million of 3$ Treasury Certificates of Indebtedness of
Series A-1962, dated May 15, 1961, maturing May 15, 1962;
$2,211 million of 4$ Treasury Notes of Series E-1962, dated
April 14, 1960, maturing May 15, 1962; and
$3,963 million of 2-1/4$ Treasury Bonds of 1959-62, dated
June 1, 1945, maturing June 15, 1962.
The subscription books will be open only on April 30 through May 2 for the
receipt of subscriptions. Subscriptions for any issue addressed to a Federal Reserve Bank or Branch, or to the Office of the Treasurer of the United States, and
placed in the mail before midnight May 2, will be considered as timely. The new
securities will be delivered May 15, 1962. Interest on the 2-1/4$ bonds which are
exchanged will be paid through May 15, as indicated below. The new certificates
of indebtedness will be available only in bearer form. The new notes and bonds
will be made available in registered as well as bearer form.

Interest on the 3-1/4$ certificates of indebtedness will be paid on November :
1962, and May 15, 1963. Interest on the 3-5/8$ notes will be paid on August 15,
1962, and semiannually thereafter on February 15 and August 15. Interest on the
3-7/8$ bonds will be paid on November 15, 1962, and semiannually thereafter on May
and November 15.

D-473

4
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tarn T N M » x l*qftt«te*N-t «_-M_MMd lost «lw_Uc thet the U a k n taw two oerteo ®J
f vesseiy bills, O M eerie* to IMI an oomtio***l l i m «f tbt bill* _•£•*. Fetmorr l f IS
oad the «tl_ur eerie* to b« feted lay I, 19*2, -fed** m m offered on April 85* mam o p
at the M m l ammmrma Boitles oa April. JO* tammmra mm
inrited tar $X9tm9&m9Qm-9
at
%Mmtmmhmmtm9 at ft«4e? bills ond for i*00,OQ09000» er ih*»*iKWis t &t l§f~doy bill*.
detelle of the t«* mmrim am am t^XXmmt
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bill®
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ammptaA
m parmmt of the mmmt
of lS2«fer M i l * bid for at the low prio© vee eeeepted

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TOTAI. ?_*QMI 449UB0 FOft AID AmPTEl* ST tlSffiUO.ft£$&tV£Dt*?HIGTS?

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City
Dallas
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TOTALS

Applied For

fefeptod

r^;'ffs;w'
*»73t*|if,m
30,2-1*000

3M*7*ooo
lfc*0_*ooo
xk$mtPm®

2_6»lJt7»O0O
29,137*000

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33*099*000
17*906*OQO

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12*322**23*000

xk*m*®®®
3O»S37»0O©
„ffOOSt00©
l3*a_fciOQ
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23,327,00®
X?,S56*0OO
28*2*9*000
13»026»0QO

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1*1_6*671*000
**«U|,0QO

2l9m9®m
7*5*7*ooo
3*772,00®
io9»ia7»ooo
7*026*0®®
7,290,000
**094»*ooo
ttt35M97»ooo

i f;uv;flH
*J6*23»*00Q
3*661,000
19,21*0*000
3*771*000
28,21*2*000
3,51*3,000
2,1*26,000
6,3*0*000

29$bk$m
$$m9m9m®

XmmXwtkm il95#303»0QO mmmmmmvatlti-va t#M«r» me®apt®& at tha mmaragm prim of 99.33
ImmXmmmm mmm993X900O ttoMMopotltlTe tiwAftr® m*m®pt®4. »t tha average prleo ©f ^S*S6I
0» a ooi^oa i»®me of the sun® length end for the saao a»mat imveetod, the return a
those b l U o m^M vrmrlma /lolfe of 2.S1H, for the fi-daj bill®, ond _.fJH* for tl
llt-fej bill®. Interest rotes on bills ore tpoted in t o m o of baisk dloeo_&t with
too ratwm related to too fooo ojRiont of the bill® poymblo «t ootorllgr rothor than
the mo-niit inwrntzd ami tmir loigth in ootmil mmb®r of ciaje relate4 U> a 360-daj
faar. In mmtmnt, jields on eertifiootes, aot©sf and boads or® ooopmted in tonoi
of interest o© the omoiat invested, amk relate tim mmabar of days i^Koiaifflg JJ_ an
Interest p&ymmn% period to the aet-aai number of dojro lo the pori#dt ¥ith
c<mpoundlJig If more than one coapoa period is involved.

TREASURY DEPARTMENT
W A S H I N G T O N , D.C.
FOR RELEASE A. M. NEWSPAPERS,
Tuesday, May 1, 1962.

April 30, 1962

RESULTS OF TREASURY'S TrfEEKLY BILL OFFERING
The Treasury Department announced last evening that the tenders for two series
Treasury bills, one series to be an additional issue of the bills dated February 1, 19
and the other series to be dated May 3, 1962, which were offered on April 2$, were ope:
at the Federal Reserve Banks on April 30. Tenders were invited for $1,200,000,000, or
thereabouts, of 91-day bills and for $600,000,000, or thereabouts, of 182-day bills. '
details of the two series are as follows:
RANGE OF ACCEPTED
91-day Treasury bills
182-day Treasury bills
COMPETITIVE BIDS:
maturing August 2, 1962
maturing November 1, 1962
Approx. Equiv.
Approx. Equiv
Price
Price
Annual Rate
Annual Rate
High
99.310 a/
27730%
:
98.570
—2.829$
Low
99.303 "
2.757$
:
98.560
2.81*8$
Average
99.305
2.7U8$ 1/
:
98.562
2.8U5$ _/
a/ Excepting two tenders totaling #1,800,000
19 percent of the amount of 91-day bills bid for at the low price was accepted
80 percent of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Applied For
Accepted
Applied For
Accepted
Boston
%
29,773,000
$
23,763,000
9
3,005,000
$ 2,108,000
New York
1,732,1*85,000
786,915,000
1,110,672,000
1*96,236,000
Philadelphia
30,221,000
ll*,9l*0,000
8,661*,000
3,661,000
Cleveland
3U,887,000
30,837,000
27,783,000
19,21*8,000
Richmond
lii,556,000
12,006,000
7,51*7,000
2,51*7,000
Atlanta
11^,927,000
13,612,000
3,772,000
3,772,000
Chicago
228,11*7,000
128,680,000
109,1*17,000
28,21*2,000
St. Louis
29,137,000
23,327,000
5,51*3,000
3,5U3,000
Minneapolis
2l*,286,000
17,856,000
7,026,000
2,1*26,000
Kansas City33,099,000
28,21*9,000
7,290,000
6,31*0,000
Dallas
17,986,000
13,026,000
8,09U,000
2,9UU,000
San Francisco
132,719,000
107,929,000
58,081,000
28,981,000
1,322,223,000
$1,201,11*0,000 b/ $1,356,897,000
TOTALS
$600,01*8,000
b/ Includes $195,303,000 noncompetitive tenders accepted at the average price of 99.30]
c/ Includes $1*6,501,000 noncompetitive tenders accepted at the average price of 98.562
1/ On a coupon issue of the same length and for the same amount invested, the return o]
these bills would provide yields of 2.81$, for the 91-day bills, and 2.93$, for th<
182-day bills. Interest rates on bills are quoted in terms of bank discount with
the return related to the face amount of the bills payable at maturity rather than
the amount invested and their length in actual number of days related to a 360-day
year. In contrast, yields on certificates, notes, and bonds are computed in terms
of interest on the amount invested, and relate the number of days remaining in an
interest payment period to the actual number of days in the period, with semiannual
compounding if more than one coupon period is involved.
D-l*7b

6
- 17 become a regular purchaser 1B th© future. That 1* the purpose
of the Freedom Bond Drive.
Our staff w$r****jtati¥es hare ia Mew York art ready,
willing, and able to help you. Me count on your support and we
know you will all do what you can to unsure the continued
success of the Barings Bonds Program.

oOo

wages for the systematic purchase of Savings Bonds. Lost year
*&oh deductions -~ wfcieh average #f® a month — bro«#ifii*
roughly^f billion, store than 50 par oent of our tetmi sales
.~-<*7

^SHT

of series 1 bonds. If we could add an additional million bond
buyers to this list we could expect to sell an additional $250
million In bonds eaoh year.
Business organisations can help on tfeelr payroll* fey
gluing every individual a new ©ppertmlty to tmmmt In his own
and hi* mwmtery'm **#*srity.
Banlss ©an f ln*t new ways of bringing Storings Bonds t© tha
attention of their customers.
lsw»p*f*er» oan find new ways to bring our story to the
puMi© fchreiigh their editorial, new*, flnanoial, and *4vertl*lng
columns. Broadcasters and magazine officials can also increase
their stippwt.
With such voltinteer help, we can extend te every American
an invitation to buy an extra f. S. laving* Bend now and to

ular

builds cur strength and vitality. Our meeting today deals
with on© aspect of the overall program.
..4,

•

-i

Wm laying* BmMm tmmWm adapt a "wwy iapartial, *|*f j|*
th* effort to increase inv©st*nent in the Nation's productivity
by promoting savings and habits of thrift which are the •• ^

essential elements of capital formation. Moreover, funds
coming; into the Treasury from savings bonds sales reduce the
amounts which the Governsicnt Euxst borrow from financial
institution**, thus leaving mere funds available f»r private
Ijvvstotanant. Widespread habits of thrift and saving also play
their part in reducing inflationary pressures and to that
extent increasing the productivity of Investment.
One of the most important part* mt the Saving* Bond*
Program is the payroll savings plan. At present sojoe eight
million Aiaerlcans have regular amounts deducted from their

Wo are also hepeful that^W IMastriallsed alll#» will
in the futwe asi^an'evan gr*atei^a1i*j?* in tha i*fat*«# md
development of the^fsw world. Some mt tha® mm alraa^ * ^
increasing their lefanse pMslai-mii- iirtfs* tlhitMSts^sJ^3^
with '4ma*atawt& mmrnt it to our pm&mm&m eosltlon.
521

is^ple«*^ijig the fN^iiie* I itav* mentlewi* a n^sher of

arrangements have been undertaken with foreign countries,
central banks and the International Monetary Fund to stem
*hort~tens eapital flan* that ***** in response to temporary
interest differentials and speculative rumors. Such measure*
to stabilize world currency markets are, #£ eowse* not a
I
permanent c|re for our problems, but they provide a breathing
space to work && IT lasting solution. ' *&« m\m*:U«.
mm

111 of thaws stops, aig ana small, contribute to our t

ability to compete in a modem world. This complex of fceasures

1U
* 13 broad program to develop markets abroad for American products
and to acquaint American businessmen with suoh opportunities.
Also, the Export-Import Bank, together with the Foreign Credit
Insurance Association, recently announced a now program for
issuing guarantees against coaraerclal credit risks and
political risks for export transactions in terms of as long
a* five years, a number of promotional activities are being
undertaken to encourage foreign tourists to travel in the
United States. Gf vital importance is the President's proposal
to Congress to enact the Trade Expansion Act which would broaden
the power of the President to negotiate a reduction of tariff
barriers, particularly with the Common Market. The expectation
that tha United Kingdom will Join the Common Market emphasizes
the need for enactment of the President's proposal to assure
American goods continued access to the expanding and integrating
markets of Europe.
We are also

11
* is •
The United States has incurred a balance of payments
deficit each calendar year except 1957 since tha and of 19^9.
In that tin* our gold stocks have declined from over $24 1/2
billion to a present level of about $16 1/2 billion. Moreover,
the bulk of this geld drain has occurred sineo 1957. While
our balance of payments situation has recently shown considerable
improvement, the fact is that the dofioit continues. Here
again major efforts are being made to neat the problem. All
of tha means which X have outlined by which we are attempting
to increase productivity are also designed to alleviate our
balance of payments difficulties,, for, Indeed, as I have
pointed out, increased productivity itself is tha principal
means by which our basic payments deficit nay ha rectified.
Additionally, a number of stops have boon taken to increase
U. .*. exports. For exaaple, the Gowsreo Department has a

broad program to

12
* n *
holding short-term rates up, thereby dise^uraging m autflaw
of short-term ea^ltal funds seeking hlghar mta'S ahread t«»
tha detriment of our feaianee of paystemts.
In auwaary, ineroassd investment will help speed eoottesilo
growth by Increasing our produetivo capacity, and should help
to reduee uno_#lQf®ent by providing matm Jetes as taohnologieal
advance produces new awrMts and now dostaaad. Iloraever, such
investiiient will fremote price stability as fradmotion easts
are lowered and productivity la toaraasai.
Xnereassd productivity is also essential In eoplng with
our balanee of paynents problem. &p making American products
store eeiapetitlve, we ean expand our export trad* surplus tod
reduce and eventually eliminate the deficit in our
international payments.

fha United States

13
mi pmgmntm problem to effor artificial ineentivas for feraign
iavostasnts by Jusorieana oxoept in tha lass <^1***4 areas *t
tha warld* Ixoaotien %m mdm $M mmh oases beeaitsa of the
overriding isiportanee to mm mtXmml. saourity that stops M
taken to enable tha populations of les*~deveIoped areas to
half thesisaivea to asat thair legitimate aspirations for *
dooent standard of living. It has hmmmm obvious^ that tha
world has grown too small for the relatively smaller
populations of a few temtrlss to enjoy unprecedented wealth
while the majority of the world's people live amidst the
squalor and disease that poverty engenders.
Our monetary policy also, to tha extent practicable, 1*
designed to keep long-range Interest at reasonable levels, to
maintain the availability of capital for domestic investment.
At tha same time, we have achieved some measure of success in

holding short-ten

14
H.

- 9 :>
Other efforts to stimulate investment inolud*
encouragement to foreigners to retain their dollar holding*
in the United State* in forma which will add to domestic m
investment nativity. In addition, foreign government* .»•«•
being encouraged to remove existing restriction* on oapltal
investment* beyond their own borders.
• - Our tax proposal* now before tha Congress include
measures to remove tha existing tax incentive* to Invest
abroad. These measures will help our balance of payments tposition, and at tha same time will have a tendency to,inerea**
domestic investment. . -^ #**«#-**
While the Administration ha* no da*ire ta re*triet tha
ability of American* to make foreign inve*tm*nt, we believe
that there Is no reason — in view of tha excellent European
economic recovery since tha war and la light of oar balance

of payments aroalai

15
#. Q «.

Other aspects of our national economic policy are also
designed to contribute to a higher level of productivity, *
<•--:<• President Kennedy early this year presented to Congress
a program for a balanced budget for fiscal 1963. & balanced
budget should stimulate a flow of private investment into
productive channels because it makes it unnecessary for the
Government to tap the flow of private savings and credit
available for such investment. The achievement of a balanced
budget tor f iseain963 will obviously depend upon %h* validity
of estimates as to the pace of business recovery and the
related increases la profits and earnings and tha consequent
Government revenues. While the various business indicators
have of lata been somewhat mixed, the mo*t recent figures are
daoldadly more encouraging.

mm* off met*

IG
- T which have been used with success elsewhere in the industrial!***
world. In addition, tha crodit will provlda far greater stimulus
to investment par dollar of tax revenue lost than alternative
proposals, .tie tax loss involved in the credit is, for example,
estimated at $1.4 billion in tha first year. But a change in
depreciation rules which would add an equal amount to tha
prof itabllity of investment — tha true measure of tha amount
of stimulation involved — would cost $5.3 billion. That is
why the Administration recommends that tha investment credit
become a permanent part of our law.
At tha same time the Treasury has been undertaking — on
the highest priority basis — the administrative updating of
depreciation schedules. The existing depreciation schedules
for tax purposes are badly out of date and fail to take account
of tha accellerating rapidity of technological advance.
Improvements in each of those respect* will assure our objectives
of moating the competition of foreign producers and stimulating
domestic growth.
Other aspect*

- 6 ~
the need for an incentive to modernise was heavily
underscored in discussions concerning the prapaaad price
increase in the stool industry. Steal spokesmen emphasised —
-41 *

as have other raanufacturer^ — tha need for aid to accumulate
additional ^capital to accomplish urgontly noodod modernisation
to enable the steel industry to meet foreign competition.
We expect to complete the revision of depreciation
guidolinas W lata this spring or early summer. If tha
investment credit becomes law, those two measure* will provide
a significant increase in the volume of funds available to the
steal industry and to all other industries for productive
'if'

,«

-—

investment. While some spokesmen for Industry have opposed
tha investment credit because they would prefer tax relief in
tha form of more accelerated depreciation, it Is worth noting
that the credit closely parallels investment Incentive plans

which have beer

paymonts position, by giving < w manataatui^rs tha potantial
t#- outsail f areign producers at hem and alw«-mW Inoraasad
growth .and expanded experts will provide more Jobs* and--.**<*
•greater productivity will help to prevent Inflation,

(#ffeeatar

investment then, is essential to furthering all four of.ouri
basic national economic goals.
The meat important Administration program for raising
tha level of productive ljBtimMMmWb--lui-.a twofold one. it
consists of our proposal to pr**i**..a tax aradlt-far naw #^«
i^-mm ™ mm*amaw&am&mim*P #_*a# Ww^mm&ra&wMwfcew^j^p-'jp **aaw*a,; ^im^8t*asa^BFai|*iaafrTp^ , apaa^p^iPwa «w»sip eMS*•',^* *»,s^^a *pa> ^a

the Congress — together with a revision of existing v7iw«
^mt^f^m^iaw *&^&wm*m^&*m-^!* wa * ^gp^w_w*^w^a^*ef'iwww^^B^ * -. ,. S^PI^PRH^^B^^W * ^mr ^tr^ar^p^^'jk mnmmfflm^&mm' ^F ^"SBw^ ^*ws^*!* jp . waaa

stimulate modernization of oar productive equipment, and help
to pat. our producars on a comparable footing with their T-^ivi,
feroigm esmpotitoi** in this respect. aKW in^antlva ola&s .

The need for

1Q
m m "*

ratio ©f productive investment to total output has bean growing
while ours ha* bean declining. For example, our investment in
machinery and equipment deelinad from 6.6 par cant of nil? in
1950 to only H3 par cant in I960. In contrast, the Common
Market countries increased their Investment from 83 par ©ant
to 10.2 par cent in tha same period. This investment
performance In good part is an important reason why our am? —
if we males allowance for price changes — grew only 29 per cant
during tha decade as against mM par cant for France, 87 per
cent for Vast Germany, 65 par cant for Italy, and §7 par cent
for tha Netherlands.
¥he Administration is making a major effort In a variety
of ways to moat this problem. A higher leva! of investment in
machinery and equipment will raise productive efficiency.
Increased productivity will act directly to accelerate domestic
economic growth, and indirectly will help our balance of

payments position

20
. 3•
Our national economic policy la designed to achieve four £
basic goals. The** are to reduce unemployment, to inoraaaa
our rate of economic growth, to maintain price stability, and
to eliminate tha deficit in our international balance of
payments — with its accompanying lea* of gold. ^ &*$

« * To achieve each of these goals, it is, a* you are well
aware, essential to encourag* tha formation and investment of
private capital In industrial plant and equipment at a smta»aafc
that is adequate to assure that the nation's productive Mr
facilities will meet on favorable terms tha increasing •-* ##at
competition from abroad both km domestic markets and In world
market*. It la disturbing that our level of domestic mm.mj
investment — a* a percentage of total output — la presently*
at a substantially loner sate than that of ether major
Industrial nations of tha free world. Furthermore, their «tio

21
- ahave bought approximately $128 billion of £ and H savings
bonds. Today they hold a record total of nearly $43 billion.
This amounts to 15 par cant of tha entire publio debt and m$
over 20 par cent of tha publicly held portion of that debt.
Thus, it has proved a most affootivo way of ancouraging
individual citizens to share in tha financial affairs of their
government.
I think it is significant that tha success of tha program
is due in large measure to volunteer undertakings and the
patriotic support of hundreds of thousand* of people under the
leadership of people like yourselves. Because the Freedom

fl^

Bond ©rive will inevitably play its role in our economic
endeavors, X shall attempt in the next faw minutes to outline
briefly some of tha major objectives of United States economic
policy and tha Treasury Department*s view of hew this program
complements ether activities in meeting these objective*.

Our national

TREASURY DEPARTMENT
Washington

May 2, 1962
FOR RELEASE ON DELIVERY

I, KMMWt

mmm twmm

CLUB, PELHAM, K. I\

(12:15 P.M.

Milam has aatai ma fa express his
to you for assembling here today In support of tha
Drive. It is vital to tha success of this

the role of the Savings Bonds Frogr&m in
I exercise their leadership in Its
the formoat of the loaders in
fields,

•H^"

lit the fulfillment of the economic policy of tha United
In tho a y**rs*ar it* existence, soma Xm million

23
TREASURY DEPARTMENT
Washington
May 2, 1962
FOR RELEASE ON DELIVERY

REMARKS BY ROBERT H. KNIGHT
GENERAL COUNSEL OF THE TREASURY DEPARTMENT
BEFORE THE WESTCHESTER COUNTY SAVINGS BONDS CONFERENCE
PELHAM COUNTRY CLUB, PELHAM, NEW YORK
MAY 2, 1962, 12:15 P.M., DST.
Secretary Dillon has asked me to express his gratitude to you
for assembling here today in support of the Nation's Freedom Bond
Drive. It is vital to the success of this program that leaders
of Industry, finance and public media understand the role of the
Savings Bonds Program in our national economy and exercise their
leadership in its support. Since you are among the foremost of
the leaders in these fields, your presence here today not only
demonstrates your concern for the problems we face but also gives
strong promise of our continuing success in meeting them.
The Savings Bonds Program has become an essential tool in the
fulfillment of the economic policy of the United States. In the
21 years of Its existence, some 100 million Americans have bought
approximately $128 billion of E and H savings bonds. Today they
hold a record total of nearly $45 billion. This amounts to
15 per cent of the entire public debt and over 20 per cent of the
publicly held portion of that debt. Thus, it has proved a most
effective way of encouraging individual citizens to share in the
financial affairs of their government.
I think it is significant that the success of the program
is due in large measure to volunteer undertakings and the patriotic
support of hundreds of thousands of people under the leadership
of people like yourselves. Because the Freedom Bond Drive will
inevitably play Its role in our economic endeavors, I shall
attempt in the next few minutes to outline briefly some of the
major objectives of United States economic policy and the Treasury
Department's view of how this program complements other
activities in meeting these objectives.
Our national economic policy is designed to achieve four
basic goals. These are to reduce unemployment, to increase our
rate of economic growth, to maintain price stability, and to
eliminate the deficit In our international balance of payments
with its accompanying loss of gold.

24
- 2 To achieve each of these goals, it is, as you are well
aware, essential to encourage the formation and investment of
private capital in industrial plant and equipment at a rate that
is adequate to assure that the nation's productive facilities
will meet on favorable terms the increasing competition from
abroad both In domestic markets and in world markets. It is
disturbing that our level of domestic investment — as a percentage
of total output — is presently at a substantially lower rate than
that of other major Industrial nations of the free world. Furthermore, their ratio of productive investment to total output has
been growing while ours has been declining. For example, our
investment in machinery and equipment declined from 6.6 per cent
of GNP in 1950 to only 5.5 per cent in i960. In contrast, the
Common Market countries increased their investment from 8.5
per cent to 10.2 per cent In the same period. This investment
performance in good part is an important reason why our GNP —
if we make allowance for price changes — grew only 29 per cent
during the decade as against kk per cent for France, 87 per cent
for West Germany, 65 per cent for Italy, and 57 per cent for the
Netherlands.
The Administration is making a major effort in a variety of
ways to meet this problem. A higher level of investment In
machinery and equipment will raise productive efficiency.
Increased productivity will act directly to accelerate domestic
economic growth, and indirectly will help our balance of payments
position, by giving our manufacturers the potential to outsell
foreign producers at home and abroad. Increased growth and expanded
exports will provide more jobs, and greater productivity will
help to prevent inflation. Greater investment then, is essential
to furthering all four of our basic national economic goals.
The most important Administration program for raising the
level of productive investment is a twofold one. It consists
of our proposal to provide a tax credit for new investment In
machinery and equipment — which is now before the Congress —
together with a revision of existing depreciation guidelines.
These steps, taken together, will stimulate modernization of our
productive equipment, and help to put our producers on a comparable
footing with their foreign competitors In this respect.
The need for an incentive to modernize was heavily underscored
in discussions concerning the proposed price increase in the steel
industry. Steel spokesmen emphasized — as have other
manufacturers -- the need for aid to accumulate additional capital
to accomplish urgently needed modernization to enable the steel
Industry to meet foreign competition.

- 3-

to
H,, i ? e f^^
complete the revision of depreciation guidelines
s
rln
hL^! n
?P S ° r early summer. If the investment credit
becomes law, these two measures will provide a significant increase
in the volume of funds available to the steel industry and to all
other industries for productive investment. While sole spokesmen
™ L i n d ? S t r y ?avf ? p p o s e d t h e ^vestment credit because they would
of more
?? it w ^ ? w r e l ^ f ^P^I0™
accelerated depreciation"
n 0 t i n
t
t h e credifc
i* i " t ^ ^
L ^
°l°sely parallels investment
S W h h h ve been used wlth
in^™?™£
^
?
success.elsewhere in the
industrialized world. In addition, the credit will provide far
than ^ t e ™ ^ 1 " 3 t 0 i n v e ? t « e n t P « dollar of tax revenSI lost
than alternative proposals. The tax loss involved in the credit
is, for example, estimated at $1.4 billion in the first year But
the prof%t a bi? P ?v°o^° n ™ l e s »"*<* wuld add an equll C u n t to
f^n^fp^^f^ur^w!8 th3t th6 ^estment-cred^fbe^o^
i-ha ^lutht Sa?e **"» the Treasury has been undertaking — on

2U__"2S_Jr^-^_SrSS_TiJ!__S
%J5^&X&?£J£r. ™a '•" - — .SE
Other aspects of our national economic policy are also
designed to contribute to a higher level of productivity;
President Kennedy early this year presented to Coneress
a program for a balanced budget for fiscal 1963 A balanced
budget should stimulate a flow of private investment into
productive channels because it makes it unnecessary for the Government
investment ' X^S?1™*6 ?aV.lnsS and oredit available for such™"*
investment. The achievement of a balanced budget for fiscal lgfU
will obviously depend upon the validity of estimates as to the
pace of business recovery and the related increases in nrofit^ a„n
earnings and the consequent Government revenue! WhUe the
various business indicators have of late been somewhat m i v L «.,,
most recent figures are decidedly mor* encouraging
••« * 0t?er efforts t0 stimulate investment include encourae«>»>njto foreigners to retain their dollar holdings in the Sni?S
fn'adliWon01?' W?iCh Wil1 add to ^-estlclnvestment activity
in addition, foreign governments are being encoura^d ?X tltlZL

E S E & " r t r t f l M "» « "Pital investme^rbe^nf the'ir'or6
to remove^he'e^swng tax ^ncentivet ^"V™*-* measures
measures will help our balance of ™ L ^ n V e S L a b r o a d - These
same time will have a ' t ^ y £ S S S S ^ . & ' * £ . £ . £

28
- k -

While the Administration has no desire to restrict the
ability of Americans to make foreign investment, we believe that
there is no reason — in view of the excellent European economic
recovery since the war and in light of our balance of payments
problem to offer artificial incentives for foreign investments
by Americans except in the less developed areas of the world.
Exception is made in such cases because of the overriding
importance to our national security that steps be taken to enable
the populations of less-developed areas to help themselves to meet
their legitimate aspirations for a decent standard of living. It
has become obvious that the world has grown too small for the relatively smaller populations of a few Industrialized countries to enjoy
unprecedented wealth while the majority of the world's people live
amidst the squalor and disease that poverty engenders.
Our monetary policy also, to the extent practicable, is
designed to keep long-range interest at reasonable levels, to
maintain the availability of capital for domestic investment. At
the same time, we have achieved some measure of success in
holding short-term rates up, thereby discouraging an outflow of
short-term capital funds seeking higher rates abroad to the
detriment of our balance of payments.
In summary, increased investment will help speed economic
growth by increasing our productive capacity, and should help
to reduce unemployment by providing more jobs as technological
advance produces new markets and new demand. Moreover, such
investment will promote price stability as production costs are
lowered and productivity is Increased.
Increased productivity is also essential in coping with our
balance of payments problem. By making American products more
competitive, we can expand our export trade surplus and reduce
and eventually eliminate the deficit in our international payments.
The United States has incurred a balance of payments deficit
each calendar year except 1957 since the end of 19^9. In that
time our gold stocks have declined from over $24-1/2 billion
to a present level of about $16-1/2 billion. Moreover, the
bulk of this gold drain has occurred since.,1951. While our balance of
payments situation has recently shown considerable improvement the fact
Is that the deficit continues. Here again major efforts are
being made to meet the problem. All of the means which I have
outlined by which we are attempting to Increase productivity are
also designed to alleviate our balance of payments difficulties,
for, Indeed, as I have pointed out, increased productivity itself
is the principal means by which our basic payments deficit may be
rectified. Additionally, a number of steps have been taken to
increase
U.S. exports.
For
example,
the Commerce
Department
has
a
and
broad
to acquaint
program
American
to develop
businessmen
markets
abroad
with
for
suchAmerican
opportunities.
products

- 5-

Also, the Export-Import Bank, together with the Foreign Credit
Insurance Association, recently announced a new program for issuing
guarantees against commercial credit risks and political risks for
export transactions in terms of as long as five years. A number
o€ promotional activities are being undertaken to encourage foreign
tourists to travel in the United States. Of vital importance is
the President's proposal to Congress to enact the Trade Expansion
Act which would broaden the power of the President to negotiate a
reduction of tariff barriers, particularly with the Common Market.
The expectation that the United Kingdom will join the Common
Market emphasizes the need for enactment of the President's proposal
to assure American goods continued access to the expanding and
integrating markets of Europe.
We are also hopeful that our industrialized allies will in
the future assume an even greater share in the defense and
development of the free world. Some of them are already
increasing their defense procurement in the United States, with
consequent benefit to our payments position.
Supplementing the policies I have mentioned, a number of
arrangements have been undertaken with foreign countries,
central banks and the International Monetary Fund to stem shortterm capital flows that occur in response to temporary interest
differentials and speculative rumors. Such measures to stabilize
world currency markets are, of course, not a permanent cure for
our problems, but they provide a breathing space to work out a
lasting solution.
All of these steps, big and small, contribute to our ability
to compete in a modern world. This complex of measures builds our
strength and vitality. Our meeting today deals with one aspect
of the overall program.
The Savings Bonds Program plays a very important role in the
effort to increase investment in the Nation's productivity by
promoting savings and habits of thrift which are the essential
elements of capital formation. Moreover, funds coming into the
Treasury from savings bonds sales reduce the amounts which the
Government must borrow from financial institutions, thus leaving
more funds available for private investment. Widespread habits
of thrift and saving also play their part in reducing inflationary
pressures and to that extent increasing the productivity of
investment.
One of the most important parts of the Savings Bonds Program
is the payroll savings plan. At present some eight million
Americans have regular amounts deducted from their salaries or

28
- 6wages for the systematic purchase of savings bonds. Last year
such deductions — which average $20 a month -- brought in roughly
$2 billion, more than 50 per cent of our total sales of series
E'bonds. If we could add an additional million bond buyers to this
list we could expect to sell, an additional $250 million in bonds
each year.
Business organizations can help by giving every individual
on their payrolls a new opportunity to invest In his own and his
country's security.
Banks can find new ways of bringing Savings Bonds to the
attention of their customers.
Newspapers can find new ways to bring our story to the public
through their editorial, news, financial, and advertising columns.
Broadcasters and magazine officials can also increase their
support.
With such volunteer help, we can extend to every American an
invitation to buy an extra U. S. Savings Bond now and to become
a regular purchaser in the future. That is the purpose of the
Freedom Bond Drive.
Our staff representatives here in New York are ready,
willing, and able to help you. We count on your support and we
know you will all do what you can to ensure the continued success
of the Savings Bonds Program.

oOo

TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR IMMEDIATE RELEASE
WITHHOLDING OF APPRAISEMENT ON
PORTLAND CEMENT

O Q

The Treasury Department is instructing customs field officers
to withhold appraisement on portland cement, other than white,
non-staining portland cement, from Norway, pending a determination
as to whether this merchandise is being sold in the United States
at less than fair value. Notice to this effect is being published
in the Federal Register.
Under the Antidumping Act, determination of sales in the
United States at less than fair value would require reference of
the case to the Tariff Commission, which would consider whether
American industry was being injured. Both dumping price and injury must be shown to justify a finding of dumping under the law.
The dollar value of imports received during 1961 was
approximately $1,k62,000.

TREASURY DEPARTMENT
WASHINGTON. D.C
FOR IMMEDIATE RELEASE
lay 2,-1962
WITHHOLDING OF APPRAISEMENT ON
PORTLAND CEMENT

x_^osced_<?S-igsm

and exchange tenders will receive equal treatment. Cash adjustments will be mad

for differences between the par value of maturing bills accepted in exchange an
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 lo
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 subj

to estate, inheritance, gift or other excise taxes, whether Federal or State, bu

are exempt from all taxation now or hereafter imposed on the principal or inter
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 whic

Treasury bills are originally sold by the United States is considered to be in-

terest. Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 195

the amount of discount at which bills issued hereunder are sold is not consider

to accrue until such bills are sold, redeemed or otherwise disposed of, and suc

bills are excluded from consideration as capital assets. Accordingly, the owner

of Treasury bills (other than life insurance companies) issued hereunder need i

clude in his income tax return only the difference between the price paid for s

bills, whether on original issue or on subsequent purchase, and the amount actu

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, pre-

scribe the terms of the Treasury bills and govern the conditions of their .issu

Copies of the circular may be obtained from any Federal Reserve Bank or Branch.

_ 2 -

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 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.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids. Those
submitting tenders will be advised of the acceptance or rejection thereof. The
Secretary of the Treasury expressly reserves the right to accept or reject any
or all tenders, in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for $ 200,000
less for the additional bills dated February 8, 1962
ing until maturity date on
$100,000

or less for the

August 9, 1962

, ( 91

days remain-

) and noncompetitive tenders for

i«2 *$&& bills without stated price from any one

imr

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
Banks on

May 10, 1962

, in cash or other immediately available funds or

in a like face amount of Treasury bills maturing

May 10

19fip

• Cash

TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE^ May 2, 1962

TREASURY'S WEEKLY BILL OFFERING

The Treasury Department, by this public notice, invites tenders for two seriea
of Treasury bills to the aggregate amount of $1,800,000,000 , or thereabouts,
cash and in exchange for Treasury bills maturing May 10, 1962 , in the amount
of $1,700,422,000 , as follows:

xpk)
91

-day bills (to maturity date) to be issued

4&)

May 10, 1962

$1$
in the amount of $1,200,000,000 > or thereabouts, represent-

— * J *
ing an additional amount of bills dated February 8, 1962
and to mature August 9, 1962 , originally issued in the

amount of $600,080,000 , the additional and original bills
to be freely interchangeable.
182 -day bills, for $600,000,000 , or thereabouts, to be dated
May 10, 1962 , and to mature November 8, 1962

pa?

plf

The bills of both series will be issued on a discount basis under competitive

and noncompetitive bidding as hereinafter provided, and at maturity their face

amount will be payable without interest. They will be issued in bearer form on

and in denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000 a
$1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the
Daylight Saving
closing hour, one-thirty p.m., E a s t e r n / ™ , * tUne, Monday, May 7. 1962

pB_J

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
price offered must be expressed on the basis of 100, with not more than three

TREASURY DEPARTMENT
.M.m-Ml.'.VtMAUH, •¥ ni.MJ.fi i^.i,wj.Mi«.|..iiiiuiiin!-wg

WASHINGTON. D.C.
May 2, 1962
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$1,800,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing May 10, 1962,
in the amount of
$1,700,422,000, as follows:
91-day bills (to maturity date) to be issued May 10, 1962,
in the amount of $1,200,000,000, or thereabouts, representing an
additional amount of bills dated February 8,1962, and to
mature August 9, 1962,
originally issued in the amount of
$600,080,000,
the additional and original bills to be freely
interchangeable.
182-day bills, for $600,000,000, or thereabouts, to be dated
May 10, 1962,
and to mature November 8, 1962.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
maturity their face amount will be payable without Interest. They
will be issued in bearer form Only, and in denominations of $1,000,
$5,000, $10,000, $150,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, May 7, 1962.
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 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
D-475
accompanied
by an express guaranty of payment by an incorporated bank
or trust company.

- 2
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 Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
February 8, 1962, (91-days remaining until maturity date on
August 9, 1962)
and noncompetitive tenders for $100,000
or less for the 182-day bills without stated price from any one
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on May 10, 1962,
in cash or other immediately available funds or In a like face
amount of Treasury bills maturing May 10, 1962.
Cash and
exchange tenders will receive equal treatment. Cash adjustments
will be made for differences between the par value of maturing
bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 195*1. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections k$k (b) and 1221 (5) of the Internal
Revenue Code of 195^ 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
0O0 the taxable year for which the
sale or redemption at maturity during
return is made, as ordinary gain or loss.
Treasury Department Circular No. 4l8 (current revision) and this
notice
conditions
any Federal
prescribe
of
Reserve
their
theBank
issue.
terms
orof
Branch.
Copies
the Treasury
of the circular
bills and
may
govern
be obtained
the
froi

34t _.

\ at

__.,„

FOR B_*©3A«ffi EKLmBE
May 4, 1362
BliriMlAHX RESULTS Of mE&SORT'S CulffilST E3CCHAIIS-B OIfm_$S ~of

"eject any otf
Treasury officials indicated today their saiisf^tioa with the prel__iiimry result
of the e^hmt^ of^ring completed on Wednes^y, May 2. Initial figures show that *taj
e on
$10,8SO Gillian, or 92.9$* of Trmmmry securities mturiag Hay IS and ,3une IS, IBm,
aggregating $11,683 WmmWBm have been a_3et__a®ed for the three nam issues included
the current exchs®^ offering, mm fmr about $833 _4114oa, or 7.1$, of the three
aa-turing issues have not. been exchanged and may be reassessed for
Of the __*tein*g- securities held outa4&e the Federal Reserve Banks and

mvmrmtmt

accounts, 8.8^ bam not been ex©ham@acl. She ua^_chaneed part of ma May IS mturltie

amounts to 5.0$ ©f the- p&lic holdiags. Sfae unsaKlHKaged part ©f the June 15 secu
a_o_tttsto 15.1$ of those publicly held. it ion
A breakdouii of the subeeriptions is as fellows: (in liOHeiaej}
:val or
3d

for
May X$, 1963 W N IS, 13S8 Sbv. IS, 1071 . Total
3-X/*jCtta. 3»5/agt Bates 3-7/8*1
-. Bonds tehamgad
$3,820
p,,13S
$ 472
$ 5,428

imturing Issues
W I S 3J etf*.

Outstanding
$ 5,509
il

Hay 15 Q u o t e s

80S

June 15 B$g bonds
^fcal

1,390
2,211
ills are
1,824
1,155
447
5,426 >:clud3t9S5
$S,540
$3,111
$1,199
$20,SSO
$11,683
=ss=_=s_ ss_ssasss____^ ?,:•: "i"::::_a__ s_s__rr==r _=
i r1 on
ly **.?.
iar
upon
ible year for which the

280

" "

Subscribers
~—™"
'
Wmmaml Reserve Bunks
and 0©vt. accounts $2,106
t__*i___ **•_ *

S20

• ' •

•

$ 2,244

F,££ I this

All others

. ^374

. gggg

^ ^

8,605

ined from
****

*»5*0

$3,111

•aa^-guu •*«_ 14 ssrsasssssrsfflass

$1,199
;,a_ ^ia_i__aw:__tf

710,850
*rr^?iaiaBK,!m

final tk&mtma regarding the aWatmmat& will be announced after final reports are re
ceived fro© the Federal Wmmmrm Banks.

TREASURY DEPARTMENT
WASHINGTON, D.C.
FOR IMMEDIATE RELEASE

j May 4, 1962

PRELIMINARY RESULTS OF TREASURY'S CURRENT EXCHANGE OFFERING

Treasury officials indicated today their satisfaction with the preliminary resul

of the exchange offering completed on Wednesday, May 2. Initial figures show tha

$10,850 million, or 92.9$, of Treasury securities maturing May 15 and June 15, 1

aggregating $11,683 million, have been exchanged for the three new issues includ

the current exchange offering. Thus far about $833 million, or 7.1$, of the thre
maturing issues have not been exchanged and may be redeemed for cash.

Of the maturing securities held outside the Federal Reserve Banks and Government

accounts, 8.8$ have not been exchanged. The unexchanged part of the May 15 matur

amounts to 5.0$ of the public holdings. The unexchanged part of the June 15 matu
amounts to 15.1$ of those publicly held.
A breakdown of the subscriptions is as follows: (in millions)
Exchanged for
Maturing Issues

May 15, 1963 Feb. 15, 1966 Nov. 15, 1971
Total
5-1/4$ Ctfs. 5-5/8$ Notes
5-7/8$ Bonds
Exchanged
472

$ 5,428

$ 5,509

820

280

1,996

2,211

1,155

447

3,426

3,963

$3,111

$1,199

$10,850

$11,683

Federal Reserve Banks
and Govt, accounts
$2,166

$ 2,244

All others 4,574

3,097

1,155

8,606

Total $6,540

$3,111

$1,199

$10,850

May 15 3$ ctfs. $3,820

$1,136

May 15 4$ notes 896
June 15 2-£$ bonds 1,824
Total $6,540

Total
Outstanding

Subscribers
14

Final figures regarding the exchange will be announced after final reports are received from the Federal Reserve Banks.

D-476

36
fo* mmm

A* *, mmmFm9

mr 7, xm

tmvamjm^mn,,,
wnnis or tWUM«P8 maax

BXIA

omtuo

Xani eweadag tlmt the Umflmm tmr tm mmrtma at
mrum %m be mm amMUmma
lamm mi %m bills d*t*ft tmmrmm i f U
to b* 4ate4 7&y 10, itff# whinfe mm mttmrmd am *_/ 2§ mm
at the faMraX S t e a m Baaies am lay ?* feudal?® uty* laplte* rear H^aoOtOOOiOOO* ar
th»»abawi»t ef fl~$m$ UUa awA im IM 9 9OOj0O9 f ©r tlcaweteata, ef tm<*mW bills*
Aetatlj
ike tie etftea|Ql*4fty
ate asl^steiey
feUMmi Wlli
MamZ
Ofef
AGQSRtd
l§t«**iejr Tfeeaaqr Mil*
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ijfMftt*lplf#

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a*ei«te

ft*j_a

w ,JU

ge parcuut ef tha
t parmmmt mt the

totit

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imjuss

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iMft
t*at5ji •
t.Tto* |/
JMI*
t«a_*« |/
ef fUAer billa M ^ fur at tie lew pilau
at M M e y bills M A Her at tie lew ipHee
IOI AH ASSSH© si FIWW, a&sam mmmmm

BIB?4,

Aa___^___l

i^ioi,SoT,ooo
ffS§7*#©@
35*151,000

£8,£17,000

2 f fla»<no
MJ0M0I

it* iaate
»13
mty
3,210,000
San fteaiieee
tonii
$601,623,000

iHt— l"g|fff

,715*000
IM*7#0OO

n9m*m
25,115,000

lt,11f,0QO
Ul,atMQ0
i«,77t*oo»
im*m9*K>
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m>XM9im aeaao-peUUf*
fitaUfciSB teaim aeeqpte* at tie mmmm WX&*

ta&9t&a%-

M_0,060

Xaafctte*
®t 9%M
ImmXmkt® m9m9m®
aaaaeaaetltlai teaA*** eeaepteA at the c m i f e prima mt nM
m a mm$m Xaama ef tie a*»# length aart tar %ma mm mmmt isefaeteA, the tetets i
tteee Mile mrnkd prmiim jielAe ef $M$9 %&* the 91*fter Mils* aatf t«9Q5, far *»
Ha*4ay blUe* latex**! xatea an bills am. fieteA in lane #f hamk dimomt with
tha s w i m apelate4 ta tie faee ai^wt ef tie Mile ma&aU at mtaritf father tfeaa
tie mmmma% imeateA m& thakr Xam0m im aetml i»be;r ef days mUtrnd to a J60*A»|
yea#« £a eauifest, yielAe on ccrtir.icete^, mkma, ami mmma mm m&mmmtmd in t«ra«
ef l^emat w lie ammt iaM«teit m& mXmtm tha wmmmar at aafa i^aaialag la as
interest
maymmmX mmr%®4 te the act^l mmhar mt 4mm in tha mmmima\9 « 4 ^
7-"
/
"
If mra t i n eee ammm pmwimm\ km immXvaM*

TREASURY DEPARTMENT

W A S H I N G T O N , D.C.
FOR RELEASE A. M. NEWSPAPERS,
Tuesday, May 8, 1962.

May 7, 1962

RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced last evening that the tenders for two series of
Treasury bills, one series to be an additional issue of the bills dated February 8, 1962,
and the other series to be dated May 10, 1962, which were offered on May 2, were opened
at the Federal Reserve Banks on May 7. Tenders were invited for $1,200,000,000, or
thereabouts, of 91-day bills and for $600,000,000, or thereabouts, of 182-day bills. The
details of the two series are as follows?
RANGE OF ACCEPTED
91-day Treasury bills
182-day Treasury bills
COMPETITIVE BIDS:
maturing August 9* 1962
maturing November 8j_1962
Approx. Equiv.
Approx. Equiv,
Price
Annual Rate
Price
Annual Rate
High
99.318
2.<
98.585
27199%
Low
99.312
2.722$
2.825$
98.572
Average
99.313
2.720$ 1/
2.816$ 1/
98.576
89 percent of the amount of 91-day bills bid for at the low price was accepted
2 percent of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS

Applied For
$
23,956,000
1,953,157,000
28,917,000
25,7141,000
111, 785,000
21^,767,000
270,1*09,000
27,388,000
25,115,000
25,915,000
19,152,000
81*, 936,000
$2,52l*,238,000

Accepted
Applied For
13,681,000
m
7,990,000
887,666,000
1,101,807,000
11,89U,000
9,587,000
16,866,000
25,331,000
8,835,000
7,1*67,000
19,179,000
l*,36i*,000
131,26U,000
116,769,000
19,778,000
6,528,000
ll*,51*0,000
7,630,000
21,535,000
8,515,000
13,902,000
8,720,000
kk,959,000
1*7,167,000
$l,20l*,099,000 a/ #1,351,875,000

Accepted
$ 1,1*90,000
503,203,000
2,393,000
20,131,000
2,1*67,000
1,059,000
28,209,000
l*,528,OOQ
3,730,000
8,293,000
3,220,000
19,900,000
$601,623,000 y
a/ Includes $201,968,000 noncompetitive tenders accepted at the average price of 99.313
0/ Includes $1*9,962,000 noncompetitive tenders accepted at the average price of 98.576
L/ On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.78$, for the 91-day bills, and 2.90$, for the
182-day bills. Interest rates on bills are quoted in terms of bank discount with
the return related to the face amount of the bills payable at maturity rather than
the amount invested and their length in actual number of days related to a 360-day
year. In contrast, yields on certificates, notes, and bonds are computed in terms
of interest on the amount invested, and relate the number of days remaining in an
interest payment period to the actual number of days in the period, with semiannual
compounding if more than one coupon period is involved.
^
D-a77

- 3-

and exchange tenders will receive equal treatment. Cash adjustments will be ma
for differences between the par value of maturing bills accepted in exchange and
the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the sale
or other disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special
treatment, as such, under the Internal Revenue Code of 1954. The bills are subject
to estate, inheritance, gift or other excise taxes, whether Federal or State, but
are exempt from all taxation now or hereafter imposed on the principal or interest
thereof by any State, or any of the possessions of the United States, or by any
local taxing authority. For purposes of taxation the amount of discount at which
Treasury bills are originally sold by the United States is considered to be interest. Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954
the amount of discount at which bills issued hereunder are sold is not considered
to accrue until such bills are sold, redeemed or otherwise disposed of, and such
bills are excluded from consideration as capital assets. Accordingly, the owner
of Treasury bills (other than life insurance companies) issued hereunder need include in his income tax return only the difference between the price paid for such
bills, whether on original issue or on subsequent purchase, and the amount actually
received either upon sale or redemption at maturity during the taxable year for
which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) 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.

_ 2 -

decimals, e. g., 99.925. Fractions may not be used. It is urged that tenders

provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to aubmit 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 accompan
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 b
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
final. Subject to these reservations, noncompetitive tenders for $ 260,000 or
less for the additional bills dated February 15, 1962 , ( 91 days remain3X7_$
328$
ing until maturity date on August 16, 1962
) and noncompetitive tenders for
w

u ill., fI — » a — — — « — — »

p3_f

$ 100,000 or less for the
182 *»day bills without stated price from any one
bidder will be accepted in full at the average price (in three decimals) of ac

cepted competitive bids for the respective issues. Settlement for accepted ten

ders in accordance with the bids must be made or completed at the Federal Rese
Banks on May 17, 1962 in cash or other immediately available funds or

p_5
in a like face amount of Treasury bills maturing

May 17, 1962

. Cash

MdMto-taft

39
TREASURY DEPARTMENT
Washington

FOR IMMEDIATE RELEASE, May 9, 1962

mn_-___^fflp___--_-irf
TREASURY'S WEEKLY BILL OFFERING

The Treasury Department, by this public notice, invites tenders for two series

of Treasury bills to the aggregate amount of $ 1,800,000,000 , or thereabouts,
cash and in exchange for Treasury bills maturing May 17, 1982 , in the amount
of $ 1,800.406,000 , as follows:
91 -day bills (to maturity date) to be issued May 17, 1962 ,
in the amount of $ 1,200,000,000 , or thereabouts, representing an additional amount of bills dated February 15, 1962 ,
and to mature August 16, 1962 , originally issued in the
amount of $ 600,425,000 , the additional and original bills

itxA
to be freely interchangeable.
182 -day bills, for $ 600,000,000 , or thereabouts, to be dated

p_?

pi?
Jfey 17, 1962

THJE

, and to mature November 15, 1962
—

5p_5

The bills of both series will be issued on a discount basis under competitive

and noncompetitive bidding as hereinafter provided, and at maturity their face

amount will be payable without interest. They will be issued in bearer form on

Each tender

must be for an even multiple of $1,000, and in the case of competitive tenders
price offered must be expressed on the basis of 100, with not more than three

May 9, 1962
FOR IMMEDIATE RELEASE
TREASURY !S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$ 1,800,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing May if, 1962,
in the amount of
$1,800,406,000, as follows:
91 -day bills (to maturitv date) to be issued May 17, 1962,
In the amount of $1,200,000,000, or thereabouts, representing an
additional amount of bills dated February 15,1962, and to
mature August 16, 1962, originally issued in the amount of
$600,423,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $ 600,000,000, or thereabouts, to be dated
May 17, 1962,
and to mature November 15, 1962.
The bills of tooth series will be issued <m & discount basis under
competitive and -noncompetitive bidding as hereinafter provided, and at
maturity their face amount will be payable without interest. They
will be is-jsiued 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, one-thirty p.m., Eastern Daylight Saving
time, Monday, May 14, 1962.
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 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.
D-478

- 2 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 Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any, or
all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
February 15,1962, (91-days remaining until maturity date on
August 16, 1962) and noncompetitive tenders for $100,000
or less for the 182-day bills without stated price from any one
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on May 17, 1962,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing May 17, 1962.
Cash and
exchange tenders will receive equal treatment. Cash adjustments
will be made for differences between the par value of maturing
bills accepted in exchange and the Issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,'
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all'taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than 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
0O0
sale or redemption at maturity during
the taxable year for which the
return is made, as ordinary gain or loss.
Treasury Department Circular No. 4l8 (current revision) and this
notice
conditions
any Federal
prescribe
of
Reserve
their
theBank
issue.
terms
orof
Branch.
Copies
-the Treasury
of the circular
bills and
may
govern
be obtained
the
fn

-£•
COTTON WASTES
(In pounds)
COTTON CARD STRIPS made-from cotton having a staple of less than 1-3/16 inches in length, COHBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING 7/ASTE, WHETHER OR NOT MANUFACTDRED OR OTHERWISE
ADVANCED IN VALUE: Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple length in the case- of tha following countries: United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy;

Country of Origin

Established
TOTAL QUOTA

Total Imports
Sept. 20, 1961, to
/.MftY 7. \%Z

Established :
Imports
33-1/3% of : Sept. 20,.1961,
to M*
Total Quota
_____

United Kingdom
4,323,457
Canada
. .
239,690
France . . . . . . .
. .
227,420
British India
69,627
Netherlands
.
68,240
Switzerland . . . . . . .
44,338
Belgium . . . *
38,559
Japan • • • • • • • • . .
341,535
China • . . . . . . . . .
17,322
Egypt
. .
8,135
Cuba
6,544
Germany *
76,329
Italy . . . . . . . . . .
21.263

1,764,880
239,690
106,154
69,627
22,747
42,019
22,062
341,500

1,441,152

75,807

22,747
14,796
12,853

22,747
L2,505

76,329

25,443
7.088

25,443

5,482,509

2,685,008

1,599,886

1,577,654

1/ Included in total imports, column 2..
Prepared in the Bureau of Customs.
The country designations listed in this press release are those specified in Presidential
Proclamation No. 2351 of September 5, 1939. Since that date the names of certain countries
have been changed.

TREASURY DEPARTMENT
Washington, D. C.
M E D I A T E RELEASE
WEDNESDAY, MAY 9, 1962

D-479

Preliminary data on imports for consumption of cotton and cotton waste chargeable to the quotas
established by the President's Proclamation c-f September 5, 1939, as amended
COTTON (other than linters) (in pounds)
Cotton under 1-1/8 inches other than rough or harsh under 3/4"
Imports September 20, I9ftlj M«V 7, 1Q6?
Country of Origin
Egypt and the AngloEgyptian Sudan ....
Peru
British India
China
Mexico
Brazil
Union of Soviet
Socialist Republics
Argentina
,
Haiti
,
Ecuador

Established Quota
783,816
247,952
2,003,483
1,370,791
8,883,259
618,723
475,124
5,203
237
9,333

Imports
Honduras
779,456
245,483
2,003,483
8,883,259
618,723
114,908
-

Country of Origin

Established Quota
752

Paraguay
Colombia
Iraq
British East Africa ...
Netherlands E. Indies .
Barbados
l/0ther British W. Indies
Nigeria
2/0ther British W. Africa
2/0ther French Africa ...
Algeria and Tunisia ...

• 871
124
195
2,24b
71,388
21,321
5,377
16,004
689

l/ Other than Barbados, Bermuda, Jamaica, Trinidad, and Tobago.
2/ Other than Gold Coast and Nigeria.
3/ Other than Algeria, Tunisia, and Madagascar.
Cotton 1-1/8" or more
Imports August 1, 1961 to Mav 7. 1962
Established Quota (Global) - 45,656,420 Lbs.
Staple Length
1-3/8" or more
1-5/32" or more and under
1-3/8" (Tanguis)
1-1/8" or more and under
1-3/8"

Allocation
39,590,778

Imports
39,590,778

1,500,000

548,588

4,565,642

TREASURY DEPARTMENT
Washington, D. C.
IMMEDIATE RELEASE
WEDNESDAY, MAY 9, 1962

'D-479

Preliminary data on imports for consumption of cotton and cotton waste chargeable to the quotas
established by the President's Proclamation c-f September 5, 1939, as amended
COTTON (other than linters) (in pounds)
Cotton under 1-1/8 inches other than rough or harsh under 3/4"
Imports September 20, 19&i, May 7, 1Q6?
Country of Origin
EcOTt and the AngloEgyptian Sudan ...
'eru
British India
,
China
,
Mexico
,
Brazil
,
Union of Soviet
Socialist Republics
Argentina
Haiti
Ecuador

Established Quota

Imports

783,816
247,952
2,003,^3
1,370,791
8,883,259
618,723

779,456
245,483
2,003,483

475,124
5,203

237
9,333

8,883,259
618,723
114,908
-

Established Quota

Country of Origin
Honduras
Paraguay
Colombia
Iraq
;.......
British East Africa ...
Netherlands E. Indies .
Barbados
l/0ther British W. Indies
Nigeria
2/0ther British W. Africa
^/Other French Africa ...
Algeria and Tunisia ...

752
871
124
195
2,24b
71,388
21,321
5,377
16,004
689

1/ Other than Barbados, Bermuda, Jamaica, Trinidad, and Tobago.
2/ Other than Gold Coast and Nigeria.
2/ Other than Algeria, Tunisia, and Madagascar. •
Cotton 1-1/8" or more
Imports August 1, 1961 to May 7. 1962
Established Quota (Global) - 45,656,420 Lbs.
Staple Length Allocation Imports
1-3/8" or more
39,590,778
I-5/32" or more and under
1-3/8" (Tanguis)
1,500,000
1-1/8" or more and under
1-3/8"
4,565,642

39,590,778
548,588
4,565,642

Inroorts

-£•
COTTON WASTES
tin pounds)
COTTON CARD STRIPS made-from cotton having-a staple of less than 1-3/16 inches in length, COMBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VALUE: Provided, however, that not more than 33-l/3 percent of the quotas shall
be filled by cotton wastes other .than comber wastes made from cottons of 1-3/16 inches or more
in staple length in the case of the following countries: United Kingdom, France, Netherlands,
Switzerland^ Belgium, Germany, and Italyi

Country of Origin

Established
TOTAL QUOTA

United Kingdom
4,323,457
Canada
•••
239,690
France . . . . . . .
. .
227,420
British India.
69,627
Netherlands . . . . . . .
68,240
Switzerland . . . . . . .
44,388
Belgium
38,559
Japan . . . . . . . . . . . .
341,535
China . .........
17,322
Egypt • •
• •
8,135
Cuba • • • • • • • • • •
6,544
Germany
76,329
Italy . . . . . . . . . .
21.263
5,482,509
y

Total Imports
Sept. 20, 1961, to
'Mav 7. 196?

Established
33-1/3* of
Total Quota

Imports
Sept. 20,.1961,
to

May 7, 19ft?

1,764,880
239,690
106,154
69,627
22,747
42,019
22,062
341,500

1,441,152

75,807

22,747
14,796
12,853

22,747
12,505

76,329

25,443
7.088

25,443

2,685,008

1,599,886

1,577,654

Included in total imports, column 2..

Prepared in the Bureau of Customs.
The country designations listed in this press release are those specified in Presidential
Proclamation No. 2351 of September 5, 1939. Since that date the names of certain countries
have been changed.

TREASORT DtPARTMESf
•jfeshington, 0. C
XUUSOZAfS BSLEASS

WEDNESDAY, MAY 9,

D-

1962

PBKLTMINAKT DATA ON IMPORTS fOR CONSUMPTION OF UN-ANUFACTTOSD LEAD AND ZINC CEABSSABLS 70 ZEE QUOTAS KSfAB__S_3
BY PRESIDENTIAL PROCLAMATION NO. 3257 0? SEPT-UBSE 22, 1?5«
OASTERLY OTOTA PSHIOD •April I - June 50, 1962
IMPORTS-April I - May 5, 1962 (or as noted)

Country
ef
Production

Australia

ITEM 391
ITEM 392
f
t Lea- bullion or base bullion,
t
t lead In pigs and bars, lead
* Lead*be&ring ores, flue dust, i dross, reolaiasd lead, sera?
s
and E&ttes
: lead, antiaoaial lead,, anti8
t aonial scrap lead, type _atal,
i
,
z all alloys or combinations of
8
t
lead n.s.p.f.
:_iarterly
—iota
:G_artarly
Quota
t Dutiable. Lead
Imports z Dutiable Le^d
I-sorts
(Pounds)
(Pounds!
10,080,000 9,960,32*+*

ITEM 394
ITEM 393
$
t
t
t
: Zi-o-bsaring ores of all kinds,: Zino in bleaks, pigs, or slabs;
i except pyrites containing not s old and «orn*out zinc, fit
t
over 3?» of «ino
s only to be reaanufaetursd, zino
t
s
dross, and zino skis—ings
x
t
:__jrterly
Guota
:C__rt«rly
_xota
t Dutiable Zins
Iaporta s By geight
Imports
(Pounds)"
(Pounds)

23,680,000 775,667

Belgian Congo

5,440,000

Belgium and
Luxaaburg (total)
Bolivia

3,040,000

Canada

13,440,000

7,520,900

37#840,000

23,2^6,592

2,836,539*
15,920,000

?,6?8,M73*

66,480,000

55,673,379

Italy

3,600,000
36,880,000

Mexioo
Peru

16,160,000

On. So. Afrioft

14,880,000

!,?33,iH5

12,880,000

15,760,000

6,56o,oco

! L76it2,206
5,500,235

70,480,000

2^,217,613

6,320,000

35,120,000

12,285,790

3,760,000

17,840,000

I?,8*10,000

J,5I5,70H

i% 830, 000

Yugoslav!*
All ether foreign
eountries (total)

7,520,000

6,560,000

6,080,000

917,078s1

I9H,583'

•laports as of Hay 7, 1962
The above country designations are those specified in Presidential Proclamation Mo. 3257
of September 22, 1958* Since that date the names of certain countries have been changed.

6,080,000

6,080.000

YflEASUHY -BMBX-SSS
•fcsMngton, 9. C
X__3DIAYE BSLEASS

WEDNESDAY, MAY 9. 1Q62

D-480

ra_LI_IMASY DATA OK BffCIffS FOR CONSUMPTION 0? UmNOFACTOISD LEAD AND ZINC CHARGEABLE YO THE QHQS1S ESYABLXSHES
B Y p a z s a s a m L PROCLAMATION S O . 3257 0? S E P T E M B E R 22, 1 9 5 9 ^

OWBYEaLY GDOTA PERIOD •April I - June 30, 1962 "
X W O S Y S * April I - May 5, 1962 (or as noted)

-3__L_2L

Country
of
Production

—•

Australia

IT£_ ^92
t Lead bullion or base bullion^
* , . .
.
« l»-t la pigs and bars, lead
« l M M M a 2 d K » M » « 1 « *»tsi J » J « , rnlalnd lead/ scrap
«**-*••
*i ^ ^ S I ^ * ^ ^
*
* _ _ f _ J l 2 T ! . ^ t ^ ! ? ffi9^'
,
'
I ^ *"«y« or coabinations of
C_ota
tC__rtarly _iota.
—sQuarterly
*
leaa^P.s.p.f.
t Dutlabla Lead
Ieyorts «_ Dutiable Lead
Icporta
(Pounds!
(Pounds)
10,080,000

9,960,32***

23,680,000

lYEtf 393
ITEM 394
T
t
.
: Zinc-Scaring ores of all kinds,, Zino in blocks, pigs, or slab,.
f 0IC pt
*
^ " ^ ********** '« old and ^rn-ou/zSo," t
'
m
'
* 3S*o f *"•
* « a ^ to be reaanufactursd, zinc
,
^
^ z l M gklaslnga
t
:
.
*
:G_artsrly
aiota
i&arterly _iota.
i Dutiable Zinc
Inroorts
Inports ; By Telight
(Pounds)
(Pounds)"

7?5>66?

Belgian Congo
5r*4O,00O
Belgium and
Luxaaburg (total)
Bolivia

5,040,000

Canada

13,440,000

7,520,000

37,840,000

23,246,592

2,836,539*
13,^0,000

15,320,000

?,678,!»73*

66,480,000

36,880,000

! 2,6*42,206

70,480,000

2*»,2I7,6I3

6,320,000

5,300,235

35,120,000

12,285,790

3,760,000

17,840,000

17,8*10,000

6,080,000

55,673,579

Italy
3*600,000
Mexico
Peru

16,160,000

Oh. So. Africa

14,880,000

»,733,*I5

15e7$o,ooo
6,560,000

1,315,704

i % 830,000

Yugoslorla
All other foreiga
countries (total)

12,830,000

6,560,000

6,080,000

9»7,078*

«9l»,583*

•Uports as of May 7, 1962
The above country designations are those specified in Presidential Proclamation No. 5257
of September* 22, 1958. Since that date the names of certain countries have been changed.

6,090.000

48
TREASURY DEPARTMENT
Washington

IMMEDIATE RELEASE

WEDNESDAY, MAY 9, 1962

D-481

The Bureau of Customs announced today the following preliminary figures
showing the imports for consumption from January 1, 1962, to April 28, 1962,
inclusive, of commodities for which quotas were established pursuant to the
Philippine Trade Agreement Revision Act of 1955:

Commodity

Buttons.

Established Annual
Quota Quantity
680,000

Unit
of
Quantity

Imports
as of
April 28, 1962

Gross

79,205

Cigars

160,000,000

Number

Coconut oil

358,400,000

Pound

55,042,589

Cordage.

6,000,000

Pound

1,358,354

Tobacco....

5,200,000

Pound

3,199,868

3,033,783

TREASURY DEPARTMENT
Washington

IMMEDIATE RELEASE

WEDNESDAY, MAY 9, 1962

D-481

Commodity

Buttons.

Established Annual
Quota Quantity
680,000

Unit
of
Quantity

Imports
as of
April 28, 1962

Gross

79,205

Cigars

160,000,000

Number

Coconut oil

358,400,000

Pound

55,042,589

Cordage.

6,000,000

Pound

1,358,354

Tobacco

5,200,000

Pound

3,199,868

3,033,783

-2-

Commodity

: Unit
Imports
: of
:
as of
: Quantity: April 28. 1

Period and Quantity

Absolute Quotas:
Butter substitutes, including
butter oil, containing 45%
or more butter fat

Calendar
Year 1962

Cotton products, except cotton
wastes, produced in any stage
preceding the spinning into
yarn
Peanuts, shelled, unshelled,
blanched, salted, prepared or
preserved (incl. roasted peanuts but not peanut butter)
2/
Tung Oil.r..

1,200,000

Pound

Quota Fille*

12 mos. from
Sept. 11, 1961

1,000

Pound

Quota Fillec

12 mos. from
August 1, 1961

1,709,000

Pound

915,03/

Feb. 1Oct. 31, 1962
Argentina
Paraguay
Other Countries

17,226,164
2,963,370
936,000

Pound
Pound
Pound

7,266,921

1/ Imports through May 7, 1962.
2/ Imports through May 1. Presidential Proclamation No. 3471 of
May 1, 1962, terminated, effective May 2, the quota on tung ail.

TREASURY DEPARTMENT
Washington

IMMEDIATE RELEASE

WEDNESDAY, MAY 9, 1962

D-482

The Bureau of Customs announced today preliminary figures showing the imports
for consumption of the commodities listed below within quota limitations from the
beginning of the quota periods to April 28, 1962, inclusive, as follows:

Commodity

Period and Quantity

Lmporcs "
: Unit
as of
: of
:
Aoril
28, 1962
: Quantity:

Tariff-Rate Quotas:
Cream, fresh or sour.

Calendar Year

1,500,000 Gallon

Whole Milk, fresh or sour,

Calendar Year

3,000,000 Gallon

Cattle, 700 lbs. or more each
(other than dairy cows)
,

April 1, 1962June 30, 1962

120,000 Head

8,633

Cattle less than 200 lbs. each..

12 mos. from
April 1, 1962

200,000 Head

11,762

Fish, fresh or frozen, filleted,
etc., cod, haddock, hake, pollock, cusk, and rosefish
Calendar Year

28,571,433

Pound

13,335,533-

Tuna Fish,

Calendar Year 59,059,014 Pound 17,049,225

White or Irish potatoes
Certified seed
Other

12 mos. from
Sept. 15, 1961

Walnuts

Calendar Year

Stainless steel table flatware
(table knives, table forks,
table spoons)

Nov. 1, 1961Oct. 31, 1962

114,000,000 Pound
36,000,000 Pound
5,000,000

Pound

69,000,000 Pieces

43,096,713
17,242,407
1,196,135

67,138,879

1/ Imports for consumption at the quota rate are limited to 14,285,716 pounds during
The first six months of the calendar year.

so
TREASURY DEPARTMENT
Washington

IMMEDIATE RELEASE

WEDNESDAY, MAY 9> 1962

D-482

Commodity

Period and Quantity

Imports
: Unit
as of
: of
:
April 28, 196:
:Quantity:

Tariff-Rate Quotas:
Cream, fresh or sour Calendar Year 1,500,000 Gallon
Whole Milk, fresh or sour Calendar Year 3,000,000 Gallon 36
Cattle, 700 lbs. or more each April 1, 1962(other than dairy cows)
June 30, 1962

120,000

Head

8,633

12 mos. from
Cattle less than 200 lbs. each

April 1, 1962

200,000

Head

11,762

Fish, fresh or frozen, filleted,
etc., cod, haddock, hake, pollock, cusk, and rosefish

Calendar Year

28,571,433

Pound

13,335,533-

114,000,000
36,000,000

Pound
Pound

43,096,710
17,242,407

Pieces

67,138,879

Tuna Fish Calendar Year 59,059,014 Pound 17,049,225
White or Irish potatoes:
Certified seed
Other

12 mos. from
Sept. 15, 1961

Walnuts Calendar Year' 5,000,000 Pound 1,196,135
Stainless steel table flatware
(table knives, table forks,
table spoons)

Nov. 1, 1961Oct. 31, 1962

69,000,000

1/ Imports for consumption at the quota rate are limited to 14,285,716 pounds during
the first six months of the calendar year.

-2-

Commodity

Imports
: Unit
:
as of
: of
:
: Quantity: April 28, 19(

Period and Quantity

Absolute Quotas:
Butter substitutes, including
butter oil, containing 45%
or more butter fat

Calendar
Year 1962

1,200,000

Pound

Quota Filled

12 mos. from
Sept. 11, 1961

1,000

Pound

Quota Filled

12 mos. from
August 1, 1961

1,709,000

Pound

915,037

Feb. 10 c t . 3 1 , 1962
Argentina
Paraguay
Other Countries

17,226,164
2,963,370
936,000

Pound
Pound
Pound

7,266,921

1/ Imports through May 7, 1962.
2/ Imports through May 1. Presidential Proclamation No. 3471 of
May 1, 1962, terminated, effective May 2, the quota on tung ail.

FOB mmmm iaws§

wmmmm ~? mmmmm

LIGNIN VANILLIN

ftm tmmw® ^wartmat la instnietiag cuatoast £1,14 mtttmmra
to idtMrtLd tifvtabMMnt oft lignia ^aalUia trm Canada $«M_£tag a
aeteralmatioa a® to i4»tk«r tfelt a*r_tuu»_U* 1« *•*•• »<&<* ia tfe©
Saltedfttofeaaat Uaa mm

fair TOIIM. Mvtim to tfel* mttmat U

mirng pt__J_BM* im tbm F®to&l Begtttftr,
m&mr tk* AfctitaJptiig Ae%#feftflivtfMttaiief sales la tfce
»__%©_ Mate* «t !«## t&®» f mkr vt&m wmm
ma

ra%ukr* rmtmrmmmm &t

ama t® ttw Start*? Cam__.»«4ott, ^ileh m O A so»®l#«_* #i<&tfeeif

kamrkmam imtotry mm tmim injun*. lotb isaaiSJ&ig: »ria» s M injury mist las -tan to Justify & £tii*_t_g of isa^lag -ato tbe law.
tb_ dollar valm of istpajffci- m*i^..&irlat 19&1 ™®#
approximately #770*000*
_cc: Mr. J. P. Hendrick

TREASURY DEPARTMENT
WASHINGTON, D.
May 9, 1962
FOR IMMEDIATE RELEASE
WITHHOLDING OF APPRAISEMENT ON
LIGNIN VANILLIN

The Treasury Department is instructing customs field officers
to withhold appraisement on lignin vanillin from Canada pending a
determination as to whether this merchandise is being sold in the
United States at less than fair value. Notice to this effect is
being published in the Federal Register,
Under the Antidumping Act* determination of sales in the
United States at less than fair value would require reference of
the case to the Tariff Commission, which would consider whether
American industry was being injured. Both(dumping price and injury must be shown to justify a finding of dumping under the law.
The dollar value of imports received during 1961 was
approximately $770,000.

53
- IT all -aspects of section 20 inforjsatloii vill be regular only as mat
forth in met* regulations as are In existence on tha first day mt
a taxable year.
fprel^a..j_nye_twp.wfe C^%panieg (Bee. If)
Further atudy of tha foreign imm&tmnt

cotspany provisiona with

vmprammmtomttvma of *uch campaalee indicates that a m__oer of lalnor
technical ©a©_ai3©nt0 should o« added to clarify a__L is^row their
application. For ema^l®* an Increase should be made in the tia©
permitted for reporting lualtatrllnzted capital gains to the shareholders. Alto, provision should be made for a |»a^s^ta*ugh of
foreign tax credit to the aharebol&ers for taxes paid by the foreign
inwat_se$tt company.
Finally, vita* respect to the overall problem of f o r e i ^ im&srae,
I balle*^© that tha hearings teme shown more than ever the need for
and the appropriateness of leglalation to establish eip&ty in the
taxation, of aueh inearae and I ho^e that the Cfcsw&ttee will agree
with this -view and act accordingly.
Conclusion
«

I I . ...II

.11

.. . 1 .

•,.,!

IH.I1.I,

In conclusion. I wiab to express our appreciation for the extended
effort and ©araful consideration which your Oomaittee m& those testifying before it ha^e already g i w n to this legislation. As your
consideration of the bill progresses, we are at your disposal to
work further with you mml your atmtta in any ¥ay vhieh you feel
be helpful to you..

- l€ •
first vould aid an averaging provision to t^fe Mil*** Ms votitid be
aimdlar t® that involved in tit foreign trtuft provision, which permit* mm. individual to retoa tha avtooat of tax on a distribution
by treating it a® If It bad baam. distributed to M m over tb@ fodod
of hit holding,^ fbe#aee©nd would give the indivi€_al shareholder the
alternative of limiting M a ttax toider itetloft 16 to a capital gains
iaor provided that <• at the aane tiwt ha' pays- a tax «$__! t© 52 percent
of the "earnings of tha e^pormtion less any foreign tax*credit*." The
_#dhaniea of thkm mtkl--mmi& mvfclam* tlomt the shareholder' paptt-^P'par*
eent overall%($2 pereeat pl&a 85 percent of k% fereeit&Jllsa Is ia
exmetly the eame position as if*teeSoft bad a d*«i%ie eoi^aratlos ^
v M e h had paid ttftoftaU ?2 percent tax and vhich he Had liquidated
or sold at"1 capital gmdte *****.' '- overall ^
t^ormtim

;f foraa, iascua* •

^guire^enta ^ e e . gO> ^ ^ = » ^ *-*» «*** tfc* .«*aa far

Section _0 of the House M i l needs momm laediflcatioa. fo_* e_a_mple,
changes am nested to prevent the provision trmm applying tm foreign
corporations where there 1* mm ••Wmmat&ntiML V. S. share mmmrahip.
It should be laade elear that 0. S. officers and director© at foreign
ccanpaniea ^hmm thtsrm are no a^iataatial tr. S. owners need not etsigly
_j_fe*»_tfMtaa aa to mdmmiaW*mW*v

U&mtim,

it should be &**%!&&*&*

titafc donestlc aiteiaiarlee of ftfreigsi parent a^i^spatlona vdll not mm
re<juire& to am^T

In€or_mtloa abo&t n*3Ha*$**0. subaldiari^s ^®r auch

parent corporation©. l__w_$jr., ltiAou_& be saa&e clear that*!© to #

55
-15 *

indicated & deaire to reorganise foreign corporate structures to
aooowaodate to the legislation. I.wtild like to state tha& it would
be the wfAlmy of the Treasury to view eys^athetieally

•mmZMmtim®

®f taxpayer® for ruling© tsjtsder section ,3&7tfxfflfcare re#siised. in the
case of reorgaiiiaatione involving foreign corporations. Ha contemplate that jfuch advance rulings could be ®ade available relatively
freely, esioept Im aituetion* where mmmm axraym$9mmmm%m involve U. S«
tax avoidance.

In n$r prior te*tteny> -I a_§i@»te& raconaideratlon of section 16,
iiealing vi-fcfe £_* litpidaticm of or mmXm of wtoek in controlled foreign
earpcweftUm*

She hearings and diseuasiona with prlmte grouse have

<mtkmaa\,mmw view that tfeia ^reviaioii should e$s$r cmXy to earniage
for taaqable yeara beginning after Seeeetoer 31* X9&Z* In addition,
technical wmm^mmtm

are needed to coordinate more closely the treat-

stent of sales -of atook with the treatajent on liquidation, immXM.in%
the allowance in appropriate ciroiBia^e&cea of a foreign tax credit
on salea of stock.
Further, m

reooimaend that the impact *mt the ©eetlon om individuals

be -mitigated. Unlike a eorporata abarebolder, whose tax will be
listited to 52 peroent less a foreign tarn. .-eredit, the ii^lvldisal would
be), taxed at ratma- up to % percent and mo foreign tax credit would
be available. Two mritorioua suggeationa have been advameed. Tbe

56
- ik the ii«cbaaisa for ta&$as constructive distributions to U...B. &hareholder©, tat of thftM. cbjtjn^w/wulivew^l© the lot*** of intervening
foreign corporations to offaet the gftiw of, .fubaidiariea qsT « M &
oontrallad foreign corporationa.

3- SmmtmM

«F4WJ«ft aWaa&mT*** coue^rnfee*been

«W?eft*e& over the psreftLem of counting the earnings and profit* ,«f
«. controlled ^eaelfp corporation that would be- taxed to Osslted States
abmr#iolderB. Me shall provide clear |y_minia*teat.ive ra^Xmtimm

assist taaspa^ers in cotipiting the earnlnga and profits of foreign
corporations in accordance with the rules wjaich have 'been developed
for <l©_™t&tie corporation!!. Ue iiill permit the fomX^k

corporations

mmpatmsm # M profits to be computed vith the benefit, of eleotiona
similar to thoae which are available to dqeeetic cor^omtiomiu

. ^* fmm &&****. zss&i&im,, MAMWM,tami&i"******
mmm

.mt problems tapge^ere h a w vftfeih foreign currency- restrictions

and blocked .income pli. provisions should be siade to ta&e care of
these ait#i^ion#, Tto®m jpamXmwm- awlmm- under present law in connection vith branch m^imxmtkmmm amm\ .administrative guidelines have been
®mmX$m&

im the $eat to deal with them. Problems under the House

bill i & U be sowwhat dUterent than those dealtr%4th in the $a&st
but it ie .believed that theae otters can am handled aatiafactorily
throu^ eatahliahQaot of pifam which are fiudlar in aapwxm.

- 13 B. ^matio^r^lth

Respect to Technique.

1. H0&kr definition of controlled; foreign ccCToratian-.-^lfe
iPefeOiasBSnd modifying the definition of control a© as to lis&t scraewhat
the coverage of foreign corporation® claeaifled aa controlled foreign
corporatism, ierhftpa the a*tt effective ^ay of doing this •would be
to provide that in determining whether more than 5$ percent of a
foreign eorforatloa iamrnt

by U. S. persona, only U. s. shareholders

owning at least ft 10 percent interest are to be counted. This would
half eliftdnate, for aasaai&e, the possibility of covering certain
foreign corporations iiore than 5$ percent of which aaty be owned by
U. §, persons but where such ownership is so widely scattered that
there la no V. S. group in effective control. Also, some modifications la the constructive ownership rules would seem desirable to
achieve a mm

liis&ted ammmrmmm. la particular, we vould recowesd

that U. E. shareholders not be treated as the indirect ovaers of
etoc& owned "by a corporation, in which they have- an Interest unlese
sueh intereat ia at least 10 percent.
2

Recognition,„ of. losses. — I t would aeem desirable to provide

for greater rec^aition of loseee of foreign eubaldiarlee than is
effected by the House bill, fhua, wmm provision should be iBiade
for allowing losses of a foreign aubaidiary in one year to offeet
ita profits for amother year which otherwise vould be taxable under
section 13. It would also seem desirable to mte& certain changes in

58
- it granted l» expropriate circuwtaacea, it m£kl be neceaaary to restrict the compcLSies oualiiying to those having eubstantially all
their inooae frm eueh countries. M thia ammmmMm*.
m to mmrm

MNaral rmXm

mt imtmm would be frovided, am that ©uch ammmM^m

can

jsar&et their products or purchase __cte*_aOs outside lee* develejed
sountriea e M etill #iali£y as operating in lees developed areas.
It should be pointed out that operating eofgganiea not ajsaH^yijig tmr
tha less developed country reinveetaent w^XXmm

wauld have reatrieted

reinveataent privileges regardlesa of "where their earning*! verereinveBted.
6. ^&na^icjfeili%ritQ pwfjfcj.tffm
porations aot. iacorpoim^^ under the Xmma of, thr United States are
treated as foreign corporations for purposes of the Internal Bevenue
Code, te a consequence, corporations incorporated under the laws of
possesions of the United States technically sotf* be- classified and
treated ae controlled foreign corporations under the present language
of the bill. I maald i * e c _ M * V mmmmamr, that ammm corporations not
"be treated aa controlled foreign corporations, since the possessions
of the Waited Bmmtmm9 principally Puerto M c o and th# Virgin XmXmmma,
are not truly foreipi areas a A p r a m & special prableiae under Halted
States tax Xm "which can beat be handled outaide of thefientmfcof
the tre@ste_eiit of controlled foreign corporations'.

59
~ii for reinvestment in less developed countries to prevemt a "pour ever"
from developed countriea. fendttiag the profita of tax haven M A *
pemiee in developed areas to escape 0. #• tsjmtioa imUfat m0^f
encourage the use of such tax mmmmm ccasjenis* «_& wou34 mm kmmm*
sistest with the basic policy of eliKdnating mmtmmml §mr such
operations. Our vi«w is that the soundest approach would be- t© provide that there would be no reinvestment deduction for any tax haven
profits except for dividends and intere-at derived from related companies carrying on aa active trad© or business within a leas developed
country. In this connection, I would surest libera!l«i3ag the types
of property wiieh would qualify1 for the deduction a© mXX mm the
eonditioms for reinveatment. For motfUt* it Mar be that substantial
jainority stock interest-should ammXitr e w though the-foreign corporation is not U. $. controlled, tamsideratiom should aXmm be
given to mUmmimm certain foasss of debt obligations to qaeiUfy* The
tine within which lim*sti_esst® sstst be mede is mmh too restricted
under section 13 and provision for a lender garimm would be 'desirable.
5. Idberallaed rules fog rej^ajas^t mt. m*mU*»..<# operatic

m^mMBM.^^M^^^m^r'^

* concepts** of m H*et sug-

sjasUaa* X would propose to Hberasilse the use to which.•mmwmkmm *#
operating eoafesaies in less developed countries may be put. I
recommend that there be eoiaplete freedom as to the laanner in which
such earnings say be employed, tb ensure that this privilege im only

60
-10 and would he desirable from the stnaftyoint of adding flexibility to
ensure ft fftir application of the base e<_#a_y incase provisions in
tha cases ^here it is needed, for e__s*£L»> ft subsidiary immm^mwmtm&
in one eotsittry but mmttiku&taag m sales operation in a second country
may pay full taxes to the second country so that its place of
incorporation does not result in the avoidance mt taxes.

Hnally,

there are certain shipping activities vhich present special jpKt&Litts
for which exclusions5 should be. deve&tj$a6*
3. M m i t aiiti^iversification rule.-»_he Bnuee bill denies the
use of deferral to new businesses in ievelioped areas. Earnings invested in si trade or business thats was not in op^rfttiom on fJeces&er 31,
196a or that has not been in operation for 5 y^ars w o e M not fttalify
for deferral. Our preference that deferral be eliminated for all
profits arising in developed areas, of course, wmM

obviate the

meed for this provision* However, if deferral is not ©liJKlnated,
the provision should, be modified to make clear that it a.ppi_#s suly
vith respect to the use of earnings fr^sm a business ea3oyi»g deferral
and that it does not apply to the earnings of a new business started
with fresh capital from the United States. Also, it iaay be desirable
to indicate with worm- definitene^s when m trade or business will be
considered to have been conducted for a ^hftmw period or since
mammmmmr 31, 196fc by s^staa&lally the tame interests.

hmm..m<^%t§.^l renev w WXw suggestion to modify the deduction

Thus, the amission under H. B. IO69O of inccos received by tax haven
cosjpwaies from rftlftted parties for renderiag maJBag^rlal, techsiieftl
and other services outside of the country mt their immmrvmmtkmm
should be corrected since this is a sig^UfiCftat form of tax haven
income. Also, the coverage of tass haven sales incoBje respires
technical clarification to ensure its application to coaaissions of
companies acting as sales agents.
On the other hand, the base company provisions of section 13
now treat certain jfeinds of operating iaeoffie as *3pftasiveB incoae and*
therefore, subject to tarnation to the U. #. s^reholder.

Thus,

rentals, royalties and interest saey constitute active income to
businesses such as shipping, leasing and financing coespa£i_©s. These
types of iacoBss trhen they are the income mt mn operating coiapaay
should not be treated as "passive income", am&, accordingly, en
appropriate es&eptiom should be ssade. However, this exception should
not extend to tax haven situations, as for example, when rentals are
received from a related party for the use of prmmmrtp outside of the
country of incorporation of the recipient.
We would also suggest that there be an over-all exception to
deal with situations where a controlled foreign corporation covered
by the provisions of the bill has net been availed of to avoid taxes.
Such a provision was contained in the revised draft of tax haven
legislation which we submitted to the House Ways and Means Cocaaittee

62
- 8sub^ectisg the current ineagie generated by such ri^its to current
U. S. taxation. f M s requires a determination of ths «_dunt of
incosie generated by the use of patents, etc., anfti_Itted_3rdifficult problem. It w e u M be sore appropriate to haaadle this problem
at the tine the patent (or like property or right) is tra_<Sferred
abroad. Thus, it could be provided that the sale of such a H. S.developed patent to a controlled foreign corporation would result in
ordinary income, rather than capital gain, as frequently occurs under
present law. A sosiewhat longer statute of liMtations could be pssvided to ensure that the valuation of the patent at the tiffle ef
transfer is a fair one. If the patent is licensed rather than sold,
the transferee of the patent is under current law obligated to pay
a fair royalty annually in return for the use of such patent. This
approach should effectively elialaate any abuse in this area since
all 8, S. patents would be transferred abroad in arms-length trans*
actions producing a full U. 3, tax at the tlse of transfer or on an
annual basis. It would asJte unnecessary the detersatnatlon of the
amount of incoias generated by the use of patents, etc., as under
the Souse bill.
_*. Befine coverage of foreign base company pr^ylgi6Bas.--The
coverage of the foreign base cosgpany' provisions of section 13 should
be isodifled to ensure that all tax haven transactions are reached
and also to avoid unintended coverage of non-tax haven situations.

63
- 7 the effectiveness of the systems in reducing the intolerable gap
between dividends and interest received and those reported for tax
purposes.
Caateouea forato Corporation (a»o. 13)
A great deal of concern has beam expressed by witnesses regarding the provisions of section 13 of the bill. Substantial codifications of this section are called for. We remain convinced that our
basic proposal for the general eliMnation of deferral for operations
in developed countries would be the most equitable and appropriate
policy. Adoption of this principle would eliminate a great deal of
the complexity of section 13- However, should the Ccamsittee decide
to adopt an approach along the lines of tha louse bill, there are a
number of changes that should be made. Our suggestions for such
changes should not be taken as indicating any lessening of our
supjport for the elimination of deferral. It merely seemed desirable
to indicate the changes that would be needed to improve the working
of section 13 should this t^pe of approach be preferred by the Committee.
A. rSug^estions as to Incciae Covered in Section lg.
1. Cbanpe apfroach to inecaie from U. S. patents^ copyri^ts,
etc.—The Bouse bill deals with the problem ef V. B.-developed patents,
copyrights, and exclusive formulas and processes, which are asEptlaited
abroad free of U. S. tax W

controlled foreign eor|Kiraticns, by

64
- 6standard deduction in cosputing the allowable aiaount of a <parterly
refund so that everwithholdiiig can result if the taxpayer^ itemised
deductions exceed the standard deduction. In order to provide yrm®t
refund of a H significant overwitbholditeg, we would « c a w ^ a d extension of the refund allowance provision to p m d t an individual to
tafee into account his itemised deductions*
%

also reee_nand two changes to eliminate technical grmaXmrn

which have been called to- our attention. 'The first' is to eliMtaat*
withholding on dividends in kind which consist of distributions of
stock of another mmrmmxmMmm-m
Second, it has been pointed out to us that some corporations,
for instance, some railroads -with little or no tax liability, nay
not be able to file their final tax returns until, asany months after
the close -at the taxable year. Such corporations would ma delayed
in obtaining a refund of amounts withheld from their interest ami
dividends since- under the Bouse bill mtmzflL for the fourth o^sarter
of the testable year cam only be obtained upon the filing of the
final return for such year. This problem can be solved by permitting
a quarterly refund for the fourth quarter in the case of a corporate
taxpayer if the refund is expected to e&eeed its total tax liability
for the year.
These changes will reduce inconvenience both to payers and
recipients of interest and dividends and at tha- same tine w i H ssaintain

•Mamrmkm wltii^lding -iM the Imuiwiee industry, the mmmmttim
certificate system should continue to afsOjr to interest on proeoBda
of life insurance left on deposit with the Insurance cojapany hmm
should not ftfgly to Interest on dividend accumulations on %mmmtmm&
life insurance policies. In the case of interest mm these dividend
accumlfttions there would appear to be no m&l for eneisption certificates because the interest is customarily left with the ina^ranee
eo^pany and not used by the policyholder to nsofc current living
expenses. In addition, the insurance coaspanies, who recoiaaenied
this ehan#i, have testified that the amounts involved are nor_»Uy
mail and an emagtleft certificate procedure would be ixgrnrntkamX to
&&&&¥ because of the saiUlons of accounts.
frovision should also be m d e for exemption cam^tktkmmmmm to
remain valid until revoked by the filer instead mt reojalrlag momml
refiling. This would make the House exemption certificate system
easier to adsdiiister by the paying institutions and vould also reduce
the wswfimr of tmm

which acn-taaable m^mmma mmML be retjulred to

file.

There has been considerable exaggeration of the amount of overwithholding that could occur under the- House bill. Sowever, there
may be some situations where the quarterly refund allowance Is not
sufficient to correct overwithhoMin® on a taa^ayer with large
itemised deductions. The House bill tatee into account only the

66
«h .
advertimini to bet carried on free cdf accounting difficulties In keeping' track of a large mwmr

of saaall item without, iinterhing. the.

curtailpeBt of abuses which the mkXX. p w i d a a .
In addition, it was never.our intention that advertising ievices
such «a display radtes and advertising sigaa, which are provided for
use in business and which are not itens of personal use, should be
included under the gli?t,ftwision. We would ^ c c M e n d that,the Committee report contain language clearly indicfttijag that such Items
are not business gifts under' section ,k of the bill.

Sk^m^mm °*J*P*m*\ mj>xmmmuM?^M
Me have continued our efforts to m f t . out a withhol4i&S system
that would be as efficient as possible and at the same time would
)_S_t__ct*» any possible hardship to the recipients of dividends and
interest* Us would like now to reecsanead .certain. .iip?ovements in
the provisions for cage-action certificates.
The exemption certificate system contained in the House bill
applies to savings accouat interest, certain, interest ..paid.by insurance companies, dividends, and patronage dividends, so that there
will be no withholding on such aiaounts received by in^vii^als wji©
owe no tax. $£e would reeo»end that tha mwms^tion certificate
procedure be eactended to dlvJLdoiid Inccsse of .otter aoa-taxable
recipients. For example, this would, include foreign, state..and
local governments, and.- ta^*e^K»pt or@ani.3sations, av^h as colleges
and universities, churches, and pension trusts.

67
- 3 gains, from the Disposltlen of tm^m^m^.WmFW, ft*^ *bl
S o m witnesses caressed concern that section Xk uiay refuire
reo^iitim of ©sin "despite the fact that the tiowwr'ft- Method of
ammmm&km

ta^sr does 'not respire such recognition. The ®ma®Xe

gkm& was the 'novatl ratir^ament of pross^rty depreciated in a
aultiple asset account, faction 1231 today does not mamkx®

recognition of gain or loss at the tine of' such retiraiaent as long
as tike tai^af^r's. netfeod of accounting, la accordance with Treasury
regulations, clearly reflects Incorae. If the tsa^ayer's method of
composite accounting complies with the Tmmmf

regulations, those

rogulationg will similarly permit nonreeognition of gain or loss"
under section lk. A statejasnt in your daw&ttee's'report,"' illustrating this point, should allay mm concern, in this inagard.
,^s_^P; ^E-.M.'SSSSMS'.ZF i .SP^fx?.,..,,t/
In order t© ease the accounting p r i s m s of* concerns supplying
articles for use i n notattr advertising,, w e r e c o w e n d a gfeelftl
esclusioB from the |25"bmall^ss gift limit in m m louse b i l l *

Such

exclusion would permit tha deduction of Items costing a modest amount,
such as u n t o two or three dollars, regardless o f t h e total gifts t o
any one customer over the year.

_t would a$piy t o each gift item

on wfeleh the m m of the advertiser is clearly and p«ri___ently
imprinted m & which is one of a tm^bmr of identical items distributed
generally lo& the advertiser., inch a n exclusion 1 would permit novelty

6S
- 2 the bin be #Nrite to provide for a three-year carryback of unused
investment credits*

Of course, such unused credits should not be

carried back to taxable years before those for which the credit Is
effective. Such a. provision would result in greater cash flow benefits during periods of recession when earnings are. low or at other
tisses when it may be especially needed by particular businesses.
He would also racoaneBd that livestock be excluded from the
credit, $be House decided in section Xk that gain en the sale of
livestock which reflects prior depreciation should continue to be
treated as capital gain rather than ordinary income. We feel
strongly that .p^ofer^ not subject to tha recapture of excessive
depreciation should not be .granted the iavestsaent credit.
A nui#er of witnesses raised Questions as to. whether specific
Items were eligible' for the credit or would be disqualified as
structural co^onents of a buildll®, Scate of the Items mentioned
were refrigerator cases used in the grocery business and testing
eojydLjaient used in the aerospace industry. The aouse Ways .and Hsans
Coiaiittee leport indicates that __MShlseacy and equipment are to be
considered eligible property even though considered a part of the
building m®mr local law. This sjeans that such items as refrffarator
cases and testing e<pipmemt would ojuftlify for the credit even though
affiseed to a building. Appropriate language in your Committee's
retort could provide further clarification in this area.

69
Statement of the Honorable Douglas Dillon
Secretary of the Treasury
Before the Committee on Finance of the United States Senate
on H. R. IO65O, the Revenue Act. of 1Q62; ••'">•**$ d: '^w-sd.
May 10, 1962, 10:00 A.M. DST

ate* ®mirmm> I aipreciate this additional opportunity to axeeuss
with you the proposed Bevenu® Act of 196™. I would also like- to
suggest some changes in the bill* ¥e have followed closely the
suggestions, objections and recassendations which have been offered
in the estensive testimony which has been presented to your Cosialttee
since April 2nd. As the hearings have proceeded we have held
numerous meetings with persons interested in the b i U , including
some of the witnesses who appeared before the Cossiittee as well as
representatives of other interested groups. We have worked with
them to mak® technical fj^mmmmta

and to evaluate possible- policy

changes. Today I should like to outline a number of changes which are
responsive to matters raised during the hearings and which we believe
would imnrove the bill. These changes seem to us to be clearly
called for. Undoubtedly ftirther discussion in Executive session
will reveal other ways in which the- bill can be improved. It is
our desire to work closely with you and the staff of the Joint Committee to produce the most effective, the fairest, and the most
practicable bill that can be developed,
Inmatiaent Credit (Sec. 3)
The language of section 2 of the louse- bill appears to present
no serious technical problems. However, we would recoaaend that

</ : 7

- 2 -

the bill be amended to provide for a three-year carryback of unused
investment credits. Of course, such unused credits should not be
carried back to taxable years before those for which the credit Is
effective. Such a provision would result in greater cash flow benefits during periods of recession when earnings are low or at other
times when it may be especially needed by particular businesses.
¥e would also recommend that livestock be excluded from the
credit. The House decided in section Ik that gain on the sale of
livestock which reflects prior depreciation should continue to be
treated as capital gain rather than ordinary income. We feel
strongly that property not subject to the recapture of excessive
depreciation should not be granted the investment credit.
A number of witnesses raised questions as to whether specific
items were eligible for the credit or would be disqualified as
structural components of a building. Some of the items mentioned
were refrigerator cases used in the grocery business and testing
equipment used in the aerospace industry. The House Ways and Means
Committee Report indicates that machinery and equipment are to be
considered eligible property even though considered a part of the
building under local law. This means that such items as refrigerator
cases and testing equipment would qualify for the credit even though
affixed to a building. Appropriate language in your Committee's
report could provide further clarification in this area.

10
- 3 Gains from the Disposition of Depreciable Property (Sec, lk)
Some witnesses expressed concern that section lk may require
recognition of gain despite the fact that the taxpayer's method of
accounting today does not require such recognition. The example
given was the normal retirement of property depreciated in a
multiple asset account. Section 1231 today does not require the
recognition of gain or loss at the time of such retirement as long
as the taxpayer's method of accounting, in accordance with Treasury
regulations, clearly reflects income. If the taxpayer's method of
composite accounting complies with the Treasury regulations, those
regulations will similarly permit nonrecognition of gain or loss
under section lk. A statement in your Committee's report, illustrating this point, should allay any concern in this regard.
Expense Accounts (Sec, k)
In order to ease the accounting problems of concerns supplying
articles for use in novelty advertising, we recommend a special
exclusion from the $25 business gift limit in the House bill. Such
exclusion would permit the deduction of items costing a modest amount,
such as up to two or three dollars, regardless of the total gifts to
any one customer over the year. It would apply to each gift item
on which the name of the advertiser is clearly and permanently
imprinted and which is one of a number of identical items distributed
generally by the advertiser. Such an exclusion would permit novelty

«»

—

advertising to be carried on free of accounting difficulties in keeping track of a large number of small items without disturbing the
curtailment of abuses which the bill provides.
In addition, it was never our intention that advertising devices
such as display racks and advertising signs, which are provided for
use in business and which are not items of personal use, should be
included under the gift provision. We would recommend that the Committee report contain language clearly indicating that such items
are not business gifts under section k of the bill.
Withholding on Interest and Dividends (Sec. 19)
We have ©ontinued our efforts to work out a withholding system
that would be a© efficient as possible and at the same time would
minimize any possible hardship to the recipients of dividends and
interest. We would like now to reco_snen£ certain improvements in
the provisions for exemption certificates.
'i5ie exemption certificate system contained in the House bill
applies to savings account interest, certain interest paid by insurance companies, dividends, and. patronage dividends, so that there
will be no withholding on such amounts received by individuals who
owe no tax. We would recaaaaend that the exemption certificate
procedure be extended to dividend income of other non-taxable
recipients. For example, this would include foreign, state and
local governments, and tax-exempt organizations, such as colleges
and. universities, churches, and pension trusts.

74
- 5Regarding withholding in the insurance industry, the exemption
certificate system should continue to apply to interest on proceeds
of life insurance left on deposit with the insurance company but
should not apply to interest on dividend accumulations on unmatured
life insurance policies. In the case of interest on these dividend
accumulations there would appear to be no need for exemption certificates because the interest is customarily left with the insurance
company and not used by the policyholder to meet current living
expenses. In addition, the insurance companies, who recommended
this change, have testified that the amounts involved are normally
small and an exemption certificate procedure would be impractical to
apply because of the millions of accounts.
Provision should also be made for exemption certificates to
remain valid until revoked by the filer instead of requiring annual
refiling. This would make the House exemption certificate system
easier to administer by the paying institutions and would also reduce
the number of forms which non-taxable persons would be required to
file.
There has been considerable exaggeration of the amount of overwithholding that could occur under the House bill. However, there
may be some situations where the quarterly refund allowance is not
sufficient to correct overwithholding on a taxpayer with large
itemized deductions. The House bill takes into account only the

standard deduction in computing the allowable amount of a quarterly
refund so that overwithholding can result if the taxpayer1 s itemized
deductions exceed the standard deduction. In order to provide prompt
refund of all significant overwithholding, we would recommend extension of the refund allowance provision to permit an individual to
take into account his itemized deductions.
We also recommend two changes to eliminate technical problems
which have been called to our attention. The first is to eliminate
withholding on dividends in kind which consist of distributions of
stock of another corporation.
Second, it has been pointed out to us that some corporations,
for instance, some railroads with little or no tax liability, may
not be able to file their final tax returns until many months after
the close of the taxable year. Such corporations would be delayed
in obtaining a refund of amounts withheld from their interest and
dividends since under the House bill refund for the fourth quarter
of the taxable year can only be obtained upon the filing of the
final return for such year. This problem can be solved by permitting
a quarterly refund for the fourth quarter in the case.of a corporate
taxpayer if the refund is expected to exceed its total tax liability
for the year.
These changes will reduce inconvenience both to payors and
recipients of interest and dividends and at the same time will maintain

i w

- 7 the effectiveness of the systems in reducing the intolerable gap
between dividends and interest received and those reported for tax
purposes.
Controlled Foreign Corporations (Sec. 13)
A great deal of concern has been expressed by witnesses regarding the provisions of section 13 of the bill. Substantial modifications of this section are called for. We remain convinced that our
basic proposal for the general elimination of deferral for operations
in developed countries would be the most equitable and appropriate
policy. Adoption of this principle would eliminate a great deal of
the complexity of section 13. However, should the Committee decide
to adopt an approach along the lines of the House bill, there are a
number of changes that should be made. Our suggestions for such
changes should not be taken as indicating any lessening of our
support for the elimination of deferral. It merely seemed desirable
to indicate the changes that would be needed to improve the working
of section 13 should this type of approach be preferred by the Committee .
A. Suggestions as to Income Covered in Section 13.
1. Change approach to income from U. S. patents, copyrights,
etc.—The House bill deals with the problem of U. S.-developed patents,
copyrights, and exclusive formulas and processes, which are exploited
abroad free of U. S. tax by controlled foreign corporations, by

77
- 8 subjecting the current income generated by such rights to current
U. S. taxation. This requires a determination of the amount of
income generated by the use of patents, etc., an admittedly difficult problem. It would be more appropriate to handle this problem
at the time the patent (or like property or right) is transferred
abroad. Thus, it could be provided that the sale of such a U. S.developed patent to a controlled foreign corporation would result in
ordinary income, rather than capital gain, as frequently occurs under
present law. A somewhat longer statute of limitations could be provided to ensure that the valuation of the patent at the time of
transfer is a fair one. If the patent is licensed rather than sold,
the transferee of the patent is under current law obligated to pay
a fair royalty annually in return for the use of such patent. This
approach should effectively eliminate any abuse in this area since
all U. S. patents would be transferred abroad in arms-length transactions producing a full U. S. tax at the time of transfer or on an
annual basis. It would make unnecessary the determination of the
amount of income generated by the use of patents, etc., as under
the House bill.
2. Refine coverage of foreign base company provisions.—The
coverage of the foreign base company provisions of section 13 should
be modified to ensure that all tax haven transactions are reached
and also to avoid unintended coverage of non-tax haven situations.

78
_ 9 Thus, the omission under H. R. IO65O of income received by tax haven
companies from related parties for rendering managerial, technical
and other services outside of the country of their incorporation
should be corrected since this is a significant form of tax haven
income. Also, the coverage of tax haven sales income requires
technical clarification to ensure its application to commissions of
companies acting as sales agents.
On the other hand, the base company provisions of section 13
now treat certain kinds of operating income as "passive" income and,
therefore, subject to taxation to the U. S. shareholder. Thus,
rentals, royalties and interest may constitute active income to
businesses such as shipping, leasing and financing companies. These
types of income when they are the income of an operating company
should not be treated as "passive income", and, accordingly, an
appropriate exception should be made. However, this exception should
not extend to tax haven situations, as for example, when rentals are
received from a related party for the use of property outside of the
country of incorporation of the recipient.
¥e would also suggest that there be an over-all exception to
deal with situations where a controlled foreign corporation covered
by the provisions of the bill has not been availed of to avoid taxes.
Such a provision was contained in the revised draft of tax haven
legislation which we submitted to the House Ways and Means Committee

7Q
- 10 and would be desirable from the standpoint of adding flexibility to
ensure a fair application of the base company income provisions in
the cases where it is needed. For example, a subsidiary incorporated
in one country but conducting a sales operation in a second country
may pay full taxes to the second country so that its place of
incorporation does not result in the avoidance of taxes. Finally,
there are certain shipping activities which present special problems
for which exclusions should be developed.
3. Limit anti-diversification rule.—The House bill denies the
use of deferral to new businesses in developed areas. Earnings invested in a trade or business that was not in operation on December 31,
1962 or that has not been in operation for 5 years would not qualify
for deferral. Our preference that deferral be eliminated for all
profits arising in developed areas, of course, would obviate the
need for this provision. However, if deferral is not eliminated,
the provision should be modified to make clear that it applies only
with respect to the use of earnings from a business enjoying deferral
and that it does not apply to the earnings of a new business started
with fresh capital from the United States. Also, it may be desirable
to indicate with more definiteness when a trade or business will be
considered to have been conducted for a 5-year period or since
December 31, 19&2 by substantially the same interests.
k. Eliminate provision for reinvestment of developed area tax
haven profits.—I renew my prior suggestion to modify the deduction

- 11 -

for reinvestment in less developed countries to prevent a "pour oyer"
from developed countries. Permitting the profits of tax haven companies in developed areas to escape U. S. taxation might unduly
encourage the use of such tax haven companies and would be inconsistent with the basic policy of eliminating deferral for such
operations. Our view is that the soundest approach would be to provide that there would be no reinvestment deduction for any tax haven
profits except for dividends and interest derived from related companies carrying on an active trade or business within a less developed
country. In this connection, I would suggest liberalizing the types
of property which would qualify for the deduction as well as the
conditions for reinvestment. For example, it may be that substantial
minority stock interest should qualify even though the foreign corporation is not U. S. controlled. Consideration should also be
given to allowing certain forms of debt obligations to qualify. The
time within which investments must be made is much too restricted
under section 13 and provision for a longer period would be desirable.
5. Liberalized rules for reinvestment of earnings of operating
companies in less developed areas.—As a concomitant of my last suggestion, I would propose to liberalize the use to which earnings of
operating companies in less developed countries may be put. I
recommend that there be complete freedom as to the manner in which
such earnings may be employed. To ensure that this privilege is only

81
- 12 -

granted in appropriate circumstances, it will be necessary to restrict the companies' qualifying to those having substantially all
their income from such countries. In this connection, liberal rules
as to source of income would be provided, so that such companies can
market their products or purchase materials outside less developed
countries and still qualify as operating in less developed areas.
It should be pointed out that operating companies not qualifying for
the less developed country reinvestment privilege would have restricted
reinvestment privileges regardless of where their earnings were
reinvested.
6. Nonapplicability to possessions of United States.—All corporations not incorporated under the laws of the United States are
treated as foreign corporations for purposes of the Internal Revenue
Code. As a consequence, corporations incorporated under the laws of
possessions of the United States technically might be classified and
treated as controlled foreign corporations under the present language
of the bill. I would recommend, however, that such corporations not
be treated as controlled foreign corporations, since the possessions
of the United States, principally Puerto Rico and the Virgin Islands,
are not truly foreign areas and present special problems under United
States tax law which can best be handled outside of the context of
the treatment of controlled foreign corporations.

Suggestions with Respect to Technique.

1. Modify definition of controlled foreign corporation.—We
recommend modifying the definition of control so as to limit somewhat
the coverage of foreign corporations classified as controlled foreign
corporations. Perhaps the most effective way of doing this would be
to provide that in determining whether more than 50 percent of a
foreign corporation is owned by U. S. persons, only U. S. shareholders
owning at least a 10 percent interest are to be counted. This would
help eliminate, for example, the possibility of covering certain
foreign corporations more than 50 percent of which may be owned by
U. S. persons but where such ownership is so widely scattered that
there is no U. S. group in effective control. Also, some modifications in the constructive ownership rules would seem desirable to
achieve a more limited coverage. In particular, we would recommend
that U. S. shareholders not be treated as the indirect owners of
stock owned by a corporation in which they have an interest unless
such interest is at least 10 percent.
2. Recognition of losses.—It would seem desirable to provide
for greater recognition of losses of foreign subsidiaries than is
effected by the House bill. Thus, some provision should be made
for allowing losses of a foreign subsidiary in one year to offset
its profits for another year which otherwise would be taxable under
section 13. It would also seem desirable to make certain changes in

- 111. -

83
the mechanics for taxing constructive distributions to U. S. shareholders.

Some of these changes would enable the losses of intervening

foreign corporations to offset the gains of subsidiaries of such
controlled foreign corporations.
3.

Computation of earnings and profits.—Some concern has been

expressed over the problem of computing the earnings and profits of
a controlled foreign corporation that would be taxed to United States
shareholders. We shall provide clear administrative regulations to
assist taxpayers in computing the earnings and profits of foreign
corporations in accordance with the rules which have been developed
for domestic corporations. We will permit the foreign corporations
earnings and profits to be computed with the benefit of elections
similar to those which are available to domestic corporations.
k. Foreign currency restrictions and blocked income.—We are
aware of problems taxpayers have with foreign currency restrictions
and blocked income and provisions should be made to take care of
these situations. These problems arise under present law in connection with branch operations and administrative guidelines have been
developed in the past to deal with them. Problems under the House
bill will be somewhat different than those dealt with in the past
but it is believed that these matters can be handled satisfactorily
through establishment of rules which are similar in nature.

84
- 15 5. Reorganizing foreign corporate structures.—Taxpayers have
indicated a desire to reorganize foreign corporate structures to
accommodate to the legislation. I would like to state that it would
be the policy of the Treasury to view sympathetically applications
of taxpayers for rulings under section 367 which are required in the
case of reorganizations involving foreign corporations. We contemplate that such advance rulings could be made available relatively
freely, except in situations where such arrangements involve U. S.
tax avoidance.
Liquidation Provision (Sec. 16)
In my prior testimony, I suggested reconsideration of section 16,
dealing with the liquidation of or sale of stock in controlled foreign
corporations. The hearings and discussions with private groups have
confirmed our view that this provision should apply only to earnings
for taxable years beginning after December 31, 1962. In addition,
technical amendments are needed to coordinate more closely the treatment of sales of stock with the treatment on liquidation, including
the allowance in appropriate circumstances of a foreign tax credit
on sales of stock.
Further, we recommend that the impact of the section on individuals
be mitigated. Unlike a corporate shareholder, whose tax will be
limited to 52 percent less a foreign tax credit, the individual would
be taxed at rates up to 91 percent and no foreign tax credit would
be available. Two meritorious suggestions have been advanced. The

85
- 16 first would add an averaging provision to the bill. This would be
similar to that involved in the foreign trust provision, which permits an individual to reduce the amount of tax on a distribution
by treating it as if it had been distributed to him over the period
of his holding.

The second would give the individual shareholder the

alternative of limiting his tax under section 16 to a capital gains
tax provided that at the same time he pays a tax equal to 52 percent
of the earnings of the corporation less any foreign tax credit. The
mechanics of this will work out so that the shareholder pays 6^ percent overall (52 percent plus 25 percent of kQ percent) and is in
exactly the same position as if he had had a domestic corporation
which had paid its full 52 percent tax and which he had liquidated
or sold at capital gain rates.
Information Requirements (Sec. 20)
Section 20 of the House bill needs some modification. For example,
changes are needed to prevent the provision from applying to foreign
corporations where there is no substantial U. S. share ownership.
It should be made clear that U« S« officers and directors of foreign
companies where there are no substantial U. S. owners need not supply
information as to such companies. Likewise, it should be provided
that domestic subsidiaries of foreign parent corporations will not be
required to supply information about non-U. S. subsidiaries of such
parent corporations. Finally, it should be made clear that as to

- 17 fl-ll aspects of section 20 information will be required only as set
forth in such regulations as are in existence on the first day of
a taxable year.
Foreign Investment Companies (Sec. 15)
Further study of the foreign investment company provisions with
representatives of such companies indicates that a number of minor
technical amendments should be added to clarify and improve their
application. For example, an increase should be made in the time
permitted for reporting undistributed capital gains to the shareholders. Also, provision should be made for a pass-through of
foreign tax credit to the shareholders for taxes paid by the foreign
investment company.
Finally, with respect to the overall problem of foreign income,
I believe that the hearings have shown more than ever the need for
and the appropriateness of legislation to establish equity in the
taxation of such income and I hope that the Committee will agree
with this view and act accordingly.
Conclusion
In conclusion I wish to express our appreciation for the extended
effort and careful consideration which your Committee and those testifying before it have already given to this legislation. As your
consideration of the bill progresses, we are at your disposal to
work further with you and your staffs in any way which you feel may
be helpful to you.

87
TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY ' May 10, I962
REMARKS BY ROBERT H. KNIGHT,
GENERAL COUNSEL OF THE TREASURY DEPARTMENT,
BEFORE THE ASSOCIATION OF GENERAL COUNSEL
PONTE VEDRA CLUB, PONTE VEDRA BEACH, FLORIDA
MAY 10, 1962, 12:30 P.M., EST
I was delighted for a number of reasons to accept Mr. Rittenhouse!s very kind invitation to participate with you today in the
Spring Meeting of your Association and to discuss the current status
of the Administration's tax legislative program. As a private practitioner, I shared with you the same background of general corporate
practice and, indeed, have shared with some of you the same clients.
Since the Administration's tax program is reaching a critical stage
in its consideration by the Congress, this is also for me a most
opportune time to attempt to describe some of the more important tax
proposals and some of the reasons that lie behind them. When your
clients attempt to divine and evaluate the public interest contained
in these proposals, and weigh that public interest against their own
where the two may not be consistent, they must inevitably rely in
large measure upon your advice and counsel. Accordingly, no segment
of private enterprise can have a more forceful impact upon the reception which the proposals will ultimately be given by the Congress.
I hope, therefore, that none of you will content yourselves with
the brief summary that I can give in this session, but that you will
independently analyze and evaluate these proposals and make your conclusions known.
Since any tax policy must be formulated with a view to its
effect on the economy, let us first look at our economic policy.
Our national economic policy is designed to achieve four basic
goals* These are: To reduce unemployment, to increase our rate of
economic growth, to maintain price stability, and to eliminate the
deficit in our international balance of payments, with its accompanying loss of gold.
The goal which is in many respects the most critical today is
the last, that is, to eliminate the deficit In our international
balance of payments. As you may know, with the exception of 1957,
when the Suez crisis swelled exports, we have incurred a balance of
payments deficit in each year since the end of 19^9. In the same
period of time, our gold reserves have declined from $2*4-1/2 billion

- 2-

to around $l6-l/2 billion, most of the drain (some $6 billion) occurring in the past four years. We have, moreover, incurred this deficit
despite the fact that in the same period our exports of goods and
services substantially exceeded our imports. Despite our excellent
export trade surplus, however, it has not been large enough in recent
years to offset the combined impact on our balance of payments of our
private investment in other countries, the cost of our overseas
defense spending and that small portion of our foreign aid expenditures which contributes to the deficit. We have, of course, no intention or desire to inhibit the free flow of private investment capital
between nations. Moreover, it is plain that necessity requires and
the public demands that we maintain defenses abroad as well as at home
which are adequate to meet any threat of aggression against ourselves
and our allies of the Free World. It is equally clear that the world
has grown too small to permit a few of the industrialized nations with
relatively smaller populations to enjoy unprecedented wealth while the
greater portion of the Free World with its substantially larger populations lives in the squalor and disease that poverty engenders. Our
own survival depends upon our contributing our share to enable the
less-developed nations to help themselves to provide their people with
the hope and with the means of realizing their legitimate aspirations
for a decent standard of living. Clearly, if we are to continue these
essential activities, we must find a solution to our balance of payments problem.
We are attacking this problem on many fronts. Any long-range
solution, however, must depend on increasing our export trade surplus.
To do this, we must keep down the cost and price of our goods, and
keep their relative quality at the highest levels. This in turn requires that industry be enabled to take prompt advantage of technological advances in the development of the most modern and efficient
industrial plant and equipment. Achieving these goals will help to
relieve another problem — our present intolerably high level of
unemployment. The Administration's tax proposals are designed to
help in meeting these problems.
The genesis of the tax bill now pending before the Congress is
contained in the President's Tax Message of April 20, 1961, to the
Congress. The general objectives of the President's tax proposals
as set forth in the Message are to serve the basic economic goals
I have outlined and "to eliminate to the extent possible economic
injustice within our own society — and to maintain the level of
revenues ..." In the Message, the President pointed to the need for
long-range tax reform but limited his immediate proposals to "urgent
and obvious tax adjustments needed to fulfill" these aims* At the

- 3 •-

8®

same time the President asked the Treasury to undertake the research
and preparation of a comprehensive tax reform program which is now
scheduled to be presented to the Congress toward the end of the
current session.
Beginning on May 3, 196l, the Administration's tax proposals were
elaborated by Secretary Dillon and other Treasury officials appearing
before the House Ways and Means Committee throughout the balance of
the First Session of the 87th Congress and the first three months of
the current Second Session. During that period the Ways and Means
Comraittee also heard some 217 witnesses representing affected sectors
of the public or particular points of view. The record of these
hearings, including numerous statements filed with the Committee,
covers over 3*600 pages. In the light of the President's proposals,
the testimony adduced, and the desires of the Committee, Treasury
technicians worked with those of the Committee staff and the staff
of the Joint Committee on Internal Revenue Taxation, headed by Mr.
Colin Stam, to prepare specific draft legislation. The Committee
favorably reported a bill on March 16, 1962. The bill, H. R. IO65O, •
is entitled, "The Revenue Act of I962." .
Basically, the bill contains two categories of proposals. The
first category is embodied in the so-called investment incentive tax
credit. It is designed to give a tax preference to those who invest
in productive machinery and equipment. These provisions are intended
to meet the need for modernization of our plant and equipment, to
increase our ability to compete both at home and abroad with foreign
goods in price and quality, and thereby to alleviate our balance of
payments deficit and to contribute to a healthy rate of growth of
the economy as a whole.
The balance of the bill is designed to eliminate certain more
glaring defects and inequities in the present tax law which would be
remedied at this time to provide revenue gains to offset the revenue
loss involved in the first proposal.
After the bill was reported, it went to the Rules Committee of
the House where the Chairman of the Ways and Means Committee sought
a rule which would permit the bill to be considered by the House as
a "package" without allowing the addition of amendments on the floor
of the House. Such a rule is customary in the case of tax bills in
order to provide for their orderly consideration and to prevent the
bill being burdened by hastily or ill-considered amendments. During
the hearings by the Rules Committee, it became apparent that there

Qfi

- kwas considerable sentiment in the House for a so-called balanced bill:
i.e., one in which the loss of revenue attributable to the investment
credit would be at least offset by the increase in revenues attributable to the other provisions. The original Administration proposals
would have met this test but changes thought desirable by the Committee had resulted in an unbalanced bill. To restore the balance, the
House Ways and Means Committee reconvened, reduced the tax credit by
1 per cent and generally tightened certain other provisions of the
bill.
This tightening process achieved the objective of balancing
the bill but resulted in some features which the Administration felt
would diminish the effectiveness of the credit.
As amended, the bill was passed by the House with a vote of 219 to
196 on March 29, and hearings began in the Senate before the Senate
Finance Committee on April 2. That Committee has now concluded five
weeks of public hearings during which over 200 witnesses testified.
It is now proceeding in Executive Session to finish its consideration
of the House Bill.
With certain significant omissions, H. R. IO65O, as passed by
the House, incorporates the bulk of the initial program recommended
by the President. The Treasury Department is urging the Senate to
restore some of the Administration's original proposals as well as
to make certain changes in the bill and hopes that these improvements
if enacted by the Senate will survive the legislative conference procedures before final enactment.
H. R. IO65O in its present form contains 21 sections, 19 of which
are of substantive content.
Section 2 sets forth the so-called investment incentive tax
credit I referred to and provides in general for a credit of 7 per
cent of investments made in the United States by the taxpayer during
the taxable year in depreciable personal and real property, other than
land and buildings. I will discuss this more specifically in a few
minutes.
Section 3 would permit deduction' of certain lobbying expenses.
Treasury is opposed to this provision.
Section k attempts to tighten the law respecting the deductibility of business traveling and entertainment expenses. The Treasury
is urging further tightening.
Section 5 relates to distributions in kind by foreign corporations to domestic corporations. Basically, the bill treats such
distributions for tax purposes as ordinary income to the U. S. taxpayer

- 5-

at the fair market value of the property distributed rather than at
the cost of the property to the distributing foreign corporation.
Exceptions are made in the case of property purchased with U. S.
earnings.
Section 6 merely clarifies the rules for allocating income in
the case of intercompany sales between domestic corporations and
their foreign affiliates.
Section 7 would tax U. S. shareholders of foreign personal
holding companies on so-called passive income earned by such companies when that income is at least 20 per cent of its total earnings.
The present law provides that such a tax be imposed when the passive
income is at least 60 per cent of the foreign personal holding companies ' earnings. Passive income generally includes rents, royalties,
investment income and the like as distinguished from earnings directly
attributable to services rendered or to the conduct of a trade or business.
Section 8 reduces the deductions attributable to adding income
of mutual savings banks and similar institutions to their bad debt
reserves, and generally tightens up other tax provisions relating to
such institutions, all with a view to reducing the competitive tax
advantage they presently enjoy in relation to banks and commercial
lending institutions. This provision only goes part of the way to
achieving competitive equality, the objective set forth in the President's recommendations.
Section 9 relates to distributions by foreign trusts to U. S.
beneficiaries, making the beneficiaries taxable on income which has
been accumulated abroad to avoid U. S. taxation under loopholes
existing in present law.
Section 10 extends to a degree general corporate tax rules to
mutual and reciprocal fire and casualty insurance companies, thus
placing them more nearly on a basis of equality with their stockowned counterparts. The Ways and Means Committee, by way of compromise, retained modified preferences, some of which the Treasury is
now opposing before the Senate Finance Committee.
Section 11, the so-called "gross-up" provision, amends the rules
relating to the treatment of foreign tax credits allowable to domestic
corporations on dividends from foreign subsidiaries to prevent the
domestic parent from In effect receiving both a deduction and a credit
for the foreign taxes. The change will result in assuring that taxes

-6 paid by domestic corporations on income received from foreign
sources are paid at the 52 per cent rate rather than at lower rates
permitted by loopholes in present law.
Section 12 puts a ceiling on the exemption applicable to income
earned from sources outside the United States by individual taxpayers
residing abroad.
Section 13 eliminates to an extent the present provisions of the
Code which permit foreign corporations controlled by U. S. shareholders to defer payment of U. S. taxes on their earnings allocable
to such shareholders. Contrary to Treasury proposals deferral will
be permitted where the earnings are reinvested abroad in substantially the same trade or business or if such earnings are invested
in less developed countries. Other provisions of this section tend
to weaken the Administration's overall objective to eliminate deferral privileges.
Section 1^ would require that the gain from the sale of depreciable personal property and certain other property to the extent of
depreciation taken shall he treated as ordinary income for tax purposes rather than capital gain as is now the case. The Treasury is
urging a limited extension of the principle to depreciable real
property.
Section 15 provides that where stock in a foreign investment
company is sold or exchanged, the gain realized by the U. S. shareholder is to be treated as ordinary income rather than capital gain
to the extent of the taxpayer's share of earnings and profits accumulated by the corporation during the period for which he held the
stock. Equivalent changes are made where such stock is inherited.
Section 16 contains a complementary provision which would treat
gain from the sale or exchange of stock of a foreign corporation held
by a 10-per-cent or greater U. S. shareholder as ordinary income, to
the extent it represents allocable earnings and profits accumulated
by the foreign corporation. A retroactive feature of the bill relaing to the accumulation period to be subjected to this provision is
opposed by the Treasury as unduly burdensome to the taxpayer.
Section 17 is intended to tighten up the tax treatment of
cooperatives and their patrons to make sure that all cooperatives'
earnings are taxed once currently — either at the cooperative or
patron level. The bill would insure, for example, that either the
cooperative or the patron would be taxed where the patron receives
redeemable scrip representing an undistributed allocation of earnings
which are to be reinvested by the cooperative.

_> w

-7 Section 18 for the first time makes real property located outside the United States includible in the gross estate for U. S. estate
tax purposes.
Section 19 would provide for withholding at source on dividends,
interest and cooperative patronage dividends at a rate of 20 per cent.
Section 20 would incorporate a number of changes made in the
annual information returns which domestic corporations (and certain
U. S. citizens and residents) are required to file with respect to
foreign subsidiaries.
The most important feature of the tax bill from the standpoint
of the Administration and one of those which has aroused the widest
comment is, of course, the investment incentive credit. As originally proposed by the President in his Message of April 20, 196l, the
proposal provided for a tax credit of 15 per cent of all new productive equipment investment expenditures in excess of current depreciation allowances, with proportionately reduced credits for lesser
investment expenditures. The credit in this form was to be taken
as an offset against corporate and individual taxpayers' tax liability
up to an overall limitation of 30 per cent in the reduction of that
liability in any one year. It was, as is presently the case, separate
from and in addition to depreciation of the eligible new investment.
The House Ways and Means Committee considered that having three categories of allowances and having their computation hinged to depreciation allowances was too complicated and substituted a straight 8
(later reduced to 7) per cent credit for investment in depreciable
personal and certain real property. The useful life of the property
to qualify was changed from six years to a formula in which investment
in property with a life of four to six years would take one-third of
the investment into account; property with a life from six to eight
years would have two-thirds of the investment taken into account; and
property with a longer life would have the full investment to take.
Moreover, purchases of used property up to $50,000 would also be
eligible for the credit. The credit would be an offset against tax
liability (as distinguished from an allowable deduction) in full up
to $25,000 and above that point would reduce tax liability by not
more than 25 per cent. Unused credits could be carried over for- five
years. The provision was made effective for the taxable years ending
after December 31* 1961, so as to avoid postponement of investments
which would otherwise be made while the bill was pending.
The Administration now recommends that the Senate restore the
8 per cent credit as distinguished from the 7 per cent now in the
bill and increase the limit on the credit allowable against tax

- 8-

liability in any taxable year from $25,000 plus 25 per cent to
$25,000 plus 50 per cent. We have also recommended that the Senate
eliminate a 3 per cent credit allowed to regulated public utilities
largely on the ground that the utilities' rates are regulated and
any profits in excess of those considered desirable by the regulatory
agencies would be automatically passed on to consumers rather than
used for investment in new plants and equipment.
At first a number of fears were expressed that the investment
credit was to be a substitute for a long overdue reform of depreciation allowances. Much of the force of this argument was eliminated
by Secretary Dillon's announcement that the Treasury Department was
undertaking to reform depreciation allowances administratively to
take account of the changes in useful lives of machinery and equipment which had occurred since Bulletin F was last published by the
Internal Revenue Service, and additionally to take account of the
ever-increasing speed by which technological advance makes obsolete
existing machinery and equipment. If the investment credit in its
present form becomes law, that credit, together with reformed depreciation allowances which are expected to be announced late in June
or in July at the latest will provide American business with total
allowances on their investment in new machinery and equipment equal
to the average of those prevailing in the leading industrial nations
of Europe. This should enable American industry to compete on more
favorable terms with their foreign counterparts both at home and
abroad. The need to stimulate productivity through increased investment is plain. In the past decade U. S. investment in plant and
machinery as a percentage of GNP declined from 6.6 per cent to 5»5 per
cent while the Common Market countries increased such investment from
8.5 per cent to 10.2 per cent. Dramatic emphasis has recently been
given the problem in the recent price-increase announcement by U. S.
Steel and other members of the steel industry. You may recall that
a principal reason for the price increase offered by the Chairman of
the Board of U. S. Steel in his television appearance was based on
his Company's need to acquire funds to invest in new productive equipment so that It could modernize its plants to meet foreign competition.
Treasury Department estimates show that the investment credit will
provide the steel companies with a substantial portion of the funds
for investment in productive equipment as would have been provided by
the price increase had it remained in effect and if sales continued
at the same rate. The investment credit, on the other hand, assures
that business will have the funds to carry out necessary modernization without resorting to inflationary price increases.

- 9Investigation has shown that American industry in many areas
is falling behind Europe and Japan in the age and efficiency of its
plant and equipment. This modernization lag is steadily increasing
the ability of these foreign countries to sell their goods at favorable prices in our market and decreasing the ability of U. S. companies to sell our goods abroad at a time when our balance of payments
is running a deficit for the fifth straight year. The investment
incentive tax credit is deemed a vital part of the Administration's
program to modernize, to increase productivity and to meet the challenge of the other industrialized nations. This, of course, should
help increase our trade surplus, and aid in reducing unemployment
and in contributing to the growth and expansion of our economy.
Questions have been raised as to whether the Administration
should not have sought to achieve its purpose by accelerating depreciation rates on plant and equipment. Accelerated depreciation might
provide the same result but would cost the Government far more in
revenue for the same incentive effect upon industry. For example,
the cost to the United States in revenue losses that would be sustained
in the first year by enactment of the tax credit would amount to $l.k
billion. On the other hand, a change in the depreciation rules which
would add an equal amount to the profitability of investment, the
true measure of the stimulation involved, would cost some $5*3 billion. This is why the Administration has chosen the investment credit
to stimulate productive investment, — because it offers the maximum
stimulus for each dollar of tax revenue lost. Because this will be
a continuing problem, we are convinced that this should be made a
permanent part of our laws.
The second major item in the bill of wide public interest relates
to withholding on dividends and interest. Currently, while about $15
billion of such income is faithfully reported, about $3 billion of
interest and dividends received by taxable individuals is not reported.
This failure results in a revenue loss of more than $800 million "
annually, which must be made up by other taxpayers. This gap between
earned and reported taxable dividends and interest is not attributable
to lack of effort on the part of the Internal Revenue Service to enforce the law. However, despite full support and cooperation from
the financial community to improve voluntary compliance and enlargement of audit enforcement and educational activities, the overall
results have been insignificant.
Even Commissioner Caplin's revolutionary automatic data processing equipment will not be able to close the gap because failure
to report dividends and interest is a mass compliance problem Involving millions of transactions, and while ADP is helpful in providing

9^
- 10 Internal Revenue with a check in the case of individual taxpayers,
it will not in itself collect any tax. To add to ADP a mass collection system would be excessively expensive and less than a third as
effective as withholding.
The bill provides that institutions paying dividends or interest merely total up the amount due to persons who have not filed
exemption certificates, deduct 20 per cent of the total amount, and
pay this over to the Government at the end of the month following
the quarter in which the dividends or interest were paid. It will
not be necessary for payors to furnish information statements to the
Government or the recipients. Certain persons, including children
under 18 years and adults who do not expect to owe any tax, may be
exempted by filing exemption certificates. Where withholding is
excessive, the bill provides for prompt quarterly refunds. It is
estimated that withholding, if enacted, will recoup in 1963 some
$650 million of the more than $800 million in taxes now being evaded.
The third portion of the bill of widest general interest is set
out in those provisions relating to the taxation of foreign income
and investment. The objective of the Treasury proposals is to promote
equity between taxpayers whose income comes from abroad with those
who receive such income from domestic sources and to provide for tax
neutrality between investment at home and abroad. At the present
time income earned by foreign companies owned by U. S. taxpayers is
able to avoid much of the tax payable by domestic corporations and
their stockholders because present law permits deferral of taxes on
earnings of the foreign subsidiary until such time as the earnings
are actually distributed to the shareholders. If reinvested abroad,
taxes are avoided. At a time when our balance of payments has become
critical and when the industrial countries have not only recovered
from the damage of the war but are enjoying unprecedented economic
booms, there is no national interest to be served by subsidizing
investment abroad. This is particularly true when unemployment at
home remains at an unacceptably high level. The President's recommendations, and the provisions of the bill, are not, however, designed
to discourage any such investment where it serves a business purpose.
H. R. IO650 eliminates deferral of taxes on income from dividends, interest, rents and royalties, and trading earnings except
where they are reinvested in less developed countries. Income from
insurance against U. S. risks and from the use of patents, copyrights,
etc., developed in the United States are subject to tax without any
exception for reinvestment. In the case of foreign subsidiaries,

Q7
_• i

- 11 other than those in tax haven countries, the bill would subject to
U. S. tax undistributed foreign earnings except as they are reinvested
in the same country and in substantially the same trade or business
conducted by the firm in question, or if they are invested in less
developed countries. The provision in its present form does not meet
the President's recommendation which would eliminate deferral except
for income earned abroad and reinvested in less developed countries.
The subject of foreign investment and tax neutrality is, as I am
sure you are aware, very complex and the matter is still being given
the most earnest study in the light of the testimony to date. We are
hopeful that the provisions of. the bill when finally enacted will be
recognized as adequately meeting the problems which the country faces
even though some individuals may differ as to the desirability of
taking the particular form of action chosen.
As you can see from my discussion, the bill covers a number of
complex subjects and I have only been able to give them the most/superficial treatment. I can only hope that the discussion has been- adequate to prompt you to further study with a view to formulating a
truly informed opinion. Such an effort is, in my mind, an important
service which you can render your country and yourselves. .

*_3___2IEX--_-£A£_-_-9-~-

_^ASHH«JTeW5~^r-es—*--.
May 10, 1962

?i__ ^ _ s S r ^ ^ ^ * ^ ^
THURSDAY, MAY 10, 1962
TREASURY ISSUES AMENDMENT TO ITS
CUBAN IMPORT REGULATIONS
The Treasury Department today amended the Cuban Import Regulations

so that the exemption £0t Cuban goods brought in as baggage for personal
use no longer applies to United States citizens and residents arriving

after May 20, 1962. The exemption remains in effect until that date to
avoid §«& ^Sf^SB^*iaate©'^e such persons who are abroad.
«aa SSSK

U(U K/ ^fftp^AJ ?CC
£4

/
/
/ /

TREASURY DEPARTMENT
WASHINGTON, D.C.
May 10, 1962

FOR IMMEDIATE RELEASE
TREASURY ISSUES AMENDMENT TO ITS
CUBAN IMPORT REGULATIONS
The Treasury Department today amended the Cuban
Import Regulations so that the exemption of Cuban
goods brought in as baggage for personal use will no
longer apply to United States citizens and residents
arriving after May 20, 1962. The exemption remains
in effect until that date to avoid unwarranted
inconvenience to such persons who are abroad.

0O0

D-484

- 12 -

revision of our guidelines will, therefore, be essential if
our depreciation policies are to keep pace with the changing
world. Such review and revision is planned, for we must never
again allow our tax practices to fall behind pftj*) industrial
practices.

0O0

_. i i mm

X U _«

the part of the most skilled economists, lawyers, engineers
and accountants at the command of the Treasury and the Internal
Revenue Service. It also, as many of you know at first hand,

is requiring numberless consultations with industry technicians
and management.
But we will not consider the job done when we have
published our new guidelines and rulings. We know that in such
an enormous undertaking, some errors of fact or judgement are
perhaps inevitable — and we willTby no means turn a iteaf ear
who demonstrate the existence of such errors.
In addition, depreciation reform is, almost by definition,
a job which is never done once and for all. These new standards
will indeed — and for the first time — take into account not
only past but anticipated obsolescence. But what about the
technological breakthroughs which lie just beyond the ones we
can now glimpse over the horizon? We do not know what they will
be — but we do know that they will be. Periodic review and

- 10 -

in v
JL W -a_

By closing the existing loophole in taxation of these gains,
the legislation provides the safeguards necessary to permit
our planned shift to more liberal and flexible treatment of
depreciation of such property. But the legislation does not,
mt present, contain a similar provision applicable to pe*_
property. I would be less than candid, therefore, if I did
not tell you that we are not now contemplating a revision of
Bulletin F so far as buildings are concerned. If, however, the
Congress enacts legislation closing existing loopholes in the

tax treatment of depreciable real<£__>pe_*€y, Bulletin F revisio
covering buildings will follow.
Our depreciation revision as a whole will, indeed be
meaningful to American industry and to the entire American
economy. Can anyone any longer doubt this?
Depreciation revision has proved to be a monumental task •«
requiring long hours of work over a period of many months on

9
- 9 overall depreciation account is in conformity with the guide*
line life established for that class of assets, the Individual
item lives used by the taxpayer will remain unchallenged.
This move to a broad category approach to depreciation
will also, we believe, eliminate controversy between Internal

Revenue and business taxpayers. TheJ^arfMsa*-*^] approach we are
working on is designed for simplicity. For most industries, a
single class life/will be established covering all machinery
and equipment used in production. Items in general use, such
as office equipment and furnishings, automobiles and trucks,
will be covered in separate guideline classes to be used by
all industries.
Buildings are a special case. As you are aware, the tax
bill now pending before the Congress contains a section
providing for correct tax treatment, as ordinary income, of
/Tvo

ii__joaal (property.
gains realized on the sale of depreciable peraeuaaA

I0w
- 8 We believe that our new guidelines and rulings will greatly
diminish the area of dispute between taxpayers and the
government over depreciation.
But this is not all. In the future, whenever application
of the reserve ratio test indicates that a business should be
shifted to the use of longer depreciable lives, there will be
no penalty attached. The lives will be lengthened only to

correspond to the actual replacement practices of that business.
"Penalty rates" will become only an unpleasant memory.
Our new depreciation guidelines will also be vastly simpler
than those set forth in Bulletin F. In place of the more than
3,000 individual items of plant and equipment presently listed
in Bulletin F there will be substituted broad categories of
assets for which an average life will be prescribed. Taxpayers
may, if they wish, shift their own depreciation accounts to
conform to the categories set forth in the new guidelines, but
they will not be required to do this. So long as the taxpayer^

104
- 7 the length of an entire replacement cycle!actually!to/reach
that schedule. The fact that such a shift toward more rapid
replacement policy is under way will have to be demonstrated,
however, within a few years.
For those who wish to move for the first time below the
new guidelines, or to reduce further an already below-guideline
schedule, a look at the current depreciation reserve ratio will
indicate immediately whether Internal Revenue might question
this change on audit. In some such cases, a move toward
shorter depreciable lives may nevertheless be permitted despite
j

the fact that the reserve ratio test would seem to indicate the
shift is not warranted.

Such a decision would, of course, be

a matter of judgement on the part of the Internal Revenue
Service although certain additional criteria for exceptional

J
treatment will be developed. But note that our one probable
resort to standards other than DimlliT^^^ \ y mmimm 11 can work
only in favor of the taxpayer.

105
- 6 method of depreciation being used by the business and the rate
of growth of its depreciable assets. The tables will provide
for flexibility ~~ a range of allowable fluctuations in
depreciation reserves. The ratio of depreciation reserves to
depreciable assets will be considered too high only after actual
replacement practices have lagged substantially behind the
depreciable lives being used for tax purposes. How high is too
high? This also will be spelled out in the ruling.
For businesses) which shiftr(their^depreciation timetables
only to, but nob below, the new guideline standards, a long
y^ period of time will be allowed before /their] use of the guide^ "'^'~" lines will be elflN 1 fnigrri Mfr«J^ afea^
Ms.

_ir

v—

—^

reserve ratio proves [they are/not, in fact, replacing equipment
V , . - " * * ^ . .f.>,*;. ... '*5<a**ivf

as rapidly ttawy claim^for tax purposesx If a business can^

demonstrate that it is moving toward replacement practices i

keeping with Its use of the new guidelines, it may be allowe

j (lt>
«— W v./

Any business that has already demonstrated the appropriateness of its use of depreciable lives shorter than those set
forth in the new guidelines will be allowed to continue to use
them. Internal Revenue will not challenge these depreciation
deductions unless ~~ by an objective, arithmetical standard,
which will be spelled out in the Revenue Ruling — there is a
clear and convincing basis for such adjustment. This standard

we call the "reserve ratio" and it will be based on the relation
ship of depreciation reserves to depreciable assets.
The use of such an objective standard is, of course, one
of the most significant of the many meaningful changes we are
making. As long as the depreciation reserves of a business do
not become inordinately high in comparison to assets, the lives
used by the business will not be subject to challenge at any
time. Whether the reserves become unreasonably high will be
easily ascertainable from tables which take into account the

1 fly

- 4All taxpayers ~-- let me repeat that —

all taxpayers will,

as a matter of right and without question by any revenue agent^
be permitted to use the new depreciation timetables in
preparing their tax returns for the current year. The new
guidelines will, of course, apply to machinery and equipment
already in use as well as assets acquired subsequently.
The fundamental concept which underlies our depreciation
revision is a belief that depreciation should be realistic.
Our new guidelines are rooted in reality: existing and
prospective rates of change in technology, in economic
obsolescence and in industry replacement practices.
But the new guidelines and rexilings will seek to achieve
more than a mere recognition of present-day realities. They
will be designed to make sure that our tax standards do not
constitute a barrier against movement toward even more rapid
replacement policies on the part of industry.

.. 3 -

1DQ

payers concerning proper determination of depreciable lives.
These disputes, which frequently have been prolonged and
sometimes have required resort to the courts, were in large
part made inevitable by the fact that Internal Revenue agents
have had to use as their guide for depreciation allowances a
bulletin published twenty years ago and never since modified.
Our new guidelines, and the rulings which will spell out
the manner in which they are to be applied, are designed to
bring to an end(to)this debate, paperwork and controversy.
The new guideline lives will in the vast majority of cases
be significantly shorter than those set forth in Bulletin F.
In no case will they be longer. Because many firms are already
following faster depreciation schedules than those set forth

in Bulletin F, the reduction from the lives now actually in use
will, of course, be less than the reduction from Bulletin F
#s
standards. But for.substantial majority of taxpayers use of the
h
j
new guideline lives will result in increased depreciation
allowances•

109
- 2 The new suggested depreciable lives for the assets used
by American industry will be significantly shorter, on the
average, than those now prescribed by Internal Hevenue _.
^gmm*WKHaW^ In addition, and equally Important, the new
guidelines and the standards used in their application will
be designed to achieve three major objectives:
First, simplicity — for the taxpayer and the tax

QRSf
administratis^'
Second, objectivity — to minimize controversy about
depreciation schedules•
Third, uniformity — to assure even-handed application
of the new rules to all businesses in similar circumstances*
regardless of their location or which revenue agent they deal
with.
I do not need to spell out for this audience the long
history of disputes between the government and business tax-

EXCERPT FROM REMARKS OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE BUSINESS COUNCIL, HOT SPRINGS, VIRGINIA
FRIDAY, MAY 11, 1962, CJ jUs A.M. EST

program of depreciation reform involves two aspects —
the investment credit and the revision, by administrative
action, of depreciation guidelines.
mmjm^mjmwiii^
There is general agreement in this country today
concerning the urgent mtoWmma^w to liberalize our tax treatment of depreciation to put it on a realistic basis. _B_t§te
Administration clearly recognized this need from its earliest
days and, building on studies Initiated by my predecessor,
Secretary Anderson, the Treasury has moved ahead as rapidly as
possible with a thoroughgoing revision of our administrative
guidelines for depreciation. Our work is now in its final
stages and we expect to announce the new guidelines late next
month or in July at the latest.

(DELIVERED BY UNDER SECRETARY OF THE TREASURY HENRY H. FOWlM}"
EXCERPT FROM REMARKS OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
BEFORE THE BUSINESS COUNCIL, HOT SPRINGS, VIRGINIA
FRIDAY, MAY 11, 1962, 9:15 A.M., EST
The Administration's program of depreciation reform involves
two aspects — the investment credit and the revision, by
administrative action, of depreciation guidelines.
There is general agreement in this country today concerning
the urgent need to liberalize our tax treatment of depreciation
to put it on a realistic basis. The Administration clearly
recognized this need from its earliest days and, building on
studies initiated by my predecessor, Secretary Anderson, the
Treasury has moved ahead as rapidly as possible with a thoroughgoing revision of our administrative guidelines for depreciation.
Our work is now in its final stages and we expect to announce the
new guidelines late next month or in July at the latest.
The new suggested depreciable lives for the assets used by
American Industry will be significantly shorter, on the average,
than those now prescribed by Internal Revenue. In addition,
and equally important, the new guidelines and the standards used
in their application will be designed to achieve three major
objectives:
First, simplicity — for the taxpayer and the tax administrators.
Second, objectivity — to minimize controversy about
depreciation schedules.
Third, uniformity — to assure even-handed application of
the new rules to all businesses in similar circumstances,
regardless of their location or which revenue agent they deal
with.
I do not need to spell out for this audience the long history
of disputes between the government and business taxpayers
concerning proper determination of depreciable lives. These
disputes, which frequently have been prolonged and sometimes
have required resort to the courts, were in large part made
inevitable by the fact that Internal Revenue agents have had to use
as their guide for depreciation allowances a bulletin published
twenty years ago and never since modified.
Our new guidelines, and the rulings which will spell out
the manner in which they are to be applied, are designed to
bring to an end this debate, paperwork and controversy.

- 2 The new guideline lives will in the vast majority of cases
be significantly shorter than those set forth in Bulletin F.
In no case will they be longer. Because many firms are already
following faster depreciation schedules than those set forth in
Bulletin F, the reduction from the lives now actually in use
will, of course, be less than the reduction from Bulletin F
standards. But for a substantial majority of taxpayers, use of
the new guideline lives will result in increased depreciation
allowances.
All taxpayers — let me repeat that — all taxpayers will,
as
f_ matter of right, and without question by any revenue agent,
"Be" permitted to use the new depreciation timetables in
preparing their tax returns for the current year. The new
guidelines will, of course, apply to machinery and equipment
already in use as well as assets acquired subsequently.
The fundamental concept which underlies our depreciation
revision is a belief that depreciation should be realistic.
Our new guidelines are rooted in reality: existing and
prospective rates of change in technology, in economic
obsolescence and in industry replacement practices.
But the new guidelines and rulings will seek to achieve
more than a mere recognition of present-day realities. They
will be designed to make sure that our tax standards do not
constitute a barrier against movement toward even more rapid
replacement policies on the part of industry.,
Any business that has already demonstrated the appropriatenes
of its use of depreciable lives which are shorter than those set
forth in the new guidelines, will be allowed to continue to use
them. Internal Revenue will not challenge these depreciation
deductions unless — by an objective, arithmetical standard,
which will be spelled out in the Revenue Ruling — there is a
clear and convincing basis for such adjustment. This standard
we call the "reserve ratio" and it will be based on the relationship of depreciation reserves to depreciable assets.
The use of such an objective standard is, of course, one of
the most significant of the many meaningful changes we are making.
As long as the depreciation reserves of a business do not become
inordinately high in comparison to assets, the lives used by the
business will not be subject to challenge at any time. Whether
the reserves become unreasonably high will be easily ascertainable
from tables which take into account the method of depreciation
being used by the business and the rate of growth of its
depreciable assets. The tables will provide for flexibility —
a range of allowable fluctuations in depreciation reserves. The
ratio of depreciation reserves to depreciable assets will be

- 3-

112
considered too high only after actual replacement practices have
lagged substantially behind the depreciable lives being used for
tax purposes. How high is too high? This also will be spelled
out in the ruling.
For a business which shifts its depreciation timetables only
to, but not below, the new guideline standards, a long period of
time will be allowed before use of the guidelines will be
challenged. Only if its depreciation reserve ratio: proves it
is not, in fact, replacing equipment as rapidly as it claims for
tax purposes, will any question be raised by Internal Revenue.
If a business can demonstrate that it is moving toward replacement
practices in keeping with its use of the new guidelines, it may be
allowed the length of an entire replacement cycle to actually
reach that schedule. The fact that such a shift toward more
rapid replacement policy is under way will have to be demonstrated,
however, within a few years.
For those who wish to move for the first time below the
new guidelines, or to reduce further an already below-guideline
schedule, a look at the current depreciation reserve ratio will
indicate immediately whether Internal Revenue might question
this change on audit. In some such cases, a move toward shorter
depreciable lives may nevertheless be permitted, despite the
fact that the reserve ratio test would seem to indicate the shift
is not warranted. Such a decision would, of -course, be a matter
of judgement on the part of the Internal Revenue Service,
although certain additional criteria for exceptional treatment
will be developed. But note that our one probable resort to
standards other than those specified in the rulings can work only
in favor of the taxpayer.
We believe that our new guidelines and rulings will greatly
diminish the area of dispute between taxpayers and the government
over depreciation.
But this is not all. In the future, whenever application
of the reserve ratio test Indicates that a business should be
shifted to the use of. longer depreciable lives, there will be
no penalty attached. The lives will be lengthened only to
correspond to the actual replacement practices of that business.
"Penalty rates" will become only an unpleasant memory.
Our new depreciation guidelines will also be vastly simpler
than those set forth in Bulletin F. In place of the more than
5,000 individual items of plant and equipment presently listed
in Bulletin F, there will be substituted broad categories of
assets for which an average life will be prescribed. Taxpayers
may, if they wish, shift their own depreciation accounts to
conform
tonot
thebe
categories
setdo
forth
in So
thelong
new as
guidelines,
but
they will
required to
this.
the taxpayer's

-4overall depreciation account is in conformity with the guideline
life established for that class of assets, the Individual item
lives used by the taxpayer will remain unchallenged.
This move to a broad category approach to depreciation
will also, we believe, eliminate controversy between Internal
Revenue and business taxpayers. The class approach we are
working on is designed for simplicity. For most industries, a
single class life will be established covering all machinery
and equipment used in production. Items in general use, such as
office equipment and furnishings, automobiles and trucks, will
be covered in separate guideline classes to be used by all
industries.
Buildings are a special case. As you are aware, the tax
bill now pending before the Congress contains a section
providing for correct tax treatment, as ordinary income, of
gains realized on the sale of depreciable machinery and equipment.
By closing the existing loophole in taxation of these gains, the
legislation provides the safeguards necessary to permit our
planned shift to more liberal and flexible treatment of
depreciation of such property. But the legislation does not,
at present, contain a similar provision applicable to\________
buildings. I would be less than candid, therefore, if I did not
^ell you that we are not now contemplating a revision of
Bulletin F so far as buildings are concerned. If, however, the
Congress enacts legislation closing existing loopholes in the
tax treatment of depreciable real estate, Bulletin F revisions
covering buildings will follow.
Our depreciation revision as a whole will, indeed be
meaningful to American industry and to the entire American
economy. Can anyone any longer doubt this?
Depreciation revision has proved to be a monumental task —
requiring long hours of work over a period of many months on
the part of the most skilled economists, lawyers, engineers and
accountants at the command of the Treasury and the Internal
Revenue Service. It also, as many of you know at first hand, is
requiring numberless consultations with industry technicians and
management.
But we will not consider the job done when we have published
our new guidelines and rulings. We know that in such an enormous
undertaking, some errors of fact or judgement are perhaps
inevitable — and we will be responsive to industries or taxpayers
who demonstrate the existence of such errors.

- 5-

1 1Q

In addition, depreciation reform is, almost by definition,
ak job which is never done once and for all. These new standards
will indeed — and for the first time — take into account not
only past but anticipated obsolescence. But what about the
technological breakthroughs which lie just beyond the ones we
can now glimpse over the horizon? We do not know what they will
be — but we do know that they will be. Periodic review and
revision of our guidelines will, therefore, be essential if our
depreciation policies are to keep pace with the changing world.
Such review and revision is planned, for we must never again
allow our tax practices to fall behind our industrial practices.

oOo

- 3 The Secretary will return to New York the 19th of May^ anci
go the following day to^Philadephia, wherehe.is to ^peak ahd^
receive an honorary degree at the commencement exercises of the
•v.

University of Pennsylvania on the morning of Monday, May 21.

- 2 -

i -L. »-/

date, not only on what we are doing to promote our growth at home
in an environment of fiscal and financial stability, but on our
efforts and progress to achieve equilibrium in our balance of
payments. In the field of balance of payments, the measures that
we take ourselves must be complemented by the cooperative action
of the surplus countries in order to ensure the smooth functioning
of the international monetary system. It is the role of our
friends abroad that I particularly want to discuss at these
meetings."
The Secretary will be accompanied to Rome by Mrs. Dillon,
and by Dixon Donnelley, Assistant to the Secretary for Public
Affairs; Charles Sullivan, Special Assistant to the Secretary;
__
George *. Willis, Director, OffioeVof-fiiteinat
Theodore Eliot, Jr., Special Assistant to the Secretary j/Mrs. ^aa
Dorothy de Borchgrave, Confidential Assistant to the Secretary;
and by Earl C. Cocke, Jr., United States Alternate Executive
Director of the International Bank for Reconstruction and
Development. Mr. Dillon will be joined in London by Robert V.
Roosa, Under Secretary of Treasury for Monetary Affairs.

(Info letterhead)
i i K
JU «i. :^S

May 11, 1962
FOR RELEASE A.M. NEWSPAPERS
SATURDAY, MAY 12, 1962
SECRETARY DILLON TO ATTEND MONETARY CONFERENCE
Secretary of Treasury Douglas Dillon will leave New York on
i
Saturday, May 12, at 10:00 A.M. to attend the annual monetary
conference of the American Bankers Association in Rome from
May 15 to 18.

I Wo doys
En route, the Secretary will spend the weekend in London,
where he will confer with United States representatives and
meet informally with British financial officials.
Mr. Dillon will address the closing luncheon of the
American Bankers Association monetary conference on May 18.
Prior to his departure for Rome, the Secretary issued the
following statement: "The Monetary Conference of the American
Bankers Association will give me an opportunity to meet and talk
with financial people from the various European centers who will
be in Rome, and to get first-hand, from members of the European
private financial community, their views on current developments.
"It will also give me an opportunity to bring them up to

- H(r

TREASURY DEPARTMENT
WASHINGTON, D.C.
May 11, 1962
FOR RELEASE A.M. NEWSPAPERS
SATURDAY, MAY 12, 1962
SECRETARY DILLON TO ATTEND MONETARY CONFERENCE
Secretary of the Treasury Douglas Dillon will leave New York on
Saturday, May 12, at 10:00 A.M. to attend the Annual Monetary
Conference of the American Bankers Association in Rome from
May 15 to 18.
En route, the Secretary will spend two days in London, where
he will confer with United States representatives and meet
informally with British financial officials.
Mr. Dillon will address the closing luncheon of the American
Bankers Association Monetary Conference on May 18.
Prior to his departure for Rome, the Secretary issued the
following statement: "The Monetary Conference of the American
Bankers Association will give me an opportunity to meet and talk
with financial people from the various European centers who will
be in Rome, and to get first-hand, from members of the European
private financial community, their views on current developments.
"It will also give me an opportunity to bring them up to
date, not only on what we are doing to promote our growth at home
in an environment of fiscal and financial stability, but on our
efforts and progress to achieve equilibrium in our balance of
payments. In the field of balance of payments, the measures that
we take ourselves must be complemented by the cooperative action
of the surplus countries in order to ensure the smooth functioning
of the international monetary system. It Is the role of our
friends abroad that I particularly want to discuss at these meetings."
The Secretary will be accompanied to Rome by Mrs. Dillon,
and by Dixon Donnelley, Assistant to the Secretary for Public
Affairs; Charles A. Sullivan, Special Assistant to the Secretary;
Theodore L. Eliot, Jr., Special Assistant to the Secretary;
George H. Willis, Director, Office of International Finance;
Dorothy deBorchgrave, Confidential Assistant to the Secretary; and
by Earl C. Cocke, Jr., United States Alternate Executive Director
of the International Bank for Reconstruction and Development.
Mr. Dillon will be joined in London by Robert V. Roosa, Under
D-486
Secretary of the Treasury for Monetary Affairs.
The Secretary will return to New York the 19th of May.

118
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flfagfagg
fe»33Moo mkm mt 0M$
Imsl^^i M ^ l y O O O AaMeiyeiiiiini tender® eeee^ledl at the ®mmm
12*229*000
22,581,000
U6,3ba f OQO
23*9%,0Q0

__5

m m w ^ « kmmm$2»Ul0,«
at the * » e )a«gth «nd tm* the s « w m i ^ iiweelea, tha mtmm m
mm
mMwmU
.yrovide j i e l ^ of 2.70^fer ih® 91-day M U t * __4't«feKa, f*r tti
U2md^ bills. I»t«»it i»t#i on UXX» mm mpmU4 to M r w of hank 4 U M O _ H I «1H
the> tmtmam mX®U$ U tha tarn mmmt mt the bllle payable at m t w M p rather ma
the cawwve iwrwrtwd ®ad tl#lr l«gtti to artud, nwitoer ef ^ s reUt_4 %e a |60-d^
—-In eetttva-t, yiel^e w eei^ifloiitee* netee, aadfeowteaw& eew_uted in.tegi
^ r ^ u t period %® %M"mm$X
mwmbmr
mt mmfB
in the
peinee!*
1
ted, ens
rp.iat#^t^e
aejdbtt
. of
dei« . f^i ^M i ^ ^ ^ i ^
ecMg>eunaliig if mm thm mm tmpm period It iwrelved*
> - •

"•

1 1Q
Jb, „i_ \^t

TREASURY DEPARTMENf
May 14, 1962
ITCT.MSE

k. M. NEWSPAPERS, Tuesday May 1$, 1962,
RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced last evening that the tenders for two series of
Jiry bills, one series to be an additional issue of the bills dated February 13, 1962,
the?other series to be dated May 17, 1962, which w r e offered on May 9, were opened at
Federal L s e r a Banks on May la. Tenders\ere invited for $1,200,000,000, or thereabout
91-day bilia and for $600,000,000, or thereabouts, of 182-day bills* The details of the
series are as follows s
SE OF ACCEPTED
PETITIVE BIDSs
—

High
Low
Average

914day Treasury bills
maturing August 16, 1962
Approx. Equiv.
Price
Annual Rate
99.337
2.623$
99.329
2.655$
99.331
2.646$ 1/

s
%
:
§
s
s
s

182-day Treasury bills
maturing November 15, 1962 _
Approx. Equiv.
Price
Annual Rate
98-620 a/
2,730$
98.606
2.75?$
98,613
2*744$ 2/

a/ Excepting one tender of $100,000
35 percent of the amount of 91-day bills bid for at the low price was accepted
51 percent of the amount of 182-day bills bid for at the low price was accepted
& TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS?
[strict Applied For Accepted : Applied For _ Accepted
Dston
$24,727,000
$~~ lh$lW^0OQ s $
11,313,000 * 11,100,000
3wYork
1,646,543,000
854,543,000 :
909,351,000
458,911,000
hiladelphia
30,524,000
15,524,000 *
9,270,000
4,270,000
Leveland
24,114,000
24,114,000 s
27,110,000
11,856,000
Lchmond
12,229,000
12,229,000 *
2,717,000
2,470,000
blanta
25,711,000
22,581,000 s
9,353,000
9,003,000
lica
g°
240,648,000
128,348,000 !
100,347,000
62,857,000
'• L o u i s
30,309,000
23,984,000 s
7,630,000
5,630,000
Jineapolis
18,421,000
12,921,000 *
6,284,000
5,3_4,OOQ
insas City
46,958,000
35,883,000 *
16,360,000
11,331,000
ai s
*
15,787,000
15,587,000 *
4,314,000
4,114,000
in Francisco'
65,011,000
39,806,000 s
34,673,000
13,183,000
TOTALS
$2,180,982,000
$1,200,247,000 b/ $1,138,722,000
$600,039,000 c/
includes $221,105,000 noncompetitive tenders accepted at the average price of 99.331
ncludes $60,363,000 noncompetitive tenders accepted at the average price of 98.613
h a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.70$, for the 91-day bills, and 2.82$, for the
182-day bills. Interest rates on bills are quoted in terms of bank discount with
the return related to the face amount of the bills payable at maturity rather than
the amount invested and their length in actual number of days related to a 360-day
year. In contrast, yields on certificates, notes, and bonds are computed in terms
of interest on the amount invested, and relate the number of days remaining in an
interest payment period to the actual number of days in the period, with semiannual
compounding if more than one coupon period is involved.

* 2 a for 3*5/8$ lofces of Series B-XS66
Federal Reserve
District

3$ Ctfs.,
Series A-1962
mmiinnIIIIIIIIIIWIKHIII i

Striae B»1962

Cleveland
Richmond
Atlanta
St. Louis
Minneapolis
Kansas City
juajLjas
San Francisco
Treasury
Total

2-l/4# Bonds
of 6/15/62

Total for
B-1966 Notes

$ 16,447,000
717,627,000
13,548,000
26,769,000
10,183,000
20,889,000
167,351,000
18,254,000
17,216,000
28,757,000
35,262,000
65,167,000
769,000

$ 131,908,Q
1,591,661,0
60,293,0
232,704,0
47,631,0
63,334,0
439,051,01
52,825,0*
62,957,01
99,927,01
92,170,01
230,104|0(
4,31S,«
$3,1H,385,0<

immmmmmmmmmmm

$ 67,964,000
382,160,000
10,173,000
91,658,000
17,827,000
18,463,000
97,696,000
21,169,000
20,055,000
29,504,000
22,164,000
53,020,000
918,000
$842,271,000

$
lew York

47,494,000
401,174,000
27,572,000
114,277,000
19,629,000
29,482,000
174,004,000
13,402,000
25,686,000
41,866,000
36,744,000
1H,917,000
2,628,000
$1,155,875,000

•mi

luniinnuft

•!'•'

$1,136,239,000

Exchanges for 3*7/8$ Bonds of 1971
Federal Reserve
District
New Xork
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
Total

3$ Ctfs.,
Series A»1962

Series B*1962

$ 5,457,000
281,706,500
10,715,500
19,782,000
4,204,500
3,751,500
38,632,000
7,242,000
5,079,000
10,072,000
2,522,500
64,946,000
1,325,500
$455,434,000

13,501,000
$ $
4,096,000
305,127,000
4,472,000
9,533,000
6,167,000
14,359,000
70,057,000
1,741,000
10,360,000
7,844,000
10,596,000
12,634,000

168,805,000
10,218,000
7,484,000
1,776,000
10,962,000
22,624,000
9,019,000
16,906,000
12,379,000
3,493,000
6,468,000
58,000
1464,906,000 $233,673,000
Eligible for Exchange

Maturing Issues

3$ Ctf8», A*1962
4$ Notes, E-I962
Zff, Bonds of 6/15/62
Total

Pttblicly Heia

Total for
Bonds of 197]

2
Of 6

Banks and Government Account©
In millions)

$ 23,O54,0(
755,638,3
_0,&v<),i3\

36,799,0{
12,147,5<
29,072,8
139,313,01
18,OG2,0(
32,345,<X
3O,295,0(
16,611,5(
84,048,01
1,361,1
M

i i i

iif. nil

For Cash Redemption
% of Total
f> o
Outstanding
Holdings

o,&ft f

142
416

2.6
7.5
11*9

$9,439

$2,244

7.2

$3,823
2,069

-IITIIIIW

$1,204,093,0

FQ& B0__0IAT1 RStSASS
8TJB6CRIPTI0N FIGURES FOR CURRENT EXCHAl^GE OFFERING

The results of the Treasury's current exchange offering of
3-1/4$ certificates of indebtedness dated May 15, 1962, maturing May 15, 1963,
3*5/3$ notes dated May 15, 1962, maturing February 15, 1966, and
3*7/8$ bonds of 1971 dated Miy 15, 1962, maturing November 15, 1071,
are summarized in the following tables*
i in iimmmm,n

Eligible
tor Exchange
3# Ctf©., A*1962
%& Rotes, S-19S2
2 ^ Bonos of 6/15/62

5,509
2,211
WMRUM_W

Exchanged For
-1/4$
5*5/8$ 3*7/8$
Bonds
• j Ctfs.
^ a g l l i n
III lotes
. . i n mil ,
mtumtm
tin s&iixon—j

Total

$5,307 $1,136
--'929
842
1,949
1,136

465
284

$ 5,408
2,055
3,540

$1,204

$11,003

mi. life mil
'•f

Total

liiin.,1 i mill I.IIIHI.IIIIIIIIIIIIIIIIUDIII il nil n i llunilili 11.mi.lH MI

mil

War Cash

$101
136
423

.iiiiw.fi.i.w...., .

&•

$11,683

1,685

$3,114

MrWMUMA

Eacchangeg tar 3*1/4$ Certificates of
mm .••MmmmmmSSmmmmo.^mK

Federal Reserve
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chieago
St. Louis
Minneapolis
Kansas City
Bellas
San Francisco
Treasury

3$ Ctfs-,
Series A-1962
$ 86,888,000
2,713,312,000
85,230,000
57,745,000
24,054,000
65,448,000
301,287,000
70,800,000
20,204,000
84,232,000
38,658,000
248,243,000
7,89#jQQQ

mi n. nm i mnMimmmmmmmmmmymmmmmmmim

>,
Series 1*1982

rS§ B-1963

H HI

2*1/4$ Bonds
of $/%$/&%

Total tor
B-I963 gtfjk

•• <m„mmt^mmmmmmmmmmmmmmmm

.MMipiiMMMMMwmMMMHai

$ 40,702,000
507,625,000
22,006,000
56,497,000
18,106,000
23,468,000
93,557,000
33,579,000
13,015,000
25,765,000
17,250,000
70,993,000
2,201,000

I 27,677,000
1,540,306,000
22,324,000
62,864,000
25,064,000
3f,568,000
189,579,000
30,101,000
15,555,000
63,842,000
52,57**000
102,295,000
1,412,000

$ 155
4,566
129
177 10M
65 224,^
128

$928,762,000

$1,949,165,000

$6,684,727,81

mm—mmw^WW

134
48
173
88
421 531^

M—.«l.,»ll»lll »niiiffilli Hiuillllll'lllllll III III II'm

Total

$3,806,800,000

TREASURY DEPARTMENT
WASHINGTON, D.C.
May 15, 1962
R IMMEDIATE RELEASE
SUBSCRIPTION FIGURES FOR CURRENT EXCHANGE OFFERING
The results of the Treasury's current exchange offering of

3-1/4$ certificates of indebtedness dated May 15, 1962, maturing May 15, 1963
3-5/8$ notes dated May 15, 1962, maturing February 15, 1966, and
3-7/8$ bonds of 1971 dated May 15, 1962, maturing November 15, 1971,
e summarized in the following tables.
Eligible
for Exchange

Maturing Issues

, Ctfs., A-1962
, Notes, E-1962
$ Bonds of 6/15/62
Total

Exchanged For
3-1/4$
3-5/8$ 3-7/8$
Ctfs.
Notes
Bonds
(In millions)

Total

For Cash
Redemption

$ 5,509
2,211
3,963

$3,807
929
1,949

$1 ,136
842
1.,136

465
284
455

$ 5,408
2,055
3,540

$101
156
423

$11,683

$6,685

$3,,114

$1,204

$11,003

$680

Exchanges for 3-•1/4$ Certificates of Series B-1963
4$ Notes,
Series E-1962

2-1/4$ Bonds
of 6/15/62

Total for
B-1963 Ctfs.

86,888,000
2 ,718,312,000
85,230,000
57,745,000
24,054,000
63,448,000
301,287,000
70,800,000
20,204,000
84,232,000
38,658,000
248,243,000
7,699,000

$ 40,702,000
507,625,000
22,006,000
56,497,000
16,106,000
29,468,000
93,557,000
33,579,000
13,015,000
25,763,000
17,250,000
70,993,000
2,201,000

$
27,677,000
1,340,306,000
22,324,000
62,864,000
25,064,000
35,568,000
189,579,000
30,101,000
15,555,000
63,842,000
32,578,000
102,295,000
1,412,000

$ 155,267,000
4,566,243,000
129,560,000
177,106,000
65,224,000
128,484,000
584,423,000
134,480,000
48,774,000
173,837,000
88,486,000
421,531,000
11,312,000

$3;,806,800,000

$928,762,000

$1,949,165,000

$6,684,727,000

deral Reserve
strict

3$ Ctfs.,
Series A-1962

ston
w York
iladelphia
eve land
chmond
lanta
icago
. Louis
nneapolis
osas City
Lias
a Francisco
sasury

Total

-488
(OVER)

- 2 -

123
Exchanges for 5-5/8$ Notes of Series B-1966
sderal Reserve
istrict

3$ Ctfs.,
Series A-1962

4$ Notes,
Series E-1962

2-1/4$ Bonds
of 6/15/62

Total for
B-1966 Notes

Dston 2W York
liladelphia
Leveland
ichmond
tlanta
aicago
b. Louis
inneapolis
ansas City
alias
an Francisco
reasury

$ 47,494,000
491,174,000
27,572,000
114,277,000
19,629,000
29,482,000
174,004,000
13,402,000
25,686,000
41,866,000
36,744,000
111,917,000
2,628,000

$ 67,964,000
382,860,000!
19,173,000
91,658,000
17,827,000
18,463,000
97,696,000
21,169,000
20,055,000
29,304,000
22,164,000
53,020,000
918,000

$ 16,447,000
717,627,000
13,548,000
26,769,000
10,183,000
20,889,000
167,351,000
18,254,000
17,216,000
28,757,000
33,262,000
65,167,000
769,000

$ 131,905,000
1,591,661,000
60,293,000
232,704,000
47,639,000
68,834,000
439,051,000
52,825,000
62,957,000
99,927,000
92,170,000
230,104,000
4,515,000

Total

$1,135,875,000

$842,271,000

$1,136,239,000 $3,114,385,000

Exchanges for 5-7/8$ Bonds of 1971
sderal Reserve
Lstrict

3$ Ctfs.,
Series A-1962

4$ Notes,
Series E-1962

2-1/4$ Bonds
of 6/15/62

Dston
2W York
liladelphia
Leveland
Lchmond
:lanta
licago
;. Louis
Lnneapolis
msas City
illas
tn Francisco
:easury

$ 4,096,000
305,127,000
4,472,000
9,533,000
6,167,000
14,359,000
78,057,000
1,741,000
10,360,000
7,844,000
10,596,000
12,634,000

$ 13,501,000
168,805,000
10,218,000
7,484,000
1,776,000
10,962,000
22,624,000
9,019,000
16,906,000
12,379,000
3,493,000
6,468,000
38,000

$ $
5,457,000
23,054,000
281,706,500
10,715,500
' 19,782,000
, 4,204,500
3,751,500
38,632,000
7,242,000
5,079,000
10,072,000
2,522,500
64,946,000
1,323,500

$464,986,000

$283,673,000

Total

Maturing Issues

Total for
Bonds of 1971
755,638,500
25,405,500
36,799,000
12,147,500
29,072,500
139,313,000
18,002,000
32,345,000
30,295,000
16,611,500
84,048,000
1,561,500

$455,434,000 $1,204,093,000

Eligible for Exchange
Federal Reserve
Publicly Held
Banks and Government Accounts
(In millions)

For Cash Redemption
$ of Total
$ of Public
Outstanding
Holdings

Ctfs., A-1962
Notes, E-1962
Bonds of 6/15/62

$3,823
2,069
5,547

$1,686
142
416

1.8
7.1
10.7

2,.6
7,.5
11,.9

Total

$9,439

$2,244

5.8

7.2

1?A
•_ C

Again, the contrast with the alternative proposals before
this Committee is striking. In each case, those bills would
provide increases, this year in excess of amounts that can be
justified on the basis of tte national trends in productivity.
Moreover, at the lower work levels, the increases cannot be
justified on the basis of equity. They would, in areas of
the country where the Federal Government is a major factor in
local labor markets, incite competitive wage increases in private
employment. They would provide a most unfortunate example for
labor and private industry generally. In sum, they would not
only throw our budget out of balance, but they would jeopardize
the whole approach of the Administration toward encouraging
wage restraint and price stability. They would in the end
entail grave risks for our balance of payments — risks that
ft FnV:;-cannot be justified by any appeal to equity or hardships. 4»JEMH

"fwaaag^ the &ppoQ-it4 on of _sfee^ Treasury Department .to these

alternative bills »r_~T_tiqualifawLd. I hope that this Committee,
in its deliberations, will.carefully consider the implications
of the fgu_.dQ__fe set forth by the President.when he emphasized
the importance of the Federal Government adhering firmly "to
its own precept^ with respect to pay adjustments in the economy
as a whole."

The spacing of the salary increases provided for in the
Administration bill would insure that they meet the over-all
test of consistency with productivity gains in the whole
private economy. (As a footnote, I should add that we have
no reliable measure of productivity gains within Government
itself -- although I am convinced, from my own experience
within the Treasury, that these gains are very real. In fact,

when I see the vast progress made in the application of electron

computers to our own operations, I see no reason to believe that
gains in efficiency in Government are lagging behind those for
other sectors of the economy.)
There has been no Federal salary increase since July 1960.
The increases proposed in H.R. 10480 for January 1963 would
result in an average increase of 4.5% in Federal salaries at
that time, equivalent to about 1-3/4% per year since the date
of the last increase. Meanwhile, national productivity has

been rising since 1954 at a rate of 2.6% a year; for the postwar
period as a whole, the rise has been even greater, equivalent
to roughly 3.0% per year. For the entire period since 1909,
the increase has been 2.4% a year. Thus, whatever set of base
years might be chosen, the proposed increases are well within
the guidelines.

9 -

productivity, so that labor may share in the gains achieved
through greater efficiency without bringing upward pressures
on over-all costs. This is an essential key to the objective

of price stability that must underlie all our efforts to /K***
"restore equilibrium in our balance of payments.
Consistent with this basic principle, the guidelines
recognize that increases in individual wage and salary rates

either slower or faster than the average may be appropriate i
the interests of equity. The implication is that more rapid

wage increases could be accommodated, within the framework of
general price stability, in those cases where existing wage

rates are clearly below those generally prevailing for work o
a comparable character*
On this basis, an upward adjustment in many Federal
salaries could be justified immediately on the basis of wage
scales prevailing currently in industry. In other words, the
salary reform bill — including those changes scheduled for
1964 and 1965 — could be considered to be in the nature of

a correction of existing inequities, and therefore consistent
with the stated guidelines. But that would not recognize the

budgetary priorities emphasized by the President, nor would i

vide the sort of clear and unambiguous example of restraint t
is necessary.

others covered in the bills, and roughly $1-3A billion for these specified
groups and postal -workers. Each would assure a budgetary deficit -- even
if full employment has been reached by the end of the next fiscal year.
None is consistent with a careful appraisal of existing priorities and the
urgent need to avoid any inflationary influences from Government spending.
Moreover, these costs in terms of our over-all budgetary and economic
objectives would be exacted to little end. All these bills are simply pay
increases; none of the alternatives to the Administration^ program
represents progress toward real salary reform; each would perpetuate
existing maladjustments and, indeed, in many cases/ aggravate them.
The immediate budgetary impact of these proposals is not the only
factor to be considered. Federal salaries are a part, and a very important
part, of the wage and price structure of this country. A program for
Federal salary reform must be consistent — and recognized as such by all —
with our national policy of non-inflationary wage and price behavior.
Government must provide leadership by example. And it must avoid the sort
of competition in labor markets that could itself bring pressures for
upward wage adjustments by private industry.
As you know, the Administration has developed general guidelines
for wage and salary decisions in the private sector of the economy. These
guidelines are based upon the fundamental principle that wage increases
over time should remain in line with the over-all trend in national

1 OQ
«_ t- 'w'

the necessity to maintain appropriate restraints on all our spending programs. A shortfall of revenues at a time when the economy is operating
below full employment, with excess industrial capacity evident, is one
thing; a rise in Federal spending that could not be covered by prospective
revenues, even with the economy approaching full employment, is quite
another.
There is only one way to insure that the Federal budget does not
contribute to a rude awakening of inflationary forces in coming months.
We must recognize that our resources are not unlimited; priorities must be
established between spending programs; and those priorities must be maintained. Demands upon Government are great — missile programs, space

research^ urban renewal, manpower restraining, revival of sick mass transit
systems, and many other needs are crowding in upon us. All of these —
and salary adjustments too — must be spaced out in proper sequence
against the resources available to meet them. The President's budget,
and within that context the proposed salary reforms, recognize these
constraints; we can be oblivious to them only at our peril.
These budgetary constraints are not recognized in the large^number

of other pay raise bills now before this Committee. H.R. 97^+0, for example
would provide a large across-the-board increase in salaries; all would
require that the increases proposed in them be effective immediately upon

enactment or even retroactivelyj and wi&k/little or no allowance for existi
differentials between Government and private pay at different levels of
responsibility. The least expensive of these bills would cost about
$1 billion in fiscal 19&3 for employees under the Classification Act and

- 6total cost of approximately $1 billion on an annual basis.
We cannot provide the salary scales that are necessary for
any less. But natjDher can we make up for past neglect in
one jump, and still fit the adjustments within our current
budgetary program. For that reason, the full impact of the
reform bill on the budget will be deferred until fiscal 1966.
The cost in fiscal 1963 will be limited to only $224 million,
with the first increases not to become effective until January
of next year.
The increase proposed for the coming fiscal year was
developed within the context of the budget submitted to the
Congress in January. That budget pointed toward a narrow
balance, based on assumptions that the economy and Federal
revenues would continue to grow in a favorable manner. If the
economy expands in line with our projections at that time,
and if expenditures are held to the amount estimated, that
balance can be achieved. If business activity is less buoyant
than expected, the balance will, of course, be threatened.
But these inevitable uncertainties over the precise economic
and revenue outlook provide no release from —-—————^^

- 5 for productive investment within a context of over-all price
stability. As you know, the Administration has in place and
underway a wide variety of programs to meet these challenges depreciation reform and a related investment credit, a farflung export drive, an increased sharing of the burdens of
defense by our allies, tying of a larger proportion of our
economic aid to American exports, and others. But in the end,
these programs will be successful only as Government, business,
and labor alike willingly accept the disciplines, imprwad.
A
We must, in the last analysis, be able to produce goods
and services at attractive prices. Only then will we be
able to compete successfully in world markets and achieve
the larger trade surplus that is necessary for all our success.
That is why we must place so much emphasis on price stability
in this critical period. To achieve that stability, it is
imperative that we exercise restraint in shaping our wage

and price policies, jsuad J[t is equally imperative that we avo

potentialbfinflationary spending policies in shaping the Federa
budget.
It is these factors that have dictated that Federal pay
reform be spaced out gradually over a three-year period. When
fully effective, the proposed salary increases will entail a

¥5
"The substantial costs necessarily involved in achieving
this pay reform make it especially important that these improvements in our pay systems take absolute priority over
general percentage or dollar increases of the kind we have
see^vin the past - increases which make little if any contribution to efficiency or economy in Government."

4^
1 70
_ » KJ ii_

-^f~The full remarks of the President concerning the timing
and cost of the Administration proposal in his Jflessage of
February 20 are as follows:
"It is important for the Federal Government to adhere
to its own precepts with respect to pay adjustments in
the economy as a whole.

Because of the salary lag that

has developed over the past 17 years, full correction of
the accrued inequities in 1 year would be unwise, involving the substantial cost of more than $1 billion.

This

cost would come at a time when heavy budgetary demands
have been placed upon us to meet great national security
needs, and when the Government is urging private labor and
management to exercise self-restraint to avoid the creation
of inflationary pressures. Therefore, to reduce the impact in any one year on the affected $10 billion Federal
payroll, where each 1-percent increase costs $100 million,
the plan that I recommend provides that the full 10 percent
be distributed over three annual stages, beginning prospectively on January 1, 1963. The increase scheduled to
take effect next year is clearly well within the national
average productivity increase (in the private sector)
which has taken place since the last Federal pay increase
in July of 1960.

J ^o
- 4 alike. The nature and timing of the reforms proposed by
the Administration meet these criteria, so vital to all our

efforts to spur growth at home, to maintain price stability,

and to achieve a balance in our international accounts. This

is not primarily a pay increase bill, but rather a structura

reform designed to meet the continuing requirements of effec
tive public administration. Inequities in Federal pay are

apparent today, and their correction will entail a substanti
cost. But, as the President stated, "full correction of the
inequities in &&e year would be unwise . . .at a. time when

budgetary demands have been placed upon us to meet great nat

security needs, and when the Government is urging private la

and management to exercise self-restraint to avoid the creat

_t>
of inflationary pressures."

It is this need for budgetary re-

straint, and the need for any salary proposals to conform -

clearly and unambiguously - to non-inflationary wage guideli

developed for private industry, that must, in the last analy

provide the benchmarks for testing the wisdom of any pay inc
in the circumstances of today.
I need not review here the urgency of the balance of pay-

ments problem before this country, nor the critical importan

of speeding our growth and providing a more favorable climat

1 7A

are frustrated in whole or in part by ^-our inability to offer
salaries approaching those that can be obtained elsewhere.
The Federal Government can never expect to provide salaries
for its top staff personnel fully equal to those paid for comparable responsibilities in private life.

The Administra-

tion's salary proposals would not accomplish this and, indeed,
I do not believe they should.

Such factors as devotion to

public service, and enthusiasm for working on the most vital
problems confronting the Nation, must always be a significant
part of the attraction and rewards for Government service
at those levels. Nevertheless, the discrepancies between
salaries in private enterprise and in the Government cannot be
allowed to become as great as they are today without doing
serious and almost irreparable damage to the quality of our
Federal staff. The Administration's proposal will bring a
reasonable and satisfactory solution to this problem within
the limitations of sound budgetary and economic policies.
The President, in his own message to you of February 20,
stressed that any adjustments in Federal salary scales at
this time must recognize the urgent need to exert conscious
restraint over the level of Federal expenditures and over
wage and salary costs, in Government and private industry

- 2 -

|?c

determining their comparability with private industry, the
development of a "pay line" and its extension to the higher
grades and to statutory systems outside of the Classification
Act, the plan for periodic review on the basis of similar surveys conducted annually, and all the rest.
The chief purpose of my appearance before you is to pro-

vide you with*views of the Treasury Department as to the fiscal
and general economic impact of the salary reform proposals.
Others who have testified and will testify are much more
conversant with the full range of problems resulting from
the existing Federal pay scales, including the difficulties
in obtaining - and keeping - personnel competent to deal with
the complex problems confronting the Government today, particularly at the higher salary grades.
Without going into detail, however, I would like to con-

firm that our own experience in the Treasury Department support
the general conclusions expressed to you by Chairman Macy,
Deputy Budget Director Staats, and other spokesmen for the
Administration, as to the vital need for correction in the
Federal pay structure. We have found repeatedly that our

efforts to bolster our -p_*e_^_*sab©¥ral staff with able men fr
business and the professions, and from universities as well,

lot:

DRAFT
PAV/JR
5/14/62

Mr. Chairman and Members of the Committee:
I am happy to appear before you today in support of H.R.

10480, "The Federal Salary Reform Bill", which has been recom
mended to the Congress by the President.
This legislation will go a long way toward rectifying the
most serious deficiencies in Federal salary scales today.
At the same time, it fully recognizes the priorities imposed
by our budgetary and economic situation, and provides only

those pay adjustments essential for the efficient and effecti
conduct of Government. It is the considered view of the
Treasury Department that these priorities are not recognized
by any one of several other proposals currently before this
Committee, each of which would provide sizable increases at

all levels of the Federal salary scale, fully effective immed
iately or even retroactively. Enactment of*one of these alternative measures would, in our view, be contrary to sound

economic and financial policy, aad-HH^-we_4rd--perpetuafce—a

4n--oomo caoco, aggravate—£he maladjustments -^-h^t-^th^-^_cr
stration's proposal is—designed to remedy.
Others testifying before this Committee have reviewed
in detail the proposals in H.R. 10480 - the internal consistency of the proposed salary scales and the method of

7l<v"1

TREASURY DEPARTMENT
Washington

STATEMENT OF THE HONOIftBEE HENR? H. FOWLER

TREASURY DEPARTMENT
. Washington

STATEMENT OF THE HONORABLE HENRY H. FOWLER
UNDER SECRETARY OF THE TREASURY
BEFOIE THE
COMMITTEE ON POSTOFFECE AND CIVIL SERVICE
HOUSE OF REPRESENTATIVES
IN CONNECTION WITH HEARINGS ON H.R. 101*80,
,(
THf FEDERAL SALARY PEFORM BILL"
TUESDAY, MAY 1$. 1962. 10:00 A.M.,EDT.

fy^f- *f

TREASURY DEPARTMENT
Washington

1 1Q
«— w i/

FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE HENRY H. FOWLER
UNDER SECRETARY OF THE TREASURY
BEFORE THE
COMMITTEE ON POST OFFICE AND CIVIL SERVICE
HOUSE OF REPRESENTATIVES
IN SUPPORT OF H.R. 10480, "THE FEDERAL SALARY REFORM BILL",
TUESDAY, MAY 15, 1962, 10:00 A.M., EDT.
Mr. Chairman and Members of the Committee:
I am happy to appear before you today in support of H.R.
10480, "The Federal Salary Reform Bill", which has been recommended
to the Congress by the President.
This legislation will go a long way toward rectifying the
most serious deficiencies in Federal salary scales today.
At the same time, it fully recognizes the priorities imposed by
our budgetary and economic situation, and provides only those pay
adjustments essential for the efficient and effective conduct of
Government.

It is the considered view of the Treasury Department

that these priorities are not recognized by any one of several
other proposals currently before this Committee, each of which
would provide sizable increases at all levels of the Federal
salary scale, fully effective immediately or even retroactively.
Enactment of any one of these alternative measures would, in our
view, be contrary to sound economic and financial policy.
Others testifying before this Committee have reviewed in
detail the proposals in H.R. 10480 -- the internal consistency
of the proposed salary scales and the method of determining their
comparability with private industry, the development of a "pay line"

- 2 «L v»/ w

and its extension to the higher grades and to statutory systems
outside of the Classification Act, the plan for periodic review
on the basis of similar surveys conducted annually, and all the
rest.
The chief purpose of my appearance before you is to provide
you with the views of the Treasury Department as to the fiscal
and general economic impact of the salary reform proposals.
Others who have testified and will testify are much more conversant
with the full range of problems resulting from the existing
Federal pay scales, including the difficulties in obtaining

—

and keeping; — personnel competent to deal with the complex
problems confronting the Government today, particularly at the
higher salary grades.
Without going into detail, however, I would like to confirm
that our own experience in the Treasury Department supports
the general conclusions expressed to you by Chairman Macy,
Deputy Budget director Staats, and other spokesmen for the
Administration, as to the vital need for correction in the Federal
pay structure. We have found repeatedly that our efforts to.
bolster our staff with able men from business and the professions,
and from universities as well, are frustrated In whole or in part
by our inability to offer salaries approaching those that can be
obtained elsewhere.
The Federal Government can never expect to provide salaries
for Its top staff personnel fully equal to those paid for
comparable responsibilities in private life. The Administration's

14U
- 3salary proposals would not accomplish this and, indeed, I do not
believe they should.

Such factors as devotion to public service,

and enthusiasm for working on the most vital problems confronting
the Nation, must always be a significant part of the attraction
and rewards for Government service at those levels. Nevertheless,
the discrepancies between salaries in private enterprise and in
the Government cannot be allowed to become as great as they are
today without doing serious and almost irreparable damage to the
quality of our Federal staff. The Administration's proposal will
bring a reasonable and satisfactory solution to this problem
within the limitations of sound budgetary and economic policies.
The President, in his own message to you of February 20,
stressed that any adjustments in Federal salary scales at
this time must recognize the urgent need to exert conscious
restraint over the level of Federal expenditures and over wage
and salary costs, in Government and private industry alike. The
nature and timing of the reforms proposed by the Administration
meet these criteria, so vital to all our efforts to spur growth
at home, to maintain price stability, and to achieve a balance
in our international accounts.
This is not primarily a pay increase bill, but rather a
structural reform designed to meet the continuing requirements
of.effective public administration.

Inequities in Federal pay

are apparent today, and their correction will entail a substantial
cost. But, as the President stated, "full correction of the

- kaccrued inequities in 1 year would be unwise . . . at a time when
heavy budgetary demands have been placed upon us to meet great

national security needs, and when the Government is urging private
labor and management to exercise self-restraint to avoid the

v
creation of inflationary pressures."
It is this need for
budgetary restraint, and the need for any salary proposals to
conform — clearly and unambiguously — to non-inflationary wage
guidelines developed for private Industry, that must, in the last
analysis, provide the benchmarks for testing the wisdom of any
pay increase proposed in the circumstances of today.
*/

The full remarks of the President concerning the timing and
cost of the Administration proposal in his Message of February 20
are as follows:
"It is important for the Federal Government to adhere
to its own precepts with respect to pay adjustments in
the economy as a whole. Because of the salary lag that
has developed over the p.ast 17 years, full correction of
the accrued inequities in 1 year would be unwise, involving
the substantial cost of more than $1 billion.. This
cost would come at a time when heavy budgetary demands
have been placed upon us to meet great national security
needs, and when the Government is urging private labor
and management to exercise self-restraint to avoid the
creation of inflationary pressures. Therefore, to reduce
the impact in any one year on the affected $10 billion .
Federal payroll, where each 1-percent increase costs
$100 million, the plan that I recommend provides that the
full 10 percent be distributed over three annual stages,
beginning prospectively on January 1, 1963. The increase
scheduled to take effect next year Is clearly well within
the national average productivity increase (in the private
sector) which has taken place since the last Federal pay
Increase in July of i960.
"The substantial costs necessarily involved in
achieving this pay reform make it especially important
that these Improvements in our pay systems take absolute
priority over general percentage or dollar increases of
the kind we have seen in the past -- increases which make
little if any contribution to efficiency or economy in
Government."

- 5I need not review here the urgency of the balance of payments
problem before this country, nor the critical importance of
speeding our growth and providing a more favorable climate for
productive investment within a context of over-all price
stability.

As you know, the Administration has in place and

underway a wide variety of programs to meet these challenges —
depreciation reform and a related investment credit, a far-flung
export drive, an increased sharing of the burdens of defense by
our allies, tying of a larger proportion of our economic aid to
American exports, and others. But in the end, these programs
will be successful only as Government, business, and labor alike
willingly aceept the needed disciplines.
We must, in the last analysis, be able to produce goods,
and services at attractice prices. Only then will we be able to
compete successfully in world markets and achieve the larger
trade surplus that is necessary for all our success. That is why
we must place so much emphasis on price stability in this critical
period. To achieve that stability, it is Imperative that we
exercise restraint in shaping our wage and price policies. It
is equally imperative that we avoid potentially Inflationary
spending policies in shaping the Federal budget.
It is these factors that have dictated that Federal pay
reform be spaced out gradually over a three-year period. When
fully effective, the proposed salary increases will entail a
total cost of approximately $1 billion on an annual basis. We
cannot provide the salary scales that are necessary for any less.

- 6-

~; A o

But neither can we make up for past neglect in one jump, and still
fit the adjustments within our currentjbudgetary program.

For

that reason, the full impact of the reform bill on the budget will
be deferred until fiscal 1966.

The cost in fiscal 1963 will be

limited to only $224 million, with the first increases not to
become effective until January of next year.
The increase proposed for the coming fiscal year was
developed within the context of the budget submitted to the
Congress in January. That budget pointed toward a narrow balance,
based on assumptions that the economy and Federal revenues would
continue to grow in a favorable manner.

If the economy expands

in line with our projections at that time, and if expenditures
are held to the amount estimated, that balance can be achieved.
If business activity is less buoyant than expected, the balance
will, of course, be threatened.

But these Inevitable

uncertainties over the precise economic and revenue outlook
provide no release from the necessity to maintain appropriate
restraints on all our spending programs.

A shortfall of revenues

at a time when the economy is operating below full employment,
with excess industrial capacity evident, is one thing; a rise In
Federal spending that could not be covered by prospective revenues,
even with the economy approaching full employment, is quite another.
There is only one way to insure that the Federal budget does
not contribute to a rude awakening of inflationary forces in
coming months.

We must recognize that our resources are not

unlimited; priorities must be established between spending programs;
and those priorities must be maintained.

Demands upon Government

are great — missile programs, space research, urban renewal,
manpower retraining, revival of sick mass transit systems, and
many other needs are crowding in upon us. All of these — and
salary adjustments too — must be spaced out in proper sequence
against the resources available to meet them.

The President's

budget, and within that context the proposed salary reforms,
recognize these constraints; we can be oblivious to them only at
our peril.
These budgetary constraints are not recognized In the large
number of other pay raise bills now before this Committee.
H.R. 97^0, for example, would provide a large across-the-board
increase, in salaries; all would require that the increases
proposed in them be effective immediately upon enactment or even
retroactively; and they make little or no allowance for existing
differentials between Government and private pay at different
levels of responsibility.

The least expensive of these bills

would cost about $1 billion in fiscal 1963 for employees under
the Classification Act and others covered in the bills, and
roughly $1-3,A billion for these specified groups and postal
workers. Each would assure a budgetary deficit -- even if full
employment has been reached by the end of the next fiscal year.
None is consistent with a careful appraisal of existing priorities
and the urgent need to avoid any inflationary influences from
Government spending.

- 8Moreover, these costs in terms of our over-all budgetary and
economic objectives would be exacted to little end.

All these

bills are simply pay increases; none of the alternatives to the
Administration's program represent

progress toward real salary

reform; each would perpetuate existing maladjustments and, indeed,
in many cases aggravate them.
The Immediate budgetary Impact of these proposals is not the
only factor to be considered. Federal salaries are a part, and
a very important part, of the wage and price structure of this
country. A program for Federal salary reform must be consistent

—

and recognized as such by all — with our national policy of
non-inflationary wage and price behavior.

Government must provide

leadership by example. And it must avoid the sort of competition
in labor markets that could Itself bring pressures for upward
wage adjustments by private industry.
As you know, the Administration has developed general guidelines
for wage and salary decisions in the private sector of the
economy. These guidelines are based upon the fundamental principle
that wage increases over time should remain in line with the
over-all trend in national productivity, so that labor may share
in the gains achieved through greater efficiency without bringing
upward pressures on over-all costs. This is an essential key
to the objective of price stability that must underlie all our
efforts to promote exports and restore equilibrium in our
balance of payments.

1 A >"*

- 9Consistent with this basic principle, the guidelines
recognize that increases in individual wage and salary rates
either slower or faster than the average may be appropriate•in
the interests of equity.

The implication is that more rapid

wage increases could be accommodated, within the framework of
general price stability, in those cases where existing wage rates
are clearly below those generally prevailing for work of a
comparable character.
On this basis, an upward adjustment in many Federal salaries
could be justified immediately in terms
prevailing currently in industry.

of wage scales

In other words, the salary

reform bill — including those changes scheduled for 1964 and
1965 — could be considered to be in the nature of a correction
of existing inequities, and therefore consistent with the stated
guidelines. But that would not recognize the budgetary priorities
emphasized by the President, nor would it provide the sort of
clear and unambiguous example of restraint that is necessary.
The spacing of the salary increases provided for In the
Administration bill will insure that they meet the over-all test
of consistency with productivity gains in the whole private
economy.

(As a footnote, I should add that we have no reliable

measure of productivity gains within Government itself -- although
I am convinced, from my own experience within the Treasury, that
these gains are very real.

In fact, when I see the vast progress

made in the application of electronic computers to our own
operations, I see no reason to believe that gains in efficiency in
Government are lagging behind those for other sectors of the economy.)

- 10 There has been no Federal salary increase since July i960.
Tlie increases proposed in H.R. 10480 for January 1963 would
result in an average increase of 4.5$ in Federal salaries at
that time, equivalent to about 1-3/4$ per year since the date
of the last increase. Meanwhile, national productivity has
been rising since 1954 at a rate of 2.6$ a year; for the postwar
period as a whole, the rise has been even greater, equivalent
to roughly 3.0$ per year. For the entire period since 1909,
the increase has been 2.4$ a year. Thus, whatever set of base
years might be chosen, the proposed increases are well within
the guidelines.
Again, the contrast with the alternative proposals before
this Committee is striking.

In each case, those bills would

provide increases this year in excess of amounts that can be
justified on the basis of national trends in productivity.
Moreover, at the lower work levels, the increases cannot be
justified on the basis of equity. They would, in areas of the
country where the Federal Government is a major factor in local
labor markets, incite competitive wage increases in private
employment. They would provide a most unfortunate example for
labor and private industry generally.

In sum, they would not

only throw our budget out of balance, but they would jeopardize
the whole approach of the Administration toward encouraging wage
restraint and price stability.

They would in the end entail

grave risks for our balance of payments — risks that cannot be
justified by any appeal to equity or hardships.

i 4^
Jw. HT v ^

- 11 For these reasons, the Treasury Department is opposed to
these alternative bills. I hope that this Committee, in its
deliberations, will instead carefully consider the implications
of the principle set forth by the President in his Message when
he emphasized the importance of the Federal Government adhering
firmly "to its own precepts with respect to pay adjustments in
the economy as a whole."

oOo

149
MAY 4 19fi?
kj^EAJippi TO cmcf OF BSCfL ASSIStiJg ^0IIEgARY«
The followij^ traasaetioas were made ia direot aad gearaiiteed seeurltles
of tha faveraseot tar treasury Iaveataieat aad other aeeouate during the aoath
of Aprils
Purchases #36,682,500*00
Sales . 1S.A79.00Q,00
Bet Purchases

#18,203,f00,00

TREASURY DEPARTMENT
WASHINGTON, D.C.
> 1962

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN
Duringflffirrrh1962, market transactions in
direct and guaranteed securities of the government
for Treasury investment and other accounts
resulted in net purchases by the Treasury
Department of $10,070,430.

0O0

±J """T U L.

TREASURY DEPARTMENT

J L *-y «i_

WASHINGTON, D.C.
May 16, 1962

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN APRIL
During April 1962, market transactions in
direct and guaranteed securities of the government
for Treasury investment and other accounts
resulted in net purchases by the Treasury
Department of $18,203,500.

0O0

D-489

- 3 mm3_{3Qgffl_mK 1 c;o
"—5- ^**/ £__

and exchange tenders will receive equal treatment. Cash adjustments will be ma

for differences between the par value of maturing bills accepted in exchange a
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 l

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 sub
to estate, inheritance, gift or other excise taxes, whether Federal or State,

are exempt from all taxation now or hereafter imposed on the principal or inte

thereof by any State, or any of the possessions of the United States, or by an

local taxing authority. For purposes of taxation the amount of discount at whi

Treasury bills are originally sold by the United States is considered to be in

terest. Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 19

the amount of discount at which bills issued hereunder are sold is not conside

to accrue until such bills are sold, redeemed or otherwise disposed of, and su

bills are excluded from consideration as capital assets. Accordingly, the owne
of Treasury bills (other than life insurance companies) issued hereunder need
clude in his income tax return only the difference between the price paid for

bills, whether on original issue or on subsequent purchase, and the amount act

received either upon sale or redemption at maturity during the taxable year fo
which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and this notice, pre-

scribe the terms of the Treasury bills and govern the conditions of their .iss

Copies of the circular may be obtained from any Federal Reserve Bank or Branch

_ 2 • v^.*fc.*:«WW**«:a:<

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 such tenders. Others than
banking institutions will not be permitted to jsubmit tenders except for their
own account. Tenders will be received without deposit from incorporated banks
and trust companies and from responsible and recognized dealers In investment
securities. Tenders from others must be accompanied by payment of 2 percent of
the face amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids. Those
submitting tenders will be advised of the acceptance or rejection thereof. The
Secretary of the Treasury expressly reserves the right to accept or reject any
or all tenders, in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for $200,000 or
less for the additional bills dated

February 25, 1962

xpljc
ing until maturity date on

August 23, 1962

—

, ( 91

days remain-

{___£

) and noncompetitive tenders for

4_&fc

$ 100,000 or less for the 183 -day bills without stated price from any one
bidder will be accepted in full at the average price (in three decimals) of accepted competitive bids for the respective issues. Settlement for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve
Banks on

May 24, 1962

, in cash or other immediately available funds or

in a like face amount of Treasury bills maturing

May 24, 1962

. Cash

wmMs^mmNsnm
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE May 16, 1962

TREASURY'S WEEKLY BILL OFFERING

The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $1,900,000,000 , or thereabouts,
cash and in exchange for Treasury bills maturing May 24, 1962 , in the amount
of $ 1,802,351,000 , as follows:

—PT—
91 -day bills (to maturity date) to be issued
May 24, 1962
in the amount of $1,300,000,000 , or thereabouts, representing an additional amount of bills dated February 25, 1962 ,
and to mature

August 25, 1962

, originally issued in the

amount of $ 600,957,000 , the additional and original bills
to be freely interchangeable.
185 -day bills, for $ 600,000,000 , or thereabouts, to be dated
"3pE_T"
(12)
May 24, 1962
, and to mature
November 25, 1962 »
The bills of both series will be issued on a discount basis under competitive

and noncompetitive bidding as hereinafter provided, and at maturity their face

amount will be payable without interest. They will be issued in bearer form on

Tenders will not be received at the Treasury Department, Washington. Each tend

must be for an even multiple of $1,000, and in the case of competitive tenders
price offered must be expressed on the basis of 100, with not more than three

H9r>

TREASURY DEPARTMENT
WASHINGTON. D.C. " % > I > > ^
May 16, 1962
?0R IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$1,900,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing May 24, 1962,
in the amount of
$1,802,351,000, as follows:
91-day bills (to maturity date) to be issued May 24, 1962,
in the amount of $ 1,300,000,000, or thereabouts, representing an
additional amount of bills dated February 23, 1962, and to
mature August 23, 1962, originally issued in the amount of
$600,937,000, the additional and original bills to be freely
interchangeable.
183 -day bills, for $ 600,000,000, or thereabouts, to be dated
May 24, 1962,
and to mature November .23, 1962.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
maturity their face 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, one-thirty p.m., Eastern Daylight Saving
time, Monday, May 21, 1962.
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 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
D-490- of Treasury bills applied for, unless the tenders are
amount
accompanied
by an express guaranty of payment by an Incorporated bank
or
trust company.

- 2 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 Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any. or
all tenders, in whole or In part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
February 23, 1962,(91-days remaining until maturity date on
August 23, 1962) and noncompetitive tenders for $100,000
or less for the 183-day bills without stated price from any one
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on May 24, 1962,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing May 24, 1962.
Cash and
exchange tenders will receive equal treatment. Cash adjustments
will be made for differences between the par value of maturing
bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes', whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunde]
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
0O0 the taxable year for which the
sale or redemption at maturity during
return is made, as ordinary gain or loss.
Treasury
Department
Circular
No.
4l8
revision)
and thi:
conditions
notice
any Federal
prescribe
of
Reserve
their
theBank
issue.
terms
orof
Branch.
Copies
-the
Treasury
of
the(current
circular
bills and
may
govern
be obtained
the
f:

May 16, 1962 l$K

^~Ha_a__wrt^^ nuu.
The Treasury announced today that it would increase the amount
of its offering of 3~moath Treasury bills by $100 million next week,
bringing the total offering of 3-month bills to $1«3 billion#jd__-e
the offering of 6-month bills will be $600 million, as has been

customary in recent weeks;tjThis marks the first step in the Treasury's
acquisition of funds to meet its expected seasonal requirements
through the beginning of the next fiscal year. Decisions on whether
or not to continue raising additional funds in this manner will be
made from week to week, depending on conditions in the market* This
action does not reflect any change in the Treasury's estimates of
its over-all cash requirements.

TREASURY DEPARTMENT
WASHINGTON, D.C.
1

May 16, 1962

FOR IMMEDIATE RELEASE
TREASURY TO INCREASE THE OFFERING ^OF
3-MONTH BILLS BY $100 MILLION NEXT WEEK
The Treasury announced today that It would increase
the amount of its offering of 3-month Treasury bills by
$100 million next week, bringing the total offering of
3-month bills to $1.3 billion. The offering of 6-month
bills will be $600 million, as has been customary in
recent weeks.
This marks the first step in the Treasury's acquisition
of funds to meet its expected seasonal cash. - requirements
through the beginning of the next fiscal year. Decisions
on whether or not to continue raising additional funds in
this manner will be made from week to week, depending on
conditions in the market. This action does not reflect
any change in the Treasury's estimates of Its over-all cash
requirements,

0O0

D-491

1 z?
TREASURY DEPARTMENT
WASHINGTON
May 17, 1962
FACT SHEET FOR THE PRESS ON ITALIAN DEBT PREPAYMENT
Loans arising out of six agreements are covered by the arrangements
concluded today between the Treasury Minister of Italy, Roberto
Tremelloni and United States Treasury Secretary Douglas Dillon, for
prepayment of $178.6 million of Italy's outstanding indebtedness to the
United States.
Three of the six loans involved funds which were advanced to the
Government of Italy under the Economic Cooperation Administration and
the Mutual Security Administration of the United States. These loans,
for $67 million, $6 million, and $22.6 million, represented assistance
provided as part of the t!Marshall Plan" assistance to Italy in the early
post-war period. The remaining three loans, which are being prepaid by
the Government of Italy, were made with the proceeds of sales of surplus
agricultural commodities to the Government of Italy made under the authority of the Agricultural Trade and Development Assistance Act of 1954,
as amended.
The prepayments agreed upon cover all of the loans of the United
States to the Government of Italy arising from Marshall Plan assistance
and proceeds of the sale of surplus agricultural commodities.
In his letter to Minister Tremelloni Secretary Dillon stated "The
spirit with which your Government has entered into these discussions is
most gratifying and is further evidence of the kind of cooperation which
is an essential factor in the strength and stability of the international
financial system. Your ability to prepay these obligations is a reflection of the sound position of the Italian economy in which you must take
deep satisfaction and of the strength of your balance of payments
position."
Details of the prepayment remain to be worked out. It is expected
that the payment will be made as of July 1, 1962. As of that date, the
amount which the Italian government will owe to the United States on the
three Marshall Plan loans will be $85,627,179.44. The amount of the
obligation resulting from the loans of the proceeds of surplus agricultural commodity sales will be approximately $93 million.

The prepayment arrangements do not cover Italian obligations arising
from U. S. sales of merchant ships to Italian government or surplus property agreements concluded at the end of World War II. Italian debts to
the U. S. government under these obligations are approximately $40
million.

15Q

UNCLASSIFIED

" — V > \jt

-3- UNNUMBERED, MAY \G9 (SECTION FOUR OF FOUR) FROM ROME
CURRENCIES AND MORE$ WOULD SURELY HAVE A FIRMER FOUNDATION
THAN ONE BASED ON ARTIFICIAL DEVICES. AT THE LEAST, i„ SUGGEST,
THERE IS FOOD FOR THOUGHT IN SUCH A POSSIBILITY -,- AND THAT,
ALONG WITH THE EXCELLENT CUISINE, IS WHAT I HAVE UNDERSTOOD TO
BE THE PROVOCATIVE AIM OF THESE MEETINGS,
RE INHARDT
GDW

A H AAEft'

"3k

4
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UNCLASSIFIED

IJNCLASSfFlED
-2- UNNUMBERED, MAY )6, (SECTION FOUR OF FOUR) FROM ROME
AMONG MONETARY AUTHORITIES OF THE TYPE THAT HAS BEEN SO
SUCCESSFULLY DEVELOPED OVER THE PAST YEAR OR S0o JT IS
CLEAR THAT THE ATTRIBUTES OF A KEY CURRENCY INVOLVE MANY
THINGS — ITS USE IN INTERNATIONAL TRADE, ITS RELATIONSHIP
TO GOLD ^s TH£ ULTIMATE RESERVE, THE EXISTENCE OF BROAD AND
DEEP CAPITAL AND MONEY MARKETS. JN ALL THESE RESPECTS THE
DOLLAR IS NOW UNIQUE, ALTHOUGH WE HOPE TO SEE FURTHER
PROGRESS |N THE FREEING UP OF EUROPEAN MONEY AND CAPITAL
MARKETS. &UT WHAT MAKES A CURRENCY GOOD BASICALLY (S THE
WAY THE COUNTRY MANAGES ITS ECONOMY. ]^ERE THERE ARE A NUMBER
OF STRONG COUNTRIES — AS THERE ARE TODAY — A PLAUSIBLE CASE
WOULD SEEM TO EXIST FOR SOME SHARING OF THE BURDENS PLACED
ON THE KEY CURRENCY.
JLT MAY BE, TOO, THAT A SYSTEM SUCH AS ± HAVE OUTLINED WOULD
BE A SENSIBLE WAY TO PROVIDE FOR ANY LARGE INCREASE IN
LONG-RUN LIQUIDITY REQUIREMENTS. J-ONG BEFORE THERE CAN BE
A W AGREEMENT ON ANY OF THIS, HOWEVER, THERE ARE MANY KNOTTY
PROBLEMS THAT WILL HAVE TO BE RESOLVED BY OUR OWN POLICY
MAKERS AND THROUGH INTERNATIONAL CONSULTATIONS — THROUGH
THE 5ASLE SPOUP, THROUGH THE OECD, AND THROUGH THE IMF. BUT
EXPLORATIONS ALONG THESE LINES ARE FAR PREFERABLE, IT SEEMS
TO ME, TO THE OFTEN PROPOSED TYPES OF ACTION (INVOLVING STILL
MORE DIFFICULT DECISIONS AND NEGOTIATIONS) THAT BASICALLY
INVOLVE AN OATH OF ALLEGIANCE BY ALL GOVERNMENTS AND CENTRAL
BANKS TO A SYNTHETIC CURRENCY DEVICE,, CREATED BY AN EXTRANATIONAL AUTHORITY BEARING NEITHER THE RESPONSIBILITIES NOR
THE DISCIPLINES OF SOVEREIGNTY.
QN THE OTHER HAND, A SYSTEM WHERE COUNTRIES MAINTAIN SOME
MUTUAL HOLDINGS OF FOREIGN EXCHANGE HAS THE EXTREME
ADVANTAGE OF USING EXISTING INSTITUTIONS AND PRACTICES,,
WITHIN SUCH A SYSTEM THE PATTERNS OF REFERENCE ARE KNOWN
TO ALLj NO ONE WILL BE ASKED TO DO THINGS THAT FALL OUTSIDE
THE REALM OF HIS EXPERIENCE,, A SYSTEM ERECTED ON ESTABLISHED

UNCLASSIFIED

1 £Q

INCOMING TELEGRAM

Department

of State

«_ \J v-'

UNCLASSIFIED
Action

Control: .J2J.26
Rec'd: MAY 16 # I962
^ Z ,
iQsOg PM
r
*7

TEST
FROM: ROME

SS TO: Secretary of State MllUf;;^lr^f Pi
NO:

UNNUMBERED* MAY \6* (SECTION FOUR OF FOUR)

usu
INI
NSA
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XMB

PLEASE PASS; URGENTLY TO TREASURY ..FOR STEVE MANNsl NG / FROM
p/SS ALSd lllSi'A*
OF SHIFTS |N RESERVES AMONG OTHER CENTRAL BANKS WOULD BE
tfFTED FROM THE^Nl^ED STATES ®OLD STOCK.,, WfTH SUCH A SYSTEM
WE MIGHT PEHHAPS BE ABLE TO VtEW |N BETTER PERSPECTIVE OUR
fiOLD LOSS OF THE PAST FIVE YEARS AS A BASIC AND HEALTHY REDISTRIBUTION OF AVAILABLE WORLD GOLD RESERVES^ A REDISTRIBUTION
THAT HAS ADDED TO tME STRENGTH OF THE INTERNATIONAL FINANCIAL
Q

^ A T J_AM SUGGESTING ?!S THAT WE NEED TO BUILD FURTHER THE
'OUTER DEFENSES AROUND THE LIQUIDITY OF THE INTERNATIONAL
.MONETARY FUND* WHICH' WILL BE SUBSTANTIALLY AUGMENTED BY
'THE S T A M P H J W AGREEMENT 0N WHICH PROGRESS TOWARD RATfF|CAT(O.N
tS'GOl'Nb AHEAD WITH GRATIFY(NO DESPATCH. WE NEED TO PROVIDE
A MEANS OF FURTHER ECONOMIZING ON GOLD RESERVES, WHILE
ENSURING THAT THE LIQUIDITY NEEDS OF OUR EXPANDING. WORLD
ECONOMY WILL BE MET IN A MANNER CONSISTENT W|TH THE
SOVEREIGNTY OF INDIVIDUAL COUNTRIES AND WITH HEAVY RELIANCE
ON THE DISCIPLINE PROVIDED BY THE BALANCE OF PAYMENTS.1
jHE NET EFFECT, IF TH)S LINE OF DEVELOPMENT SHOULD BE
FOLLOWED, WOULD BE TO MULT I LATERAL)ZE A PART OF THE' ROLE
PERFORMED NOW BY THE TWO KEY CURRENCIES, WITHIN A FRAMEWORK
THAT WOULD PLACE GREAT STRESS ON STILL FURTHER COOPERATION^

n u n AQQirlrn
U N C L A - b - U ILL)

REPRODUCTION FROM THIS COPY IS
PROHIBITED UNLESS "UNCLASSIFIED"

UNCLASSIFIED
-4- UNNUMBERED, MAY }6S (SECTION THREE OF FOUR) FROM ROME
OF COURSE, AND THE RELATIVE SIZE OF ANY SUCH HOLDINGS WOULD
PRESUMABLY BE COMPARATIVELY SMALL. HOR WOULD THERE BE ANY
LESSENING OF THE NEEDED BALANCE OF PAYMENTS DISCIPLINES UPON
US OR UPON OTHERS. JLOR CHANGES IN OUR COMBINED RESERVES OF
GOLD AND FOREIGN EXCHANGE^WOULD THEN BECOME AS SIGNIFICANT TO
THE DETERMINATION OF OUR^OLI CIES AS CHANGES IN GOLD ALONE
HAVE BEEN OVER RECENT YEAJRS.
IF SUCH A SYSTEM WERE BOLSTERED BY SUITABLE INTERNATIONAL
ARRANGEMENTS TO ENSURE
HEADY AND ORDERLY DISTRIBUTION OF
NEWLY-MINED GOLD INTO MONETARY RESERVES, MUCH OF THE PRESSURE
BOTH PSYCHOLOGICAL AND REAL -- THAT ARISES FROM THE ACCIDENT
GDW

o^v^
ve^ b*\£)nk

<^*

—bttjtC L A S S IF1 ED

lb^
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UNCLASSIFIED
-3- UNNUMBERED, MAY )69 (SECTION THREE OF FOUR) FROM ROME
AVOID THEM, BUT CERTAINLY AVOID CONDITIONS THAT EXAGGERATE
THEM. JJfcJDER PRESENT PROCEDURES, WE CANNOT BE SURE THAT GOLD
WILL RETURN TO US WHEN WE MOVE INTO SURPLUS — AND WE MUST AND
WILL HAVE SURPLUSES FROM TIME TO TIME.
THIS KIND OF CONSIDERATION LEADS DIRECTLY INTO MY SECOND
MAIN THEME — THE POTENTIAL USES OF FOREIGN EXCHANGE HOLDINGS
BY A KEY CURRENCY COUNTRY. ,AS 1 HAD MENTIONED EARLIER, OUR
EXCHANGE OPERATIONS TO DATE TlAVE BEEN LARGELY DICTATED BY CLEAR,
CURRENT OPPORTUNITIES AND NEEDS. .V__ HAVE ACTED IN RESPONSE TO
MARKET DEVELOPMENTS AND HAVE NOT SOUGHT TO BECOME PERMANENT
AND REGULAR PARTICIPANTS IN THE MARKET FOR ANY CURRENCY.
OUR SPOT EXCHANGE HOLDINGS — WHICH, ON THE LATEST PUBLISHED
FIGURES WERE ABOUT $150 MILLION, BUILT UP PARTLY FROM
BORROWING AND PARTLY FROM PURCHASES IN THE EASIER MARKETS
THAT HAVE PREVAILED FOR SOME CURRENCIES SO FAR THIS YEAR —
HAVE MAINLY BEEN ACQUIRED TO BACK UP OUR FORWARD SALES. BUT
LOOKING AHEAD TO THE FUTURE, THERE MAY WELL BE GOOD REASON
FOR MORE OR LESS CONTINUOUS HOLDING BY THE UNITED STATES OF
SOME MODERATE AMOUNTS OF THE CONVERTIBLE EXCHANGE OF VARIOUS
LEADING COUNTRIES.
WHILE IT IS PREMATURE TO SEE CLEARLY WHERE WE MAY BZ HEADING
SO FAR AS THE CURRENCY HOLDINGS OF THE UNITED SJATES ARE
CONCERNED, IT MAY WELL TURN OUT THAT SOME CONTRIBUTION
TOWARD RESOLVING A PART OF OUR PROBLEM MAY BE FOUND |N
BUILDING UP — IN TIME OF SURPLUS — HOLDINGS OF OTHER
CURRENCIES THAT ARE NOT THOUGHT OF AS RESERVE CURRENCIES
IN THE SAME WAY THAT THE DOLLAR AND THE POUND STERLING ARE
VIEWED. SHOULD WE DO THAT, EITHER WITH OPEN HOLDINGS OR
THROUGH HEDGED FORWARD POSITIONS, OUR EXCHANGE HOLDINGS
MIGHT BE ABLE SUBSEQUENTLY TO HANDLE A CONSIDERABLE PART OF THE
NORMAL SWINGS IN PAYMENT PATTERNS, LEAVING THE GOLD RESERVES
AVAILABLE TO COVER MORE FUNDAMENTAL AND LASTING ADJUSTMENTS.
THERE WOULD BE NO COMMITMENT TO HOLD ANY PARTICULAR CURRENCY/
UNCLASSIFIED
1
4*

UNCLASSIFIED
-2- UNNUMBERED, MAY \6, (SECTION THREE OF FOUR) FROM ROME
DOLLAR HOLDINGS IN THE HANDS OF PRIVATE FOREIGNERS, WE MUST
MAKE SURE THAT SPECULATIVE FORCES ARE NOT FED BY UNCERTAINTY
ABOUT EITHER THE ABILITY OR THE DETERMINATION OF THE .UNITED
J3TATES TO STAND FIRMLY BEHIND THE INTER-CONVERTIBILITY OF
THE DOLLAR WITH GOLD AT THE FIXED PRICE OF $35.00 PER FINE
OUNCE.
1
A„CLEAR DISTINCTION HAS TO BE DRAWN --AND IT IS NOT ALWAYS
EASY TO CONVEY THIS READILY — BETWEEN THE ABSOLUTE AND
UNCONDITIONAL AVAILABILITY OF GOLD TO FOREIGN MONETARY
AUTHORITIES FOR LEGITIMATE MONETARY PURPOSES AND THE
COMPULSION ON US — IN COOPERATION WITH FOREIGN MONETARY
AUTHORITIES — TO AVOID ANY UNNECESSARY DISPERSIONS OF THE
_JNITED STATES GOLD RESERVE, ON WHICH OUR EXISTING INTERNATIONAL
SYSTEM, IN THE LAST ANALYSIS, DEPENDS. XHE JJNITED STATES
WOULD, IN FACT, BE JUST AS DERELICT IN ITS DUTY TO HELP
SUPPORT AND SUSTAIN A GROWING AND VIABLE INTERNATIONAL
ECONOMY IF IT FAILED TO DEFEND THE GOLD STOCK THROUGH
IMPROVED TECHNIQUES OF MONETARY COOPERATION AS IT WOULD BE IF
IT FAILED TO MAKE GOLD AVAILABLE TO FOREIGN MONETARY
AUTHORITIES ON DEMAND.
ABSOLUTION OF THE BALANCE OF PAYMENTS DEFICIT IS FUNDAMENTAL
IF WE ARE TO WARD OFF A STEADY ATTRITION OF THE JJNITED
JJATES GOLD STOCK. JUT, THE PROBLEM GOES EVEN BEYOND THIS.
IHE UNITED STATES IS A READY SELLER OF GOLD ON DEMAND, BUT
OTHER COUNTRIES ARE NOT NECESSARILY SELLERS TO US WHEN THEY
HAVE EXCHANGE DEFICITS, PARTLY INDEED BECAUSE THE IR OWN GOLD
RESERVE IS CUSHIONED - IN MANY CASES SUBSTANTIALLY — BY
DOLLAR RESERVES.
XT IS CONSEQUENTLY A MATTER OF FIRST PRIORITY FOR US TO
DEVELOP METHODS THAT WILL MINIMIZE OUR GOLD LOSSES WHENEVER
OUR BALANCE OF PAYMENTS SWINGS INTO DEFICIT — BY NO MEANS
. ^

UNCLASSIFIED

,(»oJi«--W«=»<"»»**!A"

INCOMING TELEGRAM

Department

of State

1 Cl

UNCLASSIFIED

Control: 1 £\ 2F)

Action

Rec'd: MAY \G9 1^62
TRSY
Info
SS
EUR
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P
USIA
INR
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NSA
COM
XMB
FRB
RMR

* y

10J09 PM

FROM: ROME
TO: Secretary of State __a^a
NO: UNNUMBERED, MAY )6 (SECTION THREE OF FOUR)
PLEASE PASS URGENTLY TO TREASURY FOR STEVE MANNING FROM
DONNELLY.
PASS ALSO US|A#
ENCOURAGE FOREIGN PRIVATE INVESTORS TO STAY INVESTED IN
DOLLARS (OR TO INCREASE THEIR HOLDINGS) AND THUS RESTRAIN
THE PILING UP OF DOLLARS IN CENTRAL BANKS ABROAD.
AS LONG AS THE JJNITED STATES CONTINUES TO RUN A SIZEABLE
DEFICIT IN ITS BALANCE"1)F PAYMENTS IT IS UNLIKELY THAT WE CAN
OR SHOULD EXPECT THAT SOME PART OF THE DOLLARS PUMPED INTO THE
INTERNATIONAL FINANCIAL STREAM WlLL NOT REACH CENTRAL BANK
HANDS. JtOR SHOULD WE EXPECT TO AVOID SOME RESULTING DRAIN ON
OUR GOLD STOCK. AND THE DISCIPLINES WHICH SUCH MOVEMENTS
IMPLY ARE FUNDAMENTAL AND CLEAR.
31 THE SAME TIME WE MUST BE CONSTANTLY MINDFUL THAT THE
DOLLAR |S NOT JUST ANOTHER CURRENCY, BUT THAT IT |S A KEY
RESERVE CURRENCY — NOT ONLY FOR FOREIGN MONETARY AUTHORITIES
BUT ALSO FOR FOREIGN PRIVATE BANKS AND CORPORATIONS^ ^E
MUST REMEMBER THAT FOREIGN MONETARY AUTHORITIES ADJUST THEIR
OWN BALANCE OF PAYMENTS POSITION DAY-BY-DAY AND WEEK-BY-WEEK
BY THE PURCHASE AND SALE OF DOLLARS |N THE EXCHANGE MARKET.
IRRESPECTIVE OF OUR BALANCE OF PAYMENTS POSITION THE SHIFT
OF DOLLARS FROM COUNTRIES WITH TRADITIONALLY LOW GOLD RATIOS
TO COUNTRIES WITH HIGH RATIOS CAN RESULT IN A GOLD DRAIN F9R
THE UNITED SJATES. SJMILARLY, WITH 8-1/2 BILLION OF LIQUID-

UNCLASSIFIED

REPRODUCTION FROM THIS COPY IS
PROHIBITED UNLESS "UNCLASSIFIED

r7
UNCLASSIFIED
-4- UNNUMBERED, MAY } 6, (SECTION TWO OF FOUR) FROM ROME
ALL IN ALL, TOTAL FORWARD EXCHANGE OPERATIONS UNDERTAKEN BY THE
XREASURY IN THE FOUR CURRENCIES THAT ± HAVE MENTIONED, INCLUDING
THE ROLL-OVER OF MATURING CONTRACTS IN SOME CASES, HAVE AMOUNTED
TO ABOUT $1-1/2 BILLION IN THE l^-MONTH PERIOD.
ONE OF THE MAIN RESULTS OF THESE SALES OF FORWARD EXCHANGE AS
IS OBVIOUS FROM WHAT I HAVE SAID SO FAR, HAS BEEN TO
'
•GDW-

UNCLASSIFIED

©
UNCLASSIFIED
-3- UNNUMBERED, MAY l6, (SECTION TWO OF FOUR) FROM ROME
UNCERTAINTY IN THE MARKETS AND THERE WERE WIDESPREAD EXPECTATIONS
THAT FURTHER APPRECIATION OF THESE, AND PERHAPS OTHER,
CURRENCIES WOULD SHORTLY BE FORTH-COM|NG. JJM THESE
CIRCUMSTANCES FORWARD RATES MOVED TO SUBSTANTIAL PREMIUMS,
^^S^^JEEJ^M^TQ'ISl'ei 11 NO A k PERCENT PER ANNUM PREMIUM FOR A TIME,
AND INCENTIVES WERE CREATED FOR HEAVY FLOWS OF FUNDS OUT
OF THE DOLLAR AND INTO THE MARK. ACTUALLY, IN PROVIDING
MARKS TO THE FORWARD MARKET, WE MADE IT POSSIBLE FOR THE
RECIPIENTS TO CONTINUE HOLDING THEIR DOLLARS, WHILE ASSURED
OF LATER CONVERTIBILITY INTO MARKS IF THEIR ACQUISITIONS DID
IN FACT PROVE TO BE SUSTAINED. OUR OWN FORWARD SALES OF MARKS
/
REACHED JL-EEA_L Q.F jSgQyi^ftgr Ml LLION IN MID-JUNE AND
^ ? > S ""AGGREGATED CONSIDERABLY MORE AS SOME INITIAL CONTRACTS WERE
ROLLED OVER ONCE OR TWICE MORE. J3DT NOW, THEY HAVE ALL BEEN
PAID OFF, AS THE EXCESSIVE FLOW OF FUNDS INTO GERMANY FIRST
SUBSIDED AND THEN WAS REVERSED WHEN THE^BERLIN SITUATION
DETERIORATED DURING THE LATE SUMMER OF I96I AND EXPECTATIONS
OF FURTHER APPRECIATION DISAPPEARED,,

0-~©1-ffi JTAN J_PER AT | ONS^WERE^ UNDERTAKEN IN .SWISS FRANCS BEGI
^ - - IN .MAY 1961 ON'"A SMALL SCALE, AND ACCELERATING IN .JULY WHEN THE
JfcO
BERLIN CRISIS ENCOURAGED A STEPPED UP FLOW OF FUNDS INTO
SWITZERLAND. JHE SWISS WERE ANXIOUS TO ENCOURAGE AN OUTWARD
FLOW OF SHORT-TERM~SW|SS CAPITAL TO OFFSET INFLOWS FROM
OTHER SOURCES THAT WERE CREATING DOMESTIC PROBLEMS OF
EXCESSIVE BANK LIQUIDITY AND INFLATIONARY PRESSURES, AND
THE JJNITED .STATES WAS GLAD TO COOPERATE, SINCE WE WERE
EQUALLY ANXIOUS TO DEFEND THE DOLLAR BY LESSENING THE
PRESSURE ON THE .SWISS RATIONALJANK TO ABSORB MORE DOLLARS.
£ARLY THIS YEAR, FOR ROUGHLY SIMILAR REASONS, FORWARD SALES OF
GUILDERS AND ITALIAN LIRE WERE MADE. TO GIVE YOU AN IDEA OF THE
MAGNITUDES INVOLVED, SALES OF FORWARD SWISS FRANCS REACHED A
MAXIMUM OF SOMETHING OVER $150 MILLION^ GUILDER OALL^ WLKL""
<MLXE~Ml&&r^^
ITALI AN LI RE, Hrt¥_^ftm^tfl_.tJ HBT"
MA__±LJU&_^OF-THre^
UNCLASSIFIED tfu f I _*v ff*-f*^ *fa "

<f
UNCLASSIFIED
-2- UNNUMBERED, MAY 16, (SECTION TWO OF FOUR) FROM ROME
.STATES HELD NO RESERVES OF CONVERTIBLE FOREIGN EXCHANGE —
AND THE BALANCE OF PAYMENTS WAS IN DEFICIT. AS A RESULT
THERE WAS NO OPPORTUNITY TO SUPPORT THE DOLLAR IN THE
'
EXCHANGE MARKET THROUGH SPOT SALES OF OTHER CURRENCIES IN
THE WAY THAT EUROPEAN MONETARY AUTHORITIES CUSTOMARILY DO
WHEN THEIR OWN CURRENCIES COME UNDER PRESSURE.
SOME MINOR LIMITED SELLING OPERATIONS IN THE SPOT MARKET
HAVE BEEN UNDERTAKEN MORE RECENTLY TO ALLEVIATE TEMPORARY
PRESSURES^ USING FOREIGN EXCHANGE ACQUIRED BY BORROWING
IN SWITZERLAND AND JJALY (OR LIMITED AMOUNTS ACQUIRED AT
TIMES WHEN THE RATE WOULD NOT BE ADVERSELY AFFECTED).
OPERATIONS HAVE BEEN MAINLY CONCENTRATED^ HOWEVER, IN
-71
r
^
JggWARD EXCHANGE WHERE MARKETS CAN AT TIMES BE QUITE THIN" — = AND EVEN A RELATIVELY LIMITED VOLUME QF^DEMAND CAN HAVE
V
AN EXCESSIVE IMPACT ON RATES, WHICH ARE NOT SUBJECT TO
^^/
LIMITATIONS UNDER IMF REGULATIONS BUT WHICH CAN GENERATE
GREAT PRESSURES UPON THE SPOT RATES. WHEN THE FORWARD RATE —
WHETHER BECAUSE OF EXPECTATIONS CONCERNING FUTURE CURRENCY
VALUES OR FOR OTHER REASONS — MOVES CONSPICUOUSLY OUT OF
LINE WITH ITS INTEREST PARITY, SHORT-TERM PRIVATE CAPITAL MOVEMENTS CAN BE SET OFF THAT MAY BE DISTURBING TO BOTH THE COUNTRY
RECEIVING AND THE COUNTRY LOSING FUNDS,, IT IS USEFUL TO
HAVE FACILITIES FOR TESTING OUT WHETHER THE PARTICULAR
DEVELOPMENTS ARE IN FACT DEEPLY ROOTED AND SUSTAINED, OR
WHETHER THEY ARE SHORT-LIVED AND MAY SOON BE REVERSED.
JT WAS PRECISELY THIS SORT OF SITUATION, IN FACT, THAT
PROVIDED THE IMMEDIATE MOTIVATION FOR JREASURY OPERATIONS —
IN CONJUNCTION WITH THE BUNDESBANK (AND ACTUALLY IN RESPONSE
TO A VERY CONSTRUCTIVE INITIATIVE ON THE PART OF THE *
BUNDESBANK) — IN THE FORWARD MARKET FOR DEUTSCHEMARKS IN
.MARCH 1961. IOU WILL RECALL THAT THE REVALUATION OF THE MARK
AND THE GUILDER AT THAT TIME LED TO A STATE OF GREAT \

UNCLASSIFIED

1 Q/lS
"** &J&S
UNCLASSIFIED
-3- UNNUMBERED, MAY ]6 (SECTION ONE OF FOUR) FROM ROME
AT THIS EARLY STAGE TO BE SUGGESTED, CONCERNING THE
ACCUMULATION BY A KEY CURRENCY COUNTRY OF BALANCES IN THE
CONVERTIBLE CURRENCIES OF OTHER LEADING COUNTRIES?
JQJHER COUNTRIES HAVE LONG ACCEPTED DIRECT INTERVENTION IN
THE EXCHANGE MARKETS AS A CUSTOMARY WAY OF LIFE. A T THE
LEAST, THEY MUST BE BUYERS OR SELLERS AS EXCHANGE QUOTATIONS
REACH THE ACCEPTABLE LIMITS OF VARIATION AROUND THEIR OWN
FIXED EXCHANGE RATES. JHE JJNITED STATES, ON THE OTHER HAND,
WAS -- AND STILL IS — THE ONLY COUNTRY THAT MAINTAINS
COMPLETE INTER-CONVERTIBILITY BETWEEN GOLD AND ITS OWN
CURRENCY AT A FIXED PRICE, AND, UNTIL RECENTLY, WAS CONTENT
TO LEAVE ALL OPERATIONS CONCERNING THE EXCHANGE RELATIONS
BETWEEN THE DOLLAR AND OTHER CURRENCIES TO THE OFFICIALS OF
THOSE OTHER COUNTRIES. THE RECENT DECISION TO PARTICIPATE IN
THE INTERNATIONAL MARKETS IN COOPERATION WITH OTHER FINANCIAL
AUTHORITIES REFLECTS, AS DO MANY OTHER GOVERNMENTAL AND
PRIVATE ACTIONS, A GROWING AWARENESS WITHIN THE UNITED
SJATES OF THE DUAL NATURE OF OUR OWN BALANCE OF PAYMENTS
PROBLEM.
Ja£E MUST NOT ONLY RESPECT AND FULFILL THE BALANCE OF PAYMENTS
DISCIPLINES TO WHICH OTHER COUNTRIES HAVE BEEN ACCUSTOMED FOR
SO LONG 3 BUT WE MUST DO THIS WHILE ALSO KEEPING OUR OWN
CURRENCY AND GOLD EQUALLY AND ALTERNATIVELY AVAILABLE AS
RESERVES FOR ALL OTHER COUNTRIES. V£E MUST GAIN AND KEEP THE
INITIATIVE FOR INFLUENCING THE FACTORS THAT AFFECT OUR
BALANCE OF PAYMENTS, BUT WE MUST DO SO IN THE IMPECCABLE
MANNER THAT ASSURES AND RETAINS BANKERS* CONFIDENCE. JHIS
MEANS THAT, BOTH AS TRADER AND AS BANKER, THE JJNITED STATES
HAS TO KEEP ITS MARKETS OPEN AND FREE. V/E HAVE THEREFORE
A MAJOR STAKE, WHICH THE WESTERN WORLD SHARES WITH US, IN
RESOLVING OUR BALANCE OF PAYMENTS PROBLEM WITH IN THE FRAMEWORK
OF A FREE INTERNATIONAL ECONOMY, WITH STABLE EXCHANGE RATES
AND AN IMMUTABLE GOLD PRICE OF $3.5 AN OUNCE.

UNCLASSIFIED
-2- UNNUMBERED, MAY ]6 (SECTION ONE OF FOUR) FROM ROME
DEPEND UPON THE PRODUCTIVITY, PRODUCTION, AND COMPETITIVENESS
OF THE AMERICAN ECONOMY. gUT IN WHAT WE HAVE BEEN DOING,
BOTH BASICALLY AND PERIPHERALLY, TO DEFEND THE DOLLAR, WE HAVE
ALSO BEEN DEFENDING^ IN CONCERT WITH OTHERS, THE WHOLE SYSTEM
OF CONVERTIBILITY AT STABLE EXCHANGE RATES THAT HAS BEEN SO
PAINSTAKINGLY RECONSTRUCTED SINCE THE END OF M)RLD WAR H •
AND THE EFFECTIVE FUNCTIONING OF THAT SYSTEM IS, IN TURN,
ESSENTIAL FOR DIVERSIFIED GROWTH AND INTEGRATION AMONG THE
FREE, CAPITALIST ECONOMIES OF THE V£QRLD.
IN ADDITION TO THE SHORT-RUN OBJECTIVES OF OUR FOREIGN
EXCHANGE OPERATIONS,. ON WHICH X SHALL SAY A BlT MORE IN A
MOMENT, THERE ARE LONGER-RUN IMPLICATIONS AND POTENTIALITIES
OF AN APPROACH IN WHICH A KEY CURRENCY COUNTRY BECOMES AN
ACTIVE PARTICIPANT IN THE INTERNATIONAL EXCHANGE MARKETS.
AS WE GO ALONG WE ARE ALSO, THEREFORE, TRYING TO THINK THROUGH
SOME OF THESE POSSIBLE IMPLICATIONS FOR THE LONG-RUN — CAN
SUCH PARTICIPATION AJD IN ASSURING THE STABILITY OF THE
INTERNATIONAL FINANCIAL MECHANISM? ££N IT, IF PROPERLY
EXECUTED, REINFORCE THE FUNDAMENTAL WORK OF THE INTERNATIONAL
MONETARY JUND? jJOES IT AFFORD A HELPFUL MEANS TOWARD
PROVIDING SUFFICIENT INTERNATIONAL LIQUIDITY FOR THE CONTINUED
GROWTH OF THE WORLD ECONOMY? JJOES IT STRENGTHEN THE ROLE
OF GOLD AS THE BASE OF OUR INTERNATIONAL RESERVE ARRANGEMENTS?
XHESE ARE THE KINDS OF QUESTIONS THAT CENTRAL BANKERS, AND
COMMERCIAL BANKERS AND TREASURIES CAN USEFULLY PONDER
TOGETHER, IN OUR JOINT EFFORTS TO FIND THE COMBINATION OF
PRIVATE AND GOVERNMENTAL MONETARY FACILITIES THAT A FLOURISH INC
CAPITALISM NEEDS. UHILE J. CANNOT PRESUME TO SUGGEST ANY OF
THE ANSWERS, IT MAY BE QF~SOME HELP AS BACKGROUND FOR OTHERS
WHO CAN, IF J..DISCUSS TWO THEMES THAT SEEM TO RUN THROUGH OUR
AMERICAN EXPERIENCE OF THESE RECENT MONTHS. FIRST, WHAT HAS
THUS FAR BEEN THE NATURE OF OUR FOREIGN EXCHANGE OPERATIONS
WITHIN THE FRAMEWORK OF THE SYSTEM OF CONVERTIBILITY BASED
ON FIXED EXCHANGE RATES? SECOND, WHAT POSSIBILITIES SEEM

UNCLASSIFIED

INCOMING TELEGRAM

Department

of State

UNCLASSIFIED

Control: ]20~j6
Rec'd: MAY 1 6, I 962

Action

TRSY
Info
ss

^^-~—-^

+-}

- FROM: ROME J
f
C**^
TO: Secretary of State

8:07
117^

IT3

EUR
E

P
USIA
INR
CIA
NSA
COM
XMB
FRB

NO:

UNNUMBERED, MAY ]6 (SECTION ONE OF FOUR)

PLEASE PASS URGENTLY TO TREASURY FOR STEVE MANNING FROM
DONNELLY#
—
PASS ALSO USIA 0
FOLLOWS ROOSA TEXT AT ABA MEETING:
—

—

•

Rm %VER THE PAST FOURTEEN MONTHS THE liN I TED J3JATES HAS, FOR
THE FIRST TIME SINCE THE LATER IJJO'S, ENTERED INTO FOREIGN
EXCHANGE TRANSACTIONS FOR MONETARY PURPOSES — AS DISTINCT
FROM THE MORE Q^ LESS ROUTINE HANDLING OF FOREIGN EXCHANGE
T O MEET THE i^QVERNMENTtS OPERATING NEEDS ABROAD. JHE
TREASURY BEGAN LIMITED OPERATIONS IN MARCH 1961, ACTING
THROUGH THE FEDERAL RESERVE BANK OF N.EW YORK AS ITS FISCAL
AGENT. X N X E B R U A R Y 0 F T H , S Y E A R THE .FEDERAL RESERVE SYSTEM
ANNOUNCED iTs DECISION TO ENTER THE EXCHANGE MARKETS FOR ITS
OWN ACCOUNT.
JO DATE, JJLNITED STATES ACTION IN THE FOREIGN EXCHANGE MARKETS
HAS BEEN LARGELY EXPLORATORY IN CHARACTER, DESIGNED TO PROBE
AND POSSIBLY TO LIMIT TEMPORARY DISTURBANCES IN THE EXCHANGE
MARKETS. A L L OPERATIONS HAVE BEEN CARRIED OUT IN CLOSE
CONSULTATION WITH, AND USUALLY JOINTLY WITH, THE FINANCIAL
AUTHORITIES OF THE OTHER COUNTRIES INVOLVED.
JHESE ACTIVITIES IN THE FOREIGN EXCHANGE MARKETS HAVE
SOMETIMES BEEN REFERRED T O AS THE FINANCIAL COMPONENT IN
THE OUTER PERIMETER DEFENSES OF THE DOLLAR. THIS IS PROBABLY
A GOOD CHARACTERIZATION, SINCE OF COURSE THE INNER DEFENSES
liwn Accint-n REPRODUCTION FROM THIS COPY IS
UMCLAbblh I ED

PROHIBITED UNLESS "UNCLASSIFIED

TREASURY DEPARTMENT
Washington
AFTER 10:00 AM., EDT
FOR iELEASE _ffitamffi¥1ffiE

..
168

REMARKS OF THE HONORABLE ROBERT V. ROOSA
UNDER SECRETARY OF THE TREASURE FOR MONETARY AFFAIRS,
AT THE MONETARY CONFERENCE OF THE AMERICAN BANKERS ASSOCIATION,
ROME, ITALY, THURSDAY, MAY 17, 1962

TREASURY DEPARTMENT
Washington

"] Q~J

FOR RELEASE AFTER 10:00 A.M., EDT

REMAFKS OP THE HONORABLE ROBERT V. ROOSA
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS,
AT THE
MONETARY CONFERENCE OF THE AMERICAN BANKERS ASSOCIATION,
ROME, ITALY, THURSDAY, MAY 17, 1962
Over the past fourteen months the United States has, for
the first time since the later 1930fs, entered into foreign
exchange transactions for monetary purposes -- as distinct
from the more or less routine handling of foreign exchange to
meet the Government's operating needs abroad. The Treasury began
limited operations in March 1961, acting through the Federal
Reserve Bank of New York as its fiscal agent. In February of
this year the Federal Reserve System announced its decision to
enter the exchange markets for its own account.
To date, United States action in the foreign exchange markets
has been largely exploratory in character, designed to probe and
possibly to limit temporary disturbances in tfre exchange markets.
All operations have been carried out in close consultation with,
and usually jointly with, the financial authorities of the other
countries involved.
These activities in the foreign exchange markets have
sometimes been referred to as the financial component in the
outer perimeter defenses of the dollar. This is probably a good
characterization, since of course the inner defenses depend upon
the productivity, production, and competitiveness of the American
economy. But in what we have been doing, both basically and
peripherally, to defend the dollar, we have also been defending,
in concert with others, the whole system of convertibility at
stable exchange rates that has been so painstakingly reconstructed
since the end of World War II. And the effective functioning of
that system is, in turn, essential for diversified growth and
integration among the free, capitalist economies of the World.
In addition to the short-run objectives of our foreign
D-492
exchange operations, on which I shall say a bit more In a moment,
there are longer-run implications and potentialities of an

- 2 approach in which a key currency country becomes an active
participant in the international exchange markets. As we go along
we are also, therefore, trying to think through some of these
possible implications for the long-run -- can such participation aid
in assuring the stability of the international financial mechanism?
Can it, if properly executed, reinforce the fundamental work of
the International Monetary Fund? Does it afford a helpful means
toward providing sufficient international liquidity for the
continued growth of the world economy? Does it strengthen the
role of gold as the base of our international reserve arrangements?
These are the kinds of questions that central bankers, and
commercial bankers and treasuries can usefully ponder together,
in our joint efforts to find the combination of private and
governmental monetary facilities that a flourishing capitalism
needs. While I cannot presume to suggest any of the answers, it
may be of some help as background for others who can, if I discuss
two themes that seem to run through our American experience of
these recent months. First, what has thus far been the nature
of our foreign exchange operations within the framework of the
system of convertibility based on fixed exchange rates? Second,
what possibilities seem at this early stage to be suggested,
concerning the accumulation by a key currency country of balances
in the convertible currencies of other leading countries?
Other countries have long accepted direct intervention in
the exchange markets as a customary way of life. At the least,
they must be buyers or sellers as exchange quotations reach the
acceptable limits of variation around their own fixed exchange
rates. The United States, on the other hand, was -- and still is -the only country that maintains complete inter-convertibility
between gold and its own currency at a fixed price, and, until
recently, was content to leave all operations concerning the
exchange relations between the dollar and other currencies to the
officials of those other countries. The recent decision to
participate in the international markets in cooperation with other
financial authorities reflects, as do many other governmental and
private actions, a growing awareness within the United States of
the dual nature of our own balance of payments problem.
We must not only respect and fulfill the balance of payments
disciplines to which other countries have been accustomed for
so long; but we must do this while also keeping our own currency
and gold equally and alternatively available as reserves for all
other countries. We must gain and keep the initiative for
influencing the factors that affect our balance of payments, but
we must do so in the impeccable manner that assures and retains
bankers'
the United
confidence.
States has This
to keep
means
itsthat,
markets
both
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as trader
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and We
as banker,
have

1 QQ

- 3therefore a major stake, which the Western World shares with us,
in resolving our balance of payments problem within the framework
of a free international economy, with stable exchange rates and
an immutable gold price of $35 an ounce.
Let me make it absolutely clear, again, that there is no
thought that foreign exchange operations can provide the solution
to the United States balance of payments deficit. More fundamental
correctives are necessary for this end, and I know that you are
all familiar with the many-sided program of American business,
finance and government that is moving forward toward a restoration
of equilibium, and surplus, in the American balance of payments. .
Our foreign exchange operations have so far been mainly
designed to help in providing a breathing space during which
these basic programs could have a chance to become effective. In
our judgment, they have been most helpful in deterring unwarranted
speculation and unwanted capital flows, and in reducing the drain
on our gold stock, which stands as the bulwark of the whole
international currency system.
I should emphasize that our operations have not at any time
involved an attempt to "rig" markets or "peg" prices. Within the
relatively narrow band which is, in any event, permitted for
exchange fluctuations under the rules of the International Monetary
Fund, there must be room for market prices to demonstrate the
basic strength or weakness of any currency. We could not, of
course, have pegged exchange rates even if we,had wanted to. In
March 19^1, the United States held no reserves of convertible
foreign exchange — and the balance of payments was in deficit.
As a result, there was no opportunity to support the dollar in the
exchange market through spot sales of other currencies in the way
that European monetary authorities customarily do when their own
currencies come under pressure.
Some minor limited selling operations In the spot market
have been undertaken more recently to alleviate temporary
pressures, using foreign exchange acquired by borrowing in
Switzerland and Italy (or limited amounts acquired at times when
the rate would not be adversely affected). Operations have been
mainly concentrated, however, in forward exchange. These markets
can at times be quite thin and even *a relatively limited volume
of market demand can have an excessive impact on rates, which are
not subject to limitations under IMF regulations but Which can
generate great pressures upon the spot rates. When the forward
rate -- whether because of expectations concerning future currency
values or for other reasons -- moves conspicuously out of line
with its interest parity, short-term private capital movements
can
be
setand
off
that
may
be
disturbing
both
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It was precisely this sort of situation, in fact, that
provided the immediate motivation for Treasury operations -- In
conjunction with the Bundesbank (and actually in response to a
very constructive initiative on the part of the Bundesbank) -- in
the forward market for deutschemarks in March 196l. You will
recall that the revaluation of the mark and the guilder at that
time led to a state of great uncertainty in the markets and there
were widespread expectations that further appreciation of these,
and perhaps other, currencies would shortly be forth-coming. In
these circumstances forward rates moved to substantial premiums,
the deutschemarks approaching a k per cent per annum premium for
a time, and incentives were created for heavy flows of funds out
of the dollar and into the mark. Actually, in providing marks
to the forward market, we made it possible for the recipients to
continue holding their dollars, while assured of later
convertibility into marks if their acquisitions did in fact prove
to be sustained. Our own forward sales of marks reached a peak
of about $350 million in mid-June and aggregated considerably more
as some initial contracts were rolled over once or twice more.
But now, they have all been paid off, as the excessive flow of
funds into Germany first subsided and then was reversed when the
Berlin situation deteriorated during the late summer of 1961 and
expectations of further appreciation disappeared.
Operations were also undertaken in Swiss francs beginning
in May 1961 on a small scale, and accelerating In July when the
Berlin crisis encouraged a stepped up flow of funds into
Switzerland. The Swiss were anxious to encourage an outward
flow of short-term Swiss capital to offset inflows from other
sources that were creating domestic problems of excessive bank
liquidity and inflationary pressures, and the United States was
glad to cooperate, since we
were equally anxious to defend the
dollar by lessening the pressure on the Swiss National Bank to
absorb more dollars. Early this year, for roughly similar
reasons, forward sales of guilders and Italian lire were made.
To give you an idea of the magnitudes involved, sales of forward
Swiss francs reached a maximum of something over $150 million.
Sales of Italian lire have been larger, while guilder sales have
been quite modest. All in all, total forward exchange operations
undertaken by the Treasury in the four currencies that I have
mentioned, including the roll-over of maturing contracts in some
cases, have amounted to about $1-1/2 billion in the 14-month
period.
One of the main results of these sales of forward exchange,
as is obvious from what I have said so far, has been to encourage
foreign
increase
in
central
private
their
banks
holdings)
investors
abroad. and
to thus
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invested the
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- 5 "* T1
JL i ^_
As long as the United States continues to run a sizeable
deficit in its balance of payments it is unlikely that we can or
should expect that some part of the dollars pumped into the
international financial stream will not reach central bank
hands. Nor should we expect to avoid some resulting drain on
our gold stock. And the disciplines which such movements imply
are fundamental and clear.
At the same time we must be constantly mindful that the
dollar is not just another currency, but that it is a key
reserve currency — not only for foreign monetary authorities
but also for foreign private banks and corporations. We must
remember that foreign monetary authorities adjust their own
balance of payments position day-by-day and week-by-week by the
purchase and sale of dollars in the exchange market. Irrespective
of our balance of payments position the shift of dollars from
countries with traditionally low gold ratios to countries with
high ratios can result in a gold drain for the United States.
Similarily, with 8-1/2 billion of liquid dollar holdings in the
hands of private foreigners, we must make sure that speculative
forces are not fed by uncertainty about either the ability or
the determination of the United States to stand firmly behind
the inter-convertibility of the dollar with gold at the fixed
price of $35-00 per fine ounce.
A clear distinction has to be drawn -- and it is not always
easy to convey this readily -- between the absolute and unconditional availability of gold to foreign monetary authorities
for legitimate monetary purposes and the compulsion on us — In
cooperation with foreign monetary authorities -- to avoid any
unnecessary dispersions of the United States gold reserve, on
which our existing international system, in the last analysis,
depends. The United States would, In fact, be just as derelict
in its duty to help support and sustain a growing and viable
international economy if it failed to defend the gold stock
through Improved techniques of monetary cooperation as it would
be if it failed to make gold available to foreign monetary
authorities on demand.
A solution of the balance of payments deficit is fundamental
if we are to ward off a steady attrition of the United States
gold stock. But, the problem goes even beyond this. The
United States is a ready seller of gold on demand, but other
countries are not necessarily sellers to us when they have exchange
deficits, partly indeed because their own gold reserve Is
cushioned -- In many cases substantially -- by dollar reserves.
It is consequently a matter of first priority for us to
develop methods that will minimize our gold losses whenever our
balance of payments swings into deficit — by no means avoid them,
but certainly avoid conditions that exaggerate them. Under

present procedures, we cannot be sure that gold will return to
us when we move into surplus -- and we must and will have surpluses
from time to time.
This kind of consideration leads directly into my second
main theme — the potential uses of foreign exchange holdings
by a key currency country. As I had mentioned earlier, our
exchange operations to date have been largely dictated by clear,
current opportunities and needs. We have acted in response to
market developments and have not sought to become permanent and
regular participants in the market for any currency. Our spot
exchange holdings — which, on the latest published figures were
about $150 million, built up partly from borrowing and partly
from purchases in the easier markets that have prevailed for some
currencies so far this year -- have mainly been acquired to back
up our forward sales. But looking ahead to the future, there may
well be good reason for more or less continuous holding by the
United States of some moderate amounts of the convertible exchange
of various leading countries.
While it is premature to see clearly where we may be heading
so far as the currency holdings of the United States are concerned,
it may well turn out that some contribution toward resolving a
part of our problem may be found in building up — in time of
surplus — holdings of other currencies that are not thought of
as reserve currencies in the same way that the dollar and the
pound sterling are viewed. Should we do that, either with open
holdings or through hedged forward positions,, our exchange
holdings might be able subsequently to handle a considerable part
of the normal swings in payment patterns, leaving the gold
reserves available to cover more fundamental and lasting adjustments. There would be no commitment to hold any particular
currency, of course, and the relative size of any such holdings
would presumably be comparatively small. Nor would there by any
lessening of the needed balance of payments disciplines upon us
or upon others. For changes In our combined reserves of gold
and foreign exchange,taken together with changes in our shortterm liabilities to foreigners, would then become as significant
to the determination of our policies as changes in gold alone
have been over recent years.
If such a system were bolstered by suitable international
arrangements to ensure a steady and orderly distribution of
newly-mined gold into monetary reserves, much of the pressure -both psychological and real -- that arises from the accident of
shifts in reserves among other central banks would be lifted from
the United States gold stock. With such a system we might perhaps
be
able
to
in better
perspective
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gold
loss
world
five
strength
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gold
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thepast

1 70
What I am suggesting is that we need to build further the
outer defenses around the liquidity of the International Monetary
Fund, which will be substantially augmented by the stand-by
agreement on which progress toward ratification is going ahead with
gratifying despatch. We need to provide a means of further
economizing on gold reserves, while ensuring that the liquidity
needs of our expanding world economy will be met in a manner
consistent with the sovereignty of individual countries and with
heavy reliance on the discipline provided by the balance of
payment s.
The net effect, if this line of development should be
followed, would be to multilateralize a part of the role performed
now by the two key currencies, within a framework that would place
great stress on still further cooperation among monetary
authorities of the type that has been so successfully developed
over the past year or so. It is clear that the attributes of a
key currency involve many things -- its use in international trade,
its relationship to gold as the ultimate reserve, Hche existence
of oroad and deep capital and money markets. In7all these
respects the dollar is now unique, although we hope to see further
progress in the freeing up of European money and capital markets.
But what makes a currency good basically is the way the country
manages its economy. Where there are a number of strong
countries — as there are today --a plausible case would seem
to exist for some sharing of the burdens placed on the key
currency.
It may be, too, that a system such as I have outlined would
be a sensible way to provide for any large increase in long-run
liquidity requirements. Long before there can be any agreement
on any of this, however, there are many knotty problems that will
have to be resolved by our own policy makers and through
international consultations — through the Basle Group, through
the Organization for Economic Cooperation and Development, and
through the International Monetary Fund. But explorations along
these lines are far preferable, it seems to me, to the often
proposed types of action (involving still more difficult decisions
and negotiations) that basically involve an oath of allegiance
by all Governments and Central Banks to a synthetic currency
device, created by an extra-national authority bearing neither
the responsibilities nor the disciplines of sovereignty.
On the other hand, a system where countries maintain some
mutual holdings of foreign exchange has the extreme advantage of
using existing institutions and practices. Within such a system
the patterns of reference are known to all; no one will be asked
oOothe realm of his experience.
to do things that fall outside
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_._—-

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—

-4*CL£SSIFIED
^St

«&. / -4.

-4-4C£S^,MAY 18 FRQHJROME- "^
OUR ARRANGEMENTS FOR RAISING AND DISTRIBUTING CAPITAL WITHIN
THE JJREE ,WORLD ARE IN STEP WITH OUR PROGRESS TOWARD FREER TRADE
AND 1HIGHER STANDARDS OF LIVING. I, FOR ONE, SHALL BE UNEASY
SO LONG AS VIRTUALLY ALL THE WORLD — SURPLUS AND DEFICIT
COUNTRIES ALIKE — THOSE CAPABLE OF GENERATING A HIGH LEVEL
OF SAVINGS INTERNALLY AND THOSE OPERATING CLOSE TO SUBSISTENCE
LEVELS — MUST LOOK TO THE YGLTED STATES AS THEIR PRINCIPAL,
IF NOT ONLY, SOURCE OF MARGINAL CAPITAL.
JFSGGRESS IN THIS AREA CANNOT OWE WITH DRAMATIC SPEED. MARKETS
HAVE SEEN INSULATED TOO LONG. THE WHOLE PSYCHOLOGY OF A GENERATION OF INVESTORS MUST BE CHANGED, NEW INSTITUTIONAL STRUCTURES
MUST BE DEVELOPED. BUT AS I LOOK AT THE DEVELOPMENT OF V/ESTERN
EUROPE FROM A DISTANCE, IT SEEMS TO ME THAT THE LOGIC OT*IMT_RHAL
HSOWTH AND DEVELOPMENT POINTS IN THIS DIRECTION.
^ORE EFFICIENT CAPITAL MARKETS WILL BE ESSENTIAL TO SUSTAIN
GROWTH — AND SHOULD THEMSELVES TEND TO REINFORCE OTHER FACTORS
THAT COULD BRING ABOUT A LOWER LEVEL OF LONG-TERM INTEREST RATES
MORE IN LINE WITH THOSE TYPICAL OF THE AFRICAN MARKET. ALREADY,
SOME TENDENCY IN THAT DIRECTION HAS DEVELOPED. IN THIS INTERDEPENDENT WORLD OF OURS, I WOULD EXPECT THAT TENDENCY TO CONTINUE
LAM NOT CALLING TODAY FOR ANY RADICAL NEW DEPARTURES IN POLICY.
T AM ASKING ONLY THAT WE WILLINGLY ACCEPT THE LOGIC OF OUR EVOLVH
WORLD ECONOMY, AND PRESS AHEAD WITH ALL OUR VIGOR TO CAST OFF
THOSE RESTRICTIONS THAT STILL IMPEDE THE FREE FLOW OF CAPITAL,
BOTH WITHIN AND BETWEEN NATIONS. THIS IS CLEARLY NOT A JOB FOR
GOVERNMENTS ALONE, BUT FOR BANKING LEADERSHIP AND BANKING STATES*
MANSHIP AS WELL, J SUBMIT IT AS A SPECIAL CHALLENGE FOR ALL OF
YOU WHO HAVE A VITAL INTEREST IN EXPANDED TRADE BETWEEN NATIONS,
GROWTH AT HOME, A DURABLE. PAYMENTS SYSTEM, AND A STRONG FREE
ENTERPRISE ECONOMY.^(flgj!)
-—« 4*€fNWRDT~~
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UNCLASSIFIED

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JITHIN

'^ TRADE

NORMALLY BE ABLE.TO FIND THE NEEDED FUNDS WITHOUT HAVING
TO CROSS THE ATLANTIC.

J.T IS TRUE THAT A LARGE PROPORTION OF THE pROPEAN ISSUES THAT
HAVE-BEEN PUBLICLY FLOATED IN JJEWJ0DRK HAVE"ULTIMATELY BEEN
TAKEN UP BY EUROPEAN INVESTORS; WHtCH, AMONG OTHER THINGS,
SHOWS THAT T%SE INVESTORS ARE PREPARED TO LEND THEIR MONEY
LONG-TERM AT LOWER RATES THAN ARE CURRENTLY QUOTED IjN THEIR
OWN CAPITAL MARKETS. tTHUS, THE BURDEN.OH-OUR INTERNATIONAL
ACCOUNTS HAS NOT BEEN AS LARGE AS IT MAY HAVE APPEARED FROM
SIMPLE TOTAL OF THE-VOLUME OF NEW ISSUES $1X0 IN NEW YORK.
BUT THE BURDEN-IS NONETHELESS REAL. AND SO LONG AS THE IMBALANCE
IN FACILITIES AND CONTROLS REMAINS, SO WILL THE THREAT THAT AN
ACCELERATING FLOW OF THESE ISSUES COULD.-UNDERMINE- OUR EFFORTS
IN OTHER DIRECTIONS. AND AS LONG. AS CONTINENTAL WESTERN
CONTINUES TO OPERATE WITH iNADB^ATE AND, OUT -MODE C M C A P I T A C
MARKETS IT CAN HAVE NO SOLID ASSURANCE THAT THE CAPITAL REQUIRED
TO ENSURE'STEADY AND RAPID GROWTH WILL, IN FACT, BE AVAILABLE.
I AM GLAD THAT THE QECD HAS NOW RECOGNIZED THE IMPORTANCE OF *
THIS PROBLEM AND HAS COMMENCED"TO WORK ACTIVELY IN THIS FIELD.
WE SHOULD ALL OF US GIVE THIS EFFORT OUR FULL SUPPORT.
1 RECOGNIZE THAT PROGRESS TOWARD RELAXING SOME OF THE i~unrvu.
CONTROLS-ON.EXTERNAL CAPITAL FLOWS IS ALREADY EVIDENT IN MOST
INDUSTRIALIZED COUNTRIES. NEVERTHELESS, RESIDENTS OF ONLY A
FEW WESTERN J^/ROPEAN COUNTRIES HAVE FREEDOM TODAY TO INVEST
ABROAD WHEREVER THEY MAY WISH, ANQ IN WHATEVER FORM THEY MAY
DESIRE. SOME TYPE OF OFFICIAL •AUTHOR!ZAT ION AND APPROVAL IS
STILL COMMONPLACE, AND OUTRIGHT PROHIBITION IS NOT INFREQUENT,
THE VOLUME OF FOREIGN BONDS OFFERED IN WESTERN EUROPEAN COUNTRIES
IN RECENT YEARS HAS, EXCEPT IN ONE OR TWO OF THE SMALLER C0UNTR1E
BEEN NEGLIGIBLE — AND IN SOME COUNTRIES, NON-EXISTENT. AND,
IT STILL APPEARS THAT BANK FUNDS ARE READILY AVAILABLE TO FOREIGN
BORROWERS, IN SUBSTANTIAL VOLUME AND WITHOUT TIES TO EXPORTS,
ONLY WHEN THEY ARE IN THE FORM OF JJ^S. DOLLARS.

THUS, WE HAVE A LONG WAY TO GO BEFORE WE CAN BE SATISFIED THAT
UNCLASSIFIED

UsLluJd
UNCLASSIFIED
MAY I8, 1962
9*25 AM

ROC

3063, MAY |8
PRIORITY
FOLLOWS DILLON TEXT AT AMERICAN BANKERS ASSOCIATION MONETARY
CONFERENCE tm RELEASE AT 12*30 R0*€ TIME. PLEASE IMSS l
URGENTLY TO STEVE 'MANNING 'TREASURY.
SIXTH AND LAST PART OF SEVERAL
EVIDENCE THAT A LARGE PART OF THE CURRENT EUROPEAN
BCmRCWJNQ IN NEWJKGRK IS AS MUCH A REFLECTION OF THE GREATER
AND MORE REAdT AVAILABILITY OF FUNDS IN THE ||EW YORK CAPITAL
MARKET AS IT IS OF INTEREST RATES. IN OTHER%3R0S, THE INDICATIONS ARE THAT MANY CT THE CURRENT gUROPEAN BORROWERS WOULD
BE COMING TO BEW YORK ElEN'lF OUR INTEREST RATE STRUCTUREH^RE
SOMEWHAT HIGHER. THEY WOULD BE COMING
THEY IN
FrNDfMORE
jin BECAUSE
EUROPE THAN
NfeW YORK.
DIFFICULT TO RAISE THE NEEDED fi^m ^5
l MfUJON BORROWING BY THE
A CASE IN POINT 1$ THE CURRENT
EUROPEAN COAL AND STEtL COMMUNITY
HIS DOES NOT SEEM TO ME TO BE A VERY EFFICIENT USE OF THE WORLD
APITAL RESOURCES* THE YEARS TO COME WILL CERTAINLY SEE A GROW I
DEMAND FOR CAPITAL FROM COUNTRIES WHICH CANNOT BE EXPECTED TO
DEVELOP THEIR OWN CAPITAL MARKETS. SUCH COUNTRIES HAVE TRAD!TIDNALLY LOOKED TO THE CAPITAL MARKETS OF NEW YORK AND LPNDON
TO RAISE THEIR FUNDS. THIS IS A NORMAL PROCEO0RE AND SHOULD
CONTINUE. BUT IT WILL BE MORE DIFFICULT FOR THESE COUNTRIES
TO MEET THEIR NEEDS IF THEY MUST COMPETE IN THE #EW *ORK MARKET
FOR NECESSARILY LIMITED FUNDS WITH ^JINENTAL SlfeoPEAN BORROWED
WHO, GIVEN FULLY ADEQUATE EUROPEAN OOTTAL MARKPTS. SHGULB
UNCLASSIFIED

(<o

111
UNCLASSIFIED

-3- 3068, MAY t8, FROM ROME
IS NOT TAX-INDUCED. WE DO, HOWEVER, WANT TO MAKE SURE THAT OUR
TAX SYSTEM DOES NOT UNWITTINGLY"— AND ARTIFICIALLY «~ SPUR
THIS OUTFLOW. WE WISH ONLY TO ELIMINATE MARGINAL FOREIGN
INVESTMENT THAT IS INDUCED PRIMARILY BY TAX CONS IOERAT IONS.
W I L E THERE IS NO EXPECTATION THAT SUCH ACT JON WILL DRAMATICALLY
REDUCE THE OUTFLOW OF DIRECT INVESTMENT FUNDS FROM THE - U.S,,
IT WILL m OF SOME HELP — AND EVERY BIT COUNTS. IN THE EFFORT
TO ELIMINATE OUR PAYMENTS DEFICIT.

XH THE FIELD OF PORTFOLIO INVESTMENT, I AM NOT INTERESTED IN THE
PURCHASE OF FOREIGN EQUITIES BY AMERICAN INVESTORS, A PROCESS THAT
IS AN ESSENTIAL ELEMENT OF FREE CAPITAL MOVEMENT. WHAT I AM
CONCERNED WITH IS THE INCREASING USE OF THE VARIOUS MECHANISMS
OF THE NEW |QRK CAPITAL MARKET BY EUROPEAN BORROWERS TO RAISE
FUNDS FQH THEIR OWN INTERNAL PURPOSES. TODAY, THE PLAIN FACT
IS THAT UNDERWRITING AND DISTRIBUTING FACILITIES IN THE INDUSTRIALIZED COUNTRIES OF CONTINENTAL WESTERN gUROPE, ARE GENERALLY
INADEQUATE TO MEET THE FORESEEABLE NEEDS" OF DOMESTIC BORROWERS ~
MUCH LESS THOSE FROM ABROAD. THAT IS NOT A HEALTHY ENVIRONMENT
FOR LONQ^ERM DOMESTIC GROWTH. IT INEVITABLY MEANS HIGHER
BORROWING COSTS AND A SHORTAGE OF FUNDS FOR FIRMS AW INDUSTRIES
THAT LACK THEIR OWN INTERNAL SOURCES OF CAPITAL. AND, V^EN
COMBINED WITH CONTROLS AND RESTRICTIONS ON CAPITAL MOVEMENTS
LINGERING ON FROM EARLIER DAYS, IT HAS THE INCONGRUOUS EFFECT OF
SHUNTING TO THE NEW YORK MARKET NEW ISSUES FROM THE SURPLUS
COUNTRIES, EVEN AS WE IN THE UNITED STATES ARE ENDEAVORING TO
ERASE DEFICIT.
ILE THE CURRENT RELATIVELY FAVORABLE INTEREST RATES IN THE NEW
MARKET ARE OF COURSE, ATTRACTIVE TO FOREIGN I30RROWERS, THERE IS

REtNHARDT
BAP
UNCLASSIFIED

AT
178
UNCLASSIFIED
•a- 3068, MAY 18, FROM ROME

VARIOUS EFFORTS TO CORRECT OUR BALANCE OF PAYMENTS SHOULD SERVE
TO MAINTAIN OR IMPROVE THESE RESULTS AS THE YEAR PROGRESSES.
WE SHOULD NOT, HOWEVER, CENTER ALL OUR ATTENTION Am ALL OUR
EFFORTS ON OUR TRADE BALANCE. A DANGER WILL REMAIN SO LONG AS
IBE UNITED STATES STANDS VIRTUALLY ALONE IN PROVIDING A ?m£
ANDEFFECTIVE CAPITAL MARKET, ABSORBING THE SULK OF THE MARGINAL
DEMANDS FOR FUNDS FROM OTHER COUNTRIES, SURPLUS Ah© DEFICIT ALIKE,
THEN, THE DOLLARS SAVEO IN CCFEN^ AND AID, Am THE DOLLARS EARNED
IN TRADE# COULD TOO EASILY BE DRAINED AWAY IN AH ACCELERATING
OUTFLOW # AJCRICAN CAPITAL.
^

I AM f^p REFERRING TO SUDDEN AND MASSIVE SHIFTS OF LIQUID
FUNDS IN RESPONSE TO INTEREST RATE DIFFERENTIALS, TO SPECULATIVE
CONS IDERATIONS, OR TO OTHER FACTORS. THAT DIFFI CULT PROBLEM
HAS ALREADY RECEIVED MUCH ATTENTION, AND OMR MUTUAL DEFENSES ARE
BEING STRENGTHENED. I AM-REFERRING TO THE BASIC WORLD MARKET
FOR IJOT^-TERM CAPITAL;
THIS LONG-TERM CAPITAL MARKET HAS TWO MAJOR FACTSt DIRECT
INVESTMENT Am PORTFOLIO INVESTMENT. IT IS THE UTTER, OR
RATHER A PORTION OF THE LATTER, WHICH IS MY CHIEF INTEREST
TODAYp ALTHOUGH I WILL SAY A FEW WORDS FIRST ON THE SUBJECT OF
DIRECT INVESTMENT.

JHE mtlZQ STATES HAS CONSISTENTLY FAVORED FREE CAPITAL MOVEMENT
fHE ABILITY OF INDIVIDUALS OR COMPANIES TO INVEST THEIR FUNDS WHEBI
THEY WILL. THERE HAS BEEN NO CHANGE IN THAT VIEW, WE ARE,
HOWEVER, ASKING OUR CONGRESS TO END THE* TAX INDUCEMENTS TO IP*
AMERICAN INVESTMENT TN OTHER INDUSTRIALIZEO%XJNTRIES, PARTICULARLY THE INDUCEMENTS WHICH FLOW FROM THE MUSHROOMING USE OF
SO-CALLED TAX HAVENS. THE OBJECT IS NOT TO DISCOURAGE CAPITAL
FROM GOING ABROAD IN SEARCH OF HIGHER GROSS RETURN. THAT SORT
OF INVESTMENT WILL, IN THE LONG RUN, SERVE THE INVESTOR* THE
UNITED fTATES, AW THE RECIPIENT COUNTRY ALIKE. WE RECOGNIZE
THAT THE GREAT BULK OF OUR FOREIGN INVESTMENT IS OF THIS TYPE AW
UNCLASSIFIED

>s
UNCLASSIFIED
13*104
MAY 18, I962

8:57

ROME

3068, MAY 18.
FOLLOWS DILLON TEXT AT AMERICAN BANKERS ASSOCIATION MONETARY
CONFERENCE FOR RELEASE AT 12130 ROME TIME. PLEASE PASS URGENTLY
TO STEVE MANNING TREASURY.
jOtUi,
•; 1 f « \"* i ,;>'

PART FIVE OF SEVERAL

.<+~~~

OR THE ^ I T E D JgTATES IN THE YEARS AHEAD, A SURPLUS ACHIEVED NOT
BY RETREAT TO CONTROLS OR DEFLATION, BUT FIRMLY GROUNDED IN THE
ABILITY OF AMERICAN 13USI NESS TO POUR OUT INTO WORLD MARKETS NEW
A W IMPROVED PRODUCTS AT ATTRACTIVE PRICES, OUR TRADE SURPLUS
IS ALREADY LARGE. BUT IT IS NOT QUITE LARGE ENOUGH TO COVER
OUR COMMITMENTS FOR DEFENSE AND AID, AS WELL AS OUR CURRENT
VOLUME OF PRIVATE INVESTMENT A3RQAD. HOWEVER, THE NEEDED
MARGIN {$ WITHIN REACH -- AND REACH IT WE MEAN TO DO.
j|4E PRELIMINARY RESULTS FROM THE FIRST QUARTER OF I9&2 CLEARLY
HlQW THAT OUR EFFORTS ARE BEGINNING TO BEAR FRUIT. DESPITE AN
INCREASE OF $550 MILLION IN OUR IMPORTS AS COMPARED TO THE
UNUSUALLY DEPRESSED LEVEL Of THE FIRST QUARTER OF 1961 ~ AN
INCREASE THAT IS THE NATURAL REFLECTION OF OUR ECONOMIC RECOVERY
OUR OVERALL DEFICIT FOR THE QUARTER WAS JUST $100 MILLION DtllJ_1WS
LARGER THAN IN THE SAME QUARTER LAST YEAR. LEAVING im>RTS ASIDE
THIS REPRESENTS A SOLID IMPROVEMENT OF $1*50 MILLION IN ALL THE
OTHER ELEMENTS OF OUR BALANCE OF PAYMENTS. OVERALL, THESE RESULT
SHOW AN IMPROVEMENT OF A BILLION DOLLARS OVER THE DEFICIT
INCURRED DURING THE FOURTH QUARTER. DURING THE FIRST QUARTER
OF THIS YEAR OUR SASIC DEFICIT RAN AT AN ANNUAL RATE APPROXIMATELY $1.2 BILLION, AND OUR OVERALL DEFICIT AT AN ANNUAL RATE
OF $1.8 BILLION. THE CONTINUING AND GROWING EFFECT OF OUR
UNCLASSIFIED

I3>A
+ CU

UNCLASSIFIED

-3- 3068, MAY 18, FROMi*QME
MAI IS ONE TO CONCLUDE IN VIEW OF THE FACT THAT TWO COUNTRIES .
FRANCE AND GERMANY — WHICH, USING OUR BASIS OF BUDGETARY
^COUNTlNS,^liAVE HAD RELATIVELY LARGE BUDGETARY DEFICITS IN
RECENT YEARS, HAVE ALSO HAD THE LARGEST SURPLUSES IN THEIR
INTERNATIONAL ACCOUNTS?
CERTAINLY NOT THAT LARGE DEFICITS ARE THE ROAD TO SALVATION.
WE ALL KNOW THAT THE WRONG DEFICIT AT THE WRONG Tl*C CAN PAVE
ThE ROAD TO INFLATION. BUT, IN DISCUSSING BUDGET POLICY, WE
TOO OFTEN FALL INTO THE TRAP OF FORGETTING THAT IT IS INFLATION VMICH IS THE REAL ENEMY. WE SHOULD ALWAYS BEAR IN MIND
THAT I4QOERATE BUDGET DEFICITS INCURRED DURING PERIODS OF
INADEQUATE DEMAND AND WHICH DO NOT EXERT UPWARD PRESSURES ON
PRICE LEVELS -- ARE QUITE DIFFERENT IN THEIR ECONOMIC EFFECT
FROM DEFICITS INCURRED WHEN THE ECONOMY IS OPERATING AT FULL
CAPACITY.

IN THIS CONNECTION, THE RELATIONSHIP OF THE FEDERAL DEBT TO THE
GROSS NATIONAL PRODUCT .- IN OTHER WQROS# THf ABILITY OF THE
NATIONAL ECONOMY TO CARRY THE DEBT BURDEN -- IS ALSO PERTINENT.
IN THIS AREA, THE RECORD OF THE UNITED STATES HAS BEEN A W CONTII
TO BE VERY GOOD. FROM A SITUATION AT THE END OF THE WAR WHEN
THE JEOERAL DEBT AMOUNTED TO ABOUT 125 PER CENT OF OUR GROSS
NATflJNAL PRODUCT, THE PERCENTAGE HAS CONTINUALLY £>ECLINEQ
AND TODAY STANDS AT ABOUT 53 PERCENT. THIS COMPARES WITH A
RATIO OF 56 PERCENT JUST ONE YEAR AGO, AND A RAT 10 OF ABOUT JO
PERCENT IN 19*11, BEFORE WARTIME EXPENDITURES SENT OUR DEBT
SOARING. THE ADDITION OF OUR GROWING STATE AND LOCAL DEBT WOULD
MODIFY THESE PERCENTAGES ONLY SLIGHTLY. THE GENERAL PICTURE W W
NOT BE CHANGED.

jfjglCE STABILITY — INVESTMENT IN MODERN MACHINERY — AN EXPORTMINDED GOVERT#CNT At© INDUSTRY — iHZSt ARE THE KEYS TO AN
EXPANDING TRADE SURPLUSCI^O^^CCinNG^_
REtNHAROT
BAP

UNCLASSIFIED

1 31

•— ^> u.

UNCLASSIFIED

-2- 3068, MAY f8, FROM ROME
WHATEVER THE PRECISE BUDGETARY OUTCOME Ik MONTHS HENCE, THE
REALLY CRUCIAL FACT IS THAT THE ECONOMIC EFFECT OF ANY PARTICULAR
SURPLUS OR DEFIClTfCAN BE JUOOEQ ONLY IN THE CONTEXT OF THE
EXISTING BUSINESS ENVIRONMENT. IF OUR ECONOMY FAILS TO
SUSTAIN THE MOMENTUM WE ANTICIPATE, LABOR WILL REMAIN FREELY
AVAILABLE AND INDUSTRY WILL CONTINUE TO OPERATE WELL BELOW
CAPACITY. UNDER SUCH CIRCUMSTANCES, Z)fPtR IENCE SHOWS THAT A
MODERATE DEFICIT WOULD NOT BE INFLATIONARY, JUST AS THE RATHER
SUBSTANTIAL DEFICIT Of THE PAST TWELVE MONTHS, WITH MANPOWER
AW GOODS IN AMPLE SUPPLY, HAS NOT BEEN INFLATIONARY .- AND-,
FOR THAT MATTER, JUST AS THE MUCH LARGER DEFICIT4 IN FISCAL T959
WAS NOT ACCCWANIED BY ANY GENERAL PHICE INCREASE. AND HERE
I WOULD LIKE TO SAY THAT OUR DEFICIT FOR THE CURRENT FISCAL
YEAR ENDING ON £M£ 30TH IS TODAY ESTIMATED AT $7 BILLION,
EXACTLY THE SAM? AS OUR OFFICIAL ESTIMATES OF LAST OCTOBER
AND LAST JANUARY.
JH£ FACT THAT THERE IS NO AUTOMATIC RELATIONSHIP BETWEEN BUDGEfARY DEFICITS Am PRICE INFLATION, OR-BETWEEN BUDGET DEFICITS
AND THE BALANCE OF PAYMENTS, IS BROUGHT H O C FORCEFULLY Bt-A
RECENT STUDY COMPARING THE BUDGETS OF THE yNlTED ffiffSmaWaW w£M
THOSE OF THE THREE LARGEST Bff^OPEAN COUNTRIES. I DO NOT RECOMMEND IT FOR LIGHT READING, IT IS A HIGHLY TECHNICAL STATISTICAL
EXERCISE DESIGNED TO ADJUST THE DATA TO A COMMON BASIS SO THAT
THEY ACCURATELY REFLECT THE NET IMPACT OF CENTRAL GOVERNMENT
OPERATIONS. BUT THE CONCLUSION STANDS OUT CLEARLY AND
UNAMBIGUOUSLY* BR I TAIN, 1RANCE, AND GERMANY HAVE ALL BEEN
MORE "DEFI CI T~Pfl>NE" THANHNE UNITED STATES. CONVERTING EUROPEAN
BUDGETS TO THE MORE RIGOROUS STANDARDS OF .AMERICAN BUDGET ACCOUNTING, WE FIND THAT GERMANY, FOR EXAMPLE, HAS HAD A DEFICIT EVER
SINCE DEFENSE SPENDING BECAME A SIGNIFICANT PORTION OF ITS BUDGET
FOUR YEARS AGO, AND THAT FRANCE HAS HAD A DEFICIT IN EVERY YEAR
OF THE PAST DECADE. MOREOVER, THE DEFICITS OF ALL THREE OF THESE
PJRGPEAN COUNTRIES HAVE, MUCH OF THE TIME, BEEN CONSIDERABLY
tARGER, RELATIVE TO GROSS NATIONAL PRODUCT, THAN THAT OF
THE UNITED STATES.
UNCLASSIFIED

//f
1 PO
_» W £ -

UNCLASSIFIED

13353
MAY 18, 1962
8:09 AM
ROME

3068, MAY 18.
FOLLOWS DILLON TEXT AT AMERICAN BANKERS ASSOCIATION MONETARY
CONFERENCE FOR RELEASE AT ?2i30 ROME TIME. PLEASE PASS URGENTLY
TO STEVE MANNING TREASURY.
PART FOUR OF SEVERAL
. . * PROGRAMMED A ——~Wm®m
BUDGET ON THE PRESUMPTION THAT THE ECONOMY WILL CONTINUE
TO EXPAND VIGOROUSLY, APPROACHING FULL EMPLOYMENT BY THE END
OF THE FISCAL YEAR.
UNDER SUCH CONDITIONS, OUR BUDGET WOULD GRADUALLY, AND QUITE
PROPERLY, EXERT INCREASING RESTRAINT ON DEMAND AS THE YEAR
PROGRESSES. *J*THIS IS BETTER ILLUSTRATED BY THE PROJECTED SURPLUS
OF $1.8 BILLION IN THE OVERALLCASH ACCOUNT WHICH, IN - »
CONTRAST WITH THE AOMIN!STRATIVE BUDGET. REFLECTS ALL THE ACTIVITIES OF THE FEDERAL GOVERNMENT.
WETHER OR NOT OUR BUDGET TARGET WILL, IN FACT, BE REACHED,
CANNOT BE FORETOLD WITH CERTAINTY TODAY. WE WON«T KNOW THE
ANSWER UNTIL TIME HAS TESTED THE BASIC ASSUMPTIONS THAT UNDERLIE
THE REVENUE ESTIMATES. BUT AS YOU ALL KNOW, GGVERWCNT RECEIPTS
IN THE UNITED STATES ARE VERY SENSITIVE TO BUSINESS CONDITIONS
BECAUSE^ THETlEAVY RELIANCE ON THE INCOME TAX* I CAN ASSURE
YOU THAT EXPENDITURES ARE BEING KEPT WITHIN THE LIMITS OF THE
REVENUE ESTIMATES. I WOULD BE LESS THAN FRANK IF I DID NOT
ADMIT THAT OUR FIRST QUARTER RESULTS WERE DISAPPOINTING,
ALTHOUGH THE SHORTFALL WAS NOT SO GREAT THAT IT CANNOT BE MADE
U# IN THE MONTHS AHEAD. CERTAINLY MY OWN READINGS OF THE LATEST
BUSINESS NEWS AND PROFITS FIGURES SUGGEST THAT IT IS STILL
PREMATURE TO CONCLUDE THAT WE CANNOT ATTAIN OUR GOAL.
UNCLASSIFIED

UNCLASSIFIED
--•- 3068, MAY 18, FROM RCMt^

I
£ S YOU KNOW, WE HAVE SUCCEEDED THIS YEAR IN KEEPING THE DEPICT
IN OUR EEDERAL BUDGET FAR BELOW THE LEVEL OF FISCAL YEAR 1959 —
THE LAST SIMILAR RECOVERY PERIOD. THIS HAS BEEN OF MAJOR
ASSISTANCE IN OUR EFFORT TO FORESTALL ANY SIGNIFICANT TIGHTENING
OF THE CREIT MARKETS, WITH GOVERNMENT DRAINING OFF RESOURCES AW
FUNDS THAT MIGHT BETTER BE DEVOTED TO PRODUCTIVE INVESTMENT.
FOR THE FISCAL YEAR BEGINNING NEXT JULY, WE HAVE PROGRAMMED A
-fM^rXOMINGT^
^fc«

^ w m ^ ^ ' w J >»^JM_t___*0***—***""

REINHARDT
SGC

UNCLASSIFIED

*84
UNCUSSIFIED
-j- 30€8, MAY 18, FROM ROME
CAREFULLY SPELLED OUT ITS IMPLICATIONS FOR COLLECTIVE BARGAINING
AM PRICING DECISIONS. THE OBJECT IS SIMPLY THIS: TO ENSURE
THAT LABOR AM GUSINESS ALIKE, IN WEIGHING ALL TIC COMPLEX
PRESSURES THAT ENTER INTO ANY WAGE PRICE DECISION, ARE ALSO
FULLY AWARE OF TIC OVERALL NATIONAL INTEREST.
^C PAST YEAR HAS SEEN SOME SUCCESS IN THESE EFFORTS. DESPITE OUR
ECONOMIC RECOVERY TIC VERY SIGNIFICANT FACT IS THAT WHOLESALE
PRICED IN TIC UNITED STATES ARE LOWER TODAY THAN THEY WERE A
YEAR AGO. THEY HAVE NOW REMAI NED STATIONARY FOR FOUR YEARS. THIS
PRICE STABILITY HAS SERVED TO IMPROVE THE COMPETITIVE POSITION OF
THE UNITED JTATES VERSUS OUR FRIENDS IN EUROPE, REVERSING THE
TREI^TOF EARLIER YEARS. WE WILL CONTINUE TO DO EVERYTHING IN
OUR POWER TO SEE THAT THIS NEW TREM) CONTINUES. IMPORTANT AMONG
OUR EFFORTS IS TIC PROMOTION OF A MORE FAVORABLE ENVIROWCNT
FOR INVESTTCNT. AN JNVESBCNT TAX CREDIT, INCLUDED WITHIN A
BROADER PROGRAM OF TAX REFORM NOW BEFORE OUR CONGRESS, IS A KEY
ELEMENT IN OUR APPROACH. AND UPDATING AND SALIFICATION OF
OUTMODED DEPRECIATION GUIDELINES TO TAKE FULL ACCOUNT OF TIC IMPACT
OF SWIFTLY CHANG ING TECHNOLOGY ON THE USEFUL LIFE OF EQUIPMENT IS
ANOTHER. TOGETHER, THESE MEASURES WILL PROVIDE INCENTIVES
FOR INVESTMENT IN H£W EQULPTCNT COMPARABLE TO THOSE THAT HAVE
LONG EXISTED IN OTHER LEADING INDUSTRIALIZED NATIONS.
MONETARY AND DEBT MANAGEMENT POLICIES ARE BEING CONDUCTED IN A
MANNER TO ENSURE THAT AMPLE FUNDS ARE AVAILABLE, AT REASONABLE COST
TO FINANCE NEW CAPITAL OUTLAYS. FISCAL POLICY, TOO, HAS BEEN
CLOSELY ATTUICD TO THE NEED TO ENCOURAGE INVESTMENT — AM) TO
AVOID THE SORT OF DEMAND PRESSURES THAT COULD ICNACE PRICE
STABILITY.
UNCLASSIFIED

UNCLASSIFIED
-2*3068, MAY 18, FROM ROME
DOES NOT INCLUDE SHORT TERM CAPITAL FLOWS. THIS IS A TALL ORDER.
BUT IT IS ONE WE CAN, AND MUST, ACHIEVE. LAST YEAR, WHEN
CIRCUMSTANCES WERE PARTICULARLY FAVORABLE FOR OUR TRADE ACCOUNT,
OUR COMMERCIAL TRADE SURPLUS AMOUNTED TO $3 BILLION. THIS
REFLECTED THE ABNORMALLY LOW IMPORTS OF THE FIRST SIX MONTHS
OF 1961, WHICH RESULTED FROM THE SLOWDOWN IN OUR ECONOMY. WE
MUST, HOWEVER, ACCEPT THIS AS A MINIMUM TARGET FOR THE FUTURE AND
STRIVE TO DO EVEN BETTER. SUCH A TARGET WILL NOT BE EASY TO
ACHIEVE. BUT IT IS FEASIBLE AW REALISTIC - IF WE AMERICANS
CONTINUE TO APPLY OURSELVES TO THE TASK WITH ALL THE VIGOR AND
IMAGINATION IT REQUIRES.
J^WILL NOT REVIEW IN DETAIL HERE ALL THE MEASURES WE HAVE
UNDERTAKEN TO MAKE -AMERICANS EXPORT-CONSCIOUS AS NEVER BEFORE,
TO SUPPORT INDUSYRY*W!TH SHORT TERM CREDIT INSURANCE COMPARABLE TO
THAT AVAILABLE IN OTHER INDUSTRIAL!"ZED COUNTRIES, AND TO PROVIDE
COMPREHENSIVE AND SPEEDY INFORMATION ON FOREIGN MARKETS. 1 AM
CERTAIN, HOWEVER, THAT ALL OF YOU HERE WILL SEE VISIBLE RESULTS
FROM THESE EFFORTS IN THE MONTHS AND YEARS AHEAD, AS AMERICAN
BUSINESSMEN MOVE MORE AGGRESSIVELY TO PARTICIPATE INGROWING
WORLD MARKETS.
,.
JKLL OF THIS EFFORT WILL, OF COURSE, AVAIL US NOTHING IF AMERICAN
INDUSTRY CANNOT OR DOES NOT DELIVER ITS GOODS AT ATTRACTIVE
PRICES. RESTRAINT ON COSTS AND STABLE PRICES MUST LIE AT THE
VERY HEART OF AMERICAN EFFORTS TO SHARPEN OUR COMPETITIVE DRIVE
IN WORLD MARKETS.
OUR OVER-ALL APPROACH TO THIS OBJECTIVE IS, I BELIEVE, CLEAR: THE
THOUGHT THAT PRICE STABILITY DEPENDS ON KEEP I NO WAGE RATES IN
LINE WITH NATIONAL TRENDS IN PRODUCTIVITY IS HARDLY NEW.
BUT NEVER BEFORE HAS AN AMERICAN ADMINISTRATION ASSUMED THE
RESPONSIBILITY FOR DEFINING THAT PRINCIPLE IN SUCH CLEAR
TERMS — AM) NEVER BEFORE HAS AN AMERICAN ADMINISTRATION SO
UNCLASSIFIED

UNCLASSIFIED

18, 1962
7:**8 AM

MSY
ROME

3068, MAY 1§
PRIORITY
FOLLOWS DILLON TEXT AT AMCRICAN BANKERS ASSOCIATION MONETARY/
CONFERENCE FOR RELEASE AT 12:30 R O C TIME. PLEASE PASS
^J
URGENTLY TO STEVE MANNING TREASURY.

AMD IN TERMS OF THE FUMJS BEING COMMITTED AT TIC PRESENT TIME,
THE PORTION FURNISHED BY OUR OWN GOODS AND SERVICES IS EVEN
HIGHER AND IS STILL INCREASING. BUT JUST AS IN TIC CASE OF
DEFENSE SPENDING OVERSEAS, THERE ARE LIMITS TO THE FURTHER DOLLAR
SAVINGS THAT CAN SAFELY BL MADE IN THIS AREA, THE NEEDS OF
TIC DEVELOPING COUNTRIES ARE LIKELY TO RISE IN THE YEARS AHEAD,
NOT DECLINE. HENCE, MUCH REMAINS TO BE DONE IN SHARING THIS BURDCI
MORE EQUITABLY AMONG ALL TIC COUNTRIES ABLE TO BEAR IT. I AM
HOPEFUL THAT CONTINUED PROGRESS U N BE MADE ALONG THOSE LINES
THIS W A R .
ON BALANCE, A REALISTIC APPRAISAL OF ACTIONS NOW UNDERWAY SUGGESTS
T^HAT THE TOTAL DRAIN ON OUR BALANCE OF PAYMENTS FROM AID AND
DEFENSE WILL BE REDUCED BY SOMETHING OVER A BILLION DOLLARS A
YEAR, TO A FIGURE'ON THE ORDER"OF $3 BILLION.
*_t..

fl_

THIS MEANS THAT THE UNITED STATES MUST HAVE A CONTINUING SURPLUS
OF ABOUT $3 BILLION A YEAR IN THE OTHER ELEMENTS OF OUR BASIC
BALANCE — TRADE, SERVICES, AND LONG-TERM CAPITAL MOVEMENTS IF
WE ARE TO ACHIEVE A BALANCE IN THIS ACCOUNT WHICH, AS YOU KNOW,
UNCLASSIFIED

i
18?
#335*
^ Y 16, !f&
7l^i8 AM
UNCLASSIFIED
-3- 3068, MAY 18 (PART 2 OF SEVERAL) FROM ROME
AND SERVICES FROM TO! JJNITED STATES. THIS NOT ONLY ASSISTS THE
U.S. BALANCE OF PAYMENTS — IT ALSO STRENGTHENS THE MILITARY
CAPABILITIES OF OUR ALLIES, FOR WE ARE USUALLY IN A POSITION
TO PRODUCE THE NEEDED EQUIPMENT FASTER AND AT LESS COST THAN
IT CAN BE PRODUCED IN EUROPE.
t*TtOfcr
AS A FIRST AND MOST IMPORTANT STEP IN THIS EFFORT, AGREEMENT
flAS BEEN REACHED ON THE ESTABLISHMENT OF A COOPERATIVE LOGISTICS
SYSTEM WHEREBY THE ARMED FORCES OF THE FEDERAL REPUBLIC OF
GERMANY WILL INCREASE THE LEVEL OF MILITARY PROCUREMENT IN THE
UNITED ^TATES AND WILL UTILIZE AMERICAN SUPPLY LINES, DEPOTS
AND MAINTENANCE AND SUPPORT FACILITIES. BY THIS MEANS THE
FEDERAL REPUBLIC OF GERMANY WILL FULLY OFFSET THE DOLLAR COSTS
% MAINTAINING y.S. TROOPS IN GERMANY DURING 1961 AND I962.
DISCUSSIONS ARE "UNDER WAY, OR WILL SOON BE INITIATED, WITH CERTAII
OF OUR OTHER NATO ALLIES. OUR OBJECT IVE DURING 1 962 FOR TOTAL
MILITARY CASH RECEIPTS IS APPROXIMATELY ^Bt .1 .2 .-BILLION. w I
BELIEVE THAT WE WILL BE SUCCESSFUL IN ATTAINING THIS OBJECTIVE.
3

VJ IS OUR VIEW THAT SUCH MILITARY OFFSET ARRANGEMENTS ARE BOTH
TOUITABLE AND MUTUALLY BENEFICIAL. THEY PROVIDE A"MEANS WHEREBY
OUR' ALLIES CAN STRENGTHEN THEIR OWN MILITARY FORCES AT MINIMUM
COST AND IN WAYS THAT OFTEN WOULD NOT OTHERWISE BE POSSIBLE,
WHILE AT THE SAME TIME OFFSETTING THE DOLLAR COSTS WHICH'WE INCUR
IN MAINTAINING OUR .FORCES ON THEIR TERRITORY IN THE JOINT DEFENSE
OF THE PRECIOUS HERITAGE OF FREEDOM. THUS, THESE AGREEMENTS,
AT ONE AND THE SAME TIME, BUILD UP BOTH THE MILITARY AND ECONOMIC
DEFENSES OF THE WEST.
,lhri
JHE DIMENSIONS OF THE ACTUAL DRAIN ON OUR BALANCE OF PAYMENTS
fROM ECONOMIC AID - WHILE IMPORTANT - ARE CURRENTLY'MfJCH SMALLER
THAN MANY HAVE ASSUMED. A SIZABLE FRACTION OF OUR J8^R k BILLION
EXPENDITURE FOR AID - OVER TWO-THIRDS IN 1961 - IS FURNISHED
IN THE FORM OF U.S. GOODS AND SERVICES. (MORE COMING)
REINHARDT
RJT

UNCLASSIFIED

Jfip°
UNCLASSIFIED
-2- 3068, MAY 18 (PART 2 OF SEVERAL) FROM ROME
OUR DOLLAR COSTS FOR DEFENSE ARE HEAVIEST IN GERMANY, WHERE
THEY AMOUNT TO ABOUT MR 7OO'MILLION A YEAR* IN FRANCE, THEY
ARE MORE THAN qjjft 3OO MILLION PER YEAR; IN THE UNITED KINGDOM
ABOUT fS& 250 MILLION, AND IN ITALY, ABOUT 0* 100 MILLION,
THESE EXPENDITURES REPRESENT THE DOLLAR COST OF MAINTAINING
I[.S. 'FORCES'OVERSEAS, AND THE HEAVY EXPENDITURES IN ___t_X COUNTRIES
RESULT FROM THE FACT THAT OUR LARGEST OVERSEAS TROOP DEPLOYMENTS
ARE HERE IN THE MIQ AREA.
^ r|W
70py
THERE CAN BE NO DOUBT OF THE NECESSITY TO MAINTAIN LARGE U.S.
FORCES OVERSEAS FOR OUR OWN SECURITY, FOR THAT.OF OUR NAIQ
ALLIES, AND FOR THE ENTIRE |REE ^PRLD, NOR CAN THERE BE ANY
DOUBT OF OUR FIRM DETERMINATION TO MEET IN FULL OUR RESPONSIBILITES FOR THE DEFENSE OF NATO AND THE FREE WORLD. AS
.PRESIDENT KENNEDY HAS STATED, THE UNITED'STATES IS PREPARED
TO MAKE ANY SACRIFICE NECESSARY FORFREE WORLD SECURITY. WE ARE
PREPARED TO MAINTAIN FULLY EFFECTIVE^MLLIFARY FORCES OVERSEAS
— WHEREVER NECESSARY AND FOR AS*LONG AS NEEDED. EVEN AS WE
MEET TODAY, AMERICAN TROOPS ARE DEPLOYING IN THAILAND IN RESPONSE
TO A REQUEST *FOR ASSISTANCE BY THE ROYAL THA I ""GOVERNMENT AS A
RESULT OF RENEWED COMMUNIST AGGRESSION IN^AOS.' BUT AT THE
SAME TIME THAT WE FULFILL THESE MILITARY RESPONSIBILITIES WE
MUST EXERCISE ALL PRUDENCE TO ENSURE THAT THE ADVERSE IMPACT
ON OUR BALANCE OF PAYMENTS IS MINIMIZED.
THE UNITED STATES MUST TRIM ALL NON-ESSENTIAL FOREIGN EXCHANGE
EXPENDITURES FROM ITS DEFENSE PROGRAMS, THEREFORE, WE ARE
EMPHASIZING U.S., RATHER THAN FOREIGN PROCUREMENT. WE ARE
ECONOMIZING IN MANPOWER WHEREVER POSSIBLE WITHOUT LOSS OF MILITARY
STRENGTH AND WE ARE ENCOURAGING OUR FORCES TO HOLD DOWN THE
LEVEL OF THEIR PERSONAL EXPENDITURES OVERSEAS. BUT THIS CAN
ONLY ACCOMPLISH A RELATIVELY SMALL PART OF THE JOB.
MORE IMPORTANT IS OUR EFFORT TO WORK OUT ARRANGEMENTS IN
COOPERATION WITH OUR NATO ALLIES FOR OFFSETTING OUR DEFENSE
EXPENDITURES BY INCREASING THEIR PROCUREMENT OF MILITARY EQUIPMEN1

UNCLASSIFIED

I NHAT

1 PQ

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UNCLASSIFIED

13351
MAY 18, 1962
7$ 17 AM
ROME
t _ _ ji.y <^> —s w>' \_^

7 \

3068, MAY 18 (PA^T 2/OF SEVERAL)
PRIORITY
FOLLOWS DILLON TEXT AT AFRICAN BANKERS ASSOCIATION MONETARY^?
CONFERENCE FOR RELEASE AT 12:30 ROME TIME. PLEASE PASS
[
URGENTLY TO STEVE MANNING TREASURY.
..»>»%•.
OF CAPITAL. BECAUSE OF BALANCE OF PAYMENTS
REALITIES, AS WELL AS OUR OWN COMPETING DOMESTIC NEEDS, THE
AMOUNT OF CAPITAL THAT WE WILL BE ABLE TO FURNISH |S SIMPLY
NOT ENOUGH TO GO AROUND. IF EUROPE IS TO HAVE ADEQUATE FUNDS
FOR THE EXPANSION THAT IS NOW WITHIN ITS GRASP, IT MUST DEVELOP
UP TO DATE MECHANISMS TO MOBILIZE ITS OWN CAPITAL RESOURCES MECHANISMS THAT DO NOT EXIST TODAY IN MOST OF CONTINENTAL
EUROPE.
TO RETURN TO OUR BALANCE OF PAYMENTS AND TO PUT IT INTO PROPER
PERSPECTIVE, LET ME REVIEW THE BROAD STRATEGY THAT LIES BEHIND
ALL OF OUR EFFORTS TO RESTORE A BALANCE IN OUR INTERNATIONAL
ACCOUNTS.

AS YOU KNOW, SPENDING FOR THE DEFENSE AND ECONOMIC SUPPORT OF T
fREE WORLD IMPOSES A UNIQUELY HEAVY BURDEN ON THE UNITED STATES
BALANCE OF PAYMENTS. THE ANNUAL DOLLAR COST OF OUR DEFENSE
EXPENDITURES OVERSEAS HAS BEEN ROUGHLYJ^R 3 BILLION IN RECENT
YEARS, SUBSTANTIALLY. MORE THAN OUR AVERAGE BASIC PAYMENTS DEFICIT,
I WOULD LIKE TO EMPHASIZE THAT T
5pRBUDGETARY
3 BILLION COST
FIGURE
IS THE
BALANCE OF PAYMENTS IMPACT -- NOT THE
TO THE
"HE I
UNITED STATES, W H K ^ y ^ V E J ^ T J ^ ^ G ^ . , g
^
APPROXIMATELY
2 BILLION OF THIS IS SPENT IN NATO COUNTRIES.

_2_?

pQTlJlSSVIONn
UNCLASSIFIED

UNCLASSIFIED
-3- 3068, MAY 18 (PART I OF SEVERAL) FROM ROME IY A *
COUNTRIES, HAVE BOTH THE FACILITIES AND FREEDOM TO PLACE^THEIR
FUNDS ABROAD WITHOUT RESTRICTION, ON A BASIS COMPARABLE TO AND SOMETIMES EVEN MORE FAVORABLE THAN - DGMESTIC INVESTMENT.
JHESE CONDITIONS ARE AN ANOMALY IN A WORLD OF CONVERTIBLE
CURRENCIES -- A WORLD IN WHICH BARRIERS TO TRADE HAVE BEEN
STEADILY REDUCED — A WORLD CHARACTERIZED BY^AMERICAN DEFICITS
AND EUROPEAN SURPLUSES. I AM NOT SUGGESTING THAT THE JFLLTED
STATES, AS THE RICHEST AND MOST PRODUCTIVE NATION ON EARTH, '
SHOULD CEASE TO EXPORT CAPITAL, NOR DO I SUGGEST THAT ACTION
TO FREE THE FLOW OF INVESTMENT FUNDS FROM OTHER COUNTRIES WOULD
RELIEVE THE UNITED JPTATES OF ITS RESPONSIBILITIES FOR VIGOROUS AND EFFECTIVE ACTION IN OTHER DIRECTIONS TO REDUCE ITS
PAYMENTS DEFICIT. BUT PROGRESS TOWARD A BROADER, MORE FLUID
INTERNATIONAL MARKET FOR CAPITAL-DOES SEEM TO ME TO BE AN
ESSENTIAL PART OF OUR AMERICAN EFFORT TO ACHIEVE AND SUSTAIN
INTERNATIONAL PAYMENTS EQUILIBRIUM. AT THE SAME T1 ME,^MORE EFFECTIVE MEANS OF MOBILIZING THE HUGE POTENTIAL FOR SAVINGS IMPLICIT
IN THE DRAMATIC ECONOMIC EXPANSION OF WESTERN |UROPE MUST BE
DEVELOPED IF EUROPE IS TO FULFILL ITS HOPES FM CONTINUED RAPID
ECONOMIC GROWTH IN THE YEARS AHEAD.
•4YM1 •TSANH " P<^ * If<TO PROPER
WESTERN EUROPE IS IN A PERIOD OF ECONOMIC GROWTHJSTHAT. CAN AND
SHOULD LEAD TO STANDARDS OF^LIVING COMPARABLE TO THOSE IN THE
UNITED fTATES. BUT WE IN THE JJNITED STATES WOULD NOT HAVE BEEN
ABLE TO ACHIEVE OUR PRESENT STANDARD WITHOUT THE DEVELOPMENT
OF A CAPITAL MARKET WHOSE BREADTH AND FLEXIBILITY REMAIN UNPA- "HE
RALLELED. THE PLAIN FACT IS THAT WESTERN EUROPE?WILL NOT BE ftABLE TO APPROACH THE AMERICAN STANDARD OF LIVING UNTIL IT DEVELOPS WAYS AND MEANS OF MOBILIZING ITS OWN EXTENSIVE SAVINGS
AND CAPITAL THAT ARE FULLY AS EFFECTIVES THOSE OF THE J|EW ICJ
XORK MARKET. THIS IS AN AREA WHERE THE'INTERESTS OF-THE IGNITED
STATES AND WESTERN EUROPE COINCIDE COMPLETELY. WESTERN EiJROPEAN
ECONOMIC GRC&fTH WILL REQUIRE AN ENORMOUS MOB ILI Zlt I ON OF
(MORE COMING)
RJT
NOTE: TREASURY NOTIFIED f/l8/62 7«2i AM

UNCLASSIFIED
p^jws^MKw^hWM*^^ ••**-^

cT-2-:^ro68;' WAYrt^'(p»nM
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OF SEVERAL)

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FROMJIOMT''

,i —-• - T a n , , umigjllli—•-•"'

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Int.

im
t

*MEHT

ffV"

BE READILY CONVERTIBLE INT© GOLD UPON DEMAND AT THEJFIXED
PRICE OF Dfcjr35- AN OUNCE.
|T FURTHER MEANS THAT ALL OF US — EVERY NATION WITH A STAKE
IN A STABLE INTERNATIONAL FINANCIAL MECHANISM — HAVE A.STRONG
INTEREST IN THE ELIMINATION' OF THE LINGERING JiNtTED J|TATES
PAYMENTS DEFICIT.
**
**
JHE CHIEF RESPONSIBLITY FOR RIGHTING THAT DEFICIT RESTS, OF
ffoURSE,WITH THE UNITE- gTATES. WE RECOGNIZE TH ^RESPONSIBILITY,
AND WE ARE PREPARED TO DO WHAT IS NECESSARY TO ELIMINATE THE
DEFICIT AND TO PRESERVE THE VALUE OF THE-DOLLAR. BUT THE NATURE
OF THE EVENTUAL SOLUTION -- AND THE SPEED WITH WHICH IT IS REACHED — ALSO DEPENDS UPON THE DEGREE TO WHICH THE SURPLUS
COUNTRIES OF V/£STERN EUROPE ACCEPT A COMPLEMENTARY RESPONSIBILITY.
-"
*
V'

m : : «"D

.RECOGNITION OF THE NEED FOR COORDINATED, COOPERATIVE ACTION HAS
'BEEN APPARENT IN MANY AREAS OVER THE PAST YEAR., THIS PROVIDES
SOLID GROUND FOR CONFIDENCE AS WE LOOK AHEAD. '"NEVERTHELESS,
MUCH REMAINS TO BE DONE. AND THIS IS NQWJHERE MORE TRUE THAN
IN ONE AREA OF DIRECT CONCERN TO EVERYONE IN THIS ROOM*'•* THE
ARRANGEMENTS FOR RAISING AND DISTRIBUTING CREDIT AND CAPITAL
IN WORLD MARKETS. POTENTIAL INVESTMENT FUNDS ARE STILL T00
OFTEN DAMMED UP BEHIND NATIONAL BOUNDARIES BY LEGAL RESTRICTIONS
OR INSTITUTIONAL BARRIERS — EVEN WHEN ANY NEED FOR THESE REiSTRICTIONS HAS LONG SINCE PASSED. CAPITAL DOES NOT - AS IT
SHOULD - FLCW FREELY FROM THOSE WITH AMPLE RESOURCES TO THE
POINTS OF GREATEST NEED. BENEFITS AND BURDENS "OFTEN BEAR LITTLE
RELATIONSHIP TO CURRENT PATTERNS OF TRADE OR TO THE UNDERLYING
PAYMENTS POSITION OF A COUNTRY.

JHIS IS REFLECTED IN THE FACT THAT MOST GOVERNMENTS OR BUSINESSE
WHEN RAISING FUNDS OUTSIDE THEIR OWN COUNTRY, STILL LOOK
TO THE UNITED STATES AS THE ONLY READILY AVAILABLE SOURCE.
CONVERSELY, AMERICAN INVESTORS, UNLIKE THOSE IN MOST OTHER
UNCLASSIFIE

c^
UNCLASSIFIED
13292
MAY 18, 1962
ROME

Hfrtb 3 i _ . i , 7

j ^ _a ut
3068, MAY 18 (PART I OF SEVERAL)

PRIORITY
DILLON TEXT AT AMERICAN BANKERS ASSOCIATION MONETARY
I?FOLLOWS
CONFERENCE FOR RELEASE AT 12J30 ROME TIME. PLEASE PASS
URGENTLY TO STEVE MANNING TREASURY^
. ~ #••

DELIGHTED TO JOIN WITH YOU IN THIS NINTH ANNUAL MONTARY
TONFERENCE, WHICH HAS BROUGHT TOGETHER SO MANY OF THOSE W O ,
AS PUBLIC OFFICIALS OR PRIVATE CITIZENS, SHARE RESPONSIBILITY
FOR THE FINANCIAL POLICIES OF THE FREE WORLD. OUR COMMON
OBJECTIVE OF A DURABLE INTERNATIONAL PAYMENTS SYSTEM, CAPABLE
OF SUPPORTING Am NOURISHING ECONOMIC GROWTH AND EXPANDED
TRADE, CANNOT BE ACHIEVED BY NATIONS WORKING IN ISOLATION.
LASTING PROGRESS DEPENDS UPON CONCERTED ACTION BY, ALL OF OUR
GOVERNMENTS AND BY LABOR, BUSINESS, AND FINANCE WITHIN EACH
COUNTRY. SUCH COOPERATION CAN FLOURISH ONLY IN AN ATMOSPHERE
OF FRANK DISCUSSION -_ THE SORT OF ATMOSPHERE PROVIDED BY THIS
MEETING. THE OPPORTUNITY WHICH WE AMERICANS HAVE HAD TO MEET
IN SUCH PLEASANT SURROUNDINGS WITH OUR EMINENT EUROPEAN
COLLEAGUES HAS BEEN MOST USEFUL IN GIVING US A CLEARER APPRECIATION OF OUR COMMON PROBLEMS. I AM THANKFUL TO THE AMERICAN
BANKERS ASSOCIATION AND TO OUR ITALIAN HOSTS FOR MAKING THIS
"POSSIBLE/'

/JHE JREE WORLD'S MONETARY SYSTEM, AS IT HAS EVOLVED SINCE &ORLD
T A R *l I ,-RESTS INESCAPABLY ON THE FULL ACCEPTABILITY OF THE*DOLLAR
%$. A SUPPLEMENT TO GOLD IN FINANCING-WORLD TRADE. NO PRACTICABLE
ALTERNATIVE IS IN SIGHT. THIS MEANS THAT THE DOLLAR HOLDINGS
OF CENTRAL BANKS MUST CONTINUE, IN THE FUTURE AS IN THE PAST TO
UNCLASSIFIED

"; Q 7>

TREASURY DEPARTMENT
WASHINGTON

~w~

FOR RELEASE AFTER 7:30 A.M., EDT
FRIDAY, MAY 18, 1962
REMARKS OF THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
AT THE
NINTH ANNUAL MONETARY CONFERENCE
OF THE
AMERICAN BANKERS ASSOCIATION
ROME, ITALY, FRIDAY, MAY 18, 1962
I am delighted to join with you in this Ninth Annual Monetary
Conference, which has brought together so many of those who, as
public officials or private citizens, share responsibility for the
financial policies of the free world. Our common objective of a
durable international payments system, capable of supporting and
nourishing economic growth and expanded trade, cannot be achieved
by nations working in isolation. Lasting progress depends upon concerted action by all of our governments and by labor, business, and
finance within each country. Such cooperation can flourish only in
an atmosphere of frank discussion — the sort of atmosphere provided
by this meeting. The opportunity which we Americans have had to
meet in such pleasant surroundings with our eminent European colleagues has been most useful in giving us a clearer appreciation of
our common problems. I am thankful to the American Bankers Association and to our Italian hosts for making this possible.
The Free World's monetary system, as it has evolved since World
War II, rests inescapably on the full acceptability of the dollar
as a supplement to gold in financing world trade. No practicable
alternative is in sight. This means that the dollar holdings of
central banks must continue, in the future as in the past,to be
readily convertible into gold upon demand at the fixed price of $35
an ounce.
It further means that all of us — every nation with a stake in
a stable international financial mechanism -- have a strong interest
in the elimination of the lingering United States payments deficit.
D-493

-2The chief responsibility for righting that deficit rests, of
course, with the United States. We recognize this responsibility,
and we are prepared to do what is necessary to eliminate the deficit
and to preserve the value of the dollar. But the nature of the
eventual solution — and the speed with which it is reached -- also
depends upon the degree to which the surplus countries of Western
Europe accept a complementary responsibility.
Recognition of the need for coordinated, cooperative action has
been apparent in many areas over the past year. This provides solid
ground for confidence as we look ahead. Nevertheless, much remains
to be done. And this is nowhere more true than in one area of direct
concern to everyone in this room: the arrangements for raising and
distributing credit and capital in world markets. Potential investment funds are still too often dammed up behind national boundaries
by legal restrictions or institutional barriers — even when any
need for these restrictions has long since passed. Capital does not as it should — flow freely from those with ample resources to the
points of greatest need. Benefits and burdens often bear little relationship to current patterns of trade or to the underlying payments
position of a country.
This is reflected in the fact that most governments or businesses,
when raising funds outside their own country, still look to the United
States as the only readily available source. Conversely, American
investors, unlike those in most other countries, have both the facilities and freedom to place their funds abroad without restriction,
on a basis comparable to — and sometimes even more favorable than -domestic investment.
These conditions are an anomaly in a world of convertible currencies — a world in which barriers to trade have been steadily reduced — a world characterized by American deficits and European
surpluses. I am not suggesting that the United States, as the richest
and most productive nation on earth, should cease to export capital.
Nor do I suggest that action to free the flow of investment funds
from other countries would relieve the United States of its responsibilities for vigorous and effective action in other directions to
reduce its payments deficit. But progress toward a broader, more
fluid international market for capital does seem to me to be an essential part of our American effort to achieve and sustain international
payments equilibrium. At the same time, more effective means of
mobilizing the huge potential for savings implicit in the dramatic
economic expansion of Western Europe must be developed if Europe is
to fulfill its hopes for continued rapid economic growth in the years
ahead.

1 Q&
-3Western Europe is in a period of economic growth that can and
should lead to standards of living comparable to those in the United
States. But we in the United States would not have been able to
achieve our present standard without the development of a capital
market whose breadth and flexibility remain unparalleled. The plain
fact is that Western Europe will not be able to approach the American
standard of living until it develops ways and means of mobilizing
its own extensive savings and capital that are fully as effective as
those of the New York market. This is an area where the interests
of the United States and Western Europe coincide completely. Western
European economic growth will require an enormous mobilization of
capital. Because of balance of payments realities, as well as our
own competing domestic needs, the amount of capital that we will be
able to furnish is simply not enough to go around. If Europe is to
have adequate funds for the expansion that is now within its grasp,
it must develop up to date mechanisms to mobilize its own capital
resources --mechanisms that do not exist today in most of continental
Europe.
To return to our balance of payments and to put it into proper
perspective, let me review the broad strategy that lies behind all
of our efforts to restore a balance in our international accounts.
As you know, spending for the defense and economic support of
the Free World imposes a uniquely heavy burden on the United States
balance of payments. The annual dollar cost of our defense expenditures overseas has been roughly $3 billion in recent years, substantially more than our average basic payments deficit. I would
like to emphasize that the $3 billion figure is the balance of payments impact -- not the budgetary cost to the United States, which
is several times higher.
Approximately $2 billion of this is spent in NATO countries.
Our dollar costs for defense are heaviest in Germany, where they
amount to about $700 million a year. In France, they are more than
$300 million per year; in the United Kingdom about $250 million,
and in Italy, about $100 million.
These expenditures represent the dollar cost of maintaining
U. S. Forces overseas, and the heavy expenditures in NATO countries
result from the fact that our largest overseas troop deployments
are here in the NATO area.
There can be no doubt of the necessity to maintain large U. S.
Forces overseas for our own security, for that of our NATO allies,
and for the entire Free World. Nor can there be any doubt of our'

-4firm determination to meet in full our responsibilities for the
defense of NATO and the Free World. As President Kennedy has stated
the United States is prepared to make any sacrifice necessary for
Free World security. We are prepared to maintain fully effective
military forces overseas -- wherever necessary and for as long as
needed. Even as we meet today, American troops are deploying in
Thailand in response to a request for assistance by the Royal Thai
Government as a result of renewed communist aggression in Laos.But
at the same time that we fulfill these military responsibilities
we must exercise all prudence to ensure that the adverse impact on
our balance of payments is minimized.
The United States must trim all non-essential foreign exchange
expenditures from its defense programs. Therefore, we are emphasizing U. S., rather than foreign procurement. We are economizing in manpower wherever possible without loss of military
strength and we are encouraging our forces to hold down the level of
their personal expenditures overseas. But this can only accomplish
a relatively small part of the job.
More important is our effort to work out arrangements in cooperation with our NATO allies for offsetting our defense expenditures by increasing their procurement of military equipment and
services from the United States. This not only assists the U. S.
balance of payments — it also strengthens the military capabilities of our allies, for we are usually in a position to produce the
needed equipment faster and at less cost than it can be produced in
Europe•
As a first and most important step in this effort, agreement
has been reached on the establishment of a cooperative logistics
system whereby the armed forces of the Federal Republic of Germany
will increase the level of military procurement in the United States
and will utilize American supply lines, depots and maintenance and
support facilities. By this means the Federal Republic of Germany
will fully offset the dollar costs of maintaining U. S. troops in
Germany during 1961 and 1962. Discussions are under way, or will
soon be initiated, with certain of our other NATO allies. Our objective during 1962 for total military cash receipts is approximately $1.2 billion. I believe that we will be successful in attaining this objective.
It is our view that such military offset arrangements are both
equitable and mutually beneficial. They provide a means whereby our

1 Gs
JLvJv

-5allies can strengthen their own military forces at minimum cost and
in ways that often would not otherwise be possible, while at the
same time offsetting the dollar costs which we incur in maintaining
our forces on their territory in the joint defense of the precious
heritage of freedom. Thus, these agreements, at one and the same
time, build up both the military and economic defenses of the West.
The dimensions of the actual drain on our balance of payments
from economic aid -- while important -- are currently much smaller
than many have assumed. A sizable fraction of our $4 billion expenditure for aid — over two-thirds in 1961 — is furnished in the
form of U. S. goods and services. And in terms of the funds being
committed at the present time, the portion furnished by our own
goods and services is even higher and is still increasing. But just
as in the case of defense spending overseas, there are limits to the
further dollar savings that can safely be made in this area. The
needs of the developing countries are likely to rise in the years
ahead, not decline. Hence, much remains to be done in sharing this
burden more equitably among all the countries able to bear it. I
am hopeful that continued progress can be made along those lines
this year.
On balance, a realistic appraisal of actions now underway
suggests that the total drain on our balance of payments from aid
and defense will be reduced by something over a billion dollars a
year, to a figure on the order of $3 billion.
This means that the United States must have a continuing surplus
of about $3 billion a year in the other elements of our basic balance -•
trade, services, and long-term capital movements if we are to achieve
a balance in this account which, as you know, does not include short
term capital flows. This is a tall order. But it is one we can,
and must, achieve. Last year, when circumstances were particularly
favorable for our trade account, our commercial trade surplus amounted
to $3 billion. This reflected the abnormally low imports of the first
six months of 1961, which resulted from the slowdown in our economy.
We must, however, accept this as a minimum target for the future and
strive to do even better. Such a target will not be easy to achieve.
But it is feasible and realistic — if we Americans continue to apply
ourselves to the task with all the vigor and imagination it requires.
I will not review in detail here all the measures we have undertaken to make Americans export-conscious as never before, to support
industry with short term credit insurance comparable to that available

-6in other industrialized countries, and to provide comprehensive
and speedy information on foreign markets. I am certain, however,
that all of you here will see visible results from these efforts
in the months and years ahead, as American businessmen move more
aggressively to participate in growing world markets.
All of this effort will, of course, avail us nothing if American
industry cannot or does not deliver its goods at attractive prices.
Restraint on costs and stable prices must lie at the very heart of
American efforts to sharpen our competitive drive in world markets.
Our over-all approach to this objective is, I believe, clear:
the thought that price stability depends on keeping wage rates in
line with national trends in productivity is hardly new. But never
before has an American Administration assumed the responsibility
for defining that principle in such clear terms -- and never before
has an American Administration so carefully spelled out its implications for collective bargaining and pricing decisions. The object
is simply this: to ensure that Labor and Business alike, in weighing all the complex pressures that enter into any wage price decision, are also fully aware of the overall national interest.
The past year has seen some success in these efforts. Despite
our economic recovery the very significant fact is that wholesale
prices in the United States are lower today than they were a year
ago. They have now remained stationary for four years. This price
stability has served to improve the competitive position of the
United States versus our friends in Europe, reversing the trend of
earlier years. We will continue to do everything in our power to
see that this new trend continues. Important among our efforts is
the promotion of a more favorable environment for investment. An
investment tax credit, included within a broader program of tax reform now before our Congress, is a key element in our approach.
And updating and simplification of outmoded depreciation guidelines
to take full account of the impact of swiftly changing technology
on the useful life of equipment is another. Together, these measures
will provide incentives for investment in new equipment comparable to
those that have long existed in other leading industrialized nations.
Monetary and debt management policies are being conducted in a
manner to ensure that ample funds are available, at reasonable cost,
to finance new capital outlays. Fiscal policy, too, has been closely
attuned to the need to encourage investment -- and to avoid the sort
of demand pressures that could menace price stability.

-7-

-; Qw

As you know, we have succeeded this year in keeping the deficit
in our Federal budget far below the level of fiscal year 1959 -the last similar recovery period. This has been of major assistance
in our effort to forestall any significant tightening of the credit
markets, with government draining off resources and funds that might
better we devoted to productive investment. For the fiscal year
beginning next July, we have programmed a balanced budget on the
presumption that the economy will continue to expand vigorously, approaching full employment by the end of the fiscal year.
Under such conditions, our budget would gradually, and quite
properly, exert increasing restraint on demand as the year progresses.
This is better illustrated by the projected surplus of $1.8 billion
in the overall cash account which, in contrast with the administrative budget, reflects all the activities of the Federal government.
Whether or not our budget target will, in fact, be reached, cannot be foretold with certainty today. We won't know the answer until
time has tested the basic assumptions that underlie the revenue estimates. But as you all know, government receipts in the United States
are very sensitive to business conditions because of the heavy reliance on the income tax. I can assure you that expenditures are being
kept within the limits of the revenue estimates. I would be less
than frank if I did not admit that our first quarter results were
disappointing, although the shortfall was not so great that it cannot be made up in the months ahead. Certainly my own readings of the
latest business news and profits figures suggest that it is still
premature to conclude that we cannot attain our goal.
Whatever the precise budgetary outcome 14 months hence, the
really crucial fact is that the economic effect of any particular
surplus or deficit can be judged only in the context of the existing
business environment. If our economy fails to sustain the momentum
we anticipate, labor will remain freely available and industry will
continue to operate well below capacity. Under such circumstances,
experience shows that a moderate deficit would not be inflationary,
just as the rather substantial deficit of the past twelve months,
with manpower and goods in ample supply, has not been inflationary -and, for that matter, just as the much larger deficit in fiscal 1959
was not accompanied by any general price increase. And here I
would like to say that our deficit for the current fiscal year ending
on June 30th is today estimated at $7 billion, exactly the same as
our official estimates of last October and last January.

-8The fact that there is no automatic relationship between
budgetary deficits and price inflation, or between budget deficits
and the balance of payments, is brought home forcefully by a recent study comparing the budgets of the United States with those
of the three largest European countries. I do not recommend it for
light reading. It is a highly technical statistical exercise designed to adjust the data to a common basis so that they accurately
reflect the net impact of central government operations. But the
conclusion stands out clearly and unambiguously: Britain, France,
and Germany have all been more "deficit-prone" than the United
States. Converting European budgets to the more rigorous standards
of American budget accounting, we find that Germany, for example,
has had a deficit ever since defense spending became a significant
portion of its budget four years ago, and that France has had a
deficit in every year of the past decade. Moreover, the deficits
of all three of these European countries have, much of the time,
been considerably larger, relative to gross national product, than
that of the United States.
What is one to conclude in view of the fact that two countries France and Germany -- which, using our basis of budgetary accounting,
have had relatively large budgetary deficits in recent years, have
also had the largest surpluses in their international accounts?
Certainly not that large deficits are the road to salvation.
We all know that the wrong deficit at the wrong time can pave
the road to inflation. But, in discussing budget policy, we too
often fall into the trap of forgetting that it is inflation which
is the real enemy. We should always bear in mind that moderate
budget deficits incurred during periods of inadequate demand and
which do not exert upward pressures on price levels -- are quite
different in their economic effect from deficits incurred when the
economy is operating at full capacity.
In this connection, the relationship of the Federal debt to the
gross national product --in other words, the ability of the national
economy to carry the debt burden — is also pertinent. In this area,
the record of the United States has been and continues to be very
good. From a situation at the end of the war when the Federal debt
amounted to about 125 percent of our gross national product, the
percentage has continually declined and today stands at about 53 per"
cent. This compares with a ratio of 56 percent just one year ago,
and a ratio of about 50 percent in 1941, before wartime expenditures
sent our debt soaring. The addition of our growing state and local
debt would modify these percentages only slightly. The general
picture would not be changed.

-9-

J. ^ >

Price stability — investment in modern machinery -- an exportminded government and industry -- these are the keys to an expanding
trade surplus for the United States in the years ahead, a surplus
achieved not by retreat to controls or deflation, but firmly grounded
in the ability of American Business to pour out into world markets
new and improved products at attractive prices. Our trade surplus
is already large. But it is not quite large enough to cover our commitments for defense and aid, as well as our current volume of private investment abroad. However, the needed margin is within reach -and reach it we mean to do.
The preliminary results from the first quarter of 1962 clearly
show that our efforts are beginning to bear fruit. Despite an increase of $550 million in our imports as compared to the unusually
depressed level of the first quarter of 1961 — an increase that is
the natural reflection of our economic recovery -- our overall deficit for the quarter was just $100 million larger than in the same
quarter last year. Leaving imports aside this represents a solid
improvement of $450 million in all the other elements of our balance
of payments. Overall, these results show an improvement of a billion
dollars over the deficit incurred during the fourth quarter. IXiring
the first quarter of this year our basic deficit ran at an annual
rate approximately $1.2 billion, and our overall deficit at an annual
rate of $1.8 billion. The continuing and growing effect of our various efforts to correct our balance of payments should serve to maintain or improve these results as the year progresses.
We should not, however, center all our attention and all our
efforts on our trade balance. A danger will remain so long as the
United States stands virtually alone in providing a free and effective capital market, absorbing the bulk of the marginal demands for
funds from other countries, surplus and deficit alike. Then, the
dollars saved in defense and aid, and the dollars earned in trade,
could too easily be drained away in an accelerating outflow of
American capital.
I am not referring to sudden and massive shifts of liquid funds
in response to interest rate differentials, to speculative considerations, or to other factors. That difficult problem has already received much attention, and our mutual defenses are being strengthened.
I am referring to the basic world market for long-term capital.
This long-term capital market has two major facts: direct investment and portfolio investment. It is the latter, or rather a portion
of the latter, which is my chief interest today, although I will say
a few words first on the subject of direct investment.

-10The United States has consistently favored free capital movemen
the ability of individuals or companies to invest their funds where
they will. There has been no change in that view. We are, however,
asking our Congress to end the tax inducements to American investmen
in other industrialized countries, particularly the inducements
which flow from the mushrooming use of so-called tax havens. The
object is not to discourage capital from going abroad in search
of higher gross return. That sort of investment will, in the long
run, serve the investor, the United States, and the recipient
country alike. We recognize that the great bulk of our foreign
investment is of this type and is not tax-induced. We do, however,
want to make sure that our tax system does not unwittingly -- and
artificially -- spur this outflow. We wish only to eliminate margins
foreign investment that is induced primarily by tax considerations.
While there is no expectation that such action will dramatically
reduce the outflow of direct investment funds from the U. S., it
will be of some help — and every bit counts in the effort to eliminate our payments deficit.
In the field of portfolio investment, I am not interested in the
purchase of foreign equities by American investors, a process that
is an essential element of free capital movement. What I am concerned with is the increasing use of the various mechanisms of the
New York capital market by European borrowers to raise funds for thei
own internal purposes. Today, the plain fact is that underwriting an
distributing facilities in the industrialized countries of continental Western Europe, are generally inadequate to meet the foreseeabl
needs of domestic borrowers — much less those from abroad. That is
not a healthy environment for long-term domestic growth. It
inevitably means higher borrowing costs and a shortage of funds for
firms and industries that lack their own internal sources of capital.
And, when combined with controls and restrictions on capital movements lingering on from earlier days, it has the incongruous effect
of shunting to the New York market new issues from the surplus
countries, even as we in the United States are endeavoring to erase
deficit.
While the current relatively favorable interest rates in the
New York Market are, of course, attractive to foreign borrowers,
there is plenty of evidence that a large part of the current European
borrowing in New York is as much a reflection of the greater and
more ready availability of funds in the New York capital markets as
it is of interest rates. In other words, the indications are thatma
of the current European borrowers would be coming to New York even if
our interest rate structure were somewhat higher. They would be
coming because they find it more difficult to raise the needed funds

I ^ •-'

- 11 -

in Europe than in New York. A case in point is the current$25 millio
borrowing by the European Coal and Steel Community.
This does not seem to me to be a very efficient use of the World1 s
capital resources. The years to come will certainly see a growing
demand for capital from countries which cannot be expected to develop
their own capital markets. Such countries have traditionally looked
to the capital markets of New York and London to raise their funds.
This is a normal procedure and should continue. But it will be more
difficult for these countries to meet their needs if they must
compete in the New York market for necessarily limited funds with
continental European borrowers who, given fully adequate European
capital markets, should normally be able to find the needed funds
without having to cross the Atlantic.
It is true that a large proportion of the European issues that
have been publicly floated in New York have ultimately been taken up
by European investors, which, among other things, shows that these
investors are prepared to lend their money long-term at lower rates
than are currently quoted in their own capital markets. Thus, the
burden on our international accounts has not been as large as it may
have appeared from a simple total of the volume of new issues sold
in New York. But the burden is nonetheless real. And so long as
the imbalance in facilities and controls remains, so will the threat
that an accelerating flow of these issues could undermine our efforts
in other directions. And as long as continental Western Europe
continues to operate with inadequate and out-moded capital markets
it can have no solid assurance that the capital required to ensure
steady and rapid growth will, in fact, be available. I am glad that
the OECD has now recognized the importance of this problem and has
commenced to work actively in this field. We should all of us give
this effort our full support.
I recognize that progress toward relaxing some of the formal
controls on external capital flows is already evident in most industrialized countries. Nevertheless, residents of only a few Western
European countries have freedom today to invest abroad wherever they
may wish, and in whatever form they may desire. Some type of official
authorization and approval is still commonplace, and outright prohibition is not infrequent. The volume of foreign bonds offered in
Western European countries in recent years has, except in one or two of
the smaller countries, been negligible — and in some countries,
non-existent. And, it still appears that bank funds are readily
available to foreign borrowers, in substantial volume and without
ties to exports, only when they are in the form of U. S. dollars.

- 12 Thus, we have a long way to go before we can be satisfied that
our arrangements for raising and distributing capital within the
Free World are in step with our progress toward freer trade and highei
standards of living. I, for one, shall be uneasy so long as virtually
all the world -- surplus and deficit countries alike — those capable
of generating a high level of savings internally and those operating
close to subsistence levels -- must look to the United States as
their principal, if not only, source of marginal capital.
Progress in this area cannot come with dramatic speed. Markets
have been insulated too long. The whole psychology of a generation
of investors must be changed. New institutional structures must be
developed. But as I look at the development of Western Europe from
a distance, it seems to me that the logic of internal growth and
development points in this direction.
More efficient capital markets will be essential to sustain
growth -- and should themselves tend to reinforce other factors that
could bring about a lower level of long-term interest rates more in
line with those typical of the American market. Already, some
tendency in that direction has developed. In this interdependent
world of ours, I would expect that tendency to continue.
I am not calling today for any radical new departures in policy.
I am asking only that we willingly accept the logic of our evolving
world economy, and press ahead with all our vigor to cast off those
restrictions that still impede the free flow of capital, both within
and between nations. This is clearly not a job for governments alone,
but for banking leadership and banking statesmanship as well. I
submit it as a special challenge for all of you who have a vital
interest in expanded trade between nations, growth at home, a durable
payments system, and a strong free enterprise economy.

0O0

-19*

fier

Ttmm wan have newr £ &m& thsir freedom easy to achieve,
to fgaintain or to defend. But fm* *i* have an advantage
owr tho*# who mrm not £***• Th# vitality and resiliency of
people who choose their own path will always triutsph over
_ dev
istern Europe
the ri-idicy of any system in ^hleh ^mmmXm aire driven to d©

the ^111 of tha state. This has been, md will continue to fee
es tend to reinforce other fact
thm history of man —

the eventual triumph of freedom over

tyranny.

as we!

9^n
path of true progress for hui_a_*ifcy requires tha* individual
dignity and freadom temmm pace with industrial progress.
Nevertheless, those *ho would spread this doctrine
represent a forg&dable force. If we ara to continue to
successfully combat their efforts, ^e will nmmd all the
energy and all tha wisdom v?® cam siuster. Wa mist also mm
prepared to mmkm thm necessary sacrifices, for this struggle

will continue to detnsnd a sizable part of our human and natura
resources.
Above all, business, labor, education, government, and
all other ale_»aits of our diverse society, mist be united In
tha coroon effort to strengthen our freedom, to advance tha
opportunities for our citizenry, add to improve our national
ve 11 -being. C-nly in this way can we Americans bring to bear
the latent powar which will hm nmmdmd if our precious heritage
of human libert>Hs to mm preserved ami extended throughout the
%iorld.

»17*-

901
_L o _

f armars — nor anyone else — can operate independently of
the public interest without doing grave Injury to our nation.
As President &mzmm&? said recently to the United Auto Workers:
**tt is incumbent upon all of us to consider the general welfare
and tha public interest because the public interest Is your
interest.*
The struggle in which we are Involved will be a long one.
There are those in tha world who believe that tha state should
make all tha decisions, $md this doctrine has capturad tha
minds of one~third of the earth*s population. Unquestionably,
for a developing country, this sytem offers a certain temptation
If the state can exercise complete control of all human and
material resources, can compel the population to serve its
ends to the limit of endurance, &&& can use the wealth created
in any way it sees fit, tha probletas of economic development
may appear to mm simple. But this is only a mirage, for tha

-16into the mass, our discrimination and lao^vidkaiifcf• *• tha
individuality "which gives us our strongest motivation to

remain free -* will become blmifcad h? laak of use, Tha ef fort
and raward of active involvement in tha publle welfmtm is
never boring. It is a certain antidote for submersion of the
individual in the mass society. JHere, let me say a word about
careers in govatnrtantf Any of fou who davota your lives to
caraar government serviea, wharavar it mmy ®af will not only
find yourselves in tha company Of a hard-forking, intelligent,
group of Africans, but will also obtain tha reward that momma
fross a life of service. Such service can be rendered In many
ways, at many levels of govasnsartt., federal, state wm& local.
ivery type BM kind of talent is required.
x

F#r those of ^Ou who choose caraars in privata Ufa, tha

national interest will also be ever*prasant as you carry out
your daily tasks. For today, neither businessmen, workers,

-15-

<#/?

dabata. I would like to sea ovary African holding strong
views on significant aspects of public policy ** views based
on rational conviction, rathar than blind prejudice. Wa should
not reserve our attention — nor our concern, nor our active
sense of being responslbla for tha outcome — for that psrtod
avery four years whan wa elect a president. A citiaan of tha
United States today has tha potential to mm worm effectiva in
shaping the policies of his Qowrment than has any citizen
of any nation in tha world. It is higjk time for us to exploit
this potential, because today, as nm^mx before in our history,
our nation nmmds citizens who are aroused* who are active,
and who care.
For this is a critical decada. We all recognize tha
xzm&cm of nuclear holocaust, but thara are other gangers,
which are too seldom recognized. Thara Is the danger that wa
mmy become too obsessed with materialism, wad that as wa raarga

-14-

2QJ

m&cmmd $% of annual income. For thoaa who need all of thair
income to moat expenses

this over-witholding could mm mmt

mw a temporary, one-time outlay of lass than 2/10 of X% of
their total savings, or less than $140 out of a capital of
$«0tGC_. I dalibsrataiy vmm this large fi-ure of $§©,000

because retired couples with less capital would have no problem
what soever since they would owe no tax, and — mark you —
withoiding doas not apply at ail except where a tax is due.
If, by any chance, withoidiag should be defeated by
these falsa arguments, and tha annual evasion of over $800
million in taxas should be permitted So continue, tha public
interest would surely not have hams. Bmr^md* \nd tha flood

of uninformed and prejudiced mail that is reaching the Congress
will have played an important role in tha decision.
his sort of thing would be impossible if public policy

gas] a subject for really widespread and truly intelligent publ

205
-13*
eostplataly falsa. Thair wlimwpmmM mmmmtmmmm is a strUiaf
exasipie of tha dangers in mn tsnlmfomad public* Tha truth
is axaotiy to tha contrary.. Wit holding is not a nam &&&• &nd
it nil! not puk my burden on those Kfho 4apand on thair savings.
It is isaraly an -alf active

SNUBI*

of collecting tastes which have

boon on the books for many years, Tha -only ssanaee it contains
is for tax ev&dars, who will te- forced by withholding to pay
up Ilk© tha rast of us. 2h&s avaalon in 1§5# amounted to wall
over $8Q0 million. It was still mora in 19£0 and — unless it
is haltad -** will imamawm yaar by :0mw-- &mmpkK® ovary effort
by tha Interns! Eavanua Service.
A© to any possible teurdan on recipients of interest and
dividends,, tha fact la that thank* to a provision for prompt
quarterly refunds, tha most that anyone* can be inconvenienced
la by ovar*withholding In tha first «$uartar in which tha law
applias* This first quarter's over-withoIiilji.g would never

often falsely Ubelltd a **naw tax1*. Thay halffuliy gava
tha nana* and a^Mrtasaa *• and In *OM* cases, aven tha"
salutation — so that readers could write to their senatiirs
opposing' tMsLwrislon. So-called %aiIot#* requiring only'
tfra Insertion "of a nmm- and aidraas ware oftan providad.. Sons
of those ad^artisa_«its evan texts thm nota that thay ware
furnished as a ^public sarvlcef? — a htmm aitastprto confuse
tha special intaraat of tha alvarMsar with tha overall public
interest.
The tanor of this casifalgn is that witholdlng would ptit
new said unfair bur4asts on the aged and on all those who 4mpmM
for their llvalihood on ItneoM from savings • Tha implication
has bean fraaly "given that this proposal is a now tax. Thase
two ehamaa run throu^i practically all tha mail baing raoalved
in the Senate.
Tha fact Ox ^um mammwr x® tnat ootn or tnea* chaSi&es
art
Cha|g^«

raata today • * » than avar with tha p*#pta» .-Iha^proliiaia im
. •.

. •

-v

-**

that thay u*a fhsir powar too aaidois*^ catas, aw*u *r;*
tha dangar of apathy on tha part j»f tha istajorifcy |# tt»*
it

AMIS****

responsibility, and ®XXmm weal jafcnorltlaa. «**

usually r^tprwia»^lai sp«mial tutaras^s **» to «fcf& influanca

far \mymmi thair raal weight..* A good example is provided, by
a oastpalgn currently haing waged against .oaa .of tha majcar ^t€
provisions of tha Adisiniatration tax bill now feafow tha Senate

Finance Co&iffiit tee — t®m proposal to wit hold taxee dua on taooisi
fata- dividends and jinterast, just as ta^as ara now wifchald on
wa§as and salaries* Tha- campaign has^sat tm^^m0tdm:imr,&:m ,
distortion a^tte feet* and has axmt^ ^^rrnrn^ public ^^
mim.i>i4arstanding. Some financial institutions which fait that
this would ina^ssvaaiiasMMi eha«t hmm sponsored widespread ^v^j
advartlaijig campaigns to inform tha public of tha dangers
supposedly inharant. in^this provision %— which htshay^^^^ gr«

20 S
-10oomplicated to make interesting reading. Bacause wa cannot
immmm tha outcome of the disarmament talks, or because wa
cannot fully co^rahaBd tha co^lOKity of tax problams — or,
most often, bacausa wo feel no personal Involvement — wa skip
io tha sports paga or to tha fashion coiuan.
This public apathy, in m? opinion, may wall bo the
greatast single danger wa face today. It gives rlsa to an
automatic proaaas in which blind prejudice Is substituted for
reason -~ mm& thus all problems bacon* over-slapllliad. Out
of such reactions have grown both the hysterical right and
the hysterical left. One contends that tha real danger In tha
world today is subversion within our country and within our
government. Tha other maintains that our whole society is
manipulated by a small clique of businessmen, military leaders,
and powar*hungry politicians.
Both views are, of course, nonsense. Power in this country

*9*

209

AM third, ha ou*t do iSMsatMag- about it. ***
Evan if all ha does is tali! to his tsgfcgMRWtt a purpoaa
will hava bus* sarvad, but in a nation Ilka ours *• irtsm *al)
a small fractiosi-Of tha poptlatiaa taMs an active pari in
election campaigns beyond tha act #f voting. — tha latltuda
for pffaativ* political action, if one cares to talus tha
troubio, is eKtremeiy broad.
k citizen of tha United States .has a greater duty than

pills and tha collaga- gsgdNsat** In particular, has. a
responsibility to cornelt himself to soma larger cause than
tha mora pursuit of m aver-higher standard of living for
htesalf and his family.
The facts are available. Thay are given to us every
day by newspapers, magazines, radio mM television. But to
many of us, tha public taainas* of tan appears to be too

i fay to you that th* lattvMtal, daapita ladKUsa&tea*
to en* ocssanfttyt i* mm bapotttme tns» awtr, mm* mi tm
aattiuy of our eitioaa* to lafluaae* puMlc polity is- *u*
mom sjqN&tattt tit** amr»
_m-*vr ayaeaa,. it m mm Mien tn* *ai-n*xjr eui**ni mmm —
asss anm

SKMNI

l__s«!t*At» hem saueh tm cams — that «U1

tietarraino tin otttooo* of iarga l**u*s» teparrt* of
AXA

EamasaAxy* ana ra*ur

AAVMA

CAM***

afe*«a£ ** i_a*i0t hat la tn*

am* « MI art** cna aanHScaam mm «a_*t aaita tha dbM_WL*a*«
*a aetsv* aonaaa m our *A_NK«*ey tsa*t flip forthright
opi^MRia* »«P£ XK mt aput&aa is so DA oi s*£g_£__»aaA£ vmu® s*
nxs oasac*?* i;nnt# rauig* are VAquitAfi!
lit touat lift** mmmd that opteloti fro® a raasonabla
undarstandfag of tha facts

and rwr frorc aat* prejudice*

Ssj*endv he into* ear* ateut tha l*tts*» irt>at*v*r it may ba»

-7~

2li
our nation is distinguished by our adherence to tha principle
of individual liberty by tha ovar-rldlng importance which we
J

attach to the individual citizen.
The vast changes taking place in our civilisation have
had one thing in common. They have often seamed to reduce
the efforts of the individual citizen to insignificance. For
this is certainly the age. of the mass market, the mass madia,
tha mass civilisation, -;Gut of this age, two great dangers
have arisen *- mass ignorance and. mass apathy.
As the industrial era has accelerated, it has bean .
the specialist — tha market analyst, the computer systems
designer, the nauro-s^rgeon* the nuclear scientist - in short,
the expert - who has become important. Exports are indeed
necessary. Sut with their increasing importance, w© too often
are tempted to say, ^hen considering matters of public policy,
"What do I know about it? I'm no expert«**

?12
•6must raisn the level of investment, for investment creates
jobs, incomes, and eoasumar demand.
Wa must al*a Improve the ways in which we care for the
poor, tha- aging, and the sick. Here we can take a major step
forward 1» tha naxt few months by enacting legislation to
assure adsxguata medical care for the aged through our tried
and proven Social Sacurity systaou
Above all, our educational systam aa#ds strengthening.
We nmmd imm classrooms« mora and batter-paid taachars* more
labo-ratorias — isor* educational facilities of *vary kind to
keep pne® with our expanding population. For in the last

analysis, our strength lias not in machines, but in -our peopla,
who must be given maximum opportunity to develop thair latent
talents.
Finally, no catalog of our wants can exclude tha n&®& to
improve tho rights snd opportunities of all our citizens* For

-3-

to improve our competitive position in the world's marketplaces,
to meet essential needs in our own country, and to help tha
peoples of less fortunate nations to raise their living
standards.
/e cannot tolerate unemployment at present levels, not
only because it entails human suffering, but because it
represents unused manpower. We must Bpmmd up the growth of
our economy to provide the needed jobs^ ^_% we must also keep
our prices stable, since inflation would seriusly affect the
welfare of all in our society who depend on savings, and would
threaten our ability to compete in today's highly competitive
world. To resist inflation, business, labor, and government
must all exercise self-restraint.
e mxst strive for greater efficiency by applying new
methods, fresh research, and the fruits of the laboratory,
to th<* development of a better industrial plant — and #a

- 2U
Latin America, too, there is ImpAtiesa* idfch tha slow pace
of advancement. Fur Alliaac* f*r?«g-Wi» deMpsdt'te ipaad

d*>**lop_Mait throughout the hesdspheiaa, aagr <•*» if wa- aid ou
Latin pkttmmm work fmmi

ABCKM$I

at it — become a modal of

collective aid and' self-help for the entire- developing world,
imoludtef Africa and 'AgU*
The** vest, complex "fnteblaa* ara among the- greatest ever
faced

%y mst country, fhiy will not beco« any easier' during

your llfettM*. "Their solution will require thm best efforts
of iw and' woman ttataad' 'in universities such as this <a» they
will provide plenty for youto do.
Let us look for a moment At our domestic scene» w we'" °'
have a great deal of unfinished' business i
Our ieenoisy badly needs stXAngthaning, ft"must
grow faster in order to *u$port our definse establishment,'

•*>

2,2 5

experts* enough to auppere both our overseas *ttlt**y
**t*b&&rib**_atA aad our much

SHMMMI

progress of aid to leas

developed oouaftriA*. that is the basic reason behind tresident
KaaaHMty** programs of trade *xfMa&*l*a» of export promotion,
and of tax tecantlvea to stimulate the constant s^demi^ation
of our fjadaatrial plant*
A third great challenge is represented by the yearnings
of tha peoples of the less*deveioped world for a better life.
nearly SO new etissatrias have entered the familyoof nations In
your lifetime* their struggles mid i$m® of all the developing
lands will.de much to shape the pattern of the world for decades
to cense, the tepertanee of the nations of Africa alone — as
fresident «ouftim^t^oi.in|Lan testify — cannot be over*
a*tlaa*Mi» either during their present striving toward a better
a******* or as a potentially major feree in international affsirt.

21 £
Overriding all others is th«lltary power — supported
by a growing economy and a passionate ideology — of the

Cessainist alee, this power requires us to conatantiy strengthen
the defeases of the Free Morld. At the sarae time, the nature
of nuclear weapons demands that we do ail we can to lessen
international tensions and to seek ways of minimising existing
frictions* We must negotiate while maintaining our preparedness

for the worst. We wast fihowl,strength, patience» and diplomatic
Skill.
Another great challenge is presented by the growing
economic strength of our European allies. While we are
naturally pleased with their progress, we must recognise that
we now have competition in the markets ef the world such as
we have not known for more than a generation* We must Improve
our eoapetltive abilities so that we may earn, through our

ADDRESS BY THE ^ O M U E DOUGLAS DXLLOM^AT
tflti^OTi^iRSitf OF --ranim?JUttAf
fm&mmfmktWkzmd
HAT

21, 1962^

/<VO<*>A^<

'•••• It is^a^fleai«iiA t»-*MM with pa today said teljeia^MaAftba
aluitmief this^diatili^ished University.* I aa delighted to **
share in these honors with isy old friend, President BdtepheuatBelgny of the Remiblic of the Ivory Aeast* He Is a wise leader
who has brought his people into nationhood and"has made hi•
country a^leaeon tf hepa^er the1 future j»Af- Africa* His &*mtlc
presence here tedame a reetinder that a great university
knows no national botindaries, for peoples frea every comer
of the e^rth share in its work and cent ribatetA Its life.
These of you wte ar© departing this University to embark
on yaur careers will find that our1 aenstsntly enaitgina;world
will become increasingly complex in the years ahead.c-I eaa "-*
eeiurA'you that there"are vast eteltenges awaiting you.

TREASURY DEPARTMENT
WASHINGTON

?1 R

FOR RELEASE P.M. NEWSPAPERS
MONDAY. MAY 21, 1962
REMARKS BY THE HONORABLE DOUGLAS DILLON
SECRETARY OF THE TREASURY
AT THE
UNIVERSITY OF PENNSYLVANIA
PHILADELPHIA, PA., MAY 21, 1962, 11:00 A.M.
It is a pleasure to meet with you today and to join the alumni
of this distinguished university. I am delighted to share in these
honors with my old friend, President Houphouet-Boigny of the Republic of the Ivory Coast. He is a wise leader who has brought his
people Into nationhood and has made his country a beacon of hope for
the future of Africa. His presence here today is a reminder that a
great university knows no national boundaries, for peoples from
every corner of the earth share in its work and contribute to its
life.
Those of you who are departing this University to embark on
your careers will find that our constantly changing world will become increasingly complex in the years ahead. I can assure you that
there are vast challenges awaiting you.
Overriding all others is the military power — supported by a
growing economy and a passionate ideology — of the Communist bloc.
This power requires us to constantly strengthen the defenses of the
Free World. At the same time, the nature of nuclear weapons demands
that we do all we can to lessen international tensions and to seek
ways of minimizing existing frictions. We must negotiate while maintaining our preparedness for the worst. We must employ strength,
patience, and diplomatic skill.
Another great challenge is presented by the growing economic
strength of our European allies. While we are naturally pleased with
their progress, we must recognize that we now have competition in the
markets of the world such as we have not known for more than a generation. We must improve our competitive abilities so that we may earn,
through our exports, enough to support both our overseas military
establishments and our much needed programs of aid to less developed
countries. That is the basic reason behind President Kennedy's
D-494

-2programs of trade expansion, of export promotion, and of tax incentives to stimulate the constant modernization of our industrial plant,
A third great challenge is represented by the yearnings of the
peoples of the less-developed world for a better life. Nearly 50 new
countries have entered the family of nations in your lifetime. Their
struggles and those of all the developing lands will do much to shape
the pattern of the world for decades to come. The importance of the
nations of Africa alone --as President Houphouet-Boigny can testify -cannot be over-estimated, either during their present striving toward
a better tomorrow or as a potentially major force in international
affairs. In Latin America, too, there is impatience with the slow
pace of advancement. Our Alliance for Progress, designed to speed
development throughout the hemisphere, may — if we and our Latin
partners work hard enough at it — become a model of collective aid
and self-help for the entire developing world, including Africa and
Asia.
These vast, complex problems are among the greatest ever faced by
our country. They will not become any easier during your lifetimes.
Their solution will require the best efforts of men and women trained
in universities such as this. They will provide plenty for you to do.
Let us look for a moment at our domestic scene, where we have a
great deal of unfinished business:
Our economy badly needs strengthening. It must grow faster in
order to support our defense establishment, to improve our competitive
position in the world's marketplaces, to meet essential needs in our
own country, and to help the peoples of less fortunate nations to raise
their living standards.
We cannot tolerate unemployment at present levels, not only because it entails human suffering, but because it represents unused
manpower. We must speed up the growth of our economy to provide the
needed jobs. We must also keep our prices stable, since inflation
would seriously affect the welfare of all in our society who depend
on savings, and would threaten our ability to compete in today's
highly competitive world. To resist inflation, business, labor, and
government must all exercise self-restraint.
We must strive for greater efficiency by applying new methods,

91 Q
_. _. —

-3-

fresh research, and the fruits of the laboratory, to the development
of a. better industrial plant — and must raise the level of investment,
for investment creates jobs, incomes, and consumer demand.
We must also improve the ways in which we care for the poor,, the
aging, and the sick. Here we can take a major step forward in the
next few months by enacting legislation to assure adequate medical
care for the aged through our tried and proven Social Security system.
Above all, our educational system needs strengthening. We need
more classrooms, more and better-paid teachers, more laboratories —
more educational facilities of every kind to keep pace with our expanding population. For in the last analysis, our strength lies not
in machines, but in our people, who must be given maximum opportunity
to develop their latent talents.
Finally, no catalog of our wants can exclude the need to improve
the rights and opportunities of all our citizens. For our nation is
distinguished by our adherence to the principle of individual liberty,
by the over-riding importance which we attach to the individual citizen.
The vast changes taking place in our civilization have had one
thing in common. They have often seemed to reduce the efforts of the
individual citizen to insignificance. For this is certainly the age
of the mass market, the mass media, the mass civilization. Out of
this age, two great dangers have arisen -- mass ignorance and mass
apathy.
As the industrial era has accelerated, it has been the specialist —
the market analyst, the computer systems designer, the neuro-surgeon,
the nuclear scientist - in short, the expert - who has become important. Experts are indeed necessary. But with their increasing importance, we too often are tempted to say, when considering matters of
public policy, "What do I know about it? I'm no expert".
.1 say to you that the individual, despite indications to the
contrary, is more important than ever, and that the ability of our
citizens to influence public policy is also more important than ever.
In our system, it is how much the ordinary citizen knows -- and
even more important, how much he cares -- that will determine the outcome of large issues. Experts of course are necessary, and their
advice should be heard, but in the end, it is often the non-expert
who must make the decisions.

-4An active citizen in our democracy must hold forthright opinions.
But if his opinion is to be of significant value to his country, three
things are required:
He must have derived that opinion from a reasonable understanding
of the facts, and not from mere prejudice.
Second, he must care about the issue, whatever it may be.
And third, he must do something about it.
Even if all he does is talk to his neighbor, a purpose will have
been served, but in a nation like ours — where only a small fraction
of the population takes an active part in election campaigns beyond
the act of voting — the latitude for effective political action, if
one cares to take the trouble, is extremely broad.
A citizen of the United States has a greater duty than merely to
register an uninformed personal preference at the polls, and the college graduate, in particular, has a responsibility to commit himself
to some larger cause than the mere pursuit of an ever-higher standard
of living for himself and his family.
The facts are available. They are given to us every day by newspapers, magazines, radio and television. But to many of us, the public business often appears to be too complicated to make interesting
reading. Because we cannot foresee the outcome of the disarmament talks
or because we cannot fully comprehend the complexity of tax problems «
or, most often, because we feel no personal involvement -- we skip to
the sports page or to the fashion column.
This public apathy, in my opinion, may well be the greatest
single danger we face today. It gives rise to an automatic process
in which blind prejudice is substituted for reason -- and thus all
problems become over-simplified. Out of such reactions have grown
both the hysterical right and the hysterical left. One contends that
the real danger in the world today is subversion within our country
and within our government. The other maintains that our whole society
is manipulated by a small clique of businessmen, military leaders, and
power-hungry politicians.
Both views are, of course, nonsense. Power in this country rests
today more than ever with the people. The problem is that they use
their power too seldom.

22i
-5The danger of apathy on the part of the majority is that it
abdicates responsibility, and allows vocal minorities — usually
representing special interests — to exert influence far beyond their
real weight. A good example is provided by a campaign currently being waged against one of the major provisions of the Administration's
tax bill now before the Senate Finance Committee - the proposal to
withhold taxes due on income from dividends and interest, just as
taxes are now withheld on wages and salaries. The campaign has set
new records for distortion of the facts and has created widespread
public misunderstanding. Some financial institutions which felt that
this would inconvenience them, have sponsored widespread advertising
campaigns to inform the public of the dangers supposedly inherent in
this provision « which they often falsely labeled a "new tax". They
helpfully gave the names and addresses -- and in some cases, even the
salutation --so that readers could write to their senators opposing
this provision. So-called "ballots" requiring only the insertion of
a name and address were often provided. Some of those advertisements
even bore the note that they were furnished as a "public service" -a brazen attempt to confuse the special interest of the advertiser
with the overall public interest.
The tenor of this campaign is that withholding would put new
and unfair burdens on the aged and on all those who depend for their
livelihood on income from savings. The implication has been freely
given that this proposal is a new tax. These two themes run through
practically all the mail being received in the Senate.
The fact of the matter is that both of these charges are completely false. Their widespread acceptance is a striking example of
the dangers in an uninformed public. The truth is exactly to the
contrary. Withholding is not a new tax. And it will not put any burden on those who depend on their savings. It is merely an effective
means of collecting taxes which have been on the books for many years.
The only menace it contains is for tax evaders, who will be forced by
withholding to pay up like the rest of us. This evasion in 1959
amounted to well over $800 million. It was still more in 1960 and —
unless it is halted -- will increase year by year despite every effort
by the Internal Revenue Service.
As to any possible burden on recipients of interest and dividends,
the fact is that thanks to a provision for prompt quarterly refunds,
the most that anyone can be inconvenienced is by over-withholding in
the first quarter in which the law applies. This first quarter's overwithholding would never exceed 5% of annual income. For those who need

-6all of their income to meet expenses, this over-withholding could be
met by a temporary, one-time outlay ofjless than 2/10 of 1% of their
total savings, or less than $160 out of a capital of $80,000. I
deliberately use this large figure of $80,000 because retired couples
with less capital would have no problem whatsoever since they would
owe no tax, and — mark you — withholding does not apply at all except where a tax is due.
If, by any chance, withholding should be defeated by these false
arguments, and the annual evasion of over $800 million in taxes
should be permitted to continue, the public interest would surely
not have been served. And the flood of uninformed and prejudiced mail
that is reaching the Congress will have played an important role in
the decision.
This sort of thing would be impossible If public policy were a
subject for really widespread and truly intelligent public debate.
I would like to see every American holding strong views on significant aspects of public policy -- views based on rational conviction,
rather than blind prejudice. We should not reserve our attention -nor our concern, nor our active sense of being responsible for the
outcome — for that period every four years when we elect a President.
A citizen of the United States today has the potential to be more effective in shaping the policies of his Government than has any citizen
of any nation in the world. It is high time for us to exploit this
potential, because today, as never before in our history, our nation
needs citizens who are aroused, who are active, and who care.
For this is a critical decade. We all recognize the menace of
nuclear holocaust, but there are other dangers, which are too seldom
recognized. There is the danger that we may become too obsessed with
materialism, and that as we merge into the mass, our discrimination
and individuality — the individuality which gives us our strongest
motivation to remain free -- will become blunted by lack of use. The
effort and reward of active involvement in the public welfare is
never boring. It is a certain antidote for submersion of the individual in the mass society.
Here, let me say a word about careers in government: Any of you
who devote your lives to career government service, wherever it may be
will not only find yourselves in the company of a hard-working, intelligent, group of Americans,but will also obtain the reward that
comes from a life of service. Such service can be rendered in many
ways, at many levels of government, federal, state and local. Every
type and kind of talent is required.

-7For those of you who choose careers in private life, the national
interest will also be ever-present as you carry out your daily tasks.
For today, neither businessmen, workers, farmers — nor anyone else -can operate independently of the public interest without doing grave
injury to our nation. As President Kennedy said recently to the
United Auto Workers: "It is incumbent upon all of us to consider the
general welfare and the public interest because the public interest
is your interest".
The struggle in which we are involved will be a long one. There
are those in the world who believe that the state should make all the
decisions, and this doctrine has captured the minds of one-third of
the earth's population. Unquestionably, for a developing country,
this system offers a certain temptation. If the state can exercise
complete control of all human and material resources, can compel the
population to serve its ends to the limit of endurance, and can use
the wealth created in any way it sees fit, the problems of economic
development may appear to be simple. But this is only a mirage, for
the path of true progress for humanity requires that individual dignity
and freedom keep pace with industrial progress.
Nevertheless, those who would spread this doctrine represent a
formidable force. If we are to continue to successfully combat their
efforts, we will need all the energy and all the wisdom we can muster.
We must also be prepared to make the necessary sacrifices, for this
struggle will continue to demand a sizable part of our human and natural
resources.
Above all, business, labor, education, government, and all other
elements of our diverse society, must be united in the common effort
to strengthen our freedom, to advance the opportunities for our
citizenry, add to improve our national well-being. Only in this way
can we Americans bring to bear the latent power which will be needed if
our precious heritage of human liberty is to be preserved and extended
throughout the world.
Free men have never found their freedom easy to achieve, to maintain or to defend. But free men have an advantage over those who are
not free. The vitality and resiliency of people who choose their own
path will always triumph over the rigidity of any system in which
people are driven to do the will of the state. This has been, and will
continue to be, the history of man — the eventual triumph of freedom
over tyranny.

0O0

rot

J-OXJLSS A, M* isMpajpftis,
Tmaday* May 22, ,X|6*.

222
May tl9 X9&2

msmss or taiasutx•* w c u r

BILL

rrrsaiia

tha Treaawy BspaftB8ai aoiouitosd last eiraatiig that tha taadsr* tar tm series at
Tseaaiiry bills, on* suriua to ha aa adttU*a»l taans *f th* bills dated febraary 2 J, 3
and tha otter aeries to ha dated Hay $k$ X9®%9 mmkmm mm offered 0m toy X®, mm opa
at the Fedtraltoaisnr©Bank® oa May 21, Tenders mm invited tar 11,300,000,000, ar
thereabouts, of 91-4*/ bills and tor 1600,000,000, or thereabouts, of ItS-day bills.
details ef the tm asrie® am as fallen**
183-d.y Ireasnry bills
91-day TreAsaty hllla
S J J H or acatrm
OCMiaTXTXf* MUSi
&Jia,
Approx. tqui?,
k^prmm
A'smwbl lata
Ugh
•jH&IT
i.aoii
lev
•erf?*
rr.»T
t*im x/
Avarege
2.7*5$ 1/
£§•57?
totaling H,012,OO©
X tender at tf0Q,O0Of }/ l^aaptiiig %
« pereant mt tha Aaoaat of 9X*amy hills hid for at the low prise was aoeepted
11 parmmt mt tha amount at l§f*dsy Mils hid tar at tha law prise ma ssosFted

^B^-

TOTAL TBADEaS APPLXKO TOR ASS AGC3FTm Sf fB»AI» iSffifff BXSTAIOllft
Mam iork
WmiXmmmXpmkm

i,sao,533,ooo

•HH»a»W
**t,?73,ooo
13,611,000
if ,370,00a
0,tto,ooo
. 11,730,000
in,77b,ooo
11,638*000
13,091,000
61,300,117,OOOe/

xfm£mlw®

un*m9M
%9m$m

28,42f,a0®
7,898,000
*$,370,ooo
&%,tA,ooo
aiah_^
13,073,0$
i,»o,ooo
2,838,0$
1,810,000
1MI0,0Q0
Chicago
U,6U8,00(
i»,7i*»ooo
l&»00s,,OQ0
St, loals
hli,566^QC
2$«dj8»000
M1AIMMUM»11S
126,710,000
h,5l8f0«
17,327,000
tenses Otty
6,111,000
2,25$,0*
2X,?69,000
Ballnas
M$S,000
6,075,0$
120,696,000
San fraiseisoo
3,?o2,®X
62,096,0ta»000
§l,fh7,|68,O0O
6,36h,000
fOTAIA
n§m9tsadar*
mo aeseptftd
•6OO^6$,0«
Jftelasas 119fe,77l,0QO »e_Aa*j»etitlfe
at tha average
prise
8,762,000
13,70,000
Xaalades 11*7,289,000 sesaxsvatUiva tenders
assepVjd at the storage prise of 9$M
m a acropon ismae of the nm% length and far tha r^ame asiotiiit lavsstad, tha return <
thes® hills iro^ld prorid© jrlalds of l«70]l, for -**he sa-dsy hllla, aad 2»87S, ^ r «
lO^dsgr bills. Xatsrast mts» oa hills are qarjtsd ia tares of hank diaeomnt slth
mtwm ralatad to the i&m rnmmt of tha bill's pa|afel# at aatiitty rathar than th
aAsaet iAffaetad md tmir lam$th ia aataal mfamMr mt days ralatad to a 3 & M a y !•
Im aontrmt f yialds on oartifieataa, aotaa, ami bmids am counted in terms at is
w e s t on Urn ammt invested, and rmlmtm tarn mmmmar at days reaaiaiaf la as lata:
pafmmt period to the. actual mmber of mapfj %m the period, with a®miann_al
If mm than on® mupon period 1® involved.

TREASURY DEPARTMENT

1 H0
•„L, £- '-'

W A S H I N G T O N , D.C.
FOR RELEASE A.M. NEWSPAPERS,
j?uesday, May 22, 1962.

May 21, 1962

RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced last evening that the tenders for two series of
Treasury bills, one series to be an additional issue of the bills dated February 23, 1962,
and the other series to be dated May 2U, 1962, which were offered on May 16, were opened
at the Federal Reserve Banks on May 21. Tenders were invited for $1,300,000,000, or
thereabouts, of 91-day bills and for $600,000,000, or thereabouts, of 183-day bills. The
details of the two series are as follows:
183-day Treasury bills
RANGE OF ACCEPTED
91-day Treasury bills
maturing November 23, 1962
COMPETITIVE BIDS:
maturing August 23? 1962
Approx. Equiv,
Approx. Equiv.
Price
Annual Rate
Price
Annual Rate
High
99.322 a/
2.780$
98.587 b/
2.682$
Low
99.312 "*
2.801$
98.576 ~
2.722$
Average
99.317
2.795$
1/
98.579
2.700$ 1/
a/ Excepting 1 tender of $500,000$ b/ Excepting 3 tenders totaling $1,012,000
13 percent of the amount of 91-day bills bid for at the low price was accepted
11 percent of the amount of 183-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Accepted
Applied For
Applied For
District
Accepted
$ . _i±,U70,000 1
$
2U,Ji?0,000
Boston
h,071,000
$ 3,021,000
8U7,973,000
1,530,553,000
New York
1,02^,357,000
U95,183,000
13,629,000
28,629,000
Philadelphia
7,898,000
2,898,000
25,370,000
25,370,000
Cleveland
2h,251,000
13,673,000
8,920,000
8,920,000
Richmond
2,838,000
2,838,000
19,730,000
21,130,000
Atlanta
U,7U8,000
1*,6U8,000
191,77^,000
255,08^,000
Chicago
116,788,000
1^,566,000
19,638,000
25,638,000
St. Louis
6,918,000
U,5l8,000
13,092,000
17,527,000
Minneapolis
k,755,000
2,255,000
21,969,000
21,969,000
Kansas City
6,361*, 000
6,075,000
13,755,000
16,055,000
Dallas
8,762,000
3,762,000
109,867,000
120,696,000
San Francisco
35,618,000
16,128,000
$2,096,010.,000
$1,300,187,000 c/ $1,21*7,368,000
TOTALS
$600,365,000 d/
c/ Includes $19^,778,000 noncompetitive tenders accepted at the average price of 99.317
d/ Includes $1*7,289,000 noncompetitive tenders accepted at the average price of 98.795
1/ On a coupon issue of the same length and for the same amount invested, the return on
these bills would provide yields of 2.76$, for the 91-day bills, and 2.87$, for the
183-day bills. Interest rates on bills are quoted in terms of bank discount with the
return related to the face amount of the bills payable at maturity rather than the
amount invested and their length in actual number of days related to a 360-day year*
In contrast, yields on certificates, notes, and bonds are computed in terms of interest on the amount invested, and relate the number of days remaining in an interest
payment period to the actual number of days in the period, with semiannual compoundini
if more than one coupon period is involved.
D-I*95

STATUTORY DEBT LIMITATION
As of

April 30, 1962

fS O A

Washington,.

May 22^962

(Act of June 30, 1959; U. S. C., title 31, sec. 757b), outstanding at any one time. For purposes of this section the'current re
Hcmption value of any obligation issued on a discount basis which is redeemable prior to maturity at the option of the hojdei
shall be considered as its face amount." The Act of June 30, 1961 (P. L. 87-69 87th Congress) provides that during the
period beginning on July 1, I96I and ending June 30, 1962, the above limitation ($285,000,000,000) shall be temporarily increased by $13,000,000,000. The Act of March 13, 1962 (P. L. 87-414 87th Congress) provides for an additional temporary
increase of $2,000,000,000, which raises the limitation to $300,000,000,000 for the period beginning on March 13, 1962 and
ending on June 30, 1962.
The following table shows the face amount of obligations outstanding and the face amount which can still be issued
under this limitation:
Total face amount that may be outstanding at any one time
$300,000,000,
Outstanding Obligations issued under Second Liberty Bond Act, as amended
Interest-bearing:
Treasury bills
$43,441,069,000

12,370,773,000
64,511,462.000

Certificates of indebtedness.
Treasury notes
Bonds Treasury
'Savings (current redemption value).
Depositary
R. E. A. series
Investment series
Certificates of Indebtedness -

77,814,882,950
47,581,035,106
143,161,500
24,741,000
fr> 7771^*0,000 130,341,360,556

Foreign series
Foreign Currency series
Special Funds Certificates of indebtedness
Treasury notes
Treasury bonds

$120,323,304,000

500,000,000
574,919,250

__j_!___i_50

6,317,962,000
6,221,262,000
29s582,524,000

Total interest-bearing
Matured, interest-ceased
Bearing no interest:
United States Savings Stamps

54,087,671
730,990

Excess profits tax refund bonds
Special notes of the United States :
Internat'l Monetary Fund series
Internat'l Develop. Ass'n. series
Inter-American Develop. Bank series.
Total
Guaranteed obligations (not held by Treasury):
Interest-bearing:
Debentures: F. H. A. _ D C Stad. Bds
Matured, interest-ceased

42,121,748,000
293,361,331,806
340*411,382

2,620,000,000
115,304,400
25,000.000

2,815.123,061
296,516,866,249

403,970,700
1,453,775

405,424,475

Grand total outstanding
Balance face amount of obligations issuable under above authority.
Reconcilement with Statement of the Public Debt

296.922.290,2
3,077,709,2

April JO,

1962

(Date)

(Daily Statement of the United States Treasury,
Outstanding Total gross public debt
Guaranteed obligations not owned by the Treasury _

April 30, 1Q62
(Date)

Total gross public debt and guaranteed obligations
Deduct - other outstanding public debt obligations not subject to debt limitation

D-496

296,951^58*&
405,42M
297,357,283,3'
434.992__
296,922,290,7;

STATUTORY DEBT LIMITATION
As of

April 50, 19^2
on,

Hay 22A962

Section 21 of Second Liberty Bond Act, as amended, provides that the face amount of obligations issued under authority
of that Act, and the face amount of obligations guaranteed as to principal and interest by the United States (except such guar*
anteed obligations as m a y be held by the Secretary of the Treasury), "shall not exceed in the aggregate $285,000,000,000
(Act of June 30, 1959; U. S. C., title 31, sec. 757b), outstanding at any one time. For purposes of this section the current reqemption value of any obligation issued on a discount basis which is redeemable prior to maturity at the option of the holder
shall be considered as its face amount." T h e Act of June 30,1961 (P. L. 87-69 87th Congress) provides that during the
period beginning on July 1, I96I and ending June 30, 1962, the above limitation ($285,000,000,000) shall be temporarily increased by $13,000,000,000. T h e Act of March 13, 1962 (P. L. 87-414 87th Congress) provides for an additional temporary
increase of $2,000,000,000, which raises the limitation to $300,000,000,000 for the period beginning on March 13, 1962 and
ending on June 30, 1962.
The following table shows the face amount of obligations outstanding and the face amount which can still be issued
under this limitation;
$300,000,000,000
Total face amount that m a y be outstanding at any one time
Outstanding Obligations issued under Second Liberty Bond Act, as amended
Interest-bearing:
$43,441,069,000
Treasury bills
Certificates of indebtedness.
12,370,773,000
Treasury notes __
Bonds Treasury
•Savings (current redemption value).
Depositary
R. E. A. series
Investment series
Certificates of Indebtedness
Foreign series
Foreign Currency series
Special Funds Certificates of indebtedness
Treasury notes
Treasury bonds

64,511,462,000 $120,323,304,000
77,814,882,950
47,581,035,106
143,161,500
24,741,000
4,777,540,000

130,341,360,556

500,000,000
71*,?X?,250
6,317,962,000
6,221,262,000
29,582,^,000

Total interest-bearing
Matured, interest-ceased
Bearing no interest:
United States Savings Stamps
Excess profits tax refund bonds
Special notes of the United States :
Internat'l Monetary Fund series
Internat'l Develop. Ass'n. series
Inter-American Develop. Bank series.
Total
]
Guaranteed obligations (not held by Treasury):
Interest-bearing:
Debentures: F. H. A. & D C Stad. B d s .
Matured, interest-ceased
,

574,919,250

42,121,748,000
293,361i331,806
340*411,382

54,087,671
730,990
2,620,000,000
115,304,400
25,000,000

2,815,123,061
296,516,866,249

403,970,700
1,453,775

405,424,475

Grand total outstanding
Balance face amount of obligations issuable under above authority.
Reconcilement with Statement of the Public Debt

296,922,290.724
3,077,709,276

AT)V}.± ^ U , 1 9 6 2
(Date)

(Daily Statement of the United States Treasury,
Outstanding Total gross public debt

Anril 30, 1962
(Date)

Guaranteed obligations not owned by the Treasury _
Total gross public debt and guaranteed obligations
Deduct - other outstanding public debt obligations not subject to debt limitation

D-496

296,951,858*897
_
405,424,475
297,357,283,372
434,992.648
296,922,290,724

- 3 r-> o i"*^
*c* $^« '•*/

w:#:ti«»>»it*:f/<»:»>>!t:i:

and exchange tenders will receive equal treatment. Cash adjustments will be ma

for differences between the par value of maturing bills accepted in exchange a
the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the sal
*