Full text of Press Releases of the United States Department of the Treasury : Volume 154

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MAR 1.,1967

TREASURY OtFARlMENT

LIBRARY
r,n"M

TREASURY

"(\~n

DEPARTMENT

United States SanIes Bonds Issued and Redeemed Through 'March 1966
(Dollar amounts in millions - rounded and will not necessarily add to totals)
Amount
Issued 1/
\TliRl::D

ieries A-1935 - D-1941 ••••••••••••
ieries F & G-1941 - 1952 ••••••••••
ieries J and K - 1952 - 1953 ••••••
H1ATURED
ieries E: 3/
1941 ..........•.........•..
19u2 •••••••••••••••••••••••
1943 •••••••••••••••••••••••

194u .•.••.••.••••••••.•••••
19u5 ••...••.•••.••••.••.•••
1946 •••••••••••••••••••••••
1907 •••••••••••••••••••••••
1948 ••••••••••••••••••••••
0

19u9 •••••••••••••••••••••••
1950 •••••••••••••••••••••••
1951 •••••••••••••••••••••••
1952 •••••••••••••••••••••••

1953 •••••••••••••••••••• • ••
1954 •••••••••••••••••••••••

1955 •.••••••••.••••••••• •••

1956 •••••••••••••••••••••••
1957 ••••••••••••••••••••
1958 •••••••••••••••••••••••

·.0

1959 •••••••••••••••••••••••
19pO •••••••••••••••••••••••
1961 ••••••••••••••••••••• 00
1962 •••••••••••

Amount
Amount
I % Outs t.:mciin~
of Amt.Issued
Outstanding
2/
Redeemed 1/
I

5, (X))
29,521
H64

4,993
29,449
841

10
72
24

1,852
8, lilO
13, lAC)
15,350
1?,037
5, 1.~28
5,126
5,289
5,213
4,553
3,9b2
4,130
4,70'(
4,790
4,984
4,791
4,1-!92
4,346
b,OhS
4,061
lJ,083

1,600
7.,091
11, 4!~)!
13,226
10,165
4,364
3,953
3,984
3,846
3,295
2,851
2,949
3,24R
3,199
3,218
2,983
2,732
2,511
2,323
2,197
2,Ohl

252
1,089
1,725
2,124
1,i:l72
1,065
1,173
1,304
1,366
1,258
1,092
1,131
1,)-!)9
1,590
1,766
1,i:l08
1,760
1,FnS
1,74)
1,864
2,023
2,033
2, Ll93
2,55B
3, 001
227

8 •••••••••••

3, 92~.J

J,,396

1963 ••••••••••••••••••••••
1964 •••••••••••••••••••••••
1965 ••••••••••••••••• ••••••
1966 •••••••••••••••••••••••
Unclassified •••••••••••••••••••••

lJ,3 h l
4,256
).! , 1)!),
227
524

1,86H
1,698
1 , 143

I
I

.20
.21!
2.73

13 .61

13.31
13 .10

I
I

13.04
lS.55
19.62
22.8b
24.65
26.20
27.63
27.70

28.60
31.00
33.19
35.I.d
37.74
39. u)
42.22
42.90
45.90
49.55
Sl.74
S'( .17
60.10
72.1-!2
100.00

567

-4h

100,i-!13

41,f)20

29.30

3,670
'/ ,272
10,942

1,903
1,255
3,157

1,768
6,017
7,785

4R.17
82.74
71.15

rotal Series E and H••••••••••••• 152,975

103,5'70

49,!.!05

32.30

978

3 .03

10
50,383
50,488

.30
32.33
26.40

Total Series E••••••••••••••••••• 142 033
J
eries H (1952 - Jan. 1957) 3/ •••
H (Feb. 1957 - 1966) •• 7.$0.
Total Series H•••••••••••••••••••

~ries J

and K (1954 - 1957) ••••••

2,874

ITotal matured.........
,
L1 Series-:::"Total unmatured •••• eo. 155,849
Iprand Total •• eo . . . . . . . 191,237

~5,283

105,)-!66
140,749

------- ---

I
I
I
I

Includes accrued discount.
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.
BUREAU OF THE PUBLIC DEBT

United -States Savinr;s Bonds Issued c:.nd Redeemed Thr0uch
Aprj} 30, 19(1)
(Dollar amounts in millions - rounded and will not necessarily add to totals)

I Amount

'Issued 1/

tt~D

ies A-l935 - D-1941............
ies F & G-1941 - 1952..........
ies J and K - 1952 - 1953......

I
I

5,003
29,521
86b

Juno U:1 t
I % Out3tilna in r:
Amount
,
Redeemed 1/ Outstanding 2/ : of Arr.t.lssucd

4,994
29,450
843

10
I
70,'
22

-======

I=====i======~========I

TURZD

ies Z: 3/

1941 ...................... .

1,e53
1942 ••••••••••••••••••••••• ; 8,183
1943 ••••••••••••••••••••••.
13,175
1944 ••••••••••••••••...•••• : 15,353
1945 ••••••••••••••••••••••• 12,Ou1
19u6 •••••••••••••••••••••••
5,432
1947 ••••••••••.••••••••••••
5,130
1948 ••••••••••••••••••••••
5,292
19u9 ••••.......•.•...••••••
5,216
1950 •...•••••••••••••••••••
4,5)6
1951 •••••••••••••••••••••••
3,9u5
1952 •••••••••••••••••••••••
h,133
1953 •••••••••••••••••••••••
4,711
1954 •.••.••••••••••••••••••
4,794
4,989
1955·······················1
1956 •••••••••••••••••••••••
4,799
1957 ••••••••••••••••••••••
4,498
1958 ••.••••••••••••••••••••
4,3S2
1959 •••••••••••••••••••••••
4,074
1960 •••••••••••••••••••••••
4,067
~961 ••••••••••••••••••••• oo
4,090
1962 •••••••••••••••••••••••
3,936
1963 ••••••••••••••••••••••
4,3f9
196u •••••••••••••••••••••••
4,26h
4" rc;
1965 ••••••••••.•••••••••• 0.
(
1966 •••••••••••••••••••••••
639
classified •••••••••••••••••••••
473
0

I
i
I

I
I

tal Series E.•••••••••••••••••• 142,539

ies H (1952 - Jan. 1957) 3/ •••
H (Feb. 1957 - 1966) •• : ••••
tal Series H•••••••••••••••••••

1,926
1,??3
3,199

104,054

2,875

1,%0

ITotal matured ••••••••• 35,388
Series""'- Total unmatured ••••••• 156,h14
Iprand Total ••••••••••• 191,802

35,286
105,99h
141,280

ies J and K (1954 - 1957) ••••••

-----

250
1,083
1,717
2,108
1,860
1,058
1,167
1,296
1,359
1,252
1,Gtl6
1,175
],4S1
1,580
1,752
1,796
1,753
1,829

1, '( 39

1,bSS
2,O15
2,017
2,478
2,534
2,904
611
-42

41,6c)4

100,85S

3,670
7,330
11,000

tal Series E and H••••••••••••• 153,539

1,602
7,100
11,458
13 ,245
10,181
4,:74
3,962
3,994
3,857
3,305
2,859
2,958
3,260
3,215
3,237
3,003
2,745
2,523
2,335
2,212
2,075
1,918
1,891
1,730
1,271
28
516

1,745
6,057
7,801

13.49
13.23
13.03
13.'(3
15.45
19.48
2? .'(5
2h.5J
26.05
27 .1~8

,
I
I

II
I

I
I

935
102
50,420
50,522

27.S3
2tl.L3
30.20
32.96
35.12
37.42
38.97
u?03
42.69
45.61
49.27
51.24
56.72
59.43
69.56
95.62

29.24
47.55
82.63
'(0.92
32.23

49,485

.20
.24
2.55

THE PUBLIC DEBT

32.,2

.29
32.23
26.34

TREASURY DEPARTMENT
Washington

STATEMENT BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON FISCAL POLICY
OF THE JOINT ECONOMIC COMMITTEE
WASHINGTON, D.C.
WEDNESDAY, MARCH 30, 1966, 10 A.M. EST
Madam Chairman and Members of the Committee:
I am very glad to participate in these Hearings.

I believe they are

contributing significantly to a clarification of the issues, and to an
understanding of the problems

involved in designing short range, temporary,

tax changes for stabilization purposes.
In keeping with the Committee's invitation, my comments will not be
related to the present situation but rather to the general question of
using tax changes to dampen down economic fluctuations.

Also for this

discussion I will set aside the topic of long range tax reform, and concentrate on the stabilization problem.

My own remarks will start from two premises:

the first is that it

would be desirable to use rapid tax changes for economic stabilization
purposes, when such changes are needed.

Along with monetary policy and

shifts in the timing of Federal expenditures, tax variation has an
important role to play in economic stabilization.

We need all the

weapons we can muster in our arsenal to combat economic fluctuations.
The second premise is that by one arrangement or another the legislative
processes will permit such temporary tax increases and decreases to be
undertaken with sufficient speed to meet stabilization requirements.

F-422

- 2 For my JWn part I would not disagree with a Congressional decision to
rely upon the regular legislative procedures, for we have seen that
these procedures when necessary can permit rapid action.

I will there-

fore confine my attention to the principles and technical problems and
issues relating to the types and design of temporary tax change that
might be undertaken.

GENERAL CRITERIA
The essence of the kind of countercyclical tax action we are here
concerned with is speed.

As we all know inflation and deflation tend

to become cumulative, feeding upon themselves and becoming harder and
harder to stem or reverse as they follow their course.

Yet while our

economic forecasting methods have made great progress in recent times,
they cannot tell us -- and given the dynamic world we live in I doubt that
in the foreseeable future they will be able to tell us -- what action is
needed much in advance of the time when that action must be taken.

cannot therefore afford to be slow in taking action once it becomes clear
that action is needed.
felt very promptly.

Moreover, the action we take must make its effects

This need for speed and flexibility in stabilization

policy points to three basic criteria for assessing specific countercyclical
tax measures.
One is simplicity.

To meet this requirement the method of tax change

should entail a minimum modification of the normal tax collection and
payments process.

The tax change should be easy for the taxpayer to

- 3 comply with and easy for him to understand.

And, of course, it should

be easy for the Internal Revenue Service to put into effect.
A second important criterion for judging the merits of alternative
temporary tax changes is the immediacy and
effects.

certainty of their economic

As I have already observed, there will not be much time to waste

once a determination of the need for action is made.

Tax action which is

delayed in its economic effects even though taken promptly, may well fail
in its purpose.

In fact,given the speed with which the economic situation

can s8metimes change there is risk that acti8n of such nature may even be
perverse in the timing of its effects and actually aggravate rather than
diminish instability.
I believe that this criterion has an important bearing on the question
of the extent to which short range tax changes should aim at influencing
investment or consumption.

It is true that investment is the more volatile

sector in our economy and it would be desirable to try to mitigate sharp
fluctuations in the investment sector.

On the other hand,

evidence appears

to indicate that the time lags between tax change and expenditure change
are substantially less and the effects are more certain for consumption
than for investment.

Consequently, for countercyclical tax policy it is

probably the better part of wisdom to aim at both consumption and investment
but to place primary reliance on influencing consumption.
As a third general criterion to apply to the choice of temporary
tax changes, the design of countercyclical changes should be such that

the changes cal: l,e assured of ready and therefore speedy general acceptance.
FYoposals tLat provoke controversy, or that, because of their novelty or
complexity, require considerable study to understand and appraise must
inevitabl:l cause delay in taking action and therefore calIDot really be
fitted into a policy of temporary countercyclical tax changes.
Closely related to acceptability is the criterion of symmetry.

legislation is to be rapidly enacted, the Congress and the public must
be assured that the legislation does not involve making long run permanent
rate changes in the tax system.
changes be temporary.

This consideration requires that the

If after a year or so the change is no longer needed,

it should come off in the same way that it went on.

If on the other hand

it develops that the increase or decrease in revenue needs will be permanent -- as far as anything can be "permanent" in a tax system -- it
should be understood that the temporary change itself will expire and be
replaced by a long-run tax change developed in the usual way and including whatever structural changes the Congress might think appropriate.
Even temporary changes, however, still involve the problem that
different types of change are available and a voter is apt to choose
among them on the ground of which one affects him most favorably.

But it

may be that a type of change that is relatively favorable to a group of
taxpayers when an increase is required will become relatively unfavorable
when tax reduction is called for.
It has therefore been suggested that the prospects for general agreement on the available types of change might be improved if a further
principle of symmetry is advanced that countercyclical tax decreases

- 5should be the mirror opposite of tax increases.

Under this principle,

tax changes may work to the relative advantage of some people in some
stages of the economic cycle but not at others, and the tendency would
thus be neither to favor nor disfavor any group over the full course of
upswings and downswings.

However, in view of the many considerations that

enter into the formulation of fair and effective tax changes there is a
question as to just how much weight to give to this version of the
symmetry principle.

Perhaps a more flexible interpretation that permits

the inflationary and deflationary phases to be treated somewhat differently might prove more realistic and useful.

At least, I would leave

this particular aspect of symmetry as an open one to be considered after
we have learned more about the entire process of these stabilization tax
changes, rather than regard it as a governing concept.
Structural Changes Unsuitable
If these criteria can be considered valid guides for the choice of
countercyclical tax measures, it seems clear that proposals which involve
structural changes in our tax system are usually of doubtful appropriateness.

Or, to put the matter another way, only those structural changes which
are readily and generally acceptable, whose effects are immediate and
predictable, and which are relatively Simple to implement, ought to be
considered in connection with short-run stabilizing tax policy.

This

presumably renders ineligible many of the long standing and thus usually
controversial proposals for tax reform.
I think it also precludes adding to our existing structure in such
a process a new type of tax, whether the tax is to provide additional

revenue or to permit reduction in yield from existing sources.

A new tax

always involves a number of basic policy questions which are far more
numerous than is usually perceived or recognized when the tax is proposed,
and which cannot properly be considered at the same time that attention
is being given to temporary stabilizing tax changes.

To illustrate this

point, I would like to submit as an appendix to this statement, a memorandum
which sets forth some of the policy decisions involved in formulating the
structure of a value added tax, which tax has been proposed during the course
of the Committee's hearings.
This should not be construed to preclude consideration at appropriate
tim$of possible mo1ifications of the present structure that would make
it more amenable to implementing a flexible tax policy.

For the present,

however, I think it advisable to focus on what can be done within the
existing structure.
Let me now turn to some of the technical issues that would be involved
in temporary changes of specific taxes within our existing structure.
JNDIVIDUAL INCOME TAX

On the basis of the criteria of immediacy and certainty of economic
effect the individual income tax is probably the most suitable for implementing temporary changes in tax rates.

Due to the withholding feature of the

tax, a very quick impact on the disposable income of individuals can be
achieved.

Indeed the sensitivity of this withholding procedure has been

increased through the recent adoption of a graduated withholding system.

- 7 In turn, the influence of changes in current disposable income on consumer
expenditures is probably the most prompt and most reliable influence on
aggregate demand that

fiscal policy has to work with, whether for short

run changes up and down or for longer range changes in the level of demand.
There are numerous ways by which temporary changes in the individual
income tax can be produced.

One approach suggested by the criteria

simplicity and ready acceptability is to devise a "neutral" type of short
range tax change.

By "neutrality" is meant a tax change that does not

attempt to alter the general progressivity of the tax as it exists before
the change.

Since a number of witnesses have spoken about this neutrality,

some discussion of its technical aspects is in order.
"Neutral" Changes
Neutrality is itself subject to alternative interpretations.
interp~etation

One

appealing as a theoretical matter to some economists calls

for a tax change equal to a uniform percent of the "disposable income" of
taxpayers -- that is, the income they have available to spend on goods and
services or to save.

This approach would leave the relative

taxpayers measured by their disposable income unchanged.

position of

That is, if one

individual had 50 percent more disposable income than another before the
tax change, he would still have 50 percent more after the tax change.

~
\...)

There are some irr:portant practical d ifficulties with this method,
however, which preclud e its us e for countercyclical purposes.

A d efini tion of "disposable income" would be required whereby the
amount for each taxpayer can be determined with the precision needed
for a tax measure. Drawing on present tax devices, "disposable
income" might be defined as the adj usted gross income of a taxpayer
minus his tax liability. "Adj usted gross income" is roughly earnings
and business net income before personal exemptions and personal deductions.
But under this definition, a temporary tax turning on disposable income
cannot be built into either the rate structure, essentially because our
statutory rates apply to taxable income, or into the present withholding
structure which allows for personal exemptions and deductions. To
illustrate, consider a group of married couples all having the same
taxable income but, due to differences in itemized deductions and/or
family exemptions, have different amounts of adjusted gross income. They
would all be liable for the same amount of income tax, as computed from
the existing rate structure. However, their disposable incomes, as
above defined, would differ from one to the other. Hence, under a uniforn
percent of their respective disposable incomes, the amount of the
temporary tax increase or decrease will vary from one couple to another.
But since their taxable income does not vary, this tax change could
not be stated in terms of the rate structure, which applies to taxable
income.
Thus to compute the temporary tax under this uniform percent of
disposable income method, separate computations would be required by
the individual on his return and by the employer for wi thholding purposes.
Another complication under this method if strictly pursued, is that
in periods calling for a tax increase, individuals who otherwise would
be nontaxable should nevertheless become liable for the temporary tax,
and in periods calling for a decrease, nontaxable individuals should
benefit from a disbursement from the Treasury. While the logic for these
computations may be clear to the economist, it probably would not be
readily understood by the average taxpayer.

- 9 There are two other simpler methods of implementing individual
income tax changes that may also be interpreted as "neutral."
One of these is a uniform point change in tax rates in each bracket.
This method may be considered "neutral" since the tax change amounts
to a uniform percentage of everyone's taxable income.

That is, if all the

existing bracket rates were increased by one point, an individual with
$~~,OOO

of taxable income would pay $20, and an individual with $10,000

of taxable income would pay $100.

Also, since all brackets would be

increased by one point, the differences from one bracket to another
would remain the same as before the tax change.
Another "neutral" method of changing taxes is by means of a
uniform percentage change in tax liabilities.

Under this method the

relative amount of tax paid by each individual is the same after the
tax change as before the change.

Thus, under an increase, if one

individual's tax liability is 10 percent higher than another's before
the change, it will still be 10 percent higher after the change.

- 10 The comparative effects 8f these methGds 8n taxpayers at vari8us
inc8me levels is illustrated in the attached table.

The table Sh8WS h8W

a married cJuple with tW8 children taking 10 percent standard deducti8n
w8uld fare at vari8US levels 8f adjusted gr8ss inc8me under a hYP8thetical
tax change that in the aggregate w8uld inV81ve
purp8ses

$2.5 billi8n.

Solely f8r

8f c8mparis8n as t8 the distributi8n 8f the tax change, the uniform

percentage 8f disp8sable inC8me meth8d

is als8 included in the table.

There it can be seen that at incomes of $3,000 and under where no tax
is imposed under present law, neither the uniform percentage of tax
liability nor the uniform point change in rates methods would, of course,
cause any change in tax liability up or down; the uniform percentage of
disposable income method would produce tax changes for these incomes.
Beyond this level, the uniform percentage of tax liability method would
impose larger tax increases on higher incomes and smaller tax increases
on lower incomes than either of the other two methods.

Symmetrically, this

method would provide larger tax reductions for higher incomes and smaller
tax reductions for lower incomes than either of the other two methods.
Under the uniform point change in rates method, the differential increases
and decreases as between higher and lower incomes fall in between those for
the other two methods.

Thus for the taxpayer with $4,000 of adjusted gross

income, under the uniform percentage of tax liability method the tax would
rise or fall by $1, under the uniform point change in rates the tax would

Illustration of Three Tax Change Formulas With a $2.5 Billion Revenue Effect
(Married taxpayer, two children, 10 percent deductions or minimum standard deductions)

AGI

$ 2,000

Taxable income

Tax
present
law

AGI after tax

$ 2,000

3,000

4,000

1,000

140

3,860

5,000

2,000

290

7,500

4,350

10,000

-Uniform percentage
change in disposable
income
(5~)
(1%)
(.~) __
Tax increase:Tax decrease:Tax increase:Tax decrease:Tax increase: Tax decrease
(-)
(- )
(+)
(+)
{-}
!+)
Uniform point change
in tax rates

Uniform percentage
change in tax
liability

$ + 13

+ 44

+ 111

- 111

- 221

+ 201

- 201

+ 136

- 136

- 669

+ 426

- 426

+ 242

- 242

4,710

686

6,814

6,600

1,114

8,886

12,500

8,850

1,567

10,933

15,000

11,100

2,062

12,938

+ 103

- 103

25,000

20,100

4,412

20,588

+ 221

50 ,000

42,600

13,388

36,612

+ 669

Office of the Secretary of the Treasury
Office of Tax Analysis

I-'
I-'

- 12 rise or felil by $10; and under the uniform percentaGe of disposable income
method the change would be $25.

For the $50,000 income, the respective

chanGes under the three methods would be in reverse order Qf magnitude:
$669, $426, and $242.
I also have included a table which compares the rate structures that
would implement the two alternative methods of changing tax liabilities
up or down by $2.5 billion.

However, it would not be necessary to modify

the present rate structure in order to implement either method.
each could be expressed as a separate tax on the return -- a
liability or

If desired,

p~rcent

of tax

percent of taxable income, added on to the present law tax.

To put either the uniform percentage of tax liabilities change or
uniform point change in tax rates into effect, new withholding percentage
formulas and new withholding wage bracket tables would be needed.

This

be done accurately, since either method can be translated into increased
tax rates.
The necessary revision in the withholding rates would require the
Internal Revenue Service to print the new withholding percentage formulas
and the new withholding wage bracket tables and distribute them to employers.
Employers who utilize computers would need time to reprogram them.

minimum of 30 days should be allowed for all this; around 22 days for
the Internal Revenue Service to prepare and distribute the new material
about 8 days for the employers to put the change into effect.

Presumably,

there would be a period before the bill becomes law through Presidential signa:
(but after the rates becQme firm) during which the Service CQuld begin its
that a peri::xl Qf 30 days fram enactment date is nQt required.

i/O;I

It should be

- 13 -

Illustrative Rate Structure for Alternative Income Tax Changes
(Approximately $2-1/2 billion)
Taxable income
bracket
( single

o0·5
1.0
1.5
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
26.0
32.0
38.0
44.0
50.0
60.0
70.0
80.0
90.0
100.0

0·5
- 1.0
- 1.5
- 2.0
- 4.0
6.0
- 8.0
- 10.0
12.0
14.0
16.0
18.0
20.0
22.0
- 26.0
- 32.0
38.0
- 44.0
- 50.0
60.0
70.0
80.0
90.0
- 100.0
and over

---..
--

Present law
rates

14
15
16
17
19
22
25
28
32
36
39
42
45
48
50
53
55
58
60
62
64
66
68
69
70

Office of the Secretary of the Treasury
Office of Tax Analysis

Uniform 5 percent
chauge in
liability
Increase
Decrease

14.7
15.8
16.8
17.9
20.0
23.1
26.3
29.4
33.6
37.8
41.0
44.1
47.3
50.4
52.5
55·7
57.8
60.9
63.0
65.1
67.2
69·3
71.4
72.5
73.5

13.3
14.3
15·2
16.2
18.1
20·9
23.8
26.6
30.4
34.2
37.1
39·9
42.8
45.6
47.5
50.4
52.3
55.1
57.0
58.9
60.8
62.7
64.6
65.6
66.5

Uniform 1 point
change in
rates
Decrease
Increase

---

15·0
16.0
17.0
18.0
20.0
23·0
26.0
29·0
33·0
37.0
40.0
43.0
46.0
49·0
51.0
54.0
56.0
59.0
61.0
63.0
65.0
67.0
69.0
70.0
71.0

13.0
14.0
15·0
16.0
18.0
21.0
24.0
27·0
31.0
35.0
38.0
41.0
44.0
47.0
49.0
52.0
54.0
57·0
59·')
61.0
63.0
65.0
67.0
68.0
69.0
-.~

- 14 noted that employers have been given aDout 30 days to effect the change-over
this year from flat rate withholding to the new graduated plan.

However, this

longer period is needed since they must obtain new withholding exemption certif.
icates from their employees.

There would be no necessity for this in changing

over from one graduated rate structure to anotherj therefore, 8 days seem
sufficient for employers under these circumstances.

This was, by the way, the

period allowed employers for the change-over under the Revenue Act of

1964.

In general -- and this is the significant point in all this technical

discussion of "neutral ll methods -- one should really not exaggerate wha.t amounts
to fine points of difference between the uniform percentage change in tax
liability method and the method providing a uniform point change in tax rates.
Each is simple to express in the tax return and to understand.

Fe.ch therefore

seems appropriate as a method for countercyclical change in the individual
income tax.
Economic Effect
With regard to the economic effectiveness of temporary individual
income tax changes, the relevant consideration is the impact within a.
relatively short period of time and within the context of a cyclical up
or downswing.

In this context, expectations can be very important; and if

a countercyclical fiscal policy is followed, it in itself will have an
influence on expectations.

If the policy inspires confidence that it will

succeed in dampening fluctuations, then the expectations it generates will
be favorable.

In a downswing, consumers may be buoyed up by anticipation

of the tax cut, and also by anticipation of its success in stemming the
decline.

In a boom period, conswner expenditures may be abated by

expectations of counterinflation tax policy.
of course, have an impact on investment.

Such behavior would also,

- 15 Some economists have argued, on the other hand, that a temporary
change in tax rates might be less effective than a permanent one, because
it might not lead consumers to alter their established spending habits or
lead businessmen to change their sights on long term rates of return on
investment.
outweigbed

Such factors may be relevant, but they may still be considerably
by the important confidence effects of adjusting fiscal policy

appropriately to changing economic circumstances.

These confidence effects

cannot be included in any statistical estimates of the likely magnitude of
the short range effects of a tax change on GNP.

As to the quantitative

estimates that can be made, I gather that economists would judge roughly
that within two to four quarters after the effective date, the impact on the
annual rate of GNP would range between $1 billion and $2,billion per $1 billion
of change in individual tax liabilities.
Capital Gains
With regard to capital gains, the question is whether or not the tax
rate should go up or down with personal income tax rates.

Capital gains

which are not taxed at the ceiling rate of 25% are taxed at a rate which is in
effect 50 percent of the marginal income tax rate.

Itseems reasonable

to continue the 50 percent inclusion rule through a temporary tax change
which would make the gains subject to tax increase or decrease that was
proportional to the tax change on other income.

-16As to whether the alternative ceiling rate on capital gains should

be changed, one could raise the question whether the occurrence of a
temporary increase or decrease might cause investors to speed up or slow
down sales that they would have made in the near future.

On balance changes

of a pOint or two in the ceiling rate seem unlikely to have this effect.
This issue might well be decided on the basis of the general attitude toward
the fairness of including the ceiling capital gains rate in a program of
temporary changes in the individual income tax.
Low Income Taxpayers

An interesting departure from Simple, symmetric up and down changes
in rates was proposed to the Committee by Professor Carl Shoup.

He suggests

that, for the anti-inflation phase, low income taxpayers be excepted from the
increase.

They would, of course, then get no benefit when the increase was

taken off.

As a technical matter, this could be done in a number of ways.

Using Professor Shoup's suggested levels, all the surtax rates could be raised
except the first few.

Or the increase might be expressed as a percentage of

that part of an individual's tax that exceeded, say, $300, or some percentage
of the part of his taxable income that exceeded, say, $2,000.

The device corud

be structured to exempt only low income taxpayers, and not thereby extend the
benefit of the exemption to taxpayers in higher brackets.
To illustrate the effect of this suggestion, consider that initially a
uniform 5 percent increase in all tax liabilities is planned, designed to
raise $2.5 billion in revenues.

Then suppose the plan were modified to

impose no tax increase on the first $300 of tax liability of married couples
and no increase on the first $150 of tax for Single individuals.

- 17 The result of this modification by itself would be to reduce the overall
revenue increase by $600 million, of which about $160 million would
benefit married couples with less than $2,000 of taxable income, and
Single persons with less than $1,000 of taxable income.

The maximum

individual benefit would amount to $15.

To offset the revenue loss, the percentage increase would now have
to be raised from 5 percent to 6.5 percent.

The net effect of shifting

from the alternative of a uniform 5 percent increase in all liabilities
to a 6.5 percent increase on tax liabilities in excess of $300 for
married couples can be illustrated in terms of a married taxpayer with
two dependents using the standard deduction.

No tax increase would be

imposed on this family under the 6.5 percent formula, if its adjusted
gross income were $5,000 or under; if its AnI were between $5,000 and
$9,500 the increase under the 6.5 percent alternative would be less than
under the 5 percent (with no exemption) alternative, and more than under
the 5 percent (with no exemption) alternative if the family's income
exceeded $9,500.
CORPORA~E

INCOME TAX

There are a number of reasons -- both economic and eCluity -- for
considering the corporate income tax in a balanced package of contracyclical
income tax changes.

Broad neutrality as between individuals and business,

which is predominately corporate, is probably desirable.

Moreover,

individual income tax rate changes would apply to unincorporated businesses.
Appreciable disparities in the treatment of corporate and noncorporate

- 18 enterprise would affect the choice between the corporate and noncorporate
form of business organization in the important area of small and mediumsized businesses.

Furthermore , most observers -- including both expert

and nonexpert opinion -- believe that if higher burdens are placed on
individuals in response to economic conditions, even though the emphasis
may be on curtailing consumption, corporate business should be called on
also to make some contribution.

Changes in corporate tax payments may

influence both dividend payments and investment outlays.

This belief

probably does not apply with the same force to tax decreases during a
downswing.

Still, reduction in the corporate tax paralleling that in

individual taxes may be appropriate to maintain a simple symmetry over the
cycle and also because of its economic effects.
Changes in corporate tax can be made in a manner more or less parallel
to the changes discussed for the individual income tax.

A simple change

in the tax applying to all corporations could be achieved on either the point
change method or the percentage of tax liability method.

In the case of a

point change, the normal tax rate, which is now 22 percent, could be changed
by the desired number of points.

At presently projected

1966 levels of

income and profits, a me point change in the normal tax would produce
approximately a $700 million change in corporate tax liabilities.

This

figure is net of an offsetting small change ($40 million) in tax yield from the
assumed effect on dividends.

- 19 As an alternative, a uniform 2-1/3 percentage change in corporate
tax liabilities might be used, which would also produce a revenue change
of $700 million.

As compared to the one point change in the normal rate,

this method would produce a larger increase and a larger decrease in tax
liabilities of large corporations, and a smaller increase or decrease in
the liabilities of smaller corporations.
A one point corporate rate change confined to the surtax rate would
produce a change in yields of about $630 million.

This would exempt

small corporations from participation in the countercyclical policy.
However, any merit that may inhere in the exclusion of low income groups
from a temporary increase in the individual rates does not appear to
carry over to the corporate sector.

Moreover, varying the spread between

the normal rate and the surtax rate would aggravate the tax preference
for multiple surtax exemptions.
With regard to economic effectiveness of changes in corporate rates,
a temporary change in corporate taxation works primarily through its
effects on cash flow, a key factor in investment calculations and decisionmaking.

Cash flow is usually measured after book accruals of tax liability.

But the available flow of corporate spending is also influenced by actual
tax payments, particularly in periods of (a) monetary restraint or
(b) hesitancy on the part of bUSiness to borrow.

- 20 -

The

ful~y

current tax payment system for corparations introduced

in the 196J+ Revenue Act, the transition to which will be made by 1967
under the accelerated payment provisions of the Tax Adjustment Act of
1966, just enacted by the Congress, ensures that the actual cash payment
and cash flow effects of corporate tax changes will make themselves felt
promptly.

By 1967, all corporate taxes in excess of $100,000 will be

subject to declaration and payment of estimated tax beginning in April
of the current income year for a calendar year corporation.
No more than 30 days would be necessary to implement a corporate
tax change through notifying all corporations of the applicability of
new rates.

The effect on aggregate demand and GNP would almost certainly

be slower than from a change in the individual tax rate, although again
expectations factors of a reinforcing nature would probably be operative
as a result of anticipation of the countercyclical policy.

The magnitude

of the short run effect is certainly no easier to estimate than for
changes in the individual rates.

Perhaps the GNP effect, at annual

rate, would reach $1 billion per $1 billion of tax change, within four
quarters after the change went into effect.
Excess Profits Tax
The excess profits tax is generally recognized as an inherently
defective tax and barely satisfactory as a taxing instrument in periods

- 21 -

of severe defense emergency.

The prospect that an excess profits tax

would be reactivated from time to time in a peacetime economy as a
countercyclical measure would have serious adverse effects on business
planning.

New businesses and new risk ventures would face the prospect

of severe marginal tax rates on the rewards of success whenever they
coincided with exuberant upswings in the economy.

Such a prospect

would have deterrent effects on growth and. innovation.
New ventures and expansion would tend to be undertaken only within
the framework of corporate entities which would be expected to enjoy a
favorable pOSition with respect to an excess profits tax, because of
available historical earnings records, invested capital structures, or
eligibility for accustomed special relief features.

The timing of

deductible expense outlays would be arranged to maximize the costs
deducted in excess profits tax periods, thus accentuating economic
strains in a period of high prosperity.

Production of new or scarce

items likely to yield temporary high profits would tend to be inhibited
during excess profits years, with the consequence that shortages would
be aggravated in these periods.

Disproportionate energies would be

devoted to the planning of business activity within the protection of
various excess profits tax shelters.

- 22 -

INVESTMENT CREDIT

The possibility of changes in the investment credit received considerable attention during these Hearings.

Some economists have stated that

investment demand may be reaching excessive levels, either because it
strains our capacity for producing more plant and equipment or because it
generates a capacity for producing final goods in excess of the economy's
long term needs.

These economists have contended that the very factors

that made the in','estment credit a particularly successful stimulus to
investment now recommend its modification or suspension in order to moderate an overly buoyant investment demand.

A temporary suspension could,

they argue, have especially favorable effects in encouraging business
firms to defer investments to a period when they might be more appropriate to the state of the economy.
Without entering the argument of whether the present level of investment demand is excessive, I would like to indicate that there are structural and other aspects of the investment credit which need to be considered
in evaluating its possible countercyclical use.
I would like to point out first that, in the recent debate in the
Senate over suspension of the credit, those who advocated suspension felt
required, and understandably so, to still allow the credit with respect
to machinery and equipment already on order.

This would remove a large

area of current and future expenditures from the scope of the suspension
and thereby reduce its current economic and revenue effect.

At the other

- 23 end, the fact that the credit is earned when the equipment is installed
and not when the equipment is ordered or when expenditures for it are
made -- would always leave the credit still applicable to orders entered
during the suspension period for equipment whose lead time would place
the installation after the suspension was over.
scope of the

s~spension.

This also reduces the

Moreover, the equipment left to be affected by

the suspension -- that both ordered and installed in the suspension
period -- in large part would be the sort of machinery and equipment,
that, in coming on stream, would be helpful in meeting shortages.
Actually, I think people who have advocated suspension of the credit
really have an image of its operation that would have it turn on orders
rather than installations as it now does.

This possibility was explored

at the time the credit was originally set up and found not to be feasible.
Many advocates of suspension of the credit have also thought of the
suspension as part of a program that would include both individual and
corporate tax increases.

In such a program, to the extent the suspen-

sion of the credit would be effective, the question would have to be
considered whether this action, taken together with the rest of the program, would provide too much restraint on investment.
Also, it must be kept in mind that the investment credit has a long
run purpose of stimulating modernization and expansion of our machinery
and equipment.

This is necessary to give us the industrial structure

needed to meet our domestic growth needs, to fulfill our international
obligation, and to maintain the strong competitive position required

- 24 for Jur balance of

p~yments

gJals.

Indeed, countries such as the

United Kingdom and France with their own problems of inflationary pressures are currently moving to provide incentives to business investment.
So far I have discussed the counterinflationary aspects of a change
in the credit.

But there are analogous

~uestions

with respect to tempo-

rary increases in the credit to counter deflationary forces.

A temporary

increase in the investment credit rate, say, from 7 percent to 10 percent
would result in an unexpected windfall on outstanding commitments which
had been made in expectation of the existing 7
would receive an additional 3 percent.

per~ent

credit but which

As a result, the increase would,

in effect, be retroactive, particularly with respect to the portion of
the cOsts of assets placed in service during the increase period which
represented expenditures or cOsts allocable to a prior period.

At the

same time, the retroactive feature of such an increase would be necessary
and desirable to assure that the prospect of getting a higher credit in
a depressed period would not lead to delays in investment and slowdowns
of projects already under way at a time when some increase in the credit
might be expected.
A temporary increase in the credit would stimulate chiefly short
lead time items which could be completed with some confidence in the
increase period.

Apart from its contribution to corporate cash flow,

the increase would not effectively stimulate investments, completion
of which would take some time, leading to an installation after the
credit had reverted to its normal level.

The way a credit increase

- 25 would help to combat recession would be primarily to hasten to completion
projects already under way and to stimulate demand for individual standard
pieces of equipment, such as trucks, fixtures, and office equipment.

Any

use of a temporary increase in the investment credit as a counterrecessionary measure would depend upon the development of sufficient retroactivity to insure that the prospect of an increase would not add to
uncertainties during periods of economic hesitancy and would not slow
down investment in such a way as to aggravate depressed conditions of
investment demand.
In considering countercyclical variations in the investment credit,
it is important to recognize that investment demand will be influenced by
corporate tax changes and -- indirectly but possibly even more significantly -- by variations in individual income tax rates.

These effects

would cover a wider range of investment -- including inventories and
accounts receivable -- than would a change in the investment credit.
Changes in the investment credit would concentrate on machinery and
equipment acquisitions.

The proportion of total corporate plant and

equipment outlays eligible f~r the credit in

1963 was about 60 percent,

and a share of this was subject to only the 3 percent rate of credit
applicable to certain public utilities.

In general, decisions in this

area must involve the question of whether the concentration on a particular sector of business outlays or whether a comprehensive approach
to influencing business outlays would be more effective in serving the
needs of economic stabilization.

- 26 USE OF EXCISE TAXES FOR COUIfrERCYCLICAL PURPOSES

An attempt to include excise tax changes as part of a countercyclical
tax program would give rise to a number of problems and difficulties.
A major problem would arise from the fact that the federal excise
system as of now is made up almost entirely of three groups of taxes,
(1) the sumptuary taxes on liquor and tobacco; (2) user charges and dedicated
taxes; and (3) regulatory taxes.

In addition, there are the taxes on new

passenger automobiles and telephone service.
present law

But

is scheduled to be repealed in 1969.

the telephone tax

under

As for the automobile

tax, the President has recommented that the 1 percent tax which will remain
in 1969 be dedicated to the Highway Trust Fund to pay the costs of the
programs of highway safety and beautification.
This threefold classification of the excise system severely limits the
adjustments that could be made to the existing excise taxes for countercyclical purposes.

The regulatory taxes raise little revenue and do not

lend themselves to adjustments for revenue purposes.

Those taxes that are

levipd as user charges or whose revenues are dedicated to special purposes
also do not readily lend themselves to anticyclical adjustments.

The taxes

are designed to charge users with the cost of certain public expenditure
programs, and their use in a countercyclical manner might be considered
discriminatory and inequitable.

To raise charges above user cost levels

in an inflationary period would be a form of discriminatory

penalty tax

- 27 on the users of the services; a reduction below user cost levels would
in effect be a subsidy of the users of the service.

It is questionable

if public policy would be well served by alternatively penalizing and
subsidizing, for example, users of the federal airways system and thus
air transportation.
It would be possible to revise liquor and tobacco taxes up and down
according to cyclical revenue policy (the British have done this a number
of times), but there are constraints on how much could be done.

Taxation

of liquor and tobacco is supported by the public for sumptuary as well
as revenue reasons.

At the same time,the policy has been to avoid

severely depressing these industries.

If the desired fiscal policy called

for a reduction in federal tax rates, sumptuary

considerations might

argue against a drastic reduction in alcohol and tobacco taxes.

On the

other hand, while fiscal considerations might warrant substantially higher
tax rates in general, the effect on the alcohol and tobacco industries
might lead to little or no tax increase on their products.
I'inally, taxes that affect prices always incur the danger of setting
up perverse expectation effects.

If consumers anticpated

that prices

were going to rise as a result of an increase in the tax, they would
accelerate their purchases, thereby aggravating inflationary pressures.
On the downside, they may hold back purchases in anticipation of tax
reduction, thereby aggravating the decline at least in the early stage
before the decrease in tax was actually in effect.

In view :If the sty. . . cture :If the present excise system then, it would

be difficult t:l utilize existing excises as much of a countercyclical
measure.

N:lr w:luld it be at all desirable to impose new selective excises

:lr rein2ti tute th:lse that have been repealed.

The excise tax action of

last yeGr W3.2 properly based :In the idea that the Federal tax system shoulc
de-emphasize r;elective excises, because of their regressive, and discrimina,:
effects, and because they :lften p:lse c:lmpliance difficulties.
PAYROLL TAX

The payroll tax is C:lnnected with the social insurance system, and
c:luntercyclical changes in c:lntrib uti:ln w:luld seem inappropriate.

Increase,

in the tax w:luld put a relatively large burden on low income workers and
would scarcely be neutral.

At the same time, the empl:lyer's portion is

cl:lsely related to costG, and it would be uncertain as to how changes
in the employer's tax w:luld affect business behavior and prices.
The timing :If otherwise desirable payroll tax changes must, however,
be c:lnsidered in light of econ:lmic conditions so as to avoid a destabilizill€
eC:ln:lmic impact.

There may be opportunities to alter the timing of such

changes to assist eC:lnomic stabilization without conflicting with the

lo~

run principles :If financing appropriate to the social insurance system.

:laO

APPENDIX

Some Policy Decisions Involved in Formulating the Structure
of a Value-Added Tax
Scope of Tax
Would the tax apply to'the corporate sector only or cover unin-

corporated businesses as well?
Would the tax apply only to manufacturing and distribution of
goods?

Or would it also apply to services, including domestic service,

casual labor, legal, medical, accounting, and various other personal
and professional services?

Should retailing be included, in view of

widespread State and local retail sales taxes?
2.

Special Rates and Exemptions
Should the tax apply uniformly at a standard rate to all goods

and services or should it be differentiated, as in France, so as to
bear more lightly on "necessities" as against "luxuries"?
Should exemptions be provided for certain end-products such as
fuel and medicine?

Or for certain uses of end-products such as pur-

chases for use of churches, schools, hospitals, and charitable or
scientific institutions?
Should relief be granted particular industries with unusually
high value-added margins?

Agriculture and Small Business
Should farmers, shopkeepers, barbers, bakers, restauranteurs,

cleaners and laundr,1men, tailors, radio and TV repairmen, or small
businessmen generally be required to pay the value-added tax?

-2 -

Should

other vertical or horizontal exemptions be provided,

i.e., by size of business or by type of activity?

If so, at what size level

(sales volume, employment, etc.) should the exemption be determined?

FinanCial, Real Estate, and Royalty Income Sector
How should interest, rent, and financial intermediaries be

treated under the tax?

Presumably interest and rent

normally be taxed as costs to the payor.

p~ents

would

If interest is taxed gen-

erally as a cost or value-added item, would this rule work hardship
on interest-paying financial intermediaries such as banks, life insurance companies, and similar savings institutions, a large part of whose
costs are interest payments to depositors, policyholders, etc.?
Should rents of real estate enterprises owning apartment houses,
office buildings, and commercial industrial properties be taxed?
Should the tax be imposed on the rent payor or payee?
5.

Definition of the Value-added Base
Should all depreciation or expenditures on capital goods be disallowed

as costs (GNP type of value-added tax)?

Or should depreciation be allowed

on depreciable assets ("income type" of value-added tax)?

Or shoLLld the

entire purchase of depreciable assets be deducted as a cost ("consumption
type" of value-added tax)?

If the consumption type of tax is adopted,

how is the transition handled with respect to pr.e-existing assets which
were not deducted at purchase or previously depreciated for purposes of
the new tax1

- 3 -

6. Mechanics of Application

.
less

Should the tax be applied (1) to value-added defined as sales
deductions for previously taxed purchases, (2) to the entire

sales of the firm, as in France, subject to a credit for value-added
tax paid on purchases invoiced to the purchaser, or (3) directly to
value-added costs (i.e., wages, interest, previously untaxed purchases, etc. plus profits)?

7. Rebate on Exports
Presumably imports would be taxed in full while exports would
be eligible for rebate of cumulative tax paid on the exported commodity.

How is the export rebate effectuated?

the exporter?

By refund only to

By refunds tracing taxes back to each of the firms

which have contributed to the export value as the goods moved
through the various stages of production and distribution?
How will "reexports" containing previous imports be handled?
How will "reimports" containing previous exports be handled?

Special Income and Cost Problems
Should capital gains be included in the value-added base?

(If not, potential profits taxable under the value-added tax could
be capitalized by sale and removed from the value-added base.)
Should depletion be taxed as a value-added item?

If deductible,

how should depletion be calculated for value-added purposes?

- 4 Should special treatment be accorded "fringe benefit" compensation, including pension trust contributions and profit-sharing
benefits?
Should tax payments of any kind be excluded from the firm's
value-added base?

Should different taxes be treated differently?

Public Enterprise, Tax-exempt Institutional Activity, and
Cooperative and Mutual Enterprise
Should the value-added tax be applied to government-owned enter-

prise?

To enterprise conducted by tax-exempt institutions?

eratives and mutuals?

To coop-

How should clubs (bars, restaurants, recreation

facilities) be treated?
10.

Reporting and Collection Procedures
Would the value-added tax return be integrated with the regular

income tax or treated as a separate tax?
How would current reporting and tax payment be carried out?
a monthly basis?
11.

Quarterly basis?

Effect on Structure of Other Taxes
What effect would a change in the corporate tax as a consequence of

a partial shilt to value -added taxation have on other parts of the tax
system, such as the tax on capital gains of individuals?

TREASURY DEPARTMENT
Washington

FOR RELEASE UPON DELIVERY -12:30 P.M., PST AND 3:30 P.M. EST
MONDAY, APRIL 4, 1966
REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE A COMMONWEALTH CLUB OF CALIFORNIA LUNCHEON
AT THE SHERATON PALACE HOTEL, SAN FRANCISCO, CALIFORNIA
MONDAY, APRIL 4, 1966, 12:30 P.Mo, PST
In this city of such cosmopolitan concerns, of such views
and vistas to dazzle and delight the eye, the mind's eye, also,
takes on new and broader perspectives and ranges beyond the
immediate landscape to farther horizons.
Therefore, I do not come here today to dwell upon the
more immediate features of the current economic scene, or
to discuss the one economic question uppermost in the minds
of the majority of Americans -- whether and when we will need
or have national tax increases. The various views on that
question, and on the current condition of our economy, have
been fully aired in recent weeks.
And the President has repeatedly made his position most
clear. As he remarked less than three weeks ago, when he
signed the Tax Adjustment Act of 1966 -- and I quote:
"I can make no prediction here today on
the need for additional taxes later this year.
No one can make that prediction, because no
one knows what the future holds. But you may
be assured that this Administration stands
ready to act when action is needed -- if it
is needed. I am certain that the Congress
stands ready to respond in the same manner.
"In the mean time, there is work and du ty
ahead for all of us -- to discipline ourselves
and our actions -- to be prudent, to be as
wise as we can -- so that what we have worked
so hard to build will last and prosper."
So today, in this city of such broad interests and great
vistas, I would like to take the current economic discussion
out of the narrow confines in which it is commonly
circumscribed and to place it in a broader perspective.

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- 2 Indeed, I am convinced that our success in answering the
questions immediately before us will directly depend upon h~
we answer some far more comprehensive questions -- questions
concerning our economic and social and political goals here
at home as well as our goals in the world at large.
To begin with, I am convinced that any decision on how
best to safeguard and sustain our current expansion must rest
upon our clear understanding of how it began and how it grew.
The current expansion, as you know, had its beginnings
in early 1961, when the economy was emerging from our
fourth post-war recession. Unemployment was intolerably
high. Business investment had for years failed to maintain
anything like adequate levels of growth -- and remained far
less than we needed to generate more vigorous economic
growth and a stronger competitive position in world markets,
including our own home market which was becoming increasingly
open to import competition. At the same time, a series of
balance of payments deficits -- averaging more than $3~ billioo
a year for three years -- rendered the dollar vulnerable and
threatened the international monetary system which it suppor~d.
To be sure, prices had remained relatively stable since
1958
but this stability was a part and a product, not of a
pattern of positive and productive growth, but of a pattern
of anemic and inadequate growth that had shown itself
exceedingly susceptible to recession. It was, in short, a pria
stability purchased at the expense of our goals of full
employment and adequate economic growth -- and associated with
severe deficits in our international balance of payments.
Our effort and our aim was to preserve that price
stability, while at the same time pursuing our other major
economic goals of strong and sustainable economic growth,
of full employment and of relative equilibrium in our
international balance of payments. We sought to fashion
and follow a mix of economic policies that would enable us
to move ahead simultaneously toward each of these four goals.
Our view then, and our view now, is that our economic
policy mix must be both flexible in method and firm in
purpose -- that it must enable us to pursue simultaneously
our four major economic goals through changing economic
circumstances. We rejected then, and reject now, the view
that these goals are inherently incompatible and that to
secure one or two of them requires that we sacrifice the
others.

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- 3 We recognized then, as we do now, that conflicts
between these goals can arise -- that inevitably there comes
a point where it is difficult to pursue full employment and
price stability at one and at the same time, when success
on the one front seems to involve falling back or slowing
down on the other.
And that is precisely why, at the beginning of this
expansion, our first fiscal measures -- the 7 percent
investment credit and the depreciation reform of 1962 -centered upon encouraging productive new business investment
the kind of investment that would mean not only more jobs and
greater economic growth, but the greater productivity and
lower costs so essential to continued price stability and to
progress in our balance of payments.
We accompanied these measures with pioneering new
efforts to train and retram unskilled and semi-skilled
workers -- thus helping to make them more employable and
more productive. For we were, from the very beginning, fully
aware that we would reach a point when growing demand alone
could not continue to make inroads upon unemployment without
undermining our productive efficiency or exerting a strain
upon our prices. And as a result of our programs over the
past five years -- beginning with the landmark Manpower
Development and Training Act of 1962 -- we now have underway
the most massive effort ever undertaken to attack the ?roblem
of structural unemployment.
At the same time that we employed these dual measure
aimed specifically at insuring both greater growth and
greater productivity in both business investment and
employment -- we adopted a dual approach on the overall
economic level as well. Through massive and across-the-board
income tax reductions we sought to increase the general
level of demand in the private economy -- while through the
wage-price guideposts of the President's Council of Economic
Advisers we sought, within the context of our free enter?rip~
system, to encourage voluntary wage-price restraint, 50 thar
measures for growing productivity and for growing aggre~ate
demand would result in both rapid and real economic growth.
And today, when there are those who would have us
abandon the ~age-price guideposts, I think we ought to h&~e
no misunderstanding of how well we have done under those
guideposts.

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- 4 During the five years from 1961 to 1965 -- nearly all
of which were covered by the guideposts -- corporate
profits after taxes rose more than 65 percent from $27.2
billion to $44.5 billion. In the previous five-year period
1956-1960 -- when we had no guideposts, corporate profits
after taxes fell by 2 percent from $27.2 billion to $26.7
billion.
In the five years before the guideposts, employee
compensation rose from $243 billion to $294 billion, or about
20 percent -- while during the five-year guidepost period the risi
was from $303 billion to $392 billion, or about 30 percent.
What is most remarkable is the behavior of prices.
During the five years before the guideposts -- years when
unemployment and unused plant capacity were generally growing ..
the Consumer Price Index rose by about 9 percent, while
during the five years of the guideposts -- years when the
level of unemployment and unused capacity was falling
prices rose by only about three-fifths as much, or by 5~ percent,
As a result, price rises cancelled out almost half of
the rise in employee compensation in the 1956-1960 period -9 percent of the 21 percent rise -- so that, in real terms,
employee compensation went up by only about 11 percent.
In the 1961-1965 period, on the other hand, the rise in
employee compensation greatly exceeded the consumer price
rise so that in real terms employee compensation rose by more
then 20 percent.
In the past five years, therefore, when we have had the
guideposts, real employee compensation has grown twice as much
as it did during the previous five years when we had no
guideposts.
What these comparisons make vividly clear is the fact
that the wage-price guideposts -- or something like them -must occupy an important place in any successful effort
to secure real growth in the economic abundance in which we
all share.
And so, over the past five years, we have followed
what I have outlined as a dual approach on dual dimensions
to move us ahead simultaneously toward mUltiple economic
goals -- complemented by a similarly dual approach in
monetary policy aimed at insuring an adequate availability
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- 5 of money and credit for domestic needs while helping our
balance of payments efforts by maintaining short-term
interest rates at levels comparable to those abroad.
As a result of these efforts, in 1965 we were closer than
at any time in our history to the simultaneous achievement
of our four paramount goals: strong and stable economic
growth, full employment, reasonable price stability and
equilibrium in our international balance of payments.
Indeed, I think we sometimes fail to grasp exactly
how immense our achievement has been -- and what a great and
exciting challenge we face -- a challenge that ought to call
forth our most determined and confident response instead of
awakening, as it often seems to, a host of self-doubts and
uncertainties and fears.
No great and free nation in the history of mankind
has ever come so close to achieving both full employment
and rapid economic growth in a context of reasonable price
stability and international payments equilibrium.
The question before us is how shall we seek to accomplish
what no other Free nation has succeeded in doing
but
what all have dreamed of doing?
Shall we build upon the
policies that have brought us so close to our goals? -or shall we revert to policies of the more distant past that
would have us achieve one or two of our economic goals at
the expense of the others -- that would, for example, have us
accept a higher rate of unemployment and a lower rate of
economic growth for the sake of price stability and balance
in our international payments, or that would have us forego
our efforts for price stability and balance of payments
equilibrium for the sake of full employment and greater
economic growth?
To ask these questions is to answer them -- not only
in the perspective of our own past experience, but in the
even broader and more revealing perspective of our experience
in relation to that of the other major countries of the
Free World.
In the concluding half-decade of the Fifties, our
economy grew at a real annual rate of only 2.3 percent
far lower than that of virtually all other major countries.
In the half-decade just ended, our real growth rate rose to
4.5 percent -- an immense improvement. And last year
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- 6 ~

real national output grew by 5.5 percent -- and as a
result we surged ahead of every other major country in the
worJd, except Canada.
c

That surge in real output reflected one of our most
impressive achievements over the last half decade -- a
record of price stability unequalled by any other major
country in the world -- a record surpassed by no other
industrial nation and by only three other small countries
Guatemala, El Salvador and Venezuela.
Let me cite one particularly instructive comparison, with
France which has had some success recently in reducing the
rate of increase in its consumer price level. In the last
half-decade of the Fifties the cost of living in France rose
at a compound annual rate of more than 6 percent, and in
the first half-decade of the Sixties, at an annual rate vergin~
upon 4 percent -- about three times our rate in both cases.
Last year, however, France reduced that rate to a little
under 2~ percent, while ours rose slightly to near 2 percent ..
still substantially below that of France. But France
achieved that reduction in prices from nearly 4 percent to
a little under 2~ percent only by cutting almost in half its
real annual growth rate -- its growth rate corrected for prk
increases -- compared to its record over the 1960-1964
period.
That is the bargain that we have refused to make over
the past five years and that we refuse to make now -- the
bargain that would have us trade away jobs and growth for
the sake of a price stability that without jobs and growth :.s
an empty accomplishment.
Our task today, therefore, is the same as it has been
for the pas t five years: to sus tai::l our prQg~ess t~" ... ~~
four major economic goals. But today, as you k1OW, that
task has been made both more difficult and mo~e delicate by
the added demands of the Vietnam conflict upon an economy
closer to full employment and full utilization of product "!iJ.
capacity than at any time in recent years.
The entrance of Vietnam into our economic picture -while its real e~onomic impact has been exaggerated and
confused with the entirely different Korean War situation .nonetheless has both introduced a large element uf uncertaint.
and increased the danger that in sustaining our rapid rat~ 1£
growth and further reducing our unemployment rate we will ..
sacri fice s orne measure, a t leas t, of price stability and hnoc.
our progress towards balance of payments equilibrium.

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- 7 We are fully aware of this danger -- but we are also
fully convinced that we can better avert it, without damage
to our economic objectives other than price stability, if all
of us exercise o~ clear responsibilities for restraint, for
moderation and for calmness.
We fully recognize that both monetary and fiscal policy
exercised by public authority have important roles to play
in containing an economy that threatens to become excessively
exuberant. And both fiscal and monetary policy have been
shifted from a direction of steady stimulus to aggregate economic
demand to one of moderate restraint.
But in shifting from a policy of stimulus to one of
restraint we must remain equally aware of the opposite danger
that the cumulative total of monetary and fiscal restraints
and their timing must be designed to avoid an economic overkill
that risks a loss of momentum.
The right principle seems to be to apply policies of
either stimulus or restraint in moderation or in stages,
except in direst emergency. We were not for pressing the
accelerator down to the floor in the expansionary period of
the first five years of this decade, thereby risking an
unsustainable boom. Neither will we now slam on the brakes
so suddenly as to skid into a recession or cause our economic
motor to stall.
Our fiscal program -- as outlined in President Johnson's
Budget and Economic Report presented earlier this year -took into account and served as a complement to the restraining
influence of the earlier Federal Reserve Board action in
December, and the enactment last year of additional
Social Security and Medicare taxes which took effect this
January and will reduce private purchasing power at a rate
of $6 billion per year.
And, as I have indicated earlier, while this combination
is having its full total effect for the first time this Spring,
we are standing ready to take additional fiscal action if it
proves necessary.
The current outlook is for a fiscal 1967 budget that,
despite a projected increase of $10.5 billion of special
Vietnam expenditures over and above those in the 1965 budget,
will show a surplus on a cash basis and closely approach
balance on a national income accounts and regular or
administrative basis. -This will be a meaningful, if moderate, shift
from the larger deficit·s in fiscal 1966.

F-423

- 8 -

We are taking all the fiscal dividends flowing from our
rapid economic growth -- the higher revenues that a growing
e-onomy would automatically produce under existing tax
rdtes -- and using them to meet the increased requirements of
the Vietnam struggle. We estimate that these dividends will
amount to $7~ billion in fiscal 1967 -- and, had it not been
for the increased requirements of Vietnam, these dividends
would have enabled us to balance the budget in fiscal 1967
and still afford some increases in civilian expenditures or
so~e additional tax reduction or some retirement of the nati~a
debt.
And a few weeks ago, President Johnson signed the
Tax Adjustment Act of 1966 -- a measure that will raise
some $6 billion in Federal revenues over the next 14 months,
and withdraw a total of $2.7 billion from the private spending
stream during calendar 1966.
But fiscal and monetary policy alone simply cannot
bear the whole burden. Indeed, they will fail unless our
businesses and our unions carry their full burden of
responsibility for avoiding inflationary wage and price rises
The urgent need for responsible restraint in the priv'j.~
sector if public policies designed to achieve both a
dynamic economy and price stability are to succeed has.arely
been put more clearly or cogently than in the following
statement by President Eisenhower in his 1957 Economic Re1011.
to the Congress:
"the events of the year showed, however)
that when production and employment are
high, wage and price increases in
important industries can ~reate upward
pressures on costs and prices generally,
and that the monetary and fiscal policie~
of Government must be supported by
appropriate private policies to ass Ire
both a high level of econoQic act.ivity
and stable prices."
That observation could scarcely be more timely -indeed, few experiences bear more timely recollection than
the way in which, in 1957 our last major lengthy eX'P.lnSi~L~
turned into recession -- and interrupted our progress tv:a:
our economic goals -~ as we tried to fight inflatiml by
fiscal and monetary policies while inflation fed upon the
failure of labor and. management to exercise responsible
restraint in determining wages and prices.

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- 9 jet chose who reject the wage-price guideposts -- let those
.,.]t~o S2em ':0 suggest that the private sector bears no
j'esr·· 1~ibility for exercising restraint in wages and prices
let t~~se who have ecclesiastical or perhaps, political
objections to the guideposts -- let them reflect upon the
experience of 1957 -- let them explain it, let them defend
it, let them try to assure us it cannot happen again, or let
mr propose a better means of assuring both price stability,
full employment, and a high and profitable rate of utilization
of capacity in the context of a free enterprise economy.
These, then, in broad outline, are some of the
perspectives within which we must seek the answer over the
next few months to some of the pressing economic questions
immediately before us.
But these are not the only perspectives. For today,
as in all the years since the beginning of World War II,
all that we do here at home must reflect the heavy
responsibilities we bear for leadership in the Free World.
None of us underestimates the gravity of those
responsibilities, for each of us understands that the way
in which the United States exercises its international
leadership will do much to determine the future fOl' thf>
world and for succeeding generations of Americans.
The challenges confronting that leaderghip ar
but these surely are three of the most basic:

f:,an:

First, the challenge posed by the Communist
commjtment to world conquest -- and in particular
by th ~ '';ommunist effort to impose the ir wi 1J. -lni!
extend their influence by outright aggressio . . . . and
by subversion backed by the threat of a,.g:.essj.on.
Second, the challenge posed by the collapse
of colonialism and the emergence of new nations -thus far more than fifty in number -- coupled vith
the growing demands of 11nderprivileged peoples
everywhere for full and immediate deliverance fro~
the hunger and the disease and the illiter.:tcy and
the grinding poverty that had ruled their lives
for centuries.

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- 10 Third, the challenge posed by the spreading
outbreak of excessive nationalism -- most noticeable
and understandable in some of the less developed
countries, but highly visible as well in some of
the world's more developed nations -- that considerably
complicates the efforts of nations to work together on
a multilateral basis to attack common problems and to
achieve common objectives.
To continue to meet these challenges -- with their
opportunities as well as their dangers -- will require of
ourselves and our allies in the Free World the highest
qualities of leadership on two major fronts:
First, leadership in standing firm and united
against Communist aggression and subversion with
sufficient force and power to deter such efforts and
to demonstrate beyond any doubt that they are far
too unrewarding and dangerous to be worth the risk.
Second, leadership in assisting on a
multilateral basis the new nations in their
struggle to achieve both essential stability and
sufficient progress toward meeting the rising needs
and demands of their people.
On both of these fronts -- over a period of two decades
and under the leadership of four Presidents -- ours is a
record of the most unrelenting effort and the most enduring
accomplishment toward the preservation of peace, the
protection of freedom and the promotion of human rights and
human welfare.
Indeed, in meeting the great challenges of our times,
we have not been found wanting. Never in the memory of
'
man has any nation done so much and at such great cost, not
to gain dominion over the lives or the resources or the
territory of others, but to help others gain full and free
dominion over their own destinies.
We look back over the past two decades and ask -- is it
all worth the cost? Is it worth it to devote a portion of
our human and material resources to the military effort
required for the promotion and preservation of peace and
freedom and a world in which tyranny cannot be imposed by
aggression from without or subversion from within? Is it

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- 11 worth it to devote a share of our resources to help shape a
world that will day by day witness nations, new and old, beat
back the tides of hunger and disease and illiteracy in a
climate of economic and social progress and of political
freedom and order?
To ask these questions today is to answer them -as we have for two long decades under four great Presidents
in the clear and unqualified affirmative, for that is the
only answer a truly great nation can give that bears the
burden of Free World leadership in an interdependent world.
We must, therefore, continue to yield to no nation in the
patient pursuit of peace and the works of peace -- and continue
to demonstrate, as we do in Vietnam, that we have the will
and the weapons to wage war, if wage war we must to defend
our own freedom and the freedom of our fellowman.
We must be willing to bear the burdens and accept
the uncertainties that come with such a war as we fight
in Vietnam. For Vietnam is a war of wills as well as a war
of weapons. It is a test of our willingness to survive
to surmount -- the strain of constant, continual conflict
whose end is never clearly in sight.
And we must continue -- together with other developed
nations of the Free World -- to carry our share of the
burden of leadership in the common task of helping the
developing nations of the world to realize their destiny and
enrich the lives of their people in dignity and freedom.
In all these ways, and more, we must continue in company
with other like-minded nations to lead the way in helping
better the world we share with all.
But in so doing we must recognize that, in the final
analysis, our ability to discharge our responsibilities
of Free World leadership will depend on how we act at home
in maintaining a strong and dynamic economy -- in pursuing
vigilantly our national economic goals of full employment,
a healthy rate of growth, reasonable price stability and a
balance in our international payments -- in extending always
for our own citizens the boundaries of economic opportunity
and social justice.
Today, therefore -- both in our affairs at home and in the
world at large -- we as a nation and as individual citizens
have a great many resp6nsibi1ities to bear -- responsibilities
that we bear with pride and with confidence.

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- 12 Whether it be by following the path of responsible
t"·-s:.-ra':"nt laid out for our businesses and unions in the
w1.ge-pr~ce guideposts -- or by moderating our private spending
and borrowing demands and supporting the Savings Bonds
program -- or by postponing wherever possible travel abroad and
substituting travel in this country instead -- whether it be ~
these or in countless other ways, we all have a very great
part to play in keeping America sound and strong at home and
abroad.
And how well we all accept our responsibilities will
~lave a great deal to do with haw successful we are in meeting
the great challenges before us, at home and abroad, in the
months ahead.

000

F-423

TREASURY DEPARTMENT
Washington
FOR RELEASE:

UPON DELIVERY

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE A DINNER MEETING OF THE NORTHERN CALIFORNIA
INDUSTRIAL PAYROLL SAVINGS COMMITTEE
AT THE FAIRMONT HOTEL, SAN FRANCISCO, CALIFORNIA
MONDAY, APRIL 4,1966,8:00 P.M., PST

I am indeed happy to have this opportunity to publicly
recognize and commend the 1965 efforts and accomplishments by
your committee in Northern California -- and to give you every
encouragement I can toward the achievement of the goals that
you have set for 1966.
I am informed that last year you attained 97 percent of
your dollar sales goal and that you reached 150 percent of your
new-saver quota. That is a splendid record -- and I know that,
with the added incentive afforded by the higher Savings Bonds
interest rate of 4.15 percent recently announced by President
Johnson, you will do all you can to surpass it this year.
There are, at this head table and in this audience, some
of those who are largely responsible for the leadership that
resulted in the high company participation you achieved last
year
participation ranging from better than 50 percent to
over 80 percent.
There are Carl Lindeman of Pacific Telephone and Telegraph;
Bill Breuner of the John Breuner Company; Reed Hunt of Crown
Zellerbach; Edgar Kaiser of Kaiser Industries Corporation and
many more to whom we owe so much for the great service they
have rendered to their country.
Statewide, there is encouraging news that Governor Brown
has launched the 1966 Payroll Savings drive with 132,000 state
employees; that 25th Anniversary resolutions have been adopted
by the California State Assembly and Senate; that "Minute Men Flags"

- 2 were presented to the Coast Guard Base in Alameda and to the
headquarters of the Sixth U.S. Army at the Presidio of
San Francisco for 100 percent and 94 percent payroll participation,
respectively; that campaigns with 133 Federal agencies, employing
over 126,000 civilians, were initiated on March 10 at a Federal
Executive Board meeting at Hamilton Air Force Base.
With Jim Hait of FMC Corporation as your Industry Chairman
and Paul Hoover of Crocker-Citizens as State Chairman for Savings
Bonds, and with the strength and stature of Bay Area business,
industry and financial influence so abundantly represented here
tonight, your campaign is off to a full-powered head-start.
You have a 25th Anniversary goal of $136,600,000 and a
quota of 35,700 new payroll savers. Your success in reaching
your goal and your quota -- indeed, in surpassing them -- is
today more imperative than ever.
I am happy to report that throughout the nation the Savings
Bond program is moving forward with new impetus, as the higher
interest rate of 4.15 percent on Savings Bonds, recently announced
by President Johnson, is already making its impact on the Payroll
Savings Plan throughout industry.
Specifically, more top managements are committed to activating
the plan; many more employees are becoming aware of its values;
increased allotments are being reported by those already participating
in the plan.
With Lynn A. Townsend, President of Chrylser Corporation as
its Chairman, the U.S. Industrial Payroll Savings Committee has a
"Business Bondwagon" rolling throughout the major centers of
American industry. Its goal is 1,200,000 new Payroll Savers in
1966 which, of course, is the Silver Anniversary year of Savings
Bonds -- making a quarter-century of vital service to the economy.
And, incidentally, President Johnson has launched a governmentwide Payroll Savings Bonds drive that promises to break, by a wide
margin, all previous records of federal employee participation
since World War II.

- 3 The Treasury Department first issued Series E Defense Bonds
in May 1941, although the United States had not yet entered World
War II.
After the United States entered the war, American industry
was called upon to encourage employees to buy E Bonds through
automatic payroll deductions.
The payroll method of saving became one of the mose successful
features of the War Bond Drive and has contributed significantly
to the $150 billion worth of Savings Bonds sold since 1941.
In 1963, Secretary of the Treasury Douglas Dillon called a
team of top businessmen to Washington to organize a peace-time
version of the bond sales effort so sucessful during the war.
Out of that meeting emerged the U.S. Industrial Payroll
Savings Committee. Its first chairman was Harold S. Geneen,
President of International Telephone and Telegraph Corporation.
Later Chairmen were Frank R. Milliken, President of Kennecott
Copper Corporation, and Dr. Elmer W. Engstrom, Chief Executive
Officer of Radio Corporation of America.
Under the leadership of men like these the Savings Bonds
program has become the important force for financial stability
that it is today both for so many of our individual citizens
and for our economy as a whole.
This year, as you know, the Savings Bonds program is more
important to our economic stability than ever.
Its importance was underscored by President Johnson's
announcement of the new higher rate on Savings Bonds. While it
will take some few months yet to determine the full extent of
the effect of that new higher interest rate on Payroll Savings
totals -- since many of the corporate campaigns are just getting
underway -- early indications are that its effect will be substantial.
If present sales report figures hold true, we will be able
to announce the highest sales total for Series E Savings Bonds,
in March, since 1956, or during the past ten years. Also, it is

- 4 significant to note that the sales of Series H Bonds, during
March, shows a sizeable increase over the same month during the
previous two years. Undoubtedly, this appreciable increase
reflects in the Savings Bonds interest rate.
This new rate,
therefore, should serve as an important incentive in the efforts
of all of us who are concerned with making the 25th Anniversary
year one of the most productive during the quarter-century
progess of the program.
Today, we are at a point where maximum savings are again
vital to our national welfare and to our national future. A
successful Savings Bond program is of particular urgency at this
time, not only to support our fighting men in Vietnam and our
commitment to the defense of freedom throughout the world, but
to strengthen our economy at home and to guard against the forces
of inflation.
The regular investment in Savings Bonds, through the Payroll
Plan, helps to preserve the buying power of our American dollars.
In the words of President Johnson, "I believe that Savings Bonds
are the most important investment that any American can make."
In the days and months to come, all of us -- in government,
in banking and finance, in industry and commerce -- must share
and bear an extra burden of responsibiliey in maintaining a
steady economic footing while we continue to move ahead.
Now, more than ever before, it is essential that we finance
our debt without inflation; that we do all that we can to encourage
greater savings throughout our economy.
Participation in the
Savings Bond program is a measurable and effective means of
accomplishing both.
Every dollar that goes into United States savings bonds
does double duty in the fight against inflation -- for it not
only diminishes the private spending stream but strengthens our
ability to finance our national debt in a noninflationary manner.
At the same time, the savings bonds program -- and the payroll
savings plan in particular -- help all who participate to enhance
their own personal financial well-being and establish the sound
financial habit of systematic savings.

- 5 -

The Savings Bonds program is one way -- and an important
way -- in which you, and all Americans, can demonstrate that in
deed as in ideal, in performance as in promise, we are a nation
of greatness -- a nation willing and worthy to bear the responsibilities for leadership in an interdependent world.

000

TREASURY DEPARTMENT
Washington
FOR RELEASE 1:00 P.M. EST
TUESDAY, APRIL 5, 1966
REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE ANNUAL MEETING OF THE
ASSOCIATION OF RESERVE CITY BANKERS
AT THE BILTMORE HOTEL, PHOENIX, ARIZONA
TUESDAY, APRIL 5, 1966, 11:00 A.M., MST
In reviewing economic trends and prospects with you today,
I would like to start on the international side, which has
come into increasing prominence among the areas that mast
concern economic policy. To start with, the United States
experienced a substantial improvement in its balance of payments
last year.
Thanks in good measure to the outstanding cooperation of
banks and other financial institutions, the deficit was reduced
by $1.5 billion, and totaled, for 1965 as a whole, $1.3 billion
on an over-all or liquidity, accounting basis. This was the
smallest balance of payments deficit since 1957 -- less than
half the $3 billion average deficit, on the same accounting
basis, for the seven preceding years, 1958 through 1964.
Banks made a major contribution to the improvement
in our balance of payments last year -- by holding their net
expansion of foreign credit to $155 million.
Further evidence of this
week when the Federal Reserve
the first two months of 1966,
loans and investments by $385

continued cooperation came last
Board reported that banks, in
reduced their outstanding foreign
million.

We do not yet have before us any new estimate of the
balance of payments outlook for this year. The assessment we
made in November and again in mid-February of the prospects for
reaching our goal of equilibrium remains, by and large, our
assessment today.
Late last year and again in February, I noted the
particular difficulties this year in assessing the balance of
payments prospects, because of the uncertainties regarding the
cost of our commitments in Southeast Asia, both in the sense of
our direct spending and the indirect effects on our trade
balance by reason of its impact on our domestic economy.

F-424

- 2 The burgeoning of the U. S. economy, beyond our
expectations of last November, may mean enlarged imports and
less allocation of effort to increasing our exports. And the
American tourist seems to be winging to Western Europe in ever
greater numbers, magnifying a net travel deficit that in 1965
was 133 percent of the total deficit as compared to 33 percent
in 1960.
But plus factors are the hoped for absence of some of the
factors which in 1965 pulled down our trade surplus from
previous years.
These factors which contributed to a reduction of our
1965 trade surplus included:
Economic expansion was at a reduced rate last year
in Western Europe and Japan. This was probably the
main factor in holding our exports for the year to
an increase of less than 4 percent, compared to
increases in the previous four years averaging
about 7 percent. During the year, business conditions
improved abroad, and our sales abroad rose in the
third and the fourth quarters. A continuation of
this trend would improve our trade picture in 1966.
Traders anticipating a dock workers strike that did
indeed occur in early 1965 pushed out about $160
million of exports late in 1964 that normally would
have gone out in the first quarter of 1965, while
they similarly hastened imports by some $60 million.
Steel users, anticipating a steel strike that did not
come to pass, made exceptional steel imports in 1965
estimated at some $300 million.
Agricultural exports were at the low annual rate of
$5.9 billion in the first half of 1965, but recovered
during the last half, reaching an annual rate of $6.75
billion in the last quarter of 1965.
In assessing future prospects for our balance of payments
we should ever be mindful of President Johnson's statement at
the Annual Meeting of the International Monetary Fund and
World Bank last October:
"The U. S. has taken· firm action to arrest
the dollar drain. Should further action be
necessary in the future, such action will be
taken."

- 3 -

Looking ahead, I would like to be able to suggest some
magic date for the termination of the voluntary balance of
payments restraints. But I cannot do so. We are not likely
to be able to terminate this program so long as hostilities
in South Vietnam on the present scale persist.
When that is over, there can be a thorough-going
re-examination of all of the factors that throw light on the
prospects that the voluntary restrain~program could be modified
or abandoned without bringing back major deficits in our balance
of payments.
Meanwhile, we are moving forward to improve the
international monetary situation, by arranging for new sources
of liquidity to finance growing international trade in the
absence of dollar deficits.
Last July I suggested that the time had come to move
ahead from technical study to the negotiating table. This was
becoming increasingly evident as our own balance of payments
improved and reduced the supply of dollars which had been
augmenting the reserves of foreign countries for a number of
years.
Between 1958 and 1964, deficits in the u.S. balance of
payments were the source of about three-quarters of the new
reserves accumulated by the rest of the world.
If the growth of monetary reserves of the free world were
to depend solely on additions to monetary gold, which recently
have run no more than $500 million yearly, then annual reserve
increments would not even reach 1 percent. It is clearly time
to begin planning the means to supplement gold with the
deliberate, careful creation of additional reserves as needed.
Since last July, we have been moving ahead. In
September, following a series of bilateral talks I had with
financial officials of a number of other countries, the new
negotiating machinery was established in Washington at the
time of the Annual Meeting of the IMF. The Finance Ministers
of the Group of Ten leading industrial countries who have
been working together on monetary problems since 1962 met in
Washington at that time.
As the first phase of contingency planning, they instructed
their Deputies to seek a basis of agreement on the improvements
needed in the international monetary system, including arrangements

- 4 for the future creation of reserve assets. It was further
provided that once a basis for agreement on essential points
was reached, it would be necessary to proceed from this first
phase to a second phase, involving a much larger group of
countries. This was to permit broad consideration of the
questions that affect the world economy as a whole.
At the same time, the Managing Director of the IMF, who
participates in the ministerial meetings of the Group of Ten,
indicated that the Fund would pursue its own investigation of
the ways and means of creating international reserves.
Since then, negotiations have been pursued actively.
The Deputies are proceeding to draft their report to the
Ministers, which we hope and expect will show considerable
progress towards a consensus on the essential features of an
international system for creating reserves.
Broadly speaking, there are three main approaches to reserve
creation.
The first would modify and adapt the present system of
drawing rights in the IMF, extending, within prescribed
limits, virtually automatic drawing rights to be treated as
reserves.
The second major approach is built on a composite reserve
unit, directly transferable among participating countries.
Such a unit would be well suited for holdings of reserves
by relatively advanced countries and would be attractive to
them. Supplementary arrangements could be made to provide
equivalent resources to other countries. Reserve units,
being clearly recognizable as a new element in the monetary
system,might be more effective than drawing rights in
demonstrating that the world is no longer exclusively dependent
upon gold and reserve currencies.
The third broad approach is simply a combination of these
two -- drawing rights and reserve units. Through drawing
rights the monetary system would retain the benefits of
familiarity, Fund supervision, and adaptability to use by all
qualifying members of the Fund. At the same time,
incorporation of reserve units would lay the foundation for
more far-reaching innovation. The tentative United States
proposals, presented recently in the Group of Ten negotiations,
fall into the third, or dual, approach.
With any of these approaches, there are a number of
important questions.

- 5 One important question is the "link to gold" and
alternative means for insuring acceptability of a new reserve
unit. Clearly, the status of any reserve asset depends upon
its acceptability. The "link to gold" refers to proposals
that would permit reserve units to be transferred in
international settlement only when accompanied by some specific
amount of gold. In effect, the reserve unit would not be
usable on its own as an independent reserve asset.
The purpose of such a link is psychological, appealing
to the point of view which stresses gold rather than other
forms of reserves. The link to gold might also reinforce the
tendency to hold newly created reserves rather than spend them.
At the same time, reserve creation aims to supplement
future new gold supplies, and to dampen excessive preoccupation with gold on the part of private hoarders or even
monetary authorities. Many doubts have been raised as to
whether the link to gold would further these objectives.
If such a link encouraged larger reserve holdings of gold,
this would have the doubly bad effect of shrinking world
liquidity and promoting an inefficient and destabilizing outflow
of gold from the reserve centers.
In our view a new reserve asset should supplement and
not displace existing reserves. While existing amounts of
official holdings of reserve currencies are not necessarily
ideal, the use of new reserve assets merely to replace
existing reserves would make no positive contribution and
would risk disturbing international financial markets.
A meeting of minds must also be found on the process
for deciding how fast reserves should grow. Countries well
supplied with reserves may take a more cautious view than
others who see their long-run objective as one of building up
reserves.
I have sketched only two of the challenging questions on
which our negotiators are searching for common ground in this
new area. For it should be stressed that the deliberate creation
of new reserve assets is a significant development in monetary
history. Reserves have developed in the past not by conscious
design, but through central bank accumulation of high quality
financial assets, with assured liquidity and broad international
acceptance. Countries have earned their reserves either by
producing gold or by surpluses in their balance of payments.

- 6 -

The present negotiations to agree on planned reserve
creation attest to the imagination, patience, and sense of
responsibility of the nations concerned. This stage has
been made possible by the past years of monetary cooperation
through the IMF, the Group of Ten and the Bank for
International Settlements. It is not surprising that countries
approach this subject with utmost care and deliberation, for
they are shaping the principles and procedures that may guide
international financial developments for many years to come.
We expect the Group of Ten Deputies to complete the
report on their areas of agreement that can be made available
to the Ministers and Governors of the Group of Ten countries
before the summer of this year. Once sufficient agreement is
reached on major points, it will be productive to move on to
the next stage of reaching agreement among the broader group
of countries. This work must progress if world trade and
W)rld economic development are not to be impeded for want of
adequate monetary machinery.
In striving to reach balance in our international payments
and in seeking with other nations to strengthen the international payments machinery, we recognize that maintaining a
balance in our own economy here at home is fundamental.
Indeed, this is true of all the other challenging
areas of international initiative, in addition to
international monetary affairs, in which our leadership and
participation is vital.
And we are taking the initiative this year, as last, to
seek assiduously in both quiet and public diplomacy to
enlist the cooperation of like-minded nations in bold new
efforts.
These efforts encompass the promotion of freer trade
by both achieving a significant reduction of duties on a
reciprocal basis and removing nontariff barriers. These
efforts include new initiatives to make available to needy
peoples elsewhere in the world the opportunity, means and
incentive for conquering hunger and disease, for living under
the liberating light of education, and for developing their
own resources.
Last week President Johnson and Prime Minister
Gandhi of India set in motion joint government programs in
which we hope other nations, private foundations and private

- 7 -

industry will share. This multilateral effort is of crucial
importance to the viability and progress of a great nation
of five hundred million people -- the second most populous in
the world -- and a bulwark o~ democracy in threatened Asia.
The tragedy of mass starvation must be averted as better
agricultural techniques and organizations for production and
distribution are set in motion. The Indo-American Foundation
for Education and Scientific Research is a fitting complement.
An undernourished nation or one lacking in adequate skills in
this technological age cannot play the role destiny has shaped
for it in Asia and the Free World.
Of particular interest to bankers, and with meaningful
support from organizations such as the American Bankers
Association, the United States is joining thirty-one other
nations -- including twelve nations outside Asia -- in
creating this year the Asian Development Bank. This institution
is to be chartered and managed on the sound banking principles
developed and applied by the World Bank and similar institutions.
It seeks to extend to the people of Asia the opportunity to
share in the economic abundance and social progress that so
many of us in the rest of the world take for granted.
Nineteen sixty-six is a year in which we hope international
financial cooperation will succeed in reducing the inadequacies
and obstacles existing in private capital markets in Western
Europe. We are hopeful that the slowly progressing studies
under the aegis of the Organization for Economic Cooperation
and Development will come to fruition this year in some
positive programs. We hope these multilateral programs will
attack at last major impediments to larger private capital
formation and a freer flow of funds and capital at reasonable
costs and interest rates.
We hope for the enactment in our own Congress this year
of the Foreign Investors Tax Act designed to remove tax
discrimination against foreign investment in the United States.
It should promote the flow of foreign capital into our awn
markets and help, over the long pull, to relieve the burden
on our balance of payments that results from an inadequate
two-way flow.
But, by all odds, the most challenging area of our
international activity in 1966 centers in Vietnam.

- 8 It is a crucial test. And we cannot afford to fail. If
we do we shall fail ourselves as well as the people of
South' Vietnam. If we do, we shall have undermined the faith
of all whose freedom depends on us. We shall have undermined
the web of alliances on which world peace and security depend
and we shall have undermined our own faith in ourselves.
We must live up to our commitment to the defense of
freedom. At the same time, we must strive to enlarge and
explore every avenue for unified action with our allies in
the common defense -- for, indeed, to the extent that the
allies of freedom cannot unite in its defense, the lesser
the chances for peaceful accommodation with those who are so
fiercely united against it.
For these reasons neither in Vietnam nor in Paris will
we allow foes or friends pursuing nationalist aspirations to
push us back in fear or pique to a lack of concern with
peace and freedom beyond the two oceans which wash our shores.
All this brings us back to the realization that our
ability to discharge our responsibilities for Free World
leadership will depend on how we act at home in maintaining
a strong and dynamic economy; in sustaining a healthy rate of
growth with reasonably full employment and relative price
stability; and in exteriding for our own citizens
all races,
all creeds, and all age groups -- the boundaries of economic
opportunity and social justice.
The situation in our economy, as you know, is this:
The demands of Vietnam added on to an economy closer" to full
employment and full utilization of productive capacity than
at any time in recent years have increased the dangers of
inflation and the need for responsible restraint in both the
public and private sectors.
The Administration has shifted from a fiscal policy of
steady stimulus to private economic demand to a policy of
moderate restraint. We are striving for a fiscal 1967
budget that, despite a projected increase of $10.5 billion of
special Vietnam expenditures over and above those in the
1965 budget, will show a surplus on the cash basis and closely
approach balance on a national income accounts and the
regular or administrative basis.
On the revenue side of the President's budget the shift

from a policy of stimulus to one of moderate fiscal restraint
has already been reflected by the prompt and commendable

- 9 -

action of the Congress in enacting the
1966 -- a measure that will raise some
revenues over the next fifteen months,
total of $2.7 billion from the private
calendar 1966.

Tax Adjustment Act of
$6 billion in Federal
and will withdraw a
spending stream during

We expect this measure to serve as a growing force for
economic restraint over the coming months -- together with
other restraining influences already beginning to take hold,
such as the Federal Reserve action a few months ago and the
increase in Social Security and Medicare taxes of $6 billion
at annual rates which began to take effect last January.
All of these things have contributed to a significant
change in the economic mix.
I did not come here today to discuss whether and when
we will need additional tax increases. The arguments on that
question have been thoroughly aired in recent weeks, and
the President has made his position most clear: The time
for decision is not yet at hand, but if it comes he will not
hesitate -- election year not withstanding -- to ask for tax
increases if required.
Evidence of the threat of inflationary pressures is
disturbing enough to require that we keep the closest watch
on economic and financial developments, exercise all the
responsible restraint in both the public and private sectors
for which the President has pleaded in the months past, and
make ready the way for prompt and prudent action if that is
required.
We in the Treasury are continuing our contingency planning
in the field of taxation -- not only in terms of possible
tax increases to pay for additional public expenditures that
may be required beyond those already planned or to forestall
inflation, but also in terms of possible tax reductions when
and if a relaxation of hostilities in Vietnam will mean a
reduction in defense expenditures, or the danger of overheating
the economy is no longer present.
In the meantime, now that I have received a great deal
of advice, private and public, from many of you in this room
and your bank economists who, through their excellent bank
letters and public addresses, keep me informed as to your and
their views, it seems fair play for me to turn the tables and
indulge in a few comments concerning your business. Just as

- 10 you have a proper concern and give advice on the area in which
I operate, I have a very real interest in your business.
For it is important that we understand each other on
certain points.
First, I recognize that bank borrowing and lending
practices are determined by the banks themselves and the
monetary and bank supervisory authorities who receive their p~ers
directly from the Congress and not. through the President and,
hence, are not subject to policy direction by the Secretary
of the Treasury.
Second, as previously described actions have indicated,
I believe that fiscal policy should play an active role in
both stimulating the economy when it is stagnant or lagging
and restraining the economy when it is excessively exuberant.
There is always room for differences on when these conditions
exist to the degree that public action should be undertaken,
what type of fiscal action is the most compatible with the
national interest, and the pace or extent to which the economy
should either be stimulated or restrained by fiscal action.
All of my instincts are that either stimulus or restraint
should be applied in moderation or in stages except in the
direst emergencies. I was not one for pressing the
accelerator down to the floor in the expansionary period of
the first five years of this decade. And, as you well know,
since the national decision to enlarge our military activities
in Vietnam, I have been urging moderate and responsible
restraint in both the public and private sector -- preferring
to touch the brakes lightly without risking a skid into a
recession because I do not believe drastic action is necessary
or appropriate.
Third, I have no objection of any kind to using monetary
policy as a part of the total economic stabilization arsenal.
I have said so repeatedly in responding to inquiries at
Congressional hearings.
Fourth, I believe that fiscal and monetary restraints to
deal with threats of inflation should work in a coordinated
fashion, just as fiscal and monetary policies directed toward
expansion have worked together in the past five years.
My objection to the December action of
Reserve System had to do with the fact that
preferred to have had that decision delayed
until the Administration knew and the Bo~rd

the Federal
I would have
until January,
could know what

- 11 the budgetary outlook was for the remainder of fiscal 1966
and fiscal 1967, so that we could have decided together what
combination of fiscal and monetary restraints were appropriate,
if there were room for agreement.
I trust that the coordination which had previously existed
between our monetary and our fiscal policies has again been
reestablished and that instances of disagreement over
procedures and timing will in the future be less important.
Certainly, the Administration's acceptance of the Federal
Reserve's action in December as a fact of life and its
incorporation into our budget planning symbolizes that desire
for coordination.
As the subsequent shift of fiscal policy in the
President's January budget from stimulus to moderate restraint
signified, some shift in monetary policy in the nature of a
moderation of credit growth was appropriate.
It is important, however, that such moderation as is
needed, particularly of bank credit growth, be accomplished
without the skyrocketing of interest rates. Raising the
price of money should not -- and need not -- be the only means
of determining which applicants get the loans.
When the bigger banks rely only on higher rates as the
means for allocating credit among a few large borrowers, this
tends to put up the cost of money for everyone.
The better course, in dealing with a credit growth that
threatens inflation, is to turn down or scale Back the less
deserving loan applications.
In this connection, I read with considerable interest, the
re'cent remarks by J. Howard Laeri, Vice Chairman, First
National City Bank of New York, at an American Bankers
Association meeting in Chicago. He suggested some voluntary
lending guidelines for bankers to follow in curbing loans that
would contribute to what he termed "current inflationary credit
excesses." He called them "Today's Six Deadly Sins of Lending."
Make up your own list if you don't like Mr. Laeri's.
Mr. Archie K. Davis, Chairman of the Wachovia Bank and
Trust Company, Winston Salem, North Carolina, and the
President of the American Bankers Association, also has
suggested that it is essential for bankers to weed out less
productive and speculative loans.

- 12 -

Banking industry leaders are showing an increasing
awareness of the need for making monetary policy effective
through their bank lending policies, and are to be commended
for moving in this direction.
I would hope, also, that there will be an accompanying
disengagement from unreasoning competition for time and
savings deposits that ignores the need for caution and the
harm that kind of competition can do to our banking and
financial system.
Federal debt management also has a role to play in achieving
the broad economic objectives which are our mutual concern.
This is why, this past February, we took the opportunity while
refunding the mid-February maturities, to offer the holders of
April, May and August 1966 issues an exchange into a new
4-3/4 year 5 percent note.
This move achieved some useful debt extension and
lightened significantly the refunding tasks that await us now
in May and August.
In taking a broad view of the Treasury debt structure and
its economic impact, it may be of some interest to note that
while the total Treasury debt today is some $3 billion greater thaI
a year ago, our last reading showed that Treasury debt in the
hands of the public was actually down by $1.5 billion over tM
year. And for those who sometimes look to Government financial
policies as the source of undue monetary expansion, I would
remind you that commercial bank holdings of Treasury debt are
down by $3 billion in the past year. No doubt this decline in
bank holdings has made our financing task a mite more difficult
and costly, but it has also provided rather striking evidence
that our deficit has been financed with genuine savings
accumulations.
In rounding out this picture of debt management, I should
say a few words also about Federal agency sales of financial
assets.
This type of activity is designed to channel more private
investment funds into the Feder~l credit programs, and avoid
locking up scarce budgetary resources in a rising aggregate
of direct Federal loans. It carries forward a program that
received its first strong impetus in the mid-1950's under the
Eisenhower Administration. The principle of substituting

- 13 private for public credit, and helping thereby to cut new
channels of money-flows in the credit markets, was warmly endorsed
subsequently by the Commission on Money and Credit, and by
President Kennedy's Committee on Federal Credit Programs,
which was chaired by my able predecessor, Douglas Dillon.
In seeking to expand this useful area of partnership
between private and public enterprise we are well aware that
it would be pointless to attempt to press more on the market
than it can readily absorb. That is why we are interested in
further developing the techniques for amassing pools of direct
loans held by Federal agencies and selling participations in
those pools to private investors. This provides an effective,
economical means for tapping the resources of the private
market to serve broad public purposes.
In making these asset sales programs the success they
should be, the government needs your help and I am here
today to ask for it.
After taking account of net sales of Federally owned
financial assets and direct Federal agency issues, and
balancing this against the decline in holdings of Treasury
obligations in the hands of the public, we would estimate that
the Federal sector will make only a modest net demand for
credit on the private economy for this fiscal year -- perhaps
on the order of two or three billion dollars. More impressive
still, according to current plans, we would expect the Federal
sector to make little or no net credit demand on the rest of
the economy in fiscal 1967.
While we recognize that monetary and fiscal policies
exercised by public authority have important roles to play
in containing a buoyant economy, these alone are not enough.
There also must be responsible restraint in the private
sector, in the many day-to-day decisions affecting prices and
wages.
We sometimes hear of particular periods of price increase
described as "cost-push" or "demand-pull," with particular
remedies supposedly appropriate to one situation or the other.
We all know, of course, that, in an economy as complex as ours,
both "cost-push" and "demand-pul!'" forces may be at work, and
interacting, at the same time. This means that we need both
monetary and fiscal restraints and, alongside them, appropriate
wage-price guidelines to serve as yardsticks for keeping wage
and price decisions within non-inflationary bounds.

- 14 Those who would discard the guidelines might do well to
consider the alternatives -- in terms of price behavior,
economic growth, gold outflow, and maintenance of basic
economic freedom.
Incidentally, as an aside to some outspoken bank and
academic economists, advice on using monetary and fiscal
restraint to contain inflation would carry more conviction
in certain quarters if it were accompanied by equally vocal
support of wage-price guideposts.
In closing, I want to emphasize a very important part
of any anti-inflationary effort -- our Savings Bond program
which is moving forward now with new impetus.
Already the higher rate of 4.15 percent, recently
announced by President Johnson, is making its impact on the
Payroll Savings Plan throughout industry.
Specifically, top management officials of more companies
are actively committed to the plan; many more employees are
being introduced to its values; increased allotments are
being reported by those already participating in the plan.
And, incidentally, President Johnson has launched a
government-wide Payroll Savings Bond drive that promises to
break by a wide margin all previous records of federal employee
participation since World War II.
While it will take some few months yet to determine the
effect of the higher interest rate on Payroll Savings totals
since the government campaign and many of the corporate
campaigns are just getting under way -- early indications are
that substantial results will be registered.
The bankers of America are our long-time, dedicated allies
in the successful promotion of the Savings Bond program.
I commend bankers everywhere for their support of our
program in the past and I solicit their encouragement and
cooperation for the need and the effort that lie ahead •
•

In the Savings Bond program, and in every other part of oor
national effort to maintain steady balanced growth while
meeting vital commitments, we must all -- in government,
in banking and finance, in industry and commerce -- bear an
extra burden of responsibility in the days and months ahead.
~o

TREASURY DEPARTMENT
(

RELEASE 6:30 P.M.,
April 4, 1966.

.B)Y,

RESULTS OF TREASIJHY'S WEEKLY BILL OFFERING

The Treasury DepartJl1.ent announced that the tenders for two series of Treasury bills,
series to be an additional issue of the bills dated January 6, 1966, amd the other
as to be dated April 7, 1966, which were offered on March 30, 1~66, were opened at
~ederal Reserve Banks today. Tenders were invited for $1,300,000,000, or thereabouts,
l-day bills and for $1,000,000,000, or therP.abouts, of 182-day bills. The details of
two series are as follows:
OF ACCEP'l'ED

91-day Treasury bills
182-day Treasury bills
maturing July 7, 1966
maturing October 6, 1966
Approx. Equiv.
Approx. Equiv.
Price
Annual Rate
Price
Annual Rate
High
4.7l6,h
97 .616 b/
98.860 a/
4.510;;:
Low
97.6134.722ib
98.852 4.542%
Average
97.614
98.855
4.719% !/
4.531% !I
a/ Excepting 1 tender of :1)200,000; :0/ Excepting 1 tender of $638,000
26% of the amount of 91-day bills bid for at the low price was accepted
770 of the amount of 182-day bills bid for at the low price was accepted
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DIST1ICT.:3:
trict
Applied For
Accepted
App1ip.d For
Accepted
ton
$ 40,605,000 $ 28,605,000 : $
5,369,000
$
3,966,000
York
1,463,577,000
827,937,000: 1,745,668,000
7S9,004,000
ladelphia
28,150,000
16,150,000:
13,348,000
4,788,000
7sland
29,133,000
29,133,000:
38,567,000
17,142,000
hmond
14,780,000
14,780,000:
4,468,000
4,468,000
anta
53,479,000
3~,517'OOOooo
39,448,000
12,423,000
cago
209,600,000
10 ,726,
244,982,000
60,988,000
Lou!s
62,750,000
4 ,528,000:
5 5 0
12 1.'5 000
neapolis
21,068,000
17,328,000:
3 ,01 ,00
'~5 ' ,
sas City
2h,447,000
22,1-1-47,000
13,901,000
3,1 1,000
las
25,338,000
17,598,000:
16,200,000
11,055,000
Francisco
89,821,000
75,721,000.
14,714,000
9,414,000
o
$1,300,476,000
268,529,000
102,205,000
TOTAI,S
$2,062, 74~,00
$2,440,209,000
$1,001,019,000 d/
ludes $260,951,000 noncompetitive tenders accepted at the average price of 98.855 tudes $129 302 000 noncompetitive tenders accepted at the average price of 97.614
3e rat~s ~e o~ a bank discount basis. The equivalent coupon issue yields are
;% for the 91-day biJ~s, and 4.90% for the 182-day bills.

~TITIVE

BIDS:

TREASURY DEPARTMENT

FOR USE AT 5:15 P.M. EST
TUESDAY, APRIL 5, 1966
UNITED STATES AND COLOMBIA SIGN

$12,500,000 EXCHANGE STABILIZATION AGREEMENT
Acting Secretary of the Treasury Joseph W. Barr today
signed a $12,500,000 Exchange Stabilization Agreement between
the United States, the Government of Colombia, and the Bank
of the Republic. The Agreement was signed for Colombia in
Bogota on April 4 by the Minister of Finance, Joaquin Vallejo
Arbelaez, and the General Manager of the Bank of the Republic,
Eduardo Arias Robledo.
The Ambassador of Colombia to the United States, Dr. Eduardo
Uribe, witnessed the signing here on behalf of his government.
The Agreement is effective through March 1967. Under it,
Colombia may request the United States Exchange Stabilization
Fund to purchase Colombian pesos in amounts up to $12,500,000.
Any pesos so acquired by the United States Treasury would
subsequently be repurchased by Colombia, with United States
dollars.
The Agreement will assist Colombia in maintaining orderly
conditions in the foreign exchange markets, as part of its
program of economic stabilization and growth.
It is designed
to supplement the resources available under a $36,500,000
stand-by drawing arrangement announced by the International
Monetary Fund on December 15, 1965.
The Agreement signed today is part of arrangements for
United States Government economic and financial assistance for
80lombia in 1966, estimated to total $102,000,000. These
~rrangements were announced December 20, 1965, on the occasion
)f the signing of a $65,000,000 program loan of the Agency for
rnternational Development.
000

F-426

STATEMENT OF
THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE
SENATE BANKING AND CURRENCY COMMITTEE
APRIL 5, 1966

Mr. Chairman and Members of the Committee:
I appear before you this morning in support of S. 3158,
the Financial Institutions Supervisory Act of 1966, introduced
by the Chairman of this Committee at the request of the Secretary
of the Treasury, the Chairman of the Board of Governors of the
Federal Reserve System, the Chairman of the Home Loan Bank
Board, and the Chairman of the Board of the Federal Deposit
Insurance Corporation.

The Administration appreciates very

much the prompt consideration of this legislation by this
Committee.
You have already heard the testimony of Chairman Horne
and will be hearing later this morning from Mr. Randall and
Governor Robertson.

Therefore, it will not be necessary for

me to discuss the specific regulatory responsibilities of the
agencies that are supporting this legislation, or to deal with
technical features of the legislation.

Instead, I will comment

in general terms upon the nature of the proposed legislation
and the needs which it will serve.

- 2 -

In his Economic Report earlier this year the President
recommended Congressional action in several financial areas,
of which this is one.

At that time, the President stated:

"Actions to ease unnecessarily restrictive
regulations have been taken in the past; they have
borne fruit in stronger competition and a more
efficient flow of funds from savers to borrowers with
the most urgent needs.
"But appropriate regulations are clearly required
to protect the safety of savings of American families,
to assure the most efficient and equitable regulation of
financial institutions, and to create still better
channels for the flow of funds to borrowers."
In my opinion, that statement by the President sets out
the essential philosophy that should govern our actions in this
regulatory area.

We have learned, sometimes through

bitter experience, that the absence of appropriate and effective
regulation can lead to financial excesses.

Therefore, we must

- 3 -

in many cases make difficult decisions as to the appropriate
coverage and scope of financial regulation.
In the case of the present legislation, however, it seems
to me that no very difficult decision is involved.

This bill

does not seek to strengthen the regulatory power in the sense
of reaching out into new areas, or providing for harsher
penalties.

Instead, the proposed legislation is simply designed

to fill a gap in the procedures that are already available to
protect the savings of American families.

The vast majority

of our banks and saving and loan associations are soundly
managed and operated, and are in excellent financial condition.
We must insure, however, that there is no lack of legislative
authority to enable the supervisory agencies to deal promptly
and effectively with the few problem cases that do arise.

must insure that whenever a banking institution is being
operated unsoundly and a bank officer is conducting his affairs
improperly, the supervisory agencies are amply equipped to
prevent the unsound operation or remove the officer before
there are serious

consequ~nces

to the institution and the

community in which it is located.

- 4 Ample authority exists today to terminate insurance, to
eliminate banks from membership in the Federal Reserve System,
to appoint a receiver or conservator, or to remove officers
or directors of financial institutions who have continued after
warning to violate the law or to engage in unsafe or unsound
practices in conducting the business of the institution.

These

penalties, however, are so drastic on the one hand, and so
cumbersome on the other, as to be available for use in only
the most severe cases, often after considerable damage has
been done.
at all.

In many cases they are not appropriately used

Legislation is needed to give the supervisory

authorities the power to require specific corrections, and
legislation is also needed to enable supervisory agencies to
take action promptly to suspend or remove officers and directors
or other persons participating in the management of banking
institutions, whose activities threaten to jeopardize financial
soundness.

The exercise of such powers should, of course,

be subject to appropriate procedural safeguards to prevent
any possibility of abuse.
~eeds,

S. 3158 is designed to meet these

and it contains what are considered to be appropriate

;afeguards.

- 5 I should like to emphasize that it is anticipated that
the authority contained in this legislation, if granted to the
supervisory agencies by the Congress, would be sparingly used.
In the first place, while it is important to have the necessary
authority in the few cases that do arise, there are very fe,w
institutions which are not being conducted in an entirely
proper manner.

Secondly, it is fully appreciated that the

authority which would be granted by this legislation is of
such a nature that it should not be lightly used but should be
preserved for those few cases in which it is actually necessary
to protect an institution or its depositors.

Thirdly, the fact

that these powers are available will place the supervisory
agencies in a stronger position to deal with problem situations
by means of the more usual techniques of persuasion, frequent
examination, and close supervision.
Financial institutions should not be permitted to fail or
to cause loss to their depositors because of dishonest or grossly
negligent management, where this can possibly be prevented.

The

record over the years has been good, but we must make it better.
rhe legislation which we are requesting is designed to provide the
;overnment with the tools which it needs to accomplish this goal.
I urge the prompt enactment of S. 3158.

TREASURY DEPARTMENT
WASHINGTON,

April 5, 1966
FOR IMMEDIATE RELEASE
ANTIDUMPING PROCEEDING ON
PLASTIC CONTAINERS
On January 25, 1966, the Commissioner of Customs received information in proper form pursuant to the provisions of section
l4.6(b) of the Customs Regulations indicating a possibility that
plastic containers imported from Canada, manufactured by Reliance
Products Limited, Winnipeg, Canada, are being, or likely to be, sold
at less than fair value within the meaning of the Antidumping Act,
1921, as amended.
Available information shows that the primary use is for shipping and storage of electrolyte and other liquid chemicals.
In order to establish the validity of the information, the Bureau of Customs is instituting an inquiry pursuant to the provisions
of section 14.6(d)(l)(ii), (2), and (3) of the Customs Regulations.
The information was submitted by Hedwin Corporation, New York,
New York.
An "Antidumping Proceeding Notice" to this effect is being
published in the Federal Register pursuant to section 14.6(d)(1)(i)
of the Oustoms Regulations.
Imports of the involved merchandise received during the period
November 1, 1965, through February 28, 1966, amounted to approximately
$25,000.

TREASURY DEPARTMENT
April 6, 1966
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
$ 2,300,000,000,or thereabouts, for cash and in exchange for
Treasury bills maturing April 14,1966,
in the amount of
$2,300,509,000, as follows:
9~day bills (t~ maturity date) to be issued April 14, 1966,
in the amount of $1,300 OOO,000, or thereabouts, representing an
additional amount of bi i ls dated January 13,1966, and to
mature July 14,1966,
originally issued in the amount of
$ 1,000,387,000,the additional and original bills to be freely
interchangeable.

182-day bills, for $1,000,000,000, or thereabouts, to be dated
April 14,1966,
and to mature October 13,1966.
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 Standard
time, Monday, April 11J966o
Tenders will not be
received at the Treasury De~artment, 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,
~ith 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
rorwarded 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
!ustomers provided the names of the customers are set forth in such
;enders. Others than banking institutions will not be permitted to
lubmit tenders except for their own account. Tenders will be received
rithout deposit from incorporated banks and trust companies and from
'esponsible and recognized dealers in investment securities. Tenders
rom others must be accompanied by payment of 2 percent of the face
mount of Treasury bills applied for, unless the tenders are
ccompanied by an express guaranty of payment by an incorporated bank
r trust company.
-427

- 2 -

Immediately afL:': the closing hour, tenders will be opened attn,
Federal Reserve Banks and Branches, following which public announce.
ment 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 Treahn
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
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 April 14, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills rna turing April 14,1966.
Cash and exchange tende
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 exempt ion, as such, and los s from the sa Ie or other d ispos ition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject ro
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 bi lIs are exclude:
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 upoo
sale or redemption at maturity during the taxable year for which t~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and tb
notice prescribe the terms of the Treasury bills and govern t~
c and i tions of the ir issue. Copies of the circular may be· obt4ined
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

April 7, 1966
FOR RELEASE TO A.M. NEWSPAPERS
FRIDAY, APRIL 8, 1966
JAMES F. KING NAMED
ASSISTANT TO THE SECRETARY
Secretary of the Treasury Henry H. Fowler today announced
the appointment of James F. King, Head of the National Science
Foundation Office of Congressional and Public Affairs, as
Assistant to the Secretary for Public Affairs.
Mr. King succeeds Dixon Donnelley, who last month was
named Assistant Secretary of State for Public Affairs.
Mr. King has more than 20 years of government service.
He has served as Assistant to three Secretaries of the
Army and, during the Korean War, he was Deputy Administrator
of the Defense Production Administration.
In his new post, Mr. King will direct the Public
Information activities of the Treasury Department and all its
bureaus. He will assume his new duties April 12.
Mr. King was born in Georgetown, South Carolina, on
December 12, 1907. After receiving a B.S. degree in
government and economics from Harvard, he worked as a
reporter and editor on newspapers in his home state and
later for the Baltimore Post, the Baltimore Sun, the
Washington Daily News, and the Washington Post.
Mr. King has been with the National Science Foundation
since 1963. Before that he served for four years on the
staff of the Manufacturing Chemists Association as Assistant
to the President for Government Relations.
Before World War II, Mr. King helped to establish the
Federal Wage and Hour Administration, serving as Assistant
to the Administrator. Immediately after Pearl Harbor he
became Executive Officer in the wartime Office of Censorship.

F-428

- 2 -

After service with the Office of Price Administration, he
went on active duty with the U. S. Navy, serving as Naval
Aviation Staff Officer with the Atlantic Fleet. He received the
Commendation Ribbon for his service.
Assigned by the Navy to the Foreign Liquidation Commission
after the war, he remained as Information Director after his
release from active duty.
Before and during the Korean War, he served as Assistant to
Secretaries of the Army Kenneth Royall, Gordon Gray, and
Frank Pace, Jr. In that period, he helped set up the National
Military Establishment unified information organization, serving
as its Deputy Director.
He was appointed Deputy Administrator of the Defense
Production Administration in 1951, continuing in that post later
when Mr. Fowler was named DPA Administrator. He remained with
~r. Fowler when DPA was merged with the Office of Defense
~obilization and Mr. Fowler was appointed Director of that agency.
Mr. King served as an advisor to the Secretary of State
it the 1954 Geneva Conference and later as a consultant to the
,ecretary of Defense. In the latter capacity, he helped
!oordinate the U. S. Armed Forces People-to-People program in
~urope and the Pacific.
He returned to the Office of Defense Mobilization in 1957
:s Assistant to ODM Director Gordon Gray. After the merger of
IDM with the Federal Civil Defense Administration, he joined the
:anufacturing Chemists Association.
He is married to the former Janet Leake of Clinton,
outh Carolina. They live at 3801 Lorcom Lane, Arlington. They
ave two sons: James, Jr., who is with the U. S. Public Health
ervice in Washington, D. C.; and William, a Captain in the
. S. Army Special Forces in Germany.

000

TREASURY DEPARTMENT

April 7,1966

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN MARCH
During March 1966, 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
$38,186,500.00.
000

TREASURY DEPARTMENT
Washington
FOR RELEASE: UPON DELIVERY

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE A LUNCHEON MEETING OF THE SOUTHERN CALIFORNIA
INDUSTRIAL PAYROLL SAVINGS COMMITTEE
AT THE AMBASSADOR HOTEL, LOS ANGELES, CALIFORNIA
MONDAY, APRIL 11, 1966, 1:15 P.M., PST
I am indeed happy to have this opportunity to publicly
recognize and commend the 1965 efforts and accomplishments
by your committee in Southern California -- and to give you
every encouragement I can toward the achievement of the goals
that you have set for 1966.
I am informed that last year you attained 195 percent
of your new saver quota and that you added 141,400 new
payroll savers. This is a splendid record -- and I know
that, with the added incentive afforded by the higher
Savings Bonds interest rate of 4.15 percent recently announced
by President Johnson, you will do all you can to surpass
it this year.
There are, at this head table and in this audience,
some of those who are largely responsible for the leadership
that resulted in the high company participation you achieved
last year -- participation ranging from better than 50
percent to as high as 99 percent.
There is Dan Haughton, President of Lockheed, whose
corporate effort reached the commanding total of 99 percent.
There are those Southern California industries which you will
find lis ted in the" Business Bondwagon" folder that you have
received at your tables. And there are many more to whom we
owe so much in gratitude for the practical patriotism tqat
they have expressed so adequately and so generously.
While those mentioned are among the larger corporations,
we must not overlook the outstanding effort by organizations
with lesser numbers of employees but whose results have been
equally impressive -- such as Aerospace Corporation and the
Chrysler Corporation in Southern California.

- 2 -

Statewide, there is encouraging news that Governor Brown
has launched the 1966 Payroll Savings drive with 132,000
state employees, and that 25th Anniversary resolutions have
been adopted by the California State Assembly and Senate.
With Dr. Mettler of TRW Systems Corporation as your
Industry Chairman and R. H. Moulton of The R. H. Moulton Company
as State Chairman for Savings Bonds, and with the strength and
stature of Los Angeles County business, industry and
financial influence so abundantly represented here tonight,
your campaign is off to a full-powered head-start.
You have a 25th Anniversary goal of $192 million and a
quota of 65,000 new Payroll Savers. Your success in reaching
your goal and your quota -- indeed, in surpassing them -- is
today more imperative than ever.
I am happy to report that throughout the nation the Savings
Bond program is moving forward with new impetus, as the higher
interest rate of 4.15 percent on Savings Bonds, recently announced
by President Johnson, is already making its impact on the Payroll
Savings Plan throughout industry.
Specifically, more top managements are committed to activating
the plan; many more employees are becoming aware of its values;
increased allotments are being reported by those already participating
in the plan.
With Lynn A. Townsend, President of Chrylser Corporation as
its Chairman, the U.S. Industrial Payroll Savings Committee has a
"Business Bondwagon" rolling throughout the major centers of
American industry. Its goal is 1,200,000 new Payroll Savers in
1966 which, of course, is the Silver Anniversary year of Savings
Bonds -- making a quarter-century of vital service to the economy.
And, incidentally, President Johnson has launched a governmentwide Payroll Savings Bonds drive that promises to break, by a wide
margin, all previous records of federal employee participation
since World War II.

- 3 -

The Treasury Department first issued Series E Defense Bonds
in May 1941, although the United States had not yet entered World
War II.
After the United States entered the war, American industry
was called upon to encourage employees to buy E Bonds through
automatic payroll deductions.
The payroll method of saving became one of the mose successful
features of the War Bond Drive and has contributed significantly
to the $150 billion worth of Savings Bonds sold since 1941.
In 1963, Secretary of the Treasury Douglas Dillon called a
team of top businessmen to Washington to organize a peace-time
version of the bond sales effort so sucessful during the war.
Out of that meeting emerged the U.S. Industrial Payroll
Savings Committee. Its first chairman was Harold S. Geneen,
President of International Telephone and Telegraph Corporation.
Later Chairmen were Frank R. Milliken, President of Kennecott
Copper Corporation, and Dr. Elmer W. Engstrom, Chief Executive
Officer of Radio Corporation of America.
Under the leadership of men like these the Savings Bonds
program has become the important force for financial stability
that it- is today both for so many of our individual citizens
and for our economy as a whole.
This year, as you know, the Savings Bonds program is more
important to our economic stability than ever.
Its importance was underscored by President Johnson's
announcement of the new higher rate on Savings Bonds. While it
will take some few months yet to determine the full extent of
the effect of that new higher interest rate on Payroll Savings
totals -- since many of the corporate campaigns are just getting
underway -- early indications are that its effect will be substantial.
Last week we were able to announce the highest sales
total for Series E Savings Bonds, in March, since 1949,
or during the past seventeen years. Also, it is

- 4 significant to note that the sales of Series H Bonds, during
March, shows a sizeable increase over the same month during the
previous fuur years. Undoubtedly, this appreciable increase
reflects in the Savings Bonds interest rate.
This new rate,
therefore, should serve as an important incentive in the efforts
of all of us who are concerned with making the 25th Anniversary
year one of the most productive during the quarter-century
progess of the program.
Today, we are at a point where maximum savings are again
vital to our national welfare and to our national future. A
successful Savings Bond program is of particular urgency at this
time, not only to support our fighting men in Vietnam and our
commitment to the defense of freedom throughout the world, but
to strengthen our economy at horne and to guard against the forces
of inflation.
The regular investment in Savings Bonds, through the Payroll
Plan, helps to preserve the buying power of our American dollars.
In the words of President Johnson, "I believe that Savings Bonds
are the most important investment that any American can make."
In the days and months to corne, all of us -- in government,
in banking and finance, in industry and commerce -- must share
and bear an extra burden of responsibility in maintaining a
steady economic footing while we continue to move ahead.
Now, more than ever before, it is essential that we finance
our debt without inflation; that we do all that we can to encourage
greater savings throughout our economy.
Participation in the
Savings Bond program is a measurable and effective means of
accomplishing both.
Every dollar that goes into United States savings bonds
does double duty in the fight against inflation -- for it not
only diminishes the private spending stream but strengthens our
ability to finance our national debt in a noninflationary manner.
At the same time, the savings bonds program -- and the payroll
savings plan in particular -- help all who participate to enhance
their own personal financial well-being and establish the sound
financial habit of systematic savings.

- 5 -

000

TREASURY DEPARTMENT
(

FlELEASE 6: 30 P. 1,1 • ,
lday, April III 1966.

li.ESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders fo)':' two series of Treasury
Is, one series to be an additional issue of the bills dated Janu8ry 13, 1966,
the other series to be dated April 14, 1966, which ,lere offered on April 6,
6, were opened at the Federal Reserve Banks today. Tenders were invited for
300,000,000, or thereabouts, of 9l-day bills and for $l,OOO,OOO,OOO, or thereuts, of 182-day bills. The details of the two series are as followR:
1E OF ACCEPTED
:>ETITIVE BIDS:

91-day Treast'.!"y bills
maturing July 14, 1966
Approx. Equiv.
Prjce
Annual Rate

Price

High
Low
Average

Approx. Equiv.
Annual Rate

98.839 a/
97.599
4. 749~
98.827 97.588
4.771%
98.833
97.592
4.763%
a/ Excepting 1 tender of $35,000
~6% of the amount of 9l-day bills bid for at the low price was accepted
87~ of the ~ount of 182-day bills bid for at the low price was accepted

TE~rnERS

APPLISD FOR

strict
3ton
rl York
L1ade1phia
~veland

:hmond
.anta
.cago
Louis
meapo1is
.sas City
las
Francisco
:lTALS
~ludes

A~ ACC~PTED

BY FEDERAL

RES~RVE

DISTRICTS:

Ano1ied For
Accepted
$ 36,827,000 $
26,827,000
733,086,000
1,321,666,000
20,823,000
27,823,000
35,730,000
35,730,000
16,562,000
16,562,000
70,828,000
75,148,000
158,631,000
184,075,000
l5,902,000
54, n? J 000
17,945,000
17,945,000
39,116,000
39,116,000
29,e14,000
25,374,000
110,007,000
112,207,000

Applied For
$ 11,281,000
1,482,653,000
15,012,000
58,719,000
7,051,000
39,483,000
168,388,000
25,908,000
13,158,000
15,225,000
15,229,000
232,410,000

Accepted
$
11,281,000
609,787,000
7,012,000
46,789,000
7,051,000
20,433,000
99,73 8 ,000
17,187,000
11,158,000
15,186,000
11,099,000
143,532,000

$1,951,135,000 $1,300,831,000

£/ $2,084,517,000

$1,000,253,000

$303,103,000 noncompetitive tenders accepted at the average price of 98.833
:ludes $139,339,000 noncompetitive tenders accepted at the average price of 97.592
!se rates are on a bank discount basis. The equivalent coupon issue yields are
'4% for the 91-day bills, and 4.95% for the 182-day bills.

TREASURY DEPARTMENT
Washington

REMARKS BY THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE DINNER-MEETING OF INDIANAPOLIS
INDUSTRIAL PAYROLL SAVINGS COMMITTEE
TUESDAY, APRIL 12, 1966, 8:15 P.M., CST
TWENTY-FIVE YEARS OF SAVING SECURITY
The purpose of our meeting tonight takes on added
importance in the light of our current economic climate.
Savings Bonds have always been important -- both to the
individual who invests in them and to the economic well-being
of the nation -- but they are more important today than ever
before.

The Savings Bond program has really compiled an

impressive record and we in the Treasury are justly proud of
that record.

No other country has achieved anything like the

broad public participation in financing a government that
we -- as a direct result of the Savings Bond program -- take
largely as a matter of course in the United States.
Tonight, I am happy to say that United States Savings
Bonds account for about 23 percent of the publicly-held
national debt.

These investments in Savings Bonds represent

genuine, bona fide, long-term savings.

- 2 I am pleased to have such an appropriate occasion to
encourage you in the achievement of the goals that you have
set for 1966, the Silver Anniversary year of our program.
Our Savings Bond program is moving forward with new
impetus.

Already the higher rate of 4.15 percent, recently

announced by President Johnson, is making its impact on the
Payroll Savings Plan throughout industry.

Specifically, more

top managements are committed to activating the plan; increased
allotments are being reported by those already participating in
the plan; and many more employees are being exposed to its
values.
With Lynn A. Townsend, President of Chrysler Corporation
as its Chairman, the U. S. Industrial Payroll Savings Committee
has a "Business Bondwagon" rolling throughout the major centers
of American industry.

Its goal is 1,200,000 new Payroll Savers

in 1966.
The Treasury Department first issued Series E Defense Bonds
in May, 1941, six months before the United States entered World
War Two.

After the United States entered the war, American

industry was called upon to encourage employees to buy E
Bonds through automatic payroll deductions.

- 3 As a result, the payroll method of saving became one of the most
successful features of the War Bond Drive and has contributed
significantly to the $150 billion worth of Savings Bonds sold
since 1941.
In 1963, Secretary of the Treasury Douglas Dillon called
a team of top businessmen to Washington to organize a peacetime
version of the bond sales effort so successful during the war.
Out of that meeting emerged the U. S. Industrial Payroll
Savings Committee.

Its first chairman was Harold S. Geneen,

President of International Telephone and Telegraph Corp.

Later

chairmen were Frank R. Milliken, President of Kennecott Copper
Corp., and Dr. Elmer W. Engstrom 9 Chief Executive Officer of
Radio Corporation of America.
While it will take some few months yet to determine the
:ull extent of the effect of the higher interest rate on Pay~oll

Saving totals -- since many of the corporate campaigns are

ust getting under way -- early indications are that substantial
'esults will be registered.
Last week we were able to announce the highest sales total
or Series E Savings Bonds, in March, since 1949, that is,
uring the past 17 years.

Also, it is significant to note that

le sales of Series H Bonds during March shows a sizable
lcrease over the same month during the previous four years.

- 4 Undoubtedly, this appreciable increase reflects the effect of
the rise in the interest rate on Savings Bonds from 3.75 to
4.15 percent.

Unquestionably, this is an important and

invigorating incentive to those of you here and to all of us
who are concerned with making the 25th Anniversary year orie of
the most productive during the quarter-century progress of the
program.
Today, we are at a point where maximum savings are again
vital to our national welfare and to our national future.

successful Savings Bond program is of particular urgency at this
time, not only to support our fighting men in Viet Nam and our
commitment to the defense of freedom throughout the world, but
to strengthen our economy at home and to guard against the
forces of inflation.
The regular investment in Savings Bonds, through the Payroll
Plan, helps to preserve the buying power of our American dollars.
In the words of President Johnson, "I believe that Savings
Bonds are the most important investment that any American can
make."
In the days and months to corne, all of us -- in government,
in banking and finance, in industry and commerce -- must bear

- 5 -

an extra burden of responsibility in maintaining a steady
economic footing while we continue to move ahead.
Now, more than ever before, it is essential that we
finance our debt without inflation; that we do all that we can
to encourage greater savings throughout our economy.

Participa-

tion in the Savings Bond program is a measurable and effective
means of accomplishing both.
000

TREASURY DEPARTMm'l'

Washington
tv1MEDIA TE RELEASE

F-431

APRIL 13,1966

~DNESDAY,

The Bureau of Customs announced today preliminary figures on imports for
)nsumption of the following commodities from the beginning of the respective
lota periods through April 2, 1966:

Commodity

~iff-Rate

Period and Quantity

Unit of : Imports as of
Quantity: Apr. 2, 196c~

Quotas:
j

'earn, fresh or sour ••••••••

Calendar year

1,500,000

Gallon

ole Milk, fresh or sour •••

Calendar year

3,000,000

Gallon

ttle, 700 Ibs. or more each Jan.
(other than dairy cows) ••• Mar.
Apr.
June

1, 1966 31, 1966
1, 1966 30, 1966

652,571

120,000

Head

29,912

120,000

Head

979

12 mos. from
Aprill, 1965
12 mos. from
April 1, 1966

200,000

Head

94,589

200,000

Head

1,908

Calendar year

23,591,432

Pound

a Fish •••••••••••••••••••

Calendar year

To be
announced

Pound

17,608,572

te or Irish potatoes:
ertified seed ••••••••••••
ther •••••••••••••••••••••

12 mos. from 114,000,000
Sept. 15, 1965 45,000,000

Pound
Pound

68,049,750
16,687,531

forks, and spoons
Lth stainless steel
mdles ..•.•..••.• o • • • • • • •

Nov. 1, 1965 Oct. 31, 1966

84,000,000

Pieces

Quota filled

;kbrooms

••••

Calendar year

1,380,000

Number

685,668

0 ••••

Calendar year

2,460,000

Number

1,234,282

ttle, less than 200 Ibs.
~ach ••••••••••••••••••••••

;h, fresh or frozen, fil.eted, etc., cod, haddock,
lake, pollock, cusk, and
~sefish ••••••••••••••••••

7,733,10¢/

19S,

.0 •••••••••• 0

brooms •••••••••••

Imports for consumption at the quota rate are limited to 11,795,716 pounds
during the first 6 months of the calendar year.

-2-

Period and Quantity

Commodity

: Unit of : Imports as ~

Quantity: Apr. 2, 1965

Absolute Quotas:
Butter substitutes containing over 45% of butterfat,
and butter oil ••••••••••
Fibers of cotton processed
but not s'PUll ••••••••••••
Peanuts, shelled or not
shelled, blanched, or
otherwise prepared or
preserved (except peanut
butter) •••••••••••••••••

1,200,000

Pound

mos. from
Sept. 11, 1965

1,000

Pound

12 mos. from
August 1, 1965

1,709,000

Pound

Calendar year

Imports as of April 11, 1966.

F-431

Quota filk

1,O81,67~

rREASURL' DEl'AR'DmiT
q a:3r.in~....:m, D. C.

:oomn lATE

RELEASE

F-432

WEDNESDAY, APRIL 13,19l):l

The Bureau of c..':l~tcms ?~"lJ'..-:rm~~d ~da,y preliminary figures shewing the
quantities of wheat and mil.l-.d wheat products authorized to be entered, or
withdrawn from warehouse, for consumption under the import quotas established
in the President' 8 proclam.et~on of Ma..v 28, 19U, as modified by the President' B
proclamation of April 13, 19~2. and provided for in the Tariff Schedules of
the United States, for the 12 months coIml1encing May 29, 1965, as follows:

Country
of
Origin

••

···
·.
•
•

••

Canada
China

\\f}}eat
:

Milled wheat products
Imoorts

••

:Ma.y 29, 196
;April 2, 1900

(Busbsle)

795,000

Italy
Cuba
Fra'nce
Gre,ece
Moocico

1,000
100
100

lOG
2,OCC

:x
3J':J

Uruguay

1,000
1,000
1,000
14,000
2,000
12,000
1,000
1,000
1,000
1,000
1,000

1,000
1,000
1,000
1,000

Sweden
Yuga slavi.a
~orvq

:fl.D.ary IslandfJ

lelg11UDl

300

5,000
5,000

1,000

P(')1am and Danzig

hlatemala
3raz11
Jmon. of Soviet
Socialist Republic~

3,815,000

75,000

PS1l8m&

:rumania

3,815,000
24,000
13,000
13,000
8,000

Hungary
Hong Kong

Japan
United Kingdom
Australia
Germany
Syria
New Zeala.IX1
Chile
Netherla.n1s
Argentina

(Bushels)

·.·

Imports
Established :
:May 29, 196rJ.
Quota
i April 2, 1960
(Poums)
(Pouma)

1, OCO
100
1('.,'-',
100
100

Ither foreign countries

or areas

4,000,000

3,815,]00

TREASURY DEPARTMENT

Washington

IMMEDIATE RELEASE
WEDNESDAY, APRIL 13,1966

F-433

The Bureau of Customs has announced the following preliminary
figures showing the imports for consumption from January 1, 1966, to
April 2, 1966, inclusive, of commodities under quotas established
pursuant to the Philippine Trade Agreement Revision Act of 1955:

Conrnodity
Buttons

:Established Annual
~ota Quantity

:Unit of : Imports as of
: Quantitz: AEr. 22 1966
Gross

88,012

••••••••••••••

510,000

Cigars •••••••••••••••

120,000,000

Number

Coconut oil ••••••••••

268,800,000

Pound

267,257,443

1,966,190

Cordage

••••••••••••••

6,000,000

Pound

2,441,542

Tobacco

o •••••••••••••

3,900,000

Pound

1,137,352

TREASURY DEPAR'lMENT
Washington, D. C.
IMMED lATE RELEAS E

~DNESDAY,

APRIL 13,1966

F-434

Preliminary data on imports for consumption of cotton and cotton waste chargeable to the quotas established by
Presidential Proclamation No. 2351 of September 5, 1939, as amerrled, am as modified by the Tariff Schedules of t.he
United States which became effective August 31, 1963.
(The country designations in this press release are those specified in the apperxiix to the Tariff Schedules of the
United States. There is no political connotation in the use of oubooded names.)
COTTON (other than linters) (in poums)
Cotton umer 1-1/8 inches other than rough or harsh urxier 3/4"
Imports September 20. 1965 - April 11. 1966
Country

f Origin

Established Quota

Egypt and Sudan ••••••••••••
Peru •••••••••••••••••••••••
lrxiia and Pakistan •••••••••
China ••••••••••••••••••••••
Mexico •••••••••••••••••••••
Brazil •••••••••••••••••••••
Union of Soviet
Socialist Republics ••••••
Argentina ••••••••••••••••••

783,816
247,952
2,003,483
1,370,791
8,883,259
618,723

Haiti ••••••••••••••••••••••
Ecuador ••••••••••••••••••••

Imports

Country of Origin

130 ,458
1,340,298

475,124
5,203
237
9,333

~I
~

Established Quota

Honduras ••••••••••••••••••••
Paraguay ••••••••••••••••••••
Colombia ••••••••••••••••••••
Iraq ••••••••••••••••••••••••
British East Africa •••••••••
Irxionesia and Netherlands
New Guinea ••••••••••••••••
British W. Irxiies •••••••••••

Nigeria •••••••••••••••••••••

British W. Africa •••••••••••
Other, including the U.S ••••

Except Barbados, Bermuda, Jamaica, Trinidad, and Tobago.
and Ghana.

~ Except Nigeria

Cotton 1-1/8" or more
Established Yearly Quota - 45.656.420 Ibs.
Imports August 1. 1965 - April 11. 1966
Staple Length

1-3/Stt or more
1-5/12" or }WrA Am "maYO

Allocation

Imports

39,590,778

Imports

752

871

124
195
2,240

71,388
21,321
5,377
16,004

.
..
..

..,

COTTON WASTES

(In pounds)

CO'M'CN CARD STRIPS made from cotton havin~ a staple of less than 1-3/16 inches in length, OOMBER
'\o.'ASTE, LAP WASTE, SLIVER 1..iASTE, AND ROVING WASTE, WHEI'HER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VAlliE: 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 the followin~ countries: United Kin~dom, France, Netherlands,
Swi tzerland, Belgium, Germany, and Italy:

Country of Origin

Established

TOI'AL QUOTA

:
United

Kin~dom ••••••••••••

CaIlada ••••••••••••••••••••

France ••••••••••••••••••••
India and Pakistan ••••••••
Netherlands •••••••••••••••
Switzerland •••••••••••••••
Belgium .••••••••••••••••••
Japan •••••••••••••••••••••

China •••••••••••••••••••••
Eg:y'pt •••••••••••••••••••••
Cllba ••••••••••••••••••••••
Ge:nTlarIJ' • • • • • • • • • • • • • • • • • • •

Italy ..•••••••.••••.••••••
Other, includin~ the U.S ••

L,323,457
239,690
227,420
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,544
76,329
21,263
5,482,509

1/ Included in total imports, column 2.
Prepared in the Bureau of Customs.

F-434

---=

-:-_. Total Imports
: Sept. 20, 1965, to
: April ll, 1966
:

22,577

Established :
33-1/3% of :
Total Quota

1,441,152

Imports

Sept. 20, 1965, to April ll. 1966

22,577

75,807
22,747
14,796
12,853

...
11,765

25,443
7,088

34,342

1,599,886

22,577

TREASURY

C~PARTMENT

April 13, 1966

FOR TIMMEDIATE 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
$2,300,000,000,or thereabouts, for cash and in exchange for
Treasury bills maturing April 21,1966,
in the amount of
$2,303,720,000, as follows:
91-day bills (to maturity date) to be issued April 21,1966,
in the amount of $1,300,000,000, or thereabouts) representing an
additional amount of bills dated January 20,1960, and to
mature July 21,1966,
originally issued in the amount of
$1,001,138,000, the additional and original bills to be freely
interchangeable.
182 -day bills, for $1,000,000,000, or thereabouts, to be dated
!\pri121,1966,
and to mature October 20,1966.
The bills of both series will be issued on a discount basis under
and noncompetitive bidding as hereinafter provided, and at
naturity their face amount will be payable without interest. They
lill be issued in bearer form only, and in denominations of $1,000,
i5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
maturi ty value).

.~ompetitive

Tenders will be received at Federal Reserve Banks and Branches
p to the clOSing hour, one-thirty p.m., Eastern Standard
ime, Monday, April 18, 1966.
Tenders will not be
eceived at the Treasury De~artment, Washington. Each tender must
e for an even multiple of $1,000, and in the case of competitive
enders the price offered must be expressed on the basis of 100,
ith not more than three decimals, e. g., 99.925. Fractions may not
e used. It is urged that tenders be made on the printed forms and
:)rwarded in the special envelopes which will be supplied by Federal
;::!serve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
lstomers provided the names of the customers are set forth in such
imders. Others than banking institutions will not be permitted to
~bmit tenders except for their own account.
Tenders will be received
thout deposit from incorporated banks and trust companies and from
sponsible and recognized dealers in investment securities. Tenders
om others must be accompanied by payment of 2 percent of the face
ount of Treasury bills applied for, unless the tenders are
companied by an express guaranty of payment by an incorporated bank
trust company.
F-435

- 2 -

Immediatelv after the closing hour, tenders will be opened at t~
Federal Reserve- B.:wks and Branches, following which public announcement will be made by the Treasury Department of the amount and prke
range of accepted bids~ Those submitting tenders will be advised
of the acceptance or rejection thereof. The. Secretary of the Treasur;
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such ~e~pect shall be
final. Subject to these reservations, noncompet~~~ve tenders for
each issue for $200,000 or less without stated pr:ce f~om anyone
bidder will be accepted in full at the average pr~ce (~n t~ree
) of accepted .
competitive bids for the respect~ve ~ssues..
. als
d ec~m
Settlement for accepted tenders in accordance with the bid~ must be
made or completed on April 21, 1966, in cash or other immediately
available funds or in a like face amount of Treasury bills maturing
April 21, 1966; provided, however, that settlement for tenders submitl
to the Federal Reserve Bank of Dallas (including its Branches) m~t~
completed at that Bank (or Branch) on April 22, 1966, and must inclu~
one day's accrued interest if the settlement is made with other than
Treasury bills maturing April 21. Cash and exchange tenders will
receive equal treatmenL Cash adjustments will be made for differenci
be tween the par value of maturing bills accepted in exchange and the
issue price of the new billso
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 dispositioo
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject ~
estate, inheritance, gift or other excise taxes, whether Federal m
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 bi lls 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 t~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revis ion) and this
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained frl
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

FOR TIvlMEDIATE RELEASE
TREASURY DECISION ON EGGS
UNDER THE ANTIDUMPING ACT
The Treasury Department has completed its investigation
with respect to the possible dumping of whole frozen eggs from
the United Kingdom. A notice of intent to close this case vnth
a determination that this merchandise is not being, nor likely to
be, sold at less than fair value within the meaning of the Antidumping Act, 1921, as amended, v/ill be published in an early issue
of the Federal Register.
The merchandise is used primarily in commercial baking.
Section 14.7(b)(9) of the Customs Regulations provides that
a determination of no sales at less than fair value shall be
made
"Whenever the Secretary of the Treasury is satisfied
that promptly after the commencement of an antidumping
investigation either
(i) price revisions have been made which eliminate
the likelihood of sales belovi fair value and that
there is no likelihood of resumption of the prices
which prevailed before such revision, or
(ii) sales to the United States of the merchandise
have terminated and will not be resumed.
(I

The investigation commenced on March 11, 1966. On March 29,
1966, an ItAntidumping Proceeding Notice," signed by the Commissioner
of Customs, Vias published. On March 30, 1966, a "Vlithholding of
Appraisement Notice," signed by the Commissioner of Customs, was
published. On April 7, 1966, assurance was given by the British
exporter that there would be no shipments, beyond those already on
the sea or loaded, for entry into the United States of the whole

- 2 froze:1 ec~ at less than fair value vrithin the meaning of the
Antidurr.pinc:: Act. At this point, it was estimated that some
6 mi:ilion pounds of the product had already arrived, of v/hich
1. 2 r:.ill ion pounds had been us ed, vri th part of the balance us ed,
part not yet used. An additional 5.9 million pounds v/ere estimated
to be about to arrive, on the high seas, or already loaded due to
depart. Contracts outstanding for delivery of some 19 million
pounds, not included in the above figures, v/ere canceled. The
assurance given that no further shipments Vlould be made, except
at prices not less than fair value, vras given irrespective of
hOYI the presently pending dumping proceeding was determined. At
the same tille, importers of the product noted that United States
stocks in March Vlere at a historic lov/.
Although continuing to Vlithhold appraisement, the Treasury
Department concluded that the record VIas sui'ficient to justify a
tentative determination that action had been taken promptly so as
to brine this case vrithin the purview of the above quoted regulation.

TREASURY DEPARTMENT
Washington
FOR RELEASE:

UPON DELIVERY

REMARKS OF THE HONORABLE MERLYN N. TRUED
~SSISTANT SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS
AT A BRIEFING CONFERENCE ON U. S. TRADE AND INVESTMENT
SPONSORED BY
THE FEDERAL BAR ASSOCIATION
AND THE
FOUNDATION OF THE FEDERAL BAR ASSOCIATION
IN COOPERATION WITH
THE BUREAU OF NATIONAL AFFAIRS
SHOREHAM HOTEL, WASHINGTON
APRIL 14, 1966, AT 9:30 A.M.

OUR BALANCE OF PAYMENTS PROGRAMS
AND
PRIVATE CAPITAL
I am delighted at the opportunity to open this discussion
of private capital and the balance of payments. There has
perhaps never been a more timely moment to cast the balance
of payments program we now have into perspective in terms
both of the short run and the longer run. No one, I believe,
has been more conscious than have the architects of the
present program of the fundamental fact that short term
measures can distort, even delay considerably, the attainment
of the longer range objectives. I submit that the program
has avoided this pitfall. Far from impairing chances of
achieving the freer trade and payments system which we have
sought, the measures taken, though momentarily seeming to
backtrack, have in fact hastened our move toward that goal.
And we have made real progress on this front -- I leave the
evidence for this statement until later in my remarks.
I wish that I could present this subject matter to you
neatly tidied on a conclusive brief, but I cannot.
In these circumstances, it is good to know that
are on the way. The distinguished Secretary
)f Commerce, the Honorable John T. Connor, is going to speak

~einforcements

- 2 -

to you at lunch about the part of the balance of payments
program that is his particular responsibility, the voluntary
program dealing with overseas investment by American
businesses. And, Mr. Robert L. Sammons, of the Federal Reserve
Board, will succeed me here to explain the other main element
of the voluntary program, dealing with lending abroad.
Since I can depend upon the additional information and
clarification that you will be getting today from these and
the other speakers you will hear, I feel safe in leaving in
their competent hands most responsibility for description of
our balance of payments programs that you expect from us.
For my part, I would like to turn directly to a
consideration of the relationship between our payments position
and programs, on the one hand, and the total obligations
that the United States economy has undertaken, on the other.
Neither the importance attached by the President to bringing
our international payments into equilibrium at an early time
and keeping them in equilibrium, nor the measures in the
President's program for doing this can be assessed aside
from a realization of what, altogether, the American economy
is trying to accomplish.
The Obligations of the
American Economy
At home, we have realized that we have broken through to
economic magnitudes that permit us to have not just a better
supplied society, but to lift our sights entirely, to the
building of a Great Society. Having realized this -- in
itself a critical act -- the American people have pledged
themselves to finance the giant tasks involved.
By another critical act that created other and very great
~ssessments upon their resources, the American people have
realized that they cannot build a Great Society at home in
isolation from the rest of the world.
For the defense of freedom, we are spending this year
aore than $58 billion. There is no free man anywhere in the
70rld who does not owe his freedom in good part to this
Tnited States shield and to all it represents in terms of
,merican human and material sacrifices over a period now
~asured in decades.

- 3 Finally, during those decades, behind the defense shield
that we have raised for all free societies, we have poured out
our treasure and our human energy and talent in an effort to
help people beyond our borders build economies that would
provide for better lives. Our defense and our assistance
efforts add up to leadership by the United States in laying
the foundations in the Free World for a Greater Society of
Nations.
In his State of the Union Message this year, President
Johnson pledged us to continue in this, taking new directions
paralleling what we are learning in our efforts to build a
Great Society at home. As we are doing or have done at home,
we are helping to attack poverty abroad through programs to
improve health, education and agriculture.
But while moving forward on this program, we must seek
its achievement
without sacrificing price stability,
without sacrificing employment and
economic growth,
without running chronic balance of
payments deficits,
and, finally and fundamentally, without
loss of that prime source of strength
and efficiency: freedom of private
economic choice.
It is clear that our requirements for goods and services
can only be met by an economy that grows steadily and
substantially, in both capacity and productivity.
It is equally clear that our qualitative requirements
growth and stability, in freedom -- can be met only by an
economy that mirrors highly responsible attitudes on the part
of all sectors of the economy.
The Responsible Economy:
At Home
In an address on April 4 at San Francisco, Secretary
Jf the Treasury Fowler pointed out that during the five years
from 1961 to 1965:

- 4 Corporate profits after taxes rose by more than 65 percent,
compared to a decline in the previous five years of 2 percent.
Employe compensation rose about 30 percent, compared
to 20 percent in the previous five years.
Real employe compensation -- compensation corrected for
price rises -- grew nearly twice as much in the last five
years as it did in the five years preceding 1961.
Employment of both people and production equipment rose,
while in the five previous years, idleness of both people
and capital increased.
Why?

What made these large and significant differences?

For one thing, during this period of balanced growth
and increased benefits to all, government economic policy was
realistically responsive -- that is to say, highly
responsible -- to the nation's real needs. Demand was stimulated
and employment increased by cutting the taxes on the earnings
of both people and capital. Capital was further encouraged to
make available to American labor the best in new, high
productivity tools by a 7 percent investment credit and by the
depreciation reform of 1962. To this -- and at a critically
early point -- was added a further stimulus to productivity
in the form of massive programs for training and retraining
of American labor. By these measures unit production costs
were held down while output rose, permitting the earnings of
both capital and labor to rise without inflationary effects.
Further, the manpower training programs and the improvement
Jf general education cut deep into structural unemployment
In the United States.
What these comparisons make vividly clear,
;ecretary Fowler said, and I quote:
"is the fac t that the wage -price
guideposts -- or something like them
must occupy an important place in any
successful effort to secure real
growth in the economic abundance in
which we all share."
He continued:
"In 1965 we were closer than at any time
in our history to the simultaneous
achievement of our four paramount goals:

- 5 -

strong and stable economic growth,
full employment, reasonable price
stability and equilibrium in our
international balance of payments.
"The question before us is how shall we
seek to accomplish what no other free
nation has succeeded in doing . . .
Shall we build upon the policies that
have brought us so close to our goals?
Or shall we revert to policies . . .
that would have us achieve one or two
of our economic goals at the expense
of the others?"
We think that the answer is clear: we opt to maintain our
progress toward all our goals. And the way to do so, we
think lies in the continued exercise of responsible restraint
along the lines laid out for businesses and unions in the
wage-price guideposts, and in the exercise by individuals
of responsibility in their private affairs by such means as
moderation of spending and borrowing, support of the
Savings Bonds program, and postponement of travel abroad.
In short, an economy that keeps its sense of responsibility
as high as its goals.
The Responsible Economy:
Abroad
The success that we have in establishing, at home, a
partnership in responsibility between government and the
private sector for achieving difficult economic goals sets
a pattern for dealing with the complex balance of payments
problem for a temporary period through a similar partnership,
permitting the avoidance in our foreign economic policy, as
at home, of restrictionist practices and controls that
intrude upon private economic decision making.
The review we have just made of our domestic economy
demonstrates that we have not had the classic balance of
payments trouble: inflation, or obsolete work skills or
obsolete productive equipment and management methods, causing the
deficit country's goods and services to become non-competitive
and resulting in an unfavorable trade balance. We have had
persistent trade surpluses, although they have varied

- 6 -

substantially, and although it is possible that they would
have been larger with greater emphasis on competitiveness
at home and abroad.
The sources of our payments deficits are to be sought in
very different directions, chiefly in such factors as the
excessive reliance of some European countries on tight money
policies to deal with inflationary pressures, combined with
the relative strength and efficiency of our capital markets,
making the dollar the easiest and cheapest investment vehicle:
our technological and managerial skills that enable our
corporations to take advantage, through direct investment, of
the opportunities presented by expanding markets abroad; our
official outlays abroad for defense and assistance, and our
mounting tourist expenditures. These bring on deficits -outflows of dollars from us bigger than dollar inflows to us.
The dollar is fully convertible into gold for official
purposes -- the only currency offering this privilege.
Consequently, every dollar that goes abroad can become a
claim upon our gold if it moves into the hands of official
holders. And, because our domestic gold production is less
than our commercial and industrial requirements for gold, there
is a limit to the claims we can prudently permit to build up
abroad. Therefore it is necessary -- absolutely necessary -for us to bring our payments into equilibrium and keep them
there.
Clearly, it is necessary to move in several directions
to overcome this problem and to keep it under control.
First, it is necessary to increase our trade surplus,
to balance off our dollar outflows for official purposes and
investment.
Second, we must maintain universal faith in the dollar,
as the major financing instrument and as a reserve medium that
is a most reliable store of value for the future.
This is where the partnership in economic responsibility
between the government and the private sectors of the economy
at home becomes critically important. Only in the context of
an American economy whose main characteristics are high
productivity, law cost of production, and stability of prices
can we hope to continue -- in a world that is increasingly

- 7 competitive -- to win large annual surpluses in our commercial
trade with the rest of the world. And, only if we are
successful through our partnership in economic responsibility
in achieving vigorous economic growth and economic stability
together can we expect to keep the dollar in the eyes of the
world what President Johnson has declared it must be:
"As goa:1 as gold."
If, through such measures as the wage-price guideposts,
we demonstrate that we can make simultaneous economic growth
and economic stability a way of life in the American economy,
we will reinforce our progress on the balance of payments
front. For by doing this, we would -- and I think that we
are well on the way to doing so -- establish the competitiveness
of the American economy on such solid grounds that we could
look forward with reasonable confidence to healthy and perhaps
increasing trade surpluses.
These are, in turn, the basic conditions necessary for
attaining equilibrium in our international payments, and,
having attained equilibrium, for sustaining it.
With this firm, critically required, underpinning,
the balance of payments prospects over the years ahead give
us no cause for pessimism or undue concern. For the trade
surplus will be reinforced by a growing stream of earnings
flowing back to the U. S. on an ever broader investment base
and let me remind you quickly that our balance of payments
program does not involve a halting of investment flows; quite
the contrary. But the base of earnings even now is immense:
U. S. direct investment abroad alone now totals over
$48 billion. A further element of strength lies in the fact
that capital markets abroad show signs of becoming broader
lnd more efficient mobilizers of capital for productive investment.
~ccordingly, insofar as I am concerned at least, the outlook on
:his front over the years ahead is bright.
To span the gap between the stronger position of the
and the more immediate limitations on our national
apacity to provide capital around the world, however, we
ound need for arrangements under which the private and the
overnmental sectors could exercise responsible restraint
n their operations, with the dual purpose of achieving private
Dmpetitive business objectives -- from which the economy
~aws its basic strength -- and meeting national needs.

~uture

- 8 Here we found need for arrangements under which the
private and the governmental sectors can exercise responsible
restraint in their operations, with the dual purposes of
achieving private competitive business objectives -- from
which the economy draws its basic strength -- and meeting
national obligations.
The government, for its part, should take -- and indeed
has taken -- the first step. The balance of payments effects
of governmental programs abroad have been cut from $3.8 billion
in 1960 to $2.4 billion in 1965. Vietnam makes further gains
unlikely, and may well temporarily reverse the trend in this
one area of the balance of payments problem. But the
government is practicing what it preaches by intensifying
its efforts to cut the balance of payments effects of its
foreign spending as unavoidable pressures force foreign spending
upward.
A factor that, two and three years ago, abruptly swelled
our payments deficits was the outflow of dollars to foreign
parts for private investment, and foreign lending by American
financial concerns.
Between 1960 and 1964 direct investment outflows rose from
$1.7 billion to $2.4 billion, while in 1965 alone, the total
appeared likely to jump more than a billion dollars further.
During 1961-1964 the outflow of bank capital doubled,
rising from $1.2 billion to $2.5 billion. As a result of the
Interest Equalization Tax, the outflow of private capital
into foreign securities was no greater in 1964 than in 1960.
The outflow on account of all other types of private capital
rose from $400 million in 1960 to $900 million in 1964.
The
Guidelines
Thus it was that President Johnson's balance of payments
program announced a little more than a year ago, and extended
and strengthened for this year, laid its main emphasis upon
the voluntary approach that, on the domestic front, has its
counterpart in the form of the wage-price guideposts. I am
referring to the guidelines for moderating the flow of
dollars abroad for direct investment and foreign lending.

- 9 Let me repeat very briefly at this point something that
I am sure will also be a part of what Secretary Connor and
Mr. Sammons will be saying to you.
The voluntary cooperation program is not aimed at
reducing the amount of foreign investment. On the contrary, it
allows for an increase in this investment. It calls for a
moderation in the ~ of the increase, with the objective of
arriving at a rate more compatible with our current balance of
payments situation. But it is a moderated increase, not a
decrease, in foreign investment that is involved.
The guidelines aim to give government the means for
carrying out its proper role in a free economy: the
conditioning of the economic climate with respect to the
general well being, while permitting economic decision
making to remain where it belongs: in private hands.
Furthermore, the guidelines have a fundamental importance
for the private concerns that they affect. By helping to
protect the stability of the dollar, they help continue the
dollar in the role of the major international currency, with
all that means for expanded U.S. business opportunities.
How long will we need to employ the guidelines?
Secretary Fowler addressed himself to the same question
in a speech on April 5 -- and I will quote his words:
"Looking ahead, I would like to be able
to suggest some magic date for the
termination of the voluntary balance of
payments restraints. But I cannot do so.
We are not likely to be able to terminate
the program so long as hostilities in
South Vietnam on the present scale
persist.
"When that is over, there can be a
thorough-going re-examination of all
the factors that throw light on the
prospects that the voluntary restraints
program could be modified or abandoned
without bringing back major deficits in
our balance of payments."

- 10 Today, April 14, nine days later, I would not want to be
any more definite.
But I do want to re-emphasize the need for continued
sharing of responsible economic conduct by the government,
business, labor, and the public generally. We feel confident
that this sharing of responsibility will continue, destroying
the last vestiges of any lingering doubt anywhere that the
U.S. will effectively eliminate its balance of payments
deficits or that the dollar is not as good as gold.
Our task on the balance of payments front has been
made more difficult by the fulfilling of our commitment in
Southeast Asia. This requires even closer identification of our
efforts on a broad front. Even while the cause is urgent, however,
the longer-term prospects remain highly promising.

000

TRI::ASURY DEPARTMENT
(

April 15, 1966
FOR IMMEDIATE RELEASE
ANTIDUMPING PROCEEDING ON
FISHERY PRODUCTS
On March 9, 1966, the COmmissioner of Customs received information in proper form pursuant to the prOVisions of section 14.6(a)
of the Customs Regulations indicating .a possibility that fishery
products imported from the U.S.S.R. are being, or likely to be, sold
at less than fair value within the meaning of the Antidumping Act,
1921, as amended.
In order to establish the validity of the information, the Bureau of Customs is instituting an inquiry pursuant to the provisions
of section 14.6(d)(1)(ii), (2), and (3) of the Customs Regulations.
The information was developed within the Customs Service.
An "Antidumping Proceeding Notice" to this effect is being pub-

lished in the Federal Register pursuant to section 14.6(d)(1)(i) of
the Customs Regulations.
Imports of the involved merchandise reported for the period
January 1, 1966, to date amounted to approximately $375,000.

TREASURY DEPARTMENT

April 15, 1966
FOR IMHEDIATE RELEASE
TREASURY DECISION ON BULK, CRUDE, UNDRIED SOLAR SALT
UNDER THE ANTIDUMPING ACT
The Treasury Department has completed its investigation with
respect to the possible dumping of bulk, crude, undried solar salt
from Mexico, manufactured by Cia Exportadora de Sal, Baja California, Mexico.

A notice of a tentative determination that this mer-

chandise is not being, nor likely to be, sold at less than fair
value within the meaning of the Antidumping Act, 1921, as amended,
will be published in an early issue of the Federal Register.
The salt under consideration is used for industrial purposes,
such as water purification.
Appraisement of the above-described merchandise from

l~exico,

manufactured by Cia Exportadora de Sal, Baja California, Mexico,
has not been withheld at this time.
Imports of the involved merchandise received during the period
April 15, 1965, through January 31, 1966, amounted to approximately

$490,000.

TREASURY DEPARTMENT
(

April 18, 1966
FOR RELEASE A.M. NEWSPAPERS
TUESDAY, APRIL 19, 1966
REGIONAL COMMISSIONERS, DISTRICT DIRECTORS AND PROGRAM ADVISERS
APPOINTED FOR BOSTON CUSTOMS REGION
Assistant Secretary of the Treasury True Davis today
announced the appointment of William J. Griffin, Assistant
Collector of Customs at Boston, as Regional Commissioner
of Customs for the new Boston Region I.
Mr. Davis also announced the appointment of Edward L.
Finnegan, Customs Agent in Charge at Boston, as Assistant
Regional Commissioner (Operations), and Theodore F. Belitsa,
Assistant Director of Audits at the Bureau of Customs in
Washington, D.C., as Assistant Regional Commissioner
(Administration).
The appointments -- together with those of seven District
Directors, also announced today
will be effective on
May 1, 1966 with the activation of the Boston Customs Region.
The Customs District Directors for the new region are:
Boston Customs District - Joseph A. Curnane,
Comptroller of Customs, Boston, Massachusetts.
Portland (Maine) Customs District - Miss Lucia
M. Cormier, Collector of Customs, Portland, Maine.
Providence (Rhode Island) Customs District Alfred C. Dumouchel, Collector of Customs,
Providence, Rhode Island.
Bridgeport (Connecticut) Customs District Mrs. Gertrude M. Cwikla, Collector of Customs,
Bridgeport, Connecticut.

F-437

- 2 -

Buffalo (New York) Customs District - John F. Chilton,
Appraiser, Buffalo, New York.
St. Albans (Vermont) Customs District - Roland Raymond,
Liaison Officer, Bureau of Customs, Washington, DoC.
Ogdensburg (New York) Customs District - W. Richard
Nystrom, Appraiser, Champlain, New York.
The appointments were made as part of the President's Reorganization Plan No.1 of 1965, which was sent to Congress last
March and became effective on May 25, 1965. It called for the
elimination of 53 Customs positions throughout the U.S which
were previously filled by Presidential appointment. The Reorganization Plan placed the 176-year-01d Customs Service wholly
on a career basis.
o

At the same time, Assistant Secretary Davis named three
program advisers in the new Boston Customs Region. They are:
John M. Lynch, currently Collector of Customs for Boston;
Russell F. Niquette, currently the Collector of Customs in
St. Albans, Vermont; and Edward J. Cosier, Customs
Collector at Ogdensburg, New York.
All three will continue to be based in the cities where
they now are serving. As special assistants to the Regional
Commissioner of Customs in Boston, they will have
responsibility for development of projects and programs in
public affairs to keep travelers and traders fully informed
about Customs laws and procedures.
Boston will be the seventh region to be activated in
accordance with a year-long timetable. The Houston Customs Region
will
be activated next month. The last region to be established
will be New York City on June 1. Regions already established
are San Francisco, Los Angeles, Miami, New Orleans, Chicago,
and Baltimore.
Offices of the Boston region will be on the 24th Floor,
JFK Federal Building in that city.
United States Commissioner of Customs Lester D. Johnson
leads the Bureau of Customs, which is part of the Treasury
lepartment. His office is in Washington, Do C.
Biographies follow.

- 3 BIOGRAPHICAL SKETCH OF WILLIAM J. GRIFFIN
William J. Griffin, Regional Commissioner-designate, Boston
Customs Region I, was born in Boston on August 23, 1917, and
educated at Boston College where he received his B.S. degree
in 1940. He completed courses in international trade,
management and personnel.
Mr. Griffin started his Customs career as an Inspector in
Boston in 1941. He took military leave to enlist in the
U. S. Navy during World War II, serving as gunnery officer
aboard the USS Miller in the Pacific combat zone. In 1945,
following his discharge, Mr. Griffin returned to the Customs
Service where he served as Station Inspector on the Boston
waterfront.
Mr. Griffin was promoted to the position of Deputy
Collector in Charge, Marine Division, Deputy Collector in
Charge, Outside Division, and subsequently Assistant Collector,
with responsibility for the Port of Boston and seven ports
of entry in the Massachusetts District. He served as a member
on various port interests committees in the Massachusetts
8ollection District.
Mr. and Mrs. Griffin have four children: William L.,
John W., Michael W., and Barbara. They reside at 250 Nichols
)treet, Norwood, Massachusetts.

BIOGRAPHICAL SKETCH OF EDWARD L. FINNEGAN
Edward L. Finnegan, Assistant Regional Commissioneresignate (Operations), was born on May 26, 1916 at Belmont,
assachusetts, and received his education at George Washington
niversity, Boston College, and the U.So Coast Guard Academy.
Mr. Finnegan joined the Customs Service at Boston,
lssachusetts, in 1940. He served in the U.S. Army from
~4l to 1946 and was awarded the Legion of Merit.
In 1946
returned to the Customs Service and was appointed Customs
lspector in 1947, and Customs Agent in 1948. In 1948 he
~came Supervising Customs Agent in Boston and Customs Agent
l Charge in 1963.
Mr. and Mrs. Finnegan reside at 79 Spy Pond Parkway,
lington, Massachusetts.

- 4 BIOGRAPHICAL SKETCH OF THEODORE F. BELITSA
Theodore F. Belitsa, designated to be Assistant Regional
Commissioner (Administration), was born in Nanticoke,
Pennsylvania, on March 21, 1918. He attended the University
of Pennsylvania, Wharton School from 1938-1941, and received
a Bachelor of Science degree from Columbus University (now
part of Catholic University), Washington, D. C. in 1951. In
1953 he received a Master's degree from the same school, and
took a number of management courses at local universities in
the District of Columbia.
He served in the U.S. Coast Guard from 1942 to 1946 and was
discharged with the rank of lieutenant. He received a
commendation from the Coast Guard Commandant for helping to
extinguish fires aboard several LST's and the removal of
wounded personnel from ships following explosions at Pearl
Harbor in May, 1944.
Mr. Belitsa joined the Customs Service in 1941 as a
stenographer. He became a cashier at the U.S. Customhouse in
Georgetown, Washington, D.C. in 1946 and was appointed fiscal
accountant in 1949, serving in that capacity until 1953. In
that same year he was named as Head of the Financial Procedures
Unit at the Bureau and became Assistant Director of Audits in
1957.
Mr. Belitsa is a member of the Institute of Internal
Auditors, National Accounting Association, and American
Accounting Association.
Mr. and Mrs. Belitsa reside at 6537 Chesterfield Avenue,
McLean, Virginia.

BIOGRAPHICAL SKETCH OF JOSEPH A. CURNANE
Joseph A. Curnane, District Director-designate, Boston,
was born on August 3, 1914 at Rochester, New York, and received
his education at Providence College, Providence, Rhode Island.
He served in the U.S. Navy from 1942 to 1945 and took part
In the landing on Okinawa.
Mr. Curnane is active in c~v~c and community affairs. He
'_s chairman of the Everett Stadium Commission and a member of the
:verett Public Housing Authority. He has been Comptroller of
:ustoms for the New England District since 1961.
Mr. and Mrs. Curnane reside at 516 Broadway, Everett, Mass.

- 5 -

BIOGRAPHICAL SKETCH OF LUCIA M. CORMIER
Miss Lucia M. Cormier, District Director-designate for
Portland, Maine, is a native of Rumford, Maine. She received
her B.A. degree from the College of St. Elizabeth, Morristown,
New Jersey, in 1932, and her M.A. degree from Teachers College,
Columbia University, New York,in 1940.
Miss Cormier was head of the modern languages
of Stephens High School, Rumford, Maine, from 1932
She owned and operated a stationery, book and gift
Rumford for several years, and served six terms in
of Maine House of Representatives.

department
to 1945.
shop in
the State

Miss Cormier has been Collector of Customs at Portland,
Maine, since 1961. She resides at 630 Franklin Street,
Rumford, Maine.

****
BIOGRAPHICAL SKETCH OF ALFRED C. DUMOUCHEL
Alfred C. Dumouchel, District Director-designate,
Providence, Rhode Island, was born on July 3, 1905 at
Harrisville, Rhode Island, and educated in that town.
Mr. Dumouchel was chairman of the Special Legislative
Liquor Commission of the State of Rhode Island, and from 1959
to 1963 was safety director of the City of Woonsocket.
He was appointed Collector of Customs at Providence,
Rhode Island in 1963 and has held that position until this
present appointment.
Mr. Dumouchel resides with his wife at 667 Harris Avenue,
Woonsocket, Rhode Island.

******

- 6 BIOGRAPHICAL SKETCH OF GERTRUDE M. CWIKLA
Gertrude M. Cwikla, designated as District Director,
Bridgeport Customs District, was born at North Berick, Maine,
and attended schools in Concord, New Hampshire, prior to taking
up residence in Hartford, Connecticut.
Mrs. Cwikla's varied career began in 1942 when she worked
as a machine operator during the war at Pratt & Whitney
Aircraft. Later she worked for the Underwood Corporation and
Hartford Fire Insurance Company. From 1959 to 1961 she was
Special Assistant to the Comptroller, State of Connecticut,
at Hartford. She was appointed Collector of Customs at
Bridgeport in 1961.
Mrs. Cwikla has been active in fund ra~s~ng campaigns for
the March of Dimes, Red Cross, Community Chest, and Muscular
Dystrophy. She is also a member of the Good Shepherd Guild,
st. Joseph's Women's Club, and the Connecticut State Employees
Association.
She is married to Walter J. Cwikla, and they and their
son reside at 12 Bates Place, Hartford, Connecticut.

BIOGRAPHICAL SKETCH OF JOHN F. CHILTON
John F. Chilton, District Director-designate, Buffalo,
lew York, was born on June 21, 1924, at Ogdensburg, New York,
'ece~v~ng his education there plus special training with the
'arine Corps and management training with the U. S. Cus toms
ervice.
He was a member of the United States Marine Corps from
943 to 1945, and has been a member of the Customs Service
lnce 1946.
While in the Customs Service, Mr. Chilton has served in
lrious capacities at Rouses Point, Malone, Champlain, Buffalo,
~ York, and at Washington, D. C.
Mr. Chilton has been Customs Appraiser at Buffalo, New York
om 1963 until this new appointment.
Mr. Chilton resides with his wife at 1484 Abington Place,
~th Tonawanda, New York.

- 7 -

BIOGRAPHICAL SKETCH OF ROLAND RAYMOND
Roland Raymond, District Director-designate, St. Albans,
Vermont, was born on February 25, 1924 at Caswell, Maine. He
was educated at schools in Caswell and Limestone, Maine, and
Gates Business College, Augusta, Maine.
Mr. Raymond was in the Air Force from 1942 to 1945, where
he was a radio operator with the rating of Technical Sergeant.
He flew on 22 missions during the period, was shot down, and
was a Prisoner of War for 14 months in East Prussia.
Before joining the Customs Service he was employed by
the Veterans Administration from 1945 to 1951, and by the
Internal Revenue Service from 1951 to 1955.
Mr. Raymond joined the Customs Service in 1955, and has
been employed as an Inspector and Deputy Collector at
Houlton, Maine, before becoming a Liaison Officer at the
headquarters of the Bureau of Customs in Washington, D. C.,
in 1963.
Mr. Raymond resides with his wife and four children at
7645 Walters Lane, Forestville, Maryland.

******
BIOGRAPHICAL SKETCH OF W. RICHARD NYSTROM
W. Richard Nystrom, District Director-designate,
Ogdensburg, New York, was born September 24, 1924 at Marquette,
Michigan, and graduated with a B.S. degree from Northern
Michigan College in 1949.
Mr. Nystrom served in the Air Force from 1943 to 1945.
He was a public school teacher and principal at Rock, Michigan,
1950 to 1952, and manager of a trucking firm from 1952 to 1955.

Mr. Nystrom joined the Customs Service in 1955.

He has
been Appraiser of Merchandise at Champlain, New York, since
1961.
Mr. and Mrs. Nystrom reside at 6 Mohawk Road, Plattsburgh,
New York.

******

- 8 BIOGRAPHICAL SKETCH OF JOHN M. LYNCH
John M. Lynch was born on June 1, 1902, at Somerville,
Massachusetts, and received his education at Holy Cross
College. He has been a Lieutenant in the United States
Navy, and was Mayor of Somerville four times. Since 1962 he
has been serving as Collector of Customs.
Under the reorganization, Mr. Lynch, as Program Adviser,
will serve as special assistant to the Regional Commissioner
of Customs in Boston, with responsibility for development
of projects and programs in public affairs to keep travelers
and traders fully informed of Customs laws and procedures.
Mr. and Mrs. Lynch reside at 34 Browning Street,
Somerville, Massachusetts.

* *

BIOGRAPHICAL SKETCH OF RUSSELL F. NIQUETTE
Russell F. Niquette was born August 8, 1907, at
Winooski, Vermont, was educated at Burlington Business College,
Burlington, Vermont, and graduated from Boston University Law
School, Boston, Massachusetts, in 1933.
Mr. Niquette passed the Vermont Bar Examination in 1934,
and has been actively engaged in the practice of law in
Winooski and Burlington, Vermont, since that time. He has
been active in community affairs and is presently a Trustee
of DeGoesbriand Memorial Hospital in Burlington.
Mr. Niquette was appointed Collector of Customs in
St. Albans, Vermont, August 14, 1961, and resides with his
wife at 41 East Allen Street, Winooski, Vermont.

******

- 9 -

BIOGRAPHICAL SKETCH OF EDWARD J. COSIER
Edward J. Cosier was born on March 11, 1922, and educated
at St. Lawrence University, Canton, New York, and at Cornell
University Law School, Ithaca, New York, graduating from the
latter in 1948. He is a member of the t1ew York State Bar,
the Bar of the Federal District Court, and has been admitted
to practice in the Supreme Court of the United States.
Mr. Cosier was in the Air Force from 1942 to 1946, serving
in Asiatic theater. He has been active in civic affairs, and
was appointed Collector of Customs at Ogdensburg, New York,
on June 20, 1962.
Mr. Cosier resides with his family at 537 Webb Street,
Clayton, New York.

000

TREASURY DEPARTMENT
Washington
FOR RELEASE P.M. NEWSPAPERS
SATURDAY, APRIL 16, 1966

REMARKS BY THE HONORABLE JOSEPH W. BARR
BEFORE THE
5TH ANNUAL NEW ENGLAND CONFERENCE ON LEGAL PROBLEMS
BOSTON BAR ASSOCIATION
BOSTON, MASSACHUSETTS
SATURDAY, APRIL 16, 1966, 12:15 P.M., EST
The two decades since the end of World War II have been
notable in a multitude of ways, not the least of which has
been the dramatic growth of the world economy. World
production has grown at an exceptional rate, and world trade
and investment, both trouble spots in the 1930s and 1940s,
similarly have shown dramatic increases.
There has, however, been a consistently disturbing feature
in this hopeful picture: the inability of most less developed
countries to attain a rate of economic growth measured against
population increase that promises to raise standards of living
to reasonable levels anytime soon.
Through four administrations since World War II the
United States has maintained a strotig and imaginative foreign
assistance program. After the dramatic reconstruction of
Europe, the focus of our programs shifted from Europe to the
less developed nations of the world. Billions of dollars have
been spent to assist countries in Latin America, in Asia, and
in Africa, not only by the U. S., but by other industrial
nations and by various international organizations.
The progress -- in terms of growth rates -- as noted by
President George Woods of the World Bank, has been impressive.
But in terms of overcoming poverty, the problem remains huge.
Mr. Woods underlined the discrepancy that can exist between
achieving a good rate of economic growth and escaping from
poverty in a recent issue of Foreign Affairs.
F-438

- 2 -

"Almost two-thirds of the world's population
live in underdeveloped countries; but they
have only one-sixth of the world's income.
In the period 1950-54, the rate of increase in
their gross national product (approximated
5 percent). But in 1955-60, it dropped to
4.5 percent; and in 1960-64, it was 4 percent.
When allowance is made for population growth,
per capita income in about half the 80 underdeveloped countries which are members of the
World Bank is rising by only 1 percent a year
or less • . . The average per capita income in
this lagging group is no more than $120 a year.
At a 1 percent growth rate, tncome levels will
hardly reach $170 annually by the year 2000."
The implications are plain and sobering.
"If present trends are allowed to continue, there
will be no adequate improvement in living
standards in vast areas of the group for the
balance of this century. Yet, over the same
period, the richer countries will be substantially
increasing their wealth. In the United States,
for example, the present per capita income of
about $3,000 a year will, if it continues to grow
at the current per capita rate, reach about
$4,500 by the end of the century. In other
words, one group's per capita income will increase
over this period by $50, while America's will
increase by about $1,500."
In a recent study made by the staff of the World Bank,
it was estimated that over the next five years the developing
countries could put to constructive use something like $3-$4
billion more each year than they are currently receiving from
all sources -- that is, from governments on a bilateral basis,
from the international institutions on a multilateral basis,
and from the private economy. Obviously, whether or not these
figures are precise, the remaining need for capital is very
large, and the private sector must be heavily involved.
Parenthetically I might add that we face somewhat the
same situation in our own country. In the past year I have
gradually perceived the outlines of the looming capital
requirements to meet what I would call the "environment gap"
which is developing in this country.

- 3 In the main the "environment gap" is associated with the
urbanization of our society, and its mechanization. It is
becoming apparent that we can no longer safely ignore the
urban-associated problems -- the pollution of our streams and
our air and the disposal of incredible amounts of waste; the
sheer problem of getting to work, and its relation to mass
transit; and the problems of our urban ghettos. It has been
facetiously suggested that we might be the first nation to
put a man on the moon while in our cities we are standing
ankle-deep in garbage. This is patently ridiculous. A nation
with our imagination, economic might, and cultural ambition,
will demand and will get a reasonable and decent way of life
in our urban centers, but in the process truly staggering
sums of money -- and not only money, but also human energy
and talent -- may be required.
The solution may be to involve the private sector as
deeply as possible in efforts which have a public orientation.
In this country the private sector can make a tremendous
contribution in these areas, and it may be that this offers
one important approach to the problems of the developing
nations as well.
However, the fact is that over the past four years the
increase in direct U. S. investment in the developing areas
of the world has been small in relation to needs and in relation
to the outflow of investment capital to some other places.
For Latin America, the total value of direct investment by
U. S. firms increased from $8.2 billion in 1961 to $8.7 billion
in 1964. For Africa, the totals are $1.0 billion in 1961
and $1.6 billion in 1964. For Asia, the totals are $2.4 billion
in 1961 and $3.0 billion in 1964. Thus, in a four-year
span the total increase in these three developing areas of the
world totaled $1.7 billion or somewhat over $400 million per year,
during this time. By contrast, direct investment in Europe
increased from $7.7 billion to $12 billion in this same
period -- an increase of $4.3 billion, or about $1.1 billion
a year.
The Treasury has been alert to the search by the U. S.
government for ways of increasing U. S. private investment in
less developed countries. In the tax field, this concern
was reflected in the 1962 Revenue Act, which extended special
tax treatment to investment in these countries; in the
Interest Equalization Tax legislation, which exempted such
investment from the tax, and in the fact that tax treaties

- 4 recently negotiated with several of the less developed
countries included a 7 percent tax credit for U. S. investment
in those countries. The Treasury also operated the Foreign
Tax Assistance Program to help less developed countries
strengthen their tax administration -- and thus help to improve
the climate for investment.
Recently we have taken a significant new step in this
vast but crucially important area -- the Convention on the
Settlement of Investment Disputes. The Convention, which
the U. S. signed last year and which we are expecting to be
ratified very soon ~ the Senate, will establish a Center
associated with the World Bank to arbitrate investment disputes
which arise between private citizens or corporations of one
country and the government of another country. The Convention
gives promise of the establishment of the first effective
special institution to settle such disputes. The basic
purpose, of course, is to help create an atmosphere of
greater mutual confidence between private foreign investors
and less developed countries which, hopefully, will lead to
an increasing flow of private capital into these regions
during the next decades.
Admittedly, this is a difficult problem with a host of
complicated variables, but it is right and prudent to regard
private investment, and particularly the great multi-national
corporations, as a most potent and promising vehicle outside
government to breathe economic life into the less developed
nations. The expansion of world trade, the freedom of money
to flow where most needed across national boundaries, the
stimulating effects of broadening competition and the spread
of technical and organizational knowledge -- these are the
hallmarks of multi-national business, and these are the
developments which have helped to bring an expanding, more
integrated and efficient economic structure to the West since 1945.
The question today is: Will the multi-national
corporations succeed in playing their vital role in the
less developed world?
In my own mind, there is no doubt that these enterprises
are capable of playing a prominent role in the economic advance
of the less developed countries. Whether they will in fact
perform up to their capabilities in this respect remains an
unresolved question. One point is clear, however. If a

- 5 positive solution is to be achieved, and the right sort of
atmosphere for investment created, the initiative must be taken
by the governments of all interested nations, both the
developed and less developed alike.
In effect, this is what has happened, in the case of the
Convention for Settlement of Investment Disputes.
The Convention will enter into force after it has been
ratified by 20 member governments of the World Bank. At the
moment it is still in mid-stream: 25 member governments,
including the United States, have signed the Convention, but
only four have so far ratified it. We expect ratification
very soon, and I am happy to say that we have found a good
deal of support for the Convention, both in Congress and in
the business and financial community generally. While it is
undoubtedly true that almost any international agreement
concerning private foreign investment is likely to be
politically sensitive among capital importing countries,
I am confident, particularly in view of the consultations
and negotiations conducted by the World Bank, that many such
countries will ratify the Convention.
During the last year my international experience as
Under Secretary has brought me into contact with the
developing nations of Asia, Africa, and Latin America. From
this rather brief exposure, I have come to sympathize with
and understand the problems which confront both the private
investor and the developing nations. The leaders of many
developing countries face extremely difficult political and
economic choices. As politicans, they must produce the
economic improvements which they have promised their people.
However, this is a goal which will be reached only with
massive capital flows from outside, a fact which also raises
thorny political problems for the developing country's
leader. If he seeks to create an especially attractive climate
for large-scale private investment, he may be accused of leading
his country dawn the road of so-called "neo-imperialism."
There may be pressures to impose burdensome controls on
foreign business enterprises or to expropriate their holdings
altogether on the grounds of economic exploitation, or
insufficient contribution to the development of the local
economy.

- 6 -

Often the political realities belie the economic facts.
A foreign business enterprise may have created hundreds of
new jobs, provided housing for its employees, schools and
recreational facilities for their children; but in the real
world, economic forces never operate in a vacuum. Social
and political overtones are constantly present -- exercising
their influence on economic decisions.
But on the other side, the international corporate
executive faces complicated problems and decisions as well.
He is charged with the responsibility of investing the funds
of his shareholders and he must ultimately be concerned with
making sound investment decisions. He must gauge the political
climate, assess the possibility of economic controls or
outright expropriation; and once his investment has been made,
the executive has to live with the operation and deal with
any new political and economic circumstances which may
arise.
Thus, the new Convention for settling investment disputes
offers a significant new opportunity for bridging the gap
between the investor and the developing nation. For virtually
the first time a company willing to invest and a nation which
is prepared to accept the investment will have the opportunity
to resolve their difficulties in a dignified and reasonable
manner before an impartial, international panel of arbitrators.
More immediately important, perhaps, is the possibility
which the Convention holds out for the investor and the
leaders of the accepting nation to sit down before the
investment is made to define those matters which they would
agree to submit for any future arbitration. This gives
assurances on both sides and provides a greater measure of
security to the transaction than has hitherto been the case.
What is more, I think that as the Convention operates over
a period of time, we can look forward to the emergence
of a new body of case law to guide nations in both avoiding
and settling investment disputes. And finally, the forum
which is provided for by the Convention may also serve to
move investment disputes from the political to the legal
arena. At a time of considerable sensitivity between the
developed an developing nations, I think this can only be
regarded as an important step forward.
Economic development presents the developed world with a
nulti-faceted challenge which over the years will require
Lmaginative responses at a number of levels in both the public
lnd private sectors of society. I believe that the Convention,

- 7 -

while admittedly tentative and exploratory, represents just
such a response. It opens a constructive avenue in a
sensitive and extremely complicated area. What is more, it
offers the hope that as time passes the great potential of
the private sector will be brought increasingly to bear
on the field of international economic development.

000

TREASURY DEPARTMENT
(

" RELEASE 6 :30 P.M.,
lday, April 18, 1966.
ItESTJLTS OF TREASURY'S

~'JEE'rr)Y

BILL OFFERING

The Treasury Department announced that the tenders for "two series of Treasury
Is, one series to be an additionaJ. issue of the bills rl.a.ted Janu.ar,r 20, 1966,
the other series to be dated April 21, 1966, which ~~re offered on April 13,
6, were opened at the Federal Reserve Banks today. Tenders were invited for
300,000,000, or thereabouts, of 91-day bills and for $1,000,000,000, or therelts, of lR2-day bills. The details of the two series are as follows:
E OF ACCEPTED
JETITlVE BIDS:

High

Low
Ave!"a~e

9l-day Treasury bills
maturing July 21, 1966
Approx. Equiv.
Price
Annual Rate
98.825 a/
4.648;&
98.819 4.672%
98.821
4.664% y'

··
·

182-day Treasury bills
maturing October 20, 1966
Approx. Equiv.
Price
Annual RBte
4.749%
97.599
4.759%
97.594
llo 7549~ y'
97 .597

a/ Excepting one tender of $300,000
of the amount of 91-day bi118 bid for at the low price was accepted
31% of the amount of 182-day bills bid for at the l~~ price was accepted

m~%

L TENDERS APPLIED FOR AND

3trict
3ton
f York
_ladelphia
~velend

:hmond
ant a
cago
:Souis
neapolis
sas City
las
Francisco
TOTALS

ACC~Pl'ED

BY FEDERAL RESERVE DISTRICTS:

Accepted
Applied For
Applied For
$ 35,320,000 $ 25,320,000 : $ 15,067,000
1,613,424,000
899,238,000 : 1,641,030,000
14,484,000:
23,038,000
31,494,000
29,449,000
48,625,000
29,449,000
23,301,000:
8,897,000
23,8h1,000
37,994,000
26,554,000:
44,374,000
120,71),000:
183,37h,000
205,539,000
56,708,000
46,798,000:
32,642,000
12,415,000:
13,266,000
17,945,000
26,187,000
22,178,000:
16,487,000
21,079,000:
12,185,000
31,614,000
89,016,000
58,745,000:
202,169,000
$2,198,531,000 $1,3 00 ,274,000

$2,2L.l,154,OOO

Accepted
$
4,967,000
735,754,000
6,388,000
27,709,000
5,690,000
12,731,000
65,224,000
23,539,000
7,010,000
11,748,000
7,185,000
93,879,000
$1,001,824,000

lludes $260,195,000 noncompetitive tenders accepted at the average price of 98.821
:ludes $132,661,000 noncompetitive tenders accepted at the average price of 97.597
,se rates are on a bank discount basis. The equivalent coupon issue yields are
'9% for the 91-Clay bills, and lh947b for the 182-day bills.

TREASURY DEPARTMENT
(

April 19, 1966
IMMEDIATE RELEASE
TREASURY OFFIC IAL TO SPEAK ON
TAX POLICY IN THE 1960'S
Assistant Secretary of the Treasury Stanley S. Surrey
will deliver the James McCormick Mitchell Lecture, under
the auspices of the Law School of New York State University
at Buffalo, Thursday, April 21,1966, at 1:30 P.Mo, EST.,
at the Statler Hilton Hotel, in Buffalo, New York.

Mr. Surrey's subject:

"Federal Tax Policy in the.

1960's."
The Treasury expects to have a limited number of
copies of the full lecture text available, for
distribution upon request from the Office of Information,
Room 3417, Main Treasury Building, Washington, D.C. 20220.
000

F-440

TREASURY DEPARTMENT
NOTICE:
There is a total embargo
on this press release and
all the attached material
until the release time.

WASHINGTON. D.C.

April 20, 1966

FOR RELEASE 12:00 NOON
WEDNESDAY, APRIL 20, 1966
PRESIDENT PROPOSES ASSET SALES LEGISLATION
President Johnson today sent to the Congress legislation
designed to further the substitution of private for public
credit in Federal programs. The proposed legislation -- the
Participation Sales Act of 1966 -- would authorize the extension
of the technique of "pooling" loans and then offering shares,
or participations, for sale on the private market.
This technique, now used by the Veterans Administration,
the Export-Import Bank, and the Federal National Mortgage
Association would, under the proposed legislation, be extended to
other lending programs such as college housing, public facilities
loans, and programs of the Office of Education, the Farmers
Rome Administration and the Small Business Administration.
The pooling of credits and sales of participations in the
pools would be handled by the Federal National Mortgage Association,
which has had extensive experience in this area.
This legislation represents another step forward in the
time-tested policy of substituting private for public credit
wherever possible. This policy not only makes maximum effective
use of the funds available to finance Federal credit programs,
but also helps to substantially reduce budget expenditures for
such programs. In fiscal 1967, an estimated $4.7 billion in
direct Federal loans will be sold on the private market -- of
which more than $4 billion will represent participation sales.
Without the proposed legislation, it is estimated that the
sale of assets in fiscal 1967 would fall substantially short
of the $4.7 billion goal.
Attached are summaries of various aspects of the proposed
legislation.
F-44l
1

TREASURY DEPARTMENT

I.
THE ROLE OF PRIVATE LENDERS
IN FEDERAL CREDIT PROGRAMS
The proposed Participation Sales Act would enable various
Federal credit programs to be financed by a technique which
several agencies have used successfully in recent years. It
would provide greater private lender participation in their
loan programs and avoid locking up budget dollars in a bulging
portfolio of direct Federal loans.
Encouraging the flow of private credit into Federal lending
programs has been an important objective of the Congress and
successive Administrations for over a decade. It was endorsed
by the Commission on Money and Credit in 1961 and President
Kennedy's Committee on Federal Credit Programs ir. 1963. Since
the mid-1950s, continuing efforts have been made to develop
programs of Government guarantees and insurance of private loans
-- rather than direct Federal loans -- and also to improve
techniques for releasing Federal funds through the sale of
Federal loan paper to private lenders.
The participation technique -- that is, grouping loans in
pools and selling participations or shares in the pool rather than
selling the underlying loans directly -- is a natural development in the financing of Federal credit programs. In major loan
programs in the past, the Government's essential function has
been to underwrite the credit risk and thus facilitate the flow
of funds from large investors to small borrowers who do not have
ready access to capital markets. The sale of participation
certificates backed by the government makes it feasible to obtain
funds from private investors on a sizable scale for programs in
which the ultimate borrower's name and credit standing are not
well known. The Federal Government acts as an intermediary,
much like a mortgage banker, between the borrower and the private
capital market.

- 2 In practically all Federal credit programs, of which there
are about 100, the government assumes all or most of the credit
risk. The reason these programs exist is that private lenders
are either unwilling or unable to assume the loan risks on the
credit terms and conditions necessary to meet the objectives
established by the Congress for the programs. The Federal
Government, by assuming the loan risk, stimulates the flow of
funds from private investors to communities, organizations, and
individuals. Assumption of the risk is essentially the same
regardless whether:
the government insures a Federal Housing
Administration loan made by a mortgage banker,
who then sells the loan paper to ~ large
investor; or
the government sells to large investors, on a
guaranteed basis, a million-dollar package of
small loans made and serviced by the Farmers
Horne Administration; or
the government insures a multi-million-dollar
ship mortgage under the Merchant Marine Act of
1936 which is ultimately financed through the
sale of Federally backed bonds; or
the government makes the loans directly and
then sells guaranteed participation certificates
under the proposed legislation.
All of these techniques, including the last, to a limited
extent, are in use in Federal credit programs today to reduce
the reliance of those programs on Federal funds and draw more
on private capital.
The Participation Sales Act of 1966 is a logical extension
of policies and practices developed in the past. It is a
natural evolution in the development of more efficient financing
techniques. These techniques strengthen the private market in
its ability to support the credit programs which our society a~
economy need.

TREASURY DEPARTMENT

II.
HOW THE PARTICIPATION SALES ACT WOULD WORK
The participation sales technique provides an efficient,
flexible, and controlled method of financing Federal lending
programs.
This has already been demonstrated by the sale of
approximately $1.6 billion in participation certificates by the
Federal National Mortgage Association under authority granted
in the 1964 and 1965 Housing Acts.
The procedures under the proposed legislation would be
substantially the same as those which have been followed in
recent sales of participations in Veterans Administration and
Federal Housing Administration mortgages.
The major difference would be the requirement of prior
authorization in an appropriation act, which would be a
condition for the inclusion of relatively low interest rate
loans in a participation pool.
Each lending agency would be authorized to enter into a
trust agreement with Federal National Mortgage Association,
under which it would:
-- set aside on its books certain of its loans;
subject them to a trust; and
for purposes of the trust, guarantee payments of principal and interest collections
on the loans.
The bill would permit the substitution of other loans in
the event of default or likely default on any of the loans
subjected to the trust agreement. In addition, the lending
agency would be authorized to guarantee the loans subject to
trust. It would fulfill the guarantees, if necessary, by
using any appropriated funds or other funds available for the

- 2 general purposes of the programs to which the entrusted loans
were related.
As it has already done for Veterans Administration and
Federal Housing Administration mortgage loans, FNMA in its
role as trustee, would issue and sell participations, either
through an underwriting group or other suitable means. The
participations would be based on the pooled obligations and on
the right to receive principal and interest collections from
those obligations.
FNMA would also, in its corporate capacity, guarantee all
payments due on the participation certificates. For the purpose of making timely debt service payments, FNMA would be
authorized to borrow from the Treasury under the procedures
provided in the Federal National Mortgage Association Charter
Act (subsection (d) of section 306).
Because of the right of substitution and the lending agency
guarantee, it is not anticipated that either the FNMA guarantee
or the Treasury borrowing authority would be utilized. Further,
FNMA could not draw on the Treasury in any way to increase its
programs or those of participating agencies.
The purpose of the FNMA guarantee and drawing authority
would be to provide additional safeguards which would help to
assure the most favorable market reception for the participation
certificates and hold down the interest rates at which they
could be sold.
Proceeds from the sale of participation certificates would
become available for new loans only to the extent that existing
law authorizes such new loans.
The Act would require that pooled loans generate sufficient
income to meet the payments due on the participation certificates.
The only exception would occur when an agency was authorized,
in an appropriation act, to include obligations bearing submarket interest rates. In that event, an appropriation would be
established on the books of the Treasury sufficient to enable
the lending agency to pay to Federal Nat ional Mortgage Association, as trustee, the amount of the deficiency.

- 3 While title to the pooled loans would pass to Federal
National Mortgage Association in trust, the lending agency would
continue to maintain custody and service of the loans.
Borrower
payments on the pooled loans would be paid periodically to
Federal National Mortgage Association, to be applied toward payments becoming due on the participation certificates.
Any collection receipts in excess of the amounts needed
to assure payment on the participation certificates would be
returned to the lending agency after deduction of Federal
National Mortgage's handling cost. Any additional expenses would
be paid by the lending agency from appropriated funds or other
available amounts related to the programs from which the pooled
loans were drawn.
The participation certificates would be freely transferable.
They would be lawful investments and could be accepted as
security for all trust, fiduciary, and public funds of which
the investment or deposit is under the authority and control of
the United States or any of its offficers.
National banks would be authorized to deal in the participation certificates and also to purchase them for their own account. The participation certificates would be eligible as
collateral for Treasury Tax and Loan Accounts.
The bill also provides for the withdrawal of loans from pools
and the substitution of other loans, in case of liquidation of
assets because of prepayments or defaults, and in order to
release assets for direct sales.

T
!!!!!!!~R~E~A~S~U~R~Y~D~E~P~A~R~T~M~E~N~T~~~~
WASHINGTON. D.C.

<ill:

•• •

III.
PARTICIPATION SALES ACT OF 1966 AND
FEDERAL FINANCIAL MANAGEMENT
A primary objective of the Participation Sales Act of 1966
is to provide for more orderly and economic marketing of Federal
financial assets to the private investment sector.
The bill provides for the orderly sale of participation
certificates in pools of loans originated by various Federal
credit agencies. The sales would be accomplished through the
already established and proven facilities of the Federal National
Mortgage Association, serving as trustee.
FNMA has already conducted a number of successful participation
sales under the authority contained in the Housing Acts of 1964
and 1965. It has excellent relationships in financial markets.
It would be needless duplication of effort to develop this
kind of experience, staffing, and competence in other Federal
agencies. It would be costly to pay the premium necessary -- in
terms of higher interest charges -- while these agencies gained
thorough acceptance in financial markets.
The sale of participation certificates through FNMA would
also assure the essential coordination of asset sales by different
agencies. Agencies marketing their own assets run the risk of
interfering with similar efforts on the part of sister agencies.
All are marketing an essentially similar product -- an obligation
backed by the Federal government.
Coordinated offerings through FNMA would mean that market
offerings could be timed and adapted in other respects to minimize
interest cost, maximize marketability, and in general gain the
greatest benefit from this technique for drawing private investment
funds into Federal credit programs.

- 2 The bill would also assure the most effective coordination
of participation sales operations with the Treasury's debt
management operations.
The Treasury has long-established and excellent working
relations with FNMA in coordinating market operations with overall
debt management policy. Although similar arrangements have been
and could be established with other agencies, the coordinating
job would become increasingly complex and would require unnecessary
staffing and other administrative costs.
The problems of scheduling a large number of separate agency
issues to avoid market congestion and to minimize the cost to the
government would be both formidable and unnecessary. Difficulties
in timing and coordination would be compounded during periods of
rapidly changing market conditions, leading to possible disruption
of needed credit programs.
The participation instrument itself, as compared with the
outright sale of Federal loans, provides significant additional
marketing flexibility. Thus it would insure that Federal agency
assets would be more readily saleable at minimum interest rates.
The participation technique, in effect, converts obligatioos
of relatively narrow market acceptability into obligations of
broad marketability which are attractive to a wide variety of
purchasers -- banks, insurance companies, pension funds, and
other institutional investors. Since the FNMA participations
have already gained broad acceptance in the market, it makes
sense to build on FNMA's experience.
Since the government bears the risk in these credit programs,
it should not have to pay premium interest rates to private investors merely because of superficial differences among various
Federal agency operations or because of market unfamiliarity with
the value of the underlying guarantee.
The Participation Sales Act of 1966 is a recognition of
and response to the growing size and complexity of Federal credit
program financing operations and the need for coordinating those
operations with the overall financial activities of the Federal
government.

•

TREASURY DEPARTMENT
WASHINGTON. D.C.

•

••••• • :

IV.
THE COST OF THE PARTICIPATION SALES PROGRAM
As with all investments competing for available funds in
the private capital market, the rates required for participation sales will fluctuate from time to time in accordance with
changing capital market conditions.
The most recent sale of FNMA participations -- an issue
of $410 million -- was sold to the public at rates ranging from
5~ percent to 5~ percent, depending upon the maturities involved. These rates~ due to the tighter money market situation
prevailing at the time of sale, were higher than in previous
participation sales.
Rates on participation sales have been
as low as 4.10 percent, in October 1964.
The important point is that, in terms of prevailing
market conditions, offerings of participation certificates genera]
ly have been well received by investors.
Compared with alternative means for selling assets, FNMA
participation sales have attracted a wide variety of purchasers,
including pension funds, insurance companies, commercial and
mutual savings banks, and other institutional investors.
The inherent flexibility in the participation sales
technique makes it possible to tailor the issues to market demands to a greater extent than would be possible with direct
loan sales by agencies. Moreover, the widespread appeal of
the participation certificates permits tapping the most readily
available funds in the capital market at the lowest possible ratE
Clearly, direct sales of Federal financial assets would
generally involve much higher interest rates that would sales
of participation certificates of the type authorized in the
proposed Act.
Participation certificates carry somewhat higher rates
than Treasury obligations of comparable maturity.
But this
is a small price for the advantage of attracting private investors to Federal credit programs,

- 2 -

and avoiding the large budgetary drain that would result if
means were not developed to move Federal financial assets back
into the private sector.
With the security provided through the substitution provisions, agency guarantees, the FNMA guarantee, and the Fl~
borrowing authority from Treasury, rates on participation
certificates are close to the most favorable rates that can be
obtained in the market. The rates are expected to move even
closer to the rates on direct Treasury obligations as the program increases in volume, as greater market familiarity is
achieved, and as secondary trading develops.

TREASURY DEPARTMENT
WASHINGTON. D.C.

~tij.
'. "

• •

v.
MAINTENANCE OF CONGRESSIONAL CONTROL
The Participation Sales Act of 1966 would maintain existing
Congressional controls over Federal credit program activities.
Two broad controls are included in the Act. First,
authority to use funds from the sale of participations in order
to make new loans would be limited.
The funds could be used to make new loans only to the
extent that the agencies involved are already authorized by the
Congress to make such new loans. That is, the bill provides
that the proceeds from the sale of participations must be dealt
with as existing law requires for proceeds from sales or repayments of the loans.
Second, in the case of loans carrying relatively low
interest rates, an added measure of Congressional review is
provided. An appropriation act would be required to make up
any prospective deficiency between earnings on the loan portfolio
and requirements for servicing the participation certificates.
The manner in which Congressional control would be maintained
or strengthened under the proposed legislation is best illustrated
by reviewing certain specific areas which would be included under
the asset sales program in fiscal 1967.
1. The Small Business Administration is subject to an
over-all limitation on the amount of loans which it may have
outstanding at any time. Recently, in testifying on a bill that
would enable SBA to set up pools of loans and sell certificates
of participation in those pools through FNMA, Mr. Ross Davis,
Acting Administrator of SBA, stated that all loans subjected to
the pool would continue to count against the agency's maximum
authorization.

11.

- 2 -

As s ta ted by Nr. Davis: "SBA loans placed in the
.participations pool would continue to count against these
program limits until repaid. Accordingly, any funds raised
by SBA through participation sales could not be utilized for
additional loans except as permitted by these statutory
authorization limits, which can only be raised by Congressional
action. The Congress and the Banking and Currency Committees
would by this means continue to fully control the growth of
S BA lend ing programs."
2. The Community Facilities Administration in the
Department of Housing and Urban Development administers two loan
programs which would be affected by the participation sales
legislation: the College Housing Loan Program and the Public
Facilities Loan Program.
With regard to the College Hous ing Loan Program, the Housing
Act of 1965 had the effect of establishing a maximum 3 percent
lending rate in this program. This is substantially below market
interest rates now prevailing for any type of security on which
income is subject to Federal tax. (And it may be noted that
income from participation certificates to be issued under the
legislation would be subject to Federal tax, whatever the nature
of the underlying obligations.) Consequently, under current
market conditions, the inclusion of college housing loans in
participation pools would require specific authorization in an
appropriations act, since the bill provides that no pool may be
established unless there is a reasonable probability that
interest receipts will cover the servicing of participation
certificates, or unless the amount of certificates to be issued
is authorized in advance by an appropriation act of Congress to
make up the difference between interest cost and earnings.
Congressional control over the Public Facilities Loan
Program would operate in the same manner, since the lending
rates under this program are also relatively low. At current
market rates, an appropriation act of the Congress would be
needed to be able to set up a pool of these loans and sell
participation certificates in them.

12.

- 3 -

3. The Office of Education Academic Facilities Loan
Program would be put on a revolving fund basis by the proposed
bill. The bill also provides, however, that "the total of any
loans made from the fund in any fiscal year shall not exceed
limitations specified in appropriation acts." Consequently, the
Congress would retain control of new loan activity, even though
the program was shifted to a revolving fund basis.
4. The Farmers Home Administration rural housing and other
direct loan programs are already subject to the same limitations
on new loan activity as would be provided by the bill for the
Academic Facilities loan program.
The bill would also extend the limitation to loans under
Section 8 of the Watershed Protection and Flood Prevention Act,
as amended, and Section 32(e) of the Bankhead-Jones Farm Tenant
Act, in amounts, "not to exceed any existing appropriation or
authorization limitations and in such further amounts as the
Congress from time to time determines in appropriations Acts."
The limitation in the Rural Housing Direct Loan account is
substantially the same; this is, "The Account shall remain
available ••. for direct loans and related advances •.• in
such amounts as are now authorized by law and in such further
amounts as shall be authorized in appropriations acts."

000

.FOR RELE,.6SE AT 12 NOON (EST)

P,pril 20, 1966

Office of the White House Press Secretary

THE WHITE HOUSE
THE WHITE HOUSE TODA Y MADE PUBLIC THE
FOLLOWING LETTER FROM THE PRESIDENT
ADDRESSED TO THE PRESIDENT OF THE SENATE
AND TO THE SPEAKER OF THE HOUSE OF
REPRESENTATIVES
P.pril 20, 1966
Dear Mr. President: (Dear Mr. Speaker:)
I have the honor to transmit "The Participation Sales Act of 1966".
This important legislation is designed to forward our objective of
substituting private for public credit.
For m'.ny years the Federal Government has carried on lending
progl'an,s to finance essential activities which would not otherwise
receive adequate financial support. Under these programs direct loans
are made to help the farmer, the businessman, the home buyer, the
veteran, the student, our colleges, and our schools. J..s of June 30, 1965,
the volume of these Federal loans exceeded $33 billion.
Desirable as these activities are, Federal lending neither can, nor should,
shoulder the entire job.
Under our system of free enterprise it is far better for the Government
to mobilize private capital to these ends.
And it is far better for the Government to stimulate and supplement
private lending rather than to substitute for it.
To do this, we sell Federal loans directly, or in some cases, sell
"participations" in pools of loans, to private investors. The Government
acts as both middleman and underwriter for the loans, assuring adequate
and economical financing for desirable projects while at the same time
attracting the maximum participation of private investors.
This substitution of private for public credit provides sound financing
for worthwhile projects with a minimum of Federal participation.
In encouraging private participation in Federal credit programs, I am
building on the outstanding work begun and carried forward by:
President Eisenhower's Administration;
The 1958 Commission on Money and Credit, chaired by
Frazar B. Wilde and 'of which Secretary of the Treasury
Fowler and many other distinguished citizens were members;
-- President Kennedy's 1962 Committee on Federal Credit Programs,
under the Chairmanship of former Secretary of the Treasury Dillon.

2
The substitution of private for public credit has many advantages:
It makes more effective use of the taxpayers dollar.
It offers the private investor an opportunity for sound investment
and a fair return.
It benefits business and those of our citizens who are helped by
the vital programs made possible both by Federal and private
inve stment.

In this fiscal year we expect to replace a total of $3. 3 billion in public
credit with private credit. In fiscal 1967, with the help of legislation
such as the proposal I am submitting today, we believe that private
credit can be substituted for public credit, advantageously to all
concerned, in the amount of approximately $4.7 billion.
fis private credit is introduced on an increasing scale, the need to
coordinate the sales of Federal loans also increases. It would defeat
the purpose of improving the operation of the credit market if loans
offered under particular programs interfered with each other or with
the orderly financing of the public debt through the sale of Treasury
securities.
The Participation Sales Act of 1966 will help solve this problem in two
important respects.
First, instead of the Government making a number of relatively small
and uncoordinated offerings of loans in the market, the P.ct provides for
pooling many loans together and selling partic ipations in t~e pool.
The poo'irg of mortgages and loans and the saJe of p;'lrticipc>tion5 in the
incoln" ~'.,J rer~yments from loans in t!-•.~ pool is nor '1ew. ;t haf:: been
used to Zlcvantage over the past several years by the Export-Import
Bank, the Veterans Administration, and the Federal National Mortgage
Association.
Seco!1d, this l"r,i dation would exteT'ld the pool participation technique to
other lenc.,ng ?l"Jgrams, including:
Farmers Home

.~dministration;

Office of Education;
College Housing;
Public Facilities Loans;
Small Business Administration.
The pool technique adopted by this legislation has a number of advantages:

It assures the Government the best possible return on the sales
of financial assets;
It provides the investor with a widely accepted and highly desired
asset;
It provides a means for attracting private participation in loans
made with relatively low interest rates for special purposes;
more

3
It reaches sources of capital which would not be available for
loans or mortgages offered individually, thus widening the
reservoir of credit for vital projects.
The proposed legislation has two other major provisions.

1. Rather than have each of the Agencies concerned conduct their own
separate sales programs, the sale of participations would be centralized
in a single agency -- the Federal National Mortgage Association. This
agency has already built up extensive experience with this technique in
its mortgage pooling operations.
Individual agencies would continue to administer their credit programs,
but the pooling of credits and sales of participations in the pools would
be handled by the Federal National Mortgage Association. This centralization will greatly increase the efficiency of the sales operation and help
coordinate this program with the Treasury's debt management operations.
2..
In many cases the Congress has established Federal credit programs
in which the interest rate charged to the borrower is below the marKet
rate. The difference represents a net charge to the taxpayer. The Act
provides that, in all such cases, the Appropriations Committees of both
Houses must authorize in advance the amounts of participations which
could be sold against these assets. In this way, the safeguards of the
annual appropriations proces s can be applied to this aspect of the program.
The Participations Sales Act of 1966 will permit us to conserve our budget
resources by substituting private for public credit while still meeting
urgent credit needs in the most efficient and economical manner possible.
It wHI enable us to make the credit market stronger, more competitive,
and better able to serve the needs of our growing economy.

Bnt above all, the legislation will benefit millions of taxpayers and the
:-nanyvital programs supported by Federal credit. The Act will help us
l"lOVe this Nation forward and bring a better life to all the people.
I 3.':n enclosing a joint memorandum from the Secretary of the Treasury
and the Director of the Bureau of the Budget which discusses in detail
the major features of this legislation.
I urge speedy enactment of this legislation.
Sincerely,

LYNDON B. JOHNSON

Honorable Hubert H. Humphrey
President of the Senate
Washington, D. C.
Honorable John W. McCormack
Speaker of the
House of Representatives
Washington, D. C.
more

4
Attachment to the President's letter of April ZO, 1966 addressed to
the President of the Senate and to the Speaker of the House of
Representatives:
April

19, 1966

MEMORANDUM FOR THE PRESIDENT:
This memorandum was prepared to provide you with background concerning
the "Participation Sales Act of 1966." We recommend that you transmit
the legislation to the Congress.
The proposed legislation is designed to implement your recommendation
in the Budget Message relating to the substitution of private for public
financing in various Federal credit programs. Specifically. the draft
bill would provide for a coordinated program. through the Federal
National Mortgage Association. of sales of participations in pools of
financial assets held by various Federal agencies.
The basic purpose of the proposed legislation. as indicated. is to encourage
the substitution of private for public credit in various major Federal credit
programs. Given the desirability of drawing in greater private participation in the Federal credit programs. the sale of interests in pools of assets
is the most satisfactory and economical means that has been devised to meet
this end. The program of asset sales also facilitates the efficient use of
budgetary funds.
The technique now proposed for sales of assets have evolved gradually
during the past three Administrations. stretching back in time to the
mid-1950's. Both the Commission on Money and Credit. which produced
its distinguished report in 1961. and President Kennedy's Committee on
Federal Credit Programs. which was chaired by Secretary Dillon. recommended that vigorous efforts should be made to encourage private participation in Federal credit programs. A similar pOint was made in a
minority report of the House Ways and Means Committee in 1963. which
urged an expansion of the Federal Government's asset sales.
A guiding principle of these programs is that Federal credit should
supplement or stimulate private lending rather than substitute for it. This
is a matter of basic economic philosophy. as well as a recognition of the
fact that the private market should. and will. continue to account for the
bulk of all credit extens ions.
Federal credit programs. working through the private market. help to
make the market stronger. more competitive. and better able to serve
the aconomy's needs over the long-term. than if the Federal credit programs unnecessarily pre-empted functions that private lenders could
perform effectively. In addition. use of private market facilities frequently
can ease the problem of administering Government programs and make
Government aid. where appropriate. more available to potential borrowers.
Carrying through these principles and recommendations. increased
emphasis has been placed in recent years on greater use of Government
guarantees of private credit and on direct sales of individual Government
loans to private lenders. More recently. sales of individual loans have been
supplemented by pooling large numbers of loans and selling certificates of
participation in such pools.

5
By the use of this efficient technique, the Export -Import Bank of
Washington has been able, since 1962, to sell about $1. 7 billion of its
direct loans which otherwise might not have been marketable. The
Federal National Mortgage Association, acting as tru!Jtee under authority
granted by the Housing Act of 1964, has been able to sell $1. 6 billion of
participation certificates (including their current offering) in pools of
housing mortgage loans set aside by its management and liquidation and
special assistance functions and by the Veterans Administration.
Even with these major efforts to dl'llW on private credit, the volume of
direct Federal loans outstanding has increased in recent years. It was
$25.1 billion on June 30, 1961 and $33. 1 billion on June 30, 1965. The
estimated level for Jane 30, 1966 is $33.3 billion assuming completion
of the sales indicated in the latest budget document. Under the proposed
program of asset sales, the volume of direct Federal loans outstanding
would decline to $31. 5 billion On June 30, 1967.
The increase in asset sales largely arises from broadening the program,
as proposed in your 1967 budget, to include sales of participations in
assets of the Farmers Home Administration, the Cffice of Education, the
College Housing Program, the Public Facility Loan Program and the Small
Business Administration.
The centralization of the partiCipation sales activity in FNMA, by building
on an already success:ul body of market experience, will help to assure
the orderly and most economical sale of this paper.
It will also assure the effective coordination of these offerings, not only
with one another but also with the Treasury's own debt management operatinns. The alternative of having each of the agencies involved conduct its
own sales operation would greatly complicate the coordination problem,
would produce a wasteful duplication of efforts, and would result in a less
effective and more costly operation for the Federal Government. Under
the guidance of FNMA, the asset sales undertaken for newer programs, less
well known to the market, would gain the benefit of seasoning and experience
that has been built up already through the FNMA operations.

A'l,)the r advantage of the pool arrangements goe s back to the fact that a
number of sound Federal loans carry interest rates significantly below
levels at which private lenders would be willing to invest their funds in
the present market. These rates, in many cases, have been written into
the legislation setting up the programs. vThile the relatively low rates do
not make the loans any less sound, these rates do mean that such loans
could be sold directly to private investors only at substantial discounts.
The proposed legislation would make it possible to include such loans in
marketable pools by providing, in effect, means for the agency owning the
loans to make supplementary payments to the trustee of the pool to cover
the interest insufficiency. The supplementary payments would be subject
to the effective approval of the Appropriations Committees since these
Commi.ttees would authorize the amounts of any issues of participations
on which supplementary payments are likely to be required. Section 2(b) (4)
of the bill specifically provides that the amount of any such participation
issues be within aggregate principal amounts authorized in advance in
Appropriation Acts.
A further advantage of the pool arrangements is in their ability to draw
into the finanCing of public credit programs practically all sectors of
the capital markets. Many segments of the market cannot deal in
individual mortgages. Other sectors are not able to purchase individual

6
business or college housing loans. But almost all segments of the
market are potential investors in pool certificates. Two consequences
flow from this: first, the market for a number of particular types of
credit instrumen"tsiS substantially broadened; and second. sales of
participations do not disrupt particular segments of the capital markets,
as might be the case if the mortgages or loans were sold individually.
It has been pointed out on some occasions that the sale of Federal credit
program financial aS3ets, whether through participation certificates or
other means. is more expensive than financing through the direct issue
of Trc<'.sury obligations. This is true, although the cost difference has
proved to be relatively minor. For example, FNMA participation
certificates have been sold at rates roughly 1/4 of 1 percent c:.bove
Treasury issues of comparable maturity; and it is entirely possible that
the margin may diminish as the market gains experience with these highquality credits.
Moreover. carried to its logical conclusion, this argument would have the
Treasury financing directly all of the Federal insurance and guarantee
prog:-ams, since it can obviously do this more cheaply than the private
market. ether types of credit, now handled entirely in the private market,
could also be financed more "cheaply" by the U. S. Treasury. We certainly
wish to retain, however, the principle that the allocation of credit for
essentially private purposes should be a function of the private market. That
was the philosophy of the Commission on Money and Credit and of the
President's Committee on Federal Credit Programs. It is a sound philosophy, and I believe we should continue our efforts to strengthen the private
market as a means for achieving program objectives with a minimum of
G0vermnent interference.
Fur the reasons stated above. we recommend that you transmit the attached
bill to the Congress and urge its speedy passage.

Signed:
Henry H. Fowler
Secretary of the Treasury

Signed:
Charles L. Schultze
Director, Bureau of the Budget

# # #

TREASURY CEPARTMENT

April 20, 1966
)R

IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING

The Treasury Department, by this public notice, invites tenders
)r two series of Treasury bills to the aggregate amount of
~,300,000,000, or thereabouts, for cash and in exchange for
'easury bills maturing April 28, 1966,
in the amount of
.,302,146,000, as follows:
91-day bills (to maturity date) to be issued
the amount of $ 1,300,000,000, or thereabouts
ditional amount of bills dated January 27,1966,
ture July 28,1966,
originally issued in the
,000,239,000, the additional and original bills
terchangeable.

April 28, 1966,
representing an
and to
amount of
to be freely

182-day bills, for $ 1,000,000,000, or thereabouts, to be dated
ri128,1966,
and to mature October 27, 1966.
The bills of both series will be issued on a discount basis under
npetitive and noncompetitive bidding as hereinafter provided, and at
curity their face amount will be payable without interest. They
Ll be issued in bearer form only, and in denominations of $1,000,
,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
lturity value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m., Eastern Daylight Saving
Ie, Monday, April 25, 1966.
Tenders will not be
eived at the Treasury De~artment, Washington. Each tender must
for an even multiple of $1,000, and in the case of competitive
ders the price offered must be expressed on the basis of 100,
h not more than three decimals, e. g., 99.925. Fractions may not
used. It is urged that tenders be made on the printed forms and
warded in the special envelopes which will be supplied by Federal
erve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
tomers provided the names of the customers are set forth in such
iers. Others than banking institutions will not be permitted to
nit tenders except for their own account. Tenders will be received
lout deposit from incorporated banks and trust companies and from
)onsible and recognized dealers in investment securities. Tenders
n others must be accompanied by payment of 2 percent of the face
lnt of Treasury bills applied for, unless the tenders are
)mpanied by an express guaranty of payment by an incorporated bank
;rust company.
'-442

- 2 Immed ia te ly a fter the c los ing hour, tenders wi 11 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 Treasun
expressly reserves the right to accept or reject any or all tenders, .
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
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 April 28,1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills ma turing April 28,1966.
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 bi 11s 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 frt»
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
Statement of Secretary Fowler
before the
Senate Treasury Subcommittee on Appropriations
on the Treasury Department Appropriation Bill
for the Fiscal Year 1967

Mr. Chairman and

~lembers

of the Treasury

SUhCOllUlli

ttee on Appropriations,

it is a privilege to appear before you this morning as the first witness in
support of the 1967 budget requests of the Treasury Department.

Representa-

tives of each of the Treasury bureaus, whose many important functions are
included in the 1967 Treasury budget, are with me and at your pleasure will
appear before you to explain their requests.
In douse Report

i~o.

1412 the House Conunittee on Appropriations reported

the bill H. R. 14266 making appropriations for the Treasury Department for
fiscal year 1967.

The bill as passed by the llouse on April 6, 1966, provides

regular annual operating appropriations of $1,371,999,000--$14,229,000 below
the budget estimates submitted by the President.

Reductions were made in

the requests of six appropriations, the principal ones beulg in Salaries
and Expenses, Bureau of the i'lint ($5,000,000), and Compliance, Internal
Revenue Service ($7,845,000).

A table which compares the 1966 appropriation,

including supplementals, and the 1967 President's Budget with the amounts
recommended in the douse Dill for 1967, has been provided your Conunittee
and I would like to make it part of the record at this point.

I would

also like to offer for the record a copy of the letter of Acting Secretary
Barr of April 8, 1966, to the Qlairman of this Subconunittee, stating the
l-fouse actions which we wish to appeal.

Further, I would ask to present for

the record a copy of my statement on the Treasury appropriation requests which
was prepared for this Committee and the House

Co~nittee

and was presented to

the House Committee.
Although reductions have been made by the House in six appropriations,
~d

these reductions total $14,229,000, we are requesting restoration of

TREASUBY DEPARTMENT
Comparative Statement of 1967 House A11owanoes
and 1967 Budget Eshmates
(Dollars in thousands)

Bureau and Appropriation
Regular Annual Operating Appropriations:
Offioe of the Seoretary ---------------Bureau or Aooounts ------------------Bureau of Cust.,. -------------------Bureau of the Mint:
Salari.. and Expenses ---------------Construotion of Mint faoi1ities -----Bureau of Narootio. -------------------Bureau of the Pub1io Debt -------------U.S. Cout Guard:
aperatl". bpenee. (Military) -------(Civilian) -------loquls i tion, Conetruot ion, and
I.prov .... nta (Military) -----------(Civilian) ---------R.tired PaJ -------------------------R... ne Training (Military) ---------(Civili&n) - - - - - - Total, U.S. Coast Guard (Military)
(Civilian)

1966 APpropriati9ns
(Adju.ted) !d

1967 Budget
Estimate.
Amount
Av. Pos.
Am

Reoommended in
House Bill
for 1967
Av. Pas.
Amount

535
1,475
8,242

i6,418
33,500
84,231

557
1,427
8,384

$6,999
32,988
86,189

557
1,427
8,384

i6,900
32,988
85,793

2,105

21,210
22,300
6,028
51,690

2,989

31,500

2,205

26,500

459
2,537

6,138
51,894

459
2,537

6,138
51,894

293,394

33,949
3,935

Z22,197

33,949
3,935

321,400

115,510

145
225

103,000

145
225

103,000

455
2,559
31,677
3,638
131

196

41,000

Bill Compa"ed with
1967 Estimates
1966 Appropriation
Av. Pas.
Amount
Av. Pos.
Amount

-396

22
-48
142

$482
-512
1,552

-5,000

100

5,290
-22,300
110
204

"'99
-784

- 22
-797

24,031

1,041
180

473 454
'

35,135
4,340

493 47A
'

35;135
4 , 340

492,681

-797

Intorna1 Revenue Service:
Salaries and Expenses ---------------Revenue Aooounting and Prooessing ---Comp1ianoe ------------------------Total, Internal Revenue Service --

1,436
20,485
42,019
63,940

17,959
163,072
448,059
629,090

1,474
21,546
43,221
66,241

18,6ge
169,529
467,845
656,Q66

1,474
21,546
42,652

-92

65,6~2

18,600
169,529
460,000
648,129

Offioe of the Treasurer ---------------U.S. Seoret Servioe

797
1,161

6,410
14,357

793
1,201

6,348
14,628

793
1,201

6,348
14,628

1,348,688

3:1,135
88,928
124,063

1,386,228

35,135
87,575
122,710

-12,510
3,250

1,041
180

14
29
13

23,550

Total, regular annual operating appropriations
32,836
(Military) -------------85,283
(Civilian) -------------118,119
(Total) -----------------

28,006

44,250

1,028
180
32,836
4,014

gj------------------

2,272
297

Restoration
Requested
Av. Pas.
Amou~ _____

24,031

-569
_-569

-1,353
1~'71,999 ___ =l,353

2,29/j-

326

-7,845

38
1,061
633

-7~937

~,732

-4

481
19,22'1

641
6,457
11,941
29,039

i3,OOO

3,000

-62
271

2,299
2,292
-~229

____ ~,591 ___ ~3,311

3,000

Adjusted to reflect supplementals included in H.R. 14012 and to reflect organization transfers from several bureaus to the Office of the Secretary of Law Enforcement Coordination
functions and of functl.ons related to the Office of the Director of Practioe.
Includes funds for the White House Police ana Guard Foroe.

April ],', 1966
67048.2

- 2 -

only $3,000,000 in one appropriation--Compliance, Internal Revenue Service.
This appropriation suffered one of the two principal cuts--$7,845,OOO.
Salaries and Expenses, Bureau of the Mint
Before we discuss that, however, I would like to say a word about the
other large reduction to which I have referred--that of $5,000,000 for the
Bureau of the Mint which we are not appealing.
As you know, the President's Budget request for the Bureau of the

Mint was $31,500,000 and planned production was for 15.1 billion coins.
The current bill provides $26,500,000 for 13.1 billion coins.

A review of

the coin production schedules and the demand patterns of fiscal year 1966
revealed that production levels previously estimated were not possible
because of delays in the deliveries of clad strip needed to make the new
coins and were not necessary in the case of five-cent pieces because of
reduction in demand for that denomination.

Accordingly, production esti-

mates were revised and $5,140,000 of the appropriation was made available
for application to pay increase costs of other bureaus.

The 1967 coinage

program was also restudied and the lower demand for five-cent coins was
projected into 1967. A 2-bi1lion-coin decrease in production is planned.
This coupled with favorable cost experience in producing twenty-five cent
pieces will enable us to reduce funds requirements by $5,000,000.

Unless

unforeseen demands arise, we will be able to operate within the funding
level of the House bill.
Compliance, Internal Revenue Service
The one action of the House which we have felt it necessary to appeal
is that of the $7,845,000 reduction in the appropriation request for

- 3 Compliance, Internal Revenue Service. After my comments regarding this
appeal, Mr. Sheldon Cohen, Commissioner of Internal Revenue, is here this
morning to explain in such detail as you may wish, the reasons why a
$3,000,000 portion of the House reduction should be restored.

I would

like to say, however, that the President's Budget estimate for the Internal
Revenue Service for 1967 provided a net increase of $6,054,000 to maintain
current staff levels (a large part of which was for the cost of pay increases) and $12,732,000 to add 1,202 man-years of employment to meet the
increasing workload resulting from growth of the population and economy.
In that budget estimate we made no provision to increase the proportion
of returns audited or to intensify our efforts to obtain delinquent
returns and payments.

We took into account enforcement benefits which

are being derived from application of the ADP Master File system and in
preparing the estimate we reduced the indicated need for additional manpower and funds to keep up with growth of workload by over 1,300 man-years
and $12 million in anticipation of increased productivity of the work
force.

This was done without making any reduction in revenue production

goals. The House Committee has reduced our manpower request of 1,202
man-years to 633 man-years of additional employment.
In the light of the House Committee's concern over the continued
growth of enforcement staff, we have concluded not to request employment
above the level recommended by that Committee.

We have determined, how-

ever, as Mr. Cohen can explain in the detail you desire, that the funds
allowance approved by the House will not be sufficient to the extent of
$1.8 million to provide the supporting costs for travel, materials and
facilities needed for the 633 man-years granted. Without restoration

- 4 -

of the $1.8 million we cannot expect to realize even this reduced employment to cope with the increased tax workload.

In addition, a new factor

has entered the budget picture for which provision must be made.

In the

recruitment of high quality personnel with accounting training, such as
needed for revenue agents, competition with industry is requiring that
higher entrance levels be offered.

The cost of the higher entrance levels

in 1967 is estimated to be $1.2 million and we have added this requirement
to the $1.8 million restoration requested to support the additional
personnel provided by the House bill. The total of these two items is
$3,000,000. This modest request has my fullest support.
Through program adjustments we will do our best to operate within the
amounts provided in the House bill for the other appropriations in which
reductions were made.

However, if we find that we cannot manage the

actual workload requirements as they develop in fiscal year 1967, it may
be necessary to return for supplemental funds.
Conclusion
This completes my statement on the Treasury appropriation requests.
Representatives of the bureaus concerned are prepared to appear before you
to explain their programs in greater detail; and I am at your disposal to
answer any questions that you may have.

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
TREASURY REFUNDS ONE-YEAR BILLS
The Treasury Department, by this public notice, invites tenders
for $1,000,000,000, or thereabouts, of 365-day Treasury bills, for
cash and in exchange for Treasury bills maturing April 30, 1966, in
the amount of $1,001,162,000, to be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided. The
bills of this series will be dated April 30, 1966, and will mature
~pri1 30, 1967, when the face amount will be payable without
interest. They will be issued in bearer form only, and in
denominations of $1,000, $5,000, $10,000, $50,000, $100,000, $500,000
lnd $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches
Ip to the closing hour, one-thirty p.m., Eastern Daylight Saving
:ime, Tuesday, April 26, 1966. Tenders will not be received at the
~reasury Department, Washington.
Each tender must be for an even
lu1tip1e of $1,000, and in the case of competitive tenders the
.rice offered must be expressed on the basis of 100, with not more
:han three decimals, e. g., 99.925. Fractions may not be used.
Notwithstanding the fact that these bills will run for 365 day,
he discount rate will be computed on a bank discount basis of 360
ays, as is currently the practice on all issues of Treasury bills.)
t is urged that tenders be made on the printed forms and forwarded
n the special envelopes which will be supplied by Federal Reserve
anks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
Istomers provided the names of the customers are set forth in such
~nders.
Others than banking institutions will not be permitted to
Ibmit tenders except for their own account. Tenders will be
~ceived without deposit from incorporated banks and trust companies
ld from responsible and recognized dealers in investment
!curities. Tenders from others must be accompanied by payment of
percent of the face amount of Treasury bills applied for, unless
e tenders are accompanied by an express guaranty of payment
an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the
dera1 Reserve Banks and Branches, following wnich public announcelt will be made by the Treasury Department of the amount and price

- 2 -

range of accepted bids. Those submitting tenders will be advised of
the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders ,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
$200,000 or less without stated price from anyone bidder will be
accepted in full at the average price (in three decimals) of
accepted competitive bids. Settlement for accepted tenders in
accordance with the bids must be made or completed at the Federal
Reserve Bank on May 2, 1966, in cash or other immediately available
funds or in a like face amount of Treasury bills maturing
April 30, 1966. 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 an
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.
000

TREASURY DEPARTMENT
Washington
FOR RELEASE UPON DELIVERY
REMARKS BY THE HONORABLE HENRY H. FOWLER
BEFORE A
DINNER MEETING OF THE APPLETON CI~MBER OF COMMERCE
AT THE TERRACE MOTOR INN, APPLETON, WISCONSIN
THURSDAY, APRIL 21, 1966, 6:30 P.M., CST

Both as Under Secretary of the Treasury and now as
Secretary I have tried to make it a practice, in dealing with
the great economic issues that have come before the nation,
to do all I can to avoid the paths of narrow partisanship and,
instead, to help open new and broader avenues for bipartisan
cooperation in achieving national economic objectives on which
there is general agreement.
So I feel that by being here tonight in Appleton, where
I have been told one can stand on the main street corner for
weeks and never catch sight of a Democrat, I am carrying on
the good work.
Indeed, it has been my pleasure and privilege during
my years at Treasury to work very closely with distinguished
Wisconsin representatives in Washington -- men of different
political persuasions who have played large roles in
shaping the important national economic and financial
legislation enacted in recent years -- Congressman John Byrnes,
who is the ranking minority member of the House Ways and Means
Committee, and Senator William Proxmire, who is a member of
the Joint Economic Committee of the Congress as well as of the
Senate Banking and Currency Committee, and Congressman Henry
Reuss, who is a member of the Joint Economic Committee and
the House Banking and Currency Committee.
I know that this informed audience is thoroughly familiar
with this economic and financial legislation of the past
five years -- as well as with the policies of whkh they were
so integral a part and with the unparalled economic progress
to which they gave so great an impetus.
But engrossed as we all are with the imperative present
need to avoid the danger of economic excess, we may
sometime~ tend to forget how deeply we were mired, five years
F-444

- 2 -

ago, in economic doldrums and how difficult was the task
that lay ahead.
The decade of the Sixties -- the "Soaring Sixties"
some had predicted -- had scarcely begun when we fell into
our fourth postwar recession. We looked back upon the
decade of the Fifties and saw little to fire our hopes for
the future. To look back, in fact, was only to become
painfully aware that each of the three prior recessions had
been followed by shorter and weaker recoveries, and that
the previous recession had produced what still remains the
largest peacetime budget deficit in our history. Unemployment
~as intolerably high -- 6.9 percent in February 1961,
the recession trough. Business investment had for years
failed to maintain anything like adequate levels of growth,
and remained far less that we needed to generate more
vigorous economic growth -- industrial plant and equipment,
in February 1961, was operating at only 78 percent of capaci~,
compared to the optimum rate of 92 percent desired by most
businessmen.
The question before us was how best to revive our
economy and restore its capacity for strong and sustainable
growth. We had essentially two choices: whether to increase
government expenditures or to reduce taxes -- whether to rely,
in other words, upon the renewed energies of the private
sector or upon expanded government activity.
We chose, as you know, to reduce taxes and to restrain
the growth of Federal expenditures, for we were firmly
convinced that the private economy simply could not do its
job unless it were sufficiently freed from the burden of
excessively high wartime tax rates -- rates originally
applied to restrain the strong inflationary pressures that
accompanied wars and national emergencies.
Through the investment credit of 1962, the depreciation
reforms of 1962 and 1965, the Revenue Act of 1964 -- and
to some extent through the Excise Tax reductions of last
year -- we moved to diminish the burden of wartime tax rates
upon the private economy and thus to furnish it with
.
renewed opportunity and fresh incentives to help meet our baSlC
economic needs.

- 3 The results are familiar to us all: our real Gross National
Product has risen without interruption and at an average annual
rate-: 5 percent since 1961. Our rapid rise in new industrial
capacity has been matched by a sharp reduction in idle
capacity. Our unemployment rate has fallen below 4 percent.
Productivity has grown significantly -- and profits, incomes
and wages have riser. substantially.
But I come here today not to recite the brilliant
economic success story of the past five years -- you know
that story as well as I, for you like all Americans have
been reading it over and over again in the glowing annual
reports of our companies and corporations, in the fuller pay
envelopes of our wage earners, in the higher standard of
living enjoyed by nearly all Americans.
I come to discuss a far less familiar, if extremely
important, accomplishment of the past five years -- the quiet
but crucial revolution that has occurred in Federal
2xpenditure control policy.
There has been intensive public discussion of the part
:hat tax policy can play in stimulating or restraining
~conomic activity.
Indeed, I think it impossible to over~stimate how far the tax discussion and tax action of these past
rears has advanced our ability to forge a flexible and effective
'conomic policy.
But in our intense concern with tax policy, we have
ended to give very little emphasis to another aspect of
'iscal policy which has also emerged during these years -refer to expenditure control policy.
Of course, the utilization of increased government
xpenditures as a means of dealing with a recession or a
agging economy has been one of the most discussed aspects of
~onomic policies over the years since the Great Depression.
will not plough over that old ground here, although it still
1S important relevance to the future.
The new and more novel aspect of expenditure policy
lich deserves increasing examination is public expenditure
mtrol as an adjunct of fiscal policy. In at least two
lportant and identifiable ways, which I will discuss in the
urse of this talk, the control of public expenditures can

- -+ -

play an important role in stimulating economic growth without
inflation or in restraining excessively exuberant growth
wh~n ·~flation threatens.
And I will also, of course, discuss the always important
and basic objective of utilizing improved and more effective
methods of public expenditure control to give the taxpayer
a 100 cents value on every tax dollar expended and to assure
that the public needs being served by that tax dollar are
those which deserve the highest priority and result in the
greatest benefits.
In this sense, expenditure control is a
continuing and primary responsibility of government.
Both from the increasing recognition of the importance
of assuring stable and sustainable growth in the economy with
reasonable price stability and from the increasing effort
to assure that waste and inefficiency are curbed and that
out of all of the competing public needs for the tax dollar
the most deserving are served -- from these realizations of
recent years has emerged what I have termed a quiet revolution
in the processes of expenditure control.
That revolution had its roots in the deci.sion to
generate strong and steady economic growth by reducing
Federal taxes rather than raisi.ng Federal expenditures.
Indeed, tax reduction implied expenditure restraint, since
it meant an initial and temporary lag in the growth of Federal
revenues.
I do not mean to suggest that the policy of coupling
Federal tax reduction with Federal expenditure restraint
was the cre,ature of only one branch of government, or of
only one party -- or that it emerged in full, formal regalia
in early 1961. For the notion of a program of expenditure
restraint as an important and explicit part of a program of
tax reduction vlas something thatgrew over time -- and in
the development of which members of both parties in the
Congress played a significant role. And no one made a more
persistent and effective contribution to that development
than your own Congressman) John Byrnes, in his position as
ranking minority member of the House Ways and Means Committee.
As this audience undoubtedly remembers, the early '60's
were scarcely propitious years for initiating a program of
expenditure control:
there was, for one thing, the urgent
national ,.eed to raise our entire level of defense preparedness;
there was, as well, the prospect of sizable increases in

- 5 -

expenditures for expanding and accelerating our space program;
and there was, inevitably, the rising cost of financing our
nationdl debt.
Over the first few years, therefore, we could not seek
overall reductions in these areas of the budget, but we
could -- and the record reveals that we did -- cut back on the
rate of growth in all other expenditures of our budget.
In the fiscal 1961-1964 period, for example, Federal
expenditures other than those for defense, space and interest
',n the national debt rose by some $4.3 billion, or by under
18 percent -- while over the previous three-year period,
fiscal 1958-1961, under an Administration that prided itself on
fiscal prudence, expenditures in these same areas grew by
Ilmost $4.9 billion, or by over 25 percent.
At the same time, we moved ahead with the first
)hase of our overall program of tax reduction -- taking two
,ignificant steps to spur new and more productive business
~nvestment without entailing any large loss of Federal
~evenues.
These were the Revenue Act of 1962, whose key
)rovision was the 7 percent investment tax credit, and the
!dministrative liberalization of depreciation.
It was during the weeks and months of effort that
ent into shaping the Revenue Act of 1962 -- a joint
ffort exerted by both the Administration and the Congress
hat the notion of coupling any massive program of tax
eduction with a rigorous program of expenditure restraint
egan to come into clearer and clearer focus. Indeed,
well reme~ber the sometimes lengthy colloquies on this
lbject between myself and other members of the Administration
1d members of Congress of both parties -- including
lairman Mills, Congressman Byrnes, and Congressman Curtis
f Missouri -- during discussions on the Revenue Act of 1962.
Thus, in proposing the tax program which found final
)rm in the Revenue Act of 1964, President Kennedy pledged
ld I quote -- that: "As the economy climbs toward full
lployment, a substantial part of the tax revenue thereby
nerated will be applied toward a reduction in the Federal
fic it."
In all of my advocacy of that tax reduction measure, I
o tried tJ make clear that the policy proposed was a two:onged one -- tax reduction and expenditure control.

- 6 -

111

for example, in my first public statement on the measure
February 1963 I said:
"The program has two ma in elements:
First, a substantial net reduction in federal
taxes . . . . and; Second, as the tax cut
becomes fully effective and the economy expands
in response, the allocation of a substantial
part of the resulting revenue increases toward
e limina ting the trans itional de fic it."

The Congress endorsed that policy when it declared, in
Section I of the Revenue Act of 1964, that: "It is the sense
of Congress that the tax reduction provided by this Act
through stimulation of the economy, will, after a brief
transitional period, raise (rather than lower) revenues and
that such revenue increases should first be used to eliminate
the deficits in the administrative budgets and then to
reduce the public debt. To further the objective of obtaining
balanced budgets in the near future, Congress by this action,
recognizes the importance of taking all reasonable means
to restrain Government spending ..... "
And President Johnson has more than redeemed that
pledge by personally spearheading the most persistent and
productive expenditure control effort ever witnessed in
Washington.
And the results are remarkable. Federal expenditures
for fiscal year 1964, when President Johnson assumed the
responsibilities of the Presidency, were originally estimated
at $98.8 bi~lion. The expenditure target for fiscal 1966,
the third year of his service was fixed in January of last
year at $99.7 billion -- less than $1 billion higher than
the original estimate for fiscal 1964.
Then, last July, events in Vietnam changed the
picture -- requiring additional expenditures of some $4.7
billion. Other increases also occurred -- increases, both
unforeseen and unavoidable, which totalled at net $2 billioo.
These included $740 million of military pay raises and an
additional $288 million increase in veterans pensions
voted by Congress in excess of Presidential recommendations
a $500 million increase in interest charges on the debt and
two further increases of $500 million each as a result of

- 7 -

payments required by law under the space and agricultural
programs. All of these increases -- which President Johnson
could '.either anticipate nor effectively control -- more than
wiped out economies realized by both Administration and
Congressional action since the original budget estimate for
fiscal 1966. And in doing so they obscured one of
President Johnson's truly extraordinary accomplishments
the fact that, excluding these increases, President Johnson
in nearly three years in office had held the total increase
in administrative budget expenditures to less than $1 billion
over the amount originally estimated for the fiscal year
in which he assumed office.
Compare this with the average increase in the budget
of $3 billion per year over the previous ten years. View it
in the context of the report issued in January of 1961 by
President Eisenhower's last Director of the Budget,
~r. Maurice Stans, which pictured the outlook for Federal
~xpenditures over the next decade.
That report concluded
that rising population and income, and the resulting normal
~rowth in the Federal workload, would tend to raise noniefense expenditures in the Federal budget by $2-$2~ billion
1 year throughout this decade.
Look at what President Johnson
las done against this background, and we begin to realize how
~eally remarkable his accomplishment is.
Joined with rising Federal revenues from rising
~conomic activity, the President's program of rigorous
~xpenditure control has allowed us to meet urgent national
:.eeds while at the same time reducing the Federal deficit.
The rec9rd is clear: the 1964 budget submitted three
ears ago forecast a deficit of $11.9 billion premised, in
,art, on maj or tax reduction. This figure was reduced to
n actual fiscal 1964 deficit of $8.2 billion.
Last year's budget contained an estimated deficit for
iscal 1965 of $6.3 billion. This was trimmed down to $3.4
lllion.
The budget submittea in January of 1965 projected a $5.3
Lllion deficit for fiscal 1966. As of June 30, this
ltimate had been cut to $4.2 billion largely because revenues
;:oduced by the vigorous response of our economy to the tax
,I.t exceeded our original estimate.
Had it not been for the
·.6 billion of additional defense expenditures resulting from
,etnam in fiscal 1966, the higher revenues flowing from our

- 8 burgeoning economy would either have eliminated or cut much
further that estimated deficit for the current fiscal
year.
Had it not, in fact, been for the increases projected
for Vietnam expenditures in fiscal 1966 and fiscal 1967
since the 1966 budget was originally submitted last January,
we could have used the fiscal dividends furnished by this
continued expansion to balance the budget in fiscal 1967
and still have had room for some increases in civilian
expenditures, or for additional tax reduction, or for some
reduction of the national debt.
As a result of all these policies which have proven
so productive, we now have the economic strength and the
fiscal resources -- and the firm confidence these
accomplishments more than justify -- to carryon the fight
for freedom in Souuh Vietnam without abandoning our efforts
at home. This was the real significance of the President's
announcement -- in his State of the Union Message -- that the
enactment of all his recommendations will entail a deficit
in the administrative budget for fiscal 1967 of only
$1.8 billion
the smallest in seven years -- and will give
us a surplus of $500 million in the cash budget.
And this accomplishment is made all the more extraordinary by the fact that fiscal 1967 expenditures include
an increase in the special costs of Vietnam of $10.4 billioo
over the fiscal 1965 level -- a $5.8 billion increase in
fiscal 1967 on top of an increase of $4.6 billion in fiscal
1966.
Indeed, if you exclude the Vietnam program increase
in both expenditures and revenues for fiscal 1967, the
budget would show a rather tidy surplus of some $3-$4 billioo,
There could be no better testimony to the unrelenting
rigor of President Johnson's efforts to control Federal
expenditures than his success in obtaining results like
these in the face of such severe difficulties. The
success of any such campaign -- as most of you in the audience
know from your own business experience -- depends upon
insistent, intensive leadership -- leadership that will allow
for no let-up and that will accept nothing less than maxUWm
efficiency and maximum economy -- leadership that requires
constant and continual accounting from every responsible

- 9 ofiicial on every program and every activity under his
supervLSLon. That is the kind of leadership that President
Johnson continues to exert -- the kind of leadershtp that has
instilled in every Federal employee at every level of
responsibility an acute cost-consciousness, and that engages
his best efforts to seek out new ways to do the job better
at less cost.
But the revolution in expenditure control which I
have been describing involves more than the creation,
under Presidential leadership, of a climate of cost~onsciousness throughout the Federal government.
It
involves the development, over the past few years, and
the establishment, for the first time, on a governmentwide basis of a whole new system of procedures, standards
arid techniques to furnish the kind of precise and pertinent
data required for exercising intelligent control over Federal
expenditures.
I will not now attempt to describe this system in any
detail -- for the details are complicated and it would
take too long. But I would like simply to cite some of
its more salient features.
Under this system, for example, every Federal bureau,
every Federal agency, every Federal department must furnish
a detailed breakdown of all its activities and programs -and expenditures for each of these -- in terms of priorities,
and reflecting the most up-to-date methods of cost-benefit
analysis -- which is simply a technical phrase that means
making sure we're getting the most out of the taxpayer's
dollar. What all this means, is that the President and the
Budget Bureau in preparing the Budget -- and reviewing its
operation throughout the year -- can decide to expand or
curtail expenditures from authorized appropriations, or to
request Congress to allow expanded or curtailed appropriations,
not in terms of some arbitrary decision, but on the basis of
a rational analysis of program priorities and program
performance. It means that the President and the Budget
Bureau have constantly at their fingertips the kind of
information they need to exercise a greater measure of continual
control over any proposed expansions in the levels of the
budget. It means also that they have the same kind of
information concerning lower priority programs that could be
eliminated or reduced. It means that the entire budgetary
process becomes far more than a exercise in numbers as it

- 10 reaches into the realities behind those numbers -- as it
involves a constant and close analysis, in detail, of
individual programs and activities in terms of their objectives
and their costs.
It means, in short, that expenditure control becomes
something more than an ad hoc, random eX2L'-' ise -- something
more than the imposition of arbitrary re:~l.Tictions from
without. Today, instead, expenditure control has become
a built-in, on-going part of the entire operation of the
Federal government -- continually at work as not merely
a negative but a positive and creative factor in the continual
effort to get the most out of every Federal dollar spent
in terms both of eff~ctiveness and efficiency and in terms
of meeting our most urgent lid tional needs. And today,
far more than ever before, we are able to save where we can
in order to spend where we must -- for today, far more than
ever before, we are able to identify and isolate those
areas where we can most profitably save as well as those
areas to which we can most profitably allocate our
expenditures.
We see the results of this system in the budget for
fiscal1967 -- a budget in which, by a process of selective
increases and decreases, the President was able to hold
down the total increase in all budget expenditures other
than the increase in special Vietnam costs to only $600 mi.1lion.
This net increase of $600 million includes both some sl1bstan~h:
increases and some substantial decreases. It includes
increases of $3.2 for Great Society programs, $800 million
for higher interest charges on the public debt, and $1.3
billion for unavoidable commitments such as construction
already in progress. It includes decreases of $1.6 billion
in defense outlays unrelated to Vietnam, $1.5 billion in
savings through pruning lower priority programs, through
management improvements and through the non-recurrence of
certain costs, and $1.6 billion resulting from increases
sales of mortgages and other financial assets and from the
further substitution of private for public credit.
Thus, to talk about expenditure control solely in terms
of expenditure totals is to tell only half the story -- for
we receive the greatest benefits from the President's
insistent emphasis on cost reduction and program evaluatlOO
in the urgent new programs it enables us to afford through
savings on those of lesser urgency and through greater
productivity in existing programs.

- 11 I can personally testify to the effectiveness of this
new system -- and to the intensity of President Johnson's
insistence upon expenditure control -- by citing some of the
more recent developments in my own Department.
Last July, with the shadows lengthening over Vietnam,
the President called two meetings in which he personally
developed with me and other members of his Cabinet and the
budgetary officers of each agency his intention to restrict
low priority expenditures and e1imate low priority programs.
On September 30 we submitted to the Bureau of the
Budget our departmental estimates for expenditures in the
fiscal year 1966. Shortly thereafter we received a
Presidential request to hold expenditures to the absolute
minimum and a Bureau of the Budget directive fixing an employment
ceiling as of June 30, 1966.
As a result we identified $102.5 million of prospective reductions for ~ remaining portion of the 1966 fiscal year.
This represented a reduction of almost 7 percent in our
estimates in September and was the figure included in the
President's 1966 budget expenditures when the 1967 budget
was presented in January.
On March 15 of this year the President

asked for a
further review as the end of this fiscal year neared to make
sure that there was no slippage. This review indicated
that we would achieve only $90 million of our $102.5
million reduction target.
In late March another meeting of Bureau heads resulted
in the identification of additional reductions of $13.7
million, bringing the total $1.2 million under the
President's January estimates for fiscal 1966 and $103.7
million below the Department's September estimates.
I should add that our departmental operating budget for
fiscal1967 was fixed by the President at a figure which
represented an increase of less than four percent, most of
which represented the financing of activities transferred
from the Navy to the Coast Guard and built-in pay increases.
Expenditures will be held even by economies in certain
bureaus despite work-load increases requiring increases in
Internal Revenue , the Mint and the Coast Guard totalling
approximately $46 million.

- 12 -

I do not, by all of this, mean to suggest that we
have arrived at some infallible or automatic means of
expenditure control. I mean only that we have entered upon
whole new pathways to more effective, intelligent
expenditure control. We have not eliminated -- and
will never eliminate -- the necessity for hard decision
on the part of the Administration, the Congress and the
American people -- all of whom must participate in varying
ways and degrees in any program of expenditure
control.
We will still have to face the fact, for example,
that here is no such thing as an "unpopular" Federal
program. Any program that exists does so because
somewhere, sometime, the Congress and the Executive thought
it worth instituting -- and during its existence it has
inevitably created its own often vocal and influential, if
often small, constituency.

Last summer, the eminent Chairman of the House Appropriations
Committee, Congressman George Mahon, made an excellent statement
before the Joint Committee on the Organization of the Congress
on the general problem of expenditure control. He was kind
enough to send me a copy of that statement, and I took the
liberty of sending him a few comments. I said in part, and I
quote:
"One of the mos t obvious f ac t s of pol i tica 1 life is that
the special interests are concentrated and strong while the
general interest tends to be diffused and weak. I do not mean
to imply that there is anything evil or sinister in "special
interests." It is only natural for those who benefit from
particular Federal expenditures to employ all possible political
pressures to preserve them. We must therefore rely upon both
the President and the Congress to protect the general interest
even though this is exceedingly difficult.

- 13 "Despite the. tremendous efforts of the President to hold
down expenditures, I think it is generally agreed that he has
done his best to recommend sufficient funds to carry out the
broad range of valuable Government programs. Nevertheless as
you pointed out Congress increased these recommended expenditure
authorizations by over $5 billion. The money will undoubtedly
go for popular purposes, but we obviously need some method of
holding down the overall Federal spending level, especially when
our defense requirements are growing as they are ....
"In the final analysis, however, we cannot escape the fact
that popular and even desirable ~rograms must be given very
careful scrutiny. Certainly the poverty, education and health
programs are essential, but the President's budget recommendations,
made in the light of how effectively those eypenditures can be
made, should not be exceeded. Military bases, veterans hospitals
and other Government installations which are no longer vital
should be phased out. Public works which do not meet the Bureau
of the Budget's rigorous tests of economic feasibility and
national need should be postponed.
"In these respects, I do not wish to imply that Congress
should not put its own stamp on the President's recommendations.
The Legislative branch has its responsibilities to review
Executive recommendations with a fine tooth comb. In doing so,
however, we need to keep the national fiscal requirements before
us, so that additions can be offset by subtractions ....
"I recognize that it is easier to turn on the faucet than it
is to turn it off. Nevertheless, if we are to maintain an
adequate national defense while yet protecting the integrity of
the dollar from inflation, it is imperative that we as a nation
develop the fiscal 'flexibility necessa·ry not only to stimulate
the economy when appropriate but also avoid excessive stimulation when this policy is called for ... "
Witness, as a current case in point, the angry opposition
in some quarters to some of the reductions the President has
proposed in existing programs. Take, for example, the proposed
reductions in the school lunch programs, in the special milk
program, in operating grants to Federally impacted school districts,
and in grants to land-grant colleges. Each of these reductions
represents a genuine effort to reduce assistance to those whose
need is less urgent in order to afford increased assistance to

- 14 -

those whose need is greatest. And each of these reductions was
proposed in the light of large increases in expenditures at all
education levels -- expenditures particularly aimed at helping
those most in need of help. Yet even in this context, these
proposed reductions -- and others -- have met with some stern
opposition.
So the task of Federal expenditure control continues to be
a most difficult one -- one that will continue to require diligent
and dedicated effort on the part of both the President and the
Congress -- but one that in the years ahead, as we continue to
perfect our techniques of continual program and expenditure
analysis and evaluation, will become more and more susceptible
to informed and intelligent accomplishment.
Already, as I have said, we are beginning to reap the
benefits of that quiet revolution in expenditure control that
has been taking place over the past few years. For today, when
the need for restraint is so great, we are better able to exercise
restraint without resorting to arbitrary expedients than we were
some years ago. And today, as well, the task of expenditure
control is far less staggering than it otherwise might be if we
had not already achieved such excellent results from our efforts
of recent years.
Perhaps the best way to sum up those results is to point
to the diminishing ratio over recent years between the growth
in Federal expenditures and the growth of our overall economy.
Exc luding specia 1 Vietnam cos ts, expenditures in the adminis trative
budget fell from 14.9 percent of our total national output in
fiscal 1965 to 14.5 percent in the current fiscal year. In
fiscal 1967, it will drop even further to 13.7 percent, the
lowest figure since fiscal 1948 -- some 18 years ago. Even
including Vietnam costs, the ratio between Federal expenditures

- 15 and our national output rises only slightly from 14.9 percent
in fiscal 1965 to 15.2 percent for both fiscal 1966 and fiscal
1967 -- thus remaining well below previous levels. Compare
these figures with the fact that throughout the late Fifties -under an Administration which, as I mentioned earlier, prided
itself on fiscal frugality -- expenditures in the administrative
budget never fell below 16 percent of our national output and
reached as high as 17.1 percent of that of that output in 1959.
The efforts, therefore, of recent years -- and
particularly under the leadership of President Johnson
have resulted in a real breakthrough in both the
techniques and the practice of Federal expenditure
control, a breakthrough that will mean greater and growing
flexibility in Federal budgetary decision-making in the
years ahead, and a breakthrough that stands us in good
stead now when the need for responsible restraint is
especially urgent.
We have, as I said earlier, far yet to go before we can
confidently claim to have mastered the incredible intricacies
and entanglements of the expenditure process. But, under
President Johnson's leadership, we have already come far. We
see the evidence, as I have pointed out, in our recent budgets.
We see it also in a further dimension -- in the broader context
of the role that expenditure policy can playas an instrument of
overall economic policy. In President Johnson's effort toward
restraint in the fiscal 1967 budget -- particularly in reducing
requests for new obligational authority some $4.1 billion below
the level of fiscal 1966 -- in his efforts in the current fiscal
year to hold down expenditures in the non-Vietnam sector of the
budget, and more broadly in his efforts to secure the voluntary
:ooperation of State and local government and of private
)usinessmen in postponing marginal capital expenditures -- in
:hese efforts we see a really major attempt to employ expenditure
)olicy as a counter-cyclical weapon.
We have done much in recent years to improve that weapon.
Je have much more to do in the years ahead.

000

TREASURY DEPARTMENT
Washington

STATEMENT BY THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE
HOUSE COMl.'1ITTEE ON BANKING AND CURRENCi
THURSDAY, APRIL 21, 1966, 10:30 A.M.
Mr. Chairman and Members of the Comnittee:
I welcome this opportunity to be with you today to support
}rompt passage of the "Participation Sales Act of 1966."

This

)ill is designed to provide for an efficient and orderly method

)f liquidating financial assets held by Federal credit agencies
lnd to promote private financing of Federal credit programs.
This legislation merely provides for an extension of a
:echnique that has been carefully tested and has proved its
'alue to the nation.

There is nothing essentially new or unusual

n what we are proposing.
Under authority provided in 1964, the Federal National Mortgage
ssociation, as trustee, has sold $1.6 billion of certificates of
articipation in pools of assets set aside by the Veterans Administraion, and by itself under its Special Assistance and Management and
iquidating functions.

The "Participation Sales Act of 1966" would

roaden and make available on a Government-wide basis this same
lthori~y for the sale of participations in pools of financial assets
~ned

by Federal credit agencies.
The objective of this bill is to limit and to reduce the

)vernm.:!nt's portfolio of direct loans by substituting private
lr public credit.

F-445

We cannot justify immobilizing the dollars of

- 2 -

the taxpayer by holding larger and larger amounts of loans when
the private credit markets can and want to participate with us in
our credit programs.
In 1961, our loan portfolio stood at $25.1 billion.
June 30, 1965, it had increased to $33.1 billion.

The program

of asset sales in which we have engaged during fiscal year 1966
and the program that is proposed in the President's Budget
Message for fiscal year 1967, will reduce this total to $31.5
billion on June 30, 1967.

Without the fiscal year 1966 action

and the program proposed in the Budget, the portfolio total
be about $39 billion on June 30, 1967.

wou~

This is clearly an un-

acceptable level.
The substitution of private for public credit has been a
continuing objective of the Congress and successive Administrations
for more than a decade.

It is a recurring theme in President

Eisenhower's Budget Messages in 1954, 1955, 1956, and 1958.
Encouraging the flow of private credit was strongly supported in
the 1961 Report of the Commission on Money and Credit and in the
1964 Report of President Kennedy's Committee on Federal Credit
Programs.

Further, expansion of the asset sales program was urged

in 1963 in a minority report of the House Ways and Means Cqrnmittee
on H.R. 6009 (to provide temporary increases in the public debt
limit):

- 3 -

"The Administration also can always reduce its borrowing
requirements by additional sales of marketable Government assets ..•
~or

example, when the Secretary of the Treasury was before the

;ommittee on February 27, we suggested that it was incumbent upon
:he Administration to show good faith before coming to the Congress
or an additional increase in borrowing authority.

We pointed out

hat the Government held about $30 billion in loans, many of which
ere readily marketable.

In fact, there was a very good market

or many of these loans.

Instead of increasing its offering of

hese loans to private lenders, the Administration was then acting
n the supposition that the Congress would automatically accede
) a request for an increase in its borrowing authority ... Our
~fusal
~sults.

to grant the Administration's request last February produced
In the interim of less than 2 months the Administration

)und that it could increase revenues from the sale of loans by an
lditional $1 billion for fiscal 1963.

Now, the Administration

ltimates that it will realize $2.082 billion -- as contrasted
th an original estimate of only $0.929 billion less than
months ago."
Let me outline the procedure which would be followed under the
11, including the effect of the provision bearing on the sale of
sets carrying interest rates below those prevailing in current
rkets.

- 4 Each lending agency would be authorized to enter into a
trust agreement with FNMA under which it would set aside on its
books certain of its loans, subject them to a trust and, for
purposes of the trust, guarantee the loans, including timely payments of principal and interest.

The bill would permit the

su[·c;titution of other loans in the event of default or likely
default on any of the loans subjected to the trust agreement.

fulfilling its guarantee, the lending agency would be authorized
to use any appropriated funds or other funds available for the
general purposes of programs to which the obligations subject to
trust are related.
Fl~

would, as it has already done as trustee for VA aM

FHA mortgage loans, issue and sell participations based on such
pooled obligations and on the right to receive principal and
interest collections from those obligations.

FNK~

would also, in

its corporate capacity, guarantee all payments due on the participati~
certificates sold.

For the purpose of making timely debt service

payments, FNMA would be authorized to borrow from the Treasury
under the procedures provided in subsection (d) of section 306
of the Federal National Mortgage Association Charter Act.
Because of the right of substitution and the lending agency
guarantee, it would not be anticipated that either the FNMA guarantee
or the Treasury borrowing authority would have to be used.

These

additional safeguards, however, would help to assure the most

- 5 -

favorable market reception for the participation certificates and
ninimize the interest rates at which they could be sold.
Proceeds of the participation certificates sold would be
)aid over to the lending agency.

They would become available for

lew loans only to the extent that repayments of the underlying
bligations can be used for new loans under existing law and
ongressional controls.
The loans pooled by the lending agency would have to
e of such amounts, interest rate, and maturities as to insure
rincipal and interest collections sufficient to meet the payments
Je on the participation certificates.
~cur

The only exception would

when an agency was previously authorized, in an Appropriation

of the Congress, to include obligations bearing submarket interest

ltes.

In that event, an appropriation would be established on the

,oks of the Treasury sufficient to enable the lending agency to
y FNMA, as trustee, the amount of any deficiency.

This is an

portant provision of this legislation which will insure that
e Congress will maintain effective control over these programs.
While title to the pooled loans would pass to FNMA in
1st, the lending agency would continue to maintain custody and
~vice
!

of the loans.

I want to make clear at this point that

lending agency would maintain complete administrative control

r its programs.

- 6 Borrower payments on the pooled loans would be paid
to the lending agency and then turned over to FNMA to be applied
toward payments becoming due on the participation certificates.
Any collection receipts in excess of the amounts needed to assure
payment on the participation certificates would be returned to
the lending agency, after deduction of FNMA' s costs.

Any additional

expenses would be paid by the lending agency, using either
appropriated funds or other amounts available for the purposes
or programs to which the obligations subj ect to trust were related.
The sale of participation certificates through FNMA would
also assure the essential coordination of asset sales by different
agencies.

It would not make sense for agencies to market their

assets in a way that interfered with similar efforts on the part
of sister agencies.

All are marketing an essentially similar

product -- an obligation backed by the Federal Government.
Coordinated offerings through FNMA would mean that market
offerings could be timed and adapted in other respects to minimize
interest costs, maximize marketability, and, inJ general, gain
the greatest benefit from this technique for drawing private
investment funds into Federal credit programs.
The bill would also assure the most effective coordination
of participation sales operations with the Treasury's debt manageIDf!ll

- 7 operations.

The Treasury has long-established and excellent

Horking relations with FNMA in coordinating market operations
qith over-all debt management policy.
Although similar arrangements have been and could be
~stablished

with other agencies, the coordinating job would

.>ecome increasingly complex and would require unnecessary staffing
md other administrative costs.
The problems of scheduling a large number of separate agency
ssues to avoid market congestion and to minimize the cost to
he Government would be both formidable and unnecessary.

Difficulties

n timing and coordination would be compounded during periods of
apidly changing market conditions, leading to possible disruptions
E needed credit programs.
The participation sales technique, as compared with the
Itright sale of Federal loans, provides significant additional
Lrketing flexibility and thus assures that Federal agency assets
.11 be more readily saleable and at lower interest rates.

The participation technique, in effect, converts obligations
relatively narrow market acceptability into obligations of
oad marketability which are attractive to a wide variety of
rchasers:

banks, insurance companies, pension funds, and other

stitutional investors.
Since the FNMA participation instruments have already gained

- 8 broad acceptance in the market, the Government should capitalize
on this proven experience and avoid the "start-up" costs that
other agencies would encounter if they approached the market
individually.
This bill is a recognition of and response to the
size and complexity of Federal credit program financing

growi~
operati~s

and the need for coordinating these operations with the over-all
financial activities of the Federal Government.
Again, I want to endorse this legislation and urge its prompt
enactment.

00000

- 9 -

ATTACHMENT
HOW THE PARTICIPATION SALES ACT WOULD WORK
The following two examples are illustrative of the procedures
that would be followed in implementing the provisions of the
"Participation Sales Act of 1966."

Example No.1, the SBA, outlines

the procedures in the case of programs in which loans are made at
market rates.

Example No.2, CFA College Housing Loans, details the

procedures that would be followed in the case of a program with
submarket rates.
Example 1.

Small Business Administration

The Small Business Administration would enter into a trust
agreement with FNMA under which SBA would set aside on its books
certain of its business loans.

These loans would be in such amounts,

have such interest rates and maturities so as to assure principal
and interest collections sufficient to meet the payments due on
these participation certificates.
These loans would be subjected to a trust and would be guaranteed by SBA.

To fulfill its guarantee, SBA would be authorized to

use any appropriated funds or other funds available to it for the
direct loan program.

Following past practices, SBA could also be

expected to set aside a reserve equal to ten percent of the principal
amount of the loans subject to trust.

In addition, SBA would agree

to substitute good loans in the event of default or likely default
In any of the loans subjected to the trust agreement.

- to FNMA as trustEe would issue and sell participations based on
such pooled obligations and on the right to receive principal and
interest collections from those obligations.

FNMA in its corporate

capacity would also guarantee timely payment of principal repayments
and interest due on the participation certificates, and for this
purpose FNMA, if necessary, would be able to borrow from Treasury
any amounts needed under the procedures provided in subsection (d)
of section 306 of the FNMA Charter Act.
Proceeds of the participations sold, after deduction of the
costs of the transaction, would be paid over to SBA and become
available for new loans subject to the over-all loan authorization
provided by the Congress.

In addition, as Mr. Ross Davis has

testified, SBA would continue to count against the loans outstanding
authorization the principal amount of all loans placed in trust.
Consequently, SBA would not be enabled to increase its loans
outstanding except to the extent the Congress has already provided
authorization for additional loans or provides additional
authorizations for the same purpose in the future.
While title to the pooled SBA loans would pass to FNMA in
trust, SBA would continue to maintain custody and service of the
loans.

Consequently, SBA would continue to maintain complete

administrative control over its programs.
In accordance with the trust agreement, SBA would pay over
to FNMA periodically repayments of principal and interest on the
pooled loans.

Any collection receipts in excess of the amountS

-li ,leeded to assure the payments on the participation certificates
~ou1d

be returned to SBA after deduction of FNMA's costs, and any

'idditiona1 expenses would be paid by SBA from appropriated funds or
)ther amounts available for the general purposes or programs to
Ihich the obligations subject to the trust are related.
::xamp1e 2.

College Housing Loans I Connnunity Facilities Administration

The Community Facilities Administration of the Department of
ousing and Urban Development, would in the normal appropriations
rocess request approval of the Congress to sell an amount of
articipations in the CFA loan portfolio.

The Appropriations

ommittees would be free to approve or reject the request or to
,nange the amount, thus maintaining strict control over the amount
ffunds which would be made available to CFA for new college housing
)ans.
If the Appropriations Committees approved the sale of, say,
~20

million, the amount proposed for fiscal 1967, of participations,

lere would be established on the books of the Treasury an
Ldefinite appropriation which would enable CFA to pay FNMA the
terest insufficiency arising from the difference between the
tes of interest on loans and on participation certificates.
viously, the Congress would be provided with estimates of the
ount of anticipated expenditures under this appropriation but

-12 the exact amounts would, of course, depend upon market rates
of interest at the specific times the participation certificates
were sold.
This indefinite appropriation would cover the payments
throughout the life of the participation certificates sold under
the authorization.

It would not run to additional issues of

participation certificates for which new authorization would be
required.
The Community Facilities Administration or the Department
of Housing and Urban Development would then enter into a trust
agreement with FNMA under which Community Facilities Administration
would set aside on its books certain of its loans, all of which
presently bear interest rates significantly below current market
rates of interest.
As in the SBA example, CFAwould subject these loans to a
trust, and guarantee the loans, and

unde~take

to substitute good

loans for loans which default or are likely to default.
Similarly FNMA would as trustee issue the participations and
in its corporate capacity guarantee the timely payment of principal
and interest on the participation certificates, again with the
support of its borrowing authority from Treasury.
Proceeds of the participation certificates sold would be paid

- I3over to CFA and become available for new college housing loans
in accordance with the intent of the Congress in initially
providing the authority to s211 an amount of participations.
Again, as in the SBA case, CFA would continue to maintain
custody and service of the loans and exercise full administrative
control over its program.
Since the pooled loans would bear interest below the rate at
which the participation certificates could be sold in the market,
from time to time CFA would also draw on the indefinite appropriation
authorized at the time the participation sale was authorized to
nake payments to FNMA for the amount of tqe interest insufficiency.

TREASURY DEPARTMENT

April 22, 1966
IMMEDIATE RELEASE
APPOINTMENT OF ASSISTANT DIRECTOR
(ADMINISTRATION) U.S. SECRET SERVICE
James J. Rowley, Director of the U. S. Secret Service,
and David C. Acheson, Special Assistant to the Secretary
of the Treasury for Enforcement, today announced the
appointment of Phil W. Jordan as Assistant Director of the
Secret Service for Administration.
Mr. Jordan, 52, a career civil servant, is Special
Assistant to the Assistant General Counsel of the General
Services Administration. He will assume his new duties
Monday, April 25.
Under a comprehensive re-organization of the Secret
Service announced by Secretary of the Treasury Henry H.
Fowler on November 10, 1965, Mr. Jordan will be the
fourth Assistant Director of the Service to be appointed.
The re-organization was designed to improve the
administration and efficiency of the Service. Three other
Assistant Directors, all career Secret Service agents,
were designated at the time of the November 1965 reorganization.
The position Mr. Jordan will fill was created to
provide the Director of the Service with a professional
administrator responsible for all administrative matters
within the Service. These will include personnel
recruitment and administration, training activities,
budget and finance activities, management studies, and
program planning and evaluation.
Mr. Jordan has been with GSA since 1949. He has held
positions as Director of the Program Objectives and
Evaluation Staff, Chairman of the Task Force for Review of
Government Procurement Policy and Procedures, Assistant to
the Administrative Assistant to the Administrator, Deputy
Assistant Commissioner for Procurement Policy, and Assistant
Comptroller.
F-446

- 2 -

Previously he was with the War Assets AdministratioH,
United Nations Relief and Rehabilitation Administration, the
Office for Emergency Management, and the Department of
Agriculture.
A native of Atlanta, Georgia, he is a 1935 graduate of
the University of Georgia and holds a Bachelor of Laws
degree from George Washington University. He is married to
the former Margaret Jane Thorne of The Plains, Virginia.
They have two children and reside at 7915 Radner Road,
Bethesda, Maryland.

000

TREASURY DEPARTMENT
Q

..-Y._

HOLD FOR RELEAsE AT 4:00 P.M., EDT
SUNDAY, APRIL 24, 1966
STATEMENT OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY OF THE UNITED STATES OF AMERICA
AND
U. S. GOVERNOR ON THE BOARD
OF THE INTER-AMERICAN DEVELOPMENT BANK
UPON ARRIVAL AT MEXICO CITY
TO PARTICIPATE IN THE SEVENTH ANNUAL MEETING
OF THE BANK'S BOARD OF GOVERNORS
SUNDAY, APRIL 24, 1966
Let me say how happy I am to be in your brilliant city,
which only a few days ago did my country the great honor
of giving so warm a welcome to President Johnson.
I am reminded of a passage in President Johnson's
remarks April 15 when he participated in the dedication of
the beautiful monument that you have raised to President
Lincoln. He said, and I quote:
"It will take time, faith and
stubborn effort to achieve together the
goals that we set ourselves in the
Charter of Punta Del Este five years ago,
but this 'we must do. This we will do.
There is no other way, in our time and in
this hemisphere, to shaw what free men and
wha t free na tions can do working toge ther."
The Inter-American Development Bank is an integral part
of that effort.
Mexico City is a particularly appropriate place for the
;overnors of the Inter-American Development Bank to meet,
for the Bank was established five years ago to further
those purposes of social and economic progress that Mexico
las long championed, even before they were espoused in the
~harter of Punta del Este and in the Charter of the
~nter-American Development Bank.

- 2 -

We will not only be giving ourselves the satisfaction
at the meeting which opens tomorrow of reviewing the Bank's
important and extensive accomplishments. We will have
before us several matters of great significance for the
Bank's future work, and for the growth of economic wellbeing in Latin America.
One of these is the proposal that the Bank study the
potentialities in the integration of economic development
efforts through multi-national projects. Another is study
of the needs of the Bank in the future for an increase in
its resources. A further question is that of approaching
Latin American development to a greater extent through
concentration upon the development potential in the
improvement of education, the improvement of agriculture and
food processing, and in more efficient mobilization and use
of Latin America's own resources.
I think that you can see from this that we have before
us a meeting that should be as productive as it is bound to
be interesting. I am looking forward to it, and my
anticipation is intensified by the fact of being in this
great and vital city, among the Mexican people who are in
so many ways establishing standards in the field of economic
and social development.
Your country and mine are each engaged upon the building
of a Great Society. Together with our friends in the
Alliance for Progress and in the Inter-American Development
Bank, we are engaged upon the building of a Greater Society
of American Nations. That is our work at this meeting.

000

TREASURY DEPARTMENT
,
(

RELEASE 6: 30 P .H. ,

April 25, 196~.
RESUL'l'S OF TFEASURY' S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series of

Treas,~r

.s, one series to be an adni.tional issue of the bills dated JanllC"ry 27, 1966,

the nther series to be dated Aprj_l 28, 1966, which were offered on April 20,
, were opened at the Federal Reserve Banks today. Tenders were invited for
00,000,000, or thereaboutR, of 91-d~ bills and for $1,000,000,000, or thereta, of 182-day bills. The details of the two series are as follows:
E OF ACCEPTED
~TITIVE

BIDS:

High

Low

Average

91-~ Treasury bills
maturing July 28, 1966
Approx. EqUiv.
Price
Annual Rate
98.834
4.61~
98.827
4.640;';
4.630,b1/
98.830
,

··

182-day Treasury bills
maturing October 27, 1966
Approx. Equiv.
Price
Annual Rate
4.716%
97.616 a/
97.606 ••
4.73.5;s
4.730%
97.609

a/ Excepting 1 tender of $200,000

bl% of the amount of 91-day bills bid for at the low price was accepted
34% of the amount of 182-day bills bid for at the low price was accepted
TI'-:;~mERS

APPLIED li'OR AN!) ACCEPTED BY FEDERAL RESERVE DISTRIC:CS:

trict
ton
York
ladelphia
ve1and
hmond
anta
cago
Louis
1eapo1is
sas City
Las
Francisco

Applied For
Applied For
AcceEted
4,68.5,000
$
$ 25,335,000 $ 14,826,000
1,496,508,000
882,828,000
1,512,300,000
12,74.5,000
20,992,000
34,162,000
36,.534,000
31,784,000
30,634,000
3,892,000
10,165,000
9,869,000
31,096,000
35,958,000
19,997,000
268,743,000
278,366,000
149,118,000 ••
35,907,000
68,823,000
49,926,000
11,063,000
16,879,000
12,544,000
21,8.58,000
25,417,000 •
2.5,651,000
:
12,227,000
16,170,000
26,306,000
68&960,,000 :
108 2 88!&000
13927232000

TOTALS

$2,174,610,000 $1,301,281,000 ~ $2,074,981,000

~udes

·
·
··
·

Accepted
4,685,000
$
7itJ.,698,000
)~, 745,000
1.5,987,000
3,892,000
12,600,000
104,883,000
19,387,000
7,630,000
16,279,000
7,062,000
61 26121. 000
$1,000,460,000

$247,421,000 noncompetitive tenders accepted at the average price of 98.830
:ludes $124,689,000 noncompetitive tenders accepted at the average price of 97.609
'se rates are on a bank discount basis. The equivalent coupon issue yields are
'5% for the 91-day bills, and 4.91% for the 182-day bills.

TREASURY DEPARTMENT
Washington

FOR RELEASE:

UPON DELIVERY

REMARKS BY THE HONORABLE TRUE DAVIS
ASSISTANT SECRETARY OF THE TREASURY
BEFORE INDUSTRIAL PAYROLL SAVINGS COMMITTEE
CEDAR RAPIDS, IOWA, TUESDAY, APRIL 26, 1966
12 O'CLOCK NOON, CDT.
I am indeed

hap~y

to have this opportunity to publicly

recognize and commend the 1965 efforts and accomplishments by
the volunteer Payroll Savings Committees of Iowa -- and to give
you every encouragement that I can toward the achievement of
the Savings Bond goals that you have set for 1966.
The strongest encouragement I can offer is the simple fact
that your efforts to increase the sale of United States Savings
Bonds contribute directly to helping your country deal with the
two most important problems it faces today.

I refer to our

commitment to defend freedom in South Vietnam and to the need
to prevent inflation at

home.

I think it's important -- in considering the possible threat

- 2 of inflation -- to keep in mind the tremendous economic gains
we have made.
I am talking about the vast expansion in productivity which
our country has achieved in recent years, the unprecedented
abundance which most Americans enjoy, and the great diversity
of newly created jobs in our economy which, despite the constant
influx of new workers, has forced our unemployment rate down
below 4 percent for the first time since early 1957.
Our fiscal policy has played a vital role in the great
expansion of our economy.

In turn, economic growth is reflected

in rising revenues for our Federal, State and local governments.
Federal administrative budget receipts under present law are
expected to be more than $20 billion greater in fiscal 1966 than
they were five years ago.

That is more than double the revenue

increases in the previous five-year period, in which no significant

- 3 -

tax reduction took place.

Not in spite of -- but because of --

tax reduction, we are receiving more tax revenue than we would
without it.
But simply because revenues are high does not mean there
~ll

be excessive Federal spending.
President Johnson has insisted that we insure, and here

I quote from him, that "every dollar is spent with the thrift
and with the common sense which recognizes how hard the taxpayer
worked in order to earn it."

Without detailing for you a list

of figures showing how the President's policy of expenditure
control has been carried out successfully, let me just say this:
If it had not been for necessary expenditure increases

for

Vietnam and increases which were beyond administrative control,
the President in three fiscal years would have held expenditures

- 4 to less than $1 billion more than the amount originally budgeted
for fiscal year 1964, in which he assumed office.

You can see

the significance of that figure clearly when you know that the
average budget increase of the previous ten years was $3 billion

Two advantages stand out among the many results of our
policies of fiscal flexibility and expenditure control.

The

first is that we as a nation can budget for urgent new programs
because of savings on those of lesser urgency and through greater
productivity in existing programs.
The second is that, despite the increase in the costs of
Vietnam

almost $6 billion alone in fiscal 1967 -- the

Administrative budget deficit next year is estimated at only
$1.8 billion.

That will be the lowest budget deficit in seven years.

- 5 Still another result has been that the U. S. Treasury, in
bearing its responsibility for managing the public debt, has not
made as great demands on our capital markets as many people have
expected it to.
Further, we have in the past -- and we will continue in the
future -- to manage our debt in the most non-inflationary manner
possible, consistent with our other debt-management objectives,
including cost.
In calendar year 1965 we financed the entire debt increase
outside the banking system.

In fact, Treasury issues held by

commercial banks fell by several billion dollars.
The Savings Bond program plays an
of the debt.

important role in management

It may prove to be one of our most useful tools

for averting inflation -- and it is also important in other ways.

- 6 -

Savings Bonds have a very unique place in the history of
our country.

People allover this land feel a little closer to

their government when they have a bond that has the seal of the
United States Government upon it.
and more than a piece of paper.

It is more than a document
It is a commitment on the part

of a citizen to his Government, to this democracy, to the
purposes of this nation .and to its present and to its future.
It's the wisest investment that anyone ever made.

And,

when we ask one another to share in this program, we are really
asking one another not only to do better for our country but to
do better for ourselves.

It's not bad to be able to invest your

money and get 4.15 percent interest; and to be sure you're going
to get it with no risk -- a guaranteed income if there ever was
one.

So, we can say that a bond -- a U. S. Savings Bond -- is

- 7 a prudent investment for a people that believe in their country
and in the future of this land.
Buying bonds not only helps to prevent inflation by taking
dollars out of the consumer spending stream; buying bonds is
also a way to participate in our commitment to freedom allover
the world.

I have heard our President say that it is not right

to expect the men who are in Vietnam and their families to bear
all the suffering, all the pain, all the worrying, and all the
fighting.

Those of us who are privileged to live in a much

more luxurious and easy life can do no less than to at least
express our willingness to help through the purchase of Savings
Bonds.
Every fraternal order, every labor organization, every
management organization, the Chambers of Commerce, the Veterans

- 8 -

organizations, every single group in America, should be offered
an opportunity to help increase the sale of Savings Bonds.
It's in that spirit that I come to you today, to ask your
help to do the kind of job that must be done.
In the days and months to come, let all of us -- in
government, in business and in commerce -- share an extra burden
of responsibility.

Let's demonstrate that --in deed, as in ideal;

in performance, as in promise -- we are a nation of greatness;
we are a union of patriots willing and worthy to meet the challenge
and bear the responsibility -- the lonely responsibility, at times
-- of leadership in a free world.

TREASURY DEPARTMENT

t RELEASE 6:)0 P. M• ,
~sday, April 26, 1966.

RESULTS OF REFUNDING OF $1 BILLION OF ONE-YEAR BILLS
The Treasury Department announced that the tenders for $1,000,000,000, or thereJuts, of 365-day Treasury bills to be dated April 30, 1966, and to mature April 30,
)7, which were offered on April 20, were opened at the Federal Reserve Banks today.
The details of this issue are as follows:
Total applied for - $1,833,811,000
Total accepted
- $1,000,121,000

Ran~e

(includes $38,878,000 entAred on
noncompetitive basis and accepted in
full at the average price shown below)

of accepted competitive bids:

High
Low
Average

- 95.184 Equivalent rate of discount approx. 4.750fo
- 95.144
"
""
"
"
4. 789~~
- 95.161
"
If"
11
"
4.773%

per annum
"

(93% of the amount bid for at the low price was accepted)
Federal Reserve
District

Total
Applied for

Total
;"ccepted

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas Cit,y
Dallas
San Frand-sco

$ 43,081,000
1,351,951,000
13,632,000
(>5,079,000
1,6b8,000
16,487,000
259,971,000
18,442,000
5,677,000
4,089,000
16,941,000
76,813,000

$1,833,811,000

$1,000,121,000

TOTAL

~his rate is on a bank discount basis.

F-449

33,081,000
804,901,000
3,632,000
5,079,000
1,648,000
6,987,000
95,831,000
16,442,000
5,677,000
4,01)9,000
5,9Ll,OOO
16 1 813,000

The equivalent coupon issue yield is 5.02%.

TREASURY DEPARTMENT
Washington

STATEMENT BY THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE
SENATE COMMITTEE ON BANKING AND CURRENCY
TUESDAY, APRIL 26, 1966, 10:00 A.M.
Mr. Chairman and l1embers of the Conunittee:
I am very glad to appear before you this morning to support

Irompt passage of the "Partic ipation Sales Act of 1966."

This

.ill would provide an efficient and orderly method for liquidating
:inancial assets held by Federal credit agencies and would help to
romote private financing of Federal credit programs.
This legislation would extend a technique that has been
arefully tested and has proved its value to the nation.

There

s nothing essentially new or unusual in what we are proposing.
Under authority provided in 1964, the Federal National Mortgage
3sociation, as trustee, has already sold $1.6 billion of certificates
~

participation in pools of assets set aside by the Veterans

iministration, and by FNMA itself under its Special Assistance
ld Management and Liquidating functions.
The "Participation Sales Act of 1966" would simply broaden
.d make available on a Government-wide basis this same authority
r the sale of participations in pools of financial assets owned
Federal credit agencies.

F-4S0

- 2 Our objective is to limit and to reduce the Government's
portfolio of direct loans by substituting private for public
credit.

We cannot justify immobilizing the dollars of the

taxpayer by holding larger and larger amounts of loans when the
private credit markets can and want to participate with us in
our credit programs.
In 1961, our loan portfolio stood at $25.1 billion.

June 30, 1965, it had increased to $33.1 billion.
The program of asset sales

which we have engaged during

fiscal year 1966 and the program that is proposed in the President'
Budget Message for fiscal year 1967, will reduce this total to
$31.5 billion on June 30, 1967.
Without the fiscal year 1966 action and the program proposed
in the Budget, the portfolio total would approach $39 billion
on June 30, 1967.
necessary.

This kind of growth is neither desirable nor

It is undesirable because it is the essential businesS

of Government to help stimulate and encourage worthwhile credit
programs, but not to be the final lender holding an ever-rising
portfolio.

It is unnecessary because the "Participation Sales Act

of 1966" offers an attractive alternative in the form of
substituting private for public credit.
The substitution of private for public credit has been a
continuing objective of the Congress and successive Administratico
for more than a decade.

- 3 -

It is a recurring theme in President Eisenhower's Budget
Messages in 1954, 1955, 1956, and 1958.
Encouraging the flow of private credit was strongly supported
in the 1961 Report of the Commission on Money and Credit and in
the 1964 Report of President Kennedy's Committee on Federal Credit
Programs.
Expansion of the asset sales program was urged in 1963 in a
minority report of the House Ways and Means Committee on H.R. 6009
on providing temporary increases in the public debt limit, from
which I quote the following passages:
"The Administration also can always reduce its borrowing
requirements by additional sales of marketable Government
assets ••••
"For example, when the Secretary of the Treasury was
before the Committee on February 27, we suggested that it
was incumbent upon the Administration to show 'good faith'
before coming to the Congress for an additional increase in
borrowing authority.

We pointed out that the Government

held about $30 billion in loans, many of which were readily
marketable.

In fact, there was a very good market for many

of these loans.

Instead of increasing its offering of these

loans to private lenders, the Administration was then acting

- 4 on the supposition that the Congress would automatically
accede to a request for an increase in its borrowing
authority."

......
"Our refusal to grant the administration's request
last February produced 'results'..

In the interim of less

than 2 months the administration found that it could increase
revenues from the sale of loans by an additional $1 billion
for fiscal 1963.

Now, the administration estimates that

it will realize $2.082 billion -- as contrasted with an
original estimate of only $0.929 billion less than
2 months ago •••• "
Before I outline the procedures which would be followed under
the bill, let me mention two

amendments proposed by the House

committee in which we concur.
First, the House committee proposed, and we agreed, that it
would be desirable to amend the bill to provide that no sale of
participation certificates on behalf of any agency could be
undertaken without prior authorization in an appropriations act.
As originally drafted, the bill provided that prior
authorization in an appropriations act for the sale of participatia
certificates would be required only if the assets pooled by the
agency bore interest rates below the rate at which the participatiJ
certificates could be sold in the market.

It was our intention

- 5 -

that the appropriations committees should consider any sale of
participations where there would be need for appropriations.
We were pleased to accede

to this amendment -- proposed

by the minority side in the House Committee -- which will have the
effect of strengthening Congressional control over all of these
credit programs.
Second, we agreed to a change which would require -- rather
than simply authorize -- an agency to guarantee its pooled
obligations to FNMA.
We believed that circumstances could arise, for example, in
connection with insured FHA loans, in which a further guarantee
to FNMA, as trustee, would not be necessary.
But we are glad to accept the amendment, since its intent is
~dentical to our own, which is to protect

FNMA, both in its trust

and corporate character, and to place the first responsibility
where it belongs -- on the lending agency.
I would like to sketch for you the procedure which would
be followed under this Bill:
When authorized in appropriations acts, each
lending agency could enter into a trust agreement with
FNMA, under which it would set aside on its books certain
of its loans and subject them to a trust.

It would be

- 6 -

required, for purposes of the trust, to guarantee the
loans, including timely payment of principal and interest.
The bill would permit the substitution of other loans in
the event of default or likely default on any of the loans
subjected to the trust agreement.

In fulfilling its

guarantee, the lending agency would be authorized to use
any appropriated funds or other funds available for the
general purposes of programs related to the entrusted
obligations.
-- FNMA would then -- up to the maximum amounts
authorized for each agency

issue and sell participations

based on the pooled obligations and on the right to receive
principal and interest collections from those obligations.
FNMA would also, in its corporate capacity, guarantee all
payments due on the participation certificates sold.

For

the purpose of making timely debt service payments, FNMA
would be authorized to borrow from the Treasury under the
procedures provided in subsection (d) of section 306 of
the Federal National Mortgage Association Charter Act.
Because of the right of substitution and the
lending agency's guarantee, it is not anticipated that
either the FNMA guarantee or the Treasury borrowing

...,
-

authority would have to be used.

These additional

safeguards, however, would help to assure the most
favorable market reception for the participation
certificates and minimize the interest rates at which
they could be sold.
-- Proceeds of the participation certificates sold
would be paid over to the lending agency.

They would

become available for new loans only to the extent that
repayments of the underlying obligations can be used for
new loans under existing law and congressional controls.
-- If the loans pooled by the lending agency, pursuant
to an authorization in an appropriation act, included
obligations bearing submarket interest rates, an
appropriation would be authorized to enable the lending
agency to pay FNMA the amount of any deficiency in the
interest earned on the pooled obligations.

The amount

would be the difference between the interest paid by the
borrowers and the interest payable on the participation
certificates.

If this payment was not made in timely

fashion, FNMA, as part of its guarantee of timely payment
on the participation certificates, would itself pay the
amount of the deficiency -- and would then be reimbursed

- 8 by the agency, with interest, when funds became available.
While title to the pooled loans would pass to
FNMA in trust, the lending agency would maintain custody
and service of the loans.

Again, let me stress a point:

the lending agency would maintain complete administrative
control over its programs.
Borrower payments on the pooled loans would be
paid to the lending agency.

The agency would turn the

payments over to FNMA, to be applied toward payments
becoming due on the participation certificates.

Any

collections in excess of the amounts needed for
payments on the participation certificates would be
returned to the lending agency, after deduction of
FNMA's costs.

Any additional expenses would be paid

by the lending agency, using either appropriated
funds or other amounts available for purposes or
programs related to the entrusted obligations.
An additional benefit of this proposal is that the
sale of participation certificates through FNMA would
assure the essential coordination of asset sales by
different agencies.

It would not make sense for agencies

to market their assets in a way that interfered with

- 9 -

similar efforts on the part of sister agencies.

All

would be marketing an essentially similar product
an obligation backed by the Federal Government.
Coordinated offerings through FNMA would mean that market
offerings could be timed and adapted in other respects to
minimize interest costs, maximize marketability, and, in general,
gain the greatest benefit from this technique for drawing
private investment funds into Federal credit programs.
The bill would also assure the most effective coordination
of participation sales operations with the Treasury's debt
management operations.

The Treasury has long-established and

excellent working relations with FNMA in coordinating market
operations with over-all debt management policy.
While similar arrangements have been and could be established
with other agencies, the coordinating

job grows in complexity

as more agencies and larger sales are involved.

Centralizing

sales will avoid unnecessary staffing and other administrative
:::osts.
Scheduling a large number of separate agency issues to avoid
narket corgestion and to minimize the cost to the Government is
loth intricate and unnecessary.

- 10 -

Difficulties in timing and coordination are compounded
during periods of rapidly changing market conditions, leading
to possible disruptions of needed credit programs.
The participation sales technique -- as compared with the
outright sale of Federal loans
tional marketing flexibility.

provides significant addiIt thus assures that Federal

agency assets will be more readily saleable and at lower interest
rates.
The participation technique converts obligations of relatively narrow market acceptability into obligations of broad
marketability which are attractive to a wide variety of purchasers:
banks,

insurance companies, pension funds, and other institutional

investors.
For example, if the government were to sell directly the
home mortgages which it now holds, most of these mortgages would
be bought by institutions (such as savings and loanS and Dnltual
savings banks) which normally supply a large part of the credit
needs of the home mortgage market.

The result would be to put

this particular sector of the credit market under increased
pressure.

- 11 -

However, if these mortgages are marketed via the participation route, the purchasers would include the whole spectrum
of investors -- including those which

normally do not invest

in home mortgages -- such as corporations, personal
and state and local government

pension funds.

sale of home mortgages in a pool of assets

trusts,

Thus the

(as contrasted with

the direct sale of mortgages) would tend to ease -- rather than
increase -- pressures on the mortgage market.
Since the FNMA participation instruments have already gained
broad acceptance in the market, the Government should capitalize
on this proven experience and avoid the "start-up" costs that
other agencies would encounter if they approached the market
individually.
This bill is a recognition of and response to the growing
size and complexity of Federal credit program financing operations and the need for coordinating these operations with the
over-all financial activities of the Federal Government.
I fully endorse this legislation and urge its prompt enactment.

ATTACHMENT
HOW THE PARTICIPATION SALES ACT WOULD WORK
The following two examples illustrate the procedures that
would be followed in implementing the provisions of the
"Participation Sales J\ct of 1966".

Example No.1, covering SBA

loans, outlines the procedures in the case of programs in which
loans are made at market rates.

Example No.2, covering CFA

College Housing loans, sketches the procedures that would be
followed in the case of a program ;with submarket rates.
Example 1.

Small Business Administration

The Small Business Administration, after receiving an
authorization in an appropriations act, would enter into a trust
agreement with FNMA under which SBA would set aside on its books
certain of its business loans.

These loans would be in such

amounts and have such interest rates and maturities as to assure
?rincipa1 and interest collections sufficient to meet the payments
iue on the participation certificates.
These loans would be subjected to a trust and would be
~uaranteed

by SBA.

To fulfill its guarantee, SBA would be

luthorized to use any appropriated funds or other funds available
:0

it for the direct loan program.

Following past practices,

:BA could also be expected to set aside a reserve equal to ten
ercent of the principal amount of the loans subject to trust.

-A2In addition, SBA would agree to substitute good loans in the
event of default or likely default on any of the loans

subject~

to the trust agreement.
FNMA, as trustee, would issue and sell

participatiombas~

on the pooled obligations and on the right to receive principal
and interest collections from those obligations.

FNMA, in its

corporate capacity, would also guarantee timely payment of
principal and interest due on the participation certificates.
For this purpose FNMA, if necessary, would be able to borrow
from Treasury any amounts needed under the procedures provided
in subsection (d) of section 306 of the FNMA Charter Act.
Proceeds of the participations sold, after deduction of
the costs of the transaction, would be paid over to SBA.

They

would become available for new loans only within the over-all
authorization provided by the Congress.
As Mr. Ross Davis, Acting Director of SBA, has testified,
SBA would continue to count against its authorization to have
loans outstanding the prinCipal amount of all loans placed in
trust.

Consequently, SBA would not be enabled to increase its

loans outstanding beyond the level authorized by the Congress
and provided for in appropriations acts.

lo~

-A3-

While title to the pooled SBA loans would pass to FNMA in
:rust, SBA would continue to maintain custody and service of
:he loans.

Consequently, SBA would maintain complete administrative

ontrol over its programs.
In accordance with the trust agreement, SBA would pay over
o FNMA periodically repayments of principal and interest on the
ooled loans.

Any collection receipts in excess of the amounts

eeded to assure the payments on the participation certificates
Juld be returned to SBA after. deduction of FNMA's costs, and
ly additional expenses would be paid by SBA from appropriated
Inds or other amounts available.
~ample

College Housing Loans, Community Facilities Administration

The Community Facilities Administration of the Department
Housing and Urban Development would also in the normal apopriations process, request Congressional approval to sell a
rtain amount of part}cipations in the CFA loan portfolio.

The

propriations Committees would again: be free to approve or reject
e request or to change the amount, thus maintAining strict conal over the amount of funds which would be made available to CFA
r new College Housing loans.
If the sale of $820 million of participation certificates,
amount proposed for fiscal 1967, was approved by the Congress
an appropriation act, it is anticipated that the same act

- A4-

would establish on the books of the Treasury an indefinite
appropriation which would enable CFA to pay FNMA the interest
insufficiency arising from the difference

~between

the rates

of interest on loans and on participation certificates.

The

Congress would be provided with estimates of the amount of
anticipated expenditures under this appropriation, which would
be indefinite only to the extent that estimates 1;vould be required
of the market rates of interest at which the participation
certificates could be sold.
This indefinite appropriation would cover the payments through·
out the life of the participation certificates Bold under the
authorization.

It would not run to additional issues of

participation certificates for which new authorizations would be
required.
The Community Facilities Administration would then enter
into a trust agreement with FNMA, under which CFA would set aside
on its books certain of its loans, all of which presently bear
interest rates significantly below current market rates of interest.
As in the SBA example, CFA would subject these loans to a
trust, guarantee the loans, and undertake to substitute good lo~5
for loans which default or were likely to default.
Similarly, FNMA would, as trustee, issue the participations
and, in its corporate capacity, guarantee the timely payment of

-ASprincipal and interest on the participation certificates, again
with the support of its borrowing authority from Treasury.
Proceeds of the participation certificates sold would be
paid over to CFA and become available for new college housing
loans.
As in the SBA case, CFA would maintain custody and service
of the loans and exercise full administrative control over its
frogram.
Since the pooled loans would bear interest below the rate
at which the participation certificates could be(sold in the
market, from time to time CPA would draw on the indefinite appropriation provided when the participation sale was authorized
in order to make payments to FNMA for the amount of the interest
insufficiency.

TREASURY DEPARTMENT

May 5, 1966,
representing an
and to
amount of
to be freely

182-day bills, for $1,000,000,000, or thereabouts, to be dated
and to mature November 3,1966.

May 5,1966,

up to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, May 2, 1966.
Tenders will not be

received at the Treasury De~artment, 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,
~lth 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
provided the names of the customers are set forth in such
Others than banking institutions will not be permitted to
submit tenders except for their own account. Tenders will be received
~ithout deposit from incorporated banks and trust companies and from
~esponsible and recognized dealers in investment securities.
Tenders
'rom others must be accompanied by payment of 2 percent of the face
lmount of Treasury bills applied for, unless the tenders are
lccompanied by an express guaranty of payment by an incorporated bank
)r trust company.

~ustomers
~enders.

F-451

- 2 -

Immediatelv after the closing hour, tenders will be opened at the
Fe dera 1 Re serve Backs and Branche s, following which pub 1 ic announce:ncnt \.;>ill be madr bv the Treasury Department of the amount and price
range of acceptr:>(l bids. Those submitting tenders will be advised
of lhe acceptance or rej ec t ion there of. The Secre tary of the Treasurv
expressly reserves the right to accept or reject any or all tenders,'
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Se t t lemen t for accepted tender s in acc ordance wi th the bids mus t be
made or completed at the Federal Reserve Bank on May 5, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing May 5, 1966.
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 ha~
any exemption, as such, and loss from the sale or other dispositioo
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject ~
estate, inheritance, gift or other excise taxes, whether Federal ~
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 bi lIs 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 upoo
sale or redemption at maturity during the taxable year for whkh ~
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 obtainedfr'
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
Washington
FOR USE AT 12:45 EDT
WEDNESDAY, APRIL 27, 1966
REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AND
U. S. GOVERNOR ON THE BOARD
OF THE INTER-AMERICAN DEVELOPMENT BANK
AT THE SEVENTH ANNUAL MEETING
OF THE BANK'S BOARD OF GOVERNORS
WEDNESDAY, APRIL 27, 1966
AT MEXICO CITY
It is a pleasure indeed to participate in a meeting in this
great and beautiful capitm city of Mexico. As a representative
of the United States, I am particularly happy at this opportunity
to visit our close and good neighbor. The bonds between us were
demonstrated eloquently during the recent visit of President
Johnson to dedicate a statue of Abraham Lincoln as a gift of the
ptople of the United States to the people of Mexico. The visit
was a deeply moving reaffirmation of the mutual feelings of
respect and friendship which unites our two peoples.
It is particularly fitting for the Governors of the Bank
to meet in Mexico, which long ago adopted under its revolution,
and in many ways has illuminated, the principles of social and
economic progress espoused in both the Charter of Punta Del Este
and in the Charter of the Bank. I am sure I speak for the other
Governors as well as for myself in paying special tribute to
the extraordinary accomplishments of this great country in
promoting economic development and social justice. May I also
express my delegation's gratitude for the splendid arrangements
provided by our Mexican hosts for the conduct of this meeting.
In contrast with other Governors present who have attended
several of the Bank's meetings, I am here as a novice. I am
able, however, to point to some previous association with
the Bank in my earlier tenure as Under Secretary of the Treasury
as well as during the past year in which I have served as
Secretary of the Treasury and United States Governor of the
Bank. I was honored to be present, for example, on the occasion
F-452

- 2 -

of the signature in 1961 of the Social Progress Trust Fund
Agreement by the late President Kennedy and by our own
President Herrera.
I regard this meeting as a welcome opportunity to listen
and to learn from my fe llow Governors, as we 11 as from the
distinguished President of the Bank.
Before beginning my own remarks, however, I am greatly
pleased and honored to convey a message to this distinguished
assemblage from the President of the United States. I quote:
"Ten days ago it was my privilege to share
the beauty and hospitality of this gracious
city.
"On that occasion I urged that all of us
in this hemisphere work together to open up
new paths and breathe new energy into our
efforts to give the Alliance for Progress
increased momentum.
"As we carry forward our truly revoluntionary
cause, four areas of major endeavors must be:
"Higher agricultural production to feed our
growing populations and to meet our expanding
industrial requirements;
"Better education to open the door to
intellectual fulfillment for all our people and
to equip them with the skills of modern
technology;
Improved health facilities to protect our
populations against the ravages of disease and
to insure that they achieve maximum accomplishment
in work and leisure; and
II

"Wider economic integration to achieve a
more rational utilization of Latin American
resources and thereby to accelerate economic
growth and social progress.
"It is a great source of personal satisfaction
to me that under my administration, the United
States Congress has authorized the provision of
$750 million for the Bank's expanded fund for
special operations. The Bank, under Dr. Herrera's
distinguished leadership, is making a strong

- 3 -

contribution to the success of the AlliancE for Progress
By emphasizing in your new program the four
areas which I have described, you are placing
the Bank in the forefront of a new, dynamic
effort. I commend you for your vision and
initiative. "
Mr. Chairman, the Bank has recently marked two significant
anniversaries. The first of October of Last year marked the
fifth anniversary of the date on which the Bank officially began
operations and in February of this year, the Bank completed
five years from the date of approval of its first loan. This
is an appropriate time, therefore, for the Governors to review
the record of the Bank's operations during the first five years
of its existence, and to examine its role as it has evolved
and should evolve in the future. Moreover, we have just passed
the fifth anniversary of the launching of the Alliance for Progress
which
has been marked by an assessment of the problems and
accomplishments of this initial period, as well as by the new
initiatives launched by the Inter-American Conference at
Rio de Janeiro. This would appear to offer a good opportunity,
on my part, to review the role of the United States in
relation to the Bank and to the development efforts of the Latin
American countries.
The Annual Report of the Bank and the excellent presentation
by the President of the Bank have illuminated the record in a
manner that leaves little need for further review. It is an
impressive first five years: loan commitments totalling
$1.5 billion to help finance total investments of over $4 billion,
and disbursements of approximately $600 million. It can be
estimated that the Bank's disbursements have resulted in
completed investments on the order of $1.5 billion -- or an
average annual rate of about $300 million. This is a remarkable
achievement for an entirely new institution to have accomplished
in so brief a period.
The Bank's operations, moreover, have been proceeding
=ecently at an accelerating pace, and are assuming increasingly
~reater significance in the total flow of external funds to
~atin America. During the five-year period, the total fresh
:ommitment of external funds for long-term loans and grants by
:he United States and multilateral development agencies
ggregated $7.5 billion. Approximately $1.4 billion of these
ommitments were made by the International Bank for
econstruction and Development Group, and $406 billion
epresented various bilateral assistance programs of the
nited States. The $1.5 billion of the Bank's commitments,

- 4 including United States assistance through the Social Progress
Trust Fund, represented about 20 percent of the aggregate
five-year total.
An outstanding feature of the record during its first five
years of operation is the Bank's proven ability to raise funds
in private capital markets. As we all know, it is no mean task
for a relatively new and unseasoned institution -- regardless
of the backing provided by its member governments -- to meet
the standards, and to generate the confidence required, to place
its debentures at reasonable cost and on long term. As of ilie
end of 1965, the Bank had successfully placed $285 million of
its long-term bonds. Issues in the United States market
totalled $225 million, while issues in the European markets
were a disproportionately -- and disappointingly -- small
$60 million. Despite persistent and energetic efforts, the
Bank has experienced directly one of the crucial problems of
the moment -- the lack of an adequate long-term capital market
in Europe.
It is with considerable satisfaction that we have learned
that the Bank -- since the period covered by the Annual Report ..
has been able to place its bonds to the extent of an additional
$89 million, in markets entirely outside the United States, m
two operations of considerable significance. A $24 million long·
term issue was placed in Italy this year, bringing the
contribution of that country alone in this form of $48 millioo,
or $12 million more than the long-term capital which the Bank
has been able to raise in all the other European markets
combined. The positive attitude displayed by the Italian
authorities and investment community toward the Bank is indeed
gratifying and should be welcomed by all its members. The Bank
placed $65 million just this month in short-term issues, of '
which $57 million was subscribed by the Latin American members
themselves through their central banks. The Latin American
members of the Bank were already in the position of credit~s
as well as borrowers from the Bank, having initially subscribed
to the paid-in capital in gold and dollars, as well as their
own currencies, and to the callable capital in which they ass~d
a contingent liability of the Bank. This further tangible
support of the Bank by its borrowing members not only'
provides new eloquent testimony of the confidence with which
the Bank is viewed by its members, but further strengthens
the reciprocal creditor/debtor relationship between the Bank
and its members. At the same tLme, the multilateral nature of
the Bank has been further underscored, giving all members an
equal interest in assuring that the resources which they have

- 5 -

together contributed are utilized in the most effective manner
possible. This generous response to the Bank's needs has
opened the way to new forms of cooperation between the Bank and
its members which I am confident will be strengthened and made
ever more fruitful in the years ahead.
Clearly, the Bank has grown substantially in its first five
years, by all quantitative tests, and has become a very
substantial source of financing for Latin America's social and
economic development. But there has been qualitative growth
as well, reflected in the Bank's present stature as a prime
and respected source of techical advice and assistance to its
members, and in its~oven ability to provide leadership and to
speak with authority in the affairs of the hemisphere. The
great prestige of the Bank is reflected in commonly employed
references to the Bank as "The Latin American Bank Par
Excellence," ehe "Bank of the Alliance" and the "Bank of
Integration."
The Bank antedated the Act of Bogota as well as the
establishment of the Alliance for Progress and the Charter of
Punta Del Este. But as these historic programs were
promulgated,:.:he Bank was quick to take up its proper role
within them. Even as it was on the point of beginning its
operations, the Bank assumed the new responsibility of
administering the Social Progress Trust Fund -- which gave
expression to broader areas of direct concern to the Bank than
had been traditional in the development lending concept. In
discharging its responsibilities as trustee, the Bank has
developed andexpanded the practice of looking beyond the
immediate impact of individual projects toward the intimately
related but broader questions of institutional change and social
reform, and individual country efforts to further social progress
as an indispensable prerequisite to effective utilization of
loans for specific projects.
The experience of the first years led logically to the
conclusion that the purely social and the purely economic areas
of activity were in reality so closely linked as to be
inseparable. Pursuing further the principles recognized in the
Act of Bogota -- that economic development rests ultimately on
social justice -- the Governors of the Bank wisely decided in
Panama two years ago to expand the Fund for special operations
and to merge into its operations those activities previously
conducted by the Social Progress Trust Fund as a separate
entity for purely social objectives.

- 6 -

Simultaneously, the Bank moved toward programing all of its
activities -- in individual countries and in the region -- in
relation to the comprehensive policy objectives of the Alliance
for Progress and the progress of self-help efforts in its me~r
countries needed to attain them. With the establishment of the
Inter-American Committee for the Alliance for Progress -- CIP -_
an effective Inter-American organ came into being for the
continuing review of country programs and the role which all
the external lending agencies, the Bank included, could play
in strengthening these programs. Participation in the work of
the CIP, as benefits the principal financial instruments of the
Inter-American system, affords the Bank an opportunity for
making its voice heard in the week-to-week review and
implementation of multilateral policy, as well as in the varioos
annual Ministerial meetings at which the Bank is represented.
The Bank has played an ac tive and leading role -- under the
inspired leadership of President Herrera -- in constantly
emphasizing and stimulating forward movement in the process of
economic integration in Latin America. The Bank has already
initiated two significant programs directly affecting the process
of integration. The export credit facility is important as a
catalyst to stimulate the growth of trade and direct cooperative
relationships between individual members of the the Bank in
jointly furthering development. And the establishment last
year of the Bank's Institute for Latin American Integration
will assist in providing the necessary training and research,
to explore in depth the problems of integration, and to
support the efforts which are being made by Governments toward
the objective of a free trade area.
Indicative of the fact that the Bank's growth has not stopped,
and will not, is the new initiative on economic integration,
which is before us for action at this meeting. I refer to the
proposed establishment of a fund within the Bank to finance
feasibility studies of multi-national projects. My Gwernment
wholeheartedly supports the proposed resolution on this fund
and will be prepared to reinforce the Bank's resources by
providing supplementary loans for large-scale feasibility studieS
when preliminary investigation under the Bank's auspices
indicates their desirability.
We have before us as well at this meeting a proposed
resolution calling for a study of the Bank's future need f~
an increase in resources. I am pleased to indicate the full ,
support of my Government to this proposed resolution. The ~~s
ability to exercise leadership in the shaping of Latin America'S

- 7 -

future is obviously dependent on the continued availability of
adequate and appropriate resources. I shall look forward with
interest to the results of the study by the Board of Executive
Directors -- which I am sure will once again display the high
standards of competence we have come to rely on.
In consideration for the Bank's future need for resources,
and in determining our response to this need, all of us need to
give fresh thought to the Bank's operations and policies, of
their future direction, and of the Bank's future role in the
continuing movement toward the objectives of the Alliance
for Progress. I should like to touch briefly upon one or two
questions which appear to me to commend themselves for special
attention.
I believe we need to give greater attention to the sectoral
needs -- in addition to global needs -- for Latin American
development. Foremost among these, I would urge special thought
to the problems of agriculture and food, and the further
intensive promotion of the economic integration movement. The
Bank's Annual Report indicates that in the first five years of its
operation the Bank's cumulative lending in the field of
agriculture was 21 percent of the total. Does this figure
reflect the proper distribution of emphasis which we should
place on our operation during the next five years? Are we
doing enough, for example, to meet the critical problem of
mobilizing and developing human resources to the critical
task before us? t can appreciate from my own experience the
problems which the Governments of Latin America must face in
finding a sufficient number of properly qualified and dedicated
public servants in such key fields as taxation and public
finance, and I wonder whether the Bank, in cooperation with
other international and national lending agencies, could not
plan to make a more intensive contribution toward the solution
of this type of problem. Agriculture development and food
:>roduction are assuming increasingly critical importance in the
~orld today.
With Latin America's vast resources of fertile
lnd productive land, could the Bank do more to assist in
leveloping Latin America's food production so that its needs
cor proper nutrition are more promptly and fully met? In
lddition to purely national efforts in this area, there are
lspects of the food problem which would appear particularly
ruitful to approach by means of multi-national efforts -- to
pen up new areas in the hemisphere, and to develop an industrial
ase to service agriculture by the production of fertilizer and
'Iesticides, and modern tools and equipment.

- 8 -

As we ponder over the Bank's future direction and its needs
for resources, I believe that it will become apparent that
increasing em~hasis must be placed on self-help efforts. The
needs of individual countries, and the needs of the region, f~
external resources to finance high priority productive projects
are apt to expand as the momentum of economic and social advance
accelerates. It becomes increasingly necessary for all the
members of the Bank to maximize the mobilization of their ~
domestic resources, and to devote them to the most productive
purposes. Continued progress on tax and fiscal reforms will be
necessary, as well as rigorous efforts to eliminate nonproductive expenditures in favor of sound social and economic
investments. I know the very real efforts now underway toward
this end. Just before leaving Washington, I was fortunate
in meeting with a number of Directors General of taxation
from Latin American Governments who have been working with
our Internal Revenue Service, and I had the opportunity of learning
firsthand of the progress being mada in the face of very difficult
problems and obstacles.
The Bank has at its disposal scarce and increasingly
expensive resources in the form of foreign exchange which are
of especial value since -- unlike domestic resources -- they ~y
be used to purchase abroad additional goods and services of a
directly productive nature.
To the extent that demands are placed upon the Bank to
finance directly or indirectly unproductive or low priority
expenditures the entire region suffers by the failure to reap
the benefits potentially available from the Bank's resources.
The financing of local costs with loans in foreign exchange
can serve, and has served, a critical function in mobilizing
resources for development -- particularly social development.
I believe we must ask ourselves, however -- both in view of t~
limitaticrs on local cost financing in the Bank's charter and
in view of the Bank's limited resources -- how far the Bank
should go in providing such financing. With continued progress
in rationalizing tax structures, improving tax administration,
and the restructuring of public expenditures to eliminate
elements of waste and non-productive expenditures, it should
be possible for the members themselves to finance an increasing
share of the local currency requirements of projects -- with
benefits accruing to all the members of the Bank from the
enhanced availability of bank resources for high priority
external uses and from a structure of external debt accumulatiOO
by individual countries consistent with the growth necessary
to service such debt.

- 9 -

It is clear that there will be a great and continuing need
to emphasize discipline both on the part of the Bank in forming
its future operations, and of all its members, in the interests
of our common objectives spelled out in the charter of the
~lliance for Progress.
Insofar as my own Government is
:oncerned, the first five years of the Bank's operations have
~oincided with a period in which the United States has been
aarticularly subject to discipline and restraint in its balance
·)f payments. Although we have made cons iderable progress toward
·:he solution of our balance of payments problem, the time has
;.lot yet come when we can afford to relax, and I cannot yet say
lhen that point may be reached. In addition to the uncertainties
.nherent in the situation, we are facing particularly in the
:urrent year the imponderbles of developments in Vietnam and
heir effects upon our balance of payments -- both directly and
.ndirectly through their impact on our domestic economy.
The balancing of our external payments is an objective which
wo United States Presidents have affirmed to be a matter of
he highest national priority. We must and we will bring to an
nd the succession of deficits which we have incurred in recent
ears. Yet with all the restraints which this objective
ecessarily imposes upon us, we have insisted on pursuing this
oal in a responsible manner:
Responsible toward our economy, whose continued
vigor and growth lies at the very heart of the
long-range solution of the balance of payments
problem;
responsible toward the peoples of Latin America and
the rest of the developing world: the wellbeing of the developing nations relies to a great
extent upon the maintenance of an expanding
economy in the United States and other industrial
nations, and the well-being of the developing
nations, in turn, is vital to the economic and
political interests of the Free World industrial
nations;
responsible to foreign Governments and Central
Banks, and countless other banks, business
firms, and individuals, who have maintained
confidence in the dollar, and with whom we will
not break faith by adopting any facile but
irresponsible solution to our payments problem.

- 10 Although we have a~proached the solution of our
payments problem in a responsible way, we remain
concerned nonetheless over the potential problems
which may emerge under conditions -- which would
be unique in the post-World War II period -where the United States no longer provides by its
deficits the international liquidity needs of the
rest of the Free World. It is for this reason
that we have been concerned to prepare the way
now, in advance of any potential crisis detrimental
to us all, for a reform of the international
monetary system.
As the Governors are aware, discussions are now under way
with a view to assuring adequate and timely future reserve
growth. I wish to welcome the understanding and interest
which Latin American nations have displayed in connection
with this matter.
As I indicated in my address to the Governors of the
International Monetary Fund last Fall, all nations have a
legitimate and vital interest in the reform of the internatiooal
monetary system, and we have proposed arrangements to assure
that their views will be heard at appropriate stages in the
discussion of this reform.
We have not been deterred by our balance of payments
problem from the responsibility of continuing our support of
development efforts throughout the world through the continuatioo
of our extensive foreign assistance program. In the case of
social and economic developments in Latin America, the figures
cited earlier demonstrate our continuing involvement.
There is not,and there will not be, any weakening of our
resolve to provide adequate and appropriate assistance designed
to achieve our mutual objectives under the Alliance for
Progress.
As I have suggested should be done in relation to the fut~e
of the Bank, the United States is also engaged in a continumg
reassessment, in consultation with aid recipients, of the a~s
and methods of its bilateral assistance programs. We have
recently resolved to give greater attention to the critical
bottlenecks to development in the areas of food production,
education, and health. We continue to be concerned with the
structure of the debt burden being accumulated by the
developing nations, and we intend to press other capitalexporting nations to expand their assistance on terms

- 11 -

consistent with reasonable expectations of the ability to
service debt.
As the Governors are aware, the United States has made
efforts in recent years to provide assistance in the form of
transfers or real resources rather than merely financial
resources. This practice of so-called "aid-tying" toward
this end is an indispensable condition of United States
assistance programs in our present balance of payments
circumstances. We share completely the view that in the ideal
world, foreign aid should not be so conditioned. In the rest of the
world, however, we find that the distribution of assistance
funds by individual donor countries bears no relationship to
the presence of payments deficits or surpluses -- that is,
to the ability to finance transfers of financial resources.
We find, indeed, a combination of relatively short-term
finance, high interest charges, and tied procurement in the
case of some industrial nations clearly able to provide assistance
on more liberal terms. I ask the Governors to understand that
under these conditions the United States has no option, in
continuing its own foreign assistance program, but to take
whatever steps are needed, in cooperation with aid recipient
countries to insure that our aid takes the form of a flow of
additional real resources from the United States.
The program of responsible restraint on which the
United States has embarked as a part of the measures to
eliminate our payments deficit has included, in addition to
an interest equalization tax imposed on foreign access to the
United States capital market, a voluntary program whereby
banks, other financial institutions, and corporations have
limited their investment of funds abroad. In all of these
programs, special care has been taken to exempt the developing
nations, or (as in the case of the foreign bank credit
program) to make clear and to emphasize the high-priority
nature of a continued and adequate flow of private funds to
meet the needs of the developing nations. We have also
continued various official programs -- through A.I.D.
and the Export-Import Bank -- to insure loans and investments
made by our citizens in Latin America and other developing
nations.
We have been guided to a large extent in these actions by
the provisions of the Alliance for Progress Charter which stress
the need to encourage and stimulate the flow of private
investment funds into Latin America. The benefits to be
derived from such flows go far beyond the merely financial. and
are a vital force in the process of economic development.

- 12 -

For such financ ia 1 inve s tments are accompanied by the introduction
of modern plant and technical processes, training of local
manpower -- both skilled labor and executive and managerial
personnel -- with an infusion of modern business methods
and attitudes.
In a sense, such investments can bridge a century within
a matter of years. Latin America has a unique opportunity
at this time to take advantage of the unrestricted potential,
and the available guarantees, for United States private
investment. But exemptions and guarantees by the United
States will not of themselves increase the private investment
flow into Latin America. Such inducements are of no avail
unless potential investors are convinced that they are
welcome, that there are reasonably good prospects for
economic and political stability and progress, and that
the conditions under which they undertake to invest are not
in constant jeopardy of being overturned to their detriment.
Foreign investors will also respond to the creation of
favorable conditions for their entry via the continued
lowering of trade barriers and enlargement of free trade
areas, and the development of policies which will lessen
restraints on the repatriation of reasonable profits.
I believe there has developed in recent years a growing
awareness among potential United States investors -- and this
is true to a particularly high degree of the great multi-national
corporations -- that it is incumbent upon them to maintain appro·
priate standards of conduct, including a sense of community and
national responsibility in the host country, and to take accomt
of the traditional and legitimate asp:i-rations of the developing
nations to participate in shaping their own economic advancement.
My government believes that the maintenance of conditions
favorable for both domestic and foreign private investment is u
indispensable feature of sound and constructive economic developmeal
Public funds and initiative alone, foreign and domestic, cannot
successfully accomplish this task. My government is convinced
of this proposition, because we have seen time and again the
unfortunate results of a contrary policy which destroys confi~~e
in the private sector. We view the inducement of foreign private
investments as a particularly critical measure of self-help,
without which the purposes of external public assistance are
thwarted and impossible to attain.

- 13 My government has welcomed various initiatives which would
help to clear the air of misunderstandings which have existed in
these matters and would provide a suitable framework within which
we could all get on with the common task before us. We have for
some time -- from the early days of the Marshall Plan in Europe -maintained a network of bilateral investment guarantee agreements.
At the recent Inter-American Economic and Social Council
meeting, the United States delegation commended to the
study of Latin American governments a multilaterial
instrument which would establish uniform procedures whereby
individual participating governments guarantee the investments ot
therr nationals in other participating nations. Such an instrument
.could be of special interest and value to several of the Latin
~merican countries which are beginning to develop, or can look
forward to the eventual development, of a flow of private investment
into other countries while themselves continuing to receive private
investment flows from abroad. There is now under way in the
rlnternational Bank for Reconstruction and Development a study
yhich could point the way to multilateral coverage of risks
lrising from investment guarantees. Finally, I believe that the
.atin American governments could make a useful contribution by
:econsidering their position on the IBRD-sponsored multilateral
:onvention for the Settlement of Investment Disputes. Thirty-six
lations have now signed this Convention. A decision by Latin
.merican nations to accede to the Convention could only have a
tighly beneficial impact on the investment climate in the entire
:egion.
We have been fortunate in the past few years to witness
nteresting initiatives on the part of private investors themelves to develop new forms of partnership and cooperation with
·eveloping nations. The Bank has just approved a loan to the
tlantic Development for Latin America which is a unique initiative
n bringing together a pool of private capital, provided by leading
ndgstrial and financial concerns of the United States, Europe,
:anada, and Japan, who are ADELA IS share-holders, to promote
:rivate investments in association with Latin American capital.
should also like to mention another recent move of great promise
~1 increasing exchanges and understanding between businessmen in
, country and Latin America -- the reorganization on a broadened
ld stronger basis of the Inter-American Council for Commerce and
:~oduction. It is new directions such as these which will pave
)e way toward understanding and coordination, rather than conflict,
:~tween national interests and multi-national business, with
'eat dividends for freedom and a healthy economic development of
e Free World.

- 14 Mr. Chairman, both the Bank and the Alliance for Progress
have completed their first five years. Many problems dormant
for centuries have been attacked. Difficulties -- old and new
have been encountered in the struggle for progress and they have
not yet been overcome. But a good beginning has been made -- enough
to give us a sound basis for greater confidence in our ability
to make large strides ahead in the next five-year period before us.
In the Alliance for Progress, the recent meeting of the IA-ECOSOC
provided a new and useful action program and concluded that
sufficient general progress had been attained to warrant greater
selectivity and c0ncentration on the key problem areas remaining
for solution. The Act of Rio de Janeiro has set forth the
principles which are soon to be reflected in a basic revision
of the treaty of the Organization of American States. The Bank
should now proceed to chart its own course for the future.
Although our attention in conducting the business of the
Bank is usually couched in other terms, it is important,
Mr. Chairman, that we not lose sight of the basic human objectives
which animate us and the Alliance for Progress. They are
the betterment of the lives of our peoples, by the elimination
of poverty, malnutrition, disease, and ignorance. We seek to
accomplish these objectives through a process of accelerated
economic development, accompanied by social reforms and greater
social justice, and all within a framework of respect for human
dignity and the rights of the individuals, in a climate of freedom
of expression and initiative. It is a mighty and challenging
task which we have set for ourselves, but I have no doubt that
in the end we shall together prevail.

TREASURY DEPARTMENT

April 27, 1966
FOR IMMEDIATE RELEASE

TREASURY ANNOUNCES $9.3 BILLION
MAY REFUNDING
The Treasury announced today that it is offering holders of $9.3 billion
of Treasury securities maturing May 15, 1966, the right to exchange them for
a like face amount of l8-month 4-7/8~ Treasury Notes of Series F-1967 to be
dated May 15, 1966, and to mature November 15, 1967. The new notes will be
offered at a price of 99.85 to yield about 4.98~.
The maturing issues eligible for exchange are as follows:
$8,289 million of 4~ Treasury Notes of Series D-1966,
dated November 15, 1964; and

$1,028 million of 3-3/4% Treasury Bonds of 1966,
dated November 15, 1960.
The public holds $2.5 billion of the maturing securities, and about $6.8
billion is held by Federal Reserve and Government investment accounts.
Cash subscriptions for the new securities will not be received.
The books will be open for three days only, on May 2 through May 4, for
the receipt of subscriptions. Subscriptions 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 4, will be considered as timely.
The payment and delivery date for the new notes will be May 16, 1966. The
new notes will be made available in registered as well as bearer form. All
subscribers requesting registered notes will be required to furnish appropriate identifying numbers as required on tax returns and other documents
submitted to the Internal Revenue Service.
Coupons dated May 15, 1966, on the maturing securities should be detached
and cashed when due. The May 15, 1966, interest due on registered securities
will be paid by issue of interest checks in regular course to holders of record
on April 15, 1966, the date the transfer books closed.
Interest on the

4-7/8~

notes will be payable on November 15, 1966, and

May 15 and November 15, 1967.

TREASURY DEPARTMENT
(

April 28, 1966
FOR RELEASE A.Mo NEWSPAPERS
FRIDAY, APRIL 29, 1966
MORE FREQUENT PAYMENT OF INCOME TAXES WITHHELD
BY EMPLOYERS SLATED TO TAKE EFFECT IN MID-JUNE
The Treasury Department announced today that it expects
to put into effect in June a new system to reduce the time
lag on the payment of income taxes withheld by employers.
The new system also would cover social security taxes withheld by employers, and matching amounts paid by employers.
About 75,000 larger employers would be required to
deposit payments of such taxes twice a month -- rather than
once a month -- either at designated commercial banks or
fede~al reserve banks.
The semi-monthly payments under the
new system would be due within three banking days after
the 15th and the last day of each month, covering taxes
withheld on regular weekly, biweekly, or semi-monthly
payrolls up to and including the 15th or last day of each
month.
The new payments plan would apply to any employer with
$4,000 or more per month of the total of such taxes, that
is -- the income and social security taxes withheld from
employees as well as the employer's portion of the social
security tax.
Any employer could comply with the new regulations by
depositing an estimated amount of the taxes due. If this
estimated amount is within 90 percent of the actual amount,
there would be no penalties.
The new regulations would not change existing regulations
for any employer with less than $4,000 per month in such
taxes.
F-454

- 2 However, the Treasury intends to give further study to
the question of whether the more rapid payments plan might
appropriately be extended to employers other than the 75,000
larger employers who will be affected by the proposed
regulations. Currently, about 4.5 million employers
withhold income taxes from employees, and of these,
approximately 1.5 million make monthly deposits covering
such taxes, while the other 3 million pay such taxes once
every three months -- by the close of the month following
the end of each quarter.
The increased frequency of these employer deposits
covering both the withheld income taxes and social security
taxes is part of the effort of the Treasury Department and
Internal Revenue Service to improve the efficiency of tax
collection, and to put tax payments on a more current basis.
The Tax Adjustment Act of 1966, signed by President Johnson
on March 15, 1966, initiated a new graduated income tax
withholding system for income taxes, to take effect on
May 1, 1966, and made other changes in the tax law to put
both individuals and corporations on a more current payments
basis.
The new plan is expected to save the Federal government
between $50 million and $75 million per year in interest
costs on the public debt.
The new system would not increase the tax liability of
any taxpayer -- either the employee whose wages or salary
are subject to withholding at the source or the employer
who withholds such taxes and turns them over to the
Federal government.
As a result of the change-over to the new system,
administrative budget receipts in fiscal year 1966 would be
increased by approximately $1 billion on a one-shot basis.
If the new pqyments plan were to be extended to all
employers wmnow are subject to Qeposit requirements
those with $100 or more per month of withheld income taxes
and social security taxes--approximately 1.5 million
employers would be affected and the effects on the federal
budget, would be an additional half billion dollars.
Proposed regulations covering the new system for the
payment of these taxes will be published in the Federal
Register on Friday, April 29, 1966, with a notice that those
interested will have 15 days to submit comments on the new
rules.

ATTACHMENT:

For illustrative purposes, here is how the proposed
regulations would work:
A larger employer, with $4,000 or more per month in
withheld income taxes and social security taxes, would
deposit in mid-June 1966 the taxes covering the month of
May, which would be his last payment under current rules.
He also would deposit, within three banking days after
the 15th of June 1966 another tax payment covering income
taxes withheld on regular weekly, biweekly or semi-monthly
payrolls in the first half of June -- up to and including
the 15th of the month. In the case of the one-shot doubling
up in mid-June, the employer could make both his last
deposit under the existing rules and his first semi-monthly
deposit under the new rules by June 20th.
By July 6th -- three banking days after the close of
June -- the larger employer would make a further deposit
of taxes withheld from the wages and salaries of employees
during the second half of June, and thereafter would continue
to make such payments on a semi-monthly basis.
All employers would continue to file just one quarterly
tax return covering such taxes.
The employer with $100 per month or more in withheld
taxes (and social security taxes) would continue, as under
present regulations, to deposit tax payments once a month -on the 15th of the month following the close of each month
during most of the year, and by the end of the following
month at the close of each calendar quarter.
The small employer -- who has less than $100 of such
taxes per month -- who now withholds such taxes and pays
them quarterly with his tax return by the close of the
month following each calendar quarter -- that is, by
January 31, by April 30, by July 31, and by October 31
would continue to do so.
000

FOR RELEASE A.M. NEWSPAPERS
~AY,

TREASURY DEPARTMENT
Washington

MAY 3, 1966
REMARKS BY THE HONORABLE ROBERT A. WALLACE
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
SAVINGS BONDS CIIAIRMEN AND THE ADVISORY COMMITTEE
FOR THE NORTHWEST AREA OHIO ON TilE OCCASION OF THE
TWENTY-FIFTH ANNIVERSARY OF THE U. S. SAVINGS BOND PROGRAM
TOLEDO CLUB, TOLEDO, OHIO
~IDNDAY, MAY 2, 1966
6:30 P.M.
FEDERAL ECONOMIC POLICIES

Just twenty-five years ago yesterday, the late President Franklin D.
Roosevelt purchased the first series E savings bond from Secretary of the
Treasury Henry Morgenthau, to set in motion what President Johnson has
called "the greatest thri ft program the world has ever known."
And twenty-five years ago today, allover America, volunteers were
already at work selling savings bonds to support the defense effort.
Quite a number of you were among them -- and you're still at it. And
because of your efforts, and those of other men and women like you,
Americans now own nearly fifty billion dollars in series E and H honds,
and their holdings account for about twenty-three per cent of the publiclyheld portion of the national debt.
I count it a special privilege to be with you tonight, on this date
that so nearly coincides with the silver jubilee of the bond program -- and
also to be in this wonderful volunteer country of Northwestern Ohio. This
northwest area of 20 counties which your committee represents could well be
considered a model of how the savings bonds program should operate. Bond
sales are always good here; sales quotas are invariahly met; there is
always a rich supply of dedicated volunteers to take on any job.
And I guess this is hardly surprising, considering the type of leadership
you have had. John Rohr, for instance, who served ao long as Lucas County
Chairman and now is your Northwest Area Chairman -- a man whose volunteer
service to the government dates back to World War I. There is Henry Morse,
the present Lucas County Chairman and a 25-year veteran. And there is
Donald Dresser -- too young to be a 25-year man, but a very important
VOlunteer -- the president of the Toledo Trust Company and our host for
tonight -- and by the way, I want to pay the highest tribute to Toledo
Trust for the part it has played and continues to play in making this city's
school savings program for savings stamps and bonds the finest operation of
its kind in the country.

- 2 -

And finally, may I say what an honor it is to have in this audience
the distinguished former Secretary of the Treasury, John Snyder, whose
continued devotion to the savings bond program is reflected by his membership
in both Lucas County and northwest area volunteer committees.
This group truly represents the spirit of the savings bonds program -the sort of dedication without which this program could never have succeeded,
but with which it cannot fail.
Frankly, in meeting with this distinguished audience I expect to
receive more insight and information than I impart to you. Moving as you do
in the mainstream of the American economy puts you in a position to know the
immediate, actual market developments that can so quickly change -- sometimes
more quickly than many observers realize.
In fact, I think it ought to be required of government officials to
meet as often as possible with groups such as this. I know, of course, your
interest in what I have to say is because of my daily contact with policymaking economic decisions in the nation's capitol. No less important, however,
is what you have to say -- the infusion into our thinking of your opinions
and questions -- your firsthand awareness of what actually is happening in
key areas of market demand. Our discussions help to weave together into a
seamless fabric both the government policies which affect the economy and the
actual market forces themselves.
In discussing with you today the state of the national economy, I
should begin by saying that it is good -- very good. We are now in the
sixth year of the longest and strongest economic expansion in the entire
history of the United States. But this expansion did not come about by
accident. It was the result of creative intelligent economic planning
that began under President Kennedy in 1961 and has continued under President
Johnson since 1963.
The Employment Act of 1946 recognized that the Federal Government must
accept a vital share of responsibility for the performance of the Aaerican
economy. The goals of this Act were precise: maximum employment, maximum
production, and maximum purchasing power. In vigorously pursuing these
objectives both President Kennedy and President Johnson have used fiscal
and monetary policy, often in unprecedented, original ways, to accelerate
and nurture continuous economic growth and expansion. We advanced from a
country accustomed to periodic recessions to a nation capable of sustaining
balanced economic growth during peace time. The past five years of
unprecedented prosperity underwrite with emphasis this fact.

- 3 -

Our economy has been so healthy and our economic progress so rapid
that it is sometimes difficult to appreciate and evaluate the gains we
have made and from which all individuals have benefited. President Johnson
recently pointed out:
In only seven other countries of the world is total output
in a year as large as the increase in our output in 1965.
Our stock of private plant and equipment, valued in constant
prices, increased as much as in 1965 alone as it did in the
four years 1957 - 1960. The increase in federal cash receipts
between fiscal years 1961 and 1967 -- in spite of $29 billion
of tax cuts -- will exceed the entire cash receipts of the
Federal Government in any peace time fiscal year prior to 1951.
During the past five years our gross national product -- the total value
of all the goods and services we produce in a year -- has steadily increased.
Our GNP has grown from an annual rate of $504 billion in 1960 to $714 billion
during the first quarter of 1966 -- an increase of $210 billion or nearly
42 percent. Corporate profits after taxes have jumped 72 percent. The
unemployment rate has shrunk from a 1961 high of over 7 percent to less
than 4 percent.
And yet during this long, vigorous
steadily rising individual and business
remarkably stable. In fact, the United
stability than any other industrialized
a good margin.

economic expansion -- despite
incomes -- prices have been
States has enjoyed greater price
country in the world -- and by

The balance of payments deficit which in 1960 totaled nearly $4 billion,
shrank to less than $1-1/2 billion during 1965. Although we have not
reduced to an absolute minimum this imbalance, we have by the excellent
progress already made strengthened the dollar throughout the world and
restored world-wide confidence in its stability.
The federal budget deficit which in fiscal 1959 was over $12 billion -the highest peace time level in history -- declined to $3-1/2 billion during
the fiscal year ending last June 30th. I can tell you from first hand
experiences that President Johnson means business when he demands that
government agencies exercise strictest economy in all spending programs.
This unprecedented economic success in which we all have shared came
about primarily because of the excellent cooperation between the private
public sector of our economy and the Federal Government. Our record, as
President Johnson has emphasized, "is a tribute to all sectors of our
economy -- labor, business, and our public policy." We in the Treasury are
cognizant and deeply appreciative of the outstanding work industrial leaders
and businessmen like yourselves have done. We look forward toward making
this creative partnership for prosperity more viable and meaningful in the
years ahead.

- 4 -

For we are concerned more with the future than with the present. Can
we continue the record smashing advances in output and income that we have
made? Can it be done without inflation? Can we slash the incidence of
poverty, ignorance and disease? Can we bear our rising defense burdens
without jeopardizing essential social, medical, and scientific programs?
These are vital questions, for no matter what pursuits we follow as
individuals, we are all inextricably bound together as a people toward
achieving common national goals. Failure to achieve these goals, or to
progress toward the realization of our national purposes, will result in
failure of our own individual efforts as citizens and human beings in
search of individual and family goals. Success in realizaing our national
purposes, on the other hand, will bear fruits for every American.
If adequate economic growth over the coming year now seems assured,
what about the danger of over-heating the economy -- of inflation? We
are keeping a close watch on developments and, although there certainly
has been upward pressures on prices, we find the American public -- as
businessmen, as workers, as consumers -- have on balance acted with
sensitive restraint.
There are many ways to deal with the problem of price pressures. An
increase in taxes is one and this cannot be ruled out. Reductions in
federal expenditures is another and President Johnson has told his
executive agencies to postpone spending plans as much as possible. As the
President has stressed, however, it is also important that there be
voluntary restraint on capital investments, consumer spending, and wholehearted cooperation on the part of everyone to divert money away from
the stream of spending into the stream of saving.
Certainly the demands for goods and services are running into heavy
traffic. It is the rush hour. But if businesses and individuals heed
the President's request to postpone expenditures, they will be letting
the traffic thin out before getting on the highway themselves. The
result will be benificial to everyone and an inflationary traffic jam of
demand can be avoided.
If, instead, private expenditures continue to rise, and if there is
no letup in defense needs, a tax increase may be the only effective way
to control inflation. That is why it is so important that the President's
plea be heeded.
It is in this context that U. S. savings bonds wi 11 playa vi tal role
in the period which lies ahead. For the purchase of these bonds represent
money savings that will shrink the demand for goods and services. Moreover,
savings bond investments are a vital service of non-inflationary financing
for the Government. The savings bond program thus represents one of our
most effective anti-inflationary programs. By their purchase, as President
Johnson recently said, "every one of us can contribute to conserving the
buying power of our ... dollar."

- 5 -

In the days and months to come, all of us -- in Government, in banking
and finance, in industry and commerce -- must share and bear an extra burden
of responsibility in maintaining the steady economic growth of the past
five years.
Meanwhile, we must keep a tight lid on Government expenditures and
maintain Government revenues high enough not to increase aggregate demand
too sharply. Wage increases should stay within the President's guideposts
and keep in line with productivity increases. Price rises that swell
already high profits should be avoided. Our monetary policies must continue
to be based on the dual objectives of maintaining economic strength at
home and financial strength abroad.
But a sound economic stabilization policy cannot be all negative.
For economic as well as humanitarian reasons, we must better educate our
children, improve the physical environment in which we work and live,
reduce the toll of sickness and disease, provide job training for the
poverty-stricken and retraining for workers displaced by automation. To
prevent labor bottlenecks from occurring, we must constantly upgrade our
national work force to keep pace with the myriad of technical innovations
essential to steadily rising living standards. These objectives demand
action by Government -- action which cannot be long deferred if the nation's
to continue to grow and prosper. They also require enlightened, progressive
leadership in every community to insure their success.
Amidst modern, fast moving economic developments, it is never possible
to relax. To meet problems of recession and slow growth, we must encourage
investment and promote steadily rising aggregate demand. When the economy
faces the prospect of growing too fast, we have to guard against overheating.
All of this requires a complex of flexible, modern economic policies
appropriate to the needs of today's fast moving world. But most of all -as I have tried to stress -- our future prosperity is dependent on all
the diverse segments of our society -- business, agriculture, labor, and
Government at all levels -- cooperating, understanding, reasoning together
each contributing to the common purpose of a strong, prosperous, and free
America.
Thank you very much.

TREASURY DEPARTMENT

May 2, 1966
IMMEDIATE RELEASE
UNITED STATES MAKES A FURTHER TECHNICAL DRAWING
FROM THE INTERNATIONAL MONETARY FUND
Secretary of the Treasury Henry H. Fowler today announced
a further technical drawing by the United States from the
International Monetary Fund. The new arrangements provide for
periodic draw downs of up to $110 million in Canadian dollars.
These drawings continue the practice begun in February
1964 of obtaining currencies for sale to other countries that
have repayments to make to the Fund.
The present arrangements will bring to $1,260 million the
amount of U. S. drawings from the Fund. The bulk of these
have been made in this "technical" series. A sizable part of
these drawings has been offset by drawings of United States
dollars by other countries. These restore the U. S. position
in the Fund and in effect amount to repayment by the United
States.
As a result the United States' liability to the Fund
prior to these further drawings is about $564 million.
Drawing rights in the "gold tranche" (virtually automatic
U. S. drawing rights in the Fund) of $726 million remain.
Part of these drawing rights result from the recent general
increase of 25 percent in the Fund quota of the United States
(also applicable to the quotas of other members).

F-455

000

TREASURY DEPARTMENT

May 2, 1966
BACKGROUND TO ANNOUNCEMENT OF
UNITED STATES TECHNICAL DRAWING FROM THE
INTERNATIONAL MONETARY FUND
A technical drawing by the United States of
the currency of another country from the
International Monetary Fund, such as
announced today, permits countries in debt
to the IMF to make arrangements for repayment
without creating a new or potential drain
upon United States gold holdings.
Arrangements for making such technical drawings were
worked out in 1963 when the Fund's ability to accept dollars
except from the United States -- approached the limit under the
Fund's regulations. (The Fund may not accept dollars, except
as a result of a United States drawing, after its holding of
dollars reach 75 percent of the U. S. quota in the Fund.)
This meant that a country possessing dollars that it
wished to use in repaying previous drawings from the Fund could
not make the debt payment directly to the Fund in dollars.
It would be obliged, instead, to use its dollars (1) to
buy gold with which to pay its Fund debt, or (2) to buy a
currency the Fund was in position to accept as debt repayment.
The first course
purchase of gold -- would in most
cases result in a reduction of U. S. gold reserves. Usually,
the gold would be purchased directly from the United States.
However, gold purchases with dollars from any source would at
least indirectly affect the U. S. gold stock.
The second course -- purchase of another currency -would place the dollars in the hands of another country, where
they would be a potential claim upon U. S. gold reserves.

(OVER)

- 2 -

To avoid either result:
1.

The United States draws from the Fund
(that is, purchases with dollars, since the
Fund can accept dollars -- from the U. S.
beyon~he 75-percent-of-quota limit) a
currency or currencies the Fund is in
position to accept for debt repayments.

The United States sells the currency
purchased from the Fund to a country
wishing to make debt payments to the Fund.

The United States receives the dollars the
debtor country has accumulated.

The end results of these transactions are:
The country in debt to the Fund gets currency
the IMF is in position to accept, as a debt
repayment. It winds up with a reduced debt
to the Fund and with reduced dollar holdings.
The net effect is that it has been able to
use dollars indirectly to effect its debt
payment to the Fund.
The country whose currency the U. S. purchases
from the Fund for this purpose is not affected,
since its currency is returned to the Fund (as
a debt repayment) shortly after it is drawn out
of the Fund, and in the same amount.
The dollars accumulated by the debtor country
to pay its IMF debt wind up with the
United States, instead of being used to buy
gold, or instead of being transferred to a
country where they would be a potential
claim upon U. S. gold reserves.

000

TREASURY DEPARTMENT
(

OR RELEASE 6: 30 P. M. ,
~day, May 2, 1966.

RESULTS

OF TRZASURY'S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two 88ries of TreasurJ
_ils, one series to be an additional issue of the bills dated February 3 1966
Id tre other serj es to be dat~d May 5, 1966, which were offered on APril' 27, 1966,
ire opened at the Federal. Reserve BankR today. T?nders were invited for :~1,300,000,000,
. thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-day
11s. The details of the two series are as follows:
91-day Treasury bills
HPETlrIVE BIDS: __ma..:.:;;..t;,.,:.ur~in~g...,;A::..u:..;lig~u~s..:t...;4:="z......:1:.::9-=::6;.:::6___
Approx. Squ3.. v •
Price
A.nnual Rate
High
L.652%
9B.82G ~7
4.688/:~
Low
98.815
Average
)+. cS 7)4:'C ij
98.619
NGE OF ACCZPTED

!I ~xcepting

·
·

182-day Treasury bi]~s
maturing November 3, 1966
Approx. Equiv.
Annual Rate
Price
4.763%
97.592 'E.l
4.799%
97.574
97.582
4.782%

1 tender of $325,000; b/ Excepting 1 tender of $300,000

22% of the amount of 91-day bills bid for at the low price was accepted

69;Z of the amount of 182-day bills bid for at the 10li price Has accepted
'AL

Tl'~NDERS

APPLISD

listrict
oston
ew York
hiladelphia
levelanti
ichmond
~lanta

1icago
:.. Louis
Lnneapolis
Illsas City

lias
III

Francisco
TOTALS

FOR AND ACCEPTED BY FEDERAL RESER'I.TR DISTIHCTS:

AE~1ied For
.:p
19,708,000

1,S37,278,000
33,505,000
'23,138,000
10,194,000
31,989,000
250,302,000
4E~, 625,000
18,512,000
2!~, 713,000
26,620,000
97,6111,000

Accepted
!,
9,708,000
936,53[;,000
2l,5u5,000
23,138,000
10,194,000
26, 14 97,000
11)~, 84h, 000
27,529,000
16,342,000
24,713,000
16,840,000
72,22l,OOO

.;,'

~2,122,258,ooo $1,3 00 ,072,000 ~/

Applied For
25,343,000
1,119,506,000
•
lS,855,000
:
28,698,000
6,915,000
:
16,564,000
262,297,000
28,597,000
•
10,082,000
20,862,000
13,989,000
97 ,251+,000

·
·
·
·
·
·

Acce~ted

$1,645,962,000

$1,000,162,000

20,343,000
672,686,000
7,855,000
2R,698,OOO
6,915,000
13,944,000
109,14 37,000
17,097,000
10,082,000
20,862,000
9,989,000
82,254,000

ncludes ~236,136,oOO noncompetitive tenders accepted at the average price of 98.819
~ludes $125 152 000 noncompetitive tenders accepted at the average price of 97.582
hese rates ~e o~ a bank discount basis. The equivalent coupon issue yields are
.801 for the 91-~ bills, and 4.97'1, for the 182-day bills.

156

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
UNITED STATES AND KOREA TO DISCUSS
INCOME TAX TREATY
Representatives of the United States and of the Republic
of Korea are expected in the near future to begin discussions
on a proposed income tax treaty between the two countries.
The talks are expected to get underway in Seoul in June.
The proposed treaty is intended to avoid double taxation
and to promote trade and investment between the two countries.
It will be concerned with the tax treatment of trading and
other business enterprises, investment income and income from
services.
The proposed treaty will, in general, follow the pattern
for treaties with less developed countries, established in
the recently concluded treaty with Israel.
Persons having an interest in an income tax treaty with
the Republic of Korea may wish to examine the treaty with
Israel, now pending in the Senate, as well as the statement
by Assistant Secretary of the Treasury Stanley S. Surrey,
contained in the hearings on the treaty with Thailand before
the Subcommittee on Tax Treaties of the Senate Foreign
Relations Committee held in August 1965.
Persons wishing to comment or offer suggestions or
information concerning the proposed treaty are requested
to address their comments, before May 27, 1966, to
Assistant Secretary Surrey, Treasury Department, Washington,
D. C. 20220.
000

F-457

STATEMENT OF FRED B. SMITH
GENERAL COUNSEL, DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITrEE ON MINERALS, MATERIALS AND FUELS
OF THE SENATE INTERIOR AND INSULAR AFFAIRS COMMITTEE
ON S. 2562 AND S. 1377
MAY 4, 1966

Mr. Chairman and Members of the Subcommittee:
I appreciate this opportunity to discuss with you today the
subject of gold, particularly in relation to S. 2562 and S. 1377.
I am only the latest in a long line of Treasury witnesses to
appear before Congressional committees in opposition to legislation
to assist the gold mining industry through Federal payments amounting
to subsidies.

The Treasury Department has consistently opposed this

type of legislation.

In our view, nothing that has occurred in our

domestic economy or in our international monetary, trade and payments
situation in the last year would justify any change in this view.
However, I think for those areas of the country which historically
have been concerned with the production of gold and other important
minerals, help lies not in the subsidy field nor in special tax
concessions, but rather in the constructive field of research and
development in which potentially significant steps are underway.

Some

developments in the area of discovering new deposits of gold hold out
the promise of increased production on a profitable basis at the
present $35 price.

The Assistant Secretary of Interior, I understand,

is prepared to discuss this area of interest more fully in his testimony
before the Subcommittee.

- 2 -

First, I would like to point out that the Government's policy
on gold is by and large the same today as it was in 1934 when Congress
enacted the Gold Reserve Act.

Our basic policy continues to be that

of centralizing the gold stock of this country in the hands of the
Government and maintaining a fixed price for gold.

A fundamental

aspect in maintaining the stability of the dollar in international
trade and payments has been our policy of standing ready

buy and

sell gold at a fixed price to foreign governments, central banks, and
under certain conditions to international institutions, for the
settlement of international balances and for other legitimate monetary
purposes.

Thus, the dollar has been accepted along with the

tradition~l

acceptability of gold.
Referring now to the bills before the Subcommittee:
S. 2562 would provide financial assistance to domestic producers
of gold who can establish that their current costs of production are
at least 125 percent of such costs in 1939.
on a domestic costs-of-production formula.

The payments would be based
Producers in operation for

a year prior to the date of enactment would receive basic annual paymentr;
equal to 5 percent of total gold bullion receipts during such year, plur;

3.75 percent for each five-point increase in the Consumer Price Index.
Those not in business prior to enactment would receive 125 percent of
such gold bullion receipts during the year preceding the date of
application for assistance.

A formula for computing constructive costs

of production is provided for operators who have no history of producLi'.)n
in 1939 or the year preceding the application.

- 3 S.

1377 would establish a program to be administered by the

Secretary of Interior for payments to domestic gold producers based
on differences between costs of production in the last quarter of

1939 and current costs on an individual mine basis. The costs for
which differential payments would be allowed would include those of
labor, amortization of capital investment in equipment and construction
necessary to efficient operations, mine rehabilitation, transportation,
fringe benefits, supplies, materials, power and property taxes.

Payments

would be made only for gold produced and the eligibility requirements
for such payments would include a requirement that gold production
account for at least 50 percent of all the minerals produced by the
particular mine.
The Treasury Department has been and continues to be opposed to
the enactment of these and similar bills because they would lead to
uncertainty and speculation with regard to the official price for gold.
Subsidy payments to gold miners WOuld, we believe, be interpreted by
foreign countries as a recognition by the United States of a higher
value for gold than the official rate of $35 an ounce and as possibly
the first step toward an official revision of this price.

The

consequences would undoubtedly be an undermining of confidence in the
stability of the United States price for gold in official international
transactions.

Overall, the result would be to shake confidence in the

dollar and to aggravate our gold outflow problem.

- 4 A sound dollar in which the world has confidence is the basic
underpinning for the international trade of the United States.

President Johnson made clear in his Message to Congress of February 10,

"The dollar is, and will remain, as good as gold,
freely convertible at $35 an ounce.
"That pledge is backed by our firm determination to
bring an end to our balance of payments deficit."
In his Economic Report of January 1965, President Johnson stated:
"The stability of the American dollar is central
not only to progress at home but to all our objectives
abroad. There can be no question of our capacity and
determination to maintain the gold value of the dollar
at $35 an ounce. The full resources of this Nation are
pledged to that end."
Not only is confidence in the dollar essential to our international
trade, but the monetary system of the entire free world is dependent
upon the convertibility maintained between gold and the dollar at the

$35 price. Because of this assurance, the dollar along with gold is
held in significant amounts in the reserves of countries of the free
world.

Should any doubt arise about the United States' intention to

maintain the $35 price, confidence in the dollar could well be shaken
to the point of causing great damage to our international trade and a
disruption of the international monetary system.
The bills now before this Subcommittee would involve the payment
by the United States Government of prices for gold which differ from

- 5 the official U. S. price of

$35 per ounce. What results could we

foresee if such a system -- one which provided both for an official
price in international transactions of

$35 per ounce and other prices

for new domestic gold production -- came into being?

First of all,

thought of in these terms, gold would be considered simply as a
commodity.

The producers of gold as a commodity would be paid a

price which would reflect the cost of bringing the commodity to the
market place.
excess of

Under S. 2562, it is clear that this price would be in

$35 an ounce with respect to gold produced by mines eligible

for payments thereunder.

Under S. 1377, subsidy payments based on

increased costs of operation on an individual mine basis would no
doubt result in various prices, all above $35 per ounce, being paid
by the Government for new domestic gold production.
the problems of the gold mining industry.
this industry more than

We know about

Our resistance to paying

$35 an ounce is not based on lack of sympathy

or of desire to be of assistance but ra.ther the necessity of our
conSidering a higher price for gold in the broad context of the United
States' pre-eminent position in international trade and finance.
If the Government decided to come to the aid of this industry
by paying subsidies, it is our considered opinion that this would be
interpreted as a judgment by the United States that it believes gold
to be worth more than $35 per ounce, or dollars to be worth less than
that rate in terms of gold.

This might lead foreign countries which

- 6 hold dollars to decide that gold must be more valuable than the
dollar and that the United States was on the way to raising its
official price in international transactions.

There would be a

strong incentive for these governments to turn their dollar holdings
into gold.
The increased rate of conversion of dollars into gold would cause
a serious drain on our gold supplies and jeopardize our ability to
maintain the international exchange stability of the dollar.
For these reasons the Treasury is opposed to the passage of
S. 2562 and S. 1377.

TREASURY DEPARTMENT

Washington

FOR RELEASE:

UPON DELIVERY

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY, TO THE
CHAMBER OF COMMERCE OF THE UNITED STATES
WASHINGTON, D. C., MAY 3, 1966, 12:30 P.M.

"THE BUSINESSMAN'S ROLE AND THE BALANCE OF PAYMENTS"

I am truly glad to be here before this distinguished
business group today, because -- if I may borrow a phrase
that may be familiar to some of you -- it is a good occasion
for us to reason together.
And we need to reason

in all seriousness -- together.

We need to reason together because we are engaged together
upon the accomplishment of a great national goal set for us by
four great Presidents: to insure that the dollar as the basis
for Free World commerce and development will continue to be
in the future, as it is today, "as good as gold". It is our
task to achieve that objective without sacrificing the
external military,diplomatic, and political position of the
United States in a world that depends upon the United States
in large measure for security, peace and freedom.
We need to reason together because your Government,
instead of seeking to achieve this national goal by imposing
laws and regulations upon you, and upon our economy of free
enterprise, has established, with the advice of outstanding
businessmen and bankers, a program of voluntary cooperation
linking the American business and financial community and the
American Government in a partnership of economic responsibility.
And, we need to reason together because we should be
absolutely clear about an aspect of the balance of payments
problem, and the President's program for mastering it, that
is too easily overlooked:

F-458

- 2 This is not a program undertaken to
attain some passing political end or far-off
ideal, or to achieve any narrow objective.
Quite the contrary.
We regard solving the balance of payments
problem in a manner consistent with Free World
leadership as one of the most important goals
of national stewardship because, if we should
fail in this purpose, all of us, as individuals,
as businessmen, as a government and as a nation,
at home and abroad, at present and in the
future, will be injured.
The success that the President is
determined to have with this problem will
benefit all of us, as individuals and as
businessmen.
It will benefit all of us again by strengthening
us as a nation, by way of the continued strength
it gives our economic agent, the dollar, at home
and abroad.
It will benefit all of us again by strengthening
the fabric of international political and financial
relationships which have given the Free World two
decades of relative security and the greatest
economic advance, marked by the largest expansions
of international investment and trade known to
modern history.
The balance of payments program takes in
all aspects of the country's foreign financial
transactions. I will address myself today
chiefly to two aspects of the payments program
of direct concern to business -- private
capital flows in international investment -and the balance of trade, i.e., the mutual
exchange of goods between U.S. enterprises and
the outside world.

- 3 -

Balance of Payments Program and Private Capital Flows
The present balance of payments program, including the
voluntary programs of cooperation with corporations engaged
in foreign investment and operations and financial institutions
lending abroad was not something hastily conceived as a first
resort to meet a crisis that reared its head in late 1964.
To demonstrate this I will risk taking a minute or so of
your time with some recollections that are both personal and
official.
In 1962, as Under Secretary of the Treasury, I was one
of the people pondering the riddle of how to solve the
balance of payments problem consistently with the preservation
of economic freedom and our position in the Free World. In
June of that year I went to Atlanta to speak to a business
group. The subject may sound familiar to you today. It was,
"Business and the Balance of Payments."
Yes, we were already, four years ago, convinced that
to solve the balance of payments problem we would have to
depend upon the cooperation of the United States business
community. And, we were beginning then to think -- as we
still think -- in terms of securing the interest and the
help of the American business community through a program
of voluntary cooperation.
I said in Atlanta four years ago:
"It is important to the sound development
of the European countries . . • that
they expand and improve their own capital
and savings markets, and make every
effort to remove the many restrictions
which burden those markets and inhibit
the movement of funds into investment.
"
The inadequacies of the European capital market even
then threatened to result in an inordinate flow of dollars
to do some of the work that European capital should be
doing.
With this in mind, I urged in 1962 that U. S. businessmen
should "voluntarily encourage the sort of response that is

- 4 -

necessary" a long the following 1 ines:
"It is . • . important to the nation and
to American firms themselves, to encourage
increasing interest in investing in American
securities and in the American capital
market by European institutions and individual
investors. The shares of major American
corporations should be listed on foreign stock
exchanges, particularly in Europe and Japan,
in greater numbers. American firms might also
explore and' seek out more fully opportunities
for borrowing abroad, especially in support
of the operations of their own foreign branches
and subsidiaries . . . "
We sought, from the outset, a balance of payments program
that would enable and encourage free market forces to deal
with that part of the balance of payments problem that arises
out of the shifting movements of private capital.
In 1962, speaking in Rome to an international group
of bankers from Europe and North America, my predecessor,
Secretary Douglas Dillon, appealed to the governments and
institutions of the emerging financial powers in Western
Europe. He urged them to permit and facilitate the better
organization of private capital markets to increase the
free flow of capital by removing the shackles of governmental
restrictions that characterized most of that continent both
before and particularly after World War II. The response
was discouraging despite efforts later initiated in the
OECD (Organization for Economic Cooperation and Development)
to identify the specific impediments and to program their
orderly removal.
Consequently, a disproportionate share of the burden
of Free World private investment continued to fall upon the
U. S. capital market. This resulte.d in such increases in the
issuance of foreign securities in the United States in early
1963 as to require the enactment of the Interest Equalization
Act, along with other measures to avoid a potential threat
to the dollarc This tax was designed to bridge the gap
between the ready availability and low cost of money our
efficient capital markets permitted and the relatively high
cost and lesser availability of money in European and other
industrial countries.

- 5 -

Yet -- and this is characteristic of our approach to the
balance of payments problem -- despite the fact that we
were forced by factors outside our control to resort to this
measure, we sought solutions that would permit the free flow
of private capital.
As one of ten elements in his July 1963 program to
meet this situation, the late President Kennedy appointed
a Task Force in the Fall of 1963 that I was privileged to
head. This Task Force was composed primarily of a distinguished
group of persons from all elements in the private financial
and industrial community concerned with international finance.
President Kennedy charged it with developing programs that
resulted in recommendations designed to:
1.

Improve the U. S. balance of payments by
increasing foreign investment in U. S.
private securities;

Guide U.S.-based international corporations
towards making greater use of foreign-held
funds where they do business; and

Help establish conditions under which
restraints upon the flow of capital
between industrially advanced nations
could be removed, diminished or allowed
to expire.

The first of these sets of recommendations of the
Task Force submitted in April 1964 is now embodied in the
Foreign Investors Tax Act -- which we hope the Congress will
enact this year -- designed to remove tax discrimination
against foreign investment in the United States.
The second set of recommendations is reflected in part
in those provisions of the President's balance of payments
program, and the voluntary response of U. S. business to it,
that seek to moderate the outflow of dollars for investment
by securing the cooperation of U. S. businesses in making use
of foreign held funds to finance their foreign affiliates.
The third is concerned with an area I have already touched
upon -- the inadequacies, restrictions and inefficiencies of
the capital markets of other industrialized countries.

- 6 -

May I quote briefly on this subject from the Summary
Recommendations of the Task Force Report in which
representatives of the government (The State Department,
Treasury Department, and the Federal Reserve Board) joined with
the private members of the group:
"The Department of State and the Treasury
Department should take bilateral diplomatic
action aimed at securing the step-by-step
removal of remaining exchange controls on
capital transactions between advanced capitalforming countries and the discontinuance or
liberalization of special exchange markets or
procedures for investment transactions.
"The Department of State and the Treasury
Department should . . . urge countries with
balance of payments surpluses to relax their
capital issues control in order to permit an
expanded volume of international lending.
"The Department of State and the Treasury
Department should, through appropriate international bodies, particularly the DEeD, advocate
the step-by-step relaxation of monetary, legal,
institutional, and administrative restrictions
on capital movements, together with other actions
designed to increase the breadth and efficiency
of free world capital markets."
Despite U.S. efforts in bilateral and multilateral
councils to encourage it, the fact is that relatively little
has been done on this score in the years intervening between
Secretary Dillon's admonition in Rome in 1962 and the present.
This has made doubly necessary our programs for moderating the
flow of U.S. dollars to other developed countries through
the voluntary programs on direct investment, and lending
by financial institutions, initiated in February 1965.
May I observe that history and the record will show
that your government has consistently sought to raise the
banner of freedom for private capital formation and movement
in the Free World just as it has defended principles of
free international investment and liberalized trade.

- 7 Free investment by private capital formation and movement
must be an objective of all the free industrialized nations -not just of one or two -- if the United States is to keep its
capital market open to all demands, forego any concern with
private capital outflows and at the same time protect the
short term position of the dollar. We simply cannot discharge
our present responsibilities under the rules of the
international monetary system as it is presently constituted
without taking into account what private capital flows do to
our balance of payments ..
Some of you may ask why we ask private companies and
banks to moderate the outflow of their dollars abroad, on a
short term basis, when, over the long pull, their investments
will bring back earnings that benefit the balance of payments.
The answer is that we believe the immediate benefit to our
balance of payments from a moderate rate of capital outflow
in this period of pressure warrants some loss of benefit in
the future, when our overall balance of payments position
is expected to be stronger. Let me give you a little of the
background.
In 1958, the United States had what later turned out to
be the first of a series of balance of payments deficits
significantly larger than had been the case in earlier years.
While our payments deficits had been averaging less than
$1 billion a year on both the overall and the official
settlements accounting bases since 1950, in the three years
1958-1960 they jumped to an average of $3.7 billion on the
overall basis and to $2.8 billion on the official settlements
basis.
And, as the year ended, the leading European countries
indicated that the postwar gap between their need for dollars
and their dollar resources, which our postwar payments deficits
had been filling in, had largely been closed. They signalled
the end of the famous "dollar gap" by making their currencies
convertible. And they signalled the closing of the dollar gap
in another way, by beginning to draw on our gold reserves,
through conversions of some of their officially held dollars.
United States gold reserves stood at $22.8 billion at the
beginning of 1958. Today, as a result of foreign gold
purchases made possible by our payments deficits in the
succeeding years, our monetary gold reserves have fallen to
approximately $13.6 billion. It should be noted, however, that

- 8 we still hold approximately a third of the Free World stock
of monetary gold.
In the years 1961-64 our deficits adveraged four-tenths
less than in 1958-60 on the official settlements basis and
ran a third less on the overall basis.
This was accomplished chiefly by measures to reduce the
net impact on our balance of payments of government
expenditures abroad for military deployment and foreign aid,
measures to maintain and improve our favorable trade balance,
and to the increase in investment income from investments made
in previous years.
The sum total of chese improvements just mentioned would
have nearly eliminated the deficit, if outflows from other
sectors had remained unchanged. But increases in outflows
elsewhere including, for example, increases in foreign bank
lending, direct investment abroad and tourism, cancelled out
a large proportion of the gains noted above.
The fac twas tha. t three -fifths to two -thirds of the
problem remained. And, in 1964 and early 1965 an accelerating
outflow of private capital, in the form of commercial bank
and non-bank lending, purchases of short term securities and
direct investment was wiping out these gains at an alarming
pace, threatening to send the deficit to entirely unacceptable
leve Is .
It became unmistakably clear that our balance of payments
program would have to confront the outflow of private capital.
Through an extensive series of deliberations that included
the highest levels of government, and consultations of
government with business and financial leaders, a program
for doing this was devised meeting all of the following criteria:
1.

It should diminish the immediate impact
of the outflow of private funds upon our
payments balance.

It should be consistent with preservation
of the nation's economic effectiveness and
its economic freedom.

It should aim at a solution without disrupting
international trade or economic development,
especially in the less developed countrie3.

- 9 The product is President Johnson's voluntary payments
program announced a year ago February and strengthened and
refined for 1966. In this program commercial banks -- under
the guidance of the Federal Reserve -- were asked to restrict
their loans to foreigners within reasonable limits, to give
first priority to funds for export credits, and second
priority to loans to less developed nations. United States
industrial enterprises -- under the guidance of the
Commerce Department -- were requested to moderate the outflow
of capital and undertake a range of voluntary efforts to
improve the effect of their transactions upon the balance
of the nation's foreign accounts.
Under this program, the business and banking communities
retain full discretion for the conduct of their affairs, weighing
their own business considerations together with the broad
national interest of which they
and their businesses are a
part. Private enterprises are asked to cooperate, and to report
on their progress. There are no mandatory conditions or penalties
in the program.
Let me make it clear that we fully recognize the fact that
direct investment abroad ultimately returns handsome dividends
to the United States in the form of repatriated earnings.
The problem very simply is that we cannot wait for the long
run.
Investment outflows have been growing too fast in relation to
the inflows they generate in the short term period. We cannot
sit and wait for the return flows to mount, for in the meantime
there would grow abroad an ever-rising tide of short term liquid
claims on us -- claims that could seriously endanger the dollar
and touchcrf a whole series of disastrous consequences that
would affect all aspects of our nation's position in the world.
Another fact of critical importance here is the fact that in
recent years some of the surplus countries -- notably France -- of
continental Europe have made quite clear their unwillingness to
accumulate more dollars without exchanging them for our gold.
Under such circumstances, the United States and the existing Free
World monetary system cannot afford continued deficits in the
U. S. balance of payments because that would mean the continued
erosion of our reserves.
We have asked therefore, that -- for the time being -corporations maint~in the outflow from direct investment at an
amount which our balance of payments can safely absorb.
Let me emphasize, as I have before, that these restraints are
temporary measures, and are not designed to be of protracted
duration. They are required to alleviate a serious and current
problem. They are n9t viewed as a permanent solution.

- 10 -

In the mEantime, we need the voluntary programs.
The stakes are high. They involve not only the best
interests of the nation but the best interests of all who do
business abroad. For the strength of our dollar, and the strength
of our nation, and the strength of the international monetary
system, is their strength as well.
Nor need our businesses and financial institutions feel
they are carrying the burden alone. They are only being asked
to bear a share of a burden that the government bore -- more or
less alone -- for many years. As President Johnson made clear
in connection with the intensified balance of payments program
for 1966 announced last winter -- in the five years after 1960
intensive government effort resulted on an approximately 40 percent
reduction in the balance of payments cost of military spending
abroad -- despite rising costs overseas, the requirements of the
Berlin build-up in 1962 and of the struggle in Vietnam. That
effort also resulted in a full 50 percent reduction in the .net
balance of payments impact of foreign assistance. At the same
time, we recognize -- and all must recognize -- that we cannot
in the near future expect large savings in this area, whose
potential for savings we have already so thoroughly explored and
in such large measure exploited, and where the defense of freedom
in Vietnam is raising the foreign exchange costs of the government
this year.
During the five years, 1961 to 1965, the
net outflow of private capital for direct
investment ~ from $1.6 billion to $3.2
billion, an increase of 100 percent, that
adversely affected our balance of payments
by $1.6 billion. The outflow of bank
capital doubled from $1.2 billion to
$2.5 billion in the four years from 1960 to
1964.

It is not an answer to the problem to say that income from
private foreign investment was about four-fifths as large as
private investment outflows. What we need -- temporarily -- is a
much more favorable relation of current investment outgo and income
from past investment.
We must, therefore, in the words of President Johnson -- and
I quote:

- 11 " ••• reject the counsel of those who would
have the government do the entire job, at
whatever cost to American security and
leadership. It is private outflow that has
grown so sharply since 1960."
Nevertheless, we are not resting on our laurels in this respect.
As recently as March 8, President Johnson told Cabinet Officers
and the heads of government agencies in a public memorandum that:
" •.• the requirements associated with
Vietnam, both for military and for
economic assistance, now demand even
greater vigilance in controlling our overseas Federal transactions.
"Your objective should be to maXlmlze
receipts and minimize expenditures
abroad consistent with the achievement
of U. S. objectives.
"I have instructed the Director of the
Bureau of the Budget to examine your
reports carefully and to inform me of
the progress which is being made by
each Federal agency in assisting the
Nation to achieve equilibrium in its
balance of payments."
Thus, we must understand that, while the government can and
will hold to its essential minimum the dollar drain through
military and aid expenditures abroad, the overall dollar costs
of those programs must be measured by the value of the national
purposes they serve. And when those purposes are well served,
when the security of the nation is advanced -- then we are all
well served.
And, as I have made clear, ope of our greatest benefits from
our foreign programs -- benefits in which the business and
financial community most abundantly share -- is the maintenance
abroad of the broadest possible areas of opportunity for free
enterprise. Ours is an interdependent world, and interdependence
has its costs. We must be prepared to meet those costs, for
only by doing so can we keep the world safe and strong for free
peoples and free enterprise.

- 12 The Balance of Payments Program
and Foreign Trade
There remain for discussion several aspects of one other
major element of the balance of payments situation of mutual concern
to business and government -- the relationship of foreign trade
to our balance of payments program and vice versa.
Let us begin by getting a perspective on the importance of
foreign trade to a solution of our balance of payments problem.
Had our merchandise trade surplus -this excludes shipments of military goods
remained in 1965 at the $6.7 billion total
achieved in 1964, the United States would
have had a surplus in its balance of payments
exceeding a half billion dollars in 1965.
But, the merchandise trade surplus in 1965 declined to
$4.8 billion, or nearly $2 billion less than 1964, and the nation
had a $1.3 billio~ balance of payments deficit.
The fact that this drop in our trade surplus occurred in the
first year of the voluntary program has given rise to the assertion
or inference on the part of some that the restraint on investment
under the voluntary program adversely affected our trade surplus
by reducing exports.
But, what are the facts?
--Ietne note that throughout, here, we will be talking about
merchandise exports, excluding military shipments.
Fact Number One has already been mentioned, but it bears
repeating. Fact Number One is that the voluntary program does
not reduce overseas investment. Instead, the voluntary program
provides for large increases, amounting in the case of direct
investment to an annual rate 30 percent above the yearly direct
investment outflow in the years 1962 through 1964.
Thus, to the extent that American investments
abroad generate American exports, the annual
investment increases under the voluntary program
will tend to increase our trade surplus.

- 13 Fact Number Two has to do with the correct use of the trade
and investment figures. It is true that our trade surplus was
lower in 1965 than in 1964. But several other truths should also
be noted. Overseas investment ~ during 1965 by nearly $900
million. That was by far the largest direct investment increase
in many years. And, it was more than twice the size of the direct
investment increase in 1964, when we had an extraordinarily
large increase in our exports.
This should make us chary of trying to relate
either the voluntary program or overseas
investment to' our trade results. We see
exports increasing by no less than 14.6
percent in 1964, when there was no voluntary
program and when direct investment went up
by $401 million. But -- exports rose only
3.9 percent in 1965, when there ~ a
voluntary program, but when direct investment
rose by $890 million, a record for any
recent year except 1956.
Fact Number Three has to do with the relation between the
bank lending portion of the voluntary program and our trade results.
Data collected by the Treasury Department on
long term bank commitments for financing
U. S. exports were over $20 million higher
in the last three quarters of 1965, after the
voluntary program was initiated, than in the
comparable period in 1964.
Further, the Treasury made a special survey
of export financing. A very great majority
of the respondents said that export financing
did not become more difficult after the
voluntary program went into effect.
Fact Number Four concerns what is currently happening to
our trade, with the voluntary program still in effect, and, indeed,
considerably tightened by comparison with the 1965 program.
In the first three months of this year our
exports rose to an annual rate $3.5 billion
higher than in 1964, ~ur best trade year.

- 14 Fact Number Five has to do with why, in reality, we had a
much lower trade surplus in 1965 than we had in 1964.
It should first be noted that our $6.7 billion
trade surplus in 1964 was by all odds the
highest in any recent year, partly because of
unusual factors. The 1965 surplus of $4.8 billion
was nearly $2 billion lower than the 1964 figure.
But by comparison with other recent years, and
with the average of our trade surpluses since 1960,
our trade result in 1965 shows up much better.
The 1965 trade surplus, for instance, was only
some $284 million lower than the surplus for
1963. It was $362 million higher than the
surplus in 1962. And, the 1965 surplus was
within 8 percent of the six year average, 1960-1965.
Second, we did not get a repetition in 1965
of the very large agricultural exports which
were a main factor in creating the extraordinary
1964 surplus, and which in turn was due to bad
harvests in Europe, and wheat purchases by the
Soviet Union.
Third, in 1964 our export markets were experiencing
better times, economically, than they did in 1965.
Fourth, exports did rise in 1965, by approximately
4 percent. What chiefly narrowed the 1965 trade
surplus was a huge rise of imports, which increased
by no less than 15.6 percent. The rise in imports
is of course in no way attributable to the
balance of payments program moderating overseas
lending and investment.
Finally, anticipation late in 1964 of a dock
strike early in 1965 -~ which did come about
probably inflated 1964 exports by nearly a
quarter of a billion dollars and reduced 1965
exports by a like amount.

- 15 More could be said on this subject, but I think there is no
need, until this rumor raises its mistaken head again. When it
does, I hope that you will be watching for a new edition of this
facts and figures truth bulletin about the relationship of our
balance of payments program to our international trade.
But -- the fact that there is no evidence that our exports
were significantly affected by our balance of payments program is
by no means the same as saying that we are not concerned about
the growth of our trade surplus. We are concerned, indeed. We
have been careful to try to learn the facts that I have just been
over with you not because we want them to win political statisticsslinging matches, but because we need them to try and find a cure.
The situation boils down to this:
Although exports are increasing, imports are
increasing faster. This was true in 1965,
when imports rose by nearly 16 percent, while
exports rose only a quarter that much. And
there is a slight trend in this direction
when recent years are averaged.
For the first quarter of this year, imports
on an annual rate basis increased about one
and a half times as fast as exports. But
this does not necessarily predict the entire
year. For instance, to note what can currently
only be taken as a straw in the wind, in March
exports were higher than imports.
Nevertheless, it is obvious that the answer to avoiding a
shrinkage in our trade surplus lies chiefly in getting out exports
to assume a more favorable relationship to our imports.
We are moving to do so.
We are holding to our positive, competitive ways. Our chief
weapon will continue to be the competitiveness and good balance of
our own economy, which means an economy capable of producing all
the goods we need for ourselves and at the same time to satisfy
all foreign orders -- orders for exports -- on schedule and at
world competitive prices.

- 16 This brings us back to the fact that wherever we turn in our
foreign economic problems, we come face to face with the fact that
they will be solved in the end, and for the long run, chiefly by
reason of the vigor, productivity and balance of our domestic
economy.
And that brings us to the fact that for many years now we
have been fostering the conditions in our domestic economy that
will make us strong in the international economy. While most
public attention has been given to measures that resulted in
increasing demand, I wish to emphasize the measures we undertook
early and vigorously -- to ensure increases in capacity, increases
in productivity and reductions in cost. I refer to the domestic
measures with which you are familiar -- tax reduction, depreciation
reform, an investment tax credit and reduction in corporate taxes -all designed to put the highest productivity tools into the hands
of American workers and American management, plus massive programs
to upgrade the training of our workforce so that it can make full
use of these tools.
That is, while we were moving through tax reduction and other
means to stimulate demand to the point where the American workforce would be fully employed, we foresaw that when that happy
condition arrived it would be self defeating unless we had also
moved in good time to stimulate commensurate growth of capacity
to satisfy demand, by means of adding to productive capacity,
and adding to productivity.
To the extent that the rise of imports is due to the
increasingly fuller use of capacity and available manpower in
this country, the steps we have taken to permit and encourage our
capacity to produce to keep pace with the growth of demand should
reduce our relative need for imports, and reduce their
competitiveness in the American market.
We are continuing to work on the other side of the scale, by
attempting to increase our exports. The tremendous recent growth
of capital investment in the United States has increased our
ability to produce for export and, by raising productivity and
lowering costs, it has increased the ability of our exports to
compete in foreign markets.

- 17 Mr. Harold Linder has just announced a long list of adjustments
in the policies of the Export-Import Bank, which he heads, to
make the financing of American exports more convenient and less
costly.
The Commerce Department is working with American companies
in a program designed to bring the American producer and the
foreign importer together, and to assist the American producer
to make, package and deliver his product in the most effective
way for sale in a foreign market.
The Secretary of Agriculture is looking for ways to push our
foreign sales in his very important sector.
Conclusion
Basically, however, as I have said, the solution with respect
to the trade balance is the same as it is for the balance of
payments as a whole: a strong, growing, high-productivity,
competitive economy in which the forces of demand and of supply
are well equated, and where the private sector and the government
both take a responsible view of the importance of avoiding
inflationary policies or actions.
That is the kind of economy we have in the United States.
That is why I am confident that we can look forward to an
improving trade balance as one of the main elements in the long
term solution of our international payments problem.
This is not the only reason, however, for thinking that the
United States balance of payments deficits are no more necessarily
permanent than the famous dollar gap, which, as we have noted,
SUddenly vanished at the end of the 1950s, although it had been
pronounced quite permanent by almost everybody.
There are a number of reasons, in addition to the trade
prospects, for keeping it in mind that our balance of payments
problem will not necessarily be with us forever, or even for a
long time, just because it is so often said that it might.
For one thing very substantial progress towards elimination
of our payments deficits has been made. The deficit was reduced
by $1.5 billion and totalled, for 1965 as a whole, $1.3 billion
on the overall,' or liquidity, accounting basis. This was the smallest

- 18 deficit since 1957 and was less than half the $3 billion average
deficit on this basis in the seven years 1958 through 1964.
Today, the chief imponderables are the direct foreign
exchange costs, and the indirect effects upon our balance of
payments of the fighting in Vietnam. That is a problem which
God willing -- will not always be with us.
Secondly, there are signs that the rate of profits on direct
investments in Europe is not as large as it was only a few years
ago -- signs even that it is now not very much higher than in
this country.
Third, the balance of payments program itself is tending to
cause improvement in another highly important sector: the capital
markets of many other industrialized nations. With the dollar
outflow moderated, and with American corporations actively seeking
funds abroad, foreign capital markets are finding more depth and
resilience than they thought they had. I think that we can look
forward to a permanent improvement in foreign capital markets
that in turn reduces the need for measures on our part to guard
against over-dependence upon our capital market. Incidentally,
we are hopeful that from the OECD (the Organization for Economic
Cooperation and Development) there will be forthcoming, a report
on this subject of long term significance.
Further, we are nearing the final stages of a process by
which we hope and believe that the entire Free World monetary
system will be improved by the introduction of means for increasing
the speed and smoothness with which the system is able to adjust
balance of payments deficits and surpluses, and, when needed,
put new international reserves into circulation.
Consequently, to those who say that the moderation of the
outflow of dollars that is unavoidably a part of the current
balance of payments picture is something that has come to stay,
I say that there are many good reasons to conclude that such
is simply not the case.
I am certain that we shall continue to have your ready
cooperation in bringing our payments into equilbirium so long as
forces beyond our Lmmediate control require it. You may be equally
certain that as soon as the more enduring measures that we have
been discussing make it possible to dispense with the voluntary
program for moderating our capital outftow, that will be done.

000

TREASURY DEPARTMENT

May 4, 1966
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
$2,300,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing May 12, 1966,
in the amount of
$2 , 303 , 788 , 000 , as follows:
91-day bills (to maturity date) to be issued May 12, 1966,
in the amount of $1,300,000,000, or thereabouts, representing an
additional amount of bills dated February 10, 1966, and to
mature August 11, 1966, originally issued in the amount of
$1 001 108 000 the additional and original bills to be freely
ln~erctiange'able'.

182-day bills, for $1,000,000,000, or thereabouts, to be dated
May 12, 1966,
and to mature November 10, 1966.
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
(maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, May 9, 1966.
Tenders will not be
received at the Treasury De~artment, 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.
up

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
rrom 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.
F-459

- 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 Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
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 12, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing May 12, 1966.
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 dispositiori 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 froo
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
Washington
FOR RELEASE A.M. NEWSPAPERS
THURSDAY, MAY 5, 1966
REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT A DINNER HONORING THE PRESIDENTS OF
THE AMERICAN BANKERS ASSOCIATION,
THE ASSOCIATION OF RESERVE CITY BANKERS, AND
THE MORTGAGE BANKERS OF AMERICA,
AT THE
CHARLOTTE COUNTRY CLUB, CHARLOTTE, NORTH CAROLINA
WEDNESDAY, MAY 4, 1966, AT 7:30 P.M., EST
North Carolina is famous for many products
among them textiles, furniture and tobacco. It seems there's
also something about the North Carolina climate that produces
leading bankers.
I am delighted to be here tonight, at this dinner honoring
three outstanding North Carolinians -- Archie Davis,
Addison Reese and Clifford Cameron, who are the presidents,
respectively, of the American Bankers Association; the
Association of Reserve City Bankers and the Mortgage Bankers
of America.
Perhaps I should have invited my friend, Attorney
General Nicholas Katzenbach, to come along to this affair
and to launch on the spot an investigation of how North
Carolina bankers have managed to get a monopoly grasp on the
top positions in three of our leading banking associations.
However, I already know the answer. It is because they
have the capacity for hard headed, courageous and dedicated
leadership.
This has been nowhere better manifest than in the
position taken in recent weeks by Archie Davis. As
President of the American Bankers Associations he has
pointed up, and I applaud him for it, the unique position
of commercial bankers -- this year, now -- to exercise
responsible restraint in reflecting the anti-inflationary
monetary policy announced last December by the Federal
Reserve Board. Mr. Davis has provided the standard, urging
that the banker "must use every skill at his command to
F-460

- 2 -

allocate his lendable funds to the most economically
justifiable uses -- which, under these circumstances, mean
credit uses that will help curtail rather than augment
inflationary pressures." It is essential that, at this
juncture in national affairs, bankers weed out the less
productive, the less deserving, the speculative loans.
A month ago, speaking to the Reserve City Bankers
Association of which Mr. Addison Reese is the retiring
President, I made reference to a related phase of responsible
restraint saying:
"I would hope, also, that there will be
an accompanying disengagement from unreasoning
competition for time and savings deposits that
ignores the need for caution and the harm that
kind of competition can do to our banking and
financial system."
Just this week Mr. Davis spoke out against the "bidding
away" of savings from other financial institutions which
may damage them and add to the lending power of the bidding
ban~which the Federal Reserve policy is trying to hold down.
I commend him for it and hope that this message is
carried home effectively to all our nation's bankers.
Federal debt management also has a role to play in
achieving the broad economic objectives which are our mutual
concern. This is why, this past February, we took the
opportunity while refunding the mid-February maturities, to
offer the holders of April, May and August 1966 issues an
exchange into a new 4-3/4 year 5 percent note.
This move achieved some useful debt extension and
lightened significantly the refunding tasks of May and
August. The pre-refunding of February left just $2.5 billion
of the May maturities in public hands. Today we close the
books on that refunding where we offered holders of the
maturing issues a l8-month note with a coupon of 4-7/8 percent,
discounted to yield 4.98 percent.
It may be of interest to note that while the total
Treasury debt today is some $3 billion greater than a year
ago, our last reading showed that Treasury debt in the
hands of the public was actually down by $1.1 billion over
the year. And for those who sometimes look to Government

- 3 -

financial policies as the source of undue monetary expansion.
I would remind you that commercial bank holdings of Treasury
debt are down by $3 billion in the past year. No doubt
this decline in bank holdings has made our financing task
a bit more difficult and costly, but it has also provided
rather striking evidence that our deficit has been financed
with genuine savings accumulations.
After taking account of net sales of Federally owned
financial assets and direct Federal agency issues, and
balancing this against the decline in holdings of Treasury
obligations in the hands of the public, we would estimate
that the Federal sector will make only a modest net demand
for credit on the private economy for this fiscal year
perhaps on the order of two or three billion dollars. More
impressive still, according to current plans, we would
expect the Federal sector to make little or no net credit
demand on the rest of the economy in fiscal 1967.
Turning to another aspect of our national credit
structure which involves some very important legislation
now pending before the Congress, I will exploit this
opportunity to make a few remarks to this group of
financial leaders on the longer term perspective of a key
policy issue embodied in this legislation.
President Johnson on April 20, 1966 transmitted to
Congress a bill called the Participation Sales Act of
1966, to provide for a coordinated program, through the
Federal National Mortgage Association, of sales of participations
in pools of financial assets held by various Federal agencies.
The basic purpose of this legislation -- as you know
is to encourage the substitution of private for public
credit in various major Federal credit programs. Given
the desirability of drawing in greater private participation
in the Federal credit programs, the sale of interests in
pools of assets is the most satisfactory and economical
means that has been devised to meet this end.
The technique now proposed for sales of assets has
evolved gradually during the past three Administrations,
stretching back in time to the mid-1950's.

- 4 A guiding principle of this policy is that Federal
credit should supplement or stimulate private lending
rather than substitute for it. This is a matter of basic
economic philosophy, as well as a recognition of the fact
that the private market should, and will, continue to
account for the bulk of all credit extensions.
Federal credit programs, working through the private
market, help to make the market stronger, more competitive,
and better able to serve the economy's needs over the
long-term, than if the Federal credit programs unnecessarily
pre-empted functions that private lenders could perform
effectively.
Carrying through these principles and recommendations,
increased emphasis has been placed in recent years on
greater use of Government guarantees of private credit
and on direct sales of individual Government loans to
private lenders. More recently, sales of individual loans
have been supplemented by pooling large numbers of loans
and selling certificates of participation in such pools.
As some of you know, the growth of programs involving
either the direct extension of credit by the Federal
government or the government guarantee or government insurance
for loans made by private institutions traces back to 1917,
and the organization of the Federal Land Banks. Before
1932, the only significant Federal credit programs were in
the agricultural area. In working our way out of the
Great Depression, Federal credit programs played an
important role, and the total of Federal credit extended
increased from about $300 million in 1929 to a total of
$6.2 billion for direct and insured loans in 1934.
In the years leading up to World War II, Federal
Government lending and insurance programs averaged about
$3 billion annually.
The need for war production loans, guaranteed through
Federal Reserve Banks under Regulation V, and other
factors contributed to a substantial increase in Federal
credit programs during World War II. In the period after
World War II there was another substantial expansion of
Federal credit programs. Housing credit played an overwhelming
role in this expansion. Between 1946 and 1958, for example,

- 5 -

$54 billion in Federal credit -- on a net basis -- was
injected into the economy, with $46 billion of the total
being housing credit.
Today, there are approximately 100 different Federal
credit programs, where the government assumes all or part
of the credit risk. These Federal credit programs have
successfully enabled sizeable groups of our citizens to share
in economic progress, and these programs, authorized in
every instance by Congress, also are making significant
contributions to the vital tasks of community development,
education and health, the development of resources and
other goals.
Characteristically, Federal credit programs start
with a need for credit, where the nature of the risk or
other factors make it clear that the need is not being met
adequately by private credit.
We expect that the total outstanding for direct loans
for all government agencies -- will be $33.3 billion on
June 30 of this year, up from $33.1 billion a year ago and
$25.1 billion four years earlier. In fact, it has risen
in every year in the recent period.
Now this is where the Participation Sales Act of 1966
comes in -- because with the techniques that would be made
possible under this legislation, we would hope to be able
to achieve a reduction in that portfolio to $31.5 billion
in the course of fiscal year 1967. This would be
accomplished by selling some $4.7 billion of assets,
mainly through the participation sales device, back to the
private sector.
Essentially, neither the basic philosophy nor the
technique involved in the Participation Sales Act of 1966
would be new. Rather it is an extension to additional
credit programs of what we have already been doing with
some success on a more limited scale.
The substantive policy was laid down a considerable
time ago.
President Eisenhower, for example, sought legislation
in 1954 to encourage greater substitution of private
financing for Federal outlays in our housing programs.

- 6 -

The Veterans Administration and the Federal National
Mortgage Association, as well as the Export-Import Bank,
have been pooling their assets -- their loans -- and have
been selling participations in these loan pools for some
time.
One of the basic underlying principles of the 1961
report of the Commission on Money and Credit -- on which I
am proud to have served -- was that private credit should
be substituted for public credit as soon as private
investors are able to take over the credit involved. The
Commission, after evaluating Federal credit programs, stated that:
"Government intervention to improve
the effectiveness of credit markets
should be designed to influence existing
private financial institutions or to
stimulate new private institutions rather
than to establish governmental direct
lend ing agenc ie s . "
In 1962, President Kennedy's Committee on Federal Credit
Programs -- comprised of Treasury Secretary Douglas Dillon,
Federal Reserve Board Chairman William McChesney Martin,
Chairman Walter Heller of the Council of Economic Advisers
and David E. Bell, who then was the President's Budget
Director -- said this:
"Government-financed credit programs
should, in principle, supplement or stimulate
private lending, rather than substitute for
it. They should not be established or
continued unless they are clearly needed.
Unless the urgency of other goals makes
private participations infeasible, the
methods should facilitate private financing,
and thus encourage long-run achievement of
program objectives with a minimum of
Government aid."
In transmitting the Administration's draft of
legislation to broaden and deepen the channels between the
public and private credit markets, President Johnson
recently observed that -- as desirable as government
loans to farmers, to businessmen, to home buyers, to veterans,

- 7 -

to students, to colleges and to others are -- "federal
lending neither can, nor should, shoulder the entire job.
"Under our system of free enterprise" -- the
President continued -- "it is far better for the Government
to mobilize private capital to these ends. And it is far
better for the Government to stimulate and supplement
private lending rather than to substitute for it • . . .
This substitution of private for public credit provides
sound financing for worthwhile projects with a minimum of
Federal participation."
In developing legislative recommendations -- as in the
making of business and personal decisions -- it is both
logical and customary to examine the alternatives.
Given the size and nature of government credit programs,
we could, of course, have continued to carry a rising volume
of direct government loans in the portfolios of Federal
Credit agencies. But there was no logic in continuing to
build and carry a higher and higher volume of direct
government loans. When President Johnson sent his budget
message to Congress last January 24, he said this:
"In recent budgets, I have pressed for
the encouragement of private financing in
the major Federal credit programs wherever
I have felt it to be consistent with the
public interest. I will need the cooperation
of the Congress to carry this effort farther
in the coming year.
"This is an important and sensible way
to manage our Federal credit programs."
This
then -- summarizes the background of the
Participation Sales Act of 1966.
Even with the broad base of bipartisan support for
the principles embodied, I know that some questions have
been raised about just how it would work, and I would like,
therefore, to make several additional points about it:
1.

The pending legislation does not create
a new set of subsidized government loan
programs.

- 8 2.

We are well aware that in seeking to
deepen and widen the channels between
public and private credit markets
that it would be pointless to attempt
to press more on the market than it can
readily absorb.

This program does not involve "back-door"
financing or budget "gimmickry" and we
are not trying to set up a "federal
hocks hop" for loan paper of questionable
or doubtful value.

We expect to find that the cost
difference between financing these
credit programs through direct Treasury
borrowing and in channeling such assets
to the private credit market by way of
participation sales will be narrow -and if anything may tend to decline,
particularly after both private investors
and the government have gained useful
experience under the program.

The entire participation sales program
will operate in such a way -- a way that
I strongly favor -- as to give the
appropriate Congressional committees
more rather than less control over the
marketing of loans that will go into the
participation pools.

Now permit me to turn briefly to another program in
which President Johnson and I have a great interest -- our
Savings Bond program.
The other day a gentleman called the Treasury Department
to inquire about the Savings Bond campaign, and remarked
that there seems to be a big new push going on now to sell
Savings Bonds. I was delighted to hear about his comment -because he is entirely correct.
President Johnson, Vice President Humphrey, members of
the Cabinet, members of Congress, and many of you here
tonight are contributing to this increasing awareness that
OUr Savings Bond program has more meaning, more significance
and more \T,qlI1~ r() ()l1r n,qr;on todav than at any time since

- 9 -

As the Vice President put it at a recent Washington
meeting -- "Savings Bonds have a very unique place in the
history of our country. People allover this land feel a
little closer to their government when they have a bond
that has the seal of the United States Government upon it.
It ~s more than a document and more than a piece of paper.
It 1S a commitment on the part of a citizen to his
Government, to this democracy, to the purposes of this
nation and to its present and to its future."
I can only voice my support for what the Vice
President said -- and I hope we all can continue to speak
out with some of the feeling he expressed, to further the
cause of our Savings Bond program.
In recent years we have witnessed the emergence of a
penetrating interest by those concerned with public affairs
and the effective use of our money and credit system to
promote our national economic objectives -- a healthy rate
of growth, full employment, price stability and a balance
in our international payments.
Increased understanding and utilization of fiscal policy,
monetary policy, debt management policies, and policies dealing
with international financial relationships have received well
merited emphasis. Moreover, the importance of arriving at
the proper combination of these policy instruments and their
coordination for achieving national economic goals has been
underscored.
The monumental study covered by the National Commission
on Money and Credit in its historic Report made in 1961 was
one of many efforts to bring attention to these subjects.
But there was another chapter in that Report which should be
noted. I refer to the handling of Federal credit programs
and policies. The Report of the Committee on Federal Credit
Programs, chaired by Secretary Dillon and referred to earlier,
which was presented to the President of the United States
in February 1963 carried the dialogue on this subject
another major step forward. The Participation Sales Act of
1966 will carry out one important aspect of the policies
developed in these studies. But I am sure that all the long
term quasi-public demands for credit that loom in the years
ahead will call for appropriate treatment of many other aspects
of this topic. I commend it to your attention and urge that
the leaders of private financial institutions and organizations
represented here tonight devote major attention to this area
of public policy in the years ahead.

TREASURY DEPARTMENT

May 5, 1966

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN APRIL
During April 1966, 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
$27,065,500.00.
000

F-461

TREASURY DEPARTMENT
Washington

FOR RELEASE:

UPON DELIVERY

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT
THE NINTH ANNUAL UNIVERSITY OF CONNECTICUT
LOEB AWARDS PRESENTATION LUNCHEON
HOTEL PLAZA, NEW YORK CITY
THURSDAY, MAY 5, 1966, 12:30 P.M., EDT
It is indeed a pleasure to participate in the
presentation of the Loeb Awards for distinguished achievement in the field of business and financial journalism.
For I think it impossible to overestimate the importance,
in the successful conduct of economic policy, of informed
and intelligent reporting of economic issues and affairs.
It is much more than a coincidence that our unexampled
economic accomplishments of the past five years have by
and large been accompanied by an equally unexampled
excellence in economic reporting.
As a result of that reporting -- and the enlightened
public discussion which it did so much to stimulate and
sustain -- we are all amply aware of the economic record
of the past five years, in terms both of policy and of
performance, of theory and of practice. But I think that,
absorbed as we all are with the economic questions
immediately and urgently before us, we have all but lost
sight of the broader economic perspective, of the longerterm economic outlook, in which framework alone can we
find satisfactory answers to our present problems.
A year ago, i~ early 1965, our concern was not so
circumscribed. For while we had not yet entered the
promised land of full employment, we believed we were
near enough to give a good deal of our attention to the
problem of making a smooth transition from an economy
trying to reach a level of peak performance to an economy
trying to maintain that level of performance.

- 2 -

Over the near-term, we were concerned that the economy
would falter and flatten out before we reached our goal of
full employment in a balanced economy. And over the longerterm, we were concerned with the whole spectrum of
challenging problems and exciting opportunities that would
present themselves once we had, in fact, reached full
employment -- in particular with the problem of forging
ahead at full employment levels of activity without
in fla t ion.
As a result, there appeared a whole series of thoughtful speeches, studies and symposia from both public and
private sources on economic problems and prospects in the
years and decades ahead. To take simply a random
sampling, the Subcommittee on Fiscal Policy of the Joint
Economic Committee of the Congress in February of 1965
published a compendium of views from private economists
and organizations on "Fiscal Policy Issues of the Coming
Decade," and in July of 1965 held hearings to solicit the
views of Administration witnesses on that same subject.
In March of 1965, the American Bankers Association sponsored
a Symposium on Federal Taxation in which Professor Paul
McCracken took a thoughtful look at the prospective role
of tax policy in sustaining economic growth. In July of
1965, the President's Committee on the Economic Implications
of Defense and Disarmament made its Report to the President.
And there were other long-range economic analyses and
appraisals too numerous to mention.
It was in the very midst of this increasing concern
over the longer-range economic outlook -- and over the
current outlook in that context -- that, in July of last
year, there began the intensification of hostilities in
Vietnam that has since altered our economic picture.
For as increased defense spending for Vietnam began
to give added impetus to economic demand -- at a time
when special supply factors were emerging which would put
severe temporary pressures upon the prices of farm
products and processed foods -- our concern over the
prospect of an economic flattening out rapidly disappeared.
And today, a year later, we are concerned that our economy
may be moving at so rapid a rate as to result in serious
inflation.

- 3 -

Our margins between supply and demand are narrower
than at any time in recent memory. Preliminary figures for
the first quarte~ of this year show that our Gross National
Product grew at a real annual rate of 6 percent -- compared
to 5.5 percent for 1965 and 5 percent for 1964. The .
unemployment rate fell from an average of 4.2 percent in
the fourth quarter of last year to 3.8 percent in the first
quarter of this year -- the lowest quarterly rate in more
than 12 years. And the McGraw-Hill measure of capacity
utilization in manufacturing, which had already risen to
89.5 percent in December of last year -- the highest
December rate since 1955 -- rose to 90.5 percent in March of
this year.
These recent developments carry forward a period of
2 years of remarkable resurgence in the strength and pace
of private demand.
This rebound has dispelled earlier
fears that our economy had become stagnant and would need
continued injections of strong fiscal tonic. In an
environment of fuller utilization, rising sales, and more
secure employment, both business and consumer spending have
shown new and gratifying vigor. But we can no longer welcome
the same degree of vigor that was so helpful in putting our
idle men and machines to work and carrying us toward full
employment. If demand were to continue to rise as rapidly
as it has been growing, we would find our resources strained.
Our economy needs to slow down.
And it is in terms of this longer-term picture alone
that we can expect to find satisfactory solutions to the
problems now before us.
And nothing has happened since early last year to
render any less urgent our concern over the problem of
making a smooth transition into a period of steady and
sustained economic growth at full employment. Indeed, that
concern must today be more urgent than ever -- for today we
are on the threshold of that transition period, if we have
not entered it already.
What that transition involves is essentially this:
Over the paSt several years we have been able to sustain
very high real rates of growth -- 5 percent in 1964 and
5.5 percent in 1965 -- by putting to productive use not only
new capacity and new entrants into the labor market, but
also idle capacity and the unemployed. But in the years

- 4 ahead our rate of overall economic growth will have to [cst
almost entirely upon the rate of growth, in quantity and
quality, of new capacity and new manpower.
The President's Manpower Report for this year estimates
that our labor force may grow by almost 2 percent annually
through 1970. Allowing for some further decline in the
unemployment rate, some reduction in hours worked, and
assuming the continuance of recent productivity trends,
this could mean an average annual rate of real growth as
high as 4~ percent. This figure does not, of course,
represent a forecast. Rather it is simply a feasible
projection of one economic pattern likely to emerge as we
move to a more moderate rate of growth in the years ahead.
We have, therefore, essentially two questions before us.
The first is how best to shift smoothly to a lower level of
real growth from the high levels of 1964 and 1965 in the
current atmosphere of economic exuberance, aggravated by Vietnam.
And the second question is, once we have made this
transition, how do we best sU3tail! and employ our growtr..
at full employment and with stable prices.
We cannot now adequately answer these questions, for
we do not yet know under what actual set of economic
circumstances they will occur. But we can perceive -- and
prepare for -- some of the broader opportunities and
problems we will face.
We can explore some of the issues in the private economy.
We know that investment cannot appropriately continue to
rise twice as fast as GNP, particularly if it is predominantly
designed to increase capacity rather than cut costs. We
look forward to the time when defense expenditures will no
longer be a propelling force in our economy. As these
areas provide less forward motion to the economy, we
will have to look elsewhere for new sources of strength,
even though we will not need as much over-all strength in
the pace of demand as we have recently been experiencing.
Homebuilding is particularly promising as a possible
starring sector later in this decade.
It will benefit from
our changing population structure and from new carefully
designed Federal programs; it can also benefit from a
relaxation in monetary policy which will become appropriate
once the Vietnam emergency passes.

- 5 -

There will remain, on the broadest level, the task
of finding the mix of public economic policy that can best
maintain a balance between total demand and rising levels
of productive potential. At current tax rates, for
example, a vigorously growing economy will automatically
generate large annual increases in Federal revenues -- we
have estimated that, for fiscal 1967, that increase will
amount to some $7~ billion. To the extent, therefore, that
we do not return these revenues into the economic spending
stream, our tax system will serve as a restraint upon our
economic growth.
In the years ahead, as a result, our success in
sustaining a reasonable balance between demand and supply
in a full employment economy will directly depend upon our
success in returning these revenues to the economy in the
right forms and right amounts. We will have to decide
what portion of these revenues, if any, should be in the form
of tax reduction, and what kind of tax reduction -- what
portion of these revenues should be in the form of
expenditures, and what kind of expenditures -- or what
portion, if any, should be in the form of debt retirement.
Even more challenging will be the problem before us
on the supply, or structural, side. For since we can no
longer rely on any large margins of idle manpower and
capacity, nearly all our economic growth must come from
growth in our labor force, and from intensive efforts to
improve our overall productivity -- efforts to enhance at
all levels the skills of our labor force, efforts to
encourage continued advance in new technology, in more
efficient and effective plant and machinery. We must rely,
therefore, in growing measure upon greater returns from
greater investment in both our human and material resources
in order to sustain full employment growth in a balanced
economy.
For while we cannot expect in the years immediately
ahead to maintain the unusually high growth rates of
the past several years, neither can we welcome a return
to the very much lower rates of growth we have had
throughout much of this century -- rates reflected in the
average annual rate of growth of about 3 percent from
early in this century to 1960.

- 6 -

And our firm policy purpose must continue to be
the simultaneous pursuit, through changing economic
circumstances, of our four major economic goals: strong
and sustainable economic growth at full employment, with
reasonable price stability and equilibrium in our balance
of payments. Conflicts between these goals can, of course,
arise -- inevitably there comes a point where it is
difficult, for example, to pursue full employment and price
stability at one and the same time, when gaining or holding
ground on one front seems to involve giving ground on
another.
There is no lack of evidence, in our own experience
or in that of other countries, of the difficult and
delicate problems involved in trying to reach these different
goals at the same time.
There is the recent experience of Italy: from 1959
through 1963, Italian industrial production grew at an
annual average rate of more than 10 percent. While consumer
prices were relatively stable early in this period, they
rose appreciably after 1961. As a result, the Italian
balance of payments situation began to deteriorate -- a
deterioration quickly reversed by domestic stabilization
measures and a $1 billion international credit package, to
which this country made a major contribution. At the same
time, domestic output fell sharply. Industrial production
rose by less than 1 percent between 1963 and 1964 in
contrast to the 10 percent gains common in earlier years,
and the Italian economy is only showing signs of regaining
its momentum while continuing to run a large payments surplus.
And consumer prices have continued to rise by 6 percent
between 1963 and 1964, and by another 5 percent last year.
And there is also the recent example of France. In
the last half-decade of the Fifties the cost of living
in France rose at a compound annual rate of more than
6 percent, and in the first half-decade of the Sixties, at
an annual rate verging upon 4 percent. Last year, France
reduced that rate to a little under 2~ percent. But
France achieved that reduction in prices from nearly 4
percent to a little under 2~ percent only by cutting almost
in half its real annual growth rate -- its growth rate
corrected for price increases -- compared to its record over
the 1960-1964 period.

- 7 There are, therefore, difficulties that can arise in
trying to pursue different economic goals at the same time.
But these difficulties are not insurmountable -- and they
arise, not from an inherent incompatibility between these
goals, but from flaws in policy and failures in performance
as we seek to further these goals.
The problem before us now is how best to further all
these goals while making the shift from the very high
growth rates of the recent past to a somewhat lower but
still historically high level of steady, sustainable growth.
Our effort today -- as it was a year ago -- is to
try to make that transition as smooth as we can, to slow
down without stalling. But today the circumstances are
far different than they were a year ago -- and, with
the advent of Vietnam and all the uncertainties surrounding
it, they are far more difficult to assess.
Indeed, the primary problem before us is that there
are so many uncertainties in our economic picture -- and
the principal uncertainty is simply to what extent the
present exuberance is a relatively temporary occurrence,
fed by largely temporary factors, and to what extent it
reflects a more basic trend.
The Administration, as you know, felt the threat of
inflation was disturbing enough to require a significant
shift from a fiscal policy of steady stimulus to demand
to a fiscal policy of moderate restraint. And President
Johnson has made abundantly clear that he will not hesitate
toapply or to recommend further fiscal restraints should
these become necessary.
For our effort was, and remains, to apply as much
restraint as necessary -- and no more. And our conviction
was, and remains, that with economic trends still unclear
and the impact of the fiscal and monetary changes still
untested, there was some danger of overcure -- some danger
of applying what events would reveal as an overdose of
economic restraint. And that danger was sufficient to
warrant that we watch and wait until we know what the
real trend is in our economy as it absorbs the psychological
impact of enlarged activity in Vietnam -- until we can
assess the real effect upon the economy of the monetary
restraint inaugurated by the Federal Reserve Board action

- 8 -

last December, of the collection of higher Social Security
taxes beginning in January, and of the tax proposals
embodied in the Tax Adjustment Act which the President
signed on March 15 of this year -- until we know the
consequences of the President's effort to reduce or postpone
Federal expenditures scheduled for fiscal 1966 and 1967,
and of his efforts to solicit similar restraints in state
and local government and private expenditures -- until we
know what Congress is likely to do with the President's
expenditure proposals for fiscal 1967 -- or until we know
whether events in Vietnam will require steeper outlays for
defense or allow a leveling off in the rise of new orders.
For, indeed, should the President's budgetary targets
be preserved, should there be no need for increasing
Vietnam outlays, and should the disturbing developments
in the private economy turn out to be largely temporary,
we were and remain concerned that tax increases could prove
inappropriate as the year progressed and might disrupt our
transition to a full employment level of growth in a
balanced economy.
On the other hand, we were and remain deeply concerned
lest, through one combination of circumstances or another,
serious inflation should take hold and send our economy
soaring at unsustainable speeds -- and then plunging
sharply and suddenly downward. Our unparalleled progress
in achieving relatively full employment in a relatively
balanced economy could suffer few setbacks more severe than
a recurrence, in any magnitude, of this all too familiar
pattern of the past. And we are determined to do all we can
and must to prevent this pattern from returning.
For the present, therefore -- while the economy shows
no definite pattern -- it is essential that we remain within
the bounds of the President's budget, and that we continue
to keep a close and careful watch over all contingencies that
might occur to require a tax increase.
We must remain alert to the possibility that demand
could continue to surge forward at a pace that would
overshoot the target of a sustainable full-employment
growth path and could lay the foundations for a strong
inflationary spiral in 1967. If the balance of uncertainties
falls decisively in this direction, a prudent and preventive
tax increase this year would enhance our long-run growth

- 9
prospects. We must avoid economic excesses that would
undermine our prosperity just as we must avoid an "overcure".
If we can keep on course, if we can remain reasonably on
target, we will have done much to improve our prospects
for a smooth and steady transition to the kind of economy
for which we have labored so long and so hard, and whose
achievement is now so near.
If we do not avoid these excesses -- if private demand
grows clearly out of hand, and if Federal expenditures
rise significantly beyond the President's budget as a
result of Congressional action or events in Vietnam -then the President will ask for further fiscal restraint.
He will have no choice -- and, neither, as he repeatedly
declared, will he have any hesitation.
So in the days ahead you in the business and financial
press bear a heavy burden of responsibility -- for revealing
the alternatives before us in all their clarity.

000

TREASURY DEPARTMENT

May 6, 1966
FOR IMMEDIATE RELEASE
ANNUAL LIMITATION ON SERIES
E AND H SAVINGS BONDS INCREASED
The Treasury today announced that for the calendar year 1)66 and
thereafter the annual limitation on Series E and H Savings Bonds has
been increased $10,000 for each series.

The

nevl

limitation on E bonds

is now $20,000 (face amount) and $30,000 on H bonds.
The limitations apply to bonds originally issued during a calendar
year and held by anyone owner.
puting the

li~tation,

The Treasury pointed out that in com-

the amount of bonds held in coownership form

may be applied to the holdings of either of the coowners or apportioned
between them.
A special limitation of $200,000 on holdings relating to gifts of
Series H Savings Bonds to charitable, religious, educational, and
certain other nonprofit organizations that qualify under Section 50l(c)(3)
of the Internal Revenue Code of 1954 has been established for the calendar
year 1966 and each calendar year thereafter.

It now becomes possible for

the exempt organizations to hold up to $200,000 in H bonds of a given
yearly series received by them as gifts.
The Treasury said that the new limitations have been set in view
of the increasingly important role that savings bonds are playing in
helping to sustain a vigorous non-inflationary growth and manage the
public debt soundly.
000

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

May 6, 1966

PRELIMINARY RESULTS OF TREASURY'S CURRENT EXCHANGE OFFERING
Preliminary figures show that about $8,132 million, or 87.3%, of
Treasury notes and bonds maturing May 15, 1966, aggregating $9,317 million,
have been exchanged for the new
change.

4-7/SO/o

notes offered in the current ex-

About $1,185 million, or 12.7%, of the two maturing issues remain

for cash redemption.
Of the maturing securities held outside the Federal Heserve Banks and
Government accounts, 43,S were not exchans;ed.

While the attrition on this

refunding is relatively high it will not cause the Treasury to alter its
plans not to borrow -pr:J.0r to the enG. of the fiscal year.
Dcc.ails 01 the exchange are as follows (in millions):
ELIGIBLE FOR EXCHANGE

EXCI1ANlrED BY
All
FRE's and
Others
Govt. Accts.

TOTAL
EXCHANGED

UNEXCHANGED

Securities

Amounts

4% notes

$8,289

$6,430

$1,054

$7,484

1,028

255

393

648

380

$9,317

$6,685

$1,447

$8,132

$1,185

3-3/4% bonds

Totals

Details by Federal Reserve Districts as to subscriptions will be
announced later.

F-464

805

TREASURY DEPARTMENT

t RELEASE
lday, May

6 :30 P.M.,
9J 1966.
l.ESULTS OF

'rR.J~ASTJHYtS

WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury bills,
series to be an additional issue of the bills dated February 10, 1966, and the other
1es to be dated May 12, 1966, which were offered on May 4, 1966, were opened at the
laral Reserve Banks today. Tenders were invited for $1,300,000,000, or thereabouts, of
~bil1s and for $1,000,000,000, or thereabouts, of 182-day bills. The details of
two series are as follows:
I

GE OF ACCEPTED
PETITIVE BIDS:

91-day Treasury bills
:
maturing August III 1966
Approx. Squiv.
Price
Annual Rate
98.832
4.621%
:
98.R26
4.644%
98.830
4.630% y'

High
Low
Average

182-day Treasury bills
November 10 l 1966
Approx. EqUiv.
Annual Rate
Price
4.789%
97.579 ~
97.561
4.824%
4.818% 11
97.56L.

maturin~

a/ Excepting 1 tender of $280~000
ffl% of the amount of 91-day b~11s bid for at the low price was accepted
67% of thE'! aJ'1ount of l82-day bt lIs bid for at the low price was accepted
[, TENDERS APPLED

.strict
lston
lW York
IUadelphia
.eveland
.clunond
,lanta
icago
• Louis
nneapo1is
nsas City
11as
n Francisco
TOTALS
~ludes
~~Udes

~OR

AND

PJ~CEPTED

BY FEDERAL RESERVE DISTRICTS:

Applied For
Accepted
22,236,000 $ 12,092,000
914,542,000
1,730,999,000
15,054,000
33,439,000
22,017,000
30,311,000
13,030,000
0
15,53 ,000
21,649,000
45,7)4,000
108,583,000
279,903,000
27,199,000
55,501,000
10,017,000
18,242,000
22,198,000
26,448,000
16,206,000
27,706,000
117 l 800, 000
251,591,000

$2, 537, 6U0, 000 ~1,3oo,)87,000

Applied For
$ 28,256,000
1,688,106,000
14,415,000
:
45,481,000
5,218,000
I
38,084,000
400,913,000
33,444,000
9,836,000
16,762,000
16,255,000
271,506,000
•
:
:

·
·

··

£/

$2,568,276,000

Acce~ted

),156,000
574,)08,000
6,096,000
25,542,000
5,018,000
11,295,000
199,250,000
13,659,000
4,611,000
12,)8),000
10,755,000
1)6, 281 l oo0

$1,002,354,000 c/

$250,190,000 noncompetitive tenders accepted at the average price of 98.8)0
$129,954,000 noncompetitive tenders accepted at the average price of 97.564
lese rates are on a bank discount basis. The equivalent coupon issue yields are
.75% for the 91-day bills, and 5.01% for the 182-day bills.

TREASURY DEPARTMENT
Washington
FOR RELEASE ON DELIVERY

REMARKS OF THE HONORABLE FREDERICK L. DEMING
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
AT THE THIRD ANNUAL MEETING OF
THE SOCIETY OF AMERICAN BUSINESS WRITERS
THE RADISSON HOTEL, MINNEAPOLIS, MINNESOTA
MONDAY, MAY 9, 1966, 12:15 PM CDT

DEBT MANAGEMENT IN A PROSPEROUS ECONOMY
It is always a delight to return to Minneapolis, and
particularly so when the occasion can be such a pleasant one
as this meeting of business writers.

As one involved in some

of the decisions and events that find their way into your
writings, I feel much indebted for the fine job, over-all,
that is done on reporting and analyzing economic events in this
country.

In fact, some of us have the feeling at times that

our economy is, if anything, "over-analyzed" -- and that it
might be desirable to let the patient up from the couch now
and then to stretch his legs, flex his muscles, and take a
few deep breaths.
But economic analysis, alas, is habit-forming, and, try
as one will to kick it, each month's fresh batch of statistics
sets us off anew, seeking comparisons with the past, assessments
of the present, and portents for the future.

F-466

- 2 -

In a nation that is as justifiably proud of its growth
record as ours, it is natural, in looking for a suitable
theme for one's remarks, to choose an area where that growth
is proudly displayed and emphasized.

If one's topic is debt

management, however, there might just be a desire to pitch the
growth factor in lower key and point up the modest proportions
and manageability of the task at hand.
Hence, it is a source of satisfaction to be able to report
to you, in speaking about the Federal debt, that here is one
"problem" that is tending, over the years, to shrink somewhat
in its relative importance.

In fact, if one looks at the

expansion of Federal debt and other debt in our economy in the
past two decades, the contrast is truly startling.
For, while the Federal debt has grown only modestly during
the past twenty years, the over-all size of our economy and
the volume of other types of debt -- private, and state and
local government debt -- has shown very substantial growth
indeed.

At the end of World War II, Federal Government and

agency debt accounted for more than 50 per cent of net public
and private debt outstanding, compared with less than 20 per
cent at the end of 1965.

Thus, the relative importance of

Federal debt in financial markets has declined substantially.

- 3 -

Nevertheless, the impact of the Federal debt, and of debt
management decisions on the Nation's financial markets, still
is substantial.

Year-to-year changes in Federal debt can be

quite significant to the economy, whether our debt is a fifth or
a half of the aggregate debt, and decisions on the financing
of new debt and refunding of matured or existing debt may be
scarcely less far-reaching than before.

But, if it is true

that our actions are still very important to the economy, it
is also surely true that we must look more closely than ever
before at the behavior of the rest of the economy in taking our
debt management and related decisions.

There is a state of

continuous interaction in which Government financial policies
must be attuned to current market conditions, to over-all
economic policy, and to both short and longer-run economic
goals.

For this reason, let me first scan the current economic

situation, before getting more involved in the discussion of
debt management.
Financial policy today is being shaped and executed in
the context of an obviously strong economy.

Our economic

accomplishments during the past 5 years include a growth rate
of better than 5-1/2 per cent in real terms and a reduction in
unemployment from 7 per cent to 3-3/4 percent.

It was not too

- 4 long ago, I need not remind you, that some observers tended
to regard a 5 percent unemployment rate as a rather sticky
level that would be hard to improve upon.

But the stronger

course of the economy has not been without some costs, for new
problems are bred in the solutions to older ones.
Recently, the combination of our increased military commitment in Vietnam and buoyant·private demand has placed
increasing pressure on the material and human resources of
the U. S. economy.

While, on the whole, our economy's five-

year expansion has been remarkably well balanced and free of
distortion or stress, an over-all pace of activity is being
reached that has stretched our potential to an increasing
degree.
This pressure has produced some noticeable cracks in the
remarkably good record established during several years of
vigorous economic expansion.

Price increases have been most

pronounced in farm and food products, and, fortunately, the
most recent evidence on these prices now suggests a flattening
out or turning

d~wn.

But there has also been some bidding up

of prices in industrial sectors and a consequent increased
concern about a threat of inflation that would reflect more
than just the typically volatile commodity areas.

- 5 -

Some observers believe that Government financial policy
has not been geared sufficiently toward combatting inflationary
pressures in the economy.

Actually, the Administration

already has taken significant steps to restrict Federal spending and to increase taxes.
Despite an anticipated increase of $10.5 billion in
Vietnam expenditures for fiscal 1967 over those in the 1965
budget, the projected budget for fiscal 1967 shows a surplus
on a cash basis and closely approaches balance on the national
income and administrative bases.

Unfortunately, proposed

Congressional budget revisions may raise Federal expenditures
and undo some of the Administration's efforts to economize in
the face of competing demands upon available resources.
The Tax Adjustment Act of 1966, passed swiftly by the
Congress in nearly the exact form requested, will raise $6
billion in Federal revenues in the 15 months from April, 1966,
through June, 1967, and will withdraw $2.7 billion from the
private spending stream during the present calendar year.
Many of you will begin to feel the impact of this recently
enacted legislation, if you haven't already, when you receive
your first paycheck this month.

Incidentally, by reducing

seasonal fluctuations in Treasury tax receipts, the tax adjustment measures will tend to simplify Treasury cash management
in the future.

- 6 -

These inCl'eases in Federal revenues will augment the
restrictive impact of the increase in Social Security and
Medicare taxes, which took effect the first of this year, and are
reducing the private spending stream by an annual rate of about
$6 billion.

Together with the effects of tighter monetary

policy, these

~easures

are already exerting some restraint to

prevent an overheating of our economy.
force is the voluntary

se~f-restraint

A further moderating
that businesses, con-

sumers, and government units at all levels are exercising
over tlleir spending plans as part of a nationwide effort to
contain inflationary pressures.
It is not easy to say just what the effects of past and
present restraining forces may be at this point.

Thero is

some evidence, though, that bank loans are harder to get as
well as more costly, and that the mortgage market

as it

typically does -- is feeling the hand of restraint rather
significantly.
In a sense, it is the nature of financial markets as
well as other markets that marginal users or borrowers tend to
be priced out in periods of shortage.

But we might recall that

the marginal borrower, from the standpoint of banks and other
institutional lenders, may not be marginal from the standpoint

- 7 -

of the economy as a whole.

Criteria that favor only the large

and established businesses may have undesirable effects on
competition and long-run productivity gains.
In recent years, we have seen some important changes in
financial markets associated largely with more aggressive
behavior by commercial ba.nks.

Banks have actively moved into

areas of lending where they previously were reluctant to go.
Much of this has been closely linked to the active pursuit of
time and savings deposits by banks.

Successive revisions in

Regulation Q have enabled banks to compete for time deposits
with other financial institutions and with various money market
instruments.

And banks have moved with great alacrity to take

advantage of opportunities afforded them.
Without question, I believe, these changes in bank
behavior have, on the whole, benefitted the economy.

Increased

competition among banks and between banks and other elements
in financial markets have aided the substantial growth we
have witnessed during the past five years.

Banks have been

more willing to take risks and they have narrowed the margins
between what they earn on loans and investments and what they
pay for funds in interest and services.

At the same time, we

must be watchful about the potential danger that overly
aggressive behavior on the part of some banks in competing

- 8 for time deposits may tend to distort the impact of monetary
policy, impairing the stability of particular institutions
and even of some sectors of the economy.
In previous periods of monetary restraint, bank earnings
have increased as earnings on loans and investment increased
much faster than the cost of deposits.

In such periods, banks

could afford and were willing to ration loans by upgrading
the quality of loan portfolios.

In the present situation, the

increased cost of time deposits has placed many banks under
pressure to seek higher yields and more loans.

The possi-

bility of bidding funds away from other banks and other
institutions has induced banks to bid up interest rates on
time deposits and, in turn, to intensify aggressive lending
policies.
Higher time deposit rates may also exert a long-run
effect on interest rates.

When financial market pressures

diminish, then time deposit rates -- particularly those on
savings accounts -- may prove to have some downside rigidity.
It may be hard for individual institutions to lower rates
unless they have some confidence that others are similarly
motivated.

- 9 -

I am reluctant to place myself in a position that opposes
competition.

But I would like to venture a suggestion or two

on potential dangers of carrying this excellent principle too
far.

Highly aggressive bidding for time deposits may induce

some banks to overextend themselves and take on excessive risk.
Last year, we saw a few instances where aggressive soliciting
of CD's and excessive loan risk were combined to bring about
bank failures.
Even where loans are sound, banks may get burned in their
bidding for time deposits.

If funds can be bid away from

other institutions by a particular bank, that same bank may
find itself losing deposits at a later date to a still more
aggressive institution.

The result may be a bidding up of

time rates -- not because funds can be employed profitably,
but because funds are needed to meet current demands or to
replace funds that were bid away by other institutions.
tight financial markets, even the
can be painfully expensive.

liquidatio~

of good assets

Other financial institutions may

be more vUlnerable than banks to a sudden loss of funds.
assets

The

of such institutions are more vulnerable to interest

rate fluctuations, even where there exists a good secondary
market for them.

10 -

Some banks have sought to push the problem of CD renewal
well into the future by offering high rates on long-term CD's.
But it is well to recall that interest rates on loans can go
both ways, and the commitment to pay high rates for a long
period may prove to be risky and unprofitable.

This is not

to say that banks should avoid all risk, but rather that a
look at recent experience woulq suggest that a more cautious
lending policy by banks way be called .for -- based on a careful
appraisal of what banks can expect to earn from CD funds under
different circumstances.

A more cautious policy by banks will

not only be in the public interest but in the interest of the
individual banks in question.
It is pOSSible, of course, that present measures of
restraint in the economy will not prove sufficient to dampen
over-all potential inflationary pressures.
tional action will be called for.

If so, then addi-

But, at the risk of over-

repetition, let me note that there are some risks connected
with over-reacting.

And over-cure and over-reaction in fiscal

policy carry much the same kind of risks as over-cure and overreaction in monetary policy.

We need to avoid both risks.

The essence of successful economic policy is balance and
avoidance of excesses.
unduly,

~rowth

It would be as unwise to choke off,

in potential production as to permit it to grow

at an unsustainable rate.

11 -

Moreover, while our first concern must be with the overall degree of restraint, we cannot ignore the way that the

over-all impact hits the economy.

To some degree, we must

look at the effect on particular sectors and particular types
of activity.
Thus far, a considerable burden of anti-inflationary
policy has been falling on financial markets as a result of
strong credit demands and restrictive monetary policy.
Recently, long-term interest rates reached their highest level
since the early 1930's, and, although rates in some of the
intermediate and

lon~er-term

sectors have declined a bit from

the level attained earlier in the year, current levels are
well above what most of us have become accustomed to.
Certainly from the standpoint of my responsibilities for
management of the Treasury's debt, I am acutely aware that
the present levels are high.
These higher interest rates will raise the cost of
servicing the Federal debt as existing Treasury issues are
rolled over in the current market.

We estimate that the

interest cost to the Treasury, which was $11.4 billion in
fiscal 1965, will rise to $12 billion in the present fiscal
year and to $12.8 billion in fiscal 1967.

Nearly all of this

projected rise reflects higher interest rates rather than a
larger debt.

- 12 -

Of course, minimum cost is not the sole objective of
debt management.

As a matter of fact, cost minimization tends

to run counter to the anti-cyclical role that can be played
by debt management.

For in recession

periods~

when rates are

low, there is a nearly irresistible temptation to float longterm debt, even though sound anti-cyclical policy would have
us stay out of the

lon~-term

market at such times.

And in

boom periods, when rates are high, the theoretically appropriate step of sopping up long-term funds through Treasury
issues is a costly move indeed.
But, even apart from cost considerations, hard-and-fast
rules must be modified to take into account specific market
situations and the functioning of the other arms of financial
policy.

Even if we were not constrained by an interest rate

ceiling and were oblivious to cost, we probably would not be
eager to sell a large volume of long-term Treasury bonds in
the near future.

There already exist strong pressures on

capital markets, and we would not want to make these excessive
and bring about disorderly market conditions.

When appropriate

over-all financial policy calls for restriction, it does not
mean that each individual action must, in itself, be restrictive.

- 13 -

What 1s important is the entire policy package as a whole,
aad what is, therefore, required is a flexible policy stance
that 1s attuned to the current situation and to the impact
of other policy actions.
Weighing cost considerations and the aims of economic
stabilization together has produced a mode of operation in
which the Treasury tries for some balanced debt management
over an extended period of time.

It is an approach in which

advantage is taken of good periods to extend debt, but not to
the extent of preempting funds from the private sector in
periods of reduced economic activity.
A good example of a balanced and flexible approach to
debt management was our February financing, earlier this year.
We were able to combine the refunding of about 84 per cent
of publicly-held notes coming due on February 15 and April 1 with
the pre-refunding of issues coming due this month and in August
into 4-3/4 year notes.

This enabled us to attain a moderate

amount of debt extension and reduce public holdings of issues
maturing later in the year by $4.8 billion (about 45 per cent
of the issues involved) with a minimum impact on the market.
As a matter of fact, the pre-refunding simplified our May 15
refunding by reducing the amount of publicly-held maturities
to a readily manageable $2.5 billion.

With this head start,

- 14we were able to offer a single, simple 18-month note to the
holders of the May maturity -- and price it right on the
market, whereas a larger maturity might have required a higher
yield and interest cost.

Because the amount held by the public

had already been much reduced by the February refunding, it
was not too disturbing that a relatively high proportion of
the remaining holders of the May maturity elected not to make
the exchange.
Fortunately, in light of the current economic environment,
we expect to get by with a minimum of cash borrowing over the
next 14 months.

By June 30, the end of the present fiscal

year, the Treasury's debt will be approximately $320 billion
compared with $317 billion a year earlier.

However, if we

exclude purchases by Government investment accounts and the
Federal Reserve banks, there is expected to be a modest decline
this year in the publicly-held Federal debt.

(As of the end

of March, Treasury debt in the hands of the public was down
$1.1 billion from a year earlier.)
In the next fiscal year, if our prospective administrative
budget deficit of $1.8 billion comes about, there would be a
greater decline in publicly-held Federal debt than in the
current fiscal year.

Nevertheless, we do not expect debt

-" 15 -

management to be a simple matter.

We face stiff competition

in financial markets from business firms,
state and local governments.

ho\~eholds

and

In addition, we face increased

competi tion from the offerings by different l"ederal agencies.
Besides the customary offerings by such agencies as the Federal
Home Loan Banks, land banks, and intermediate credit banks,
there will be an incl'easing volume of replacements with the
pri va te economy of financial assets he ld by :t'ederal agencies.
This subject of asset sales and participation sales,
which is now before the Congress, is both timely and important
enough to warrant a little elaboration at this point.

In the

first place, I should note that there is nothing essentially
new about this general topic.

The substitution of private

for public credit has been a continuing objective of Congress
and the Administrations of President Eisenhower, President Kennedy,
and President Johnson.

In addition, encouraging a greater

reliance on private credit was strongly supported by the 1961
Report of the Commission on Money and Credit and in the 1963
Report of President Kennedy's Committee

Federal Credit

Programs.
To understand the background for the asset sales program,
I think it may be helpful to look back at the underlying
rationale for having Federal credit programs in the first place.

- 16 Some types of borrowers are not able to establish credit
standing -- perhaps because of their inexperience or remoteness from credit sources, sometimes because of the attitudes
and

beh~vior

of lenders that may result from risk considerations

or various institutional restraints.

In some cases, these

gaps can be filled with programs of guarantees or insurance,
so that the Federal Government need not use its own funds.
In other instances, even a guarantee is not sufficient inducement for the private lender, and the Federal Government steps
in to make the actual loan -- particularly in cases where, in
the judgment of Congress, certain types of borrowers should
have credit available at relatively low interest rates.

making direct loans in such cases, the Federal Government
has built up a portfolio of loans which presently exceeds
$33 billion.

However, the basic purpose of Federal loan

programs is not to build up a large portfolio of financial
assets, but to assume a sufficient portion of the risk to make
loan funds available on satisfactory terms to certain types of
borro'f/ers.

It is part of the basic philosophy of supplementing,

and encouraging, the private market, but not displacing it.
The "Participation Sales Act of 1966" is designed to
provide an effective method of increasing the flow of private
credit to worthwhile programs that have not had adequate
support from private credit markets in the past.

- 17 -

At the same time, it will facilitate the reduction of Federallyowned portfolios and tend to curtail any future build-up of
such portfolios.

This bill already has been passed by the

Senate and has received favorable action from the House Banking
and Currency Committee.

We hope for favorable action by the

House in the near future.
The proposed legislation would extend the technique
already employed successfully by the Export-Import Bank and
the Federal National Mortgage Association of pooling loans
made by Federal credit agencies and selling participations
to the public.

Under authority provided in 1964, FNMA has sold

$1.6 billion of certificates of participation in pools of loans
set up by the veterans Administration and by FNMA itself.
The "Participation Sales Act of 1966'· would extend the same
technique to other lending programs such as college housing,
public facilities loans, and programs of the Farmers Home
Administration, the Office of Education and the Small Business
Administratione

For all such participation sales p FNMA would

act as trustee and handle the actual financing arrangements 9 in
close liaison with the Treasuryp thereby providing other agencies
with the benefit of FNMA's experience and serving to coordinate
the various agency financings with one another and with Treasury
debt management operations as well.

- 18 -

The participation certificates would be guaranteed by
FNMA and by the lending agency in question.

As riskless

investments, they will stand alongside the obligations of the
United States Government and should command a broad market
that will increase in activity as the technique is developed
further.
Direct sales of individual assets have been made for some
time in connection with several major lending programs.

But

there are limits to the volume of such loans that can be
effectively marketed this way.

If the private lender has to

select the assets on a retail basis and service them himself,
it frequently is not too attractive for him to purchase them.
The process of pooling a number of loans and selling participations in the pool, while the underlying loans continue to
be serviced by the original lending agency, converts a loan
instrument with limited acceptability into a very attractive
investment.

Compared with direct asset sales, participations

sales are a superior method of reducing Federally-owned assets
from the standpoint of the volume of loans that can be sold, the
administrative costs involved, and the yields which have to be
offered on the assets to make them saleable.

- 19 -

It is true that the interest rate on participations is
slightly higher than the rate on Treasury securities.

In the

past, this rate differential has amounted to one-quarter to
three-eighth of a per cent.

However p as a larger volume of

participations are issued, and a broader secondary market
develops, this rate differential may decline.

Of course,

direct Treasury borrowing is cheaper than any alternative
form of financing.

However, this is not a sufficient reason

to abandon the principle of expanding the private flow of
credit to borrowers.

After all? who would advocate substituting

direct Treasury financing for the approximately $100 billion
of outstanding Government insured or guaranteed loans?
I would like to pOint out that the proposed legislation
will, in no way, allow Federal agency activities to circumvent the Congressional appropriation process.

Indeed, before

any pool of loans is set up and entrusted to FNMA for the
purpose of selling partiCipations, the formation of such a
pool must be authorized in an appropriation act of the Congress.

In the case of loan programs undertaken at below-market interest
rates, this procedure not only preserves Congressional control
but also serves a desirable allocative function by specifically
identifying the amount of Federal subsidy associated with such

loan programs.

- 20 -

As I have suggested, the sale of participation certificates through FNMA would assure coordination of asset sales
by different agencies, so that market offerings could be
timed and adapted to existing market conditions.

The Treasury

has long-established and excellent working relations with
FNMA in coordinating market operations with over-all debt
management policy.

Tbe funneling of participation sales

through FNMA will result in closer coordination of Treasury
and agency financing, thereby reducing potential congestion
of financial markets and minimizing the cost of Government
financing.
The program of asset sales is scheduled to grow from
$1.5 billion in fiscal 1965 to $3.3 billion in the present
fiscal year, and to $4.7 billion in fiscal 1967.

In the 1967

program, $4.2 billion of this $4.7 billion would be in the
form of participation certificatess

The Participation Sales

Act will facilitate the increased asset sales proposed for
fiscal 1967, thereby holding down the growth in the Federal
Government¥s direct loan portfolio -- and, in fact, helping
to achieve the first reduction in that portfolio in at least
a decade.

However, our purpose in expanding the asset sales

program has also a longer-run objective -- to expand the flow
of private credit and substitute it for direct Pederal lending.

- 21 -

We realize that expanded asset sales. while they do tend
to reduce the budget deficit, must draw the money from somewhere -- just as would the similar volume of direct Treasury
borrowing that is thereby rendered unnecessary.

This makes

it all the more important that we take a flexible approach
in setting up our program of sales, in order to gear it to
prevailing market conditions.

Our intention, after all, is

not to clog the market with more than it can digest, but to
strengthen the functioning of private financial markets p in
order to utilize untapped capacity which we believe presently
exists.
I would like to emphasize strongly that, despite projected asset sales, the net demands of the Federal sector on
private credit markets will be modest over the next 14 months.
This net demand -- the increase in Treasury and agency debt
plus asset sales, less the increase in debt held by Government investment accounts and the Federal Reserve -- should
be under $3 billion during the present fiscal year and approach
zero during fiscal 1967.
In a discussion of Federal debt management, it would be
inappropriate to exclude mentioning the very important Savings
Bonds program, for almost

one...quart~r

01 tho publicly-held

Federal debt is in the form of Savings Bonds.

- 22 -

In a period when we are striving to encourage some restraint
on private demand, the Savings Bonds program can make an
especially important contribution by encouraging individual
savings.
In February, President Johnson increased the interest on
Savings Bonds from 3.75 per cent to 4.15 per cent.

It is still

a bit early to gauge the full impact of the boost in rates on
sales and redemptions of Savings Bonds, particularly since
there is some lag in adjustments in payroll savings deductions.
However, March and April results are highly encouraging.

Cash

sales of E and H bonds jumped sharply during these two months,
as the cash inflow was almost $90 million, compared with a
cash outflow during the first two months of the year.

Count-

ing the increase in accrued interest on E bonds, total outstanding Savings Bonds increased by $170 million in March and
April.

At the end of April, outstanding Savings Bonds amounted

to approximately $49.5 billion, $800 million more than the
amount outstanding a year earlier.
I have concentrated these remarks on certain aspects of
debt management that are in the forefront of our attention
just now -- but with no intention of downgrading or relegating
to a place of lesser importance the major economic policy
questions that face us at this time.

- 23 -

Those major questions one might sum up as "maintaining economic
balance domestically and internationally."

Earlier, I did

refer briefly to general domestic developments, and particularly
to what is being done to

contain~the

threat of excess economic

buoyancy.
As for the balance of payments, and international monetary
arrangements, those are topics of sufficient weight to require
whole speeches devoted to those areas -- but we see the domestic
and international problems so closely linked nowadays that one
cannot begin to do justice on one side without mentioning the
other.

In some respects, the buoyant domestic economy is

making it easier to deal with certain aspects of the balance
of payments.

We do not face now, as we did a few years ago,

a problem of abundant liquidity at home that was seeking
attractive outlets abroad.

Domestic capital needs are now

very large and are exerting a pull on available resources that
strongly reinforces the voluntary programs designed to reduce
outflows of capital abroad.

At the same time, the strong

state of the economy is creating large demands for imports,
while our commitments in Southeast Asia also channel some
funds out of the country, and these factors will tend to make
more difficult the further reduction that we are determined to
achieve in our balance of payments deficit.

- 24 -

Moreover, we are well aware that, in bringing our
payments position into balance, we, and other nations, must
intensify our efforts to provide for world liquidity growth
through the deliberate,
reserves.

controlle~

creation of additional

The work of negotiation toward this end has been

moving forward steadily in recent months, and we expect a
report on the considerable progress of our negotiating group
to be available before the middle of this year.
Clearly, with international monetary machinery, as with
debt management, fiscal policy, and other arms of economic
policy, we must continue to take a flexible stance, adapting
to changing conditions when necessary, and holding fast to take
the most careful reading of those changing conditions, when
that is the desirable course.

--000--

TREASURY DEPARTMENT

FOR RELEASE 3:00 P.M. EDT

May 9, 1966

MONDAY, MAY 9, 1966
TREASURY ANNOUNCES NEW PLAN FOR CORPORATE
GIFTS OF U,S. SAVINGS BONDS TO NON-PROFIT ORGANIZATIONS
The Treasury Department today announced a new plan for
business and industry to use U. S. Savings Bonds as corporate
contributions, in lieu of cash, to charities, educational
and civic organizations, and to other non-profit groups.
In a special ceremony at the Treasury, J. D. Wright,
chairman of the board of TRW, Inc., Cleveland, Ohio,
originator of the idea, made a corporate contribution
of $10,000 in Series H Bonds to Dr. T. Keith Glennan,
President of the Cas~ ~n5titute of Technology,
also of Cleveland. Case is the first recipient of Savings
Bonds under the new corporate contribution program. TRW, Inc.,
is a leading manufacturer of aerospace systems and automotive,
aviation, and electronics parts.
Treasury Secretary Henry H. Fowler commended TRW, Inc.,
for developing the idea, and expressed the hope that other
companies would follow its example in planning programs
for corporate giving.
"American industry is already playing a major part in
the success of the Savings Bond program through its promotion
of the Payroll Savings Plan ,It Secretary Fowler sa id.
"The plan developed by Mr. Wright and his associates
opens up another promising new path towards expanding and
extending the Savings Bond program, which offers such
abundant benefits both to individual buyers and to the
national economy. This could be another important step
toward reaching President Johnson's objective of restraining
inflationary pressures in the economy while helping to
finance our pressing commitments at home and abroad."
(OVER)

F-467

- 2 -

Clearing the way for the new plan for corporate
contributions in the form of Savings Bonds, the Treasury
last week amended its regulations to raise the annual
limitation on holdings. The amendment provides that Series H
Bonds having a face value of $200,000 may be received as gifts
in any calendar year by a tax-exempt organization. The
general limits on E and H Bond holdings were also raised
from $10,000, maturity value, to $20,000, maturity value, for
the appreciation-type E Bonds; and $20,000 to $30,000, face
value, for current-income H Bonds.

000

TREASURY CEPARTMENT

May 11, 1966

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
$2,300,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing May 19, 1966,
in the amount of
$2,301,401,000, as follows:
91-day bills (to maturity date) to be issued May 19, 1966,
in the amount or $1,300,000,000, or thereabouts, representing an
additional amount of bills dated February 17 1966 and to
mature Augus t 18, 1966, originally issued ir: the amount of
$l}OOO,846,OOO, the additional and original bills to be freely
interchangeable.
182-day bills, for $1,000,000,000, or thereabouts. to be dated
May 19, 1966,
and to mature November 17, 1966.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and at
maturity their race amount will be payable without interest. They
will be issued 1n bearer form only, and 1n denominations of $1,000,
$5,000, $10,000, $50,000, $100,000, $500,000 and $1,000,000
(maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Monday, May 16, 1966.
Tenders will not be
received at the Treasury De~artment, 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 1n the special envelopes which will be supplied by Federal
Reserve Banks or Branches on application therefor.
up

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
~sponBible 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.
F-468

- 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 Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasury~
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
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 19, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing May 19, 1966.
Cash and exchange tender
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
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 frc
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

May 11, 1966
FOR RELEASE A.M. NEWSPAPERS
THURSDAY, MAY 12 2 1966

REGIONAL COMMISSIONERS, DISTRICT DIRECTORS AND PROGRAM ADVISERS
APPOINTED FOR HOUSTON CUSTOMS REGION
Assistant Secretary of the Treasury True Davis today
announced the appointment of Cleburne M. Maier, Assistant
Director, Division of Inspection and Control, Bureau of
Customs in Washington, D. C., as Regional Commissioner of
Customs for the new Houston Region VI.
Mr. Davis also announced the appointment of Palmer F. King,
Assistant Director, Division of Inspection and Control, Bureau
of Customs, Washington, D. C., as Assistant Regional Commissioner
(Operations), and Kenneth W. Wisecarver, Operations Officer
(Border) at the Bureau of Customs, Washington, D. C., as
Assistant Regional Commissioner (Administration).
The appointments -- together with those of five District
Directors, also announced today -- will be effective,
May 15,1966, with the activation of the Houston Customs Region.
The Customs District Directors for the new region are:
Houston Customs District -- Harry G. Kelly,
Appraiser of Merchandise, Laredo, Texas
Galveston Customs District -- George L. C. Pratt,
Assistant Collector of Customs, Galveston, Texas
Port Arthur Customs District -- Robert A. Cole,
Assistant Collector of Customs, Port Arthur, Texas
Laredo Customs District -- H. Earle Outlaw,
Assistant Collector of Customs, Laredo, Texas
E1 Paso Customs District
Raymond H. Dwigans,
Collector of Customs, El Paso, Texas

F-469

- 2 -

The appointments were made as part of the President's
Reorganization Plan No. 1 of 1965, which was sent to Congress
last March and became effective on May 25, 1965. It called for
the elimination of 53 Customs positions throughout the U. S.
which were previously filled by Presidential appointment. The
Reorganization Plan placed the 176-year-old Customs Service
wholly on a career basis.
At the same time, Assistant Secretary Davis named three
Program Advisers in the new Houston Customs Region. They are:
Sam D. W. Low, currently Collector of Customs for Galveston;
Mrs. Minnie M. Zoller, currently the Collector of Customs
in Port Arthur; and
Charles H. Kazen, Customs Collector at Laredo.
All three will continue to be based in the cities where
they now are serving. As special assistants to the Regional
Commissioner of Customs in Houston, they will have responsibility
for development of projects and programs in public affairs to
keep travellers and traders fully informed about Customs laws
and procedures.
Houston will be the eighth region to be activated in
accordance with a year-long timetable. The New York Region, the
last to be activated, will be established on June 1. Regions
already established are San Francisco, Los Angeles, Miami,
New Orleans, Chicago, Baltimore, and Boston.
Offices of the Houston Region will be located on the
seventh floor of the Courthouse and Federal Office Building,
Rusk Avenue and Smith Street, Houston.
United States Commissioner of Customs Lester D. Johnson
heads the Bureau of Customs, which is part of the Treasury
Department. His office is in Washington, D. C.
Biographies follow.

***

- 3 -

BIOGRAPHICAL SKETCH OF CLEBURNE M. MAIER
Cleburne M. Maier, Regional Commissioner-designate, was
born in Sherman, Texas, on May 11, 1916. He received his
education at Midwestern University and the University of Texas.
Mr. Maier joined the Customs Service in 1942 as a clerk,
rising through the ranks to the position of inspector at E1 Paso,
1954 to 1949; inspector and entry officer at Galveston, 1949-1951;
station inspector at Houston Airport, 1951 to 1965. He was
transferred in 1965 to the Bureau of Customs in Washington, D. C.,
to assist in the reorganization of the Customs Service.
As a member of the Education Committee of the Houston World
Trade Association, Mr. Maier assisted in the preparation of a
syllabus which was used in teaching international trade at the
University of Houston. He lectured on Customs and other subjects
at the University of Texas and participated in transportation
seminars at that university.
During World War II, Mr. Maier was in
from El Paso which examined the baggage of
and repatriates and acted as a coordinator
Service, the intelligence branches and the

charge of a detail
prisoners of war
between the Customs
office of censorship.

Mr. and Mrs. Maier reside at 1630 Warren Avenue, McLean,
Virginia. They have three daughters, Constance Ann, Katherine
Carol, and Mrs. James Williams.

BIOGRAPHICAL SKETCH OF PALMER F. KING
Palmer F. King, Assistant Regional Commissioner-designate
(Operations), was born at Imperial. Texas, October 9, 1918. He
received his B.A. degree from Howard Payne College, Brownwood,
Texas, in 1942, and later attended Southern Texas College of
Law at Houston.
Mr. King served with the {T. S. Army from 1943 to 1946 and
entered the" Customs Service in 1947 as an Examining Aid at New
Orleans. From 1949 to 1954 he was a Customs Examiner at New
Orleans, Dallas, Houston, and Laredo until his assignment from
1954 to 1955 as a Treasury Representative at Montreal, Canada.

- 4 -

In 1955 he served as Customs Appraiser (Liaison Officer)
in Bureau Headquarters at Washington, D. C. He returned to
Laredo in 1956 as Assistant Collector and was transferred in
1962 to Mobile, Alabama, in the same capacity. From 1963 he
served in the Collectors Office in Tampa as Executive Aid until
his reassignment in 1965 as Assistant Director, Division of
Inspection and Control, in the Bureau at Washington, D. C.
Mr. and Mrs. King have a daughter, Martha, and son,
Palmer F., Jr. They reside at 12201 Village Square Terrace,
Rockville, Maryland.

***
BIOGRAPHICAL SKETCH OF KENNETH W. WISECARVER
Kenneth W. Wisecarver, Assistant Regional Commissionerdesignate (Administration), was born at Lebanon Church, Virginia,
July 28, 1920. He attended Winchester Business College, Winchester,
Virginia, and Benjamin Franklin University, receiving his
Bachelor of Commercial Science Degree in 1951.
Except for three years' service with the U. S. Coast Guard
from 1942 to 1945, Mr. Wisecarver was with the Bureau of Accounts,
Treasury Department, from 1941 to 1955. In 1955 he joined the
Bureau of Customs as an accountant, was promoted to Assistant
Head, Financial Procedures Unit, in 1956, and then transferred
within the Bureau to the position of Management Analyst (Liaison)
in 1959. In 1964 he was named to his present position of
Operations Officer (Border).
Mr. and Mrs. Wisecarver reside at 928 N. Quantico Street,
Arlington, Virginia.

***

- 5 BIOGRAPHICAL SKETCH OF HARRY G. KELLY

Harry G. Kelly, District Director-designate in Houston,
was born at Alma (Crawford County), Arkansas, March 13, 1930.
He attended Ft. Smith Junior College and Little Rock College,
both in Arkansas, and received his LL.B degree from Arkansas
Law School at Little Rock in 1953.
Mr. Kelly entered Government service in 1949 with the
FBI as a Security Patrol Officer (Clerk) at Little Rock, Arkansas.
After serving three years from 1953 to 1956 with the U. S. Army
as a counter-intelligence agent, he returned to the security
patrol work in Little Rock and then entered the U.S. Customs
Service in 1957 as a Customs Examiner at New Orleans.
From 1962 to 1963 he served with the Bureau of Census in
Suitland, Maryland, as a Tariff Liaison Officer, returning to
Customs as an Appraiser-Liaison Officer at the Bureau in 1963.
In 1965 he was promoted to his present position of Appraiser of
Merchandise at Laredo, Texas.
Mr. Kelly was admitted to the Bar and U. S. District Court
of Arkansas in 1953 and to the U. S. Customs Court in 1960. He
is a member of the Arkansas Bar Association, Customs Lawyers
Club, Rotary International, F. & A. Masons, and Toastmasters.
Mr. and Mrs. Kelly reside in Laredo.

***
BIOGRAPHICAL SKETCH OF GEORGE L. C. PRATT

George L. C. Pratt, District Director-designate in Galveston,
was born at Monett Missouri on December 26, 1906. He attended
.
Galveston Business "College. Business Law School at New York C1ty,
the Treasury Law Enforcement School, and a management institute
at the University of Cal ifornia.

- 6 -

Mr. Pratt's career with the U. S. Customs Service began in
1921 as a messenger in the Collector's office at Galveston. He
became a Customs Agent in 1929 and served in New York, Chicago,
Galveston, and Houston.
In 1939 Mr. Pratt came to the Bureau of Customs in Washington
as a liaison officer. He served for three years with the Army
Air Force from 1943 to 1946 returning to the Bureau as a liaison
officer until his appointment in 1947 as Assistant Collector of
Customs, Galveston, Texas.
Mr. Pratt is past president of the Galveston Rotary Club and
is a member of the Chamber of Commerce Traffic & Transportation
Committee.
Mr. and Mrs. Pratt reside at 32 Adler Circle, Galveston,
Texas.

***
BIOGRAPHICAL SKETCH OF ROBERT A. COLE
Robert A. Cole, District Director-designate in Port Arthur,
Texas, was born at Crystal Falls, Texas, October 16, 1903, and
attended North Texas State Teachers College, Denton, Texas.
He entered the Customs Service as an Inspector at Sabine,
Texas, in 1928, and later transferred to Beaumont and Port
Arthur, Texas. In 1949 he became Customs Marine Officer and
Deputy Collector at Port Arthur, and in 1957 was promoted to
his present position there as Assistant Collector.
Mr. and Mrs. Cole reside at 3634 Platt Avenue, Port Arthur.

***
BIOGRAPHICAL SKETCH OF H. EARLE OUTLAW
H. Earle Outlaw, District Director-designate at Lare~o, w~s
born March 24, 1913 at Conroe, Texas. He attended the Un~vers1ty
of Houston, majoring in business administration.

- 7 Mr. Outlaw entered Government service in 1947 at Houston,
Texas, serving successively as port patrol officer, inspector,
entry officer and liquidator until 1956 when he became field
auditor at New Orleans, Louisiana.
In 1958 he went to Brownsville, Texas, as entry officer
and became Deputy Collector in Charge in 1959. He held that
position until 1965 when he was promoted to Assistant' Collector
at Laredo.
Mr. and Mrs. Outlaw reside at La Villita Apartments in
Laredo.

***
BIOGRAPHICAL SKETCH OF RAYMOND H. DWIGANS
Raymond H. Dwigans, District Director-designate at
El Paso, was born at Louise, Texas, on November 11, 1908. He
attended Texas Western College, E1 Paso, and served in the
U. S. Army from 1942 to 1945.
Mr. Dwigans was appointed Collector of Customs at E1 Paso
in 1961. Previously, he was President and General Manager
of Border Butane and Oil Company. He has also held the elective
position of County Commissioner for El Paso County.
Mr. and Mrs. Dwigans reside at 5500 E1 Paso Drive, El Paso.

***
BIOGRAPHICAL SKETCH OF SAM D. W. LOW
Sam D. W. Low, Program Adviser-designate for Galveston,
Texas, was born on August 21, 1896 in Brenham, Texas, and
received his LL.B degree from the University of Texas in 1920.
He served in the U. S. Army Cavalry from 1918 to 1920, later
transferring to the Reserves.
Mr. Low has been engaged in the practice of law in San
Antonio and Houston since 1923. In 1942 he was appointed chief

- 8 administrative officer of the Foreign Service Training Staff
of the Board of Economic Warfare, and in 1953 was designated
special representative at Santiago, Chile. He served as
Collector of Customs at Galveston from 1949 to 1953, and was
reappointed by President John F. Kennedy to that post in 1961.
Mr. and Mrs. Low reside at 2511 Inwood Drive, Houston, Texas.

***
BIOGRAPHICAL SKETCH OF CHARLES H. KAZEN
Charles H. Kazen, Program Adviser-designate for Laredo,
Texas, was born on March 15, 1904, at Monterey, Mexico, and
received his education at Laredo Junior College and the University
of Texas. During World War II he served in the U.S. Army as a
first lieutenant in the Military Intelligence Service and was
honorably discharged as a Captain in 1946.
Mr. Kazen has been engaged in the practice of law at
Laredo, Texas, since 1934, with the exception of the period of
active duty with the Army. From December 1946 to December 1959
he was county clerk of Webb County, Laredo, Texas. He was
appointed by President Kennedy as Collector of Customs at Laredo
in 1961.
Mr. and Mrs. Kazen reside at 1903 Gustavus Street, Laredo,
Texas.

***
BIOGRAPHICAL SKETCH OF MINNIE M. ZOLLER
Minnie M. Zoller, nee Minnie Lytte, Program Adviser-designate
for Port Arthur, Texas, was born in Beaumont, Texas. She was
educated in Beaumont, and has served on many natio~al and local
committees and a number of labor organizations.

- 9 She was appointed by President Kennedy as Collector of
Customs at Port Arthur, Texas, in 1961.
Mrs. Zoller resides at 515 East Elgie, Beaumont, Texas
with her husband, Emile Zoller.

000

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
TREASURY DECISION ON WORK SHOES
UNDER THE ANTIDl~ING ACT
The Treasury Department has determined that leather work shoes
'
in both men , s and boys , sizes, from Czechoslovakia, are being, or are
likely to be, sold at less than fair value within the meaning of the
1921 Antidumping Act, as amended.
Accordingly, this case is being referred by the Treasury to the
U.S. Tariff Commission, for a determination as to whether or not such

sales are injuring or are likely to injure the domestic industry.

In the event the Tariff Conunission finds such "injury" the
Treasury

Depar~ent

subsequently would be required by law to

~pose

antidumping duties.
Notice of the Treasury's determination, and the reasons for it,
and of the reference of the case to the Tariff Commission will be
published shortly in the Federal Register.
Meanwhile, the Treasury said U.S. Customs officers are being
instructed to proceed with the appraisement of shoes from
Czechoslovakia, other than the leather work shoes (men's and boys'
sizes), without regard to any question of dumping. The effect of
this instruction will be to clear Czechoslovakian leather footwear,
other than the work shoes, from the threat of a dumping determination
in this case.
The Treasury's deteDmination that leather work shoes fram
Czechoslovakia are being, or are likely to be, sold at less than
fair value was issued after consideration of all comments received
pursuant to a "Notice of Tentative Determination," published in the
Federal Register on January 29, 1966. The tentative detenmination
was that none of the Czechoslovakian shoes were being, or were likely
to be, sold at less than fair value.
Imports of all shoes from Czechoslovakia, including work shoes,
during the period June 1, 1964 through February 28, 1966, were valued
at approx~ately $4,400,000. No separate figures are available on
the volume of ~ported work shoes covered by the final determination
of sales at less than fair value.
000

TREASURY DEPAR'lMmT

Washington

IMMEOIA TE RELEASE

THURSDAY, MAY 12,1966

F-470

The Bureau of Customs has announced the following preliminary
figures showing the imports for consumption from January 11 1966, to
April 30, 1966 1 inclusive, of commodities under quotas establiShed
pursuant to the Philippine Trade Agreement Revision Act of 1955:

ColDllDdity

Buttons ••••••••••••••

Annual :Unit of : Imports as of
. Established
Quota Quantity
:Quantitl: Apr. 30. 1966

510,000

Gross

136,372

••••••••••••••

120,000,000

Number

Coconut oil ••••••••••

268,800,000

Pound

Quota filled

Cordage ••••••••••••••

6,000,000

Pound

31 215,230

Tobacco ••••••••••••••

3,900,000

Pound

1,137,352

Cigars

2,990,740

TREASURY DEPAR'lMENT
Washington, D. C.
IMMEDIATE RELEASE

THURSDAY, MAY 12,1966

F-471

Prel.imina.ry data on imports for consumption of cotton and cotton waste chargeable to the quotas established by
Presidential. Proclamation No. 2351 of September 5, 1939, as amerried, an::l as modified bY' the Tariff Schedules of the
United States which became effective August 31, 1963.
(The country designations in this press release are those specified in the appendix to the Tariff Schedules of the
United States. There is no political connotation in the use of outmoded names.)
COTTON (other than linters) (in poums)
Cotton un::ler 1-1/8 inches other than rough or harsh under 3/4"
ImPQrts ~eptentber 20. 1965 ~. Mav_ 9. 1966
Country of Origin
Egypt and Sudan ••••••••••••

Peru •••••••••••••••••••••••
India and Pakistan •••••••• ~
China ••••••••••••••••••••••

Mexico •••••••••••••••••••••
Brazil •••••••••••••••••••••
Union of Soviet
Socialist Republics ••••••
Argentina ••••••••••••••••••

Haiti ••••••••••••••••••••••
Ecuador ••••••••••••••••••••

Y
Y

Established Quota

783,816
247,952
2,003,483
1,370,791
8,883,259
618,723

Country of Origin

Imports

Established Quota

Honduras ••••••••••••••••••••

181,062

Paragu~

••••••••••••••••••••

Colombia ••••••••••••••••••••

Iraq ••••••••••••••••••••••••

1,369,527

475,124

5,203

237
9,333

11
~I
~

British East Africa •••••••••
Indonesia and Netherlands
New Guinea••••••••••••••••
British W. Indies •••••••••••

Nigeria •••••••••••••••••••••

British W. Africa •••••••••••
Other. including the U.S ••••

Except Barbados, Bermuda, Jamaica, Trinidad. arr::l Tobago.
Except Nigeria and Ghana.
Cotton I-liSt' or more
Established YearlY Quota - 45.656.429 lbs.
ImDorts August 1 .._ ::L965 .... _Mav 9. 1966
Stap1e Length
I-318ft or more
1-5132" or more and under
1-3/811 (Tanguis)

Allocation

T!!'P9rt.S

39.590.718

39,590,778

1..500.000

2~5,621J

752

871
124
195
2.240
71.388
21.321

5,377
16,004

Imports

-2COTTON WASTES

(In pounds)
ha~ a staple of less- than 1-3/16 inches in len~h, OOMBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE

CarrCN CARD STRIPS made from cotton

ADVANCED IN VAUJE: 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 the followin~ countries: United Kin~dom, France, Netherlands,
Swi tzerland, Belgium, Germany, and Italy:

Country of Origin
United

·•
··

Kin~dom ••••••••••••

Canada ••••••••••••••••••••

France ••••••••••••••••••••
India and Pakistan ••••••••
Netherlands •••••••••••••••
Switzerland •••••••••••••••
Belgium •••••••••••••••••••
Japart •••••••••••••••••••••

China •••••••••••••••••••••
Egypt •••••••••••••••••••••
Cuba ••••••••••••••••••••••
Germ~ •••••••••••••••••••

Italy •.•••••••.••.•.••••••

other,

inc1udin~

Established
TarAL QUOTA

••
Total Imports
s Established :
: Sept. 20, 1965, to
33-1/3% of
: May 9, 1966
Total Quota :

55,129
28,760

4,323,L57
239,690
227,L20
69,627
68,2LO
44,388
38,559
3Ll,535
17,322

55,129

75,807
22,7L7
IL,796
12,853

B,135
6,544

...

76,329
21,263

the U.S ••

1,LL1,152

- Imports --T/
Sept. 20, 1965, to Hay 9, 1966

11,765

25,LL3

95,65L

l,599,BB6

7,OBB

------

5,LB2,509

1/ Included in total imports, column 2.
Prepared in the Bureau o£ (hstoms.

55,129

TREASURY DEPARTMENT

Washington

IMMEDIATE RELEASE
THURSDAY, MAY 12,1966

F-472

The Bureau of CUstoms announced today preliminary figures on imports for
consumption of the following commodities from the beginning of the respective
quota periods through April )0, 1966:

Commodity

••

• Period and Quantity

: Unit of : Imports as of
: Quantity: Apr. 30, 1966

Tariff-Rate Quotas:
Cream, fresh or sour ••••••••

Calendar year

1,500,000

Gallon

Whole Milk, fre sh or sour •••

Calendar year

3,000,000

Gallon

Cattle, 700 Ibs. or more each Apr. 1, 1966 (other than dairy cows) ••• June 30, 1966

751,643

120,000

Head

6,503

Head

35,653

Cattle, less than 200 1bs.
each ••••••••••••••••••••••

12 mos. from
April 1, 1966

200,000

'ish, fresh or frozen, filleted, etc., cod, haddock,
hake, pollock, cusk, and
rosefish ••••••••••••••••••

Calendar year

23,591,432

PoWld

Calendar year

65,662,200

Pound

24,3S5,597

White or Irish potatoes:
Certified sese •••••••••••• 12 mos. from 1.l.4,OOO,OOO
other ••••••••••••••••••••• Sept. IS, 1965 45,000,000

Pound
Pound

77,977,241
23, 3Ll, 981

Knives, forks, and spoons
Nov. 1, 1965 with stainless steel
handles ••••••••••••••••••• Oct. 31, 1966

8u , 000,000

Pieces

Quota filled

Whiskbrooms •••••••••••••••••

Calendar year

1,)80,000

Number

1,139,228

other brooms ••••••••••••••••

Calendar

2,460,000

Number

1,616,472

Fish •••••••••••••••••••

~r·oar

Quota filleJ/

~I Imports for consumption at the quota rate are limited to ll, 795, 716 pounds
during the first 6 months of the calendar year.

-?-

COMlTlodi ty

Period and Quantity

: unit of : Imports as 01
: Quantity: Apr. 30, 1966

Absolute Quotas:
Butter substitutes containing over L5% of butterfat,
and butter oil ••••••••••

Calendar year

ribers of cotton processed
but not spun ••••••••••••

12 mos. from
Sept. 11, 1965

Peanuts, shelled or not
shelled, blanched, or
otherwise prepared or
preserved (except peanut
butter) •••••••••••••••••

F-472

Imports as of May 9, 1966.

1,200,000

Pound

1,000

Pound

12 mos. from
August 1, 1965 1,709,000

Pound

Quota filled

1,102,lOlY

TREASURY DEPARTMENT
Washington

STA T»IalT ON THE SUPPLEMENTARY CONVmTION TO
THE U. S. - NETHERLANDS INCOME TAX CONV~TION BY
STANLEY S. SURREY, ASSISTANT SECRErARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON TAX CONVENTIONS OF
THE SFJUTE COMMITTEE ON FOmGN RELATIONS
FRIDAY, MAY 13, 1966, 10:00 A. M.

Mr. Chairman:

I am appearing before you today to urge favorable

ac~ion

on the

supplementary convention to the income tax treaty now in effect between the United States and the Netherlands. This supplementary
convention is an important step in the program to modernize our network of tax treaties with the other industrialized countries of the
world.

of these treaties, which have been in effect for a

number of years, do not reflect the changes in policy which are

COD-

taioed in some of our more recent treaties. Moreover, these treaties
must be adjusted periodically as the internal laws of the countries
involved change, in order that the treaties fulfill their purposes
of avoiding double taxation and minimizing tax obstacles to trade
and investment between the two countries.
The negotiations leading to this revision of the present

u. s.-

Netherlands treaty (which was originally signed in 19u8) originated
at the instance of the Dutch because of their inability under the
present treaty to tax dividends derived from Netherlands sources b.1
U. S. citizens and corporations.

F- 473

This prohibition was a reflection

- 2 -

of Dutch internal law at the time of the signing of the original
convention.

Under the existing treaty, the United States is per-

mitted to tax U. S. source dividends received by residents or
corporations in the Netherlands at a rate of
case of portfolio investment and

percent in the

5 percent in the case of direct

investment.
The trend in international tax treaties has been in the direction of allocating to the source country a moderate tax on outgoing
dividends.

For example, the Model OECD Convention provides a

percent rate for portfolio investment and
vestment.

5 percent for direct in-

In line with this approach, the Netherlands recently

changed its internal law to impose a withholding tax on dividends
paid to foreigners.

The supplementary convention changes the treaty

to follow the DEeD model by authorizing the Netherlands to tax dividends paid to foreigners on the same basis as the United States is
now permitted under the treaty.
The two countries took this opportunity to negotiate a broad
revision of many of the other provisions of the treaty to bring
them into line with current international tax principles.

The

revised treaty is patterned in many important respects on the protocol to the U. S.-German tax treaty which was ratified by the

- 3 Senate in October, 1965 and which came into effect in December,
1965.

Several provisions of the

supp1~~entary

convention are sim-

ilar, or identical, to provisions appearing in the Geman protocol.
I should like briefly to review some of the highlights of the
revised treaty.
Investment Income
In addition to permitting the Uetherlands to tax dividends from
the Netherlands paid to U. S. residents and corporations, the revision

would also apply the

5 percent

direct investment rate to a broader

group of parent-subsidiary companies.

In determining whether a direct

investment exists, which is eligible for the

percent rate, the

required stock ownership of the receiving corporation in the paying
corporation is reduced from

percent to

percent.

The new provision permitting the Netherlands to tax dividends
paid to foreigners is generally effective on the day following the
exchange of the instruments of ratification.

However, if the

recipient of the Dutch-source dividends is a U. S. tax-exempt organization, the new dividend article will not be effective for a period
of two years atter the exchange of the instruments of ratification.
These organizations, being exempt in the United states, do not obtain
a foreign tax credit for taxes paid to the Netherlands and conse-

- 4quently will have to absorb the entire amoWlt of the new Dutch
wi thholding tax.

This two-year transitional period will give these

tax-exempt organizations an opportunity to eValuate whether or not
they wish to retain their Dutch securities, and also assure orderly
liquidation in case of sale.
One of the more important changes contained in the supplementary convention, which also appeared in the German protocol, involves the abandonment of the so-called force of attraction principle
as applied to dividends, interest, royalties and capital gains.
Under the present treaty, if' a resident or corporation

one of'

the countries has a permanent establisment in the other country,
the reduced treaty rates or exemptions on investment income and
capital gains are not available.

This is based on the theory that

the investment income is "attracted" to the permanent establishment.
The supplementary convention provides that investment income and
capital gains are entitled to

reduced rates or exemption pro-

vided in the treaty weBS lIeffectively connected" with a permanent
establishment in the source country.

This Nle also appears in the

OECD Model Income Tax Convention.
The supplementary convention also provides

a broadening of

the present reciprocal exemption in the source countr,y for interest

- 5payments and expands the definition of royalties which are entitled
to reciprocal exemption in the source country.

Capital Gains
In general, the revised treaty calls for a reciprocal exemption
from tax in the source country for capital gains derived by a residant of the other count!""";.

The provision is similar to that con-

tained in the German protocol.

In certain specific instances, the

source COWltry retains the right to tax gains derived by foreign
individuals and corporations. In the case of U. S. source capital
gains, the exemption 'WOuld not be available to a Dutch resident who
is present in the United States for 183 days or more during the taxable year and the gain is realized from the disposition of an asset
held for six months or less.
Students, Teachers, Personal Services
The revised treaty contains a more comprehensive article dealing
with visiting students and business trainees than is included in the
present treaty.

The present exemption applies only to amounts re-

ceived from abroad by students and trainees.

The revised article

expands the types of activities, such as engaging in research, which
may be performed by the student or trainee without lOSing the benefits

- 6 -

of the article and also broadens the types of income, such as grants
and awards, which may be received by the student or trainee free of
tax in the host country.
Teachers and professors are also accorded more liberal treatment under the revised treaty.

A two-year exemption in the host

country is provided for a teacher who is invited by the government
of that country or an accredited educational institution of that
country for the primary purpose of teaching or engaging in research.
The visit need not be made as part of a teacher exchange agreement
in order for the benefits of the exemption to be available, as is
now required under the treaty.
A more comprehensive article dealing with an exemption for
personal services where a resident of one country spends a relatively
short aJllount of time du:ring the year in the other cOWltry is also
contained in the revision.
Avoidance of Double Taxation
The Dutch have agreed in the supplementar,y convention to provide
broader relief from double taxation in the case of dividends received
from United States sources by a resident or corporation of the
Netherlands.

Under the e:xisting treaty, no relief from double tax-

ation is proVided for foreign taxes paid on U. S. dividends received

- 1by' Dutch

residents and corporations.

against lhtch tax the U.

The inability to credit

taxes imposed on dividends paid to

residents in the Netherlands presents an especially difficult problem to the U. S. citizen who is residing in the Netherlands.

Not

only must he pay Dutch tax on his U. S. source dividends, but be-

cause be is a U. S. Citizen, he is not entitled to the reduced rate

of U.

tax provided under the treaty. The absence of a credit

under Dutch law for U. S. withholding taxes may also malte investment in the United States less attractive to Dutch residentis (who
are not U. S. citizens) and corporations than investment in the
Netberlands.

In the revised treaty, the Dutch agree to proVide

additional relief by providing a specific credit against D\ltch tax
tor income taxes paid to the United states on U. S.-SO\1l'ce dividends.
Competent Authoritl Procedure
The proposed supplementary convention includes an expanded proviSion dealing with the settlement of taxpayer claims of double taxation.

The existing article is broadened to authorize the competent

authorities of the two countries to reach agreement on the same allocation

profits between related companies or between a company in

one country and its permanent establishment in the other.

An agree-

ment between the competent authorities may be effectuated by an

- 8 -

appropriate refund or credit to a taxpayer by the country which
has levied an excessive tax, even though proceduraJ. lim1 tations
such as the statute of lim1tations would otherwise bar a credit or
refund.

This provision, which follows the German protocol, is an

important step in permitting governments to eliminate double taxation problems where allocations of income under provisions such
as section 482 of the Internal Revenue Code are involved.
Conclusion
The changes embodied in this supplementary convention are designed to bring the U. S. -~Jetherlands treaty more closely into accord
with the recent treaties to which the United states has been a party.
The modifications contained in this revision are intended to accommodate the provisions of the existing treaty to the internal law of
the two countries, and to reflect generally accepted standards of
international tax policy.

The revision of this treaty is a construc-

tive step in modernizing and improving our present treaties.

I urge

that this Committee recommend that the Senate ratifY this supplementary
convention.

STATEMmT ON THE SUPPLEMENTARY CONVENTION TO

THE U. S. - NETHERLANDS INCOME TAX CONVEllTION BY
STANLEY S. SURREY, ASSISTANT SECREl'ARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON TAX CONVENTIONS OF
THE SmATE COMMITrEE ON FOREIGN RELATIONS
FRIDAY, MAY 13, 1966, 10:00 A. M.

Mr. Chairman:

I am appearing before you today to urge favorable action on the
supplementary convention to the income tax treaty now in effect between the Um. ted States and the Netherlands.

This supplementary

convention is an important step in the program to modernize our network of tax treaties with the other industrialized countries of the
world.

Many

of these trea.ties, which have been in effect for a

number of years, do not reflect the changes in policy which are contained in some of our more recent treaties.

Moreover, these treaties

must be adjusted periodically as the internal laws of the countries
involved change, in order that the treaties fulfill their purposes
of avoiding double taxation and minimizing tax obstacles to trade
and investment between the two countries.
The negotiations leading to this revision of the present U. S.Netherlands treaty (which was originally signed in 1948) originated
at the instance of the Dutch because of their inability under the
present treaty to tax dividends derived from Netherlands sources by
U. S. citizens and corporations.

This prohibition was a reflection

- 2 -

of Dutch internal law at the time of the signing of the original

convention.

Under the existing treaty, the United States is per-

mitted to tax U. S. source dividends received by residents or
corporations in the Netherlands at a rate of
case of portfolio investment and

15 percent in the

5 percent in the case of direct

investment.
The trend in international tax treaties has been in the direction of allocating to the source country a moderate tax on outgoing
dividends.

For example, the Model OECD Convention provides a 15

percent rate for portfolio investment and

5 percent

for direct in-

vestment. In line with this approach, the Netherlands recently
changed its internal law to impose a withholding tax on dividends
paid to foreigners.

The supplementary convention changes the treaty

to follow the DECD model by authorizing the Netherlands to tax dividends paid to foreigners on the same basis as the United States is
now permdtted under the treaty.
The two countries took this opportunity to negotiate a broad
revision of many of the other provisions of the treaty to bring
them into line with current international tax principles.

The

revised treaty is patterned in many important respects on the protocol to the U. S. -German tax treaty which was ratified by the

- 3 Senate in October, 196, and which came into effect in December,

1965. Several provisions of the supplementary convention are similar, or identical, to provisions appearing in the German protocol.
I should like briefly to review some of the highlights of the
revised treaty.
Investment Income
In addition to permitting the Netherlands to tax dividends from

the Netherlands paid to U. S. residents and corporations, the revision
wouJ.d also apply the

5 percent

direct investment rate to a broader

group of parent-subsidiary companies.

In determining whether a direct

investment exists, which is eligible for the

5 percent

rate, the

required stock ownership of the receiving corporation in the paying
corporation is reduced from

percent to

percent.

The new provision permitting the Netherlands to tax dividends
paid to foreigners is generally effective on the day following the
exchange o£ the instrwnents of ratification.

However, if the

recipient of the Dutch-source dividends is a U. S. tax-exempt organization, the new dividend article will not be effective for a period
of two years after the exchange of the instruments of ratification.
These organizations, being exempt in the United States, do not obtain
a foreign tax credit for taxes paid to the Netherlands and conse-

- 4quently will have to absorb the entire amount of the new Dutch
withholding tax.

This two-year transitional period will give these

tax-exempt organizations an opportunity to evaluate whether or not
they wish to retain their Dutch securities, and also assure orderlY
liquidation in case of sale.
One of the more important changes contained in the supplementary convention, which also appeared in the Geman protocol, involves the abandonment of the so-called force of attraction principle
as applied to dividends, interest, royalties and capital gains.
Under the present treaty, if a resident or corporation of one of
the countries has a permanent establishment in the other country,

the reduced treaty rates or exemptions on investment income and

capital gains are not available.

This is based on the theory that

the investment income is "attracted" to the permanent establishment.
The supplementary convention provides that investment income and
capital gains are entitled to any reduced rates or exemption provided in the treaty unless "effectively connected" with a permanent
establishment in the source country.
O~D

This rule also appears in the

Model Income Tax Convention.
The supplementary convention also provides for a broadening of

the present reciprocal exemption in the source country for interest

- 5payments and expands the definition of royal ties which are entitled
to reciprocal exemption in the source country.
Capital Gains

In general, the revised treaty calls for a reciprocal exemption
from tax in the source country for capital gains derived by a resident of the other country.

The provision is similar to that con-

tained in the German protocol. In certain specific instances, the
source country retains the right to tax gains derived by foreign
individuals and corporations.

In the case of U. S. source capital

gains, the exemption would not be available to a Dutch resident who
is present in the United States for 183 days or more during the taxable year and the gain is realized from the disposition of an asset
held for six months or less.
Students, Teachers, Personal Services
The revised treaty contains a more comprehensive article dealing
wi th

visiting students and business trainees than is included in the

present treaty.

The present exemption applies only to amounts re-

ceived from abroad by students and trainees.

The revised article

expands the types of activities, such as engaging in research, which
may be performed by the student or trainee without losing the benefits

- 6 of the article and also broadens the types of income, such as grants
and awards, which may be received by the student or trainee free of
tax in the host country.
Teachers and professors are also accorded more liberal treatment under the revised treaty.

A two-year exemption in the host

country is provided for a teacher who is invited by the government
of that country or an accredited educational institution of that
country for the primary purpose of teaching or engaging in research.
The visit need not be made as part of a teacher exchange agreement
in order for the benefits of the exemption to be available, as is
now required under the treaty.
A more comprehensive article dealing with an exemption for
personal services where a resident of one country spends a relatively
short amount of time during the year in the other country is also
contained in the revision.
Avoidance of Double Taxation
The Dutch have agreed in the supplementary convention to provide
broader relief from double taxation in the case of dividends received
from United States sources by a resident or corporation of the
Netherlands.

Under the existing treaty, no relief from double tax-

ation is provided for foreign taxes paid on U. S. dividends received

- 7by Thltch residents and corporations.

The inability to credit

against Dutch tax the U. S. taxes imposed on dividends paid to
residents in the Netherlands presents an especially difficult proble'1l to the u. S. citizen who is residing in the Netherlands.

Not

only must he pay Dutch tax on his U. S. source dividends, but because he is a U. S. citizen, he is not entitled to the reduced rate
of U. S. tax provided under the treaty.

The absence of a credit

under Thltch law for U. S. withholding taxes may also make investment in the United States less attractive to Dutch residents (who
are not U. S. citizens) and corporations than investment in the
Netherlands.

In the revised treaty, the Thltch agree to provide

additional relief by providing a speci.fic credit against Dutch tax
for income taxes paid to the United States on U. S.-source dividends.
Competent Authority Procedure
The proposed supplementary convention includes an expanded provision dealing with the settlement of taxpayer claims of double taxation.

The existing article is broadened to authorize the competent

authorities of the two countries to reach agreement on the same allocation of profits between related companies or between a company in
one country and its permanent establishment in the other.

An agree-

ment between the competent authorities may be effectuated by an

- 8 appropriate refund or credit to a taxpayer by the country which
bas levied an excessive tax, even though procedural limitattons
such as the statute of limitations would otherwise bar a credit or

refund.

This provision, wltLch follows the German protocol, is an

important step in pel'lllitting governments to eliminate double tax-

ation problems where allocations o£ income under provisions such

as section 482 of the Internal. Revenue Code are involved.

Conclusion
The changes embodied in this supplementary convention are de-

signed to bring the U. S. -Netherlands treaty more closely into accord
with the recent treaties to which the United States bas been a party.

The

111\

::iii'ications contained in this revision are intended to accom-

modate the provisions of the existing treaty to the internal law of

the two countries, and to reflect generally accepted standards ot
international tax policy_

The revision of this treaty is a construc-

tive step in modernizing and improving our present trea.ties.

I urge

that this COJIIIlittee recommend that the Senate ratify this sllpplementary

convention.

TREASURY DEPARTMENT
Washington

STATEMENT ON THE SUPPLPlotENTARY PHOTOOOL TO
THE U. S. - U. K. INCOME TAX CONVlNTION BY
STANLEr S. SURREY, ASSISTANT S~RETARY OF THE TREASURY
BEPORE THE SUOOOMMI'rl'EE ON TAX CONVENnONS
OF THE S»JATE COMMITTEE ON FOREIGN RELATIONS
FRI~Y,

MAY 13, 1966, 10:00 A. M.

Mr. Chairman:
I am appearing before you today to urge that you take favorable
action with respect to the Supplementar,y Protocol to the income tax
treaty now in effect between the United States and the United Kingdom.
This protocol, which was signed in March of this year, amends the
convention with the United Kingdom to reflect the extensive changes
made in that country's tax laws by the Finance Act of 1965.

This

Act introduced into the tax system of the United Kingdom two new
taxes:

a capital gains tax and a separate tax on corporations, called

the corporation tax, which had not existed previously.

The effect

of these changes is to make the broad outlines of the British system
of income taxation of corporations and their shareholders more closely
resemble the United States system in these areas.
General Background
Before discussing specific provisions of the protocol, I think
it would be helpful to review briefly both the old British tax ~stem
and the changes made in it by the Finance Act of 1965.

Prior to

that Act, the British levied on their corporations a profits tax of
15 percent and an income tax the rate of which varied but which

generally was approximately 40 percent.

British individuals were

- 2 subject to income tax and, if their income exceeded a certain figure,

to surtax.

However, when a British individual received a dividend

from a British corporation, the income tax which had been paid

b.1 that

corpora tion was considered to have been paid by' the shareholder and
his only tax liability Wi. th respect to the dividend vas tor surtax.
Thus J in effec t the Bri Ush corporation was treated as a kind ot
partnership, and the income tax paid by it was a credit against its
shareholders' individual tax liabilit,y on their dividends.
The new British system revises this method of taxation.

Now

the British corporation PSI's only a single tax, the corporation tax
at the rate ot

percent, but that tax is not creditable against

the income tax and surtax which individual shareholders must pay on a
dividend.

The corporation tax and the income tax on shareholders are

thus now kept separate, as in the United States.

Under this new

United Kingdom system, essentially as a collection device, there is
a withholding tax on dividends paid to United Kingdom shareholders
a t the rate of

41. 25

percent.

D1vidends paid to nonresident share-

holders are subject to withholding tax at this same rate.

Under the

old British tax system foreign shareholders were not subject to anJ
additional tax on dividend distributions; the corporation's payment

ot proti ts tax and income tax, wi til few exceptions, completely- discharged the foreign shareholder's United Kingdom tax liability.

- 3Dividends in General
Modification of the dividend article of the tax convention was
required by these changes in British law.

Since prior to the 196$

Finance Act the British did not withhold tax on dividends paid to
foreigners, no provision was incorporated in the treaty' limiting
the amount of wi. thholding tax which they might impose.

Therefore,

under the treaty as it existed when the Finance Act was passed, the
new British withholding tax of 41.2$ percent could have been levied
on dividends paid to Americans.

However, under that treaty this

country's 30 percent statutory withholding tax had been reduced to

percent on dividends paid to British investors, and if the British

investor was a corporation owning

95 percent of the American cOMpanJ

paying the dividend, the rate generally was limited to

5 percent.

Thus, the existing treaty' lmited our right to withhold tax on dividends
going to the United Kingdom but did not restrict the British right

to withhold tax on dividends going to the United States.
As a first step in remedying this imbalance, the United States

on JUne 30, 1965, exercised its right under the dividend article of

the existing convention to separately teminate that article effective
JanuarY' 1, 1966, with respect to United states taxes.

Thus, dividends

paid after December 31, 1965, to residents of the United KingdOM
were made subject to the statutory United States withholding tax
of 30 percent.

1be new British withholding tax did not go into effect

- 4until April 6, 1966.

Our action in terminating the provision limiting

our right to wi thhold tax on elividends was taken with the unders tanding, previously reached with the British, that any dividend withholding
rates subsequently agreed upon in a revised treaty would be retroactive to the date on which the existing article terminated.
The protocol puts into effect this understanding, and provides
tha t beginning on January 1, 1966, in the case of United States taxes,

and April 6, 1966, in the case of United Kingdom taxes, withholding
on dividends paid shall be at a
respects both countries.
levied at the rate of

percent rate in all cases, as

With the British corporation tax being
percent, the total United Kingdom tax burden

on dividends received from the United Kingdom by Americans, including
corpora tion tax and withholding tax, will be
system, as modified by this protocol.

49 percent under the new

For example, on $100 of pre-

tax earnings in the United Kingdom, there will be a $40 corporate tax.
If the remaining $60 is paid as a dividend, there will be withholding

tax levied of $9.

Under the old British tax sys tern, under the conven-

tion then in effect, this burden was
up of a

approximat~

percent, made

percent profits tax and income tax of about

percent.

In addition, as a result of the changes in the United Kingdom's
basic scheme of taxing corporations and shareholders, that Government
wished to modify its tax trea bnen t of income from Bri tish inves tments
abroad.

In order to accomplish this, it was necessary to modify many

- 5of their existing treaties, including that with the United States.

Our existing convention with the United Kingdom, which in this respect
is similar to United Kingdom tax treaties with other countries,
extended to United Kingdom residents receiving dividends trom United
States corporations the same type ot treatment available to them
when they received dividends trom British companies.

Thus, a United

Kingdom resident individual, receiving a dividend from a United
States corporation, was able to claim credit against his United
Kingdom income tax and surtax liability for the

States tax paid by that corporation.

48 percent United

If the dividend recipient was

a British corporation, that corporation could use the United States

corporation tax as a credit against its British profits tax and income
tax liability.

Moreover, under the existing convention, this requirement was
reciprocal in fom.

Thus, the Un! ted states granted a simUar tax

credit to United States recipients of dividends tram British corporations for United Kingdotn income tax paid by' the Bri Ush corporations,

even where the recipient was an individual or a corporation owning
less than 10 percent of the stock.

Hence, under the existing trea't1,

United States individual investors in British corporations were allowed
to claim a foreign tax credit for taxes paid by that corporation to

the United Kingdom even though such investors are not able to clahl
any credit for the United States corporation tax paid by an American
comp~.

- 6 With the change in the British tax law, this treat"i1 provision,

allowing all United Kingdom shareholders a credit

tor Un! ted States

corporate tax, became inconsistent with basic British tax principles.
The British are now treating their individual investors in British
corporations just as we treat our individual investors in American
companies.

Hence, they no longer wished to give their individual

residents a credit for foreign corporate taxes when they receive
dividends from abroad.

To accomplish this, they wished to delete

the provision requiring them to give such a credit from our convention wi th them.

Since this provision was reciprocal in form and thus

resulted in extending benefits to United States residents respecting
Uni ted Kingdom d1vidends not accorded to them on dividends received
from their United States portfolio investments, we agreed to this
mOdification.
Capital Gains
As I mentioned previously, the United Kingdom Finance Act of

196, for the first time imposed a capital gains tax of a general
character.

Under the existing convention the United States capital

gains tax was made inapplicable to British residents, but because
the United Kingdom did not then have a similar tax, the article was
not made reciprocal.

Under the protocol, the exemption troll United

States capital gains tax for British residents is generally continued

- 7in effect but the article ie now made reciprocal so that Americans

will not be subject to tax in the United Kingdom on their capital
gains.
Specific Provisions
This protocol to the United Kingdom convention is made complex
by the need to deal with certain problems raised by United Kingdom

tax law, as modified by the Finance Act of 1965.

Since, as a result,

some of the provisions of the protocol are highly technical in
nature and of limited Significance, I will attempt only to summarize
the more important provisions.

..u.le many of the changes made by

the protocol were necessitated by the new Finance Act, in the course
of our negotiations it was decided that the treat,y with the United
Kingdom should also be modified so as to reflect policies previously
embodied in the protocols modifying the German and I:Utch conventions.
Force of Attraction - Permanent EstablishmenUs
Thus, this protocol, like the protocols to the Gennan and
Dutch conventions, abandons the 50-called force of attraction
principle.

Under the present treaty, if a resident or corporation

of one of the countries has a permanent establishment in the other
country, all of his income from sources within that country (except
for certain royalties not directly associated with the pemanent
establishment) is taxed at regular rates.

This is so even if such

- 8 income is not in fact attributable to the pennanent establislJnent.
Under the protocol, the torce ot attraction principle no longer
applies, and income from sources within one countr.r derived by a resident of the other is to be taxed at regular rates only if it is
attributable to the per.manent establishment.

Thus, for example,

dividends, interest, royalties and capital gains derived from one
country by a resident ot the other are anti tled to the reduced rate
or exemption provided for such income in the treaty unless they are
"effectively connected" with a permanent establishment in the source
country.

Similarly, industrial and commercial profits from sources

within a country will onlT be taxed at regular rates if attributable

to a permanent establishment located within the country.
Dividends
The rules in this regard with respect to d1vidends, however,
differ sal1ewhat from those found in the German and Dltch conventions.
Under the United Kingdom protocol, dlvid.ends received by a corporation
,.

ot one of the countries which are effectively connected to its
permanent establishment in the other countrT are to be taxed at the
maximum rate of lS percent.

.At the present tiIle· under our internal

law the maximum regular rate of tax on such dividends is 7.2 percent,
since we penni t the permanent establishment the same

percent

dividend-received deduction avaUable to a domestic company in

- 9 -

computing its income subject to our

percent corporate tax.

To understand the background for this provision, one must

understand the British method of taxing intercorporate dividends.

In general, dividends paid from one United Kingdom resident to
another, including intercorporate dividends, are subject to the

withholding tax. which I mentioned before at the rate of

percent.

41.25

However, if the dividend comes from a subsidiary

corporation, the parent corporation may elect to have no tax withheld.

Moreover, where tax. is withheld on intercorporate dividends,

no second withholding tax is required to be paid when the recipient
United Kingdom corporation pays out in dividends to its shareholders

an amount equal to the dividends it received.

Thus, in many

instances, the Br1 tish gave the equivalent of a 100 percent dividend-

received deduction to corporations.
It was suggested to the British negotiators that under their

system it would be appropriate to treat United Kingdom dividends
received by' the permanent establishment of a United States corporation

in the same way that they treat dividendS received by a United
Kingdom corporation.

In some cases this would resul t in a complete

exemption from United Kingdom

the full

L1.25

percent rate.

taxj

in others, tax would be paid at

The British refused to adopt this

proposal on the ground that income which was effectively connected

to a pemanent establishment should in all cases be taxed at least

- 10 as heavily as income not so connected.

As a result, the protocol

provides that dividends received by a permanent establishment will
not be taxed in the ordinary case at regular rates but instead
shall be treated as if they were not effectively connected and shall
be taxed at the

treaty.

15 percent maximum withholding tax rate under the

This provision is reciprocal in the protocol, although

under existing United States statutory law the maxi.mwn rate of tax
which can be collected on dividends which are effectively connected
to a pennanent establishment is only 7.2 percent.

However, the non-

discrimination clause of this protocol makes clear that the United
States is free to amend its internal law and to tax dividends
received by a permanent establishment of a British corporation at

IS percent, even though that rate exceeds the

maximum rate of tax

on dividends received by one United States corporation from another
such corporation.

It is our present intention to request the

Congress to amend the internal United states law to parmi t this
country to impose such a tax at a rate higher than 7.2 percent
where neces sary to achieve reciprocity, taking into account such
questions as the practical effect on our corporations of the approach
taken by the foreign country, the number of corporations of such
country doing business in the United States which would be affected
by the higher rate of

tax, the nature of their activities here and

the effect such action would have on their competitive position.

- 11 -

Interest and RoTa} ties
The protocol continues in effect the provisions of the existing
convention exanpting trom tax in the source country both interest
and royal ties.

However, these provisions have been modified in

several important respects.

Under the existing convention, these

exemptions, as well as the reduced rate of tax on dividends, only
apply' if the recipient is subject to tax: in his country of residence.
This requirement, which had the effect of preventing chari table
organizations from benefiting trom the reduced rates of withholding
tax provided by the existing treaty, is eliminated by the protocol.

However, in certain specific circumstances

or lim; ted

application,

the fact that the recipient ot income 1e not subject to tax continues to be relevant.

It was felt t..hat thes(' exceptions were de-

sirable in order to insure that the benefits granted by the treaty
would not be abused.
The existing convention limits the exemption generally accorded
interest payments by providing that such payments shall be subject

to tax in the source country wben made by a corporation ot that
country to a corporation of the other country which owns over SO percent of the p¢ng corporation's voting power.

This limitation,

which required corporate taxpayers to restructure their transactions
wi th subsidiaries in an artificial manner, is eliminated by the

protocol.

Therefore, in the future interest payments from a

- 12 subsidiary to parent corporation will be exempt from withholding tax.
However, the prot()cJl makes clear that E".xcessive interest paid by
a subsidiary to its parent need not be treated as interest but may
be recharacterized as a dividend and taxed as such.

In addition, the interest and royalties provisions affect the
deduc tions available under British law in calcula ling United Kingdom
corporation tax in two cases.

Under the F.i.nance Act of 1965,

interest is not deductible when paid by a British cOIllpaI'\Y to a
non-British compaqy which has

percent or more control, directly

or indirectly, of the British company.

The protocol renders this

provision of British law inapplicable to interest paid to a United
States company unless that company is British controlled.

Such

interest is thus both deductible by the United Kingdom payor and
exempt from United Kingdom withholding tax.
Similarly, in the royalty area the F.i.nance Act of 1965 disallows certain royalty payments as deductions to United Kingdom
payors in the case of so-called "close corporations" - corporations
con trolled by a small group of shareholders.

The royalty article

the protocol makes this rule inapplicable where the royalty is paid

tc an American (0 ther than a United Sta. tea corporation under the
control of British residents who also control the British corporation
paying the royal ty) •

- 13 Capi tal Gains
I have mentioned previously the amendment to the capital gains
provision of the axis ting treaty.

As a resul t of this change,

capital gains realized by a resident of one country will generally
be exempt from tax in the other.

However, the United States is

allowed to tax British residents on their capital gains if they are
here 183 days or more during the course of the year; this limitation
on the general treat,y exemption does not appear in the existing convention.

While this limitation in form does not appear to be reciprocal,

it is so in fact since the British treat a person present within
their country for 183 days during the year as being resident there
and hence not entitled to benefits of the treat,y.
Tax Credits
The foreign tax credit article as revised by the protocol in
general corresponds to the credit article found in most United States
treaties.

However, it also includes a special provision - paragraph (4) -

which establishes rules for determining the tax credits of United
States shareholders in British corporations during the period
April 6, 1964, to April 6, 1966.

During this period, the corporation

tax imposed by the Finance Act of 1965 was in effect but the old
British tax system continued to apply in other respects.

This caused

uncertainty as to the proper application of Article XIII of the

- 14 existing convention.

The purpose ot paragraph (4) is to el.iIIliDate

this confusion by providing specific rules to govern this transitional period.

Competent Authority Procedure - Adjustment ot Dlsputes
The protocol also contains an article dealing with adjustment
of taxpayer disputes wtdch has no parallel in the existing convention.
This provision, which follows the pa t tern es tablisbed in our German

and flltch protocols, provides that in cases in which income is being
subject to tax in both countries the competent tax authorities ot
the two countries will meet and endeavor to agree on the proper
allocation ot such income or its source.

If agreement is reached,

the protocol provides that it shall be put into eftect, notwithstanding procedural barriers which would otherwise exist, such as the

statute of l1mi tations.

This provision is important in relieving

double taxation in cases in which one ot the coWltries allocates
income to a taxpayer under provisions such as section 482 ot the
Internal Revenue Code.
Nondiscrimination
The nondiscr1m1nation clause of the protocol is substantia 1l7

the same as the nondiscrlmination clause ot the Ihtch and the German
protocols except that it specifically permits each country to tax

- 15 dividends paid to a permanent establishment at the

percent rate

even if that rate exceeds that country's rate of tax on dividends
paid by one ck>mestic corporation to another.

I have already discussed

the purposes and ef'fect of this provision.
Collection
The protocol also contains an article authorizing the United
States to collect on behalf of the United Kingdom such aDlounts as
are necessary to insure that the benefits of the convention do not
inure to persons not enti tJ.ed thereto.

Thus, tor example, i f a

United States bank, acting in its capacity as the nominee for a
beneficial owner who is not a United States resident, receives a dividend
from the Uni ted Kingdom from which only the reduced rate of tax provided tor in the protocol has been withheld, the United States would
be authorized to collect from that bank the difference between the
amount of tax properly due the United Kingdom and the amount of tax
actually withheld.

The provision, however, specifically provides

that in exercising this authority the United States is not required

to take aqy administrative action which differs from those used in
collec1.1ng our own taxes.
This provision was inserted into the protocol to encourage the
British to permit dividends to be paid over to United states recipients
under withholding at the treaty tax rate of

percent, rather than

- 16 wi th wi thhold1ng at the full rate of

41. 25 percent.

When the Bri Ush

passed the Finance Act of 1965, they envisioned that all dividends
would be subject to full withholding and that foreigners who were
entitled to have a lower treaty rate of tax applied to their dividends
would reclaim the excess tax withheld from the British Government.
This system would impose a burden on American stockholders in
British corporations.

Therefore, the British have indicated a

willingness to permit withholding at the treaty rate under certain
circumstances provided they received some assurance from us that
only Americans will benefit from this relaxa t.i.on of their rules.
primary purpose of Article XIX! is to provide this assurance.

The

Uni ted Kingdom undertakes a similar obligation with respect to

dividends paid by United States corporations.
Effective Dates
As mentioned previOUSly, the proviSion of the protocol dealing
with dividend withholding rates is effective on January

1, 1966, in

the case of dividends fiowing from the United States to the United
Kingdom.

Dividends gOing from the United Kingdom to the United

States are not subject to withholding tax prior to April 6, 1966,
and that date is therefore the effective date of the proviSion
establishing the rate of withholding tax on United Kingdom source
dividends.
Other provisions of the treaty are, in the case of United States

- 11 taxes, generally eliee ti ve for taxable years beginning on or after
January- 1, 1966, except that the effective date of two of the
less important provisions is postponed until after the date of
ratification of the protocol.

In addition, the amendments to the

article dealing with. foreign tax. credits generally are effective
April 6, 1966.

However, the paragraph of this article establishing

interim rules is effective for the period beginning April 6, 1964,
the first day on which the changes made in United Kingdom tax: law
by the United Kingdom Finance Act of 1965 could take effect.
In the case of United Kingdom taxes, the changes are generally
effective April 6, 1966.

However, the new taxes imposed by the

Finance Act of 196.5, the corporation tax and the capital gains tax,
took effect with respect to income realized prior to April 6, 1966
and accordingly the treaty provisions affecting their application
are correspondingly made effective as of the date on which these
taxes first went into force.

In addition, the amendments to the

foreign tax credit article become effective, in the case of United
Kingdom taxes, only after ratification of the protocol.
Conclusion
This protocol amends our treaty with the United Kingdom to
reflect the changes made in United Kingdom tax law by that country's
finance Act of 1965.

It also serves to modernize its provisions,

- 18 bringing than more closely into line both with other recent treaties

to which the United States has been a par1;y and with accepted.
standards of international tax policy.

We urge that this Comm:i. ttee

recommend to the Senate that it approve this Supplementary Protocol.

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE

May 13, 1966

SUBSCRIPTION FIGURES FOR CURRENT EXCHANGE OFFERING

The results of the Treasury's current exchange offering of 4-7/8i notes,
dated May 15, 1966, maturing November 15, 1967, are summarized in the following
tables.
For Cash Redemption
~ of
~ of
Total
Public
OutHold-

Amount
Eligible
for Exchan e

Issues Eligible
for Exchan e

4% Notes, D-1966

3-3/4~ Bonds of 1966

Total

$8,289
1,028
$9,317

$7,486
649
$8,135

803
379
$1,182

40.1
49.0
42.8

9.1
36.9
12.7

Exchanges for 4-7/8! Notes of Series F-1967 by Federal Reserve Districts
Federal Reserve
District

4% Notes of Series
~1966 Exchanged

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Ch1cago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury

TOTAL

F-475

3-3/4% Bonds of
1966 Exchanged

Total
53,463,000
7,499,701,000
25,144,000
75,891,000
20,662,000
48,904,000
125,278,000
69,725,000
28,705,000
36,429,000
46,434,000
98,612,000
6,110,000

46,901,000
7,016,460,000
16,151,000
56,455,000
16,612,000
31,964,000
81,990,000
52,716,000
17,285,000
21,839,000
38,536,000
83,180,000
5,999,000

$ 6,562,000
483,247,000
8,993,000
19,442,000
4,050,000
16,940,000
43,288,000
11,009,000
11,420,000
14,590 ,000
1,898,000
15,432,000
111,000

$1,486,088,000

$648,982,000

$8,135,070,000

TREASURY DEPARTMENT

May 13, 1966
FOR

~DIATE

RELEASE
PRESIDENT'S CABINET TO PRESENT
MACLEISH AND VAN DOREN

Five years and 13 performances ago, the President's
Cabinet initiated a series of "evenings with" outstanding
artists by presenting "an Evening with Robert Frost,"
followed in the series by "An Evening with Carl Sandburg."

On May 16, Secretary of the Treasury Henry H. Fowler
plays host at the State Department Auditorium in
Washington, D. C., to "An Evening with Two Poets" -Archibald MacLeish and Mark Van Doren. Mrs. Lyndon B.
Johnson is honorary chairman of the event.
MacLeish and Van Doren have much in common besides
their membership in the American Academy of Arts and
Letters and their string of Pulitzer prizes. Both are
natives of Illinois, both were born in the last decade of
the 19th Century, both have sunk deep roots in Yankee
New England -- MacLeish at Uphill Farm in Conway,
Massachusetts, and Van Doren in Cornwall Hollow,
Connecticut. They are not just neighbors, they are old
friends. They have earned the titles of poet, dramatist,
and scholar.
The invitation-only, black-tie affair is sponsored by
the Cabinet and will be attended by executives of Federal
departments and agencies, members of the Washington
diplomatic corps, White House officials, cultural and
community leaders, their wives, and area college students.

000

TREASURY DEPARTMENT

RELEASE 6 :30 F .1,1.,
day J i,lay lS, 1966.

RESULTS OF TR8ASURY' S "vlEEKLY BILL O?FERIrJJ.
The Treasury Department announced that the tenders for tvo series of Treasury bills,
series to be an additional issue of the bills dated Feb r.:.a r:;r 17, 1966, and tne other
ies to be dated I,lay 19, 1966, which "rere offered on nay 11, 1966, ,fere opened at the
eral Reserve Banl'l:.s. today. Tenders were invited for ;$1, 30C ,O('C, (00) or thereabouts, of
day bills an~l for ";;1,000,000,000, or thereabouts, of 182-d.ay bills. The u.etails of
two series are as follows:
Gi!: OF ACCEPTED
91-day Treasury bills
PETITrlE BIDS: _ _m_a_t_u_r_i_n..:=b:..-..J.f';,....;.,u..:=G1l=s-7t-.::;1;,::;8J..,-.::;1;;:;.9.:::,6.:::,6_ _
Approx. Bquiv.
Price
Annual Rate
HiGh
98.836
4.60590
LovT
4.640°f,
98.827
I
AveraGe
98.831
4.626% ~/

lO,2-day Treasury bills
i:1aturing r~over(]ber 17, 1966
Approx. l::q'J.iv.
lumual Rate
Price
97.568
a/
4.811%
97.556
4.834%
97.562
4.823% 1/

a/ Excepting 1 tender of $800,000

7510 of the amount of 91-day bills bid for at the low price
42~

I-laS dccepteQ
of the amount of l82-day bills bid for at the low price uas accepte::l

AL TBNDERS APPLI~D FOH Mill ACCEPT~D BY ?.c:;DEr-AL PillSE:WB DISTRICTS:
istrict
::>ston
ew York
hila de 1phia
leve1anc.
icr.r:!ond
tlanta
hica:;o
t. Louis
inneapo1is
3.nsas City
3.11a5
3.n nancisco

AJ2plied For
.p
22,070,000
1,515,902,0(;0
33,110,000
29,393,000
18,154,000
40,399,000
265,371,00C
44,226,000
l8,604,COO
27,689,000
23,241,000
33,4G2,000

Accepted
,
12,07J,000
<Y
'370,302,000
21,140,000
29"S9°,000
18,154,000
36,524,000
136,021,000
36,151,000
16,904,000
27,333,000
14,991,000
73,962,000

TOTALS

~2,122,15S,OCC

~1,30C,406,OOO b l

Applied For
,'.
5,"115, COO
Y
1,3~19 ,S77 ,OCO
12, '.1:57 , GOO
50,4133,000
3,S20,00C
32,901,000
290,071,000
25,167,000
11,002,OOC
13,057,000
12,129,000
32,338,000

Accepted
,t'
5,4:15,000
715,257,000
·1:,457,000
2:',663,0(;0

8"'" 8~'7
("\CO
<P'I "O,j,
...,0, \J

,~1, 000,421,000

3,~20,00O

19,953,000
94,3G9,000
15,611,OClO
10,007,000
13,057,000
7,54J,000
51,263,COO

Includes $257,916,000 noncol;}pcti tive tenders accepted at the average pr~ce of 98.831
Includes $136,311,000 noncompetitive tenders acce~ted at the ave:age pr~ce of 97.562
These rates are on a bank discount basis. The equl. valent coupon l.ssue Yle1ds are
4.75% for the 91-cla.y bills, and 5.01% for the 182-day bills.

P'-476

TREASURY DEPARTMENT
Washington

REMARKS BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECREl'ARY OF THE TREASURY
BEFORE THE FISCAL POLICY SUBCOMMITTEE OF THE JOINT ECONOMIC COMMTrTEE
ON PRIVATE PENSION PLANS
WASHINGTON, D. C.
MONDAY, MAY 16, 1966, 2 P.M., EDT

Madam Chairman and Members of the Subcommittee:
I am pleased to respond to your request to describe generally the
tax provisions with regard to pension and profit sharing plans.

Despite

public consciousness of the enormous growth and the importance of
private pensions, there is relatively little knowledge and understanding
of the role that tax policy plays in influencing pension growth and
design.

Your Subcommittee is to be congratulated for bringing the workings

of the private pension system to greater public koowledge.
A pension or profit sharing plan is a part of the employment contract.
Often the plan terms are negotiated in collective bargaining.
or not negotiated, they clearly affect the wage rate.
standpoint, this is part of the labor cost.

Whether

From the employer's

From the standpoint of the

employee, pension or profit sharing benefits are an element in comparing
total compensation between different employments.
The development of pension and profit sharing plans has without
question been aided by favorable tax treatment, which has the effect
of lowering the tax liability when compensation is paid in this manner.
The tax advantage given to these plans is the basis of the provisions
in present law imposing certain qualifying conditions on a pension or
profit sharing plan.

Since the provisions applicable to pension and

profit sharing plans are substantially similar, I shall simply refer
to pension plans.

F-477

- 2 The legislative history provides ample evidence that Congress as a
matter of public policy has used the tax system as a means both to
encourage the growth of private pensions and to prescribe standards
for equitable and sound pension design.

For example:

In 1926 the Congress decided to favor private pensions by
exempting investment income of pension trusts.
To protect the funds set aside for employees, the Congress
enacted nondiversionary standards in the Revenue Act of 1938
to guarantee that funds were used for the exclusive benefit of
employees and that pension trusts should be irrevocable.

Prior

to the 1938 Act, pension trusts were established by some during
periods of high corporate earnings which were ultimately revoked
and the earnings recaptured by the employers during lean years.

In 1942 the Congress enacted what are now the current standards
for qualification.

They are intended to protect the benefits

of employees and to prevent discrimination as to coverage and
benefits.

These provisions were modified only in some details

by the Internal Revenue Code of 1954, so that essentially our
present rules are those established a quarter of a century ago.
Favorable Tax Treatment of the Employee
Under qualified employer-financed plans, the employees are not
currently taxable either on the amounts contributed by employers to
the plans or on the investment income of the pension fund.

The employee'S

- 3 tax liability for these amounts is deferred until he retires and receives
benefits from the plan, at which time his effective rates are apt to
be lower.
In the case of plans to which the employee contributes, the employee
may not deduct his contribution currently.

The amount of the employee's

contribution, however, is not taxed when he receives his pension.
If an employer-financed plan does not qualify but the employee has
irrevocable rights to benefits, the tax deferral feature is not applicable;
the employer's contribution is taxable to the employee as current income
when he acquires a vested right to it, and his benefits are not taxable
upon retirement (to the extent that they reflect a recovery of this
tax-paid amount).

However, if the employer's contribution is not vested

in an employee, then the employer's contribution is not taxable to the
employee until he actually receives the benefits, even in a nonqualified
plan.
Since the employer's contributions and investment income are not
taxable as current income to the employee under qualified plans, even
where

the pension rights are vested, tax deferment represents tax savings

to employees.

It creates opportunities to obtain more liberal pensions

than if the employees received equivalent wages in lieu of contributions
and had to finance their own pensions.

The Cabinet Committee on Corporate

Pension Funds measured the size of a monthly pension that $100 of annual
employer's contributions can buy under present tax treatment and compared
it with a monthly pension obtained fram an equivalent $100 of annual

- 4 wages which, after tax, is invested by the employee himself.
fund case resulted in a

The pension

$74 monthly pension as compared to a $52 monthly

pension in the case of the employee investing his wages after tax and
paying tax on his investment income.
Favorable Tax Treatment of the Employer
Under a qualified pension plan, an employer may deduct the amount
of his contributions to the plan, subject to limitations on overfunding.
As noted above, the investment income of the fund is tax free.
If a nonqualified plan does not have immediate full vesting, the
law does not permit deductibility of current contributions.

If the

nonqualified plan has such vesting, then current contributions are
deductible.
Through the deductibility of contributions of a qualified plan
and the tax exemption of investment income, the government is sharing
pension costs with the employer.

Consequently, the

employer is able to provide a given level of benefits at about half
the cost of a nonqualified, nonvested plan.
Total Value of Favored Tax Treatment
It has been argued at times that under the existing pension plan
provisions the Federal Government really provides no tax benefit.

While

there are, of course, specific provisions in the tax law relating to
employer pension plans, the argument is that the outcome of these provisio~
is substantially the same as the general principles of tax law; and,
consequently, no special benefits are extended to qualified plans.

The

argument, stated broadly, is that a contribution to a pension plan is

- 5 " of

course " a cost to an employer and ought to be deducted and that

a contribution on behalf of an employee to a pension plan is not income
to him until he gets the money.

Under these two contentions, it is

argued that tax deferral would be just the normal treatment for pension
plan contributions, and no special benefit would be involved.
I want to make clear that qualified pension plans do get a special
tax treatment and that deferral would not automatically follow as a
matter of the application of the general principles of tax law.

With

regard to the employer.:; deducti on, the general rule is that an amount is
deductible under the tax law when there is a fixed liability on the employer
to make a fixed payment to a definite person.

If the employer is on an

accrual baSis, he may take a deduction even though he does not have to
make the payment immediately; but the liability for payment must still
be fixed.

With regard to an employer's contribution to a pension plan

where the employee's benefits are not vested, all that is involved for
the employer is the possibility that he may have to make a pension
payment to some employee in the future.

This possibility of future payment

is not sufficient under the general principles of tax law to permit an
accrual of the deduction.
With regard to the employee, it would seem clear that if the pension
contribution is not vested in the employee there is no basis for taxing
the employee currently at the time that the employer's contribution is
made.
to the

This is the particular case where, as I pointed out, deductibility
employer

present tax law.

consti tutes a particular benefit granted under the

- 6 Where the contribution by the employer is vested at the time
made, or where it becomes vested at a later point before the employee
receives the pension, the general principles of tax law would suggest
that the employee should be taxable at that time.

It is not controlling

that the employee receives no cash money at that time.

If I do a piece

of work for you and my payment for the job is a paid-up insurance policy
that will provide a life annuity beginning when I am 65 years old, I have
clearly gotten something of value for this work.

Under general principles

of tax law, I am required to include in my income the value of the insurance
policy that I have received.

The special benefit provided for employees

under qualified pension plans is that when they receive something of
value in the form of a vested benefit to a pension the tax on this amount
is deferred until they get the cash.
in~ntincome

Finally, it is clear that the

of a pension trust would be taxable under general principles

of tax law except for the benefits extended to qualified plans.
If the total amount contributed by employers to qualified pension plans
and the

investment income of the funds were taxable at the corporate

rate, tax liabilities would rise at current levels by about
per year.

$3.8 billion

If the amounts were taxable at individual rates, the revenues

would rise by about

$1.4

billion a year.

The appropriate rat~as I have

indicated, depends on whether or not the benefits were vested.

Therefore,

the cost in revenue to the Federal Government because of the existing

- 7 pension plan provisions falls somewhere between the two limits of

$3.8

billion and

$1.4

billion.

(These estimates take into account

the current tax being paid on benefits.)

Since there is some degree

of vesting, we may put this cost very roundly at about

billion.

The annual revenue loss depends on the growth of pension reserves
since this is the amount of income which has not paid tax.
reserves have grown by increasing amounts each year.

Pension

They will continue

to grow as long as the number of covered employees grow or so long as
benefits grow.

ConSidering the current rate of growth of private penSion

coverage, it is likely that the annual revenue loss will persist for many years
and even continue to grow. Given its annual

rev~nue

requirements, the government

must seek revenues annually from other sources to make up the difference
between taxes deferred on employer 1 s contributions and investment income
and taxes currently collected from the pension benefits currently paid.
The Cabinet Committee Report submitted some estimates of the revenue
cost of the pension provisions.

We have updated these to

1966 levels,

and for the information of your Subcommittee, I am submitting tpis material
for the record.
Standards for Qualification
In general, for a pension fund to attain qualified status, a plan
must meet several tests.

Briefly, some of the major tests are:

The plan must be permanent and must be made known to the
employees.

- 8 Moneys in the fund may not be diverted but must be used for
the exclusive benefit of the employees, until all liabilities
have been met.
The plan must be "nondiscriminatory" with respect to coverage and
contributions

or benefits.

The plan must cover either a

prescribed percentage of employeffi or all employees in an

approv~

classification group which does not favor stockholders, managerial,
or other highly paid employees.

The contributions or benefits

also must not favor stockholders, managerial, or other highly
paid employees.
Commissioner Sheldon Cohen is present with me to discuss the
administration of these qualification requirements and other tax
administrative matters.
President Johnson has often emphasized the importance of cost
efficiency in government programs.

In his

1966 Economic Report, the

President stated:
"Benefits that the Government extends through direct expenditures
are periodically reviewed and often altered in the budgetappropriation process, but too little attention is given to
reviewing particular tax benefits. These benefits, like all other
activities of Government, must stand up to the tests of efficiency
and fairness."
The work of the Cabinet Committee on Corporate Pensions Funds, to which
Secretary Wirtz referred, represents this kind of review of tax benefits.
The Report has singled out a number of problem areas and has set forth
suggestions which can be used as a basis for further discussion of

- 9 specific revision of the present law.

Broadly, the objective of the

Cabinet Committee Report recommendations is

to extend coverage of

private plans to a wider range of employees; to provide greater
assurance that a worker will get his pension benefits; to reduce
impediments to a freely mobile labor force; to assure better
administration of pension funds; and to eliminate particular tax
preferences which do not meet the tests of efficiency and fairness.
The tax rules governing the development of private pension plans
have not changed materially since 1942.

Basic issues as the vesting

of benefits, the funding of benefits, the portability of benefits, and
the coverage of employees need to be re-examined in the light of
developments since the basic rules were laid down a quarter of a
century ago.
Out of this re-examination can come a highly important re-evaluation
of the way private pension plans should operate if they are to fulfill
a major role in providing retirement security to the labor force.

Attachment

- 10 Range of Estimates of Net Revenue Loss Attributable
to Special Tax Treatment of Private Retirement Plans, 1966

Item
1.

Millions of Dollars)
:Based on individtal: Based on corpo
inc ome tax
income tax

Revenue gain from benefits subject to
individual income tax .. , ......................

$ +325

Revenue loss from tax-free income of
pension and annuity flllld s ...................•.

-550

-1,350

employer's contributions ......................

-1,15 0

-2,850

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

-1,375

-3,875

3. Revenue loss from present tax treatment of

4. Net revenue loss
NOTES:

Item 1:

Under present law, benefits are taxed to the extent they exceed the employee's
contributions. Of an estimated $3.3 billion in private pension benefits in
1966, it is estimated that 36 percent appear on nontaxable returns or are
excluded as a return of contributions. The remainder would be taxed, under
the Revenue Act of 1964 J at a marginal rate of about 20 percent (based on the ~
distribution of pension and amui ty income), but about one-fourth 01' the tax
would be offset by the retirement income credit. Thus, apprOXimately
$325 million is now obtained by taxing benefits.

Item 2:

Total investment income of private pension funds and annuity plans is
estimated at $3.0 billion in calendar year 1966. This would yield tax
revenue of $550 million at individual rates and about $1.35 billion if
taxed at corporate rates.

Item 3:

At 1966 income levels, corporate contributions to private pension and
profit sharing plans are estimated at about $6.3 billion. Under the
Revenue Act of 1964, the marginal rate on salaries and wages is estimat~
at 18.4 percent, including nontaxable returns. If corporate contributions
were treated as being vested in the employees and taxed to them, their
liabilities would rise by $1.15 billion.
The marginal tax rate on corporation deductions under the 1964 Act is
about 45 percent. Therefore, if in lieu of employer's contributions
these amounts were included in corporate profits and were made taxable
to the employer, corporate tax liabilities would rise $2.85 billion.

SOURCE:

Office of the Secretary of the Treasury
Office of Tax Analysis

TREASURY CEPARTMENT

FOR IMMEDIATE RELEASE

The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$2,300,000,000,or thereabouts, for cash and in exchange for
Treasury bills maturing May 26, 1966,
in the amount of
$2,312,757,000, as follows:
9~day bills (to maturity date) to be issued May 26, 1966,
in the amount of $1,300,000,000, or thereabouts, representing an
additional amount of bills dated February 24, 1966, and to
mature August 25,1966, originally issued in the amount of
$1,000,854,000,the additional and original bills to be freely
interchangeable.

183-day bills, for t1,000,000,000, or thereabouts, to be dated
May 26, 1966,
and to mature November 25, 1966.
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
lP to the cloSing hour, one-thirty p.m., Eastern Daylight Saving

;ime, Monday, May 23, 1966.
Tenders will not be
~eceived at the Treasury De~artment, Washington.
Each tender must
Ie for an even multiple of $1,000, and in the case of competitive
,enders the price offered must be expressed on the basis of 100,
rith not more than three decimals, e. g., 99.925. Fractions may not
Ie used. It is urged that tenders be made on the printed forms and
'orwarded in the special envelopes which will be supplied by Federal
:eserve Banks or Branches on application therefor.
Banking institutions generally may submit tenders for account of
ustomers provided the names of the customers are set forth in such
enders. Others than banking institutions will not be permitted to
~bmit tenders except for'their own account.
Tenders will be received
lthout deposit from incorporated banks and trust companies and from
!sponsible and recognized dealers in investment securities. Tenders
rom others must be accompanied by payment of 2 percent of the face
nount of Treasury bills applied for, unless the tenders are
:companied by an express guaranty of payment by an incorporated bank
~ trust company.
F-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 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 Treasu~
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
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 26, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing May 26, 1966.
Cash and exchange tender
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 bi lIs 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 upoo
sale or redemption at maturity during the taxable year for which t~
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 fti
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

May 18, 1966
FOR TIMMEDIATE RELEASE
TREASURY REFUNDS ONE-YEAR BILLS
The Treasury Department, by this public notice, invites tenders
for $1,000,000,000, or thereabouts, of 36S-day Treasury bills, for
cash and in exchange for Treasury bills maturing May 31, 1966, in the
amount of $1,000,886,000, to be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided. The
bills of this series will be dated May 31, 1966, and will mature
May 31, 1967, when the face amount will be payable without interest.
They will be issued in bearer form only, and in denominations of
$1,000, $5,000, $10,000, $50,000, $100,000, $500,OQOand $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, Wednesday, May 25, 1966. 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.
(Notwithstanding the fact that these bills will run for 365 days,
the discount rate will be computed on a bank discount basis of
360 days, as is currently the practice on all issues of Treasury
bills.) 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
Nill be received without deposit from incorporated banks and trust
:ompanies and from responsible and recognized dealers in investment
3ecurities. Tenders from others must be accompanied by payment of
Z percent of the face amount of Treasury bills applied for, unless
.: he tenders are accompanied by an express guaranty of payment by an
lncorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at
:he Federal Reserve Banks and Branches, following which public
.nnouncement will be made by the Treasury Department of the amount
-479

- 2 and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids. Settlement for accepted
tenders in accordance with the bids must be made or completed at t~
Federal Reserve Bank on May 31, 1966, in cash or other immediately
available funds~ in a like face amount of Treasury bills maturing
May 31, 1966. 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 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.

000

TREASURY DEPARTMENT
Washington
FOR USE IN MORNING NEWSPAPERS
THURSDAY, MAY 19, 1966

REMARKS OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT A NEWS CONFERENCE ON THE BAlANCE OF PAYMENTS
IN THE FIRST QUARTER OF 1966
MAY 18, 1966, at 2:30 P.M., EDT

The balance of payments table and news release of the
Commerce Department released today shows a seasonally
adjusted first quarter deficit of $582 million on the overall liquidity basis.
At the recommendation of the Advisory Committee on
Balance of Payments Statistics, chaired by Dr. Edward M.
Bernstein, and the Statistics Subcommittee of the Joint
Economic Committee of the Congress, chaired by Senator Proxmire,
we began reporting the deficit in the last quarter of 1965 on
both the "over-all" and the "official settlements" bases.
On the latter basis the seasonally adjusted first quarter
deficit was $262 million.
The major difference between the two is that the overall, or liquidity, account includes changes in private
foreign dollar holdings, and the official settlements does
not.
As pointed out in the Commerce Department release,.the first
quarter official settlements deficit represented a.co~s~derable
improvement from the fourth quarter rate of $1.2 b~ll~on and the
1965 second half quarterly average of $470 million -- with these
figures calculated on the same basis.
Since mid-1965, with the beginning of the large buildup in direct and indirect costs of our military and aid operations
in Southeast Asia: we have, however, been little more than holding
Our own -- in terms of "overall" balance of payments results.
In August, reporting on the second quarter surplus, I
warned of the dangers of possible complacency, saying of the
second quarter surplus:
"We do not take it as a sign that we have turned
the corner from balance of payments deficits to
balance of payments surpluses.
F-480

- 2 -

"The period of surplus is too short for that,
and there were too many special factors affecting
it."
You are all aware that quarterly figures are notoriouSly
unreliable guides to future performance. Multiplying the
first quarter deficit figures by four to arrive at an
estimate of the 1966 deficits on the "over-all" or "official
settlements" basis would be no more appropriate than to have
treated last year's second quarter surplus as marking the
solution of our problem.
So let us examine the past three quarters since the new
and significant factor of the Vietnam build-up entered the
picture last August, adjusting them to take into account two
specific arrangements with Canada and West Germany.
If the $150 million of Canadian security issues shifted
from the fourth quarter of 1965 to the first quarter of 1966
were shifted back to the fourth quarter (net of $40 million
of Canadian first-quarter repurchases of its obligations from
U. S. investors), you would see the following pattern of
seasonally-adjusted quarterly deficits since mid-1965.
Over-all Deficit
(millioIE of dollars)
3rd quarter 1965

-509

4th quarter 1965

-476

1st quarter 1966

-472

The reasons for this shift of Canadian issues from the
fourth quarter to the first quarter are given in our
attached news release of November 9, 1965.
If, in addition, the present military offset arrangements
with West Germany, which call for German payments to the
United States during the fiscal years July 1, 1965, to
June 30, 1967, for military equipment to offset our military
expenditures in Germany, were functioning on an even quarterly
basis (which is not part of the arrangement), the picture, 00
a seasonally adjusted basis, would be (table follows)

- 3 Over-all Deficit
(millions of dollars)
3rd quarter 1965

-377

4th quarter 1965

-361

ls't quarter 1966

-382

It would seem from these figures that since the beginning
of the large build-up in Vietnam last August,our progress
toward achieving equilibrium in the balance of payments has
been arrested. Those who would pass judgment on the long
trend in the United States balance of payments must ask what
would the situation have been without the Vietnam build-up.
This question arises naturally from the fact that the balance
of payments costs and consequences of the Vietnam conflict are
not permanent or ordinary costs that will persist indefinitely.
Two factors must be taken into account: (a) the rising
balance of payments costs in Southeast Asia of both the
military and the aid programs and (b) the direct and indirect
impact of Vietnam on the domestic economy and the
balance of trade.
In the last quarterly balance of payments press conference,
I answered questions concerning the increases in the direct
balance of payments impact of military and aid outlays
related to Vietnam. They are substantial.
But the indirect effects are also important, if more
difficult to measure. Gross national product has increased
in the fourth quarter of 1965 and the first quarter of 1966
at unusually high rates in real terms as well as current
dollars. The impact of the sharp increases in government
orders placed as a result of the Vietnam build-up undoubtedly
contributed to the fact that manufacturing plants operated
at the highest utilization rate in many years and that plant
and equipment expenditures moved up at a sharply increasing
rate. Although one cannot pinpoint the exact amount of the
exuberance of the two quarters that should be attributed to
Vietnam, clearly it was substantial and it adversely affected
our trade balance.
Instead of the improvement that we had expected from
last year's $4.8 billion rate, the trade surplus in the
fourth quarter, amounting to $5.1 b}llion at an annual rate,
dropped in the first quarter to $4.4 billion at an annual rate.

- 4 -

Exports increased at an annual rate of $350 million over
the fourth quarter, a very respectable rise, and imports rose
$1,000 million. How much higher exports and how much lower
imports would have been without the pressures on capacity
and demand, created, in part, by the increased scale of
Vietnam associated activities, is almost impossible to say.
But we know that there was an effect, and the adverse
indirect impact of Vietnam on our balance of payments since
we made our forecast last fall may well have been greater
than the direct costs.
We suggest that careful analysis will support the
proposition that, absent the Vietnam build-up, the United
States might have moved substantially closer to equilibrium
in its balance of payments in the three quarters under
discussion.
Indeed the picture for the first quarter of 1966 would
be much more favorable:
(a)

if there were no direct balance of
payments costs of Vietnam, 2£,

(b)

if the West German military offset payments
had caught up to schedule this quarter, or,

(c)

if the Canadian security offerings in the
New York market in the first quarter had
not been bunched, 2£,

(d)

if the quarterly trade surplus had, in fact,
been of the magnitude consistent with the
assumption stated in the 1966 program when it
was announced in early December.

So the question arises what should be done?
We have
not waited for the figures announced today to begin to
arrive at answers and, in fact, put them into effect.
On March 8, the President issued new orders to all
government departments and agencies urging them to examine
their dollar outflows and to reduce them to an absolute
minimum. (See attached copy)

- 5 -

The Department of Defense began in March to consider
a series of new measures designed to reduce the foreign
exchange costs of its activities.
The Agency for International Development continues to
take steps to assure that our foreign assistance, to the
greatest extent possible, takes the form of the transfer
not of financial resources but of real resources -- exports
from the United States.
The Federal Reserve voluntary credit restraint program
continues to operate effectively. We had an inflow of $255
million in short- and long-term bank funds in the first
quarter, slightly more than in the fourth quarter of 1965.
Governor Robertson will comment further on this.
Secretary Connor issued a press release on May 11,
describing the current status of the voluntary program being
administered by the Department of Commerce. We will not have
for some weeks the first quarter figures for direct investment
and investment income. Secretary Connor will have a
statement on this phase of the program.
The Foreign Tax Investors Act, now reported out by the
House Ways and Means Committee, should become law as soon
as possible to provide the basis for an expansion in private
foreign portfolio investment in the United States.
We had allowed for ahother increase in the tourist
deficit in our 1966 forecast last fall. It remains to be
seen whether the increase will be larger than anticipated.
Meanwhile, we have been studying ways of making our present
program, designed to stimulate travel in the United States,
more effective. There is a strong feeling throughout the
government that we must spend more money to promote our
product, to make more foreigners and more of our own
citizens aware of the tourist attractions here and to make
those attractions as accessible and appealing as possible.
It is clear that our trade balance and export growth
are the key to the future. We here in the government have
talked a great deal about exports and I believe we have made
progress -- particularly in the Commerce Department -- in
our various efforts to stimulate exports. But I am not sure

- 6 -

that we have made it as clear as we should that exports are
a matter of critical concern to all of us. Here is a field
of endeavor in which the government and the business
community clearly have a deep and lasting mutuality of
interest.
The Action Committee of the National Export Expansion
Council recently submitted three reports to the President
on Export Financing, Exports and Taxation, and Ocean
Transportation, Freight Rates, and Export Expansion. These
reports contain a number of interesting and helpful
suggestions. Mr. Harold Linder, Chairman of the Export-Import
Bank, has announced a long list of adjustments in the policies
of that bank designed to make it faster and easier and in some
instances cheaper for exporters to obtain export financing. These
changes coincide with certain of the recommendations of
the NEEC Action Committee Report. Other recommendations in
these reports are under active study in the government and
no doubt will be reflected in further positive action.
The Commerce Department is intensifying its efforts to
bring together American producers and foreign importers and
to assist the American producer to make, package, and
deliver his product in the most effective way for sale in
a foreign market.
The Secretary of Agriculture is actively engaged in
promoting exports in that very important sector. Our
AID mission directors are becoming more export-conscious
and studies of ways in which they can help stimulate United
States exports with promising repeat-business potential are
underway.
Indeed, there are encouraging signs in our export
performance. Exports ~ up this year, and in March they
were up sharply to a record level -- the highest level in
history except for March 1965, when our shipments surged
forward at the end of the dock strike. The encouraging thing
about the March figures, furthermore, is the broad range of nOO·
agricultural products for which export demand increased.
But we can do still betterc And we here in the
government must make sure that we do not unwittingly put
impediments -- administrative and otherwise -- in the way
of our exporters.

- 7 On the import side, I am hopeful that as the rate of
increase of Gross National Product slows -- and I think you
would agree it will not continue to increase at the same
rate as in the first quarter -- and as new productive
capacity comes on-stream, we will be better able to
supply domestic demand for goods and services from domestic
sources.
Our goal is still the achievement of equilibrium -sustained equilibrium. The multiple costs of Vietnam
have made the task more difficult to be sure, and it may be
that we will have to settle for an interim objective of
equilibrium exclusive of the costs of Vietnam.
As always, the future is unclear. But this should be
crystal clear: we will reach an appropriate degree of
equilibrium and we will do so in ways consistent with our
obligations, as we see them, to our own citizenry and to
the remainder of the Free World.

000

Attachments

TREASURY DEPARTMENT

November 9, 1965
CANADIAN SECURITIES ISSUES POSTPONED
The Treasury today issued the following statement in response
to inquiries:
The United States and Canada have agreed that the
financial authorities of both countries will solicit the
cooperation of borrowers and underwriters of both countries
in deferring delivery until 1966 of further securities
offerings.
It is hoped, in this way, to smooth the quarterly flow
of capital between the two countries consistently with the
seasonal balance of payments considerations of both.
The background to the above moves is the following:
.Th: United States and Canada have agreed, as part of
:o~t~nu~ng cooperative arrangements made in 1963, to make a
Jo~nt effort to limit during the remainder of this year the
amount of funds delivered to Canadian borrowers raising
money in U. S. capital markets.
In July 1963, at the time when the Canadian exemption
from the Interest Equalization Tax was secured, Canada
stated that it was neither her desire nor intent to increase
her foreign exchange reserves through the proceeds of
borrowing in the U. S. The two governments agreed to
maintain close consultation on this matter in the interest
of both countries.
As a result of recent large sales of wheat to the
USSR and the usual seasonal strength in her current account,
the level of Canada's foreign exchange reserves, including
her creditor position with the International Monetary Fund,
has been running somewhat higher in recent months than the
level used as a base in the 1963 understanding. At the
same time, Canadian security offerings have been running
at a high rate, with expected deliveries in the fourth quarter,
in the absence of deferments, expected to reach $250 million.
While Canada's balance of payments picture is seasonally
strong in the fourth quarter, it traditionally has a large
current account deficit to meet in the winter and in the spring.
000

MARCH 8. 1966

FOR IMMEDIATE RELEASE

Office of the White House Press Sec retary

- - -- - - - --- - - - - - -

- - - - - - - - - - - - - _. - - - - - - - --.

THE WmTE HOUSE

MEMORANDUM FROM THE PRESIDENT
FOR CABINET OFFICERS AND HEADS OF
MAJOR AGENCIES

Our balance of payments requires our continuing attention and concern. We
achieved a substantial improvement in the overall deficit in 1965 and we look
forward to further improvement this year.
Federal overseas transactions play an important role in our balance of payments,
and for the past several years we have made a great effort to minimize the adverse
impact that our Federal programs might have on our balance of payments. But
the requirements associated with Vietnam, both for military and for economic
assistance, now demand even greater vigilance in controlling our overseas
Federal transactions.
Under the procedures which have been established to control the balance of
payments impact of the Federal Government's overseas activities, you are
scheduled to report by March 15 to the Bureau of the Budget on your agency's
international transactions. I urge that you use this occasion to reexamine all of
your overseas programs with the utmost care, Your objective should be to
maximize receipts and to minimize expenditures abroad consistent with the
achievement of U. S. objectives,
I have instructed the Director of the Bureau of the Budget to examine your
reports carefully and to infonn me promptly of the progress which is being
made by each Federal agency in assisting the Nation to achieve equilibrium in
its balance of payments,

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
EXCEPTIONAL SERVICE AWARDS
PRESENTED TO THREE TREASURY OFFICIALS
Under Secretary Joseph W. Barr today presented Exceptional
Service Awards to three Treasury officials
Miss Eva B. Adams, Director of the Mint.
Ernest C. Betts, Jr., Deputy Assistant Secretary of the
Treasury for Administration and Director of the Office of Budget
and Finance.
Bill McDonald, Assistant National Director of the Treasury's
Savings Bonds Division.
Miss Adams, a native of Wonder, Nevada, was named by
President Kennedy as Director of the Mint in 1961.
Previously she served as Administrative Assistant to three
United States Senators from Nevada. Miss Adams holds degrees from
the University of Nevada, Columbia University and George Washington
University.
Mr. Betts, a native of Sparta, Wisconsin, has been Director
of the Office of Budget and Finance for more than three years,
and also has been serving since late 1964 as Deputy Assistant
Secretary of the Treasury for Administration. Mr.Betts has had
a long government career, previously serving as Budget Officer
for the Department of State, Personnel Director at the Department
of Agriculture, and in other posts at home and abroad. He
attended Platteville State Teachers College and Vernon County
Teachers College, and taught school in Wisconsin before entering
the Government service in 1939.
Mr. McDonald, Assistant Director of the U.S. Savings Bonds
Division, was born in Guntersville, Alabama, in 1909, and has been
with the Treasury Savings Bonds staff since 1942, except for Army
Service during World War II. He is a graduate of Columbus
University, Washington, D.C. Mr. McDonald served as Executive
Officer for the Savings Bonds Division from 1947 until 1950, when
he was named Assistant National Director for all phases of the
Savings Bonds program.
F-481
000
(Citations attached)

CITATION

Exce.pUon.a..i SeJtv.i..ce. Awa.Jc..d
Eva B.

Ad~

M V-i.Jte.cA.olL 06 the. UYl.i..te.d s.tatu M.int ~.inc.e. OctobeIL 1961, Eva Ad~ fuu
h.ighut t:Jw..ciJ.;tio~ 06 public. .6e1Lv.ic.e.. Hell pa.Jc..Uc..ipaUon.in .top
poUc.y 601[mui1Lti..on ha..& c.omb.ine.d hVl OWn w.ide.-Mng.ing judgmen,t wLth .the. Mint' ~

~elLve.d.in.the.

.te.c.hn.ic.ai.. know-how. Whe.n 6.inai.. poUc.y de.w.io~ have. be.e.n Jte.ac.he.d, .6he. ha..&
.tIL~late.d .th~ .into e.66e.c..t.ive. and e.66.icie.nt ac..t.ion wh.ic.h ha..& plLo.te.cte.d .the.
nmon nlLom ~e.Ve.!Le. c.o.in ~holLtag~.
The. .6uc.c.~.6 06 .the. M.int .in oVeILc.om.ing pe.IL.6,u,.te.nt c.o.in .6holLtagu hl1.6
lLuu..Ue.d mo 61L0m hVl e.xwpla.Jc..Y 1Le.la;t.i0~ wUh ConglL~.6. By ke.e.p.ing .that
body 6u..Uy .innol[me.d a.& .to .the. Mint' ~ plan.6 and plLoblem.6, .thVle. hl1.6 lLuu..Ue.d
an e.xe.c.utive-leg~la.t.ive c.oopelLa..t.ion ma~ng pO.6~.ible. .thue. ac.c.omp~hment4.
Soon a6.teIL be.c.om.ing V-i.JtectolL 06 .the. AUnt, Eva Ada.m.6 wOlLked c.lo~ely wUh
a plL.iva..te management C.OYL.6u.li:a.n.t 6htm -- .the AILthWr.. V. Lilite. Company -- .to
~Wr..vey .the na.t.ion' ~ c.o.inage need.6 and the Mint' ~ 6acJ...U.;tiu nOll de.aling with
them. Out 06 .th-U, ~Wr..vey came le.g~la.t.ion 601L the c.OM:tJw.c..t.ion 06 new and
up-to-date M.int 6acJ...U.;tiu .in Ph.iladelph.ia, PeYlJ1..6ylvan.ia..
When c.o.in .6holLtagu thILea.t.e.ned .in 1963, .6he put .the M.int on a 24-hoWL
.6chedui.e. .to mee..t the. demand. In 1964 -6he oVeILcame ano.theIL .6holLtage. by
.inau..gu.tLa.ting a c.ILl1.6h plLogJtam .to double .the plLoduc..t.ion 06 C.O.iM. Hell WOILR. .in
c.oope.lLa.t.ion w.Uh othelL TlLeMIJ..ILY 066.icim and a plL.ivate C.OMu..U.in9 6i1Lm -- .the
Battelle MemolL.ial I MUtute - - ILU ui.te.d -<.n the PlLu-i.dent'.6 1Le.c.orrme.ndlttio n 06
le.g.i-6la,Uon le.ading to the. enac.,bne.nt 06 the Co.inage Act 06 1965, PlLov.id.ing new
c.ob1age ma..te.lL.im .to c.OMelLve .the na.t.i.onr~ clw.indUng ~uppUu 06 .6ilVVl. She
then launched .the pIL 0duc..t.io n 0 6 the ne.w , .in.tlL.i..c.atel y du.ig ned eo.in.6 .in qu.an.t.itiu
.6u66.iue.nt .to oOILU.tai..t a c.o.in ~,u, .in 1965.
Thue aecompwhme.t'i.U Me a vubute .to the ab.iUty on Eva Adant.& .to plLov.ide
.the Se.c.lLe..ta.Jc..y 06 the. TILe.l1.6Wr..y with .the ba6~ 601L .6ound poUey de..te.Jtm.i..na.t.ion, to
6~h ConglLe.-6.6 with .in601Lmat-<-on ne.ede.d to take applLoplL.ia..te ac..t.ion, to ma..inta.i..n
the h-<.gh mOILai..e 06 Mint wployeu e.neoUlLag.ing 1Le.c.olLd-blLeak.ing plLoduc..t.ion and .to
adm.in.i.6teIL new plLoglLam6 .in an e.o 6.iue.n.t manneIL.

CITATION
Exeeptional S~viee Awa4d
ElLnut C. BetU, JIL.

fOIL

W ou-tAtancU.ng

p~60lUM.nee ~

06 Budget and Einaneej 601L hA.A

6ull.

Julnge

VaeetolL 00 the 066-ic.e

e66eetive eontJUbutioru, to the

TlLelUU!ly' ~ management implLovement plWg~

..in W

1L0le ~ Veputy A6~~ta.nt SeClLe:tiVl.1j 601L AdmL~tIr.a.Uonj and OOIL
exempli6ying the hA..ghut :tJuu:.LUio~

06 the

c.aJle~ Civil SeJLvic.e

thlwugh hA.A loyal, dedicated, hn!lgbta.t.i.ve, and c.a.pa.b.te e6601Lt4.

CITATION
Excepuonat Se.Jtv,tce AWMd

Bill

McVol1atd

TIUA awaJLd ,{},j made ,tn JtecogrU;t-iol1 06 Bill McDonald'-6
o~tand,tng contJt-i.but,ton-6 to the U. S. Sav-i.n~-6 BOI1d6 PJto~Jta.m
attd the TJtea..6uJLY VepaJL:brrettt. Th/tough hi6 bJtoad knowledge 06
the PJtogltam, IUA -6OUl1d judgmettt, and hiA abilill! to make
dew.i.on-6, the Sav,tng-6 BOI1d6 PJtogJtam hct.6 been tna.-inta.-ined at al1
excepuorta.U.y h,tgh level ,tn -6atu and ope.JtaUOn-6. Th-i.-6 hct.6
been accompwhed ,tn -6pde 0 S -6tJt-tc.t W~On-6 on budget and
numbe.Jt 06 p~OYUtel. H,{},j ded-i.ca.tiol1 to :the PJtogJtam and
exe.mptMy pe.Jt6ollmal1ce weLt jMu6l! h-i.-6 Jtecuv,tng tlUA Excepuonat
SeJtv,tce AwaJtd.

TREASURY DEPARTMENT
Washington

STATEMENT OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE
COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES
THURSDAY, MAY 19, 1966, 10:00 A.M.
Mr. Chairman and Members of the Committee:
I have been asked to comment today on two bills before your
Committee -- H.R. 14026 and H.R. 14422 -- which in different ways
would affect the acceptance or issuance of time depo5its by insured
commercial banks.

Before addressing myself to these two bills and

making certain specific suggestions of my own, I would like to
offer a general comment on recent developments regarding the
competition for time deposits.
I should point out, first of all, that the Treasury does not
have a direct supervisory interest regarding the rates and other
terms offered on bank time deposits and on competing investment
forms offered by other financial institutions.

However, because

of our general concern about the state of the economy, and our
particular concern with the management of Government finances, we
have a continuing interest in the mairttenance of stable financial
markets.

Moreover, in bringing together, at the request of the

President, a Coordinating Committee on Bank Supervision -- which
includes the Comptroller of the Currency and the Chairmen of the
Federal Deposit Insurance Corporation, the Federal Home Loan Bank

- 2 Board and the Federal Reserve Board

the Treasury has been

actively interested in this question.
Recent developments in the competition for savings may be
traced conveniently back to 1961, when a combination of more
aggressive competitive behavior by commercial banks and a series
of revisions in the Federal Reserve's Regulation Q and the FDIC's
Regulation 329 resulted in a substantial increase in commercial
bank time deposits and in important changes in the portfolio
policies of banks.

Between year-end 1961 and year-end 1965

commercial bank time deposits increased by about $64 billion
or more than 75 per cent.
15.5% yearly

This is a compounded growth rate of

achieved on a base that was already substantial.

A portion of the accelerated growth in bank time deposits came
from funds that might otherwise have gone to savings and loan
associations and mutual savings banks; in some instances, this may
have reflected a return flow of funds that had previously been
shifted away from banks

for savings and loan associations, in

particular, had enjoyed an extraordinarily rapid growth rate in
the earlier postwar years.

Some of the growth in commercial bank

time deposits reflected shifts by corporations and public treasurers
away from competing money market instruments including Treasury
bills.

And some of the increase in time deposits probably reflected

shifts from bank demand depositsD

- 3 More recently many banks have offered so-called savings

0
b on d s, " generally in non-negotiable
cert1°fO1cates or "
sav1ngs
form, which have made higher time deposit rates available to
individual savers with accounts largely in the $2,500 to $100,000
range.

In some cases, the higher rates have been made available

on savings instruments ranging even smaller in size -- all the
way down to about $20 or even less.

In contrast, negotiable

certificates of deposit -- or CD's -- are typically issued and
traded in size units of $100,000 or more, serving as a liquid
money market instrument rather than as a savings medium.
The rapid inflow of funds into banks spurred more aggressive
lending policies by banks and encouraged many banks to move into
areas of lending that had received less attention earlier.
Mortgage lending, consumer credit lending, and investments in
obligations of state and local governments showed particular
increases among bank assets.

On the whole, these shifts in bank

lending and investing practices have been desirable, contributing
importantly to the unprecedented growth of credit and economic
activity that we have experienced in recent years.
certainly become more competitive.

Banking has

The margins between what banks

pay for funds and what they earn on loans and investments has
narrowed and the public has benefitted.

- 4 It is true that a few banks have used certificates of deposit
unwisely tD finance unsound loan portfolios.

But such practices are

not inherent tu CD's or increased time deposit competition.
failures

d~rin:c;

Bank

(he past few years have alerted supervisory agencies

to potential problems and alerted the general public to potential risk
As market interest rates have advanced during the past year
have been under pre:

~'.·ce

b~b

to raise rates paid on time deposits,

particularly in order to attract and retain rate-sensitive funds.

Board of Governor s of the Federal Reserve Sy stem decided last December
to raise the rate ceiling on time deposits from 4-1/2% to 5-1/2%,
enabling banks to compete at higher levels.

At the same time, the

Board elected to keep the 4% ceiling on savings deposits, in order
to limit the impact of rate competition among banks and between banks
and other financidi institutions.
In recent years lHany economists have favored eliminating, or
placing on a standby basis, any interest rate ceiling on time and
savings deposits.

B:Jth the Commission on Money and Credit, in 1961,

and President Kennedy's Committee on Fi~ancial Institutions, in 1963,
recommended placing on a standby basis interest rate ceilings that
would apply both to banks and other thrift institutions.
recognizes that,

This

principle it is hard to defend a policy that

insulates banks ar,d uther financial institutions from competing
among

themselve~.

- 5 While acknowledging this point of principle, I believe the
present period demonstrates that there is a need at times for the
guidance

tha~

regulatory agencies can provide.

At the very least,

ceilings are needed in transitional periods, when financial
institutions are making adjustments to a changing competitive
environment.

Moreover, it is important that the authority of the

supervisory agencies with respect to ceiling rates and other pertinent
factors relating to time and savings deposits be available with some
flexibility to distinguish among different types of deposits.
iegardless of what ceiling rates or other conditions may currently
~xist

or be proposed, the present experience should stimulate some

lard thinking by all of us -- in the financial markets as well as
In Government

about the pros and cons of bidding for "hot money."

In seeking legislation in this area, I believe an important
)rinciple to keep in mind is the undesirability of taking an approach
:hat would permanently inhibit healthy comp,::titjon among financial
.nstitutions.

It would be equally undesirable, however, to remain

Lloof to the point that destructive competition dealt permanent
.njury to our financial institutions and the sectors of our population
.nd our economy that depend on those institutions.
One of the bills before you, H.R. 14026, would prohibit banks
rom issuing negotiable deposits or notes.

This would substantially

- 6 -

lessen the attractiveness to investors of large denomination
certificates of deposit, although it probably would not eliminate
their use entirely.
The possible effects of a sharp reduction in the volume of
certificates of deposit are difficult to contemplate.

Based on

the funds they have obtained in this manner, banks have built up
enormous additions to their assets -- representing useful credits
to many segments of the economy.

It is not easy to say "where the

money would go" if negotiable certificates of deposit could not
be renewed as they matured.

At the least, there would very likely

be severe transition problems for particular institutions and
segments af borrowers that found credit flows cut off.
To some extent, banks probably could continue to obtain funds
by issuing

~-negotiable

certificates of deposit, but this might

require higher interest rates than are paid now.

Almost certainly,

banks would have to issue such certificates in shorter maturities
than is the current practice, thus foreshortening the time when
periodic renewals must be arranged.
H.R. 14026 would also prohibit banks from selling negotiable
debentures.

Durin5 the past few years banks have added more than

$1.5 billion to their capital through the sale of debentures.

banks were able to sell debentures only in non-negotiable form they
would probably have to pay higher interest rates, if indeed they

- 7 could sell them at all.
While I would not favor H.R. 14026, I do not

mean to say that

we see no problems at all in the CD area, or that we have no concern
about the current role OD's seem to be playing in the interest rate
structure.

As beneficial as CO's have been over the past several

years, I must say that aggressive bank competition to obtain these
short-term funds

which has been the counterpart of the aggressive

bank competition to extend credit in channels that benefitted the
economy -- has worked at times to move short-term interest rates
higher.

When this process succeeded in generating a larger pool

of funds that the banks could use in extending longer term credits,
this additional pressure at the short end was tolerable.

Indeed

it was welcome in the early years of the 1960's in order to raise
our short-term interest rates in relation to those rates abroad,
thereby averting or retarding outflows that would add to the deficits
in our balance of payments.

But when we reach a situation where to

a considerable extent banks are bidding against one another, or
against others who must use the short-term money market, to secure
more of a rather limited total supply of available funds, a question
may be raised as to whether this useful device is perhaps being
pushed too far.

- 8 As I said in a speech in Phoenix, in early April:
I would hope, also, that there will be an
accompanying disengagement from unreasoning
competition for time and savings deposits
that ignores the need for caution and the
harm that kind of competition can do to our
banking and financial system.
This is a question that has been under study within the
Government, particularly in the last five months.
simple answers to offer here.

We do not have

I cannot conclude that a flat ban

on negotiable certificates of deposit would be desirable.

If, in

the judgment of the Committee, some action is deemed desirable,
a better approach might lie in the direction of providing the
appropriate monetary authorities with greater discretion to set
levels of reserve requirements on large negotiable certificates
of deposit that might exceed those on other time and savings
~eposits.

Of course, you will want to consider carefully the

views of those much closer to the problem of day-to-day bank
supervision.
Another bill before you -- H.R. 14422 -- would prohibit insur~
banks from accepting time deposits in an amount less than $15,000.
This bill, along with the present Regulation Q ceilings, would in
effect restrict banks to the 4 per cent rate ceiling on savings
deposits for accounts of less than $15,000.

- 9 While I have considerable sympathy with the apparent objectives
)f H. R. 14422, it does seem to me that its approach is unnecessarily
~igid,

and that it is unnecessarily discriminatory against smaller

;avers at commercial banks under the present interest rate spread.
At the same time, many of us are concerned about the considerable
~vidence

that something should be done promptly to retard the outflow

lnd threatened outflow of savings funds from savings and loan
lssociations and mutual savings banks.

While none of us is in a

)osition to evaluate just hQW serious this threat may be as a
ong-term matter affecting these institutions, there is a genuine
urrent concern in the Congress, in the Federal Home Loan Bank
oard, and in the private economy, that a continued 3avings outflow
ould place undue stress on some of these financial institutions,
nd undue constraints on the flow of money into the mortgage market
nd homebuilding.
Under the circumstances, the prudent course would seem to be
o provide some simple fonn of insurance that could be put in effect
~eedily, that would tend to avoid dras~ic dislocations, and that

ould provide our savings institutions with an opportunity to make
:'1

orderly adjustment to new competitive situations.

By placing

temporary restraint on excessive competition in this area, it should

- 10 be possible both to protect the structure of the thrift institutions
and to bolster the flow of funds to the homebuilding industry.
In acting prom?tly to provide temporary relief from the problems
of excessive rate competition, I do not believe we should commit
ourselves to permanent arrangements that would impede and
compartmentalize our financial markets.

R~ther

the present purpose

is to find agreement, along simple lines, on means for dealing with
this

temp~rary

transition~l

problem.

With this background in mind, I would like to make certain
affirmative proposals that I would urge this Committee to consider
a~d

act on

pro~ptly.

Specifically, I believe it would be desirable

to provide the monetary authorities,on a temporary basis designed
to cover this transition period, with discretion to set a different
rate ceiling on time deposits up to the maximum amount covered by
Federal deposit insurance.

Under present circumstances, this would

mean that a maximum rate of, say, 5% could -- and I might say should .be set on time deposits up to $10,000.
first $lO,OJO would be covered by a

For larger time deposits, the

~aximum

rate which could be set

at 5%, while the balance could pay interest at rates up to those
now specified in the Federal Reserve's Regulation Q.
The choice of an appropriate size limit on which to set different
maximum rate levels is not an easy question to resolve in view of
all the equity considerations and competitive factors involved.

- 11 We suggest $10,000 as an appropriate limit for two important reasons:
First, tying this limit to the maximum insurance limit makes
sense in view of the Government's contingent liabilities on deposits
up to this size.

Assuming the necessity for establishing a limit,

and I believe there is such a necessity, it is logical that those
who have the protection of Government insurance should be prepared
to receive a slightly lower rate on the insured amounts.
Second, based on our information about the current situation,
we believe that this limit represents a middle course which should
alleviate the impact of destructive competition for savings, without
seriously impairing the ability of banks to engage in constructive
intermediation.

A limit of this nature, with the rate set in

current circumstances at a 5% level, should be of significant help
in deterring further large drains of funds from the specialized
savings institutions.

Timely protective measures, undertaken now,

will help in relieving the liquidity strain on these institutions,
and in turn relieving the strain on important sectors of the economy
that depend on an availability of funds from these institutions
notably the mortgage market and the homebuilding industry.
Taken over-all, I believe that the $10,000 dividing point, tied
to the present insurance limit, makes sense from the standpoint of
prudent economic policy.

A higher limit -- with discretion for

- 12 setting the figure given to the appropriate supervisory authorities,
but perhaps somewhere in the range of $25,000 to $100,000 -- might
also make good economic sense in present circumstances.

I would

not be op?osed to such a limit, provided on a temporary basis, and
this is a point that the Congress should consider carefully, but
my own preference in this temporary authority would be for a link
to the maximum insured account size.

Against the background of

current policies as reflected in the recent announcement of the
Federal Home Loan Bank Board, I believe this approach could be
part of a framework for sustainable competition among thrift
institutions.
For the foregoing reasons, I sincerely urge the Committee to
give serious consideration to this proposal as an alternative to
other legislative proposals before it.

I have available copies

of a draft of a bill which would provide temporary authority
for a two-year period to the Federal Reserve Board and the Federal
Deposit Insurance Corporation to institute different rate ceilings
for that portion of time deposits up to the maximum amount that may
be covered by Government insurance.
Finally, I would like to emphasize just as firmly as I can
that these proposals are not a cure-all or a permanent attempt to

- 13 deal with the problem of competition in the financial area.
Certainly, they are not intended to permanently impair competition
which is the vital force of our economy.

Rather, they would provide

a measure of insurance during a period o£ transition.

o~o

TREASURY DEPARTMENT

FUR H'llvIEDIATE REIEA.SE
TREASURY DECISION ON VIJ:o.j-YL ASBESTOS FIDOR TIIE
UNDER THE ANTIDUMPING ACT

The Treasury Department has determined that vinyl asbestos floor
tile from Canada, manufactured by Building Products of Canada Limited,
Montreal, Canada, is not being, nor likely to be, sold at less than
fair value within the meaning of the Antidumping Act, 1921, as amended.
This action is being taken after consideration of all comments received
pursuant to a "Notice of Tentative Determination" that such merchandise
was being sold at less than fair value within the meaning of the Antidumping Act, as published in the Federal Register on January 7, 1966.
Supplemental

clari~JinG

information fram the manufacturer resulted

in a reduction of the margin of price discrimination previously found.

Assurances were given that prices would be revised and that there would
be no resumption of the price discrimination.

The complainant, upon

being informed of thiS, withdrew its complaint.
Appraising officers are being instructed to proceed with the appraisement of this merchandise from Canada, manufactured by Building
Products of Canada Limited, Hontreal, Canada, vrithout regard to

an;'!

question of dumping.
Imports of the involved merchandise received during the period
January 1, 1965, through February 28, 1966, aInOl.mted to approximately
$310,000.

TREASURY DEPARTMENT

May 20, 1966
FOR IMMEDIATE REIEASE
TREASURY DECISION ON ST1"'EL JACKS

UNDER THE ANTIDUMPING ACT
The Treasury Department has determined that steel jacks from
Canada, manufactured by J. C. Hallman Manufacturing Co., Ltd.,
Kitchener (formerly Waterloo), Ontario, Canada, are being, or are
like~

to be, sold at less than fair value within the meaning of

the Antidumping Act, 1921, as amended.

This action is being taken

pursuant to a "Notice of Tentative Determination," published in
the Federal Register on January 5, 1966.
The merchandise under consideration consists of heavy-duty steel
jacks, from 36 inches to 64 inches high.

They are hand operated

mechanisms for lifting cars, trucks, tractors, etc.
All submissions received in opposition to the tentative determination were given fUll consideration.
Accordingly, this case is being referred to the United states
Tariff Commission for an injury determination.
Notice of the determination and of the reference of the case to
the Tariff Commission will be published in the Federal Register.
Imports of the involved merchandise received during the period
July 1, 1964, through March 31, 1966, amounted to approximate~

$3 15,000.

TREASURY DEPARTMENT

May 20, 1966
FOR IMMEDIATE RELEASE
GUINEA AND TUNISIA ADDED TO COUNTRIES WHERE
U. S. CITIZENS MAY BUY LOCAL CURRENCY FROM U. S. GOVERNMENT

The Department of State and the Treasury Department
announced today that United States citizens visiting or residing in Guinea may purchase the curreny of that country from the
United States Embassy there. U. S. owned balances of Tunisian
currency may now be purchased by Americans in that country from
the Central Bank of Tunisia upon specific request by U. S.
citizens that the Bank sell them dinars from the U. S. Government's account. Sales in both countries will be made at the
official rate of exchange.
This brings to five the number of countries where Americans
may purchase local currencies from officially owned U. S. balances.
The U. S. has been selling Indian rupees and Israeli and Egyptian
pounds to U. S. citizens in those countries for some time.
To reduce the outflow of dollars from the U. S. and thereby
reduce the U. S. balance of payments deficit, the United States
Government urges American tourists to purchase local currencies
through the official United States missions in the five countries
where they are available. When local currencies are purchased
in this way, the dollars stay in American Government accounts and
there is no outflow of dollars to foreign holders, although the
transactions take place abroad.
In the case of Guinea, the local currency may be purchased
at the U. S. Embassy in exchange for U. S. currency, personal
checks drawn on a bank in the U. S. or for U. S. travelers
checks. Purchasers must present their passports for indentification. The same dollar instruments will apply in Tunisia, except that the purchases must be made at the Central Bank.
000

F-483

Background to Announcement
of Local Currency Arrangements with
Guinea and Tunisia

Balances of the currencies of the two countries became
available for sale to U. S. citizens when Guinea and
Tunisia were added to the list of countries where official
U. S. holdings of local currencies have become larger than
required to meet the needs of the U. S. Government and where
appropriate procedures were establisned.

The currencies have

been received by the United States from the sale of surplus
agricultural commodities.
The U. S. owns working balances in the local currencies
of other countries in Western Europe, Latin America, Africa
and the Far East; however, in most cases, these balances are
not presently adequate to cover official U. S. expenses.
As further sales of U. S. agricultural products are made
for foreign currencies, and as United States official
requirements change,

arrangements for additional sales of

other currencies to private U. S. citizens will be negotiated
where possible and advantageous.

000

TREASURY DEPARTMENT

May 23, 1966
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
$2,300,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing June 2, 1966,
in the amount of
~2,301,540,OOO,
as follows:
91-day bills (to maturity date) to be issued
in the amount of $ 1,300,000,000, or thereabouts,
additional amount of bills dated March 3 , 1966 ,
mature September 1, 19 66, originally issued in the
$1,001,471,000, the additional and original bills
interchangeable.

June 2 1966
represent ing' an
and to
amount of
to be freely

182-day bills, for $1,000,000,000, or thereabouts, to be dated
June 2, 1966,
and to mature December 1, 1966.
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
(maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m., Eastern Daylight Saving
time, Friday, May 27, 1966.
Tenders will not be
received at the Treasury De~artment, 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.
up

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.
F- 484

- 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 Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
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 June 2, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing June 2, 1966.
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 bi lIs 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 revis ion) and thiS
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained ftC)
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT
,

:i RELEASE
lIiay, May

6:30 P.M.,
23, 1966.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Depa.rtment announced that the tenders tor two series of Treasury bUla,
, series to be an additional issue of the bills dated February 24, 1966, and the other
~ies to be dated May 26, 1966, vhioh were offered on May 18, 1966, were opened at the
leral Reserve Banks today. Tenders were invited tor $1,300,000,000, or thereabouts, of
odq bills and tor $l,OOO,OJO,OOO, or thereabouts, of 183-day bUls. The details ot
I two series are as follows:
fGE OF ACCEPTED

fPETITIVE BIDS:
High
Low
Average

91-dq Treasury bUls
maturing August 25, 1966
Approx. Eqlliv:
Price
Annual Rate
98.834
4.613%
98.~24
4.652:'
98.828
4.638% !I

________

~~L_~~

~~--

·•••
·,
:

:
••

18)-day Treasury bills
maturin~ November 25 l 1966
_
Approx. Equiv •
Price
Annual Rate
97.548
4.824%
97.538
4.843%
97.1)42
4.835%

49% ot the amount of
8,3% of

91~ bills bid for at the low price was accepted
amount of IB3-day bUls bid for at the low price was accepted

'At TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

istrict
oston
ew York
bUade1·ohia
leve1and
ichmond
tlanta
hicago
to Louis
inneapolis
!UlSas City
allas
.!U'l Francisco

A;eplied For
ACC8Eted
19,096,000 $
9,096,000
$
929,862,000
1,583,232,000
29,679,000
12,679,000
27,885,000
27,885,000
11,lh7,OOO
ll,147,OOO
23,1.48,000
30,148,000
1h2,042,OOO
267,143,000
34,523,000
42,521,000
15,287,000
15,287,000
24,107,000
2L., 107,000
12,665,000
21,175,000
57,599,000
73,637,000

TOTALS

$2,14S ,059,000 $1,300 ,auO,000

:
••
••
••
:
••

:
••
••

AEE1ied For
4,11),000
$
1,387,122,000
15,086,000
15,951,000
4,014,000
21,278,000

Acce,eted
$
4,n3,OOO
125,882,000
7,001,000
12,800,000
4,014,000
12,674,000

3l2,1.~61,OOO

153,911,000

:
••
:
••

;>1.,016,000
10, 784,0CX>
17,9)4,000
13,576,000
_81.1 346,000

17,016,000
9,199,000
17,434,000
9,406,000
26,211,000

$1, 91h,8t)7,OOO

$1,000,321,000

Includes $220,696,000 noncompetitive tenders acoepted at the average price of 98.828
~udes $120,153,000 noncompetitive tenders accepted at the average price of 97.$42
~e8e rates are on a bank discount basis. The equivalent coupon issue yields are
l-76% for the 91~ bills, and 5.03% for the 183-dq bills.
~85

TREASURY DEPARTMENT
Washington

STATEMENT BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE HOUSE WAYS AND MEANS COMMITTEE
ON THE PUBLIC DEBT LIMIT
10:00 A.M., MONDAY, MAY 23, 1966
(EXECUTIVE SESSION)
The President in his Budget Message last January
requested legislation that would raise the ceiling on
the public debt for the period after June 30, 1966.
Existing law provides that the temporary debt limit,
now at $328 billion through June 30, 1966, will revert
to the permanent limit of $285 billion on July 1, 1966,
making legislative action essential prior to the end of
the fiscal year.
Otherwise the Treasury and the United States Government will be in the impossible position of being unable
to refinance maturing debt as it comes due and, as our
cash balances are exhausted, unable to pay for Government
expenditures.
Last year when I appeared before you on the debt limit
we requested a temporary ceiling of $329 billion to cover
the high point of our needs on March 15, 1966.

I wish to

report that on that date our debt limit need, within the

F-486

TREASURY DEPARTMENT
Washington

I wish to

report that on that date our debt limit need, within the

F-486

- 2 conventional framework of a $4 billion cash balance and
a $3 billion leeway, was within $300 million ofrur estimate.

That is, the actual debt subject to limit was

$323.4 billion, while the cash balance was $1.2 billion.
If the cash balance had been at the normal $4 billion
level, the debt would have been $326.2 billion

only $300 million away from the $325.9 billion on which
we had based our requested $329 billion -- and allowing
only $1.8 billion for contingencies.
There was no need to draw upon any leeway for contingencies so we were able to live with the fact that
this Committee, in reducing our request to $328 billion,
actually allowed us only a $2 billion margin for contingencies.

Had contingencies arisen requiring the

utilization of more than the $2 billion we would have
been beyond the margin of prudence and safety, assuming
normal cash balance requirements.
As usual in our request for a new debt limit ceiling
we have assumed a $4.0 billion constant cash balance
this plus the $3 billion allowance for contingencies has
been the usual basis for the request.

However, as the

- 3 Committee knows, the cash balance necessarily fluctuates
over a wide range; it will frequently be high after tax
dates and new financings and can safely be lower immediately before tax payment dates.
This $4 billion base is a conservative number to
cover our actual needs.

Since the level is necessarily

much higher than this after tax dates and major cash
borrowing dates, it would have to be considerable lower
than this level on many other occasions in order to
average $4 billion.

In fact, our average cash balance

in fiscal 1965 was $6.3 billion and the average was last
below $4 billion in fiscal 1958.

I am pleased to report

that this year, through vigorous efforts, we will hold
the cash balance to an average of about $5.0 billion.
That is only slightly over half a month's budget expenditures and is about as low as one can go in prudence to
economize on our cash balances.

At one point this past

year our cash balance was down to $573 million -- the
lowest level since before World War II.

This was certainly

an unsustainab1y low level, but it was indicative of our
continuing effort to keep the balance as low as is consistent with sound fiscal management.

- 4 -

The customary $3 billion debt ceiling allowance for
contingencies represents a minimum margin of safety to
cover events we cannot now foresee as well as to the uncertainties of month-to-month estimates of receipts and
expenditures for thirteen months in the future.

addition, Treasury borrowing operations are necessarily
in large amounts and are attuned to both our needs and
favorable market opportunities.

Because these borrowings

cannot be adjusted perfectly to day-to-day changes in our
cash balances we must have the leeway to cover the temporarily higher debt levels immediately following a financing.
Other than the requirements for a minimum cash balance
and a contingency allowance, the debt ceiling requirement
is primarily determined by (1) the seasonal imbalance in
our receipts and expenditures and (2) the result of the
previous fiscal year's receipts and expenditures on the
public debt.
On the first point we will have received about 42
percent of our revenues in the first half of fiscal 1966,
whereas expenditures will be approximately equal in the
two halves of the year.

Thus in fiscal 1966, as usual,

- 5 -

we have had to borrow heavily in the July-December period
and, with large tax receipts in March, April and June, we
will payoff all or a large part of these seasonal needs
in the spring months.

On the second point -- namely, the

prior year's fiscal result -- the level of the debt at
the end of the prior fiscal year determines the starting
point for the succeeding year's seasonal needs.

Because

the peak seasonal needs have not varied greatly from year
to year, the sequence can almost be simplified to the
point of adding the prior year's deficit to the prior
year's debt limit to get the new year's debt limit.

other words, the deficit for fiscal 1966 added to the
$328 billion limit for 1966 will closely approximate
1967's needs.

This rough rule of thumb works well for

fiscal 1967 and our more refined estimates produce
virtually the same number as this guide.
As you know, the President in his Budget Message
last January estimated fiscal 1966's deficit at $6.4
billion , based on revenue estimated at $100 billion and
expenditures at $106.4 billion.

Since then two changes

- 6 -

have occurred in our revenues.

First, a more timely

payment of withheld income taxes is expected to add
nearly $1 billion to June revenues.

About 75,000 larger

employers will be required to deposit withheld income
taxes twice a month rather than once a month.

A similar

system will also apply on social security taxes.

The

first such payment is due on June 20, 1966 at about the
time when payments are coming in under the old schedule
covering a full month's liability.

This one-shot doubling

up will affect only 1966 revenues.
Secondly, the pace of collections on other taxes has
also increased.

Individual income taxes not withheld are

running in excess of the amount we estimated last January.
Apparently the marginal tax take from higher income has
continued to rise, since income in calendar 1965, on which
fiscal 1966 revenues are based, is unchanged since the
January estimates were made.

However, it is not unusual

to have revisions in the prior year's income data, and a

- 7 precise analysis of the reasons for the increase must
await the availability of more data.
While a refined estimate of the improvement in
revenue is not possible at this time, we are using
$102.5 billion of revenues as our planning base.

may do somewhat better than this -- perhaps as much as
one half billion dollars better -- but for present
purposes I believe it is prudent to plan in terms of
the $102.5 billion figure.

On the expenditure side

the Director of the Bureau of the Budget has advised
me that within a $500 million range the $106.4 billion
estimate of the January budget is still a good appraisal
of the expenditure outlook for fiscal 1966.

Consequently,

putting the $102.5 billion of revenues and $106.4 billion
of expenditures together, we are looking to a deficit of
about $3.9 billion this year, a"n improvement of $2.5 billion over the January estimate.
The uncertainties of the future are more cloudy than
is normal at this time.

To the usual questions of Con-

gressional actions on the President's budget requests,

- 8 must be added not only the uncertainties of Vietnam
costs, but also the uncertainties as to the pace and
scale of our economic growth -- that is whether the
rates of growth characterizing recent quarters will be
maintained.

These factors can have both expenditure

and revenue consequences of sizeable magnitude.

Weighing

all the uncertainties and imponderables together, however,
we would see no reason at this time to change the $1.8
billion deficit estimate for fiscal 1967, made last
January.
On these estimates for fiscal years 1966 and 1967
and bearing in mind all the uncertainties, we have projected forward the public debt at mid-month and at
month-end through fiscal 1967 shown in the attached table.
The debt projections are in the same format as in previous
debt limit hearings and assume- a constant Treasury cash
balance of $4 billion.

On this basis the debt will rise

to a seasonal peak of $328.7 billion on March 15, 1967.
This prospective level of debt, rounded to $329 billion,
and augmented by the usual $3 billion allowance for

- 9 contingencies is the basis for our request for a new
temporary debt limit of $332 billion to carry us through
June 30, 1967.

This request is for the minimum amount of

authority that I believe is needed to operate the financial affairs of this Government in a prudent manner.

urge speedy approval and enactment of this needed increase.

FISCAL YEAR 1967

(In billions)
~erating

Cash Balance
(exclUdin!
free gold

li6.6.
';;v

u·..:...:.\.;

Public Debt
Subject to
jrlimitation

Allowance to Pro- , Total Publio
vide Flexibility
Debt ,
in Financing and
Limitati~
for Contingencie§
RequiIll

$4.0

$313.3

$3.0

$316.3

:'5

4.0
4.0

316.6
316.8

3.0
3.0

319.6
319.8

4.0
4.0

318.4
320.3

3.0 3.0

321.4
323.3

4.0
~.O

323.4
318.1

3.0
3.0

326.4
321.1

4.0
4.0

321.9
322.2

3.0
3.0

324.9
325,2

4.0
4.0

324.4
324.6

3.0
3.0

327.4
327.6

4.0
4.0

327.8
323.0

3.0
3.0

330.8
326.0

-,,,,,,--_
15
C1
.
J a..:-:~ary 31

4.0
4.0

325.3
324.1

3.0
3.0

328.3
327.1

:eJ-:-·L..u.Y'Y 15

4.0
4.0

325.2
324.7

3.0
3.0

328.2
327.7

4.0
4.0

328.7
323.5

3.0
3.0

331.7
326.5

4.0
4.0

327.5
318.6

3.0
3.0

330.5
321.6

4.0
4.0

319.8
320.4

3.0
3.0

322.8
323.4

4.0
4.0

324.7
314.9

3.0
3.0

J!1.7
317.9

:-c:...y

J.':;'y 31
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~'"'

,)v

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
NEW RETIREMENT PLAN BOND INTEREST RATE
The Secretary of the Treasury announced today that the President has
approved an increase in the interest rate on United States Retirement Plan
Bonds to 4.15 percent per annum, compounded semiannually, effective June 1,
1966.

Previously, these bonds earned interest at 3.75 percent.
The improved rate brinZs the interest on Retirement Plan Bonds in line

with the recently increased rate

on Series E and H Savings Bonds.

However,

unlike those bonds, the improvement does not apply to Retirement Plan Bonds
already outstanding.

It was explained that there is no statutory authority

to extend the new rate to bonds issued earlier.
Retirement Plan Bonds, which were first placed on sale in 1963 pursuant
to the Self-Employed Individuals Tax Retirement Act of 1962, are available for
investment only by bond purchase plans and qualified pension and profit-sharing
plans.

They may be registered only in the names of self-employed persons or

employees in single ownership form, or with a beneficiary.

Purchases may be

made at any Federal Reserve Bank or Branch, or the Office of the Treasurer of
the United States, the only authorized issuing agents.

000

F-487

TREASURY DEPARTMENT

FO.L' H1}'{EDIATE RELEASE

WI1' IIIIOLDING OF APPrtAISEl:ENT ON
FISBERY PBODUCTS
The Treasury Department is instructing customs officers to withhold
appraisement of shrimps, lobster tails, and lobsters, fresh frozen or
cooked frozen, from the U.S.S.R. pending a determination as to whether
this merchandise is being sold at less than fair value within the meaning
of the Antidumping Act, 1921, as araended.
published in the Federal Begister.

Notice to this effect is being

These products come vrithin the pur-

view of the "Antidlliilping Proceedin;:s Notice It ,dth rec;ard to l.l.si1el.'j' products.
Under the Antid\..u:,pinG Act,

dete.L·l~lino..t:i.on

of sales in tLe United

states at less than fair value would require reference of the case to
the Tariff Commission, which would consider whether American industry
wes being injured.

Both dumping price and injury must be shovrn to

justify a finding of dumping under the law.
The information alleging that the merchandise under consideration
was being sold at less than fair value within the meaning of the Antidwnping Act was received in proper form on 1~rch 9, 1966.

This infor-

mation was the subject of an llAntidumping Proceeding Notice" which was
published pursuant to section 14.6(d), Customs Regulations, in the
Federal Hegister of April 19, 1966, on page 5975 thereof.

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
NEW RETIREMEN'1' PLAN BOND INTEREST RATE
The Secretary of the Treasury announced today that the President has
approved an increase in the interest rate on United States Retirement Plan
Bonds to 4.15 percent per annum, compounded semiannually, effective June 1,
1966.

Previously, these bonds earned interest at 3.75 percent.
The improved rate brines the interest on Retirement Plan Bonds in line

with the recently increased rate

on Series E and H Savings Bonds.

However,

unlike those bonds, the improvement does not apply to Retirement Plan Bonds
already outstanding.

It was explained that there is no statutory authority

They may be registered only in the names of self-employed persons or

employees in single ownership form, or with a beneficiary.

Purchases may be

made at any Federal Reserve Bank or Branch, or the Office of the Treasurer of
the United States, the only authorized issuing agents.

000

F-487

TREj:\S U RY 0 E fJ AR "r rv1 Er\J. T
WASHINGTON. D.C.

Hay 24, 1966
MEMORANDUM FOR THE PRESS:
Patrick F. Gorman, III, Chief of the
Reproduction Branch, Office of Administrative
Services of the

Treasu~y

Department has been

given a Meritorious Service Award "in recognition
of his unusual personal contributions to the high
performance of the Reproduction Branch."
Mr. Gorman, a Treasury employee for 25 years, has
for the

pa~t

8 years served as chief of the

Reproduction Branch.
A copy of the citation is attached.

000

Attachment

CITATION
MeJU;tOlUOM Srvtv.lc.e AwaJtd
Pa;tJUc.k F. GOll.man, III
Pa-Vuc.I<. F. GOlc;nan, r II, ha,~ peJc.oo/U'lle.d hL~ duUe.6 a& Ch.i.e.61 Re.PlLoducti.on
l3Jtanc.h, 06D-tee. 06 AdYI1.i.. VlJ..f.JVtmve. Svw.(.c.e..6, -i.n a ma.nneJt w,lUc.h 1l.e.6lew ClLe.dU
upon fum, u.pon the. Th.e.MWUj Ve.pC'JLime.I'Lt, Ctrrd upon :the. UnU:e.d Statu GOVeJl.nme.ni:.
{{-fA le.a.de/l.o5,fup and .(.ngenu-i..ty heLve lte4u.Ued ht lugh quaWfj ILe.pll.oducti.on woltk
TlLe.a&LUtfj
.<.n the 0 QM·c.e a 6 .the. Se.CltUaltfj and
.the
Ve.paJttme.nt.

H.w de.votion .to duX'1 e.v-i.de.VLee.d by long howl).) 0 n oveJt..t.ime. woltk~ whe.n
He.C.e.6~a.JLfj > hM made. U po~~-i.ble. 601t .top T/te.CV5,Mfj ofi Q.[uaL6 .to me.e..t. -impolt.t.a.nt
an.d .0 bUng e.n.t de.adUVLe.J at the. Mu.te. HOM e and .the Conglte.J.6, ~ well ~ .In
o.theJt c.JU;aeal Wtc.um~.tanc.e.J.
Th.i..o AWa.JLd -fA made. -i.n lUZ.c.ogn.i;Uon 00 h.<..o unu.oual pe.Monal c.on..tIU.buti.oY14
:to .the. {ugh prvtooll.manc.e. 06 the. Re.pltoduc,Uon Bltanc.h.

TREASURY DEPARTMENT

R RELEASE 6: 30 P. M. ,
dnesdq, Mal 25, 1966.
RESULTS OF REFUNDING OF $1 BILLION OF ONE-YZAR BILLS
The Treasury Department announced that the tenders for $1,000,000,000, or thereouts, of 365-day Treasury bills to be dated ~ 31, 1966, and to mature May 31, 1967,
ich were offered on May 18, were opelldd at the r'ederal. Reserve Banks today.
The details

at this issue are as follows:

Total applied for - $2,012,664,000
- 1,001,188,000
Total accepted

(includes $)8,158,000 entered on a
noncompetitive basis and accepted in
full at the average price shown below)

Range of accepted competitive bids:
High
Low

Average

- 94.986 Equivalent rate of discount approx. 40945 % per annum
_ 94.951
"
It
nit"
4.980 % II
"
- 94.965
n
""
"
"
4.966 % " "

(23% of the amount bid for at the low price was accepted)
District

Total.
Aj?plied For

Boston

Federal Reserve

45,681,000

$2,012,664,000

$1,001,188,000

782,000
20,266,000
240,813,000
10,868 1 000

Richmond
Atlanta
Chicago

St. Louis
Minneapolis

6,841,000
7,261,000

Kansas City
Dallas

San Francisco
TOTAL

This rate is on a bank discount basis.

~-488

15,681,000

1l,612,OOO
97,0)1,000

42,796,000

Cleveland

812,081,000
3,382,000
36,621,000
782,000
2,166,(XX)
90,133,000
2,368,000
3,071,000
7,261,000
1,612,000
24,830,000

1,51.5,3)1,000
13,382,000

York
Philadelphia
New

Total
.Accepted

The equivalent coupon issue yield is 5.23%.

TREASURY DEPARTMENT

May

25, 1966

FOR DmEDIA TE RELEASE
MINT FIXES C(JWFF DATE FOR ORDERS OF
1965 SPECIAL M]]iJT SErS

Miss Eva Adams, Director of the Mint, announced today a
future cutoff for ordering United States Special Mint Sets.

The

Mint will stop taking orders for these sets on June 15, 1966, or
sooner without further notice, depending on the number of orders
received after today and the ability of the Mint to fill them.
Special coin sets are specially minted for coin collectors
at the United States Mint facilities in San Francisco, and sell
for $4.00.

The coins are struck one at a time from specially

prepared blanks, on high tonnage presses, and handled individually
after striking.

They have a sharper relief and are better in

appearance than regular coins.

The new sets contain one each of

the half dollar, quarter, dime, nickel, and cent, and all coins
bear the 1965 date imprint.

They do not carry mintmarks.

Persons desiring to order special coin sets are requested not
to send cash, but to send a personal check, a money order or cashierts
check made payable to the Officer in Charge, U.S. Assay Office,
Numismatic Service, 350 Duboce Avenue, San FranciSCO, California 94102.
The United States Assay Office at San Francisco began last
week to mail the 1965 sets to coin collectors who ordered them
earlier this year.

They are being sent by first-class registered

mail, under special arrangements made for the first time this year
with the United States Post Office.

F-L89

000

TREASURY DEPARTMENT
Washington
FOR USE IN AFTERNOON PAPERS
FRIDAY, MAY 27, 1966
REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY OF THE UNITED STATES
AT THE
13TH ANNUAL MONETARY CONFERENCE OF THE
AMERICAN BANKERS ASSOCIATION
AT GRANADA, SPAIN
FRIDAY, MAY 27, 1966, AT 12:30 P.M.
(7:30 A.M., EDT)
1966 - Year of Decision and of Opportunity
For International Economic Cooperation

To conclude this four-day Thirteenth Annual Monetary Conference
is a formidable challenge. By now every important fact or
significant observation will have been voiced by one of the public
officials or private citizens in attendance who collectively share,
in large measure, the responsibility for the financial policies
of the Free World.
The conference itself symbolizes recognition that our common
objective of a viable international financial system nourishing
economic growth, expanding trade, and promoting development cannot
be achieved by nations working in isolation.
This objective can only be achieved by like-minded leaders of
both governmental and private institutions foregoing narrow
nationalism and seeking diligently an improved framework of
international economic and financial cooperation.
In the thirteen years these conferences have been held, in the
post-war period as a whole, the present system of Free World
cooperation -- political, military, economic, and financial -- has
served well. Productive resources and capabilities have been
released for the benefit of all. Barriers to trade and communication
have been lowered. Development of new nations, and of older, war-torn
economies, has been nourished. The extremes of inflation, depression,
or financial panic, characteristic of other pest-war periods, have
been averted.

- 2 The challenge for the future is to build on this system of
Free World cooperation. It is vital to recognize its shortcomings
and weaknesses and seek to correct them. In so doing, we must seek to
preserve the system's elements of strength and flexibility.
Above all, we must be decisive and diligent in discharging our
commitment to the principle that in seeking the good of all, we
serve our own interests best. If we have learned anyone great
lesson from the immense tragedies that have marred the 20th Century,
it is the lesson that we stand to gain the most individually, and
to hold our individual gains most securely, when we follow policies
that permit us to gain the most all together.
1966 - Year of Decision
Nineteen hundred and sixty-six is a year of decision in many
important aspects of international financial and economic cooperation.
We must go forward. To stand still is to lose momentum and cast our
lot for inevitable retreat. Consequently, it is one of my chief
purposes here today to remind my own countrymen and their colleagues
in all the countries represented here that the ties that bind us,
and upon occasion prevent us from doing precisely as we would like,
are ties no more onerous than our common desire to preserve the
benefits that flow from working together, and not at cross-purposes.
The security, the rapid economic growth, the social improvement
that we have now enjoyed for so long, in so much of the world, are
not given conditions that can be taken for granted. They are products
of policies deliberately adopted, and carefully nurtured, with intent
to produce security, growth, and progress on a world scale.
Frustration of those policies can, and almost surely will, bring an
end to the progress we have had, and shatter the security that has
made that progress possible.
Let us look back for a moment at the effects of fragmenting the
world by policies of excessive nationalism. I could choose from the
sad history of the 20th Century many examples, each worse than the
last until we arrive at the unprecedented tragedy of World War II.
But the London Economic Conference stands out as a costly failure
of many nations to establish, a generation ago, the kind of economic
cooperation that we now realize serves us best.
The London Economic Conference was a part of its times, one of a
long series of attempts to establish a form of international economic
cooperation that we now take almost for granted. That attempt failed
because of nationalistic efforts to insulate nations from the world
economy.

- 3 -

The lesson of the London Economic Conference does not lie in
determining who was guilty, or to what extent, of causing the
Conference to fail. The lesson lies, rather, in the extent of the
damage of such a failure, and, therefore, in how careful and forthcoming we should be to prevent a return to a pattern of failure.
Eleven years after the collapse of the London Economic Conference
the representatives of 44 nations met at Bretton Woods in the United
States to find ways to avoid such debacles in the future. Those who
gathered at Bretton Woods wanted to find alternatives to the injurious
exchange tactics and the trade restraints of the 1930s by which
governments -- often at the expense of one another -- had sought
vainly to maintain employment c:mel uphold living standards within
their own borders.
The alternative they conceived to this kind of cut-and-run,
beggar-thy-neighbor world was a comprehensive structure that would
institutionalize cooperation among nations in exchange policies, and
make cooperation a way of life and an insurance of the peace.
One result was the International Monetary Fund. The Fund's
objectives were -- and are -- the promotion of international monetary
cooperation, the building of exchange rate stability, and the
elimination of exchange rate restrictions, all as means of facilitating
the expansion of international trade and of helping member countries
to achieve and maintain high levels of production, employment, and
income.
To pool resources for development assistance, the Bretton Woods
conference also established the International Bank for Reconstruction
and Development -- the World Bank. Its members were the same nations
as made up the membership of the International Monetary Fund.
Out of these has grown what might be regarded as a world-wide
system of economic stabilization and development. From the highly
successful pattern of the World Bank's lending there have developed
the Inter-American Development Bank, the International Finance
Corporation, and the International Development Association. The year
1966 will mark the emergence of yet another important bank in this
chain -- the Asian Development Bank.
The concept of creative international cooperation in monetary
matters exemplified by the International Monetary Fund has been one
of the most fruitful ideas of our times. The Fund's resources have
been increased, the last time in 1965, as it has proved its value,
and as the world economy has expanded.

- 4 In 1962, a special arrangement took shape among the principal
capital-generating nations, as it became evident that the resources
of the IMF might prove insufficient in the event of a threat to the
stability of the world monetary system. To avoid a repetition of the
situation of the 1930's, when a weakness here and a strain there
were permitted to develop into a general rotting of the international
monetary fabric, ten major industrial countries that are members of
the IMF, subsequently associated with Switzerland through s~ecial
arrangements, agreed among themselves to lend to the Fund, 1n case of
need, amounts of their own currencies totalling $6.2 billion.
This "General Arrangements to Borrowll of the "Group of Ten" was
originally made good for four years. It has now been agreed to
extend it for a further four years. These arrangements, and others
stemming from the same spirit of cooperation, have served fully,
beneficially, and in good season in helping the currencies of several
major financial powers over periods of strain. The result is a world
monetary system that is stronger than ever, several national
currencies that have been helped to renewed strength and stability,
and a world that has been quickly and smoothly defended from dangers
of convulsive economic restrictionism.
The return to external convertibility of many major Free World
currencies in the late years of the 1950's brought with it the
problem of dealing with highly volatile movements of capital among
financial centers, stemming chiefly from speculative pressures. With
the objective of providing means to meet such pressures firmly and
promptly the United States, in cooperation with eleven other major
industrial countries and the Bank for International Settlements
established, beginning in 1962, a swap network of short-term facilities,
now totalling $2.8 billion. We are pleased and proud that in recent
months we have been able to make similar cooperative arrangements
with two Latin American neighbors with ~om we have close economic
ties -- Mexico and Venezuela.
Many other such highly practical means for replacing cut-throat
nationalistic policies with creative international cooperation that
benefits all have been worked out and are in practice. One that I
would mention particularly is the sale to foreign governments and
central banks of U. S. government bonds. We must now look forward
to further refinement, extension, and strengthening of our
international monetary system.
As another outgrowth of the idea of international monetary
cooperation, much more importance has been attached to consultation
and collective problem solving, in the place of protective attempts

- 5 -

to find the means of national insulation against problems of
international scope. An example is Working Party Three, a specialized
task force of the Organization for Economic Cooperation and Development.
Working Party Three was established to try to find broader-than-national
approaches to the solution of balance of payments problems.
All will agree that the system described is a vast improvement
over the narrow economic and financial nationalism of the 1930's. It is
a good system, and it has been getting better. If we maintain our
recent progress in seeking out new elements of strength in it, and in
moving to ever more adequate levels of international economic cooperation
through it, I am confident that our gold exchange system -- with
appropriate improvements to be discussed later -- can be depended upon
to handle effectively the untold tasks of economic development, and
improvement of living standards, that face us all internally, and face
the world at large, as one of its topmost tasks.
There is an especial aspect of this story of progress in the
deeaaes just past that I hope I will be forgiven for recalling.
Large and as well-conceived as was the world monetary system that
was brought into being after World War II, it was not adequate to the
job of overcoming the effects of destruction that faced the world in
the late 1940's and the 1950's. It could not even begin to function
effectively until the vital European economic fabric was reconstructed.
The United States threw into the balance most of the extra
resources that permitted fast European reconstruction. To this end,
the United States reached into its own resources, and gave -- I emphasize
this, gave without any expectation of recompense -- to Western Europe no
less than $15 billion in the post-war relief and Marshall Plan years
between 1946 and 1952.
Meanwhile, the United States provided for the common defense,
almost alone, while nearly all other defenses were down.
These programs were initial steps along a road by which the United
States has to date contributed some $80 billion of economic
assistance to 0ther nations.
But economic assistance was not all that was essential. As I have
indicated, it was also necessary to raise a shield behind which
free men could put their freedom to work.
Through military expenditures that between 1946 and 1966 h~ve
totalled no less than $790 billion, and that ~re currently 7ost~ng
new billions, the U. S. raised and has mainta~ned such a sh~eld.

- 6 To this must be added the cost we have incurred for which there is no
adequate price -- the cost of over 165,000 American casualties suffered
in helping to defend the Free World, outside our borders, since
World War II ended.
Our participation in the defense of freedom has girdled the
globe, from the fields and towns of Western Europe so closely kin to us,
to the divided Middle East and Western Asia, and has now drawn us to
the bitter jungles of Southeast Asia.
Where it was enough only to be present, we have taken a stand.
Where it has been necessary to fight, we have fought. You can search
all h~tory without finding a more carefully measured and restrained
use of power than the United States has made and still makes today.
Yet, at the same time, you will find no world power more ready than
we have been, and are, to move from the battlefield to the conference
table.
By this world defense, we have defended our own integrity and
freedom. Further, we have never been completely alone on the ramparts.
Some have fought by our side, and many others have kept vigil with us.
The United States has used its economic strength in yet another
way of creative benefit to the entire world in the past two decades.
The United States has alone continued the free convertibility of
officially held balances of its currency for gold, at a fixed price:
$35 an ounce. Thus, we have permitted the dollar to undertake the
responsibility of becoming the world's principal reserve and transactions
currency, a store of value in terms of gold, and at the same time a
measuring rod for the value of gold. The dollar is thus the bedrock
of the world monetary system, whether reserves are held in gold or
currency. It is a primary element of stability in the savings of
business, of pension and retirement funds, and so on, down to the
smallest savings of individuals.
This is a very heavy responsibility, one that prevents us from
always doing just as we might like to do, for we are determined to
continue to be as faithful to our pledge as we have been. In
President Johnson's words, "The dollar must be as good as gold."
These contributions of the United States are not cited as a
matter of pride, although, indeed, I am vastly proud to be able to
say, as an American, that my country contributed in the greatest
measure, in treasure and human effort, to the establishment of a
workable framework for international cooperation.
I am, rather, citing a few highlights of our individual effort
because their spirit, motivation, and scale serve to give a measure
of what must exemplify the role, not just of the United States, but
of other nations individually as they regain or achieve strength and

- 7 -

stature, and of our family of free nations altogether, if international
economic and financial cooperation is to assume ever greater dimensions
in the last half of this century.
I am not suggesting that a rule of unanimity must prevail and that
every developed nation must embrace the tenets and practice of full
collaboration or else we throw up our hands and retreat toward a world
of narrow nationalism.
As in a free democratic society, so in a free democratic world,
dissent plays an important role. But, of course, the preponderant
majority should not be immobilized. Even that famous American exponent
of state sovereignty, John C. Calhoun, recognized the right of a
"concurrent majority" to move forward together without giving offense
to a dissenting minority.
The Unitf!d States holds fast to its early dreams of an alliance
of equals, in strength and in responsibility, and to its zeal for the
goal ~f the common good. We have welcomed the emergence of each
nation to a position of power and wealth. We wish to share responsibility, not to hoard it.
We regard the year 1966 as a hinge upon which there can be a great
turn for a better future, if the strong nations, old and emerging,
seize their joint opportunities, and deal with problems, without being
haunted by the past, confounded by the present, or over-awed by the
future.
1966 - A Year of Opportunity
World
Trade
Nineteen sixty-six is a year in which the 68 countries who are
members of the General Agreement on Tariffs and Trade -- the GATT -have an opportunity to negotiate reductions of tariff and non-tariff
barriers to world trade to a point where they are no longer a stultifying
factor in the international economy. This would be accomplished if the
present GATT negotiations should take relatively full advantage of the
authority granted to the President in the United States Trade Expansion
Act to agree to reciprocal reductions of trade restraints.
The reciprocal reduction of most tariffs by significant amounts up
to half , and removal of non-tariff barriers, as permitted by the Trade
Expansion Act, would mean that we had placed at the base of our
international system general acceptance of the idea that ours should be
an open and a competitive world, exposing its prices and its wage rates
and its returns to capital to international competition.
This is of particular importance now, when a failure to move
toward 'a more competitive world is liable to lead to a series of

- 8 -

blocs behind trade barriers, rather than states behind trade barriers.
And it is of special importance to those countires whose national
economic programs subject market forces increasingly to the influence
of the economic planner. Under these conditions national economic units
become more and more dependent upon international competition for
assurance that prevailing national prices, wage scales, profit returns
and investment programs are realistic.
However, despite three year s of effort we are st ill far from taking
this long and significant step, and time grows short, because our
Trade Expansion Act expires in 1967.
If the elements of a substantial agreement have not been achieved
by the end of this year, so that authority granted under this Act can be
utilized before it expires, this failure can trigger a substantial setback for the movement toward liberal trade in which my country has
played a leading role for over thirty years. Failure to move forward
can lead to a dangerous retreat.
There are difficult problems, of genuine concern, on all sides. ~
are conscious of the fact that major reductions in trade barriers will
call upon all of us for important adjustments in our economies. However,
if we look at the adjustments that will probably be required, it is
evident that they in fact are no greater in most instances than adjustments that are regularly made to take account of changes in technology,
tastes, trade patterns and the like.
World
Liquidity
The year 1966 is a year in which the Finance Ministers and Centnl
Bank governors of the ten leading industrial nations can reach agreement
on essential points of a contingency plan for the orderly creation of
liquidity. This, in turn, will lay the foundation for wider negotiations
within the framework of the International Monetary Fund of extraordinary
importance to the future growth and prosperity of the entire Free World
family of nations.
In recent year s, United States dollar and gold outflows resulting
from balance of payments deficits have supplied three quarters of n~
reserves of other countries. Clearly, the Free World cannot rely solely
on newly mined gold for increases in reserves adequate to a vigorous,
growing Free World economy. Just as clearly, the remarkable economic
growth of the Free World since 1945 would not have been possible had
it not been for the acceptance of large amounts of U.So dollars as
reserve assets. Therefore, when we set ourselves the task last year
of reaching equilibrium in our international payments at an early
time, it appeared evident to us that we and other nations should
take timely steps to avoid harm to the international economic system
stemming from the cessation of United States balance of payments deficits
in turn desirable to avoid the attenuation of our reserveS.

- 9 -

Consequently, President Johnson authorized me last July to
announce that the United States stood prepared to participate in international negotiations to consider what steps we might jointly take with
other nations to secure substantial improvements in international
monetary arrangements. In the subsequent weeks I conferred with my
colleagues in other governments on this matter, in Washington and in
Europe, with the objectives of determining whether others shared our
view that there was a clear and Lmmediate need to proceed to contingency
planning for improvement of the international monetary system, including
provision for an adequate future supply of monetary reserves.
We found that there was, in fact, general agreement that there
should be a re-examination of the Free World's monetary arrangements,
and that we should plan ahead for the time when new ways of providing for
the growth of monetary reserves would become necessary.
In September, the Group of Ten Ministers charged their Deputies with
undertaking discussions leading to policy decisions as to what changes
are needed to ensure that the future reserve needs of the world may be
adequately met, and to report this Spring on the progress they had made
and the areas of agreement they had discovered.
We are now awaiting that Report, and we hope that it will be
possible to make it public this summer, as the basis upon which we can
move to a Second Stage of negotiations in which members of the International Monetary Fund other than the Group of Ten can make their
contributions.
Thus, it is apparent that in this area 1966 is a year of decision
with very large and important consequences for the future of world
economic growth, and that decisions are now pending that can add a new
and hopeful dimension to the system we now have for international
economic collaboration for a better world.
I look forward with confidence to the outcome. We should recall
that the General Arrangements to Borrow negotiated in 1961 were put in
place to meet future eventualities, and the need for their use did not
develop for several years. But in 1964, and again last year, they
proved invaluable. In the same spirit we feel that the time has now come
to put into place the means that would be required to supply adequate
amounts of international liquidity.
Strengthening the
Adjustment Process
The year 1966 is one in which our international financial institutions should work together to strengthen and improve the processes by
which balance of payments adjustments are made. We are hopeful that .
Working Party Three, of DECO, will be forthcoming with a report that w~ll
point the way through improved adjustment processes toward less -- and
less chronic -- imbalance in the system.

- 10 Just as it would be improvident of us to negotiate the means to look
toward a major expansion of world commerce and then fail to make
provision for the future expansion of international reserves, it would be
improvident of us not to follow through by recognizing that as trade and
capital movements increase, the need for smoother adjustment of payments
imbalances -- without resort to restrictive practices -- will become
ever greater.
In an increasingly interdependent world, it becomes increasingly
evident that adjustment to payments imbalances must be made on both sides
of the scales. Just as deficit nations must be permitted to feel
pressures that urge them to eliminate their deficits, surplus nations
must not be permitted to hoard their surpluses indefinitely. Where
surpluses are used only to purchase gold, the world's reserves are
diminished. Instead, surpluses should be recycled to do the world' s wor~
through more liberal trade policies, and through both public and private
investment designed to assist economic development.
It should be recognized by all that failure by some to use persistent surpluses they accumulate to encourage trade and assist in development is a cause of persistent deficits in the payments of other
countries. Balance of payments equilibrium should attain this broader,
international, significance, as well as its present, one-sided national
meaning.
Strengthening
Capital Markets
Another of the challenges of 1966 lies in the opportunity to improve
the depth and resiliency of capital markets throughout the Free World.
Many of you will recall that my predecessor, former Secretary
Douglas Dillon, spoke to you on this very subject as early as 1962, at
your Ninth International Monetary Conference, in Rome. This was well
before we were impelled by the inadequacies of the European capital
market to enact the Interest Equalization Tax and develop the voluntary
programs to moderate increases in outflows of foreign direct investment
and bank credit as measures of protection for our payments position.
He described in 1962 what is still very much the case:
"Potential investment funds are still too often
dammed up behind national boundaries by legal
restrictions or institutional barriers . . •
"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.

- 11 "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.
"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."
In the months and years following Secretary Dillon's comment it
became increasingly clear that the disparities between the capital market
of the United States and those of Europe are a major source of payments
imbalance in the world. As one of ten elements in his July 1963 program
to meet this situation, the late President Kennedy appointed a Task Force
in the Fall of 1963 t"hat I was privileged to head.
The Summary Recommendations of the Task Force included the
following:
"The Department of State and the Treasury Department
should, through appropriate international bodies,
particularly the DECO, advocate the step-by-step
relaxation of monetary, legal, institutional, and
administrative restrictions on capital movements,
together with other actions designed to increase
the breadth and efficiency of Free World capital
markets."
Despite U.S. efforts in bilateral and multilateral councils
to encourage it, the fact is that relatively little has been done
on this score in the years intervening between Secretary Dillon's
admonition in Rome in 1962 and the present. This has made doubly
necessary our programs for moderating the flow of U. S. dollars to
other developed countries through the voluntary programs on direct
investment, and lending by financial institutions, initiated in
February 1965.
Our balance of payments program itself is tending to cause improvement in the market for capital abroad. With the dollar outflow moderated,
and wit h American corporat ions actively seeking funds abroad, this
market is finding more depth and resilience than anyone thought it had.
We look forward to a permanent improvement in foreign capital markets
that in turn will reduce the need for measures on our part to guard
against over-dependence upon our capital market.
We are hopeful that from the DECO there will be forthcoming this
year a report on this subject of long term significance.

- 12 Nevertheless, differentials in performance and resources of capital
markets persist that are so great that the very efficiency and depth of
United States capital markets make for an outflow of dollars that is
punishing to us in balance of payments terms.
It is time that this aspect of the international economic system as
it now stands should be corrected, without delay, even if it requires
some rather far reaching adjustments in the internal policies of nations.
Development
Assistance
During the year 1966, the prov1s10n of adequate levels of devruopment assistance, on the right terms, bilaterally and through multilateral
institutions, should be a first order of business in the Free World.
By the same token, 1966 is a year in which we should all work
diligently to strengthen such Free World institutions as the World Bank
and its affiliated International Development Association and the InterAmerican Development Bank. We should also work together in abetting the
admirable efforts of the nations of Asia in launching their own Asian
Development Bank.
And, 1966 is a year in which the associated countries should take a
new look at the Organization for Economic Cooperation and Development.
After the passage of nearly five years of beginnings, it may well be tMt
institutional changes and new working mandates are desirable to keep that
organization in step with the conditions and opportunities for concerting
efforts and policies of the developed nations in the fruitful field of
economic and financial cooperation.
Strengthening both types of organizations is basic to
international progress in the field of development assistance.
To provide adequate levels and terms of development assistance for
the developing countries in ways that take into account the problems of
the assisting countries, it will be necessary for the multilateral
developmen t banks, the OECD and the IMF to work together more effectively
than they have in the past.
The obstacles to be overcome require coordinated action by these
international institutions with each other and with the participating
countries. And, better coordination of bilateral assistance is also
needed.
New techniques such as the consortia and consultative groups
sponsored by the World Bank are to be commended.
But they are not enough if the real problems of unlocking an
adequate transfer of resources, without the creation of an intolerable
burden of foreign debt in the recipient countries. and balance of

- 13 payments difficulties among
overcome.

the devaoped countries, are to be

The needs for economic development assistance are Unffiense.
Even if the monetary system of the developed world were functioning
perfectly, it would be a challenging assignment to meet these needs.
With the system functioning imperfectly -- with key donor countries
in deficit or in surplus -- we must be extrarodinarily ingenious if we
are to come close to meeting these needs without further straining our
system.
Some of us must provide aid at least in part in the form of real
resources. Proper distribution of these responsibilities would help
our adjustment processes, not hinder them.
Capital must flow out in reasonable magnitude and on reasonable
terms from countries which are accumulating savings in the form of
reserves. Otherwise the calls of our multilateral development finance
institutions will go seriously unfulfilled, and deserving requirements
of developing countries will not be met.
Some nations feel compelled to provide aid on harder terms than
others. But does it make sense for surplus nations to provide it on
harder tenns than defic it: nations? And does it make sense to pile
short-term debt at high interest on developing countries with only
limited capacity to repay?
We must find the ways and means of meeting the legitDn8te needs of
developing countries which are doing what they can to help themselves.
But we must distribute the burden in a manner which not only makes others
st.rong but keeps all of us strong, too. For if the burden is unevenly or
unfairly or unsoundly distributed, certain of us will become more
powerful but as a group our strength will be sapped: our great multilateral endeavor will falter. This is the lesson both of the pre-war
and post-war experience I have described here today.
I would suggest that the question of determining not only a
practical and increasing level but the appropriate sharing of international economic assistance programs be placed high on the agenda for
consideration at the forthcoming meetings this autumn of the World Bank
and International Monetary Fund and the Organization for Economic
Cooperation and Development.
The chief executives of the multilateral development banks, the IMF,
the DECO and the Governors or Alternate Governors of the capital exportmg
countries should now organize themselves to prepare a plan for the next
decade of development assistance. I emphasize_that this plan should not
be limited to a determination of how much is needed and where. It is
equally necessary to search out methods and procedures for improving

- 14 the terms and allocation of development assistance in the light of the
realities of international finance.
Access to capital markets on an orderly and equitable quota basis,
fair allocation of lending responsibilities on easy repayment terms, the
right of pledging countries to fulfill obligations by a resort to tied
loans or transfers of goods and services to satisfy these obligations
when in balance of payments difficulties -- these are example of topics
on which the advice, consolidated or cumulative, of the chief executives
of the institutions for international financial cooperation and the
responsible representatives of the assisting countries will be useful.
In his February 1 Message to Congress on Foreign Aid, President
Johnson clearly stated the position of the 'United States saying:
"I propose that the United States -- in ways
consistent with its balance of payments policy
increase its contributions to multi-lateral lending
institutions, particularly the International
Development Association. These increases will be
conditional upon appropriate rises in contributions
from other members. We are prepared Dnmediately to
support negotiations leading to agreements of this
nature for submission to the Congress. We urge other
advaneed nations to join us in supporting this work."
The progress of development aid should not depend solely upon the
United States for stimulation and leadership. It needs organization and
participation with full and equal responsibility of all developed
countries interested in furthering international economic cooperation.
These international bodies were created to provide that opportunity
and serve that function.
The Multi-National Corporation - A Private
Institution for International Cooperation
But let us never forget that public funds and initiatives cannot
alone successfully accomplish sound and constructive economic deve1opm~t
Nor can governmental or quasi-governmental institutions alone do the job
of international economic cooperation • .
Consequently, we should not fail to encourage and strengthen our
institutions that project the private sector into development work.
Among these, a pillar of our international economy is the multi-national
corporation.
We are able to see more clearly today than has always been possible
in the past that the interdependence that is so much a part of our life
is critically dependent for its good functioning upon non-governmental
activities. In a large degree, our multi-national corporations are
responsible for our international economic development.

- 15 These corporations have contributed substantially to the economic
growth of the Free World since World War II, and it is difficult to
overstate their importance to continued growth in the Free World
economy -- particularly among the less developed nations.
In the future -- much more even than in the past -- their contribution, their role in a growing world economy, will depend critically
upon how successfully we can reconcile national interests in both base
and host countries with their own private interests.
This reconciliation will require give and take by the governing
authorities of base and host countries. It will involve willingness in
each country to oppose the substitution of narrow nationalism for freedom
of investment, security of property and contract rights, and fair play
to enterprises affiliated with foreign concerns. It will also require
observance by private companies with foreign affiliations of the
standards of good corporate citizenship that accommodate the national
sensibilities.
My government has welcomed and ratified the multilateral Convention
for the Settlement of Investment Disputes, sponsored by the World Bank
as a limited but significant step in creating an institutional and
environmental barrier between excessive nationalism and the multinational corporation.
The United States
Balance of Payments
The year 1966 is one of challenge to the United States in making
progress toward the achievement of an American goal that is of interest
to other countries because it is a matter of considerable importance
to the functioning of a continuingly successful system of internationa
"economic and financ ial cooperat ion.
I refer to our goal of achieving and maintaining a steady
equilibrium in our international payments.
We recognize that the basic responsibility for doing this is ours.
We have no intention of shirking it.
Our balance of payments deficit this year stems in large part from
the fact that the United States is continuing to meet its international
responsibilities for military and economic assistance.
To the United States a commitment in the Pacific to defend selfdetermination in South Vietnam is similar to a commitment to help
maintain a Free Berlin.

- 16 The international payments deficit of the United States in 1965 on
an overall, or liquidity, basis was $1.3 billion, a reduction of more
than one-half from $2.8 billion in 1964. This was the smallest: deficit
since 1957 -- less than half the $3 billion average deficit for the
seven preceding years.
The voluntary cooperation of our banks and corporations in moderating outlays for lending and direct investment in developed nations,
added to strenuous efforts to minimize the balance of payments costs of
military and aid expenditures outside the United States contributed to
this result. However, last August, reporting on the second quarter
surplus (the first surplus quarter in many years) I warned:
'~e

do not take it as a sign we have turned the
corner from balance of payments deficits to
balance of payments surpluses."
Since that time, wit h the beginning of the large build-up of the
direct and indirect costs of our military and aid operation in
Southeast Asia, we have been no more than holding our own.
Adjusting the quarterly figures to take into account two specific
arrangements with Canada and West Germany which function, in fact, on an
annual basis, the deficits would be:
3rd quarter 1965
4th quarter 1965
1st quarter 1966

-$377 million
-$361 million
-$382 million

These suggest that for the last three quarters we have been on a
plateau of about $1.5 billion annual rate deficit, slightly above the
$1.3 billion deficit for 1965 as a whole, but still very substantial~
below the level of preceding years.
Careful analysis will support the proposition that, absent the
Vietnam build-Up, the United States might have moved substantially
closer to equilibrium in the last three quarters.
Indeed, should the combination of measures, old and new, that
are being brought to bear on our trade balance cause it to resume an
upward curve, the march toward equilibrium could resume despite Vietn~.
Exports are well up this year, and in a broad range of nonagricultural products. On the import side, I am hopeful that as the
rate of increase in gross national product slows -- and I think you
will agree that it will not continue to increase at the same rate as
in the first quarter -- and as new productive capacity comes on stream,
the bulge in imports will subside.

- 17 Our goal is still the achievement of equilibrium -- sustained
equilibrium. The multiple costs of Vietnam have made the tasks more
difficult, to be sure, and it may be that we will have to settle for
an interim objective of equilibrium exclusive of the costs of Vietnam.
Conclusion
It seems to me that the more important question today is not
w?ether the United States will solve its payments problem but how
it will do so.
The costs of Vietnam are not permanent or ordinary costs.
Our voluntary program, coupled with a degree of monetary
restraint unparalleled in recent years, is working well. Our
program to delimit the impact of government expenditures abroad
on the balance 6f payments is being tightened in meaningful ways.
Our recent trade performance, it is true, has been less buoyant
than we had hoped but this is, in part, another manifestation of
the Vietnam problem. Moreover, additional measures to encourage
exports are underway. We are not ready to conclude that even in
the face of Vietnam the halt of our march toward equilibrium is
in any sense a fundamental or lasting one.
Against this background, how should the United States react beyond
intensifying its existing program? Should we take the narrow, nationalistic view that in the interest of the United States, the United States'
balance of payments must be brought into equilibrium no matter what the
cost to the Free World?
Should we attempt to solve this problem through a reduction in our
overseas military commitments?
Should we attempt to solve it by slashing our foreign economic
assistance programs?
Should we attempt to solve it by reversing the entire trend of
our trade policy and the world's trade policy?
Should we restrict travel?
Should we impose mandatory controls on capital flows?
Should we solve it, in short, at the expense of the other important, constructive decisions that remain to be made -- that must be
made -- in international economic affairs in 1966? Should we solve it
at the risk of unravelling the carefully woven fabric of international
cooperation that has served us so well during the last 20 years?

- 18 We all
must do so,
cost to the
the nations

know that the United States could, if it decided that it
solve this problem alone, but it could do so only at great
economies, the aspirations and, indeed, the safety of all
of the Free World.

Is this the direction in which we should move at the crossroads in
1966?
Other nations -- many of them represented here today -- have a
vital interest not only in whether the United States solves its payments
problem but in how we solve it.
We believe that we should and that we shall find the solution to
this problem where we have found the solutions to so many other problem
during the last 20 years. That is, we shall find it in a combination
of measures which will be consistent with the responsible role of the
United States as a good partner in international financial cooperation.

-------------------It is in that spirit that we invite all
of our allies and all of our other friends
to join us with renewed vigor in meeting
the challenges of 1966.
000

TREASURY

C,~PARTMENT

June 1, 1966
~OR

IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING

The Treasury Department, by this public notice, invites tenders
;'or two series of Treasury bills to the aggregate amount of
'.2,300,000,000, or thereabouts, for cash and in exchange for
'reasury bills maturing June 9, 1966,
in the amount of
'2 , 300 , 526 , 000 , as follows:
91-day bills (to maturity date) to be issued June 9, 1966,
.n the amount of $1,300,000,000, or thereabouts, representing an
~ditional amount of bills dated March 10
1966
and to
lature September 8, 1966,originally issued in the amount of
1,000,305,000, the additional and original bills to be freely
nterchangeable.
182-day bills, for $1,000,000,000, or thereabouts, to be dated
une 9, 1966,
and to mature December 8, 1966.
The bills of both series will be issued on a discount basis under
ompetitive and noncompetitive bidding as hereinafter provided, and at
aturity their face amount will be payable without interest. They
111 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
to the closing hour, one-thirty p.m., Eastern Daylight Saving
tme, Monday, June 6, 1966.
Tenders will not be
~ceived at the Treasury De~artment, Washington.
Each tender must
~ for an even multiple of $ljOOO, and in the case of competitive
~nders the price offered must be eApressed on the basis of 100,
lth not more than three decimals, e. g., 99.925. Fractions may not
~ used.
It is urged that tenders be made on the printed forms and
>rwarded in the special envelopes which will be supplied by Federal
!serve Banks or Branches on application therefor.

Banking institutions generally may submit tenders for account of
lstomers provided the names of the customers are set forth in such
mders. Others than banking institutions will not be permitted to
lbmit tenders except for their own account. Tenders will be received
.thout deposit from incorporated banks and trust companies and from
Sponslble and recognized dealers in investment securities. Tenders
'om others must be accompanied by payment of 2 percent of the face
.aunt of Treasury bills applied for, unless the tenders are
companied by an express guaranty of payment by an incorporated bank
trust company,
F-491

- 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 Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
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 June 9, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing June 9, 1966.
Cash and exchange ten~n
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 bi lIs 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 frC}
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

May 27, 1966
FOR RELEASE A. M. PAPERS
WEDNESDAY, JUNE 1, 1966
TREASURY PUBLISHES BOOKLET ON EXCHANGE
MARKET OPERATIONS IN DEFENSE OF DOLLAR
The Treasury Department today announced the publication
of a booklet, "United States Official Operations in the Foreign
Exchange and Gold Markets." It is a study of government
activities of this nature which were resumed in 1961 for the
first time since the 1930's, and on a more extensive scale than
ever before.
Treasury Secretary Henry H. Fowler, in a foreword, explained
the background against which these operations are conducted.
"In the 1960's," he said, "to help maintain the strength of
the dollar in its role as the principal reserve currency . . .
new means were devised to bolster the dollar's defenses.
"One of the most
this: our government
cipant in the foreign
selling all principal
booklet is about."

immediately effective measures taken was
returned to its role as an active partiexchange and gold markets, buying and
world currencies. That is what this

The booklet was written by Merlyn N. Trued, Assistant
Secretary of the Treasury for International Affairs, under whose
direction the Treasury's operations in this field are conducted.
Prior to 1963, when he joined the Treasury, he was Assistant
Vice President, Foreign Department, of the New York Federal Reserve Bank. In that capacity he actively engaged in the foreign
exchange and gold market operations conducted by that institution
in its capacity as agent for the Treasury and the Federal Reserve
System.
F-492

(more)

- 2 Part I of the booklet opens with a discussion of why the
government participates in these markets. This is followed by
descriptions of the basic ground rules under which the market
operates, the flow of foreign trade and the need for dealing in
foreign currencies which, in effect, "make the market," and of
the market's effects upon the domestic money market and consequently the Federal Reserve System's related responsibilities
in this field.
Part II deals with the financial resources and instruments
used to participate in the market, and the organization of the
Treasury and Federal Reserve System under which actual operations
are conducted. In this section, Mr. Trued describes the flow
of information required to determine both policy and operational
decisions, and how they are translated into action. This section also deals with the world gold markets and the establishment of the "gold pool" to discourage disruptive speculation.
Part III is concerned with the techniques of government
participation in the market, and discusses conditions which prompt
official intervention.
Throughout the booklet, the author has stressed the gains
made in cooperation among the principal currency nations of the
world toward damping undue speculative effects arising from a
variety of economic and political causes.
Part IV, "Some Results of Participation," describes several
of the critical periods in which U. S. official operations in the
foreign exchange markets played a crucial role in the defense of
the dollar, and, in cooperation with other nations, of other
major currencies.
The first example deals with that period in 1961, when,
against a sharp increase in the outflow of gold from the United
States, the upward revaluation of the German Deutsche Mark set
the stage for "the most concentrated and massive movement of
funds across the foreign exchange since the chaos in the early
1930's." Other chapters deal with the crisis faced by the
Italian lira in 1964 and British sterling in 1964 and early 1965.
The evolution of U. S. defensive arrangements -- among them
the so-called "swaps," U. S. securities denominated in foreign
currencies, and drawings from increased International Monetary

- 3 Fund resourses -- established a reinforced "line of defense,"
which safeguarded the dollar in times of stress which in
previous years could have seriously hurt the dollar's value on
the market and adversely affected U. S. reserves. These defenses
held firm at the news of President Kennedy's assassination,
and at other times of political or military stress, Mr. Trued
points out.
In a final section, "Looking to the Future," the booklet
again stresses the fact that the foreign exchange and gold
market operations are"front line" measures in defense of the dollar, and should be viewed as a part of a wider program aimed at
improving the U. S. position in its balance of payments. The
total effort in this field, Mr. Trued says, is being made against
a background of continuing cooperation in international monetary
affairs.
Copies of "United States Official Operation in the Foreign
Exchange and Gold Markets" may be obtained from the Superintendent
of Documents at 40 cents each.

000

TREASURY DEPARTMENT

May 26, 1966
FOR IMMEDIATE RELEASE

CEYLON ADDED TO COUNTRIES WHERE UNITED STATES CITIZENS
MAY BUY LOCAL CURRENCY FROM UNITED STATES GOVERNMENT

The Department of State and the Treasury Department
announced today that United States citizens visiting Ceylon
may purchase that country's currency, the Ceylanese rupee,
from the United States Embassy at Colombo.
Sales will be
made at the official rate of exchange.
This brings to six the number of countries where American
travelers may purchase local currencies from officially owned
United States balances. The United States has been selling
Indian rupees and Israeli and Egyptian pounds to United States
citizens in those countries for some time. The availability
of Guinean francs and Tunisian dinars was announced May 20, 1966.
To reduce the outflow of dollars from the United States
and thereby reduce the United States balance of payments
deficit, the United States Government urges American tourists
to purchase local currencies from United States holdings abroad
in the countries where they are now available in this way.
When local currencies are purchased in this way the dollars
stay in American accounts, and there is no outflow of dollars
to foreign holders, although the transactions take place abroad.
In the case of Ceylon, the local currency may be purchased
at the United States Embassy at Colombo in exchange for
United States currency, personal checks drawn on a bank in the
United States or for United States travelers checks. Purchasers must present their passports for identification.

F-493

000

BACKGROUND TO ANNOUNCEMENT
OF LOCAL CURRENCY ARRANGEMENTS WITH
CEYLON
Balances of the currency of Ceylon became available
for sale to U. S. citizens when that country was added to
the list of countries where official U. S. holdings of local
currencies exceed the amounts required to meet the needs
of the U. S. Government and where appropraite agreements
were established.

Currencies available in this way have

been received by the United States from the sale of surplus
agriculatural commodities.
The U. S. owns working balances in the local currencies
of other countries in Western Europe, Latin America, Africa
and the Far East.

However, in most cases, these balances are

not presently adequate to cover official U. S. expenses.
As further sales of U. S. agricultural products are made
for foreign currencies, and as United States official requirements change, arrangements for additional sales of other
currencies to private U. S. citizens will be negotiated where
possible and advantageous.

TREASURY DEPARTMENT
(

May 27, 1966
FOR IMMEDIATE RELEASE
TREASURY DECISION ON WHOLE FROZEN EGGS

UNDER THE ANTIDUMPING ACT
The Treasury Department has determined that whole frozen eggs
from the United Kingdom are not being, nor likely to be, sold at less
than fair value within the meaning of the Antidumping Act, 1921, as
amended.

This action is being taken after consideration of all comments

received pursuant to a "Notice of Intent to Discontinue Investigation
and to Make Determination That No Sales Exist Below Fair Value, 11 as
published in the Federal Register on April 16, 1966, stating that termination of sales with respect to whole frozen eggs imported from the
United Kingdom was considered to be evidence that there are not, and
are not likely to be, sales below fair value.
Customs officers are being instructed to proceed with the appraisement of this merchandise from the United Kingdom without regard to any
question of dumping.
Imports of the involved merchandise received during the period
under consideration were valued at approximately $1,150,000.

TREASURY DEPARTMENT
(

)R REIeEASE 6: 30 P.M.,

'iday, Mill 27,

1966.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series ot Treasur,- bills,
18 seriea to be an additional issue ot the bills dated March 3, 1966, and the other
lries to be dated June 2, 1966, which were offered on May 23, 1966, were opened at the
tderal Be_rYe BaDks todq. Tenders were inv'ited tor $1,300,000,000, or thereabouts, ot
.-dq" bUls and tor $1,000,000,000, or thereabouts, of l82-d.q bUls. The details of

le two aeries are as tol10ws:

.NGE OF ACCEPTED

•
91-dq Tre&8l1I7 bills
IlatviDg
Septeaber
1,
1966
MPETITIVE BIDS: ---..;....;,;;;,.;;;;,;;o;~;...;;a;...;.;;;;:~;...;;;;;~r--i-- s

Price

High

98.832
98.823
98.827

Low
! ..rage

Approx. Eqdv. s
Annual Rate
:

4.621%
4.656%

4.641%

s
I

••

182-day' Treasury billa
12 1966

~turiDg DaC8lllber

Price

97.561
97.558
97.560

Approx. EqUiv.
Annual Rate
4.824~

4.830%
4.826%

72% ot the aount ot 91-dq bills bid far at the low price was accepted
35% of the Doun1; ot 182-day bUls bid tor at the low price was accepted
ITAL TENDERS APPLIED FOR AND .ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

BOston

lev York
Philadelphia
Cleveland
Ricbmond
Atlanta
Chioago
St. Loui8
M1nneapol18
lanau O1t7
Dallu
San Francisco
T<1.rALS

AE,2liecl For

.A.cce;eted

9,472,000
19,472,000 $
936,052,000
1,521,192,000
14,206,000
26,206,000
21,707,000
21,707,000
8,265,000
8,265,000
32,167,000
38,287,000
124,926,000
24$,654,000
32,363,000
40,643,000
14,0)6,000
15,316,000
20,870,000
20,870,000
13,651,000
20,9.31,000

114.1k~71000

72,~57,OOO

$2,092,980,000 $1,300,072,000

:
:

.A.p;elied For

$
7,411,OOO
1,684,133,000
21,742,000
25,329,000
2,399,000
43,<11.0,000
235,955,000
24,231,000
10,174,000
10,681,000
10,782,000
126,928,000

$2,202,805,000

:
I
I
I
I

:
I
I
I

rAcee~ed
,411,000

812,802,000
4,792,000
13,999,000
2,399,000
11,818,000
75,155,000
10,544,000
4,974,000
9,176,000
5,732,000
45,.3,38 1 °00

$1,001,140,000

Includes $206 031 000 nonccapetit1" teDders accepted at the a,"rage price of 98.827
Includes $lOS' 8Sl' 000 nonca.petitiye tenders accepted at the a'Y8rage price of 97.560
The.. rates .;. 0:. a bank discount b . .1s. The equivalent coupon issue yields are
4.76% far the 91-~ bills, and 5.02% for the 182-~ bills.
~9k

STATD!ENT OF FRED B. SMITH
GENERAL COUNSEL, DEPARTMENT OF THE TREASURY
BEFORE THE
SENATE FINANCE C<le1MITTEE

ON S. RES. 149
JUNE 2, 1966
Mr. Chairman and Members of the Committee:

I am happy to appear before the Committee to present the views of
the Treasury Department on S. Res. 149, which would request the President
to cause a study of imports of steel mill products to be undertaken by
the Department of Commerce, utilizing other appropriate Federal agencies.
The Committee is hearing testimony from representatives of the
Commerce and Labor Departments and I do not propose, therefore, to deal
in my prepared statement with general factual information concerning the
status of the U. S. steel industry or of employment in this industry.
We are not experts in the Treasury on these subjects, which are not among
our primary responsibilities, and on which I am sure that representatives
of these other two Departments are much better qualified than I

speak.
In the Treasury Department, we do have a major concern and responsi-

bility for our balance of payments and we have the statutory responsibility for administering the antidumping statute.

I propose to speak

briefly on these two subjects as they relate to the proposed Resolution
before the Committee.

I should point out, as I am sure the Committee

knows, that the Department of Commerce bears a heavy share of the responsibility in our balance of payments programs and has been charged with
the administration of the President's voluntary program on U. S. direct
investments abroad.

- 2 -

Before speaking briefly about the relationship of steel imports
to our balance of payments and the application of the antidumping
statute to steel imports, I should like first to make some general observations about the proposed Resolution.
the desirability and need for a study.

First

is the question of

Certainly we could not object

to such a study if the Senate and representatives of other interested
departments felt that there was a need for it.
doubt as to the need.

We have considerable

We are under the impression that a great deal

of information already exists on the current situation of the U. S.
steel industry and on the trend of imports of steel and also that the
relationship of our domestic and international programs to trade in
this and other commodities is under continuous study.

I cite, for

example, the Report to the President on Steel Prices by the Council of
Economic Advisers, issued in April 1965.

This report contains a section

on foreign competition in steel and its relation to our balance of payments (see pages 10-21).

We believe the steel industry is fully aware

of the necessity to improve its market position at home and abroad.

can certainly count on the cooperation of the Administration toward
this end.
We note that authority already exists by law for the Tariff Commission to study the effects of foreign competition on domestic industry
and, under the Trade Expansion Act, to investigate whether imports are
causing or threaten to cause serious injury to a domestic industry producing like goods.

It would appear that if there is a real need for a

- 3 current study of the steel industry it could be undertaken without the
necessity of passage of a Senate Resolution and we believe that this
would be a better course to follow.

I have in mind the interpretation

both here and abroad which might be placed upon the passage of a resolution calling for a study, particularly if it were couched in terms
such as those contained in the proposed Senate Resolution 149, which
would focus attention on the effect of imports upon the domestic industry.
It might be concluded that the purpose of such a study would be to
establish a basis for restrictive action against steel imports.

This

could create difficulties for the conduct of our multilateral tariff
negotiations now in process, or lead to the contemplation or initiation
of counter-restrictions on the part of major foreign steel producing
countries.

Consequently, it is our view that, if there is truly a need

for such a study, it might be undertaken by the Tariff Commission or
other appropriate agencies of the Government without the necessity for
the passage of a Senate resolution.
In any event, we feel that any study undertaken should be broader

in its scope than the proposed Senate Resolution 149.

While, as I said,

we at the Treasury are not experts on the steel industry, it is our
understanding that in any real assessment of the competitive position of
the domestic industry, careful attention would need to be given to such
matters as the efficiency and productivity of the domestic industry and
prospects for improvement; the industry's pricing policies; the strength
and vigor of its efforts to increase its export markets; the effect of

- 4reducing imports of steel on exports of machinery and other manufactured
products; etc.

Couching such a resolution in these broader terms would

also soften somewhat its impact on those abroad who might be concerned
lest it embody a preconceived conclusion that restrictive action against
steel imports would be necessary.
The proposed resolution (Point No.3) provides that particular
attention should be given in the study to the impact of steel imports
upon the maintenance of equilibrium in the balance of international payments of the U. S. and the effect of efforts of the Government to restrict
the outflow of private capital upon the demand for steel products in foreign
countries affected thereby (Point No.4).
There can be no question but that there was a substantial increase
in imports of steel mill products in 1965 and at the srune time a significant decrease in exports.

Dnports increased by 57 per cent in that year

to a $1.2 billion level accounting for same 10 per cent of the domestic
market for such goods, while exports in that year fell by more than

18 per cent.

A large part of the increase in imports in 1965 can be

attributed to the threat of a steel strike which led to substantial
stockpiling of steel by domestic users.

Nevertheless, imports in the

first four months of 1966 were at an annual rate of $900 million, still
a very high level.

It should be pointed out, however, that imports have

been at higb levels ever since 1959 when they were triggered by another
steel strike.

Also, these recent large imports have occurred in the

context of a greatly expanding U. S. market.

- 5Without question, there has been same deterioration, at least
temporarily, in the competitive position of steel.

It should be noted,

however, that this large recent increase in steel imports has been
occurring at a time when demand has been stretching capacity near to
tts limits, and uneMployment is at a very low level.
imports are to be expected under these conditions.

Increases in
Also, there are

indications that the competitive position is beginning to improve

the large expenditures for plant modernization that have been undertaken
begin to bear fruit, and as the foreign mills continue to experience
more rapidly rising labor costs.

We believe that an improvement in the

competitive position of the U. S. steel industry will be dependent,
essentially, not upon more restrictive action against steel tmports,
but upon the relative success of our efforts to hold down costs and
prices in our domestic economy.

It will also be dependent, significantly,

upon the success of the steel industry's efforts to improve productivity
and

to make more vigorous efforts than heretofore to expand markets

abroad.
With respect to points 3 and 4 of the proposed resolution, the
Administration's overall

progr~

for dealing with the balance-of-payments

problem includes, as one necessary and major element, a number of measures
designed to exercise same restraint on foreign investment and other
private capital outflows.

- 6 In the case of direct investments abroad, the COIIJlerce voluntary
progrmn does not call for any reduction in the flow of such investments,
but only a moderation of what had became an excessively rapid rate of
growth in these outflows in relation to the overall balance of our
international payments and receipts on other accounts.

Specifically,

the target under the program allows for an increase during the two
years 1965 and 1966 together -- in new outflows of direct investment
capital plus reinvestment of retained subsidiary earnings -- to an
average annual rate 35% higher than the 1962-1964 average.

In 1965,

the absolute increase in direct investment outflows above the 1964
level amounted to $900 million.
In the case of bank credits to foreigners, the Federal Reserve

guidelines for voluntary restraint, combined with increasing tightness
in the domestic banking situation, have resulted in sharp reduction in
previous very high outflows of such credit.

However:

the banks have been urged , within their overall target
ceilings, to give priority to export credits, as well as to
credits tQ less developed areas;
these target ceilings allow for a

increase by the

end of 1966 over the end-1964 level of outstanding bank
claims on foreigners; and
the banks were, as of end-March, 1966, actually $713 million
below the target ceiling effective on that date -- thus still
having considerable leew~, as far as any balance-of-payments
restraints go, for additional foreign lending.

- 7The Interest Equalization Tax, similarly, has brought about a
substantial net reduction, compared with previous unusually high levels,
in American portfolio investment in governmental or corporate securities
of developed foreign countries other than Canada.

However, this tax

does not apply to direct investments or other credits in less developed
countries.
Accordingly, we can see no basis for concluding that these balanceof-pay.ments measures to achieve a limited restraint on otherwise excessive
outflows of U.

private capital have had any significant adverse effect

on the continued growth of U. S. exports generally or on U. S. exports
of steel mill products in particular.
The most basic and important single element in our balance-ofpayments program, of course, has been and clearly must continue to be
the further strengthening of our camnodity trade balance -- through
continuing and accelerated growth in our export sales, combined with
continued competitiveness of U. S. products relative to imports within
our dcmestic market.

The key factors we must look to for success in

this vital area are:
constant improvement in the overall productivity of
U. S. industry; and
continued maintenance of general cost and price stability
in our domestic economy.
While such an approach cannot, of course, assure gains or even forestall
set-backs in the foreign trade balance ot any particular U. S. industry

- 8 or on particular categories or types of products, this must, nevertheless,
continue to be the basic focus of our balance-of-payments effort.
Turning next to the question of dumping, S. Res. 149 refers to "the
possibility of unfair, below-cost pricing of steel mill product imports
to the United States." We have found that when they believe such imports
have taken place, members of the domestic steel industry are alert to
file complaints under the Antidumping Act.
The Antidumping Act comes into effect when a foreign producer sells
to the United states at a lower price than he sells in his own country
and when these sales to the United States injure our danestic industry.
If both elements are present -- price discrimination and injury -domestic industry is given relief by imposition of a dumping duty equal
to the difference between the higher home market price in the country
of export and the lower price to the United States.
To use a simple example, let us suppose that a particular steel
product is sold by a foreign producer in his home market at $100 a unit
and sold to a United states importer at $95 a unit.
discrimination.

This is price

If the sales injure United States industry, then a

special dumping duty is assessed in the mnount of $5 a unit.
The price comparison is typically made on an ex factory basis, and
this is without consideration of ordinary import duties or transportation.
Thus, in the example I have given, if the ordinary import duty was $3
and the transportation was $2, the import would cost the importer $100.

But the sale to the United States would nonetheless involve price

- 9 discr~ination

within the meaning of the Antidumping Act, and if

domestic industry was found to be injured, dumping duties would be
assessed at the rate of $5 a unit.
Relief can be given to domestic industry not only by

~position

of dumping duties following a finding of dumping but also by prompt
revision of price (or its equivalent, discontinuance of imports).
this latter event the cases are closed out forthwith.

The

s~e

result

follows when a ccmplaint is withdrawn.
Whether there is price discrimination in a dumping case is decided
by the Treasury Department.

Whether there is injury is decided by the

United States Tariff Commission.
Twenty-five dumping cases involving steel products have been
processed in recent years, with the following results:
Closed because of price revision and/or
complaint withdrawn ••••••••••••••.•••.••

Finding of dumping ••••.••••••••••••••••••••

Price discrimination found but no injury...

No price discr~ination ••••••••••••••••••••

8
25

Thus, in 13 out of 25 cases the relief sought by the domestic complainant
has been afforded under the procedures of the Antidumping Act.
Steel companies were among those represented at a hearing conducted
by the Treasury Department some two years ago to consider amendments to

- 10 -

the regulations under the Antidumping Act.

Following that hearing

smendments were promulgated, effective January 3, 1965, which included
a number of measures in which the steel ccmpanies had expressed an
interest.
1.

Among them I would like to mention three.
Whereas up to this time a request either by an importer or a

complainant that any particular submission be treated as confidential
was respected without question, the new procedure provides that where
Treasury officials see no reason for confidentiality, the submitter
will be given the choice of withdrawing his request for confidentiality
or of accepting the principle that the information, though remaining
undisclosed, will not be used to support his position in the case at
hand.
2.

Provision is made for confrontation of the importer and the

complainant.

Whereas up to this time any quantity discount was allowed

which was shown to be freely offered, the new procedure provides that
the importer must show any discount claimed on the sales to the United
States to have been allowed also on at least 20 per cent of home market
sales in the country of export; otherwise the discount must be costjustified.
Two cases involving steel products are presently pending, one
before the Tariff Commission and the other before Treasury.

No complaints

as to steel have been received so far this calendar year, and overall

- 11 -

only eight dumping cases with respect to products other than steel
have been instituted.

Same commentators have attributed this inaction

to general world prosperity, others to absence of dumping.

this

point, I express no opinion; I do say that any serious complaint which
m~

be filed will receive our fUll and cooperative attention.

TREASURY DEPARTMENT
(

)R RELEASE
r1day, Mill

6: 30 P.M.,
27, 1966.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series of Treasury bills,
os seriea to be an additional issue ot the bills dated March 3, 1966, and the other
aries to be dated June 2, 1966, vh1cb were offered on May 23, 1966, were opened at the

adaral Reserve Barlka tod.a\r. Tenders were invited for $1,300,000,000, or thereabouts, of
l-day bUls and for $1,000,000,000, or thereabouts, of l82-r.!q bills. The details of
tle two series are as follows:
•
9l-dq Treasury bills
UlGE OF ACCEPl'ED
I
aaturiDg Septeaber 1, 1966
JMPETITIVE BIDS: -';;;;;;;;";";;;;;;;~IL.,;;~;';:;;;;;;;;';:'::""';;;'iI...W~;"-

High
Low

iverage

182-dq Treasury billa
~turing DaC8llber 1,2 1966

Approx. Eq\1!v.

Price

.Annual Bate

Price

98.832
98.823
98.827

4.621%
4.656%
4.64l%

I
I

97.561
97.558
97.560

••

Approx. EqUiv.
ADnual Rate

4.8213

4.830%
4.826%

72% of the 8l1lOWlt ot 91-da1" bUls bid tor at the low price was accepted
35% of the UlOUDt ot 182-dq bills bid tor at the low price was accepted
:)TAL TENDERS APPLIED roR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

District

BOston

New York
Phi 1 adelphia

Cleveland
Richmond

Atlanta

Chioago
St. Loui8
K1nneapolia
Kansu Cit7
Dallu
San Francisco
TarALS

: Applied For
AEElied For
.lcoe2ted
7,4ll,000
9,472,000 : $
19,472,000 $
$
I
1,684,133,000
936,052,000
1,521,192,000
21,742,000
14,206,000 s
26,206,000
25,329,000
2l,707,000 I
21,107,000
:
2,399,000
8,265,000
8,265,000
I
43,040,000
32,167,000
38,287,000
235,955,000
124,926,000 I
245,654,000
24,2)1,000
32,.363,000 I
40,643,000
10,174,000
14,036,000 I
15,.316,000
I
10,681,000
20,870,000
20,870,000
10,782,000
13,651,000 I
20,931,000
l26,928,~
72,357,000 I
114,11.,)7,000

$2,092,980,000 $1,300,072,000

I Includes $206,031,000 noncoapetit:l:n

$2,202,805,000

Acce~ted

4,411,000
812,802,000
4,192,000
1),999,000
2,.399,000
11,818,000
15,155,000
10,544,000
4,974,000
9,176,000
5,7.32,000
45,3)8,000

$1,OOi,140,OOO

teDders accepted at the .....rage price of 98.827
the average price of 97.560

I Includes $108 851 000 noncaapet1tive tenders accepted at

{The.. rates';" oft a bank <ii.count buis. 1'he equivalent coupon issue yields are
4.76% tor the 91-da\Y bills, and 5.02% tor 'the 182-day bills.
49~

TREASURY DEPARTMENT

June 3, 1966
FOR RELEASE P.M. NEWSPAPERS
SATURDAY, JUNE 4, 1966

TREASURY SAVINGS BONDS DIVISION ADDS NEW REGION
The Treasury Department today announced the establishment of a new region in the field organization of its U. S.
Savings Bonds Division. The new unit to be known as Region 7
will comprise the States of Alabama, Florida, Georgia,
Louisiana, Mississippi and Tennessee, with headquarters in
New Orleans.
Raphael H. Morvant, who has been Louisiana State
Director for Savings Bonds, today was appointed director of
the new region, effective when the new region goes into operation next month.
Until now, the organization and activities of the
Savings Bonds Division had been divided into six regions.
The rearrangement of regional boundaries will allow more direct supervision and greater efficiency, by reducing time-andtravel demands on a limited field staff.
000

F-495

TREASURY DEPARTMENT

FOR RELEASE A. Mo NEWSPAPERS
S,UNDAY, JUNE 5 , 1966
REGIONAL CUSTOMS COMMISSIONERS AND PROGRAM ADVISERS
APPOINTED FOR PORT OF NEW YORK
Assistant Secretary of the Treasury True Davis today
announced the appointment of Michael Stramie110, Jr., the
U.S. Appraiser of Merchandise at New York, as Regional
Commissioner of Customs for the newly designated New York
Customs Region II.
Mr. Davis also announced the following appointments:
David F. Cardoza to be Deputy Regional Commissioner;
Ferdinand Gallozzi to be Assistant Regional
Commissioner (Administration);
Harry Frumess to be Assistant Regional Commissioner
(Classification and Value);
William I. McCullough, Jr. to be Assistant Regional
Commissioner (Inspection and Control).
At the same time, Mr. Davis named Joseph P. Kelly and
John A. Vaccaro as program advisers who will serve as special
assistants to the Regional Commissioner of Customs in New York.
The program advisers will have the responsibility for the development of projects and programs in public affairs to keep travelers
and traders fully informed about Customs laws and procedures.
In addition, Mr. Davis announced the appointment of Frank
H. Tuohy as Director of Audit in New York, with responsibility
for the internal audit functions for the Boston, New York and
Baltimore regions.
Mr. Kelly currently is Collector of Customs for the Port
of New York. He was appointed in 1961 by the late President
Kennedy.

F-496

- 2 -

Mr. Vaccaro, currently Surveyor of Customs for the Port
of New York, has held that post since 1961. He also was
appointed by President Kennedy.
Mr. Tuohy, currently Comptroller of Customs for the Port
of New York, was appointed to that post by President Johnson
in 1963.
Also announced was the appointment of Samuel Blecher,
Solicitor for the Port of New York, as Regional Counsel for the
New York Customs Region.

The appointments will become effective on June 6, 1966 with
the activation of the New York Customs Region II, and are part
of the President's Reorganization Plan No.1 of 1965 which was
sent to Congress in March 1965 and became effective on May 25,
1965.
The plan called for the elimination of 53 Customs positions
throughout the U.S. which had previously been filled by Presidential
appointment. The Reorganization Plan placed the l76-year-old
Customs Service wholly on a career basis.
New York will be the ninth and last Customs region to be
activated in accordance with a year-long timetable. Regions
already established are Houston, Boston, Baltimore, Chicago,
Miami, New Orleans, Los Angeles and San Francisco.
Regional headquarters will be-housed at the New York
Customhouse at Bowling Green in lower New York. The region
will cover all Customs installations throughout the metropolitan
area including the airports, piers, terminals, etc., as well
as Albany, Newark and Perth Amboy.
The Bureau of Customs is an arm of the Treasury Department
with its heqdquarters in Washington and approximately 400
points of entry throughout the U.S. It is headed by United
States Commissioner of Customs Lester D. Johnson.
Total Customs revenues in 1965 accounted for more than
$2 billion about one-third of which were collected in the Port
of New York. About 181 million persons and more than $19 billion
in imports are processed through Customs annually.
Biographical sketches follow.

***

- 3 -

BIOGRAPHICAL SKETCH OF MICHAEL STRAMIELLO, JR.
Michael Stramie1lo, Jr., Regional Commissioner-designate
New York Customs Region II, was born in New York City on
'
February 2, 1907. He received his BS degree at Colgate
University, Hamilton, New York, in 1930, and his LL.B at
St. John's Law School, Brooklyn, New York in 1933.
In 1927, 1928 and 1929 Mr. Stramiello played varsity
football at Colgate College. In 1930 1931 and 1932 he played
pr~fessional football for the Brook1y~ Dodgers Football.Club,
wh1le he was attending law school. In 1937 he was football
coach for the Newark Bears.
Mr. Stramiello entered the general practice of law in
New York and was appointed trial attorney in the Law Department
of the City of New York in 1934. After serving on the staff
of the special prosecutor for Kings County, he was named
Associate Counsel of the New York State Moreland Commission
in 1939-1940. He was also an Assistant City Corporation Counsel
and Special Attorney in the Department of Justice, Customs
Division, in 1946-1948.
Mr. Stramie110 was on active duty with the U.S. Naval
Reserve from 1942 to 1946 and he holds the permanent rank of
Commander, USNR. He is a member of the Standing Committee on
Customs Law, American Bar Association, and the Committee of
Ethics and Grievances of the Association of the Customs Bar.
Mr. Stramie110 has been admitted to practice before the
U.S. Supreme Court, the U.S. Court of Customs and Patent Appeals,
the United States Customs Court, the United States District
Court (Sou~hern District of New York), and the Supreme Court
of the State of New York.
In 1962 he was appointed U.S. Appraiser of Merchandise at
New York by the late President Kennedy; Mr. and Mrs. Stramiello
reside at 5 Tudor City Place, New York City.

***

- 4 BIOGRAPHICAL SKETCH OF DAVID F. CARDOZA
David F. Cardoza, Deputy Regional Commissioner-designate,
New York Customs Region II, was born in Brooklyn, New York,
August 9, 1914.
Mr. Cardoza entered the Customs Service in 1937 and has
spent most of his career in the role of Customs agent and
supervisor.
In 1945 Mr. Cardoza was assigned to port security,duties
in San Francisco. Between 1950 and '1954 he was stationed on the
Canadian border as Customs Agent in Charge at Buffalo, New York.
He was then transferred to New York, City where he became Customs
Agent in Charge of the Special Cusmms Narcotics Squad.
In 1960 Mr. Cardoza was named Assistant Supervising Cusmms
Agent at New York and assisted in organizing a new force of
Customs Port Investigators which was added to the Customs Agency
Service at that time.
In July 1963 Mr. Cardoza was appointed Supervising Customs
Agent at Miami, Florida, where he had supervision over Customs
enforcement and investigative activities for the southeast region
of the United States. He returned to New York in April 1964
as Supervising Customs Agent for the New York Region. In
uecember 1965, Mr. Cardoza was appointed Assistant Collector of
Customs for the Port of New York.
Mr. and Mrs. Cardoza reside at 14 Briarcliff Lane, Glen
Cove, Long Island, New York.

***
BIOGRAPHICAL SKETCH OF FERDINAND GALLOZZI
Ferdinand Gallozzi, Assistant Regional Commissioner-designate
(Administration), was born at Boston, Massachusetts, on January 29,
1910. He studied business law, office management, and other
subjects at the City Collese of New York, Brooklyn College and
Fordham University.

- 5 He entered the Customs Service in New York City as a
messenger boy in the Collectors Law Division. In 1928 he was
transferred as a clerk to the Marine Division, where he remained
for 20 years. He became Deputy Collector (Monies and Acccunts
Division) on December 31, 1958, and since February 1962 he
has been Program Management Officer in New York. In this latter
capacity he participated in the preparation of a number of surveys
which resulted in savings and more efficient operations for the
C~stoms Service.
He also helped plan, organize and coordinate
the work of th~ New York Customs District. In 1964 he received
an award for superior work performance.
Mr. and Mrs. Gallozzi reside at 1752 E.
Brooklyn, New York.

24th Street,

***
BIOGRAPHICAL SKETCH OF HARRY FRUMESS
Harry Frumess, Assistant Regional Commissioner-designate
(Classification and Value), was born in New York City on
February 18, 1913. He was educated at the College of the City
of New York where he received a Bachelor of Business Administration
degree in 1939.
Mr. Frumess started his career in the federal service with
the Veterans Administration in 1936; transferring later to the
U.S. Immigration and Naturalization Service. In 1940 he entered
the Customs Service in the Port of New York as,an Examiner's Aid.
From 1947 to 1956, Mr. Frumess served as an Examiner. He
was promoted in 1956 to the position of Supervising Customs
Examiner, and then to Assistant Appraiser. In 1962 he was
named Chief Assistant Appraiser at New York with supervisory·
responsibility for the organization and management of all
appraisement work handled by a.staff of 675 commodity specialists.
His work included the initiation of changes in appraisement
procedures as well as administrative responsibili~y for the
Office of the U.S. Appraiser of Merchandise.

- 6 .Mr.

Fr~ess

served as a technical adviser to a Treasury
Comm~ttee d~rected by Congress to study the importation of
Swiss-made w~tches. He also served as a technical adviser to
the Commissioner of Customs in a study of watch manufacturing
in the Virgin Islands.
Mr. and Mrs. Frumess reside at 3155 Grand Concourse, Bronx,
New York.

***
BIOGRAPHICAL SKETCH OF WILLIAM I. McCULLOUGH, JR.
William I. McCullough, Jr., Assistant Regional Commissionerdesignate (Inspection and Control)'t was born at Quincy,
Massachusetts, on December 3, 1925. He received his AB degree
at Harvard in 1949, and his LL.B and LL.M at Georgetown University
School of Law in Washington, D.C. He served with the U.S. Army
in Europe from 1943 to 1946.
Mr. McCullough started his federal career in the Office of
the Public Debt, Treasury Department, in 1949 as an administrative
aide, later transferring to the Division of Loans and Currency.
He entered the Customs Service as a legal assistant in
September 1954, rising through the ranks until his appointment
in 1962 as head of the Marine Section of the Bureau of Customs
in Washington. In 1964 he was trans-ferred to the Office of the
Collector of Customs, New York, as Supervisory Customs Marine
Officer (Deputy Collector).
Mr. McCullough received the William A. Jump Memorial
Foundation Meritorious Award for Exemplary Achievement in
Public Administration in 1962. He is a member of the Federal
Bar Association, the Propeller Club in New York and the Customs
Lawyers Club.
Mr. and Mrs. McCullough reside at 259 Hillside Avenue,
Livingston, New Jersey.

***

- 7 -

BIOGRAPHICAL SKETCH OF JOSEPH P. KELLY
(Program Adviser)
Joseph P. Kelly was born in New York City on January 6, 1896,
and educated at the Rhodes Preparatory School and the City College
of New York.
He was vice president and sales manager of the Frank L. Burns
Coal Company from 1925 to 1930, and vice president of the BradleyMahoney Coal Corporation until 1954. He was appointed by Governor
Averell Harriman as Commissioner of Motor Vehicles for the State
of New York, serving from 1955 to 1959.
Mr. Kelly has served on the boards of numerous health and
welfare organizations, including the Bronx Eye and Ear Hospital,
and the Lavelle School for the Elind. He was on the local board
of Selective Service from 1941 to 1959, and has served as Foreman
of the Federal Grand Jury five times.
Mr. Kelly was appointed by President Kennedy as Collector
of Customs of the Port of New York, New York, on July 5, 1961.
He resides at 3520
New York.

Per~y

Avenue, the Bronx, New York,

***
BIOGRAPHICAL SKETCH OF JOHN A. VACCARO
(Program Adviser)
John A. Vaccaro was born in Sicily on May 12, 1900 and
became a naturalized citizen of the United States in April 1924.
He graduated from Fordham University Law School in 1928 and
became associated in the practice of law with William V. Hagendorn,
Vice-Dean of the Brooklyn Law: School.
Mr. Vaccaro has been active in law practice in Yonkers for
31 years. He ran for Councilman in that city and ~as elected in
1949. He served during the first te~ as Democrat~c ~eader,
was elected Councilman for two additional te~s, and ~n 1952
became Vice-Mayor,

8 -

Mr. Vaccaro is a past president of the Yonkers Lawyers
Association, and served for five years as trustee of the White
Plains Law Library Board by appointment of Governor Averell
Harriman. He is presently a member of the Yonkers Charter
Revision Committee by appointment of May Kristensen.
Mr. Vaccaro was appointed by President Kennedy as Surveyor
of Customs, New York, on November 30, 1961.
He lives with his wife at 127 Hillcrest Avenue, Yonkers,
New York.

***
BIOGRAPHICAL SKETCH OF FRANK H. TUOHY
Frank H. Tuohy was born September 26, 1912, at Jersey City,
New Jersey, and was educated in New Jersey as well as in Army
schools in Georgia, Kansas and Hawaii, and at the American
Institute of Banking, New York City.
He was associated with the Bank of Yorktown, Yorktown, New
York from 1928 to 1930; the Meadow Brook National Bank of New
York City from 1931 to 1946, except for the period of military
service; and the Industrial Bank of Commerce, New York City,
where he was Assistant Treasurer.
He was on active duty with the U. S. Army from 1940 to 1946
and was discharged from the Army with the rank of Major.
Mr. Tuohy was appointed by President Kennedy as Comptroller
of Customs, New York, on June 6, 1963.
He lives with his wife at 32 Henry Street, Jersey City,
New Jersey.

* *

- 9 -

BIOGRAPHICAL SKETCH OF SAMUEL BLECHER
Samuel Blecher, Regional Counsel-Designate for the
New York Region, was born on September 25, 1910. He attended
the College of the City of New York and the Brooklyn Law
School of the Saint Lawrence University, from which he was
graduated cum laude and obtained both a Bachelor's and a
Master's degree in law. He was admitted to practice in
New York in 1937.
Mr. Blecher has been continuously employed in the Customs
Service of the Treasury Department since October 15, 1930.
He has held legal positions of increasing responsibility and,
since January 1958, has held the position of Solicitor for the
Port of New York. Mr. and Mrs. Blecher and their family
reside at 1015 Washington Avenue, Brooklyn, New York.

TREASURY DEPARTMENT
RELEASE S: 30 P. M. ,
~_UH~~?e 6, 1966.
RESULTS OF TREASURY'S HEEKLY BILL OFFER ING
The Treasury :iJepartment announced that the tenders for two series of Treasury bills,
series to be o.n additional issue of the bills dated March 10, 1926, and the other
~es to be dated ,Tune 9, 1966, which vere offered on June 1, 1965, were opened at the
~ral Reserve Bo.nl\:s today.
Tenders ,,,ere invited for ,"~1,300,000,OOO, or thereabouts, of
lay bills and for ;~l,OOO)OOO,OOO, or thereabouts, of lR2-day bills. The details of
tvlO series are as fo11m-lS:
fE OF ACC.:IT'TiID
91-day Treasury bills
'STITIVZ BIDS: •.________
maturins
September
1966
.__ --_ ..... _.•.....
-. ______8.• L-::::::::..::
_ __

:1:i3h
Lml

AveraGe

-_ ..Price
_... _-- - - 98.855
98.836
98.844

Approx. Equiv.
Annual Rate
._--------._ ... _4.530%
4.605%
4.573%

182-day Treasury bills
.

maturins
8 _
1966
.-___
. . . _. __ ._ ..Decem.ber
_. ____ ... __ .. -.1_ _ _ __
Price
---. -----97.614
97.594
97.602
..

Approx. ~quiv.
Annual Rate
4. 720~~
4.759%
4.744%

71% of the amonnt of 91-day bills bid for at the lovl price vTaS accepted
70% of the ar.lo1mt of 1R2-day bills bid for at the Im{ price was accepted
L TEND@S APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

strict
ston
w York
iladelphia
eveland
chmond
lanta
icago
• Louis
nneapolis
nsas City
Has
tl Francisco
TOTALS

_ _98~7J ,000

18 ,~32 ,000
860,543,000
16,316,000
29,021,000
10,831,000
52,439,000
137,387,000
39,782,000
16, 9 13, 000
23,329,000
16,595,000
78,377-1-9 00

App1J-_E;?-...F_o_r__
~
8,591,000
1,185,929,000
18,220,000
22,964,000
4,172,000
31,976,000
201,811,000
22,073,000
12,013,000
12,588,000
12,195,000
_ _7}J 4~0..J. 000

Accepted ._ _ _
$
8,591,000
691,929,000
10,220,000
22,964,000
4,172,000
24,676,000
126,211,000
16,848,000
11,513,000
12,438,000
8,195,000
_ _?_2 , 459 , 000

$1,938,418,000

~1,300,195,000 ~

$1,604,982,000

$1,000,207,000

Appl~_~_~ _F~~__
<,)

28,632,000
1,402,793,000
28,316,000
29,021,000
10,831,000
56,023,000
177,196,000
44,362,000
15,943,000
23,329,000
22,595,000

AC~R~.e_d
_ __

lcludes $246,108,000 noncompetitive tenders accepted at the average price of 98.844
lc1udes $131,528,000 noncompetitive tenders accepted at the average price of 97.602
lese rates are on a bank discount basis. The equivalent coupon issue yields are
.69% for the 91-day bills, and 4.93% for the 182-day bills.

TREASURY DEPARTMENT
Washington
FOR RELEASE: UPON DELIVERY
REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT THE
1966 COMMENCEMENT OF WESLEYAN UNIVERSITY
MIDDLETOWN, CONNECTICUT,
SUNDAY, JUNE 5, 1966~ AT 6:00 P.M.

Here at this Wesleyan University commencement, it is peculiarly
fitting to consider what, in our society, we should regard as the
primary issue for a new generation of Americans.
As framed in the words of President Johnson last month at
Princeton:
"It has to do with the obligations of power
in the world for a society that strives, despite its
worst flaws,always to be just and humane."
May I suggest that education for public leadership is the
first obligation of this well motivated power in this mid-twentieth
century world of rising expectations, of unparalleled opportunity
and of unlimited potential for disaster.
In 1820 Thomas Jefferson wrote to a friend:
"I kn~ of no safe depository of the ultimate
power of the society but the people themselves; and
if we think them not enlightened enough to exercise
their control with a wholesome discretion, the
remedy is not to take it from them, but to inform
their discretion."
The basi'c question then is haw do we "inform the discretion"
of those from whom our public leadership is drawn -- how to assemble
and train a ministry of the best talents.
For a country with lesser responsibilities the question might not
be critical.
But upon Americans has fallen not only the responsibility for
faithful pursuit of the American vision of a bet.ter society at the
lational level, but of world' leadership. To discharge that leadership,
F- 498

- 2 -

uninvited but obligatory nonetheless, it is necessary that we have a
strong and effective national government, one whose powe:-s are validate
even as they are limited, by a careful balance of restral.nts such as
those set forth in our Constitution.
It is also necessary, especially in a rapidly urbanized setting,
that we have viable and capable state and local governments. All
must be based on a private sector that works with and is in turn
sustained by the public sector.
You and I -- like all succeeding generations of Americans -- SM~
the task of trying to interpret and attain for our times the dreams
and ideals that are America and are ourselves -- the task, in a very
real sense, of discovering America anew and, in so doing, to
discover ourselves.
Today, and in the years ahead, the achievement of tha t task will
require of all Americans, whatever their personal concerns and
private pursuits, a very real and deep involvement in the public life
and public affairs of this nation, both at home and abroad. For
both the nation and the world have grown too small -- and the
stakes have become too high -- to allow any of us to live for very
long in easy and unconcerned isolation. A bomb that explodes in
Watts or Saigon shatters windows in Washington and Wesleyan as well.
Problems we could once ignore -- issues and events that once could
have been safely confined to one city, or one region, or one country'
now involve us all because they now affect us all.
And, inevitably, they involve all the institutions that
represent our public interest and express our public will -- primarill
our institutions of government at all levels, in our cities and
communities, in our states, and on the national level. For as public
problems have g~own, so has public power -- and for a new generatioo
of Americans there is no more important and imposing challenge t~n
the prudent, intelligent and creative use of public power in furt~rb
our constant 'quest for the kind of society here at home and the kind
of world at large in which men can best live a full and free life.
To meet that challenge will require that we engage our ablest
and most imaginative minds at all levels of public service -- in
elective office, in the key appointive posts and in the career
administrative service. To meet that challenge will require that
our colleges and universities, our secondary educational system,
our parents -- our leaders in public and private life -- that we all
ask ourselves whether we are doing all we can to assure that we ~~
available for public service a suffucient number of our ablest
and best trained citizens.

- 3 -

In his address last month to the Woodrow Wilson School of
Public and International Affairs, President Johnson turned publicly
to a son of Wesleyan for a partial answer, saying:
"I have asked Chairman John Macy of the Civil
Service Commission to head a task force which will
survey Federal programs for career advancement. I
have asked him to study an expanded program of
graduate training which, with the help of the
universities, can enlarge our efforts to develop
the talents and broaden the horizons of our career
officers.
"I also intend next year to recommend to
Congress a program expanding opportunities for
those who wish to tra in for the public service ... "
Does this mean we are at last attempting to bring to public
service in an organized way the special knowledge and training
normally associated with the private professions, with business and
Nith education itself?
Surely there could be no prospect more worthy of a continuing
jialogue among teachers, students, public servants, and,indeed, all
Nho would see a nation of greatness in centuries ahead live up to the
inspiration of its founders and the promise of today.
We must engage in a new and concerted effort directed to education
Eor public service -- an effort that must encompass training at the
lndergraduate level, the graduate school and other specialized training.
There is no better foundation for any career -- public, private
~r mixed -- than a solid liberal arts undergraduate education.
In an
fige of specialization we too often forget the value of a broad range
Jf knowledge and the ability to relate diverse disciplines. Nowhere
LS this breadth of knowledge more valuable than in the public
3ervice -- local, state, national, or international.
Because of government's responsibility for coordinating and
~elating many specialized fields -- law, economics, natural science,
:he social sciences, management, administration, to name but a few -1 broad liberal arts base is even more important for public service
:han for mos t pri va te vocations.

- 4 Here at Wesleyan you have taken a major step toward educating
yourselves for public service. Here you have had the opportunity to
avoid a danger that is increasingly common -- the danger of losing
sight of the big problems because one feels unqualified to think about
the questions that cut across disciplines and specialities.
As John Gardner, the Secretary of Health, Education and Welfare,
has said:
"The best students are carefully schooled
to avoid leadership responsibilities ... the
academic world appears to be approaching a point
at which everyone will want to educate the
technical expert who advise's the leader, or the
intellectual who stands off and criticizes the
leader, but no one will want to educate the
leader himse If."
Today's world of specialization and large scale organization calls
increasingly for a new kind of leadership. Today's decision maker or
leader must be capable of both practical action and technical
expertise in several related areas. He must be a master of more tMn
one complicated area of knowledge who can specialize without losing
sight of the broader picture. This fact -- this critical manpower
need -- will grow increasingly important in your lifetime -- not only
in government but in business, science, education and the arts as well
Steps have been taken to meet this need in the private sector of
rur economy, where graduate training is becoming more the rule than
the exception. But we are only beginning to face up to it in the
public sector. Fortunately, graduate or specialized training in ~ny
fields not necessarily focused on public administration have an
abundant carry-over value for public service. The trained lawyer,
scientist, banker, economist, for example, finds that his specialized,
training is a valuable asset in the public service.
But we are finding in public service that we can no longer rely
on the haphazard carry-over of expertise from the specialized
professions; we are turning to supplementary training for public
servants.
In President Johnson's words:
"Our concept of public service is changing
to meet the demands of the hour. A new public
servant has emerged. He may be a scholar who
leaves his studies for the crucible of power in
his state or national capital, or he may be the

- 5 -

young man or woman who chooses public service but
does not abandon at its doorstep techniques of
scholarship in the search for knowledge."
The last two decades have witnessed a variety of proposals to
'energize" the public service. Many have been implemented --primarily
?rograms for training after entering public service. Under the 1958
;overnment Employees' Training Act, the Federal agencies and departments
lre increasingly utilizing the academic resources of universities and
leveloping in-service and inter-agency programs and off-campus study
~enters.
The Brookings Institution has pioneered exchange programs
Inder which business executives spend several weeks or months in
~overnment agencies and career government executives serve similar
:ours of duty in private enterprise.
For a number of years there has been talk of establishing a
taff college or a Federal Executive Institute for the most promising
igh-level civil servants. Its purpose would be to provide a continuing,
ederally-financed educational institution for career officials whose
xperience and performance indicate they are good investments.
believe this approach to the centralized higher education of public
ervants after employment is more practical and more desirable than a
entralized training before employment at a Public Service Academy
omparable to the French National School of Administration.
One of our great strengths as a nation is our diversit~ Our
ederal government must cover a range as great as the outside worLd.
single institution for specialized training before employment in the
ederal service simply could not, in my opinion, satisfy the demand.
Both the government and the private sector gain from our custom
f drawing top-level public officials from outside sources, often
ecalling the same individual several times. This custom has served
r nation well in the past and continues to provide many on our best
igh-level officials.
We should encourage more qualified men and women in private life
) interrupt their careers to serve in government consultant and
lvisory position on a short-term basis.
The need and the opportunity for this cross-fertilization exist
all levels of government -- not only the Federal. In fact, we should
Lcourage much more movement than currently exists between the Federal
~ the state and local levels.

- 6 -

I believe that as an alternative to the single academy appr~ch
to the training of potential public servants, we should encourage
a more pluralistic approach: the development of a number of
rigorous programs designed to meet the nation's primary needs in
several broad but interrelated areas.
One such area -- that of political economy -- I would like
to comment on in some detail because it serves to illustrate the
need I have been describing.
In this age of large-scale government and increasing
specialization we face a more urgent need than ever before for
people capable of practical action in complicated areas requiring
deep knowledge of both politics and economics. The Under Secretary
of the Treasury, Joseph W. Barr, who was then the Chairman of the
Federal Deposit Insurance Corporation, in 1964 voiced his concern
over the lack of men trained in the field of "political economy."
Mr. Barr proposed that a Financial Reserve Corps be created, and
I believe that this merits further attention.
As an intellectual discipline, "political economy" reached
its peak among the "laissez-faire" thinkers of the 19th Century.
Given the complex and specialized nature of modern society it is
not surpris ing, perhaps, tha t this academic disc ipline has died out.
And I doubt if one can reasonably expect its resurgence on any
grand scale, either in the world of business and banking or in
the universities. Nevertheless, at high levels of decision-making
in our society, and particularly in government, the need remains
and it is in 'this area that a Financial Reserve Corps could make
a unique contribution.

- 7 Today two tools are essential to any top level executive
in government: a feel for public affairs and a sound knowledge
of economics.
There is not an area in government, domestic or
international, in which economic and financial considerations
do not playa major role.
Consider the far-reaching field of
program planning analysis, or cost-effectiveness, which has come
into such prominence in recent years.
Or reflect momentarily
on the extent of this country's economic and financial relations
with other nations, and the emergence since World War II of new
international financial institutions and arrangements.
Recently I spent several days in Mexico City at the annual
Inter-American Development Bank meetings.
This organization is
the financial arm of the Alliance for Progress.
It has served
as a model for other regional financial institutions in Africa
and more recently in Asia.
Clearly, the management of such
institutions demands both sound economic knowledge and political
skill.
After two world wars and with the emergence of new nations,
the world's balance of power -- political and economic -- has
changed. And in many cases there is a time lag between political
and economic development. Many of our international tensions are
manifestations of that lag.
The technological revolution has
shot ahead of existing political and economic systems. The
economic demands of a highly industrialized and urbanized soceity
are rapidly making ancient political patterns obsolete.
But
while our wants and material needs rush ahead, too often our
society and political structures remain stubbornly implanted in
a bygone era.
The international financial institutions confront this
paradox daily. A vast river system in Asia lies unutilized
because the political cooperation necessary to its development
is not forthcoming. And yet that river is the potential source
of an entir~ region's advancement from a medieval to a modern
economy.
Thousands of Latin Americans live out their lives in poverty
and disease because their homes are inaccessible -- isolated from
the 20th century by lack of transportation and communication
systems which we in the Northern Hemisphere take for granted.

- 8 The economic need for regional cooperation has raced ahead
of the political sophistication necessary to meet that need.
The world is only beginning to face this reality. It raises
new areas of world leadership which will be wide open to the
political economists of your generation.
International economics is not the only fertile field for
political economists. Everyday the financial management of our
own country involves political as well as economic decisions.
Our Constitution provides that the legislature shall control
the nation's purse strings; and, accordingly, all revenue bills
originate in the House of Representatives. An Administration's
economic policy is always subject to the will of Congress and
is seldom enacted in the form proposed. There is perpetual interaction between economic theory and political possibility, advice
and consent, policy-making and policy implementation.
The intricacy of international and domestic finance demands
policy-makers with both specialized economic skill and a thorough
understanding of the political milieu. As our national and
international economic problems multiply; and the political
milieu in which we are called upon to operate becomes increasingly
complex, it seems unlikely that there will be enough leaders in
the future unless the processes of recruitment and specialized
training are intensified.
Government is not alone here either; business and the
banking industry face similar problems as they expand their
operations at home and overseas. We face a crucial lack of
trained political economists, and it is this need that a
Financial Reserve Corps would be designed to fill.
The

question is how best to create such a Corps?

As visualized by Mr. Barr, the Corps, though set up on a
permanent oasis, would be created gradually through combined
education and on-the-job training program. Participants would
be expected to serve three or four years in government, either
immediately after their academic training or later in life. In
this way, over the years a reservoir of trained men would be
built up which the government could draw upon to fill responsible
positions in the economic and financial spheres.

- 9 As for candidates, certain attributes would seem to be
essential.
They should be well educated, relatively mature
probably between ages 25-33 -- and have some idea about the
general direction of their career.
They might be drawn from
a wide variety of sources, including government, banking and
investment institutions, business, the legal professions, trade
unions, foundations, and the universities.
Their formal
education might be equally diverse -- in economics, law,
political science, mathematics and engineering, history, or
philosophy. Above all, it would seem essential that candidates
should show unusual capacity for creative thinking, as well
as the ability to relate their ideas to complicated economic
and financial data.
The program itself might be organized on a three-year basis,
arranged in such a way that six months' intensive academic
training would be followed by one year of practical experience
in one of the departments or agencies of the Federal Government.
Thus, in the three year period, participants would have two rounds
of academic training and hold two responsible posts in Government.
Assignments might be arranged in the Treasury Department, the
Bureau of the Budget, the Council of Economic Advisers, the
Federal Reserve, the State Department, the Pentagon, the Commerce
Department, and the new Department of Housing and Urban Development
and other selected agencies.
To administer the program and select
the candidates, a Presidential Commission might be appointed,
comprised of a professional staff and leading private citizens,
Congressional representatives, and high Government officials.
A Financial Reserve Corps would meet a specific and urgent
need. However, its underlying principles could and should be
~pplied to other specialized areas of government activity.
The
~inancial Reserve Corps could serve as a prototype or model
Jrogram.
This is but one of the approaches we should take in our quest
:or excellence in the public service: answering the need for top
~light people in specific areas with special programs tailored
:0 those needs.
In terms of attracting potential talent to the
}uhlic service, such programs would appeal to our most ab~e and
ualified college graduates by advertising the government sneed
or their abilities and by offering them challenging career
pportunities.
I bring the proposal to Wesleyan today for an
bvious reason.
You are now among our country's most able and
ualified college graduates.

- 10 -

Whether or not your future includes formal government service
I would like to leave you with an awareness of the great challenges
our nation faces and the manifold opportunities for leadership
those challenges provide for you. I urge you to consider your
responsibilities as citizens in light of these opportunities,
and I hope that a goodly number of you will in the words of
Plutarch, undertake "the service of the state as the proper
business of an honest man."
)

000

TREASURY DEPARTMEN"r

fOR IMMEDIATE RELEASE
WILLIAM C. DECKER GETS TREASURY'S
DISTINGUISHED SERVICE AWARD
Secretary of the Treasury Henry H. Fowler, today presented
William C. Decker, of Corning, New York with the Treasury's
Distinguished Service Award for his work in facilitating
production of new dimes, quarters and half dollars to relieve a
national coin shortage, under the Coinage Act of 1965.
Secretary Fowler announced Mr. Decker's appointment as a
Special Consultant to the Secretary July 15, 1965, one day
following passage of the Coinage Act by the House. The Senate had
already approved the bill for silverless dimes and quarters and
reduction of the silver content of half dollars from the traditional
90 percent to 40 percent. First production of the new coins began
August 23, 1965, some 31 days after the Coinage Act became law.
All three new coins are currently in circulation.
Mr. Decker, 65, is a production and supply expert who was
formerly President, and Chairman of the Executive Committee,
of Corning Glass Works.
In presenting Mr. Decker with the Treasury's Distinguished
Service Award today, Secretary Fowler recalled that when he
appointed him he said:
"Mr. Decker's advice is insurance for the swift and abundant
production of the proposed new coinage worked out in advance by
the Mint. He gives us added ability during the crucial initial
phases to identify and overcome the problems that always arise,
despite the best forward planning, when a new product is being
made. He will consult with me and will counsel with Assistant
Secretary of the Treasury Robert A. Wallace, Mint Director
Eva Adams and others with responsibility for the operations of
the Mint."
F-499

- 2 Mr. Decker was instrumental in negotiating beneficial
contract prices and terms for new coinage material with private
contractors, and in evaluating production capabilities of
proposed contractors.
He helped negotiate 10 contracts to provide the Mint with
metal strip suitable for coinage, involving production valued
at approximately $66,465,520.
2~

Since production of the new coins began last July 23,
billion pieces have been produced.

The citation accompanying the award to Mr. Decker is
attached.

000

CITATION
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lLa.p.id expan4.ion 06 DUll co.in PJtaducUon at141 the. pJtCp7rt ne.go.tia.tiolt
cvuiAac.L\ ktith e.ve.!r.tj avaUable. AOultce 06 .6urply 0 ~ tlte new J~al.eJtJ.t.tl
the uaited Stttt~. ,\6 a. pJL.i.nci)w.1 J.,~er·lbCJt 0& tIle TlLeaftu.'tq Vepltltt!;Ient',
JH!.1ot.i.a.ti.ng .tea."tI, M.'t. Vecke..\ bJ:.au~lht to oetllt hLs va~t exp£A.lence. tU dIl
executive 0 ~ a. fl;a j Olt Unite.d State.' <!oJtt-'OltaWtt IIJitlt the lte4ul.t tha.t tht.
Vepa.'t..b.'len.t wa4 ~.labl.l!d .t.c ¥I.£DoUat.e. J'<'wr:'1ptllj, and at (1 (i;-bW1UJI1 c..o4t to
the UnUe.d Sta.lu. (!CnVtae.t6 601t. the. pltoc,wume.nt c& the. eA4~Jl.tial
mJtClfi£1l.4 60,\ .tltt. n~ co.irtaae.. Since t~tt w::e Ite Sun been 0 6 9JL~<tt

0'..u.

h(1.i..p -th'LOU~i!l lJi4pectiOt:~ ltl1d a.6 all advueJt .in ..i.n..6uJt.ing that. tIlt vM-ioU6
c.ontJtactolt.6 ft.1ve. peJltCl1.~'led ..in CCti;pU(ttlce ".titl, tlteDl wldel{tccfli.r.~.s. both
a4 .to pfLor.!piJte-6-' 0 ~ deLi.velt~1 altd quail.tfj 06 p.Jtodtlct. Ali. t!u~ h~
~(!4uUed in a. h.iglttu 4U('.~e.~4 (ui tJt{tlt6.itiiJR to the. ne().' c.c.i.tlage nitl, a
r,tiu.u':{tP' 06 cl.i4ItUp.tiOI1 .to .t.h~ lln.i.ted sta.te4 ec.()t1O!~;rI. FOft ..t!-1.e.4 e Jt.c.a~on.a.
VJl. iJe.C!h(J,~ ; -' lultrj de~eJtv.ing 0 ~ the. TJte.tt~ult~· -' V~.t.i.tt!Ju.«ILe.d Se/lvic. ..
AC'Jlvr.d.

TREASURY DEPARTMENT
Washington

STATEMENT BY THE HONORABLE JOSEPH W. BARR
UNDER SECRETARY OF THE TREASURY
BEFORE THE
COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES
TUESDAY, JUNE 7, 1966, 10:00 A.M.
Mr. Chairman and Members of the Committee:
In his testimony before this Committee on May 19, the
Secretary of the Treasury reviewed recent developments with
respect to competition for time and savings deposits.
In appeari:lg before this Committee today, it is not my
purpose to indicate a change in analysis or a change in the
Treasury's position.

The Secretary's position, which was

essentially restated in his letter to the Chairman on
June 2, 1966, stands.

Indeed, against the background of

statements made by many others since then, I believe his
comments and his constructive suggestions remain sound and
constructive.

However, in light of subsequent testimony and

proposals, I welcome this opportunity to make additional
comments in this important area.
Without reviewing recent developments at any length,
let me just note that savings and loan associations and mutual
savings banks have encountered increased competition from

F-500

- 2 -

commercial banks during the past few years.

This competition

has been intensified with recent interest rate increases and
the December 1965 revision of Regulation Q.
Thus far in 1966 we have seen a substantial reduction
in the inflow of savings into savings and loan associations
and mutual savings banks.

During the first four months of

1966 savings shares at S&L's increased by only $500 million
compared with an increase of $1.9 billion during the similar
period in 1965 and $2.8 billion in 1964.
period

During the same

the first four months of 1966 -- there was a $500

million inflow into mutual savings banks compared with $1
billion in 1965 and $1.3 billion in 1964.

An important factor

in this smaller net inflow, apparently, is the outflow of
volatile, rate-sensitive funds to commercial banks and into
market instruments.
I should like to emphasize this point particularly,
because it is important to keep in mind here that we are
dealing with a matter of rate sensitivity and not one of
weakened confidence in the soundness of our financial
institutions.

Savings and loan associations, for example,

- 3 -

can count on substantial flows of repayments from existing
mortgages, as well as access to Horne Loan Bank borrowing to
meet potential outflows of savings.

We would certainly not

regard large outflows with indifference, however, as they
would tend to reduce new mortgage loans made by S&L's and
hurt the homebuilding industry.
Turning to some specific proposals that have been
offered, limitations on the use of large denomination
negotiable CO's would take away a major source of funds for
large banks.

Such CD's are not competitive with Sand L

shares or mutual savings bank deposits to a significant
degree.

Placing restrictions on the use of negotiable CD's

would, I believe, result in little, if any, benefit to Sand
L's, the mortgage market, or the homebuilding industry.
It is the smaller denomination CD, or savings certificate,
that competes most closely with Sand L shares or deposits
in mutuals.

Restrictions on terms that banks may offer on

such CD's would tend to arrest the outflow of funds from
Sand L's to banks.

With this in mind, the Secretary of

- 4 -

the Treasury proposed that the Federal Reserve Board be
given temporary authority to set a lower ceiling on the
insured portion of time deposits.

That proposal provides

a sound basis for offering a lower interest rate on smaller
denomination time deposits, since the lower rate would be
limited to the riskless portion of the deposit.
Since the Secretary spoke to this Committee, others
have suggested that a lower ceiling on the first $10,000
WDuld not affect a sufficiently large proportion of volatile
savings deposits.

A case could be made for drawing the line

at a higher level

somewhere in the range of $25,000 to

$100,000 -- and we would enter no objection to making the
distinction somewhere in that range, although we did, and
still do, see a logic in tying any lower rate to the
insurance coverage o
Secretary Fowler strongly suggested a ceiling rate of
5 percent on smaller time accounts.

Such a rate, we believe,

would not necessitate a large rollback by many banks.
Combined with recent action by the Federal Home Loan Bank

- 5 -

Board, it would diminish the tendency to shift funds from
Sand L's and mutuals into commercial banks, although it
would not result in any reversal of shifts that already have
occurred.

A lower ceiling, say 4-1/2 percent, would penalize

smaller savers, would place banks at a disadvantage compared
with savings and loan associations in many parts of the
country and would substantially increase the relative
attractiveness of direct security purchases to individual
investors.

Such a rollback in the rate ceiling could have

a substantial adverse effect on bank liquidity without
affording a corresponding gain to Sand L's.
I strongly believe that any ceiling placed on rates banks
can pay on smaller CD's should be temporary and that legislation
along these lines should expire after, say, one or two years
so that Congress and the Administration can reappraise the
situationo

In the long run the public will benefit from

competition among financial institutions and, consequently,
it is important that we avoid permanently establishing
anticompetitive rules governing the operation of financial
institutions.

- 6 -

Viewed in perspective, the present situation reflects
economic relationships that have developed in the recent
past and may recur from time to time in the future.

Monetary

tightness and high short-term interest rates can be expected,
at times, to pull funds away from savings institutions and
the mortgage market.

The current situation is complicated

by the fact that restrictions on interest payments on bank
time deposits were recently relaxed and this return to a more
competitive situation will require some adjustments by savings
and loan associations, including the loss of some rate-sensitiw
funds.
concern.

It is this temporary adjustment that is our present
I believe it would be inappropriate to deal with

such a temporary adjustment by imposing permanent restrictions
on competition for time and savings deposits.
Several suggestions have been offered to this Committee
regarding changes in reserve requirements.

In his testimony,

Secretary Fowler suggested the possibility of giving monetary
authorities greater discretion in imposing reserve requirements
on negotiable cn's that might exceed those on other time and

- 7 -

savings deposits.

Other, rather specific, proposals have

been offered which would raise the level of reserve requirements
on time deposits or on CD'so

Implementation of such proposals

could have important implications for the competitive
relationship among financial institutions and the functioning
of monetary policy.

It would be desirable for action on any

such proposals to be taken only in the light of the most
careful and objective analysis.

While I believe that there

are fruitful opportunities for improving the techniques and
tools at the command of the monetary authorities in this area,
I do not believe that implementation of these proposals would
provide any immediate benefit to savings and loan associations
or to the homebuilding industry.
In concluding, I would like to commend the Chairman and
this Committee for tackling a difficult subject and attempting
to hear all

sid~of

the several issues involved.

While these

hearings were prompted by some real problems, I would urge the
Committee not to react to the problems at hand by creating
still greater problems.

TREASURY CEPARTMENT

June 16, 1966,
representing an
and to
amount of
to be freely

182-day bills, for $1,000,000,000, or thereabouts, to be dated
June 16,1966,
and to mature December 15,1966.
The bills of both series will be issued on a discount basis under
:ompetitive and noncompetitive bidding as hereinafter provided, and at
naturity their face amount will be payable without interest. They
(ill 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
:maturi ty value).
Tenders will be received at Federal Reserve Banks and Branches
to the closing hour, one-thirty p.m., Eastern Daylight Saving
;ime, Monday, June 13, 1966.
Tenders will not be
'eceived at the Treasury De~artment, Washington. Each tender must
Ie for an even multiple of $1,000, and in the case of competitive
enders the price offered must be expressed on the basis of 100,
'1th not more than three decimals, e. g., 99.925. Fractions may not
,e used. It is urged that tenders be made on the printed forms and
orwarded in the special envelopes which will be supplied by Federal
.eserve Banks or Branches on application therefor.

Banking institutions generally may submit tenders for account of
ustomers provided the names of the customers are set forth in such
enders. Others than banking institutions will not be permitted to
ubmit tenders except for their own account. Tenders will be received
ithout deposit from incorporated banks and trust companies and from
esponsible and recognized dealers 1n investment securities. Tenders
rom others must be accompanied by payment of 2 percent of the face
nount of Treasury bills applied for, unless the tenders are
~companied by an express guaranty of payment by an incorporated bank
[' trust company.
F-501

- 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 Department of the amount and price
range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
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 June 16, 1966, in
cash or other immediately available funds or in a like face amount
of Treasury bills maturing June 16, 1966.
Cash and exchange tenders
will receive equal treatment. Cash adjustments l;vill 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 au
sold, redeemed or otherwise disposed of, and such bi lls are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereu~
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 dI
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and ~
notice prescribe the terms of the Treasury bills and govern the
.
conditions of their issue. Copies of the circular may be obtainei'fll
any Federal Reserve Bank or Branch.
000

TREASURY DEFAR'lHEXT
Wuhington, D. C.
IMMED IATE RELEAS E

F-S02

THURSDAY, JUNE 9, 1966

The Bureau of CustoDl5 announced todq prel1m1nary figures ahowing t.he
quantities of wheaJ~ £rJd m1lled wheat products 6.uthorizeci ~} be entered, or
withdrawn from warehcouse, tor consumption under the !mpol°+ q!10t..8.3 established
in the President's proclamation ot May 28, 1941, as modifi ~1 by the President's
proclamation of April 13, 1942, am provided for in the'" :,"-: ff ~)chedules of
the United St.ates 9 for the 12 months cOJDlDencing May 29, J..9f5, as follows:
••
••

•
~

l~Our~-..ry

Wheat

·•
~'

________________

.2stabllshed:
Quo ta

(Bushels)

Canada

________

Imports

:May

29, 1965,

;May 2 B, 1966
(Bushels)

-L~

________

Estab1j~hed:

Que ~.

(Pounds)

795,000

3,815., C<K)

100

75,000
1,000
5,000

China
Hungary
Hong Kong

Japan
.In!ted Kingdom
hstralia

100
100

}ermany

)yria
~ew

Ze,uan::.

,~hile

100

~ether lands

.2,000

lrgantina

100

(taly
~ba
~rance

lexico

_____

Imports

:May 29, 1965,
i I':ay 28 , 1966

~POund8)

3,815,000

300

5,. (~')()
1,OCJO
1,000

1,000
14.0()O
2: ()(X)

12.0CX>

1,COO

100

1,000

'anama

24" fA);)
1),000
13,000
9,000

1,000

~reece

lllC()O
l~~')()

1,UCO

.Jrugua;y

~OOO

)olmi and Danzig

1,000

,men

i.()J0

~ugo8lavia

1.Ci'l~.J0

'ort18'3

1, Vi...'"'O

anary Islande
umania

uatemala

:razU
nion of Soviet
Socialist Republics
slgium
ther foreign countries
or areas

1,000
100
100
100
100

&)0.000

3,815,30()

TREASURY DEPAR'Dmfr
Wuhington, D. C.

IMKl!D lATE RELEASE

THURSDAY, JUNE 9, 1966

F-S03

The Bureau ot CUstoma announced todq prel.1.minary figures showing the
quanti ties ot wheat and milled wheat products authorised to be entered, or
witb:1rawn from warehouse, tor consumption umer the import quotas established
in the President t s procl·m·t!on ot M~ 28, 1941, as mod1tied by the President t s
proclamation ot April 13, 1942, and provided. tor in the Tarift Schedules ot
the Unit8Cl States, tor the 12 months commencing Mq 29, 1966 , as tollows:

••
Country

of
Origin

••
••
Wheat
•e
•
Imports
: Established •
••
Quota
:May 29, 1966,
;June 7, 1966
••
(Bushels)
(Bushels)

Canada
China

•
••
0

••

Milled. wheat products

••
••

Established •• Imports
••
:Mq 29, 1966,
Quota
••

(Pounds)

795,000

3,815,000
24,000
13,000
13,000

100

75,000

100
100

5,000
5,000

Hungary

Hong Kong
Japan
Un1 ted Kingdom
Australia
Germany

;June 7, 1966
(Pounds)
3,815,000

8,000

Syria
New Zeal&Di
ChUe
Netherlands
Argentina

100
2,000
100

Italy

Cuba
France
Greece
Mexico
PanNla

1,000
1,000
1,000
1,000
14,000

2,000

1,000

12,Q(X)
1,000
1,000

100

1,000

Uruguay
Polard arxi Danzig

1,000
1,000
~OOO

1,000
1,000

Sweden
Yugoslavia
Horwq
Canar,y Isl.ao18
Rwu.n1a
Guatemala
BruU
Union of Sonet
Socialist Republics

1,000
1,000
1,000
100
100

100

Belgium
Other foreign countries
or areM

100

---

900,000

4,000,000

3,815,000

TREASURY DEP AR'IMENT
Washington, D. C.
IMMID I ATE RELEAS E

F-S04

THURSDAY, JUNE 9, 1966

Preliminary data on imports for consumption of cotton and cotton waste chargeable to the quotas established by
Presidential Proclamation No. 2351 of September 5, 1939, as amen::led., ani as modified. by the Tariff Schedules of the
United States which became effective August 31, 1963.
(The country designations in this press release are those specified in the appendix to the Tariff Schedules of the
United States. There is no political connotation in the use of outmoded names.)
COTTON (other than linters) (in poums)
Cotton un::ler 1-1/8 inches other than rough or harsh urder 3/4"
Imports Septe.nlber 2Q. 1965 - June 7 1966
_~ __ _
'L.

Count,ry of Origin
Egypt and Sudan ••••••••••••
PeMl ••

••••••••••••••••••••

India and Pakistan •••••••••
China • •••••••••••••••••••••
Mex:ico ••••••

••••••••••••••

Brazil •••••••••••••••••••••
Union of Soviet
Socialist Republics ••••••
Argentina ••••••••••••••••••
Hai ti ..................... .
Ecuador ••••••••••••••••••••

Established Quota

783,816
247,952
2,003,483
1,370,791
8,883,259
618,723

Imports

Country of Origin

181,062
1,542,372

475,124
5,203
237
9,333

~I
~

Established Quota

Honduras ••••••••••••••••••••
p ar- a.gtl.~ ••••••••••••••••••••
Colombia ••••••••••••••••••••
Iraq ••••••••••••••••••••••••
British East Africa •••••••••
Indonesia and Netherlands
New Guinea ••••••••••••••••
British W. Indies •••••••••••
Nigeria •••••••••••••••••••••
British W. Africa •••••••••••
Other, including the U.S ••••

Except Barbados, Bermuda, Jamaica, Trinidad, a.JJi Tobago.
Except Nigeria and Ghana.
Cotton 1-1/8" or more
Established Yearly Quota - 45.656.420 1bs.
Imports Auro.tBt. lLu:l2.65 __ ~e_7. 1966
Allocation

Staple Length
1-3/St. or more
1-5/32" or more

39,590,778
un:1.er

Imports
39,590,778

752
871
124

195
2,240
71,388
21,321
5,377
16,004

Imports

-2COTTON WASTES

(In pounds)
COTTCN CARD

STRl:?S made frem cotton taving a staple of less than 1-3/16 inches in length, OOMBER

\.-:ASTE, LAP \·;A ~~TEJ SLIVER '.~·A3TE, ANI) H..OVING WASTE, "'1HETHER OR !JOT MANUFACTURED OR OTHERWISE

ft.DVANCED IN VAilfS:
Provl·,ied, 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 the following countries:

United Kingdom, France, Netherlands,

Swi tzerland, Belgium, Germany, and J taly:

Country of Origin

United

:
:
:

Kin~dom ••••••••••••

Canada ••••••••••••••••••••
France ••••••••••••••••••••
India and Pakistan ••••••••
Netherlands •••••••••••••••
Switzerland •••••••••••••••

Belgium •••••••••••••••••••
J apaIl •••••••••••••••••••••

China •••••••••••••••••••••
Egypt •••••••••••••••••••••
ClIba ••••••••••••••••••••••
Gey,n~ •••••••••••••••••••

Italy •••••••••••••••••••••
other, includin~ the U.S ••

EStaolished
TOTAL QUOTA

4,323,457
239,690
227,420
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,544
76,329
21,263

5,u82,50 9

1/ Inc1uded in total. imports, co1umn 2.
Prepared.

s..n

't:.he Ba:r<aau. o f Oust-oms.

:
Total Imports
:
: Sept. 20, 1965, to:
:
: June 7, 1966

55,129
28,7&:1

EstaDllshed:
33-1/3% of :
Total Quota :

1,441,152

Imports
Sept. 20, 1965
to June 7~ 1966

55,129

75,807
22,747
14,796
12,853

11,765

25,443
7,088

95,654

1,599,886

55,129

TREASURY DEPARTMENT
Washington
1MEDIATE RELEASE

IURSDAY, JUNE 9, 1966

F-505

The Bureau of Customs announced today preliminary figures on imports for
Insumption of the following commodities from the beginning of the respective
lota periods through May 28, 1966:

Commodity

•

Period and Quantity

•

: Unit of : Imports as of
: Quantity: May 28, 1966

riff-Rate Quotas:
earn, fresh or sour ••••••••

Calendar year

1,500,000

Gallon

ole Milk, fresh or sour •••

Calendar year

3,000,000

Gallon

ttle, 700 Ibs. or more each Apr. 1, 1966 (other than dairy cows) ••• June 30, 1966

798,473

120,000

Head

9,9 0 3

Head

64,242

ttle, less than 200 Ibs.
3ach ••••••••••••••••••••••

12 mos. from
April 1, 1966

200,000

3h, fresh or frozen, fil.eted, etc., cod, haddock,
lake, pollock, cusk, and
'osefish ••••••••••••••••••

Calendar year

23,591,432

Pound

Fish •••••••••••••••••••

Calendar year

65,662,200

Pound

29,233,965

114,000,000
Sept. 15, 1965 45,000,000

Pound
Pound

81,187,391
28,810,731

an.dles •••••••••••••••••••

Nov. 1, 1965 Oct. 31, 1966

84,000,000

Pieces

Quota filled

skbrooms •••••••••••••••••

Calendar year

1,380,000

Number

1,193,492

er brooms ••••••••••••••••

Calendar year

2,460,000

Number

1,698,448

.te or Irish potatoes:
:ertified seed ••••••••••••
~her •••••••••••••••••••••
ves, forks, and spoons
ith stainless steel

mos. from

Quota

filled.~/

Irrq>orts for consumption at the quota rate are limited to li, 795, 716 pounds
during the first 6 months of the calendar year.

-2-

·••
·

Commodity

Period and Quantity

: Unit of : Imports as

: Quantity: May

2,§) 1966

Absolute Quotas:
Butter substitutes containing over 45% of butterfat,
and butter oil ••••••

Calendar year

Fibers of cotton processed
but not spu.n. ••••••••••••
Peanuts, shelled or not
shelled, blanched, or
otherwise prepared or
preserved (except peanut
butter) •••••••••••••••••

0 •••

1,200,000

Pound

12 mos. from
Sept. 11, 1965

1,000

Pound

12 mos. from
August 1, 1965

1,709,000

Pound

Imports as of June 7, 1966.

Quota filled

1,184,lO5l1

TREASURY DEP AR'DlENT
Washington

IMMEDIATE RELEASE

THURSDAY, JUNE 9, 1966

F-506

The Bureau of Customs has armounced the following preliminary
figures showing the imports for consumption from January 1, 1966, to
May 28, 1966, inclusive, of commodities under quotas established
pursuant to the Philippine Trade Agreement Revision Act of 1955:

Annual · Unit of : Imports as of
·.• Established
Quota Quantity
· Quantity: May 28. 1966

COIDJOOdity

Gross

Buttons •••••••••••••

510,000

Cigars ••••••••••••••

120,000,000

Number

Coconut oil

•••••••••

268,800,000

Pound

Quota filled

Cordage •••••••••••••

6,000,000

Pound

3,945,722

Tobacco •••••••••••••

3,900,000

Pound

1,509,2l3

174,475
4,042,890

TREASURY DEPARTMENT

FOR IMMEDIATE RELEASE
UNITED STATES FOREIGN GOLD TRANSACTIONS IN 1966
The Treasury announced today that net sales of monetary
gold by the United States to foreign holders during the first
quarter of 1966 amounted to approximately $34 million.
Sales of gold to domestic users -- permitted for
industrial and artistic purposes -- carne to $34.3 million.
This brought the total net outflow of gold from the gold
stock of the United States in the first quarter of 1966 to
$68.3 million.
The major transactions during the quarter, as shown in
Table I,were the purchase of $100 million from Canada by
the U. S. and the sale by the U. S. of $103 million to
France.
Table II, attached, shows sales of gold by the United
States during the first quarter of 1966 to other countries
to enable them to pay the gold portion of their quota increases
in the International Monetary Fund. Deposits of like
amounts of gold were made by the IMF with the United States,
to mitigate the effects upon the U. S. gold stock of the
quota increases. Transactions of this nature in 1965
amounted to $34 rnillion,bringing the total through the first
quarter of 1966 to $165 million.

000

Attachments
F-

507

Table I
UNITED STATES NET MONETARY GOLD TRANSACTIONS WITH
FOREIGN COUNTRIES AND INTERNATIONAL INSTITUTIONS
January 1, 1966 - March 31, 1966
(In millions of dollars at $35 per fine troy ounce)
Negative figures represent net sales by the
United States; positive figures, net purchases,

First
Quarter*
1.1
1.0
+100.0
0.1

Afghanistan
Brazil
Canada
Ceylon
Colombia
Costa Rica
Denmark
Dominican Republic

+ 7.0

£gypt
France
Ireland
Jamaica

1.1
-102.8

Lebanon
Liberia
Nicaragua
Pakist.an

- 10.8
1.2
1.0
0.2

Switzerland
Syria
Turkey
United Kingdom

Uruguay
Yugoslavia
All Other

0.1
0.9
0,3
- 34.0

0.1
5.0
0.1

0.4
1 0

7.0

1.5
0.5
- 19.0

Total

Total U.S. gold outflow
(Including domestic transactions)

68.3
(-

34.3)

*Figures may not add due to rounding.

Table II

UNITED STATES HONETARY GOLD TRANSACTIONS WITH FOREIGN
COUNTRIES MITIGATED THROUGH SPECIAL DEPOSITS BY THE IMF
(millions of U,S, $)
First Quarter

1966
- 1.5
- 1.3

Jamaica
Korea
Dominican Republic
Sudan

- 3.0

Japan
Honduras
Nicaragua
Vietnam

- 1.0
- 1.0
- 0.3

- 0.4
-56.3

Iraq
Ivory Coast
Liberia
Syria

- 0.2

Denmark
Sweden
Ethiopia
Haiti

- 8.3
-18.7
- 1.0

Ceylon
Austria
Congo (Leopoldville)
Somalia
Total

- 4.0

-130.7

INF Deposit

+130.7

- 4.0
- 1.0

- 2.0

- 0.2
- 25.0
- 0.6
- 0.9

TREASURY DEPARTMENT

June 9, 1966

FOR IMMEDIATE RELEASE
TREASURY MARKET TRANSACTIONS IN MAY
During May 1966, 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
$298,779,000.00.
000

F-508

TREASURY DEPARTMENT

FOR RELEASE A.M. NEWSPAPERS
FRIDAY, JUNE 10, 1966
TREASURY SECRETARY NAMES WILLIAM H. SMITH
NEW DEPUTY COMMISSIONER OF INTERNAL REVENUE
Treasury Secretary Henry H. Fowler today announced the promotion of William H. Smith, now IRS Assistant Commissioner for
Planning and Research, to be Deputy Commissioner of Internal Revenue.
Mr. Smith, 49, a long-time career civil service official,
succeeds Bertrand M. Harding, who recently was named Deputy Director
of the Office of Economic Opportunity.
As the principal deputy to Internal Revenue Service Commissioner
Sheldon Cohen, Mr. Smith will have the responsibility for the
direction of 60,000 employees in some 900 offices who are charged
~ith administering the nation's tax laws and collecting some $120
Jillion in revenues annually.
Mr. Smith, who joined the Internal Revenue Service in 1958 as
)irector of the Systems Division, is a native of Brooklyn, New York,
Jhere he attended Alexander Hamilton High School and St. John's
Jniversity. He received his B.S. Degree in Social Science in 1936
Ind an LL.B. in 1939 from St. John's University, and an LL.M. Degree
.n tax law from Georgetown University, Washington, DoC., in 1961.
le is a member of the bar in New York State and the District of
:olumbia.
He entered Federal Government service in 1945 as an attorney
ith the Office of Price Administration in Seattle, Washington .
.e transferred to the Veterans Administration the following year.
'Uring 12 years with the Veterans Administration, Mr. Smith held a
umber of management positions with that agency in Seattle; Phoenix,
rizona; Baltimore, Maryland; Wilmington, Delaware, and in the VA's
entral Office in Washington, D.Co, where he was Area Field Director.

F-S09

- 2 -

During World War II, Mr. Smith served five years in the U.S.
~rmy, rising from Private to Major.
As Assistant Commissioner of Internal Revenue for Planning
9nd Research since 1961, Mr. Smith headed a committee which developed
9 realignment of the IRS regional organization.
He has received
nany commendations for his efforts to improve efficiency and economy
in IRS operations -- including the highest IRS recognition -- the
:ommissioner's Award.
Mr.Smith is married to the former Janet Seelye of Seattle and
:hey have four children. They reside at 1527 Longfellow Count in
~Lean, Virginia.
000

TREASURY DEPARTMENT
Washington
FOR RELEASE A .M. NEWSPAPERS
FRIDAY, JUNE 10,1966
REMARKS BY THE HONORABLE STANLEY S. SURREY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
CONFERENCE ON THE IMPACT OF COMPUTERS ON THE TAX PRACTICE
SPONSORED BY THE NATIONAL LAW CENTER
OF GEORGE WASHINGTON UNIVERSITY IN COOPERATION
WITH THE AMERICAN AND FEDERAL BAR ASSOCIATIONS
THE WASHINGTON HILTON HOTEL
JUNE 9, 1966
7:30 P.M., EST.
COMPUTER TECHNOLOGY AND FEDERAL TAX POLICY
In the literature on tax policy, there has been a line
of thought which stresses what we might call a purely philosophica1 approach.

Essentially, this approach holds that

one recognizes good taxes by their conformity to certain
general principles.
commandments:

The approach is summed up in the two

"Taxes should be for revenue only" and "Taxes

should be equitable and as neutral as possible in the sense
of having as little distortion as possible on free market
decisions."
I do not want to debate these two propositions on philosophical grounds.

They clearly have an intellectual appeal,

and they make life simple for the tax analyst.

Obedience to

these two prescriptions would largely make it unnecessary to
explore empirical questions concerned with ascertaining and
then evaluating the results of particular tax measures.

F-5l0

- 2 -

When the analyst is applying the principle of neutrality to
a tax proposal, all he must do is ask whether or not it is
intended to create incentives or disincentives for something.
If the answer is "yes", then his conclusion is automatically
against the proposal.

He doesn't have to measure anything.

He doesn't have to determine how much incentive or disincentive would result and what its effects would be.
Despite these attractions of the philosophical approach
to tax policy and despite the applicability of these prescriptions in the large to our tax system, the overwhelming fact
is that almost everyone wants to talk about the particulars
of tax policy in terms of their effects.

It is interesting

that many people who pay lip service to the doctrine of
"Taxes for revenue only" have no reluctance to advocate one
tax provision because it encourages charity, another provision
because it encourages home ownership, and so on.
Part of the reason for this functionalism in tax policy
is based upon a consistent intellectual ground, namely, that
at the high level at which taxes must be applied in the
1960's for revenue purposes, rigid neutrality is impossible.
This high level of tax rates is bound to influence free-market

- 3 -

decisions, and at the very least we must attempt to minimize
any harmful effects of this tax structure.
In addition, the goals of a Great Society require a
buoyant and growing economy to provide the resources needed
to achieve our social objectives, and a tax system must
contribute to the attainment of that economic health.

More-

over, all the resources and tools of modern government must
be constantly scanned to see which provide the most effective
path to a particular goal, and a modern tax system must be
available for use if that use is compelled by standards of
efficiency and fairness in comparison with other tools.
Whatever the reasons for the need to assess a tax structure by its specific effects, it does make life very difficult
for the tax analyst.
effect crucial.

This need makes the measurement of

It becomes extremely important to provide a

great amount of detailed economic analysis in order to evaluate tax policy decisions.
As one example, the constant task of estimating budget
revenues becomes a much more sophisticated problem.

Not only

is it necessary to determine the size of the tax base but also
it is important to provide quite detailed judgments as to how

- 4 -

the tax base will change with different developments in the
private economy.

We talk not only about the expected level

of revenues but also about the flexibility of the revenue
system and what the revenue yield would be at a hypothetical
full employment level.
Moreover, as we have become successful in bringing our
economy to full employment, the demands on economic forecasting are greater.

In a finely tuned economy, the choice

between economic policies of restraint or stimulus largely
turns on short-run forecasts.

The economic forecaster can

consider himself challenged by the thought that we can pinpoint a target on the moon, but we still have to expect
errors of 15 percent or so in forecasts of the change in GNP.
In connection with proposed particular changes in the
tax law, it becomes imperative to know how a change is likely
to affect the distribution of income after tax, how

effic~

iently the change will operate in achieving its objective,
what effect the change is likely to have on private economic
decisions, and what these effects imply as to the level of
GNP.

This analysis not only has to be applied to the specific

tax proposal but also to a range of alternative solutions,

- 5 both tax and nontax, in connection with each proposa.

And

after a change has been made in the tax law, all these
questions must be answered again but this time in terms not
of what will happen if the change is made but in terms of
what did happen once the change was made.
Minor proposals as well as major proposals require a
considerable amount of economic detective work to reach a
judgment on what will be the effects of the proposal, and
once the change is made what were the effects

and the

burdens of detection can be just as difficult in unraveling
what actually happened as in the forecasting of what will
happen.
The complexity and interdependence of a modern tax
system place great demands on all who participate in tax
legislation, but especially on those who must prepare and
analyze the numbers.

Yet, it is clear that the extent to

which the tax system does its job of raising the necessary
revenue for financing government programs, of providing
fiscal stimulus or restraint, and of playing its role in the
achievement of a Great Society

all with as equitable a

distribution of the tax burden as possible

is highly

- 6 -

dependent on the quality and often the speed with which tax
proposals are analyzed.
To aid us in these complex tasks, the Treasury Department
since 1963 has become increasingly reliant on high-speed
digital computers for assistance in many areas of tax analysis.
I would like to discuss some of the ways we have used these
computers.
The Individual Income Tax Model
A significant Treasury activity in the are of tax
analysis with computers has been the development of a model
of the individual income tax.

The idea was first proposed

by Joseph Pechman of the Brookings Institution.

The Treasury

initiated the program during the Kennedy Administration and
has continued its emphasis in the present

Ad~inistration.

A model was designed to investigate the effects of changes
in the yield and distribution of the individual income tax,
assuming simultaneous changes in a number of variables, such
as income tax rates, exemptions, etc.
The model consists of two parts, a magnetic tape data
file and a computer program.

The file is a random stratified

sample consisting of 100,000 income tax returns which can be
blown up to yield results representatives of the universe

- 7 -

of taxpayers for the year in which the sample was selected.
The first two data files were drawn from 1960 and 1962
returns respectively.

Currently a data file for 1964

returns is in preparation.

A model for the corporation

tax is also in preparation.
The computation of tax liability under the model involves
an ordered sequence of mathematical operations.

These opera-

tions consist in combining information from a given tax
return in the input sample with a set of known constants,
such as rate schedules, defined by the tax structure under
consideration.

A run of the model then consists in specify-

ing two or more tax structures by assigning values to the
relevant variables and sequentially computing the tax liability
for each return under both plans.

The results are then blown

up to represent the entire population of taxpayers, and numerous comparisons between the effects of the two tax structures
are made in some 300 pages of output tables.
The flexibility and speed of the computer in preparing
revenue estimates are most appreciated by po1icymakers when
they are involved in the current consideration of legislative
proposals to alter the tax system.

Thus, in the course of

- 8 -

Congressional consideration of the 1963-64 tax bill,
Committee and Treasury requests to the analysts for further
information on the effect of specific provisions or alternative proposals were very frequent.

During the latter stages

of the Committee sessions when the model first became operational, it was possible to provide comprehensive information
early in the morning in response to requests made the
previous afternoon.
As an example, at the time the repeal of the 4 percent
dividend credit and the doubling of the dividend exclusion
were being considered a number of people asserted that the
result would be substantial tax increases for many individuals
in spite of the reduction in tax rates.

Although it could

be shown from published data that this was generally untrue,
a really convincing demonstration required more detailed
information on dividends in relation to taxable income for
various taxpayers than these data afforded.

By making two

runs of the income tax model with the tax structure of the
1954 Code, the Ways and Means Committee tax bill which
repealed the dividend credit, and the Ways and Means Committee
bill plus the dividend credit and smaller exclusions, it was

- 9 possible to isolate the effect of the repMl of the dividend
credit and the increase in the exclusion.

We thus obtained

a count of the very small number of taxpayers whose taxes
would increase because of these changes, detailed information
on the size of their income and tax increases, and information on their other characteristics.
Much the same thing took place during Congressional
consideration of the recent Tax Adjustment Act of 1966.
Several adjustments were discussed during the Committee sessions aimed at reducing overwithholding for taxpayers with
large itemized deductions.

We were able to estimate the

number and characteristics of all taxpayers eligible for
these proposals along with their revenue effects, usually
by the next day.

In making these estimates, we used two

features of the computer program which have proved extremely
useful in this type of analysis.

One feature instructs the

computer to limit the tax calculations to returns with
designated characteristics, in this case the relevant characteristic being the absence of a declaration of estimated tax.
The second program feature is the capability of using the
relationship between two specified tax structures as a screening device for a third structure.

- 10 Specifically, the 1965 tax law was defined as the first
structure, present law withholding as the second, and graduated withholding as the third.

The tax for each return in

the input sample was then computed under each of the first
two structures, and the magnitude of the individual's final
tax liability was compared with his withholding.

The

results of this comparison then gave us a three-way division:
If the individual's withholding was less than his tax liability, he was underwithheld; if greater, then he was overwithhled.

Equality was defined as having total withholding

within plus or minus $10 of the final tax liability.
runs were then set up:

Two

On the first only underwithheld

returns were allowed through the computation under graduated
withholding, and on the next only returns with overwithholding
were allowed to go through.

We thus obtained, in addition to

the aggregate results for all returns, information for what
would happen under graduated withholding to individuals who
were previously underwithheld and overwithheld and, by subtraction, what would happen to taxpayers who were previously
within $10 of their tax liability.

These data were supplied

for a variety of income classes, both by number of taxpayers
involved and amounts of overwithholding and underwithholding.

- 11 -

In connection with graduated withholding, an interesting
problem arose that emphasizes the need for combining a good
deal of ingenuity and human judgment along with computer
results.

We knew that some people had voluntarily increased

their own withholding by claiming fewer exemptions for withholding than they were entitled to claim.

We were able to

make a reasonable estimate of this situation by computing a
hypothetical withholding for the taxpayer on reported wages
and salaries with the number of exemptions reported for
computation of the actual tax liability and comparing this
hypothetical figure with the actual reported withholding.
Where this hypothetical withholding was sufficiently above
actual withholding to indicate at least one or more unused
exemptions, we then had to build into the analysis a judgment
as to how this taxpayer would behave under a new graduated
withholding system.

Specifically, we assumed with certain

exceptions that any taxpayer whose old withholding was
greater than his withholding under the new tax graduated
system, using all the exemptions to which he was entitled,
would continue to make this voluntary adjustment for more
withholding.

- 12 All of this illustrates some cautions regarding computer
analysis:

No matter how much data are at our command, because

of the new vistas that are thereby disclosed there will always
be the tantalizing numbers that are not available -- the
more the analysts give us, the more we will rail at them for
not knowing still more.

In turn, we must be careful not to

be lulled into a false security because of the quantity of
numbers and the mixture of actual and apparent precision they
offer.

We must constantly seek to know all the assumptions

that underlie the numbers and where to place the dividing
lines between precision, indeed degrees of precision, and
judgments, indeed degrees of judgments.

A good computer

program and analysis should also carry with it the materials
for a careful cross-examination of the results.
To return to the computer technique described in the
analysis of withholding, in general the effect of any major
provision of the present tax structure can be found by
using some variation of this technique of specifying one
tax structure containing the provision and one without it.
This procedure is useful both for provisions which have a
substantial impact on the distribution of taxable income

- 13 through the tax brackets, such as the $600 personal exemption, as well as for those with a small and disbursed impact,
such as the deduction for casualty losses.
Using the model in this way, we have gained better
insights into both the operation of the individual income
tax as a whole and the effect of its component provisions.
The use of the model is, of course, always limited by the
information which is put on the tape data file.

Our 1962

model did not use all of the tax return data, but the 1964
model will do so.

Our 1962 model could not handle the

retirement income credit with its intricate series of internal
limitations.

The complexity of this provision may still con-

tinue to stump our programmers

just as it does many of the

aged it is intended to benefit

but we are working on it.

Basic Research
So far in this discussion of the model, I have emphasized
research primarily concerned with changes in the tax law, but
we are by no means limited to this form of research.

The

income tax model is also useful for a number of types of basic
research.
One research task that can be performed with the income
tax model is sensitivity analysis.

The crucial variables

- 14 involved in forecasting revenues under a given tax law are
the level and distribution of income.

The tax model,

although representative of the sample year, may not be
realistic for a future year.

To deal with this problem,

weights are applied to increase income levels from the
sample year to the later year under examination.

These

weights are themselves developed, at least in part, by
using the computer to fit trend equations to past data on
the growth of income by components, the number of returns
with standard or itemized deductions, and the number of
single and joint returns.

Many different sets of weights

can be tested, each of which represents a different level
and/or distribution of income, and the influences of each
set on the output variables, such as taxable income, tax
liability, etc., can be obtained.
This type of analysis will throw considerable light on
the automatic response of the tax system to changes in income
levels, or, as it is commonly called, the built-in flexibility
of the tax system.

Economists attach considerable importance

to this characteristic of the system -- witness also the
recent report of the Subcommittee on Fiscal Policy of the

- 15 Congressional Joint Economic Committee stressing this factor
in connection with its discussion of the adaptation of the
tax system to fiscal restraint or stimulus -- because this
is one way in which government action is automatically
adjusted to offset inflationary or deflationary tendencies
in the economy.

It is not possible, however, to find out

enough about the flexibility characteristics of our tax
system by simply looking at aggregate tax collections.

have to know more about the detailed characteristics of the
tax system which can only be revealed by analytic tools,
such as the income tax model.
A particularly interesting current application of the
income tax model is the detective work on the precise reasons
for our present large increases in tax revenues.

At this

point, we do not have any compilation of tax returns for
the year 1965.

We do have the data for tax collections on

1965 income tax liabilities in the aggregate, and we do have
the estimates of personal income for 1965.

These data indi-

cate that we collected appreciably more revenue in 1966 on
account of 1965 tax liabilities than we would have expected
from the aggregate 1965 personal income and previous experience

- 16 with the marginal tax rate applicable to increases in aggregate personal income (i.e., the amount of additional revenue
resulting from that increase divided by the increase).

The

data indicate that while this marginal rate had remained
relatively constant for many years through 1963 it rose
significantly in 1964 and 1965.

Actual revenues for fiscal

year 1966, calendar year 1966, and fiscal year 1967 will
thus be increaswon this account over the January 1966 estimates.

Since this particular increase is not per se caused

by the increase in personal income tax which comes with a
rising National Income (though, of course, the revenue will
also increase for that reason and were so estimated in
January 1966), but rather by a stronger effect of the tax
system than the previous data indicated and the previous
estimate assumed, the consequences for economic projections
are much the same as if an explicit tax increase in the same
amount had been effected.
Until a tabulation of 1965 tax returns is available, we
are constrained to test alternative hypotheses about the
precise reasons for this result.

This is not an idle intel-

lectual exercise because, as you well know, we have to be

- 17 looking constantly at the question whether our present tax
levels are adequate to deal with the economic conditions
generated by the current levels of public and private
expenditure.

The tax model in this situation has proved

useful in testing alternative hypotheses as to precisely
what has happened and throwing light on what we may expect
the present tax structure to produce in the future.
Another important area in which the individual income
tax model plays a part is the investigation of horizontal
tax equity.

In a tax law which provides a variety of special-

ized deductions and a variety of different treatments for
various types of income, it is relevant constantly to investigate what is the range of effective tax rates applicable to
those individuals at a given level of total income.

The

model has proved quite useful in describing the range of
rates under existing law and also describing how possible
changes would affect this spread of rates.
An interesting application of a similar model, by
Dr. Michael Taussig then at MIT, that used the same sample of
tax returns as an input was a cross-section analysis aimed at
explaining the amount of charitable contributions of each

- 18 taxpayer in terms of the other characteristics of the taxpayer that were reflected on the tax return.

Of particular

interest in this analysis was the effort to isolate the net
effect of the taxpayer's marginal tax rate on the amount of
charitable giving.

This form of analysis deals with the

sort of question -- e.g., just what effect does a tax incentive for charitable contributions actually have -- that I
indicated in my earlier remarks is crucial to the approach
we should take to many of our tax provisions.
This analytic approach opens our tax system to the whole
range of cost effectiveness analysis that we are now applying to governmental and private expenditures.

If diligently

and carefully pursued, it could well involve major significance for the tax policies of the future.

It may hold the

key to an objective appraisal of many of our existing tax
preferences.

Where it discloses dollar waste and inefficiency

resulting from inappropriate tax benefits, it may in the long
run -- which is the important perspective in tax policy
thereby overcome lobbying pressures and the pull of the
status quo and thus succeed where arguments based only on
logic and tax equity have proven insufficient.

- 19 Simulation of Business Experience
Another kind of analytic computer model has been developed under a research project contracted for by the Treasury
Department in connection with our continuing study of the
depreciation deduction.
In July 1962, the Treasury substantially revised the
basic approach to the determination of the useful life of
depreciable assets.

The new procedure provides guideline

useful lives by industry grouping rather than on an asset
by asset basis, with one guideline life applying to all the
assets in each of the less than 100 specified industry classes.
The new approach contains a reserve ratio test, refined in
1965 with a revised transitional procedure to this test,
that is intended to provide an objective basis for appraising
the appropriateness of the depreciable lives used by the
taxpayer for tax purposes.
widely discussed.

This reserve ratio test has been

The issues that have been raised include

whether it is worthwhile to require that a taxpayer use lives
for tax depreciation purposes which correspond to his replacement cycle and whether the reserve ratio provides an efficient
test of this correspondence.

- 20 -

To aid policy analysis in this difficult and important
area, the Treasury is now in the process of testing a
computer based simulation model of the profitability of
depreciable assets.

The major purpose of this effort con-

cerns the investigation of the following two questions:
1.

How much variation in effective tax rates results

between taxpayers if they use lives for tax depreciation
purposes which are markedly different from the actual lives
involved in their various replacement cycles?

How much

difference does it make in the after-tax rate of return if
two taxpayers use, say, ten year lives for tax depreciation
purposes but one replaces on a ten year cycle and the other
on a twenty year cycle?
2.

How well does the reserve ratio test work in its

present form?

Under what circumstances will it generate

unwarranted failures by taxpayers who are in fact conforming?
In general, both propositions need to be explored or
evaluated by assuming varying degrees of conformity between
actual lives and tax lives in an adequate number of alternative investment situations. The primary parameters in the
definition of an investment situation include:

actual life

- 21 of the asset or average composite life of a group of subaccounts, pre-tax profitability, growth characteristics,
inferiority gradient, retirement dispersilln, degree of conformity between actual life and tax life, and investment
tax credit.

The remining parameters are provided to gener-

ate realistic investment situations.

That certain charac-

teristics were listed as important means simply that they
make a good deal of difference in the answers that the model
will give about depreciation and the investment credit.

other problems of investment, different parameters would be
important.

Since virtually none of the important parameters

are single-valued, and since some have a rather wide range
of plausible values, the number of alternative discrete
investment situations is very large.
In the past, analysis of problems of this sort has
involved the creation of rather simple models that could be
worked on a desk calculator.

The literature on tax depreci-

ation, for example, exhibits many instances of conclusions
drawn from discounting at a single discount rate future
after-tax income arising from a single asset.

It is import-

ant, however, to ask our depreciation questions with reference

- 22 to a realistic range of business situations:

What happens

to the after-tax rate return year after year for a firm with
a large complex of assets of various ages and various relationships between actual lives and lives for tax depreciation
purposes?

What happens in this kind of a model if we change

the rate of growth, or the basic rate of before-tax profit,
or the assumptions as to how the productivity of particular
assets declines with increasing age?

The number of combina-

tions of assumptions thus rises very rapidly, and only the
capability of high-speed computer equipment makes it possible
to thoroughly investigate these questions.
We are now engaged in an exploration of another simulation study in the area of tax influences on real estate
investment.

The tax law applies with significant differences

between investment in buildings on the one hand and in
machinery and equipment on the other.

Buildings do not

qualify for the investment credit, but they do have certain
capital gain possibilities not available to machinery and
equipment. The 1962 depreciation revision does not apply to
buildings. It is also possible that some special features of
investments in buildings, such as the longer life and typically high leverage, might cause some features of the

- 23 depreciation system to have significantly different effects
between buildings and machinery.

Given this combination of

tax provisions, the question arises whether the income from
investments in buildings is taxed too lightly or too heavily, or
in ways that produce distortions as to certain types of
investments, or just right.
Here again the problem is one that presents many variables so that the number of potential combinations is very
large.

The computer will be a valuable tool to aid under-

standing in this area if a program can be written which
embodies the important characteristics of actual real estate
investments.
Econometric Analysis
I have described two particular models that we have
developed and are utilizing in tax analysis.

I should add

that we are also making considerable use of the extensive
current work in econometric analysis that is going on in
research and academic organizations.

Many of you are

familiar with the econometric model of the aggregate economy
based upon fitting relationships simultaneously to a set of
equations.

A major contribution in this area has been the

- 24 -

work recently published by the Brookings Institution and
the Social Science Research Council describing their elaborate model of the United States economy.

Somewhat less

ambitious models have been used for several years in forecasting work by Professors Evans and Klein at Pennsylvania,
by Professor Suits at Michigan, and the recently published
model of the Office of Business Economics.

Treasury tax

policy and revenue estimation must necessarily take into
account forecasts of economic activity, and our work on current economic forecasts has drawn heavily upon the output of
these simultaneous equation models.

As you know, the compu-

tational task involved in the development of these models
is such that they could only have been developed in the age
of the high-speed computer.
One important aspect of these simultaneous equation
systems and other elaborate curve-fitting methods is that
potentially they offer a better estimate of what are called
the structural characteristics of the economy.

Under the

older techniques of correlation analysis, while it was
possible to observe relationships that existed in our

econ~,

it was extremely difficult to break down broad economic
relationships into their components.

For example, obviously

- 25 -

the amount of investment that takes place in the economy is
related to the size of the gross national product.
dies this relationship actually work?

But how

Does it work through

the increase in markets that is generated by higher levels
of income, or does it work through the increase in profit
rates generated by higher levels of income, or does it work
through the increase in cash flows of corporations generated
by higher levels of income?

If we are to talk about the

effect of a particular tax provision, such as the 7 percent
investment credit for machinery and equipment, it becomes
important to know more than that there is a relationship
between investment and an increase in income.

We need to

know the relative importance of the various ways in which
this relationship works out in the economy, since alternative tax devices can be selected which have differing effects
on the size of the consumer market, the rate of return on
investment, or the amount of corporate cash flow.

The more

sophisticated work in econometric analysis that is going on
will permit us to draw better conclusions for tax policy in
this investment area.

The Treasury is therefore in close

touch with research activity in this area and is developing
studies designed to explore the effects of the investment

- 26 credit and depreciation changes on the level of private
investment.
Statistical Data
Another general area of reliance on the computer is
the generation of data for analysis. The automatic data
processing system of the Internal Revenue Service offers
promise of new and quite challenging opportunities to find
out how our economic system works, and how the tax structure
affects it.
Tne AUP system gives promise of providing a more sophisticated technique for drawing returns that will allow more
efficient sampling and better statistics.

This can be

especially helpful in research involving the operation of the
relatively less used deductions and exclusions.

Hopefully,

also, we can develop techniques for obtaining detailed
statistics relating to panels of identical taxpayers over a
number of years.

This will provide information on the impact

of the tax system on people with variable income and variable
deductions.

Besides being of aid to tax policy decisions,

these data would furnish information about our economic system
which would be of great value to social scientists generally.
Another promising development, which is facilitated by the

- 27 -

computer technology, is the construction of more efficient
statistical bridges between our income tax statistics and
other statistical sources, such as the Consumer Income
Report of the Bureau of the Census.

The presently published

tax return information presents a very limited picture of
the total situation of low-income families because of the
absence of family groupings and the absence of information
on nontaxable incomes.
Conclusion
Because of computer technology and econometric analysis,
we are entering upon a period of considerable change in tax
analysis.

Periods of change are times of great hope and

promise, and they are also times of considerable strain.
Change may dramatically improve things, but in the process
of making changes we can also make mistakes.

The greatest

protection against mistakes is an ability to devise experiments to find out beforehand how things would work.

The

computer technology provides a basis for simulated experiments under realistic conditions.

It offers, therefore, a

capacity for avoiding mistakes and can mean that this period
of change offers somewhat greater safety than in the past.

- 28 -

We should certainly recognize that our present tax
system is too complex, too highly structured, and too important to permit its development to be guided by the platitudes
and cliches that mark many efforts for change.

Tne computer

technology offers us the opportunity of far greater knowledge than we have ever possessed in shaping and evaluating
the tax policy alternatives.

It is incumbent on those who

are the guardians of this technology to strive to inform
policymakers of the opportunities and potentialities it
affords and to keep them constantly aware of how their decisions can be more solidly grounded in empirical data and
analytic support.
New techniques, however, will sometimes generate unexpected answers.

Until these unexpected answers have gone

through the elaborate testing which is involved in gaining
professional acceptance, we will need to rely on human judgment to relate the new insights derived from the computer
to the body of wisdom accumulated in the past.

It is not

true that any number is always better than no number at all.
We must beware that the apparent certitude offered by the
mass of numbers computers can generate or the conclusions
that the ranks of econometric equations can produce do not

- 29 lull us into a false security.

There is still room, as the

computer technology develops, for a constructive two-way
dialogue between the computer technologists and those whose
insights come from experience and accumulated wisdom.
Working together they can offer great hope and promise for
an improved tax system capable of fully bearing its share
of responsibility for achieving the Great Society we are
seeking.

TREASURY DEPARTMENT
Washington
FOR RELEASE:

UPON DELIVERY

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT
COMMENCEMENT EXERCISES, WILLIAM AND MARY COLLEGE
WILLIAMSBURG, VIRGINIA
SUNDAY, JUNE 12,1966, 5:00 P.M., EDT
There are in this country few places whose roots reach
farther and deeper back into this nation's beginnings, into
the origins of all that as a people we are and try to be,
than this city of Williamsburg and this college of William
and Mary.
Here, more than two centuries ago, came the young
Thomas Jefferson, eager to explore all man had done and
dreamed so that he could better understand all that man was
and could be.
And today, two centuries later, it is through his
voice still, and the vision that he held forth, that we
understand most deeply all that America is and can be -a land whe.re every man can find not only infinite promise but
abundant opportunity for a full and free life.
And today, two centuries later, it is Jefferson's
vision of all America is and can be that still summons
forth our best efforts and energies -- the vision set forth
so eloquently for our time in President Johnson's call to
the building of a Great Society in whose abundant life
every man could share to the fullest measure of his ability
and his desire.
But if the v~s~on is the same -- if the dream and the
ideals remain unchanged -- the world in which we seek to
realize them bears little resemblance to the world of
Jefferson's day.

F-Sll

- 2 -

We can no longer seek -- as a nation or as individuals -to pursue our dreams alone and apart from the world around us.
As a nation and as individuals, we are all inescapably
caught up in events and changes whose pace and scale seem
in contrast to earlier eras -- so much larger than life.
No sooner do we begin to become accustomed to one
environment, to one situation, to one set of circumstances,
than we discover that another has taken its place. The
late Professor Norbert Wiener observed of "modern technique"
that "every apparatus, every method is obsolete by the time
it is used. Techniques are developing so rapidly that we
cannot, unless we are going to have a large period of chaos,
allow our thinking to lag behind the techniques and the
possible modes of development." And what is true of
technological events is equally true of human affairs.
It is no longer possible for any of us to follow
Voltaire's advice and, fenced off from the rest of the
world, to cultivate our private gardens -- to engage in
our private pursuits and leave public problems to those who
occupy public positions. A bomb that explodes in Watts or
Saigon shatters windows in Washington and Williamsburg as
well. No longer can we close ourselves up in our personal
ambitions and concerns, our personal interests and endeavors,
for at every step of the way we will encounter larger
interests and wider concerns to challenge our conscience and
to engage .our efforts and our energies. In today's world,
we are all
in varying degrees -- public servants.
What, then, is the job before us -- at home and abroad?
At home, we face first of all the job of sustaining
our unprecedented economic prosperity, for it is this
prosperity that must underlfuour efforts to achieve all our
other goals at home and abroad. To sustain that prosperity
will require that we continue to follow a policy mix that
is inclusive rather than exclusive, that seeks not one
economic goal at the expense of all others, but all of our
major economic goals at one and the same time -- our
paramount goals of strong and steady economic growth, of
full employment, of reasonable price stability, and of
relative equilibrium in our international balance of
payments. To sustain that prosperity will require that all
segments of our economy -- government and business and labor
continue to work together in a growing partnership for
prosperity.

- 3 -

But prosperity is not nearly enough. The time has
long passed -- if, indeed, there ever was a time -- when
the task of sustaining a high level of economic advance
seemed challenge enough to occupy the bulk of our effort
and attention. The time has long since passed -- if,
indeed, there ever was a time -- when we could justify a
prosperity that meant only more for those who already had
enough, that meant only a growing gap between those who
share and those who failed to share in its fruits -- if it
meant continued neglect of needs too long left unmet and of
problems whose solution has been too long postponed.
We seek prosperity -- we strive to sustain it -because it alone will enable us to better achieve our
goals as individuals and as a nation. We seek it because
through it alone can we develop a society that deserves to
be called great.
That is the task to which President Johnson has
awakened us anew -- the task to which he has already
aroused and engaged so much of our efforts and energies
the task in which already he has led us to such bold
beginnings.
We have begun to make real inroads upon the acute
social ills too long obscured or ignored in the life of
our land -- the ills of poverty and prejudice and
ignorance. We have begun to make real advances toward
the day when ability to learn rather than ability to pay
will be the sale standard of educational opportunity in
America -- toward the day when no American need fear the
economic consequences of unemployment, of old age or of
ill health -- toward the day, in short, when every American
can enjoy the opportunity of a full and free life.
I do not suggest that the millenium is at hand. The
tasks ahead are staggering. And today, as in times past,
the distance between deed and ideal is long and difficult.
But while I would not underestimate the difficulties
ahead, neither would I underestimate our capacities to
overcome them.
Not the least of those difficulties is the fact that
we must pursue our goals at home in full awareness and
full acceptance of our responsibilities for leadership in
a deeply interdependent world.

- 4 No longer can it be said of us -- as Lloyd George said
of us when we rejected our world responsibilities in the
aftermath of World War I: "The Americans appeared to
assume responsibility for the sole guardianship of the
Ten Commandments and for the Sermon on the Mount; yet when
it came to a practical question of assistance and
responsibility, they absolutely refused to accept it."
For we understand -- and our deeds have demonstrated
our understanding -- that the way in which the United
States exercises its international leadership will do sluch
to determine the future for the world and for succeeding
generations of Americans.
The challenges before us are many, but surely these
are three of the most basic:
First, the challenge posed by the Communist
commitment to world conquest -- and in particular
by the Communists' effort to impose their will
and extend their influence by outright aggression
and by subversion backed by the threat of
aggression.
Second, the challenge posed by the collapse
of colonialism and the emergence of new nations -thus far more than fifty in number -- coupled with
the growing demands of underprivileged peoples
everywhere for full and immediate deliverance from
the hunger and the disease and the illiteracy and
the grinding poverty that had ruled their lives for
centuries.
Third, the challenge posed by the spreading
outbreak of excessive nationalism -- most
noticeable and understandable in some of the less
developed countries, but highly visible as well in
some of the world's more developed nations -- that
considerably complicates the efforts of nations
to work together on a multilateral basis to attack
common problems and to achieve common objectives.

- 5 -

These are the overriding challenges that will continue
to require our fullest energies and efforts for long,
hard years to come. For surely there is not one of us
who has not long ago shed -- if, indeed, we ever entertained
the illusion that these challenges will surrender to sudden
or simple solutions.
And surely we realize as well that our responsibilities
in the world are not ours alone either to determine or
to bear. For our responsibilities are determined by the
realities and events of the world in which we live,
realities and events which are often open to our influence
but beyond our control. And they are shared by all the
other nations of the Free World -- by all nations who
cherish their freedom and independence as we do and
who equally labor to further the cause of peace and justice
and freedom and well-being throughout the world.
To meet the great and common challenges before us -the opportunities as well as the dangers -- will continue
to require of us and our allies the highest qualities of
leadership on two major fronts:
First, leadership in standing firm and united
against Communist aggression and subversion with
sufficient force and power to deter such efforts
and to demonstrate beyond any doubt that they are
too unrewarding and dangerous to be worth the risk.
Second, leadership in assisting on a multilateral
basis the new nations in their struggle to achieve
both essential stability and sufficient progress
toward meeting the rising needs and demands of their
people.
On both of these fronts -- over a period of two
decades and under the leadership of four Presidents -ours is a record of the most unrelenting effort and the
most enduring accomplishment toward the preservation of
peace, the protection of freedom and the promotion of
human rights and human welfare.
We have helped counter aggression in all its guises
whether open or concealed -- on nearly every continent on the
globe, in countries great and small -- in Greece, on Turkey
and in Berlin; in Lebanon, in Iran and in India; in Taiwan,
in the Congo, in Laos and now in Vietnam.

- 6 We have sought, not to act alone and apart, but to
J01n with other nations in forging effective alliances
against aggression -- aggression in the Atlantic Community
through the North Atlantic Treaty Organization, aggression
in Southeast Asia and the Pacific through the Southeast
Asia Treaty Organization, aggression in Latin America
through the Organization of American States,and aggression
anywhere in the world through the United Nations.
We have made the required sacrifices, and we have borne
the required costs.
Nor have we been found wanting on the second front -where also we have led the way toward helping assure
throughout the Free World the economic development and the
social progress that alone will enable men to better their
lives. There has been in the decades since World War II
no great multilateral organization or effort for peace and
for the works of peace whose advent and whose accomplishments
do not reflect, in large measure, our leadership and our
support -- the United Nations, the International Monetary
Fund, the World Bank, the Marshall Plan, the Inter-American
Development Bank, the Alliance for Progress and most
recently the Asian Development Bank -- a venture in which
we have joined with 31 other nations, including 12 nations
outside Asia, and which seeks to open up for the peoples
of Asia far fuller opportunities for sharing in the
economic abundance and social progress that so much of the
rest of the world can take for granted.
Through these multilateral efforts, through bilateral
government aid, and through numerous private channels, we
have devoted a vast share of our wealth and our resources
to the task of helping others increase their share of the
world's abundance. In the postwar decades we have
contributed a net total of some $100 billion of our
national wealth to helping better the lives of others
through our major government foreign assistance programs.
Indeed, in meeting the great challenges of our times,
we have not been found wanting. Never in the memory of
man has any nation done so much and at such great cost,
not to gain dominion over the lives or the resources or the
territory of others, but to help others gain full and free
dominion over their own destinies.

- 7 We do not say we have always been right.
we have always been successful.

We do not say

But no man and no nation can justly deny what history
makes manifest: in the hour of need, we have not been
found wanting.
And we will not be found wanting now.
We must continue to yield to no nation the patient
pursuit of peace and the works of peace -- and continue
to demonstrate, as we do in Vietnam, that we have the will
and the weapons to resist aggression.
We must be willing to bear the burdens and accept
the uncertainties and the unpleasantness and the imperfections
that come with such a war as Vietnam. For Vietnam is a war
of wills as well as a war of weapons. It is a test of our
willingness to survive -- to surmount -- the strain of
constant, continual conflict whose end is never clearly in
sight.
At the same time we must continue -- together with
other developed nations of the Free World -- to carry our
share of the burden of leadership in the common task of
helping the developing nations of the world to realize
their destiny and enrich the lives of their people in dignity
and freedom. And we are taking the initiative in these
endeavors .-- seeking assiduously in both quiet and public
diplomacy to enlist the cooperation of our allies in bold
new efforts to promote free trade, to strengthen the
international monetary system, and to make available to
needy peoples everywhere the opportunity and the means and
the incentives for conquering hunger and disease, and for
living under the liberating light of education and knowledge.
For we seek for others no more than we seek for
ourselves -- the opportunity for a full and free life.
Abroad as at home, our efforts reflect our awareness that
with might must come maturity, with wealth and riches must
come wisdom and responsibility, and with success must come
sacrifice.
This, indeed, must be our awareness -- not only as a
nation but as individuals -- in the days ahead. For the
challenges before us are too great and the world is too
small for any of us to retire into an island of purely
private concern -- into what one observer has called the
"cult of private sunshine and secluded complacency.1I

- 8 I do not share the view, held by some, that these years
of academic education you are now completing have been years
of isolation from the world, from life and its problems. I
know, on the contrary, that they have been, in the profoundest
sense, years of entrance into the world, years of real
encounter with life and with its problems and its promise
years for deepening and developing in a multitude of ways
that understanding that Alfred North Whitehead deemed the
most essential end of education -- "the understanding of
an insistent present." The present, Whitehead rightly declared,
"contains all there is. It is holy ground; for it is the past,
and it is the future." I know that it is your experience
here at William and Mary -- and that of others like you at
colleges and universities throughout our land -- that helps
us heed the warning uttered by that same thinker half a
century ago: "In the conditions of modern life the rule is
absolute, the race which does not value trained intelligence
is doomed."
But, as I have tried to suggest in all I have said -- as,
indeed, all the awesome and awful events of recent decades
so unanswerably argue -- the "trained intelligence" alone is
not nearly enough. For as individuals and as a nation, we
can accomplish all we seek to accomplish, and avoid all we
seek to avoid, only to the extent that we exhibit in abundance,
not only the trained intelligence, but the active and engaged
intelligence, the informed and awakened imagination, the
aroused concern and the committed conscience.
As one who has known the privilege of spending many of
his years in formal public service, I hope very deeply that
some of you will seek to know that privilege. I would urge,
indeed, that all of you give serious thought to the
possibilities of public service, not only on the national
level, but on the state and local level as well. Everywhere
throughout the country our states and our cities struggle
to cope with the most staggering problems, and everywhere
those citizens who have most to offer are often the most
reluctant to become involved in local and state affairs.
I know that only some of us can -- that only some of us
should -- enter formal public service. But all of us can and
all of us must, in the broader sense, accept the obligations
and opportunities for public service that in today's world
exist in such abundance.

- 9 -

I urge each of you, whatever your career, to interest
and involve yourselves -- for you have so much to give -- in
all those issues and affairs that so critically affect our
lives but lie beyond the narrow boundaries of our own personal
pursuits.
I urge you to do all you can in every way you can to
bring to life in your businesses and your professions, in
your towns and your communities, in your cities and your
states, in your nation and your world, that vision evoked
for all time by Thomas Jefferson two centuries ago -- and
set forth so eloquently for our own time by President Johnson
the vision of an America and a world in which men and men's
hopes can not only survive, but flourish.

000

TREASURY DEPARTMENT

June 10, 1966
FOR RELEASE A.M. NEWSPAPERS
MONDAY, JUNE 13, 1966
NEW ASSISTANT COMMISSIONER OF
INTERNAL REVENUE APPOINTED
Treasury Secretary Henry H. Fowler today appointed
Albert W. Brisbin as Assistant Commissioner of Internal
Revenue for Planning and Research.
Mr. Brisbin, for the last four years Assistant to the
Deputy Commissioner, replaces William H. Smith, who has been
promoted to Deputy Commissioner.
As Assistant Commissioner for Planning and Research,
Mr. Brisbin will be responsible for the coordination of IRS
plans and policies and for the advance research, statistics
of income and systems development programs of the Revenue
Service.
Mr. Brisbin, 55, started his government career with the
National Youth Administration in 1936. During World War II,
he served with the U.S. Army in Europe, rising from the rank
of Private to Major. After the war, he joined the Veterans
Administration.
He transferred to the Internal Revenue
Service ten years ago.
Before being named Assistant to the
Deputy Commissioner of Internal Revenue, he held a number of
responsible positions in the Revenue Service.
Mr. Brisbin has earned numerous commendations for his
work, including the Treasury Department Meritorious Service
Award which he received in 1965.
A native of Dayton, Texas, he attended Ball High School
in Galveston and Port Arthur High School in Port Arthur, Texas.
He also studied at the University of Texas and at the ~outhwest
Social Service Institute in Dallas.
Mr. Brisbin is married to the former Roberta Winslow of
San Angelo, Texas, and they reside at 1362 Fourth Street, S.W.,
in the Distric t of Columbia. They have two sons and four
grandchildren.
000

F-5l2

TREASURY DEPARTMENT

t RELEASE 6: 30 P.M.,
lday, June 13, 1966.

RESULTS OF TREASURY I S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for t'iolO series of' Treasury bills,
series to be an additional issue of the bills dated March 17, 1966, and the other
ies to be dated June 16, 1966, which were offered on June 8, 1966, were opened at the
eral Reserve Banks today. Tenders were invited for $1,300,000,000, or thereabouts,
91-day bills and for $1,000,000,000, or thereabouts, of 182-day bills. The details
the two series are as follows:
OF ACCEPTED
l'ETITIVE BIDS:

High

Low
Average

91-day Treasury bills
maturing September 15, 1966
Approx. Equiv.
Price
Annual Rate
98.852
98.840
98.844

4.542%
4.58~

4.575%

182-day Treasury bills
. maturing December 15, 1966
Approx. Equiv.
Price
Annual Rate
97.624
97.619
97.620

4.70010

4.710%
4.707%

44~

of the amount of 91-day bills bid for at the low price was accepted
90% of the amount of 182-day bills bid for at the low price was accepted

1 TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RE3ERVE DISTRICTS:
strict
stan
w York
iladelphia
eveland
chmand
lanta
icago
. u,uis
meapolis
lsas City
LIas
I FranCisco
TOTALS

AEElied For
$ 20,517,000
1,590,346,000
33,928,000
24,098,000
10,813,000
45,668,000
274,086,000
52,830,000
18,726,000
25,825,000
26,277,000
127,589,000

AcceEted
$ 10,517,000
903,691,000
16,758,000
23,299,000
10,813,000
30,068,000
146,694,000
29,330,000
10,750,000
25,825,000
13,981,000
78,661,000

AEElied For
7,966,000
$
1,728,082,000
14,314,000
43,131,000
4,543,000
33,796,000
349,991,000
39,855,000
10,617,000
16,731,000
14,559,000
220,490,000

AcceEted
2,966,000
:I>
670,083,000
5,014,000
26,921,000
4,543,000
14,345,000
64,791,000
14,911,000
6,117,000
12,941,000
8,080,000
170,751,000

$2,250,703,000

$1,300,387,000 ~

$2,484,075,000

$1,001,463,000

£1

ncludes $242 928 000 noncompetitive tenders accepted at the average price of 98.844
ncludes $137' 495;000 noncompetitive tenders accepted at the average pr~ce of 97.620
hese rates afe on a bank discount basis. The equivalent coupon issue y~elds are
.6~ for the 91-day billS, and 4.89% for the 182-day bills.

TREASURY DEPARTMENT
Washington
STATEMENT OF THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
BEFORE THE
SENATE FINANCE COMMITTEE
ON THE PUBLIC DEBT LIMIT
MONDAY, JUNE 13, 1966, AT 10:00 A.M.
The President in his Budget Message last January requested
legislation that would raise the ceiling on the public debt for
the period after June 30, 1966.
temporary debt limit,

no~

Existing law provides that the

at $328 billion through June 30, 1966,

will revert to the permanent limit of $285 billion on July 1,

1966,

m~king

legislative action essential prior to the end of

the fiscal year.
Otherwise the Treasury and the United States Government
will be in the impossible position of being unable to refinance
maturing debt as it comes due and, as our cash balances are
exhausted, unable to pay for Government expenditures.
Last year

whe~

I appeared before you on the debt limit we

indicated a need for a temporary ceiling of $329 billion to cover
the high point of our needs on March 15, 1966.

I wish to report

that on that date our debt limit need, within the conventional
framework of a $4 billion cash balance and a $3 billion leeway,
was within $300 million of our estimate.

Th3t is, the actual

debt subject to limit was $323.4 billion, while the cash balance

F-5l4

- 2 -

was $1.2 billion.

If the cash b~lance had been at the normal

$4 billion level, the debt would have been $326.2 billion -or only $300 million away from the $325.9 billion on which we
had based our estimated need for a $329 billion limit.
There was no need to draw upon the leeway for contingencies
so we were able to live with the fact that the House

Co~~ittee,

in reducing our request to $328 billion, actually alloNed us
only a $2 billion

m~rgin

for coatingencies.

Following the

House action last year I appeared before this Committee and,
in the interest of pronpt action, requested only a $328 billion
ceiling rather than our indicated need for $329 billioJ.

This

shaving of the request entailed some risks but I saw no strong
objection and entered none.
This year in our request for a new debt limit ceiling we
have as usual assumed a $4 billion constant cash balance.

This

plus the $3 billion allowance for contingencies has been the
basis for

previo~s

requests.

HONever, as the

COt~~ittee

knows,

the cash balance necessarily fluctuates over a wide range; it
will frequently be high after tax dates and new financings and
can safely be lower irnnediately before tax payment dates.
This $4 billion cash balance base is a conservative nu:n;er
to cover our actual needs.

Since the level is necessarily much

- 3 -

higher than this after tax dates and major cash borrowing dates,
it would have to be considerably lower than this level on many
other occasions in order to average $4 billion.

In fact, our

average cash balance in fiscal 1965 was $6.3 billion and the
average was last below $4 billion in fiscal 1958.

I am pleased

to report that this year, through vigorous efforts, we will hold
the cash balance to an average of about $5.0 billion.

That is

only slightly over half a month's budget expenditures and is
about as low as one can go in prudence to economize on our cash
balances.

At one point this past year our cash balance was down

to $573 million -- the lowest level since before World War II.
This was certainly an unsustainably low level, but it was indicative
of our continuing effort to keep the balance as low as is
consistent with sound fiscal management.
The customary $3 billion debt ceiling allowance for
contingencies represents a minimum margin of safety to cover
events we cannot now foresee as well as to cover tre uQ.certainties of
month-to-month estimates of receipts and expenditures for
thirteen months in the future.

In addition, Treasury borrowing

operations are necessarily in large amounts and are attuned to
both our needs and favorable market opportunities.

Because these

borrowings cannot be adjusted perfectly to day-to-day changes
in our cash balances we must have the leeway to cover the temporarily
higher debt levels immediately following a financing.

- 4 -

Other than the requirements for a minimu~ cash balance and
a contingency allowance, the debt ceiling requirement depends
to a considerable extent on (1) the seasonal imbalance in our
receipts and expenditures and (2) the result of the previous
fiscal year's receipts and expenditures on the public debt.
On the first

p~int

we will have received

ab~ut 42

per cent

of our revenues in the first half of fiscal 1966, wbereas
expenditures will be approximately equal in the two halves of
the year.

Thus in fiscal 1966, as usual, we have had to borrow

heavily in the July-Decem'Jer period and, with large tax receipts
in March, April and June, we will payoff all or a large part of
these seasonal needs in the spring months.

On the second

p~int

namely, the prior year's fiscal result -- the level of the debt at
the end of the prior fiscal year determines the starting
for the succeeding year's seasonal needs.

p~int

Because the peak seasonal

needs have not varied greatly from year to year, the sequence can
almost be simplified to the point of adding the prior year's
deficit to the prior year's debt limit to get the n,ew year's
debt limit.

In other words, the deficit for fiscal 1966 added to

the $328 billion limit for 1966 will closely approximate 1967's
needs.
our

m~re

guide.

This rough rule of thu:nb works well for fiscal 1967 and
r2fined estimates pr03uce almost the same

nu~ber

as thiS

- 5 As you know, the President in his Budget Message last
January estimated fiscal 1966's deficit at $6.4 billion, based
on revenue estimated at $100 billion and expenditures at
$106.4 billion.
revenues.

Since then two changes have occurred in our

First, a more timely payment of withheld income taxes

is expected to add nearly $1 billion to June revenues.

About

75,000 larger employers will be required to deposit withheld
income taxes twice a month rather than once a month.
system will also apply on social security taxes.

A similar

The first such

payment is due on June 20, 1966 at about the time when payments
are coming in under the old schedule covering a full month's
liability.

This one-shot doubling up will affect only 1966 revenues.

Secondly, the pace of collections on other taxes has also
increased.

Individual income taxes not withheld are running in

excess of the amount we estimated last January.

There has been

no change in estimated income in calendar 1965, on which
fiscal 1966 revenues are based.

Thus it may well be that the

marginal tax take from higher income has continued to rise.
However , it is not unusual to have revisions in the prior year's
income data, and a precise analysis of the reasons for the
increase must await the availability of more data.

- 6 While a refined estimate of the impro'vement in revenue is not
available, we u3ed $102.5 billion of revenues as our planning base
at the hearings before the House Ways and Means

Com~ittee

last month.

We indicated at the same time that this was a conservative estimate,
a.1.d that the revenues might turn out as much as half a billion dollar
higher -- in other warda at $103 billion.

As I said, a fully refined

estimate is still not possible -- the heavy
ahead of us.

June payments are still

On the expenditure side the Director of the Bureau of

th,e Budget has advised me that within a :larCO'N range the $106.4
billioa e.3timate of the January budget is still a good appraisal of
the expanditure out100k for fiscal 1966.

Hmv'cvcr, there are

uncertainties still facing us with respect to expenditures and this
$106.4 billion represents the middle of a range rather than a precis
forecast.

Putting the $102.5 billion of revenues and $105.4 billioo

of expenditures together, W'c would nOiN look to a deficit of about
$3.9 billion this year, a:1. improvement of $2.5 billion over the
Jan.u.~ry

estimate.

Tn,3 uncertainties of the future are more cloudy than is normal
at this time.

To the usual questions of Congressional actions on

the President's budget requests, mll3t be added not only the
uncertainties of

Vietna~

costs, but also the uncertainties as to

- 7 -

the pace and scale of our economic growth -- that is whether the
rates of growth characterizing recent quarters will be maintained.
These factors can have both expenditure and revenue consequences
of sizable magnitude.

Weighing all the uncertainties and

imponderables together, however, we have preferred to continue to
use the $1.8 billion deficit estimate for fiscal 1967, made last
January.
On these estimates for fiscal years 1966 and 1967 and bearing
in mind all the uncertainties, we have projected forward the public
debt at mid-month and at month-end through fiscal 1967 shown in
the attached table.

The table is similar to the one that accompanied

my statement to the House Ways and Means Committee last month.
The debt projections are in the same format as in previous
debt limit hearings and assume a constant Treasury cash balance
of $4 billion.

On this basis the debt will rise to a seasonal

peak of $328.7 billion on March 15, 1967.

This prospective

level of debt, rounded to $329 billion, and augmented by the
usual $3 billion allowance for contingencies would under our
customary procedures be the basis for requesting at this time
a new temporary debt limit of $332 billion to carry us through

June 30, 1967.
As you know, the House Ways and Means Committee has approved
an increase only to $330 billion, and the House has already given

- 8 -

its approval to this lower level.

At the time of the House

Committee hearing I indicated great reluctance to accept a limit
of only $330 billion, since on the basis of our estimate then
there would have been three occasions during the year when
we would come within the $3 billion contingency reserve, and
this represented too thin a margin for prudent operation.

did indicate to the House Ways and Means Committee that we could
in all likelihood operate within a $331 billion ceiling.
I would still prefer a ceiling of $331 billion but I am
prepared to accept a level of $330 billion, and in the interest
of speedy passage of this needed legislation I therefore request
that you approve the same ceiling already approved by the
House -- that is, $330 billion.
Our estimates show that this will give us a very tight
squeeze in early 1967 -- and as I said earlier the current
uncertainties are more than normal at

th~

time of year

but

I believe we may be able to operate within this more
circumscribed limit.

I must tell you, however, that if this

should not appear to be working out, because of one or another
of the various uncertainties that I have mentioned, we would
have to come back before the end of fiscal 1967 for a revision
of this limit.

Fiscal Year 1967
(In

Operating
Cash Balance
(excluding
free gold)

Public Debt
Subject to
Limitation

billions)-

Allowance to Provide
Flsxibility in Financing
and for
Contingencies

Total Public
Debt
Limitation
R~quired

1966
June 30

$4.0

$313.3

$3.0

$316.3

July 15
July 31

4.0
4.0

316.6
316.8

3.0
3.0

319.6
319.8

August 15
August 31

4.0
4.0

318.4
320.3

3.0
3.0

321.4
323.3

September 15
Septt:mber 30

4.0
4.0

323.4
318.1

3.0
3.0

326.4
321.1

October 15
October 31

4.0
4.0

321. 9
322.2

3.0
3.0

324.9
325.2

November 15
November 30

4.0
4.0

324.4
324.6

3.0
3.0

327.4
327.6

December 15
December 31

4.0
4.0

327.8
323.0

3.0
3.0

330.8
326.0

1967
January 15
January 31

4.0
4.0

325.3
324.1

3.0
3.0

328.3
327.1

February 15
February 28

4.0
4.0

325.2
324.7

3.0
3.0

328.2
327.7

March 15
March 31

4.0
4.0

328.7
323.5

3.0
3.0

331.7
326.5

April 15
April 30

4.0
4.0

327.5
318.6

3.0
3.0

330.5
32l.6

May 15
May 31

4.0
4.0

319.8
320.4

3.0
3.0

322.8
321.4

June 15
June 3;)

4.0
4.0

324.7
314.9

3.0
3.0

327.7
317.9

REMARKS OF PETER D. STERNLIGHT
DEPUTY UNDER SECRETARY
FOR MONETARY AFFAIRS
BEFORE THE ANNUAL FORECASTING CONFERENCE
CHICAGO, ILLINOIS, JUNE 14, 6:30 p.m.
Adaptations of Economic Policy
It is a great pleasure for me to share with you today some
thoughts about economic policy and its adaptions to different
times and circumstances.

To inject a personal note, I must say

that in joining the Treasury some six months ago I did not quite
contemplate that I would have the opportunity to see such a
compression of changing circumstances into such a short span of time,
but the experience has been, at the least, educational.
With flexibility of policy now a watchword, I should mention
in all modesty as a testimonial to my own flexibility that in moving
from the Federal Reserve to the Treasury just a few weeks before
the discount rate change of last November, I found myself, luckily,
always on the right side.

Of course, I did find, upon switching over

that fiscal policy and debt management decisions have become much
more complex than they used to be, but the over-all policy framework
remains essentially no more difficult to apply than earlier, since
monetary policy now turns out to be a simpler matter than ever it
appeared to be when I was closer to the counsels that formulated
and appl ied it.
This happy thought does not really stand up too well under

- 2 -

close examination, however, and whether because years of contact
with monetary polky have paralyzed my nerve, or because cool
appraisal will not justify the conclusion, I find myself unable to
prescribe the correct course for monetary policy with the same
confidence that fiscal and debt management moves are recommended

by the monetary authorities.
In a more sober vein, no one can look at the history of the
U. S. economic policy in the past decade and a half and fail to be
impressed with our growing knowledge of the impact of economic tools,
and increased willingness to use them.

The 1950's represented a

true coming of age for monetary policy, and the lessons learned then
were important even though we now are discovering that financial
markets are in a continual state of adaptation -- or at least they
have been in recent years -- and that some of the cause and effect
relationships that we may have thought were pretty well under control
could stand some careful reexamination.

Even so, the principle

stands that we are willing to use monetary policy and believe it
can be an effective instrument of public policy.
Fiscal policy has had, in different senses, both an easier
and more difficult time in proving its worth.

In the major sense,

say, of requiring greater tax revenues to finance full-scale military
~ffort,

its role has never been doubted.

:ircumstances

In less obvious

-- such as the desirability of reducing taxes as a

- 3 -

deliberate step to stimulate the economy, the case has had to
be proven, arduously, but with demonstrable success in the wake of
the 1964 tax reduction.

Still more remarkably, it has become fairly

well accepted that it was desirable to have put through a tax
reduction at that time even though the Government was starting from
a position of deficit.

The ensuing economic growth, stimulated in

no small way by the tax reduction itself, generated additional tax
revenues at the lower rates that far more than offset the theoretical
loss of revenue produced by lower tax rates.

Thus we are now able

to proceed in the future with the useful experience behind us of
having cut taxes in a period of deficit, and found this both good
economic policy and prudent fiscal management.
It is interesting to hypothesize on the basis of that recent experience whether, if the appropriate circumstances should arise we might be
ready for a rise in tax rates even while contemplating a prospective
budget balance or budget surplus.

I hasten to cast all of this in a

wholly hypothetical vein, and can assure you that I know no more than the
rest of you about the possibility or likelihood that a tax rise would be
suggested in the near future.

Moreover, I am not able to predict

Nith any confidence that we are now heading into budget surplus in
~he coming fiscal year, notwithstanding the optimism of the staff

)f the Joint Committee of Congress on Internal Revenue Taxation.

- 4 In the course of the recent debt ceiling hearings before the House
Ways and Means Committee, the Joint Committee staff was able to project
revenues in FY 1967 at a sufficiently highlevel to give us a small
surplus instead of the small deficit projected last January.

But the

spending figure may also need revision and without pinpointing either
of these magnitudes our present working assumption is that the $1.8
billion deficit anticipated last January is still a reasonable figure.
Still, the questions both of what our budget outlook now would
read and whether further restraining fiscal action might be called
for, do keep bobbing up, and the hypothetical puzzler of an antiinflationary tax boost in period of budget surplus remains to intrigue
us.

It is simply the obverse of cutting tax rates in recession, but

no doubt it wouhl take more than an appeal to analogy to make a case
here.

The analogy is there, though, as well as the good sense of

setting a budget policy that does right by the economy, and not merely
one that seeks to balance out the books.
Before leaving this intriguing area of taxes -- on which I can't
shed the kind of light you might be interested in anyway, I would
just add that by some means of reckoning we have already been
getting the benefit of a modest

tax

increase on top of the

corporate speed-up, the graduated withholding, and the partial
restoration of excise taxes which was signed into law last March IS,

1966.

This is because the ma,ginal rate of tax taken at current

- 5 income levels has been well in excess of earlier estimates.

Some

of you may have had a peronal opportunity to participate in that
higher marginal rate of return just a couple of months ago, when
you were calculating your final returns for 1965.
Even so, the large tax returns now coming in do not answer the
question of whether this is enough.

That judgment must still be made

on the basis of all the information bearing on Federal revenues,
expenditures, and the general course of the economy, both domestically
and in our international economic relations.
Let me move on from this controversial area of fiscal policy
to what used to be the more placid and dull terrain of debt
management.

In some past periods this has been a much neglected

area of governmental financial policy, to which polite billing was
given alongside monetary and fiscal on tax policy, but which
commanded little real attention except among a few devoted students
of the money market.

Time has brought change here, too, however,

and developments of the last few months could make debt management
one of the more critical areas over which policy decisions are made.
Debt management, from the Treasury's standpoint, means the
arranging of the debt structure in accordance with several criteria
that are partly complementary but ~ometimes conflicting.
objective is to seek the lowest possible cost.

One

Another is to arrange

- 6 the debt so as to exert a positive influence toward stability
in the economy

seeking to keep an ample supply of liquid

instruments on tap when the economy is in a slump, and seeking
to sop up liquidity when activity is booming and private demands
for long-term funds are strong.
But these principles come out much more neatly in theory than
in practice.

The temptation to float long debt in periods of

relatively mild demands in the capital market is well-nigh
irresistible, while in boom periods the floating of long debt
seems a grim prospect indeed.
During the early 1960's the technique of advance refunding
gave us, for several years, the best of both worlds.

Started when

the economy was in a slack period, in 1960-61, and continuing
through several years of broad business expansion, advance refunding
made it possible to lengthen the average maturity of the debt from
about 4 years 2 months in mid-1960 to 5 years 5 months in early
1965.

The volume of over-5-year debt was increased very

substantially while coupon issues due within five years
correspondingly declined.

Much of the net increase in debt

outstanding over the period was in Treasury bills, meeting a
growing need for liquid instruments -- although at rising interest
rates since availability of other instruments, notably bank
certificates of deposit, was also growing.

- 7 Since early 1965, we have lost some ground in the average debt
maturity.

At the end of this month it will be about 4 years

11 months -- scarcely an alarming retreat, but not a trend that we

want to see continued for too long.

Two factors could be mentioned

as contributing to the Treasury's absence from the long-term market.
One, obviously, is the 4-1/4% rate ceiling on bonds, which keeps
us from using a maturity longer than the five-year maximum possible
on notes -- on which no interest limit applies.
In addition to the legal ceiling, the level of rates has been
such that no substantial amount of long-term debt financing would
have been likely in any event.

Contracyclical advantages notwith-

standing, it would be difficult to justify massive refunding operations
that tied up large amounts of long-term debt at high interest rates.
Still there is an appreciable difference between aggressive
pursuit of contracyc1ica1 debt management policy in a period of
strong expansion, and a more modest goal of seeking to avoid the
passively pro-cyclical policy into which we tend to slip if we
go through an extended period of rates that block us out from
joing any financing at all at longer term.

I would not even go so

far as to say that we need aim at a so-called "neutral" policy of
;eeking to avoid any shortening of the average debt maturity at
:imes of high rates.

But it is something else again to make no

lttempt at selling any longer-term debt, for this is a path that

- 8 -

can lead to a troublesome, lopsided debt structure indeed.
What we could find, after an extended period of allowing the
debt to shorten with no offsetting action to restructure it, is
that an enormous amount of debt would come due each year, to be
-

refunded on terms over whit:: h the Treasury, as borrower, would have
less and less influence since the volume of our task and limited
scope of our options would be well known to the investors.

It makes

an interesting mathematical excercise to see what maturity pattern
emerges after an extended time if we were to refund all maturing
coupon-bearing issues into 18-month or 5-year debt in, say, a
3-to-l combination -- that is, as each coupon issue matured
three-fourths of it would be replaced with an l8-month note and
one-fourth with a five year note.

If my calculations are right,

we would arrive eventually at a "steady state solution" in which
some 40 per cent, or a little over, of the coupon bearing debt
would come due each year.

This would not be a happy prospect for

the debt managers.
This would not come about quickly, and indeed it might never
come about if the periods of high interest rates were intermixed wllh
Some valleys in which it was possible to make headway in moving
out Some longer debt.

But the shortening trend is not one that we

can contemplate with indifference, and not knowing when the
Jpportunities may come to achieve some restructuring, we are left

- 9 with a persisting desire to accomplish Some amount of longer
financing even in high rate periods.
As you may have surmised, this is some of the thinking
associated with recent comments about the 4-1/4% rate ceiling in
the course of House Ways and Means Committee hearingscn the debt
ceiling last month, and the Senate Finance Committee hearings on
this same subject on June 13.

The Treasury made no direct request

for immediate legislation to remove or modify the ceiling, as action
on the 4-1/4% ceiling does not command the same urgency as the
debt limit, but our position was made clear that we did not find
it acceptable to live with this ceiling indefinitely.

As Secretary

Fowler said, we would welcome authority to sell some limited amount
of longer debt in the next fiscal year.

It will not be calamitous

if we used only a part of any authority that might be provided to
sell longer debt; and it would not even be a calamity if we sold
none at all during the next year, but we do have the nagging concern
that the longer we put off making some headway on the debt structure
the harder it will be to recoup lost ground later on.
Some observers have been inclined to look at our program of
asset sales as an alternative to issuing long-term Treasury debt,
but I must say that I do not regard one as a substitute for the
other by any means.

It is true that sales of participation

certificates are not restricted as to rate or maturity by the

- 10 ceiling that limits direct Treasury offerings, and there have
been recent offerings of certificates of intermediate term with
maturities in the 10 to 15 year area, carrying rates well over
5 per cent.

But these offerings do not relieve the Treasury of

the need to keep its own debt structure in good order.
Besides,Where longer maturities are offered in the course
of the participation sales program, it is a counterpart to the
offering, under the various Federal programs, of long-term credits
of one sort or another to the private economy.

If anything,

the participation certificates sold with the backing of various
Federal financial assets will tend to have somewhat shorter
maturities than the assets in back of them, so that in appraising
the total impact of Federal credit programs and financial asset
sales on the economy we cannot very well count the sale of 10-15
year certificates as serving both to counterbalance the issuance
of long-term Federal credits under various programs, and to offset
a growing preponderance of short-term maturities in the direct
Treasury debt.
Having brought up this matter of participation sales, I should
go on to mention that we see this as forming an increasingly important
part of Federal financial programs in years to come.

Looking at our

society's needs for credit supported programs in areas where entirely
private flows of capital cannot be expected to do the needed job,

- 11 ~

see the asset sales as an effective way to draw the necessary

:unds out of the private economy without choking up the regular
~deral

budget with acquisitions of financial assets.

In greater or lesser degree, the Federal credit programs are
.n areas where private financing can, in time, be brought into a
~re

direct role in the initiating, servicing, and risk-bearing

unctions that the various Federal agencies now perform.

The

articipation sale technique draws in private capital at an earlier
tage than might occur in the absence of these programs, and in the
rocess, I believe, hastens the day when Government can turn over
ore of these programs to the private sector.
There is an added measure of cost to participation sales,
ompared with financing by means of straight Treasury d@bt issues,
hich we have never sought to deny in making the case for these
rograms.

The past experience with Federal agency financing and the

arly experience with participation led us to say, when presenting
lr legislative proposals, that the added margin of cost was something
ike 1/4 to 3/8% over straight Treasury issues.

In the past few

)nths, we have seen that spread widen out, to something l:iJ<12 1 /2 to 3/4 %
~ present.

The wider spread is not entirely surprising in light

E the greater volume of agency issues that has come to market
~cently, but it is no more welcome for being explicable.

Still,

'me purpose is served in having a yield advantage that draws

- 12

investor attention to these high quality securities, and I am
confident that in time the spread over regular Treasury issues
will return to the earlier level and even less, because by then
a degree of marketability will have developed for these agency
issues that should compare closely with that for Treasury securities.
The underlying quality is, after all, not essentially different
from that of regular Treasury securities.
Thus far, most of the topics I have taken up seem to involve
high interest rates

and indeed, to inject a personal note,

I seem to have been persued

months at the Treasury.

by this subject during my past six

One other area into which this has led us

is the current degree of keen interest rate competition for savings.
For the past few years, and on an accelerated pace since last
December, rates on various kinds of savings accounts have stepped
ever higher -- and yet without achieving any noticeable increase
in the over-all rate of savings.

We don't have all the data to trace

the process completely, but it looks as though rising rates on
l

variety of marketable securities placed commercial banks, mutual

;avings banks and savings and loan associations in a position of
.asing some funds to market instruments.
Commercial banks have managed to hold their own, in the aggregate,
~ raising their rates within the greater leeway permitted under Regula-

ion Q since last December.

Mutual savings banks and savings and loan

- 13 associations managed reasonably well in the first quarter of this
year, but sustained large outflows in April -- aggregating more
than $1.1 billion, and giving rise to concern that equal or
greater outflows may ensue in months to come.

The concern

is not only for these thrift institutions themselves, but also
for the mortgage market and homebuilding industry which are
particularly dependent on funds from these specialized savings
institutions.

And the concern extends beyond this, too, to a

feeling that we should avoid developments that could lead to a
widespread -- and I believe unwarranted -- questioning of confidence
in the general well-being of our financial institutions.

For it

is well to keep in mind in all of this that what starts out as
healthy vigorous rate competition among generally sound institutions
could veer off into destructive competition that would serve neither
the saver, the borrower, nor the economy at large.
The issues raised in the current concern over competition for
savings are complex.

One is the matter of competition itself, for

this has been a vital force in our economy and should not be set
aside lightly

even for temporary periods.

Another issue

is that of

how much concern should be felt for the precise and particular impact
of policies that must be set in broad terms and with a view to their

broad effects.

That is, if over-all financial policies are aimed

at restraint, then the impact of that restraint must fall somewhere

- 14 -

and yet if every candidate for restraint can find some way out,
then what has been accomplished except to raise interest rates
all around?
As you may be aware, the current pace of competition for
savings deposits and other short-term funds has led to a variety
of proposed remedies -- some of which remedies would produce
conditions far worse than the conditions they sought to cure.
For example, it has been proposed, in light of the vigorous bidding
for funds by commercial banks, that the issuance of all negotiable
certificates of deposit be abolished, or that the maximum interest
rate on such deposits be rolled back sharply, or that fairly long
minimum maturities be set on such deposits.

Still other remedies

aim at just the smaller sizes of bank time deposits, which have
exerted a particular pull on the deposits in other thrift institutions,
and seek to set a minimum size on certificates of deposit, or
maximum rates on such deposits that would be lower than the maximum
now permitted under Regulation Q.
Not too many years ago, most students of this area were
inclined to encourage rather than restrain competition among
financial institutions.

Ceiling rates, it was widely suggested,

should be put on a standby basis if retained at all.

I would guess,

however, that a poll of sentiment today would uncover many more
observers who could see some value in retaining ceilings over rates,

- 15 and perhaps encouraging competition to take other channels.

the least, many would feel that the current situation is one in
which, if controls were on standby, this might be a time to
exercise the option and temporarily apply a calming hand.
Reluctantly, we at the Treasury have concluded that this is
a time when unbridled competition may be having some undesirable
effects, and so, stepping in where a number of angels and others
not so angelic have feared to tread, or at any rate avoided
treading, we have offered some modest suggestions.

If these

suggestions could be capsu1ized in a word or two, we are in essence
trying to say "cool it" to those who are being excessively
aggressive in seeking to attract and retain savings funds.

It would

be too great an interference with the free play of market forces
to restore all the flows of funds that have occurred, but we do
feel that there is a value in seeking to stanch the outflow and
contain the competitive forces that are vital to our economy
in constructive channels.
In the spirit of fair play to large and small account holders
alike, it might have been appropriate to place a restraining hand on
savings accounts of all sizes -- for example by rolling back the
maximum interest rates payable under Regulation Q to the 4-1/2%
ceiling rate in effect until last December 6.

The consequences

- 16 -

of such a broad-based roll-back could be extremely disruptive,
however, possibly causing

fq~

more of a liquidity squeeze and

bind on specialized savings institutions than we have now.

Moreover,

it did not appear to us that aggressive competition for large
denomination CD money was a significant direct factor in pulling
money from other savings institutions and the mortgage market -although some indirect effect of this nature cannot be denied.
The more direct effect, however, seems to stem from competition
for smaller sized savings deposits, and it was in this context that
we proposed giving the Federal Reserve authorities discretion to
set a lower ceiling rate on time deposits up to the amount covered
by FDIC insurance compared with the rate on larger deposits.

Others

have argued that the resultant $10,000 cut-off point (since that is
currently the insured amount) is too low, and that greater economic
significance would attach to some higher division point -- perhaps
in the range of $25,000 to $100,000.

Anything in this range of

$10,000 to $100,000 would make sense to us.
Where some would cut the ceiling rate on smaller time deposits
back to 4-1/2%, however, we have been arguing for a 5% level on
several grounds.
saver.

First it is less ~inatory

against the smaller

Second, it does not encourage an outflow of funds from banks

into market instruments to the same extent that a lower ceiling

- 17 might do.

Third, too Iowa ceiling, even on these relatively small

deposits, could adversely affect our balance of payments.

And

fourth, unless other thrift institutions were also being held
to 4-1/2% it did not seem approrpriate to force banks down to that
level.

A legislated differential in rates among different

institutions is most unappealing.
We are under no illusion that our proposals, if adopted, would
bring money pouring back into savings and loan associations and
mutual savings banks.

It would not, I am sure.

We do feel that

they would help to calm the atmosphere, though, and keep rates from
escalating further to a new higher plateau.

In the meantime we

still face a possible problem in that a generally restrictive
monetary policy bears down with special severity on the mortgage
market and home building.

If this is deemed to be too severe there

are possible ameliorating measures that might be taken

short of

changing the whole mix of monetary and fiscal policies so that
monetary measures would bite less sharply.

One is to pump extra

money into the mortgage market via net purchases by FNMA, which has
in fact been going on apace despite continuing efforts to scale down
buying prices and otherwise tighten up on the eligibility of
mortgages for purchase.
Another avenue of amelioration is that of making loans available
to savings and loan associations through the Home Loan Banks.

This,

too, has been used extensively in recent months, and may be called

- 18 upon for further duty in July.

Much of the Federal Home Loan Bank

advances made in recent months has gone to meet withdrawals rather than
support net expansion of mortgage portfolios, but even on this
basis the volume of money made available by the Home Loan Banks
did at least make it possible for the associations faced with
withdrawals to use at least the flow from mortgage repayments to
make some additional loans.
Had we known a year ago where our domestic interest rates would
be today, we might have been solaced with the thought, or at least
the ray of hope, that surely this must have put our balance of
payments into good shape!

Would this were true!

Our domestic

credit demands have indeed helped materially in some aspects of
the payments program -- notably in helping banks not only to cut
their outflow of loans but also to

repatriate some money by

reducing the outstanding volumeof foreign loans.

Corporations have

also found that the combination of high domestic rates and
substantial liquidity needs worked in the direction of making
it a very natural thing to conform to the guidelines on shortterm capital and even go beyond them in bringing benefit to the
payments balance.
Unfortunately, much the same set of forces that is producing
these higher interest rates is also affecting other elements of
the payments balance adversely.

Expenditures for Vietnam divert

- 19 sizable sums of money to foreign hands, while the booming U. S.
economy, which is also partly

a result of Vietnam outlays,

causes imports to jump much more than exports, and tends to
worsen our already large tourist deficit.

The earlier stated

goal of ba1ance-of-payments equilibrium in 1966 is looking harder
and harder to attain.
scarcely obvious.

And yet the next steps to be taken are

The obvious and/or acceptable steps have been

taken already, and while we can expect our trading partners to be
more patient with us in a period when our Vietnam commitment is
a clear hindrance to reaching balance, it is not clear that we
can avoid further steps for long.

I won't pique your curiosity

even to suggest in the faintest way what sort of strengthened
program might be contemplated or recommended by the Administration,
particularly since I do not know this myself.
One frustrating area, though, is that of capital exports.
There seems to have been good cooperation here, but perhaps the
guidelines have not been restrictive enough.

Or perhaps the

incentives to bring earnings back home have not been great enough.
In any event it is curious that outflows continue, and even grow
in some cases, although many reports suggest that the investments
abroad are not really all that productive of profit but rather are
aimed at some long-term market penetration with uncertain payoff
prospects.
The tourist area is another one that frustrates us bureaucrats.

- 20 -

Last year's tourist deficit was $1.8 billion -- larger than our
total deficit of $1.3 billion.
still greater.

This year the tourist gap may become

Surely it would be better to close it by bringing

more visitors here than by curtailing our own travel, but the
prospects on either side seem unlikely to bring a quick solution.
This is certainly an area where suggestions would be welcome -directed at either side of this unacceptable gap.
In this review of current policy concerns, one unifying theme
is that the present problems in the United States are mainly
problems of prosperity, rather than of want.

I won't go so far

as to say that they are "happy problems," but they are preferable,
surely, to the concerns that follow in the wake of unemployment
and inadequate growth.

We must show equal imagination and

determination in resolving these problems, in the context of
a free

econom~

~which

has been developed and applied in some

past years to the problems of insufficient demand and sluggish
~conomic

growth.

REMARKS BY GERARD M. BRANNON
DIREcrOR, OFFICE OF TAX ANALYSIS
U. S. TREASURY DEPARTMENT
BEFORE THE SPECIAL COMMrrTEE ON AGING
UNTIED STATES SENATE
WASHINGTON, D. C.
WEDNESDAY, JUNE 15, 1966, at 10 A.M. EDT

Mr. Chairman and Members of the Committee:
We appreciate this opportunity to state the views of the Treasury Department
on the tax consequences of contributions to needy, older relatives.
The ultimate objective of this hearing is presumably to improve the
economic status of the aged.

The release announcing the hearing goes on to

specify a means to obtain the objective, namely, tax incentives to encourage
the contributions by the young for the support of older relatives.
First, as to the objective, it is clear that this Administration is
concerned about improving the economic status of the aged.
example, precisely what Medicare does.

This is, for

As it will operate this year,

benefits will be provided to most of the existing aged; and these will
in large measure be paid

o~t

of increased current payroll taxes on the

working population.
The social security framework offers an eminently sound means of
pursuing the objective of improving the welfare of the aged.

Social

security, along with other government retirement programs and the
Old Age Assistance Program, offers means of assuring benefits to all
in the older generation.

- 2 -

What is at issue then in the present hearing is not the objective
of helping the aged but whether modifications of the tax law offer an
efficient means of achieving this objective.
Before turning to the matter of amendments to the present tax law,
it might be useful to review the special provisions in present law
providing tax benefits for the aged.
Tax Benefits to the Aged
It is estimated that the aged enjoy roughly $2.3 billion of tax
savings under present law due to the presence of special provisions.
Some of the history of these provisions along with some description
of their operation would be pertinent to this Committee's current project.
The exemption of railroad retirement income was enacted in the
1920's when the income tax contained high personal exemptions and only
applied to a small portion of the population.

It made little practical

difference whether railroad retirement income was excluded.

The exclusion

for railroad retirement was not adopted by a tax committee of Congress
but by the labor committees.
Social security benefits were exempted from tax not by law but
by revenue ruling on the theory that they were gifts -- a theory

- 3inconsistent with the general treatment of pension income and with the
general view of OASDI as a contributory pension system.

In the 1930's

it was still true, however, that the income tax applied only to the
moderately high-income people; and it still did not make much practical
difference whether social security was excluded.

For both social security

and railroad retirement, the usual tax rules would indicate that the
recovery of the employee's own contributions should be tax free.

For

retirees in 1966, this would at most result in about 89 percent of OASI
benefits being included in taxable income and 78 percent of Railroad
Retirement benefits.
The double personal exemption for the aged was enacted in 1948.
The Committee report explains that for many old people retirement savings
had been accumulated at pre-World War II price levels, and the result
the World War II inflation was to make these retirement pensions less
adequate, in terms of current purchasing power, than had been expected.
Taxation of retirement income it was held had to be modified to offset
some of the loss

purchasing power from inflation.

- 4 In the early 1950's there was increasing complaint about the apparent
discrimination against other kinds of retirement income, compared to taxfree social security and railroad retirement payments.
In 1954 Congress enacted the first retirement income credit.

This

provided something like the exemption of social security income for other
kinds of retirement income.

It was structQred as a credit in order that

the benefit might be limited to the first bracket rate.

It was designed

so that if the particular retired individual did not get the maximum
exclusion possible under social security he could still exclude some of his
other retirement income.

The provision Qnder social security for reducing

benefits for certain wage income was carried over to reduce the retirement
income credit in the same fashion.

Since 1954 the retirement income credit

has been modified to take into account the situation of a husband and a
wife both having established social secQrity benefits and changes in
OASDI benefits.

In the mid-1950's another tax benefit for the aged was adopted,
namely, that the aged people in compQting their medical deduction COQld
use the full medical expenses and not be subject to the 3 percent of income
floor provision applicable to other taxpayers.
again quite cloudy.

The basis of this was

The floor provision deals with ordinary, routine

kinds of medical expenses.

Conceded that aged people might run into

situations of protracted illness with heavy hospital bills, it is hard
to see why their sitQation with respect to ordinary medical expenses is

- 5any different from, say, the young parent who has to
to the pediatrician for ordinary checkups.

t~e

his child

In any case, the special

medical provision was repealed in 1965 at the time of the adoption of
the extended benefit provisions under Medicare.
How effective are these provisions in improving the economic status
of needy aged?
The most obvious feature of these provisions is that the tax
benefits help the wealthy aged more than the poor aged.
The $2.3 billion of tax relief goes to about 11 million of the
estimated 18 million aged.

Only one-fourth of this goes to people

whose incomes (including social security benefits) are less than $3,000.
about one-half goes to people whose incomes, that

i~their

adjusted gross

income plus social security and railroad retirement benefits, are below
$5,000.
More importantly, very little tax relief is provided the aged with
below subsistence income.

For the most part, income taxes do not apply

at money income levels that meet accepted definitions of poverty.
Consequently, 7 million of the aged would be nontaxable under normal
income tax exemptions and deductions applicable to all taxpayers even
if they included social security and railroad retirement benefits in
gross income for tax purposes.
Further, the progressivity of the marginal income tax rates creates
more tax relief per dollar of excluded income as the income of the
individual rises.

When the tax benefit is constructed as a deduction,

Only

- 6 exemption, or exclusion of income, the size of the benefit depeods
on the marginal tax rate.
The duplication of benefits between the douliLe personal exemption
and the social security exclusion and retirement income credit means that
only the better off aged can use both.

With a double personal exemption

a single aged person would have no tax until his income exceeded $1,500
a year, and an aged
$3,000.
and

cou~le

In 1963 about

would have no tax until their income exceeded

4 million persons over 65 were living alone,

62 percent of these had total money income below $1,500.

In that year

there were about 7 million households where the head of Dousehold was

65 years

ol~

and over 45 percent of these had total money income under

$3,000.
We think

that it is clear from these figures that the experience

of using the tax law to help the aged produces an erratic and highly
dubious system of benefits.

You might keep in mind that given our

existingbudgetary needs the fact that

$2.3

billion of revenue is lost by

these provisions r&lating to the aged means that the individual tax rates
on the whole taxpaying population are about
would otherwise be.

5 percent higher than they

- 7 Tax Treatment of Persons Supporting Older Relatives
Having described generally the major provisions in tax law
relating to the aged, let me describe how the present law operates in the
specific area covered by these hearings, the support of older relatives.
The law now grants relief to single adult children who support aged parents.
Any single individual who maintains a household for a relative who qualifies
as a dependent is entitled to use the head of household rates which give
about half the benefits of full income splitting allowed to a married
couple.

In the case of a dependent father or mother, the taxpayer may

qualify as head of household even though the parent lives in his own home.
Any other dependent must live in the household of the taxpayer.
The law now grants relief to adult children who pay the medical
expenses of an aged parent if the parent is a dependent of the taxpayer and if
the medical expenses of the taxpayer exceed the statutory floor. A common

~Edu~~

medical expense with an aged parent is nursing services whether provided
in the home or in an institution.
Where an elderly dependent is in an institution because his
condition is such that the availability of medical care is the principal
reason for his presence there, the entire cost of medical care and meals
and lodging generally constitutes medical expenses. Although the taxpayer is
to a 3 percent floor with regard to his medical expenses (for himself,
his spouse, and aged dependent beginning in 1967), the maximum dollar
limitation on medical expenses will be removed for the tax year 1967
and thereafter.

s~~t

- 8 As a result of the Social Security Amendments of 1965, the law beginning
in 1967 will grant tax reliEf for adult children who pay for health insurance
coverage of aged parents who qualify as dependents of the taxpayer.
One-half of health insurance premiums up to $150 per taxpayer is deductible
without regard to the medical deduction floor.

The other balf will be

deductible as medical expenses but subject to the floor.
The provision generally known as the "child care deductiontl permits
tax relief for
dependents.

certain taxpayers

who pay for the care of disabled

The deduction applies to expenses for care of dependents

who are physically or mentally incapable of caring for themselves,
regardless of age.

A deduction may be taken up to $600 for one dependent

or to $900 for two or more for the costs of hiring someone to care for the
dependent either in the taxpayer's home or in their home or in a nursing
home.

This deduction is available to a working woman, at any income le"\e 1,

if she is Single, widowed, divorced, or deserted; to a man at any income
level if he is widowed, divorced, or legally separated from his wife
(but not if he is -single).

A married couple can use this deduction only

if the care is required because both the man and wife are employed, and even then
it is available only where the combined income of the husband and wife
is low.
To summarize, existing law provides tax relief in certain cases for
adult children who support

aged parents, who pay medical expenses of aged

parents, who pay for health insurance coverage of aged parents, and who pay
for the care of disabled dependents.

- 9 There are no data available as yet to indicate how effective
these provisions are operating.

We do not know whether these

reliefs are being used extensively nor do we know the financial
characteristics of the adult children.
Expanded Tax Benefits for Contributions to the Support of Aged Relatives
The Treasury Department believes undesirable the enactment of
amendments to the present tax law to provide further benefits for taxpayers
with respect to contributions made for aged relatives.

This specialized

tax relief is an inefficient way to help aged people; it is unfair in
its benefits between the aged in wealthy families and the aged in
poor familes; and finally, it sets up undesirable precedents and
complications in our tax law.
First as to the argument that these measures are inefficient.

Any

measure which provides tax relief for a taxpayer supporting an elderly
parent will in the- first instance simply reduce the tax on the younger
taxpayer.

It is entirely a matter of conjecture how much this will result

in increasing the support payments to the aged relative.

- 10 The device of using the tax law to benefit taxpayers who contribute
to the support of elderly relative is also unfair in that it benefits
only taxpayers whose income is high enough to incur tax liability, and
then it provides a benefit which increases with the size of income, due
to the fact that deductions against higher tax rates are worth more than
deductions against lower tax rates.

Proposals which make it more convenient

to provide for the support of elderlyrelatives out of investment income are
particularly discriminatory in having application only to taxpayers who
are wealthy enough to transfer assets to this purpose.

In the last year

the Department of Health, Eclucation, and Welfarehas reported lIof the aged
persons who lived in homes of relatives and who had less than $1,000 of
income of their own in 1958

about one-third were members of families

whose total money income was below $3,000;

half were in families with

less than $5,000."
Fimlly, special tax relief for support of aged relatives is
a bad measure within the tax law both as a precedent and as a source
of complication.

We can certainly imagine situations where an aged

relative deserves some additional support from the younger generation.
Age, however, is not the only characteristic that strikes on4sympathy.

Many parents have expensive support burdens in connection with putting
their children through college or in handling the special costs associated
with handicapped children.

Extending special deductions for

-. 11 -

a wide variety of dependents would greatly complicate the tax lav,and
to the extent this reduced the revenue yield, it would force us to
higher rates,

cancelir~

much of the intended benefits.

The Committee should keep in mind that there is considerable
fuzziness with respect to financial arrangements between aged dependents
and adult children.
dependent

Among many families with an aged dependent, the

owns the home which is often free of mortgage.

About one-third

of the aged who live with their children own their own homes.

Under these

circumstances, there is a sort of quid pro quo arrangement by which the
parent provides the shelter while the adult children provide food and
clothing to the parent.

The rent concession to the adult child, say,

$150 a month, could easily cover the food and clothing costs of an elderly
dependent.

There is no justifiable reason for giving the adult child in

this case credit for supporting an aged relative where in fact there is
virtually a bargain or an accommodation that has been struck.

In any

particular situation the child may be providing more in the way of

suppo~t

for the parent than he receives in return, but as you can readily understand
separating out the balance of these transactions would be often an
impossible complication in developing the tax return.

Instead of

the parent providing the housing, it may often be that the parent

- 12 -

provides considerable services.

An aged parent, who is more often

a widow than a widower, frequently

tak~s

including cooking and child care.

In all of these cases simply recognizing

charge of household responsibilities

what part of the payments going from the children to the parents represent
gratuitous support

is an extremely complicated task.

Finally, the Committee might well consider whether the approach
of increasing the dependence of aged people on younger people is the
right way to deal with the problem of the aged.

It has been the

gen~al

characteristic of our social security system that a larger proportion
of

aged couples hES

been able to choose to live an independent life,

and it is also a result of the social security approach that an aged
person is assured at least a minimum retirement income independent of
the particular income fortunes of

his

children.

Independence of the

aged has become a widely approved value in our SOCiety.

Of course

this

sociological question is outside the realm of our expertise, but we are
aware that financial independence is often the major rationale for public
income maintenance and service programs for the aged.

For example, the

recent Kerr-Mills amendments provide evidence that it is the Congressional
intent to make the aged independent of their children for support.

Yne

new Title XIX of the Social Security Act (added by the Social Security
Amendments of 1965) which establishes a medical assistance program
(improving and expanding the provisions for medical care of the needy
under the Kerr-Mills Act) provides that in determining qualification
for such medical assistance the financial responsibility of an individual
for an applicant for ass~tance may be taken into account only if the

- 13 applicant is the individual's spouse or child who is under age 21
or blind or disabled.
In conclusion, it is important that your Committee consider
the effectiveness of existing tax provisions which are directed at
improving the economic status of needy aged, including those providing
direct aid to the aged and those providing relief to adult children
who support aged parents.

Before urging new tax provisions, it should

be recognized that a tax relief approach is erratic in its operation,
often providing no benefit to those most in need.

It is uncertain in

its effect and the process of providing additional special rules in the
tax law to achieve nonrevenue objectives undercuts the simplicity and
integrity of the tax system.
President Johnson has expressed great concern about cost efficiency
in government programs.

In his 1966 Economic Report the President stated:

"Benefits that the Government extends through direct expenditures
are periodically reviewed and often altered in the budgetappropriation process, but too little attention is given to
reviewing particular tax benefits. These benefits, like all
other activities of Government, must stand up to the tests of
efficiency and falrness. II
It is therefore appropriate that such tests be applied to proposed
as well as existing tax reliefs for the aged and their

children.

I have discussed the subject matter of these hearings in general terms.
If the Committee wishes, I shall be glad to answer questions about any
specific proposals.

000

TREASURY DEPARTMENT
June 15, 1966

June 23, 1966,
representing an
and to
amount of
to be freely

182-dax bills, for $1,000,000,000, or thereabouts, to be dated
23, 1966,
and to mature December 22, 1966.

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, June 20, 1966.
Tenders will not be
received at the Treasury De~artment, 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.
F-515

Immediatelv after the closing hour, tenders will be opened at the
Federal Reserve' B~nks and Branches, following which public announcement will be made by the Treasury Department of the amount and price
range of accepted bids. Those suhmitting tenders 'viII be advised
of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept 0r reject any or all tenders,
in whole or in part, and his action in any such respect shall be
final. Subject to these reservations, nuncompetitive tenders for
each issue [or $200,000 or less without stated price from anyone
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 June 23, 1966, in
cash or other i~mediately available funds or in a like face amount
of Treasury bills ma turing June 23, 1966.
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 bl.lls, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from t~1e 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 'lOW or hereafter imposed on
the principal or interest thereat by any State, or any of the
possessions of the United States, or hy a"y :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 J 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 upoo
sale or redemption at maturity during the taxable year for which t~
return is made, as ordinary gain or loss.
Treasury Department Circular No. 418 (current revision) and thh
notice prescribe the terms of the Treasury bills and govern the
conditions of their issue. Copies of the cirCUlar may be obtained fr
any Federal Reserve Bank or Branch.
000

TREASURY DEPARTMENT

June 15, 1966
FOR IMMEDIATE RELEASE
MERLYN N. TRUED RECEIVES
THE ALEXANDER HAMILTON AWARD

Secretary of the Treasury Henry H. Fowler today presented
the Treasury's Alexander Hamilton Award to Merlyn N. Trued,
who resigned last week as Assistant Secretary of the Treasury
for International Affairs.
The Alexander Hamilton Award is the Treasury's highest
honor. It was established in 1955 to "give recognition for
outstanding and unusual leadership in the work of the Treasury
Department" and "to be awarded to those whose leadership in
the Treasury is such as to bring outstanding and unusual services
and benefit to the Government and so to the people of our Nation."
"No words," Secretary Fowler remarked, "could seem more
deliberately designed to describe Merlyn Trued's career at the
Treasury."
Mr. Trued, who is 43, resigned from the Treasury to become
senior Vice President of the Central National Bank of
Cleveland, Ohio.
Mr. Trued came to the Treasury in 1963, from the Federal
Reserve Bank of New York where he was Assistant Vice President
in the Foreign Department. He lived at Ridgewood, New Jersey,
before coming to Washington.
At the Treasury he has been principally concerned with the
United States balance of payments, foreign exchange problems,
and gold markets.
Mr. Trued is a native of Ceresco, Nebraska. He attended
public schools at Tribune, Kansas, and is an honor graduate of the
University of Oregon. He received graduate degrees from the
University of Virginia. He is a Major in the Marine Corps Reserves.
He is married to the former Josephine Schafer of Perry, Kansas.
The citation accompanying Mr. Trued's Award is attached.
F-516

000

CITATIOU
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1

TREASURY DEPARTMENT

June 16, 1966

FOR IMMEDIATE RELEASE
TREASURY REFUNDS ONE-YEAR BILLS
The Treasury Department, by this public notice, invites
tenders for $1,000,000,000, or thereabouts, of 365-day Treasury
bills, for cash and in exchange for Treasury bills maturing
June 30, 1966, in the amount of $3,301,943,000, to be issued on
a discount basis under competitive and noncompetitive bidding
as hereinafter provided.
The bills of this series will be dated
June 30, 1966, and will mature June 30, 1967, when the face amount
will be payable without interest.
They will be issued in bearer
form only, and in denominations of $1,000, $5,000, $10,000,
$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, Thursday, June 23, 1966.
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.
(Notwithstanding the fact that these bills will run for
365 days, the discount rate will be computed on a bank discount
basis of 360 days, as is currently the practice on all issues of
Treasury bills.)
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.
F-5l7

- 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 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
sucb respect shall be final. Subject to these reservations, noncompetitive tenders for $200,000 or less without stated price from
anyone bidder will be accepted in full at the average price (in
three decimals) of accepted competitive bids. Settlement for
accepted tenders in accordance with the bids must be made or completed at the Federal Reserve Bank on June 30, 1966, in cash or
other immediately available funds or in a like face amount of
Treasury bills maturing June 30, 1966. 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 dispositio~
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 therof by any State, or any of the posses
ions 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 Revem
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 exeluded from cons ideration as capital assets. Accordingly, the ownl
of Treasury bills (other than life insurance companies) issued
hereunder need include in his income tax return only the differenci
between the price paid for such bills, whether on original issue 0
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.
000

TREASURY DEPARTMENT
Washington
FOR RELEASE:

UPON DELIVERY

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT
THE WHITE HOUSE CONFERENCE FOR
STATE LEGISLATIVE LEADERS
EXECUTIVE OFFICE BUILDING
THURSDAY, JUNE 16, 1966, AT 2:00 P.M., EDT
The theme of this conference is encouragement of
greater intergovernmental cooperation in our Federal system.
The President, in his State of the Union Message, urged
that we, and I quote, "move on to develop a creative
Federalism to best use the wonderful diversity of our
institutions and our people to solve the problems and to fulfill
the dreams of the American people."
My frame of reference is the financing of government.
So I would like to discuss with you some of the problems and
prospects we share in the financing of urgently needed public
programs.
In the eyes of many, the pricetag is the most significant
part of any government program. Often the pricetag is the
controlling factor, regardless of the need for a particular
activity.
In their understandable preoccupation with cost, many
people see the Federal government only in terms of budgets
of $100 billion and more, millions of employees, and a vast
national debt.
Most people are unaware -- and would be surprised to
learn -- that the State governments today, taken collectively,
also constitute a vast enterprise of some two million
employees with budgets totalling some $45 billion a year.

F-5l8

- 2 -

Further, while the national debt has decreased from
58 percent of total debt, public and private, in 1946 to
22 percent at the end of 1965, State and local debt has risen
from 4 percent to 7 percent of total debt.
Those few surface observations reflect both the growth
of the State governments and the magnitude of the problems
they are grappling with today. Your presence here, I
believe, reflects the ferment taking place in the States -the new vitality which has renewed your determination to
meet your challenges and spurred your search for new ideas
and new resources.
Your problems are immense in such fields as education,
health, welfare, transportation, conservation, urban
development, economic development. Your sources of revenue
are necessarily limited and uncomfortably close to you. The
sharpness of this dilemma has, understandably, led many to
conclude that Washington should take up the financial slack.
There is an obvious attraction in the idea that the
Federal government, with its vast resources and its seeming
remoteness from the taxpayers, should share its good fortune
by making a strikingly larger contribution to the revenues
so urgently needed by the States and their creatures, the
cities.
Federal grants to States for specified purposes have been
around for a long time. They have increased markedly in recent
years. Recently, however, the idea of grants without any
strings has been gaining in prominence. The economist
Milton Friedman proposed such grants to replace the existing
system of grants-in-aid.
Of course, the Friedman plan did not get very far because
there was no general sentiment for giving up the existing
grants. A later variation was developed which removed this
inhibition. It was to provide such blank-check grants
in addition to existing grant-in-aid programs. This more
popular version came to be known as the Heller plan, named fM t~
former chairman of the Council of Economic Advisers.
The essence of the plan is that Federal revenues would
be set aside in an amount equal to one or two percent of
the Federal individual income tax base. This sum would
be distributed to the States for general government purposes -with no strings attached -- on a per c~a basis.

- 3 -

I didn't come here to shoot the Heller plan down.
understand its attrac~on.

But I believe it is essential to keep this plan -- and
the many similar and related plans
in proper perspective.
When Mr. Heller proposed the plan in late 1964, his
prognosis for the Federal budget was that revenues would
rise $4 to $5 billion a year faster than expenditures,
due to continuing economic growth. He could not have
known that the growth in the demands of Vietnam would
soon increase Federal expenditures more than twice that
total annually. The fact is that for the period immediately
ahead, there will be no surplus Federal revenues which could
be distribJted to the States without creating severe
inflationary pressures.
Further, at the time the Heller plan was proposed, most
observers did not believe that a comprehensive program for
federal aid to education could be enacted.
In the last 10 years, total Federal aid to State and
local governments h~more than tripled, rising from $4
billion in 1957 to the $15 billion budgeted for 1967. Federal
aid payments accounted for approximately 15 percent of all
general revenues available to State and local governments
in 1965. A Council of State Governments study, soon to be
published, shows that in 1946 the State and local governments
received $1.00 from the Federal government for every $13.50
they raised from their own resources. But, in 1964, they
received $1.00 in Federal funds for every $5.80 of their own
revenues. I cite these figures only to show that there is
convincing evidence of Federal recognition of the need to
assist State and local governments with their financial
prob lems.
We all recognize the need for cooperation among the
levels of government in the field of finances. But we don't
always remember that cooperation is a two-way street. And
sometimes a cooperative effort goes wrong. This is always
a disappointment, although it can usually be remedied if
the will to cooperate is maintained.
One example of a cooperative effort which has turned
into a disadvantage for both the Federal government and at
least some of the States is of particular interest to me.

- 4 For some time I have shared with many others, some in the
Administration, some in the Congress, and some in responsible
financial positions in State and local governments, a growing
concern about certain uses of the tax-exemption privilege
which is accorded to State and municipal bonds.
Since the inauguration of the Federal income tax in 1913,
the interest on obligations issued by States and their
political subdivisions has been exempted income. The
justification for the exemption is that it reduces the cost
of State and local borrowing done for the purpose of carrying
out essential Government functions. But, as with any wideranging exemption, applications which could not be foreseen
w~ it was granted have occurred.
One area that has raised doubts and discussion over
the years has been the use of industrial development bonds.
This practice has been defended on the ground that it helps
to bring industry to low-income labor-surplus areas.
Thoughtful critics, however, have prophesied that the
practice would eventually become self-defeating. Recent
experience appears to support their view, since the use of
this type of bonding is growing and the advantage to any
State or municipality decreases as more States and localities
enter the field. This practice merits careful attention and
is currently under study.
In recent years, new financial arrangements involving
use of the exemption have arisen which have caused serious
concern. One of these is arbitrage, which arises when the
principal purpose of floating State or local bonds is to
buy U. S. bonds with the proceeds and realize a profit from
the difference between the interest rates on tax-exempt and
taxable securities. The variations in the practice are
almost infinite. The buyers of the tax-exempt bonds are,
in reality, only purchasing U. S. bonds indirectly. Their
tax exemption is diverted to make a profit for a State or
municipality.
As another example, some States and local governments
are issuing tax-exempt bonds to finance commercial enterprises,
which they operate in competition with private enterprise.
To date, these transactions have been confined to real estate
which is leased to private parties. But other commercial
uses may be found. While the amount of bonds issued for thiS

- 5 purpose has so far been small, there is every indication
that it will be substantial in the future unless curbed.
example, one issue now proposed would involve over $500
million.

For

The Federal government is sympathetic with the need of
States and municipalities to meet their financial problems.
But we cannot condone extension of the tax exemption to these
new financial arrangements as a means of accomplishing those
objectives at the expense of the nation's taxpayers.
These arrangements, moreover, by greatly increasing the
total of exempt bonds outstanding, will eventually drive up
the interest rates paid by all States and municipalities for
their borrowing. Yet there will be no commensurate increase
in public service to compensate for the cost to the taxpayers.
If legislation is enacted, or if administrative measures
are adopted, which exclude these arrangements from the benefits
of the exemption, I hope no one will be misled into thinking
that we are launching an attack on the basic interest
exemption for State and local borrowing. Quite the contrary,
as with any exemption, curtailment of uses which cannot be
condoned is a condition necessary for preservation of the
exemption for its intended uses.
Although it has required me to speak in somewhat
negative terms, I have taken the time to talk about Federal
revenue-sharing and considerations involving the tax
exemption for State and municipal bonds because I know the
former subject is one of great interest to you and the latter
is of great interest to me.
But it would be a travesty to lose the great opportunity
which this conference provides by giving it a negative tone.
To say we have problems, I believe, is simply to describe the
human condition. But the future has never looked brighter
than it does now for a great cooperative -- and successful -attack against the problems we share.
We have stopped looking at our Federal system of
government as if it were composed of three totally separate
and independent layers -- local, State and national. We have
recognized that, in our Federal system, responsibilities
are mixed and inseparable and relationships are close and
binding.

- 6 We know that action at one level often affects all levels ,
and we know that action which is harmful to one level cannot,
in the long run, be beneficial to the others. We realize
that successful action undertaken by one level of government,
in meeting what it regards as its own responsibilities,
frequently results in handsome benefits for the others.
Many examples of this interrelatedness come to mind, but
none serves better than the Federal fiscal policies of the
last five years which aimed at stimulating the economy. Tax
reduction played a major role in the economic resurgence which
has now brought us into our sixth year of expansion. The
addition of resources on which the States and municipalities
can draw and which have come into existence in this period
of vigorous growth far outweighs the advantages that would
accrue from any revenue-sharing formula. The Federal
government, taking action on a national scale to foster
economic growth, has broadened and reinforced the revenue
base from which all levels of government derive their sustenance.
Our accomplishments are not all in the past. I have
spoken of the heightened vitality of the States. But do not
underestimate the power of President Johnson's concept of
creative Federalism at the Federal level. This concept makes
clear that the various levels of government are -- and must
be -- members of a partnership in which each has definite _.
though differing -- responsibilities with respect to each
function and activity. The President charged his Administration
to take the initiative in these words:
"Many of our critical new programs
involve the Federal Government in joint
ventures with State and local governments
in thousands of communities throughout the
Nation. The success or failure of those
programs depends largely on timely and
effective communications and on readiness for
action on the part of both Federal agencies
in the field and State and local governmental
units. We must strengthen the coordination
of Federal programs in the field. We must
open channels of responsibility. We must
give more freedom of action and judgment to
the people on the firing line • . ."

- 7 It is obvious that the cooperation required by this
approach to Federalism must extend throughout the financial
field if our mutual efforts are to be successful. We have
a long and proud record on which to build. Behind the
President's leadership we intend to advance the concept
of creative Federalism to the farthest limits of our
imagination and energies.

000

TREASURY DEPARTMENT
Washington

FOR RELEASE:

UPON DELIVERY

REMARKS BY THE HONORABLE HENRY H. FOWLER
SECRETARY OF THE TREASURY
AT
THE 73RD ANNUAL CONVENTION
OF

THE VIRGINIA BANKERS ASSOCIATION
AT THE HOMESTEAD, HOT SPRINGS, VIRGINIA
FRIDAY, JUNE 17, 1966, 10:45 A.M., EDT
Over the last two months I have had the pleasure of
meeting with distinguished groups of bankers in Phoenix,
Arizona, in Charlotte, North Carolina, and in Granada,
Spain. So after all that traveling, it is good today to
be home -- and to meet with the bankers who play so important
a role in the economic and financial affairs of my home state
of Virginia.
In these earlier meetings with banker groups, I discussed
in some detail the whole broad range of international economic
and financial affairs in which this nation is heavily
involved -- including our balance of payments, Free World
monetary reform, Free World trade, Free World capital
markets, and Free World development assistance -- as well as
the impact on and the implications for our financial
institutions of current excessive demands for credit.
So today, here at home, I want to look at our national
economy as a whole, at some of the basic problems at hand
and prospects ahead in the perspective of our experience of
the past -- for the soundness and strength of our national
economy underlies, not only the success of all our efforts
in the world at large, but the soundness and strength of
Virginia's economy as well as the economy of every other
state in the Union.

F-5l9

- 2 -

Five years ago, when this decade began, our economy was
mired in its fourth postwar recession. Our performance in
the past offered us little hope for the future. To look
back , indeed , was only to become acutely aware that
. 1 the three
earlier recessions had been followed by succeSSlve y shorter
and weaker recoveries, and that the previous recession had
produced what still remains the largest peacetime budget
deficit in our history. Unemployment was intolerably high
6.8 percent in February 1961, the recession trough.
Business investment had for years failed to maintain anything
like adequate levels of growth and remained far less than
we needed to generate more vigorous economic growth -industrial plant and equipment, in the first quarter of
1961, was operating at only 78 percent of capacity, compared
to the optimum rate of 92 percent desired by most businessmen.
Indeed, there were even some who seemed to suggest
we had to resign ourselves to accepting as a kind of law of
economic life, as an unhappy but inherent characteristic of
our economic system, this rhythm of recession and inadequate
recovery and the high rates of unemployment it inevitably
entailed.
Yet we emerged from that recession of early 1961 and
entered an expansion that has become the longest and
strongest in our nation's history
an expansion that has
displayed no propensity to return to the patterns of the
past.
During the five years between the first quarter of 1961
and the first quarter of 1966, our Gross National Product
grew by $210.3 billion. We get some idea of what an aweso~
feat that is when we consider that that increase alone -this five year icing on the cake -- exceeds the total
Gross National Product -- not the increase, but the total
of France and Germany combined, of France and Great Britain
and Spain combined. Thus, the mere growth of our economy
in the past five years exceeds the combined output for an
entire year of two of the most productive nations in the
Free World.
Or to put it another way: In the concluding halfdecade of the Fifties, our economy grew at a real annual
rate of only 2.2 percent -- far lower than that of
virtually all other major countries. In the half-decade
just ended, our real growth rate rose to 4.6 percent
an immense improvement. And las t year it grEW by 5.5 percent .'
and as a result we surged ahead of every other maj or country
in the world, except Canada.

- 3 That surge in real output reflected one of our most
impressive achievements over the last half-decade -a record of price stability unequalled by any other major
country in the world -- a record surpassed by no other
industrial nation and by only three small countries -Guatemala, El Salvador and Venezuela.
And as our economy has continued to expand, so have
real incomes and real profits -- and our unemployment rate
has continued to fall.
For the first five months of this year, our unemployment
rate has averaged about 3.8 percent -- below our longsought "interim" target of 4 percent, and well under the
averages of 4.6 percent for 1965, 5.2 percent for 1964,
5.7 percent fo~ 1963, 5.6 percent for 1962, and 6.7 percent
for 1961.
Between the first quarter of 1961 and the first quarter
of 1966, per capita disposable personal income -- even
after adjustment for price changes -- grew by 20.8 percent.
And even in the year just past, when price indexes showed
a steeper rise than in earlier years, per capita disposable
personal income grew by 4.8 percent in real terms.
To put it in even clearer focus: while consumer prices
have risen by 8.3 percent since February 1961, the average
weekly wage of a factory worker has risen by a full 26.0
percent -- more than three times the rise in consumer prices.
This expansion has also meant a strong and steady
rise in after-tax corporate profits -- in contrast to
earlier expansions when profits after taxes would show
a strong early surge and then succumb to the growing
squeeze exerted by increased labor and other costs. Thus,
after-tax corporate profits last year stood at $44.5
billion -- up from $37.2 billion in 1964, $32.6 billion in
1963, $31.2 billion in 1962, $27.2 billion in 1961, and
$26.7 billion i~ 1960. And, accordi~b to preliminary
estimates, corporate after-tax profits continue to surge
ahead -- rising to a record annual rate of $48.4 billion for
the first quarter of this year, compared to an annual rate
of $45.9 billion for the prior quarter.

- 4 These were the extraordinary gains produced by our
private economy in response to a mix of national economic
policies whose whole aim was to create the kind of climate
in which the private economy could find the confidence and
the incentives to do its job.
The question before us in 1961 was how best to revive
our economy and restore its capacity for strong and
sustainable growth. In fiscal policy, we had essentially
two choices: whether to increase government expenditures
or to reduce taxes -- whether to rely, in other words,
upon the renewed energies of the private sector or upon
expanded government activity.
We chose, as you know, to reduce taxes and to restrain
the growth of Federal expenditures, for we were firmly
convinced that the private economy simply could not do its
job unless it were sufficiently freed from the burden of
excessively high wartime tax rates -- rates originally
applied to restrain the strong inflationary pressures that
accompanied wars and national emergencies.
Through the investment credit of 1962, the depreciation
reforms of 1962 and 1965, the Revenue Act of 1964 -and to some extent through the Excise Tax reductions of
last year -- we moved to diminish the burden of wartime
tax rates upon the private economy and thus to furnish it
with renewed opportunity and fresh incentives to help meet
our basic economic needs.
All these tax measures have reduced the Federal tax
burden by a total of $18 billion at fiscal 1966 levels
of income. Yet Federal revenues between fiscal 1966 and
fiscal 1961, excluding those affected by the tax changes
adopted this year, have grown by $23.3 billion -- more
than twice the revenue growth during the previous five year
period, between fiscal1956 and fiscal 1961, when there was
no tax reduction.
To this basic fiscal policy of Federal tax reduction
and expenditure restraint, we coupled a monetary policy
aimed at insuring an adequate availability of money and
credit for domestic needs while helping our balance of payments
efforts by maintaining short-term domestic rates at levels
comparable to those abroad.

- 5 -

As a result of this overall economic policy mix,
and its success in cultivating a climate within which the
private sector could flourish, we came last year to the
point where we were closer than at any time in our history
to the simultaneous achievement of our four paramount
economic goals: strong and stable economic growth, full
employment, reasonable price stability and equilibrium in
our international balance of payments.
And so I am sure you recall how, a year ago, economic
experts in both the public and private sectors were giving
a good deal of attention to the longer-range problem of
making a smooth transition from an economy trying to reach
a level of peak performance to an economy trying to maintain
that level of performance.
Over the near-term, our concern was that the economy
would falter and flatten out before we reached our goal of
full employment in a balanced economy. Over the longerterm, we were concerned with the whole spectrum of
challenging problems and exciting opportunities that would
present themselves once we had, in fact, reached full
employment -- in particular with the problem of forging
ahead at full employment levels of activity without
inflation.
It was in the very midst of this growing concern over
the longer-range economic outlook -- and over the current
outlook in that context -- that, in July of last year,
there began the intensification of hostilities in Vietnam
that has since altered our economic picture.
For as increased defense spending for Vietnam began
to give added impetus to economic demand -- at a time
when special supply factors were emerging which would
put severe temporary pressures upon the prices of farm
products and processed foods -- our concern over the
prospect of an economic flattening out rapidly disappeared.
And it was rapidly replaced by a concern that our economy
might be moving at so rapid a rate as to result in serious
inflation.
But nothing has happened since early last year to render
any less urgent our concern over the problem of making a
smooth transition into a period of steady and sustained
economic growth at full employment. Indeed that concern

- 6 must today be more urgent than ever -- for today we are on
the threshold of that transition period, if we have not
entered it already.
What that transition involves is essentially this:
Over the past several years we have been able to sustain
very high real rates of growth -- 5 percent in 1964 and
5.5 percent in 1965 -- by putting to productive use not
only new capacity and new entrants into the labor market,
but also idle capacity and the unemployed. But in the years
ahead our rate of overall economic growth will have to rest
almost entirely upon the rate of growth, in quantity and
quality, of new capacity and new manpower. For we have
nearly used up the economic slack represented by the large
measure of idle capacity and the large number of unemployed
workers of recent years.
The President's Manpower Report for this year estimates
that our labor force may grow by almost 2 percent annually
through 1970. Allowing for some further decline in the
unemployment rate, some reduction in hours worked, and
assuming the continuance of recent productivity trends, this
could mean an average annual rate of real growth as high as
4~ percent.
This figure does not, of course, represent a
forecast. Rather it is simply a feasible projection of one
economic pattern likely to emerge as we move to a more
moderate rate of growth in the years ahead.
Our task today, therefore, is to make a smooth shift
from the very high growth rates of the recent past to a
somewhat lower but still historically high level of steady,
sustainable growth -- to slow down without stalling. And
we must accomplish that task amid all the uncertainties that
Vietnam introduces into our economic picture.
The Administration, as you know, considered the threat
of inflation serious enough to require a significant shift
from a fiscal policy of steady stimulus to demand to a
fiscal policy of moderate restraint. And President Johnson
has made it abundantly clear that he will not hesitate to
apply or to recommend further fiscal restraints should
these become necessary.
Whether such restraints will become necessary remains
very much an open question. There are, to be sure,
indications that, while the economy is still moving strongly
ahead, it is not moving as rapidly as it was earlier

- 7 this year.
But the situation is still uncertain enough to
require our continued readiness to adopt whatever further
restraints events may clearly demand. And perhaps the
most important area of present uncertainty and concern is
whether and to what extent Congressional action on the
President's fiscal 1967 requests for new appropriations
will raise the total of government spending for that year
significantly beyond the level proposed in the President's
budget.
But before we consider the question of that budget -and the current need for restraint -- I think we would do
well to consider the whole question of Federal expenditure
control, of Federal debt and Federal deficits, in the light
of our experience over recent years.
Let me begin by citing some very revealing figures.
While Federal debt in the aggregate has grown from $259.5
billion in 1946 -- the great bulk of which was incurred in
the two World Wars -- to $296.5 billion in 1961, to $321.4
billion in 1965 -- it has declined from 117.2 percent of our
national output in 1946, to 54.6 percent in 1961, to 45.5
percent in 1965. At the same time, corporate debt has
grown from 49.9 percent of our national output in 1946 to
73 percent in 1961, to 77.5 percent in 1965.
Or to take another perspective~
Federal debt has fallen
from 58 percent, in December 1946, of the total estimated
debt for the United States as a whole, to 29 percent in
December 1960, to 24 percent in December 1964, to 22 percent
in December 1965. At the same time, corporate debt as a share
of our estimated overall debt has grown from 25 percent in
December 1946, to 36 percent in December 1960, to 37 percent
in December 1964, to 38 percent in December 1965.
Or to put it in less impersonal and perhaps even more
striking terms:
in 1946 our per capita national debt
exceeded our per capita national output -- $1,817 compared
to $1,580. By 1961, however, our per capita national
output had grown to $2,958, substantially greater than our
per capita national debt -- which had fallen to $1,600.
And by 1965, our per capita national output had risen to
$3,626 -- more than twice our per capita national debt,
even though that had risen slightly to $1,641.

- 8 -

These figures, I think, tell several interesting
stories. First, they ought to make clear that, while our debt
has grown in recent years -- as in most years since the
war -- our ability to bear that debt has grown far more.
I do not suggest it is no longer important -- for it is
important -- for us to aim at a balanced budget or a budget
surplus in a strong economy, and to contemplate some measure
of debt retirement as our budgetary and economic circumstances
allow. I suggest simply that the Federal debt no longer
presents the great overhanging problem it once presented
when it loomed so large in relation to our economy and when
our economic growth was not nearly so strong and balanced as
it has been in recent years.
Second, these figures reveal something about our private
debt. For the fact that, even over the past five years when
corporate profits have experienced such an awesome surge,
corporate debt has continued to rise as a percentage both
of overall debt and of our national output
that fact
ought to suggest that there is some profit in the kind of
investment that debt represents.
But beyond the question of Federal debt, there is the
whole question of Federal expenditure policy. And here
again the record of recent years is most revealing.
Indeed, I would suggest that what we have witnessed
in recent years is a very real -- if highly unrecognized
revolution in expenditure control. That revolution had its
roots in the decision to generate strong and steady economic
growth by reducing Federal taxes rather than by raising
Federal expenditures. Indeed tax reduction implied
expenditure restraint, since it meant an initial and
temporary lag in the growth of Federal revenues.
Section I of the Revenue Act of 1964 declared -- and
I quote:
"It is the sense of Congress that the
tax reduction provided by this Act through
stimulation of the economy, will, after a
brief transitional period, raise (rather than
lower) revenues and that such revenue increases
should first be used to eliminate the deficits
in the administrative budgets and then to
reduce the public debt. To further the
objective of obtaining balanced budgets in

- 9 -

the near future, Congress by this acti.on,
recognizes the importance of taking all
reasonable means to restrain Government
spending . . . . "
And President Johnson has more than redeemed that pledge
by personally spearheading the most persistent and productive
expenditure control effort ever witnessed in Washington.
And the results are remarkable. Federal expenditures
for fiscal year 1964, when President Johnson assumed the
responsibilities of the Presidency, were originally
estimated at $98.8 billion. The expenditure target for
fiscal 1966, the third year of his service was fixed in
January of last year at $99.7 billion -- less than $1 billion
higher than the original estimate for fiscal 1964.
Then, last July, events in Vietnam changed the
picture -- requiring additional expenditures of some $4.7
billion. Other increases also occurred -- increases, both
unforeseen and unavoidable, which totalled a net $2 billion.
These included $740 million of military pay raises and an
additional $288 million increase in veterans pensions voted
by Congress in excess of Presidential recomrnendations,a
$500 million increase in interest charges on the debt and two
further increases of $500 million each as a result of payments
required by law under the space and agricultural programs.
All of these increases -- which President Johnson could
neither anticipate nor effectively control -- more than
wiped out economies realized by both Administration and
Congressional action since the original budget estimate for
fiscal 1966. And in doing so they obscured one of President
Johnson's truly extraordinary accomplishments -- the fact that,
excluding these increases, President Johnson in nearly three
years in office had held the total increase in administrative
budget expenditures to less than $1 billion over the amount
originally estimated for the fiscal year in which he assumed
office.
Indeed, the President's non-Vietnam expenditure
proposals in the fiscal 1967 budget total $102.3 billion
only $3.5 billion higher than the $98.8 billion proposed in
the fiscal 1964 budget, and that increase is more than
accounted for by just the cost during that period of Federal
pay increases and increased interest on the public debt.

- 10 Compare this increase of less than $1 billion a year
with the average increase in the budget of $3 billion per
year over the previous ten years. View it in the context
of the report issued in January of 1961 by President
Eisenhower's last Director of the Budget, Mr. Maurice Stans,
which pictured the outlook for Federal expenditures over the
next decade. That report concluded that rising population
and income, and the resulting normal growth in the Federal
workload, would tend to raise non-defense expenditures in
the Federal budget by $2-2~ billion a year throughout this
decade. Look at what President Johnson has done against
this background, and we begin to realize how really remarkable
his accomplishment is.
Joined with rising Federal revenues from rising
economic activity, the President's program of rigorous
expenditure control has allowed us to meet urgent national
needs while at the same time reducing the Federal deficit.
The record is clear: the 1964 budget submitted three
years ago forecast a deficit of $11.9 billion premised, in
part, on major tax reduction. This figure was reduced to
an actual fiscal 1964 deficit of $8.2 billion.
Last year's budget contained an estimated deficit for
fiscal 1965 of $6.3 billion. This was trimmed down to
$3.4 billion.
The Budget submitted in January of last year estimated
the fiscal 1966 deficit at $5.3 billion. As a result, however,
of growing revenues from a rapidly expanding economy and
from the tax changes enacted earlier this year -- and
despite $4.7 billion of increased expenditures due to Vietnam
we now expect a deficit of only about $3.9 billion for the
current fiscal year.
Had it not, in fact, been for the increases projected
for Vietnam expenditures in fiscal 1966 and fiscal 1967
since the 1966 budget was originally submitted in January
1965, we could have used the fiscal dividends furnished by
this continued expansion to balance the budget in fiscal
1966 and 1967 and still have had room for some increases
in civilian expenditures, or for additional tax reduction,
or for some reduction of the national debt.

- 11 -

In fact, in a recent statement of "Estimates of Federal
Receipts for the Fiscal Years 1966 and 1967" prepared by
the staff of the Joint Committee of the Congress on
Internal Revenue Taxation, the estimates of revenue for the
fiscal year 1967 indicate a potential surplus in the
administrative budget of over $3 billion on the assumption
that Federal expenditures can be held within the overall
total of $112.8 billion contained in the President's budget.
Without in any way endorsing these revenue estimates, I
cite them simply to show that our budgetary prospects for
fiscal 1967 -- if we have the will and the wisdom to remain
within the overall expenditure bounds of the President's
budget -- are, from our present vantage point, excellent.
There could be no better testimony to the unrelenting
rigor of President Johnson's efforts to control Federal
expenditures than his success in obtaining results like
these in the face of such severe difficulties. The success
of any such campaign -- as mUi t of you know from your own
experience -- depends upon insistent, intensive leadership -leadership that will allow for no let-up and that will accept
nothing less than maximum efficiency and maximum economy -leadership that requires constallt and continual accounting
from every responsible official on every program and every
activity under his supervision. That is the kind of
leadership that President Johnson continues to exert -- the
kind of leadership that has instil1~d in every Federal
employee at every level of responsibility an acute costconsciousness, and that engages his best efforts to seek out
new ways to do the job better at less cost.
We see the results of this leadership in the budget for
fiscal 1967 -- a budget in which, by a process of selective
increases and decreases, the President was able to hold
down the total increase in all budget expenditures other
than the increase in special Vietnam costs to only $600
million. This net increase of $600 million includes both
some substantial increases and some substantial decreases.
It includes increases of $3.2 billion for Great Society programs,
$800 million for higher interest charges on the public debt,
and $1.3 billion for unavoidable commitments such as
construction already in progress. It includes decreases of
$1.6 billion in defense outlays unrelated to Vietnam,
$1.5 billion in savings through pruning lower priority
programs, through management improvements a~d ~hrough th~
non-recurrence of certain costs, and $1.6 bl.l1l.on resultl.ng
from increased sales of mortgages and other financial assets
and from the further substitution of private for public
credit.

- 12 Thus, to talk about expenditure control solely in terms
of expenditure totals is to tell only half the story -- for
we receive the greatest benefits from the President's
insistent emphasis on cost reduction and program evaluation
in the urgent new programs it enables us to afford through
savings on those of lesser urgency and through greater
productivity in existing programs.
This, then, is one very real source of funds for
financing new and urgent Great Society programs: the
savings we accumulate from reduced costs and increased
productivity everywhere possible. We expect that our efforts
to reduce costs and increase productivity will result in
savings for fiscal 1967 of $3.8 billion, compared to fiscal
1964. In other words, to carry out the activities
proposed in the fiscal 1967 budget would cost us $3.8
billion more -- or $116.6 billion rather than the projected
$112.8 billion -- were we to operate at the 1964 level of
efficiency.
Yet at a time when the need for restraint is so great -at a time when, barring higher levels of expenditure for
Vietnam than we can now foresee, the prospect of a balanced
budget or even a budgetary surplus in fiscal 1967 is a very
real one -- we must face the fact that the Congress may add
some $2 billion to $3 billion to the President's expenditure
proposals for fiscal 1967.
The Congress, of course, has a very real responsibility
to make its awn judgments about the merits of specific
programs and specific expenditure requests. And the
President fully recognizes that responsibility. But the
point is not that the Congress must agree on specific details
or specific programs. The point is that, while fully workrng
its will and exercising its Constitutional prerogatives -while reviewing with the greatest care every proposal
before it -- and while revising and reshaping these proposals •.
the Congress must also make every effort to assure that,
when it has done its job, the total cost of the programs they
have enacted does not significantly exceed the total cost of
the programs the President has proposed for fiscal 1967.

- 13 -

.
Ln

For .how
. well we succeed, in the days and months ahead ,
sustaLnLng the strength and stability of our economy -while avoiding inflation -- depends very much on how the
Congress -- as well as the Administration and indeed all
Americans -- exercises its responsibilities for moderation
and restraint.
I would indeed be remiss if I did not, today, pay
tribute to this audience for a very special contribution
its members are making to a sound and strong economy. I
speak of the invaluable assistance which the bankers of
Virginia have given -- and are continuing to give -- to the
United States Savings Bonds Program.
For the past three months, sales of Savings Bonds
throughout the nation have been the best in 10 years. Sales
of Series E Bonds have been the best in any peace-time year,
breaking all records that have existed since 1945.
Working together, Government and industry, bankers
and businessmen are, each day, signing up hundreds of new
savers in the Payroll Savings Plan.
In industry -- led by Lynn A. Townsend, President of
the Chrysler Corporation and Chairman of the U. S. Industrial
Payroll Savings Committee -- new payroll sign-ups are 56
percent higher for the first five months of this year.
In Government -- reflecting the great impetus provided
by President Johnson and Postmaster General Lawrence F.
O'Brien, Chairman of the Interdepartmental Payroll Savings
Committee -- there have been 400,000 new savers signed up
during the current campaign. And 50,000 Government employees
have increased the payroll deductions that they are
channelling into Savings Bonds.
Today, there are an estimated $750 million worth of
bonds outstanding in the hands of Virginians who are
realizing an estimated annual income of $25 million in
interest on these bonds. And all of these totals should
be surpassed in this 25th Anniversary year of the Savings
Bonds Program.
And when they are surpassed, it will be due, in large
measure,'to the excellent efforts of such long-time Savings
Bonds supporters as Bill Branscom of the First National
Exchange Bank of Roanoke; Jim Rawls of the State Planters
Bank of Richmond; George Gosey of the Fidelity National

- 14 Bank of Lynchburg; Wirt Shapard of the Bank of Halifax,
American Bankers Association Virginia Chairman for
Savings Bonds; and others of our good Virginia friends.
As you know, Bill and Jim and George are spearheading
the Urban Center Campaigns in their respective communities.
It is a simple but salient fact that banking and
bankers service the Savings Bond Program. Bankers provide
much of the essential volunteer leadership upon which
the program so largely depends. Sixty percent of the state
and county chairmen for Savings Bonds come from the field
of banking.
And banks help advertise and publicize Savings Bonds.
Last year, approximately 25 million letters were mailed
by banks to their customers urging them to buy Savings
Bonds. If present indications hold true, that figure
should rise to better than 30 million letters this year.
So, it is indeed appropriate that I now present this
citation to Sutton Flythe, President of the First National
Bank of Martinsville and the distinguished head of your
state association, for the patriotic support rendered by
the bankers of Virginia to the Savings Bonds Program.

000

TREASURY DEPARTMENT

June 16, 1966
FOR RELEASE A.M. NEWSPAPERS
FRIDAY, JUNE 17, 1966
TREASURY BLOCKS FUNDS TO VIET CONG
The Treasury Department today announced that it has blocked
$1,500 in the accounts of the Czech Obchodni Bank of Prague for
transmitting two contributions from the U. S. to a Viet Cong
organization.
The purpose of the blocking is to deprive the Viet Cong
of the foreign exchange benefit of the contribution.
The action followed discovery by the Treasury that an
organization known as the Medical Aid Committee of Berkeley,
California, sent two contributions totaling $1,500 to the
so-called Liberation Red Cross of the Viet Cong via the Czech
bank. Appropriate action is also being taken with respect to
the American Bank involved in the transaction.
Foreign Assets Control Regulations prohibit unlicensed
remittances to the Viet Cong and related organizations.
Under the Foreign Assets Control Regulations, American
banks, business firms, and individuals are required to
exercise care to avoid engaging in unlicensed remittances
and other financial and commercial transactions with North
Vietnam and the Viet Congo

000

F-520

TREASURY DEPARTMENT

June 17, 1966

FOR IMMEDIATE REIEASE
ANTlOOMPING PROCEEDING ON
ICE SKATE BIADES

On March 22, 1966, the Commissioner of Customs received infor-

mation in proper form pursuant to the provisions of section 14.6(b)
of the Customs Regulations indicating a possibility that ice skate
blades imported from Japan are being, or likely to be, sold at less
than fair value within the meaning of the Antidumping Act, 1921, as
amended.
In order to establish the validity of the information, the Bu-

reau of Customs is instituting an inquiry pursuant to the provisions
of section l4.6(d)(1)(ii), (2), and (3) of the CUstoms Regulations.
The information was submitted by Arco Skates, 'rye-Dee Corporation, Marathon, New York.
An "Antidumping Proceeding Notice" to this effect is being published in the Federal Register pursuant to section 14.6(d)(1)(i) of
the Customs Regulations.
Imports of the involved merchandise received during 1965 were
valued at approx1mate~ $108,000.

TREASURY DEPARTMENT
(

OR RELEASE 6:30 P.M.,
onday, June 20, 1966.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING

The Treasury Department announced that the tenders for two series o~ Treasury
Uls, one series to be an additional issue of the bills dated March 24, 1966, and
1e other series to be dated June 23, 1966, which were otfered on June 15, 1966,

,re opened at the Federal Reserve Banks today. 'lenders were invited tor $1,300,000,000,
~thereabouts, of 91-day bills and for $1,000,000,000, or thereabouts, of 182-day
.lls. The details of the two series are 8.8 tollows:
.NGE OF ACCEPTED

MPETITIVE BIDS:

Treasury bills
maturing Seetember 221 1966
9l-~

Ipprox. EqUiv.
High

Low

Average

WExcepting

Price
98.880
98.865
98.870

.l.nnual Rate

4.431%
4.490%

4.470%

••

·•
••
•

182-da¥ Treasury bills
maturin& December 221 1966
Ipprox. EqUiv •
Price
Annual Rate
97.688 !I
4.573%
97.675
4.599%
97.679
4.591%.1/

one tender ot $3,400,000
of the amount o£ 91-day bills bid for at the low price was accepted
69% of the amount of 182-ds¥ bills bid tor at the low price was accepted

tAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

iatrict
oston
ew York
hiladelphia

level and
lehmond
ilanta

de ago
i.

Louis

.nneapo1is
nsas City

11as
n

Francisco
TOTALS

: A~lied For
AcceEted
AeE1ied For
$
$
$
7,674,000
15,475,000
25,965,000
•
1,290,357,000
902,169,000
1,551,069,000
19,883,000
19,450,000
31,450,000
72,139,000
30,262,000
30,843,000
5,488,000
12,695,000
12,695,000
39,536,000
31,329,000
40,027,000
301,679,000
135,448,000
259,288,000
29,171,000
37,026,000
45,198,000
:
13,834,000
23,368,000
23,968,00

Full text of Press Releases of the United States Department of the Treasury : Volume 154

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