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LIBRARY
RnnM 50~O
JUN 1 6 1972
TREASURY DEPARTMENT
Department of the
TREASURY
TElEPHONE W04-2041
iHINGTON. D.C. 20220
FOR Ilvn·mDIATE RELEl\SE
November 2, 1970
HEMOR;\NDUI1 TO THE PRESS:
The attached
regard~_ng
the Treasury I s note
auction announced last Friday was sent today
by the Federal Reserve Banks to their member
bnnks.
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BIDDING AND OTHER PROCEDURES FOR TREASURY'S NOTE AUCTION
The Treasury today said that bidding and other procedures in the Treasury's
new $2 billion cash financing vlill very closely fol_loH the standard procedures
used in regular Treasury bill auctions.
The nel'1 securities, which will carry a 6-3/4 percent coupon and have an
lS-month maturity, vlill be issued on November 16, 1970, and mature on .May 15,
1972.
Subscription forms will be available in the usual way through Federal Re serve
Banks and Branches. They will also be available at the Office of the T:-ceasurer of
the United States, Washington, D. C. 20220. Some banks may wish to use the
services of correspondents.
Books vTill close at 1: 30 p. ill., EST on Thursday ~ November 5, 1970, and tendel's
received after that time will not be accepted.
In the case of competitive bids, prices must be c::xpr<~ssed on the bidding form
on the basis of 100 and two decimals, e. g., 100.25. The 6-3/4 percent coupon on
this issue is somevlhat higher than market yields prevailing 1'01' is sues Hith cumparable maturities already in the market. 1'0 avoid tax problems uhich would result
from discounts lower than 99.76 percent of par, in no event -will the TreasuY'y
accept bids beloH that price.
Bidders for smaller amounts (i.e., up to $200,000) I'Tilling to accept the
average of prices bid in the auction can do so by apPTopY'jately indicating in the
space IH'ovided on the tender form that theiT tenders are noncompeti-c j_ye. 'l'h es e
noncompetitive tender s will be awarded in full at th e averccge of the ac cept ed
competitive bids.
No deposits will be required with tenders from commercial banks for their
own 8.CCOunt or from certain other classes of subscriber s . Others, including
individuals, must make a 5 percent deposit with thei r bid.
Qualified deposi tories will be allowed to pay 50 IJercent of th e subscriIjtioTl
price by crediting Treasury tax and loan accounts.
Complete details with regard to the offering HilI be found in th e officj_::ll
offering circu;Lar.
Department of the
TREASURY)
IINGTON. D.C. 20220
TELEPHONE W04-2041
~OR
IMMEDIATE RELEASE
November 2, 1970
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, b~' this public notice, invites tenders
:or two series of Treasury bills to the aggregate amount of
?3,200,000,000, or thereabouts, for cash and in exchange for Treasury
)ills maturing November 12, 1970, in the amount of $3,102,280,000,
:is follows:
9l-day bills (to maturity date) to be issued November 12, 1970,
In the amount of $1,800,000,000,
or thereabouts, representing an
~dditional amount of bills dated
August 13, 1970,
and to mature
~ebruary 11, 1971,
originally issued in
the amount of $1,302,530,000, the additional and original bills to be
Ereelv interchangeable.
182- day bills, for $1,400,000,000, or thereabouts, to be dated
~ovember 12, 1970,
and to mature May 13, 1971,
(Cl'Sl!' No. 912793 KH8).
T}w hills of both series will be issued on a discount basis under
:ompt..'titive and noncompetive bidding as hereinafter provided, and at
naturitv their face amount will be payable without interest. They will
)e issu~d in hearer form only, and in denominations of $10,000,
?l'),(JO(), S50,000, $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, November 9, 1970.
Tenders will not be received
3t the Treasury Department, Washington. Each tender must be for a
ninimum of $10,000. Tenders over $10,000 must be in multiples of
$5,000. 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
nade 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
- 2 submit tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are accompanied
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announcement
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reiect 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 November 12, 1970,
in cash or other immediately available funds or in a like face amount of
Treasury bills maturing November 12, 1970.
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.
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 considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price paid
for the 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.
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
Department 01 the TREASURY
HINGTON, D.C. 20220
TElEPHONE W04-2041
FOR RELEASE AT NOON
THURSDAY, NOVEMBER 5, 1970
REMARKS BY HENRY C. WALLICH
SEYMOUR H. KNOX PROFESSOR OF ECONOMICS, YALE UNIVERSITY
AND
SENIOR CONSULTANT TO SECRETARY OF THE TREASURY
DAVID M. KENNEDY
BEFORE
THE LUNCHEON MEETING OF THE
NATIONAL INVESTOR RELATIONS INSTITUTE CONFERENCE
SHOaEHAM HOTEL, WASHINGTON, D.C.
THURSDAY, NOVEMBER 5, 1970
THE ECONOMIC CLIMATE AND THE INDIVIDUAL INVESTOR
It is a pleasure to address this meeting of the National
Investor Relations Institute on the topic of "the economic
climate." Having failed to convey to your Program Chairman
a title for my talk reasonably descriptive of what I am going
to say, I hasten to remedy this. Of the meteorological climate
on the eastern seaboard, it has well been said that if you do
not like it, just wait a while. The kind of climate that deserves
this remark naturally leads sufferers to conclude that the best
climate is in bed. But the economic climate in our free enterprise economy, upon closer inspection, will turn out neither as
unstable nor as unventuresome as these analogies suggest.
I would like to address myself to a variety of conditions
under which the individual investor, and particularly the small
investor, must operate today. There is, first of all, the
economic climate created by a moderate drop in corporate profits,
by an unusually high level of interest rates, and by the appearance, on the horizon, of a tremendous demand for capital. A
second aspect of the contemporary climate is reflected in the
transition through which the securities industry is passing.
K-517
-2Third, the investment climate is undergoing changes with
respect to the costs of investing, which ~re going up for
the individual stockholder. Finally, there is the debate
over the social responsibilities of business which is beginning to influence today's investment climate. These are the
topics to which I would like to address myself.
The Economic Scene
In the recent economic slowdown, the stock market has
reversed a relationship that seemed well established in the
post-war years. In the past, whenever there was a drop in
corporate profits, the stock market has tended to register or
even predict it with a drop of its own, but of lesser magnitude. In 1969-70, however, the stock market took its most
severe spill since the war in the face of the smallest of all
extended drops in corporate profits during that period. To
paraphrase a familiar remark, one might say that in 1969-70,
when the economy caught a chill, the stock market caught
pneumonia.
Like everybody talking about the stock market, I find it
easier to explain what happened than to predict what will
happen hereafter. It is easy to explain, for instance, that
the market took an extra severe drop because interest rates
advanced to unprecedented levels, since the stock market of
course has to compete with the bond market. With somewhat
more sophistication, one may point out that a market dominated
by growth thinking is especially vulnerable to a rise in interest
rates. The reason is that, since rewards to economic growth lie
in the more distant future, they are more severely discounted
when interest rates rise than are rewards in the near future.
These interpretations of what has gone by may be of some
help in assessing the outlook from the investor's point of
view. We are experiencing high interest rates partly owing
to inflation, partly thanks to a firm monetary policy, and
partly owing to a strong demand for capital that seems to lie
ahead. Inflation, I hope and believe, will be defeated.
Monetary policy, while unlikely to become as easy as it was
in some periods of the past, could then perhaps be more forthcoming. But I see nothing that would change the outlook for a
-3-
strong demand for capital. This is a good outlook, because it
underwrites the continued prosperity and growth of our economy.
To that extent, it is favorable to the outlook as it affects
the investor. But insofar as it implies a level of interest
rates high in relation to historic experience, as well as a
heavy load of new stock issues, prospective strong demand for
capital would tend to act as a brake on the upward movement of
the stock market.
You are all familiar with other factors that may influence
the outlook for corporate profits. One of them is the prospect
for a moderate pace of expansion, rather than a sharp snap
back. The rate of growth of GNP has been an important factor
affecting corporate profits, because rapid growth permits a
'spreading of overhead and in other ways aids productivity. We
can look forward to substantial productivity gains, because
businessmen have made efforts to that end, and because productivity gains in 1969 were almost nonexistent. Nevertheless,
they may not be as large as they would be in a rapid expansion,
and this is likely to affect corporate profits. Furthermore,
cost pressures from high wage increases and high interest costs,
and the unforeseeable burden of protecting the environment,
may impose a drag on profits.
On the other hand, you will note that while corporate
profits today are approximately at the level of 1966, in pretax terms, GNP has risen by about 23 percent over the level
of that year. To reestablish the admittedly very favorable
profits/GNP ratio prevailing in 1966, profits would have to
rise by about $20 billion. Or, if we take 10 percent as a
ratio of profits to GNP that has frequently prevailed at past
times of high activity, profits today are some $15 billion
below their "full employment" level. Before they recover to
that level, GNP itself will have moved another good distance.
There is headroom in this economy, therefore, for corporate
profits.
Investor Protection
Another part of the climate in which the individual investor
has been operating is the unaccustomed appearance of financial
weakness in the securities industry. The banking industry has
known problems of this kind for over 150 years. Much thought
-4-
and experimentation went into techniques for making the
banking system safe. I believe one can say with confidence
that that objective was achieved, thanks to the combined
application of the principles of a lender of last resort,
bank supervision, and deposit insurance.
In the securities industry, the measures that had been
taken, in part relying on self-policing, in part on government supervision, have been less fully successful than one
might have thought only a few years ago. No doubt there is a
need here for some fundamental thinking. Fortunately, the
experience of the deposit institutions has given us a clue as
to one important direction in which we should move -- toward
investor insurance. Enactment of the pending Bill for the
establishment of a Security Investor Protection Corporation
will be a major step forward. The institution, if it comes
into being, will insure investors up to $50,000. This protection will relieve many investors of their concern for the
safety of their assets. In doing so, it will also encourage
these investors to leave their securities in a form that
makes them readily negotiable and enhances the efficiency of
security transfers. More accurately, it will help to restrain
what seems to be a trend among investors to protect themselves
by making their securities less readily negotiable, which
threatens to undermine such improvements in efficiency as the
securities industry has made.
The history of the Federal Deposit Insurance Corporation
shows that initial action to establish an insurance corporation
may well be only a first step. In the case of the FDIC, further evolution has been toward increases in the amounts insured
closer supervision of the insured banks, and action on the part
of the insurer to head off possible trouble by timely merger
I would hope that the SIPC, once in operation, would also under
go a process of evolution.
The Cost of Being a Stockholder
The investment environment recently has been less than
hospitable to the small investor as regards the welcome extende
to him as a customer. Time was when small accounts were sought
after in brokerage offices. The New York Stock Exchange conducted a program to acclimate small investors to the habits of
-5systematic saving and investment. But while the Stock Exchange
still points with pride to more than 30 million stockholders,
many brockerage firms have begun to view them with alarm.
Hence the effort to raise commissions, and hence the temporary
surcharge placed on small and moderate size transactions.
Prior to the recent announcement by the SEC concerning the
NYSE's proposed new commission schedule, the surcharge had been
giving alarming signals that it might be about to demonstrate
the durability said to be characteristic of temporary arrangements. A Wall Street friend of mine was in the habit of
defining as an optimist a man who believed the charge would
remain, as a pessimist one who believed it would be raised.
But even the schedule now suggested by the SEC does not make
investing cheap. For 100 share lots in low priced stocks,
the commission can easily amount to as much as one-third of the
cost, for a round-trip of sale and purchase, of the sales
charge of a mutual fund. The investor, in other words, may
lose close to a year's dividend if he sells one stock and buys
another. This makes it onerous for the small investor to buy
and sell stock.
To be sure, if the small investor has bought his stock
some time ago and resolutely has resisted making any changes,
he gets an extraordinarily good bargain from his broker. He
gets custody of his stock, collection of his dividends, monthly
statements, mailings of all communications from the company,
everything absolutely free. The trouble is that this bargain
is too good. A broker cannot afford to render such service
unless the stockholder has some activity. If he does not
switch from time to time, the customer becomes a loss account
to the broker.
This is a very undesirable arrangement. The customer
who does not trade -- basically the customer who for some
reason is loyal to his company -- is carried at the expense
of the customer who does. Moreover, if we regard the occasional
trading of the inactive customer as simply a means of paying
for the custodial services he receives, we note immediately some
unnecessary expenses created in the process that reduce the
amount available for covering the costs of that service, such
as the salesman's commission. There would be more fairness
and efficiency, and less unnecessary activity, if the inactive
-6-
account were charged for the cost of the custodial activities,
and if the commissions charged for trading reflected only the
costs of the trades and not those of giving a free ride to
the custodial services.
Against the proposal for a service charge on an inactive
account it is argued that such a charge will induce customers
~o withdraw their securities.
This increases the paper work,
and the risk of "fails," when the customer wants to sell some
day. Moreover, he then might decide to take his securities to
another broker. Hence the opposition to a service charge. But
I understand that some firms make them now. Moreover, it should
be possible so to gear the charges that the customer will find
it more profitable, as a rule, to leave his stock with the brokel
rather than to take delivery and return the stock when he wants
to sell, except where the customer really expects to hold and
forget.
Holding in a safe deposit box and forgetting, moreover,
is not a good practice. I say this not because I believe that
it prevents the stockholder from protecting himself against
adverse developments. In fact, I strongly suspect that investors
who think that they can sell before bad news gets about deceive
themselves. I have enough faith in the market to believe that
any news that the investor or his investment advisor might
receive will also be available to the rest of the market and
will usually have been discounted before the investor can take
action. But holding stock in a safe deposit box and forgetting
it is bad for other reasons, for instance if the investor
travels, or changes his address repeatedly. Rights may expire
before he .receives them, dividend checks may go astray, bonds
may be called without his observing it.
The investor who does not want to leave his stock with
the broker, because of service charges or for other reasons,
might put it in a custody account with a bank. From what I
have been able to observe, however, the standard charges of
banks for this activity are quite substantial in relation to
the dividend income from a moderate size account. If brokers
were to levy service charges, it would seem not at all unlikely
that they could cover the costs of inactive accounts plus a
reasonable profit without approximating the charges that banks
apparently have to make for this kind of service.
-7The small investor has still another alternative. He
can buy a mutual fund instead of owning securities outright.
If he does so, he will cease to be a person of Lmmediate
interest to stockholder relations executives, since he no
longer owns corporate stock directly. About this I shall
have something to say subsequently. At this point, I am
concerned with the comparative costs of owning stock outright and owning it through a mutual fund. As far as these
costs are concerned, the mutual fund~ sales charge of 9.3 percent (or sales load of 8.S percent) is high even compared to
today's commissions on round lots. The stockholder can avoid
it, of course, by purchasing a no-load fund. But in either
case the stockholder has to pay the advisory fee of usually
O.S percent, plus possibly other charges made for the administration of the fund. A charge of O.S percent amounts to something
like 10-lS per~ent of dividend income at today's yields.
Finally, the stockholder has to pay the commissions occasioned
by the fund's trading.
I am aware that the superior investment judgment of the
fund, of its advisors, and of their advisors, may justify
these trading costs sufficiently to make them a negligible
element in the fund's performance. Nothing I am saying should
be construed as questioning the acumen and diligence of professional investors. But I am also aware that in a market which
has become so highly institutionalized as ours, professionals a
good part of the time are trading against professionals. I
doubt that institutions buying and selling stock from and to
each other all are likely to improve their position. In the
absence of statistical evidence that professionally managed
portfolios. do systematically better than randomly selected
portfolios of similar risk exposure, I think one must consider
commissions created by the fund's trading mainly as an
additional cost of stock ownership to the mutual fund owner.
This can raise the cost of stock ownership through a mutual
fund quite substantially.
A mutual fund does provide diversification. For a very
small investor, the cost of an adequately diversified stock
list -- even though one much shorter than that of a typical
fund -- may be prohibitive. The mutual fund, moreover,
through its selling activity, stimulates the customer to
invest and possibly to save more in order to invest more.
-8-
In these respects, mutual funds perform an extremely valuable
service. My purpose simply is to point out that the costs
are not insubstantial. They are almost certainly higher than
the costs that a stockholder should expect to incur if there
were available to him a moderate schedule of commissions for
purchase and sale, such as has existed in the past, plus a
moderate schedule of service charges while he keeps his
securities inactively at his broker's.
Intermediation in the Securities Markets
If inexpensive trading and safekeeping facilities cannot
be provided for the small investor, the wave of the future will
probably carry him into mutual fund investment. This will be
particularly the case if mutual funds are made cheaper by
offering no-load options, and by holding down the advisory
fee. One way of accomplishing that objective which is already
being tried is to credit brokerage commissions earned by the
broker to the fee the same broker charges in his role as
advisor. A movement of this kind on a large scale would mean
that intermediation had finally taken over in the stock market,
as long before it seemed to have taken over in the bond market.
Some years ago) in examining this trend toward intermediation through mutual funds, one rnigh~ have concluded that by
and large it had more advantages than disadvantages. Following
the evolution, until then, of the bond market, which had become
wholly institutionalized, it seemed to be in line with basic
financial trends toward intermediation. While holding common
stocks through a fund then as now was not cheap, there seemed
to be ways of making it reasonably cheap. It provided a high
degree of diversification. Few people as yet were talking of
"performance." The principal problem that institutionalization
of the stock market seemed to create was an array of questions
surrounding stockholder voting rights with regard to the stock
held by intermediaries.
Today, the scene has changed. Bond ownership by individual
investors has come back, for the time being at least. Many of
the funds, instead of becoming stable accumulators of
the Nation's financial assets, have gone in for high turnover.
-9-
Meanwhile the issue of the social responsibility of corporations has been raised. Some stockholders are trying to bring
it to a head by using their voting rights. Other stockholders
may want to defend their interests by taking a stand. At the
same time, the costs of owning securities through mutual funds
have not on the whole been greatly reduced. All this suggests
that the case for the small individual stockholder has become
stronger in the last few years. He may at present be on the
list of species whose existence is threatened. But a strong
case, economic, social, and political, can be made for not
allowing him to become extinct.
Stockholder Loyalty and Investment Principles
Some 40 years ago, Berle and Means created a stir with a
book claiming an important change in American capitalism:
They argued that, in many of the largest corporations, ownership had become separated from control. During the 1960's,
another and no less troublesome change seemed to be under way:
Fashionable investment policy seemed to divorce stock market
operations from ownership in any meaningful sense of the word.
The philosophy of short-swing trading and rapid turnover
threatened to destroy any identification that might exist
between the stockholder and the company. Stocks seemed in
danger of becoming mere betting vehicles. This condition
presented a caricature of capitalism and would make constructive relations between stockholder and company impossible.
One of the few advantages of recent market "performance"
may be to have discouraged this attitude toward stock ownership. Perhaps it has taught the average investor that he cannot expect to beat the averages. Hope springs eternal, to be
sure, and so long as some people publicize success in the
market that may be entirely attributable to luck, there will
be others who believe that they can accomplish the same
through skill. There is important work to be done in informing
the small investor about the true chances of spectacular investment success. Obviously, most of what he sees and hears will
not perform that function. The information system is heavily
biased toward unrealistic expectations. But false expectations
-10-
leading to bad investment policy not only hurt the small
investor, they also diminish the chances of establishing an
effective dialogue between him and the companies in which he
owns stock.
The Social Responsibilities of Business
Recently, the view has come forward with increasing vigm
that business must meet its social responsibilities, to the
poor, to the handicapped, to the environment. On the other
side it continues to be argued that if business engages in
activities that are not profit oriented, directly or indirect]
business is in fact imposing a tax upon stockholders, or consumers, or workers and is allocating the proceeds without bene·
fit of the political process that has been established to le~
taxes and determine public expenditures. The thrust of those
who believe in the social responsibility of corporations has
produced some dramatic encounters at stockholders' meetings.
It has apparently not been recognized, however, that
today's habits of diversified stock ownership substantially
change the issue as between those who do and those who do not
want to recognize social responsibilities, as well as between
advocates of conflicting social responsibilities. There are
many cases in which a socially oriented business action benefit!
business generally without being particularly rewarding for a
single firm. Take the case of manpower training. A single
firm investing money in a worker who then goes somewhere else
will not find the investment worthwhile. To the business
community as a whole, the higher productivity of the worker,
wherever he goes, may well justify the training costs. Econo~
say in such cases that the firm investing in manpower training
has created an externality which it is unable to recapture. Fn
a profit standpoint, therefore, a single firm will not invest i!
this training project.
If the stock of this firm, however, is held in diversified
portfolios, the interests of the stockholders are not identical
with those of the firm. They are more nearly identical with
those of the entire business sector, which would benefit from
the training. For the diversified investor, therefore, the
-11-
expenditure on manpower training may be worthwhile. What he
loses in profits of one firm, he more than makes up in those
of the rest.
One could extend this principle to the interests of the
stockholder, not just as a beneficiary of the profits of the
business sector, but as a member of the community. The stockholder benefits from improvements in the environment. If he
were the stockholder of a single firm, the benefits to him of
these improvements would be light and the cost high. But if
he is a diversified stockholder, a moderate outlay by all his
corporations would yield a substantial improvement in the
environment which may compensate him for the cost.
Diversified stock ownership, in other words, fundamentally
changes the c~se for profit maximization. It creates a basis
in enlightened self-interest for socially oriented expenditures.
It provides a rationale to management wanting to accept social
responsibilities but wondering how to justify this to stockholders. As far as this rationale reaches, there is no need
to argue for or against acceptance of social responsibilities:
Acceptance is directly in the stockholder's interest.
In conclusion, I would like to say something about the
effort to establish closer relations between corporations and
their stockholders. This is the effort in which you are engaged.
I believe it is an important one. Our private enterprise system
will be stronger if stockholders in some measure identify with
their companies, if they do not regard their stocks as simply a
betting vehicle or a mechanical source of dividends. Stockholders will benefit financially from establishing more permanent relations with their companies at least to the extent
of saving commissions and taxes. Investors will live more
happily with their investments if they regard themselves as
.partners, and if they do not look at their stocks with the
agonized hope of a quick gain and quick sale. In a world in
whi~h investment success is uncertain, a proper attitude toward
his stocks can at least give the stockholder peace of mind.
000
Deportment of the fREASU RY
KtIIlGI. D.t. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
November 2, 1970
MEMORANDUM TO THE PRESS:
The attached regarding the Treasury's note
auction announced last Friday was sent today
by the Federal Reserve Banks to their member
banks.
Attachment
Department of therREASURY
NSTON. D.C. 20220
TELEPHONE W04·2041
BIDDING AND OTHER PROCEDURES FOR TREASURY'S NOTE AUCTION
The Treasury tod~ said that bidding and other procedures in the Treasury's
lew $2 billion cash financing will very closely follow the standard procedures
Ised in regular Treasury bill auctions.
The new securities, which will carry a 6-3/4 percent coupon and have an
.S-month maturity, will be issued on November 16, 1970, and mature on May 15,
.972.
Subscription forms will be available in the usual way through Federal Reserve
and Branches. They will also be available at the Office of the Treasurer of
;he United States, Washington, D. C. 20220. Some banks may wish to use the
;ervices of correspondents.
~anks
Books will close at 1:30 p.m., EST on Thursday, November 5, 1970, and tenders
'eceived after that time will not be accepted.
In the case of competitive bids, prices must be expressed on the bidding form
the basis of 100 and two decimals, e. g., 100.25. The 6-3/4 percent coupon on
,his issue is somewhat higher than market yields prevailing for issues with com,arable maturities already in the market. To avoid tax problems which would result
Tom discounts lower than 99.76 percent of par, in no event will the Treasury
.ccept bids below that price.
III
Bidders for smaller amounts (i.e., up to $200,000) willing to accept the
Nerage of prices bid in the auction can do so by appropriately indicating in the
pace provided on the tender form that their tenders are noncompetitive. These
.oncompetitive tenders will be awarded in full at the average of the accepted
ompetitive bids.
No deposits will be required with tenders from commercial banks for their
Others, including
ndividuals, must make a 5 percent deposit with their bid.
'wn account or from certain other classes of subscribers.
Qualified depositories will be allowed to pay 50 percent of the subscription
rice by crediting Treasury tax and loan accounts.
Complete details with regard to the offering will be found in the official
ffering circular.
Deportment 01 the
TREASURY
TELEPHONE W04-2041
HINGTON, D.C. 20220
NTION:
FINANCIAL EDITOR
RELEASE 6:30 P.M.,
.ay, November 2, 1970
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department armounced that the tenders for two series of Treasury
s, one series to be an additional iS3ue of the bills dated
August 6, 1970
,and
other series to be dated
November 5, 1970 , which were offered on October 27, 1970,
opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
hereabouts, of 91-day bil13 and for $1,400,000,000, or thereabouts, of 182-day
s. The details of the two series are as follows:
E OF ACCEPTED
ETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturins; February 42 1971
Approx. Equiv.
Annual Rate
Price
182-d~
98.577
98.568
98.571
97.114
97.078
97.082
5.629%
5.665%
5.653%
maturin~
Price
Y
Treasury bills
May 6, 1971
Approx. Equiv.
Annual Rate
5.709%
5.780%
5.772%
Y
88% of the amount of 91-day bills bid for at the low price was accepted
89% of the amount of 182-day bills bid for at the low price was accepted
~
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
3trict
ston
II York
iladelphia
~veland
chmond
lanta
iC8{;o
. Louis
nneapolis
nsas City
llas
n Francisco
TOTALS
AI2I21ied For
AcceJ2ted
:5 39,465,000 $ 21,140,000
2,475,030,000
1,436,905,000
22,925,000
40,220,000
46,835,000
30,345,000
15,370,000
15,370,000
40,705,000
16,940,000
197,415,000
118,090,000
47,505,000
28,305,000
38,140,000
8,590,000
32,110,000
24,660,000
29,240,000
15,740,000
61 z930 z000
199 2245 2°°0
$3,201,280,000
$1,800,940,000
~
AJ2I21ied For
$ 19,765,000
1,869,775,000
10,605,000
48,920,000
22,410,000
34,875,000
194,320,000
31,410,000 .
30,810,000
21,635,000
28,760,000
132 257°2°° 0
AcceEted
$
7,955,000
1,067,340,000
8,525,000
39,320,000
16,190,000
16,675,000
131,405,000
18,310,000
1l,810,000
17,410,000
15,260,000
5°2 105 2°°0
$2,445,855,000
$1,400,305,000
£I
ncludes $310,955,000 noncompetitive tenders a~cepted at the average price of 98.571
ncludes $199,245,000 noncompetitive tenders accepted at the average price of 97.082
hese rates are on a bank discount basis. 1he equivalent coupon issue yields are
.81% for the 91-day bills, and 6.03% for the 182-day bills.
!" ,
Deportment 01 theTREASURY
INGTON, O.C. 20220
TElEPHONE W04-2041
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE TAX INSTITUTE OF AMERICA SYMPOSIUM
CHICAGO, ILLINOIS
NOVEMBER 6, 1970, 12:00 NOON, CST
DECENTRALIZING THE PUBLIC SECTOR:
IMPLICATIONS FOR THE BUSINESS FIRM
In order to gain some insight into the changing
relationships between business and government, I find it
useful to begin with a view out over the horizon, to the
middle of the decade of the 1970's, when we can get a better
picture of what the post-Vietnam economic environment will
look like.
One basic aspect seems rather assured. The United
States will be bigger, much bigger, almost any way that we
measure it. The population of the United States will continue to grow, from 205 million at the present time to about
220 million in 1976. And we will be producing more. The
gross national product will be growing faster than the
population. It almost sounds like an exercise in astronomy.
The GNP in 1976 is likely to be about 1-1/2 trillion dollars.
By way of perspective, we should reach the one trillion
dollar rate early in 1971.
But, will we, as a people, be any better off than
we are now? Frankly, this is not a case where bigger necessarily means better.
It is conceivable that we could find
ourselves devoting a great part of that extra one-half trillion
dollars to cleaning up a rising amount of pollution, to con~rolling ever-growing problems of crime, or to an escalating
arms race.
Sometimes we forget what the statistics are all about.
We are not assembled in a great national effort to maximize
the GNP. GNP and similar statistics are all attempts to
K-S20
_
7
_
symbolize or serve as a proxy for something more vital -the improved welfare of the American people.
In general,
it has been true in the past that the more we produced, the
more resources ~ere'available to deal with the problems
facing our society. But we recently have come to realiz~
that the very ways in which we produce and consume can, In
themselves, ~ive rise to some of these basic problems.
Therefore, although we cannot with great confidence
state that the American economy of 1976 will be a better
place than it is today, we can come up with two quite important conclusions: (1) it could be a better place because
we will have more resources available to do the things we
wish to do, and (2) it certainly will be a different place.
I would like to dwell on those differences for a bit.
The first of these differences may well be the shift of
emphasis to the private sector, and particularly to the
consumer.
We as a Nation are taking important actions which
will tend to expand the consumer segment of the American
economy in the long run. This is part and parcel of the
shift that the Nixon Administration is trying to accomplish
to a less governmental and to a more private sector orientation in our economy.
I would like to offer just a few numbers for purposes
of illustration. Last year consumer spending accounted for
62 percent of the gross national product. This year it may
rise to 63 percent.
By 1976, perhaps 64 percent of the GNP
will be devoted to personal consumption expenditures.
One percent may not sound like much. However, in
a trillion dollar economy, it means about $10 billion more
sales to consumers in a twelve-month period.
In absolute
terms, the magnitudes are quite striking -- personal consumption expenditures may rise from $576 billion in 1969
to about $1 trillion in 1976.
In part, of course, this shift in favor of the
consumer is coming about as a result of the substantial
cutbacks in Federal Government purchases, particularly for
military and space programs. More fundamentally, however,
consumer purchasing power is being holstered through tax
- 3 -
relief and reform, as well as by economic growth. The
comprehensive tax bill enacted by the Congress late in
1969 contained many important changes in specific tax
provisions, ranging from less generous oil depletion allowances to tightening the treatment of capital gains. On
balance, however, the Act provided for a schedule of substantial tax reductions for individuals. In contrast, the
overall tax requirements of corporations were increased.
In the fiscal year 1971, individuals will be paying
about $2 billion less Federal income tax than they would
have if the law had not been passed. With a reasonable
pattern of economic growth, the tax savings for individuals
will rise to $6 billion in fiscal 1972 and to well over
$12 billion in the fiscal year 1976.
These substantial tax reductions will show up in greater consumer purchasing power and in expanding consumer spending,
a growth which is likely to be considerably more rapid than
for the economy as a whole.
The Public Sector 1/
With this background, I would now like to turn to
the future role of the public sector in the American economy.
Important changes are likely in the public economy. I anticipate several dominant trends in the public sector of the United
States during the coming decade.
In view of the continuing
social tensions, the emphasis on urban problems will probably
increase and outlays for people-oriented programs (so-called
investments in human capital) will grow. Wider uses will be
found for the results of science and new technology in domestic programs. Virtual stability in Federal civilian employment
will continue, with the continued rises taking place in the
work forces of state and local governments, government-oriented
corporations, and private nonprofit institutions.
The prospect is for a mixed economy in the United States,
but a far more intricate mixture than has been experienced
thus far.
In the past, most discussions of the role of government have simplistically assumed a clean dividing line
behJeen public and private.
The very phrase "mixed economy"
has mainly indicated that the line was not being drawn at
either extreme, that both public and private production occurred in a given industry. For example, the Tennessee Valley
1/ This material is drawn from my recent book, The Modern
Public Sector, New York, Basic Books, Inc., 1969.
- 4 -
Authoritv and the Pacific Gas and Electric Company both
produce and distribute power, the former being a governmen~
agency and the latter a private corporation. The ~ost OffIce
Department and the Railway Express Agency both delIver
parcels; again, one is public and the other private.
The mixed economy that is now developing is different.
It is characterized by mixed organizations, each of which
possesse3 characteristics of both public institutions and
private organizations. The most obvious examples arc the
large defense contractors and the not-for-profit research
lanoratorics that do most of their business with the Federal
GO\' e rnmen t .
It appears likely that in comIng years increasing proportions of Federal funds will he disbursed via mechanisms
external to the Federal establishment itself -- such as state
and local governments, intergovernmental agencies, governmentoriented corporations, quasi-private institutions, and perhaps
even newer organizations possessing both public and private
characteristics. The typical Federal agency indeed prohahly
will he a policy formulator and overseer of programs dealing
with operations which have been decentralized in a variety
of ways and over a wide span of the American economy.
Decentralization of Public Sector Programs
Th~re are basic reasons for predicting the greater decentralization of the American public sector. When President
~ixon first outlined the principlei of his domestic program
last year, he described one of this country's more pressing
needs as follows:
"If there is one thing we know it
is that the Federal Government cann~t
solve all the Nation's problems by itself;
y~t,.there has been an over-shift of jurisdIctIon and responsibility to the Federal
Government. We must kindle a new partnership between government and people, and
among the various levels of government."
The evidence of "over-shift" is readily apparent. Just to
catalog the current domestic programs of the Federal Government now requires a book of morc than 600 pages.
In retrospect, it is quite clear that this large flow
of power from the private sector and from the cities and
states to Washington did not just happen of its own accord.
- 5 -
It was induced initially by economic crises.
It
stimulated by mobilization for major war and the
major war.
It has been accelerated by a variety
of the Federal Government to cure major dome<;tic
the power of Federal programs and Federal money.
was further
threat of
of efforts
ills through
Yet for all this emphasis on the assumed power 3nd
influence of our national Government, the limits to its effectiveness have become all too apparent. Too often, Federal
funds have been wasted or used inefficiently. Too of~cn,
a bountiful promise has been followed by a lack of performance. Too often, the application of some centrally formulated
regulation has failed to accommodate the diversity of local
situations. The result has been erosion of public cO'lfidence
in the Federal Government's ability to serve as a truly
effective instrument of social progress.
State and local governments are often better able to
deal with these problems. These governments have also experienced rapid growth.
Indeed, since World Kar II, their
expenditures, employment and indebtedness have increased
significantly faster than those of the Federal Government.
Yet the services the public has expected them to provide
education, transportation, health, and many more -- have
often been beyond the capacity of local public resources to
finance and hence to deliver.
The Federal Government has not been obliviolls to the
needs of state and local governments. Federal grants-in-aid
to states and localities will pass the $27 billion mark this
fiscal year, up from $7 billion in 1960. This type of program
or categorical assistance has represented an increasing portion of both the Federal budget and state and local revenues.
But, too often, it has also been accompanied by an ever growing
maze of program restrictions, matching provisions, project
approval requirements, and a host and variety of administrative burdens. The result has been the creation of a complicated
net work of intergovernmental assistance with many inefficiencies.
This Administration intends to correct the inefficiencies
and inflexibilities of the present system while assisting the
states and localities in a more substantial way than in the
past.
- 6 The challenge, then, is to redesign our system of
inTergovernmental assistance to achieve the results we
all desire:
a better allocation of total public
resources,
more responsiveness in public institutions,
more control over local events by local
authorities,
greater program and budget flexibility
for locally-elected officials,
more efficient, less encumbered forms
of Federal assistance.
The Nixon Administration has accepted this challenge.
Last ynar, the President proposed to the Congress fundamental
revIsions in hoth the spirit of our intergovernmental relation~
and in the substance of our intergovernmental assistance systern. As he put it, we are seeking to build a "New Federalism"
with a return to the states, cities, and counties of the
decision-making power rightfully theirs. The "New Federalism"
pmbraccs three major sets of actions:
improving the basic
programs, modernizing management, and decentralizing decisionmaking in the public sector.
Basic reform of Federal programs is being undertaken
in such major functional areas as pollution control, welfare,
unemployment insurance, and mass transit; legislation to
bring about these changes has already made considerable headway in the Congress. A new environmental financing authority
is being developed which is designed to ease the pressures
on state and local bond markets. The Administration has recommended a new long-term program to assist urban transportation,
through grants to communities to modernize and expand mass
transit facilities and services. We have designed the first
fundamental overhaul of the unemployment compensation system
5ince the 1930's. Our family assistance program combines
income maintenance with work and training requirements.
~anagement
processes for Federal aid and other programs
a:c being overhauled. This is an area that has long
been overdue for attention. The regional boundaries of the
major domestic departments of the Federal ~o~ernment are
being modified so that their headquarter CItIes are the same
~150
- 7 -
and the regions which they cover conform. A new Office of
Intergovernmental Relations has been created in the Office
of the Vice President.
In order to foster more rational decision-making on the
whole gamut of domestic programs, President Nixon developed
a far-reaching reorganization plan. The plan establishes
a new Domestic Affairs Council. All of the Cabinet officers
with important responsibilities for domestic programs are
on the Council -- the Secretaries of Health-Education-Welfare,
Transportation, Housing and Urban Development, Agriculture,
Interior, Labor, Commerce, and Treasury, the Attorney General,
and the Postmaster General.
The Domestic Affairs Council provides a forum for considering all of the various Federal activities and functions
that affect the states and their subdivisions.
We are attempting to decentralize the public sector
in several ways -- through revising grant program procedures,
through an overhauled manpower training program, and, most
strikingly, through the innovation of revenue sharing.
In the grant-in-aid area, the Nixon Administration has
recommended legislation that would (1) authorize the President to consolidate closely related programs, (2) fund jointly
in a single package closely related grant programs within the
same Federal agency, and (3) authorize joint funding of
projects across agency lines.
The manpower training changes are basically intended
to encourage the sta~es to take on responsibilities which are
now frequently carried out mainly at the Federal level.
But perhaps the most innovative aspect of the New
Federalism is the proposal for a program of sharing Federal
revenue with state and local governments. It is the revenue
sharing program that President Nixon was describing when he
stated in a message to the Congress:
"Ultimately, it is our hope to use this
mechanism to so strengthen state and local
government that by the end of the coming
decade, the political landscape of America
will be visibly altered, and states and
cities will have a far greater share of
power and responsibilities for solving
their own problems."
8
-
Bas i cal I y, the rev en u e s h a r i n g pro p 0 sal !~ l' l c ";! 1 .: ',' "
the indiviJu:il income tax.
Specific;,llly, a statut:~~r ,,,determined percentage of the personal tax h;i',2 ~; 11 "
",I'
b a c k e a c h y:: c, ;' ~ ~ the s t ~ t (; s, COli n t .1 C 5, <.11~ ~i
will ben 0 Fed era 1 con t r 0 1 s 0 v e r the use 0 t the n1 i) 11 e \
\\' L'
are not only Jecentrali:ing the expenditure or r i ,> :~"'L'r
fun d s, but a1 sot he dec is ion - ma kin g 0 nth e :1 i ~ '- " L' t : . , : " _,
these funds.
Revenue sharing, in contrast to th,__ :j'- \.. .• ! L'J
controls that accompany Federal grants-in-aid t~~ S!'·T,
:.!
local governments, would truly be a new departu!'c :1' '-'~::'
Federal form cf government.
l,.
Al though the programs of the New re<.ler:~ I, t,: ...
long-term and structural changes, the shift ill C:T!~~';':::' ; " . ' . : l l
a 1 rea d y be see n in the cur r e n t Fed era I bud get .
T hi;; c; I n h l'
seen most clearly when we examine two separat:;-' ~"r ;','1 .:"d
items -- (1) the personnel of Federal agencl.cs :~:1"
nancial assistance to state and local gO\'Cd,;rr
1
,,:
The Federal budget for the fiscal year 11:<-: ;1 \ , ["''',- s
to con tin u e the red u c t ion in d ire c t Fe J e r ~: C" ~ : : ,: : • :-, T : , ' .: I ! I,
last year.
From a total of 2,634,000 rull-t:Jn.~. P(,~,'i; ~,., , :
civilian employees in the Executive Branch 3S of "i\,l,~~ : ,;l)~ ,
we estimate that the total will be down to 2, 5~'l7 ; e'cn t,\'
June 1971.
In contrast, Federal financial aid to state and local
governments will be rising during this same period, to help
our s tat e s, cit i e s, and co u n tie s to car r you t (' r (; g ram S 0 f
national significance.
The estimated total of ,\27 hill icT'.
ofF e d era I aid t 0 S tat e and I 0 cal go v ern men t :' ~" ! , -;- 1 ,:-;
an almost fourfold increase since 19b1.
Business and the Public Sector
The changir,g nature of the public sector,;,il
i~<,' (
numerous and substantial im~acts on private ~:,2l.':-:'·
'"
ticularly on the various companies that ei ther do [,l:S lnl'Swith the government or are regulated by it, and also on
t~o~e that,merely look at government as a source of competItIon or Interference.
In any of these regards, I believe
that it is necessary to understand the potent::Jl ':r,pacts of
these future developments.
The traditional discussion of the public S~c~or brings
to mind images of thousands and thousands of clerks horking
in innumerable bureaus and agencies who, on occ~sion, purchase
pens, pencils, paper, desks, and chairs from prIvate "irms.
- 9 -
Let us face it, this idyllic picture of the public
sector does not conform to the realities of the twentieth
century, if indeed it ever did earlier. The civil service
clerk preparing innocuous reports that are to be duplicated,
filed, and refiled, although a stock figure of dramatic
fiction, represents a trivial case of public resource
utilization.
When viewed as a whole, the modern public sector, as
it has developed in the United States, is characterize~ by
four basic changes:
(1) A widespread reliance upon government-oriented
corporations and other quasi-private organizations that perform government functions under
close surveillance;
(2) A massive use of advanced research concepts
and high technology;
(3) Shifting relationships between Federal and
state governments, with more of the funds
coming from the Federal Treasury, but more
of the end activities being performed by
states and their subdivisions; and
(4) Government expansion into areas for which
traditional public agencies are not well
equipped but in which private markets may
not yet exist to any significant degree.
The changing institutional structure of the public
sector will have important repercussions on the location
of government customers and the nature of sales to them by
private industry. The growing decentralization of government activities will mean that Federal agencies based in
Washington will award a declining proportion of government
contracts. More public sector contracts will come from the
agencies of SO state governments and from thousands of local
jurisdictions, often using funds received from the Federal
Government.
At present, much of the state and local government
market is in the hands of local firms. Greater opportunities
will develop in the coming decade for aggressive national
corporations that can learn to deal effectively with the
multitude of local purchasing agents and procurement codes.
- 10 ~oreover, as states and localities shift their purchases to
goods and services needed to eliminate poverty, environme~t~l
pollution control and other "new" requirements, opportunItIes
will arise for co~panies ~hich have not traditionall) catered
to these public sector markets.
To the extent that specialized government contractors,
such as government-oriented corporations and private nonprofit
organi:ations, obtain large shares of prime contracts from
these governments, the more commercially-oriented companies
may begin to look to them as fruitful sources of government
\.;ork \'ia subcontracting.
Indeed, a specialization of labor
may at times develop. For example, the systems analysis and
development work -- such as retraining the hard-core unemploye
or rebuilding slums -- may be awarded in good measure to nonindustrial contractors. Companies experienced in the more
traditional fields, however, may continue to perform the construction and standard manufacturing portions of the work,
often as subcontractors.
In many cases, the decentralization of Federal functions, particularly those involving newer types of goods and
services, will provide major opportunities for diversification
of markets and product lines to companies alert to these developments and geared to adjusting to the changes required.
Some industries may penetrate these emerging public sector
markets through internal product development. Typically,
these will be firms with strong engineering and systems
development capacilities, such as in aerospace, electronics,
instrumentation, and ordnance. Thus far, government-oriented
companies have not played an important role in domestic welfare or other civilian sector programs. But there are growi~
pressures to utilize their unique R&D and system management
capabilities in these expanding programs. Defense cutbacks
have alr~ady spurred some military and aerospace companies
to seek out cost plus contracts awarded by civilian agencies
further cutbacks would lead to a redoubling of such efforts.
Even now they are increasing in volume.
Many corporations have been setting up new divisions
or subsidiaries geared to providing products or systems
to public sector customers. Recent organizational changes
along these lines have followed one of two paths. Some
companies are setting up divisions which focus on one
specific public sector market, such as abatement of environmental pollution. Other firms have set up units with
broader charters to seek out government business generally.
- 11 -
Such company activities can obtain useful guidance for
market research and planning by examining-the changing
priorities of Federal Government expenditures, along the
lines that I discu~sed earlier.
Some Concluding Observations
In a fundamental but favorable sense, business and
government are broadly competitive -- in terms of both
clientele and money. To the extent that business is responsive to changing p~blic and private needs, there will
be lessened pressures for government agencies to step in,
either to set national standards or to perform the actual
provision of goods and services. The reverse is surely
true. To the extent that business is unresponsive, the
public sector is likely to grow at the expense of the
private sector.
As a Nation, we will have very considerable discretion
over the use of the tremendous amount of resources that will
be available to us during the years that follow the end of
the Vietnam War. These resources, in effect, will also come
with a challenge -- that we use them wisely. If we do not,
we may find that economic growth, rather than being translated into improved well-being, may he devoted increasingly
merely to ameliorating continuing physical and social ills.
This may be the essence of our concern to shift national
priorities -- to make the necessary investments now in improving the quality of our physical and social environment
to permit real improvement in our national welfare in the
years to come.
Let me close with a personal forecast.
In 1976, the
United States will look toward ~he future with greater
confidence than it does today.
I say that not because we
will have solved our major problems, but because we will
have grown more accustomed to dealing at the national level
with these difficult questions of social relations, environmental quality and urban living. The eight years of the Nixon
Administration -- as I said, this is a personal f6recast -will not have brought the millennium but it will have provided
the framework within which the American people can make
substantial progress in a peacetime world.
000
mTED ITATEllAVllas 10lDIIIIUED AID IEDEElED TlIOUI. October 31, 1970
(Doller OMOun" In ",lIIion. - round" and will not ... e ..wlly acid to totel.)
DESCRIPTION
JRED
ries A-1935 thru D-1941
ries F and 0-1941 thru 1952
ries J and K-1952 thru 1957
AMOUNT ISSUEDU
AMOUNT
REDEEMEDU
AMOUNT
OUTSTANDINOJ/
% OUTSTANDINO
0., AMOUNT ISSUED
5,003
29,521
3,754
4,997
29,490
3,739
6
31
15
.12
.11
.40
1,894
8,360
13,450
15,689
12,337
5,608
5,329
5,516
5,457
4,777
4,129
4,327
4,944
5,041
5,253
5,077
4,784
4,668
4,379
4,393
4,458
4,316
4,816
4,689
4,585
4,939
4,890
4,639
4,347
2,482
779
1,692
7,473
12,054
13,984
10,838
4,758
4,377
4,450
4,328
3,734
3,226
3,359
3,759
3,770
3,879
3,710
3,439
3,249
2,997
2,895
2,798
2,615
2,701
2,662
2,580
2,647
2,538
2,285
1,841
557
660
201
886
1,397
1,705
1,499
850
952
1,067
1,130
1,043
903
968
1,185"
1,271
1,374
1,366
1,344
1,418
1,382
1,498
1,660
1,700
2,115
2,027
2,005
2,292
2,352
2,354
2,506
1,925
120
10.61
10.60
10.39
10.87
12.1.5
15.16
17.86
19.34
20.71
21.83
21.87
22.37
23.97
25.21
26.16
26.91
28.09
30.38
31.56
34.10
37.24
39.39
43.92
43.23
43.73
46.41
48.10
50.74
57.65
77.56
15.40
170,354
125,857
44,496
26.12
5,485
7,563
3,702
2,305
1,782
5,258
32.49
69.52
13,048
6,007
7,040
53.95
183,401
131,865
51,537
2~.10
38,277
183,401
221,679
38,226
131,865
170,091
51
51,537
51,588
2~.10
~TURED
ries E.1I :
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
Unclassified
Total Series E
!ries H (1952 thru May, 1959) l/
H (June, 1959 thru 1970)
Total Series H
Total Series E and H
{ Total malured
11 series
Total unmatured
Orand Total
wi•• • ccn.d dl.c .....' •
..., red.apt/_
pt'_ ., _ r ".'u•. _,. b. h'd ond ... 111 ••m
b~.
In'., •• , 10' .ddil/on.' "."od• •
tt., or/,/n.' _'ur/,y d., ••.
For", PD 3112 (Ro". Mar. 1970) - TREASURY DEPARTMENT - Buroau of tho Publ!: Dobt
.13
23.27
Department 01 theTREASURY
fiINGTON, O.C. 20220
ATTENTION:
TElEPHONE W04-2041
FINANCIAL EDITOR
November 5, 1970
RESULTS OF TREASURY NOTE AUCTION AND EXCHANGE OFFERING
The Treasury announced that it has accepted $2.0 billion of the $5.2
billion of tenders received for its new 6-3/4% 18-month notes auctioned today.
The range of accepted competitive bids was as follows:
Price
Approx. Yield
100.93
100.69
100.76
High
Low
Average
6.09%
6.26%
6.21%
The $2.0 billion of accepted tenders includes 32 % of the amount of notes
bid for at the low price, and $0.5 bQllion of noncompetitive tenders accepted at
the average price.
The Treasury said that the net effect of this note auction and last week's
exchange offering will be to raise some $1.3 billion of new cash.
The following is a summary of the results of the exchange offering (dollars
in millions) :
NOTES ELIGIBLE
FOR EXCHANGE
NOTES TO BE ISSUED
7-1/4%
5/.15/.74
7-1/2%
8/.15/.76
Total
Total
%of
EliSiible
$6,020
$3,667
$1,701
$5 ,368
$65Z
10.8
1,655
842
811
1,653
. 2
0.1
$7,675
$4,509
$2,512
$7,021
$654
8.5
Held by
Public
Fed. Res. Banks
Govt. Accts.
Total
UNEXCHANGED
&
Department 01 the TREASURY
iINGTON, O.C. 20220
TELEPHONE W04-2041
FOR RELEASE 6: 00 PM. EST
ADDRESS BY THE HONORABLE CHARLS E. WALltER
UNDER SECRETARY OF THE TREASURY
BEFORE THE
JOINT COUNCIL ON ECONOMIC EDUCATION
DINNER MEETING, ST. MORITZ HOTEL
NEW YORK, NEW yon
FRIDAY, NOVEMBER 6, 1970
When my good friend, Moe Frankel, invited me to join
you this evening, I was
d~lighted
for two reasons.
First, as a long-ttme worker in the field of econa.ic
education, I always enjoy the opportunity to join with so
many old friends and colleagues at a meeting of this type.
Secondly, at this particular juncture--the first Friday
following the first Tuesday which follows the first Monday
in November of an even-numbered year--it is especially
refreshing to meet with a nonpartisan group to discuss
econa.ics and economic issues.
The past l2 months have been chock full of issues,
decisions, policies and developments that will be discussed
and analyzed for years to came.
K-S21
Moreover, these economic
-2matters received increasing attention in the last weeka of
the election campaign, and I am lure the public debate will
continue in the .anths ahead.
This is a healthy developaent.
For, in the last analYll1
econa.ic policies--like other major national issues--will be
determined through the political process.
I can assure you
that the Administration welcaaes such discussions and will
stand ready to participate in further debate on economic
policies.
It is precisely because these economic issues are so
tmportant that it is
t~
that in such discussionl we insilt
on a clearer iividing line between fact and opinion, between
analysis and conjecture, and between wishful thinking and
hard-headed projections.
In short, economists in government, academic and the
business world are required to spend too much time convincing
people that the world is not flat.
How can we change this situation?
How can we get people
to penetrate the surface--to go beyond the latest figure-and to concentrate on underlying trends and real issues?
How can we put economic developments into better perspective?
-3-
In short, how do we elevate the public debate and discussion
of economic issues?
The answer, as this audience knows so well, is education.
We must intensify our efforts to raise the level of
economic literacy of the American people.
And we will have
to work on both the formal educational process and the
continuing contribution made to economic understanding by the
mass media.
The Joint Council on Economic Education has made
outstanding progress in working through the formal educational
process.
Your organization has shown that qualified teachers
armed with good materials, given tLme in the curriculum, can
do an effective job of teaching basic economic concepts and
stmple analysis to secondary students--and even elementary
school students starting in kindergarten.
What may be more important is the fact that these
younlsters have been enthusiastic about the subject.
is interesting.
Economics
And in this day of questioning the relevancy
of all studies, economics is surely as relevant as anything
in the curriculum.
But I am sure that the Joint Council would be the first
to admit that we still have a very long way to go.
There
-4-
are still too many teacher.--some even teaching a formal
course in economics--who have no training in economics.
There are still too many schools which exclude economics
from the curriculum.
And there are still too many corporationa
and organizations wasting far too many dollar. on material.
for classroom use that are not based on sound economic
analysis or concepts--or which, even when good, never find
their way to the proper hands.
There is absolutely no reason why every school system
in the United States could not use your materials and
guidelines to develop an effective program for educating
its students in the fundamentals of economics.
Your approach
is truly "joint"--supported by educators and labor as well
as business and financial interests.
And the quality of
your work is of the highest.
The need for this program has never been clearer to me
than in the past 22 months that 1 have been back in Washington.
1 want to assure you that 1 will continue to do everything
1 can to further your efforts.
But if the educational process is to be continuous, the
media can and must play an ever-increasing and--speaking
bluntly--a more balanced and effective role.
Education
-5-
cannot be shut off on graduation day.
de:~ed
Nor should it be
to the millions who have never had any training or
bac*'t,!"O\D\d in economics.
As many of you know, this. is
Washington.
my
second tour of duty in
One of the most striking differences I have
noticed between now and 11 years ago is the difference in
size, background and sophistication of the corps of economic
reporters covering the Washington scene.
Their total number
has doubled in the past decade.
Occasionally we still hear the charge that economic8 i8
du11--that no one is interested in reading or hearing about
Gr08S National Product, price indexes, balance of payments,
and other subjects discu8sed so earnestly by profes8ional
economi8tS.
I find this charge as amusing as it is unsupportable.
If the statement were true, how do we explain the fact
that the circulation of the Wall Street Journal has
a~ost
doubled in the past 10 years--from 650,000 in 1960 to
1,250,000 today?
Why has every major newspaper and news magazine in the
country increased the number of specialists assigned to
economic reporting?
The New York Times has added seven such
-6-
specialists since 1960.
The TLmes' Washington economics
staff has grown from one to three.
The intereat in economic news can also be measured by
the increasing frequency of stories about the economy
commanding front page attention of the daily newspapers.
It
is not all relegated to the back of the paper.
The news magazines have expanded their coverage of
economic news and analysis.
And, with the spread of all-new.
radio stations, it is encouraging to hear a voice come on
periodically and
introduc~
himself as the station's economics
or business editor.
Sad to state, television runs a poor last when it comes
to the quantity and quality of economic coverage.
It is
more than sad--it is dangerous to the public interest.
According to a recent survey, fully 60 per cent of the public
looks upon TV as its main source of news.
But the fact is that, although there are some very good
TV journalists who report from time to tUme on the WashingtM
economic scene, there is not a single person in the nation's
capital who specializes in covering such developments for
television.
-7to my knowledge, the only specialist in economics
wo.,''<ing for any network is· Louis Rukeyser, of ABC News in
New 'Jrk.
The generally high quality of that network's
economic "specials" haa· ratified. the judgment of ABC
officials in hiring Rukeyser.
As always, measuring quantity is a lot ealier than
measuring quality.
But .at the risk of stepping on some toes,
I shall venture a few opinions.
In so doing, let me suggest three standards for making
judgments as to the quality of economic journalism:
factual
accuracy, perspective, and balanced interpretation.
there is no excuse for factual inaccuracy in economic
reporting or, for that matter, in any field of journalism.
Nor is there any valid excuse for the omission of pertinent
facts.
Here again the specialist has the advantage--he knows
what data and facts are available and where to dig out new
ones.
Once in a long while I am able to catch an experienced
Washington economic reporter in a factual error--but very
seldom.
I regret that I cannot say the same about economic news
reported by generalists--hastening to add that this is not
-8-
nece •••rily .n indicCDent of their integrity, but only of
their inexperience in eCODa-ic . . tters, which may be
exceedingly complex to the l.y reporter.
The second criterion of quality in economic j ourn.li ..•.
perspective--il also likely to be better achieved by the
reporter who covers the subject on a regular basis.
The
knowledge of the specialist is perhaps even more important
in this respect, for here there are serious pitfalls indeed,
These pitfalls result from the special characteristics of
the statistics which for. ,the basis of many economic newl
storiel.
In the first place, the individual figures which flow
out of Washington and other economic centers are the best
in the world and have been continuously improved over the
yearl.
Still, they are no aore than raw material for the
economist or journalist to refine, analyze and interpret.
Otherwise, their publication can be very misleading.
The statistics themselves vary.
what has actually happened.
Same are records of
Receipts and expenditures of
the Federal Government, interest rates, reports of meney
market changes, banking aggregates--these figures are
-9-
examples of hard factual information which, when properly
adjusted for seasonal variations, can tell a straight and
meaningful story.
But other figures may be based on samples; these include
the early--and therefore most newsworthy--reports on
unemployment, retail sales, and housing starts.
An expert who works with these figures on a continuous
basis has a good idea of the reliability of the sample and
any tendency of the figure to be erratic or, as in the case
of housing starts and unemployment, to resist systematic
seasonal adjustment.
These experts are cautious in
evaluating any large and unexpected swings in such figures.
A third type of statistic that causes everyone problems
is the one based on preliminary reports.
The figure on
Gross National Product falls into this category.
Rather
than wait for all actual figures for a given quarter, some
elements in the GNP figures are based on one or two month's
experience.
These figures are later revised when the
statistics for all three months are available.
Any journalist who habitually gives much attention and
weight to
prel~inary
figures, which are subject to later
revision, is taking a big chance.
It might be instructive
-10-
for such journalists to go back occasionally and review their
past stories--how many would have been written differently
if the final revised figures were available in the first
place?
Money supply figures may fluctuate rather widely from
reporting date to reporting date, thus requiring very careful
analysis on the part of the user of the data.
In addition--
and this is a bane to the po1icymaker as well as the outside
economist or reporter--subsequent revisions of such figures
in the past have often resulted in a much different picture
than the one provided by the pre1Lminary reports.
SLmi1ar1y, it is probably too much to expect candidates
for public office to weigh in each figure, as it unfolds,
in the light of all developments over preceding weeks and
months, thus providing proper perspective.
But this is not
too much to ask of the professional economic journalist.
Indeed, it should be his obligation to provide such perspective
for his readers--and, I might add, this is an awesome
responsibility when the manner in which the figures are
presented might influence the outcome of more than one
political race.
-11-
Balanced interpretation--the third standard--is the
toughest.
Accurate facts, put in proper perspective,
are still subject to a variety of interpretations.
A good
reporter will try to walk the middle line, and also try to
report as many different interpretations as space and
deadlines permit.
Here again the specialist is at a distinct advantage.
He or she--and there are several highly competent women
working in this field today--has had a chance to develop
reliable sources who can provide professional views and
insights.
Over a period of time, those who offer interpreta-
tions that are consistently off the mark find a very cold
reception with the professional economic reporters.
Don't get me wrong--I'm not advising the economic
journalist to shun interpretation; he can't write a complete
article without it.
Frequently there is too little, rather
than too much, interpretation.
But to make it balanced as
well as informative--that's the trick, and a mark of
journalistic competence.
The majority of economic and financial reporters in
Washington and New York earn high marks when their work is
evaluated in terms of these three criteria.
Once in a while
-12one or more get carried away with a single number, failing
to allow for its inherent shortcomings, or neglecting to
put it in perspective.
And perhaps a reporter or two views
himself as a "hair shirt" for the Administration of the day,
but by and large the role of outright criticism is left to
the columnist and the editorialist--a function considerably
different from economic reporting per
~.
As you know, the specialists who cover news developments
in the economic area are not responsible for their papers'
editorials or columns.
These are separate functions.
There
are some newspapers with consistently good news stories and··
in my view--consistently poor editorials, and vice versa.
Do not judge the quality of a newspaper's economic reporting
by its editorial com.ents, nor should you assume that good
editorials guarantee good reporting.
Although the extent and quality of economic reporting
in major newspapers and magazines are good, and still
tmproving, television deserves no such high marks.
On TV,
the usual extent of economic coverage is a quick glance at
the Dow Jones clOSing average before the final commercial
on the evening news shows--although occasionally an announcer
will quickly report a statistic, most often failing to put
it in perspective or to provide interpretation.
-13-
Most economic reporting on television is left to the
Sunday interview shows, where reporters are brought in to
interview government officials or leading economists.
In all fairness, we must recognize the limitations of
television.
Ttme may be more of a limiting factor than
space in a newspaper or magazine.
There are a multitude
of events and developments competing for
short news program.
t~e
on a very
There are the physical problems of
getting cameras and equipment to interviews and conferences.
There is a built-in lack of visible action in economic news
that makes it less appealing to television.
These factors increase the challenge, but they are not
insurmountable.
Television has the capacity to develop
experts and specialists.
There are TV specialists covering
the White House, the Congress, the State Department, the
Pentagon, the United Nations, state capitals and city halls.
TV has space experts, science experts, sports experts, and
weather experts.
They also have war correspondents and
foreign correspondents.
But again, I want to repeat that although the Washington
TV press corps is highly skilled, there is not one televiSion
economic news specialist in the nation's capital.
-14-
There are numerous ways that specialists in economic
reporting could expand and enhance TV coverage of important
econoaic issues.
Short features, debates, quizzes for
viewers--many approaches are possible once specialists or
even consultants are brought on the scene.
I realize that my criticism of TV economic journalism
is strong; but, believe me, it is fully deserved.
The time
has come for the television industry to face up to this
problem, and to this responsibility--and I feel certain
that, to the extent an educational program for reporters
is necessary, the Joint Council can he counted on to cooperate.
You have for so many years worked so effectively to
teach teachers in schools and colleges about economics.
I am sure your bipartisan efforts could be useful to
journalists who every day layout vital issues to millions
of Americans.
Let me conclude by repeating that the news media--with
the exception of television--is devoting a lot more money
and effort to improved coverage of economic newS.
This has
not only helped raise the public's understanding of economic
problems and developments; it has reduced some of the emotional
and erroneous roadblocks to solving the problems.
-15-
Sound, bipartisan economic policies can only be
developed and UDplemented with the support of the American
people.
And unless the people know the reasons behind, and
the probable results of, any course of action, they are not
likely to support it through their elected or appointed
officials.
The stakes are high--else I would not have spoken so
bluntly tonight.
~o
Department 01 the TREASURY
INGTON. D.C. 20220
TELEPHONE W04-2041
ADVANCE FOR RELEASE AT 9 A.M. PST n2:00 NOON EST)
TUESDAY, NOVEMBER 10, 1970
REMARKS OF THE HONORABLE CHARLS Eo WALKER
UNDER SECRETARY OF THE TREAS URY
BEFORE
THE UNITED STATES SAVINGS AND LOAN LEAGUE
ANNUAL CONVENTION
SAN FRANCISCO, CALIF
9:1S A.M., TUESDAY, NOVEMBER 10, 1970
"THE SAVINGS AND LOAN INDUSTRY:
THE VIEW 'FROM THE TREASURY"
I.
I accepted your kind invitation to speak since
it offers an excellent opportunity tell the savings
and loan industry how the Treasury views the vital
role that you and your institutions play in our
economy--in short, we believe you can and will contribute significantly to this nation's economic and
social progress, particularly in your special field
of housing, in the decade of the 'Seventies.
This "track record" in the 1970's will no doubt
be a welcome contrast to that of the 1960's. In
.those years your industry was severely buffeted. by
competitive factors--first, in the credit crunch of
1966 and, second, in the recent period of high interest
rates and tight money. In both periods the industry
suffered from competitive pressures--partly from
commercial banks; more importantly, from the market
for Government and corporate securities. As you
K-S22
- 2 -
know only too well, such pressures severely crimped
the ability of your institutions to perform their
major functiDn of financing housing.
A brief review of how these pressures came about-familiar though it might be to you--shou1d cast light
on what must be done both now and in the future to
make certain that your industry can contribu~ as it
should to solving our Nation's financial problems.
II.
Your industry, which was relatively small at the
end of World War II, came along at precisely the right
time to help finance and benefit from the tremendous
post-war housing boom in the United States. This had
both a good aspect and a bad aspect. The good aspect
was, of course, that a pressing social need was
fulfilled. The bad aspect was that until 1966 the
industry had not been subjected to anything other than
a relatively rapid increase in share accounts, and
this rather easy accumulation of funds failed to put
S&L managements to the tests of financial adversity.
While the increase in share accounts was partly
a reflection of the housing boom, it was also a reflection of the competitive sluggishness of commercial banks
in those days and of the regulatory scheme governing
those banks. Until the 1960's, most commercial banks
seemed to have little interest in competing with
savings and loans associations, either in gathering
funds or in making housing loans.
This changed significantly in the 1960's. A new
generation of commercial bankers came into the picture,
bankers interested in competing aggressively for
savings funds. This change was reflected by the fact
that time deposits with commercial banks--which, in
dollar amount, were only 60 percent of demand deposits
in 1960--caught up to and sprinted past demand deposits
by 1965. In that 1960-65 period, time deposits doubled
from $73 billion to about $147 billion, while demand
- 3 deposits increased much more slowly, from $122 billion
to $143 billion.
In the 1960's there was also a gradual lessening
in the degree of restriction of interest rate controls,
which until 1966 applied only to commercial banks and
savings banks and did not apply to savings and loans
associations.
What happened in 1966 was most interesting and
most instructive.
The tight money situation in 1966 was a direct
outgrowth of the economic overheating brought on by
the rapid increase in spending on both Vietnam and
domestic programs. By default, monetary policy was
forced to fill the gap.
But that's an old story that need not be recounted
in further detail. Suffice it to say that, as a result
of the 1966 credit crunch, a number of significant
developments took placeo
III.
First, it was soon clear that with interest rates
going up, at that time, to the highest levels that had
prevailed since the 1920's, the S&L's--which held many
billions of dollars of old mortgages brought into
their portfolios at low rates--were in no position to
compete with commercial banks whose portfolios on
average turned over much more quickly. The S&L's found
their competitive position vis-a-vis these commercial
banks to be precisely the reverse of what it had been
in the preceding twenty years.
Second, despite this increased competition from
commercial banks, the real villain in the picture in
those days was not the competition among financial
institutions.
It was, rather, the competition from
the reemergence of a force which some people thought
was new but was not new at all.
It was given the
tongue-twisting, jaw breaking name of "disintermediation."
- 4 The figures show clearly that the real drain of
savings funds in the '66 period was not from the S&L's
to the banks but from the S&L's and the banks into
the market for government and other securities.
As a result of this sharp drain, housing starts
between the end of 1965 and the latter part of 1966
were cut in half. There was an excessively sharp
impact, reflecting in part the past experience of
S&L's; their managements were not accustomed to this
sort of drain and some managements pulled back
sharply on commitments for new housing. This in
turn triggered two new developments, the effects of
which we still see today.
First, the Congress, in a rather desperate attempt
to protect the S&L's from what it thought was excessive
commercial bank competition, erected on top of the
interest rate control mechanism which had been set up
in the 1930's on banks alone, a temporary one-year
regulatory device. This.measure increased the
flexibility of the Federal Reserve authorities in
dealing with time amounts in commercial banks, most
importantly by authorizing the Fed to permit commercial
banks to pay a much higher rate on "big money" certificates of deposits as contrasted with regular savings
accounts.
This action also brought S&L's under Regulation
"Q" authority for the first time in history. This
meant in essence that Regulation "Q," which supposedly
had been set up initially to protect the safety of
financial institutions, would now be used as an
a110cative device to try to direct the flow of funds
into mortgage finance as opposed to other uses.
The second major development arising out of the
1966 crunch was that S&L management learned many
lessons in a very short time. This was in one respect
fortunate, preparing management to perform effectively
during the recent tight money period--a large accomplishment indeed.
- 5 -
IV.
What light do these developments cast on the course
of action that will permit S&L's to play their proper
roles in financing the U.S. economy--particularly
homebuilding?
First, and most importantly, you cannot sit back
and ever again let the economy become so overheated,
as a result of loose fiscal policies, that a situation
will be created which subjects your institutions to
the sort of disintermediation which you suffered both
in 1966 and more recently. You not only have an
obligation in this respect; you have the expertise both
in your individual institutions and in your national
trade associations, to monitor what the Congress and
the Administration are doing in economic policy, and
to speak out, when you think we people in Washington
are not doing the right thing.
Secondly, you can reduce the prospects for disintermediation by supporting the removal of the archaic
4 1/4 percent interest rate ceiling on Treasury
securities of more than seven years' maturity. Removal
of the ceiling would be additional insurance against
the sort of disruptive disintermediation that has been
your bane in recent years.
The case for repeal of this vicious restriction
is so compelling that it is almost incr~dible that it
has survived for so long. The 4 1/4 ceiling has remained unchanged since 1918--a period of more than
half a century during which extensive changes have
occurred in financing techniques. Since the first
request for its repeal by Treasury Secretary Anderson
in mid-1959, all that the Congress has been willing
to do is to increase the allowable maturity from five
years to seven years.
In the meantime, since 1965, the Treasury has
been unable to sell any longer-term securities, and
the average maturity of our marketable debt is now
down to a shocking 3 years and 7 months.
In operational
- 6 terms, this shortening of
Treasury h3d to refinance
notes and bonds in fiscal
__
;n 1966
th an A14 bOl);on
~
~
.L.L
,
the debt meant that
some $21 billion of
1970, compared with
a JOump of more than
the
maturing
less
50 percent.
As citizens you should be concerned about the
effect of the ceiling in the financial markets. And,
as businessmen, you should be equally concerned
because the 4 1/4 ceiling is a significant factor
in causing disintermediation in periods of high
activity and tight money. The conventional wisdom
in the late 1950's relative to this ceiling was
that if it were removed, the Treasury would provide
direct competition for the mortgage market.
The experience in the "Magic Five" episode in
1959 convinced a lot of mortgage and housing people
that wasn't the case, and experience in 1966 and 196970 should underscore that even more forcefully. These
experiences demonstrated that the small saver who is
either pulling his money out of the 5&L, or putting
his new money somewhere else, is looking not at the
long-term Treasury security. There is too much risk
involved in those for his taste. He looks at shortterm securities--securities certainly less than the
seven years to which the Treasury.is confined.
The process is a simple one. As a consequence of
the artificial restriction which the ceiling imposes,
Treasury is forced to borrow much more short-term than
it should borrow, and short-term interest rates are
kept higher than they would otherwise be. This greatly
increases the attractiveness of the disintermediation
process to the saver who is primarily interested in
short-term securities.
These effects were clearly demonstrated last
winter when the Treasury bill rate went up to an
historic 8 percent and flows out of your institutions
were large indeed. Our action in raising the minimum
purchase denomination on Treasury bills from $1,000 to
$10,000 contributed significantly to a reduction in
this disintermediation. There were other factors;
- 7 among the most important has been the drop in the Treasury
bill rate from 8 percent early this year to less than
5 3/4 percent at the present time.
In summary, then, I assert that disintermediation
results primarily from competition in the short area.
If so, it's very much in your interest, as well as the
public interest, for the archaic interest rate ceiling
to be removed. We could then manage the debt in a
flexible and balanced manner and not continually
refinance in a less than seven year period.
v.
I think it's appropriate at this point to join an
issue on which many of you have rather forcefully made
your views known to us--through the mails, over the
telegraph wires, over the telephone, and even in person.
That is the complaint we have received in recent months,
and particularly as an outgrowth of the August refunding,
from many in the housing and home finance industry that
we have dealt in bad faith with your industry because
we did not raise the minimQm denominations on Treasury
notes at the same time we raised it on Treasury bills.
That is an unacceptable recommendation.
There are arguments obviously for and against the
T~easury willingly cutting itself out from a given
market, which we were willing to do in the case of
Treasury bills for a number of reasons. Even so, we
got a great deal of criticism from consumer interests
and others saying that we were being unfair by not
permitting your customers to invest directly at these
higher rates in Treasury bills.
We had what we thought were good overriding
reasons, in the best interests of the housing market
and in the best interests of the public. The diversion
of savings into Treasury bills contributed to the
interruption of the orderly flow of funds into the
housing mortgage market, thereby aggravating the
problems of homebuyers and the already depressed
housing industry. The extraordinary volume of small
- 8 individual transactions in bills, which provide neither
an important nor a dependable source of funds to the
Treasury, began to overtax existing market facilities
to the point where the effectiveness of this basic
source of Treasury finance was beco~ing impaired.
In addition, the direct costs to the government
of issuing very small denominations were excessive
in relation to the volume of funds attracted. Analysis
of these costs indicated that the processing cost for.
subscriptions submitted by individuals to the Federal
Reserve Banks amounts to approximately $15 to $20 per
item. This is equivalent to an additional interest
cost of 1.2 to 1.6 percent for a typical $5,000 sale
of a three month bill and to more than 1/2 percent
for six month bills. These costs were proportionately
more for smaller transactions.
Furthermore, the sizeable charges placed by
middlemen to cover their costs were reducing the net
return to investors well. below the quoted yield.
Then, too, there were significant risks of loss to
small investors without adequate and convenient means
of safeguarding holdings of these bearer securities,
which must be handled like cash by the investor.
We believed that raising the minimum bill denomination would help maintain an adequate flow of funds into
mortgages, would halt the deterioration of the market's
ability to handle normal activity, and would dampen
the increase in costs resulting from the extraordinarily
large volume of small transactions in bills.
I cannot emphasize enough the fact that, at the
time when we announced the change in minimum bill
denomination last February, we also announced that the
increase in minimum denominatio~ould not ap~to
Treasury notes and bonds.
sa~e
Cost and market factors simply did not support
such a change then, and they do not now. The risks
and costs to the Government and to the investors are
substantially less in the case of notes and bonds.
These readily available securities, which afford
- 9 investment for periods of one year or more, are available
in registered form, TGOre suitable for individuals. The
transaction costs dre spread over a longer period of
time, so their impact on interest returns or Government
costs is substantially reduced.
As for the offerings of Treasury notes for cash
in May and August, these were not designed to attract
individual interest but rather to accomplish the task
of refunding billion'; of dollars of maturing securities
in the most effici2n~ manner from a debt management
viewpoint. The Treasury did nothing to encourage
small investors to purchase these securities. While
the large oversubscription in the August financing
might indicate that it was not necessary to have
small denominations to achieve the funding requirements, one must consider also the obvious inequity
of denying the small saver the opportunity to invest
in liquid securities issued by his Government if he
is willing to accept the market risk that investment
in such securities entails.
To say that o~r longer-term securities should be
cut away from the i~dividua1 savers and that they
should be forced to put all of their eggs in the intermediary basket seems to me to be going too far.
Uncle Sam has just as much right to go directly to
the small investor, either through Savings Bonds, or
in moderate amounts through the Treasury note markee,
as any other borroweL in this country.
It is only
when we let the basic mechanism of the market get
out of whack, when we let the economy get overheated,
that this really becomes a problem.
I must say that, although we recognize that
certain individual institutions were hit hard for
short periods of time in the August refinancing, I
am not impressed with the overall strength of the
argument when I look at the very satisfying turnaround
in the flows of funds in your institutions in recent
months--and that includes the month of August when
this financing took place.
- 10 We shall use our powers judiciously. We will not
intentionally corne in and slug your markets, but we
are not willing to give up what is a legitimate
financing area because after all, I think you will
agree with me, the Federal Government must be able
to manage its debt flexibly--and if we can't do that,
all of us are ultimately going to be in the soup.
VI.
Having got that off my chest, I'll now touch
briefly on another area of common concern to both
you and the Treasury, which will, of course, affect
your stake in economic progress. I refer specifically
to the effect of the Tax Reform Act of 1969 on S&L's.
As we view it from the Treasury, the general
effect of the Act in terms of tax equity has been to
preserve the relative competitive positions of the
various kinds of financial institutions, both in the
relationships among themselves and in their relationships to other corporate businesses. Of course, since
you are footing the bill, you may not see your tax
bite as being quite as equitable.
But the fact that, according to our estimates,
the effect of the Act will be substantially to equalize
the tax burden of commercial banks and S&L's, should
remove one of the basic bank objections to a broadening
of your functions.
No doubt there will be some differences between
the S&L's and the Treasury on certain interpretations
of sections of the Act. One example is the difference
of opinion we have over whether Section 1232 of the
IRS Code, as amended, applies to deferred income savings
plans and certain other deposit arrangements offered by
financial institutions. The opinions of the S&L industry,
among others, have been taken under advisement after a
public hearing, and we have not reached a final conclusion. On such issues it is my hope that we will
continue to have open lines of communication between
the Treasury and the industry as to the concerns of
the industry, for we have always profited from your
views.
- 11 In at least one area concerning the Act, I thi~k
we will find broad agreement between the industry and
the Trea.ury. We expect momentarily to issue a
temporary regulation which deals with the definition
of a savings and loan association under Section
770l(a)(19) of the Code as amended.
Under the prior law, as you know, one of the
requirements for a savings and loan association was
that "substantially all" its business must have consisted of acquiring the savings of the public and
investing in certain prescribed loans. The Tax Reform
Act amended this language to provide that the business
must consist "principally" of acquiring the savings
of the public and investing in loans.
In conformity with this amendment, the temporary
regulation will liberalize both the "acquiring the
savings of the public" test and the "investing in
loans" test specified in the old regulations. The
temporary regulation will provide a major simplification of the old "investing in loans" test by eliminating the "sales activity test" which has been the
object of intense criticism by the industry.
You may quarrel with some of the particulars
of the proposal, but we know that. deletion of the
"sales activity test" will be welcome relief and will
enable many S&L's to more fully participate in vital
housing programs, such as the secondary mortgage
market program created by the recently-enacted
Emergency Home Financing Act.
VII
The formulation of regulations and the short-run
aspects of the disintermediation problem which I have
discussed earlier are very important matters which you
have to keep in mind in the day-to-day management of
your institutions. But, at the same time, you must
keep your long-run goals and problems in mind.
Similarly, when we came into office in January of
1969, we faced some problems that appeared short-run.
For ins tance, we were convinced thEn, and we are more
- 12 -
convinced today, that Regulation "Q" is a jerry-built
device, a stop-gap mechanism on which neither your
industry nor any other part of the financial industry
should plan to rely forever as means of stabilizing
competition. At the same time, when we came into
office in January of 1969--and I so told your legislative conference late that mont~-we had certain longterm goals in mind for increasing the competitiveness
of your institutions. The ultimate goal is to put
you on a footing where you can fight side by side with
other financial institutions and in the open financial
market, without dependence on artificial restrictions
or the decisions of bureaucrats as to when the screw
should be tightened or relieved.
Unfortunately, in trying to achieve our goals,
we were not able to develop the relationships that
we would like to have with all of the committees in
the Congress that deal with these matters
And as
the year went on, it became increasingly clear that
more and more leaders in all of the affected industries
were coming to the conclusion that, after many years of
more or less ad hoc approaches to financial legislation,
it was time to back off and take a penetrating look at
the U.s. financial structure and how it would be likely
to behave in the years aheado Fundamentally, we needed
to look at the question of whether the fJow of savings
in the future would be both adequate and appropriately
distributed from the standpoint of economic and social
needs.
o
In a nutshell, this is why the President announced
early this February that he would appoint a blue ribbon
Commission on Financial Structure and Regulation which
would be charged with precisely this responsibility.
It would concentrate on studying the deposit-type
financial institutions, commercial banks savings banks
,
' .
. '
,
S&L s, cred~t un~ons, and even ~nsurance companies and
corne back to him by late 1971 with recommendations as
to how the system should be strengthened and improved.
Today I am not going into detail to discuss the
Commission. It would not be appropriate, The Commission
is an independent body. There is no control or influence
- 13 exerted on it from either the White House, Treasury
or any other branch of the government in Washington.
At the same time, I am quite happy to say that
reports from the Chairman and Members as to their
first three meetings have been gratifying indeed. I
think that a year from now the Commission will come
in with a constructive report, and the Administration
will also be able to take the recommendations-modified, if necessary, as is the prerogative of any
President--and send up to the Congress constructive
proposals which can work for the long-run benefit of
the customers of your institutions, as well as for
the institutions themselves and the men who run them.
On this count I want to leave you with what I
think was the most important charge which, on behalf
of the Administration, I imparted to the institutional
members of the Commission at their organizational
meeting. Speaking primarily to those members from
banks, savings and loan associations, and insurance
companies, I emphasized that President Nixon, who
expects great things from the Commission, had selected
the members with extreme care. Although many qualities
were, of course, deemed to be important, undoubtedly
the most important was the ability to separate the
forest from the trees--to see beyond the parochial
interests of one's own pursuit and identify the broader
public and customer interest flowing out of the
activities of financial institutions.
Stated in another way, the studies of the Commission,
now well under way, may well lead to recommendations for
significant structural changes in the very institutions
which some of the members represent. I feel confident
that the savings and loan men on the Commission, Messrs.
Edgerton and Gilbert--and indeed, all members of the
group--can view these problems in this broader, nonparochial perspective. And this is why I am fundamentally
optimistic concerning the work of the Commission.
In closing, I would note that these same observations about the Commission apply, in an important sense,
to you as you manage your own institutions. What's
- 14 good for the public interest--meaning, in essence, what's
really good for the customers you serve--is in the long
run always good for the institutions you run.
Thank you very much.
00000
Department 01 the TREASURY
INGTON, O.C. 20220
TELEPHONE W04-2041
November 12, 1970
FOR IMMEDIATE RELEASE
NOTICE OF INTENT TO REVOKE DUMPING FINDING
The Treasury Department announced today that it is
publishing in the Federal Register on Friday, November 13,
a notice of intent to revoke a finding of dumping with
respect to cast iron soil pipe from Poland.
The original finding was issued on November 2, 1967.
Since that time, there have been no sales of Polish cast
iron soil pipe to persons in the United States at less than
fair value. The exporter of the pipe has given assurances
to the Treasury Department that future sales to the United
States will not be at less than fair value prices.
Under circumstances such as these, it is the normal
policy of the Treasury Department to revoke dumping findings.
Before issuing the proposed revocation, the Treasury
Department will give consideration to any relevant data,
views, or arguments. These must be submitted to the
Commissioner of Customs no later than December 13.
000
Department of the
TRfASURY
IINGTON. D.C. 20220
TELEPHONE W04-2041
ADVANCE FOR RELEASE AM'S
WEDNESDAY, NOVEMBEi 11, 1970
TREASURY ADOPTS THE PROPOSED REGULATION
TO GRANT COMBAT ZONE TAX BENEFITS TO
ADDITIONAL MILITARY PERSONNEL
The
adopting
proposed
military
Treasury Department announced today that it is
virtually unchanged the regulation originally
August 5 to give combat zone tax benefits to additional
personnel.
The new rule extends combat zone tax benefits to
military personnel serving outside Vietnam who (1) provide
direct support for military operations in that country and
(2) qualify for "hostile fire pay."
Treasury's tax changes will benefit military personnel
who took part in the Cambodian operation and who qualified
for hostile fire pay, those who receive hostile fire pay
while serving in Laos or Cambodia, and air crew members who
qualify for such pay because of flights from Okinawa, Thailand,
or other areas outside Vietnam, or from ships outside of the
designated combat zone.
Under the amended regulations, these members of the
armed forces will receive the same income tax exclusion given to
personnel in a designated combat zone. The pay of enlisted
men and warrant officers will be exempt from Federal income tax,
while the first $500 a month of a commissioned officer's pay
will be exempt.
K-523
(MORE)
- 2 Military personnel who have qualified in the past for
hostile fire pay while supporting operations in Vietnam from
areas outside the designated combat zone generally will be
able to claim refunds of income taxes paid during these
periods. Generally,. the earliest period for which a refund
may be claimed is 1967. A refund claim should be sent to the
Internal Revenue Service Center for t\e area in which the
taxpayer permanently resides.
The tax changes also provide certain benefits for the
estate of an officer or enlisted man killed while considered
to be serving in the Vietnamese combat zone. These include
exemption from estate taxation in most cases, and subject to the
statute of limitations, a refund of any income taxes he paid
since first entering a combat zone.
Under the amended rules, combat zone tax benefits will
no longer be granted to military personnel who pass over or
through a combat zone while making a trip between two points
which lie outside the combat zone, or who are in the zone solely
for their own personal convenience. In addition, a member of
the armed forces who voluntarily enters a combat zone while
on leave generally will not be eligible for combat zone tax
benefits.
The amended regulations will be published as a
Treasury decision in the Federal Register of
November 11, 1970.
The text of the amendments is attached.
000
Attachment
TITLi: 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE,
DEPARTMENT OF THE TREASURY
SUBCHAPTER A--INCOHE TAX
[INCOME TAX REGULATIONSJ
TAX; TAXABLE YEARS BEGINNING
AFTER DECEMBER 31, 1953
PART 1--INCO~E
Treatment of certain combet pay
of members of the Armed Forces
DEPARTMENT OF THE TREASURY,
Office of Commissioner of Internal Revenue,
Washington, D. C. 20224
TO OFFICERS AKD EMPLOYEeS OF
THE INTERNAL REVE~US SERVICE
AND OTHERS CONCER...~ED:
On August 5, 1970, notice of proposed rule making
with respect to the
&~endm2nt
of the Income Tax Regula-
tions (26 CFR Part 1) to clarify regulations under
section 112 of the Internal Revenue Code of 1954,
published in the Federal Register (35 F.R. 12477).
WeS
After
consideration of all such r2levant matter as was presented
by interested persons regarding the rules proposed, the
amendments so proposed are ado?ted subject to the
set fo!"tn belo;..;:
chc~g~
- 2 Paragraphs (j) and (k) of § 1.112-1 as set forth in
the notice of proposed rule making are revised to read
as follows:
§ 1.112-1
Compensation of members of the Armed
Forces of the United States for service
in a combat zone during an induction period,
or for service while hospitalized as a
result of such combat zone service.
*
(j) (1)
*
*
*
For purposes of section 112 and this
section, members of the Armed Forces who perform
military service in an area outside an area
designated as a combat zone by Executive order, which
service is in direct support of military operations
in such zone and is performed under conditions which
qualify sucn IT'.embers for Hostile Fire Pay (as.
authorized under section 9 (a) of the Uniformed
Services Pay Act of 19o'~ (37 USC
..J
•
•
•
310»
,
11,
sh a
during the ~er~oc of such qualifying service, be
deemed to tave serv~d in such combat zone.
- 3 -
(2)
The application of this paragraph may be
illustrated by the following examples:
Example (1). On April 24, 1965, an Executive
order designated Vietnam and certain adjacent
waters as a combat zone, retroactive to January 1,
1964. In May 1970, units of the Armed Forces
assigned to Vietnam crossed into Cambodia from
Vietnam. This operation was in direct support of
military operations in Vietnam. A is a member of
the Armed Forces assigned to a ground unit stationed
in Vietnam. A along with his unit performed military
service in Cambodia from May 1, 1970, through May 12,
1970, under conditions \..;rhich qualified him for
Hostile Fire Pay (as authorized under secti on 9 (a)
of the Uniformed. -=rvices Pay Act of 1963 (37 U. S.C.
310». A is deem,- i to have served in the Vietnamese
combat zone from May 1, 1970, through May 12, 1970.
Accordingly, A is entitled to the benefi ts of
section 112 (certain combat pay of members of the
Armed Forces) for the month of May 1970.
Example (2). The facts are the same as in
example (1) except that A incurred wounds on
May 11,1970, while performing military service
in Cambodia under conditions which, at the time he
incurred such wounds, qualified him for Hostile
Fire Pay (as authorized under section 9 (a) of the
Uniformed Services Pay Act of 1963 (37 U.S.C. 310».
Accordingly, A is dee~ed to have incurred such wounds
while serving in the Vietnamese combat zone and is
entitled to the benefits of section 112 (certain
'combat pay of members of the Armed Forces).
Example (3). The facts are the same as in
example (1) except that A is stationed in Thailand as a
member of ~ ground crew servicing combat aircraft
operating in Vietnam, Laos, and Ca~bodia. During
May 1970, A does not qualify for Hostile Fire Pay
(as autho~ized under sectio~ 9 (a) of the Uniformed
Services Pay Act of 1963 (37 U.S.C. 310»). Accordingly, A is r.ot dee~ed to have served in the Vietnamese
- 4 combat zone during May 1970 and is not entitled to the
benefits of section 112 (certain combnt pay of members
of the Armed Forces).
Example (4). The facts are the same as in
example (1) except that A is assigned to an air unit
stationed in Thailand. In May 1970, members of air
units of the Armed Forces stationed in Thailand flc\oJ
combat and supply missions into and over Cambodia
from Thailand in direct support of military operations
in Vietnam. A fle\.J combat missions over Cambodia from
Thailand from May 1, 1970, to Mny 8, 1970, under
conditions which qualified him for Hostile Fire Pay
(as authorized under section 9 (a) of the Uniformed
Services Pay Act of 1963 (37 U.S.C. 310». Accordingly,
A is deemed to have served in the Vietnamese combat
zone from May 1, 1970, through May 8, 1970. Thus, A
qualifies for the benefits of section 112 (certain
combat pay of members of the Armed Forces) for the
month of May 1970. The result would be the same if
A flew supply missions into Cambodia from Thailand
from May 1, 1970, through May 8, 1970, which qualified
him for Hostile Fire Pay (ns authorized under section 9 (a) of the Uniformed Services Pay Act of 1963
(37 U.S.C. 310».
Example (5). The facts are the same as in
example (4) except that on May 8, 1970, A was killed
when his plane crashed on returning to the airbasc
in Thailand. Since A was performing military service
under conditions which at the time of his death would
have qualified him for Hostile Fire Pay (as authorized
under section 9 (a) of the Uni.formed Services Pay Act
of 1963 (37 U.S.C. 310», he is deemed to have died
while serving in the Vietnamese combat zone or to hnve
died as the result of wounds, disease, or injury
incurred whiie serving in such combat zone. Accordingl)'
A qualifies for the benefits of section 692 (income
taxes on ~en~ers of the Armed Forces on death) and
section 2201 (~2mbe~s of the Armed Forces dying during
an inductior. ?criod). The result would be the same
if, on May 8, 1970, A flew a supply mission into
Cambodia from Thailand and A was killed when his
plane crashed on returning to the airbase in
Thailand.
Example (h). The facts are the same as 1n
example (4) except that on May 8, 1970, A was killed
as the result of an automobile accident while leaving
the airbase in Thailand shortly after returning from
a mission over Cambodia. Since A \vas not performing
a military duty at the time of his death which would
have qualified him for Hostile Fire Pay (as authorized
under section 9 (a) of the tfniformed Services Pay
Act of 1963 (37 U.S.C. 310), he is not deemed to
have died while serving in the Vietnamese combat zone
or to have died as the result of wounds, disease, or
i. niury incurred whi Ie servi ng in sucb comba t ?..one.
Accordingly, A does not qualify for the benefits of
s~ction 692 (income taxes on members of Armed Forces
on death) or section 2201 (members of the Armed
forces dying durin? an induction period).
(k) (1)
For periods after
November 11,1970.
members of the Armed Forces who:
Are present in a combat zone while
(i)
on leave from a duty station which Is located
outside a combat zone, or
( i i)
Pa s s over or through a comba t zone
during the course of a tri.p between two pOints
both of
~hich
lie outside a combat zone, or
- 6 -
(iii)
Are present in a combat zone
solely for their own personal convenience
shall not be considered to have "served in a combat
zone" within the meaning of paragraph (1) of subsection (a) or (b) of section 112 or to have been
hospitalized as a result of wounds, disease, or
injury incurred "while serving in a combat zone"
wi thin the meaning of paraer aph (2) of subsection (a)
or (b) of section 112.
(2)
This paragraph shall not apply to members
of the Armed Forces who:
(i)
Are assigned on official temporary duty
to a combat zone, or
(ii)
Qualify for Hostile Fire Pay (as
authorized under section 9 (a) of the Uniformed
Services Pay Act of 1963 (37 U.S.C. 310»
as a
result of presence in a co~bat zone.
(3)
Toe application of this paragraph may be
illustrated by
th~
fellowl."n oo e x a mp 1es:
- 7 Example (1). On'Apri1 24, 1965, an Executive
order designated Vietnam and certain adjacent waters
as a combat zone, retroactive to January 1, 1964. A
is a member of the Armed Forces assigned to a unit
stationed in Okinawa. On November 10, 1970, A
voluntarily visits Vietnam while on leave. A is not
considered to have "served in a combat zone" while
in Vietnam since he was present in a combat zone
while on leave from a duty station located outside
a combat zone.
~due
to unusual circumstances,
The ~acts are the same as in
example (1 except that~A is subject to hostile fire
while on leave in Vietnam. For that reason, A
qualifies for Hostile Fire Pay (as authorized under
section 9 (a) of rhe Uniformed Services Pay Act of
1963 (37 U.S.C. 3: )). A is therefore deemed to
have "served in a -.:ombat zone" while in Vietnam
during November 1970. Accordingly, A qualifies for
the benefits of section 112 (certain combat pay of
members of the Armed Forces). If A had been killed
or had died as a result of wounds due to such hostile
fire, he would have qualified for the benefits of
section 692 (income taxes on members of Armed Forces
on death) and section 2201 (members of the Armed
Forces dying during an induction period).
Example (3). The facts are the same as in
example (1) except that A is assigned to a ground
unit stationed in Vietnam. During November 1970,
A takes authorized leave and elects to spend the
leave period in Vietnam. A is not on leave from a
duty station located outside a combat zone nor is he
present in the combat zone solely for his mm
personal convenience. Accordingly, A's combat zone
tax benefits continue while he is on leave in Vietnam.
- 8 Exam10e (4).
The facts arc the same as in
example (1) except that A is assigned as a navigator
to an air unit stntion in Okinawa.
On December 1,
1970, during the course of a flight between A's
home base in Okinawa and another base in Thailand
the aircraft on which A is serving as a navigator
flev.' over Vietn.:un. A does nct qualify for Hostile
Fire Pay (as authorized under section 9 (a) of the
Uniformed Services Pay Act of 1963 (37 U.S.C. 310»
as a result of such flight.
Accordingly, A is not
considered to have "served in a combat zone" as
a result of flying over Vietnam since he p.:lssed
over a combat zone during the course of a trip
between two points both of which lie outside a
combat zone without having qualified for Hostile
Fire Pay.
Expmple (5).
The facts are the sa~c as in
example (1) except that A enters Vietnam on a 3-day
pass. A arrived in Saigon on November 30, 1970, and
departed from Saigon on December 1, 1970. A did not
qualify for Hostile Fire Pay (as authorized under
section 9 (a) of the Uniformed Services Pay Act of
1963 (37 U.S.C. 310» while he was present in Vietn~.
Accordingly, A is no t cons idered to have ,. served in
a combat zone!! while in Vietnwn since he was present
in a combat zone solely for his own personal
convenience.
Example (6).
The facts are the same as in
example (1) except that A is a military courier
assigned on official duty to deliver military pouches
in Saigon and in Bang~ok. On December 20, 1970, A
arrived in Saigon from Tokyo and on December 21, 1970,
A departed for Bangkok. Although he passed through
Vietnam during the cou~se of a trip between two points
outside Vietnam, A is nevertheless considered to have
"served in a combat zone" wh i le in Vietnam because he
was assigned on official tem?orary duty to a combat
zone.
Exa~rle (7).
The fa2ts are the SaDe as in
exc.,?le (1) exc-~?t that v. hile :.~. Sa::"gcn A is ",'ounccG
by hostile ~i~e and therefore ~G21:'fies for Hostile
7
-
9 -
Fire Pay (as authorized under section 9 (a) of
the Uniformed Services Pay Act of 1963 (37 U.S.C.
310». Although he was present in Vietnam while
on leave from a duty station outside Vietnam, A
quali[.i.t:;:, .LUL Lli.':: bellefits of section 112 (certaincombat pay of members of the Armed Forces) because
he qualified for Hostile Fire Pay (as authorized
under section 9 (a) of the Uniformed Services Pay
Act of 1963 (37 U.S.C. 310» while in Vietnam.
(This Treasury decision is issued under the authority
contained in section 7805 of the Internal Revenue Code
of 1954 (68A Stat. 917; 26 U.S.C. 7805).)
Commissioner of Internal Revenue
Approved:
OCT!'-: 19m
aI Zoha S. "olea
Acti~~
Assistant Secretary of the Treasury
Department of the
HINGTON. D.C. 20220
'fTION:
TREASURY
TELEPHONE W04-2041
F INANC IAL ED lTOR
::ffiLEASE 6: 30 P.M.,
lay, November 9, 1970
RESULTS OF TREASURY'S WEEKLY
BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
s, one series to be an additional issue of the bills da.ted August 13, 1970
,and
other series to be dated November 12, 1970 ,which \\fere offered on November 2, 1970,
opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
hereabouts, of 91-day bills and for $1,400,000,000, or thereabouts, of
182-day
s. The details of the two series are as follows:
91-day Treasury bills
maturing February 11, 1971
Approx. Equiv.
Price
Annual Rate
E OF ACCEPTED
ETITIVE BIDS:
98.632~
High
Low
Average
98.614
98.620
5.412%
5.483%
5.459%
182 -day Treasury bills
maturing May 13, 1971
Approx. Equi v .
Price
Annual Rate
97.160
97.137
97.142
Y
5. 618i
5.663i
5.653i
Y
~ Excepting 1 tender of $300,000
89% of the amount of 91-day bills bid for at the low price was accepted
36% of the amount of 182-day bills bid for at the low price was accepted
J... TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
.strict
lston
!w York
tiladelphia
.eveland
Lchmond
~lanta
licago
;. Louis
Lnneapolis
Ulsas City
:l.llas
Ul Francisco
TOTALS
AE121ied For
31,820,000
2,145,730,000
38,310,000
45,575,000
19,550,000
45,900,000
218,160,000
38,900,000
40,025,000
36,680,000
29,400,000
186 209°2°°0
Acce12ted
$ 31,820,000
1,235,280,000
23,310,000
44,625,000
17,995,000
35,870,000
191,560,000
34,780,000
32,805,000
31,370,000
16,345,000
105 2 580 z 000
$2,876,140,000
$1,801,340,000
$
AE2lied For
16,505,000
2,259,780,000
30,440,000
28,290,000
30,770,000
37,785,000
224,485,000
35,385,000
32,735,000
29,585,000
24,945,000
$'
EJ
AcceEted
5,375,000
1,156,940,000
7,370,000
21,825,000
15,770,000
18,045,000
52,155,000
22,765,000
22,935,000
16,770,000
1l,945,000
$
189~2752000
48~ 99~00O
$2,93:),980,000
$1,400,885,000
s/
Includes $ 325,235, 000 noncompetitive tenders accept~d at the average price of 98.620
Includes $ 187,235,000 noncompetitive tenders accepted at the average price of 97.142
These rates are on a bank discount basis. '!be equivalent coupon issue yields are
5.61 i for the 91 -day bills, and 5.90 i for the 182 -day bills.
Department of the TREASURY
INGTON. O.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
November 10, 1970
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
$3,200,000,000, or thereabouts, for cash and in exchange for Treasury
bills maturing November 19, 1970,
in the amount of $3,106,830,000,
as follows:
91-day bills (to maturity date) to be issued November 19, 1970,
in the amount of $1,800,000,000,
or thereabouts, representing an
additional amount of bills dated August 20,1970,
and to mature
February 18, 191I, originally issued in
the amount of $1,297,710,000, the additional and original bills to be
freely interchangeable.
182 - day bills, for $1,400,000,000, or thereabouts, to be dated
November 19, 1970,
and to mature
May 20, 1971
(CCS I!' :\1). 912793 KJ4).
The hills of both series will be issued on a discount basis under
competitive and noncompetive bidding as hereinafter provided, and at
maturit,; their face amount will be payable without interest. They will
be issu~d in hearer form only, and in denominations of $10,000,
$lS,COO, 550,000, $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, November 16, 1970.
Tenders will not be received
at the Treasury Department, Washington. Each tender must be for a
minimum of $10,000. Tenders over $10,000 must be in mUltiples of
$5,000. 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
- 2 submit tenders except for their QWtl account. Tenderl will be recel
without deposit from incorporated banks and trust companiea and ftCII
responsible and recognized dealers in investment securitiea. TeDeler
from others must be accompanied by payment of 2 percent of the flce
amount of Treasury bills applied for, unless the tendera are .cc~
by an express guaranty of payment by an incorporated bank or trult
company.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announe_.
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or relect any or aU
tenders, in whole or in part, and his action in any such respect shall
be final. Subj ect 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 deci~l
of accepted competitive bids for the respective issues. Settlement fo
accepted tenders in accordance with the bids must be made or completed
at the Federal Reserve Bank on NOvember 19, 1970,
in cash or other immediately available funds or in a like face am~nt
Treasury bills maturing November 19, 1970.
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.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Cooe
of 1954 the amount of discount at which bills issued hereunder are sol~
is considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the, difference between the price paid
for the bills, whether on original issue or on subsequent purchase, a~
the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
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
l-l~
Department of the TREASURY
IINGTON. D.C. 20220
TELEPHONE W04-2041
November 10, 1970
FOR IMMEDIATE RELEASE
UNITED STATES GOVERNMENT MAKES LAST SILVER SALE
The United States Treasury Department announced today that
November 10, 1970, brings to a close the sale of surplus silver offered
to the public at competitive sealed bids through the General Services
Administration.
A balance of approximately 23 million ounces remains in the
Treasury, of which about 15 million ounces is in bars containing gold
and must be refined. The remaining 8 million ounces is in various forms
and finenesses, most of which would require refining and processing to
be of significant commercial value.
Since the GSA weekly sales program began on August 4, 1967,
the United States Government has sold, through competitive bids, 305
million ounces of surplus silver. Of this total the United States Treasury
supplied 212 million fine ounces obtained from the melting of silver dimes
and quarters.
The estimated profit to the United States Government from the
sale of silver under this program will be approximately $147 million.
Final sales and profit figures will not be available until early
in December, 1970.
-000-
Department 01 the TREASURY
HNGTON, D.C. 20220
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE 46TH ANNUAL NEW ENGLAND CONFERENCE
THE SHERATON-BOSTON HOTEL
BOSTON, MASSACHUSETTS
THURSDAY, NOVEMBER 12, 1970, 1:45 P.M., EST
Let me begin by saying what a pleasure and honor it is
to address this conference. The Council's vital interest
in the growth of the New England economy is highly valued
by this Administration. The relationship of this region's
continued economic development and the growth of the nation's
economy is obvious, but this makes it no less important.
The region's growth is a vital component of the nation's
growth, and as the national economy expands, this will have
favorable effects on New England. We recognize and
appreciate this mutual relationship.
I do not plan a lengthy recitation of where this
nation's economy has been and where it is going. The
obsession with short-term economic developments that
characterized the recent political campaigns in my opinion
has generated too much heat and shed too little light.
After all, for a people concerned with growth and
development, it is the long-term trends which indicate
progress, not day-to-day changes in econo~ic statistics.
These long-term forces currently working in the economy are
favorable, in my estimation. We are successfully reducing
the rate of growth in prices, while increasing the economy's
rate of expansion.
K-525
- 2 -
This Administration will continue toward both objectives
in a balanced manner, without focussing on one to the
exclusion of the other. This will not be easy, but the
Administration's measured application of fiscal policy,
combined with the Federal Reserve's reasoned use of monetary
policy will help to.achieve our objective of a full
employment economy with substantially less inflation.
Hm-1ever, there are some who question the Administration's
ability to use fiscal policy as an effective tool for
economic stabilization. These critics point to recent
estimates of the unified budget deficit for fiscal 1971 which
have ranged as high as $20 billion. Since there does! seem to
be a great deal of confusion over the budget deficit this
year, and what any particular figure would sign~fy for the
economy, I would like to devote my remarks to this subject.
Let me begin by saying that speculation at the higher
end of this range is misleading. The fiscal 1971 budget
will not produce such a deficit unless the economy declines
substantially from what is now projected or Congress goes
on an irresponsible spending spree. The first eventuality
is quite unlikely, given current trends in the economy.
And I believe the second is as equally improbable. Budget
deficit estimates of this magnitude, generally conceived
in the heat of the recent campaign, ought now to be
buried along with old political brochures and buttons.
However, the point is fairly made that given the
experience of the economy and the trend of Congressional
appropriations since the Administration's last official
budget estimate that estimate is no longer accurate.
A good many people have attempted their own projections of
the fiscal 19 7 1 budget deficit. This has , of course ,
increased thE pressure on the Administration to issue new
~nd updated figures of its own.
But we have not done so for
several important reasons.
The major reason is that Congress has not completed
action on seven appropriations bills, several Administration
revenue proposals, and a number of legislative bills with
mandatory spending authorizations. To publish an estimate
of the budget deficit at this point would be like arguing
that the score at halftime tells us the final outcome of
a football game. We could of course toss out a number but
it would be worthless, and might only do a great deal of mischie
- 3 -
The Administration is this respect does not enjoy the
freedom of others. Whenever we release budget figures, we
want them to be as accurate as possible. We expect to make
policy decisions based upon these estimates and we expect
the Congress to do likewise. Our estimates will have important
implications for financial markets and will be a major
consideration in the monetary decisions of the Federal
Reserve. In short, we cannot publish a new deficit estimate
until we are reasonably sure of the facts.
Even when we do publish a revised estimate of the budget
position, there will be a major debate over its meaning. There
are almost as many different interpretations of a given budget
deficit as there are different estimates of its size. At one
end of the spectrum are those who believe that a deficit is a
deficit. This group maintains that a deficit will have the
same effects on the economy in all seasons, and that these
effects are detrimental. At the other extreme are those who
say we should ignore the size of the deficit altogether,
because it can in no way affect the progress of the economy.
I think most of us would agree that the most defensible
position is located between these two. The size of the budget
deficit does influence national income, employment and price
levels, but not in the same manner at all times. There are
times, like the present, when a reasonable budget deficit is
not to be deplored but accepted as a vital element in policies
to promote economic stability.
Most of US recognize that fiscal policy -- the way the
federal government handles total revenues, expenditures and
the difference between them -- can substantially affect the
growth of income and employment. A budget surplus is
restrictive because the government reduces aggregate demand by
more than it adds to it. A budget deficit is stimulative
because the opposite occurs: the government adds more to
aggregate demand than it takes out. Furthermore, the monetary
authorities can be stimulative as well in helping to finance
the debt created. These are elementary economic lessons, and
they tell us that at the current time, when the economy is
operating below its capacity in terms of both employment and
productive facilities, a budget deficit is in order to stimulate
expansion.
- 4 -
This does not necessarily mean that the Administration or
the Congress must labor around the clock to produce a deficit.
Our fiscal system automatically turns toward this position
as the economy slows down. This results from the action of the
so-called "built-in stabilizers" in the federal budget.
The term, "Built-in Stabilizers" refers to the way in
which revenues, and to a lesser extent expenditures, react to
changing levels of national income. As national income rises,
the tax base expands and federal revenues rise as well.
Given the progressivity of the federal revenue system, revenues
rise at a greater rate than does national income, as business
profits accelerate and individuals move into higher individual
tax brackets. With a given level of expenditures, the budget
moves toward an increasing surplus position. The combination
of the increase in tax liabilities and increasing budget surplus
will dampen to some degree the rate of expansion of aggregate
demand.
The opposite occurs when the economy declines. Individual
and corporate tax liabilities decline at a greater rate than
aggregate national income. Private incomes after taxes are
thus cushioned from the overall decline. In addition, the
federal government does not cut its expenditures as the economy
contracts, and as revenues falloff a deficit emerges. These
two effects dampen the overall decline of the economy.
- 5 This is precisely what we are seeing now. The mild economic
slowdown has reduced federal revenues and increased the budget
deficit automatically. This has cushioned the falloff and
helped set the stage for future expansion of income and employment. The degree of revenue reduction and deficit increase
attributable to the slowing is quite sizable. It reflects the
fact that the level 'of economic activity has fallen off, not
that the federal government has been profligate in some sense.
However, any larger decrease in revenues produced by cuts
in taxes or further increases in federal spending programs
will be of serious concern. Unfortunately, the need for tight
rein on spending has not been universally recognized. Recent
estimates by the Joint Congressional Committee on the Reduction
of Federal Expenditures indicate Congress has already
appropriated an amount which will increase the President's
budget outlays by $2.1 billion. The Committee further estimates
that Congressional inaction so far on Administration revenue
proposals to finance part of the growth in expenditures in
fiscal 1971 will add an estimated $4.8 billion to the deficit
total. These are estimates that give those of us charged with
designing and executing the appropriate fiscal policy some
sleepless nights.
It is difficult to keep all of these figures in their
proper perspective. And this is the major reason why there has
been so much confusion over the size of the federal budget
deficit, and what it bodes for the cause of economic stability.
The budget deficit that emerges because an economy is below its
potential is an encouraging ~ign: it means that fiscal policy
is playing its proper role in helping to offset the decline in
national income.
But an excessive contribution to the deficit by discretionary
increases in expenditures or cuts in revenues would be cause for
alarm. The deficit that could result would be too stimulative
for the orderly reduction of inflation and return to high
employment. It would certainly rekindle inflationary
expectations and the economic distortions that this produces.
Furthermore, a budget deficit of such magnitude would substantially
overburdened our hard-pressm financial markets. Government
actions to finance this deficit growth would tighten credit
conditions and squeeze out many meritorious borrowers, such as
housing and state and local governments.
- 6 Furthermore, soaring budget deficits could convince the
Federal Reserve it must tighten up on monetary policy to prevent
a resurgence of inflation.
The pressures promoting rapidly growing federal
expenditures are considerable. As the Administration pointed
out in the January submission of the fiscal 1971 budget,
uncontrollable outlays such as social insurance programs and
interest on the federal debt, could be expected to rise $7.2
billion over the previous year without any change in the
underlying programs. Furthermore, inflation as well has tended
to force federal government spending up.
During the 1960's, the costs of the goods and services
which all levels of government purchased to meet public needs
rose at a greater rate than the overall price level. This means
the federal budget must substantially increase each year just
to provide the same level of real goods and services the public
demands. In a sense, the budget must run ahead just to remain in
same place. Incidently, I find this a compelling argument in
itself for reducing the overall rate of inflation.
Given inflation and the increase in government workloads in
existing programs, we can see how difficult spending restraint
is. When new initiatives are proposed by the Administration,
and the Congress increases spending on its own, the matter is
compounded. It is possible we might reach a point where the
normal, uncontrollable increase in federal spending each year
would exceed the normal increase in revenues.
This is why the Administration has decided it necessary
to announce a standard of spending restraint. The President
has stated that federal budget outlays should never outrun the
amount of total revenue produced when the economy is operating
at full employment. This is not a "cop-out" on spending
restraint or deficits. It recognizes the reality of public
demands on the federal budget but sets an upper limit on these
demands to prevent the budget from becoming destabilizing. Nor
does this principle preclude a reduction in the relative size
of the federal sector and future tax cuts. If the Administration
and Congress can keep federal spending below this limit and
still ~eet the nation's high priority needs, then tax reductions
or retirement of part of the federal debt will be in order.
- 7 Observing this principle will not be easy. It will take
determination and some good old-fashioned courage to keep the
federal budget from ballooning out of all proportion. But I
feel we have made a good start. In the three years before
this Administration ~ook office, federal spending rose an
average of 15 percent a year. In fiscal 1970, that rate was cut
in half and the outlook for a repeat performance this year is
gJod.
But we cannot control spending without the cooperation of
Congress. If the rate of government spending growth is not
controlled we will risk renewed inflation. The price we have
already paid to reduce inflation is too high for us to allow
this to occur.
In summary, it is clear that we all have a vital interest
in seeing the nation's economy expand at a healthy,
noninflationary rate. Fiscal policy has an important role to
play in achieving this objective. Recently there have been some
estimates of the fiscal 1971 federal budget deficit which
reflect neither the realities of budget policy nor a will to use
it constructively. However, there will be a deficit this
year reflecting the reality that our economy is below its full
employment level. The President has announced his determination
that the federal budget will not refuel inflation, and
cooperation from Congress on this issue is sorely needed. In
this context, we must all now get on with the task of reducing
unemployment and increasing economic growth while continuing
our pursuit of price stability.
000
Department of the
TRfASURY
INGTON, D.C. 20220
TElEPHONE W04-2041
ADVANCE FOR RELEASE AM'S
TBlJRSDAY,NOVEMBER 12, 1970
TREA~URY ISSUES, REGULA[IONS.'CLARIFYING
"ARBITRAGE BOND"PROVISION OF .THE, TAX REFORM.ACT
.~ The, Treasury Department today announced temporary
regulations clarifying the tax status'of State and local
bond issues under the "arbitrage bond" provision of the
Tax Reform Act of 1969.
The new rules set out guidelines that State and local
governments can use in planning and marketing their bond
issues, including bonds issued to raise funds for the
purpose of acquiring outstanding home mortgages and student
loans.
The regulations apply to all State and local bonds
issued aft~r October 9, 1969, and until adoption of final
regulations.
The interest paid to buyers of most State and local
~overnment bonds is exempt from Federal income tax.
However, the interest paid on so-called "arbitrage bonds"
issued by these governments is subject to Federal income
tax. Under the Tax Reform Act, arbitrage bonds are bonds
whose proceeds are used by the issuing government in major
part to obtain other obligations or securities providing
a "materially higher" yield than the interest, servicing,
and other costs of the bonds themselves.
Uncle r the ne\v regul at ions, Treasu ry de fines "ma teriall y
higher" as being more than 1/2 percent. Thus, if a State
or local government's expected return on its use of bondraised :T,C)ney is not male than 1/2 percent, Treasury will
r;ot c(ns iCt L" tiE' b:-'rid iW di-1')itrage bon,j, and the interest
paid on it will be exempt from Federal income tax.
K-S24
- 2 Where a State or local government uses the revenue
from a bond issue to finance certain government programs
for example, to buy home mortgages of low-income and
moderate-income families or to purchase notes for loans made
to needy students -- the permissible return on these
investments may be ~arge enough to recover the costs of
administering the program, including a reserve to cover
losses. For administrative ease it will be presumed that
a return of up to 1-1/2 percent does not exceed such costs.
The State or local government, however, must use the return
on such investments in these government programs to make
additional loans for the same purpose as the original loans,
or for other specific purposes stated in the regulations.
The new rules include guidelines for State and local
government use in determining the costs of bond issues and
the yield on invested funds.
The temporary regulations will be published in the
Federal Register of Friday, November 13, 1970.
TITLE 26--INTERNAL REVENUE SERVICE,
DEPARTMENT OF THE TREASURY
SUBCHAPTER A--INCOME TAX
[INCOME TAX REGULATIONS]
PARr l3--TEMPORARY INCOME TAX REGULATIONS
UNDER THE TAX REFORM ACT OF 1969
Arbitrage bonds
DEPARrMENT OF THE TREASURY,
Office of Commissioner of Internal Revenue,
Washington, D. C. 20224
TO OFFICERS AND ~LOYEES OF
THE INTERNAL REVENUE SERVI CE
AND OTHERS CONCERNED:
The following temporary regulations are intended to
define the tenn "materially higher" as such tenn is
used in section 103 (d) of the Internal Revenue Code of
1954, and to provide special rules relating to obligations
issued to carry out governmental programs which require
the acquisition of certain securities or obligations.
Such temporary regulations are prescribed under section 103 (d) (5) of the Internal Revenue Code of 1954,
as added by section 601 (a) of the Tax Reform Act of
-1-
1969 (83 Stat. 6-),), and
,Ut'
to be issued under the
authority contained in such section 103 (d)
(5) and
in section 7805 of the Internal Revenue Code of
1954 (68A Stat. 917; 26 U.S.C. 7805).
In order to provide such temporary regulations
under section 103 (d)
(5) of the Internal Revenue
Code of 1954, the following regulations are adopted:
§ 13.4 Arbitrage bonds;
(a)
temporary rules.
In general--(l)
tion 103 (d)
Arbitrage bonds. Sec-
(1) provides that any arbitrage bond
(as such term is defined in section 103 (d) (2»)
shall be treated as an obligation not
in section 103 (a)
(1).
describ('~
Thus, the interest on
an obligation which would have been excluded from
gross income pursuant to the provisions of section 103 (a)
(1) \vill be included in gross income
and subject to Federal income taxation if such
obligation is an arbitrage bond.
tion 103 (d)
Under" sec-
(2), an obligation is an arbitrage
bond if it is issued by a governmental unit as
part of an issue of obligations (for purposes of
this section referred to as "governmental obliggations") all or a major po:ttion of the proceeds
-3 of which are (i) reasonably expected to be used
directly or indirectly to acquire certain obligations
or securities (for purposes of this section referred
to as "acquired obligations") which may reasonably
be expected, at the time of issuance of such
governmental obligations, to produce a yield over
the term of the issue of such governmental obligations
which is materially higher (taking into account
any discount or premium) than the yield on such
issue, or (ii)
reasonably expected to be used to
repk ce funds wh ich were used direct ly or
indirectly to acquire such acquired obligations.
For rules as to industrial development bonds,
see section 103 (c).
(2)
Definitions.
(i)
For purposes of this
section, the term "governmental unit" means
a State, the District of Columbia, a Territory,
or a possession of the United States, or any
political subdivision of any of the foregoing.
(ii)
For purposes of this section, the
"secur it ie s" has t he
Sd~ne
t ion 165 ( g ) ( 2 ) ( A ) a r,
mean ing a s in sec( :3) .
tcr~
- 4 -
section,
1. s
t\~i~
For purposes of
( 3)
::.I-,c yi:lG. produc~(, by ..:1cqui;.C(' o~)li() ltior.:;
not l\:-1a teri ally highe r" tho n t!lC y ic: lu proLlt;u:
by an issue of govern;-:,entol o~jli'jJtions i: it
o~
rcasono.bly expectcl:, ,it the ti:':"
suc:: tjovern;-:1cr.tal obli<Jations,
anC::
(5)
of this
p.:lrar;rap~)
of
t:1Cll t:1C adjusl.,,:
yield (cor,lputcd in aCcorU..:1ncc wi t~;
(4)
l.SS'.,,;('
I"
SL1bi',lril(Jr;1ph~;
to be prol.luced 1)1'
the acquired obligations will not excee(; the
<-ld)\l~;L\
y ie Id (conputec, in accordance wi th SUbpdL .1C)r ar"1 c;
and
(5)
issue of
of this paragraph)
governf,1(~ntal
to be produced by
obli(j'ations by
MOrc'
(~)
VIC
thdn
Olll'-
half of one percentage point.
( 4)
Yield.
( i)
For purposes of t:lis section,
"yield" shall be cor.lputec1 using the "interest cost
iX!
annum" r.lethod in accordance' with suu("!ivision (ii)
or (iii)
of this suhparagraph
~s
~r)
thp case may
or any other wcthoC:: satisfactory to the Connissioncr
\.J!"'.ich is cons is tcn t wi th <jencrally accepted principles
of
compu~l.ng
yield.
In the case of acquired
o~li-
gations, the yield to be rroduccd by such obli
s~al:
be computecl as i: all
ac(pirel~
;dti()n~
obli0<ltioDS
-
5 -
comprised a single issue of ohli:.iati::ms.
e:~ample,
~f
if the
(~overn:1en
Thus, for
tal uni t aC(Fl ires two b locl:s
Federal obligations, with different interest rates
and maturity periods for each block, the yield on
such acquired obligations
s~all
be cor;putcc1 as if
one issue of oblisations with different interest
rates and maturity periods
~ad
been acquired.
The maturity period of each acquired obli0ation
shall be the period that the governmental unit
reasonably expects to hold
(ii)
If all
~he
suc~
obligation.
governmental or acquired
obligations of an issue have a sinsle interest
rate (ex;?ressed
in dollars per $1,000 of face
amount of bonds), yield
s~2,11
be computed
usin~
the following 4 steps;
Step (1).
COMpute the total nUITber of bond
years for the issue by multiplying the
bonds
(treating each $1,000 of
f~ce
nu~ber
of
value as
one hone for purposes of this computation) of each
ICLaturity by
t~c:!
lc:vJth of the 7'1aturity pcriocJ
(expressed in ye&rs anf fractions thcre60
~nd
then ad:':ing to<]ethcr the amounts deterr.i:1ec.
for eacn
~aturity
period.
~
-
Stco (2).
l)
-
Co::-::)u~e the total. interest pay.lblc
on the issue by multi)lyin~ the total nu~~er of Land
years (as
co~~uteu
in stC? (1)) by the amount
.1ble, expressed in doll.1rs,
$1,000 of bonds for
Step (3).
o~e
.1S
p~y-
interest on each
yc~r.
Compute the net interest in
dollars for the issue by adding the amount, in
dollars, of any discount to, or by subtracting the
amount, in dollars, of any premium from, the total
interest payable on the issue.
Step (4).
Compute yield by dividing the net
interest by the product obtained by multiplying
the total number of bond years for the issue by 10.
(iii)
If governmental or acquired obligations
of an issue have different interest rates (expressed
in dollars per $1,000 of face amount of bonds),
yield shall be computed using the following 4 steps:
Step (1).
Co~pute
the total number of bond
ygars for each group of bonds bC.1rine the samc
interest rate
(trea~ing
each $1,000 of face value as
one bond for purposes of this
com?uta~ion)
in the
manner described in step 1 of subdivision (ii) of
this subparagraph.
- 7 Step (2).
Compute the total interest payable
on the issue by multiplying the total number of
bond years [or each group of bonds bearing
the S8Qe interest rate (as computed in step (1»
by
the amount payable, expressed in dollars, as interest
on each $1,000 of bonds for one year, and then
adding together the amounts determined for each group.
Step (3).
Compute net interest in the
manner described in step (3) of subdivision (ii)
of this subparagraph.
Step (4).
Compute the yield produced by
the issue in the manner described in step (4) of
subdivision (ii) of this subparagraph.
(iv)
For purposes of this section, the same
method of computing yield shall be used to corr")ute
the yield to be produced by an issue of governmental
obligations and to compute the yield to be produced
by acquired obligations acquired with the proceeds
of such issue of governmental obligations.
(v)
The following exarr.?le illustrates the
provisions of this subparagraph:
- 8 -
Example. Assume an issue of $200,000 ($1,000
per bond) with a stated interest (expressed in
dollars per bond) of $50 on bonds maturing in 1, 2,
or 3 years, a stated interest of $60 on bonds maturing
in 4, 5, 6, or 7 years and a stated interest of $70
on bonds maturing in 8, 9, or 10 year~. Assume also
that a price of $101. .00 has been bid for the issue.
The yield on the issue is determined in accordance
with the table below:
Amount
$10,000
5,000
25,000
Rate
-$50
50
50
10,000
10,000
30,000
50,000
20,000
25,000
.-!L OOO
Tota Is
60
60
60
60
70
70
70
Years to
Maturity
1
2
3
4
5
6
7
8
9
10
Bond
Years
Total Bond
Years at Interest
Rate
10
10
95
x
$50
-
$ 4,750
620
x
60
-
37,200
535
1,250
x
70
-
--.li
40
50
180
350
160
225
150
$200,000
$ 77,400
Net Interest Cost
Yield
R,450
$79,400
2,000
Less Premium
Divide by:
Interest
Cost
Interest
Rate
Product of total bond years
(1,250~
multiplied by 10
12,500
6.192%
v'\
0',
\
- 10 Adjusted yield.
C5 )
"("'rJj~1c ,;tcd
tl • .L'5 S""'Ct1.01, , "
':ie~_cl"
_
~
uccordance with
( i)
sub~~ragranh
For purposes of
shall hC' C0T':'1nut('<i in
(4) of this
naragra~h,
except that in the caS0 of-Ca)
to :'he
.;cquired obliqations, an
SUrl
aMoun~
of the administrative costs
exoected to be incurred in Durchusln1,
equal
r(~asonahly
c~rryin~,
and selling or redeeming such obligations shall he
treated as a premium on the purchase price of
such acquired obligations,
(b)
An issue of governmental obligations,
an amount equal to
~he
sun of the reasonably ex-
pected administratlve costs of issuing, carrying,
and repaying such issue of
onli~ations
shall be
treated as a dlscount on the selling price of such
issue of
(ii)
this
govern~ental
~he
?rovisions of
subparagra~h ma~
Exam~:0
obligations.
(~).
~:iustratp~
be
S~~te
sub~ivislon
Z
iss~es
Sl5
(i) of
hy the
~illion
of obli-
gat.:.ons al:.. of ·..J:-.:'C:~. Vllll. Mature. i:1 1(') years. TnI"'
oblIgations ar~ sold at. S1,000 each (par) to yi01rl
six ?ercent. i~t2rest. 7he adJust0~ yield producerl
by s~=h iss~e of obligations will ~e determined as
follows, ass"';""';1inq t:,c :ollo\o,ing acmi.nistrative
ex~cnses of ~ssui~g, carrying, and re~aying such
i.ssue of ob~lgations are reasonably expected:
- 11 costs
Printing ............. . $12,500
Fin~ncia1 3Qvisors ... .
25,000
Counsel fees ......... . 12,500
Total •.••.•••.................. $
Issuin~
Carrying costs
Paying agent and
trustees fees ....••.....•.... ~ ...
50,000
10,000
Repaying costs
Paying a 0 cnt ....... ~ ...........•..
3,uOO
Total administrative costs .......... $
63 , (00
Bond years (15,000 x 10 years) ...... $
Interest cost per $1000 bond
150,000
per year..........................
60
Total interest cost ......•......••.. $9,000,000
Discount or premium .....•••.••....
o
~lus adjust~encs ..........••......
63,00G
Net interest cost .........••..••.. $9,063,GGO
Divide by product of bond years
(150,000) multiplied by 10 ...... . l,500,uOO
Adjusted yield ••.........•••.....•
6.04 2 /~
Example (2). State Z uses the net procee2s
of the issue of obli[;ations described i:1 Example (1)
to acquire $14,922,0CO of student's notes at par of
$1,000 each under a student loan pro~rarn. The
students' notes 'I;·]ill all n:ature in 10 ye3rs, and all
have a stated interest of 7 1/2 percent. Expenses of
the program include printin~ of forms ($5,000),
financial advisors' fees ($11,000), counsel fees
($12,000), trustees' fees ($5,000), fees for the
collect{n::; a..::ents and various banks ,·:hich ad~inis ter
the loans ($100,000), advertising expenses ($10,000),
credit reference checks ($20, 000), and i_~enera 1 office
overhead ($5, GOO). Of the expenses lis ted in tr.e
preceding sentence, only those indicated on the
following table constitute adjustments to yield in
order to determine the adjusted yield to be produced
by the students' notes:
- 12 -
?urchasin~
cO..,'-S
Printing forms ........ $ 5,000
Financial advisoLs....
11,000
Counse 1 fees..........
12,000
Total ........................ ··· $
28,000
Carrying costs
Trus tees fees ..................... .
Total administrative
~osts
5,000
........... $
}.hOOD
Bond years (14,922 x 10 years) ....... $
149,220
Interes~ receivable per $1,000 note
per year ........................... .
75
Total interest receivable ........... . $11 , 191 , 500
Discount or premium ............... .
a
Minus adjustments ................. .
33,000
Net interest receivable ........... . $11 , 158 ,500
Divide by prod~ct of bond years
1,492 z200
(149,220) multiplied by 10 ....... .
Adjusted yield .................... .
7.4781.
(b)
Rule with respect to certain governmental
programs--(l)
ta~ions
General rule.
Su~ject
to the limi-
of subparagrc.?h (3) of this paragraph, any
obligatior.s wnich are part of an issue of governmen~al
obliga~io~s
reasonab~y
the proceecs of
w~ich
are
ex?ected to be used to financ€ certain
governmenLC.l. prograT.s (described ill subparagraph (2)
or
t~is
(2)
paragrapt) are not arbitrage obligations.
C--:,vern:nel'l ~a 1 programs.
A governmenta 1
program is described in this subparagraph if the
- i3 -
(i)
Requires the acquisition of acquired
obligations (such as, for example, student notes
or home mortgage notes) in order to carry out the pur-
t>urposes of this par:.graph, referred to as "acquired
program obligations";
(ii)
Is reasonably expected to result (sub-
sequent to the issuance of governmental obligations
issued to finance such program) in the making of
new or additional loans by the governmental unit
or by others to a substantial number of persons
representing the general public;
(iii)
Requires that substantially all of
the amounts received by the governmental unit with
program
respect to acquired/obligations shall be used for
one or more of the following purposes:
to pay the
principal or interest or otherwise to service the
debt on the governmental obligations; to reimburse
the governmental unit, or to pay, for administrative costs of issuing the governmental obligations;
to reimburse the governmental unit, or to pay, for
administrative and other costs and anticipated
future iosses directly related to the program financed
by such governmental
ob~igations;
to make additional
- 14 loans for the same general purposes specified in
such program; or to redeem and retire the governmental
obligations at the next earliest possible date of
~e1~mptior;
(iv)
and
Requires that any person (or any relaced
person, as defined in section 103 (c) (6) (C»
from
whom the governmental unit may, under the program,
acquire acquired program obligations shall not, pursuant to an arrangement, formal or informal, purchase
the governmental obligations in an amount related
to the amount of the acquired program obligations
to be acquired from such person by the governmental
unit.
(3)
Limitations.
The provisions of subpara-
graph (1) of this paragraph shall apply only if
it
~s
reabonably expected that-(i)
A major portion of the proceeds of such
issue of governmental obligations, including proceeds
represented by repayments of principal and interest
received by
~he
gcvernmental unit with respect to
acquired program obligations, shall not be invested
for more than a temporary period (within the meaning
of section 103 (d) (4) (A», in acquired obligations
(other than acquired program obligations) which
- 15 -
produce a materially higher yield than the yield
produced over the term of the issue by such governmental obligations, and
(ii)
~ordance
(!)
The adjusted yield (computed in
with paragraph (a) (4) and (5) of this
section) to be produced by acquired program obligat ions shall not exceed the adjusted yield (computed in accordance with paragraph (a) (4) and (5)
of this section) to be produced by sucn issue of
governmental obligations by more than one and
one-half percentage points, or
(b)
Where the difference in the adjusted
Yields described in subdivision (ii)
~)
of this
subparagraph are expected to exceed one and onehalf percentage points, the amounts to be obtained
as a result of the difference in such adjusted
yields shall not exceed the amount necessary
to pay expenses (including losses resulting from
bad debts) reasonably expected to be incurred as
a direct result of administering the program to
be financed with the proceeds of such issue of
governmental obligations, to the extent that
such amounts are not payable with funds appropriated
from other sources.
- 16 ( 4)
Examples.
-----
The ~ollowing exanples illus-
trate governmental progra~s described in subparagraph (2)
0:
this
paragra~h:
Exann1e (1).
State A issues oblicrations the
proceedS()r-,;nlc~ arc to be used to purchase certain
hone r.ortr"lr':o no::c::; ::-o~ c~;.::;-_orcic11 !.Ju:l:·~S.
'1'1112
purpose o~ ~he govern~ental proqra~ is to encourage
the construction of low i~co8e residential housinq
by cre (1. t inq a secondary m,'H}~et for nortGage notes
and theroby incrcCtsin~T t!-:c Llvailability of mortryclge
money for low inco~e housing.
~he leqislLltion
provides that the adju:.ted yield produced by the
mortgage notes to be acquired will not exceed the
adjusted yield produced by such issue of obli~ations
by nore than one and one-half percentage points.
Amounts received as interest and principal paynents
on the mortgage notes are to be used for one or more
of the follO\."ing purposes:
(1)
to service the debt
on the govC'rn~cntal oblig~tio~~, (2) to retire
such obliqations at their earliest possible date
of reQenption, (3) to purchase additional rnortqage
n~tes.
The governnental program is one which is
described in subpara~raph (2) of this paragraph
and the governnental obligations are not arbitrage
bonds.
Exanple (2).
State B issues obligations the
proceeds o~ which are to be used to Make loans
directly to students and to purchase fro~ conmcrcial
banks promissory notes made by students as the
result of lOLlns made to then bv such banks. The
legislation Lluthorizing the student loan program
provides that the purpose of the program is to
enable financially disadvantaqed students to
continue their studies. The iegislation also provides that purchases will be Made from banks only
where such banks agree that an a"7lount at least eqaal
to the purchase price will be devoted to new or
additional student loans.
It is reasonablv exoccted
that the difference in adjusted yields bet~een' the
issue of governmental obligLltions by State Band
the students' notes will be one and three-quarters
percentage points.
It is also reasonably expected
that the a~o~nt necessary to pay the expenses
- 17 (other than expenses taken into account in computing
adjusted yield) euumerated in subparagraph (3) (ii)
(b) of this paragraph, directly incurred as a result of administering State Bls student loan program,
such as, for example, losses resulting from bad debts,
insurance costs, bookkeeping expenses, advertising
expenses,. credit reference checks, appraisals, title
searches, general office overhead, service fees for
collecting agents and various banks which administer
the loans, and salaries of employees not paid from
other S0urces, will not require a difference in
adjusted yields in excess of one and one-half percentage points. The governmental program is one
which is described in subparagraph (2) of this paragraph. Since, however, the difference in adjusted
yields produced by the students' notes and the issue
of State B obligations is reasonably expected to
exceed o~e and o~e-half percentage points, and since
State B cannot show that one and three-quarters
percentage points is necessary to cover such expenses,
the provisions of subparagraph (1) of this paragraph
shall not apply to the issue of State B obligations.
If, however, State B reasonably expected that o~e and
three-quarters percentage points would be n2cessary to
cover such expenses, the provisions of subparagraph (1)
of this paragraph would apply and the governmental
obligations would not be arbitrage bonds.
Example (3). Authority C issues obligations
the proceeds of which are to be used to purchase land
to be sold to veterans. The Governmental unit will
receive purchase-money mortgage n~tes secured by
mortgages on the land from the veterans in return
for such land. The purpose of the program is to
enable veterans to acquire land at reduced cost.
The adjusted yield produced by the mortgage notes
is not reasonably expected to exceed the adjusted
yield produced by the issue of obligations issued
by Authority C by more than one and one-half percentage points. Amounts received as interest and
principal payments on the mortgage n~tes are to be
used for one or more of the following purposes:
(1) to pay the ad~inistrative costs directly
related to the program, (2) to service the debt
on the governmental obligations, (3) to retire
such governmental obligations at their earliest
possible call date, (4) to purchase additional
land to be sold to veterans. The governmental
- 18 L'ro,::,r.l:-1 15 or,c ',::1ic:-: 15 .'cscrihr: 1 r. 5U\-'L""),'1;.l;;rilph (!) o~ t~i5 L'ClrC'j;:;:;'I .:J.nd t~1C gn\'crnlc~t,ll
nblij<1tjnns are not ar\)i~!"<1r:-c !)o~~s.
The pro'!isirms of t:\is
( C' )
:; e c t i () n
'.'J
ill a ~ r 1 ~. ..} i t'I r r: s r· r: c t
t."
0 ~
1 i '::' ,1 tin n s
T}ecausr· OC t!-,(, nccc1 ~or iT"'::r:(~ j .'tc r;ui(~()!1r('
".' i t h res;; e c t t o t h r :; r () 'I i s ion s c r, n t ,1 i n (' (-; i!1 t.. ~ i s
'7;l:ClS'lr:' deci5in:-., it i 5 fnun< i":WClCtiC:;lhlc to
issue it with notice <lnrl pub} ic: procedur(' thC'reon
OJn:';er su1)section (h) of section 551 o~ th(' tit]r 5
of the U!1itC'~ StatC's Codr: or suhjC'ct to the
effective cl()t<: lirlitZ1tion o~ sllbscction (d) of
t~1)t section.
(Signed) ReDdolpll W. 'SILNwn
Commissioner of Irternal RevenU0
r~rrrnvcJ
:
NOV ~.. ·'J70
l Sign t ~; -:- ~ . ~ .-, '::.
l\ssistant Sccretc:.ry of the Tre~sl1ry
Jepartmentof the
TREASURY
'GTON. D.C. 20220
TElEPHONE W04-2041
ADVANCE FOR RELEASE. AM'S
FRIDAY, NOVEMBER 13, 1970
TREASURY CHANGES TAX RETURN RULES;
LOWER-INCOME PEOPLE NEED NOT FILE
The Treasury Department announced today that it has
adopted final regulations which will relieve about
5 million lower-income people from the need to file Federal
income tax returns next April.
The new rules were proposed by Treasury on August 1 and
were adopted without change. They carry out provisions of
the Tax Reform Act of 1969 which (1) provided a low-income
allowance that President Nixon recommended to help poorer
persons and increased the personal exemption, and
(2) said that persons whose incomes did not exceed the
higher tax-exempt amounts would not have to file returns.
In the past, a person has been required to file a
Federal income tax return if his gross income for the year
was S600 or more, or $1,200 if he was age 65 or over.
Under the new Treasury regulations, a return will not have
to be filed unless yearly income exceeds:
$1,700 for a single person;
$2,300 for a married couple or a single person
age 65 or over;
$2,900 for a married couple where one spouse
is 65 or over, and
53,500 where both husband and wife are 65 or over.
K-526
(OVER)
- 2 -
The higher filing requirements will apply to married
couples only if both husband and wife occupy the same
household at the close of the year. Temporary absences at
that time because of special circumstances such as business,
vacation or military service will not affect eligibility.
However, the higher requirements will not apply if either
husband or wife files a separate return, or if another
person is entitled to a dependency exemption for either the
husband or wife.
Persons whose incomes this year will not exceed the
higher tax-exempt levels, but who have had taxes withheld,
should claim refunds by filing returns ~vith the Internal
Revenue Service during next year's filing period.
The Tax Reform Act provided further increases in the
personal tax exemption and corresponding changes in the
filing requirements starting in 1973. Treasury's new
regulations also cover these subsequent changes, so that by
1973 more than 7.5 million lower-income people will neither
pay any Federal income tax nor be required to file Federal
tax returns.
The new rules were published as a Treasury decision in
the Federal Register of \.]ednesday, November 11.
000
eportment of the TREASURY
ITOH.
n.c. 20220
TELEPHONE W04-2041
rOR RELEASE UPON DELIVERY
EXCERPTS OF REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
for
ENFORCEMENT AND OPERATIONS
before the
NINETY-SIXTH ANNUAL MEETING
of the
NATIONAL WHOLESALE DRUGGISTS' ASSOCIATION
BAL HARBOUR, FLORIDA
November 16, 1970
9:30 a.m.
PRESIDENT NIXON'S ANTI-DRUG ABUSE ACTION PROGRAM-A CHALLENGE TO THE NATIONAL WHOLESALE DRUGGISTS' ASSOCIATION
Bal Harbour, Florida--Citing a 2l2-percent increase in seizure
of 5-grain units of contraband depressant and stimulant drugs by
U.S. Cllstoms officials in the past two-years, Eugene T. Rossides,
Assistant Secretary of Treasury For Enforcement and Operations,
told members of the National Wholesale Druggists Association here
today there :LS "reason to believe that the majority of the seized
drugs were manufactured in the lTnited States and shipped out of the
country with little regard to the character of the recipient, and
thereafter were diverted into illicit channels for smuggling back
into the U. S . "
Mr. Rossides told his audience that for the fiscal years of
1969 and 1970 Treasury's Customs Bureau had seized a total of
17 million 5-grain units of drugs being smuggled into the
United States. It was noted by the Treasury official that a major
portion of t~e basic ingredien~of the drugs had been exported
from American sources.
{-527
"Clearly," Mr. Rossides said, "There must be a halt to over.
production, and a strict accountability for that which is prodl'ce
Referring to the Comprehensive Drug Abuse Prevention and
Control Act of 1970 signed three weeks ago by President Nixon,
Mr. Rossides told tl1e manufactLlrers, "your indllstry, and each of
you, have an essential and unique role to play in the crusade
against the pollution of the mind and body."
IIYOLI can", he cont inlled "approach the new law in two ways··
negatively and positively.
If you choose to be negative, if ~v
choose to emphasize the inconveniences to YOllrselves and to resist
the spirit of the law, then the law will not realize its full
potential.
If, on the other hand, YOll approach the new law as an
opportlln it Y through which to c hanne 1 your a ff irma t ive cooperation,
a strong blow will be struck against drug abl'se.
I have no doubt
you will each choose the pos it ;_ve approach. I,
Mr. Rossides referred to signs of affirmative attitl1des i.n
the private sector, pointing ovt a recent statement by the
president of MGM Records in which drug grol1ps were described as
"the cancer of the industry" and that the company W)uld "undertake
an anti-drug policy" and "cancel the contracts of record groups
who abuse their rapport v.7ith the young by becoming psychological
pushers."
Other examples were the Na tiona 1 As soc ia t ion of Broadcasters,
who, Mr. Rossides said, were taking "a hard look" at certain pill'
commercials and the Advertising Council which is sponsoring a
series of anti-drug advertisements.
Mr. Rossides explained to his audience the Nixon
administration's six-point anti-drug abuse action program, whkh
he pointed Ollt, cons ists of:
1.
elevating the drug problem to a foreign policy level;
2.
recognition of long and short-range programs in
education, research and rehabilitation which will be
funded by national monies;
3.
flexible penalty structures;
4.
increased funds for law enforcement·,
3
5.
federal cooperation with the states in the drive against
drug abl1se, and
6.
total comml1nity involvement, incll1ding the private
sector.
This program, Mr. Rossides said, had in his judgement
"arrested the United States incredible downward slide into drtlg
abuse, although we have a long and steep cltmb ahead of us to
return to the level from which we fell~" and "has alerted the
international community to the global problem of drtlg abl1se."
-0-
Department 01 the TREASURY
iINGTON. D.C. 20220
:NTION:
TElEPHONE W04-2041
FINANCIAL EDITOR
RELl':A3fo; 6:30 P.M.,
lay, November 16 2 1970
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
'l'reasury Department announced that the tenders for two series of Treasury
one series to be an additional issue of the bills dated
August 20, 1970 ,and
other series to be dated November 19, 1970 , which were offered on November 10, 1970,
, opened at the Federal Reserve Banks today. Tenders were invited for $1,800,000,000,
,hereabouts, of 91-day bills and for $1,400,000,000, or thereabouts, of
182-day
Ls. The details of the two series are as follows:
'll1e
_3,
~E OF ACCEPTED
JE:TITlVE BIDS:
High
Low
Average
91-day Treasury bills
maturing February 18, 1971
Approx. Equiv.
Price
Annual Rate
98.675 ~
98.657
98.665
5.242%
5.313%
5.281%
182-day Treasury bills
maturing May 20, 1971
Approx. Equiv.
Price
Annual Rate
97.282
97.265
97.267
Y
5.376%
5.410%
5.406%
Y
~
Excepting one tender of $780,000
47% of the amount of 91-day bills bid for at the low price was accepted
94% of the amount of 182-day bills bid for at the low price was accepted
~
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
i strict
)ston
;w York
liladdphia
Leveland
Lchmond
~lanta
lic<1{~o
Louis
Lnneapolis
tnsas City
I.llas
ill Francisco
~.
TOTALS
A££lied For
$ 33,440,000
2,222,345,000
37,340,000
50,675,000
15,580,000
46,740,000
210,120,000
42,035,000
38,355,000
31,620,000
30,965,000
180,170,000
Acce£ted
$ 21,600,000
1,332,350,000
22,340,000
44,145,000
15,580,000
26,930,000
137,620,000
33,235,000
30,955,000
29,770,000
17,700,000
88,320,000
$2,939,385,000
$1,800,545,000
£I
A££lied For
$ 17,885,000
2,436,415,000
30,235,000
30,360,000
19,735,000
32,380,000
225,100,000
39,570,000
24,875,000
31,005,000
24,135,000
360,200,000
Acce12ted
6,725,000
$
1,212,835,000
9,095,000
16,860,000
6,835,000
10,580,000
25,680,000
32,970,000
5,175,000
16,510,000
10,635,000
49,370,000
$3,271,895,000
$1,403,270,000
sf
=ncludes $329,160,000 noncompetitive tenders accepted at the averaGe price of 98.665
[ncludes $161,040,000 noncompetitive tenders accepted at the average price of 97.267
~'hcse rates are on a bank discount basis.
The equivalent coupon issue yields are
j.43;:; for the
91-day bills, and 5.64% for the 182 -day bills.
eDepartment of the TREASURY
iHINGTON, O.C. 20220
'OR IMMEDIATE RELEASE
TELEPHONE W04-2041
November 17, 1970
TREASURY'S MONTHLY BILL OFFERING
The Treasury Departmen,t, by thi s pub1 ic notice, invi tes tenders for
wo series of Treasury bills to the aggregate amount of $1,700,000,000,
,r thereabouts, for cash and in exchange for Treasury bills
taturing November 30, 1970, in the amount of $1,501,273,000,
s follows:
274-day bills (to maturity date) to be issued November 30, 1970,
n the amount of $500,000,000,
or thereabouts, representing an
tdditional amount of bills dated August 31, 1970,
and to mature
.ugust 31, 1971, originally issued in the
tmount of $1,203,620,000,
the additional and original bills to be
'reely interchangeable.
365-day bills, for $1,200,000,000,
or thereabouts, to be dated
lovember 30, 1970,
and to mature November 30, 1971
'CUSIP No. 912793 KU9).
The bills of both series will be issued on a discount basis under
'ompetitive and noncompetitive bidding as hereinafter provided, and at
1aturity their face amount will be payable without interest. They will
)e issued in bearer form only, and in denominations of $10,000, $15,000,
;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, Tuesday, November 24, 1970.
Tenders will not be received
at the Treasury Department, Washington. Each tender must be for a
minimum of $16,000. Tenders over $10,000 must be in mUltiples of
$5,000. In the case of competitive tenders the price offered mu~t
be expressed on the basis of 100, with not more than thcee decimals,
e.g. 99.925. Fractions may not be used. (Notwithstanding the fact
that the one-year 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
nade on the printed forms and forwarded in the special envelopes which
~ill be supplied by Federal Reserve Banks or Branches on application
there for.
- 2 -
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 rece~~
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
trust company.
Immed ia te 1 y afte r the c los ing hour, tende rs 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 0
accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or re;ection 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 biddel
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 November 30, 1970,
in cash or other immediately available funds or in a like face amount 01
Treasury bills maturing November 30, 1970.
Cash and exchange tendecs will receive equal treatment. Cash adjustment
will be made for differences between the par value of maturing bills
accepted in exchange and the issue price of the new bills.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code
1954 the amount of discount at which bills issued hereunder are soldh
considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price paid
for the bills, whether on original issue or on subsequent purchase, a~
the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
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 froe
any Federal Reserve Bank or Branch.
000
Department of the
TREASURY
TElEPHONE W04-2041
iHINGTON, D.C. 20220
FOR IMMEDIATE RELEASE
November 17, 1970
TREASURY I S "(A.1EEKL Y BILL OFFERING
'
.
t'
. . t es 'cencers
The Treasury Department, by th 18
pu bl 1C
nO-lce~
1nV1
for two series of Treasury bills to the aggregate amount of
$3,300,000,000,
OJ:"" r:hel-eabouts, for cash and in exchange fo~ Treasury
bills matur.ing November 27,1970,
in the amount of ~:3,09L900~:;:~:
as follows:
90 -day bills (to maturity date) to be issued lJovember 27, 2.27:
in the amount of $1,900,000,000,
or thereabouts, representing ar.
additional. amount of bills dated ftLJc;ust 27,1970,
and to mc;turE'
February 25, 1971,
tcVS"JJCx:.Aj9J>.XxXXXXX:XXXXXX) or'iginally issued in
the amount of $1,402,560,000,
the additional and original bills tc be
freely interchangeable.
181- ddY bills) fOL $1,400,000,000,
or thereabouts, to be acted
and to mature May 27, 1971
(Cl~SIP >;0. 912793 KIQ).
November 27, 1~)70,
The bills of both seLies ~vil1 be iss.ued on a discount baE'is u~jer
:::ompcU tive and noncompetive bidding as hel-einafteL- provided I ar,o 2l:
11aturily their face amount will be payable without interest.
T:iey ·,·:iJ)
be issued in hearer form only, and in denominations of $10,000,
~15,GO(), S50,000, $100,000, $500,000 and $1,000,000 (maturity val~e).
Tenders will be received at Federal RescLve Banks and Brnilche::: un
to the closing hour, one-thirty p.m., Eastell1 0c,an~lard
time, Monday, November 23,1970.
Tenders will not be recei.ved
at the Treasury Department, h1ashington.
Each tender must be rot- 2
minimum of $10,000.
Tendel.-s over' $10,000 must be ill multiples c,f
'$5,000.
In the case of competitive tendel-s the price offered r~l.lst: ::e
expressed on the basis of 100, vJith not more than tlIL-ee decir.'21s ~
e.g., 99.925.
FLactions may not be used.
It is urged that ten~ers be
nade on the printed fOLms and forwarded in the special envelopes ~~ich
/Jill be supplied by FedeL'al Reserve Banks or Branc1'J'::'s on appl_ic2'Ci.c::
therefor.
1
Banking institutions generally may submit tenders for 2ccount of
2UStomers provided the names of the customers are set forth in s~c~
tenders.
Others than banking institutions will not be permitt0d [8
- 2 ubmit tenders except for their m';'11 account.
TcndEi',s \6,'
:JC rccei,,'uJ
ithout deposit from inco~porated banks and trust compa~~
~nd rro~
esponsible and recogrd;>J,i dealers in invC's't:ment securit::
Tende::-s
rom others IllUS l: ,be 2cco:.~:,mied by pCJ.yment of 2 pel~ccnt c, :_he faCE
mount of Treasury bi.lls ;<lplied [or', l.mlc~~s the tenders;
:')CCO'''r·2:lle::~
y an express guaranty o,:=- :layment by an incorporated bel0 1 : ,
trust
ompany.
Immediately after t}:' closing hour) tcnc1ci:s will 1')(': r', ned at t::2
ederal Reserve Banks an;; :31."ancho::; I follmJing ,·Jhich pubU'r:nouncc::--,2nt
ill be made by thc Trca:~:_:!..-y DepClci:!Tlent of the amount ancl
'dice: r".C'.~e
f accep ted bins.
Onl y tj·os e sub[d t c ing c cmpc t it ivc ~end :.r: '.'li 11 ';::2
dvis ed 0 f the ace er tanc cor rej ec L iun the t'C'of . The Sec re t. " Y of t;"G
reasury expressly reservE.':~; the right to accept or rC'ject ; .. '.' cr cJ,l
enders., in whole or in pc;ct, anel his actiqn in any such 1>' ),<c't shan.
e final.
Subject to these reser'vdUons, noncompetitive tJ ,c]crs for
ach issue fOl: $200,000 0" less \.Jithout stated pLice fL~o:n ::
one
i d d e r wi 11 be ace e pte d L: f u 11 at t b 12 ave r 2 g cpr icc ( ill 1,:;" ' c dec i::-c 21. .3 ~
f accepted competitive 1118 for the> r-espectivc issues,
~:i ~eii!e;lt for
ccep ted tende rs in ace or:2"nc e vJi th the bids mus t be mC=tJ(: " C OC1P Ie t eC1
t the Federal Reserve BCll'~'~ on EOi7cd:ier 27, 1~r;(),
n cash or othel~ immediat;,'ly availo1)le funds ot' In a like Ji':'C c'~[:;O~l~t of
reasury bills matuLing I:;·:'E'I!lber 27, 1970.
Casl) anc1 c~.';~:~;:·;t? '::2,:C2C:
III receive equal treat!:Lnt.
Cas1) ac1justrnC?nts ~vill be r:~,':,;~ fOLLffere::lCeE bet\'Jccn the Pi,;:: value of maturing bills accepU' in
{change and the issue price of the new bills.
Under Sections 45lJ (h) and l2?1
(5) of the Inten}[:.l ] "2n~_1e Ceoe
r: 1954 the amount of di.'::c:;,:unt at I.'hich bill.s issued hcr-c'_"
r 2.L-e sO:.G
considered to accrue \..'>.,'[1 the bills are sold: rec1c\::ill(~(':',
c':.1:el~c\'i5C
~sposf'd of, arId the bil1.::~ iJre excluded from con3id('~rc:;t5()I!
c8;n'C",l
;sets. Accorc1ingl), the ·;;·.711er of Treasury bills (other t: " } L~e
lsurance companies) issuiJ hereunder must include in hj,80~C tax
~turn, as ordinary gain l)!.- loss, the difference bet\\'c::en j i
! d_ce ;:)2:c1
lr the bills, h hether on Driginal issue OL" on S1JbSEC)UET:~;
,cii?:::C:, c:--d
te amount actually l:ece:;-\'oc] eithcj- upon s21e Ol~ rec1c npt:i.c:;;
;;)&turi;::y
lring the taxable year 1. ():.: which the return is made.
1
1
Treasury Department Circular l';o. 418 (current r('v:L::~';l
tice, prese ribe the tl?n::-: of the Trcasury bills anc~ gV·,i:
nditions of their issue:. Copie?: of the ci;-C'1J1Dr ma:,{ be
y Federal Reserve Bank c{ Branch.
000
J
i':
c:nd thL:::
the
:aL:ec frc:'l
Department of the TREASURY
TElEPHONE W04-2041
iHINGTON. D.C. 20220
l\jovr=:'~~ber
ing a "strip" of bills consisting or additions t.:' seven
series of Treasur;r bills.
17, 19'(0
outsta.nd~i.l'lg
'l8eldy
The reopc;ncd bills are those 1}[hich mature Januar'Y
7 to February 18, 1971, inclusivo.
They
i,;iU.
be
~'eopened
in the cm!ount of
$300 mn_li.on each -- a total of ~)2.1 billion.
December 2.
In
thi~3
" s tri.},H offering$ f:ubsc.ribers rrn.l2,t. subnit tend'3rs for
equHI &llounts of each of the seV8n ssries of b:lTL3 heing
banks Inay make payrnent of tbf.,ir
Oi"ll
I'('oj)t?ned.
Cormnereial
and tl"lcir customers' accepted tenders by
credit to Treasury tax and loan accounts.
The 'rreasu ry also 8,11nOUnced that in the rei')i.l>lI"
He(~kly
bill ,=,.uction on
November 23, . $:200 million of bills \·:i:U bE; sold in addition to the am0u.nt of
bills maturing, as described more
fu.l1~I
in the accompcU"wing invitation for
tenders.
'l'he Treasury said that. continuaU on of such weekly
a.dd:Ltion~,
Hi1l be
determined from week to Vl8,C!k depending on its cash needs and market COl1-
ditions.
; , (7
!
! )
,
I
\.;"
"1
'/1
'
'/
.+
'ij~f
,,( '}l
,~'. ,./ ...... ~ ~
.- '-,;,,"'<'.".;,
IINGTON. D.C. 20;110
"
,
....
PO,'.
,
,
...-
':... . . __ ,J'-=-- .
./ ~ <
L...,.
R J].llvlEDIATE RELEI\SE
":-'-:~ :"
I I"
'.
C\
November 17, 1970
TREASURY OFFERS $)2.1 BILLION STRIP OF vTEEKLY BILLS
The Treasury Department~ by this public notice, invites tenders for additional
Junts of seven series of Treasury bills to the agGregate amoUllt of $2,100 )000 ,000,
thereabouts, for cash. The additional bills will be issued December 2, 1970, viII
in the amounts, and viill be in addition to the bills originally issued and m8.turil~G,
follo ..;s:
nount of
litional
Issue
)0,000,000
)0,000,000
)0,000,000
)0,000,000
)0,000,000
)0 ,000,000
)0,000,000
)0,000,000
Original
Issue Dates
1970
Ju~y 9
July 16
July 23
July 30
August 6
AUGust 13
AU&,Llst 20
Maturity
Dates
1971
January 7
January 1'1,
January 21
January 28
Pebruary 4
Pebruary 11
Pebruary 18
Days from
December 2, 1970
to 11aturi t;y:
36
43
50
57
64
71
78
Average ... 57
PJnount
Currently
Outstanding
(in millions}
$
3,1l3
3,107
3,101
3,101
3,12:9
3,105
3,098
additional and original bills vlill be freely interchangeable.
Each tender submitted must be in the minimum 8.Tllount of $'10,000. Tenders o'rer
1,000 must be in multiples of $35,000. One-seventh of the arw1.mt tendered "rill be
llied to each 01 the above series of bills.
The bills offered hereunder will be issued on a discount basis under co:!~peti tiy~
noncompetitive bidding as hereinafter provided, and at matuxity their face amouI1L
.1 be payable 'vi thout interest.
They will be issued in bearer form only, aDd in
lominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000 (ma tu!'::. ty
.ue) .
Tenders will be received at Pederal Reserve Banks and Branches up to the closing
T, one-thirty p.m., Eastern Standard time, Hednesclay, November 25,1970.
rrenders
1 not be received at the Treasury Department, Hashington. In the case of competiti.ve
del'S the price offered must be expressed on the basis of 100, 'Ivi th not lEore tha:.fl
ee decimals, e.g., 99.925. Fractions may not be used. A single price must be
rnitted for each tender. It is urged that tenders be made on the printed forms 2.HQ
warded in the special envelopes which "Till be supplied by Feclerq,l Reserve Banks or
nches on application therefor.
t /'/.
~
v
- 2 Banking institutions generally may submit. tender-s for account of customers pro,d the names of the customers are set forth'in such tenders. Others than banking
~itutions vrill not be permitted to submit tenders except for their own account.
lers vJill be received \iithout deposit from incorporated bank.s and trust companies
from responsible and recoe;nizcd deal'ers in investment securities. Tenders from
,rs must be accompanied' by payment of 2 percent of the face amount of Treasury bills
~ied for, unless the tenders eTe accompanied by an express gua.ranty of payment by
.ncorporated bank or trust company.
All bidders are required to ag·cee not to purchase or to sell, or to make any agree-.
with respect to the p"LITchase or sale or other disposition of any bills of these
.tional issues at a specific rate or price, until after one-thirty p.m., Eastern
ldard time, Wednesday, November 25, 1970.
;8
Immediately after the closing hour, tenders will be opened at the Federal Reserve
:s and Branches, follmTing which public a.nnouncement "i'Till be made by the Treasury
Lrtment of the ruYlount and price range of accepted bids. Only those submitting COID.tive tenders ''Till be advised of the acceptance or rejection thereof. The Secretary
ihe Treasury expressly reserves the right to accept or reject any or all tenders,
rhole or in part, and his action in any such respect shall be final. Suhj ect to
:e reservations , noncompetitive tenders for $420,000 or less (in runounts as set
.h in the second paragraph) vrithout stated price fro:il anyone bidder "i-rill be accepted
'ull at the average price (in three decimClls) of accepted competitive bids. Settle. for accepted tenders in accordance with the bids must be made or completed at the
~ral Reserve Bank in cash or other immediately available funds on December 2, 1970.
qualified clepositary vTill be permitted to make settle)nent by credit in its Treasury
and loan account for Treasury bills allotted to it for itself and its customers.
Under Sections 4.54 (b) and 1221 (5) of the Internal Hevenue Code of 1954 the amount
iscount at which bills issued hereunder are sold is considered to accrue "i'lhen the
s are sold, redeemed or othenrise disposed of, and the bi11s arc excluded from conration as capital assets. Accordingly, the ovmer of Treasury bills (other than life
ranee cOllpanies) issued hereunder must include in his income tax return, as ordinary
or loss, the difference bet\'Teen the price paid for the bil1s, whether on original
e or on subsequent p"LITchase, and the amoUJlt actually received either upon sale or
mption at maturity during the taxable year for v,hieh the return is made. Purchaser::
strip of the bills offered hereunder shouJd,. for tax purposes, ta.ke such bills on
heir books on the basis of their purchase price prorated to each of the seven outding issues using as a basis for proration the closing market prices for each of
issues on December 2, 1970. (Federal Reserve Banks will have available a list of
e market prices, based on the mean betvTeen the bid and asked quotations furnished
he Federal Reserve Bank of Nevl York. )
Treasury Department Circular No. 418 (current revision) and this notice, pre)e the terms of the Treasury bills and govern the conditions of their issue. Copies
1e circular may be obtained from any Federal Reserve Bank or B~anch.
~I
)epartment 01 the TREASURY
iGTON. D.C. 20220
TElEPHONE W04-2041
ADVANCE FOR RELEASE AT 3 P.M. EST, WEDNESDAY, NOVEMBER 18
REMARKS OF THE HONORABLE JOHN R. PETTY
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE 57th NATIONAL FOREIGN
TRADE CONVENTION
WALDORF-ASTORIA HOTEL, NEW YORK, NEW YORK
WEDNESDAY, NOVEMBER 18, 1970
International Investment: The Role of
the Multilateral Financial Institutions
U. S. Investment Policy
Traditionally, the United States has recognized the
mutual benefits of increased foreign direct investment.
It is for this reason that the decision in 1965 to place
restraints upon direct investment was as controversial
within the government as it was without.
This was no less
true of the decision to shift to a mandatory program on
January 1, 1968.
Frankly, I think it was with considerable
relief that most government policy officials discovered
that the effect of the direct investment program was chiefly
on the manner in which the foreign investment was financed
and less upon the over-all level of direct investment.
K-528
- 2 I have no news to offer on the balance-of-payments
programs for 1971, other than to say that there are few
elements in our own balance-of-payments statistics, and in
the prospects ahead, which would permit aggressive steps
toward a further easing of the program.
Our over-all view
remains that foreign direct investment is a natural and a
desirable feature of a closely integrated international
economy.
Direct investment is especially important to the less
developed countries of the world because they thereby achieve
the most efficient and relevant transfer of technology.
In
-
fact, discussions which do not consider technological transfer
in the context of direct investment miss the most promising
element which fosters this transfer.
As a general aspect of over-all investment policy, it
seems to me that the United States should make it just as
attractive for a U. S. corporation to manufacture goods and
prepare services at home for foreign buyers, as it is to use
facilities in foreign countries.
While in the past there
may have been certain attitudes favoring foreign manufacturing
versus U. S. sourcing, it would not be reasonable to support
that attitude today; and by the same token it would be
contrary to our concept of freer world economic order if we
were to build in biases in our trade or investment system
- 3 which discriminated against foreign investment in favor of
U. S. facilities.
This even-handed attitude should be the
guidepost to our thinking.
Too many people are inclined to forget that if the
United States is to continue to be a capital exporter, it
will have to continue to earn in its current account, through
a trade surplus and through strong investment income, the
funds necessary to support the capital outflow.
This is some of the thinking which went behind the
administration's tax proposal for the creation of the domestic
international sales corporation, or the "DISC."
Leaving
aside the sound tax policy reasons for making the change,
many of us believe that the workings of our tax system have
tended to create a certain bias against U. S. sourcing of
goods for sale to the world market.
Furthermore, we do not
feel that our exporters have been in a comparably advantageous
position, compared to foreign exporters, when selling into
third markets.
In summary, this country's realistic long-term policy
for investment should be one of neutrality when speaking in
terms of government inducements or restraints on direct
investment.
Special attention should continue to be given to
investments in less developed countries.
They should have
- 4 continuing access to AID's investment insurance and
enjoy
a preferential position, compared with developed countries,
as long as temporary restraints exist.
*
*
*
*
*
*
*
Multilateral Development Banks
One very important aspect of international investment
which has not received the recognition it deserves involves
the activities of the multilateral financial institutions-the World Bank, the Asian Development Bank, and the InterAmerican Development Bank.
It is especially appropriate that
we consider this aspect of these institutions, as President
Nixon has assigned an increased emphasis to them in our overall aid efforts.
It is a misconception to regard these development banks
as exclusively government-sector oriented.
Of course their
borrowers are usually official institutions--you would expect
that, as the host country guarantee is required.
this fact
shou~d
However,
not cause us to lose sight of the pioneer-
ing work these banks do in stimulating private investment.
One of my primary responsibilities at the Treasury is
to supervise this country's relationships with these various
institutions.
On a daily basis, we work through our resident
Executive Director in each of these institutions on the
policies and procedures that these institutions employ in t~
- 5 pursuit of their objectives.
In contrast to the one-country-
one-vote formula employed in some international bodies, these
financial institutions work on the weighted voting system.
This means that the United States, based on its respective
contributions, votes about 42 percent of the stock of the
Inter-American Bank, 24 percent of the shares of the World
Bank, and 17 percent of the Asian Bank.
Our voting strength
notwithstanding, we are very much aware that these are international bodies through which decisions are achieved collectively--through the give-and-take of the board room.
It is
important, therefore, that our Executive Directors and the
Treasury supporting staff be intimately associated with the
details of individual loans and general policy issues in
order that our representation may be effective and persuasive.
To this end, the International Affairs Office of the Treasury
was reorganized recently to prepare itself, among other things,
for the expanding emphasis that the
U. S.
will be placing
upon the multilateral institutions in the area of economic
assistance.
The International Affairs Office as a whole is
now better able to coordinate and relate the problem of
economic assistance with over-all foreign economic policy.
- 6 I have divided my discussion of the role of the multilateral development institutions in furthering international
investment into four general categories:
(b)
indirect loans;
(a) direct loans;
(c) affiliated institutions; and
(d)
related activities.
*
*
*
*
*
*
*
The bread-and-butter business of the multilateral
development institutions has been direct project loans.
Characteristically, these have been loans for such basic
improvements as highways, irrigation facilities, dams, power
generating plants and harbor improvements.
They have been,
in effect, the less developed countries' counterparts to our
own Grand Coulee Dam, the New York Port Authority, TVA, and
the Federal Highway Program.
Most of these direct loans--
by their nature--are made to governments or governmental
authorities.
But they have by-products highly beneficial to
private investment.
Who will deny, for example, that the
great expansion in highways provided the basis for the
private trucking industry in the United States.
true in the less developed countries:
The same is
roads have meant that
private farmers can expand production without fear of spoilage
caused by lack of transportation.
Technical assistance, too, frequently precedes agricultural loans, teaching farmers new crops and new agricultural
Methods. There are other examples.
Agricultural sector loans
- 7 and irrigation are specifically designed to assist the small
private farrner--traditionally one of the modern world's most
enduring entrepreneurs.
These are examples of infra-structure financing fundamental to the creation of an environment attractive to private
investment.
In helping to assure adequate basic facilities,
the development banks establish the prerequisites for important
private sector investments.
While
most of the direct project
loans have been to official borrowers, a significant number
and volume have gone directly to the private sector.
This is
not only true of the World Bank, but the Inter-American and
Asian Banks as well.
In special circumstances, where development planning and
performance warranted it, and where foreign exchange availabilities for normal imports were an important constraint,
the World Bank has made so-called import maintenance loans.
These have been designed to make foreign exchange available
for raw material, replacement parts and other imports needed
to permit specific lines of existing industry to continue to
operate at full capacity.
Such loans provide direct support
to major private enterprises related to their immediate
operating needs that could not otherwise be fulfilled" given
the country's foreign exchange situation.
*
*
*
*
*
*
*
- 8 Although my second category is "indirect loans,"
these loans contribute directly to the private investment
sector of a developing economy.
This occurs in a number
of ways.
The multilateral banks might lend to local development
banks (private or official) so that the latter may relend
to finance local private investments in specified areas.
There are several practical advantages to be gained from
such a system.
Needless to say, it is difficult to appraise
from Washington a $200,000 private investment in Thailand,
Uganda or Colombia.
This two-step relending mechanism
efficiently meets the needs of distant smaller enterprises.
This procedure also makes use of the expertise and knowledge
available in the local country.
Moreover, by encouraging
the active participation of officials in the less developed
countries in the selection of private sector investments,
their involvement with private enterprise is enhanced.
It is interesting to note one highly constructive
innovation in this relending pattern.
Several years ago the
Inter-American Development Bank made a line of credit of
$10 million available to ADELA, the private, international
investment group which specializes in private sector investments in Latin America.
ADELA's operation has been so
successful that the International Finance Corporation
- 9 recently
gave them a further $10 million financing for an
expansion of their activities.
Another such private multi-
national investment group, PICA, has been established in
the Pacific area, and I would hope there will be more in the
future.
The multilateral institutions have used locally-based
private development finance companies--which often have
significant foreign capital associated with them--as natural
channels for financing private sector development.
Where
such companies do not exist, the multilateral institutions
have encouraged their establishment by participating in
their capitalization, thus helping to bring together domestic
and foreign capital which can then be profitably put to work
locally.
Loans of the multilateral development institutions may
benefit the local private sector in another way.
A govern-
ment or a central bank may borrow on long repayment terms,
and use the proceeds to import and sell development goods
for cash or on short credit terms.
local currency counterpart funds
This process generates
that are at the disposal
of the government or central bank and remain so until the
time, much later, when the multilateral institution's loan
must be repaid.
In the interim they have in a number of
cases been programmed for investment in local enterprises
through various financial intermediary mechanisms.
- 10 Opportunity for Exporters
Both direct and indirect loans provide special
opportunities for
u.s.
suppliers.
The large resources
available to the World Bank, the Inter-American Development
Bank and the Asian Development Bank finance vast shipments
u. S.
of goods and services all of which/industry is eligible to
supply.
In the World Bank Group, for example,
open bidding
rules prevail which are designed to put all suppliers around
the world on an equal footing in order to have bids awarded
on the most competitive basis possible.
Treasury Secretary
Kennedy has given special instructions to our Executive
Directors to review the practices and procedures employed
with respect to procurement in these multilateral institutions to assure that open bidding principles prevail in
fact as well as in theory.
We are satisfied with what we
find and I would encourage all of the members of the
National Foreign Trade Council to re-examine their policies
with respect to bidding on World Bank and Inter-American
and Asian Bank contracts and make sure that they are giving
proper attention to this source of additional business.
-
11 -
Let me remind you that the implication of our new policies
aimed at multilateralizing economic assistance is to make
this source of business for you a growing and an increasingly
more important area of concentration.
On our part, we will
assure the fair and equal access of our suppliers to their
awards, but from then on it is up to you.
I urge that you
review the business potential involved.
*
*
*
*
*
*
*
*
The third grouping--the affiliated institutions of the
multilateral banks--provides the most direct and most obvious
form of support for the private sector.
The International
Finance Corporation, of the World Bank Group, was created in
1956 for the purpose of encouraging private enterprise through
actually taking an equity position in new or expanding operations.
Bringing an important amount of resources to bear in
an emerging area of investment, the IFC has proven it can
provide a critical "helping hand" for private sector expansion, and generate profits while doing so.
In effect, therefore, it provides, with a minimal amount
of capital ($100 million capital plus $400 million of available
credit), a catalyst for significantly larger investment.
With
well over a decade of experience behind it, the IFC is now
positioned to playa more dynamic role in the future.
encouraged that its management shares this outlook.
We are
- 12 While the Inter-American Bank does not now have an
affiliated institution similar to the IFC, ways to increase
the
the bank's more active involvement in/private development
sector are presently under discussion by its Board of
Directors.
The Bank's thinking in this direction has been
stimulated by the recent emphasis of Raul Prebisch, the
distinguished Argentine economist,on the jOb-creating and
other desirable effects of industrial activities.
The question has been asked whether the Bank should
form a subsidiary similar to the IFC or whether another
more
arrangement,
including/loans to the private sector or
participation
way to proceed.
in private financieras,is the preferred
In the months ahead this subject will be
under active discussion.
One of the points to keep in
mind is which institutional approach will have the quickest
impact in terms of the timing involved in making funds
available.
The management problems of this type of opera-
tion are very great and efficiency must, therefore, have
a very high priority.
It is not clear to me that any
definitive institutional decision needs to be taken in the
next few months, but I would hone that decisions could be
made which would begin to make funds available in an
efficient manner, in a manner fully complementary to the
development objectives of the country involved and in a
manner which will create jobs and help generate savings for
the local economy.
- 13 A highly s igni f icant benefit sterruning from the multilateral
banks and their affiliates is the encouragement of capital
markets in developing countries.
The IFC, for example, seeks
to achieve this objective in many ways, including requirements
for new stock issues by enterprises in which it invests, by
sales to local investors from its own portfolio, and by serving
in effect as an underwriter of new securities issues.
The
Inter-American Bank, likewise, has shown concern for the development of local capital markets and has sponsored in-depth studies
of capital market potentialities in many of its member countries.
In this connection, the lOB expects to cooperate with the
Inter-American Corrunittee for the Alliance for Progress (ClAP)
in the latter's utilization of a $5 million Special Fund
provided by the United States as an
outgro~thof
the recent
IA-ECOSOC Conference to further capital market studies in
Latin America.
*
*
*
*
*
*
*
*
There is a fourth manner in which the multilateral
development banks foster investment in the lesser developed
areas.
The World Bank Group, for example, has created a
mechanism, already subscribed to by more than sixty nations,
through which host governments and foreign investors may
resolve differences.
This is the International Center for
(ICSID).
the Settlement of Investment Disputes! With the establishment of ICSID, an increasingly comprehensive legal framework
is now being constructed for the utilization of its services
- 14 in the event of future disputes.
By providing an adequate
means of settling differences that has not heretofore existed,
an important step has been taken to aid the investment climate.
A second development is under way in the World Bank Group
that will affect the future climate for foreiqn investment.
This is the attempt to creat an International Investment
Insurance Agency (IlIA).
(i. e. political risk)
IlIA would provide "specific risk"
coverage to investors of member nations,
of the general type now available from U. S. bilateral proqrums,
and would provide reinsurance facilities for various
nation~l
investment insurance agencies.
The United States feels that creating a multilateral investment insurance scheme is a logical next step in increusing
the activities of multilateral institutions in investment, and
we are encouraged by the willingness other nations are showing
in trying to work out some reasonable scheme.
This is not the
type of thing which will be created overnight or whose impact
will be felt immediately.
However, there is growing momentum
behind this important initiative, and I believe it will prove
to be an imrortant contr ibution to the mul tilateral development
network.
I would like to end this summary of the contribution
that multilateral development institutions make to the
promotion of foreign trade and investment by observing that
in my daily contacts with these institutions, their managements,
- 15 and the governments represented, I find that decisions on
investments are those which provide for the most efficient
allocation of resources.
There is a clear recognition that
needs far exceed available resources and that actions which
stimulate an attractive private investment climate must be
encouraged, indeed, actively fostered, and that over the
long run, private investment must have a strong base if
these developing economies are to be self-sustaining.
I do not mean to be "pollyannish" about the questions
and doubts that appear about the role of private investment.
I am closely involved in the. broad issue of expropriation
and nationalization and the question of prompt and adequate
compensation.
I think these national sensitivities and,
in some cases, philosophical differences and genuine beliefs
of being mistreated, have to be met squarely and worked out
in a fair way.
No simple pronouncement on my part or anybody
else's will make these problems disappear.
However, I am
very much encouraged that through the multilateral institutions we are creating the habit of international financial
cooperation, that we are developing a forum where mutual
respect and understanding take place and our differences
are resolved in a positive manner.
The objectives of the
investor and the host country are not mutually inconsistent.
With that fact and with good understanding we can work the
problems out together.
tepartment of the
TRfASURY
GTON, D.C. 20220
TELEPHONE W04-2041
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE ANNUAL MEETING OF THE
0JATIONAL ASSOCIATION OF REGULATORY uTILITY COMMISSIONERS
LAS VEGAS, NEVADA
NOVEMBER 19, 1970, 2:00 P.M., MST
ASSISTA~T
THE OUTLOOK FOR FINANCING AND INFLATION
There is a long-standing tradition in the Treasury
that we do not try to forecast the future trend of interest
rates. Whether this policy can be traced back to Alexander
Hamilton, the first Secretary of the Treasury, I do not know.
I do know, however, that it is the distillation of great
wisdom, so I will try in my remarks to aV6id any violation
of that principle. Nonetheless, 'a view from the Treasury
may be useful in helping to focus on some important influences
on capital markets and investment decisions.
On this occasion, I should like to concentrate on mOre
immediate matters -- the budgetary position, Treasury finartcing
requirements, and the difficult problem of inflation.
In the longer haul, however, I think we must also consider the possibility that we have entered a period in which
there may he a tendency for the demand for capital to outruh
the supply. On the one hand, the age distribution of th~
population, if past savings patt~rns ar~ maintained, suggests
that the personal savings rate could decline ov~r the next
decade or so, although rising affluence might require this
supposition to be modified.
On the other hand, we are all aware of the tremendous
demands for new capital investment. I need mention only the
national housing goal and demands for(~61lution abatement as
defining two areas in which investment requirements will be
greatly expanded. The needs of the utilities industry
provide a third example.
K-529
Thus we may be in a period in which interest rates
will tend'to be high rather than low and in which the competition for funds in securities markets, in particular, will
be sharp. And this ,is without allO\·;ing for the possibility
of the effects of some other changes which now seem to be
underway.
Housing, through F~~1A and the Home Loan Ranks and G\~1A
guaranteed mortgage-backed bonds, for example, may more and
more be financed through securities markets rather than
through savings institutions. Our experience in the last
few years, during which Federal credit programs have expanded
mightily, suggests that housing will not be alone in this.
Many other claimants for investment funds also appear to
believe that the capital markets are almost infinitely expansible and that all their needs can readily be met simply
through issuing securities.
But I indicated at the outset that I would concentrate
on some more immediate influences.
During this past year, progress has been made in estahlishing a foundation for a renewed period of more stable prices
and real economic grO\oJth. But, as \,'e are all a\,'are, achiedng
this first step has not been easy and, indeed, has heen costly
in terms of unemployment, reduced industrial output, and increased unutilized capacity. It has been only recently that
the first dividend, some slowing in the rate of inflation, has
become apparent, except perhaps In the heat of a political
campaign.
At any rate, we have had, since the first of the year,
a general easing in credit conditions, particularly in the
short-term area. Interest rates today in these markets are
at or below the rates prevailing in early 1969. So from the
short-term borrower's viewpoint, the market situation is at
least as good as it has been for about h;o Years. The decline
in rat e s, howe v e r, has not bee n as dram a tic' in the Ion g - term
area, where present rates are not much below the high levels
prevailing at the start of the year.
In part, the apparent stickiness of long-term rates is
the u~ual cyclical phenomenon. Short rates are much more
V?la~lle.
In part, high long-term rates also reflect a contln~l~g strong demand for capital by corporations and municipalItIes.
In addition, however, we are now seeing debt funding on
a growing scale. Many borrowers, who financed short during
the period of highest rates, are now finding it desirable and
necessary for a variety of reasons to adjust their liability
structure and to reduce their short-term debt to more reasonable levels.
Thus, we are now experiencing a kind of "reverse twist"
operation. In long-term markets, we continue to have extremely
heavy cal endar s for bo th corpora t e and mun i c i pa I bonds. Long term municipal bond rates, as measured by the IBA's series on
new 20-year municipal bonds have hardly fallen below the level
reached at the end of 1969, even though they are sharply down
from the very high peaks reached in June this year.
Treasury's own series on new Aa corporate bonds shows
a similar pattern. Present rates are just below December 1969
levels, but there has been a substantial decline from the June
peak, which was reached at a time when capital markets were
close to a crisis-type atmosphere.
Trends in Treasury Financing
The improvement in capital markets has also been reflected in the yields the Department of the Treasury has had
to offer on its new securities. The yield curves which we
have drawn successively for the February, ~ay, August, and
November refundings have been successively lower.
Indeed,
the recent dramatic drop in rates in the Treasury market
allowed our most recent financing -- an 18-month note sold
at auction -- to be sold at the lowest cost to the Government
for a comparable issue in nearly two years.
Treasury financing requirements, however, remain relatively heavy. To give some perspective, a year ago, in the
July-Derember 1969 half of fiscal year 1970, we incurred
a half-year budget deficit of about $8 billion.
In that same
half year, gross Treasury market borrowing totaled in the
neighborhood of $14 billion. The difference between the
borrowing total and the deficit was accounted for largely
by the retirement of $4 billion of Treasury debt (attrition
on maturing issues and the cash payoff of December Tax Anticipation bills) and $2 billion of agency debt and participation
certificates.
In the current half year, July-December 1970, our estimates are that there will be a budget deficit in the vicinity
of $16 billion and that gross Treasury market borrowing will
- 4 -
be about $17-1/2 billion. Taking into account debt retirement totaling about $3-1/2 billion (attrition, including
attrition in the November refunding and the payoff of the
September TAB's) our net cash horrowing in the market should
total about $14 billion, of which all but $2-1/2 - $3 billion
has already been done.
With reference to the outlook for the second half of
the fiscal year, I have little to add to the discussions
about the size of the overall budget deficit. The figure
for the whole fiscal year clearly will not be as little as
the $1.3 billion estimated in May. Just to provide some
perspective, one can anticipate that on balance the Treasury
will be retiring some debt in the second half of the fiscal
year, although perhaps not a great deal, even if the budget
deficit were as much as $15 billion. In any event, the only
large surplus months are likely to be April and June.
I have already commented on the attempts of private
borrowers to lengthen their liability structure and to bring
it into better balance with their assets. The Department of
the Treasury, too, feels this same pressure.
Since June 1965 the average length of the public debt
in private hands has been decl ining sharply.
Indeed, in this
period of just 5 years and 5 months the average length has
shortened to 3 years and 7 months.
From a debt manager's point of view, the average length,
of course, is simply a summary statistic. What it represents
is a substantially larger debt management task. Des~ite the
dramatic turnaround from the fiscal 1968 deficit of $25 billion,
we have, however, seen our annual refunding problem (coupon
securities) rise by about 50 percent -- from $14 billion of
maturing debt in 1968 to $22 billion in 1969 and in 1970, and
to $23 billion ahead of us in 1971. The yet-to-be-determined
figure for 1972 already has $18-1/2 billion in it, with more
in prospect if we are obliged to issue short-term obligations
in the first half of 1971.
Also in looking at our liability structure, we are
impressed by the fact that the amount of very short-term debt
under a year ~as risen dramatically in recent years. In other
words, there IS a growing concentration of our liabilities
and an indication of future financing problems.
- 5 -
As you know, we recently have undertaken the first
Treasury coupon auction in 3S years. We believe that the
auction technique could become a fairly routine method for
the issuance of new coupon securities. This does not mean
necessarily, of course, that it would entirely supplant more
traditional methods of pricing Treasury issues: But in times
when markets are moving rapidly, as they have been this past
year, traditional marketing techniques involve substantial
risk. Between the date on which the security is priced and
the date on which the books are closed, there can be such
large changes in market conditions that the pricing is no
longer appropriate. And here we are concerned both about
too thin pricing, in which case subscriptions might become
inadequate, and too rich pricing, in which case there would
be windfall profits and a stimulus to undesirable speculative
activity.
Putting all of these considerations in the balance, we
are also somewhat op(imistic that use of the auction technique
may make it easier to do more of our cash financing outside of
the bill area.
In retrospect, we find that substantially all
of Treasury's cash financing in recent years has been through
regular bills or tax bills.
Concentration of Treasury offerings in a limited sector
of the market has created debt management difficulties and
also has been one factor in stimulating disintermediation with
its wide-ranging consequences. Indeed, we hope that we will
have widespread support for removing the 4-1/4 percent ceiling.
I would like briefly to refer to the borrowing activities
of the various Federal agencies, both those which are still
included in budget accounts and those which have become privately owned.
From the end of 1965 through June 1970, the amount of
such age~cy debt has risen by $27 billion, or nearly 150 percent. During 1969 and the first half of 1970, largely to
provide funds to the housing market, the government-owned
and government-sponsored credit agencies borrowed a total of
$12-1/2 billion.
In the current half year, it appears that
they will raise something approaching $3-1/2 billion through
additional new borrowing.
In summary, I look to the longer-run factors that may
tend to hold interest rates at relatively high levels ~hen
viewed in historical perspective. In the shorter-run outlook,
-
l'
-
as the economv comes into better balance, there should also
be a better balance between the demand for and supply of funds.
There are also new factors in the market. We have Federal
agencies, such as FNMA and the Home Loan Banks on a larger
scale than before and GNMA-guaranteed mortgage-backed bonds,
which will give new claimants readier.access to ~ecurities
markets. Treasury financing, also, wIll be a major factor.
The Problem of Inflation
Because of the important interrelationships between the
levels of interest rates and the pace of inflation, I would
like to turn briefly to that latter subject. I would like
to offer a personal evaluation of the inflation problem, and
to deal with the difficulties as straightforwardly as I can.
Some perspective is needed so we avoid a fruitless "Who
shot John?" type of discussion. During the first half of the
decade of the 1960' s, the Am er i can economy exper i enced a period
of considerable business prosperity in which corporate profitability reached relatively high levels. Meanwhile, labor costs
remained fairly constant as wage increases tended to be in the
zone where they could be absorbed by rising productivity.
Indeed, rising wage rates were a mechanism through which the
gains in productivity were shared with the consumer sector of
the economy. The trends in profits and wages were, of course,
closely interrelated.
A quite different situation obtained in the second half
of the decade of the 1960's. Wage rates escalated as productivity slowed down and profit rates declined to quite low
levels. In 1970, we still are operating with the legacy of
the late 1960's.
In this decade-long perspective, I find it hard to
identify either heroes or villians or even many net winners
or losers. However, what does seem clear is the nature of the
present i~fl~tionary pressures and the necessary conditions
for allevIatIng them. What is clear is that we are no longer
in the stage where an overheated economy - - one where aggregate
demand exceeds current productive capacity -- is the basic
cause of inflation. Also, relatively low profitability indicat~s that the inflationary pressures are not now coming from
bUSIness as a whole.
_
As I ~e~ it, we are now in the stage where rising wage
costs -- r~slng faster than productivity -- are the major
force.pushlng up prices and thus keeping us from making substantIal progress in reducing inflation. But, the objective
- 7 -
to strive for should not be confused. It certainly is not to
bring down wages or even to keep wages from rising. That is
neither necessary nor desirable for a healthy economy and an
equitable society.
We also need to keep in mind that other elements of
cost -- including profits -- from time to time do and have
contributed to inflationary pressures. In the service area,
for example, proprietors'income (especially of professional
personnel) often rises far faster than any gains in efficiency.
The task of economic policy at present is to convince
the participants in wage-price decisions that unless they
can more closely relate wage and other cost increases to
productivity growth than they have been doing this ~ation
faces a continuing inflation problem.
Let me frankly cite a paradox that I find intriguing.
In earlier periods when wages went up far less rapidly, the
real living standard of the average worker rose steadily.
But since wage rates have escalated, the average worker's
real living standard has tended to stagnate. Literally,
"The faster we go, the behinder we get."
The key to solving this paradox, of course, is similar
to the problem that arises when everybody at the ball park
stands up to get a better view of the game. If all the
spectators would sit down, they would all get as good or
better a view, and wi th far more comfort. In the case of the
wage-price treadmill, unless we get off it, the inflation will
leave few people better off from their exertions and many
worse off.
Moreover, the continuing inflation inhibits the return
to full employment because inflation inevitably exercises
some restraint on expansionary policies. This key point must
not be overlooked: In a modern economy, one of the prices
that our society tends to pay for inflation is a higher level
of unemployment than might otherwise be the case. In the
absence of a better balance between compensation and productivity, economic policies must surely be less expansionary
than would otherwise be appropriate.
As one of my colleagues in the Administration recently
stated, we cannot afford to exclude from consideration in
advance any measures that have a reasonable claim for making
-
8 -
a contrihution to the goals of full cmployment and reasonable
price stahility.
I personally ra~or neither compulsory wage
and pricc controls at one end of the policy spectrum, nor
mcrely gencr:.1l appeals for moderation at the other end of
the spectrum.
Rather, 1 do mean the COIlSl:10llS effort to crcatc a nCI,
c I i III ~I t e i n I": h i c h m0 r ere:.1 son a b 1 can J ~ ens i hIe Iv' a g c - cos t - p r i (e
J e cis ion s arc Il\ a J e an J par tic u 1 :1 r 1 yin tho sea r e:l s 0 f the
ecollomy where substantial concentrations of private power
ex ist.
Unt i 1 this cl imate is achic\'cd, or unless these suhstantial concentrations of pri\ate cconomic po,,"'cr are reduced,
1 finJ it harJ to sce how we C:.1n soon arrive at thosc two
highly Jesir:.1hle and interrelateJ objectivcs -- thc return
of Cull cmployment anJ the substantial anJ sustaincd reuuctior,
in inClation. That is the challcngc of economic policy that
no\.,: faccs LIS all.
oC)o
FOR RELEASE UPON DELIVERY
I
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE ANNUAL ASSEMBLY OF STATES
LAS VEGAS, NEVADA
NOVEMBER 20, 1970, 2:00 P.M., MST
PLANS FOR REVENUE SHARING -IN 1971
It is a pleasure to participate in the Annual Assembly
of States, sponsored by the Council of State Governments.
As you know, the Nixon Administration has given great emphasis
in the development of its domestic program to strengthening
state and local government and thus to restoring greater
balance to our Federal system.
In the deliberations of the new Domestic Council and
its various subcommittees and working groups, we have been
giving considerable attention to ·the role of the states and
their subdivisions in carrying out programs of national
importance. My own participation in the work of the. Council
convinces me that the programs and policies that will result
from its deliberations will go a long way toward achieving
the necessary decentralization of the public sector.
There is one particular program which, more than any
other, symbolizes this emphasis on the revitalization of
state and local government. This, of course, is the President's
revenue sharing proposal. Because of its central role in what
we call the New Federalism, I would like to discuss our plans
for achieving revenue sharing in the year ahead. Revenue
$haring will be a high priority program of the Nixon Administration in the 92nd Congress. Specifically, a three-man Task Force
has been set up by the White House to work for hearings and
enactment of this vital legislation. This Task Force on Revenue
Sharing consists of Richard Cook of the White House; Richard
Nathan, Assistant Director of the Office of Management and
K-531
2
Budget; and me, as Chairman. Our Task Force is working
closely with personnel in various agencies of t~e Government
to focus our activities on the achievement of this basic aspect
of the Administration's domestic program.
The President himself has taken great pains to establish
the importance of the effort to share a portion of Federal
revenues with state and local governments. In a special
memorandum this summer to all senior officials of the Administration, the President stated, "I want to emphasize the
importance of r'evenue sharing in our total domestic policy.
Revenue sharing is the financial heart of the New Federalism."
In a more recent message to Congress on needed le&islation,
President Nixon described revenue shari~g in the followini
strong terms, " ... it would be difficult to identify another
proposal that has received such widespread endorsement. It
is elemental economics, elemental good sense, elemental lood
iovernment."
In a series of public speeches last month coverina the
highlights of the Administration's programs, the Presid~nt
devoted considerable attention to his revenue sharing plan.
I would like to quote for you a few excerpts so you can •••
the strong motivation for our efforts:
"But, my friends, we need to reform the institutions
of government and the place to start is right in Washington,
D. C.
"Let me tell you how. First, we propose to share the
revenues of the Federal Government with the States."
"We have offered an historic program ... in which the
Federal Government will begin to share revenues with the
States.
", .. if that power is to come b"ack ['''to the St. tes and
to the people'], the funds to handle the programs must come
back. That is why revenue" sharing is soimport'ant."
" The Administration, oi course, is very pleased to see the
strong support for revenue sharing by the major state and local
governmen t organi za tions. We are part icularly iinp'ressed by the
results ~f. the recent canvass of congressional candidates conducted J olntly by the National Governors' Conference, the U.S,
3
Conference of Mayors, the National League of Cities, the
National Association of Counties, and the National Legislative Conference. I understand that sever~l hundred members
of the new Congress have pledged themselves to support revenue
sharing in the 92nd Congress. Most important, this support
appears to be quite bipartisan, with almost an equal number
of Democrats and Republicans behind revenue sharing.
Personally, I consider that canvass of key importance
for another reason. Not only did it demonstrate the widespread support 'for revenue sharing in general, but for a very
specific set of principles. I am pleased to report that we
are in complete agreement with these principles. Although,
of course, the bill that the Administration prepared for the
current Congress conforms to these principles, I would like
to repeat a point that we have made on riumerous occasions
during the past year. The Administration bill was our best
effort to develop a fair and workable program and to serve
as a basis for public discussion. We have been encouraging
constructive criticism and suggestions for changes and improvements in our bill. We are not wedded to the specific formulas
in it but rather to the basic principles of revenue sharing.
Because your joint letter canvassing all congressional
candidates expressed these basic principles so well, I would
like to repeat them here:
(1) An automatic annual appropriation of
a designated portion of Federal income
tax revenues.
(2) Annual distribution to the SO states
according to a formula based primarily
on population.
(3) A mandatory and equitable pass-through
of funds from each state to its local
governments, spelled out in a clear
formula.
(4) Inclusion in the pass-through of all
general-purpose local governments.
(5) No program or project restrictions on
the use of the funds.
4
It is our hope and expectation that legislation embodYing
these five principles of a sound revenue sharing program will
be adopted early in the 92nd Congress. With your continued
support, we look forward with anticipation to the enactment
of what should become a major landmark in the history of
Federalism in the United States.
~~/1
Jepartment-of the
TREASURY
~GTON.
TELEPHONE W04-2041
D.C. 20220
FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE,MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE
THE CONSERVATION AND NATURAL RESOURCES SUBCOMMITTEE
OF THE HOUSE OF REPRESENTATIVES
COMMITTEE ON GOVERNMENT OPERATIONS
WASHINGTON, D. C.
NOVEMBER 23, 1970, 10 A.M., EST
AEROSPACE CAPABILITIES AND THE CIVILIAN PUBLIC SECTOR
Over the past 25 years, aerospace companies have made a
great many attempts to apply their capabilities to meeting
civilian needs. Many of these diversification endeavors,
perhaps the bulk of them, appear to have been unsuccessful
in terms of sales, profits, and employment created.
My personal conclusion -- after years of working the
problem within the aerospace industry and further research
afterwards -- is not to give up in despair but to try to
learn from experience. This statement attempts to indicate
such a forward looking approach.
From a positive viewpoint, the large aerospace companies
do possess important resources and capabilities. Clearly,
their engineering design and development capacity is especially
strong. Compared with the most technically-oriented industries
now serving primarily civilian markets, such as drugs and
chemicals, the typical aerospace company may have four or five
times the number of scientists and engineers to support a given
volume of sales.
The aerospace companies possess strong capability to
perform research extending the state-of-the-art, as well as
preparing complex engineering designs. Related to that attribute
is a management that is capable, some say uniquely capable, of
administering the development, production, and integration of
large and complex systems. This latter ability is often called
"systems management."
Note:
K-530
This is a personal statement prepared at the request of
the Subcommittee. It draws heavily from my book, The
Modern Public Sector, New York, Basic Books, Inc.
- 2 -
Similarly, these compan~e~ ~ossess positive but.
specialized production c~pabll~tles. Th:y are experlenc~d
at producing high-value ltems lncorporatlng advanced.englneering and scientif~c design .. A rela~ed manu~acturlng
asset is the ability to work wlth exotlc materlals and to
close tolerances.
Despite the numerous lamentations concerning their lack
of marketing ability, the large aerospace firms have been
most successfuL in penetrating one large and rapidly growing
market area -- government business. In fact, they have
experienced unparalleled success in selling complex systems
invol ving advanced technology to a se lect governmental clientele.
The i r knowledge of defense and space market s, cus tomer require·
ments, and public contracting procedures is detailed and often
authoritative.
Not too surpris ingly, in general, the closer the civilian
application is to the existing aerospace industry product
line -- e.g., commercial aircraft -- the greater has been
the likelihood of success.
The attempts of aerospace companies to apply their
capabilities to civilian markets outside of the aerospace
industry have been varied and numerous. These generally
unsuccessful diversification projects have ranged from
powered wheelbarrows and canoes ("transportation" vehicles)
to wall paneling and coffins (which utilized their ability
to fabricate light metals).
The typical experience with these commercial diversification efforts has been to cancel them or sell them off at
a loss after several years of poor sales, below-average profits,
or outright losses.
A variety of explanations is given for the inability of
aerospace companies to use their capabilities successfully in
commercial endeavors. I t is often contended that there is a
skills "mismatch," that they lack the requisite capabilities.
~or example, their entire administrative structure frequently
l~ ~eared to the unique reporting and control requirements of
mIlItary p:ocurement. The aerospace corporations frequently
h~v: :elatively low private capitalization, little, if any,
cIv~llan marketing know-how, and limited experience in prodUCIng at high volume and low unit cost.
I
- 3 -
Their lack of knowledge of nondefense industries is
pervasive. It often includes ignorance of products, production methods, advertising and distribution, financial
arrangements, funding of research and development, contracting
forms, and the very'nature of the civilian customer's needs.
It is not surprising thus that the most recent diversification efforts of these government-oriented companies have been
into newly emerging, high technology markets within the public
sector itself., Here, there is little fear of competition from
firms already entrenched in the market, nor is there need for
elaborate merchandising and distribution required in many commercial markets. Rather, here is where the government-oriented
aerospace corporation may find itself at a strong advantage.
From a national viewpoint, the utilization of aerospace
capabilities in the civilian parts of the public sector possesses
considerable attraction. It would represent a useful civilian
return to the Nation on a military investment which already has
been made. From the viewpoint of the individual aerospace
company, such public sector diversification also would reduce
its dependence on two closely related government markets -defense and space.
Unfortunately, there has been a great deal of naivete
in attempting to se.11 the systems ability of the aerospace
industry as a cure-all for public sector needs. One industry
president has been quoted as saying, "Creating a system to
warn a field army the enemy has launched an attack of germ
warfare is basically no different from creating a system to
control juvenile delinquency." Or, to parody Gertrude Stein,
a system is a system is a system.
There may be much to gain from critically examining some
of the highly publici~ed efforts which have been made in recent
years to utilize the aerospace industry in the civilian public
sector. One of the most ambitious efforts consisted of four
contracts awarded by the State of California in late 1964 and
early 1965: (1) the design of a statewide information handling
system and the development of a plan for its implementation,
(2) a work program indicating the content and specifications
for a systems approach to solving basic transportation problems,
(3) exploring the feasibility of applying systems engineering
and operations analysis techniques to preventing and controlling
crime and delinquency, and (4) assessing the suitability of the
systems approach and related analytical tools for solving
California's waste management problems.
- 4 Each of the aerospace contractors wound up recommending
follow-on programs, none of which has yet, been implemented.
~umerous criticisms have been leveled at these studies.
Frankly, the reason·1 repeat them here is they impress me
as a common shortcoming of the industry and its personnel
rather than problems unique to the four California studies.
The most basic criticisms relate to the naivete of
aerospace industry personnel, which led them to think that
they could bli~hely apply the so-called systems approach as
readily to social, political, and economic questions as they
had to military problems. Other criticism included lack of
knowledge of the subject matter as evidenced by incomplete
da ta and inadequate know I edge of the exi sting s ta te - of - the-art t
overemphasis on engineering, and insufficient attention to
social, political, and administrative aspects. Far too frequently, these shortcomings have been typical in the aerosp~e
industry's approach to the public sector market.
Personally, 1 believe that the focus of the present
inquiry needs to be reversed. The national interest is not
well served by viewing the question as how to employ the
aerospace industry or any other single industry in solving
pollution and other environmental problems.
Rather, we need to start with the problems to be solved
and then see what technOlogy and other capabilities are
needed. Let me try to be an ombudsman for the taxpayer for
a moment. The way efficiency and the public would best be
served is by letting the various companies and other organizations -- aerospace and other -- compete for the emerging
environment market.
Thus, by increasing contracts and other government disbursements for key civilian areas such as cleaning up the
environment, companies are encouraged to work in these new
high priority areas and resources are transferred from other
parts of the economy. Of course, we have no guarantee that
t~e res ul t wi 11 be the s arne kinds of jobs in the same localities
WI th the s arne companies as was the case of mi 1 i tary spending.
However, change is an essential aspect of a modern society,
That should not surprise us as we have seen in recent decades
the tre~endous expansion of the aerospace industry require
attractIng people and capital from other parts of the econo~,
5
often to the discomfort and displeasure of those other
companies and their employees, stockholders, and suppliers.
Pleasant or not, we should not expect that type" of movement
always to be in one direction.
To be sure, some transitional assistance may be necessary,
such as relocation allowances to help laid-off aerospace
industry employees move to places where jobs may be more
plentiful. However, I would "think that the desirability of
any such subsidies must be tempered by the knowledge that
aerospace emplQyees, in general, have been one of the highest
paid groups in our society. My personal view of proper
priorities would be to give greater weight, in post-Vietnam
planning, to the needs of'the lower-income veterans who are
returning from Vietnam and who merit our great support and
understanding.
000
tJ7
partment of the
TREASURV
TON. D.C. 20220
TelEPHONE W04-2041
FOR IMMEDIATE RELEASE
November 20, 1970
EDWARD J. GENG RESIGNS FROM POST OF SPECIAL ASSISTANT
TO THE SECRETARY FOR DEBT MANAGEMENT
Secretary of the TreaSl'ry David tvi. Kennedy today
announced the resignati.on of Edward J. Geng as his Special
Assistant for Debt Management. He said he accepted the
resignation ~ith regret.
Mr. Geng, 39, is ret~rning to New Yor": to res~me his
position as Assistant Vice-President of the Federal Reserve
Bank of ~e\\ Yor:" the post vJhich he left to come to the
Treasury.
He joinc:d the Bani, as an Assistant Bank Examiner in
1957 and transferred to the Open Market Trading Des'· in the
Bank's Secl'rities Department that same year. In 1964, he
~as appointed an officer of the Bank with the title of
Manager, Securities Department.
Mr. Geng holds degrees from St. John's University and
Ne\v Yen- University ~lt1d completed a COl'rse of study at the
Stonier CradLlate School of Ban:ing, Rutgers University.
He and Mrs. Geng, the former Arlene Fuchs of Glendale,
Ne\,' York \\Lll be retl1rning \\ith their three children to
their home in ~orth Merrick, Long Island.
K-513
)epartmenr01 the TRtASU RY
~GTON.
D.C. 20220
TElEPHONE WD4-2041
R RELEASE AM'S SATURDAY, NOVEMBER 21, 1970
SECRETARY KENNEDY PLANS TO VISIT
EUROPEAN LEADERS
The United States Treasury today made the following announcement:
Treasury Secretary David M. Kennedy will visit five
European capitals to meet with various government officials
to discuss the Administration's economic policies, the
U.S. economic outlook and that of other nations.
While in Europe he will attend the North Atlantic
Treaty Organization meetings in Brussels. The U. S.
delegation to the NATO ministerial meeting will be
lead by Secretary of State William P. Rogers. Secretary
of Defense Melvin R. Laird and Secretary Kennedy will
participate in the meeting December 2 of the Defense
Planning Committee.
The NATO meetings will be held December 2 to December 4.
Secretary Kennedy will depart November 28 for Europe and will
return December 8.
Aside from the NATO meetings, which are held annually
in Brussels, the trip is part of a continuing pattern of
an exchange of visits here and abroad between the Treasury
Secretary and foreign financial officials. The meetings
will provide an opportunity for an exchange of views on
international economic and financial affairs.
In addition to meetings with finance ministers and
other business and economic leaders, Secretary Kennedy will
meet in Austria with Chancellor Bruno Kreisky and in
England with Prime Minister Edward Heath.
K-534
(OVER)
- 2 -
The Secretary has meetings scheduled with the following:
Mario Ferrari-Aggradi, Minister of the Treasury, Italy;
Hannes Androsch, Finance Minister,Austria; Baron Snoy et
d'Oppuers, Finance Minister, Belgium; H.J. Witteveen,
Finance ~linister, the Netherlands; and Anthony Barber,
British Chancellor of the Exchequer.
\ffiile in Austria Secretary Kennedy will address the
American Chamber of Commerce of Austria at a meeting in
Vienna on the Qccasion of the Chamber's tenth anniversary.
000
!:>q
)epartment of the
TRfASURY
~GTON,
TELEPHONE W04-2041
O.C. 20220
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDfNBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE MANUFACTURING CHfMISTS ASSOCIATION
NEW YORK, N. Y.
NOVEMBER 24, 1970, 10 A.M., EST
ECONOMIC POLICY FOR 1971
In the Fall of each year, a strange phenomenon occurs
which is unique to the American breed of Oeconomicus Haruspex.*/
In late summer and early fall, haruspices of all persuasions who have lain dormant during the hot summer begin the annual
ritual of forecasting business conditions for the corning year.
It begins with what might be called the swarming period during
which the herd or grouping instincts of the forecasters -I prefer the modern term for the ancient breed -- becomes very
strong. The objective is to find that congenial grouping into
which they can settle comfortably through the long winter until
the herd breaks up in the spring. At this point, I think the
forecaster groupings for 1971 have been about completed; but
before discussing the identifiable categories, I would first
like to briefly review what happened in last year's ritual.
Review of 1970
By November 1969, the economic forecasters had divided
into three fairly distinct groups. One, not large in numbers
but exceptionally vocal, predicted -- occasionally with a low
degree of literacy -- a roaring boom through all of 1970 with
prices, interest rates, Government spending, consumer demand,
and private investment all accelerating through the year. The
technical rationale for this group's forecast was never very
strong.
It was based mainly on the notion, which proved
erroneous, that heavy corporate borrowing in 1969 would necessarily lead to rapidly rising investment in 1970. They also
~/
Haruspex, from the Etruscan mutilation of the Greek, refers
to an inspector of entrails ~ho foretold future events from
the inspection of victims; also a soothsayer.
K-535
doubted the Administration's capability and will to carry
through a program uf economic restraint.
And finally, they
expected a growing inflation psychology to stimulate rapidly
rising consumer demand.
As you know, these prophets of bo~
\~ere \~ide of the mark.
This group gradually quieted down and
by early spring had largely disbanded.
At the other end of the forecasting spectrum was a
faction largely composed of some money supply theorists who
expected a severe economi~ f(·cessioil to become apparent early
in l~-;O and to ,continue into 19-;1,
This group - - which
traditionallv ShOh'S little interest in fiscal action -believed tha't the lagging whiplash effect of the very tight.
monetary restraint of 19b9 \,'ould sharply contract the economy
in 1970 with a resulting sharp cut hack in real output and a
severe flse ln unemployment.
:\fter a good deal of sound and
fury, this has become a quiescent band in recent months.
The third, and I believe the largest, of the three groups
took a moderate position in beth'een these extremes, although,
t 0 he sur e, the r e h' ere va ria t ion sin the de g r e e 0 f mod era t i on,
This group thought that the combination of monetary and fiscal
restraints would eventuall>' take hold and SlOh' down the rapid
economic expansion of 1968 and early 1969.
They pointed to
le\'eling corporate profits and reduced use of plant capacity
dS C'vidence that the existing high rate of corporate investment
".;\JuLl not he sustained.
The;: noted that tight credit restraint
h'c:';
kiVi:lg a strong effect on construction, particularly housin
r!,' had more confidence that the Federal fiscal position would
:L: one of overall restraint.
They expected that the combinatio
r;[ thc'se factors \,'ould lead to an economic adjustment which
I,~ h i 1 C Il 0 t 0 v e r 1 v s eve r e \, 0 u 1 J n e \' e r the 1 e s sal t e r the in fl a t ion
psychology enough to lay the ground\\ork for a resumption of mor
stable groh'th beginning later in 1970.
The Troika projections
embodied in the various Presidential and related messages in
Fe h r u a r y 1:) -; () "\" ere rep res en tat i \' e 0 f t his vie \,' .
:\one of the three groups scored a bullseye in the forecasting competition for 19-;0.
But, as it turned out, the
middle-of-the-roaders were as a group closest to the mark. ~
be sure, the economic adjustment was a little deeper and mon
prolonged than had initially been expected.
The inflationary
lag \,'as more persistent and the unemployment rate climbed some'
\\' hat h i g her t han had bee nan tic i pat e d . :.J eve r the 1 e s s, in broad
outline, economic developments in 1970 have conformed to the
pattern projected at the start of the year.
- 3 -
As expected, the combination of fiscal and monetary
restraints slowed overall demand enough to level off the
expansion in real output from the close of 1969 through
mid-1970. Concurrent with the cooling of the economy,
inflationary pressures have abated somewhat, interest'rates
have eased, and financial institutions are once again experi
encing a substantial inflow of savings.
As the moderating trend became increasingly evident, the
Federal Reserve, over the past year, gradually shifted from
tight monetary restraint to a moderate expansion of the money
supply at a rate more appropriate to stable economic growth
over the long run. We are now seeing signs that this gradual
shift in the emphasis of stabilization policy is having a
salutary effect. Housing activity has for some months been
on an upward trend, consumer demand appears to be firming,
and the expansion in real economic output was resumed in the
second and third quarters at very modest but visible rates.
But the economic adjustment of late 1969 and early 1970
is now past history. Our interest is on what the future portends.
Before revealing my own views on the economic outlook, let· me
briefly review the current spectrum of economic forecasting
opinion.
Outlook for 1971
At the present time, those who have expressed views on
the 1971 economic outlook seem to divide once again into three
distinct groups. We still have the extremes of boom and gloom,
but the generally unified middle group of a year;ago_appears to
have split into a family of similar but hardly identical- viewpoints. Let me first dispose of the two extremes whrch are,
I think, now held by rather small minorities. -The relatively
few who anticipate a rapid inflationary expansion'in the coming
ye~r base this opinion primarily on the direct and side effects
of a-substantial increase in the Federal defici t. To some extent,
their concern is based on ~ fear that rising borrowing needs will
lead to an accommodating easing in the Federal Reserve's 'monetary
policy and an excessive expansion in credit and the money supply.
But more commonly, those who worry about an inflationary upsurge
in 1971 are concerned over the impact on pr~ce levels that they
believe must accompany any increase in the Federal ,deficit,
whatever the cause or circumstances, but accompanied in this
case by strong cost-push pressures.
- 4 Those who hold this view fail to take account of the very
different kind of Federal deficit we are now experiencing
.
compared, for example, to deficits in the fiscal years 1967
and 1968.
In these earlier years) the large Federal deficit
was due entirely to an upsurge in Federal spending not matched
bv Federal revenues under the more than full employment con·
d'itions then prevailing.
Technically, the Federal budget was
running full employment defici ts, which were clearly inflationa
under those conditions.
However, the current budgetary situation is quite differen
The recent increase in the Federal deficit is largely due to
dec 1 in i ng revenues b rough t on by a coo 1 ing economy.
Federal
e xpendi tures have been kep t unde r some res t rai nt, with a surplu
thus far in the so-called full employment budget.
To express
this point another way, if the economy were now in a condition
of full employment -- operating at its capacity level -- we
would have a budget surplus in the current fiscal year.
To argue that a budget defici t resul ting from a general
economic slowdown could just by itself turn the economy com·
plete ly around would be to presuppose a degree of confidence
in the stabilizing effect of relatively small variations in t~
budget which is not held even by the more enthusiastic advocate
of compensatory fiscal policy.
At the other extreme of the forecasting spectrum, those
who anticipate a further decline in output in 1971 have been
reduced to a very small minori ty.
The money supply partisans
who, las t year, formed the nucleus of the bearish viewpoint
have now swung almost en masse over to the middle.
In essence,
thos e who s till ho ld a gloomy view 0 f the economi c outlook base
their argument mainly on the conviction that the economic e~~
sion of most of the past decade was abnormally stimulated bya
combination of events that are not likely to re-occur. These
include the tax cut of 1964 and a general over-expansion in
corporat e' inves tmen t, but mas t of all the bui ldup in Vietnam
war spending.
And this brings me to what I think is the essential point
at issue in conjecture over the economic outlook in 1971. The
significant issue is the variation of opinions among the large
group in the middle, all of whom believe that inflationary
pressures will continue to ease somewhat and that the econo~
\,'ill be growing in 1971 and beyond.
Differences remain as to
the rates of improvement which will be achieved.
-
5 -
Some forecasters anticipate a period of slow expansion
over the foreseeable future which would be sufficient to
absorb much of the growing labor force but would not serve
to reduce the current unemployment level. Another group of
middle-of-the-roaders also anticipates that a larger, but
still limited, economic expansion in 1971 could result in
improvement in both the employment and price pictures. As
you will see, I may be one of the moderates even within the
overall category of middle-of-the-roaders.
There is almost always an element of hope or perhaps wishful thinking in evaluations of the economic outlook, whether
they are prepared by private or public analysts. I believe
that a word of caution is needed at this time. The development
of economic policy for the coming year needs to be undertaken
in as realistic a framework as we can.
I have attempted to present my own views as an input to
the development of this framework. As you may recall, earlier
this fall, I reported a certain buoyancy in the economy. Specifically, I said that the level of real gross national product in
the third quarter of 1970 would increase at a somewhat higher
rate than the very modest rise in the second quarter. Now, that
has come to pass.
However, with reference to the fourth quarter, I pointed
out that the results would'depend in good measure on the extent
to which the automobile strike continued. It now appears that
the duration of the strike makes it unlikely that the fourth
quarter will register any significant real growth in total output. I do believe that the work stoppage merely interrupted
the recovery which was already under way. The substantial
growth in real output in the first quarter of 1971 is likely to
confirm that quite clearly.
Now, the major emphasis on policy needs to be towards
fostering·a rapid enough economic expansion to absorb the
growing labor force as well as to make some inroads on
the present level of unemployment.
We need to give careful consideration to how we achieve
the Administration's desire to return to full employment. It
would be relatively simple merely to pump up the economy fast
enough -- but also simultaneously to renew the inflationary
momentum that we have worked so hard to contain. Also, I have
heard of possible approaches to economic policy which could
- 6 -
temporarily restore the economy to the neighborhood of full
employment hut result -- given the inevitable lags in economic
processes - - in a reneh'ed outburst of inflationary pressures
shortly thereafter.
As I see it, the task of responsible economic policy is
to get the economy on a sustainable path of long-term expansion
\\'hich h'ill reach and maintain relatively full employment of our
resources at reasonable price stability.
Summary
On balance, 1971 is likely to be a year featured hv thl'
following characteristics:
1.
A moderate expansion in real output, which begins
the process of return to full employment.
2 . .\ slowdO\m in the rate of inflation, hut probahly
with further progress required in the period beyond.
3.
A relatively neutral Federal budget, when we view
expendi tures in relation to full employment revenues,
4.
In essence, a productive year in which we move
towards our economic goals, but with final attainment somewhat further off in the future.
000
partment of the
TREASURY
TON. D.C. 20220
TElEPHONE W04-2041
ITION:
FINANCIAL EDITOR
tELEASE 6: 30 P.M.,
.y, November 23, 1970
RESULTS OF TREASURY'S HEEKL Y BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
, one series to be an additional issue of the bills dated August 27, 1970
, and
ther series to be dated November 27, 1970 ,which were offered on November 17, 197\.',
opened at the Federal Reserve Banks today. Tenders were invited for $ 1,9.00,000,000,
ereabouts, of 90 -day bills and for $ 1,400,000,000 or thereabouts, of 181 -day
The details of the two series are as follows:
OF ACCEPTED
TITIVE BIDS:
90 -day Treasury bills
maturins Februarl 25 z 1971:
Approx. Equiv.
Price
Annual Rate
181-day Treasury bills
maturi~ Ma~ 27~ 1971
Approx. Equiv.
Price
Annual Rate
High
Low
Average
98.829
98.797
98.810
97.599
97.546
97.559
7% of the amount of
~10
4.684%
4.812%
4.760%
Y
4.77510
4.881%
4.855%
Y
-day bills bid for at the low price was accepted
L07) of the amount of 181 -day bills bid for at the low price was accepted
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
trict
ton
York
ladelphia
ve1and
hmond
!U'lta
~ago
Louis
rleapolis
sas City
Las
Francisco
TOTALS
Acce12ted
A12121ied For
38,335,000
$ 38,335,000 $
2,153,085,000
1)330,635,000
24 , 765 ,000
40,065,000
49,370,000
49,770,000
16,035,000
16,035,000
46,420,000
48,420,000
187,255,000
188,455,000
39,300,DOO
42,300,000
38,740,000
39,740,000
35,960,000
35,960,000
21,505,000
29,505,000
71,820,000
156 ,950, \.'100
,~2, 838,620,000
:
:
:
:
:
:
:
:
:
:
:
:
A;eRlied For
$ 26,925,000
1,882,290,000
9,290,000
49,455,000
8,600,000
30,285,000
161,355,000
21,990,000
30,650,000
18,670,000
23,910,000
206,220,000
~"1, 900,140, OO\J ~ $2,469,640,000
Acce12ted
$ 20,425,000
1,046,790,000
9,290,000
28,305,000
8,600,000
24,035,000
155,655,000
17,490,000
30,650,000
18,670,000
14,910,000
25,220,000
$1,400,040, O~,() ~
!ludes $ 312 ,455 ,niJ~' noncompetitive tenders accepted at the aver~e price of ~18, 810
!ludes $14~),65\.I,OO~~ noncompetitive tenders accepted at the averaee price of 97,559
!se rates are on a bank discount basis. The equivalent coupon issue yields are
9 ~ for the ~O -day bills, and 5 .05 % for the 181-d~ bills,
partment of theTRfASURY
TON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE AT 6:00·P.M., EST
TUESDAY, NOVEMBER 24, 1970
ADDRESS BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE AMERICAN JEWISH COMMITTEE
NEW YORK CITY, NOVEMBER 24, 1970
TRADE EXPANSION -- THE WORLD AT A CROSSROADS
There are a few comments I would like to make on the
economy before discussing some of the serious international
trade problems which this country faces.
There is no doubt in my mind that we are making progress
in reducing inflation and restoring economic stability. ·The
Administration's monetary and fiscal policies -- characterized
by strong restraint initially, then followed by the current
moderation -- have made significant inroads against rising
prices. Although consumer prices continue to rise, the rate of
increase has been reduced. From a high of approximately
7 percent in the first three months of this year, the rate has
dropped to a little more than 4 percent in the last quarter.
This is a favorable trend and one which we expect to see
continued in the coming months, despite the October increase
of 0.6 percent.
After marking time during the fourth quarter of last
year and the first quarter of this year, the economy began to
turn around in the second quarter of 1970 and continued upward
at a more substantial rate in the third quarter. With a
settlement of the General Motors strike, the prospects for
growth after this current fourth quarter are quite promising.
K-532
- 2 In addition to moderating inflation and restimulating
economic expansion, the Administration's policies have made
very significant progress in resettling financial markets
Interest rates, especially at the short end of the spectrum,
have returned to more customary levels. Three-month Treasury
bill rates, for example, now hover around 5-1/2 percent where
they were above 8 percent less than a year ago. In line with
this general readjustment, the rediscount rate was recently
reduced to 5-3/4 percent, the first such reduction since
August, 1968.
Similar progress has been made in all longer-term
Government issues. Yet progress has by no means been as
spectacular as experienced with the short-term rates.
Rates of private debt instruments have also moderated
over the past several months. Since reaching a high in June
of this year, corporate bond rates dropped roughly 90 points
in the ensuing five months. New municipal bonds experienced
a similar reduction in rates and now stand a full percentage
point below their peak levels in May of this year.
On the housing front, mortgage rates continue to be
high with little noticeable improvement. Yet the trend is,
if anything, downward. And a continuing expansion
of the money supply should add to this trend in the coming
months. I might recall here that Savings and Loan Associations
experienced their greatest influx of funds in September in
many, many months.
I think the longer-term trends in prices, output, and
interest rates are becoming increasingly obvious. While
excess demand has been eliminated as a result of the
Administration's policies, we still have far to go. Only
half the battle has been won. We are now faced with pent-up
wage demands coming on the heels of five years of inflation.
Yet there are numerous factors working to affect the impact
of large wage increases on prices, including better
productivity performance.
- 3 Inflation, including its cost-push aspects, is not
unique to the United States. Rapidly rising wages and prices
are creating serious problems abroad, particularly in the
United Kingdom and West Germany. The task of each of our
governments is to find a way to control inflation without
subjecting the economy to the straitjacket of controls or
the pain of high and persistent unemployment.
This effort will bear heavily on the future of the
international trading system, the subject I wish to discuss
with you tonight.
In this area, too, we face a number of serious problems.
In various countries, clamors for protective trade measures
grow increasingly common. The forces of protectionism are
on the upswing in the United States as well. In truth, we
stand at a crossroads. The direction the United States and
its trading partners take will determine, for many years to
come, the nature of the international trading community.
As a point of departure, let us look back to the
formation of the European Economic Community in 1958. The
concept of the Common Market -- providing for elimination of
tariffs among the six member states and the creation of
common external tariffs with the rest of the world -inpressed the Eisenhower Administration with the necessity of
strengthening its authority to negotiate for trade
liberalization.
The so-called "Dillon Round" of negotiations in
1961-62 did not lead to the substantial tariff reductions
the administration hoped for, partially as a result of the
limited negotiating authority granted by Congress. However,
the Act of 1958 obtained bi-partisan support and thus was a
major step forward, contributing to a greater willingness on
the part of the Congress to grant broader negotiating
authority to the Executive at the next stage.
By the time President Kennedy assumed office, in January
of 1961, it had become evident that the economic integration
of Western Europe could prove prejudicial to certain U.S.
export interests. It had also become increasingly evident
that as European industries become better able to enlarge
their operations and achieve economies of scale, they would
become more competitive with the United States in European
markets, throughout the world and even in the United States
itself.
- 4 In an effort to further strengthen the United States'
negotiating position, President Kennedy proposed legislation
that would have conferred upon the Chief Executive wide powen
to determine the country's foreign trade policy. As suggest~
by the title of the proposed Bill -- The Trade Expansion Act
of 1962 -- the emphasis was on trade expansion -- with
appropriate provisions for governmental assistance in
facilitating domestic economic adjustment to the effects of
increased imports.
As enacted, the law authorized the President, for the
first time since 1945, to reduce most tariffs by 50 percent
and to eliminate certain U.S. tariffs altogether. These
powers were granted until June 30, 1967. It was further
stipulated that most of the tariff reductions would take
effect in equal annual installments over a five-year period,
The fourth of these installments in the so-called "Kennedy
Round" is scheduled for January 1, 1971, with the final
reduction to come on January 1, 1972. At that time the
average tariff on U.S. non-agricultural imports other than
mineral fuels will have been reduced 36 percent from the 1967
level; for the European Economic Community, the average
reduction will be 37 percent; Japan, 39 percent~ and the
United Kingdom, 39 percent. _ Canada has already put into
effect its final reduction and its average duty has declined 24
percent from pre-Kennedy Round levels.
A moment ago, I stated that the emphasis in the Trade
Bill of 1962 was on expansion. And that expansion has,
indeed, been realized. In 1970, the dollar value of world
trade among the non-communist countries is likely to be more
than twice as large as it was in 1963. The United States
has shared fully in that growth. Our exports in 1970 promise
to be more -than twice what they were in 1963, and our imports
are likely to be 2-1/2 times as large.
This very rapid -growth in the volume of world trade
has brought great benefits to the trading countries in termS
of more efficient allocation of the world's limited
resources, lower prices and greater choice and availability
of goods for the consumer. At the same time, their rapid
growth has also brought with it necessary adjustments in
trading countries, and in many instances these adjustments
- 5 are difficult. The Government has a responsibility to
ease that adjustment both for affected industries and the
workers they employ. The Trade Bill sent to the Congress by
President Nixon this year reaffirms that responsibility and
includes a broadened and more effective program of adjustment
assistance.
Yet protectionist sentiment continues to grow not only
because of the problems encountered by certain domestic
interests but also out of a belief that Japan and the
European Community are not playing by the "rules of the game."
The Japanese have maintained a comprehensive system of
controls on imports, long beyond the time when such controls
could be defended on balance of payments grounds. Looking
across the Atlantic, the proliferation of preferential
trading arrangements of the European Community and its
Common Agricultural Policy have adversely affected our trading
interests and those of other areas, such as Latin America,
in which the United States has a strong interest.
The system of non-discriminatory, multilateral trade
which has provided important positive benefits to world
economic growth is in jeopardy. We must ask outselves
whether the world is moving to a system of regional trading
blocs in which nations seek short-term gains at the expense
of the lasting and widely shared benefits which a truly
multilateral system provides.
Every country, including my own, imposes various
restrictions on trade to a greater or lesser degree.
But I am
less interested tonight in assessing blame than in suggesting
that each of us take stock of how far we have come, where we
are today, and where we are going in the future.
Both the
United States and its principal trading partners must ask
whether we 'still share the same goals. And if we do, are we
advancing those goals by our actions? My fear is that we
may have lost the common vision that has provided such
obvious and indisputable economic benefits for each of our
countries since the launching of the reciprocal trade
agreements effort over 30 years ago.
If this is the case, if indeed we are moving apart, if
rancor is replacing cooperation and shared goals, than I
fear for our future.
At the very least, divisive trade
competition and conflict will lead to a lower standard of
living and a reduction in economic and employment growth
for all of our peoples. We must instead move forward
together -- in the future as we have in the past -- for then
we can build upon the substantial gains we have earned through
our joint efforts_.
- 6 -
It is no use pretending that the way ahead will be
easy. In the pursuit of defending local interests -- and t~
United States intends to defend its interests -- genuine and
deeply felt differences in points of view among countries
are likely to arise. I, for one, believe that these
differences will be overcome only if this and other countries
understand where our mutual interests lie and, if in practice,
we are determined to realize them.
If not, if we move further apart, then tomorrow's
world will look very different. Those of us who remember the
dark days of the 1930's are well aware of what happens as each
country pursues its own narrow interests to the disadvantage of
its neighbors. My hope is that our certain knowledge of where
discrimination and trade conflict lead will restore within
each of us the determination to move together towards the
non-discriminatory reduction of trade barriers that has proven
so beneficial to each of our countries in the past.
For Japan, this means an intensification of its effects
to remove its existing barriers and to recognize and act upon
the serious adjustment problems which too rapid an expansion
of its exports can create for other countries. For the
European Community, it means limiting and ultimately phasing
out its preferential arrangements, rationalizing an
agricultural policy which encourages inefficient production
at the expense of traditional suppliers, and fully taking
into account the interests of third parties affected by the
process of enlargement in which it is now engaged.
Finally, for the United States, it means rejecting harsh
and arbitrary trade restrictions that would unquestionably
lead to damaging retaliation and a general deterioration of
international trade. The best approach would be the enactment
of the President's moderate and constructive proposals. This
nation must not retreat from its dedication to traditional
trading policy and a determination to move ahead -- with
others -- toward a balanced increase in world trade.
These are major and challenging tasks for ourselves and
our friends abroad. But with vision, mutual good will and
a general recognition of our common interest in an orderly
expansion of world trade, I am confident we shall succeed.
000
epartment of the TRfASU RY
GTON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
ON RAILROAD ASSISTANCE
BEFORE THE SENATE COMMITTEE ON COMMERCE
ON TUESDAY, NOVEMBER 24, 1970, AT 10:00 AM
I am pleased to have this opportunity to appear before
the Committee on Commerce to discuss the important matter of
possible financial assistance to the Penn Central Railroad.
This Committee has already heard detailed testimony from
the Trustees of the Railroad as to its needs and prospects,
as well as a statement on the general state of the Nation's
railroads from Secretary Volpe.
expertise in either area.
I cannot claim special
Instead, I wish to confine my
remarks to certain more general considerations bearing upon
the question of providing funds to the Penn Central in
present circumstances.
Certain important facts of the situation are not in
dispute.
The Penn Central Railroad has now been in reorgani-
zation for some five months.
Under the terms of that reorgani-
zation, the cash drain on the Railroad has been substantially
K-S36
- 2 lessened by the granting of relief by the Court from payments
on outstanding debt and payments on taxes.
Despite this
relief, however, the operations of the Railroad may fail to
generate sufficient cash to meet operating expenses over the
coming period.
You have heard the Trustees project a lqrge
cash deficit in 1971, and perhaps beyond.
No doubt there is a considerable element of uncertainty
as to the outlook for the Railroad's receipts and expenditures
in the quarters ahead.
Nevertheless, it seems evident that
a potential lender has substantial cause for doubting whether
funds to repay additional indebtedness will be generated from
cash flow in the near future and that it will take a considerable time and effort to bring about a lasting improvement
in the Railroad's finances.
Financial assistance from private financial institutions
must also be considered in the context of the fact that the
Railroad is presently in default on a large volume of bank
loans and bonds.
A substantial number of major banks in the
country have been involved to some extent in the bank debt
incurred by the Penn Central Transportation Company, and
large additional amounts are outstanding to subsidiaries.
- 3 While a part of this debt is secured, the value of the
security for even this portion of the debt is not easily
determinable at the present time.
In circumstances of this kind, I believe there is no
basis for assuming a willingness of private lenders to advance
funds to the Penn Central Railroad for operating needs in the
form of unguaranteed trustee certificates.
This conclusion
is supported by comments of members of the financial community
closely familiar with the Penn Central situation.
Consequently,
I am convinced that relief from the pressing cash problem of
the Railroad cannot reasonably be anticipated from sale of
trustee certificates of the Railroad at the present time, or
in the near future, without an adequate Government guarantee.
As you know,
intensive consideration was given last June
to alternAtive means of providing funds to the Railroad.
On
the basis of that review, and the subsequent amendment of
Section 301 of the Defense Production Act of 1950 to provide
that no loan guarantee might be provided under the terms of
the Act in excess of $20 million without the approval of the
Congress, I know of no way under existing law that the
Administration can act effectively.
- 4 We are faced with a need for new legislation if financing
capability is to be pruvided.
As you know, this Committee has
considered S. 4011, a bill to authorize the Secretary of
Transportati~n
to guaranteo loans to rail carriers to assist
them in the performance of transportation services necessary
to the maintenance of a national transportation system.
I
understand that a more limited concept, confining the guarantee
to trustee certificates of railroads in reorganization and
providing explicitly for the priority of the guarantee over
any other creditors is now under consideration.
Since Penn
Central is in reorganization, a bill incorporating such amendments could serve tu Uleet the immediate problem.
One point that should be kept in mind, however, is that
to encourage institutions to advance the necessary funds
the
guarantee provided in such legislation should be unambiguous,
cover the full risk, and provide means of promptly discharging
the Government's ohligations should recourse to the guarantee
become necessary.
The language of the original bill provided,
I believe, the degree of assurance that is necessary.
It is understandable that private investors should be
unwilling to risk further funds in an organization with the
- 5 -
financial difficulties of the Penn Central Railroad.
However,
the Government must take into account the broader interests
of the transportation system and the economy as a whole.
In
providing a guarantee, it is right and proper that the Government be concerned with the prospect that the railroad will be
able to repay advances over a period.
There should be
financial planning sufficient to indicate the means by which
a railroad -- and, in this case, Penn Central -- would be
expected to work its way into the black over a reasonable
period of time.
But the risks cannot be properly appraised,
and the decision made, without the Government also weighing
in the balance the consequences of failing to maintain a
critically important segment of our transportation network.
I would therefore support legislation providing the
necessary authority to the Secretary of Transportation to
guarantee trustee certificates so that he may have this tool
available for use in the kind of potential railroad emergency
that is now facing us with respect to the Penn Central situation.
I believe this tool should and would be used with
discretion, taking into full account other possible sources of
funds as they become available.
--000--
'epartment of the TREASURY
IGTON. D.C. 20220
TELEPHONE W04-2041
OR RELEASE WEDNESDAY, NOVEMBER 25, 1970
November 25, 1970
DORSEY OF GULF OIL TO LEAD
PAYROLL SAVINGS COMMITTEE FOR TREASURY
B. R. Dorsey, President of Gulf Oil Corp., Pittsburgh, Pa.,
oday was appointed Chairman of
the 1971 U. S. Industrial Payroll
avings Committee by Secretary of the Treasury
D~vid
M. Kennedy.
Mr. Dorsey, who succeeds Gordon M. Metcalf, Chairman of the
oard of Sears, Roebuck and Co., has served on the U. S. Indusrial Payroll Savings Committee for the past two years as Chairman
or the Petroleum Industry.
He assumes his new duties at the
annu~l
eeting of the Committee in Washington on January 14, 1971.
The 1971 Committee will be composed of 50 chief executives of
ajor corporations.
They will conduct a nationwide campaign to
nroll 2,200,000 employees in the Payroll Savings Plan -- either
s new participants or for
increases in their E Bond allotments.
In accepting the top post in the Payroll Savings program,
r. Dorsey sta ted -- "The new 5~-percent rate on U. S. Savings
)nds held to maturity makes them an even better buy on a personal
ld family basis for all Americans.
"We musl rCcdize that the majority of employees in America
link in terms of savings.
What better way is there than Savings
- 2 -
Bonds for them to save" on a regular basis, through payroll
allotments?
"Looking at the big picture, Savings Bonds are a significant
inslru~ent
in combating inflation.
The regular
is o IlL' important and patriotic way we personally
purchase of Bonds
Celn
help moderate
the f o.cc es of inf lat ion and improve th e s tabi 1 it v of the dollar.
"On the other hand, when we sell more Bonds we help iess en
the pressure for higher taxes, reduce competition in the money
market, dampen inflation, and add stability to our dollar.
These
goals are worthy of our best efforts."
The U. S. Industrial Payroll Savings Committee dates back
to 1962 when it was organized by then Secretary of the Treasury
Douglas Dillon.
Harold S. Geneen, Chairman and President, Int&·
national Telephone and Telegraph Corp., was first Chairman of the
Committee, in 1963.
He was followed bv Frank R. Milliken, Presi.
dent, Kennecott Copper Corp., in 1964; Dr. Elmer W. Engstrom, Chail
man of the Executive Committee, RCA Corp., in 1965; Lynn A.
Towns end, Chairman of the Board, Chrys ler Corp., in 1966; Daniel
j,
Haugh ton, Chairman of th e Board, Lockheed Aircraft Corp., in 1961;
WillL~rn P. Gwinn,
.L'f:h'S
Chairman, United Aircraft Corp., in 196R; and
RLlche, Chairman of the_ Boa rd,
r'
'_J
M t 0 r s Co r p. , l'n 1969.
e n e ra1~,o
1
All fermer chairmen continue to serve on the Committee.
- 3 -
The aim of the Committee is to encourage the use of Savings
Bonds both to help wage earners achieve personal financial
security and to assist in the management of the public debt by
non-inflationary means.
This aim is
accomplished by stimulating
the regular purchase of Savings Bonds by employees through the
Payroll Savings Plan.
000
~artment of the TREASURY
ON. D.C. 20220
TElEPHONE W04·2041
IMMEDIATE RELEASE-
November 24, 1970
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
300,000,000, or thereabouts, for cash and in exchange for Treasury
lls maturing December 3, 1970,
in the amount of $3,107,925,000,
follows:
91-day bills (to maturity date) to be issued December 3, 1970,
the amount of $1,900,000,000,
or thereabouts, representing an
jitional amount of bills dated September 3,1970,
and to mature
~ch 4, 1971,
(CUSIP No. 912793 JX5) originally issued in
= amount of $1,400,355,000, the additional and original bills to be
=elv interchangeable.
182- ddv bills, for $1,400,000,000, or thereabouts, to be dated
~ember 3, 1970,
and to mature June 3, 1971
:SIl' >J\). 912793 KL9).
The hills of both series will be issued on a discount basis under
petitive and noncompetive bidding as hereinafter provided, and at
urilv their face amount will be payable without interest. They will
issu~d in hearer form only, and in denominations of $10,000,
,(iOO, 550,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
the closing hour, one-thirty p.m., Eastern Standard
Ie, Monday, Novemb€r 30, 1970.
Tenders will not be received
the Treasury Department, Washington. Each tender must be for a
limum of $10,000. Tenders over $10,000 must be in multiples of
ODD. In the case of competitive tenders the price offered must be
ressed on the basis of 100, with not more than three decimals,
., 99.925. Fractions may not be used. It is urged that tenders be
e on the printed forms and forwarded in the special envelopes which
1 be supplied by Federal Reserve Banks or Branches on application
re for.
Banking institutions generally may submit tenders for account of
tomers provided the names of the customers are set forth in such
ders. Others than banking institutions will not be permitted to
- 2 submit tenders except for their own account.
Tenders will be re
without deposit from incorporated banks and trust companies and
responsible and recognized dealers in investment securities. TeNh
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are accompa
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at tb
Federal Reserve Banks and Branches, following which public announc~
will be made by the Treasury Department of the amount and price rangl
of accepted bids. Only those submitting competitive tenders will ~
advised of the acceptance or rejection thereof.
The Secretary of thl
Treasury expressly reserves the right to accept or reiect any or all
tenders, in whole or in part, and his action in any such respect shal
be final.
Subject to these reservations, noncompetitive tenders fur
each issue for $200,000 or less without stated price from anyone
bidder will be accepted in full at the average price (in three decilll
of accepted competitive bids for the respective issues.
Settlement
accepted tenders in accordance ~vith the bids must be made or complet
at the Federal Reserve Bank on December 3, 1970,
in cash or other immediately available funds or in a like face amount
Treasury bills maturing December 3, 1970.
Cash and exchange tend
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.
Under Sections 454 (b) and 1221
(5) of the Internal Revenue Coo
of 1954 the amount of discount at which bills issued hereunder are so
is considered to accrue when the bills are sold, redeemed or otherwi!
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tu
return, as ordinary gain or loss, the difference between the pr~e~
for the bills, whether- on original issue or on subsequent purchase, I
the amount ac tuall y rec ei ved e i the r upon sal e or redemption at maturi
during the taxable year for which the return is made.
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
any Federal Reserve Bank or Branch.
000
partment of the TREASURY
ON. D.C. 20220
TElEPHONE W04-2041
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE CHARLS E. WAI..ICER
THE UNDER SECRETARY OF THE TREASURY
BEFORE THE COMMITTEE ON BANKING AND CURRENCY
OF THE HOUSE OF REPRESENTATIVES
NOVEMBER 25, 1970, 10 A.M. EDT
Mr. Chairman, I welcome this opportunity to respond
to your request for a discussion of the purpose and function
of the Treasury Tax and Loan Account System. More
specifically, I welcome this chance to discuss the draft
resolution of your Committee which directs the Treasury
Department to draft legislation to use Tax and Loan Accounts
to encourage investments in various types of socially
desirable lending programs.
Since discussions of this subject invariably get
involved in highly technical questions, I am accompanied
here today by two of the most knowledgeable career experts
fram the Treasury Department. They are John K. Carlock,
Fiscal Assistant Secretary of the Treasury, and his assistant,
Sidney Cox.
The forerunner of the Tax and Loan Account System was
originated 53 years ago under the Administration of Woodrow
Wilson. Although it has been improved and expanded by the
20 Secretaries of the Treasury since then, its basic purpose
is the same today as it was when first adopted.
SUmply stated, the purpose is to promote the s.ooth
functioning of the economy by reducing the impact of Treasury
financial operations on the reserves of the banking system
and on the money markets.
The Federal Government raises the money to finance its
operation through taxes and the sale of securities. These
funds do not flow into the Treasury on a steady basis. Taxes
K-537
-~-
are paid monthly, quarterly, semiannually and annually.
Securities are also sold on an irregular basis.
The same uneven pattern is true of payments of the
government's bills. There is not a steady daily disbursement
of funds from the Treasury. Some weeks and months involve
larger payments to the public.
If on a given tax date or during a sale of government
securities the Treasury demanded immediate and direct payment
by individuals and corporations to the Treasury or the
Federal Reserve Banks, it would cause a sharp drop in the
total reserveS of the commercial banking system. This would
reduce the lending ability of the banks. Moreover, such a
development might occur at precisely the time that broad
economic policies were attempting to stimulate loans.
Treasury Tax and Loan Accounts prevent these drastic
changes in the money supply. As individuals and corporations
pay their taxes or purchase government securities, the funds
are transferred from the account of the individual or
corporation to the Treasury Tax and Loan Account at the
same bank. The Treasury then draws down the T and L balances
as it needs the funds to pay the government's bills. This
arrangement permits the Treasury to make simultaneous
collections and payments with a minimum of disruption of
bank reserves or undue impact on the capital markets.
This system, as it has been improved and expanded, is
truly the envy of governments around the world. It provides
the Treasury with an efficient and economical system to
handle the government's finances with the least adverse
impact on the total economy.
The most common misconception concerning the Tax and
Loan Account System is that many people believe the Treasury
collects the funds and then deposits them in certain banks.
This is not true.
Today, ll,7l6 banks have Tax and Loan Accounts. These
banks compete vigorously with each other for the business of
handling tax pa~ents and purchasing securities for corporations
-3-
and indiyiduals. The iDcentive for the banka is built into
the systea. They know they will have the teaporary use of
the funda.
The beauty of this systa. is that the funds are . .de
available for Treaaury use faster when placed in a ~ax and
Loan Account than if the corporation sent a check directly
to the Trea.ury. The transfer within the bank is auto.atic.
'rile gaUlnCes in the Tax and Loan Account are reported to
the Federal Reaerye .anks, which aerve as fiscal agents for
the Treasury.
Based on the caah needs of the Treasury, all or part of
the balance. in ~ax and Loan Accounts can be withdrawn
quickly. There bave been . .ny tilaes during the past year
vhen 100 per cent of the posted balances have been withdrawn
frOB the larger banks.
The velocity of the activity in Tax and Loan Accounts
has stepped up rapidly in the past eight years. In 1962,
for exa.ple, the Treasury's average .oathly operating balance
va. 62 per cent of total aonthly diabursa.ent.. In 1969
our daily operating balances averaged alightly over $5 billion
and aonthly cash diabursa.ents averaged just under $17 billion.
In other worda, the Treasury reduced its average .anth1y
cash to disbursf!IDeDt percentage frca 62 to 30. This ratiO
i. far lower than that of .ost businesaes' operations and
is considerably below the cash operating balance. of state
and local governments.
It is 'also noteworthy that the average life of deposits
in Tax and Loan Accounts was reduced to 11.2 days in 1969
fra. 33.3 days in 1963.
During the past few years several suggestions have been
made along the lines of this Ca.mittee's draft proposal-namely, that Tax and Loan Accounts be used to st~late
socially desirable lending progr....
While the Treasury has been in ca.,lete sympathy and
accord with the objectiyes of this proposal, we do not believe
the use of the Tax and Loan Account Systea in this .anner
is the best way to achieve these objectives.
-4-
We reach this conclusion for several reasons:
First, as noted earlier, the Tax and Loan Account
arrangement is purely a collection system. It is the
quickest and most economical way to bring money into the
Treasury without adversely affecting the availability of
credit. It is not designed to move funds from one bank to
another. Nor is it involved in the reverse flow of funds
fra. the Treasury to the public.
Second, the funds in these accounts are very volatile.
They are there for short periods and then withdrawn. They
cannot be put to use for long-term loans such as housing
loans, small business loans or guaranteed student loans which
may be outstanding for up to 15 years. We should bear in
mind that these balances in Treasury Tax and Loan Accounts
frequently drop down far below any calculated averages.
In fiscal year 1969 the low balance was $709 million. In
fiscal year 1970 the low balance was $894 million. These
figures cover all banks so the balances for individual banks
hit very low points.
Third, if lenders were encouraged to extend long-term
loans on the basis of Tax and Loan Account balances, they
would have to be given same assurance that a min~ deposit
would be maintained at all tbBes. No such assurance now
exists. Withdrawals range up to 100 per cent. If a mintmum
were set aside for a specific purpose, these funds would no
longer be available to meet government expenditures and
could not appropriately be included in calculating funds on
hand. This, of course, would increase the Treasury's
borrowing costs.
Fourth, there are a variety of financial institutions
interested in the various lending programs cited in the
resolution--savings banks, savings and loan associations,
credit unions and insurance companies, to name the most
prominent. A long list of federal and state laws and
regulations would have to be changed to permit these other
institutions to participate in such a program.
-5-
Finally, it would appear that the objective. of the
Tax and Loan Account Syst. . as it now exista and the
objectives of the Ca.aittee aa stated in ita resolution
are not 1II\1tua~ly compatible. The one seeks to bring funds
into the Treasury to pay the government's bills; the other
would deny the Treasury the use of part of the funds, thus
increaaing the cost of operating the government.
In our opinion it would not be prudent to undermine
the present system by supertmposing another and contradictory
objective upon it.
There are, of course, other way. of praaoting socially
desirable lending programs. There are a variety of subsidies,
guarantees and direct loan. available. There are also
secondary market mechani8lll8 designed to increase the flow
of funds into theaeareas. However, since the Treasury
Department does not have the operating responaibi1ity for
theae progr... , I will defer further com.ent to thoae in
charge of these progr....
I realize that tax .atters are not within the purview
of this Ca.aittee, but I want to mention in closing that a
very constructive proposal to st~late socially desirable
lending progra.a was rejected by the Senate Finance Ca.mittee
1aat year when it was considering the Tax Refana Act. That
idea was to provide a tax incentive for all typea of financial
institutions to participate in socially desirable lending
progr_. This approach would have tied the benefit to the
lending progr. . rather than to the institution. I personally
believe the approach has merit and would like to see it
given further conaideration.
One other progr. . , which may be of interest to this
Caaaittee, is the Administration's efforts to increase the
flow of depoaits into minority banks. While moat of the
depoaita will co.e fro. the private sector--corporations,
foundations, unions, religious organizations and local
governments--the Federal Government is seeking to increase
federal depoaits in these banka by a total of $35 million
during the caaing year.
-6There are 24 departments and agencies of govern.ent
which now use ca.mercial banks for various services. The
Treasury Deparcaent, which is aost closely involved in
coordinating government funds, has the responsibility for
following through on this program.
In setting up guidelines for use by the departments
and agencies, we stressed three factors--service, convenience
and cost to the government.
We believe the minority banks can perform many of the
services required by the government as well as the large
banks. Moreover, they can do it at about the same cost and
do it conveniently.
I recently outlined both the philosophy and approach
behind this program in a speech to the National Bankers
Association. Rather than read the entire speech, I would
like to submit it for the record.
~o
I / ()
'epartment of the TRfASURY
IGTON. D.C. 20220
~TION
:
TELEPHONE W04-2041
F INANC IAL ED ITOR
if':LEJ\Gf<: 6: 30 P.M.,
.ay, November 24, 1970.
RESULTS OF THE.ASLmY' S r·l0NTHLY BILL OFFERING
'l11C Treasury Department announced that the tenders for two series of Treasury
~,
one series to be an additional issue of the bills dated
August 31, 1970 "md
)ther series to be dated November 30, 1970 , which were offered on November 17, 1970,
opened at the Federal Reserve Banks today_ Tenders were invited for :1>500,000,000,
lcreabouts, of 274-day bills anli for $1,200,000,000, or thereabouts, 0f
365 -r18.Y
,. The details of the two series are as follows:
,; OF ACCEPTED
TIVE BIDS:
~Tl
HiGh
L.ow
f\\lerae e
274-day Treasury bills
maturing August 31, 1971
Approx. Equiv.
Price
Annual Rate
96.168
96.115
96.131
~
5.035%
5.104%
5.083%
365-day Treasury bills
maturing November 30, 1971
Approx. Equiv.
Price
Annual Rate
94.981
94.831
94.921
Y
0'
4.950%
5.098%
5.009%
Y
EI
Excepting one tender of $480,000
~ Excepting one tender of $1,000,000;
96~ of the amount of 274-day bills bid for at the low price was accepted
70% of the amount of 365-day bills bid for at the low price was accepted
Tl~ND£RS
APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
;trjct
ton
York
.laddphia
ve.land
hmond
Qllta
co..::o
LOllis
neapolis
sas City
.las
Francisco
'l'OT.t\LS
AEE1ied For
;~
10,925,000
981,205,000
3,680,000
1,535,000
720,000
10,080,000
142,570,000
7,020,000
10,460,000
4,345,000
4,700,000
145,440,000
$1,322,680,000
AcceEted
10,925,000
349,865,000
550,000
1,535,000
720,000
3,820,000
71,170,000
3,520,000
8,460,000
2,345,000
3,700,000
43,670,000
*
$
500,280,000
AEElied For
1l,825,000
1,417,025,000
2,980,000
16,515,000
1,470,000
12,335,000
174,605,000
9,120,000
10,805,000
5,790,000
15,165,000
175,620,000
$
~ $1,853,255,000
AcceEted
11,825,000
896,025,000
2,980,000
4, .S15 ,000
1,470,000
7,785,000
141,105,000
7,970,000
10,805,000
5,790,000
8,165,000
101,620,000
$
$1,200,055,000
:Y
chl'h's .;, 20,460,000 noncornpeti t ive tenders accepted at the avcrCl.{ie price of 9,' .1?:1
elUdes :t 39, ~L95, 000 noncornpeti ti vc tenders accepted at the avcrar:;e price of 94.921
ese rates are on a bo.nl< disc01.mt basis. 1he equivalent coupon 'issue yielJs are
3}i, for the 2'/4-uay bills, and 5.28(/~ for the 36,S-day bill:.;.
,ortment ot the 1RfASU RY
TELEPHONE W04-2041
ON. D.C. 20220
6:30 p.m.,
sday, November 25, 1970.
~LEASE
RESULTS OF OFFERING OF $2.1 BILLION STRIP OF TREASURY BILLS
llie Treasury Department announced that tenders for additional amounts of seven
of Treasury bills to an aggregate amount of $2,100,000,000, or thereabouts,
issued December 2, ,1970, which were offered on November 17, 1970, were opened
Federal Reserve Banks today. The amount of accepted tenders will be equally
2d among the seven issues of outstanding Treasury bills maturing January 7,
':'y 14, January 21, January 28, February 4, February 11, and February 18, 1971.
:tails of the offering are as follows:
Cotal applied for Cotal accepted
OF ACCEPTED
BIDS:
Iigh
~ITIVE
JOW
lverage
Price
99.303
99.240
99.257
$3,555,405,000
$2,100,105,000
(includes $ 264,845,000entered on a noncompetitive basis and accepted in full at
the average price shown below)
Approximate
based on 57
)f the amount bid for at the low price was accepted
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
3J1cisco
Applied For
$ 185,010,000
1,500,905,000
170,240,000
202,335,000
30,905,000
66,885,000
343,280,000
65,695,000
464,450,000
125,545,000
198,590,000
201,565,000
Accepted
$ 181,650,000
525,770,000
141,540,000
113,190,000
30,905,000
58,905,000
274,505,000
65,695,000
443,870,000
124,915,000
66,465,000
72,695 ,000
)TALS
$3,555,405,000
$2,100,105,000
ct
rk
elphia
and
nd
a
o
llis
polis
City
rate is on a ban1\: discount basis.
The equivalent coupon issue yield is 4. 79:~.
!portment 01 the TREASURY
TON. D.C. 20220
TElEPHONE W04·2041
FOR IMMEDIATE RELEASE
November 30, 1970
JOHN E. CHAPOTON SWORN IN AS
TAX LEGISLATIVE COUNSEL
John E. Chapoton, a former Houston, Texas, lawyer,
was sworn in today as Tax Legislative Counsel of the
Treasury Department by Acting Secretary of the Treasury
Charls E. Walker.
Mr. Chapoton, 34, had served as Acting Tax Legislative
Counsel since October, succeeding Meade Whitaker, who resigned
to return to the practice of law in Birmingham, Alabama.
As Tax Legislative Counsel, Mr. Chapoton will direct a
staff of lawyers and accountants who compose one of the two
najor units under Assistant Treasury Secretary for Tax Policy
Edwin S. Cohen. The other unit is the Office of Tax Analysis,
a staff of economists.
Mr. Chapoton joined the staff of the Tax Legislative
:ounsel in May 1969 after eight years with the Houston law
firm of Andrews, Kurth, Campbell and Jones, and played a major
:ole in shaping the 1969 Tax Reform Act.
In August 1969, he was appointed Associate Tax Legislative
~ounsel, and in July 1970 he was promoted to Deputy Tax
.egislative Counsel.
A native of Galveston, Texas, Mr. Chapoton attended
ashington and Lee University, Lexington, Virginia, and graduated
ith honors from the University of Texas, as a Bachelor of Business
dministration, in 1958. He also graduated with honors in 1960
rom the University of Texas Law School, where he was an editor of
he Texas Law Review and a member of the Order of the Coif, a
egal honor-fraternity.
-538
- 2 -
Earning a commission in the R.O.T.C., Mr. Chapoton
served in the Army, 1960-61.
Mr. Chapoton is married to the former Sarah Eastham
of Houston. They have two children and make their home
in Washington.
000
~partment of the
TREASURY
rON. D.C. 20220
TElEPHONE W04-2041
TION:
FINANCIAL EDITOR
ELEASE 6: 30
~,
~ .M.
,
November 30, 1970.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
'lhe Treasury Department announced that the tenders for two series of Treasury
, one series to be an additional issue of the bills dated September 3, 1970 , and
Ither series to be dated December 3, 1970 ,which were offered on November 24, 1970,
opened at the Federal Reserve Banks today. Tenders were invited for $1,900,000,000,
ereabouts, of 91-day bills and for $1,400,000,000, or thereabouts, of
182-day
The details of the two series are as follows:
OF ACCEPTED
TITlVE BIDS:
High
Low
Average
91-day Treasury bills
maturing March 4, 1971
Approx. Equiv.
Price
Annual Rate
98. 725 ~
98.708
98.715
182-day Treasury bills
maturing June 3, 1971
Approx. Equiv.
Price
Annual Rate
97.500
91.462
97.483
5.044%
5.111%
5.084%
4.945%
5.020%
4.979%
~ Excepting one tender of $300,000
2% of the amount of 91-day bills bid for at the low price was accepted
2% of the amount of 182-day bills bid for at the low price was accepted
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
trict
ton
York
ladelphia
veland
hmond
anta
car,o
Louis
neapolis
sas City
las
Francisco
TOTALS
~ludes
~ludes
AEElied For
$ 24, 5 70, 000
2,717,325,000
56,105,000
46,940,000
14,960,000
44,530,000
281,280,000
50,585,000
32,085,000
40,255,000
27,575,000
188,180,000
Acce~ted
$3,524,390,000
$1,900,415,000
$4,550,000
1,552,880,000
21,105,000
44,270,000
13,960,000
22,045,000
65,230,000
40,845,000
11,145,000
26,830,000
16,575,000
60,980,000
£I
A12121ied For
$ 15,545,000
1,848,765,000
6,430,000
23,365,000
16,060,000
34,020,000
151,935,000
25,345,000
21,660,000
17,560,000
21,695,000
138,830,000
Acce12ted
15,295,000
$
1,116,505,000
6,430,000
23,295,000
6,060,000
19,380,000
121,635,000
22,065,000
11,980,000
13,320,000
9,695,000
28,500,000
$2,321,210,000
$1,400,160,000 ~
$273,815;000 noncompetitive tenders accepted at the average price of 98.715
$129,965,000 noncompetitive tenders accepted at the average price of 97.483
)se rates are on a bank discount basis. The equivalent coupon issue yields are
22% for the 91-day bills, and 5.18% for the 182-day bills.
.portment 01 the TREASURY
ON D.C. 20220
TElEPHONE W04-2041
R IMMEDIATE RELEASE
December 1, 1970
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
, two series of Treasury bills to the aggregate amount of
,300,000,000, or thereabouts, for cash and in exchange for Treasury
11s maturing December 10, 1970, in the amount of $3,107,550,000~
follows:
9l-day bills (to maturity date) to be issued December 10, 1970,
the amount of $1,900,000,000,
or thereabouts, representing an
ditional amount of bills dated September 10, 1970, and to mature
.rch 11, 1971,
(CUSIP No. 912793 JY3 ), originally issued in
e amount of $1,404,690,000, the additional and original bills to be
eely interchangeable.
182- day bill s, for $ 1,400,000,000, or thereabouts, to be dated
~cember 10,- 1970,
and to mature
June 10, 1971
l~SIP :~o. 912793 K(7).
The hills of both series will be issued on a discount basis under
npetitive and noncompetive bidding as hereinafter provided, and at
turitv their face amount will be payable without interest. They will
iS5U~d in hearer form only, and in denominations of $10,000,
5,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
the closing hour, one-thirty p.m., Eastern Standard
me, Monday, December 7, 1970.
Tenders will not be received
the Treasury Department, Washington. Each tender must be for a
nimum of $10,000. Tenders over $10,000 must be in multiples of
,000. In the case of competitive tenders the price offered must be
pressed on the basis of 100, with not more than three decimals,
g., 99.925. Fractions may not be used. It is urged that tenders be
de on the printed forms and forwarded in the special envelopes which
11 be supplied by Federal Reserve Banks or Branches on application
ere for.
Banking institutions generally may submit tenders for account of
stomers provided the names of the customers are set forth in such
nders. Others than banking institutions will not be permitted to
- 2 -
8ubmit tenders except for their qwn account. Tender. will b. ~
without depolit from incorporated banks and trust companies and . .
responsible and recognized dealers in investment securiti.s. T~
from others mult be accompanied by payment of 2 percent of the f••
amount of Treasury bills applied for, unless the tenders are acc~
by an express guaranty Qf payment by an incorporated bank or tru.t
company.
Immediately after the closing hour, tenders will be opened It a
Federal Reserve Banks and Branches, following which public annou~.
will be made by the Treasury Department of the amount and price r~
of accepted bids. Only those submitting competitive tenders will~
advised of the acceptance or rejection thereof. The Secretary oftN
Treasury expressly reserves the right to accept or reiect any or aU
tenders, in whole or in part, and his action in any such respect I~
be final. Subject to these reservations t noncompetitive tendera 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 d~iJ
of accepted competitive bids for the respective issues. Settlement
accepted tenders in accordance with the bids must be made or complet
at the Federal Reserve Bank on December 10, 1970,
in cash or other immediately available funds or in a like face ~~
Treasury bills maturing December 10, 1970.
Cash and exchange te~
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.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue C
of 1954 the amount of discount at which bills issued hereunder are
is considered to accrue when the bills are sold, redeemed or othe~
disposed of, and the bills are excluded from consideration as c~U
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his inco~ td
return, as ordinary gain or loss, the difference between the prk.
for the bills, whether on original issue or on subsequent purchase,
the amount actually received either upon sale or redemption at matu
during the taxable year for which the return is made.
Treasury Department Circular No. 418 (current revision) andt
notice, prescribe the terms of the Treasury bills and govern t~ ,
conditions of their issue. Copies of the circular may be obtaind
any Federal Reserve Bank or Branch.
000
partment of the TREASURY
IN. D.C. 20220
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
ADDRESS BY THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
AMERICAN CHAMBER OF COMMERCE OF AUSTRIA
TUESDAY, DECEMBER 1, 1970
VIENNA, AUSTRIA
(AT 6:00 A. M., E. s. T.)
It is indeed a great pleasure for me to return to Vienna
and address this distinguished group. Your interest in
Austrian and European affairs is obvious, equally apparent
is your interest -- for both personal and professional
reasons -- in the U.S. economy and its implications for
international economic relations.
In brief, a prolonged period of monetary and fiscal
restraint has succeeded in ending overheated demand pressures.
We have paid a price in terms of very slow growth for over a
year, and unemployment has risen. But now the stage has been
set for a renewed healthy advance that should enable
us to better reconcile our price and employment objectives.
While economic performance in the current quarter is
leaving a lot to be desired, we do feel that the prospects
for economic expansion next year are good. The recent
strike against General Motors obscured many of the underlying
trends in the economy, and I doubt if we will ever be able to
unravel completely its effects on production and employment.
qowever, these effects are short-run in nature and the
resumption of production cannot help but favorably affect
~he economy.
~-539
- 2 -
Moreover, fiscal and monetary policies can no judiciousl,
encourage growth over the months ahead. In applying these
policies, we will be heavily influenced by the lessons of
recent economic experience. Outstanding among these lessons
is that the economy can be overheated by inordinately
expansive fiscal and -monetary policies and produce an
inflation costly to endure and costly to cure as well. Let
me assure you that this Administration does not intend to ~b
this mistake; we do not want li stop and go," but sustained
and orderly growth.
Aside from the need to avoid excess demand in the future,
there remains the sticky problem of cost-push pressures in
the economy. Wages in several highly-publicized labor
settlements have been increasing at a rate well in excess
of productivity growth. But we must remember that some of th~
settlements contain an element of "catch up" to previous
price increases and, in some cases, provide for rather
reasonable wage changes after the first year -- provided
we succeed in moderating price pressures. Moreover, wage
trends have visibly slowed outside the area covered by
collective bargaining agreements -- and this accounts for
most of the workers.
As the economy expands, we can expect to see recent
substantial increases in labor productivity continue.
This will make it a little easier to absorb the upward
pressure of rising wages on unit costs.
But it remains important, if inflation is to ebb
substantially further throughout the economy, that labor
and business reflect the changing environment in their
pricing policies and wage demands.
We must, of course, be conscious of the impact on our
trade and balance of payments as our domestic economy moves
forward and narrows the gap between actual and potential
levels of national product. If not carefully monitored,
expansion of our domestic economy could eventually add
excessive demand pressures to current cost-push pressures
on prices, causing a reduction in our recently improved
trade balance. As I have indicated, we have strong reasOO S,
on domestic as well as trade grounds, to prevent renewed
overheating and a self-defeating cycle of heavy restraint ~d
over-expansion.
- 3 -
As you know, we are not alone in facing inflationary
pressures. Other industrial nations have similar problems.
While I take no pleasure from world-wide inflationary
pressures, we do have an opportunity here to improve our
competitive position. We mean to take advantage of it.
Recently, we have begun to perform somewhat better,
relative to other industrial nations. For example, it has
recently been estimated that the price deflator for the
Gross National Product, the overall measure of price changes
in an economy in the United States is now rising at a
significantly slower pace than the average figure for the
other major Organization for Economic Cooperation and
Development countries. I believe we are somewhat
further along in dealing with our demand pressures than
many other countries. While no one can be sanguine
about recent price experience in any of the industrial
nations, an improving relative performance should bode
favorably for our future trade balance.
Our trade position has improved considerably this year -by $2 to $2-1/2 billion, but this marked gain has been
favorably influenced by cyclical factors. There is no
doubt our trade position needs to be further strengthened
at high levels of production. How well we can reconcile the
two major economic objectives of price stability and full
employment will figure heavily in our trade and balance of
payments positions.
The outcome, I should point out, will be affected as well
by the outcome of certain trade measures proposed and
discussed in both Europe and the United States. We
as
other countries -- need to work in the framework of free
and open markets.
After many years of very gratifying expansion,
international trade is facing serious problems.
The system of nondiscriminatory multilateral trade
Nhich has provided important positive benefits to world
2conomic growth -- is in jeopardy.
In the United States, we are seeing stronger pressures
or import restrictions than we have faced in decades.
n part, the protectionist sentiment in the United States
- 4 arises from the losses of profits and employment felt by
particular American industries faced with increasingly strong
foreign competition.
But you should also be aware that there has been a
feeling in the United States that Japan and the European
Community, with strong domestic economies and balance of
payments surpluses, have themselves pursued certain
restrictive policies. These policies do not seem consistent
with the broad pos twar obj ec ti ve of 1 iberalizing international
trade.
The preferential trading arrangements of the European
Community and its Common Agricultural Policy are felt by
our people to affect adversely important trading interests,
not only of the United States, but also those of the rest
of the Western Hemisphere.
It is fruitless, however, to seek to assess blame for ~
urgent common problem. I hope that there will be a growing
realization, both in Europe and the United States, that
there is much to be lost in divisive trade competition. I
do not pretend that future progress in international trade
will be as easy as in the past. It will require more
strenuous efforts to find the proper balance between the
legitimate interests of both Europe and the United States
and to support the framework of free and open markets that
is essential to carry forward the levels of world trade in
a mutually advantageous upward trend.
For the United States, this effort means rejection of
arbitrary trade restrictions. President Nixon's moderate
and constructive proposals have pointed us toward the
proper goal.
Months ago, the President asked the Congress for limited
tariff reducing authority. He urged elimination of the
American Selling Price System of customs evaluation. He
proposed liberalizing the adjustment assistance provision of
the Trade Expansion Act, as well as the criteria of
eligibility for ,'scare clause relief. This would permit a
constructive response to the problems of particular
industries consistent with open markets.
-
::> -
To protect our legitimate interests, he asked that his
authority to move against unjustifiable import restrictions
imposed on U.S. nonagricultural exports be increased. He
also asked for new authority to act against countries unfairly
impeding our exports by subsidizing their sales to third
country markets.
The President also supports measures to make tax
treatment of our exports more nearly comparable to tax
treatment of income from investments abroad.
In addition,
he reluctantly concluded in the absence of a voluntary
agreement that it was necessary that the President be
granted the authority to act, if required, to impose quotas
on certain textiles.
This is a well balanced package that could provide the
basis for constructive initiative from the U.S.
I still
hope the Congress will adopt legislation of this character
without the quota provisions added by the House of
Representatives that have recently been the source of much
concern at home and abroad.
But, in seeking constructive legislation at home,
I believe that the European Community has responsibilities
as well in the pursuit of the goal of expanding the
multilateral trading system. A review of its policies on
preferential arrangements, rationalization of an agricultural
policy which now encourages inefficient production at the
expense of traditional suppliers, and fuller recognition of
the interests of third countries that are affected by the
prospective enlargement of the Community, would be highly
constructive.
If we can move along these lines, we should
avoid a cumulative tendency toward what might be called
"competitive restrictions" when we should be promoting
competitive trade.
A liberal trading order will provide the opportunity
for enlarging our trade balance, but it cannot assure that
result. The primary answer must be in our domestic
performance -- supplemented by those changes in our tax
treatment of exporters and export credit arrangements that
may be necessary to bring them more in line with the practices
of other leading countries.
- 6 Looking beyond the trade balance to other elements in Our
external payments, there is considerable reason to expect a
stronger position in the next few years. In the first place,
our gross income from foreign investment (excluding reinvested
earnings) and from fees and royalties has been rising at about
three quarters of a billion annually a year in recent years.
We expect this rise to continue. However, net income,
a much more volatile figure, was held back in 1968 and
1969 by the high interest rates that our country paid out
on short term foreign dollar claims.
As these short term rates come down, the outpayments
should level off and our net receipts should again rise
appreciably.
I hope that in the years ahead, the burden of our
foreign military expenditures on the balance of payments
will be reduced.
This year has also been a depressed one for foreign
purchases of u.s. securities. Some recovery from present
abnormally low levels is reasonable, as the security markets
respond to quickened growth in the U.S. economy.
The current and long-term capital accounts taken together
have been running at a deficit of about $2 to $3 billion in
recent years. That is, our current net earnings on all goods
and services have fallen short of the net outflow of
long term capital by these amounts. This is one measure
of the size of the challenge before us.
But) as you know, our long term capital exports have been
restrained by official programs. We must pave the way for
dismantling these restraints on long-term capital movements
by setting adequately high targets for improvement in our
trade and current account position.
Let me tutn now to another point. That is the large
movemen ts of short te rm funds that have taken place in the last
two years. These movements have caused wide swings in our
over-all balance of payments. Measured by the official settlement
definition these large scale movements of funds have been
determined mainly by factors independent of the present
size of the D,S. deficit on curr-ent and long term capital account.
- 7 They result, under our system of convertible currencies, when
demand and money market pressures and the economic cycle in
individual countries a~e not closely coordinated or, at times,
such flows may be stimulated by speculative factors.
In the United States, it was necessary last year to follow
a restrictive monetary policy, and this resulted in a surplus
on the official settlements basis of $2.7 billion, following a
smaller surplus of $1.6 billion in 1968. The inflow of funds into
the United States presented some problems to other countries at
that time, causing them, in some cases, to take measures to avoid
an undesired outflow of short-term capital seeking higher interest
rates in the Eurodollar market or the United States.
In recent substantial reduction of interest rates is very
welcome in the United States. I suspect the relaxation of market
pressures, in the Eurodollar market or elsewhere, has also been
welcome to a number of other countries as well.
At the same time, the easing in the U. S. monetary situation
relative to interest rates in some other countries has been
instrumental in causing a large unfavorable swing in our official
settlements balance. As a result, the dollar reserves of some
countries have risen substantially this year.
There are very large stocks of interest-sensitive
liquid assets that may move from country to country under our
highly developed system of international banking and through
the activities of multinational corporations. There is no easy
answer to the problems of short-term capital movements presented
by these funds.
Troublesome as these are, however, I feel confident that
the international monetary system is elastic enough to accommodate
and absorb these large-scale movements. They present no reason
for abrupt changes in the existing arrangements, though the process
of evolutionary advances should and will continue.
What is far more fundamentally important than the different
phasing of national monetary policies and swings of short-term
funds is the underlying performance of major countries in
bringing inflation under control and achieving a satisfactory
basic pattern of international payments on current and long-term
- 8 capital account. The United States is very much aware of
own large share in the responsiblility for pursuing these
objectives, both because of the sheer size of our economy and
because of the role of a stable dollar in the effective
functioning of the international monetary system.
We have learned afresh, in these past few years, that the
problems of economic management are never easy. But we
approach the task of managing expansion with enthusiasm and
confidence -- a confidence bred in part by the observable fact
that, when necessary, we were willing to take harsh measures
of restraint and stick with them. We are now planning for
growth -- but we do not plan to dissipate hard-won gains on
the inflation front, and, in these respects, our domestic
goals coincide with the broader interest of the world at large.
000
'epartmentof the TREASURY
GTON. O.C. 20220
TELEPHONE W04·2041
FOR RELEASE ON DELIVERY
REMARKS OF THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
AT THE COLLOQUIUM ON PUBLIC EXPENDITURES AND TAXATION
SPONSORED BY THE NATIONAL BUREAU OF ECONOMIC RESEARCH
THE MADISON HOTEL, WASHINGTON, D. C.
WEDNESDAY, DECEMBER 2, 1970, 6:00 P.M.
I am doubly delighted to participate in this colloquium.
For one thing, it permits me publicly and officially to pay
tribute, in its 50th anniversary year, to the leadership and
good works of the National Bureau in firming the empirical
and scientific base of economics.
It also provides me with
a welcome opportunity to talk to a roomful of economists about
a subject that epitomizes as well as any the broadly political
(and, therefore, non-National
Bureau~)
dimensions of fiscal
policy issues -- issues concerning which economists have come
to assume an almost proprietary interest.
So far as I can determine, the concept of revenue sharing had its origin largely in the thinking of some students
of public finance who had become conscious of what President
Nixon later termed the "fiscal mismatch" between the underlying budgetary positions of State and local governments, on
- 2 :he one hand, and the Federal Government, on the other.
The
letamorphosis into tbe arena of public policy debate
eeeived impetus from a public finance specialist turned
ublic servant named Walter Heller.
Within five years, a
arting shot of an outgoing Chairman of the Council of
eonomic Advisers had received the imprimatur of an incoming
resident of the opposite party who made revenue sharing a
entral element in his domestic policy.
That, in itself,
eems to say something for the continuity and resiliency of
m idea and the political process.
By now, revenue sharing -- if not yet exactly a houseold word
is a matter of lively discussion among public
fficials and informed citizens in all parts of the country.
conomists have remained in the vanguard within the Governent as well as without.
In particular, Murray Weidenbaum
nd some of his associates in the Treasury should receive
uch of the credit for developing a concrete proposal and
evoting much of their time to public education -- lucid and
nbiased!
But the breadth of nonprofessional support has also
~eome
impressive.
1 1, \
- 3 A Galluppoll last year found 70 percent of Americans
responded favorably to the concept.
Virtually every major
organization representing State and local governments and
officials has endorsed the proposal, and their support is
becoming increasingly vocal and energetic.
A broad array
of partisan leaders and important business and civic groups
have found the revenue-sharing umbrella a common meeting
ground.
Most importantly, President Nixon has given it the
Presidential seal of approval.
This broad support is not accidental.
In part, it
reflects wider recognition of the problem that originally
attracted the attention of economists -- that the Federal
Government has a more effective and efficient capability to
tax,wh~
State and local governments must respond to some
of the more pressing demands for improved public service.
But, more than sheer economics, I believe it is revenue
sharing as a political innovation and administrative improvement that has touched a sympathetic nerve in all parts of
the country.
In a nation increasingly conscious of the
immense gap between the launching of a vast new Federal
program and visible results in terms of improving the
- 4 welfare of our citizens, the greater room for local initiative implicit in
re~enue
sharing has large appeal.
Indeed,
it is the practical politician -- beginning with Mel Laird
in 1958 -- who was quick to see the broad implications in
the technical analysis of the economists.
Revenue sharing may imply different things to different
people.
Before I go any further, I had better define its
principal features as I see them.
Three elements seem to me
central:
(1)
An automatic annual appropriation of a designated
amount or proportion of Federal revenues.
(2)
Distribution of those funds to the 50 States
through a clearly defined
(3)
and~uitable
formula.
No restrictive Federal "strings" governing the
uses to which the funds are put.
The Administration proposal envisages population as a
readily determinable, fair, and clear measure of establishing the State by State distribution of the "shared" funds.
It would also adopt as a central feature the philosophy of
"passing through" a proportion of the funds paid each State
to its general purpose local governments.
All cities,
7)
- 5 -
counties, and towns would benefit in proportion to their
share of aggregate State revenues.
The detailed formulas and specifications incorporated
in the bill submitted by the Administration this year are
not, of course, inviolate.
Th~should
and are being
reviewed in the context of the public discussion during
recent months.
But I believe the basic elements in the
approach outlined above -- the certain allocation of amounts
predetermined on an objective, equitable basis, without
strings attached
are crucial to its purpose.
They are
the essence of revenue sharing as we conceive it.
Viewed in this light, I believe it is clear that a
major part of the justification for revenue sharing is not
economic at all.
Rather, it deals with a fundamental issue
of political power -- decision-making over the expenditure
of public funds.
Revenue sharing would be a deliberate and
conscious effort to transfer a larger share of that power
back to our States and localities.
The underlying theory
is the essence of simplicity -- those closest to local needs
and problems should be -- or become -- best equipped to deal
with them intelligently and flexibly.
- 6 No one contemplates that the enormous existing complex
of Federal programs
~hat,
in one form or another, provide
large amounts of money
and complicated standards and
criteria for their use
will be dismantled with the intro-
duction of revenue sharing.
But we are definitely talking
about a change in emphasis and direction that could be
increasingly significant in the years ahead.
Should all State and local use of Federally collected
funds be governed by priorities and programs set in
Washington -- determined on the basis of some Federal determination of over-all national need?
Should Governors and
Mayors be so preoccupied with seeking changes in Federal
programs, or in methods to increase their own allocation of
funds in existing programs?
Worse, should they settle for
a "second best" solution in terms of their local needs
because that "second best" solution happens to have Federal
funding?
With revenue sharing, every State, county and city can
expect some amount of funds to direct toward its most urgent
problems, as it sees them.
An important constraint on
meeting local priorities will be eased.
local initiative should be enhanced.
Flexibility and
- 7 The longer term implications are still broader.
We are
all aware of the sense of frustration and personal impotence
of the citizen in de'aling with the problems that seem so
overwhelming in his local environment.
The flow of money
and power to the Federal Government has not always seemed to
provide a satisfactory response.
The effort to restore a
larger measure of power to State and local authorities -where the individual views and influence can be more readily
exerted -- could help re-energize our political life.
On a more mundane level, the administrative simplicity
of revenue sharing has considerable attractions.
There will
be no "Federal Bureau of Revenue Sharing" interposing
expensive, time-consuming -- and just plain annoying
steps upon the seeker of Federal funds.
Few people, outside
of those State and city officials that must live with the
problem, can fully appreciate the "management mess" -- to use
the words of the Advisory Commission on Intergovernmental
Relations
encompassing the present Federal grant-in-aid
effort.
We already have revenue sharing of a kind, built
up without much over-all planning out of a plethora of
programs aimed at particular substantive problems.
( J (/
- 8 The growth has been phenomenal.
From less than $1 billion
in 1964, Federal aid to State and local governments grew to
about $2.5 billion in 1950, to $7 billion in 1960, and to
more than $27 billion in the current fiscal year.
There are
nearly 500 grant-in-aid programs -- each with its own
policies, standards, and procedures.
States and cities need specialists simply to know what
is available -- and those without the persistence or ability
to find out lose out.
Some localities simply do not bother
with available programs unless the particular grants are
likely to be of substantial size, lest all their energies
be diverted to dealing with Federal programs.
And, in the
best of circumstances, Federal categorical grants hardly
represent a speedy response to emerging problems.
It is
little wonder that one observer -- Senator Muskie -- concluded
last year concerning the grant-in-aid that "its proliferation
has threatened to create as many problems as it was intended
to solve."
Another positive administrative aspect associated with
the revenue sharing proposal put forth by President Nixon is
the built-in role for local governments.
Most Federal
- 9 grants-in-aid are directed to State government departments
and agencies.
Revenue sharing is more neutral vis-a-vis the
relative importance of State and local governments in a given
State.
It attempts to divide the Federal funds in each State
among State, city, and county units in the same proportion
that the citizens of the State have allocated responsibilities to the various levels of government.
Thus, revenue
sharing truly is a means of furthering the decentralization
of the public sector.
In part, this, too, goes to the
problem implicit in the Federal Government itself conducting
an ever-widening array of public functions.
The objection has been raised that these broad
)olitical and administrative advantages of revenue sharing
:ould, in principle, be achieved more effectively and
;traightforwardly by a greater willingness of State and local
;overnments to bear the tax costs directly.
The responsibil-
Lty for imposing taxes -- it is said -- should be part and
>arcel of the power to decide how to spend the money.
But
;hat objection runs straight into the basic fiscal problem that
)riginally concerned economists
- 10 The theoretical speculation over the structural disparity
between the Federal and State and local tax base seems amply
borne out by experience.
At the Federal level, growth-
responsive income taxes have been able to generate revenues
at a pace exceeding both economic growth and long-term
expenditure requirements for current government programs, at
least in peacetime.
During the 1960's, for example, the
Federal Government granted major tax reductions while maintaining a healthy revenue growth.
I am as conscious as anyone of our Federal fiscal
problem today.
But that problem is primarily a reflection of
the recent and present sluggishness of the economy.
Even now,
the budget would be in surplus at full employment levels of
income.
Longer run projections, both within and outside the
Government, have tended to confirm the underlying strength of
the Federal fiscal position in a growing economy.
A look at the State and local government fiscal situation reveals quite a different picture.
While their
colleagues at the Federal level were able to indulge in the
political luxury of voting two sizeable tax reductions along
with major expenditure increases during the past decade,
State government officials could meet growing service demands
- 11 -
only by putting through more than 300 rate increases in
major taxes during the same period.
This major structural differencemn be expressed
another way.
During the 1960's, economic growth produced
sufficient Federal revenues to fund not only large expenditure increases -- including, as I have noted, a tremendous
expansion in grants-in-aid -- but also substantial tax
reduction.
The same economic growth produced less than half
the necessary new revenues required to fund State and local
expenditure growth.
Legislative action on new or higher
taxes was responsible for the better part of State and local
revenue growth in the last decade.
Our States and localities are properly expected to
operate our major domestic service systems, such as education,
law enforcement, and waste disposal.
More importantly,
future demands on these governments offer every indication
of being not only more widespread, but also more expensive
than a simple examination of past experience would suggest.
We know, for example, that a basic array of necessary
public service costs considerably more per person when
delivered in a congested, urbanized, or disadvantaged setting.
- 12 -
In 1968, city governments with populations over 300,000 had
general expenditures of $301 per capita.
Those cities with
populations under 50,000 spent only $104 per capita, while
those between 50,000 and 300,000 averaged $176 per capita.
:ertainly growth in average city size is a reasonable
expectation for future years.
Finally, in dealing with the fiscal problems of State
lnd local governments, we need to recognize the plight of
Governor or Mayor faced with the compelling need -- from
1
lis standpoint -- to keep his tax program reasonably in line
Jith that of his neighbors.
1
Interstate tax competition is
fact of life, economic and political.
The dynamics of the
;ituation may be to hold State and local services below the
.evel that would, without this factor, be socially optimal
Ir desirable.
In this sense, the margin of funds available
·rom revenue sharing can be considered not an escape from the
axing responsibility but a useful offset to the bias in State
r local taxation inherent in the mobility of the taxpayer.
Thus, the revenue-sharing proposal responds in a very
irect, simple, and straightforward manner to the fiscal
- 13 -
mismatch.
It transfers funds, without the
b~rden
of
Federal overhead, to. every State and general local government in the country for use in meeting our urgent
do~estic
needs.
A program with such a combination of political and
economic benefits -- and with increasingly broad support
should be a highly attractive legislative item.
plainly there are obstacles.
into two groups.
But
Basically, they seem to fall
In a time of slack receipts and budgetary
pressures, it is legitimate to ask a simple question
''Where are the revenues to share?"
And others ask a more
ambitious question - .. "Should not the concept of passing
funds to the States be shifted to encompass other specified
social or economic objectives?"
These questions deserve straightforward answers.
And
the debate, it seems to me, should help clarify the basic
nature of the revenue sharing program.
The first question implies (and I am willing to accept
the implication) that we can only have revenue sharing at
the expense of something else -- either an expansion in other
programs or a higher level of Federal taxes than would
- 14 otherwise be necessary.
In other words, priorities cannot
be escaped.
I happen to believe that revenue sharing should rank
high in those priorities and that it can and should substitute for other programs of lesser priority.
The President
will be struggling in this budget season with that issue in
precise arithmetic terms; how many funds might properly be
allocated in his budget for this purpose in competition with
all the other spending pressures.
I cannot predict how he will make that decision.
But
it does seem to me evident that his budget, in this and
other respects, must and will reflect a long view of the
country's needs.
In that long view, some new initiatives
entailing future budget commitments are perfectly consistent
with fiscal responsibility.
Indeed, in an economy with
growing capacity but in a sluggish phase, potential revenues
at full employment provide a more appropriate gauge for
judging appropriate spending trends than actual budgetary
results.
Consequently, if revenue sharing is a priority
item, funds can responsibly be found.
So far as the second range of questions -- looking
- 15 to other social objectives -- is concerned, I would
emphasize two
chara~teristics
of the revenue sharing plan
proposed by the Administration this year.
First, it
already has an element of equalization, in the sense of
relatively benefiting poorer States.
Thus, the lowest third
of the States, in terms of per capita income, while bearing
only 13 percent of the total Federal tax burden, would
receive 21 percent of the revenue sharing funds.
The middle
third, with 28 percent of the tax burden, would receive
30 percent of revenue sharing.
The top third of the States,
with 59 percent of the tax burden, would receive 49 percent
of revenue sharing.
In fact, compared to estimates of the
Legislative Reference Service of the Lilirary of Congress of
the distribution of total Federal spending from 1965-67,
revenue sharing would be a more efficient "equalizer."
Plainly, revenue sharing would deliver significantly more
equalization than an alternative such as tax credits, which
would distribute potential benefits strictly according to
the distribution of the Federal tax burden.
Second, our conception of revenue sharing would, also,
as I have already indicated, provide for a direct "pass
- 16 -
through" of funds to counties, cities and towns, where some
of the more urgent needs lie.
And that share could increase
if States, themselves, judge that is where the priorities
lie.
But it is also true that "revenue sharing" is not
primarily designed to equalize incomes or to fund specific
urban needs, or to meet a host of other social purposes to
which one or another of us might assign high importance.
The basic thrust is to permit our State and local governments to make more of those decisions.
I believe that
thrust is distorted and twisted to the extent we graft on to
the program a series of explicit social objectives, however
worthy.
The central theme of my remarks tonight is that revenue
sharing can be a versatile and attractive tool of government.
It is an imaginative response, in the fiscal area, to the
promise and problems of a more effective Federalism.
It
should be judged in those basic terms and compete on those
grounds with other spending proposals.
Criticism that it fails -- from one particular perspective or another -- to meet efficiently different problems
... 17 seems to me fundamentally misplaced.
Obviously, formulas
could be introduced .to Pl!'9vide more benefits to the low
income States, or to
la~g~
cities, or to depressed rural
areas, or to States in the forefront of the environmental
effort
mind.
or for
But it
other purpose the analyst has in
whatev~r
me that this approach would risk
seems~o
getting caught in the
WO~
toward categorical grants
ruts of the heavily traveled road
-~
and in the process risk
~osing
the unique potential of revenue sharing for revitalizing
local initiative and
political process.
th~
Like any important polley proposal, revenue sharing
needs intensive debate, in and outside the halls of Congress.
It does compete -- and CQmpete importantly -- for budgetary
funds and real
ment.
It would
resourc~s.
repre~ent
It would be a long-term commitan act of faith in the viability of
our State and local governments, and in our Federal system.
I, for one, hope the issue will be debated on these
fundamental grounds.
I
~m
convinced that, out of this debate,
support will grow and revenue sharing can indeed supply needed
fiscal cement for strengthening our Federal structure of
Government
0
.. 000 -
TRfASURY
~artment of the
ON. D.C. 20220
TELEPHONE WD4-2041
December 3, 1970
FOR IMMEDIATE RELEASE
Commendation of Two Top Bank Officials
Acting Secretary of the Treasury Charls E.
Walker today sent separate telegrams to
Mr. Richard P. Cooley, President of Wells Fargo
Bank in San Francisco, and Mr. A. W. Clausen,
President of Bank of America in San Francisco,
commending them for their reduction in consumer
lending rates:
"Secretary Kennedy, who is
abroad, asked me to commend your
reduction in consumer lending rates
as both consistent with underlying
market conditions and very much in
the public interest.
If emulated
by business and labor in general in
their price and wage decisions, the
road back to high employment and
growth, without inflation, would be
both shorter and smaller."
/s/Charls E. Walker
Acting Secretary
of the Treasury
K... 541
portmentof the
TREASURY
UN. D.C. 20220
TElEPHONE W04-2041
OR IMMEDIATE RELEASE
December 3, 1970
THIRD QUARTER REPORT ON PURCHASES AND SALES
OF GOLD AND OTHER RESERVE ASSETS
(JULY-SEPTEMBER 1970)
U. S. reserve assets declined by $801 million in the third
uarter to $15.5 billion.
The change in the components during.
he quarter and the amounts held on September 30 were as follows:
In millions of dollars.)
Change (3rd Qtr.)
Gold
SDR
Foreign Exchange
Res. POSe in IMP
Balance'
$ -395
+34
-34
-406
$ -801
The major changes, as indicated, were
Sept.30,1970)
$11,494
991
1,098
1,944
$15,527
reductio~s
in gold
oldings and in the U. S. position (drawing rights) in the
nternational Monetary Fund.
The U. S. position in the Fund
eclines as the Fund builds up its holdings of dollars.
The
und accumulated dollars as a number of countries made repayents to the IMP of their earlier drawings and also when the
MF acquired dollars through the sale of gold and SDR to the
. S. Treasury.
Transactions in gold are as set forth in the attached table.
le largest transactions were those with the IMP, which were
"P·lained in the Treasury Press Release of September 16, involving
le distribution to the U. S. of $132 million in gold and SDR and
le resale by the Treasury of.$400 million in gold to the IMP.
K-542
- 2 The gold sales in the third quarter listed in the attached
table, other than those to the Netherlands,
Switzerland'~~scat ,
but including the nearly $60 million sale to the Republic of
China, were all to countries which had gold payments to make
to international institutions.
Attachment
UNITED STATES NET MONETARY GOLD TRANSACTIONS WITH FOREIGN
COUNTRIES AND INTERNATIONAL INSTITUTIONS
January l-September )0, 1970
(In millions of dollars at $35 per fine troy ounce)
Area and Country
First
Quarter
Second
Quarter
~
Denmark
Greece
Iceland
Ireland
Malta
Netherlands
Spain
Switzerland
Turkey
Vatican City
Yugoslavia
Total
Latin America
Argentina
Bolivia
Chile
Colombia
Dominican Republic
El Salvador
Guatemala
Haiti
Nicaragua
Peru
Uruguay
Total
-0.1
+2.2
+2.5
-0.3
-
+4.4
-0.3
-0.1
-2.1
+1.2
--1.3
Third
Quarter
Total
-2.0
-2.0
-0.3
-0.2
+2.2
+2.5
-20.0
+50.B
-50.0
-7.8
+1.2
-0.1
-20.0
+50.B
-50.0
-5.5
~
-27.2
-24.1
-5.0
-5.0
*
-O.B
~
-0.5
-0.1
-0.1
-0.1
-0.1
-0.1
-0.2
-1.1
-0.1
-0.1
-0.1
-0.1
-0.1
-7.3
-0.2
-B.O
-9.1
-3.4
-0.2
-0.2
-0.1
-0.1
-0.1
*
*
-1.5
-1.2
-0.3
-0:2
-0.3
-0.1
*
-J.9
-3.7
-8.1
-20.3
*
+20.B
-0.4
-59.8
-0.3
+20.B
-0.4
-59.8
-0.8
-0.9
~
Afghanistan
Burma
Ceylon
China
Cyprus
.Indonesia
Korea
Kuwait
Muscat
Pakistan
Philippines
Syria
Yemen Arab Republic
Total
*
*
+24.9
-1.1
-1.1
-0.4
+3.5
-0.1
*
+24.9
-0.4
+1.2
*
...:.W
+24.0
~
Cameroon
Central African Republic
Gabon
Ghana
Guinea
Liberia
Morocco
Rwanda
Sierra Leone
Sudan
Tunisia
United Arab Republic
Total
*
*
-0.1
-0.4
+2.7
*
-1.4
--
...:.W
-0.2
-0.1
-0.1
-0.6
-D.2
-0.2
-0.1
-0.1
-0.8
*
*
*
-38.7
-0.2
-0.4
*
--
-1.7
*
*
*
-16.1
*
-0.1
-0.2
*
*
-0.4
-0.2
-0.4
-0.2
-1.2
-0.4
~
...d..2
-=.1.J
-2.2
-3.5
-321.7
-6.5
-298.0
-14.0
+44·0
TCYrAL
*Under $50,000.
Figures ~y not add to totals because of rounding.
-395.1
-365.1
M
-0.7
+23.7
FOR IMMEDIATE RELEASE
December 3, 1970
TREASURY PUBLISHES PROPOSED
REGULATIONS ON EXPLOSIVES
Washington, D. C. -- Proposed regulations dealing with
licenses and permits under the explosives control section
of the Organized Crime Control Act were filed today for
pu?lication in the Federal Register, the Treasury Department
sald.
Commissioner of Internal Revenue Randolph W. Thrower
said the publication of the proposed regulations on Tuesday,
December 8, will provide the opportunity for interested
parties to familiarize themselves with requirements under
the new law and attend public hearings in Washington,
'
December 29.
Final regulations will be published in the
Federal Register by January 15.
To provide more effective control over commercial
explosive materials generally used in the making of terrorist
bombs, Title XI of the new law, which will be administered
by Treasury's Alcohol, Tobacco and Firearms Division, Internal
Revenue Service, provides that all importers, manufacturers
and dealers in explosives be licensed.
Permits will also be
required for all persons who make interstate purchases of
explosives for their own use.
Applicants for Federal licenses to sell explosives
will be advised where to make application b~ January 12,
and will have until February 12 to com~ly wlth the law.
It
is estimated that there are some 25 m~Jor manufacturers and
10,000 dealers now in the explosives lndustry.
The Treasury said it has asked the explosives industry
to assist the government in establishing standards for safe
and secure storage and other requirements under tha law.
-2In the law, explosives are defined as any chemical
mixture, or device, the primary purpose of which is to
function by explosion.
This definition includes, but is
not limited to, dynamite and other high explosives, black
powder in amounts over five pounds, initiating explosives,
detonators and igniters.
The law specifically exempts small arms ammunition
and components therof.
Smokeless powder designed for use
in small arms, and used by sportsmen to reload ammunition,
as well as primers, 5 pounds and under of black powder and
percussion caps are not covered by the Act or the regulations,
Treasury said.
Felons, fugitives, narcotics addicts or mental defectives are prohibited from obtaining licenses or permits and
from shipping or receiving explosive materials in interstate
or foreign commerce, the IRS said.
All applicants for licenses must have business premises
in the state of application, and will be required to c~rti~
in wri ting their knowledge of prevailing state laws and local
ordinances on explosives for that location.
Ti tle XI also requires all licensees and permittees to
store explosives in a storage facility which meets standa~s
of safetv and security from loss or theft.
.
Commiss ~oner Thrower said that licensees and permittees
~lll be ~equlred to keep appropriate records including su~
lnf?rmatlon ~s the name, date, place of birth, residence,
soclal securl~y or taxpayer identification number, plus a
statement of lntended use of the materials for each person
receiving explosives.
'
The.new law pro~ides strong penalties for violations
of the.llcense, permlt and recordkeeping requirements. The
penaltles are up to 10 years imprisonment or $10 000 fine
or both.
'
# # #
partmentof the TREASURY
roN. D.C. 20220
TElEPHONE W04·2041
December 4, 1970
FOR IMMEDIATE RELEASE
TH1:F.SU:<W SAY~) JI\Ptll\;l'~~~f; rJ'f';]}~VI~)JOlJ;; f,;::rC 13EHYG
SOLD /',']' Ll';E~;) ri'j;!,]! FAIR Vf'.LU~:
of t!.;8 1\re~; ;3"L~I"~{ }~v.(~cnc ~~i(' .no3sid.c;: c;.n:no1.}.ncccl
tod8y tint tclcvi ,;ion reet: :vir-c; ~:;0l,~;, lLoncciJrc,;1C' :lYJ'J. coJOJ' ~ ]'1'(')1
.T3p::m are 1)ci\1'~, ~mcl arc l:U~cly to b::, c;old at 1( ';::; tkm f~j,· value
,.ri tbin tJ~c mCcll1:lnr, of the j\nt._iC,lt;lpLl~~ hct J IS: '1, 8,,; G_' 'cnci(~c;,~
l\ssis.J('~1.nt
S8cretal~~l
Fotice of the dctermin:'ltion ,vj 11 be p\i:': ;:,L'06 in -t;t-,e FCJ,:,y::;l
Rcl;iskr of _)~:::.£(~'~11;~!~?...J..,.1I;:~~..____ ' 'l';-~c Ul~;CS nO'J oein:~ :ccler;'cd
to the Tariff CC:iF.1iGsion JOT ;-!. dcter:r,j l'l:::.tiol1 as to i,:::cthcr 5,u,iul'Y
exists.
Durins tile pc:r:ioo. J::::li1i.'J.ry 1, 1<)6'(, throu[f) S:::pi.,c;nbcr :=;0, V?,(O,
the v3.1uc of 'lelevision iTlliorts fro:Tl ,hlps_n tot:;l':.i e"oout :;i'(~)6,367,()OO)
brotcll do,m RpproxiL13tc ly 3 r,; follo\-lS:
4;111,928,000
1970
$ 86,000,00J
Jan. -S'--,:pt
000
K-543
~)13S ,6G8, 000
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
November
(Dollar amounts in millions - rounded and will not necessarily add to totals)
DESCRIPTION
-----
AMOI.'l,- ISSUEDlI
AMOUNT
REDEEMEDlI
30, 1970
ou~~i'~~6INGlI
-"
OUTSTANDING
OF AMOUNT ISSUED
~ED
rs A-I 9:15 thru D-1941
f'S F anrl G-1941 thru 1952
es J and K-1952 thru 1957 _
5,003
29,521
3,754
TURED
4,997
(
29,490
31
.12
.11
1~
.40
200
10.55
10.53
10.31
..
3,739
-
rs E2I :
I!HI _
In4~
1,895
8,363
13,454
15,(94
L~, 34(
5,611
5,332
5,520
5,4(1
4,781
4,132
4,329
4,949
5,046
5,257
5,081
4,789
4,673
4,381
4,398
4,463
4,322
4,830
4,('96
4,592
4,947
4,898
4,647
4,356
2,907
723
-
I ~14 3
19H
1n45
194fl
1947
1948
1949
1950
1951
1952
1953
1954
19;)5
195fl
1957
1n58
1959
1%0
1961
1962
1961
1964
1965
1966
1967
1968
1969
1970
UnC'lassifird
Total Sf'ries E
ies H (1952 thru May. 1959) y
H (June. 1959 thru 1970)
Total Serif'S H
Total Series E and H
{Total mal"ed
Series
I!'.
Total unmatured
Grand Total
1,694
7,482
12,067
13,999
10,851
4,765
4,385
4,459
4,337
3,744
3,234
3,367
3,769
3,781
3,891
3,723
3,451
3,261
3,009
2,909
2,812
2, LJ2
2,719
2,677
2,595
2,667
2,561
2,314
1,894
720
881
1,327
1, l:q~
1,4 q S
846
947
1,0(,1
1,124
1,037
898
962
1,179
1,265
1,31:.6
1,358
1,338
1,4V
1,372
1,489
1,651
1,689
2,112
L '31
2,019
1,Q97
2,28 0
2,137
.::,334
2,462
2,178
292
10.'39
170,872
126,209
44,664
26.14
5,485
7,589
3,714
2,330
1,770
32.27
13,074
6,044
7,030
53.77
183,946
132,253
51,693
":8.10
38,277
183,946
222,2:'::4
38,226
132,253
170,479
51
51,693
28.10
51,74~
2'3.20
5,25 Q
accrued d'Hcounf.
t red~mpt;on value.
Ion 01 owner hond" may b~ held IJnd ",II' earn ,ntf'lretJt tor addltionsl perloda after o'l~lnlJl maturity datf'Js.
10711\ -
10.80
12.11
15.08
17.76
19.22
20.58
21.69
21.73
22.22
23.82
25.07
25.98
2(.73
27.94
30.22
31. 32
33.81:.
%.99
39.u8
43.73
42.99
43.49
46.09
47.71
50.23
56.52
74.92
TREASURY DEPARTMENT - Bureau of the Public Debt
6Q.Jl
.13
.
epartment of theTRfASU RV
TElEPHONE W04-2041
nON. D.C. 20220
~ION:
FINANCIAL EDITOR
:LEASE 6: 30 P.M.,
r, Decemb er 7, 1970.
RESULTS OF TREASURY S WEEKLY
BILL OFFERING
I
he Treasury Department announced that the tenders for two series of Treasury
one series to be an additional issue of the bills dated September 10, 1970 , and
her series to be dated December 10, 1970 ,which were offered on December 1, 1970,
pened at the Federal Reserve Banks today. Tenders were invited for $1,900,000,000,
reabouts, of 91-day bills and for $1,400,000,000, or.thereabouts, of
182-day
The details of the two serie$ are as follows:
OF ACCEPTED
ITIVE BIDS:
91 -day Treasury bills
maturing March 11, 1971
Approx. Equiv.
Price
Annual Rate
igh
98.781
98.756
98.766
)W
reraee
182 -day Treasury bills
maturing JWle 10, 1971
Approx. Equiv.
Price
Annual Rate
97.566
97.512
97.536
4.822%
4.921%
4.882%
4.815%
4.921%
4.874%
Y
3% of the amount of
9Lday bills bid for at the low price was accepted
l% of the amount of 182-d~ bills bid for at the low price was accepted
'ENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
iet
n
ork
delphia
land
::md
ta
'ancisco
AcceEted
AEElied For
$ 31,465,000 $ 20,065,000
2,108,040,000
1,349,110,000
37,600,000
22,220,000
50,815,000
42,715,000
15,240,000
15,240,000
43,235,000
29,680,000
174,340,000
186,690,000
43,875,000
49,875,000
21,445,000
21,535,000
37,805,000
40,305,000
18,100,000
30,100,000
125 2 47° 2 °00
224 2 555 2 °°0
TO'fALS
$2,839,455,000
jO
)uis
l.polis
; City
$1,900,065,000 ~
AEElied For
13,525,000
1,617,770,000
7,820,000
24,810,000
5,510,000
48,165,000
157,685,000
32,460,000
14,100,000
15,875,000
22,025,000
109 2 425 2 °00
AcceEted
3,275,000
1,066,470,000
7,595,000
24,810,000
5,510,090
37,925,000
147,255,000
28,460,000
14,100.,000
15,875,000
10,535,000
38 2 635 2 °00
$
$
$2,069,170,000
$1,400,445,000
EI
.des $302,925,000 noncompetitive tenders accepted at the average price of 98.766
des $138,430,000 noncompetitive tenders accepted at the average price of 97.536
rates are on a bank discount basis. The equivalent coupon issue yields are
for the 91 -day bills, and 5.07% for the 182-day bills.
eportment of the
TREASURY
;TON, D.C. 20220
TElEPHONE W04-2041
IMMEDIATE RELEASE
December 8, 1970
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
300,000,000, or thereabouts, for cash and in exchange for Treasury
ls maturing December 17, 1970, in the amount of $3,104,050,000,
follows:
91-day bills (to maturity date) to be issued December 17, 1970,
the amount of $1,900,000,000,
or thereabouts, representing an
itional amount of bills dated September 17,1970, and to mature
ch 18, 1971
(CUSIP No. 912793 JZO) originally issued in
amount of $1,401,635,000, the additional and original bills to be
ely interchangeable.
182- JilV bills, for $1,400,000,000, or thereabouts, to be dated
ember 17, 1970,
and to mature June 17, 1971
Sl l' ;\.l. 912793 KN5).
hill s of both series will be issued. on a discount basis under
petitive and noncompetive bidding as hereinafter provided, and at
urity their face amount will be payable without interest. They will
issued in hearer form only, and in denominations of $10,000,
,OOC), S50,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tlw
Tenders will be received at Federal Reserve Banks and Branches up
the closing hour, one-thirty p.m., Eastern Standard
e, Monday, December 14, 1970.
Tenders will not be received
the Treasury Department, Washington. Each tender must be for a
imum of $10,000. Tenders over $10,000 must be in mUltiples of
)00. In the case of competitive tenders the price offered must be
ressed on the basis of 100, with not more than three decimals,
., 99.925. Fractions may not be used. It is urged that tenders be
on the printed forms and forwarded in the special envelopes which
be supplied by Federal Reserve Banks or Branches on application
efor.
Banking institutions generally may submit tenders for account of
omers provided the names of the customers are set forth in such
lers. Others than banking institutions will not be permitted to
- 2 submit tenders except for their own account. Tenders will be re~
without deposit from incorporated banks and trust companies and &
responsible and recognized dealers in investment securities. TeM
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are acco~Q
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public annou~e~
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of t~
Treasury expressly reserves the right to accept or reiect 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 withoL~ stated price from anyone
bidder will be accepted in full at the average price (in three decimal
of accepted competitive bids for the respective issues. Settlement fo
accepted tenders in accordance with the bids must be made or completed
at the Federal Reserve Bank on December 17, 1970,
in cash or other immediately available funds or in a like face amount
Treasury bills maturing December 17, 1970.
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.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue C~
of 1954 the amount of discount at which bills issued hereunder are 5011
is considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price pail
for the bills, whether on original issue or on subsequent purchase, ~
the amount actually received either upon sale or redemption at maturitl
during the taxable year for which the return is made.
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 f~
any Federal Reserve Bank or Branch.
000
partment of the
TREASURY
rON, D.C. 20220
TELEPHONE W04-2041
FOR U1MEDIATE RELEASE
DECEMBER 8, 1970
TREASURY SAYS JAP~NESE CAPACITORS ARE BEING
SOLD AT LESS THAN FAIR VALUE
Assistant Secretary of the Treasury Eugene T. qossides
announced today that aluminum electrolytic and ceramic
capacitors from Japan are being, and are likely to be, sold
at less than fair value within the meaning of the Antidumping
Act, 1921, as amended. A notice of Withholding of ADpraisement
was issued on September 9, 1970, which under the ~ntidumping
Regulations gave the Treasury 90 days in which to determine
whether or not sales at less than fair value existed.
Notice of the determination will be published in the
Federal ~eqister of December 9, 1970. The case is now being
referred to the Tariff Commission for a determination as to
whether injury exists.
Durinq the period January 1, 1968, through May 1, 1970,
aluminum electrolytic and ceramic capacitor imports from
Japan totaled approximately $9,637,000.
000
~partment of the TRfASU RY
iTON. D.C. 20220
~OR
TELEPHONE W04-2041
IMMEDIATE RELEASE .
December 10, 1970
TREASURY APPOINTS TAX OFFICIAL
Secretary of the Treasury David M. Kennedy today announced
1is appointment of John C. Richardson as Deputy Tax Legislative
:ounsel.
Mr. Richardson, 38, a native of New Orleans, Louisiana, will
,erve in his first government post after a wide range of legal,
tax, and financial experience in business.
He succeeds John E. Chapoton, who was promoted recently to
rax Legislative Counsel.
Prior to his coming to Treasury, Mr. Richardson was tax
and manager of tax plannning and research for Avco
:orporation of Greenwich, Connecticut. His earlier experience
lncluded Continental Investment Corporation, Boston,
~assachusetts; Hoover Worldwide Corporation, New York, New York;
~nd Holland & Hart, attorneys, Denver, Colorado.
~ounsel
Mr. Richardson will assist Mr. Chapoton in the direction
f a staff of lawyers and accountants comprising the
ax Legislative Counsel's office to serve under the direction
f the General Counsel arid supporting the Assistant Treasury
ecretary for Tax Policy Edwin S. Cohen. Mr. Cohen also directs
he Office of Tax Analysis, which is composed primarily of tax
conomists.
Mr. Richardson received his baccalaureate degree from
'ulane University in 1954. He graduated cum laude from the
aw School of Harvard University in 1960.
Between degrees he served three years in the Navy and is
lieutenant commander of the Navy Reserve at present.
000
-544
,ortment of the TREASURY
IN. D.C. 20220
TElEPHONE W04·2041
FOR nll·1EDIA TE RELEASE
DECEMBER 11, 1970
TREA3URY ISSUES DUMPING FINDING WITH RE3PECT TO
TUNERS (OF THE TYPE USED IN CONSUMER ELECTRONIC PRODUCTS) FROM JAPAN
rae Treasury Department announced today that it had issued a dumping
with respect to tuners (of the type used in consumer electronic
products) from Japan. The finding will be published in the Federal
Register of December 12, 1~70.
findin~
On July 10, 1970, the Treasury Department advised the Tariff Commission
thst tuners (of the type used in consumer electronic products) from Japan
were beinr, sold at less than fair value within the meaning of the
Antidumping Act, 1921, as amended.
On November 3, 1)70, the Tariff Commission issued a determination
that an industry in the United States is being injured by reason of
the importation of tuners (of the type used in consumer electronic
products) from Japan sold l or likely to be sold, at less than fair value
within the meaning of the Antidumping Act, 1921, as amended.
After these two determinations, the finding of dumping automatically
follows as the final administrative requirement in antidumping investigations.
During the period January 1, 1968, through September 30, 1970,
tuners (of the type used in consumer electronic products) valued at
approximately $14,500,00) were imported from Japan.
000
~artment of the
TREASURY
ON. D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
December II, 1970
TREASURY ANNOUNCES SCHEDULE CHANGE FOR
WEEKLY BILL AUCTION DUE TO HOLIDAY SEASON
The Treasury announced today that the weekly bill
auction normally scheduled for Monday, December 21, will
be held instead on Friday, December 18.
The day for the
auction is beinp, advonced to assure ample time between it
and the payment date during the holiday season.
The
payment and delivery date for these bills will be Thursday,
December 24.
000
rrtment of the TRfASU RY
D.C. 20220
TELEPHONE W04-2041
IMMEDIATE RELEASE
December 11, 1970
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
00,000,000, or thereabouts, for cash and in exchange for Treasury
s maturing December 24, 1970,
in the amount of $3,107,630,000,
ollows:
9l-day bills (to maturity date) to be issued December 24,1970,
he amount of $ 1,900,000,000, or thereabouts, representing an
tional amount of bills dated September 24,1970, and to mature
h 25, 1971
(CUSIP No.912793 KA3 ) originally issued in
amount of $1,395,160,000, the additional and original bills to be
Iv interchangeable.
182 - day bills, for $1,400,000,000, or thereabouts, to be dated
mber 24, 1970,
and to mature June 24, 1971
IP .~o. 912793 KPO).
The bills of both series will be issued on a discount basis under
etitive and noncompetive bidding as hereinafter provided, and at
rity their face amount will be payable without interest. They will
ssued in hearer form only, and in denominations of $10,000,
000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value).
T~nders will be received at Federal Reserve Banks and Branches up
he closing hour, one-thirty p.m., Eastern Standard
Friday, December 18, 1970.
Tenders will not be received
he Treasury Department, Washington. Each tender must be for a
mum of $10,000. Tenders over $10,000 must be in mUltiples of
00. In the case of competitive tenders the price offered must be
essed on the basis of 100, with not more than three decimals,
99.925. Fractions may not be used. It is urged that tenders be
on the printed forms and forwarded in the special envelopes which
be supplied by Federal Reserve Banks or Branches on application
efor.
Banking institutions generally may submit tenders for account of
omers provided the names of the customers are set forth in such
ers. Others than banking institutions will not be permitted to
- 2 -
submit tenders except for their own account. Tenders will be
without deposit from incorporated banks and trust companies and
responsible and recognized dealers in investment securities.
from others must be accompanied by payment of 2 percent of the
amount of Treasury bills applied for, unless the tenders are ae
by an expres s guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at ~
Federal Reserve Banks and Branches, following which public annou~.
wi 11 be made by the Treasury Department of the amount and price ralll
of accepted bids. Only those submitting competitive tenders will W
advised of the acceptance or rejection thereof. The Secretary of tb
Treasury expressly reserves the right to accept or reiect any or all
tenders, in whole or in part, and his action in any such respect I~
be final. Subject to these reservations, noncompetitive tenders f~
each issue for $200,000 or less without stated price from anyone '
bidder will be accepted in full at the average price (in three dK~
of accepted competitive bids for the respective issues. Settle~t
accepted tenders in accordance with the bids must be made or co~l
at the Federal Reserve Bank on December 24, 1970,
in cash or other immediately available funds or in a like face am
Treasury bills maturing December 24, 1970.
Cash and exchange te
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.
d
Cnder Sections 454 (b) and 1221 (5) of the Internal Reven~~
Df 19)4 the amount of discount at which bills issued hereunder are 5~
is ccn~idered to accrue when the bills are sold, redeemed or othe~~
disposed of, and the bills are excluded from consideration 8S capita
3S set s .
Acc ord ingl y, the owner of Treasury bill s (othe r than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price
for thE' bi 11 s, whethe r on original is sue or on subsequent purchase,
the amount actually received either upon sale or redemption at matu
during the taxable year for which the return is made.
Treasury Department Circular No. 418 (current revision) and
notice. prescribe the terms of the Treasury bills and govern the
c ond it ions of thei r is sue. Copies of the circular may be obtained
any Federal Reserve Bank or Branch.
000
'partment of the
TREASURY
'rON. D.C. 20220
TELEPHONE W04·2041
ION:
FINANCIAL EDITOR
LEASE 6:30 P.M.,
December 14, 1970
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
the Treasury Department announced that the tenders for two series of Treasury
one series to be an additional issue of the bills dated September 17, 1970, and
her series to be dated December 17, 1970 , which were offered on December 8, 1970,.
pened at the Federal Reserve Banks today. Tenders were invited for $ 1,900,000,000
reabouts, of 91-day bills and for $ 1,400,000,000 or thereabouts, of 182 -day
The details of the two series are as follows:
OF ACCEPTED
rrTIVE BIDS:
91-day Treasury bills
maturin6 M~~h le. l~Zl
Approx. Equiv.
Price
Annual Rate
182-day Treasury bills
maturi~ June 17. J.~7l
Approx. Equi v •
Annual Rate
Price
:Ugh
Low
I'1verage
98.801
98.787
98.793
97.598
97.577
97.581
4.743%
4.799%
4.775%
Y
4. 751~
4.79~
4. 785~
Y
1% of the amount of 91 -day bills bid for at the low price was accepted
1% of the amount of 182 -day bills bid for at the low price was accepted
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTs:
trict
ton
York
Ladelphia
I"eland
mond
mta
~ago
Louis
leapolis
las City
Las
Francisco
TOTALS
Accepted
AEElied For
25,545,000 :
$
36,625,000 $
1,287,230,000 :
2,040,840,000
29,910,000 :
49,910,000
47,690,000
42,010,000 :
19,830,000
13,030,000 :
55,230,000
33,540,000 :
234,895,000
149,795,000 :
55,420,000
44,520,000 :
22,510,000 :
29,265,000
37,140,000
34,725,000 :
40,320,000
18,320,000 :
198 2 955 z000:
234 2945 2000
$2,882,110,000
$1,900,090,000 ~
AcceEted
AEElied For
13,750,000 :$
2,940,000
:$
1,791,230,000
1,149,280,000
18,675,000
8,675,000
35 ,465,000
28,965,000
18,125,000
6,345,000
32,570,000
12,280,000
182,035,000
46,835,000
37,225,000
31,755,,000
14,925,000
6,925,000
13,110,000
12,760,000
32,570,000
10,170,000
153 2800 2 000
83 2100 2000
$ 2,343,480,000 $1,~00,030,000
E/
ludes $333,285,000 noncompetitive tenders accepted at the average price of 98.793
ludes $ 140,610,000 noncompetitive tenders accepted at the average price of 97.581
se rates are on a bank discount basis. 1he equivalent coupon issue yields are
'~ for the 91-day bills, and 4. 97 ~ for the 182-day bills.
~artment of the TREASURY
ON. D.C. 20220
TELEPHONE W04-2041
[MMEDIATE RELEASE
December 15, 1970
TREASURY'S MONTHLY BILL OFFERING
The Treasury Departmen.t, by thi s publ ic notice, invi tes tende rs for
eries of Treasury bills to the aggregate amount of $ 1,700,000,000,
ereabouts, for cash and in exchange for Treasury bills
ing December 31,1970, in the amount of $4,606,518,000,
,llows:
27}day bills (to maturity date) to be issued December 31,1970,
amount of $500,000,000,
or thereabouts, representing an
.ional amount of bills dated September 30,1970,
and to mature
ember 30,1971 (CUSIP No.912793 KS4 ) originally issued in the
It of $ 1,202,480,000,
the additional and original bills to be
y interchangeable.
~
365-day bills, for $1 , 200 , 000 , 000 ,
or thereabouts, to be dated
mber 31,1970,
and to mature December 31, 1971,
:P No. 912793' KV7).
The bills of both series will be issued on a discount basis under
titive and noncompetitive bidding as hereinafter provided, and at
it~ their face amount will be payable without interest.
They will
sued in bearer form only, and in denominations of $10,000, $15,000,
00, $100,000, S500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
he closing hour, one-thirty p.m., Eastern Standard
, Wednesday, December 23, 1970.
Tenders will not be received
he Treasury Department, Washington. Each tender must be for a
mum of $16,000. Tenders over $10,000 must be in multiples of
00. In the case of competitive tenders the price offered mu~t
xpressed on the basis of 100, with not more than thcee decimals,
99.925. Fractions may not be used. (Notwithstanding the fact
the one-year bills will run for 365 days, the discount rate will
omputed on a bank discount basis of 360 days, as is currently the
tice on all issues of Treasury bills.) It is urged that tenders be
on the printed forms and forwarded in the special envelopes which
be supplied by Federal Reserve Banks or Branches on application
efor.
- 2 Banking institutions generally may submit tenders for accOunt
customers provided the names of the customers are set forth in su~
tenders. Others than banking institutions will not be permitted to
submit tenders except for their own account.
Tenders will be receiveG
without deposit from incorporated banks and trust companies and f:o m
responsible and recognized dealers in investment securities. Tenders
from others mus t be accompanied by payment of 2 pe rcent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated ba~
trust :::ompany.
Irrunediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public annou~e~
will be made by the Treasury Department of the amount and price range
accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or reiection 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 shal
be final.
Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from any one b~
will be accepted in full at the average price (in three decimals) of
accepted competitive bids for the respective issues. Settlement for
accepted tende rs in ace ordanc e wi th the bids mus t be made or completE
at the Federal Reserve Bank on December 31, 1970,
in cash or other immediately available funds or in a like face amount
Treasury bills maturin~ December 31, 1970.
Cash and exchange tenders will receive equal treatment. Cash adjust:.
will be made for differences between the pat' value of maturing bills
accepted in exchange and the issue price of the new bills.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code
1954 the amount of discount at which bills issued het'eunder are sold
cons ide red to acc rue when the bill s are sold, redeemed or otherwise
disposed of, and the bills at'e excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) is sued het'eunde r mus tine lude in his income tax
return, as ordinary gain or loss, the difference between the price pa
for the bills, whether on original issue or on subsequent purchase, a
the amount actually received either upon sale or redemption at ~W~
during the taxable year for which the return is made.
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 tI
any Federal Reserve Bank or Branch.
000
artment 01 the TRfASURY
D.C. 20220
TELEPHONE W04-2041
DEC 16 1970
FOR IMMEDIATE RELEASE
WITHHOLDING OF APPRAISEMENT ON PIG IRON FROM CANADA
Assistant Secretary of the Treasury Eugene T. Rossides
announced today that the Bureau of Customs is instructing its
Customs field officers to withhold appraisement of pig iron from
Canada pending a determination as to whether this merchandise
is being sold at less than fair value within the meaning of the
Antidumping Act.
This latter determination will be made within
three months of the withholding of appraisement notice.
In the event of a determination of sales at less than fair
value, the case would then be referred to the Tariff Commission
for a determination of injury.
If the Tariff Commission were to
make such a determination, dumping duties would be assessable on
all entries (effected after the date of withholding) of pig iron
on which dumping margins exist.
Importations during 1969 amounted to approximately $14.5
million.
1970.
Statistics are available for the first four months of
They show imports of approximately $1.6 million.
1/
II
II
~partment of the TRfASU RY
iTON. D.C. 20220
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
December 16, 1970
MEMORANDUM TO THE PRESS:
Attached is a letter to Vice President Agnew
from Treasury Secretary David Kennedy transmitting
a draft bill to remove certain limitations on the
granting of relief to owners of lost or stolen
bearer securities of the United States, and for
other purposes.
A similar letter was sent to House Speaker
McCormack.
t\ttachment
_ECEMBER 16, 1970
D~Rr
Mr. President:.
T 11 ere i s t r 3. n S In i t t e d her e \{ i t h a d 1'<1.1 t 0 i a I) ::c 0 p 0 S e (1 b i 11
rc:move cel·cain limitations on the grantin.~; of l'e1ief t.o
owner3 of lost or stolen bearer securities of t~e United States,
and for other purposes."
if~'O
Under present 18.1'7, the Secretary of tYe '.~'l'C2.Sury can Leant
)'01ie1' prio}' to matul~Jty on o,ccount of -I)ec~~'el' S~~c'..'.rities only
:i. n c 'l. ~:.; c s -y[ her C' the y are c lea}.' 1 y pro v e n to}; a v e -0 (; 0 n de f) t l' 0 Y e d .
When there is any probability of loss or theft, ~elj.ef can be
crunted only after maturity and only upon a finding by the
Sec r (; tar y t 11 ct t sue 11 tim e h a ~ e 1 a 1) sed t 11 ere 2. f t e r co s :i. n his j u d ,j ment \~ould ind:LcClte that the securities ( l r hav0 b·~en cL:::::styoycd
or i l' !.' e t 1" i e Val) 1 y los t, (2). are not he 1 d b J' any ~' (, ~' son as 11 i Sown property. and (3) w~ll never become th~ basis of a valid
cLd.~"
e,gaill~;t the Uni te(1 St8.-ces.
IttalH~S C~ cO;:.3idcrable; period
of \;i..'llC [l,1'tCL' mattl.l'i.ty befo}'\! t;l,c SC'c~"~:."-'-'·';:"i,"'.C .1/
m~kc
Lhose findings.
Because'of the Secretary's inability, under ?l'csent law,
to 2Jo,nt relief at an earlier date, the O"T:lcr o:~' cc secu:city
IT hi (: 11 r1 as bee n los t o r s t ole n i s
de p r i ve c1 0 f the use 0 f the
secu!~i ty for pLl.rposcs such as collateral ::;;no. in :·_i·.::.ny ccqses
suffers the loss of income on the security for a rcriod that is
loncer than is necessary to protect the Trc~sury.
The riuks
involved in handling Treasury securities, particularly for
financial institutions, is therefore greater th2~ it need be
and the market for Treasury securities is adversely affected by
inGurance costs or absorbed costs to a greater extent than is
'l'h e 0 b j e c t i ve 0 f the pro p 0 sed 1 e g is J. Cl t i 0:1 is to s t r eng t 11 c n
the market in Treasury securities by eliDin~tinc to the extent
possible COSt~3 of market participants \'711ich a1'C :1;:"L, neces;~ary
to IHotcct the 'l'l'easury.
'llhis 1I0uld 1)e done by c)l2.bling the
Sec :c c t [117 t o r e pIa ceo l' pay 0 f f l o s t o r s t 01. ens C' C l U' i tie s i n
many cases at an earlier time than is possible under present
1<:1.11.
Its enact)(lent vTould not involve any finil~lci::~_l ri~;1\. or
incrca~ed cost to the Government.
The dr~ft bill's requirement
J f abo n d 0 f
i Jl de mnit y, II i t h (; 0 r p 0 rat e ~; u:c e t y, 1. s 3. com p 1 8 t c
~rotection ac;ainst any risk of having to t~,-:,1~c uOl.:-(jlc l)~l,yment.
2
1oreovcr, the draft bill would not permit ~~ljc; to the owner
jO the
exten·t i t is not 1)08siole to o.ssurc that the 'L'l'C9.;:5ury
_s protected. from risk --- for eXCllilple, in the case of CO"Llj)Oli~,
Thich come to the Treasury for pn.:n;lent <let~,.ched an(1 '.lLich thc-;
:rca~>ury cC'.nnot check aGed.nst a particulm' bearer ~:.)eclJ:;:i ty
)efo1'e payment.
1'7hile the vcimary purpose of the propos,,>1 lS to remove
_imitations on the gro.nting of relief on account of lost or
; t ole n be a I' e l' sec uri tie s, i t i c d r aft c (1 Q, s a c 0 Til pIc t ere v 5. S ion
,r the existinG stat1.1.te in order to stJ',:ITlline that ;;tatute
Lnd cIim.inate provision::; I1hich coheeI'n.'::'-'l o>nd IH'ocecluI'al
letail rather than substunce.
The definition of the securiti0s
.s broQd enough, for example, t 9 cover ne'·,' type~:; 0 f '1':>:' c as \lry
,ecu.:r:ities thed; lflight be CJ.uthol'ized in the future, ,-TiLLIe the
:u tho l' it Y \{ hi c h IV 0 U 1 d b 2 c; i v e n t o t h eSc ere t a r:y i 8 C 0 III pre 11 ens i ve
:nough to enable hir:1 by reGulation to grunt relief o;lly in con-·
. e c t ion 1-7 i t 11 tho s c sec uri t. i e S C' n d t h Os e s it.; U 2L t ion s '. f h i c h \T i 11
,ror;:ote the obj ecti 'Fe of the lecLslation.
The revLd.ons ,roul(l
,1so reduce G.dJ:linistrati"ve expenses of t[1[:: 'L'ree,sury l!hic11
esult from the detailed fact-finding nCCCGsary under existinG
.al'T.
It would be appreciated if yuu wouJ.d l~y the draft bill
efore the Se.112.te.
An identico,J, bill h[~s '\)cen tl:2.)lf,1:li ttecl to
he Speaker of the House of Rcpres~ntativcs.
The Department has been advised by thi' Office of l-1anc:q~cJnC:11t
nd Budget that there is no objection to the submission of this
~opose~ legislation to the Congress.
Sincerely yours,
/ ' -
/.':"-~/_<i>'_'/"'-<"::--O:_'{;'<'_)
v·
he Honoro.blc
[)i ro '1'. AgnevT
resident of the Senate
lshington, D. C. 20~lO
1cl05 ure
it
BILL
on .,.-,
v,_:::
J,]",l~l'
,t ","l',]', ()' 11S,
_
"v
' '
'l'u
_','(:lI1',:,T"
,-,
(JS.'
j'elic:f Lo o ...rllC'T~>
('(,'rtc'"
,;,1'_
",
,<.,
--l'~r
t l''.n' ;
'-,
0', 1
of lost or stol-_< bearer
=-=-'
() f
amended to reaJ
11
(rc'. \/
for the
f111y
Llr
~
r':~;'J,lations
;"c>::Lnis'~::';'.~:io.n
"Cl;,l'::,_ '';',c
I.' ,/
.;_I ........
r1.,c)
l.. •• 1
I,
" .';.'-
"C j.
s~
in
(:1.:3
he
e
[o]]ows:
Unde;·;lJ.ch
•
...... I-....
11
~~
J\ rn p
HeT)re~:cnta-
!:'j.'
...1,....
of this sect-LoY!,
c r!
l')'·r
, J
I...
num'oc>'"
_~
_ 1
"-.J.
. " . . , ~,
(."1..1
v.
'-'- -.-
deem nece:"sary
LE,:.-
t,ll.~
Secretary of
"~
,
'"-'
~
........
(b) .
qualificcl 1.l,nder :;:>::tions 6-13 of t i
be rcqui!'cd as a
condition of relief, whe~~~r before, at,
or after r~H)turit:r,
be are r
0 I,'
C 0 as <; i C l! C cl as t 0 be com e
to bearer \.'hich
)~~
In 11 i:;
\Vith a
on 3,ccount of 8.ny secur~ '-:':,' payable to
l)IJlHl
not
clt;a:c],y pl'oven'
(1 i s c r
C'
t ion,
uU
L'_,
0.
Lieell
t hc
of incl,ci'lllity ancl surety in an J-
the ovncr or holder is
oc;
['~overn](lcn;
2:,:se
in ,·rhich
~)::r
01'
employee thereof in his offi d.21
cas e
0
r
c 1 ass
0
f
cas c s,
r c CJ. u i
l' (;
such for;n and \lith such surety,
J:1 ~J.
01'
Q
b 011 ii. c;i' .i
surcti,-':.
:". :J:r
>
1 J de)', ri:.
i n
:. J
a~
,,('cu,': ;.J
0,('
he may deem necessary.
n
(c) .
Ho payment shall be mac1e
C):
:·'J;(;011.nt
"~~,
coupons claimec1 to ho,vc been att:::'.chec1.
"CCl)C~;·:.'
'.',
c1estroyccl or vTill
bas i s
111
0
n
f
a val ide 1 a i
a g a ins t
'l; h
e UI1 i
r::"L~
.~, ~'
J
ntc:rc,st
unlc:;s
h~).y('jc)l~
the Secreta:cy is satif>ficd. that such cC·:.::OflS
paid and are in fact
()i'i
1lccn
oeco,(,i':';lC
~:; tat
cs
(d) .
of the United States issued pur.c;uant ·t;c
consider~tion,including
bonds, notes,
indebtedness, ancl Treasury bills, and
J~.\r
:L'or
C;',IU;joll"
c~~·~j;lc~~~
i;!,,~:;'i1"J.
ccr",
G~
:r~cat(,s
issued for any such security.
the Un i t e d S t at e s, a s t at e, the Dis t r i ci:
t err ito r y
0
r
po sse s s ion
0
f
a corporation, the IIhole Of\'Those
~~y
capit,~!.
Un i ted S tat c s, a for e i c; n g 0 v e l' n j[l e 11 t,
lI
Col cUii I;;,)
t 11 e Un i ted S t ;'. i, c S,
corporation or political subdivision of
Bank.
0:['
0 :;:-.
u,
D.
j:':, ,
of tIle
is olrn::ci
a
i c i p n1
rnr~zoin~,
~'Y
the
F c cl e r 8.1 1" ie' :; e r"'.f e
~partment of the TREASURY
~ON,
D.C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
December 18, 1970
BLAND WORLEY OF WACHOVIA CORPORATION NAMED
CHAIRMAN OF TREASURY SAVINGS BONDS GROUP
Bland W. Worley, President, The Wachovia Corporation, WinstonSalem, N. C., today was appointed National Chairman of the volunteer State Chairmen for Uo S. Savings Bonds by Secretary of the
Treasury David Mo Kennedy.
The North Carolina banker succeeds Reno Odlin, Chairman of
the Board, The Puget Sound National Bank, Tacoma, Wash., and former
President, American Bankers Association. Odlin continues as volunteer Washington State Chairman for U. S. Savings Bonds.
Worley has been volunteer State Chairman for Savings Bonds for
North Carolina since January 1968.
In his new capacity, he will coordinate the efforts of the
State Chairmen who lead thousands of Savings Bonds volunteers in
the 50 States and the District of Columbia. He also will work
Nith the Treasury to obtain from the State Chairmen assistance
in determining ways to stimulate Bond sales throughout the year.
rhe State Chairmen annually meet in Washington, D. C., with top
rreasury officials and the headquarters staff of the U. S. Savings
30nds Divis ion.
Worley is President of the North Carolina Bankers Association.
Ie is Chairman, Board of Trustees, Greensboro College; Director,
~orth Carolina Citizens Association; Vice Chairman, Region Six
~xecutive Committee, Boy Scouts of America, and Past President,
lorthern Piedmont Area Development Association.
The Kinston, N. ~., native attended Atlantic Christian
ollege, Wilson, N. C., and was graduated from the University
f North Carolina. He is an alumnus of the Stonier Graduate
chool of Banking, Rutgers University, and The Executive Proram, University of North Carolina.
He and his wife, the former Ada Suggs Harvey, have three
hildren and two grandchildren. The Worleys reside at 310
rbor Road, Winston-Salem.
~artment of the TRfASURY
ON. D.C. 20220
~OR
TELEPHONE W04-2041
IMMEDIATE RELEASE
December 18, 1970
MILTON L. ELSBERG NAMED CHAIRMAN OF
DISTRICT OF COLUMBIA SAVINGS BONDS COMMITTEE
Milton L. Elsberg, President of Drug Fair, is appointed
volunteer Chairman of the District of Columbia Savings Bonds
Committee by Secretary of the Treasury David M. Kennedy, effective immediately.
Elsberg will head a committee of District business, financial, labor, and governmental leaders which -- working with the
U. So Savings Bonds Division -- assists in promoting the sale of
Savings Bonds o He also continues as a member of the U. S. Industrial Payroll Savings Committee.
The Baltimore native came to Washington in 1935, working as
a pharmacist,
In 1938 he and a partner opened the first Drug Fair.
The drug department store chain has since grown to more than 120
outlets.
He is a member of the Executive Committee of the Board of
Directors, Riggs National Bank; the Washington Board of Trade,
Washington Board of Realtors, Inc.; National Association of Real
Estate Boards, and member of the Boards of Directors, Brand Names
Foundation, Inc , and of the National Association of Chain Drug
Stores.
E1sberg also serves as trustee, Boys' Club of Greater Washington; memher of the Board of Trustees, United Jewish Appeal of
~reater Washington; and member, Board of Directors, United Givers
Fund. He is a memher of the President's Council of Brandeis
University, Waltham, Mass.
( more )
- 2 -
He has received the Washington Advertising Club
Achievement and the Brand Name Retailers of the Year
Chains in the United States and Canada and was named
Harketing Man of the year" by the American Marketing
Award of
Award for
"Amencan
.
As soc iation
Elsberg holds a pharmacy degree from the University of
:laryland.
He and his wife, the former Rita Kahn of New York City, hay
one son and one grandchi ld. The Elsbergs reside in Washington,
000
partmentof the
D.C. 20220
TREASURY
TELEPHONE W04-2041
IMMEDIATE RELEASE
December 18, 1970
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
300,000,000, or thereabouts, for cash and in exchange for Treasury
1s maturing December 31,1970,
in the amount of $4,606,518,000,
follows:
91-day bills (to maturity date) to be issued December 31, 1970,
the amount of $1,900,000,000,
or thereabouts, representing an
itiona1 amount of bills dated October 1,1970,
and to mature
ill, 1971
(CUSIP No.912793 KB1 ) originally issued in
amount of $1,400,685,000, the additional and original bills to be
elv interchangeable.
182- day bills, for $1,400,000,000, or thereabouts, to be dated
ember 31,1970,
and to mature Uu1y 1, 1971
S J P :-: I ) . 912793 KQ8).
Thp hills of both series will be issued on a discount basis under
letitive and noncompetive bidding as hereinafter provided, and at
Jritv their face amount will be payable without interest. They will
issu~d in hearer form only, and in denominations of $10,000,
,OO(), 550,000, $100,000, $500,000 and $l,OOO,DOO (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
the closing h04r, one-thirty p.m., Eastern Standard
~,
Monday, December 28, 1970.
Tenders will not be received
~he Treasury Department, Washington.
Each tender must be for a
lmum of $10,000. Tenders over $10,000 must be in mUltiples of
)00. In the case of competitive tenders the price offered must be
essed on the basis of 100, with not more than three decimals,
, 99.925. Fractions may not be used. It is urged that tenders be
on the printed forms and forwarded in the special envelopes which
be supplied by Federal Reserve Banks or Branches on application
efor.
Banking institutions generally may submit tenders for account of
omers provided the names of the customers are set forth in such
lers. Others than banking institutions will not be permitted to
- 2 sub~,it tenders except for their m."n account.
Tenders v.'ill be ree
~ithout deposit from incorporated banks and trust companies and f
responsible and recognized dealers in invest~ent securities.
Te~
fror.. others :Tlust be accompanied by pa::~ent of :2 percent of the face
i1:-:lount of Treasury bills applied [or, unless the tenders are accompan
j~ an express guaranty of payment bv an incorporated bank or trust
cc":.pany.
Immediately after the closin,;; hour, tenders \,'ill he opened at tte
Fc,'cri=l Reserve Banks and Branches, follO\':in~ \,:hich public announce~e~
,i: 1 :'c ,,:',adc ':Jy the Tr-easurv Depart::-,cr.t or the a~,ount and price range
~",
:cce;Jted hide.
Onl\' those sub~ittin:s cO:-:1petitive tenders \dll
<'I.i.-:cc of the accertance or rejection t>,ereof.
The Secretary of b
'~ :- C' ('; '<I r \' e x pre s ely res e r v e s t her i g h t t 0 a c c e p tor rei e c tan ~' 0 r all
'c::,I"r c , i:~ ,:hole or in part, and his action in any such respect shell
il:l;:J!.
Suhject to these reservations, n(lnco~lpetitive tenders for
l'll", ic~uc for C;:200,000 or less \,:it:lout ctated ?rice fro:-1 am' one
))i~~lIL'r ·..:111 hc> "ccepted in full at the ,:\'era20 rrice (in three decL-,a:
"I' ;!ccl';Jtcd C()Cnpl·titive bids
for the rc~pccti\'c iscues.
Settlement L'
'i(c'ti'th: tendorc: ir: zlccordance \,:it~1 the hids :-:lust he made or complete:
,It the Federal Reserve Bank on December 31, 1970,
in ca~h or other i~'"1ediatel\' available funds or in a like face amount
TredC:llrv bills r:aturing December 31, 1970.
Cash and exchange tenct
',,'i: l r('ceive equal treat;'lent.
Cash adjust:Tlents \."ill be made for
,; I I :-Ll'lilCl'~ het\,'el'll the par value (If maturin>; hills accepted in
,-:,
"J;;,,: L nil cl
t he i c' ~ l; e p rice 0 [ the n e \': b ill s .
b;
Sl'ctionc: .+5.+ (h) and 1221
(5) of the Intern<11 Revenue Code
I';-)~ tiH' ;l.llHllH (lC discount at '..,';lich hills issued hereunder are solI
lc
-i':l red tu ,lccnll' \,:hen the },ills are sold, redeemed or othen\'i~f
,!;<pi'>l'l' llC,
,InC: the· hills Clrc o:-:Cl',lc!vcl Cr(J-;-, c(Jn:.:idcl-dtion 8S capitJl
,"'Ll'.
,\Cl'l l l'liill..,;l\',
thc ll\,:net- of Treasur\' hillc (othel- than life
1,"::',I)l'l' cll:'lp,tl1i('c:) ic:slled het-cullcll,t- :Tluc:t include in hi~ income tax
[('lett''!, :1~ llrdin:lr\' ':";:lin lit" loss, thl' difference het\'.'cen the price pad
:',It' lhl' hi 11 c', \,:l'l,tliet- on ori~inal ic:c:ue 0[" (.n c:uhc:eqllent purchase, an~
:'"
,1, ,il
k~l: II j<" :('ceived ('ithL'r upun c:ale (lr redemption at maturitv
, II'il'_"
t:1L' Ll.'-:ahll' \'e:lr Cor h'hich thl' retunl is :l2cle.
j''1,!C!-
irl:'''llr\' [\ep:n-U:1Cnt Ciccular ~:o. ':'18 (current revision) and this
;It'L'~Ct-i:Je the terl:lS of the Treasur\' bills and govern the
,-'unditii'llc' of their i~sue.
Copies of the circular rnav be obtained f;~'
,,:: \' r C' d L' LJ 1 ~ e c: (' n' eRa n k 0 r Bra n c h .
",t
1i'"
partment of the
TREASURY
JON. D.C. 20220
TElEPHONE W04-2041
FOR IMMEDIATE RELEASE
December 18, 1970
MEMORANDUM TO THE PRESS:
The Treasury announced that the Internal Revenue Service is
issuing today a technical information release on a ruling which
clears the way for Federal Reserve Banks to accept for book
entry the holdings of Government securities in the trading
inventories of Government securities dealers. This book-entry
system should both expedite the handling of Government
securities and minimize the opportunities for loss or theft.
The system of evidencing Treasury securities by entries
in Federal Reserve Bank computers was initiated in 1968, but
thus far has covered only those Government securities that had
traditionally been deposited in Federal Reserve Banks in
physical form. These have not included the trading inventories
of Government securities dealers.
A further IRS ruling that will permit additional
incorporation of Government securities in the book-entry system
will be issued shortly.
In addition the Treasury is accelerating its procedures
for replacing lost or stolen Government securities after their
maturity, and has submitted legislation that will remove the
existing requirement that prevents such relief prior to
maturity.
Attachment
K-S4S
(OVER)
December
18
1970
T~e U.S. Internal Revenue Service today annou,:ced t:-:e following
feve:lc:e Rulir.,:'; 71-15 ,. will be publisned i:1 Internal Revenue Bulletin
19,1-3 ,dated January 18, 1971. The purpose of the Revenue Ruling
is to permit certain dealers in securities who hold Treasury securities
i:l inventory to transfer such securities to a oook-entry system maintaired by a Federal Reserve Bank and to apply the rules contained in
c:e'::~ior. 1.471-5 of the Income Tax Regulations in deterrning basis.
SECTIOIi 471. --GENERAL RULE FOR INVENTORIES
2G erR 1.471-5: Inventories by dealers in securities.
(r~s~ Section 1012; 1.1012-1.)
Hev. Hu1.
71-15
A dealer in Treasury securities who properly holds such securities
,~
inventory in accordance
wit~
section 1.471-5 of the Inrome Tax Regulatior.s
proposes to transfer those securities to a book-entry system maintained b:'
a Federal Reserve Bank.
The dealer will continue to maintain his books
Q;id records for Federal income tax purposes with respect to such securities
~'i
accordar,ce with section 1.471-5 of the reQlJations.
Held, the dealer is not subject to the provisio:l of section
of
t:~e
SclCl)
1.lO~·1
reQIlations relatine to identification of property with respect to
Treasury securities.
Such a dealer must, however, comply with the
provisiors of sectiO!1 1.!nl-5 of the regulations relating to inventory by
dealers in securities.
partment 0/ the TREASURY
·ON. D.C. 20220
IN:
TELEPHONE W04-2041
FINANCIAL EDITOR
EASE 6:30 P.M.,
December 18, 1970.
RESULTS OF TREASURY t S WEEKLY BILL OFFERING
e Treasury Department announced that the tenders for two series of Treasury
one series to be an additional issue of the bills dated September 24, 1970, and
er series to be' dated
December 24, 1970, which were offered on December 11, 1970,
ened at the Federal Reserve Banks today. Tenders were invited for $1,900,000,000,
eabouts, of 91-day bills and for $1,400,000,000, or thereabouts, of
182-day
The details of the two series are as follows:
IF ACCEPTED
182-day Treasury bills
maturing June 24, 1971
Approx. Equiv.
Price
Annual Rate
91-day Treasury bills
:TIVE BIDS: ___m_a_t_ur_i_n...gc--M_a-:-rc_h~2;...;5;....o':........;;;;1~9_7.;;;;1_ _
.gh
Price
Approx. Equiv.
Annual Rate
98.817
98.798
98.805
4.680%
4.755%
4.727%
4.724%
4.799%
4.765%
97.612
97.574
97.591
!.I
!.I
7% of the amount of 91-day bills bid for at the low price was accepted
)% of
the amount of 182-day bills bid for at the low price was accepted
rENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
,iet
[i'rancisco
AEElied For
$ 26,895,000
2 , 212 , 765,000
51,615,000
41,315,000
11,735,000
38,990,000
214,680,000
40,135,000
16,975,000
32,005,000
40,295,000
191 2265 2 000
AcceEted
$ 16,895,000
1,350,855,000
21,615,000
35,585,000
11,735,000
24,090,000
196,680,000
36,625,000
15,975,000
29,705,000
17,565,000
142 2 765 2 000
TOTALS
$2,918,670,000
$1,900,090,000
)n
Cork
3.delphia
~land
nond
1ta
19o
Louis
=apolis
3.S City
3.8
AEElied For
14,375,000
1,924,505,000
24,290,000
25,100,000
4,485,000
22,645,000
154,445,000
18,700,000
14,920,000
13,530,000
33,320,000
109 2875 2 000
$
~ $2,360,190,000
AcceEted
4,375,000
1,079,505,000
19,290,000
20,100,000
4,485,000
15,845,000
153,445,000
18,200,000
14,920,000
13,530,000
15,920,000
40 2 575 2 000
$
$1,400,190,000
EI
lUdes $250,275,000 noncompetitive tenders accepted at the average price of 98.805
ludes $106,270,000 noncompetitive tenders accepted at the average price of 97.591
se rates are on a bank discount basis. The equivalent coupon issue yields are
fI1/o for the 91-day bills~ and 4.95% for the 182-day bills.
partment of the TREASURY
TON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
STATEMENT OF UNDER SECRETARY OF THE TREASURY
CHARLS E. WALKER
BEFORE
THE SUBCOMMITTEE ON FISHERIES AND WILDLIFE
CONSERVATION OF THE HOUSE COMMITTEE ON
MERCHANT MARINE AND FISHERIES
TUESDAY, DECEMBER 22, 1970
2:30 P. M.
CHAIRMAN DINGELL and Members of the Subcommittee, it is a
pleasure to appear before your Subcommittee in cooperation with
your oversight activities under the National Environmental Policy
Act of 1969.
I understand that the Subcommittee desires a fuller understanding of the actions taken by the Internal Revenue Service
earlier this year with respect to the tax treatment of so-called
"public interest" law finns.
I am accompanied this afternoon by
Mr. Randolph Thrower, Commissioner of the Internal Revenue Service,
who has a statement on that subject and who will answer any questions
which the Subcommittee may have with respect to the action taken
by the Service.
On
June 19th of this year, Assistant Secretary of the Treasury
Edwin S. Cohen replied by letter to an inquiry from this Subcommittee
concerning the procedures which have been established within the
Treasury Department for collecting, cataloguing and analyzing
environmental data gathered in the course of the Department's
operations.
As
indicated in Mr. Cohen's letter, we expect these
procedures to become more sophisticated as we gain greater experience
under the 1969 Act.
1"546
- 2 In the area of facilities management the Treasury Department
has established extensive precautions to assure that all necessary
safeguards are established in operating present facilities and
developing new ones throughout the United States.
Each bureau has
an environmental statement officer who is responsible for assessing
and reporting conditions within his bureau in this area.
As of December 1, 1970, all managers of bureau facilities in
the Department had reviewed their areas of responsibility and report
no particularly serious problems.
developing its environmental
~pact
The Bureau of the Mint is further
statement on the future Denver
Mint in accordance with suggestions made by the Council of Environmental
Quality.
The Bureau of Engraving and Printing is planning to install
a thermal gas incinerator to consume toxic solvent vapors generated
In its plant before emitting them into the atmosphere in the District
of Columbia.
The Bureau of Customs in concert with GSA is studying conditions
at inspection stations at ports of entry to assure that carbon monoxide
levels are kept at a safe degree.
The Treasurer of the U. S. in
conjunction with the Federal Reserve Board is exploring alternate
means of destroying currency and related distinctive paper with a
view to eliminating likely emissions into the atmosphere as a result
of bunling.
A thorough review has been made of the Department's established
procedures as of December 1, 1970, and it is felt that we are well
equipped to meet our committed responsibilities in the area of
environmental protection.
- 3 -
Likewise in the field of legislative policy the Treasury Department has given extensive attention to our Nation's environmental
During this past year we have prepared and transmitted
problems.
to the Congress two major legislative proposals aimed at facilitating
our national efforts for environmental protection.
For the benefit
of this Subcommittee's inquiry, I should like to briefly summarize
the provisions and purposes of these two legislative recommendations.
A Proposal to Tax Lead Additives in Gasoline
On
July 30, 1970, the Administration proposed that an excise
tax of $4.25 per pound be imposed on the lead additives which are
used primarily to raise gasoline octanes.
The llouse Committee on
Ways and Means heard Government and public witnesses on the proposal
in August.
Thereafter, the Committee gave rather extensive con-
sideration to the matter, but finally decided in November to defer
action, pending further study.
The rationale of the Administration's lead-tax proposal is
simple.
As
of 1975, all new automobiles, according to present
plans in the Department of Health, Education and Welfare, will
have to meet emission control standards which will involve the use
of catalytic converters in the exhaust system.
Although the 1975
automobiles will probably run quite satisfactorily on leaded gasoline
(assuming no fundamental change in the internal combustion engine),
lead in the gasoline would ruin the catalytic reactor.
- 4 Clearly, therefore, a substantial volume of non-leaded gasoline
must be available by that tUne (General Motors has stated that it
will begin installing such reactors on its 1973 models).
However,
since the addition of lead is the most economical way to raise
gasoline octanes to the levels now required by most automobiles,
only a small volume of non-leaded gasoline is now produced and sold.
The long-tUne consumer popularity of leaded gasoline -- as a symbol
of quality and power -- is strongly reinforced by the fact that
non-leaded gasoline of sUnilar octane is more expensive at the pump.
As a result, the costly refinery installations necessary to
produce non-leaded gasoline have been put in place in only a few
companies.
The Technical Advisory Board to the Department of Commerce,
after intensive study last winter, concluded that we could be assured
of an orderly and adequate transition from the production of leaded
to non-leaded gasoline, only if the production of the latter were
subsidized, or the sale of lead additives or leaded gasoline itself
were penalized through a tax.
Stated simply, then, the fundaMental purpose of the tax on lead
additives is to approximately equalize the pump price of leaded and
non-leaded gasoline, thereby providing a market incentive for refiners
to shift capacity to non-leaded fuels and meet the 1975 deadline.
The tax will assure an orderly transition.
If no such market in-
centive is forthcoming, the chances are that many companies will
delay conversion, resulting either in a shortage of non-leaded
gasoline in 1975, or in a most disorderly and costly conversion in
1973 and 1974.
- 5 -
The tax would, in addition, result in some immediate reduction
in the use of leadeQ versus non-leaded gasoline, a modest volume of
which is now available on the market.
Although scientific knowledge
of the health effect of lead is far from complete, many scientists
believe that present levels of lead in the atmosphere are much too
close to safety margins.
The Environmental Financing-Authority
On February 10 of this year, the Treasury Department trans-
mitted to the Congress legislation to establish the Environmental
Financing Authority to assist state and local governments in the
financing of needed waste treatment facilities.
Hearings have been
held on this measure by the Senate Committee on Public Works, but
there has been no final disposition of this bill in either
~louse
of
the Congress.
The basic purpose of the Environmental Financing Authority
(EFA) is to insure that no municipality will be unable to undertake
essential waste treatment facilities because of an inability to
borrow at a reasonable rate of interest for its share of project
cost.
EFA would be authorized to purchase municipal securities
issued to finance the non-Federal share of projects receiving
Interior Department grants for constructiOJl of waste treatment
facilities.
In no way would EFA impair the tax-exempt borrowing
privilege of States or municipalities, nor would it increase
- 6 -
Federal influence or control over State and local government
operations.
Any Federal legislation dealing with State and municipal
borrowing inevitably raises complex and controversial questions
of long-standing concern to both tax-exempt borrowers and investors.
The exclusion of interest paid on State and municipal bonds from
taxable income also results in revenue losses for the Federal
Government in excess of the interest savings for tax-exempt borrowers
and tends to
~pair
the Federal tax structure.
EFA, however, is not
intended to deal with these broader issues but only with the problem
of assuring that there will be adequate financing for waste treatment
facilities required by Federal water standards.
The EFA proposal is fully consistent with other actions taken
by the Congress to meet demands for urgent public facilities.
While
the means seem somewhat unique, previous Congresses have found it
desirable to enact a number of programs of direct Federal loans,
loan guarantees, and debt service subsidies for a great variety of
State and local government capital facilities, including water and
sewer facilities.
This Congress, in fact, on June 30, 1970 enacted
P.L. 91-296, and on December 18 the Senate passed and cleared for
the President H.R. 15979, which authorized sales of Federallysubsidized taxable municipal bonds for public facilities.
There is a growing recognition by State and local public
officials of the need for
ne\~
methods of financing to assure the
- 7 construction of high priority projects, such as waste treatment
facilities, without' at the same time placing undue burdens on the
tax-exempt bond market.
This is evident in the recent endorsement
of the EFA proposal by the Advisory Commission on Intergovernmental
Relations.
The ACIR on June 24, 1970, stated that, after a year-long
study of alternative Federal aid approaches to State and local capital
facility financing, the Commission recommended "that Congress enact
as a pilot operation the Nixon Administration's innovative financing
proposal for construction of federally aided waste treatment facilities."
EFA would purchase tax-exempt obligations from municipalities
and would finance these purchases by selling its own taxable obligations.
The difference between EFA's taxable borrowing rate and its
tax-exempt lending rate would be covered from appropriated funds,
but we are confident that this cost to the Government would be more
than offset by the increase In Treasury tax receipts resulting from
the substitution of taxable for tax-exempt bonds in the market.
The use of taxable bond financing would also contribute to
overall tax equity and help to reduce demands on the relatively
narrow market for tax-exempt securities.
This market will be under
considerable pressures over the next decade as municipalities
attempt to meet their burgeoning public facility needs, including
the financing requirements of programs and projects directly
assisted by the Federal Government.
- 8 -
Mr. Chairman, that concludes my discussion of the Treasury's
two principal legislative recommendations in the area of environmental protection.
We are, of course, disappointed that we were
unable to obtain final action on these measures this year.
However,
we intend to renew our efforts on these proposals next year.
In addition, in cooperation with the Council on Environmental
Quality and other bodies in the Executive Branch, we are actively
studying other methods of applying tax and financial policies to
the problems of this environment.
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dealing vlith piracy on the high
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1.
The usc of diplorJlucy tu secure
\':orl(~~-iidc
acceptance of the mu1ti1atcrol convention
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-- hut
III c Prcos iei (,1i:: c1 id more tban J .::nnKh a program
lir:~i tC'o
to enforcement measures.
Through the
Depa~t~ent
of Stnte, he directed a series of
diplo~2tic
initiatives and consultations with
foreign governments to achieve international
acceptance of the multilateral convention providing
for extradition or punishment of hijackers and to
obtain joint action to suspend airline services with
those countries which refuse to punish or extradite
hijac~ers
involved in international blackmail.
He called for a meeting of the U.N. Security
Council and an emergency session of ICAO, the
International Civil Aviation Organization.
These
in October) I had the bonor of
resolution against air piracy.
preE~cnl~jng
the AClcrican
That resolution
recommended that extradition or punishment of
hijackers be accepted by all nations and it passed
unanimously.
The community of nations has responded with
extraordinary solidarity to the President's
initiative for joint action to outlaw hijacking.
On
December 16, delegates of fifty nations signed the
international convention making hijacking of civilian
aircraft a separate criminal act and requiring the
subscribing nations to mete out "severe punishment" to
on n2tions that have signed and ratified,
In the other two parts of the President's program,
you: as Customs Security Officers, will playa key
role.
Intensified Pre-Departure Inspection
The President called for intensified pre-departure
inspections.
equip~ent
He directed that electronic surveillance
and surveillance techniques be utilized at
all gateway airports, and that the Federal enforcement
officers utilizing this equipment conduct appropriate
searc~es,
designed to keep potential skyjackers off
aircraft.
This
lS
the mean thru,;L of the Preside'nt IS
progr a!l1- -preven t ion.
The 1) es t way to s top a
skyjacking is on the ground by preventing a potential
skyjacker from boarding the aircraft.
Predeparture inspections by Customs personnel,
which commenced at all international gateway airports
within one week after the President's message,
have already prevented 14 persons, carrying concealed
weapons, from boarding aircraft.
During the non-flying phase of your duties, you
will take over this responsibility.
Armed Sky Marshals
The President called for specially trained armed
Unilc'c! Stal~('S Gi)vC?rTlI',-'llt persollnel
(In
fli;',hts of
pel- i1}Jil('llt civiliall sky lllcrsbal force, TrC?C'lsury
Agel) t: s
from
C-1I<~
toms> Secre t Service> and the Internal
Revenue:: SenTLce responded immediately.
They \'Jere
joined by other Federal agents from the FBI and the
FAA
to make 'up the ini tial force of approximately
300 Rir marshals.
And the Department of Defense
responded quickly to the President's call for an
interim force of military sky guards.
You are an historic group--Customs Security
Officcrs--the first members of the permanent sky marshal
force.
Today, 46 graduate from the Treasury Air
Security Officer School.
You have completed four weeks
'i
months
3j_:~ce
be
the President's call to action.
This is symbolic of the spirit of urgency
resol\~e
1·;:Lth 'which the entire Government has e,('
}lal1Y Del)2. rtments an.d
l)erson~)
for their work to date.
only
SO::-:2
deserve enorn10US c:
I can mention here
~it
bri(~y
of the people and organizations who
deserving of special comment.
The Office of Management and Budget brought
together various agencies of Government to devel,-':l)
in a very short time, a plan for the permanent
anti-air piracy action.
This is a flexible plan which
rnClkcs
nWXllllu:r:
and economic usC' of
C'~,:i~,:
Under the le~dership of Secretary
the Department of Transportation is coor·
gall
Government anti-skyja-c-king activity.
ral
He,
Benjamin O. Davis, Jr. brings leadership
experience to make the program go.
Jack2r,
Director of the FAA, provides the operat::
supervision of the program.
In addition to its general leadershi
international area, the State Department
the
;any
officials participating, including the p
officials who went to New York and worke(':
clock to expedite the issuance of
passpo~
_,nd the
the
Marshals to suppurt preJeporture inspections and
has deputized sky marshals so that they have
necessary arrest powers.
The Department of Defense has and still is
providing a large number of volunteers for an
interim force which you will be replacing.
The Civil Service Commission moved with
extraordinary speed to establish and classify the
new job of Customs Security Officer and to initiate
immediate nationwide recruiting.
Of course, our own Treasury Department has many
agencies which performed admirably in the highest
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sky carshals and Customs is now recruiting the people
to
GlaD
the force of which you became
2
part as the
first graduating cJass.
The Internal Revenue Service came forward with
the bulk of Treasury's contribution to the temporary
sky marshal program.
And the Secret Service gave
agents for airborne duty and is taking a leading role
in the training program.
Finally, the Consolidated
Federal Law Enforcement Training Center, which put
together a staff and a curriculum on short notice,
is a group
~'Ji th
\.,1hich you a re now qui te fami liar.
1.
oFten
:..lC
of CC"·:E:'l'nmcnt to oct in
Cl1;,:.cgCl1CY
000
sLtuations,
As
artment 01 the fREASU RY
ON. D.C. 20220
TELEPHONE W04·2041
IMMEDIATE RELEASE
December 23, 1970
TREASURY CONCERNED ABOUT MODIFICATIONS IN
INTERNATIONAL FINANCIAL INSTITUTIONS BILL
Treasury issued the following statement today:
Congress last night enacted a version of the international
financial institutions bill that unfortunately modified, in
several important respects, proposals submitted by the
Administration.
The Treasury welcomes passage of the authorization for
the United States to take up its share of the increase in
the quotas in the International Monetary Fund, amounting to
$1,540 million. Urgent discussions are being held with
Congressional leaders to assure that full appropriation
authority is available to make the quota increase payment
by December 31, 1970. If our quota is not increased by that
date, the United States will fail to receive about $130
million in Special Drawing Rights in the Fund to which it
would otherwise be entitled. This would be a permanent loss
of international reserves for the United States.
The Treasury also welcomes the authorizations for
U.S. contributions to the World Bank and to the ordinary
capital of the Inter-American Development Bank. The
Department deeply regrets that no funds were authorized for
the Asia~ Development Bank and will strongly urge that
Congress vote on the proposed U.S. contribution of $100
million to the Special Fund of the Asian Development Bank
early in the next session.
The Treasury is also deeply concerned about the
provisions for payment and authorization of appropriation
of only $100 million of the proposed U.S. contribution of
$1 billion to the Fund for Special Operations of the
Inter-American Development Bank. The House Manager's
statement in explanation of the effect of the action agreed
upon by the Conferees interprets the revised bill as allowing
the United States to subscribe to the full $1 billion contribution. This statement provides: "It is not our intention
(OVER)
- 2 to limit in any way the past procedure of allowing the
Governor to commit the United States to the full
amount of its proposed contribution by signifying our
agreement to contribute to the FSO in accordance with t~
applicable IDB resolution."
u.s.
The practical effect and legal implication of these
changes is presently under study.
000
~artment of the TRfASURY
ON. D.C. 20220
TELEPHONE W04-2041
'~TION :
F INANC IAL ED ITOR
~ELEfillE
6: 30 P.M.,
~sday,
December 23, 1970.
RESULTS OF TREASURY'S MONTHLY BILL OFFERING
1~e Treasury Department announced that the tenders for two series of Treasury
s, one series to be an additional issue of the bills dated September 30, 1970 , and
other series to be dated December 31, 1970 , which were offered on December 15, 1970,
opened at the Federal Reserve Banks today. Tenders were invited for $500,000,000,
hereabouts, of 273-day bills and for $1,200,000,000, or thereabouts, of
36S-day
s. The details of the two series are as follows:
273-day Treasury bills
maturing September 30, 1971:
Approx. Equiv.
Price
Annual Rate
96.289
4.894%
96.224
4.979%
96.247
4.949%
iE OF ACCEPTED
)ETITIVE BIDS:
High
Low
Average
36S-day Treasury bills
maturing December 31, 1971
Approx. Equiv.
Price
Annual Rate
95.063 ~
95.039
95.046
4.869%
4.893%
4.886%
Y
~
Excepting 2 tenders totaling $1,300,000
87% of the amount of 273-day bills bid for at the low price was accepted
39% of the amount of 36S-day bills bid for at the low price was accepted
A1 TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
istrict
.aston
ew York
'hiladelphia
leveland
ichmond
.tlanta
lli cago
:t. Louis
linneapolis
ill.nsas City
lalla::;
ian Francisco
TO'rALS
AcceEted
A221ied For
75,000
75,000 iii
354,115,000
1,144,365,000
845,000
845,000
7,000,000
1,000,000
740,000
740,000
14,090,000
6,795,000
140,930,000
84,865,000
4,995,000
3,995,000
8,910,000
6,910,000
1,850,000
1,850,000
23,465,000
2,465,000
56,825,000
36,565 ,000
AEElied For
20,650,000
2,229,100,000
3,210,000
50,295,000
3,345,000
18,020,000
368,225,000
10,785,000
9,030,000
3,420,000
23,950,000
211,460,000
;t
$1,404,090,000
$
500,220,000
$
£J
AcceEted
650,000
$
970,685,000
1,210,000
26,095,000
1,345,000
3,120,000
158,860,000
4,215,000
1,030,000
3,270,000
1,950,000
28,100,000
$2,951,490,000 $1,200,530,000:J
Includes $18,525,000
noncompetitive tenders accepted at the averaee price of 96.247
Includes $38,930,000
noncompetitive tenders accepted at the averace price of 95.046
These rates are on a bank discount basis. 1he equivalent coupon issue yields are
5.17% for the 273-day bills, and 5.15% for the 365-day bills.
partment of the
TRfASURY
TON. D.C. 20220
TELEPHONE W04·2041
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE ECONOMICS AND ALLIED SOCIAL SCIENCE ASSOCIATIONS
DETROIT, MICHIGAN
DECEMBER 28, 1970, 8:30 A.M., CST
FEDERAL PRIORITIES AND PUBLIC SECTOR DECISION-MAKING
We hear so much talk these days about priorities and
the need to change them. I would like to indicate a course
of action that could provide .the mechanism for making more
enlightened choices on national priorities. The mechanism
can be developed from existing budget information.
Functional classifications of outlays as now presented
in the budget contain serious limitations that can result in
a distorted picture of national priorities. Also, failure
to consider in conjunction with regular outlays the fast
growing Federal credit programs financed outside of the budget
and the numerous "tax aids" can lead to further distortions
of priorities. Because of these deficiencies, the scope and
magnitude of future claims on economic resources can easily be
misconstrued.
Developing a Program Budget for the U. S. Government
In order to assess and compare alternative programs for
fulfilling national goals, we need to consider a program budget
for the entire Government. This approach builds on the PlanningProgramming-Budgeting (PPB) System and attempts to fill a major
remaining gap. Despite its accomplishments to date, the PPB
approach is not coming to grips with the larger choices in
allocating Federal funds among different agencies and programs.
Note:
The author is indebted to Dr. Panos Konstas of the
U. S. Treasury Department for assistance in the
preparation of this paper.
K-561
- 2 -
"Would a dollar be more wisely spent for education or
for public works?" This fundamental question is not raised
(and probably cannot be answered) in the budgetary process at
the present time. The current emphasis is on choosing among
more specific alternatives within the education and public
h'orks categories. The choices are restricted usually to those
which can be made within each of the many agencies involved
in education or public works.
We also need to distinguish between the immediate purpose
for which budget outlays originate and the final objective
that such outlays serve. Educational allotments under the
G.I. Bill owe their origin to national defense considerations;
but in the end, it is the field of education to which the
benefits from these expenditures should be assigned. To be
sure, numerous borderline cases exist. Housing for the
military, for example, serves no doubt national housing needs
but at the same time contributes to the current posture of
the Nation's defense capabilities.
~evertheless, the need for another examination of budget
outlays for the entire Government is there, and a classification of budget outlays according to the purpose they in effect
serve will show a different picture of national priorities from
that in the current budget. Moreover, an analysis of this kind
makes it possible to evaluate the various items in each priority
category and thus to assess the relative efficiency of each itell.
From available material we can develop a hypothetical
Government-wide budget wherein each expenditure is classified
according to the end purpose, or final goal, of tha t expenditure.
Th is is in con t ras t to p re sent budge t p rac t i ce s whe reby expenditures of different types are grouped usually according to the
broad functions of the receiving agency or program.
.
Table 1 presents such a Government-wide budget for the
fIscal year 1971. 11 The total budget is divided into four
broad categories. -In a world of cri tical international tensions,
the ini tial purpose that comes to mind is the protection of the
~ation against external aggression -- to maintain the national
secu:-i ty _ Po.. variety of Federal programs exists in this category,
rangIng from our own military establishment, to bolstering the
armed forces of other nations, and to negotiating arms control
agreements.
~ro~edure for calculating Table 1 was to classify each
approprIatIon in Part 5 of The Federal Budget for the Fiscal
Year 1971 (Fe?eral Program by Agency and Account, pp. 191-513).¥
aCC?rdln~ to. I ts end purpose _ The data are on a budget authon t ,
baSIS ~hlCh Includes both new obligational authority and loP
authorIty.
!I The
- J -
Table 1
HYPOTHETICAL GOVERNMENT-WIDE PROGRAM BUDGET
Fiscal Year 1971
Category
Total
Amount
: (Billions of Dollars):
tiona1 Security
S. Military Forces •...............
S. Passive Defense •...............
reign Military Aid •................
reign Non-Mil i tary Aid ............ .
ientific Competition .............. .
ycho1ogical Competition ........... .
ns Control ........................ .
68.2
.1
.5
1.9
3.3
.3
Percent
of Total
29.3%
'*
0.2
0.8
1.4
0.1
Total .......................... .
~
3l.8~
•
0
blic Welfare
surance and Retirement ............ .
employment Benefits ............... .
blic Assistance ...•••..............
terans Benefits .....•..............
i to Farmers and Rural Areas ...... .
~an Housing and Facilities ........ .
~cia1ized Welfare ................. .
ti-Poverty Programs •••••...........
60.8
4.0
9.0
7.4
8.0
3.7
1.2
1.5
26.1%
1.7
3.9
3.2
3.4
1.6
0.5
0.6
Total ..... , ............. ,. ,. ...... .
~
4r.l)9c
•
0
nomic Development
ural Resources and
egiona1 Development .............. .
power Development. . ............. .
nsportation facilities ••..........
cation and Researcb- •.............
1 th Researcb ...................... .
iness Subsidies .................. .
10.1
1.7
13.1
4.2
5.3
.9
4.3%
0.7
5.6
1.8
2.3
0.4
Total .......................... .
rations
erest ............................ .
is1ative Function ................ .
icia1 and Law Enforcement ........ .
nomic Regulation ................. .
sekeeping ........................ .
eign Relations ................... .
eral Aid to States and Localities.
IT:!
rr:T9<
19.0
.4
1.3
.3
2.5
1.2
.3
8.2%
0.2
0.6
0.1
1.2
0.5
0.1
10.9%
Total ................................. .
15.0
owances ...................... ············· .
2.6
GRAND TOTAL .................... .
232.8
•
0
1.1 %
100.0%
rce: Developed from data in The Budget of the U. S. Government -Fiscal Year 1971
~ss than Iso million
- 4 -
A second basic national purpose, one also going back to
the Constitution, is the promotion of the public welfare.
Here, we find the Federal Government operating in the fields
of u~employment compensation, social security, veterans'
pensions, and many other such activities.
A third major purpose of Government programs has received
an increasing amount of attention in recent years -- the continued development of the American economy. This area Covers
the various programs to develop our natural resources and
transportation facilities, as well as support of education,
health, research and development, and other attempts to
increase economic growth. A comparatively small portion
is devoted to the economic development i terns, about IS percent
of the total budget.
Finally, there is the routine day-to-day operation of
the Government, such as the functioning of the Congress and
the Federal courts and the collection of revenue.
When we examine the budget and congress ional appropriation
hearings over the years, we find little, if any, systematic
attempt to appraise the wisdom or desirability of these overall
choices implicitly made in the allocation of Government resourw.
It may be mere conjecture to conclude that the allocation of
funds would possibly have been different if the appropriation
requests had been reviewed with an eye on the total picture,
as shown in Table 1, instead of examined as individual appropriation items in isolation.
National Security
The greater part of the national security budget is
devoted to the U. S. military forces. However, one-tenth
of the total is comprised of program~ that would promote the
national security through more indirect means, such as conducting nonmilitary forms of competition (NASA and USIA) or
increasing the military capabilities of friendly nations.
This programmatic approach lends itself to raising and
answering questions such as the following:
(a) Would national security be improved by
shifting some or all of the $5.7 billion
for foreign aid and nonmilitary competition
to the U. S. military establishment itself?
(b) Conversely, would the national security be
strengthened by moving a relatively small
share of the direct military budget say
$500 million, to the USIA or arms c~ntrol
effort and thereby obtaining proprotionately
large increases in these latter programs?
- 5 (c) Are we putting too much into foreign
economic aid and not enough into the
space program? Or vice versa?
(d) Would the Nation be better off if we
shifted some of the funds now going to
passive (civil) defense to the Arms Control
and Disarmament Agency? Or vice versa?
The very existence of the type of information presented
here may lead not only to attempts to answer questions such
as these but, more fundamentally, to widen the horizons of
budget reviewers.
Public Welfare
It may come as a surprise to many people to learn that
public welfare, rather than national security, receives the
largest single share of the budget. Over two-fifths of the
1971 budget is devoted to programs in this general area.
Most of the funds in this category consist of appropriations
to the Department of Health, Education, and Welfare. The
rest are brought together from activities of other agencies
such as the Defense Department (retired military pay and
family housing for the military), the Labor Department
(unemployment trust funds), the Veterans Administration
(veterans' pensions), and Agriculture (farm price supports).
The various life insurance, unemployment compensation,
and retirement programs receive the great bulk of the funds
for public welfare -- over three-fifths. However, this is
hardly a conscious decision. The level of expenditure for
these programs -- such as the old-age, survivors and disability
insurance system -- is predetermined by basic, continuing
statutes; they are financed by permanent, indefinite appropriations which are not subject to review during the budget
process because they do not even appear in the annual appropriation bills.
The expenditures under the various agricultural price
support programs (which dominate the category of "Assistance
to Farmers and Rural Areas") exceed all of the outlays for
the programs of urban housing, antipoverty, and other speciali:ed
welfare activities combined. Again, the farm subsidy progra~
is generally set by the substantive laws on price supports a~j
farm aid, rather than through annual appropriations.
- 6 This level of detail permits some cross-comparisons of
Government programs which are not currently made.
For exampl~
the $1.5 billion for formal efforts to reduce poverty in the
United States is less than the $l.9 billion for foreign econc'
aid. Would some trade-off between the public welfare and
national security areas result in a net advantage?
Economic Development
In this exploratory categorication of Government progra!:!i
a number of activities are listed under the heading, "Economi~
Development." Transportation facilities account for the lar~~~
single share and when combined ,..."i th natural resource and regL
development account for almost two-thirds of the total. ~lost
these activities will no doubt contribute to the more rapid
growth of the U. S. economy.
The contribution to economic
development of certain others such as subsidies to business
may be less certain.
At any rate, a Government-wide program budget can be
useful for questions such as these:
"Would a shift of funds
between transportation and education be advisable? Between
natural resources and research?" Raising these questions nee
not be taken as expressing value judgments, but rather as
indicating a new pattern for governmental decision-making.
Government Operations
The final category of Government programs represents the
general costs of operating the Government, the relatively day
to - day funct ions . ~1ore than th ree - qua rte rs 0 f the funds in
this category cover the payment of interest on the public deb
Th e b ul k of the remain ing out lays for Governmen t operations i
devoted to collecting internal revenue and the housekeeping
activities of the General Service~ Administratio0.
Further Applications
If this sort of analysis were incorporateJ 1.1 the annua~
budget document, it -::ould result in growing congrc~-5ional and
public concern and a 1\areness of the problems cf~:;osing amons
al ternative uses of Go\'ernment funds.
In the a!:sence of an
automatic market mechanism, such an approach mi;ht introduce
a healthy degree of competition in governmental resource
a1 location.
- 7 Alternatively, a congressional staff could rework the
existing budget submissions within this framework for use by
the entire Appropriations Committee prior to its detailed
examination of individual appropriation requests. This would
permit the appropriation committees to set general guidelines
and ground rules for its detailed budgetary review. It would
also permit some improvement over the current situation, in
which overall Government policy often seems to be the accidental
byproduct of budget decisions on the various departmental requests
-- rather than the guiding hand behind those decisions.
The underlying theme of this program approach to government
budgeting is the need to array the alternatives so that deliberate
choices may be made among them. It has its counterpart in the
private sector. Many families might rush out and spend the
Christmas bonus for a new car; a more prudent family may carefully, although subjectively, consider the relative benefits
of a new car, a long summer vacation, or remodeling the
basement. Similarly, a well-managed company would not impulsively decide to devote an increase in earnings to raising
dividends, but would consider in detail the alternative uses
of the funds -- embarking on a new research program, rebuilding
an obsolescent manufacturing plant, or developing a new overseas
operation.
Still another application of this approach is to detect
and evaluate changes in priorities. Although data prior to
fiscal 1971 are not provided here, it can be established that
between the fiscal years 1969 and 1971 public welfare has been
the major area of expansion; it received 38 percent of the
total appropriations in 1969, and it is expected to receive
41 percent of the total in 1971. Economic development and
Government operations show significant but lesser expansions
between 1969 and 1971. In contrast, the portion for national
security declined from 40 percent to 32 percent in the twoyear period.
Accounting for Government-Related Activities
Thus far, the analysis of governmental priorities has
been limited to items contained in the budget. The analysis
can be further refined and improved by taking into account
two other types of Government-related programs that at present
are not included in the budget proper. These programs,
nevertheless, represent large claims on economic resources
and therefore have considerable impact on the question of
priorities.
- 8
T~H~
'-_
_
J':f'(J'nT";:.1
f~,rs ~
CTsci-.l..·t
category of Sltch .i tems
-
"
'"<'-~s""'nr-e
~rogY'aTC
o.
.. ~~."a.,-';.J
~
"-
~on5ists
h'l..~ch
'l-,
Drimarilv of
j"
C'!?--·'n·]y
are. funded
~Ljt.::'L,;
ou!:sit.!.c sf the h.ldger.
This fl1lancing 1S accomplished hy means
of va,-~ous ~~Ja!l gu(';.raT'.tee techniques and loans made by Federalk
sponsored but ostensibly privately-owned agencies.
r:d ~ r a l. 1 0 .'J. n s 0 ~l t s tan di !\ g
n 1 fl C r:~ a s ~ 1. ~l J'(".'
for Ule Iiseal Yf'a2- 19 7 1, onL)' ::1-1./2 :Jll110n are dJ.rect loans
which show up in the budget.
Fo-r the $20 billion of Federally.
assisted credit programs which are not contained in the budget,
there is little overall consideration given to their impact on
financial frcdrkets and on the economy.
~,
~ !:
~ 11 :;
'l:~,"""..
,,!. /..
D1
.i.
1 1. 0
The Largest single category of Federally-assisted private
credi t is to the home mortgage market.
This is accomplished
through a variety of mechanisms -- such 35 mortgages insured
by the Federal Housing Administration, the Veterans Administratic~.
and the secondary market for FHA mo:ttgage lenders operated by
the Federal National Mortgage Association (Fanny Mae).
So long as Federally-assisted loans and loan guarantees
are exclu~ed from the budget and thus are not subject to
effective control, there are strong incentives to convert
from d:rect loans to these more iniirect techniques.
However, anv comprehensive analysis of governmental
priorities needs to take account of the operation of these
Federally-assisted creJit prograr:15.
They can strongly influence
the allocation of credIt and hence the distribution of real
resources, thus adding to the economIC impact implied from an
examinatIon limited to the budget ?TOper.
One ~a! of providing some control over these credit
programs ~Guld be to impose a ceiling on the total borrowing
o~ Federal and Federally-sponsored credit agencies, both those
''In'' and those "ou":" of the budget.
Also, a ceiling could be
enacted on the overall volume of debt created under Federal
1 0 J. !1 g U ::1 r a ;1 t e '2 S .
The ~~cc~d ~~pe of governmentally-related activities
(also exclu.:L.'d from the ~Hlc.iget) includes special exemptions,
deQUctlor::::, :lnd cc-edi ts in OlJT LiX system.
These items affect
the 2CO~Cl)\\' l:, "'avs th:::.t could be accomplished by direct
- 9 -
Government spending. For example, the expenditure side of
the budget properly records items for medical assistance.
However, nowhere in the budget is account taken of the
$105 million a year foregone in fiscal 1971 by the tax
system by reason of the special exemption for sick pay.
The natural resource agencies of the Federal department,
such as the Interior Department, dutifully record outlays for
programs in those areas. However, no mention is made of the
$1.3 billion in assistance to natural resource industries
through depletion allowances and other special tax provisions.
It may be useful, therefore, to quantify the expenditure
equivalents of at least the more obvious benefit provisions.
To be sure, this is a difficult undertaking involving many
arbitrary categorizations.
It is difficult to decide which tax rules are integral
to a tax system in order to provide a proper measure of net
income -- as opposed to those provisions which provide relief
or assistance to a particular group or activity. Tax aids
have the outward appearance of involving no Government costs.
They are, in effect, netted out of receipts by the taxpayers
themselves so that taxes paid by taxpayers, and hence taxes
collected by the Government, are net after adjustment for
tax concessions. However, there is a very real cost to the
Government in terms of foregone revenue and to the economy
as a whole in terms of the increased share of current national
output available to the beneficiary of the particular tax aid.
A tax aid for our purposes will be defined as the difference between the tax actually paid and the tax that would be
paid in the absence of the tax aid. It must be made clear,
however, that the mere tabulation of tax aids should not be
labeled a listing of "loopholes." The purpose of the tabulation is to illuminate the cost of these provisions rather
than to raise a question about tax equity. As a general
matter, I find the case rather persuasive for using tax
incentives as a means of solving certain national problems
through the private sector rather than through direct Federal
expenditures.
Clearly, however, tax aids are one among alternative
uses of potential Federal revenues, and any comprehensive
analysis needs to take account of them.
- 10 -~
d::-' 1 c ,~: sho"s :he Impac: t of Federal credi t n"'Qrams
:- ;: 0. L a x & ids 0 n n 9 t ion alp 1- i 0 r i tie s. ~/
I n 1 9 ., 1 h ° in g
1~ the ~argest beneficiary of Government-assisted credit.
:~ ~ T 'L: 'ci 1 ~ v." e and rUT a 1 de v:::.~ 1. 0 P men t i s a 1 s 0 a ma j 0 r r e c i pie nt
~f FeJera!lv-assjstsd credit from the Government-awned
aRsncy Farm~rs Home Administration and three Government:p:mscred agencies, the Banks fer Cooper:ltivc:s, the Federal
TnteT~ediate Credit Banks, and the Federal Land Banks.
Both
c-eJ.i t ,dd to housing and to farmers a're in the area of public
~e:f~~~ in our hypothetical Government-wide budget layout.
us
Smaller but significant amounts of Federal credit aid
aTe also directed toward export credit and education, the
ldtter in the form of student loans and loans for college
.
.
nCUSi.!1g.
()n the question of tax aids, "'Ie find that over half of
aids are related to public welfare activities (see
Table 2).
These include a. whole series of deductions from
taxable incomes such as Interest on horne mortgages, state ~d
1 0 cal t a xes, c h a r ita b lee on t rib uti en s ) as we 11 a 5 'I ay me n t 5
relating to retirement and pension plans.
s~ch
fax provisions benefiting business in general -- such
as the since-repealed investment credit and the continuing
surtax exemption - - are another large type of tax aid. The
estimated cost of these provisions in terms of foregone
revenue is $9 billion in the fiscal year 1971.
Benefits directed to state and local governments in the
form of deductability of state ani local taxes, interest on
municipal debt, and related provisions come to an estimated
revenue cost of $7.9 billion- in 1971.
The variations in governmental priorities can be perceived
hy bringing together the direct outlays of the Federal Governmeo
the tax aids, and the various credi t programs as shown in Table
There are, of course, pi tfalls in adding the proverbial apples
ai\d oranges - - a1 though those de add up to pieces or pounds of
~rult.
At least in this case they all add up in terms of .
J:)113r-:; -- although TIot nccessarilv in terms of total economIc
impact.
There are undoubtedly different effects on resource
allocation among direct Feder~l purchases, transfer payments,
::nns, tax aids, and credit-backing.
Nevertheless, "summing
up" for the purpose of understanding better the nature of
~o"ernJTlental priorities is well j:.lstified.
AnJCl:,lf;ts on GO'vernment-assisted c'!:'edit are on net basiS,
j ,:~., i!1tr~-agency ho:'dings of loans are not included in
t".e data.
- tl
Table 2
POTHETICAL GOVERNMENT-WIDE PROGRAM BUDGET AND RELATED ACTIVITIES
Fiscal Year 1971
(In billions of dollars)
Direct
Category
Outlays
rlal Security
68.2
Military Forces ........ ·
.1
Passive Defense ....... .
gn Military Aid ........ .
.5
1.9
gn Non-Military Aid .... .
3.3
tific Competition ...... .
.3
ological Competition ... .
Government
Assisted
Credit
Selected
Tax Aids
0.5
1.8
0.4
Total
68.7
.1
.5
4.1
3.3
.3
Control ................ .
Total .................. .
c Welfare
ance and Retirement .... .
loyment Benefits ....... .
c Assistance ........... .
ans Benefits ........... .
o Farmers and Rural Areas
Housing and Facilities ..
alized Welfare .......... .
Poverty Programs •........
Total ................... .
mic Development
al Resources and
ional Development ....... .
wer Development .••.......
portation Facilities •....
tion and Research ....... .
h Research •..............
ess Subsidies ........... .
Total ................... .
60.8
4.0
9.0
7.4
8.0
3.7
1.2
1.5
95.6
10.1
1.7
13.1
4.2
5.3
.9
~
1.9
3.4
11. 9
6.6
0.4
0.1
0.6
1.0
6.0
9.9
24:6
1.3
0.1
1.1
0.1
0.5
r.s
0.1
1.4
3.2
6.2
IT."7
tions
est ..................... .
19.0
lative Function ......... .
ial and Law Enforcement ..
mic Regulation .......... .
.4
1.3
.3
2.5
keep ing ................. .
gn Relations ............ .
al Aid to States
Localities ............. .
rota 1 ................... .
anc e s ................... .
GRAND TOTAL......... . . . . .
11.4
1.7
13.3
6.7
8.6
7.6
49.!
19.0
.4
1.3
.3
2.6
1.2
lit
0.1
1.2
.3
n-:o
2.6
23 2 . 8
67.4
4.4
9.1
9.9
12.4
21. 6
11.1
1.5
137.4
20.9
8.2
7.9
1.9
rr.o
45.6
2.6
299.3
es: For Direct Outlays, The Budget of the U. S. Government -- Fiscal
Year 1971; for Government Assisted Credit, Special Analyses-Budget of the United States (Analysis E); for Tax Aids, Treasury
Department--Office of Tax Analysis
5 than $50 million
- 12 In a number of cases, Federal outlays constitute a
relatively small proportion of the total volume of governmentally-related financial a~ti:ity affectin~ a given prograr.
area. A prime example of thIS IS urban housIng and facilitie,
where, in fiscal year 1971, $3.7 billion of Federal funds are"
appropriated. But the assistance through $6 billion of tax
aids and $12 billion of Federally-assisted credit boosts the
total in this area to nearly five times the budget amount.
Other program areas where the extra-budget activities are YeTI'
substantial include agriculture, business, and state and loca';
governments. However, in the case of national defense, the
direct outlays account for virtually all of the program area.
Another way of looking at priori ty changes is to examine
relative standings of individual programs after taking account
of Government-related activities not in the budget. The changes
are significant but not drastic.
Table 3 ranks (in terms of .
dollar amounts) the individual programs before and after the
introduction of credit and tax aids.
The most conspicuous
move appears to be in the housing category which goes from
12th to 3rd place.
General aid to state and local governments
rises from next to last place to 12th, and specialized welfare
moves from 20th to 8th.
In contrast, several major categories
experience some diminution in implici t priori ty. Heal th drops
from 9th to 11th, education from 10th to 14th, and natural
resources from 5th to 7th.
However, the two largest categories -- national defense
and insurance and retirement -- remain securely in first and
second places with or without the credit and tax aids.
Concluding Comments
This presentation offers several analytical techniques
for improving the quality of Federal decision-making. As we
look at the decade ahead, jt seems clear that many difficult
and important decisions and choices will face national policymakers. Even in an economy as rich and productive as ours,
resources are limited. Claims on output must be balanced
aga ins t the economy's cap ac i ty to produce. As always, there
will be a satisfaction of some demands over others. Hopefull)"
these choices will reflect national priorities and changes ir.
priorities. However, any enlightened attempt to reorder and
establish priorities cannot take place until we possess a clear
unde rs tand i ng both 0 f the e xi s t ir,.g gene r al orde ring of prion Ws
and the nature of the possible choices to be made.
- II Table 3
THE CHANGING ORDER OF GOVERNMENT PRIORITIES
(Fiscal Year 1971)
Individual Program
Budget
:appropria:tions only
S. Military Forces
surance and Retirement
terest
ansportation
tural Resources
blic Assistance
d to Farmers and Rural Areas
terans Benefits
alth
ucation and Research
employment Benefits
ban Housing and Facilities
ientific Competition
lowances
usekeeping
reign Non-Military Aid
npower Development
ti-Poverty
dicial and Law Enforcement
ecialized Welfare
reign Relations
siness Subsidies
reign Military Aid
gislative Function
ychological Competition
onomic Regulation
neral Aid to States and Localities
S. Passive Defense
urce:
Table 2
Budget
plus
credit
aids
Budget
plus
credit &
tax aids
1
2
1
2
1
3
4
5
6
7
8
9
10
4
4
5
7
11
12
13
14
15
16
5
7
9
6
8
10
11
12
3
14
15
16
13
2
10
6
9
11
14
15
3
17
18
19
16
20
21
22
17
17
18
18
19
20
21
22
23
20
21
22
19
23
24
24
25
25
26
25
26
26
27
27
28
27
28
12
8
23
13
24
28
- 14 Our inferences regarding the nature of underlying
priorities changes significantly as credit and tax aids
are taken into account. In particular, the area of public
welfare appears to be preempting a much larger share of
Government outlays, direct or indirect, than may be generally
appreciated. Moreover, the analysis of a Government-wide
program budget points to certain implications about changes
in national priori ties in the years ahead. The budget document
for fiscal 1971 goes at some length to discuss the budget con.
trollability problem. But Federal credit programs and certain
tax aids are capable of preempting future economic resources
as well and thus, perhaps inadvertently, commi t the Nation to
specific priorities.
In some future reformulation, it might be desirable to
give different dollar weights to transactions such as Government·
sponsored credi t acti vi ties compared to expendi tures wi thin the
budget. However, even wi th in the budget, purchases and transfers
would not be expected to register the same economic impact,
dollar for dollar.
Development of a Government-wide program budget, enabling
us to evaluate choices which cut across existing agency and
program lines, would be a va] uable asset to our decision-making
efforts.
In addi tion, bringing such "extra-budgetary" items as
Federal credi tass istance and Federal tax aids into the analytical framework would enable us to have a more complete accountir.g
of the existing order of Federal priorities.
The pressure of competing demands and the need for exercising hard choices makes this process difficult enough without
further complicating matters by the absence of adequate inforrna ti on. Hope fully. improvement in the qual i ty of our information
can lead to improvement in the quality of our decisions.
000
artment of the TREASURY
IN. D.C. 20220
TElEPHONE W04-2041
rnWN:
FINANCIAL EDITOR
j{1':I.I':J\;'I~
6: 30
P.M.,
ay, December 28, 1970.
RESULTS OF 'l'RF..ASURY S WEEKLY BILL OFFERING
I
'111C Treasury Department announced that the tenders for two series of Treasury
'" onp series to be an additional issue of the bills dated October 1, 1970
,[Ultl
0thcr series to be dated December 31, 1970 ,which were offered on December 18, 197 n ,
opened at the Federal Reserve Banks today. Tenders were invited for $1,900,000,000,
ilereabouts, of 91..day bills and for $1,400,000,000, or thereabouts, of
182-ctay
s. 1he details of the two series are as follows:
ACCEPTED
f.TI'I'IVE BIDS:
!o: (W
HiC;h
l.ow
f\vc:rCl{',e
~
G4~
7~';~
\1,
98.800 ~
98.762
98.779
4.747%
4.898%
4.830%
182-day Treasury bills
maturing July 12 1971
Approx. Equiv.
Annual Rate
Price
97.590
97.524
97.555
Y
4.767%
4.898%
4.836%
Y
!'xcepting 1 tender of $20,000
of the amount of 91-day bills bid for at the low price was accepted
of the amount of 182-day bills bid for at the low price was accepted
TENlJEHS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
i:,Lrjct
,ston
;w Y,)f'k
lari(,lphia
lpvl,lu,nd
1)
i clllll()ncl
LJ all t- rt
I
91..day Treasury bills
maturing April 1, 1971
Approx. Equiv.
Price
Annual Rate
i(':J..
r(J
t. 1,001i s
llllll':Lj)ulis
lnSu,.; City
l11ac
In Fl':lncicco
TOTALS
For
:rAP121ied
40,080,000
1,833,935,000
43,300,000
42,630,000
16,300,000
41,425,000
226,180,000
45,390,000
21,555,000
32,370,000
178,000,000
121,285,000
$2,642,450,000
Acce~ted
~O,O80,OOO
$
1,157,935,000
27,740,000
42,630,000
16,300,000
41,425,000
226,030,000
45,390,000
21,555,000
32,370,000
148,000,000
111,285 aOOO
A:e:elied For
$
11,930,000
1,640,020,000
6,225,000
22,245,000
7,945,000
24,115,000
100,630,000
20,605,000
16,350,000
13,120,000
33,770,000
112,175,000
$1,900,740,000 ~ $2,009,130,000
Acce,Eted
$
1,930,000
1,076,620,000
6,225,000
22,245,000
7,945,000
24,115,000
100,630,000
20,605,000
16,350,000
13 ,120,000
30,770,000
80,175,000
$1,400,730,000
sf
Indur1es :~292 ,285,000 noncompetitive tenders accepted at the averaee price of 98.779
Includes tl12,285,000 noncompetitive tenders accepted at the average price of 97.555
l'hcst' rates are on a bank di.scount basis.
'l'he equivalent coupon issue yields are
<1. %'~ for the 91-do.y bills, and 5.03% for the 182 -day bills.
- 14 Our inferences regarding the nature of underlying
priorities changes significantly as credit and tax aids
are taken into account.
In particular, the area of public
welfare appears to be preempting a much larger share of
Government outlays, direct or indirect, than may be generally
appreciated. Moreover, the analysis of a Government-wide
program budget points to certain implications about changes
in national priori ties in the years ahead. The budget document
for fiscal 1971 goes at some length to discuss the budget Controllability problem. But Federal credit programs and certain
tax aids are capable of preempting future economic resources
as well and thus, perhaps inadvertently, commi t the Nation to
specific priorities.
In some future reformulation, it might be desirable to
give different dollar weights to transactions such as Government.
spons ored credi t acti vi ties compared to expendi tures wi thin the
budget. However, even wi th in the budget, purchases and transfen
would not be expected to register the same economic impact,
dollar for dollar.
Development of a Government-wide program budget, enabling
us to evaluate choices which cut across existing agency and
program lines, would be a va]uable asset to our decision-making
e f for t s . I n add i t ion, b r i n gin g s u c h "e x t r a - bud get a ry" i t e ms as
Fede ral credi t as sis tance and Fe de ral tax aids into the analytical framework would enable us to have a more complete accountir.g
of the existing order of Federal priorities.
The pressure of competing demands and the need for exercising hard choices makes this process difficult enough without
further complicating matters by the absence of adequate information. Hopefully, improvement in the quali ty of our information
can lead to improvement in the quality of our decisions.
000
ortment of the TREASURY
I. D.C. 20220
TelEPHONE W04-2041
TInN:
FINANC IAL ED ITOR
j-:\'j-:A;,I~
6: 30 P.M.,
De~ember
y,
28, 1970.
RESULTS OF
TRF~URY'S
WEEKLY BILL OFFERING
'111C 'l'reasury Department announced that the tenders for two series of Treasury
'" onp. series to be an additional issue of the bills dated October 1, 1970
llil,]
0ther series to be dated December 31, 1970 ,which were offered on December 18, 197 0 ,
opened at the Federal Reserve Danks today. Tenders were invited for $1,900,000,000,
hereabouts, of 91-day bills and for $1,400,000,000, or thereabouts, of
182-day
s. The details of the two series are as follows:
1-; Uj,'
ACCEPTED
'F.l'I'I'IVE BIDS:
HiGh
l.ow
f\vcrnee
91-day Treasury bills
maturins April 1, 1971
Approx. Equiv.
Price
Annual Rate
98.800
98.762
98.779
Y
4.747%
4.898%
4.830%
182-day Treasury bills
maturin6 July 12 1971
Approx. Equiv.
Annual Rate
Price
97.590
4.767%
4.898%
97.524
4.836%
97.555
Y
Y
~ !'xcepting 1 tender of $20,000
24~ of the amount of 91-day bills bid for at the low price was accepted
7~';~ of the amount of 182-day bills bid for at the low price was accepted
I.
TtNIJERS APPLIED FOR AND ACCEPTl':D BY FEDERAL RESERVE DISTRICTS:
:.; tr jet
,ston
:W
York
lihvlelphia
,pvI'lund
~
chlllnnd
JJ ania
j
i,'; L, '(J
"
.
\'()1lt S
Llln":tjlull::;
lnSU:J City
ilIac;
1.0
i"l'ancisco
TOTALS
AE121ied For
Acce~ted
0 ,080,000
$ 40,080,000 $
1,157,935,000
1,833,935,000
27,740,000
43,300,000
42,630,000
42,630,000
16,300,000
16,300,000
41,425,000
41,425,000
226,030,000
226,180,000
45,390,000
45,390,000
21,555,000
21,555,000
32,370,000
32,370,000
148,000,000
178,000,000
121,285 , 000
11l,285,000
$2,642,450,000
$1,900,740,000
1,640,020,000
6,225,000
22,245,000
7,945,000
24,115,000
100,630,000
20,605,000
16,350,000
13,120,000
33,770,000
112 ,175,000
AcceEted
1,930,000
1,076,620,000
6,225,000
22,245,000
7,945,000
24,115,000
100,630,000
20,605,000
16,350,000
13,120,000
30,770,000
80,175,000
$2,009,130,000
$1,400,730,000
AEElied For
$
1
£I
11,930,000
$
sf
[ncludes :);292,285,000 noncompetitive tenders accepted at the averaee price of 98.779
[ncludes :);112,285,000 noncompetitive tenders accepted at the average price of 97.555
niCSt' rates are on a bank d i.scount basis.
The equivalent coupon issue yields are
1. 9G·~ for the 91-dn.y bills, and 5.03% for the 182 -day bills.
- 2 submit tenders except for their own account.
Tenders will be r~
without deposit from incorporated banks and trust companies and f
responsible and recognized dealers in investment securities. TeM!
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are acc~
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at th
Federal Reserve Banks and Branches, following which public announc~
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof.
The Secretary of t~
Treasury expressly reserves the right to accept or re;ect any or all
::enders, in whole or in part, and his action in any such respect shall
be final.
Subj ect 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 decimal
of accepted competitive bids for the respective issues. Settlement fo
ace ep ted tende rs in acc ordance wi th the bids mus t be made or completed
at the Federal Reserve Bank on January 7, 1971,
i:1 cash or other immediately available funds or in a like face amount
Tr-easury bills maturing January 7, 1971.
Cash and exchange tende
will re~eive 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.
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 cons ide red to ace rue when the bi 11 s are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capital
assets. Accorclingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price paid
for the bills, whether on original issue or on subsequent purchase, ~
the amount actually received either upon sale or redemption at maturit,
during the taxable year for which the return is made.
Treasury Dep ar tmen t 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 from
any Federal Reserve Bank or Branch.
000
artment of the TRfASU RY
N. D.C. 20220
TElEPHONE W04-2041
December 28, 1970
FOR IMMEDIATE RELEASE
TREASURY ACTION TO HELP HOUSING NEEDS
OF LOW- AND MODERATE-INCOME FAMILIES
The Treasury Department today proposed regulations
that would enable governmental agencies to make more
cooperative housing available for low- and moderate-income
families.
Prior law significantly limited the ability of public
housing agencies to own or lease cooperative housing for
the benefit of persons of low and moderate income.
This
occurred because individual tenant stockholders were able
to deduct pro-rata portions of the interest and taxes
paid on a cooperatively owned apartment building only if
at least 80 per cent of the cooperative's income was
derived from individual tenant stockholders.
The proposed regulations would provide that any
interest in a cooperative housing corporation held by a
government agency will be disregarded for purposes of
determining whether a corporation meets the 80 per cent
test.
The proposed regulations would implement provisions
of the Tax Reform Act of 1969 which amended Section 216 of
the Internal Revenue Code.
Implementation of this amendment through publication
of these regulations in the Federal Register on December 29
197 n will encourage an additional source of housing for
persons of low and moderate income.
This is part of the Administration's effort to meet
the nation's goal of six million additional units of
housing for low- and moderate-income families by 1976.
K-548
000
epartment of the
TREASURY
STON. D.C. 20220
TELEPHONE W04·2041
FOR RELEASE ON DELIVERY
REMARKS OF THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
AT THE JOINT ANNUAL MEETING
OF THE
AMERICAN FINANCE, ECONOMIC, AND STATISTICAL ASSOCIATIONS
IN THE BALLROOM, COBO HALL, DETROIT, MICHIGAN
ON TUESDAY, DECEMBER 29, 1970, 12:30 PM (EST)
DOMESTIC EXPANSION AND EXTERNAL RESPONSIBILITIES
There is ample precedent for the discussion at these
luncheon sessions on the Economic Outlook to "look out"
toward our external economic relationships.
follow that pattern today.
I intend to
My reason is simple.
The
international implications of our domestic policy-making
have never been more important
nor potentially so subject
to misinterpretation.
The United States, like every other major trading nation,
influences economic developments abroad, and is influenced
by them.
The speed and facility of modern transportation and
communication, relatively open markets for goods and capital,
and increasingly tight links among the principal money markets
of the world reinforce these relationships.
K-562
- 2 -
But, of course, no two countries are quite alike in
terms of this process of mutual interaction.
Because of
its relative size and wealth, and because of the international role of the dollar, the United States has a
particularly heavy weight.
For better or for worse, our
performance is pivotal in terms of the economic health of
the world.
In some important respects, that performance has not
been satisfactory since the mid-1960's.
At home, we
experienced a prolonged period of overheating, and we are
now paying a price in terms of painful adjustments in
production and excessive unemployment.
Accompanying
gyrations in our domestic financial markets have contributed
to massive flows of internationally mobile capital, first
into the United States and then out.
And apart from the
volatile capital flows, the inflationary process interrupted
progress toward dealing with our underlying balance of
payments problem.
These circumstances are widely appreciated.
questions begin at the
l~vel
The
of policy implications.
- 3 -
Some approach the problem from the assumption of a
basic conflict between our domestic goals and external
equilibrium.
should be put.
Judgments differ as to where the emphasis
But we are urged to make up our mind whether
strong domestic expansion or balance of payments equilibrium
and international monetary stability should take precedence.
At the same time, we hear voices to the effect that
the conflict -- if it exists
is not so significant:
our
domestic aims can and should be pursued without much concern
for external consequences.
In this view, if our domestic policies
are basically desirable and acceptable in foreign eyes, well,
good; then we can passively expect others to willingly make
the necessary external adjustments.
If, instead, the
consequences are destructive of present international monetary
arrangements or undermine liberal payments practices -- well,
so be it.
We should then search for some new arrangements.
I have put these views crudely and in extreme form
more crudely, you will recognize, than the complexities of
the arguments deserve.
Yet, I find, even among professional
economists, a debate polarizing along these lines.
This
- 4 seems
LO
me WlfortunatE..
I believe the implications for
policy aloe fundamentally misleading.
They are misleading
not only as a matter of technical economic or financial
analysis, but I believe they also misconstrue the broader
role of United States leadership in the world economy.
Put in the simplest terms, I see no head-on collision
between our domestic and international objectives.
go further.
I would
If we were to attempt to pursue one objective
to the exclusion of the other, we would undermine the
prospects for continuing growth and prosperity at home and
abroad.
Suppose, out of concern about inflation and the balance
of payments, we deliberately maintained a pattern of little
real growth, at the risk of rising unemployment.
domestic consequences need no exposition.
The
Internationally,
for a time at least, one might expect considerable improvement
in the trade balance and in the current account as a whole.
But, from our point of view, we would have to reckon
with the probability that the biggest part of that improvement
could be maintained only so long as internal demand remained
- 5 -
slack; prosperity would need to be held in bondage for an
extended period.
From the standpoint of other countries,
the potential consequences of prolonged slack in terms of
feeding protectionist sentiment in this country and spreading
repercussions on growth in world trade would hardly make this
a satisfactory form of adjustment.
This conclusion is reinforced by the fact that the
balance of payments as a whole would probably not be
appreciably helped.
Experience strongly suggests that a
sluggish domestic economy, with savings propensities outrunning
investment opportunities, interest rates declining, and the
stock market depressed, is conducive to large capital outflows.
For a considerable period, these outflows could swamp
the effects of an improving current account.
The present state of econometric studies in the area of
capital flows does not permit me to cite chapter and verse
to prove the point, and, before this audience, I am sensitive
to a charge of casual empiricism.
But certainly it is more
than coincidence that some of the largest dollar outflows
have tended to coincide with periods of weak domestic business
activity -- in 1958, in the early 1960's, and again in 1970.
- 6 The obverse of this argument might suggest that forced
growth at home could improve our external position.
in some circumstances, it might -- temporarily.
Indeed,
In 1957,
and again in 1968 and 1969, tight money and exuberant
investor expectations helped to bring short-lived surpluses.
But this strength was purchased at a heavy price.
In essence, the coefficient relating demand pressures
to imports jumps sharply in an overheated economy, as in
1966 and 1968.
Indeed, some simulation work suggests the
sharp deterioration in our trade surplus over the entire
second half of the 1960's can be primarily attributed to
excess demand pressures.
Unfortunately, the relationship
does not appear fully reversible in the short run, presumably
reflecting more lasting damage to longer-term competitive
relationships and the difficulty in dislodging imports from
established markets.
In sum, the statistical evidence seems to bear out what
common sense would suggest.
The extremes of slack and over-
heating -- undesirable on domestic grounds -- offer no
salvation for the balance of payments either.
Instead,
- 7 reasonably balanced and steady demand growth, affording
ample domestic investment opportunities but without heavy
strains on capacity, seems to provide the most satisfactory
environment -- indeed, the only sustainable environment -for seeking a solution to our balance of payments problem.
I do not suggest that an orderly growth pattern will,
by itself, restore external balance.
But I believe we can
move decisively toward that goal if we combine orderly growth
with a better job in achieving price stability -- better than
we, ourselves, have achieved in the past five years and
better than other leading industrial nations will be doing
in the years ahead.
Much more than any presumed conflict between domestic
and external objectives, it is this requirement to reconcile
growth with greater price stability that lies at the heart
of our problem.
To my mind, our balance of payments problem
heavily underscores the urgency of dealing with a need
already evident on domestic grounds.
In approaching that problem, it is all too easy for
our sense of perspective to be warped by the latest price
statistics or wage settlements.
After five years of inflation,
- 8 -
we tend to forget that, historically, our price performance hq
compared very well with others.
Except for a brief period at
the start of the Korean war and again during the Vietnam conflict I
both our consumer and wholesale industrial prices have increased
appreciably less than those of almost all other major trading
nations.
More than most countries, our basic demand and supply
situation today is conducive to diminishing price pressures in
the months ahead.
We have demonstrated by deed our willingness
to maintain restrictive monetary and fiscal policies so long as
they were necessary to reverse the inflationary momentum.
Yet, the virulence of cost pressures during the recent
period of slow-down emphasizes the remaining difficulties in
restoring price stability after an inflationary psychology has
taken hold.
The lags have proved longer than we hoped.
We
cannot simply assume price pressures will fade away and singlemindedly set our sights on a target of full employment.
Nor
can we sweep the problem away by a call for an "incomes policy"
without, at the same time, facing up to the hard task of
determining whose behavior is to be changed, by what mechanism.
The President, in his recent address to the National
Association of Manufacturers, devoted much of his attention to
means of supplementing general demand management, now that
- 9 the pressures of excess demand will no longer render such
efforts largely meaningless.
The series of measures he
then reviewed -- ranging over such matters as the framework
of collective bargaining in the construction industry, the
use of direct Federal influence on specific prices, and
more general efforts to alert public attention to the
problem -- reflect a pragmatic approach toward developing
needed elements of a more overt cost-price policy.
The
Chairman of the Federal Reserve Board recently publicly
addressed himself to the same basic problem with further
specific suggestions.
The difficulty of some of the matters touched upon is
apparent.
to success.
Experience abroad is illustrative of the obstacles
But I am not pessimistic.
The potential
benefits for all groups in the economy from measures to
harmonize growth with price stability are more widely understood.
Events are bringing new responses, and I believe
the critically important efforts will command wide support.
Healthy growth and better price performance are central
to any effective balance of payments policy.
No "programmatic"
- 10 approach can be a substitute.
Indeed, it is ironic that the
late 1960's, when specific and urgent balance of payments
programs were almost an annual occurrence, was also the
period when inflation and overheating were permitted in a
fundamental sense to damage our external position.
Those specific "programs" relied heavily on intensified
controls on outward capital movements, increasingly restrictive tying of aid, and "buy American" directives, as well
as on more general efforts to reduce nonessential foreign
spending.
With the trade position deteriorating, capital
controls served an immediate purpose.
But intensification
of controls cannot be a satisfactory or sustainable long-run
approach, whether assessed from the vantage point of the
American administrator or business firm or from the standpoint of aid recipients or that vast majority of foreign
countries that welcome U. S. investment.
In the broadest
economic and political interests of the world, we would like
to move toward relaxing those restrictions.
progress has been made.
But only limited
L
- 11 -
We have found it necessary to maintain the basic framework.
Progress in dismantling those controls rests funda-
mentally on an Lmproving current account.
Too often we
forget the simple identity that, without a continuing current
surplus, the nation as a whole cannot consistently increase
its net foreign assets -- that the investment of one firm
or official credits are simply matched by borrowings or loss
of assets elsewhere.
To a degree, the reshuffling of claims
may reflect legitimate and lasting asset preferences.
But
we cannot escape the need to transfer real resources to the
rest of the world to support more fully our
~nc1inations
to
invest abroad and our responsibilities for aid.
Our basic approach is thus designed to reverse the
deterioration of recent years in our surplus on goods and
services.
As recently as 1965, our current balance on goods
and services amounted to some $7 billion, 1 percent of the
then GNP.
That surplus had dwindled to only $2 billion in
1969, paralleling a decline in the trade balance from $5
billion to $600 million.
Moreover, in the absence of a
strong current surplus and under the pressure of high short-
- 12 term rates in 1968 and 1969, net investment income ceased
rising.
In 1970, the process of improvement began.
Both the
trade and current accounts have improved by $2 to $2-1/2
billion.
But this relatively fast recovery reflected in
part a favorable cyclical conjuncture.
Fortunately, over time we can anticipate a substantial
part of the further needed improvement from flows in
income.
invest~nt
They normally might be expected to add a net of more
than $500 million each year -- and considerably more in the
near term in response to lower short-term rates.
The un-
winding of the Vietnam war -- and, ultimately, better sharing
of the European defense burden -- should help as well.
But
the trade balance must also contribute -- and in circumstances
where cyclical factors will be less favorable.
Proponents of quantitative controls on imports sometimes
seize upon this point in justifying quotas.
wrong in doing so.
But they are
Such controls, spread over a large enough
volume of products to affect significantly aggregate import
volume would, in the end, be self-defeating -- contributing
- 13 to inflation at home, breeding retaliation abroad, and undermining the basic requirements of the liberal trading order
nurtured by American policy. But I do believe that, consistent with good international behavior and foreign
practices, this country can do more to support a more aggressive export effort, improving our trade balance by outwardlooking measures.
For instance, the United States had for years been
reluctant to provide official
support for export credit to
an extent common in other countries.
Today, we have gone a
long way toward bringing our program more into line with
that available elsewhere, particularly in the area of
medium-term credit support for our important capital goods
exports.
I recognize that, in some respects, export credit
terms worldwide may indeed be too liberal.
As in the past,
the United States will willingly abide by fair international
agreements to control excessive competition.
But we are no
longer prepared to stand aside in the mere hope that our
example will be followed by others.
- 14 Similarly, we have concluded that we can no longer
afford the luxury of forcing our exporters over tax obstacles
that their foreign competitors -- sometimes, ironically
enough, their own affiliated corporations overseas -- do not
have to run.
This is the genesis of the proposal for
inc~e
tax deferment on export sales through a so-called Domestic
International Sales Corporation, a proposal that I hope the
Congress will enact next year.
Under this proposal, tax deferral within defined limits
could be obtained on income generated by exports through a
sales subsidiary domiciled in the United States.
Tax
deferral is already available on foreign manufacturing
income, and a similar result is achieved by many foreign
exporters, particularly through the use of tax haven countries.
Thus, our domes tic exporters wau ld be p laced on a more equal
competitive plane.
The reaction of other countries to these or other
efforts to improve our current account will pose an interesting gues t ion of wider significance for the adj us tment process
in general, and the speed with which we can achieve a
- 15 structural equilibrium in particular.
At an intellectual
level, the need for a stronger U. S. trade position is
generally conceded abroad.
But actions to promote that
objective -- including improved export credit facilities or
tax treatment -- necessarily impinge upon specific commercial
interests in foreign countries and, more generally, on the
strength of their own current accounts and balance of payments.
A tendency to change their own policies in response
to our action -- to remain a step ahead in the game, so to
speak -- would support the view that there is a basic incompatibility of balance of payments goals and objectives
an incompatibility that tends to push the United States into
deficit as the residual counterpart of other countries'
surpluses.
The potential difficulties are already apparent in the
degree to which strong surplus countries have been slow to
abandon outmoded restrictive tmport practices -- as in the
case of Japan -- or promote agricultural protection and
preferential trading relationships -- as in the case of the
European Economic Community.
Closer to home, we have the
- 16 example of our largest trading partner -- Canada -- that
has made a successful effort to achieve a current account
balance, while continuing to call upon our securities market
for sizeable
a~ounts
of capital financing.
To be sure, there are special circumstances -- political
or commercial -- explaining many of these seeming anomalies
in the process of balance of payments adjustment.
But,
whatever their origin, the remaining restrictions emphasize
that the speed of our adjustment is not independent of the
actions of others -- and ultimately could be frustrated by
their efforts.
In assessing the adjustment problem, we should not be
misled by the huge size of the deficits reported in recent
calendar quarters.
Those data are grossly distorted by
short-term capital movements; they are as misleading as
measures of our underlying position as the official settlements surpluses recorded in 1968 and 1969.
The flows of liquid funds do, of course, create .serious
problems of monetary management both internationally and
internally for a number of countries.
The implications for
- 17 both internal and world liquidity need closer scrutiny.
But, serious as these problems are, experience strongly
suggests that we can learn to live and deal with such flows
reasonably effectively by cooperative effort, provided
and this is the crucial point -- there is a firm basis for
confidence that they are essentially aberrations around an
Lmproving underlying position.
There will never be a fully satisfactory summary
measure of our underlying balance of payments position,
given the complexities of our responsibilities as a reserve
currency center and the difficulties of reflecting differing
.
economic motivations in statistically separable categories.
However, the concept of a "basic" or "nomnonetary" balance
may offer a useful perspective for monitoring the adjustment
process.
We can approach that concept by concentrating attention
on the current account and long-term capital movements.
I am not unaware of the shortcomings.
Not all short-term
capital is inherently volatile -- and some long-term capital
is.
Errors and omissions appear to have developed a chronic
- 18 negative sign.
But, all things considered, a less distorted
view emerges.
As you would expect, this measure shows a chronic
deficit in the past decade -- but a deficit responsive to
our internal performance.
After averaging $1-1/2 billion
from 1960 to 1963, the basic deficit declined to only $1/2
billion in 1964.
This was a period when our trade balance
improved markedly even as the economy grew fairly rapidly,
partly in response to a good record of internal price
stability.
Then -- with the heating up of the Vietnam war
and the domestic economy -- deterioration set in.
The basic
deficit averaged almost $2-1/2 billion from 1965 to 1969.
Despite the decided gains in the current account this year,
weakness in the capital accounts as the economy softened
probably forestalled much improvement in 1970.
These figures may understate the magnitude of the
problem.
Our controls mask part of the deficit.
In an
average year, we probably should be prepared for some shortterm capital outflow.
Moreover, after many years of deficit,
a surplus for a time could be eminently desirable, assuming
- 19 Special Drawing Rights are made available in sufficient
amount to satisfy world needs for reserve growth o
All these factors emphasize the distance we have to go
and the importance of getting on with the task.
But, in
doing so, we must also recognize and work within the framework of the structural characteristics of the world economy
and monetary system, lest we do more damage than we cure.
Our international trade and capital flows -- while
Small relative to our domestic economy -- are large relative
to most other countries.
only
Shifts in our position do not fall
or even primarily -- on others in a strong position.
As a result, as I have already suggested, swings in our
payments -- particularly abrupt swings -- may elicit countervai1ing reflex actions by others, whether to protect access
to commercial markets or to "play it safe" with respect to
their own balance of payments position.
The dollar itself -- with its widespread use as a
reserve, trading, and money market currency -- must serve as
a measure and fulcrum against which other countries can set
their exchange rates and intervene in the market.
Occasionally
- 20 those rates are changed, but those initiatives plainly lie
with others.
As a practical matter, experience shows such
initiatives have much more commonly been exercised in the
direction of devaluation.
These are the elements of asymmetry that, in some
important respects, force upon us a relatively passive role
in international adjustment.
It would make no sense to
ignore this reality and embark on a further effort to solve
our current problem through restrictive practices or inducing widespread currency instability.
But we also need to recognize the other side of that
coin.
The same factors that force a passive role in some
areas place upon us a special responsibility in other areas
a responsibility to maintain policies conducive to free and
up en trade,
to promote steady growth, and to achieve more
stable prices.
I believe these responsibilities do not ·flow simply
from the particular monetary arrangements that have come to
characterize the world in this year of 1970.
Sharp fluctua-
tions in the American economy will radiate instability
abroad whether we settle our claims in gold, or Special Drawing
Rights, or dollars -- or moon rocks.
The techniques of
- 21 '-
limited exchange rate flexibility that have been so much
discussed could well contribute to the broader stability
of the monetary system by relieving points of tension in
exchange markets, but I could not conceive of such techniques
working effectively in the context of a chronically weak
dollar.
Freely floating exchange rates are seen by some
as a means of almost automatically equilibrating exchange
market flows.
But even the most ardent advocates would
hardly argue that such a system could work effectively if
the center of gravity of the world economy is itself unstable.
The analogy between our
econom~c
position and our
defense and foreign policy responsibilities seems to me apt.
We did not choose the role consciously, but our size and
strength has imposed on us the special responsibilities of
the leading world power.
In specific instances, we can and
do seek cooperative arrangements to share those burdens.
But the hard fact is that, if we shirk the responsibilities
and the costs that go with leadership, we cannot count on
other countries -- individually much smaller -- to step up
automatically to fill the gap.
- 22 Similarly, in the economic area, we did not consciously
seek out the role of the dollar, nor did we seek so large a
shar~
of trade and investment.
But, given that position,
the performance and stability of our economy is critically
impurtant not only to ourselves but to others.
If we fail,
till' repercussions are not merely national but international.
In that sensE, I do not believe our policy can ever properly
be passive with respect to our external economic obligations.
On the contrary,
after five years in \oJhich internal
inflation undermined our external position, these external
obligations reinforce our concern With restoring price
sUlhility and improving our trade position as we reduce
UTwmp
hut
laymen t .
\.Je should no t expe c t quic k and eas y re suI ts,
I believe we are on our way.
In a world of rampant inflation and slowing growth,
rCl1eh'ed vigorous expans ion comb ined wi th modera t ing price
pressures in the United States will be more than a boon
OU1:1L'S t
iea II \'.
It should provide a strong basis for confidence
thcit the problem of t'xternal adjustment can be solved consU-uctivl,l\' in a mannt'r entirely consistent with the broader
l1L'vds
,1[
elk \vorld economy.
--000--
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
December 30, 1970
FOR IMMEDIATE RELEASE
The Treasury today announced another step in its program
for using entries in computers maintained by the Federal
Reserve Banks to show ownership of Government securities.
This step is the issuance of new regulations by the
Internal Revenue Service which prescribe a simplified
method of acceptable recordkeeping for identifying securities
bought and sold for investment portfolios held by banks for
themselves and their customers.
The book-entry system has been available to banks for
their own investment portfolios since 1968. Many of the
money-center banks have not taken advantage of it, however,
because the record-keeping requirements for tax purposes
were not compatible with the book-entry system and necessitated
further record-keeping in the banks which they found too
burdensome. Through a new procedure, the revised regulations
eliminate this obstacle to use of the book-entry system by
banks, and they will now be free to take advantage immediately
of the convenience and safety provided by the book-entry
system for their investment portfolios of Government
securities.
The new regulations also provide the same simplified
record-keeping procedure for Government securities held by
banks in custody for customers such as correspondent banks
and brokers. This clears the way for putting these important
holdings on the book-entry system at Federal Reserve Banks as
soon as the transfers, scheduled to begin the middle of
January, can be made.
The result of these actions will be to greatly facilitate
the handling of Government securities by market participants
and to sharply reduce the exposure of the participants in
that market to loss and theft.
000
December 30, 1970
FOR IMMEDIATE RELEASE
TECHNICAL INFORMATION RELEASE
The U.S. Internal Revenue Service today announced that the
follo~ling RevenuA RulinG
71-21
,Hill be published in Interr",,1.1
Revenue Bulletin dated January .18, 1971 The purpose of the Revenue
Ruling is to exe::1plify cert2.in procedures consistent Hith an amendment to section 1-101~( c) (7) of the Income Tax ReL-ula tions. The
amendr:tent Hill b8 published in the Federal Register on December 31,
1910.
SEi'JTIO~~
1012. --R~SIS OF PROPERTY -COST
26 CFa 1.1012-1:
Roy. Rul.
Basis of Property.
71-21
A taxpayer o:,:rns as
inv~stments
Treasury securities and certain
o'ther securities described in the nm'r section 1·1012 (c)(7)(iii)(a)
of the Inco:r.e Tax Regulat.ions.
The taJ9ayer o:·mer vri11 assien a
lot number to the securities in his books.
The numbers vrlll be
assicined in numerical sequence to suc?essive purchases of the
same loan title (sex'ies) and maturity date, except -that secUl'ities
of the same loan title (series) and maturity date Hhich are purchased at the same price on the same date may be included in the
sa:ne lot.
The mmer proposes to retain full interest in the securities
but he "li11 transfer possession of them to a ban.l{.
That bank ',rill
not keep records of the securities by usc of the ab::>ve-described
lot nunbers.
The bank ld1l also take possession of like securities
for other taxpayers.
J / (j
-21bQ
b!.~c
will tran:ltor nll
entry GyotO:'l or
ontrio3 in
th~
Q,
ro;lornl
or
no:;~rva
thceo llcourit1cs to n boo!-;Tho Eocurit1es "Till
Elll.1r..
book-cnt.r"'J necount of th:3 b:mk ar.d,
ooou-rit3.cs \iill no lon:;cr O):1.ot in c'ltinltivo
\or11.1
n~t rorlc~t
in;t·ru~tlCll
tho
f~~t tr-~1.t
;I.UI r.ot rvfor
t~
th'3
th"
t~cnt:]
or
t:13
o'.-n,r ,b:.ir:).'l to
holdo
p~!"tiJ.cnt
1!'yi,r.~ th~ c.~,ount lll1'l Q.oo~!"iption
Hhen
b~lL<:
or tho
0.3
fo:.~.
c\1ch, th3
Tl~~t
so~urit1c3
lot m'.:.lbur.
c~:Ul'ltio3
tlccount
tor
Tho
sold M1
~~\:r C!.;Hltioi~ t;::~\\~it~.p.)':: &.3
t:.~ kin:! d::·~::.d.l:i:d in t~')
.j
n,.J:';
b~
invoot-
r.-,otion 1.J.Ol2,..h )(7)(l1.i)(~)
~/ /
(CM(OON ATT/,elitD VlRSION OF FORM '037)
0:
r;~1'"
"\
".. ... ....,
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C·" ...·':. . .-."~
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"'...
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...".",......... "\":"
...............IJ,....,
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....
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
December 31, 1970
TREASURY'S MANAGEMENT IMPROVEMENT
PROGRAM NETS $95 MILLION IN FY 1970
The Department of the Treasury said that during fiscal year 1970
it realized benefits amounting to $95 million through its management
improvement program, an improvement of almost 50 percent over the
goal established at the beginning of the year.
Of this amount,
$25 million in savings were realized from improvements in operations
and procedures, the highest benefits derived from this source during
the 24-year history of the Department's program.
In a 32-page pamphlet entitled "Progress in Management Improvement,"
\
describing this year's accomplishments, the Department reported that
the additional $70 million in benefits includes $30 million in
additional tax yield gained through improved techniques and better
use of manpower in processing tax returns, and $40 million in
reduced borrowing costs as the result of earlier receipt of certain
corporate revenues.
The Dtpartmentof the
WASHINGTON, D.C. 20220
I:
TREASURY
TELEPHONE W04·2041
FINANCIAL EDITOR
U3E 6: 30 P. M. ,
January 4, 1971
RESULTS OF TREASURY'S WEEKLY
BILL OFFERING
Treasury Department announced that the tenders for two series of Treasury
1e series to be an additional issue of the bills dated October 8, 1970
,and
r series to be dated January 7, 1971
, which were offered on December 28, 1970,
ned at the Federal Reserve Banks today. Tenders were invited for $2,000,000,000,
abouts, of 91-day bills and for $1,400,000,000, or thereabouts, of
182-day
!he details of the two series are as follows:
ACCEPTED
IVE BIDS:
h
rage
91-day Treasury bills
maturing April 8, 1971
Approx. Equiv.
Price
Annual Rate
98. 779 ~
98.747
98.756
4.830%
4.957%
4.921%
ccepting 1 tender of $400,000;
E./
182-day Treasury bills
maturing July 8, 1971
Approx. Equiv.
Price
Annual Rate
97.530 E./
97.500
97.509
Excepting 1 te~der of $900,090
4.886%
4.945%
4.927%
Y
of the amount of 91-day bills bid for at the low price was accepted
of the amount of 182-day bills bid for at the low price was accepted
.NDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
ct
'ancisco
Applied For
Accepted
$ 31,525,000 $
11,525,000
2,520,200,000
1,545,600,000
32,820,000
17,820,000
33,235,000
33,235,000
27,365,000
16,665,000
48,930,000
36,870,000
157,110,000
137,110,000
59,640,000
52,295,000
27,515,000
21,885,000
28,525,000
28,525,000
42,140,000
22,150,000
138,765,000
76,375,000
TOTALS
$3,147,770,000
rk
e1phia
.and
'nd
.a
:0
luis
.polis
City
$2,000,055,000
£I
Applied For
$ 13,720,000
2,144,885,000
6,160,000
44,405,000
14,430,000
28,465,000
248,570,000
29,880,000
20,455,000
13,840,000
36,405,000
262,220,000
Accepted
$
3,240,000
960,885,000
6,160,000
26,405,000
14,250,000
14,185,000
206,230,000
20,480,000
11,455,000
10,840,000
12,985,000
112,970,000
$2,863,435,000
$1,400,085,000
21
.tdes $294,185,000 noncompetitive tenders accepted at the average price of 98.756
~es $121,640,000 noncompetitive tenders accepted at the average price of 97.509
rates are on a bank discount basis. The equivalent coupon issue yields are
for the 91-day bills, and5.12 %for the 182-day bills.
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
[MMEDlATE RELEASE
January 5, 1971
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders
two series of Treasury bills to the aggregate amount of
00,000,000, or thereabouts, for cash and in exchange for Treasury
s maturing January 14, 1971,
in the amount of $3,407,695,000,
allows:
91-day bills (to maturity date) to be issued January 14, 1971,
he amount of $2,000,000,000,
or thereabouts, representing an
tional amount of bills dated October 15,1970,
and to mature
1 15, 1971
(CUSIP No. 912793 KD7) originally issued in
amount of $1,404,245,000, the'additiona1 and original bills to be
lvinterchangeable.
182_ day bills, for $1,400,000,000, or thereabouts, to be dated
ary 14, 1971,
and to mature July 15, 1971
IP ~o. 912793 KY1).
Thp bills of both series will be issued on a discount basis under
e~itive and n~ncompetive bidding as hereinafter provided, and at
rity their face amount will be payable without interest. They will
ssu~d in bearer form only, and in denominations of $10,000,
000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value).
'Tenders will be received at Federal Reserve Banks and Branches up
he closing hour, one-thirty p.m., Eastern Standard
, , Monday, January 11, 1971.
Tenders will not be. received
he Treasury Department, Washington. Each tender must be for a
mum ~f $10,000. Tenders over $10,000 must be in multiples of
00. In the case of competitive tenders the price offered must be
essed on the basis of 100, with not more than three decimals,
,99.925. Fractions may not be used. It is urged that tenders be
on the printed forms and forwarded in the special envelopes which
be supplied by Federal Reserve Banks or Branches on application
efor.
Banking institutions generally may submit tenders for account of
omers provided the names of the customers are set forth in such
ers. Others than banking institutions will not be permitted to
- 2 submit tenders except for their Qwn account. Tenders will be recet
without deposit from incorporated banks and trust companies and f~
responsible and recognized dealers in investment securities.. TeDden
from others must be accompanied by payment of 2 percent of the flee
amount of Treasury bills applied for, unless the tenders are acc~Ql
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the cloSing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announc_nl
will be made by the Treasury Department of the amount and price ra~e
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or re1ect any or all
tenders, in whole or in part, and his action in any such respect shall
be final. Subj ect 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 decimall
of accepted competitive bids for the respective issues. Settlement fOI
accepted tenders in accordance with the bids must be made or completed
at the Federal Reserve Bank on January 14, 1971,
in cash or other immediately available funds or in a like face amoont
Treasury bills maturing January l4~ 1971.
Cash and exchange tenellE
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.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Cooe
of 1954 the amount of discount at which bills issued hereunder are lold
is considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration as capUd
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price ~~
for the bills, whether on original issue or on subsequent purchase, a~
the amount actually received either upon sale or redemption at maturit:
during the taxable year for which the return is made.
Treasury Department Circular No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govern the
condi tions of their issue. Copies of the circular may be obtained fr"
any Federal Reserve Bank or Branch.
000
The Department of the
WASHINGTON, D.C. 20220
~OR
TREASURY
TELEPHONE W04·2041
IMMEDIATE RELEASE
January 7, 1971
TREASURY ANNOUNCES BASIC RESTRAINTS ON CAPITAL OUTFLOWS
TO BE MAINTAINED IN 1971
The Treasury and Commerce Departments and the Federal
~serve System today announced their intention to continue
~he three existing programs to restrain capital outflows
from the United States in 1971.
In implementing this decision, the Treasury will request
:he Congress when it reconvenes to extend authority for the
[nterest Equalization Tax.
Certain changes in the Foreign Direct Investment Program,
ldministered by the Commerce Department, and in the Voluntary
~oreign Credit Restraint Program, administered by the Federal
teserve, are designed to facilitate administration and
:ompliance, consistent with the need to continue restraint
:or the period ahead. Those changes are reviewed in detail
Ln separate releases by those Agencies.
These interrelated decisions have been taken after
:horough review of the entire U. S. capital restraint program
.n light of the serious continuing balance of payments
Irob1em faced by this country. While trade and the total of
:urrent transactions showed improvement in 1970, this
,e1come trend has not reached the point that permits
ubstantia1 relaxation of the restraints on capital flows
t this time, consistent with satisfactory progress towards
sustainable basic equilibrium in our external payments.
-563
(OVER)
- 2 -
The Interest Equalization Tax, ~hich under prespnt law
would expire March 31, 1971, applies tG acquisilio~s by
U. S. residents or citizens of foreign stocks and debt
ocligations from foreigners, Under F':.::~~nt 'law, discretionar':
authority granted by the Congress to ~:he P:-csi.(~:;n~ [:.em,its
him to vary the effective annual rate ~If the t<:;' ~L;"- zerc
to 1-1/2/0) as the balance of payments posu ien Clod rclath'e
interest rates warrant. The President may also provide
lower tax rates for acquisitions of new issues th&n for
acquisitions of outstanding issues. The present effective
rate of 3/4% per annum for both new and outscandin3 issues
was established by Executive Order on April 3, 1969.
Since its inception in mid-1963, tile tax has contributed
Significantly towards supporting our oalaGce of payments
pos ition. I t also plays an important role in l'C inforc ing
the other two capital restraint programs: th2 Foreign
Di rec t Investment Program) \oJhic b app 1 ie s to ,; jY2C t i.l~ves tll'ent
outflows by U. S. companies, and the Voluntary !.... oreign
Credit Restraint Program, which applie~~cl) ·~:,2.ns to foreigilt'r~
by U. S. financial institutions.
The c;tect~.veness of each
of these programs is enhanced by the exist2n~e of the
Interest Equalization Tax.
000
ED STATES
DEPARTMENT OF
OMMERCE
WASHINGTON, D.C.
OFFICE
OF THE
SECRETARY
20230
IE (202) 343-7317
D1MEDIATE RELEASE THURSDAY , JANUARY 7, 1971
srATEMENT OF SECRETARY OF COMMERCE MAURICE H. STANS ON THE
FOREIGN DIRECT INVESTMENT PROGRAM FOR 1971
The Foreign Direct Investment Program for 1971 will be modified with the
owing principal changes effective January 1.
l.
The continuing deficit in the
:Balance of P~ments has limited the degree of change in the Program.
(1) The worldwide minimum annual investment quota will be raised
from $1,000,000 to $2,000,000.
(2) The optional schedular earnings allowable will be increased
from 30 to 40 percent of foreign affiliates' earnings in the prior year.
Conforming amendments in the related "upstream" adjustment provisions for
the historical allowable will also be made.
(3) The maximum amount of liquid foreign balances that may be held
at the end of each month by direct investors not having a larger quota
based on such holdings during the 1965/66 period will be raised from
$25,000 to $100,000.
(4) The amount of cumulative direct investment that must be exceeded
before quarterly reporting is required in any year will be increased from
$1,000,000 to $2,000,000.
The restrictions on U.S. financing of foreign direct investment by
American individuals and companies were instituted in January 1968, as
part of an effort to improve the U.S. balance of payments. This adjustment
for 1971 supplements other such steps by this Administration in 1969 and 1970
to ease the burden of administering and complying with the restrictions.
- over USCOMrYI-Dc-45084
- 2 -
The increase in the minimum investment allowable should be of
substantial help to smaller direct investors and new entrants to
foreign business in carrying out their foreign investment plans.
The increase in the earnings allowable to 40 percent will assist
companies with rapidly growing foreign earnings.
The increase in the "de minimis" liquid foreign balance allowable
to $100,000 is intended to give more flexibility in financial planning
and management to direct investors than was possible under the former
limit of $25,000.
Paralleling the increase in the minimum investment allowable to
$2,000,000, the increase in the quarterly reporting exemption will
further reduce from about 700 to 550 the number of companies filing
quarterly with the Office of Foreign Direct Investments.
I am confident that the business community, recognizing these steps au
further effort by this Administration to move in the direction of eas1ngc~
ance and to ultimate phase-out of the Program as our balance of p8\YIDents peril
will continue its excellent cooperation with OFDI.
Amendments to the Foreign Direct Investment Regulations incorporat~
the changes announced today will be published in the Federal Register in
the near future.
#
~:~
FED ERA L
~~,
press
'
RES E R V E
release
...
]1;
For immediate release
January 7, 1971
The Board of Governors of the Federal Reserve System released
today a report on the results of an inquiry into the possible effects
of the Voluntary Foreign Credit Restraint Program on U. S. export f1nancing and on U. S. exports.
The inquiry indicated that no significant amount of export
credit was blocked during 1970 because of the VFCR guidelines.
The inquiry, conducted last fall after consultations with the
Commerce Department, was aimed at determining the number and nature of
loan requests that might have been turned down because of the VFCR--as
well as the amount of any U. S. sales that may have been lost as the
result of any rejected loans.
Banks accounting for 92 per cent of all
foreign credits subject to the guidelines were asked to provide in formation relating to any such transactions.
Inquiries were also made of
exporters identified by banks as having sought credit unsuccessfully in
behalf of a foreign customer.
Inquiries also went to more than 100 com-
panies that had sought official U. S. help in financing export transactions.
Responses to the inquiry identified about a dozen exporters
purportedly denied credit initially because of the VFCR.
But in almost
all of these cases, the responses indicated that the exporters were able
to find other sources of financing to complete their export sales.
~
)
-~
In announcing the results of the inquiry, Governor Andrew F.
Brimmer, the Board member responsible for administration of the VFCR
program, said it was the most comprehensive effort made to date to
obtain data on the possible effect of the program on export financing
and the possible impact on exports.
A copy of the report is attached.
-0-
/
Report
on
Inquiry into Possible Effects of Voluntary Foreign Credit Restraint
Program in 1970 on Export Financing and on Exports
Board of Governors
of the
Federal Reserve System
January 7, 1971
INQUIRY INTO POSSIBLE EFFECTS OF VFCR IN 197C
ON EXPORT FINANCING AND ON EXPORTS
Summary
f
survey of banks reporting under the
Voluntary Foreign Credit
Feder~l
Researve
Restraint (VFCR) Program has turned up
very few examples of requests for financing the export of U.S. goods
that were denied in 1970 because of that Program.
Of about 170 banks
reporting to the Federal Reserve each month, 11: banks
and 109 responded.
~ere
surveyed,
Of these 109 banks, only seven (7) reported that
they had refused loans because of the VFCR.
Only one of these reoorts
was confirmed when checked with the exporters concerned.
The dollar
value of the requests reportedly denied was approximete1y $2-:/4 mi1lion.
Responses from exporters identified by banks indicate that the
actual loss in export sales was less than $300 thousan0,
~n
infignif-
icant portion of total U.S. exports.
In addition to checking with exporters identified by banks,
inquiries
~ere
directed to other exporters chosen as representing a
cross section of U.S. exporters.
Responses from l2q such exporters
turned up eight (8) cases in which credit was said to have been denied
because of the VFCR.
In about half of these cases, the sale was com-
p1eted despite the rejection; in the remaining cases, there was reason to
Question whether the VFCR waE the
critic~l
factor.
I
-2-
The
commerci~l
they tried roaccommodate
banks responding to the survey indicated that
all credit-worthy customers.
Where the VFCR
would have limited the lending, the banks generally utilized
technique~
to exempt the credits from the VFCR - for example, having the credit
guar'nteed by the Export-Import Bank or extending the loan through a
foreir,n hranch.
Some banks also increased their lines of domestic
credit to U.S. exporters who, in turn
could provide credit to their
foreign purchpsers.
Most b,mks experienced s light increases in demand for export
credit to foreigners during 1970.
They anticipated little change in
demand for such credit in 1971 on the assumption that monetary conditions similar to thore
conditions e8fed
prev~iling
:-omewh,'"~t:
lE8t fall will continue.
Even if
cred~t
mOft banks expected to be able to satisfy
reQuests for export financing because of their leeway under VFCR ceilings
or because of various VFCR Guiceline exemptions.
Discussion
1.
Purpose of the Inquiry
The Voluntary Foreign Credit Restrr.int (VFCR) Guidelines have
been administered by the Federal Reserve since early 1965 as part of nn
Dvercll U.S. Government program to protect the balance of
limiting capite! outflot-.
~uidelines,
payment~
by
In formulating, revidng) <'nd ClPolying the
special account has been tzken of the importance of the re1a-
:ionship between capital restrcints and exoort earnings.
-3In order to examine the possible impact during 1970 of the VFCR
Guidelines on U.S. bank export financing and on U.S. exports, an
inquiry covering a broad sample of U.S. commercial banks and selected
U.S. exporters was undertaken.
In particular, the inquiry was directed
at determining whether the restraints had led a bank to deny export
credit requested on behalf of foreign customers and whether the
denial had in turn led to a loss of an export sale.
2.
Questionnaires
On October 13, 1970, sample questionnaires were sent to
each of the 12 Federal Reserve Banks with a request that it obtain
information, through interviews when feasible, from VFCR reporting
banks and from exporters in their Districts.
The questionnaires had
been prepared following consultation with the Department of Commerce,
as well as
with:th~_Feder_~l Reserv_~_ ~anks.
The five most important questions to be asked of banks were:
A.
Had the bank refused any requests for export financing
because of the VFCR?
B.
If it had, what were the particulars of the loan request?
For example, who was the exporter, how much was the loan, what was the
type of product or services, what was the country of destination?
C.
Had there been any significant change during 1970 in
the number of requests for export financing?
D.
If credit conditions remained unchanged, how much of an
increase was expected in export credit during 19711
-4E.
If credit conditions eased, would the bank expect to
receive requests for export credit which could not be accommodated
because of the VFCR ceilings?
The 12 Federal Reserve Banks sent questionnaires to the
large banks and to a sample of smaller banks in their Districts.
In
addition, the Federal Reserve Banks conducted personal interviews with
the large banks and some smaller banks to record any other information
about the impact of the VFCR program.
The Federal Reserve Banks also
sent similar questionnaires to exporters in their District who were
understood to have made sales involving Eximbank financing or FCIA
insurance.
The inquiry of banks and exporters identified the names
of several exporters to whom credit on behalf of foreign customers
was reported as denied because of the VFCR ceilings.
These exporters
in turn were sent questionnaires for reply by mid-December.
3.
Number of responsesl
/
Out of the approximately 170 banks that usually report under
the VFCR program, 113 were included in the survey, and 109 banks responded.£/
~2
As of September 30, 1970, these 109 banks accounted for
per cent of all outstanding foreign credits subject to VFCR ceil-
ings.
All of the 20 largest VFCR reporting banks were among the re-
~pondents.
f.
Refusals of Export Credit
Essentially all of the responding banks indicated that they
lad not refused loans in 1970 because of the VFCR ceilings.
Seven (7)
tanks reported that during approximately the first ten months of 1970,
,hey had refused eleven (11) requests for export financing amounting
o about $2-3/4 million.
1/ A summary table of bankers' and exporters' responses is attached.
£/ The four banks that did not respond had outstanding credit subect to the VFCR of $2.4 million.
-5Of these seven banks, four had total outstanding foreign
:laims subject to the VFCR of less than $10 million, two had outstandings
)etween $40-$75 million, and only one had VFCR outstandings over $100
nil1ion.
The outstanding foreign claims of the seven banks represent
less than three per cent of all outstanding credits under the VFCR.
Five of the banks said that their refusals were attributable
to lack of room under their General Ceiling; two banks stated that
their Subcei1ing on short-term claims on residents of developed
:ountries of continental Western Europe prevented their making the
export loan.
Based on VFCR reports for September 30, 1970, four of
the five banks claiming General Ceiling restrictions and both of the
banks claiming Subceiling restrictions actually were close to the
ceilings cited; the one bank which was not near its General Ceiling
stated that it was purposely maintaining some leeway to accommodate
rlew customers.
Five of the banks had foreign branches to which other outstanding foreign claims could have been transferred to provide room
~nder
the General Ceiling.
~xtend
~FCR
One bank did use its foreign branch to
credit to one of its customers initially refused because of the
ceilings; the other banks gave no indication why they did not
nake the loan through the overseas facilities.
The banks reported the value of the refused loans in nine
)f the eleven cases.
The rejected loans identifie:d had an average
fa1ue of $315,000-or a total value of $2.85 million.
-6~
Most of the loans were for capital equir.mertt going to less
developed countries.
Three of the requests were for short-term lines of credit
of approximately $500,000 each.
One request was for a loan with a
maturity of between 180 to 365 days.
Five requests were for loans
of over one year maturity (term loans).
Three of these five loans
were for less than $250,000 each and were requested before September 16.
Prior to that date, such loans would have been chargeable to the
bank's General Ceiling; after that date, as a result of an amendment
dropping the minimum size specification, such loans have been chargeable to a bank's Export Term-Loan (ETL) Ceiling.
For most banks,
there has been more leeway under the Export Term-Loan Ceiling than
under the General Ceiling.
The two remaining term loans identified
were eligible for treatment under the Export Term-Loan Ceiling, and
the banks in question had room to extend them under this Ceiling.
However, the banks did not state how, despite this leeway, the VFCR
prevented their making the loan.
In most cases, the responding banks did not know whether
their denial of
~xport
credit to foreigners has prevented the sale
of the U.S. goods abroad.
In six cases, the banks were willing to give
the names of exporters denied credit requested on behalf of their
foreign customers.
The five identified exporters (one was denied
twice) were sent questionnaires to determine the final disposition
of the financing requests.
In the other five cases, no follow-up
was possible, since the bank did not identify potential U.S. suppliers.
-75.
Answers from the five exporters whom banks said were denied credit.
Of the five identified exporters, one acknowledged the credit
denial but said that the export sale had been completed.
four exporters answered that they were
because of the VfCR.
~
The other
denied a request in 1970
Presumably, the export transaction was successful
in these cases as well.
Combining these responses with the commercial
banks' reports, it seems reasonable to conclude that credits denied
could have resulted in a loss of no more than $300,000 in export sales.
This amount is less than .001 per cent of the estimated $42.3 billion
of U.S. merchandise exports for 1970.
6.
Responses from other knowl. exporters
In addition to the exporters identified by the commercial banks,
questionnaires were sent to most of the exporters understood to have made
sales involving Eximbank financing or FCIA insurance.
This additional
set of inquiries was to serve as a check of the inquiries made to the
se lec ted banks.
Of the 129 exporters responding to this second set of inquiries,
eight stated that they had been denied credit because of the VFCR.
Two of the exporters did not identify specific transactions,
but simply asserted that the VFCR had been a problem.
The other exporters
gave the details of the requests for credit on behalf of foreigners.
Almost all of the requests were for long-term financing of transactions
over $250,000 each which could have been accommodated under banks'
Export Term-Loan Ceilings.
!
-8-
The exporters reported the sales were eventually made in
all but three cases.
The net loss in ·U.S. exports from the three
proposed sales which were listed a·s having
~ng _a.mo;~nted
fape~
to
ge,~
U.S. financ-
to $21.2 million.
In one case involving three export loans, the banks were
not identified and complete information is therefore lacking.
Each
loan was for more than 3 years and the total value of the loans was
$18 million.
Sales were said to have been lost to foreign suppliers
in each case.
There is reason to believe that in the other two cases
loans were rejected for reasons other than the VFCR.
In one case,
the bank indicated to the exporter that it was already over-committed
in the importing country in question.
In the other case, the bank
appeared to have adequate leeway under its Export Term-Loan Ceiling.
7.
~ay
and other adjustment possibilities
As of September 30, 1970, the 170 VFCR banks as a whole had
leeway which would have permitted an expansion of export credits
or of non-export credits -- of about $2-1/2 billion.
The leeway
amounted to about $1-1/4 billion under the General Ceilings and about
$1-1/4 billion under the Export Term-Loan Ceiling.
In general, small
banks had relatively more room for expansion than large banks.
Where a bank may not have adequate leeway under the General
:eiling, the Export Term-Loan Ceiling or the Continental Western Euope
)ub-Ceiling, it may resort to other means
l
credit-worthy borrower.
to satisfy the request of
7
/---
..
-9-
One technique is to make a loan to the exporter (being a
"domestic" loan, it is not subject to the VFCR) and thereby enable
the exporter to extend credit to the foreign buyer.
The bank loan
will be backed by the export receivables that represent the foreign
debt to the exporter.
Another technique is to arrange for a guarantee of the
Export-Import Bank or for insurance from Exim's affiliate, the Foreign
Credit Insurance Agency (FCIA).
Such Exim or FCIA-related credit is
exempted from the VFCR.
Still another technique is for a bank to make the loan from
the bank's branch in London, Nassau, or other foreign locations -in some cases booking the loan at the U.S. head office of the bank
and then transferring it to its foreign branch.
Loans made abroad
are outside the guidelines.
8.
Reguests for Export Financing During 1970
Of the 109 responding banks, 85 per cent indicated that there
had been little increase in the number of requests for export financing
during 1970.
A handful of small banks said they experienced a notice-
able increase in inquiries about export financing, but that few reached
the negotiating stage.
The dollar value of all requests for export
credits, the banks said, showed almost no change over 1969.
9.
Anticipation of requests for export financing during 1971 under
current tight credit conditions.
Few banks anticipated more than a modest increase in
requests for export financing during. 1971 on the assumption that
credit conditions remained unchanged from what they were in the
fall of 1970.
While the large banks were reluctant to make any
-10specific prediction about the number or value of credits that may be
requested by 1971, none expected any significant increase.
Small
banks which declared they have a particular interest in expanding
their international activities expressed hopes of an increase of
20 per cent {or $300,000 to $1 million per bank}.
10.
Anticipation of requests under easier money condition
Almost all of the responding banks expected that the increase
in requests for export financing in 1971 would be essentially the same
under easier monetary conditions than existed in October, when the
inquiry was made.
In any case, only four banks anticipated problems
in accommodating requests for export loans because of their VFCR
:eilings.
~r
Banks in general believe that they can use foreign branches
Exim or FCIA programs to satisfy any credit-worthy borrower.
Ll.
Other Comments
Several banks believed that U.S. exports have been hurt more
)y the rise of U.S. prices and by delivery problems than by the availIbility or cost of financing.
There was almost no
indicatio~
that
J.S. exports had suffered because of the cost of Exim guarantees or
~CIA
insurance.
Apart from the issue of export financing, many large and
,mall banks expressed opposition to the VFCR program in general.
'iews often expressed are that the primary effect of the VFCR program
as been to emphasize foreign source credits and facilities at the
xpense of domestic sources, to inhibit the growth of international
anking departments, and to discourage banks from soliciting new
)reign business.
ttachment: Summary of Banks' and Exporters' Responses
Summary of Banks' and Exporters' Responses to Inquiry on
the Effects of the YFCR on Export Financing and on Exports
1/
'-I
Exporters-
Banks
No.
of banks
No. of
Possible
exporters
rejecting
Value of
loans
acknowlnet loss
loan beNo. of
Export
No.
No. of
sale
loans reject"ed exporters edging
of sales
of banks cause of
F.R.
rejected (OOO'sf" identified rejection completed (OOO's)
Dist. responding
VFCR
1
2
3
4
5
6
12
10
8
10
7
6
1
0
0
0
1
1
1
0
0
0
1
3
$200
0
0
0
Unknown
$100
1
0
0
0
0
2
1
0
0
0
0
0
7
8,9
10
11
12
20
5
4
13
14
0
0
0
2
2
0
0
0
4
2/2
0
0
0
$1,450
$300
0
0
0
2
0
0
0
0
0
0
1/ 109
7
11
$2,850
5
0
Total
Yes
-
Unknown
Yes
-
Yes
Unknown
Net
loss
. No. of
of
Export
export
No. of
e:x:eprter~
sales
sales
exporters reporting
responding rejections completed (OOO's)
0
0
0
0
Unknown
0
11
73
4
4
1
4
1
0
1
0
0
0
0
0
$300
12
6
0
1
9
9
1
0
No
$2,000
$300
129
8
-
~1,200
-
-
-
-
Yes
Not all
No
-
0
$18,000
$1,200
.
-
--
-
Unknown
-
-
-
1/
Exporters not identified initially by banks but drawn from separate sample.
This case is listed here as one rejection.
1/ These 109 responses came from 113 commercial banks surveyed. The non-responding banks all had very few outstanding
foreign credits subject to the VFCR.
2/ One bank said it rejected many loans, but that it kept no records.
\~"
'\j
c:;~
press
release
January 7, 1971
For immediate release
The Board of Governors of the Federal Reserve System re-issued
today revised voluntary guidelines which U. S. banks and other financial
institutions follow in limiting their loans and investments abroad.
No change
w~s
made in the overall guideline ceilings already
in effect under the Voluntary Foreign Credit Restraint Program (VFCR).
Each bank reporting under the program will continue to have an Export
Term-Loan Ceiling exclusively for loans of more than 1 year that finance
U. S. export goods and a separate General Ceiling that is available for
loans of any type and of any maturity.
1.
The revisions will:
Exclude from the guidelines bonds and notes of international
institutions--such as the International Bank for Reconstruction and
Devel-
opment, the Inter-American Development Bank, and the Asian Development
Bank--of which the United States is a member.
This grants to banks under
the program an exclusion that already applies to nonbank financial institutions.
2.
Exempt export credits from a subceiling that limits short-
term credits to residents of developed countries of continental Western
Europe.
These short-term export credits must still be reported under
the banks' general ceiling.
3.
Incorporate into the body of the guidelines three amendments
adopted in 1970 and clarify language in several guidelines provisions.
The VFCR, in operation since 1965 to limit capital outflows by
banks and nonbank financial institutions such as insurance companies and
mutual funds, is part of the Government's overall effort to strengthen
the U. S. balance of payments position.
Other parts of that effort are
the Interest Equalization Tax and the Foreign Direct Investment Program
administered by the Treasury Department and the Department of Commerce,
respectively.
In re-issuing the guidelines, the Board said that the outlook
for the U. S. balance of payments did not justify changing the degree
of restraint under the VFCR program.
Consequently, the revisions re-
lating to international institutions and short-term export credits to
the developed countries of continental Western Europe reflect technical
changes.
The first was designed to equalize treatment under the guide-
lines between banks and other financial institutions, and the second was
made to give banks greater flexibility in using their existing leeway
under the general ceiling for export financing.
There are
tw~
subsidiary restraints on bank lending to residents
of the developed countries of continental Western Europe.
One asks that
no credit. of more than one year maturity be extended to such residents,
except to finance exports.
The other asks that credits of one year or
less to such residents not exceed 75 per cent of the amount each bank
had outstanding in credit of this kind at the end of 1967.
The latter
provision is now being revised to exempt export credits.
At the end of November, the banks' General Ceiling amounted to
$10 billion, and the Export Term-Loan Ceiling amounted to $1.4 billion,
or $11.4 billion in total.
Outstanding credits subject to these ceilings
-)
_./
-3-
totaled $8.9 billion and $157 million respectively.
leeway for further lending of $2.4 billion.
Thus the banks had
Loans and investments in
Canada and credits related to Export-Import Bank financing are exempt
from the ceilings.
All changes in the guidelines are in provisions relating to
banks and are effective immediately.
Provision II:
Language was clarified in Guideline
A-3a and c; A-5; D-3c; D-4; E-l; and G-2.
Changes in
reference to "previous guidelines" consequential to the issuance of a
new text were made in Guideline Provision II:
A copy of the guidelines is attached.
-0-
A-I; and D-3b and c.
Revised Guidelines for Banks
and Nonbank Financial Institutions
General Purpose
In order to help to strengthen the U.S. balance of payments, U.S.
financial institutions are asked to continue to restrain their foreign
loans and investments and, within the limits of the restraints, to give
priority to financing U.S. exports of goods and services and to meeting
the credit needs of developing countries.
I.
~
A.
Ceil ing,[
1.
Banks with ceilings under Qrevious guidelines
A bank that had a foreign lending ceiling under the Federal
Reserve foreign credit restraint guidelines in existence on
November 30, 1970 (hereafter "previous guidelines") will have,
under the present revised guidelines, a General Ceiling and
an Export Term-Loan Ceiling.
The General Ceiling \-7in be
available for foreign claims of any type and maturity, ineluding Export Term Loans; subject to the definitions and
other conditions set forth below, the Export Term-Loan Ceiling
will be available solely for foreign export term loans.
a.
Genera 1
i)
ee 1,11£1.8,
The General Ceiling will be equal to the bank's
adjusted ceiling as of November 30, 1969, as further
adjusted under guidelines issued subsequent to that
date.
ii)
A bank should not at any time hold claims on foreigners in excess of its General Ceiling, except for
the claims which it reports under its separate Export
Term-Loan Ceiling described in section A-l-b, below.
iii)
Within its General
Ceil~ng,
a bank should give pri-
ority to credits financing exports of U.S. goods and
services and to credits meeting the needs of developing
countr ies.
b.
Export Term-Loan Ceiling,
i)
The Export Term-Loan Ceiling will be equal to 0.5 per
cent of the bank's total assets as of December 31, 1968,
as that ceiling is further adjusted under guide lines
issued subsequent to November 30, 1969.
11)
A bank should not at any time hold claims on fore igners
that are export term loans, as defined in section G-3
below, to finance goods exported from the United States
after November 30, 1969, or to finance services performed
in foreign countries by U.S. individuals or U.S. firms
after November 3), 1969, in excess of the bank's Export
7
)
'--
-3-
Term-Loan Ceiling, except such export term loans as the
bank counts against its General Ceiling, described in
sect ion A-I-a, above.
2.
Banks without ceilings under previous guidelines
A bank that has not had a foreign lending ceiling under the
previous guidelines may discuss with the Federal ReseLve Bank
in its District the possibility of adopting a General Ceiling
and an Export Term-Loan Ceiling.
In determining whether and,
if so, in what amount, ceilings should be established, there
should be clear reason for expecting that the bank will use
such ceilings predominantly for short-and long-term export
loans.
Any General Ceiling, and any Export Term-Loan Ceiling
should not, in the aggregate, exceed 1 per cent of the bank's
total assets as of December 31, 1968.
3.
Western Europe
a.
General ceiling adjustment for prior nonexport term loans.
A bank each month should reduce its General Ceiling by the
dollar amount of any repayments it receives on nonexport
term loans to residents of developed countries of continental
Western Europe outstanding on December 31, 1967.
b.
Restraint on new nonexport term loans.
A bank should not
make new term loans to such residents, except loans that
finance U.S. exports.
-4c.
Subceiling on shorl-term credits.
A bank should hold the
amount of non-export short-term credits (having a maturity
..
of not over 1 year) to such residents to not more than
75 per cent of the amounts outstanding on December 31,
1967 of all short-term credits to such residents.
4.
Adjustment for Prior Export Term Loans
A bank each month should reduce its General Ceiling, and should
increase its Export Term-Loan Ceiling, by the dollar amount of
any repayments it receives on Export Term-Loans outstanding on
November 30, 1969.
5.
Sales of Foreign
a.
Ass?t~
Sales without recourse.
A bank that sells a foreign asset
that is subject to the guideline ceilings, without recourse,
(a) to a U.S. resident other than a financial institution
participating in the Federal Reserve foreign credit restraint
program or other than a direct investor subject to the controis administered by the Department of Commerce or (b) to
the Export·lmport Bank should reduce its General Ceiling
or its Export Term-Loan Ceiling, whichever is relevant, by
an equivalent amount.
b.
Sales with recourse.
A bank that sells a foreign asset that
is subject to the guideline ceilings with recourse (a) to
a U.S. resident other than a financial institution participating in the Federal Reserve foreign credit restraint
~7
y.
U
-5prog~am
or other than a direct investor subject to the
Fdreign Direct Investment Program administered by the
Department of Commerce or (b) to the Export-Import Bank
should continue to report those assets under its General
Ceiling or its Export Term-Loan Ceiling,. whichever is
relevant.
6.
Total Assets
For the purpose of calculating the Export Term-Loan Ceiling,
total assets are those shown in the Official Report of Condition
submitted to the relevant supervisory agency as of December 31,
1968.
7.
~gn
Borro,"dngs
In principle, the restraints under these guidelines are imposed
on gross foreign assets, including gross claims on foreigners.
However, certain liabilities to foreigners may be counted as
offsets to foreign assets only where the liabilities arise from
borrowings abroad that substitute for direct investment capital
outflow from the United States and are not likely to substitute
for foreign deposits, or for short-term foreign investments, in
the United States.
Such offsetting may be done in the manner
descr ibed be low.
a.
Banks and Edge Act, and Agreement,
Corporat~.
A bank,
an "Edge Act" Corporation, or an "Agreement" Corporation
may not count its borrowings from, or its other liabilities
)
,;:
-6to, foreigners as offsets to its claims on foreigners
and other foreign assets.
b.
Domestic subsidiaries.
A domestically-chartered
subsidiary (for example, a so-called Delalolare subsidiary) of an Edge Act Corporation or of an Agreement Corporation may count the outstanding amount of
its borrowings from foreigners as offsets to its claims
on foreigners and to its other foreign assets, provided
those borrowings are of an original maturity of three
years or more.
Such borro\-lings would include debentures,
promissory notes, or other debt obligations of the domestic subsidiary to a foreigner.
'i'he amount of the
offset at any time would be equal to the amount of the
outstandings after deducting (i) any repayments of
principal and (ii) in the case of convertible debt
issues, any conversions.
~his
offsetting principle may
be used to reduce the value of foreign assets of the
subsidiary in computing the value of foreign assets to
be consolidated for reporting purposes with those of
the parent institution; any excess of outstanding borrowings of the subsidiary over foreign assets of the subsidiary may not be used to reduce the reportable value
of foreign assets of the parent institution.
/
~/
~7-
B.
Exclusions
1.
Canada
a.
No restraint.
These guidelines are not to restrain the
extension of credit to residents of Canada.
b.
Reporting.
For the purpose of reporting claims under
the General Ceiling, a bank should count against its
General Ceiling claims on residents of Canada outstanding on February 29, 1968, deducting any net increase in
such claims granted after that date and adding any net
reduction in such claims granted after that date.
2.
Certain Guaranteed and Insured Loans
Loans that are to finance U.S. exports and that are guaranteed, or
participated in, by the Export-Import Bank, or guaranteed by
the Department of Defense, or are insured by the Foreign Credit
Insurance Association are exempted from the General Ceiling
and the Export Term-Loan Ceiling.
3.
Securities of Certain International Institutions
Bonds and notes of international institutions of which the
United States is a member, regardless of maturity, are
exempted from the General Ceiling and from the Export TermLoan Ceiling.
C.
Temporary Overages
A bank whose claims on foreigners are in excess of either or both
of its ceilings and which does not show improvements will be
invited periodically to discuss with the Federal Reserve Bank in
its District the steps it has taken and that it proposes to take
to bring the amount of its claims under the ceilings.
<7
C
/'
/
-8D.
Applicability to Finpn£ia1 Institutions
1.
General
The guidelines are applicable to all U.S. banks (exclusive
of the trust departments of commercial banks, which should
follow the guidelines for nonbank financial institutions in
Part III, below) and to "Edge Act" and "Agreement"
Corpor at ions.
2.
Edge Act and Agreement Corporations
a.
Policy of limiting aggregate ceilings.
It is intended
that the establishment of new Edge Act Corporations or
Agreement Corporations not result in the expansion of
aggregate lending ceilings under these guidelines.
b.
One-bank owned Corporations.
An Edge Act or Agreement
Corporation that is owned by one bank and that, under
the previous guidelines, had a ceiling separate from
that of its parent bank may continue to be guided by
General and Export Term-Loan Ceilings separate from
those of its parent or may combine its foreign loans
and investments with the respective General andExport
Term-Loan Ceilings of its parent.
i)
The General Ceiling and the Export Term-Loan
Ceiling to which it would be entitled if it did
not combine would be calculated as under section A-I,
/1_
L
-9JbOVij on the basis of the Corporation's total assets
and its adjusted ceiling under guidelines in existence
November 30.
196~
subject to ceiling adjustment under
subsequent guidelines.
ii)
An Edge Act or Agreement Corporation that is owned
by one bank and that was established after March 3,
1965, should share the General and Export Term-Loan
Ceilings of its parent bank.
c.
Multi-bank owned Corporations
i)
Senarate Ceilings.
An Edge Act or Agreement
Corporation that is owned by more than one bank
or by a registered bank holding company will have
a General Ceiling and an Export Term-Loan Ceiling
separate from those of its parent.
The Corporation's
General Ceiling and Export Term-Loan Ceilings are
each to be equal, respectively, to 100 per cent and
10 per cent of its adjusted ceiling as of November 30,
1969, as further adjusted under guidelines issued
subsequent to that date.
ii)
Transfer of Parent's Ceiling.
To acquire or to
increase ceilings, such an Edge Act or Agreement
Corporation may receive from one or more of its
parent banks a share of the ceilings of the
(l
L
J
-10-
parent or parents..
Once transferred to the
Corporation, the ceilings should not be transferred back to the parent or parents, except to
meet unforeseen and overriding developments.
If
any such exceptional need for retransfer should
arise, the Corporation and its parent or parents
should consult in advance with the Federal Reserve
Bank in their respective Districts.
3.
Holdins Companies
a.
Registered bank holding companies.
A registered bank
holding company is to be treated as a bank for the
purpose of these guidelines.
b.
One bank holding companies.
A one-bank holding company
whose bank subsidiary has ceilings under these guidelines
is to be treated as a bank for the purpose of these
guidelines.
Such a holding company, together with its
bank subsidiary and any nonliank subsidiary, should report on a consolidated basis.
However, the General
Ceiling and the Export Term-Loan Ceiling, respectively,
are to be calculated on the basis of the ceiling of the
bank subsidiary under the guidelines in existence on
November 30, 1969 and on the basis of the bank subsidiary's
total assets as of December 31, 1968.
Furthermore, to
2
L .ic
-11-
minimize changes from earlier established procedures,
any nonbank subsidiary that was reporting prior to
December 1, 1969, to the Department of Commerce under
the Foreign Direct Investment Program or to a Federal
Reserve Bank under the nonbank financial institution
guidelines should not report under these bank guidelines.
c.
Consolidation of Ceilings of Bank Subsidiaries of
Registered Bank Holding Companies.
A bank subsidiary
(including a bank, Edge Act Corporation, or Agreement
Corporation) of a registered bank holding company may
consolidate its General Ceiling and Export Term-Loan
Ceiling with the respective ceilings of one or more
of the holding company's other bank subsidiaries which
had ceilings under gUidelines in existence on November 30,
1969.
4.
Foreign Branches and Foreign Subsidiaries of U.S. Banks and
Banking Institutions
a.
The guidelines are not designed to restrict the extension of foreign credit by foreign branches of U.S.
banks or by foreign subsidiaries of (1) U.s. banks,
(2) Edge Act Corporations, or (3) Agreement Corporations,
except as the result of the restraints on banks (including
-12-
Edge and Agreement Corporations) with respect to foreign
credit to, or foreign investment in, such branches or
subsidiaries.
b.
Total claims of a bank's domestic offices on its foreign
branches and foreign subsidiaries (including permanent
capital invested in, as well as balances due from, such
foreign branches and foreign subsidiaries) represent bank
credit to foreigners for purposes of the guidelines.
5.
Domestic Subsidiaries of Edge Act and Agreement Corporations
The foreign assets of domestically-chartered subsidiaries of
Edge Act Corporations and of Agreement Corporations (net of
foreign borrowings offset under II-A-7-b, above) should be
consolidated with the foreign assets of the parent for purposes of the guideline.
E.
Conformity with Objectives of Guidelines
1.
Department of Commerce Program and Nonbank Financial
Institution Guidelines
Banks should avoid making loans that would directly or
indirectly enable borrowers to use funds abroad in a
manner inconsistent with the Department of Commerce
Foreign Direct Investment Program or with the guidelines
for nonbank financial institutions.
-/
2~
/
V
-13-
Substitute Loans
Banks should not extend to U.S.-resident subsidiaries, or
branches, of foreign companies loans that otherwise might
have been made by the banks to the foreign parent or other
affiliate of the company or that normally would have been
obtained abroad.
3.
Management of Liquid Assets
A bank should not place its own funds abroad (other than
in Canada) for short-term investment purposes, whether such
investments are payable in foreign currencies or in U.S.
dollars.
Banks need not, however, reduce necessary working
balances held with foreign correspondents.
4.
Transactions for Customers
While recognizing that it must follow a customer's instruction,
a bank should discourage customers from placing liquid funds
outside the United States, except in Canada.
A bank should
not place with a customer foreign obligations that, in the
absence of the guidelines, it would have acquired or held
for its own account.
5.
U.S. Branches and Agencies of Foreign Banks
Branches and agencies of foreign banks located in the United
States are requested to act in accordance with the spirit of
these guidelines.
-14F.
Reporting
Each bank that has ceilings under these guidelines and that on
a reporting date had $500,000 or more in foreign claims should
file a Monthly Report on Foreign Claims with the Federal Reserve
Bank in the District in which the bank is located.
(Forms are
available at the Federal Reserve Banks.)
G.
Definitions
1.
"Foreigners ll include:
individuals, partnerships, and
corporations domiciled outside the United States, irrespective
of citizenship, except their agencies or branches located
within the United States; branches, subsidiaries, and affiliates
of U.S. banks and other u.S. corporations that are located in
foreign countries; and any government of a foreign country or
official agency thereof and any official international or
regional institution created by treaty, irrespective of location.
2.
"Claims on foreigners il are claims on foreigners held for a
bank's own account.
They include:
foreign long-term securi-
ties; foreign customers' liability for acceptances executed,
whether or not the acceptaaces are held by the report:i.ng banks;
deferred paymeat letters of credit described in the Treasury
Departloent's Sl..l.pJ?lementary Reporting Instructions No. I,
Treasury Foreign Exchar.ge Reports, Baaking Forms, dated Hay 10,
1968; participations purchased in loans to foreigners; loans
-15to financial subsidiaries incorporated in the United States,
50 per cent or more of which is owned by foreigners; and
foreign assets sold, with recourse, to U.S. residents other
than financial institutions participating in the Federal
Reserve credit restraint program or other than direct
investors subject to the controls administered by the
Commerce Department or to the Exoort-Import Bank.
on foreigners;! exclude:
"Claims
contingent claims; unutilized
credits; claims held for account of customers; acceptances
executed by other U.S. banks; and, in the manner determined
in section B-l-b, above, claims on residents
3.
of
Canada.
An ;'export term loan" is a claim on a foreigner having an
original maturity of more than I year and for the demonstrable
financing of one or more specific export transactions involving
the shipment of U.S. goods to a foreign destination or the
performance of U.S. services abroad.
The loans may be made
directly by a bank or may be made indirectly by a bank through
its purchase of documented loan paper.
For the purpose of
the present guidelines, such loans that are to be counted
against an Export Term-Loan Ceiling are confined to credits
financing U.S. exports shipped after November 30, 1969, or
services performed abroad by U.s. individuals or U.S. firms
after November 30, 1969.
Such loans exclude debt obligations
.. 16acquired by a bank and havirlg hot more than a year of remaining term until maturity (regardless of original length of
maturity).
The loans also exclude Export-Import Bank certif-
icates of participation in a pool of loans.
(Participations
with the Export-Import Bank in particular loans and loan
paper purchased from the Export-Import Bank of foreign
obligors are exempted under section II-B-2, above.)
4.
Developing countries are all countries other than:
Abu Dhabi,
Australia, Austria, the Bahamas, Bahrain, Belgium, Bermuda,
Canada, Denmark, France, Germany (Federal Republic), Hong Kong,
Iran. Iraq, Ireland, Italy, Japan, Kuwait,
Ku~.,ait-Saudi
Arabia
Neutral Zone, Libya, Liechtenstein, Luxembourg, Nonaco,
Netherlands, New Zealand,
Nor~.,ay,
Portugal, Qatar, Republic
of South Africa, San Marino, Saudi Arabia, Spain, Sweden,
Switzerland, and the United Kingdom; and other than: Albania,
Bulgaria, the People's Republic of China, Cuba, Czechoslovakia,
Estonia, Hungary, Communist-controlled Korea, Latvia, Lithuania,
Outer Mongolia, Poland (including any area under its provisional
administration), Rumania, Soviet Zone of Germany and the Soviet
sector of Berlin, Tibet, Union of Soviet Socialist Republics
and the Kurile Islands, Southern Sakhalin, and areas in East
Prussia that are under the provisional administration of the
Union of Soviet Socialist Republics, and Communist-controlled
Viet Nam.
-17(II.
Nonbank Financi&_Institutions
A.
Types of Institutions Covered
The group of institutions covered by the nonbank guidelines
includes:
trust companies; trust departments of commercial
banks; mutual savings banks; insurance companies; investment
companies; finance companies; employee retirement and pension
funds; college endownment funds; charitable foundations; the
U.S. branches of foreign insurance companies and of other foreign
nonbank financial corporations; and holding companies (other than
bank holding companies) whose domestic assets consist primarily
of the stock of operating nonbank financial institutions.
Investment underwriting firms, securities brokers and deaLers,
and investment counseling firms also are covered with respect
to foreign financial assets held for their own account and are
requested to inform their customers of the program in those cases
where it appears applicable.
Businesses whose principal activity
is the leasing of property and equipment, and which are not
owned or controlled by a financial institution, are not defined
as financia 1 institut ions •.
B.
Ceiling and Priorities
Each institution is requested to limit its aggregate holdings
of foreign assets covered by the program to no more than 100 per
cent of the adjusted amount of such assets held on December 31,
1967, except for special situations discussed in K below.
-18-
Institutions
generally are expected to hold no foreign
deposits or money market instruments (other than Canadian).
However, an institution may maintain such minimum working
balances abroad as are needed for the efficient conduct of its
foreign business activities.
Among other foreign assets that are subject to the guideline ceiling, institutions are asked to give first priority to
credits that represent the bona fide financing of U.S. exports,
and second priority to credits to developing countries.
In
addition, institutions are requested not to increase the total
of their investments in the developed countries of continental
Western Europe beyond the amount held on December 31, 1968,
except for new credits that are judged to be essential to the
financing of U.S. exports.
This means that reductions through
amortizations, maturities, or sales may be offset by new
acquisitions in these countries.
However, institutions are
expected to refrain from offsetting proceeds of sales to other
Americans by new acquisitions from foreigners.
Institutions may invest in noncovered foreign assets generally as desired.
However, they are requested to refrain from
making any loans and investments, noncovered as well as covered,
which appear to be inconsistent with other
President's balance of payments program.
following:
aspec~
of the
Among these are the
-19-
1.
Noncovered credits under this program that substitute directly
for loans that commercial banks would have made in the absence
of that part of the program applicable to them.
2.
Noncovered credits to developing country subsidiaries of U.S.
corporations that would not have been permitted under the
Department of Commerce program if made by the U.S. parent
directly.
3.
Credits to U.S. corporate borrowers that would enable them to
make new foreign loans and investments inconsistent with the
Department of Commerce program.
4.
Credits to U.S. subsidiaries and branches of foreign companies
that otherwise would have been made to the foreign parent, or
that would substitute for funds normally obtained from foreign
sources.
C.
Covered Assets
Covered foreign financial assets, subject to the guideline
ceiling, include the following types of investments, except for
"free delivery" items received after December 31, 1967:
1.
Liquid funds in all foreign countries other than Canada.
This category comprises foreign bank deposits, including
deposits in foreign branches of U.S. banks, and liquid money
market claims on foreign obligors, generally defined to
include marketable negotiable instruments maturing in 1 year
or less.
"
l
/ ' "'-/)
---'"
S
-202.
All other claims on non-Canadian foreign obligors written, at
date of acquisition, to mature in 10 years or less.
This
category includes bonds; notes, mortgages, loans, and other
credits.
Excluded are bonds and notes of international
institutions of which the United States is a member, regardless of maturity_
Excluded also are loans guaranteed or
participated in by the Export-Import Bank, guaranteed by the
Department of Defense, or insured by the Foreign Credit
Insurance Assoc iation.
3.
Net financial investment in foreign branches, subsidiaries
and affiliates, located in developed countries other than
Canada. 11
Such financial investment includes payments into
equity and other capital accounts of, and net loans and
advances to, any foreign businesses in which the U.S. institution has an ownership interest of 10 per cent or more.
Excluded are earnings of a foreign affiliate if they are
directly retained in the capital accounts of the foreign
bus lness.
4.
Long-term credits of foreign obligors domiciled in developed
11
countries other than Canada.-
Included in this category
are bCi.lds, nott\G, mm:tgcges, loans, a!:ld otz,.er credits maturing
J
mor~
than 10 ytars after date of acquisition.
See Note on page 27.
Excluded
-21are bonds of international institutions of which the United
States is a member.
5.
Equity securities of foreign corporations domiciled in
developed countries other than canada,l/ except those acquired
after September 30, 1965, in U.S. markets from American
investors.
The test of whether an equity security is covered
will depend on the institution's obligation to pay the
Interest Equalization Tax on acquisition.
Exclusion from
covered assets under this program normally will be indicated
when, in acquir ing an equity security tha t otherwise would
be covered, the purchasing institution receives a certificate
of prior American ownership, or brokerage confirmation
thereof.
D.
Base-Date Holdings
Base-date holdings for any reporting date after September 30,
1969, are defined as:
1.
Total holdings of covered foreign assets as of the base date,
which is December 31, 1969, for investments in Japan of the
types described in C (3), (4), and (5) above, and December 31,
1967, for all other covered assets;
2.
Minus, equity securities of companies domiciled in developed
countries (except Canada), that are included in (1) but had
been sold to American investors prior to the current quarter;
1/ See Note on page 27.
-223.
Plus, or minus, the difference between sales proceeds and
"carrying" value of covered equities sold prior to the
current quarter to other than American investors or in other
than U.S. markets.
On each reporting date, "carrying" value
should be the value reflected in the institution's report
(on Form FR 392R-68) for December 31, 1967, in the case of
equities held on that date, and it should be cost in the
case of equities purchased after that date.
"Adjusted" base-date holdings, to which the lO'J per cent
ceiling applies, are equal to "base-date" holdings as defined
above adjusted for sales during the current quarter of
included covered equities in accordance with the procedures
specified in (2) and (3) of the preceding paragraph.
E.
~covered
Assets
Foreign financial assets not covered by the guidelines are still
reportable on the quarterly statistical reports to the Federal
Reserve Banks.
Such noncovered foreign investments include the
following:
1.
All financial assets in, or claims on residents of, the
Dominion of Canada.
2.
Bonds and notes of international institutions of which the
United States is a member, regardless of maturity_
3.
Long-term investments in all developing countries, including
credit instruments with final maturities of more than 10 years
-23at date of acquisition, direct investment in subsidiaries and
affiliates, and all equity securities issued by firms domiciled
in these countries.
4.
Equity securities of firms in developed countries other than
Canada that have been acquired in U.S. markets from American
investors (see Point 5 above).
Foreign assets of types covered by the program and acquired
as "free delivery" items--that is, as new gifts or, in the
case of trust companies or trust departments of commercial
banks, in new accounts deposited with the institution--are not
defined as covered assets if they were acquired after December
31, 1)67.
Such assets should be reported as a memorandum
item, as should outstanding amounts of loans guaranteed or
participated in by the Export-Import Bank, guaranteed by the
Department of Defense, or insured by the Foreign Credit
Insurance Association.
F.
Credits to Certain U.S. Corporations
Any loan or investment acquired by a nonbank financial
institution after June 30, 1968, that involves the advance of
funds to a domestic corporation which is simply a financing
conduit (commonly known as a "De laware sub"), and which in turn
will transmit the funds to a foreign business, should be reported
as a foreign asset if one or more foreigners own a majority of
the "Delaware" corporation.
The amounts of such foreign loans
-24or investments should be c tass ified according to the country
",here the funds are actually to be used, not according to the
residence of the owners of the "Delaware" corporation.
In the event that U.S. residents hold a majority ownership
interest in the "Delaware" corporation, no part of a loan or
investment in such a corporation is to be regarded as a foreign
asset of the institution.
G.
Leasing of Physical Goods
The foreign leasing activities of firms which engage primarily
in the leasing of physical assets (e.g., computers, real property,
ships, aircraft), and which are not owned or controlled by a' U. S.
financial institution, are not reportable under the nonbank program.
However, such activities are reportable when they are
undertaken by nonbank financial institutions.
should report the book value of any
physica~
These institutions
assets leased to
foreigners on the appropriate line of the quarterly form they
file with their Federal Reserve Bank.
H.
Investment in
~ert~in FOI~i~n
Insurance Ventures
Net investment in foreign insurance ventures should be reported
as such wherever possible.
In the case of any such ventures in
which there is no segregated net investment, the U.S. insurance
company may exclude from its foreign assets investments within
the foreign country involved, in amounts up to 110 per cent of
reserves accumulated on insurance sold to residents of that
-25country, or (if it is larger) the minimum deposit of cash or
securities required as a condition of doing insurance business
within that country.
I.
Long-Term Credits to Developing-Country Bu!inesses
Institutions are requested to discuss with their Federal Reserve
Bank in advance any future long-term loans or direct security
placements that would involve extensions of credit of $50J,000
or more to private business borrowers located in the developing
countries.
J.
Reporting
Reguireme~
Each nonbank financial institution holding, on any quarterly
reporting date, covered assets of $500,000 or more, or total
foreign financial assets of $5 million or more, is requested to
file a statistical report covering its total holdings on that
date with the Federal Reserve Bank of the Federal Reserve district
in which its principal office is located.
The reports are due
within 20 days following the close of each calendar quarter, and
forms may be obtained by contacting the Federal Reserve Bank.
K.
Covered Assets in Excess of Ceiling
1.
In view of the balance of payments objectives of the program,
it is noted that covered investments of nonbank financial
institutions may be permitted to exceed the guideline ceiling
to the extent that the funds for such investment are borrowed
abroad for investment in the same country or in countries
-27are consistent with other guideline provisions, e.g., those
with respect to liquid funds and to nonexport credits to
the developed countries of continental Western Europe.
The
institution is expected to file an initial statement of its
holdings with its Federal Reserve Bank and thereafter to file
a statement with the Bank l11ithin 20 days after the end of
any calendar quarter when its total holdings of covered
foreign assets have changed by as much as $100,000 since its
previous report, even though its total holdings remain below
the minimum reporting levels stipulated in the guidelines.
rote.--Developed countries other than Canada: continental Western Europe-Austria, Belgium, Denmark, France, Germany (Federal Republic), Italy,
Liechtenstein, Luxembourg, Monaco, Netherlands, Norway, Portugal, San
Marino, Spain, Sweden, and Sv]itzerland; other developed countries are:
Abu Dhabi, Australia, the Bahamas, Bahrain, Bermuda, Hong Kong, Iran,
Iraq, Ireland, Japan, Kuwait-Saudi Arabia Neutral Zone, Libya, New
Zealand, Qatar, Republic of South Africa, Saudi Arabia, and the United
Kingdom. Also to be considered "developed" are the following countries:
Albania, Bulgaria, the People's Republic of China, Cuba, Czechoslovakia,
Estonia, Hungary, Communist-controlled Korea, Latvia, Lithuania, Outer
Mongolia, Poland (including any area under its provisional administration),
Rumania, Soviet Zone of Germany and the Soviet sector of Berlin, Tibet,
Union of Soviet Socialist Republics and the Kurile Islands, Southern
Sakhalin, and areas in East Prussia which are under the provisional
administration of the Union of Soviet Socialist Republics, and Communistcontrolled Vie t Nam.
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMED lATE RELEASE
January 7, 1971
DECISION ON SHEET GLASS
UNDER ANTIDUMPING ACT
The Treasury Department announced today the
issuance of a tentative determination of no sales at
less than fair value in connection with its antidumping
investigation of sheet glass from Belgium.
The notice will be published in the Federal
Register on January 8, 1971.
Appraisement of the above-described merchandise
from Belgium has not been withheld.
The total value of sheet glass imported from
Belgium during the period from January 1968 through
August 1970 amounted to approximately $28,775,000.
000
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January
8, 1971
INDUSTRIAL PAYROLL SAVINGS COMMITTEE MEETS ON JANUARY 14
WITH TREASURY SECRETARY KENNEDY; SECRETARY-DESIGNATE CONNALLY
The U. S. Industrial Payroll Savings Committee, compr~s~ng
leading executives of American business and industry, meets in
Washington on January 14 with Secretary of the Treasury
David M. Kennedy, Secretary-Designate John B. Connally, and
other top Treasury officials, to recognize contributions of the
Committee in topping its 1970 campaign goal by 10 percent and
to plan the 1971 program.
B. R. Dorsey, President, Gulf Oil Corp., Pittsburgh, Pa.,
is to be installed as 1971 Committee Chairman, He succeeds
1970 Chairman Gordon M. Metcalf, Chairman of the Board, Sears,
Roebuck and Co., Chicago, Ill.
Members of the 1970 Committee -- working in various industrial and geographic sectors of the nation -- achieved 110
percent of the year's goal by enrolling 2,200,000 employees
as new Payroll Savers or as regular savers increasing their
allotments. In the first~n months, 1,994,830 individuals -99 percent of the goal -- were signed up and, several days later,
the goal was met. Within Committee member companies, 842,209
new savers or increased allotments helped swell the totals.
The Committee was responsible for securing $3.73 billion worth
of Bond purchases.
Dr. Charls E. Walker, Under Secretary of the Treasury,
opens the Committee meeting in the Department of State
Diplomatic Functions Suite. Mr. Metcalf is to preside. A
reception is scheduled for 11:45 with luncheon at 12:30.
In addition to Secretary Kennedy, speakers include -Elmer L. Rustad, National Director of Treasury's U. S. Savings
Bonds Division; Dorsey, and Robert P. Keirn, President, the
Advertising Council, Inc.
Lists of 1970 and 1971 Committee members are attached.
000
Attachments
- 2 -
Harold R. Lilley
President
Fri to -Lay, Inc.
Dallas, Texas
( DALLAS)
H. B. Groh
President
Wisconsin Telephone Company
Milwaukee, Wisconsin
( MILWAUKEE )
Palmer Hoyt
Editor and Publisher
The Denver Post
Denver, Colorado
( DENVER )
Stephen F. Keating
President
Honeywell Inc.
Minneapolis, Minnesota
( MINNEAPOLIS )
Ray W. Macdonald
President
Burroughs Corporation
Detroit, Michigan
( DETROIT )
Donald S. MacNaughton
Chairman of the Board and
Chief Executive Officer
The Prudential Insurance Company
of America
Newark, New Jersey
( NEWARK )
E. Clayton Gengras
Chairman of the Board
Security Corporation
Hartford, Connecticut
( HARTFORD )
N. W. Freeman
President and Chief
Executive Officer
Tenneco Inc.
Houston, Texas
( HOUSTON )
Alfred J. Stokely
President
Stokely-Van Camp, Incorporated
Indianapolis, Indiana
( INDIANAPOLIS )
John G. Brooks
Chairman and President
Lear Siegler, Inc.
Santa Monica, California
( LOS ANGELES )
Cornelius W. Owens
Executive Vice President
American Telephone and
Telegraph Company
New York, New York
( NEW YORK )
Edward J. Dwyer
President
ESB Incorporated
Philadelphia, Pennsylvania
( PHILADELPHIA )
Roger S. Ahlbrandt
President and Chief Executive Offic
Allegheny Ludlum Industries, Inc.
Pittsburgh, Pennsylvania
( PITTSBURGH)
Donald W. Douglas, Jr.
Vice President
McDonnell Douglas Corporation
St. Louis, Missouri
( ST. LOUIS)
- 3 edgar F. Kaiser
Chairman of the Board
Kaiser Industries Corporation
Oakland, California
( SAN FRANCISCO )
r. A. Wilson
President
The Boeing Company
Seattle, Washington
( SEATTLE)
Milton L. Elsberg
President
Drug Fair
Alexandria, Virginia
( WASHINGTON, D. C. )
Industry Members
E. Clinton Tow!
Chairman of the Board
()nDDan Aerospace Corporation
Bethpage, NfM York
(AEROSPACE )
Harding L. Lawrence
Chairman of the Board
Braniff International
Dallas, Texas
( AIR TRANSPORTATION )
Harry O. Bercher
Chairman of the Board
International Harvester Company
Chicago, Illinois
( AUTOMOT lVE )
Robert E. McNeill, Jr.
Cha irman of the Board
Manufacturers Hanover
Trust Company
New York, New York
( BANKING)
Roger LfMis
President
General Dynamics Corporation
NfM York, New York
( ELECTRONICS & ELECTRICAL
EQUIPMENT )
Oscar G. Mayer, Jr.
Chairman of the Board
Oscar·Mayer & Co.
Madison, Wisconsin
( FOOD MANUFACTURING )
Robert G. Wingerter
President
Libbey-Owens-Ford Company
Toledo, Ohio
( GLASS MANUFACTURING )
Dr. James C. Hodge
Chairman and Chief Executive
Officer
The Warner & Swasey Company
Cleveland, Ohio
( INDUSTRIAL EQUIPMENT
MANUFACTURING )
Frederick C. Maynard, Jr.
Senior Vice President
The Travelers Insurance Companies
Hartford, Connecticut
( INSURANCE )
Michael Daroff
President and Chairman
of the Board
Botany Industries, Inc.
New York, NfM York
( MEN'S APPAREL )
Charles G. Bluhdorn
Chairman of the Board
Gulf & Western Industries, Inc.
New York, New York
( MOTION PICTURES )
- 4 -
Joseph H. HcConnell
President
Reynolds Metals Company
Richmond, Virginia
( NON-FERROUS METALS )
Harry B. Cunningham
Chairman of the Board
S. S. Kresge Co.
Detroit, Michigan
( RETAIL MERCHANISING )
C. Peter McColough
President
Xerox Corporation
Stamford, Connecticut
( OFFICE & COMPUTER EQUIPMENT )
J. Ward Keener
Chairman of the Board
The B. F. Goodrich Company
Akron, Ohio
( RUBBER )
Edward B. Hinman
President
International Paper Company
New York, New York
( PAPER)
Honorable Raymond P. Shafer
Governor
Commonwealth of Pennsylvania
Harrisburg, Pennsylvania
( STATE GOVERNORS )
B. R. Dorsey
President
Gulf Oil Corporation
Pittsburgh, Pennsylvania
( PETROLEUH )
Edwin H. Gott
Chairman, Board of Directors
United States Steel Corporation
Pittsburgh, Pennsylvania
( STEEL )
Thomas G. Ayers
President
Commonwealth Edison Company
Chicago, Illinois
( PUBLIC UTILITIES )
John D. deButts
Vice Chairman of the Board
American Telephone and
Telegraph Company
New York, New York
( TELECOMUNICATIONS )
Downing B. Jenks
President
Missouri Pacific Railroad Company
St. Louis, Missouri
( RAILROADS )
William J. Kane
President
The Great Atlantic and
Pac if ic Tea Comp.any, Inc.
New York, New York
( RETAIL FOOD )
U. S. INDUSTRIAL PAYROLL SAVINGS COMMI'ITEE
1971 MEMBERS
x Officio General Chairman
onorable David M. Kennedy
ecretary of the Treasury
971 Chairman
• R. Dorsey
resident
u1f Oil Corporation
ulf Building
it tsburgh , Pennsylvania
963-1970 Chairmen
ordon M. Metcalf
hairman of the Board
ears, Roebuck and Co.
25 South Homan Avenue
hicago, Illinois 60607
1970 Chairman )
ames M. Roche
hairman of the Board
eneral Motors Corporation
044 W. Grand Boulevard
etroit, Michigan 48202
1969 Chairman )
illiam P. Gwinn
hairman and Chief
Executive Officer
Clited Aircraft Corporation
DO Main Street
.
ast Hartford, Connecticut 06108
1968 Chairman )
anie1 J. Haughton
:tairman of the Board
ockheed Aircraft Corporation
555 North Hollywood Way
lrbank, California 91503
1967 Chairman )
Lynn A. Townsend
Chairman of the Board
Chrysler Corporation
341 Massachusetts Avenue
Detroit, Michigan 48231
( 1966 Chairman )
Dr. Elmer W. Engstrom
Chairman of the Executive
Committee
RCA Corporation
30 Rockefeller Plaza
New York, New York 10017
( 1965 Chairman )
Frank R. Milliken
President
Kennecott Copper Corporation
161 East 42nd Street
New York, New York 10017
( 1964 Chairman )
Harold S. Geneen
Chairman and President
International Telephone and
Telegraph Corporation
320 Park Avenue
New York, New York 10022
( 1963 Chairman )
Geographic Members
William P. Coliton
President
Western Maryland Railway Company
201 North Charles Street
Baltimore, Maryland 21225
( BALTIMORE )
Gerhard D. Bleicken
Chairman of the Board and
Chief Executive Officer
John Hancock Mutual Life
Insurance Company
200 Berkeley Street
Boston, Masachusetts 02117
( BOSTON )
- 2 -
Gerald C. Saltarelli
Chairman and President
Houdaille Industries, Inc.
One M & T Plaza
Buffalo, New York 14203
( BUFFALO)
Robert S. Ingersoll
Chairman
Borg-Warner Corporation
200 South Michigan Avenue
Chicago, Illinois 60609
( CHICAGO )
Francis L. Dale
President and Publisher
Cincinnati Enquirer, Inc.
617 Vine Street
Cincinnati, Ohio 45215
( CINCINNATI )
W. H. Wilson
President and
Chief Executive Officer
Addressograph Mu1tigraph Corporation
1200 Babbitt Road
Cleveland, Ohio 44132
( CLEVELAND )
William H. Seay
President
Southwestern Life Insurance Company
1807 Ross Avenue
D311as, Texas 75201
( DALLAS )
Robert K. Timothy
President
Mountain Bell
P. O. Box 960
Denver, Colorado 80201
( DENVER )
William V. Luneburg
President & Chief Operating
Officer
American Motors Corporation
14250 Plymouth Road
Detroit, Michigan 48227
( DETROIT )
E. Clayton Gengras
Chairman
Security Corporation
1000 Asylum Avenue
Hartford, Connecticut 06105
( HARTFORD )
N. W. Freeman
President and Chief
Executive Officer
Tenneco Inc.
P. O. Box 2511
Houston, Texas 77001
( HOUSTON )
David K. Eas1ick
President
Indiana Bell Telephone Company,
240 N. Meridian Street
Indianapolis, Indiana 46204
( INDIANAPOLIS )
John G. Brooks
Chairman and President
Lear Siegler, Inc.
3171 South Bundy Drive
Santa Monica, California 90406
( LOS ANGELES )
Charles H. Ke11stadt
Chairman of the Board &
Chief Executive Officer
General Development Corporation
1111 South Bayshore Drive
Miami, Florida 33131
( MIAMI )
- 3 -
Robert V. Krikorian
President
Rex Chainbe1t Inc.
P. O. Box 2022
Milwaukee, Wisconsin 53201
( MILWAUKEE )
J. P. McFarland
Chairman of the Board &
Chief Executive Officer
General Mills, Inc.
9200 Wayzata Boulevard
Minneapolis, Minnesota 55440
( MINNEAPOLIS-ST. PAUL )
Donald S. MacNaughton
Chairman of the Board &
Chief Executive Officer
The Prudential Insurance Company
of America
Prudential Plaza
Newark, New Jersey 07102
( NEWARK )
G. Frank Purvis, Jr.
President and
Chief Executive Officer
Pan American Life Insurance Co.
2400 Canal street
New Orleans, Louisiana 70119
( NEW ORLEANS )
David L. Yt.Dlich
President
Macy's New York
Her ald Squar e
New York, New York 10001
( NEW YORK )
Edward J. Dwyer
President
ESB Incorporated
P. O. Box 8190
Philadelphia, Pennsylvania 19101
( PHILADELPHIA )
Roger S. Ah1brandt
President and Chief
Executive Officer
Allegheny Ludlum Industries, Inc.
Oliver Building
Pittsburgh, Pennsylvania 15222
( PITTSBURGH )
Robert C. Krone
Corporate Vice President
McDonnell Douglas Corporation
P. O. Box 516
St. Louis, Missouri 63166
( ST. LOUIS)
Edgar F. Kaiser
Chairman of the Board
Kaiser Industries Corporation
300 LakesIde Drive
Oakland, California 94604
( SAN FRANCISCO )
James G. McCurdy
Chairman of the Board
Lockheed Shipbuilding &
Construction Company
2929 16th Avenue, S. W.
Seattle, Washington 98124
( SEATTLE)
Milton L. E1sberg
President
Drug Fair
6315 Bren Mar Drive
Alexandria, Virginia 22312
( WASHINGTON, D. C. )
Industry Members
James R. Kerr
President & Chief Executive Officer
Avco Corporation
1275 King Street
Greenwich, Connecticut 06830
( AEROSPACE )
- 4 Harding L. Lawrence
Chairman of the Board
Branniff International
Exchange Park
Dallas, Texas 75235
( AIR TRANSPORTATION )
Lee A. Iacocca
President
Fo::-d Motor Company
The American Road
Dearborn, Michigan 48121
( AUTOMOTIVE )
William I. Spencer
President
First National City Bank
399 Park Avenue
New York, New York 10022
( BANKING )
J. F. Forster
Chairman of the Board &
President
Sperry Rand Corporation
1290 Avenue of the Americas
New York, New York 10019
( ELECTRICAL EQUIPMENT )
Oscar G. Mayer, Jr.
Chairman of the Board
Oscar Mayer & Co.
910 Mayer Avenue
Madison, Wisconsin 53701
( FOOD MANUFACTURING )
General Lauris Norstad
Chairman of the Board
Owens-Corning Fiberglas Corporation
Fiberglas Tower
Toledo, Ohio 43601
( GLASS MANUFACTURING)
Dr. James C. Hodge
Chairman and Chief Executive
Officer
The Warner & Swasey Company
5701 Carnegie Avenue
Cleveland, Ohio 44103
( INDUSTRIAL EQUIPMENT )
Richard R. Shinn
President
Metropolitan Life Insurance
Company
1 Madison Avenue
New York, New York 10010
( INSURk.~CE )
Henry H. Henley, Jr.
President
Cluett, Peabody and Company, In(
510 Fifth Avenue
New York, New York 10036
( MEN-- S APPAREL )
C. Jay Parkinson
Chairman of the Board
The Anaconda Company
25 Broadway
New York, New York 10004
( NON-FERROUS METALS )
C. Peter McColough
President & Chief Executive
Officer
Xerox Corporation
High Ridge Park
Stamford, Connecticut 06904
( OFFICE & CCMPlITER EQUIPMENT )
Alphonse H. Aymond
Chairman of the Board
Consumers Power Company
212 West Michigan Avenue
Jackson, Michigan 49201
( PUBLIC UTILITIES )
- 5 -
Downing B. Jenks
President
Missouri Pacific Railroad Company
210 North Thirteenth Street
St. Louis, Missouri 63103
( RAILROADS )
Harry B. Cunningham
Chairman of the Board
S. S. Kresge Company
2727 Second Avenue
Detroit, Michigan 48232
( RETAIL MERCHANDISING )
J. Ward Keener
Chairman of the Board
The B. F. Goodrich Company
500 South Main Street
Akron, Ohio 44318
( RUBBER )
Honorable Linwood Holton
Governor
Commonwealth of Virginia
State Capitol
Richmond, Virginia 23219
( STATE GOVERNMENT S )
Stewart S. Cort
Chairman
Bethlehem Steel Corporation
Bethlehem, Pennsylvania 18016
( STEEL )
John D. deButts
Vice Chairman of the Board
American Telephone and
Telegraph Compan y
195 Broadway
New York, New York 10007
( TELECOMMUNICATIONS )
Charles F. Myers, Jr.
Chairman and Chief Executive
Burlington Industries, Inc.
301 North Eugene Street
Greensboro, North Carolina 27402
( TEXTILES )
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
JANUARY 8, 1971
TREASURY ISSUES DETERMINATIONS ON SIX INVESTIGATIONS
UNDER THE ANTIDUMPING ACT
Assistant Secretary of the Treasury Eugene T. Rossides
announced today Treasury's actions with respect to six
investigations under the Antidumping Act of 1921, as amended.
In three of the cases, a determination of sales at less than
fair value was made; in two others, there was a notice of
intent to discontinue the investigation; and in one, a
tentative determination of no sales at less than fair value.
All decisions will be published in the Federal Register of
January 9, 1971.
It was ruled that clear plate and clear float glass
from Japan is being or is likely to be sold at less than
fair value. Appraisement was withheld on October 10, 1970,
which under the Antidumping Regulations gave the Treasury
90 days in which to determine whether or not sales at less
than fair value existed. The case is now being referred to
the Tariff Commission for a determination as to whether injury
exists. During the period January 1969 through August 1970,
plate and float glass imports from Japan totalled approximately
$18,100,000.
In another case, it was found that ceramic wall tile
from the United Kingdom is being or is likely to be sold at
less than fair value.
It is being referred to the Tariff
Commission for a determination as to whether injury exists.
A notice of withholding of appraisement was issued on
October 10, 1970, and required the Treasury to determine within
90 days whether or not there were sales at less than fair value.
Total square footage of ceramic wall tile for the period of
January 1968 through September 1970 was equal to approximately
49,155,209, with a total dollar value of approximately $12,111,869.
Of these totals, 88 percent can be attributed to wall tiles
and the balance to floor tiles. Of the two manufacturers
investigated, Pilkington's Tiles Ltd. produced approximately
20 percent of this amount, and the balance of 80 percent was
produced by H & R Johnson-Richards Tiles, Ltd.
K-564
(OVER)
2
In another action, it was found that sheet glass from
Japan is being or is likely to be sold at less than fair value.
This determination was issued following the withholding of
appraisement notice on October 10, 1970, which under the
Antidumping Regulations required the Treasury to decide within
a period of 90 days whether or not sales at less than fair
value existed. During the period January 1969 through August 1910
72,454,504 pounds of sheet glass from Japan valued at
approximately $6,320,280 were imported into the United states.
The Treasury Department has investigated charges of
possible dumping of electron probe micro analyzers from Japan.
The investigation revealed that there were sales at dumping
margins. However, only six sales of electron probe microanalyzers
were made to the United States during the period under invest~gati_('
Moreover, the Treasury Department has received formal assurances
from the manufacturer that it has taken steps to discontinue
all further sales of such microanalyzers to the United States.
The notice of intent to discontinue the investigation is based
on these assurances and the facts just described.
From
August 1968 to the present, the value of electron probe
microanalyzers exported from Japan to the United States totalled
approximately $125,500.
The Treasury has announced its intent to discontinue the
antidumping investigation with respect to precision miniature
and instrument ball bearings frOln Japan. The investigation
revealed some instances where exporter's sales price was lower
than the adjusted home market price of such or similar merchandise.
However, these were determined to be minimal in terms of the
volUIne of sales involved. Formal assurances have been received
from the manufacturer and its whOlly-owned U.s. subsidiary
that no f~ture sales of precision miniature and instrument
ball beariAgs for exportation to the United States will be
made at less than fair value. The notice of intent to
discontinue the investigation is based on these assurances
and the facts just described. During the period September 1968
through October 1970, precision miniature and instrument ball
bearings from Japan valued at approximately $33,400,000 were
imported into the United States.
In a final decision, the Department announced the issuance
of a tentative determination of no sales at less than fair value
in its investigation of tapered roller bearings manufactured by
the Koyo Seiko Company, Tokyo, Japan.
Information gathered in
this investigation shows that the price to buyers in the
home market was lower -than the price to buyers in the United States.
Appraisement of this merchandise has not been withheld. The
total value of tapered roller bearings imported from Koyo Seiko
Company of Japan during the period from February 1969 through
August 1970 amounted to approximately $4,444,450.
00.0
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH December 31, 1970
(Dollar amounts in millions - round.d and will not necessarily add to totals)
DESCRIPTION
AMOUNT ISSUEOY
IATURED
Spries A-1935 thru D-1941
Series F and G-1941 thru 1952
SerIes J and K-1952 thru 1957
AMOUNT
REOEEMEOY
5,003
29,521
3,754
4,997
29,490,
3,740
1,897
8,367
13,459
15,706
12,356
5,615
5,336
5,525
5,467
4,786
4,136
4,331
4,953
5,050
5,263
5,086
4,792
4,680
4,387
4,403
4,470
4,329
4,845
4,705
4,601
4,957
4,907
4,656
4,367
3,423
577
AMOUNT
OUTSTANDINGlI
6
30
% OUTSTANDING
OF AMOUNT ISSUED
14
.12
.10
.37
1,696
7,487
12,075
14,009
10,861
4,770
4,391
4,465
4,344
3,750
3,239
3,373
3,776
3,788
3,899
3,731
3,460
3,270
3,018
2,920
2,823
2,645
2,732
2,688
2,606
2,681
2,579
2,335
1,933
877
394
201
880
1,383
1,697
1,495
845
946
1,059
1,123
1,035
898
958
1,178'
1,263
1,364
1,356
1,333
1,410
1,369
1,484
1,647
1,684
2,113
2,016
1,995
2,275
2,329
2,321
2,433
2,546
184
10.60
10-52
10.28
10.80
12.10
15.05
17.73
19.17
20.54
21.63
21.71
22.12
23.78
25.01
25.92
26.66
27.82
30.13
31.21
33.70
36.85
38.90
43.61
42.85
43.36
45.89
47.46
49.85
55.71
74.38
31.89
171,434
126,616
44,818
25.91
5,485
7,617
3,727
2,350
1,757
5,267
32.03
69.15
13,102
6,077
7,025
53.62
184,536
132,694
51,842
28.09
38,277
184,5)6
222,813
38,228
132,694
170,921
50
51,842
51,892
.13
28.09
23.29
INMATURED
Series El/ :
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
Unclassified
Total Series E
Series H (1952 thru May, 1959) 11
H (June, 1959 thru 1970)
Total Series H
Total Series E and H
All Series
ro.a. ma'ured
Total unmatured
Grand Total
'uri•• •
Ccru.d dl.count.
".111 r.d.mpllon ".'u••
opllon 01 own.r bond. m.y b. h.'d .nd will ••,n In'",,,.' 10' .dditlon.. ' pe,lod•• " .., origin.' .... tu','y d., ••.
F_ 'D 3812 tRoy.
~a,.
1970) - TREASURY DEPARTMENT - Bureau af the Public Debt
The Department of the
TELEPHONE W04-2041
WASHINGTON, D.C. 20220
ATTENTION:
TRfASURY
FINANCIAL EDITOR
FOR RELEASE 6:30 P.M.,
Mond~,
January 11, 1971.
RESULTS OF TREASURY'S WEEKLY
BILL OFFERING
1he Treasury Department announced that the tenders for two series of Treasury
bills, one series to be an additional issue of the bills dated October 15, 1970 , and
the other series to be dated January 14, 1971 , which were offered on January 5, 1971,
were opened at the Federal Reserve Banks today. Tenders were invited for $2,000,000,000,
or thereabouts, of 91 -day bills and for $1,400,000,000, or thereabouts, of
182-day
bills. The details of the two series are as follows:
.lANGE OF ACCEPTED
~OMPETITlVE
BIDS:
High
Low
Average
91-day Treasury bills
maturing April 15, 1971
Approx. Equiv.
Price
Annual Rate
98.839
98.823
98.827
4.593%
4.656%
4.640%
182-day Treasury bills
maturing July 15, 1971
Approx. Equiv.
Price
Annual Rate
97.678
97.655
97.658
4.593%
4.638%
4.633%
Y
64% of the amount of 91-day bills bid for at the low price was accepted
78~of the amount of 182-day bills bid for at the low price was accepted
UTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Dlstrict
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
D8.llas
San Francisco
TOTALS
AcceEted
AEE1ied For
$ 28,535,000 $ 17,535,000
2,399,875,000
1,404,295,000
26,020,000
46,090,000
38,950,000
41,450,000
22,945,000
30,375,000
41,335,000
56,590,000
169,165,000
209,425,000
52,475,000
68,735,000
34,640,000
39,640,000
35,195,000
39,435,000
25,705,000
45,405,000
131 275°2 000
2°°2 95°2 000
AEE1ied For
$ 13,710,000
2,160,845,000
16,560,000
46,575,000
34,815,000
33,660,000
247,670,000
48,065,000
44,515,000
17,655,000
36 ,040,000
24°2 8°°2°°0
AcceEted
2,805,000
$
915,215,000
6,560,000
31,570,000
28,315,000
13,940,000
168,765,000
32,160,000
' 26,515,000
14,655,000
13,430,000
15°2 15°2 000
$2,000,010,000
~ $2,940,910,000
$1,404,080,000
$3,206,505,000
E/
'lncludes $332,885,000 noncompetitive tenders accepted at the average price of 98.827
'mcludes $155,410,000 noncompetitive tenders accepted at the average price of 97.658
These rates are on a bank discount basis. The equivalent coupon issue yields are
4. 76~ for the 91-day bills, and 4.81% for the 182 -day bills.
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
THE DEPARTMENT OF THE TREASURY
PRESS CONFERENCE JANUARY 11, 1971
-D E- PRE
--,
-C -I A- T- -ION
-
Secretary of the Treasury David M. Kennedy; Paul W.
McCracken, Chairman of the President'.s Council of Economic
Advisors; Edwin S. Cohen, Assistant Secretary of the
Treasury for Tax Policy; and C. E. Brumley, Special
Assistant to the Secretary of the Treasury (Public Affairs)
Mr. Brumley: Good afternoon. The briefing this
afternoon is, of course, on the record. The Western White
House has made an announcement on the new depreciation
system which we call the Asset Depreciation Range. Most
of the material which you have in your packets has been
made available in California. Under Secretary Charls E.
Walker and Deputy Assistant Secretary John S. Nolan are in
San Clemente answering questions about the announcement
there. The subject matter of this briefing will be confined
to the subject of depreciation and its impact on the economy.
If there is anyone here who doesn't understand those ground
rules, please speak up.
Some of your press packets need corrections in the
24-page material called "Depreciation Allowances -- Aseet
Depreciation Ranges", page 6, last paragraph. Four lines
down in the line beginning "reduction in .•. ", it should
read $0.8 billion, instead of $1.3 billion for the fiscal
year ending June 30, 1971 and in the next line it should
read $2.7 billion instead of $2.8. In the next line at
the end it should read $4.1 instead of 4. Does everyone
have those?
After this briefing, we will hold a briefing for
representatives of industry in this same room\ The news
conference will be conducted by Secretary Kennedy; Paul
McCracken, Chairman of the Council 'of Economic Advisors;
and Edwin S. Cohen, Assistant Secretary for Tax Policy.
The Secretary and Dr. McCracken have brief opening statements
and then we invite your questions. The Secretary.
-211r. Kennedy:
The changes in tax administration
announced by the President today are a major and timely
reform of depreciation policy, and will be good for our
national economy, all of our citizens, and every American
business.
It strengthens every segment of our production team-workers, managers and investors.
The reform of depreciation policy will encourage business
to increase its investment in new machinery and equipment, and
by providing significant tax reductions in 1971 and subsequent
years, will help business accumulate the capital required for
investment.
As a result, our economic growth will be stimulated strongly and many new jobs created for those who are
now unemployed or who will enter the work force in the future.
Every American -- manufacturers, farmers, miners, storeowners,
professional and service companies, all others and those who
work therein -- will benefit.
By liberalizing and simplifying the depreciation provisions of the tax law, we also have taken a needed step to
help U. S. businesses to modernize their productive facilities
and keep abreast of rapidly changing technology.
New and
better equipment in American industry will bring increased
productivity, and a strengthening of the competitive position
of our country's goods in world markets.
It should be kept in mind that a liberalization of
jepreciation allowances primarily involves a postponement of
the tax payment, and that this payment will eventually be
added to government revenues.
Furthermore, new business
investments and job creation will serve in time to increase
the taxable income of business and individuals, thus providing
a larger tax return.
Aside from the tax effect, the changes in the depreciation
provisions will also simplify and improve the administration of
the tax laws.
Elimination of the complex "reserve ratio test"
for determining limits on depreciation allowance will ease
the burden of compliance for business, and help with interpretation and administration of the law by the Internal
Revenue Service.
Repeal of this test also ends a disadvantage
~hich our businesses have suffered in competing with foreign
companies, whose tax systems do not include such a test.
The depreciation policy changes announced by the
President were based on an intensive study by the Treasury
Department and its Internal Revenue Service of steps needed
tc provide greater investment incentives and for job creation.
Treasury was assisted in this study by the views of other
~overn~ent agencies, of business representatives, and of the
rre:;iJent's Task Force on Business Taxation.
-3-
Now Dr. McCracken will give a statement and I think
it would be well then if you have anything to lead off with
Mr. Cohen or if you want just further questions on the
technicalities.
Mr. McCracken: The comments I am going to make largely
underscore points the Secretary has already made. These
changes which are being announced today are in my judgment
important changes and they're going to have beneficial effects
for the economy, both for the short and particularly for the
longer run. It seems to me the major significance of these
moves is ~o be found in the fact that in the short run they
will increase both the means and the incentives for capital
expenditures of businesses. They will mean roughly a
percentage point increase in rate of return although that
will vary, depending on the situation, and of course the
cash ~low itself will thus be augmented.
I think for the longer run, however, this change may
have even greater significance. What these are going to do
is to make for a more competitive and resilient and productive
economy. They will increase the equilibrium amount of investment which it is appropriate for any company to make, thereby
enhancing the productivity of labor and other productive
resources. This is going to be very important in the period
ahead, both because of the heavy demands on our productive
facilities. They are going to be coming with new uses such
as envir.onment and so forth, but also because of the importance of maintaining and strengthening our competitive position
in the international markets.
Mr. Cohen: Well, I might, Mr. Secretary, comment only
in addition that we think this will be a major improvement
in the administration of the depreciation provisions of the
law. The law empowers the department and orders it to grant
a reasonable allowance for wear and tear and exhaustion and
obsolescence of equipment. And this has led to a great many
controversies through the years. By this system which we
are announcing today the department is saying that it will
prescribe a range of lives which taxpayers may elect to use
and to take depreciation over a period within that range,
and the department will accept depreciation within that range
as being a reasonable allowance. It represents a system in
Which it is recognized that there is no one answer to what
is reasonable period for allowance of depreciation, but within
this range the taxpayer may choose and the Commissioner of
Internal Revenue will accept that range. We think this will
prevent the need for applying just one single test or resort
to all the facts and circumstances which will produce endless
controversies. We think this will be a major step forward
in administration.
-4-
Mr. Kennedy:
questions.
We will now open the conference for
Reporter:
Mr. Secretary, why did you not propose
legislation as the Task: Force recommended? Why did you use
the administrative route?
Mr. Kennedy:
Well, it seemed to us that the administrative route was one that offered a reasonable way to handle
the problem.
The power and authority was there and the need
in the economy as of today is such that this will help create
jobs and the uncertainties of going through the other process
You might wqnt to make just a comment on that, Ed, because
you had a very strong feeling in this -- of the administrative versus the congressional.
Mr. Cohen:
As I indicated just a moment ago, we
felt that when the statute directs a reasonable allowance
to be made, it permits a range of discretion and indeed
makes it essential when if you have no specific rule, you
are directed to make the determination on the basis of all
the facts and circumstances.
And we have in many other
areas said that we would accept taxpayers' methods of
accounting and allowances within a range of reason without
challenge.
We did not feel that that required congressional
legislation.
It is based upon practices of many years.
I might add that we did consult with the committees before
proceeding with this, but we did not think it required
legislation.
Reporter: Mr. Secretary did the Committees agree
that it did not require legislation?
Mr.
Cohen:
vIe 11,
Mr. Kennedy:
There was not committee action as such;
but the members of the committee with whom we talked felt
this was .the way to go.
Mr. Cohen:
specifically.
Mr.
Kennedy:
We did discuss it with chairman Mills
In detail.
ReporTer:
:;1'. :~oh2n can you quantify the impact
this move will have ~n investment levels in the next few
years? And t~e re~aind~r of this year and '72?
: 'l".
Cohen:
~,'Ie 12 '/!E:' ve est irna ted from a revenue impact,
as the ::=ifl;ures that ,,:2re given ""ere, about 0.800 million doll i
f'J:'- ~.~.~s
L.s::a=- :''::::U, al.e 2.7 tillion dolLlrs in fiscal '72
!:<si.:tt..: -':",:"ec,:"t"O:: 'to ~ Lilli:)') dollars.
''lie think this "'lill
:-:a'.·c :2 : - ' :::":>J.:-.+-: ~.~ i::1:-:act 'J:1 in'lestment in plant and
2~J::':;:-~~~~ jut::: ',,'::.:cL:;1't ;-:-,ake an effol"'"l to' quent±fy it.
-
Reporter:
5 -
Perhaps Dr. McCracken would quantify it.
Dr. McCracken: Well apart from the jurisdictional
question, the answer i~ probably the same.
It's impossible
of course, to do anythlng more than form some kind of judgment
about this. The impact here will build fairly slowly.
It takes time for these decisions, of course, to be
changed. I think cumulatively, over a period of time, it
can be quite significant, because as I indicated in my
statement, it affects both the means and the incentive;
in other words it affects both the cash flow and the rate of
return.
Reporter: Mr. Secretary, you said that these changes
have been under consideration for some time.
Could you comment
specifically on what impact if any the December unemployment
figures had on the decision to go ahead with these changes?
Mr. Kennedy~ We have been studying these changes
for very many months. And, of course the Task Force has been
working -- t~e Presidential Task Force. We said bef~re the com~.
mittees of Congress with the Tax Reform Act of 1969 that we
would study depreciation schedules and I think we made a
report to Senator Javits on this some months ago.
I think
it was two or three weeks ago that we decided to take this
move and that was well before the unemployment figures were
even known.
Reporter: Mr. Secretary, could an argument be made
that this is evidence that the Administration has just thrown
up its hands in helplessness on inflation and now is turning
to forcing back down the unemployment rate?
Mr. Kennedy: Well I'll make a comment on that and I
think that's one for Dr. McCracken to comment on.
It's a
good question.
The answer is no, that we haven't thrown
up our hands. This is a move that is needed administratively
within the business world and to encourage employment, its
one we'v~ talked about a long time. Th~ economy is going
through adjustment and we are following policies to create
jobs and to bring unemployment down. And this is not giving
up on the fight against inflation -- but Dr. McCracken can
say that with beautiful words.
Dr. McCracken: Well, I think the answer is no.
Economic policy is never so simple that you have only one
Objective. At the time that the economy was clearly wayoverheated, the strategy, structure or posture of policy had
to be one of restraint.
But those policies of restraint
couldn't be held very long, naturally~ Now, it's a policy
of encouraging a cautious and orderly expansion --- but not,
of course, to produce the kind of explosive expansion which
would undo the work on the price level that's already been
done.
-6Reporter:
What kind of investment are you figuring to get
this revenue estimate? You must have some guess on how much
1S gOlng to be invested to estimate the tax loss.
Mr. Cohen: My understanding is that this estimate is
based upon current levels, with an assumed future growth of
five per cent.
Reporter:
Mr. Cohen:
Reporter:
Mr. Cohen:
Five per cent a year?
Five per cent a year.
In money terms?
Yes.
That's correct.
Reporter:
Let me rephrase my previous question.
Doesn't this represent a significant shift in emphasis?
Mr. Kennedy:
No I think not.
We've said all along that
this is one area we were going to look into; one area that
needed attention.
And this seems to be the time to do it.
Reporter:
Mr. Secretary (Unclear question) What about the
business investment credit approach?
Mr. Kennedy:
Well, I'll answer; then Mr. Cohen will have
a comment I'm sure.
My own view on that was that the
investment tax credit--it was ended in the Reform Act of '69
was really a tax; it was a subsidy.
It was not a matter of
accounting for asset life.
It could be turned on and off,
as was done.
You could never be sure of it.
You couldn't
get it off at the right time and you couldn't turn it on at
the right time, perhaps.
And this seemed to me to be a
fundamental program and it brings in our general program of
depreciation or allowances more consistent with competitive
countries as we have in a chart here (that you may want to
talk about later) will show.
You may want to comment on that,
Ed.
Mr. Cohen:
I will only expand on that, and say that the
investment credit was an allowance of 7 per cent for assets with
lives over 8 years in addition to the writing off of the cost
of the asset, so the net effect was to give more than a 100 per
cent allowance for the cost of the equipment in the tax
structure.
It was, as a subsidy, turned on and off.
We said at
the time we proposed the repeal in the Spring of 1969, that we
would not recommend its restoration, but that we would study
the matter of depreciation and at the appropriate time take
action to reform the depreciation provisions.
Reporter:
Democrats on capitol Hill suggest you are
going about this the wrong way.
They say that instead of giving
a tax break to business, you should be putting money into
public works programs, and that kind of Thing.
What is your
answer to that criticism?
-7-
Mr. Kennedy: Well, I would say in answer to that
criticism that this is a needed action for business investment and to get jobs back in the economy, and that this does
not preclude any actions that might be proposed or needed
in other areas. We're not talking about those other areas
today.
Reporter: Two years ago when the Ways and Means
Committee reported out its version of the '69 Reform Act,
you said in a press conference that the bill proposed by
Ways and Means was weighted in favor of consumption instead
of investment. Is this change in depreciation a method of
getting "around the Congressional refusal to adopt to a two
percent bu~iness tax cut?
Mr. Kennedy: We, in the Senate, as you know recommended
a ch~ge in the corporate rate. That was not accepted.
And I did make arguments to the effect that we needed a
better balance between investment and consumption. This is
"one method you might say, of doing something about that. I
don't think this is the same. I think, regardless of action
on the corporate rate, whenever that might come up again, we
needed some action in the deprecia~ion area.
Mr. Cohen: Mr. Secretary, if I may supplement that,
this action unlike a change in the corporate rate, applies
to unincorporated businesses, to agriculture as well as to
corpor~tions, and its related to investment in plant and
equipment and not to income or deductions generally, so
that it has a materially different effect.
I might also point out, as a comment on the previous
point, that as of the first of January, as a result of the
1969 Act, we will have had a one and a half billion dollar
reduction in personal income taxes for 1970 and another
three and a half billion dollars that just went into effect
as of January 1, 1971 -- a total of five billion dollars,
in addition to the surcharge being terminated. So that is
ln the personal sector.
Reporter: Mr. Secretary, I'd like to clear the premise
for this. You say that these dollar figures you're talking
about premised on a five percent money expense in plant and
equipment. Now the most recent SEC and Commerce forecasts
for this year was considerably lower than that and the
greatest increases the SEC and Commerce Department find were
in the public utilities, which are specifically excluded
from this Asset Depreciation Range.
-8Mr. Kennedy:
Well, I'll let you comment on that
because it's got the two phases, the utility thing is large.
Mr. Cohen:
I will comment first about the utility
matter.
We have excluded it at the moment, but said that we
would consider it further.
So that we have not made a final
decision in that regard. The five percent growth rate
assumption that I mentioned in answer to a previous question
is over a period of years. These figures which we discussed
about the revenue reduction on a period of years down to
1980 is based upon an assumed five percent growth rate ea~
year. Obviously, it isn't going to adhere specifically to
that pattern. but obviously some assumption had to be made
for those calculations.
Reporter:
Sir, for fiscal '71 and fiscal '72?
Mr. Cohen: Well, there would be no growth rate I assume
in both for fiscal '11, which will expire shortly. I'm not
certain whether it was done for fiscal '72 or not. Did you
use some actual figure?
Mr. Segall (Joel Segall, Deputy Assistant Secretary
for Tax Policy--Tax Analysis): We used the best estimate
we could for '71, and a growth rate from there of five percent from there on.
Mr. Cohen:
I understand.
Mr. Kennedy: That's straight across the board. That's
arbitrary and will not necessarily reflect quite the true
state of events.
Reporter: We should assume then that the five percent
begins in fiscal '72? Roughly?
Mr. Kennedy:
Yes.
Repo~ter:
Could you glve then the current annual level
of corporate tax revenue?
Mr. Cohen: The current annual level of corporate tax
revenues had been at the range of about 38 billion; more
recently I think it had been assumed at the rate of 32 bil~ion
and I don't know what the assumption will be for the upcOmlng
fiscal '72 budget.
Reporter:
Hr. Secretary, you said that every America~
would benefit from this program, and you specifically mentlone<
storeowners. How would retailers benefit? Only indirectly
since buildings were ruled out?
··1
-9Mr. Kennedy:
Reporter:
But any equipment they might have.
But very little.
Mr. Kennedy: Well, if there are prosperous conditions
they will have more business.
Reporter: Which particular industries do you expect
this to help shoot ahead?
Mr. Cohen: It is designed to benefit industry across
the board -- both equipment with shorter lives and longer
lives, so that we have nothing particularly in mind but
have made a aonscious effort to try to see that the changes
affected all industries across the board except we have made
a reservation with respect to the gas, electric, and telephone utility companies.
Reporter:
Mr. Cohen:
Do you think it will work out that way?
That's what we think.
Reporter: Will it apply to the oil industries and the
extractive industries as well?
Mr. Cohen: Yes.
Reporter: Dr. McCracken,
Mr. Cohen:
And important there, I might add.
Reporter: Only a. few months ago the President was
vetoing appropriation bills on the grounds they were inflationary. Yet clearly here you are suggesting a need to
stimulate aggregate demand. Were indeed those appropriation
bills inflationary by your own guidelines, or has the economy
deteriorated substantially since then?
Dr. McCracken: Well, I don't see any inherent problem
here between these two actions. The totality of economic policy
was such that clearly some such action as what is being
announced'here today was in order. Now the rationale for the
vetoes, that's be found in the veto messages themselves. Has
to do with programmatic things. The whole arrangement.
Reporter: Mr. Cohen, if I read the handout correctly
it looks like the salvage value of the item is reduced by
10 percent of the purchase price before it~ figured in. Does
this permit a writeoff of more than 100 percent of the total
value?
-10Mr. Cohen: No it does not. That 10 percent provision
is in the statute.
It was designed simply to permit ignoring
salvage value of a small amount; that is, less than 10 percent
of the cost.
If you buy an asset of $1000 you can ignore
any salvage value up to $100, and that's provided in the
statute.
Reporter: What is the provision if the item is sold
for more than the value it is carried on the books at the time?
Mr. Cohen: The profit will be taxed as ordinary income
to the taxpayer at that time.
It will be considered the
recapture of depreciation and will go into ordinary 1ncome.
Reporter:
On that same question, Mr. Cohen, I am not
clear as to whether treatment of salvage has been changed
and liberalized.
Mr. Cohen: We have used the same system that was invoked
under the guideline lives of 1962.
In other words no depreciation can be taken after the point of salvage value has
been reached.
Reporter:
So to answer my question there has been no
change?
.
Mr. Cohen: There has been no change in practical effect
under the guideline lives. The guideline lives used estimates
of lives that took into account salvage value, they stated.
And hence when you tested under the guideline lives you did
not have. to take off salvage value in determining the annual
depreciation but took the depreciation under the guideline
lives without regard to salvage until you reached the point
of salvage value, and then you could take no more depreciation.
That's only under the guideline life.
If you went
to the regulations, outside the guideline lives, you were
required to take salvage value into account. We propose to
amend the regulations to make clear that these rules are provided for in the regulations, which they have not been up to
now.
Reporter: Then under the regulations, were they liberalized, or are you planning to?
Mr. Cohen: Well the guideline lives were considered to
be an appropriate interpretation of the regulations when
they were issued in 1962. Whether they were or not, they
will be cleared up by an amendment of the regulations this
time.
The difference, Miss Shanahan, is that in setting the
guideline lives at that time, though I was not here in 1962
-11and you were, the announcement said that the salvage value
was taken into account in setting those lives and we are
permitting a spread from 20 percent below to 20 percent
above, and hence are following the same system.
Reporter: Mr. Cohen:
from the point of view of the
businessmen you say this is not a tax cut but a tax deferral.
In effect though, isn't the businessman always ahead because
he'd keep rolling it over and he couldn't get an equipment
interest-free loan?
Mr. Cohen: Well, he does if you want so to describe it
as an interest-free loan.
Any advance in the time in wtlich
he takes depreciation is of further benefit to him because
it is discounted less than a tax-saving further down the
line in the life of the property. And part of the answer
depends upon whether his investment in plant and equipment
continues to grow.
If you were to assume that a taxpayer
did not increase his investment in plant and equipment but
renewed it at the same rate annually, after you had gone
through one cycle of life you would find that he would have
the same depreciation each year.
But he does usually continue to expand his investment in plant and equipment and
that accounts for a benefit.
Reporter:
Dr. McCracken, as I read this, and maybe
I'm wrong, it seems to benefit capital-intensive rather than
labor-intensive industries, particularly in the short run.
By your own say-so and others, it seems to increase productivity. How does that help unemployment in the short run?
Dr. McCracken: The impact of this on employment in the
short run of course comes, in the relatively short run,
comes through its impact on the capital goods industries or
the capital goods markets themselves.
That market presents
a rather mixed picture at the present time. There are certain parts of the machinery market which are of course rather
depressed.
For the longer run, the impact of the fact that
investment and the stock of capital ought to be rising more
rapidly tends to show up more, or at least we hope it will,
in more rapidly rising productivity
with a reasonably
fully employed labor force.
Reporter:
Have you any idea on the number of jobs this
will create within the next year?
Dr. McCracken:
I have not.
-12-
Reporter:
Dr. McCracken, does the Council have any
specific suggestions on the performance of the economy based
on the impact of this particular change in taxes or without?
In other words have you made projections of performance
figuring on the impact of this and without it?
Dr. McCracken:
Reporter:
You mean in the short run?
Within the next year.
Dr. McCracken:
I have no comment to make on that. Our
next unveiling of projections will occur in three weeks or
so with the Economic Report.
Reporter:
Mr. Cohen, are most businesses now using
the Guideline Lives and do you expect most will shift down,
will shorten to the full 20 percent reduction?
Mr. Cohen:
I think when you say most, that is our
understanding.
Most of them in terms of dollar volume. I waul
guess perhaps not in terms of numbers of taxpayers but in terms
of the dollar volume we understand this to be the case. I
would expect Miss Shanahan that most businesses would elect
a lower level of the ranges that will be accepted but some
losing businesses or new businesses may decide to use the
upper ranges and we permit them to shift for assets acquired
in one year to one life, and use another life within the
range for assets acquired within another year. They may
change back and forth within that range.
But I would think
the answer is the obvious that most of them are going to
use the lower level.
Reporter:
Dr. McCracken, would you expect that this
change would have the effect of raising plant and equipment
spending this year significantly above one point four
percent?
Dr. McCracken:
I think it will probably. Yes. I
think it will have some effect. The quantitative effect
of a year is not apt to be large because most of this effect
will tend to come toward the latter part of the year. It
takes time for this sort of thing to show up.
Reporter:
the year?
Do you have any estimate for the end of
Dr. McCracken: We'll be unveiling our projections in
about three weeks.
I would not, I think, by the end of the
year it might make a difference of, oh, perhaps a billion
dollars but that's a ballpark type estimate.
-13Reporter: Would draw any parallel between the situation
now and t,he last time, in '62? Would you comment on that?
I'm talking about the economic follow-up.
Dr. McCracken: Well, there once again it took'quite a
long time for the effect to show up. I would expect a good
deal of time to be required this time, too.
Reporter:
What was a good deal of time then?
Dr. McCracken:
Mr. Brumley:
A year or so.
Any additional questions?
Reporter: A question on the states taxes. Do you expect
the states to follow the pattern here and will this provide
some reduction of tax take for the states?
Mr. Cohen: We've considered this. Some of the states
base their income taxes on the federal amount and some do
not. Those that do would be affected by this reduction in
revenue. If you take it in relation to something on the
order of $125 billion of federal revenue from corporations
and individuals, and figure these amounts at say 800 million
dollars and 2.7 billion dollars, it will not make much of an
impact on the state revenues.
Mr. Kennedy:
Thank you.
000
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 11, 1971
STATEMENT BY TREASURY SECRETARY DAVID M. KENNEDY
ON ASSET DEPRECIATION RANGE
AT A NEWS CONFERENCE
WASHINGTON, D. C.
JANUARY 11, 1971
The changes in tax administration announced today by the
President. are a major and timely reform of depreciation policy,
and will be good for our national economy, all of our citizens,
and every American business.
It strengthens every segment of our production team -workers, managers and investors.
The reform of depreciation policy will encourage
business to increase its investment in new machinery and
equipment, and by providing significant tax reductions in 1971
and subsequent years, will help business accumulate the
capital required for investment. As a result, our economic
growth will be stimulated strongly and many new jobs created
for those who are now unemployed or who will enter the work
force in the future. Every American -- manufacturers, farmers,
miners, storeowners, professional ~nd service companies, all
others and those who work therein -- will benefit.
By liberalizing and simplifying the depreciation
provisions of the tax law, we also have taken a needed step to
help U. S. businesses to modernize their productive facilities
and keep abreast of rapidly changing technology. New and
better equipment in American industry will bring increased
productivity, and a strengthening of the competitive position
of our country's goods in world markets.
- 2 It should be kept in mind that a liberalization of
depreciation allowances primarily involves a postponement of
the tax payment, and that this payment will eventually be added
to government revenues. Furthermore, new business investments
and job creation will serve in time to increase the taxable
income of business and individuals, thus providing a larger
tax return.
Aside fl-n, 1 the tax effect, the changes in the depreciation
provisions will also simplify and improve the administration of
the tax la\vs. Elimination of the complex "reserve ratio test"
for determining limits on depreciation allowance will ease
the burden of cOIl:T,liance for business, and help with
interpretation and administration of the law by the Internal
Revenue Service. Repeal of this test also ends a disadvantage
which our businesses have suffered in competing with foreign
companies, whose tax systems do not include such a test.
The depreciacion policy changes announced by the President
were based on an intensive study by the Treasury Department
and its Internal Revenue Service of steps needed to provide
greater investment incentives and for job creation. Treasury
was assisted in this study by the views of other government
agencies, of business representatives, and of the President's
Task Force: on Business Taxation.
000
FOR IMMEDIATE RELEASE
January 11, 1971
Office of the White House Press Secretary
.-.---------.-~--------------------------------------- ------THE WHITE HOUSE
STATEMENT BY THE PRESIDENT
Today I have approved three important changes in the adminl.tratlon
of the depreciation provisions of the tax laws which will
help create jobs for the unemployed as well
as young people joining the labor force;
promote the economic growth which is essential if
this nation is to meet its domestic and international
responsibilitie~;
increase the competitiveness of U. S. goods abroad,
thus strengthening our balance of payments; and
reduce significantly the complexity and uncertainty
of the application of an important section of the
Internal Revenue Code.
Briefly summarized, these highly technical changes will:
(1) Authorize the Internal Revenue Service to accept
depreciation based on lives for business equipment
acquired after 1970 that are not more than 20 percent
short~T nor. 20 percent longer than the present
"guideline lives" fixed by Treasury in July 1962.
(2) Terminate the complex "reserve ratio test" for
determining limits on depreciation allowances.
(3) Provide an alternative to the present "convention"
which permits deduction of half the annual depreciation
in the year in which equipment is placed in service.
Under the modified "convention," a full year's
depreciation for assets acquired after 1970 will be
accepted for assets placed in service in the first half
of a year; one-half year's for those in the second
half of a year.
These actions will reduce business tax payments by $2.6 billion in
this calendar year, rising to a peak of about $4 billion in 1976. and
thereafter gradually declining. In evaluating the impact of the.a
tax actions on economic activity, it should be remembered that a.
of January 1, 1971, almost $7 billion in individual income t.~ cut.
had already occurred as a result of the Tax Reform Act of 1969.
I want to emphasize that these short-run revenue deductions announced
today are not 90 large as to prevent us from maintaining balanee,
now and in fiscal year 1972, between budget spending and the revenue.
that would be generated in a full employment economy. Ho.t
- 2 -
importantly, they can be expected to have a substantial "feeclbac •. '
effect. Past experience demonstrates that depreciation
liberalization will stimulate the pace of spending on new plaio~
and equipment, which has been levelling off, and thus create JOD8
As a result, Federal tax collections in the long run will increase.
The estimates of revenue loss may, therefore, be regarded as
maximum estimates.
Sound depreciation reform to create jobs and growth has a long
history of bipartisan support. In 1961, the first year 6f the
Kenfi~dy Ad~inistration, Under Secretary of the Treasury Henry H.
FO\.>Jl'21" supported the impending program for major depreciation
reform as a stimulant to economic recovery (unemployment was thei'
about 6-1/2 percent of the labor force); as a means of increasing
competitiveness of U. S. goods in world markets; and as a major
force for long-run economic growth.
Several months later, in announcing broad revisions in depreciation
guidElines, Secretary of the Treasury Doualas Dillon pointed to
the job-creating impact of rising investment. In this respect,
economists have long recognized that, in a highly industrialized
society such as ours, each productive worker has to be equipped,
in effect, with tools and machinery costing many thousands of
dollars.
Depreciation reform is especially desirable today when we are
requiring the diversion of significant amounts of business capital
into the financing of pollution control facilities and away from'
those investments which would' ordinarily go to increasing material
productivity.
The specific administrative changes which 1 have approved are
consistent with the recommendations of the President's Taak Forc~
on Business Taxation. I appointed this Task Force in September
1969 and asked the members to "concentrate on the role of business
taxes in promoting growth, full employment, and a str:Jng progre81'1i'
economy. Ii The Task Force included leading business men, lawyers
and accountants, economists, a former U. S. Senator, and two forme'
Secretaries of the Treasury.
A liberalization of depreciation allowances is essentially a chant
in the tUming of a tax liability. The policy permits business
firms to reduce tax payments now, when additional purchasing pot.'e:.
is ne~ded, and to make up these payments in later years.
Clearly, therefore, these steps toward meaningful depreciation
reform are important for the present -- in light of current ecotl!y:
conditions -- and for the future -- to maintain the growth which
has made this nation the strongest and most productive the world
has ever known.
000
The Departmento! the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
[llustrations of the Effect of .the New Modified
~irst~Ye8.r CQnvention'under the Asset
De~reciation Raijie (ADR)Syst~ .
In general, depreciation on an asset is computed from the date
the ts.xpayeracquires· it. However, under eXisting·.rule,s a "half-year
convention" i.sapplied in many cases whereby all assets acquired
during the year are considered as acquired at the mid-point of the
year. Under the ADR System, taxpayers will be given the option of
selecting a new modified first-year convention under which all
assets acquired in the first-half of the year are treated as being
acquired on the first day of the· year and,all assets acquired during
the second-half of the year are treated as acquired at the mid-point
of the year. The follOwing examples illustrate the impact of this
change.
(1) Assume that on May 1, 1971, a calendar year corporation
which purchases equipn.ent at various times through.outthe year acquires equipnent costing $1,000 and having a de'preciable life under
the existing Guidelines of 5 years:
(a). At present, under the double declining balance
method of depreciation, the taxpayer's deduction for a full
year would be 40% (2 x 20%) of the cost of the equipment,
or $400, but under the existing half-year convention used
by the taxpayer its first year deduction would be only $200
The tax saving in ,the first year would be !2§.. (48%, tax rate
x $200).
(b) Under the ADR System the depreciable period would
be shortened from five years to four years. Tnus, the
taxpayeris double declining balance depreciation would increase to 50% (2 x 25%) for a full year, or $500. Under
the,half..;.year convention .its deduction would be only $250
('1/2 of' $500). . The .tax .savings in the first year would"be
$120 (48% x'.J$2 50) •
tc) In:a.ddition to Shortening the depreciable period,
the ADR Systemmodifie s the fi rst year conventi on. Since
the taxpayer in this example b~ught the equip'nent before
July 1, 1971, it is treated as having acquired the equipment on the first day of the year. Therefo:re, the first
year deduction under the ADR System will be increased to
$500. The 1971 tax saving would be !240.
The 1971 tax savings under the ADR System, as illustrated in
(c) is approximately 2-1/2 times the saving the taxpayer can obtain
- 2 -
under existing rules and twice the saving it would have obtained if
only the depreciable period had been shortened without changing the
first-year convention. In terms of net cash flow in the first year,
the purchase of the equipment under the ADR System illustrated in (c)
requires a net first-year cash expenditure of only $760, while under
(b) it requires $80~ and under existing rules (illustrated in (a))
it requires $90~. The same results follow for any asset purchased
between January 1 and June 30.
(2) If the equipment in the above example had a depreciable
life of 10 years under the existing Guidelines, the results would
be as follows:
(a)
Present rules:
- Full year's depreciation
2CP/o (2 x lCP/o)
- Depreciation under the
half-year convention
- Tax savinGS
(b)
$100
$ 48
Shortening depreciable period
under ADI1 from 10 to 8 years:
- Full year's depreciation
25% (2 x 12. 5% )
- Depreciation ~nder the
half-year convention
- Ta.'C savings
(c)
$200
$250
$125
$ 59.60
Shortening depreciable period
and using the new first-year
modified convention under ADR:
- Full year's depreciation
- Tax savinGS
$250
$119. 2 0
The 1971 tax savin8s lmder the ADR System illustrated in (c)
is approximately 2-l/L~ times the savings under existing law and
twice the savincs if only the depreciable period were shortened.
From a net cash flow standpoint, the ADR System requires a net
first-year cash expenditure of only $880.80, while under the method
described in (b) $940.40 would be required, and under existing rules
$952 is required.
The Department of the
TREASURY
TELEPHONE W04·2041
WASHINGTON, D.C. 20220
FOR IMMEDIATE RELEASE
January 11, 1971
Depreciation Allowances -- Asset Depreciation
Ranges
Questions and Answers
A.
General
1.
Q:
The statement places substantial importance
on a liberalized system of depreciation. What
makes reform so important right now?
The reform would be sensible at any point In
A:
time, since it will result in simplification,
greater certainty for taxpayers, and a more
efficient administration of the tax law.
It is
especiallY sound in light of current economic
conditions~
Demand pull inflationary forces have
been brought under control, but business activity
is below its potential and unemployment is too
high.
Expansionary policies are needed at this
iime to foster healthy growth and reduce
unemployment.
2.
Q:
If the ADR System is successful in stimulating
business activity, won't that rekindle the
inflationary tendencies? And what about the
increased deficit? Isn't that inflationary?
A.
First, the primary impact of the ADR System
will be in the capita+ equipment industries
where spending has sagged and where there are
considerable unemployed resources.
The ADR
System should bring these resources into
productive use with little price impact.
Second, a deficit is inflationary primarily
when resources are fully employed. We do not
have that condition now.
The ADR System will
result in some reduction of tax revenues now,
during this period of slack business activity;
but later, as we move toward full employment,
revenues will rise.
Third, we expect business
-2~nd
labor to recognize that in reaching wage
and price decisions, they should no longer
anticipate continued inflation.
The short term
revenue reductions ar~ not so larg~ that the
balance between expenditures and revenue
collections under the full employment budget
concept cannot be maintained.
3.
Q: The ADR System is directed toward business
expansion.
What about the wage earner? Will
he get any benefits?
A:
This program will benefit the entire
production team.
The wage earner benefits when
his wag~s increase and even then only when his
wage increase outstrips price increases.
The
only source for a wage increase in excess of prlce
InCreases is higher productivity.
Except to a
very limited extent, wage earners cannot, by
themselves, increase their productivity.
Their
productivity can be increased, however, by the
application or-Iarger amounts of capital for
investment in productive equipment.
This program
will increase the amount of capital per wage
earner and so raise the productivity that is
essential for any real wage increase.
Thus, the
ADR System will stimulate employment by encouraging
the modernization of machinery and equipment of
United States busin~sses.
4.
Q:
Does the ADR System reduce business taxes by
granting larger depreciation deductions?
A:
The ADR System affects only the timing of
deductions; it does not increase the total
amount of deductions with respect to any individual
asset.
Prescribing shorter depreciation periods
gives greater recognition:
to changes in technology;
to pressures from foreign competition to modernize
our productive facilities; and to obsolescence
resulting from such factors as changes in production
processes necessitated by environmental quality
requirements.
Thus, there is a reduction in
business taxes now.
But any business taxpayer's
-3-
taxes in future years will be increased if
he does not in fact replace his facilities
consistent with the new periods or enlarge
his productive capacity.
5.
Q:
Are taxpayers required to use the ADR
System or is it optional?
A: The ADR System is optional. Unless a taxpayer
elects the ADR System for the taxable year, it
will not apply.
However, if elected for the
taxable year with respect to a trade or business,
all assets placed in service in that trade or
business during the taxable year m~st be depreciated
under the ADR System.
B.
Basic Application - ADR System
6.
Q: Will the ADR System apply to all types of
depreciable assets?
A:
In general, the ADR System will ftpply to all
types of assets for which a Guideline life has
heretofore been provided. The ADR System will not,
however, apply to electric, water, gas, telephone
and certain other public utility property.
(It
will apply, however, to property of railroads,
airlines, and 'the trucking industry.) The ADR
System will not apply to buildings or real estate
improvements except for a narrow category of
structures and enclosures which are so integrally
a part of or closely related to machinery or
equipment which they house or enclose that their
usefulness necessarily terminates with the end
of usefulness of such machinery or equipment.
In the case of such public utilitv propertv and
in the case of assets for which no Guideline
life has heretofore been specified, interested
taxpayers are invited to submit data which would
assist in determining whether the ADR System
should be extended to such assets and in establishing
an Asset Depreciation ~ange for such assets.
-4-
7.
Q:
When will the ADR System become effective?
A:
Taxpayers may elect to apply the ADR System
to assets physically placed in service on or
after January 1, 1971, but not for assets placed
in service prior to that date.
8.
Q:
To what extent have the Guideline lives been
shortened?
A:
In general, the Asset Depreciation Range is
from 20 percent shorter to 20 percent longer than
the Guideline class life for the asset or class of
assets.
The ranges so established will be rounded
to the nearest half year.
In the event an Asset
Depreciation Range is established for assets not
presently covered by the Guidelines, the policy
of the ADR System to accept shorter or longer
depreciation periods for business machinery and
equipment will be taken into account.
9.
Q:
Are taxpayers who use the ADR System assured
that their depreciation deductions will not be
questioned?
A:
Yes.
The ADR System establishes ranfes of
depreciation periods.
The deduction based on the
depreciation period which the taxpayer has chosen
within the applicable range will be accepted for
all assets to which he has elected to apply the
ADR System.
10.
Q: What effect does the ADR System have on
depreciation of assets placed in service in a year
for which ADR is not elected?
A:
None.
The ADR ranges have no significance
with respect to assets for which the ADR System
is not properly elected.
-5-
11.
Q:
If a taxpayer has more than one trade or
business must his election be the same for each
trade or business?
A: No.
The purpose is to provide taxpayers the
flexibility to take account of the different
conditions which may prevail in each trade or
business.
Therefore, the taxpayer must make a
separate election for each year with respect to
the assets placed in service for use in each
different trade or business during that year
whi9h he wishes to depreciate under the ADR
System.
12.
Q:
Maya separate election be made for assets
held for the production of income although
not used in a trade or business?
A: Yes. However, the taxpayer's election to
apply the ADR System to eligible assets held for
the production of income although not used in a
trade or business, applies to all such property
placed in service during the taxable year~
13.
Q:
If a taxpayer elects to apply the ADR System
to a trade or business for a taxable year, does
the election apply to assets pla~ed in service
in prior years but still used in the trade or
business?
A: No.
The election applies only to assets
placed in service during the taxable year and
does not apply to assets placed in service in
any prior or subsequent taxable year for which
no election was made.
-614.
Q: Once having elected to use the ADR System,
maya taxpayer revoke the election?
A:
The election is made for each taxable year
and once made cannot be revoked that year.
However, an election for one taxable year does
not require an election in any subsequent
taxable year.
-
15.
Q:
How does a taxpayer elect to apply the ADR
System to assets placed in service aurin?, the
taxable year?
A:
The ADR System is elected on the return f0l' t~;,·
taxable year.
The election is not treated as d
change in a method of accounting for which consent
must be obtained.
16.
Q:
Mayan election to apply the ADR System for the
taxable year be made on an amended return for the
taxable year?
A:
The election may be made on an amended return
only where it is filed prior to the due date of
the return (after giving effect to any extensions
of time for filing).
If a timely election to apply
the ADR System is not made for a taxable year, the
taxpayer may not thereafter elect the ADR System
for assets placed in service during that taxable
year.
-7-
17.
Q:
What is the meaning of a "vintage" account
under the ADR System? Does this term refer both
to mUltiple asset accounts and item accounts?
A:
Item accounts as well as mUltiple asset accounts
may be used under the ADR System. Assets must be
identified by and placed in separate accounts by
the taxable year in which placed in service. The
"vintage" of an account, whether an item account
or a mUltiple asset account, refers to the year in
which the assets in that account were placed in
service.
18.
Q: Does this mean that a taxpayer using the ADR
System must have separate accounts for each taxable
year, and will not be permitted to maintain composite accounts for assets acquired on a continuing
basis over a period of several years?
A: Generally, yes. A taxpayer may use the ADR
System for one year and not use it for another year,
and may use different depreciable periods within
the ADR range and different first-year conventions
for acquisitions in one year as compared to acquisitions in another year, even though he continues
under the ADR System. Hence, it is necessary to
be able to compute depreciation separately for
assets placed in service in ea·ch year and to identify
assets on the basis of vintage accounts.
19.
Q:
If a taxpayer elects the ADR System and selects
a period of depreciation for an asset which is less
than three years, may he determine depreciation
under the double declining balance method or the
sum of the years-digits method for such asset?
A: No. A taxpayer may not use any of the methods
of accelerated depreciation described in section
167 (b)(2), (3) or (4) for an asset if a period of
less than three years is selected for such asset
from the Asset Depreciation Ranges.
First-Year Conventions Under ADR System
20.
Vlhat first year conventions are available under
the ADR System?
Q:
A: A half year convention or a new modified first
year convention will apply to all item and multiple
asset vintage accounts under the ADR System. A
-8-
taxpayer who elects to apply the ADR System must
elect to apply either the half year convention
(treating all assets placed in service during the
taxable year as placed in service at the mid-point
of the year) or the new modified first year convention (treating all assets placed in service
during the first half of the year as placed in
service at the beginning of the year and all
assets placed in service during the second half
of the year as placed ln service at the mid-point
ln the year).
21.
Q:
Will the first year conventions apply to item
accounts under the ADR System?
A: Yes.
The first year conventions apply both
to item and to multiple asset accounts for which
the ADR System is elected.
22.
Q: Since there are two first year conventions
under the ADR System, may one be used for some
asset accounts and the other be used for other
asset accounts of the same vintage?
A: No.
Under the ADR System, either the halfyear or the new modified first year convention must
be elected for all multiple asset and item accounts
established for the taxable year. However, the
taxpayer need not elect the same convention in a
subsequent taxable year.
23.
Q: May the new modified first year convention be
used by a taxpayer who does not elect the ADR
System?
A: No.
This is a new convention which applies
only under the ADk System.
24.
Q:
How will the new modified first year convention
be applied to assets placed in service after
December 31, 1970, but during the first half.of a
fiscal year beginning in 1970 and ending in 1971?
A: Under the new modified first year convention,
assets in multiple asset or item accounts which
are physically placed in service during the first
half of the taxable year are treated as being
placed in service at the beginning of the year.
However, the new modified first year convention
may not be utilized to allow depreciation for any
period prior to January 1, 1971, if depreciation
-9-
would not otherwise be allowable for such period.
Therefore, if the new modified first year convention is elected, assets placed in service after
December 31, 1970, but during the first half of a
fiscal year beginning in 1970 and ending in 1971,
will be treated as placed in service on January 1,
1971.
For example, if a taxpayer with a fiscal
year ending on September 30, 1971, places an asset
in service on March 1, 1971, and elects the ADR
System and the new modified first year convention,
such asset is treated as placed in service on
January 1, 1971.
D.
Applicatiqn of ADR System to Used Assets
25.
Q:
Will the ADR System apply to used assets placed
in service by the taxpayer after December 31, 1970?
A: Yes.
In general, the ADR System will apply
both to new assets and to used assets placed in
service after December 31, 1970. An exception is
made. when used assets constitute more than 10 percent of the assets placed in service in the taxable
year. In that case, the taxpayer is not required
to apply the ADR System to the used assets.
26.
Q: How does the 10 percent exception for used
property apply?
A:
If the basis of used assets placed in service
during the taxable year exceeds 10 percent of the
basis of all asset~ placed in service during the
taxable year, the taxpayer may elect to apply the
ADR System only to new assets. The taxpayer has
the further option of applying the ADR System to
all of the used assets, but is not required to do
so. However, he may not elect to apply the ADR
System to only a part of the used assets; he must
elect to apply the ADR System to all or none of
such assets. The basis of both new and used assets
is determined on the date placed in service." Only
assets in the same trade or business are compared
in applying the 10 percent exception.
27:
Q: Does the cost of repairs, rebuilding, etc., if
otherwise required to be capitalized, affect the
application of the 10 percent exception for used
assets?
-10-
A:
Yes.
Any capitalized cost of such improvements
during the taxable year is treated as a used asset
placed in service during the taxable year for purposes of the 10 percent exception.
28.
Q:
In which vintage account is the capitalized
cost of such an improvement included?
A:
The capitalized cost of rebuilding or improving
an asset is included in an appropriate vintage
account for the taxable year in which the rebuilding
or improvement is completed, not in a vintage
account for the taxable year in which the asset
rebuilt or improved was originally placed in service.
29.
Q: Does the ADR System determine whether the cost
of repairing, rebuilding, improving, etc. is to be
capitalized instead of expensed?
A: No.
The ADR System does not affect this
question.
30:
Q: How do these rules apply with respect to used
assets transferred to a corporation in a tax-free
transaction in which there is a carryover of the
basis of the assets?
A:
If section 381 applies to the trans~ction, the
transferee corporation is bound by the transferor
corporation's election of (or failure to elect)
the ADR System in the year or years the assets
transferred were placed in service by the transferor, as provided in sections 381(c)(4) and (6).
Thus, the transferee's election of the ADR System
with respect to other assets placed in service
during the taxable year of the transaction does
not affect the depreciable period which the transferee may use for the assets acquired in the
transaction to which section 381 applies. Where
section 381 does not apply to a transfer to a corporation, as in the case of a transaction to which
section 351 applies, the acquisition of the assets
by the transferee corporation will constitute an
acquisition of used assets the treatment of which
will be governed by whether the transferee elects
the ADR System for the year it places such transferred
property in service in its business.
-11-
E.
Status of Guidelines and Reserve Ratio Test
31.
Q:
In view of the new ADR System, what is the
status of Rev. Proc. 62-21 and the reserve
ratio test?
A:
Rev. Proc. 62-21 will remain in effect,
but the reserve ratio test will be eliminated
with respect to any taxable year ending after
December 31, 1970, for which Rev.Proc. 62-21 is
elected.
The application of Rev. Proc. 62-21
to any taxable year ending before January 1, 1971,
is not affected by the ADR System.
32.
Q:
Now that the reserve ratio test has been
eliminated for the future in applying Rev. Proc.
62-21, may taxpayers elect to be tested under
Rev. Proc. 62-21 for earlier years for which
returns have already been filed?
A:
lIo.
A taxpayer who has not previously
elected to be tested under the Guidelines for
a taxable year for which a return is required
to have been filed may not elect on or after the
date of announcement of the ADR System (January 11,
1971) to be so tested for such taxable year.
For purposes of determing whether a return is
required to have been filed for an earlier year,
extensions of time for filing will be taken into
account if granted before January 11, 1971 (or
if granted after that date pursuant to a
request for extension filed before January 11, 1971).
F.
Miscellaneous
33.
Q:
Will the ADR System be available for
computation of the earnings and profits of foreign
subsidiaries and thereby affect the amount of
foreign tax credit applicable to dividends paid
by foreign subsidiaries?
A: The extent to which the new system should
be made available for these purposes is being
given further study.
- 0 -
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 11, 1971
THE DEPARTMENT OF THE TREASURY
Washington, D.C. 20220
DEPRECIATION ALLOWANCES -- ASSET DEPRECIATION RANGES
The President has announced today that a simplified
and modernized system of depreciation allowances for
machinery and equipment (the Asset Depreciation Range (ADR)
System) 'is being adopted by the Internal Revenue Service. The
reserve ratio test applicable to taxpayers who have elected
S>-ca11ed "Guideline" depreciation will be eliminated for
takable years ending after December 31, 1970.
The new ADR System will provide an election to taxpayers
to take as a reasonable allowance for depreciation an amount
based on any period of years selected by them within a range
specified f9r designated classes of assets. Having selected
the period, the taxpayer will determine his depreciation
allowance under one of the methods presently permitted, such
as the "straight-line," "double-declining balance," or "sum
of the years-digits" method.
The range from which a period may be chosen ·wi11 be
specified for all assets or classes of assets for which
Guideline 1ivf'sare presently provided under Rev. Proc.
62-21, 1962-2 C.B. 418 (as amendedcnd supplemented), except
·buildings and real estate improvements and certain public
utility property.
In general, the range will be from a period of years
20 percent below the present Guideline lives to 20 percent
above such lives.
- 2 -
A first year convention will be provided under which
the taxpayer will either: treat all assets acquired during
the year as acquired at the mid-point in the year, or treat
assets acquired in the first half of the year as acquired at
the beginning of the year and assets acquired in the second
half of the year as acquired at the mid-point in the year
(hereinafter referred to as the new modified first year conventic
The income tax regulations will be amended to provide
for this system.
The Internal Revenue Service will accept such treatment
as providing a reasonable allowance for depreciation purposes
in all events if the ADR System is elected. A period selected
from within the Asset Depreciation Range cannot be changed
either by the taxpayer or the Service during the remaining
period of use of the assets.
Assets will be required to be accounted for in item
accounts or in group accounts by year placed in service
(vintage accounts) according to the basis of classification of
such assets in the Asset Depreciation Ranges. The election
may be made annually and will apply to all assets placed in
service in the year of election in the trade or business for
which the election is nBde.
The APR System will be made available for assets physically
placed in service after December 31, 1970.
These actions are being taken pursuant to the authority
contained in section l67(a) of the Internal Revenue Code of
1954 whereby a reasonable allowance for depreciation and
obsolescence is to be permitted; in sections 446, 451, and 461
giving the Secretary or his delegate authority to provide for
methods of accounting and the period in which income is to be
accounted for and deductions are to be taken; and in section
7805 authorizing the Secretary or his delegate to prescribe all
needful rules and regulations for administration of the
internal revenue laws.
The System will provide simplicity and certainty to
taxpayers and will substantially relieve the administrative
burden on both taxpayers and the Internal Revenue Service
resulting from the rules previously in effect. In the case of
assets to which the System applies, it will eliminate controversy
- 3 as to the period on the basis of which a reasonable allowance
for depreciation is to be determined, and thus will elLminate
necessity for making each determination by weighing all the
facts and circumstances of each particular taxpayer. Such
controversies would otherwise continue to arise, even if
Guideline lives have been adopted under Rev. Proc.62-2l where
the reserve ratio test has not been satisfied (see sections
3.03, 3.06, and 6.01 of Rev. Proc. 62-21).
The System will also provide greater flexibility to
taxpayers in determining the method by which they allocate their
costs of capital equipment to the periods in which such
equipment is expected to produce income. Thus, the System will
in all respects be a more efficient alternative for determining
a reasonable allowance for depreciation each year than either
the ''facts and circumstances" approach or the Guideline lives
system under existing law.
The actions recognize that past replacement or
retirement experience is not always the best and seldom is the
only proper guide for forecasting the future period of economic
productivity of assets to which the capital expenditures for
such assets should be allocated. The degree of technological
change since the 1962 Guideline lives were prepared makes
the use of hindsight inappropriate as a guide in predicting
the future practices of the 1970's and 1980's. Vigorous
competition from producers in other nations, most of which
provide similar systems, requires that United States businesses
accelerate the modernization of their facilities. The necessity
of modifying many of our industrial processes to cope with
environmental quality requirements has resulted in an
unexpected rapid increase in obsolescence of productive facilities.
All of these forces have caused the taxpayer's past
retirement and replacement experience to be an unreliable guide
in our modern industrial society in establishing reasonable
allowances for future depreciation and obsolescence. Moreover,
within the limits of administrative discretion, it is' in the
best interest of the United States to increase the productivity
of our labor force and stimulate employment by encouraging
the modernization of machinery and equipment of United States
businesses. The ADR System permits taxpayers to select
appropriate periods for recovery of their capital expenditures
for productive equipment from the revenues which will be
produced by such equipment by use of foresight and with proper
adaptation to all these changing economic conditions.
- 4 The recent indications of a leveling off of investment
in equipment makes it Unportant to institute these changes at
the present time to stimulate business activity and thereby
speed the return of the economy to full employment. This
action with respect to depreciation reform is an integral part
of the expansionary policies announced by President Nixon
to attain these objectives.
It is estimated that, without giving effect to any feedbac
to revenues resulting from increased employment and business
activity, these changes will result in a reduction in Federal
revenues of $0.8 billion in the fiscal year ending June 30,
1971, and of $2.7 billion in fiscal 1972, rising annually
thereafter to a peak of $4.1 billion in fiscal 1976 and falling
thereafter to $2.8 billion by fiscal 1980. It is anticipated,
however, that the increase in employment and business activity
will provide substantial additional feedback revenues to
offset these reductions.
Asset Depreciation Range System
Ranges of years within a bracket from 20 percent below
to 20 percent above Guideline lives will be established for
all assets or groups or classes of assets for which Guideline
lives are now provided under Rev. Proc. 62-21 except as
hereinafter provided. The lower and upper limits of each range
will be stated in terms of years rounded to the nearest half
year in each case. While the basic structure of the ADR System
will be adopted by regulations, the specification of Asset
Depreciation Ranges will be made in Revenue Procedures.
The System will not extend to buildings or certain
other real estate improvements.
Further study is being given
to the extent to which the System should apply to special
purpose structures or enclosures which are so integrally a
part of or closely related to machinery or equipment which they
house or enclose that their usefulness necessarily terminates
with the termination of the usefulness of such machinery or
equipment.
At the present time, the ADR System will not be made
available for assets which are public ut Lty property of the
type described in section l67(1)(3)(A) 0: :he Code. The
- 5 property so excluded is primarily property of electric, water,
gas, and telephone utilities. The ADR System will be available
for property of railroads, airlines, and the trucking industry.
The exclusion of certain classes of public utility property
is made pending further study of the extent to which the ADR
System is appropriate for such property, and if appropriate,
the Asset Depreciation Ranges which should be provided for
such property.
Where Guideline lives are not provided under Rev, Proc.
62-21, for any asset or class of assets, and hence an Asset
Depreciation Range is not provided, the Internal Revenue Service
will 'receive information from taxpayers and industry groups
from time to time as to additional Asset Depreciation Ranges
which should be established. Additional Ranges so established
will be published in Revenue Procedures.
Where the taxpayer elects to apply the ADR System for
any taxable year for a trade or business, periods must be
selected within the specified Asset Depreciation Ranges for
each asset or class of assets placed in service in that year
for which a range is provided. For this purpose, all property
held by the taxpayer for production of income but not held
for use in a trade or business must be covered by a single
election; the ADR System may not be elected for only part of
such property placed in service by the taxpayer during the
year; it must be elected for all or none of such property.
The taxpayer may not thereafter change the periods so selected
for those assets, and the Internal Revenue Service cannot
change such periods. Once made for a year, the taxpayer's
election of the ADR System may not thereafter be revoked. An
election may be made for all assets placed in service in any
year in one trade or business of the taxpayer and not for
assets placed in service in that year in a different trade or
business.
Assets subject to the election will be required to be
accounted for in item accounts or in mUltiple asset accounts
by year placed in service (vintage accounts). In the case
of mUltiple asset accounts, normal retirements will be ignored
the deduction will be computed as if all assets in the account
survived for as long as the period selected. In the case of
abnormal retirements, however, the unrecovered basis of the
asset will be deductible at the time of retirement. The
- 6 -
distinction between normal and abnormal retirements
is contained in existing regulations, but it is expected
that the distinction will be amplified by amendments
to the regulations.
If the ADR System is elected with respect to
assets placed in service in a trade or business for a
particular year, it will apply to used assets as well
as new assets.
The depreciation period of the used
assets, as well as of the new assets, must be within
the Asset Depreciation Range for such assets or
classes of assets, but need not be the same if the new and
used assets are placed in separate depreciation accounts.
An exception will be made where the basis of used assets
exceeds 10 percent of the total basis of all assets
placed in service in the year; in such a case,
lives for used assets may at the taxpayer's election be
determined without regard to the Asset Depreciation Ranges.
Similarly, the cost of rebuilding, rehabilitating or repairing an asset, to the extent such cost must be capitalized,
must be accounted for in a separate vintage account for the
year in which the rebullding, rehabilitation, or repair is completed and cannot be added to the original vintage account for
the asset so rebuilt, rehabilitated, or repaired. Such account
must be treated in the same manner as used assets. Further con
sideration is being given to the extent to which special shorte
Asset Depreciation Ranges should be established for such used
assets or capitalized expenditures.
- 7 -
The Guideline lives, on the basis of which the Asset
Depreciation Ranges are established, were determined so as to
make current allowance for salvage value unnecessary. Accordingly, salvage value will not be taken into account under the
ADR system in establishing the annual depreciation deduction for
an asset or class of assets, but no asset or class of assets
may be depreciated below the salvage value after application
of section l67(f) of the Code. Thus, the annual depreciation
deduction will be determined by applying the appropriate fraction
or percentage based on the period selected to the original cost
or unadjusted basis of the asset (reduced, in the case of declining balance methods, by cumulative depreciation taken).
The salvage value to be taken into account for this purpose is the salvage value expected to be realized by the
particular taxpayer in question (see Reg. section 1.167(a)-1(c».
Provision will be made for specification by the taxpayer of
salvage value of depreciation accounts at the time such accounts
are first established. Such accounts will not ordinarily
thereafter be changed by the Internal Revenue Service unless
there is a clear and convincing basis for using a different
amount for salvage value based on facts in existence at the time
such amount was first established by the taxpayer.
It is expected that the regulations will be clarified as
to the detecmination of salvage value for taxpayers who customarily dispose of assets after periods substantially less
than the normal useful life of such assets.
The ADR System will serve only to establish the period
on the basis of which the annual depreciation deduction is
determined. The appropriate method of depreciation chosen by
the taxpayer (declining balance, sum of the years digits,
straight line, or other method based on a period of time) will
be applied based on such period.
Example. On January 15, 1971, M Company, a manufacturer reporting on the calendar year basis,
purchases and places in service various items of
production machinery and equipment with a total cost
of $50,000. The cost of the various individual items
ranges from $150 to $10,000. The anticipated useful
lives range from 3 years to 15 years. On August 1,
1971 , M also acquires an item of special equipment . .
with a cost of $30,000. M has no other asset acqu1s1tions in 1971.
- "B The range of depreciation periods under the ADR
System for equipment used in M's business is 8 to 12
years. M elects to use the ADR System for 1971.
places all of the various items of machinery
and equipment other than the special equipment in a
multiple asset vintage account for 1971. M chooses
from the ADR Range a depreciable period of 8 years
and elects to calculate depreciation on the double
declining balance (DDB) method. M expects that the
aggregate salvage value of the account will be $4,000,
but this amount of salvage is disregarded for all
purposes because, as provided in section 167(f) of the
Code, it is less than 10 percent of cost of the assets
in the account (the basis of the account).
M
M also decides to set up an item account for the
one item of special equipment. This item has an
estimated salvage value of $5,000. M selects from the
ADR Range of 8 to 12 years a depreciable period of 10
years for the special equipment and decides also to use
the double declining balance (DDB) method for this
account. The salvage value of such account taken into
account for Federal income tax purposes is $2,000
----- _.- -($5,000 est~ated salvage value minus $3,000 [10 percent
of $30,000, the cost of the equipment]), and therefore
the cumulative depreciation deductions with respect to
such account may not exceed $28,000.
-~
-~
M's depreciation deduction on account of
assets placed in service in 1971 is $15,500, determined
as follows:
DDB
Rate
Depreciation
AmoWl.t
Account
Basis
ADR
Period
Group Account1971 Acquisitions
$50,000
8 yr.
25%
$12,500*
Special Equipment
30,000
10 yr.
20%
3,000*
- 9 -
*Reflects application of the new modified first year
convention elected by M which treats assets placed in
service in the first half of the year as placed in service at the beginning of the year (thus allowing a full
year's depreciation on such assets) and Assets placed
in service in the second half of the year as placed in
service at the mid-point of the year (thus allowing a
half year's depreciation on such assets).
The first year's depreciation allowance for assets subject to the ADR System accounted for in both item and multiple
asset vintage accounts will be determined according to one of
two conventions, either of which may be selected by the taxpayer:
1.
The taxpayer may elect under the half year convention to treat all assets put in service in that
trade or business in that taxable year as put in
service at the mid-point in the year, so that
one-half ofa full year's depreciation allowance
based on the life selected may be taken; or
2.
The taxpayer may elect under a "new modified
first year convention" to treat all assets put
in service in that trade or business in the first
half of the taxable year as put in service at the
beginning of the year and all assets put in
service in the second half of the taxable year as
put in service at the mid-point in the year. Assuming equal amounts of assets are put in service
in the first half and second half of the year, and
that the lives selected are the same, this will
result in three-fourths of a full year's depreciation allowance.
Other. methods of achieving the same effect as the above two
conventions will be set forth in the regulations. A taxpayer
electing the ADR System will be required to elect the same
- 10 -
convention for all assets accounted for in both item and
multiple asset vintage accounts for any year for which the
ADR System is elected. However, one of the two conventions
may be elected for one year of election and the other
convention may be elected for another year of election. The
conventions will not be permitted to result in depreciating
an asset or a multiple asset vintage account below salvage
value.
Example. X, a manufacturer reporting on t~1e
calendar year basis, placed new equipment in
service in 1970 as follows:
Date
Cost
Equipment
June 15, 1970
October 1, 1970
Lathes
Drill Press
$10,000
5,000
elected to be tested under the Guidelines, which
prescribe a single Guideline class for X's factory
equipment of 5-years. X elected for 1970 to use
the double declining balance method. X grouped his
assets in a single factory equipment multiple asset
vintage account for 1970. X used a half year convention. The equipment is expected to have no
salvage value. X's depreciation allowance for 1970
for his 1970 acquisitions was $1,500, computed as
follows:
Depreciation
DDB
Amount
Account
Life
Rate
Basis
X
-
1970
Acqu1.s1tions
$15,000 S-year
40%
$3,000
The depreciation amount of $3,000 reflects application
of the half year convention for the year of acquisition.
- 11 -
For 1971, X elects the ADR System and the
minimum period of 4 years. X also elects the new
modified first year convention. X's asset acquisitions
for 1971 are exactly the same as for 1970 (dates and
amounts). X's depreciation allowance for the assets
placed in service in 1971 is $6,250, computed as
follows:
DDB
Depreciation
Account
Basis
Period
Rate
Amount
1971
Acquisitions
$15,000
4-years
50X
$6,250
The depreciation amount of $6,250 reflects application
of the new modified first year convention; X obtains
a full year's depreciation on $10,000, the cost of the
lathes placed in service in the first half of the year
and a half year's depreciation on $5,000, the cost of
the drill press placed in service in the last half of
the year. If X had not placed the lathes in service
until July 15, 1971, X's depreciation allowance for
1971 for this multiple asset vintage account would be
$3,750.
The ADR System may be elected with respect to assets
physically placed in service after December 31, 1970. In the
case of fiscal year taxpayers who elect the ADR System for
assets placed in service after December 31, 1970, in a
taxable year beginning before and ending after December 31, 1970,
each asset or class of assets for which an Asset Depreciation
Range is provided must be accounted for separately in an
ite. account or in a multiple asset vintage account for that
portion of the taxable year after December 31, 1970.
In the event that under a first year convention used by
a fiscal year taxpayer assets to which ADR applies are treated
- 12 -
as placed in service in 1970, depreciation for sucn assets
for the fractional part of the year in 1970 shall be determine,
at the rate applicable before the ADR System was effective.
Depreciation for the fractional part of the year after Decemhe:
31, 1970, shall be computed using the appropriate ADR rate.
The new modified first year convention under the ADR System
may not be utilized to allow depreciation for any period
prior to January 1, 1971, if not otherwise allowable.
Example. Taxpayer A reports on the basis of a
fiscal year ending March 31. Taxpayer A has elected
to be tested under the present Guidelines and all
of his factory equipment falls within a single
Guideline class with a life of 10-years. He has
previously consistently grouped his assets in annual
vintage accounts and used the half year convention.
Taxpayer A places in service in his fiscal year ending
March 31, 1971, new machinery and equipment having
a zero salvage value as follows:
Date
April 15, 1970
Sept. 1, 1970
Dec. 15, 1970
Jan. 20, 1971
March 10, 1971
Equipment
Item
101
102
103
104
105
Cost
$1,000
1,500
500
2,000
3,000
A elects the ADR System for assets placed in service
after December 31, 1970, and selects tne minimum period
in the Asset Depreciation Range (8 to 12 years) and the
half-year convention. A also elects the double declining
balance (DDB) method of depreciation for fiscal 1971
equipment acquisitions. A's depreciation deduction for
his fiscal year ending March 31, 1971, would be $862.50
determined as follows:
- 11 -
Basis
Life
or Period
April 1, 1970 to
Dec. 31, 1970
$3,000
10 yr.
201
Jan. 1, 1971 to
March 31, 1971
5,000
8yr
25i.
Account
DDB
Rate
Depreciation
Amount
$300*
562.50**
*One-ha1f of 20 percent of $3,000.
**
Taxpayer is entitled to one-half year's depreciation
for these assets under the half-year convention effective
for fiscal 1971. Half of this depreciation is computed
at a 20 percent rate (for the portion of the half year
preceding January 1, 1971) and half is computed at a
25 percent rate (for the portion of the half year following
December 31, 1970). Thus, the depreciation for the
period preceding January 1, 1971, is one-fourth of 20
percent of $5,000 ($250) and the depreciation for the
period after December 31, 1970, is one-fourth of 25 percent
of $5,000 ($312.50).
Reserve Ratio Test
The reserve ratio teet under Rev. Proc. 62-21, 1962-2
C.B. 418 <as amended and supplemented), providing for Depreciation Guidelines and Rates, will be eliminated for taxable
years ending after December 31, 1970. Thus, a taxpayer who
has elected to be examined under Rev. Peoc. 62-21 and has
satisfied the reserve ratio test for taxable years ending
before January 1, 1971, may continue to use the prescribed
Guideline lives for all subsequent years without application
of the reserve ratio test. Where such Guideline lives "test
is satisfied, the taxpayer's depreciation deduction for the
assets in that Guideline class will not be disturbed. Where
a taxpayer has so elected but has not satisfied the reserve
ratio test for all such years, adjustments may be made to
asset lives as provided in Rev. Proc. 62-21 for taxable years
up to and including the taxpayer's last taxable year ending
before January 1, 1971. The life as so adjusted for the
last taxable year ending before January 1, 1971, will be used
for subsequent years, but no further adjustments may be made
by application of the reserve ratio test for any subsequent
tuab Ie year.
- l~ -
A taxpayer who has not previously elected to be tested
under the Guidelines for a taxable year for which a return
is required to have been filed (after giving effect to any
extensions of time for filing granted pursuant to requests
already filed) may not elect on or after the date of this
announcement to be so tested for such year. With respect
to taxable years ending before J·anuary 1, 1971, for which a
return was not required to have been filed by December 31,
1970 (after giving effect to any extensions of time for
filing granted pursuant to requests already filed), the
taxpayer may elect to be tested under the Guidelines for
any Guideline class of assets if the taxpayer will satisfy
the reserve ratio test for the year in which the election
is made.
Taxpayers not electing the ADR System with respect to
assets placed in service in any taxable year ending after
December 31, 1970, may elect to be tested under the Guidelines for such year. Taxpayers electing the ADR System for
a taxable year ending after December 31, 1970, may also
elect to be tested under the Guidelines for such year with
respect to assets placed in service prior to January 1, 1971.
In such cases, the Guidelines will be applied without application of the reserve ratio test. Thus, for example,
regulated public utilities of the type described in section
167(1)(3)(A) of the Code for which Guideline lives are
provided in Rev. Proc. 62-21 may elect to be tested under
that Revenue Procedure. In such case, if the taxpayer's
class life is equal to or longer than the Guideline life
for a Guideline class, the depreciation deduction claimed
by the taxpayer for the assets in that class will not be
disturbed, except that no less than a reasonable allowance
for depreciation may be taken in any year. Such treatment
will not, however, be available unless a specific Guideline
class life is provided in the Guidelines. It will not, for
example, be available for trees and vines in Guideline Group
Two because no specific Guidelineclass life is provided for
such assets.
000
Statement of Paul W. McCracken
on President's Announcm~nt of
Changes in Depreciation Allowances
The modernization and simplification of our system
for depreciation, announced today by the President, will
make a major contribution to the economy.
For one thing
they introduce a flexibility, in accounting for the
economic cost of capital expiring in the process of
production, that is more cohsistent with fast-moving
changes in a
d~namic
economy.
These basic changes will also have a favorable impact
on the market for capital goods in 1971.
These outlays
have held at a high level during the last year, and
there are even encouraging signs pointing toward 1971.
New
orders of producers capital goods industries showed good
strength in November, and the volume of newly approved
projects in the third quarter rose.
Evenso the combination
of reduced earnings, lower operating rates, and higher costs
of financing was having an adverse effect on capital outlays
prospects, and for some segments of the machinery industry
the volume of incoming business has been quite disappointing.
These fundamental moves, answered today, can have favorable
effects in the 1971 situation.
The most fundamental significance of these moves
is that they improve the longer run outlook for the
competitiveness and productivity of our economy.
Through
-2-
enlarging the cash flow and improving the effective rate
of return by roughly a percentage point, they will encourage
businesses to enlarge their stocks of modernized
productive equipment.
In this way we can encourage the
improvements in productivity essential for a reasonable cost
stability and for meeting the new demands on our productive
resources.
While our depreciation allowances remain somewhat
less generous than those of the industrial world generally,
these changes will strengthen our competitive position in
world markets.
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o
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
IOR IMMEPIATE RELEASE
January 12, 1971
TREASURY'S WEEKLY BILL OFFERING
The T.reasury D~partment,by this. public notice., invites tenders
for two s~r1es of Tre~,ury bills to the aggregate amount of
$3,400,000,000, or the.reabouts, for cash and in exchange for Treasury
bills matu,ring
Janllary 21, 1971,
in the amol.mt of $3,402,125,000,
as follo~s:
91-day bills. (to 'maturity date) to be issued January 21, 1971,
in the amount of $ 2,000,000,000,. or thereabo,Ut:s, representing an
additional amount of bills dated October 22~ 197G, and to mature
April 22, ,1971
(CUSIP No.912793 KE5 ) originally issued in
the amount of $ 1,401,,2a5,000, the additional and original bills to be
fr.eel v interchan~eable.
182- ddV bills, iO.r $1,400,000,00-0, 'or thereabouts, to be dated
January 21, 1971,
ana to mature July 22, 1971
.
(CrSl!' :-:1). i9t2793 KZ8) .
Tll<' hills of both series will be issued on a discount basis under
competitive and noncompetive bidding as hereinafter provided, and at
maturi t \' the i r :face amount will be payable wi thout inte res t . They wi 11
be issu~din he~rer fo~m only, and in denominations of $10,000,
$ll,nO(). $50,000, $100,000~ $500,000 and $1,060,000 (maturity value).
Tenders ~i11 be received at Federal Reserve Banks and Branches up
to the clOSing hour, one-thirty p.m., Eastern Standard
time,
Monday, January '18, 1971.
Tenders 'wil1 not be received
at the Treasury Department, Washington. Each tender must be for a
minimum of $10,000. Tenders over $lC ~ 000 mus t be in mu1 tiples of
$5,000. In the case of competitive tenders the price offered must be
expressed on~the basis of lOO, with not more than three decimals,
e.g., 99.925 .. Fractiotls 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
- 2 submit tenders except for their own account. Tenders will be recei¥
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tender
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are accompal
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at tt
Federal Reserve Banks and Branches, following which public announcemE
will be made by the Treasury Department of the amount and price rangE
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of thE
Treasury expressly reserves the right to accept or reiect any or all
tenders, in whole or in part, and his action in any such respect shal
be final. Subject to these reservations, noncompetitive tenders for
each issue for $200,000 or less without stated price from anyone
hidder will be accepted in full at the average pric~ (in three decima
of accepted competitive bids for the respective issues. Settlement f
accepted tenders in accordance with the bids must be made or complete
at the Federal Reserve Bank on January 21, 1971,
in cash or other immediately available funds or in a like face amount
Treasury bills maturing
January 21, 1971.
Cash and exchange tend
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.
tnder Sections 454 (b) and 1221 (5) of the Internal Revenue Cod
of 1954 the amount of discount at which bills issued hereunder are so
ie; "i;,-;c:idered to accrue \vhen the bills are sold, redeemed or otherwisl
dLSp·,):-;C'ci of, and the bills are excluded from consideration as capital
3C:St'L.-,
Accordingly, the mvner of Treasury bills (other than life
ir,sllcnncL' companies) issued hereunder must include in his income tax
r e C, ; l'Il, ;1 S Ll r din a r y g a in 0 r los s, the d iff ere n c e bet wee nth e p ric epa
for the bills, ,,'hether on original issue or on subsequent purchase, al
the amount actually received either upon sale or redemption at maturi:
rlurin~ the taxable year for which the return is made.
lreasury Department Circular ~o. 418 (current revision) and this
prescribe the terms of the Treasury bills and govern the .
con':l~ions of their issue.
Copies of the circular may be obtained fr(
any federal Reserve Bank or Branch.
notic~,
000
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE.
January 12, 1971
TREASURY SECRETARY KENNEDY NAMES A, P. FONTAINE
AS NEW STATE SAVINGS BONDS CHAIRMAN FOR MICHIGAN
A. P. Fontaine, Chairman and President, Bendix Corp.,
Southfield, is appointed volunteer State Chairman for the
U. S. Savings Bonds Program in Michigan by Secretary of
the Treasury Daviq M. Kennedy, effective immediately.
He succeeds Wilfred D. MacDonnell, President, Ke1seyHayes Co •. , Romulus, who had served as State Chairman since
1966.
Font.aine will head a committee of State business,
financial, labor, and government leaders which -- working
with the U. S •. Savings. Bonds Division -- assists in
promoting the sale's of Savings Bonds •.
. Elected president of Bendix in 1968, Fontaine has
served as its chairman of the board and chief executive
officer since 1965.
He joined in 1944 and has been with the corporation
since then except for two periods -- 1946-51, as Director
of the Research Center, University of Michigan, and 1951-52,
as Vice President and subsequently Executive Vice President
of Consolidated Vu1tee Aircraft Corp. He returned to
Bendix in 1952 to help direct expanded operations in aircraft
control, navigation,and instrument equipment.
In 1954 Fontaine was named Director of Engineering, the
following year he was elected Vice President and member of
the Administration Committee, and in 1959 he became a Director.
- 2 -
He was elected Executive Vice President in 1960. In
this capacity he was responsible for engineering, research,
planning, acquisitions, patents, products development and,
sales in the corporation's then 27 divisions and four domestic
subsidiaries.
A graduate of the New York University College of
Engineering, Fontaine was presented the University's Distinguished Alumnus Award. He holds the Michigan Wolverine
Award for outstanding service in establishing the State as
an aerospace research center. Fontaine has been awarded
honorary doctoral degrees from the University of Michigan,
Wayne State University, and Tri-State College. He is a
member of the Newcomen Society of North America.
He has served on the Countermeasure Panel and Technical
Evaluation Board of the Research and Development Board of
the Department of Defense.
Fontaine is a member of the Board of Directors of the
National Bank of Detroit, Rohr Corp., and Uniroyal, Inc.
He is a Director of the National Association of Manufacturers,
National Industrial Conference Board, and the Economic
Development Corp. of Greater Detroit. He is a member of the
Board of Directors of the Economic Club of Detroit, and of
the Board of Trustees for the Traffic Safety Council of
Michigan. The Bendix executive also is a Trustee of the
Citizens Research Council of Michigan and an Executive
Committee member of the Air Foundation. He is a member of
the National 4-H Club Foundation Advisory Council.
000
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 13, 1971
WILLIAM H. SMITH AWARDED EXCEPTIONAL SERVICE
AWARD BY SECRETARY KENNEDY
Treasury Secretary David F. Kennedy today conferred the
Exceptional Service Medal, the Department's highest award,
on Deputy Commissioner of Internal Revenue, William H.
Smith. Mr. Smith is leaving the service on January 15 to
enter the private practice of law in Washington, D.C.
As the principal deputy to Internal Revenue Commissioner,
Randolph W. Thrower, Mr. Smith shared responsibility for
setting Service policy and directing its major activities
in the National Office and throughout the country.
Mr. Smith joined the Internal Revenue Service in 1958
as Director of the Systems Development Division where he
designed the Service's Automatic Data Processing system.
He was promoted to Assistant Commissioner (Planning &
Research) in 1961 and was responsible for long range
planning, and systems and tax research for IRS. He was
appointed Deputy Commissioner by the Secretary of the
Treasury in June 1966.
A native of Brooklyn, New York, Mr. Smith holds the
degrees of Bachelor of Science in Social Science and
Bachelor of Laws from St. John's University, New York. He
also holds the degree of Master of Laws in taxation from
Georgetown Unive~sity, ~7ashington, D. C. He is a member
of the New York and District of Columbia bars.
Among other commendations Mr. Smith has received are
the Commissioner's Award, Treasury Department Meritorious
Award, and the National Civil Service League Career Service
Award.
Mr. Smith is marr~d to the former Janet Seelye of
Seattle and they have four children. They live in
McLean, Virginia.
000
K-566
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR RELEA~E UPON DEL':" V~R{
EXCERPTS OF REMARKS OF THE HONORABLE EUGENE T. ROSSIDES
ASSISTANT SECRETARY OF THE TREASURY
for
ENFORCEMENT AND OPERATIONS
before the
COLUMBIA LAW SCHOOL ALu~mI ASSOCIATION
OF WASHINGTON, D. C.
JANUARY 14, 1971
washington, D. C.
12:00 Noon
PRESIDENT NIXON'S ANTI-DRUG ABUSE ACTION PROGRAM
A TWO-YEAR REVIEW
Eugene T. Rossides, Assistant Secretary of the Treasury
for Enforcement and Operations, told a luncheon meeting of
the Columbia Law School Alumni Association that:
"The President's action program during
these past two years has, in my judgment:
1.
alerted the international community
to the global problem of drug abuse
and has brought about the beginnings
of the action needed to combat it; and
2.
arrested the United States' incredible
downward slide into drug abuse.
But, let there. be no false optimism. We have a
long and steep climb ahead of us just to return
to the level from which we fell. It will
require the active participation of all of us.
However, I am confident that the challenge will
be met."
2.
The President's Six-Point Act_ion
Progra~
Mr. Rossides explained the program, which consists of:
1.
Elevating the drug problem to a foreign policy
level and taking personal Presidential
initiatives in soliciting international
cooperation;
2.
Recognizing the critical importance of
programs in education, research, and
rehabilitation and providing Federal funds
for these purposes.
3.
Establishing a flexible penalty structure
which provides a procedure whereby a youthful first offender can have the slate wiped
clean, and which differentiates between
marijuana and heroin;
4.
Increasing funds for law enforcement;
5.
Recognizing the central role of the states
and the need for close Federal-state
cooperation in a unified drive against drug
abuse; and
6.
Stressing total cOIDIDunity involvement--the
private sector as well as governmental
agencies--in this anti-drug abuse drive.
Customs' Seizures Show Large Increase
Mr. Rosside's stated that the additional funds the
President had requested for Customs --$8.7 million, which
provided for 915 additional personnel
made possible the
dramatic increase in Customs seizures in 1970. He commended
,- ). V,
""l.-
I
7hly the record of the Bureau of Customs, under the
~dership of Commissioner Myles J. Ambrose, for its
~ord in 1970, in -which i::b ~eizures of drugs shmved
lramatic increase over -- and, in many cases, doubled
)se of 1969. The Customs' figures are as follows:
~
The total number of seizures in calendar year 1969
) 4,203, while in 1970 the total rose to 8,693, an
~rease of 106.83 percenr-.
Heroin seizures increased from 210 pounds in 1969 to
~r 345 pounds in 1970, an increase of 64.39 percent.
~aine and other narcotics seizures increased from 150
mds in 1969 to almost 400 pounds in 1970, with the
~rease over 162 percent.
Hashish in 1969 totalled 1,605 pounds, and in 1970
:al1ed 3,654 pounds, for a 127.66 percent increase. The
~er of seizures increased from 379 in 1969 to over 1,000
1970, a percentage increase of 168.34.
Marijuana seizures in 1969 were 2,305 for a total of
lrly 60,000 pounds.
In 1970, there were 5,614 seizures
1 a total of almost 134,000 pounds, or 67 tons of marimao The number of seizures increased by 142.51 percent,
I the quantity increased by 122.78 percent.
Seizures of such dangerous drugs as the amphetamines
l barbiturates incre ased from 929 in 1969 for a total of
t over 8 million five-grain units to 1,308 seizures in
'0, an increase of 40.8 percent, and a total of just
er 9 million five-grain units, an increase of 9.63 percent.
of Internal Revenue Code against Major Drug Traffickers
Mr. Rossides also stated that a new enforcement pro~ram
which the Treasury, through th~ Internal Revenue Serv~?e,
cooperating with state and local law enforcement agenc~es
moving against drug traffickers in the New Y?rk ar~a.by
estigating major narcotics suspects .for poss~ble c~v~l or
criminal violations of the Internal Revenue Code, would
be extended to other parts of the country.
Mr. Rossides said:
"Utilization of the Internal Revenue Code is
another weapon in the U.S. Government's
arsenal to combat drug smuggling and
street sales by making it unprofitable
for the smugglers, wholesalers, and
pushers to conduct their nefarious
business."
Anti-Drug Courses as a Requirement for all State and Local Police
Mr. Rossides stated that a "substantial" contribution to
the anti-drug campaign of this country could be made if the
350,000 officers in local, municipal, and state police departments throughout the United States received intensive antinarcotics courses as part of their required basic training.
The Treasury official explained that such courses are a
requirement for the 40,000 members of the Tokyo police
department. He highly commended Japan for its anti-drug
enforcement effort and its achievement in practically
stamping out heroin use.
Mr. Rossides concluded by stating:
In summary, I leave you with a reason to hope and a
challenge to meet. President Nixon has moved on several
fronts to marshall the resources of our own nation into a
multi-dimensional, coordinated Federal-state response. And
the President has alerted the nations of the world.to the
international m~nace of drug abuse and enlisted their active
support. Therein lies our hope and challenge. The outcome
of this effort will determine the future of a generation.
000
The Department of the
TRfASURY
TELEPHONE W04·2041
WASHINGTON, D.C. 20220
FOR RELEASE ON DELIVERY
REMARKS BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
AT THE 1971 CONFERENCE ON
"CONTAINING INFLATION IN THE ENVIRONMENT OF THE 1970'S"
OF
THE CONFERENCE BOARD
AT THE WALDORF-ASTORIA, NEW YORK, NEW YORK
ON THURSDAY, JANUARY 14, 1971, 12:30 P.M. (EST)
WORLD INFLATION AND THE INTERNATIONAL PAYMENTS SYSTEM
I have learned to accept an invitation to appear on a
program arranged by The Conference Board only with a good
deal of humility.
Through the years, the organizers have
managed to schedule topics months ahead with an almost
uncanny sense of timing and relevance.
Yet, the subject
matter typically raises such complex issues of public and
private policy that the speaker must abandon any illusions
as to his capacity to provide a full analysis or certain
conclusions.
So it is with world inflation.
The source of the present concern is plain enough
Seldom, if ever, in modern history -- apart from periods of
K-568
- 2 -
widespread warfare -- have industrialized countries'
together experienced so persistent and sizeable increases
in their general price level.
For the DECO countries,
the average increase in 1970, measured by the GNP deflator,
came to about 5-1/2 percent.
The rise was greater than
average in Europe and Japan -- a bit lower in North
America.
But the over-all impression is one of a serious
common problem.
Nevertheless, the coincidence of price pressures
in these countries has not been accompanied, at least
recently, by a similarly close coincidence in demand
pressures.
Indeed, the persistence of rising prices in
/
the United States and in a few other countries during a
period of relative slack has failed to conform to most
models
econometric or otherwise -- of the economic
process.
I do not want to make too much of these seeming
paradoxes of the moment.
The current inflation- in the
developed world must be judged against the full perspective
of the latter 1960's, not just of recent monthso
In that
- 3 -
longer perspective, an orthodox and straightforward line of
analysis would seem to carry us a considerable distance.
The textbooks identify the genesis of inflation primarily as an excessive rate of total spending -- public and
private -- relative to existing productive capacity.
Demand-
pull sets in train a process with more or less predictable
consequences.
Prices and profits tend to rise under the
pressure of demand, and the rate of growth in real wages
tends tofall off.
Higher wage demands soon appear in re-
sponse to tighter markets and to "catch up" with the inflation.
Demand-pull breeds cost-push and, long after demand
has been cut back, rising prices may continue.
This familiar thesis fits the experience in this
country pretty well.
The escalation of the Vietnam conflict
after 1964 -- combined with a failure to face up to the
economic and financial implications -- led to our most prolonged period of over-heating of the postwar period.
While
starting somewhat later, in 1968 or 1969, Japan, Germany, and
a number of other countries have also experienced particularly strong domestic booms.
- 4 A recent report by the OECD* has summarized the evidence this way:
"In aggregate terms, it seems at first sight
that the Irecent7 price performance .
. can
be explained in terms of demand pressures in a
fairly straightforward way.
Taking the major
OECD countries together, it can be seen that GNP
was significantly below its trend value in the
years 1958 through 1962, and significantly above
it from 1966 through 1969.
Allowing for a lag of
a year or so, this fits with the over-all price
performance in the OECD area as a whole."
What seems so simple and straightforward at first sight
often becomes a good deal more complicated when examined in
detail.
There has been, certainly, considerable\diversity
in the timing of excess demand pressures for the different
countries.
In our own case, for example, excess demand had been
removed by late 1969 and early 1970.
*
Unemployment has now
The Present Problem of Inflation: Report by the
Secretary General, Paris, November 19, 1970
- 5 -
grown to excessive levels.
Yet, while the price rise has
tapered off, it continued through 1970 at an historically
high pace, and the daily press reminds us forceably that
the problem contin,ues today.
In some other important countries -- notably the U. K.,
France., and Italy --: re'Cent inflation has not been accompanied by great strain on internal resources; to the contrary,
when their price; increases began to accelerate, the margin of
slack seemed to be somewhat greater than usual.
In other cases,
boom conditions still exist or have only recently begun dissipating.
It still may be broadly correct to suggest that we are at
varying stages of recovery from essentially the same affliction.
But I wonder whe·ther even that formulation quite comes to grips
with the full measure of the problem.
The relative uniformity
of international price experience, in varying demand conditions,
"somehow seems, to need more consideration. It leads naturally to
a question about whether inflation is being transmitted and
generalized through the international payments system.
It is entirely consistent with the basic analysis for
a burst of excess demand in one or a number of important
- 6 countries to be transmitted internationally through rising
import demand.
Even more directly, higher prices in an
exporting country will affect prices of another country's
imports.
The result should be to moderate price pressures
in countries with relatively strong inflation, but at the
expense of transmitting same of those pressures abroad.
The outward ripples may seem like sizeable waves to
smaller countries particularly heavily dependent on foreign
markets.
But for the larger countries, where imports and
exports are a smaller fraction of domestic production, this
explanation should not be carried very far.
The increment
to total demand from abroad is not likely to be so great as
to dominate domestic trends, or to elude corrective measures
of internal fiscal or monetary policy.
We are, after all,
concerned with a situation in which total world demand has
not soared out of sight or fallen off precipitously -- as
it sometimes did in decades past.
There is a view that tends to place more weight on
international monetary phenomena -- specifically, developments in the U. S. balance of payments and its repercussions
on international liquidity.
This view is not, of course,
- 7 new -- it was pressed by same, for instance, during the
first part of the decade of the 1960's, when the U. S. price
trerid was stable.
But, despite its longevity, this
monetary argument does not square well with observable
facts.
One possibility was examined with same care during the
studies and negotiations that culminated in the historic
decision to introduce a new "man-made" international reserve
asset -- Special Drawing Rights.
Those studies strongly
suggested that, far fram being in excess supply, a relative
shortage might well be developing in international reserve
assets.
Thus, in the period 1950-1969, total world reserves
rose at an average annual rate of about 2.4 percent while
the value of world trade rose by 8.1 percent.
During the
period 1964-1969, when international inflation took hold,
the average annual increase was about 2-1/2 percent -- actually
below that earlier in the 1960's when prices were more stable.
To be sure, reserves of countries outside the U. S. were
riSing considerably faster than the world total during most
of the postwar period.
But during the years from 1965-1969,
- 8 -
while the current inflation took hold, the reserves of the
major European countries actually declined slightly in the
aggregate.
While no simple ratio can tell the whole story, by the
end of 1969 the relationship of world reserves to trade had
fallen to the lowest percentage since the late 1920's.
European reserves were smaller relative to trade than at
any time during the postwar period.
Indeed, the tendency
for international reserves to grow so slowly in the late
1960's properly gave rise to concern that pressures on
liquidity were a factor in the seemingly increased reliance
on controls and the atmosphere of greater exchange instabilit
that came to characterize the late 1960's.
It was these
concerns that helped lend urgency to reaching the SDR
J
agreement.
In modern monetary conditions, there is not a tight
mechanical or analytic link between international reserves
and world prices.
I recognize that a balance of payments
surplus normally will have a counterpart in domestic liquidity creation, as the foreign assets acquired are usually
monetized by the domestic banking system.
Those foreign
- 9 assets may be matched by a decline in foreign assets of
other countries.
But they may also represent newly created
reserves, as would be the case when a
finaftced in part by dollars.
metrical.
u.s.
deficit is
Then the process is asym-
(It is worth noting that this asymmetry is also
a characteristic of a system in which newly mined gold finds
its way into the monetary system.)
The crucial question would seem to be, however, whether
countries
ha~e
the tools to manage this liquidity creation
in accord with their domestic requirements, supplementing
or offsetting the effects as the need arises.
Obviously,
countries differ in the efficiency of their tools for
domestic monetary management.
sults:
But the crucial test is re-
If it were the case that reserve gains from U. S.
deficits or other sources were enfeebling the capacity of
foreign countries to maintain control over their money
supply, there should be statistical evidence that movements
in foreign assets are a dominant force in changes in
domestic credit.
While such cases can be found in particu-
lar years for particular countries, no such general pattern
is evident in the data for the past decade.
- 10 The ratio of net foreign assets to money and near-money
during the 1960-1970 period has been on a downward trend in
the case of all major European countries except Switzerland.
More specifically, focusing on official international
reserves, those reserves have become a smaller fraction of
the domestic money supply of most countries.
Significantly,
in 1968 and 1969, when the inflation developed in a serious
way in a number of the larger European countries, the U.
s.
ran a surplus in terms of our official settlements accounts,
which measure our net reserve gain or loss.
In other words,
domestic credit expansion appears to have been the main
element in foreign monetary growth.
I do not mean to suggest that these broad statistical
trends dispose of all of the issues associated with the
international transmission of inflation.
Liquidity is an
elusive concept, and statistics on reserves and domestic
money supply need to be appraised in the light of growth in
other liquidity instruments and credit facilities.
To the
extent that international liquidity has been supplemented
by standby or ad hoc credit facilities, for instance, use
of actual reserves could be minimized.
- 11 -
Indeed, it might be argued that the availability of
credit has diminished the discipline on internal behavior
that might otherwise have emerged from balance of payments
constraints.
But I
far.
q~estion
whether that argument can be pushed very
Instead, my strong impression is that the major conse-
quence of the absence of these elements of elasticity in
the international. monetary system would have been greater
currency instability and a greater tendency toward use of
·controls.
Indeed, I believe an attempt to force deflation by
enforcing a greater stringency in international reserves
might well have been counter-productive in today's world.
The outcome would likely be currency disturbances and restrictions.
Devaluations
and these have been more common than
revaluations -- tend to have a pronounced effect on prices
in the devaluing country, complicating the task of controlling
inflation.
Even more clearly, any tendency toward restric-
tions on trade impedes competition and tends to support
inflationary tendencies in a country invoking such
- 12 -
restrictions.
Stated more positively, the best international monetar
and trading environment for seeking and maintaining price
stability would appear to be reasonably stable exchange
rates, a more symmetrical use of revaluations when changes
are necessary, and free and open trade among nations.
At the same time, there is one aspect of the international payments system, as it has been developed in recen
years, that has considerably complicated the task of intern
monetary management.
The latter part of the 1960's carried
forward the increasingly close integration of international
money and capital markets that has been characteristic of
much of the postwar period.
The growth of the Euro-dollar
and Euro-bond markets epitomize the trend.
This development has been beneficial irl important ways
bringing a degree of competition, breadth and fluidity to
these markets that serves lender and borrower alike.
But il
has also meant a certain loss of independence in terms of
domestic monetary policy.
Tight monetary policies and high
rates to contain domestic expansion attract money from
abroad, adding to international reserves and tending to
- 13 undercut the domestic objectives.
Loss of monetary independence is relative.
It con-
stitutes a more serious problem for some than others.
While
we iu the United States are certainly not immune, the size
of our own domestic markets and relatively efficient
domestic instruments make us much less susceptible to this
loss of monetary independence than many other countries.
Small, heavily externally-oriented economies may have
particular difficulties from time to time.
Means of dealing with this problem are not easy.
If I
assess the thinking correctly, a certain frustration over
the matter is one of the forces driving Europe toward a
closer monetary union.
Smaller countries, finding their
freedom of action circumscribed by developments in international markets, appear willing to submerge their independence more fully into a larger unit, in the expectation that
the larger area will be less susceptible to influence from
outside.
More immediately, the situation has given rise to considerable ingenuity by one country or another in seeking out
devices to offset international flows or to affect
- 14 -
incentives to such flows.
Properly, the question as to
whether somewhat wider margins for exchange rate fluctuations might tend to dampen swings is receiving study.
More
broadly, within the general framework of international
cooperation, the possibilities of achieving some better
international coordination of policies affecting capital
flows continue to need exploration.
Important as this matter is, however, international
movements of volatile capital hardly supply us with an
adequate explanation of the present inflationary problem.
The fact is that, during much of 1968 and 1969, the tightness of money in the United States led to considerable
concern in Europe that we might, by "exporting" high interest
rates, exert an undue contractionary influence abroad.
In 1970, the flows moved sharply back toward Europe.
But this was after inflation had already achieved considerable momentum in most European countries, and the outflows, with the main exception of Germany, did not appear
to complicate greatly the task of foreign monetary authorities
in maintaining a posture they considered appropriate on
domestic grounds.
- 15 We hear much comment about the asymmetry of an international monetary system in which a major national currency
-- the dollar -- also serves as a reserve currency for
others.
This asymmetry does have important consequences
for the operation of the system.
But it is worth pointing
out that it is the free convertibility of currencies at fixed
exchange rates that facilitates large flows of internationally
volatile capital and, thus, influences the exercise of
independent monetary policy.
The method of financing the
flows, by dollars or by other reserve assets, does not
fundamentally change the nature of the problem.
If the trends in international reserves or the U. S.
payments deficits do not provide a satisfactory explanation
for world inflation, this does not exclude the possibility
that we have run into a singularly bad patch of internal
financial policies.
There is a strong tendency these days
to attribute a high degree of potency to monetary policy alone,
and to focus particularly on the behavior of monetary aggregates.
In keeping with that fashion, I have had some elementary
monetary measures computed for eleven countries over the
past decade -- Belgium, Canada, France, Germany, Italy,
- 16 Japan, Netherlands, Sweden, Switzerland, United Kingdom,
and the United States.
For the purpose, it seemed suffi-
cient to concentrate on three aspects:
the ratio of money
to GNP; a broader liquidity measure relating money and
near-money to GNP; and the absolute rates of growth in
money and liquidity.
While any simple approach of this sort raises more
questions than can be readily answered, the results, on
their face, suggest no obvious explanation for the present
bunching of inflationary pressures.
For example, when
the decade is divided into sub-periods, the ratio of money
to GNP declined in the latter part of the decade in the
case of most of the countries.
The broader ratio of
liquidity to GNP did show some tendency to move up in the
second half of the decade, but only modestll.
The differ-
ence in these measures suggests rising levels of income
and interest rates may have induced shifts in the composiLion of liquidityo
But, surely, there is little that would
support a purely monetary explanation of the coincidence
of strong inflation in so many countries at the end of
the decade.
- 15 We hear much comment about the asymmetry of an international monetary system in which a major national currency
-- the dollar -- also serves as a reserve currency for
others.
This asymmetry does have important consequences
for the operation of the system.
But it is worth pointing
out that it is the free convertibility of currencies at fixed
exchange rates that facilitates large flows of internationally
volatile capital and, thus, influences the exercise of
independent monetary policy.
The method of financing the
flaws, by dollars or by other reserve assets, does not
fundamentally change the nature of the problem.
If the trends in international reserves or the
u.
S.
payments deficits do not provide a satisfactory explanation
for world inflation, this does not exclude the possibility
that we have run into a singularly bad patch of internal
financial policies.
There is a strong tendency these days
to attribute a high degree of potency to monetary policy alone,
and to focus particularly on the behavior of monetary aggregates.
In keeping with that fashion, I have had some elementary
monetary measures computed for eleven countries over the
past decade -- Belgium, Canada, France, Germany, Italy,
- 16 Japan, Netherlands, Sweden, Switzerland, United Kingdom,
and the United States.
For the purpose, it seemed suffi-
cient to concentrate on three aspects:
to
Q~P;
the ratio of money
a broader liquidity measure relating money and
near-money to GNP; and the absolute rates of growth in
money and liquidity.
While any simple approach of this sort raises more
questions than can be readily answered, the results, on
their face, suggest no obvious explanation for the present
bunching of inflationary pressures.
For example, when
the decade is divided into sub-periods, the ratio of money
to GNP declined in the latter part of the decade in the
case of most of the countries.
The broader ratio of
liquidity to GNP did show some tendency to move up in the
second half of the decade, but only modestli.
The differ-
ence in these measures suggests rising levels of income
and interest rates may have induced shifts in the composiLion of liquidityo
But, surely, there is little that would
support a purely monetary explanation of the coincidence
of strong inflation in so many countries at the end of
the decade.
- 15 We hear much comment about the asymmetry of an international monetary system in which a major national currency
-- the dollar -- also serves as a reserve currency for
others.
This asymmetry does have important consequences
for the operation of the system.
But it is worth pointing
out that it is the free convertibility of currencies at fixed
exchange rates that facilitates large flows of internationally
volatile capital and, thus, influences the exercise of
independent monetary policy.
The method of financing the
flaws, by dollars or by other reserve assets, does not
fundamentally change the nature of the problem.
If the trends in international reserves or the
u. s.
payments deficits do not provide a satisfactory explanation
for world inflation, this does not exclude the possibility
that we have run into a singularly bad patch of internal
financial policies.
There is a strong tendency these days
to attribute a high degree of potency to monetary policy alone,
and to focus particularly on the behavior of monetary aggregates.
In keeping with that fashion, I have had some elementary
monetary measures computed for eleven countries over the
past decade -- Belgium, Canada, France, Germany, Italy,
- 16 Japan, Netherlands, Sweden, Switzerland, United Kingdom,
and the United States.
For the purpose, it seemed suffi-
cient to concentrate on three aspects:
the ratio of money
to GNP; a broader liquidity measure relating money and
near-money to GNP; and the absolute rates of growth in
money and liquidity.
While any simple approach of this sort raises more
questions than can be readily answered, the results, on
their face, suggest no obvious explanation for the present
bunching of inflationary pressures.
For example, when
the decade is divided into sub-periods, the ratio of money
to GNP declined in the latter part of the decade in the
case of most of the countries.
The broader ratio of
liquidity to GNP did show some tendency to move up in the
second half of the decade, but only modestli.
The differ-
ence in these measures suggests rising levels of income
and interest rates may have induced shifts in the composicion of liquidityo
But, surely, there is little that would
support a purely monetary explanation of the coincidence
of strong inflation in so many countries at the end of
the decade.
- 17 A broadly similar result emerges in looking at
absolute rates of growth in money and liquidity.
In a
clear majority of the countries, the rate of monetary
expansion was lower in the second half of the decade than
in the first.
And, taking money and near-money together,
there is little indication of any massive build-up of
liquidity in recent years.
In sum, the coincidence of inflationary difficulties
in so many countries cannot easily be traced to gross
monetary mismanagement, either at the domestic or international level.
Monetary policy -- and certainly fiscal
policy -- has played a part in some countries at some
t~es.
But there is also a danger that attention is
diverted from the real problem by rationalizing the
I
inflationary difficulties as simply a failure of monetary
policy or an outgrowth of a flaw in international monetary
a~rangements.
The main danger may run largely
in the other direction.
No international monetary
arrangements can be devised which will work well
- 18 -
in the face of inadequate domestic policies in the major
countries.
By the same token, a variety of
monetary arrangements might be made to work adequately where
the major countries followed appropriate policies at home
and approached their international affairs in a cooperative
spirit.
If monetary difficulties do not fully explain our
problem we must look elsewhere.
Part of the answer, I
suspect, lies, paradoxically enough, in the demonstrated
success of past policies in the major countries in avoiding
serious recession.
For obvious and good reasons, no major
country attempts to operate its economy with very much slack
But success in this endeavor has a cost.
To put it bluntly,
the threat of deep recession -- even depression -- no longer
dampens price expectation or behavior.
The reconciliation of full employment with satisfactory
price performance has never been easy.
As success in
achieving relatively full employment is more and more taken
for granted -- in our own and other countries -- the difficulties may become greater.
It is worth raising a question, too, whether some
- 19 essentially non-economic factors have not entered into the
equation.
Explosive wage increases have appeared in some
countries -- France in 1968, Italy in 1969, and the Uo K.
more recently -- at a time when a limited, but above average, amount of slack was apparent in their domestic
economies. 'In all these instances -- as in the case of the
Unite4 States in 1970 -- some element of "catch-up" for past
price increases may provide part of the explanation.
But the
size and timing of the increases, in some instances, also
appeared to be part of a broader social unrest, or a new
aggressiveness in exploiting strong bargaining positions.
There is room, too, for speculation as to whether these
factors are not mutually reinforcing internationally, quite
apart from the technicalities of the payments system.
In
an?pen economy, lack of concern over a severe business setback rests partly on an assessment of trends abroad as well
as at home.
Labor leaders and business price-setters are
certainly aware of the policies of their counterparts abroad.
As the authors of the OECD report put it, unlike most earlier
periods of inflationary pressures, there are now no sizeable
"islands of stability" to act as a brake on inflationary
- 20 -
expectations and a competitive restraint on prices elsewhel
This reasoning has led some to a rather gloomy progno1
But I believe we can find a basis for more optimism, both
the short and longer run.
I
take,as my point of departure, the point that the
United States, as the largest economy and the custodian of
the maj or reserve currency, carries a particular burden for
responsible policies.
Not just because of the particular
characteristics of our present monetary system, but more
fundamentally because of weight in the world economy, stabi
ity in the U. S. can be a strong force for stability elsewhere.
The evidence is clear that we faced up to the need ID
cut back on excessive demand pressures through restrictive
J
Iilonetary and fiscal policies.
The momentum of inflation ha:
clearly been checked, and prices have been rising at a some;Jhat slower pace.
La
Now slack has developed and productivity
advancing more rapidly.
pOSS
A stronger expansion should be
ible for some time ahead without refueling inflationary
~:ess~res
and expectations.
But, the lessons of this episode should linger on. We
- 21 understand better the difficulties of operating a modern
industrial society at the margins of full employment for
a prolonged period, and the dangers of over-shooting the
mark.
In particular, I believe we understand that the
orthodox tools of demand management alone need improvement,
and need to "be supplemented by other policies, if we are
to ''manage prosperityi' more effectively.
Our problems cannot be swept away in a simple call for
an
11
incomes policy."
Any surveY'of the past record in that
respect shows more grounds for disappointment than cheer.
Certainly, such policies cannot make up for mistakes in
demand management.
President Nixon recently commented that
he, at this time, had rejected calls for wage and price
guidelines, or a
wage-p~ice
board for a good reason -- he
felt that in existing circumstances they wo&ld not work.
Nobel Prize winner, Paul Samuelson, alluded to the difficulties in his recent comment that a new Nobel Prize should await
the economist that deve10ped a workable incomes policy.
But, in rejecting the possibility of any simple approach
along those lines, I believe there is greater recognition
that new policies and new approaches are needed for the long
- 22 pull to reinforce and supplement the disciplines of the
market.
The threat implicit in restrictive practices of
labor or business, and in the exploitation of positions of
monopoly power, is more broadly understood.
So, I believe,
are the potential gains to business, labor, and the consumer
of success in the effort to better reconcile growth with
price stability, so that one or both do not need to be compromised.
As Paul McCracken said not long ago, there should
be the ingredients here of a social bargain or compact.
The current review of Government practices that may
artificially limit supply or reduce competition, the work
of the Productivity Council, efforts to improve the mobility
and education of workers, and new initiatives in the area of
bargaining in the construction industry are some examples of
ways to encourage better price performance.
The essential point is that none of this is easy or
painless, nor does it entail merely economic dimensions.
Full success will rest on the work of years in changing some
deeply ingrained patterns of behavior, not on exhortation or
short-term programs, however dramatic.
important steps are being taken.
But I believe that
Under the pressure of
- 23 events, the devisive and debilitating consequences of
inflation are more plainly seen, and the climate is more
receptive to the needed changes,
No country has yet found a satisfactory answer to the
common problem.
But the first step to the solution is the
broad recognition of the problem itself, and tre willingness to alter old patterns to deal with it.
I believe we
are at that stage -- and with a concerted attack from many
directions we can help the world find the way back to
combining prosperity with a
~igh
000
degree of price stabilityo
PRICES IN MAJOR DECO COUNTRIES1/
1958-1968
Average
.!.ill
1970
United States
2.1
4.7
5-1/4
Canada
2.5
4.7
4
Japan
4.5
4.5
5-3/4
France
4.0
6.9
5-1/2
Germany
2.8
3.5
7
Italy
3.5
4.1
6-1/4
United Kingdom
3.1
5.1
6
Total of above excluding U.S.
3.7
4.8
6
1/ GNP/GOP deflator
SOURCE:
OFCO, Fconcmic Outlook, December 1970
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 14,1971
GULF 01'1 PRESIDENT B,•.R. DORSEY IS 1971 CHAIRMAN
U. S. INDUSTRIAL PAYROLL SAVINGS COMMITTEE
or
The U. S. Industrial Payroll Savings Committee met today,
in annual session, ~ith Treasury Secretary David M. Kennedy
and Secretary-Design,ate John B. Connally, in the Diplomatic
Functions Suite of the State Dep~rtment.
Purpose of· the meeting was to report on Committee
success in e~c~eding its 1970 goal; to name its new Chairman
for the 1971 campaIgn year; to-plan progr.am action aimed at
sigping ~p 2.2 ~illion new Payroll Savers or those who increase
their allotments
B. R. Dorspy, President, Gulf Oil Corp., Pittsburgh, is
new Cb~i~man of the ~4-~ember 1971 Committee, which includes
representat'ives of 25 geographic areas and 20 major industries.
He succeeds Gordon M. Me~calf, Chairman of the Board,
Sears, Roebuck, and Co., Chicago, who led the 1970 Committee
in achieving more than 110 percent of its goal in a difficult
year. Metcalf stated that -- "The improvement in the interest
rate made Savings Bonds more competitive. This helped make
Bonds more attractive to employees and greatly assisted our
Committee's fundamental approach -- that, before employees
can become investors, they must be savers." He reported
that, during 1970, his Committee signed up more than 2.2
million new or increased-amount savers, against a goal of
2 million.
For 27 members of the Committee, it was their first
session together. They were installed in official ceremonies,
receiving Certificates of Appointment signed by the Secretary
of the Treasury.
In his message to the Committee and to business and
industrial leaders everywhere, President Nixon said, "The
Industrial Payroll Savings Committee is to be commended for
its constructive initiative and action in furthering the sale
of Savings Bonds. Those who respond to its worthwhile campaign answer the needs of their country and advance the best
interest of their industry and employees."
-2Secretary Kennedy presented special awards to outgoing
Chairman Metcalf and to members of his 1970 Committee -the Treasury Gold Medal of Merit to the Chairman; Silver
r1edals of Meri t to Committee members.
Secretary Kennedy!s Citation to Mr. Metcalf reads, in
part, " ... Responding to his outstanding leadership, American
indGstry during 1970 enrolled more than two million savers
and inspired a saving of $3.7 billi~n by e~plcyees in Favroll
Saver denomination E Bonds and Savings Notes.
This contribution to the security of individuals and the nation is an
impressive result of his dedicated efforts.
His generous
service is in the finest tradition of the volunteer spirit
which symbolized the Savings Bonds Program and gives strength
and vitality to our American way of life."
Past Chairman of the Committee are as follow -- 1963,
Harold S. Geneen, Chairman and President, International Telephone and Telegraph Corp.; 1964, Frank R. Milliken, President,
Kennecott Copper Corp.; 1965, Dr. Elmer W. Engstrom, Chairman
of the Executive Committee, RCA Corp.; 1966, Lynn A. Townsend,
Chairman of the Board, Chrysler Corp.; 1967, Daniel J.
Haughton, Chairman of the Board, Lockheed Aircraft Corp.;
1968, '"Jilliam P. Gwinn, Chairman and Chief Executive Officer,
United .6.ircraft Corp.; and 1969) James M. Roche, Chairman
of the Soard, General Motors Corp.
000
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
January 14, 1971
FOR IMMEDIATE RELEASE
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
ANNUAL MEETING OF THE U.S. INDUSTRIAL
PAYROLL SAVINGS COMMITTEE
DIPLOMATIC FUNCTIONS SUITE
DEPARTMENT OF STATE
THURSDAY, JANUARY 14, 1971
Thank you, Chairman Metcalf .
. It is a very real pleasure for me to be with you
today, Go~don, to express my thanks -- as well as those
0~ our T~easury family -- for the outstanding leadership
that you and the members of the U.S. Industrial Payroll
Savings Committee have contributed to our 1970 Savings
Bonds campaign.
Every year, since the Committee's inception in
1962, has shown significant gains.
Your 1970 Committee
faced with a challenging goal in the midst of keen
competition for the savings dollar -- met with eminent
success.
The Treasury and the Nation are deeply grateful
to you and the dedicated members of your Committee.
We are equally appreciative, for the active support
of organized labor, under the leadership of George Meany,
President, AFL-CIO; the important contributions of the
Advertising Council, headed by President Robert Keirn,
and the vital support of the media, spearheaded by our
National Committee of Newspaper Publishers, under the
chairmanship of Charles Gould, Publisher of the "San
Francisco Examiner." It's not going to be easy to top
the gains made in 1970.
But the 1971 Committee, under
the chairmanship of B.R. Dorsey of Gulf Oil Corporation,
has taken up th~ challenge.
And we are most confident
2
that it, too, will build on success, turning ln an
equally outstanding report a year from now.
On behalf of all of us he're today, I should like
to thank you, Gordon, for being such a gracious host
at this memorable reception and luncheon.
And now, if all of the members of your 1970 Committee
will stand, I· should like to present to each the Treasury's
Silver Medal of Merit.
Thank you.
Gentlemen, as you
receive your medals from members of our staff, I should
like to read the companion letter -- which differs
slightly as to your assignments -" . .. my warmest congratulations on the results of
the 1970 Savings Bonds Campaign.
Sales of the small
denomination bonds, mainly reflecting payroll savings
activity, will be $3,700,000,000 -- a billion dollars
greater than when the Committee began its annual nationwide campalgns.
"You, as the Chairman Cof your respective activity),
and the other members of the U.S. Industrial Payroll
Savings Committee are in large part responsible for
this outstanding accomplishment which benefits both
the individual citizen and the nation.
"It is vJi th special pleasure that I present to you
the attached Medal of Merit.
Please accept it as a
symbol of your government's great appreciation."
The letter carries my signature as Secretary of
the Treasury.
Now, I have a special award for you, Gordon Metcalf.
As 1970 Committee Chairman, you have given most generously
of your time and your talent.
Your dedication, your
devotion, cannot be gauged by statistics alone; nor
can you be adequately rewarded.
Nevertheless, our gratitude and our deep appreciation
has been struck in this gold Medal of Merit, which
bears with it the esteem and warm affection of your
Commi~tee, the Department of the Treasury, its Savings
Bonds Division, and the Government of the United States.
Let me read the citation that accompanies the award --
3
(~
(7
"Gordon M. Metcalf, Chairman, U.S. Industrial
Payroll Savings Committee, For Distinguished Leadership
of the 1970 'Share in America' Payroll Savings Campaign,"
"Responding to his outstanding leadership, American
industry during 1970 enrolled more than two million savers
and inspired a savings of $3,700,000,000 by employees
in 'Payroll Saver' denomination E Bonds and Savings
Notes. This contribution to the security of individuals
and the nation is an impressive result of his dedicated
efforts.
"His generous service is In the finest tradition
of the volunteer spirit which symbolizes the Savings
Bonds program and gives strength and vitality to our
American way of life.
"Given under my hand and seal this fourteenth
day of January, Nineteen Hundred and Seventy-One.
Signed David M. Kennedy, Secretary of the Treasury."
Every good sales manager raises the quota.
Chairman Dorsey's 1971 Committee has accepted the challenge
of enrolling 2,200,000 employees -- either as new savers
or regular savers who increase the amount of dollars
they set aside regularly for bonds.
I know that President Nixon shares my admiration
and respect for the sound lessons in good business
citizenship that all of vou here are so ably providing.
And I am equally certain that Secretary-Designate
Connally shares our confidence that your new 1971 campaign
will attain even greater heights of success.
Finally, I want to offer, once again, my personal
thanks for your dedication and your friendship.
Although
I shall be serving our country in a different capacity,
I shall be watching your progress with keen interest.
You have my best wishes for success in all of your
undertakings.
Thank you.
000
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
ADVANCE FOR RELEASE FOR A.M.
SATURDAY. JANUARY 16. 1971
's
ADDRESS BY THE HONORABLE SAMUEL R. PIERCE, JR.
GENERAL COUNSEL OF THE U. S. TREASURY
BEFORE
HOUSTON REAL ESTATE ASSOCIATION
FRIDAY, JANUARY 15, 1971
HOUSTON, TEXAS
(AT 7: 00 P. M., C. S. T.)
BLACK BANKS REVISITED
In the fall of 1970, the Nixon Administration announced that
it: had committed itself to increasing deposits in minority banks by one
hundred million dollars during the next year through deposits to be
solicited from federal government and private sources. On December 28,
1970, Dr. Andrew F. Brimmer, the only black member of the Board of
Governors of the Federal Reserve System; stated in a speech he delivered
before the Joint Sessi0n of the 1970 Annual Meetings of the American
Finance Association and the American Economic Association that "Black
banks might be viewed primarily as ornaments -~ that is~ as a mark of
distinction or a badge of honor which provides a visible symbol of
accomplishment", but they could not "become vital instruments of
economic development". Such a scathing conclusion about the economic
vitality and future of black banks by such a distinguished black
economist, caused the Nixon Administration to consider whether it
should continue to endeavor to help black banks grow, or whether they
should be written off as an impractical means of fostering any
significant economic development in the black community. Before
reaching its conclusion, the Administration carefully. reviewed
Dr. Brimmer's address on the assessment of the performance and prospects
of black banks.
Dr. Brimmer came up with some rather dramatic statistics on the
poor performance of black banks by comparing the 22 commerical banks
owned or controlled primarily by blacks in the United States with all
other commercial banks in the United States (approximately 13,500).
1\-567
- 2 -
He also compared black banks in the ten to fifty million dollar
category (10) with other banks in that category (approximately 4,000).
Finally, he compared black banks in the zero to ten million dollar
category (12) with other banks in the same category (about 8,500).
From these comparisons Dr. Brimmer derived the figures which led him
to his conclusion. The trouble is--to use an old but accurate phrase-that this is like comparing apples and oranges.
Governor Brimmer compared the banks by size, but not by age.
He lumps both newly chartered banks and mature banks in the same
category and then proceeds to analyze their asset management experience
and their operating experience, which includes their revenue and
expense relationships. A number of economists have informed me that
this method of analysis is simply wrong. There are,generally,
tremendous differences between a newly chartered bank and a mature one.
For example, it usually takes new banks about three years to
break even and to begin operating profitably, and some years after
that to operate at peak profit and efficiency. Also, the management
functions vary markedly between newly chartered banks and mature banks.
For instance, in the management of their assets, new banks usually
cannot invest their funds in loans in their market area as rapidly
as they are deposited during the early years of their existence. As
a consequence, they generally buy government securities or participate
with other banks in loans outside their areas. This pattern continues
until the new bank has become sufficiently acquainted with its market
to prudently build a loan portfolio within its own market area. This
pattern frequently dilutes earnings potential while the expenses of the
bank continue at a relatively fixed level. This accounts for the
difference in asset managem entof new banks as well as expenserevenue relationship vis-a-vis mature banks.
Personnel management provides another illustration. It usually
takes some time for a new bank to put together a good team of employees.
From these illustrations, then, I believe you can see that to
lump newly chartered banks and mature banks into the same category as
Governor Brimmer did can only lead one to spurious conclusions.
One economist who analyzed the Brimmer speech, Dr. Dunbar S.
McLaurin, would even go further. He said it was highly unfair and
totally inaccurate to use the analytical technique Dr. Brimmer employed
in comparing the performance of black banks with the banking industry.
He pointed out that if one is going to compare black with white then
the only difference in the comparison should be black and white. In
other words, out of the approximately 13,500 banks in the United States,
those banks which are predominantly owned and controlled by whites
- 3 should be selected that most closely approximate the black banks in
the key factors used to compare banks. Their sizes should approximate
the size of the 22 black banks; their ages should be similar; they
should be located in the same cities that the black banks are located
in, or in cities of similar size; they should basically conduct
neighborhood businesses the way black banks do; etc.
This economist has a point. Certainly, this approach would be
a fair way of determining how well black banks, as opposed to white
banks are doing in the banking industry. In any event, Governor Brimmer
should have at least considered the "age" factor in comparing black
banks with predominantly white owned ones.
Parenthetically, one could rationally argue that for comparative
purposes, newly chartered banks should be removed from national totals.
However, to do so-would not change the end figures on a national scale
since new banks account for less that .1 percent of the number of banks
in operation for most of the years during the last decade. At the
same time, a more significant fact is that newly chartered black banks
represented 57% of total deposits of all black banks by t~e end of 1969.
Even if Dr. Brimmer had correctly analyzed the economic impact of
black banks statistically, it is far too soon to pass any realistic
judgement on how effective black banks will be in helping black America
move ihto the mainstream of American economic life. Of the 22 banks
discussed by Governor Brimmer, over half of them have come into
existence since 1963. Considering all of the many problems black banks
have-had to face -- such as lack of management talent, the problem of
finding trained employees, the difficulty of operating in impoverished
markets where there is high unemployment and relatively little commercial
enterprize, and the problem of overcoming prejudice both from blacks
and whites, who do not believe blacks capable of being successful bankers
it is simply too early to conclude that black owned and controlled banks
will be incapable of substantially contributing to the economy of the
black community.
We also believe that Governor Brimmer has underestimated the indirect
effects of black banking on the economic welfare of the black community.
He blithely speaks of black banks as ornaments and symbols of racial
pride without understanding, and without conveying a sense of how much
more black banks mean to black communities. ~lany black businessmen found
it impossible to get loans until black banks came into being. Many young
blacks considered the world of banking too remote for them ever to become
part of until a black bank was formed in their community. Black banks
have made it possible for businesses to come into existence which never
could have been born without black banks. I say these things because I
saw them happen.
- 4 In 1964, I was one of the founders of Freedom National Bank of New
York, which is the largest black bank in the United States today. I
remember that one of the prime reasons for founding this bank was the
fact that black businessmen were unable to get loans from the predominantly white-owned banks in New York City. Since that bank was
founded, I have had many black businessmen tell me they were able to
expand and improve their businesses because of loans Freedom Bank had
granted them. I also know that since Freedom National Bank was
founded, major banks have liberalized their lending policies in the
predominantly black areas in New York City. Because of Freedom, it
has become easier for a black businessman operating in Harlem or
Bedford-Stuyvesant to get a loan from a predominantly white bank.
I have seen young blacks-- lifted by pride -- realize that banking,
as a profession, is not out of their reach. At Freedom National, I
have seen young blacks trained in the skills of banking and then be
offered jobs by predominantly white banking institutions. It was
clear that young black people got better opportunities because of the
existence of Freedom National Bank.
A situation that I shall never forget is how a black construction
company, which is now very successful, got its start because of
Freedom Bank. As Freedom was a predominantly black owned bank, the
Board of Directors felt that the necessary remodeling of the building
to house the bank should be done by a black construction company.
This was a considerable project involving more than $200,000. After
a great deal of searching, the Board found only one black construction
company which was in a position to undertake the job. This company
had been recently founded by several young men who had been well
trained in the arts of construction by predominantly white building
companies. They had not done any major work up to that time. The
normal procedure, as you know, is that when a contractor undertakes
a major piece of construction, he must put up a construction bond.
As this company had not done any major work, they found it impossible
to get a bond on their own. Finally, through the efforts of Freedom
Bank, a bond was obtained. To make a long story short, this company
did an excellent job for Freedom National Bank and went on to become
very successful in the building field. Certainly without a Freedom
National Bank this company of young blacks, which was extremely
competent, might have never enjoyed the success it has today. The
point I am making is the value of black banks cannot truly be evaluated
in cold statistical terms by comparing their performance to the
banking industry as a whole. They give an economic impact to the
black community that cannot be measured in such terms. I say this as
one who has actually seen what a black bank can do for a black community.
- 5 -
I believe Governor Brimmer also misconveives the long range
objectives of black banks. It is not the purpose of black b-'lnks to
forever limit their services to the black community. It is honed
that some day they will become "the large-scale department sto~es
offering a full range of services to the community at large" that
Governor Brimmer refers to in his speech. In other words, in time,
black banks will no longer be black banks, but simply banks
servicing the community as a whole. To many, this may seem like an
impo,sible dream. However, I am sure that many years ago when a
small bank was started in an Italian ghetto on the west coast of our
Country. many people doubted that the little bank servicing the
Italian immigrants would become the largest bank in the world today -- the Bank of America. The history of this Country is replete
with similar examples of banks which started in Jewish, German,
Irish, Italian, or other ghetto communities and rose to serve the
needs of the community at large. The desires and goals of the black
banks of America are no less.
There are already indications that this will happen in the future.
In New York City there is a savings and loan institution known as the
Carver Savings and Loans Bank. It is a successful banking institution
and today one of its branches is located in a predominantly white area
of New York City.
Moreover, I think Governor Brimmer misconceives the role the
Administration envisions black banks fulfilling as far as the black
community is concerned. Black banks are not viewed as a pan~.cea, or
even as the primary way of fostering economic development along blacks
in this Country. It is ~asic that many other things must be done to
bring about economic progress for blacks. Black unemployment must be
decreased, blacks must receive more education, more blacks must gain
responsible positions in so-called white enterprises, black owned
businesses must prosper not only in the black community but in the
community at large, and much more. Black banks are simply a part of
this program. They can help, and in the long run, we believe that they
will be transformed into banks which are not just black community
oriented, but community oriented, and will render significant service
to the community as a whole.
When President Nixon campaigned for office in 1968 he said that
black America wanted "a piece of the action", and he would do all he
could to see that they got it. Assisting black banks is but one way
to help bring this about. Certainly it is not the only way.
After concluding that black banks can be of no vital aid in
stimulating economic development in the black community, Dr. Brimmer
offered a suggestion. He noted that ther~ is a section of the Federal
- 6 -
Reserve Act which permits the Board of Governors of the Federal Reserve
System to charter corporations to engage in international or financial
operations and these corporations can be owned by member banks of th2
Federal Reserve System. As this law was sponsored by Senator Edge,
these corporations are generally referred to as "Edge Act Corporations"
Such corporations have made equity investments in a wide variety of
business enterprises in foreign countries. Since American banks are
able to invest in businesses abroad, Dr. Brimmer believes there is no
logical reason why they should not be permitted to do likewise in the
United States.
Following the precedent of Edge Act corporations, Dr. Brimmer
suggested legislation be enacted which would authorize national banks,
as well as insured state banks, to the extent permissible under state
laws, to subscribe to stock in domestic corporations, chartered by the
Federal Reserve Board,to extend financial assistance through direct
loans and equity financing to housing projects and to retail and
wholesale business enterprises necessary to the improvement of living
conditions and economic development in our large cities. In other
words, these domestic corporations would be owned by banks and they
would be given the power to make loans to and invest in the stock of
housing projects and business enterprises in the ghetto areas of our
cities.
I believe the proposal is too unrealistic.
One of the major
themes of the black movement is for black men to own or control their
own businesses, and for the black community to have substantial
influence over the nature and direction of the economic development
of their areas. Under the proposal, banks, through the proposed
corporations, could set up businesses in ghetto communities and this
would just be a means of continuing what has gone on in the past,
namely, the white ownership of businesses in the ghetto communities.
In short, such a measure would not ensure the black man of getting a
"piece of the action" that the President promised.
Another major problem with the proposal is that there is no
assurance that most banks would participate in the program to any
significant extent. In fact, my experience indicates they would not.
I say this even though there may be some tax incentive connected with
investments by such corporations in ghetto territory. Let me explain
why.
Several years ago, a group of black and white businessmen established
the Interracial Council for Business Opportunity Guaranty Fund in New York
City. Until June 30, 1970, immediately prior to my becoming General
Counsel of the Treasury, I had the pleasure of serving as Co-Chairman
of that Fund. The purpose of the fund was to guarantee up to 50% of
of the principal amount of a loan made by a bank to a black business.
- 7 This meant, that by making such a loan the Bank's risk was immediately
reduced by 50%. Even with this guaranty, we found it very difficult
to get banks to lend money to black enterprises on many occasions. As
a mat.ter of fact, there were some occasions when, because we felt the
business was such a good one and represented such a great opportunity
to a black person, that we guaranteed more than 50% of the loan. Only
by doing this could we get a bank to make the loan.
There were a few major banks which cooperated very well but, on
the whole, getting white-controlled banks to lend money to black owned
businesses was not a simple task.
I might also add that the ICBO Fund had a number of outstanding
black.and white. businessmen who served as consultants to the businesses
to which loans were granted and, in that way, good business advice was
constantly available to the borrowers. Even under these circumstances,
when a loan on its face was a relatively good one, and when technical
advice and assistance was constantly available to the borrower, we
found that a number of banks were not over anxious to make these loans.
Consequently ~ froJD the world of experience, rather thi:m f rom the ivory
to~er, I would conclude that Dr. Brimmer's suggestion is not a particularly practical one.
_ l do. agree with Governor Brimmer in one important respect. There
is a-great need for eq~ity capit~l to be made available to businessmen
in the black communi-ty. In addition, I agree that the capital that
can :be generated through small business investment corporations is not
s·ufficient. We .do need some more practical ways of doing this. The
problem is not an easy one, and a number of people in the federal
govermnent, particularly those in the Department of Commerce, are
working on this matter. The new Mesbic (Minority Enterprise Small
Business Corporation) program is a step in that direction.
_ In any event, regardless of whether this needed equity capital is
found or not, there will continue to be great need for banking instituions in black communities. These communities need institutions that
understand their ·problems and, to some degree at least, are willing to
take a greater risk on loans in those areas. As the predominantly
white-owned banks have not fulfilled this need, black banks are
necessary.
After carefully reviewing Dr. Brimmer's remarks, the Administration
sharply disagreed with his opinion as to the economic value and future
of black banks in this Country. It was concluded that the Nixon
Administration must and will continue its efforts to assist black
banks. Evidence of its intention to act in accordance with that
conclusion is abundant.
- 8 -
Through the efforts of the Administration, the private efforts
to increase the flow of deposits into black banks were given a substantial boost this morning when General Motors agreed to deposit
five million dollars in minority banks.
We are preparing a follow-up memorandum to all departments and
agencies which have federal funds under their control asking for a
progress report and an estimate of the total funds that could be
shifted and when they will be shifted. The purpose of this memorandum is to move some of these funds into black banks.
The Department of Health, Education, and Welfare has set its
own target of shifting thirty million dollars to minority banks by
June, 1971. These funds will start moving early in the year and
build up to that point.
The Honorable William Camp, the Comptroller of the Currency,
who is responsible for chartering new national banks and whose
office is part of the Treasury Department, informed me that the
Brimmer analysis of black banking in this Country will not prevent
his office from authorizing new black banks where, as in the past,
it is found to be in the public interest to do so. He is fully
aware of the problems black banks face, but believes in time they
will emerge as significant contributors to our economy.
Since the Nixon Administration announced this program, approximately two million dollars in deposits have been shifted into black
banks. The Administration believes this program is worthwhile, and
has every intention of pursuing it to make sure that the goal of
one hundred million dollars is met.
In conclusion, I should like to say that hopefully the day will
arrive when black Americans will no longer have to suffer from such
great unemployment; when the vast majority of them will have the
degree of education necessary to enter the mainstream of American
economic life; and when their path will not be covered with the
thorns of prejudice. When that day comes, there will be no black
or white banks, just banks; and everyone in this Country will be
judged according to his individual worth, and not according to the
color of his skin. When that day comes, that is when there will
be no further need for black banks.
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR RELEASE 12 NOON CST
(1:00 P.M., EST)
ADDRESS BY THE HONORABLE CHARLS E. WALKER
UNDER SECRETARY OF THE TREASURY
BEFORE THE
NATIONAL HOUSING CENTER COUNCIL OF THE
NATIONAL ASSOCIATION OF HOME BUILDERS
ASTROWORLD HOTEL
HOUSTON, TEXAS
MONDAY, JANUARY 18, 1971
When Lou Barba, the President of National Association
of Home Builders, invited me to join you here today, he
sent me a preliminary copy of the program.
After reviewing
it, I concluded that during this four-day convention
housing and financial experts from allover the country will
discuss every conceivable subject that has a direct bearing
on your business.
Since I cannot possibly add much to that vast flow of
expertise, I want to use these few minutes to discuss another
kind of business--the public business.
If businessmen and
business associations do not pay more attention to the public
bUSiness, their private business will inevitably suffer as
the public business deteriorates.
K-569
-2Everyone in the housing industry has heard the statement
that a person does not buy a house, he buys a community.
Stated bluntly, today there are many communities across this
nation that are simply not good buys.
They have school
problems, race problems, sanitation problems, crime problems,
strike problems, transportation problems, smog problems,
water problems, and a variety of other ills, depending on
the particular community.
Just last week, over half a million Chicago school
children stayed home as teachers went on strike.
In New York,
senior policemen made their first arrests in years as they
filled in for foot patrolmen who refused to walk their beats.
In Los Angeles, where I was last Monday, what the radio
weatherman referred to as "hazy sunshine" looked pretty
thick to me.
And to bring it close to this audience, in a certain
Washington suburb all homebuilding has stopped because of
a lack of sewage facilities.
Property taxes, sales taxes and income taxes have risen
out of sight in many communities to meet these needs.
problems go unsolved and services are cut back.
Yet
-3It seems that aLmost every day we read of a new
financial crisis in a state or local government.
cases workers have been laid off.
In same
This situation can no
longer be tolerated.
The question is how should the Federal Government--the
Government of last resort--respond to the fiscal problems
of the state and local governments?
In the past, government has attempted to design programs
to meet specific needs.
hospitals.
We have programs dealing with
We have programs dealing with schools.
programs dealing with housing.
transportation.
We have
We have programs dealing with
And we have programs dealing with a host
of other community services.
In fact, today the Federal Government is administering
over 500 individual programs that provide approxtmately
$27 billion annually in categorical grants to governmental
units.
If you examine particular programs and weigh the
results against the stated objectives, some of them score
very high.
But if you step back and view the programs
collectively, you find serious questions of equity and
efficiency.
-4-
Funds in any given program are never great enough to
meet all the demands.
Some communities get left out.
Others get less than they need.
In many cases the matter of
need is overshadowed by the alertness and aggressiveness
of the local government units in applying for funds.
The delivery system is inefficient.
When a new program
is established and funded, it frequently requires a new
bureaucracy to administer it to make sure that local
government units meet the specifications spelled out in the
law.
This means even more government red tape.
The problems and frustrations of local officials are
built into the system.
If your community has a problem,
you had better pray it is not a unique problem, because if
it is not fairly widespread there will probably not be a
program to deal with it.
This cumbersome approach has also forced local
officials to keep up with all the program changes and
funding levels as a matter of survival.
That alone is a
demanding task.
But the real problem with categorical grants is that
the decision-making process has been shifted from state and
local governments to Washington.
Priorities are set in
I
-5washington.
, ~ ) /7 -/ \
• ) -L
/
Spending levels for particular projects are set
in Washington.
Planning at the local level is seriously
hampered by the on-again off-again nature of the appropriations
process.
President Nixon is convinced that this is the wrong
approach.
That is why he submitted to the last Congress a
bold plan for sharing revenues with state and local governments
rather than expanding categorical grant programs.
The President has stated many times that revenue sharing
is the financial heart of his New Federalism concept, and he
has promised to submit a larger and more effective version to
the 92nd Congress.
While all of the details have not been
finally determined, the basic thrust of the idea is simple.
First, the plan would set up an automatic distribution
each year of a specified portion of Federal revenues.
Second, the revenues would be shared by state and local
governments.
Finally, the Federal Government would not impose
restrictions on how the local governments use the money.
This approach will strengthen our Federal system in
many ways.
It will use the Federal tax system--the most efficient
in the world--to collect funds.
-6-
It will put more money where the problems are.
It will give state and local officials the decisionmaking authority and flexibility to go along with their
responsibilities.
It will enable local units of government to plan ahead,
knowing the money will be available for their use.
It will return power to communities, close to the people,
and increase the ability of institutions to react faster to
local problems.
It will increase the challenge and responsibility of
local government officials.
This should enable these units
to attract and retain high quality personnel.
And of very great importance, it will not require a
new layer of bureaucratic supervisors in Washington.
The concept of revenue sharing is supported by governors,
mayors and county officials across the country.
received widespread editorial praise.
It has
A Gallup poll showed
that 71 per cent of the American people endorse it.
With such broad and growing support, I am convinced
that sooner or later revenue sharing will be enacted by
Congress.
In my judgment, it is sUnply a matter of time.
But last year the proposal did not even get to the hearing
-7stage.
Part of the reason was that the House Ways and Means
Committee, which must initially handle revenue sharing, had a
very busy schedule that included Social Security matters, the
trade bill, tax legislation, a drug bill, and the Family
Assistance Plan--the most far-reaching reform in the welfare
system in more than 30 years.
What are some of the questions that will be raised
when hearings are held on revenue sharing?
Same members of Congress have stated that the governmental
unit spending the money should also have the responsibility
of raising that money through taxes.
But the fact is, as
already noted, the Federal Government now disburses
$27 billion annually in categorical grants.
Same critics question the ability of state and local
governments to use the money efficiently, yet many states
now share revenues with local government units.
If local
officials have the discretion on how to use the funds, they
will be more responsive to local priorities.
They will not
have to conform to Federal specifications.
Wouldn't you rather deal with a local official than
attempt to deal with a bureaucrat in Washington?
-8-
Other critics contend that if local governments are
included in the sharing process this will dilute the
effectiveness of the program.
extreme fiscal pressures.
Local governments face
That is why many states have
revenue sharing arrangements with local governmental units.
Another question:
Will revenue sharing encourage state
and local governments to reduce their own taxes?
No.
The distribution formula will favor those government units
which make the strongest tax efforts.
The proposal the President sent to Congress in August
1969 has been discussed and debated by state and local
government officials.
Constructive criticism to improve
the plan has been voiced.
The President's new proposal
will undoubtedly lead to additional discussion.
we welcome constructive criticism.
As always,
We hope you analyze the
proposal thoroughly and discuss it with your elected
representatives at the local, state and national levels.
As far as this Administration is concerned, it is a
fundamental step necessary to restoring balance to our
Federal system--it is the essential financial underpinning
of the New Federalism.
Financing state and local government is a matter of
public business.
Yet it is a good example of the kind of
-9-
public business that you must make your business.
As
individuals, as businessmen, and as community leaders, your
views are going to be sought more and more on broad public
issues that go beyond the traditional scope of your industry.
While revenue sharing will be in the very front rank
of public issues to be discussed in the coming year, it will
have a lot of company.
I am sure that each of you could
make up a list of such issues so I will not take the time to
recite mine.
However, there are two major ones that will be
with us throughout the seventies and probably throughout the
rest of the 20th Century.
The first is the problem of restoring and protecting
our environment.
After decades of neglect, the nation is
now finally mobilizing programs and policies to clean up the
air we breathe, the water we drink, and the countryside
around us.
Many people tried to pass over these problems, thinking
conservationists and scientists were alarmists.
But cases
of thermal inversion in major cities made people think twice
about going outdoors.
Oil spills, along with other pollutants,
contaminated beaches, lakes and rivers.
This restricted
recreation, to say nothing of the damage to sea life or
-10-
sources of pure water.
Unwise use of soil has led to
erosion and other problems.
Unless we face these problems squarely and show the
courage and determination to solve them, we will be
inviting disaster.
This is a major item of public business
that should concern your industry.
cities and regions.
People develop images of
They are going to be more insistent on
environmental controls when selecting where they want to live.
The policies and programs to bring about the desired
changes will vary to meet different situations.
cases laws will do the job.
or new standards.
In some
In others it will mean regulations
Selective credit programs may be helpful.
In still others,taxes--used either as incentives or
disincentives--may be the most equitable way to achieve the
objectives.
There will be many hard decisions in this field in the
years ahead.
They will require the best scientific brains
that government and industry can find.
They will require
a willingness on the part of all of us to face up to the
cost--which we will all
or higher taxes.
ult~ately
pay through higher prices
They will also require enlightened public
discussion and debate.
-11-
The other broad issue that will continue to merit your
attention is the performance of our market economy.
We
have a system that stimulates output and growth by rewarding
workers, owners and lenders in rough approximation to their
contribution to the economy.
Through decades of trial and
error, the business cycle has been controlled to the point
where drastic swings have been tamed--not for all individual
sectors but for the economy as a whole.
And, aside from the
large public sector, the consumer in effect makes the
decisions on what is produced and in what amounts.
Some critics say that since a market economy is geared
to individual initiative and self-interest, it is not a good
system for meeting the goals of society as a whole rather
than the goals of individuals.
This is nonsense.
But many businessmen who hear such comments do not join
the issue at the level of literate debate; instead they tend
to respond by stating that we have the most productive economic
system ever devised.
Certainly we do.
We have compiled a
brilliant track record in the production of the goods and
services necessary for improving the quality of life.
However, I also think it is a drastic mistake for the
businessman to react with doctrinaire answers and ignore the
-12-
obvious shortcomings of our market economy.
Change has always
been the order of the day in our society and it must so
continue.
Not change for the sake of change--but measured,
responsible, and carefully structured change to meet new
situations.
Government abhors a vacuum even more than nature.
social needs will not be permitted to go unfilled.
Basic
Our
challenge is not to scrap the market economy with its natural
drive but to improve it so more private efforts, in pursuing
individual or corporate goals, also further social goals.
We have adopted many housing programs to do just that.
We
have used the tax system--incentives and pena1ties--to induce
market participants to act in ways that meet both business
and social objectives.
In short, orderly change is both possible and productive
when we view emerging problems objectively and persist in
our determination to meet them.
Let me conclude by summing up what I have tried to say
today.
It is no longer acceptable for businessmen to concentrate
solely on their own short-term profit problems while deferring
to the government sole responsibility for dealing with
J)
~
-13long-run public problems.
Through your own firms, and
through your representatives in government, businessmen
like yourselves can and must play an ever-increasing role
in helping this nation meet the needs of the coming decades.
Much can be done through national trade associations,
and you have a powerful and effective group.
I have known
your principal staff officers, personally and professionally,
for many years.
They are very able men.
And I have known
each of your elected presidents since 1960, when Martin L.
Bartling, Jr., sat down at lunch with Secretary of the
Treasury Robert Anderson and me to discuss important national
problems of mutual interest.
I think your leadership, elected and staff, recognizes
and understandS a development of recent years that is becoming
increasingly important in the trade association world.
More
and more of the progressive national associations are
beginning to study and take positions on important, yet
controversial, national problems--problems that on the surface
Seem to be outside of their sphere of interest.
At times,
such positions may even seem to contradict the short-run
self-interest of the members of the association.
But in taking
such positions, and in defending them vigorously, trade
associations gain both respect and credibility.
-14I therefore suggest that you devote at least part of
your time and talent to researching the issues of the
environment, the future of the market economy, the problems of
intergovernmental relations, and the various solutions to
some of these problems, such as the New Federalism in
general--and revenue sharing in particular.
Once your study
is complete, take a position--and take it vigorously.
The result will be stimulating for each and everyone
of you.
It will be good for you as individuals, good for
your businesses, and good for your industry.
More importantly,
it will strengthen our unique system of participatory
democracy.
And that will be good for all Americans.
000
The Department of the
TELEPHONE W04·2041
WASHINGTON, D.C. 20220
mION:
TREASURY
FINANCIAL EDITOR
RELEASE 6 :30 P.M.,
!y, January 18, 1971.
RESULTS OF TREASURY I S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
s, one series to b~ an additional issue of the bills dated
October 22, 1970, and
other series to be dated January 21, 1971 ,which were offered on January 12,. 1971,
opened at the Federal Reserve Banks today. Tenders were invited for $2,000,000,000,
hereabouts, of 91-day bills and for $1,400,000,000, or thereabouts, of
182-day
s. The details of the two series are as follows:
E OF ACCEPTED
91-day Treasury bills
ETITIVE BIDS: _ _~m;.;.:a;.;.:t~ur;;;;;...;;;i;;;.;n::.i!g__
Ap=-rl_·1_2_2.....:,_1_9_7_1_ _
Approx. Equiv.
Price
Annual Rate
High
Low
Average
98.952
98.926
98.935
4.146%
4.249%
4.213%
182_day Treasury bills
maturing July 22, 1971
Approx. Equiv.
Price
Annual Rate
97.896
97.838
97.855
4.162%
4.276%
4.243%
98% of the amount of 91-day bills bid for at the low price was accepted
9% of the amount of 182-day bills bid for at the low price was accepted
~
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
ltrict
lton
/ York
.laddphia
!veland
:hmond
.anta
c~o
Louis
neapOlis
sas City
las
Fr.s.ncisco
TOTALS
AEElied For
$ 24,910,000
2,287,200,000
36,095,000
38,075,000
25,455,000
52,140,000
201,850,000
65,085,000
42,785,000
48,020,000
40,320,000
132 2 800 2 000
Acce,Eted
$ 14,910,000
1,402,260,000
21,095,000
37,155,000
17,855,000
48,790,000
155,150,000
59,085,000
42,785,000
48,020,000
28,320,000
125 2 700 2 000
A,E,Elied For
$ 12,405,000
1,879,925,000
2p,965,000
45,735,000
8,l50,000
27,760,000
188,020,000
44,610,000
34,710,000
21,910,000
30,245,000
122 2 685 2 000
$2,994,735,000
$2,001,125,000
~ $2,443,l20,000
~ludes $309,940,000
~lUdes $123,145,000
Acce,Eted
2,405,000
999,175,000
26,965,000
45,735,000
8,150,000
21,355,000
115,100,000
34,610,000
34,710,000
21,900,000
21,425,000
68 2 685 2 000
$
$1,400,215,000
£I
noncompetitive tenders accepted at the average price of 98.935
noncompetitive tenders accepted at the average price of 97.855
~se rates are on a bank discount basis.
The equivalent coupon issue yields are
52% for the 91-day bills, and 4.40% for the 182-day bills.
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January .19, 1971
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
$3,400,000,000, or thereabouts, for cash and in exchange for Treasury
bills maturing January 28,1971,
in the amount of$3,40l,640,000,
as follows:
9l-day bills (to maturity date) to be issued January 28, 1971,
in the amount of $2,000,000,000,
or thereabouts, representing an
additional amount of bills dated October 29, 1970,
and to mature
April 29, 1971
(CUSIP No.912793 KF2 ) originally issued in
the amount of $1,400,925,000, the additional and original bills to be
freel v interchangeable.
.
182 - ddV bills, for $1,400,000,000, or thereabouts, to be dated
January 28, 1971,
and to mature July 29, 1971
(CI'S I!' ;~I). 912793 LA2).
TIl(' hill s of both series will be issued on a discount basis under
co~)vtitive and noncompetive bidding as hereinafter provided, and at
maturil! their face amount will be payable without interest. They will
be issll('u in hearer form only, and in denominations of $10,000,
$l1.(~O(), S50,OOO, $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, January 25, 1971.
Tenders will not be received
at the Treasury Department, Washington. Each tender must be for a
minimum of $10,000. Tenders over $10,000 must be in mUltiples of
$5,000. 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 oenerally may submit tenders for account of
CUstomers provided the nam;s of the customers are set forth in such
tenders. Others than banking institutions will not be permitted to
- 2 -
submit tenders except for their own account. Tenders will be receiv
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tender
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are accompal
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at tl
Federal Reserve Banks and Branches, following which public announce~
will be made by the Treasury Department of the amount and price rangE
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of thE
Treasury expressly reserves the right to accept or reiect any or all
tenders, in whole or in part, and his action in any such respect shal
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 decima
of accepted competitive bids for the respective issues. Settlement f
accepted tenders in accordance with the bids must be made or complete
at the Federal Reserve Bank on January 28, 1971,
in cash or other immediately available funds or in a like face amount
Treasury bills maturing January 28, 1971.
Cash and exchange tend
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.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Cadi
of 1954 the amount of discount at which bills issued hereunder are so
is cons ide red to acc rue when the bi 11 s are sold, redeemed or otherwisl
disposed of, and the bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price paJ
for the bills, whether on original issue or on subsequent purchase, ar
the amount actually received either upon sale or redemption at maturit
during the taxable year for which the return is made.
Treas ury Dep ar tmen t Ci rcul ar 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 fre
any Federal Reserve Bank or Branch.
000
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 19, 1971
TREASURY SAYS ALL RESTRICTIONS DROPPED ON
FRENCH NICKEL IMPORTS
The Treasury Department announced that it has removed
all restrictions under the Cuban Assets Control Regulations
on imports of nickel and nickel-bearing materials from
France. Previously, France had been importing substantial
quantities of nickel from Cuba, creating a risk that Cuban
nickel might enter the United States as a component of
French nickel or stainless steel manufacturers. This would
have been inconsistent with United States support of the
economic sanctions imposed upon Cuba in 1964 and 1967 by the
Organization of American States. Consequently, the Bureau
of Customs had been instructed to detain all unlicensed
imports of nickel and nickel-bearing materials from France.
To avoid interfering with French-United States trade
in nickel pioducts made with non-Cuban nickel, arrangements
were developed whereby the French Government certified those
French exports to the United States which did not contain any
Cuban nickel, and these goods entered the United States
without restriction.
The Treasury has now received satisfactory assurances
that Cuban nickel is no longer being imported into France
and there is no longer any risk that imports of Frenchorigin nickel products will contain any Cuban nickel. The
Treasury has therefore rescinded its instructions to the
Bureau of Customs to detain unlicensed imports of such French
products. An announcement to this effect was published in the
Federal Register on January 5, 1971.
All U.S. restrictions applicable to trade with Cuba or
in goods of Cuban origin remain unchanged. In addition,
restrictions continue to apply to imports of nickel and
nickel-bearing materials from Italy, Czechoslovakia, and
the USSR since Cuban nickel is being imported into those
areas.
000
K-S70
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January20, 1971
TREASURY SECRETARY KENNEDY NAMES WILLARD G. ROUSE
AS NEW STATE SAVINGS BONDS CHAIRMAN FOR MARYLAND
Willard G. Rouse, Vice Chairman of the Board of
Directors of the Rouse Co., Columbia, is appointed volunteer
State Chairman for the U. S. Savings Bonds Program in
Maryland by Secretary of the Treasury David M. Kennedy,
effective immediately.
He succeeds Alonzo G. Decker, Jr., President, the
Black & Decker Manufacturing Co., Towson, who had served
as State Chairman since 1966.
Rouse will head a committee of State business, financial, labor, and government leaders which -- working with
assists in promoting
the U. S. Savings Bonds Division
the sales of Savings Bonds.
Before joining the Rouse Co. in 1955, he was Treasurer
of the Olin Matheison Chemical Co. He previously had been
llssociated \<lith the Equitable Life Assurance Society for
20 years.
He is a member of the Board of the Handy & Harman
Spec ial ty Hetals Group, Arlington Federal Savings and Loan
Association of Baltimore, Columbia Bank and Trust Co.,
Howard Research and Development Corp., and Rouse-Wates.
The Easton native is a Trustee of the international
Urban Land Institute and Chairman of its Community Builders'
Counc i 1.
Rouse recently was appointed Chairman of the Board,
Chesapeake :-taritime t-luseum, St. Hichaels, and is Chairman
(OVER)
- 2 -
of the Job Corps Task Force Committee appointed bv
Governor ~landel to establish the ~laryland Job Corps Center.
A past President of the Baltimore Area Council, Boy Scouts
of America, he is on its Executive Committee and is Vice
Chairman of Region III of the national body.
He has served as President, ~laryland Chapter, Arthritis
and Rheumatism Foundation, and Chairman, Eastern Area,
American Red Cross; B~ltimore Youth COmMission, and Community
Chest-United Appeal Campaign. He also \vas elected ',}lan of
the Year" bv the Baltimore Advertising Club.
He and his wife, Katherine Parker Rouse, have five
chi ldrcn.
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE MURRAY L. WEIDENBAUM
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE NATIONAL ASSOCIATION OF COUNTIES'
FIRST REVENUE SHARING JET-IN
PHILADELPHIA, PENNSYLVANIA
JANUARY 20, 1971 12 NOON, EST
PLANS FOR REVENUE SHARING
It is a great pleasure to address this first Revenue
Sharing Jet-In sponsored by the National Association of
Counties. The Nixon Administration is delighted to see this
buildup of grass roots support for the revenue-sharing program. Other members of the Administration, together with
leading governors and local leaders, will be' participating
in the additional Jet-Ins that have been planned for the
very near future.
As you know, President Nixon has stated that revenue
sharing and the related aspects of the relations between the
Federal Government and state and local government will be the
major thrust of his forthcoming State-of-the-Union Message.
The President specifically said that the program that he
will present will go far beyond any proposal that he has
made in this area.
I must ask you to wait for the forthcoming Presidential
Message for the details of the Administration's plans for 1971.
However, I do very much want to give you the basic reasoning
for our now giving revenue sharing such a high priority and
the general approaches that we are working on.
We all like to talk about the need to strengthen our
Federal form of government, about moving government from
Washington closer to the people. Most of the tim~, let u~
face it, that is just talk. However, we in the NIxon AdmInistration are really trying to decentralize government and to
take specific action to strengthen state and local gover~ment
so that they can meet the fiscal crisis which is now facIng
so many communities and taxpayers.
K-S7l
- 2 -
I have come here today to tell you about the program
that is at the heart of this effort -- the idea of sharing
a portion of Federal revenues with state and local governments, to, in effect, truly Federalize the income taxes
collected by the Department of the Treasury. The mechanism
that we have selected is financial because we believe that
sharing responsibilities and work more effectively within
the public sector requires a sharing of the fiscal resources
necessary for the task -- a sharing of public revenues.
Before I get into the details, I want to make one
fundamental point. I am not just talking about another
program of sending Federal dollars around the country -there certainly is no shortage of ways of doing that already.
What I am talking about is the shift of decision-making
power to state and local governments. Revenue sharing is
unlike any existing grant-in-aid program. Under revenue
sharing, the money that state and local governments obtain
from the U. S. Treasury becomes their money. Nobody in
Washington tells you how to use the money. For example,
revenue-sharing money can go into a county's general fund,
and it is up to the county council to decide how to spend it.
Incidentally -- and this is a real first -- 100 percent
of the revenue-sharing appropriation is paid out to the states,
cities, and counties. There is no Federal "cut" for overhead
or administration. That is part of the beauty of it. We
have tried to set it up so that a program will work automatically, without the need for a new Federal bureaucracy.
Let me give you a very brief outline of our revenuesharing proposal. First, the total size of the fund will be
fixed by law. States and localities will be able to count on
it in their long-term planning. The annual amount will increase
steadily as the economy and our tax base grows.
Second, the distribution among states will be made
essentially according to each state's share of the national
population.
Third, the distribution within each state to the cities
and counties will be established by formula spelled out in the
Federal statute. The key point is that each city and county
will be able to get its share as a matter of right and will
not have to negotiate with the Federal or state government.
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There will also be a local option in oui plan, whereby the
local governments and the state legislature in ~ given 5tate
can get together and set up an alternate plan for the intrastate distribution of the money.
Fourth, there will be no strings or limita,tions: on the
use of these funds, no plans to submit for Federal rev~e~
and no matching requirements.
During the past year and a half, I have been on wha1
my friends call my private Chautauqua circuit,explaining
revenue sharing to governors, mayors, ci ty manage.rs'~ and
other interested people. It has been a pleasant experience
to observe the breadth and depth of support for this program
which exists in America today. This is why I welcoule the
opportunity to be here.
In these meetings, a tew key questions come up time
and again . They may have occurred to you today. Let me,
as best I can, provide some answers.
The first question is, Will all the money go torthe
sta te governments exclus i ve ly? The answer is "No",. Each
city, county and town will get a portion of the revenue-sharing
fund automatically. We have worked out ,a guarantee which both
protects the local governments and maintains the Federal form
of government. This is different from most earlier,:revenuesharing plans.
It is true that initially the U. S. Treasury will make
payments to the states but -- and this is a fundament,al "hut"
each state, in order to qualify for the Federal, mo-ney, , will
have to pass on to each city and county a IlTedetermined 'share
the share spelled out in the Federal law (unless the ":ldc,f'l
option" is exercised by the state and its localities). This
provision is called the mandatory pass-through. It was developed in j oint consul tat ions wi th the National League .0'£
Cities, the U. S. Conference of Mayors, the National Governors
Conference, the National Association of Counties', andot:her
key organi za tions. The mandatory inc Ius ion o£loca:l as well
as state governments in Federal revenue sharing has the ~upport
of all of the major state and local associations.
The second question is, Will the proposal provide enough
money for the large urban areas? The amounts will be quite
g~nerous, particularly in view,of the national budgetary
sItuation.
- 4 Our approach is to distribute revenue-sharing funds
within a state to each city and county in proportion to
general revenue collections. So-called "tax havens" with
low tax collections and a narrow range of functions will
rece i ve very small shares. In con tras t, cit ies wi th heavy
program respons i bil i ties and, hence, I arge tax revenues wit
get bigger amounts, even if their populations are the same.
In practice, nearly every large city will receive not
just absolutely more money but also more per capita than it~
smaller neighbors. However, the large central cities will
get more revenue-sharing money not just because they are
bigger, but because they bear a larger fiscal burden.
The third question is, Why bother to make the expensivE
"round trip" of tax dollars to Washington - - why not leave t
money in those states and localities where it originates?
Actually, the Department of the Treasury has lower tax
collection costs than any state or local government agency.
Since revenue sharing will not require any new Federal agenc
or bureau
all that is required is a simple check-writing
procedure -- the round trip will be quite economical.
The fourth question is, Do we really have any excess
Federal revenue to share -- won't revenue sharing increase
our budget deficit? This question apparently results from
some confusion over the purpose and operation of a revenuesharing program. Revenue sharing is an expenditure for
a basic national purpose -- strengthening our Federal system
of government. We are not talking about sending back to the
s ta tes "excess" revenues I eft over from Federal program requirements. Rather, we are talking about rearranging existi
Federal program priorities.
Let me express this important point in a slightl~ .
different way. Revenue sharing will not raise the e~lst~ng
Federal tax burden. The alternative to revenue sharIng IS
not a smaller Federal deficit. The alternative is a higher
level of Federal spending in some other -- and, in our view,
lower priority -- program areas.
In modern Federal budget-making, the levels of ex~en~i
tures and revenues are determined as a part of the NatIon 5
overall economic policy. In general, Feder':ll exp~nditures ~l
set at a level which makes a strong but nonInflatIonary con
tribution to economic growth. I say noninflationary because
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as the President has stated, keeping expenditures within the
revenues ~hat the e~onomy ge~era~es at full employment -- as
we are dOIng -- avoIds creatIng Inflationary pressures.
Hence, funding a revenue-sharing program in the context
of the present-day budget means that we are selecting this
program, rather than some other, for a major share of the
automatic annual growth in Federal revenues. We believe that
this is a wise choice of priorities.
. Now, let me turn to a question which I get very frequently:
Are state and local governments competent to use revenue-sharing
money effectively? This question presents a real challenge.
We believe that strengthening our Federal form of government
by helping state and local governments is an objective worthy
of an investment of several billion dollars a year.
.
Frankly, I cannot guarantee you that all of the money
will be used wisely. Of course, neither am I certain that all
"direct Federal spending or indeed that all private spending
is sensible. To be sure there is nothing inherent in the
revenue-sharing concept which would encourage wasteful ~pending.
Public responsibility must be tied direct to the individuals
in charge of conducting government programs, regardless of the
source of financing.
The revenue-sharing plan does provide that each state and
local government receiving revenue-sharing funds will assure
.proper accounting for the payments received and will provide
regular reports to the Secretary of the Treasury on the disbursement of the funds. Let me be clear. We have no intention
of "second guessing" a state or local jurisdiction's determination to spend the money on education or health or safety, etc.
We do want to be able to assure the President and the Congress
that the money was spent for a lawful governmental purpose.
I do believe that the ultimate amounts that the Congress
will be willing to appropriate for revenue sharing will depe~d
on how effectively the money is used. But, more than money IS
.transferred to state and local governments under our revenuesharing plan. Decision-making responsibility for ~he use of
these funds is also delegated to the states, countIe~, and.
cities. They, and not Federal agencies, will establIsh prIo:.ities. They, and not Federal agencies, w~ll.al~oc~te.expendI
tures in accordance with the needs of theIr JurIsdIctIon, as
they see those needs. The ultimate success of revenue sh~r~ng,
therefore, will depend on the ability of states and localItIes
to make the most efficient and judicious use of these funds.
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.The Ni~on Admin~s~ration maintains a large measure of
conf~dence In the abIlIty and willingness of local government
to. respond. posi tively to those particularly local problems
WhIC~ reguIre public solutions. A major purpose of revenue
sharIng IS to enhance the financial ability of the levels of
government closer to the people to respond effectively to
the urgent problems that face us today. We recognize that
all governments are beset with problems. But we are convince
that the potential for effective management of social and
public systems is extremely high at the local level.
One question that I get frequently may sound somewhat
~bstract and philosophical, but it is important since I get
It from some members of the Congress: Does revenue sharing
separate the responsibility for raising taxes from the act
of spending tax revenues? While this may appear to have
a logical ring to it, I believe that it is misleading. It
ignores two important facts. At the national level, we have
the precedent that the Federal Government already "shares"
$27 billion annually, in the form of categorical grants, with
state and local governments. At the state level, we have the
precedent that every state shares revenue with its local gove:
ments; many in a completely unrestricted manner.
The real question is the control over the funds. It
seems quite clear to me that we will continue to have some
separation of the taxing power and the spending power -- via
rising amounts of Federal aid to the states, ~ounties and .
cities. What revenue sharing does represent IS an opportumt)
for state and local governments to have discretion over ~he
allocation of a modest portion of these funds. I do belIeve
that the very real and present fiscal crisis facing so many
states, citie~ and counties makes updating political theory
a very real political necessity and reality.
There is a hooker in all of this, of course. Revenue .
sharing will take legislation by the Congress. Revenue-sharI r
bills were introduced in both the Senate and the House of
Representatives in the 9lst Congress but no action was.take~.
It is our intention to submit an improved revenue-SharIng. bIll
early in the 92nd Congress and to work hard for it. It WIll
be a revenue-sharing plan with both a larger total dollar
amount and a more generous pass-through to local governments.
Also, we are
to make it easier
lature in a given
themselves how to
sharing money.
strengthening the "local option" provis~on
for local governments and the state legIsstate to get together and to decide for
make the within-state distribution of revenu
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We believe that revenue sharing will help meet the
current fiscal crises facing so many states and localities.
Revenue sharing will also help to reduce the upward pressures
on property taxes. Revenue sharing will, in addition, have
a desirable employment impact -- by providing the critical
margin of additional funds, it will enable states and localities to hire and keep on the public payrolls more policemen,
firemen, school teachers, and other key public employees.
In essence, revenue sharing represents a cogent response
to today's problems -- and a response which provides a durable,
long-term solution to the challenge of providing essential
public services without adding to the already heavy hurden
on the taxpayer.
I assure you that revenue sharing has and will have an
extremely high priority in the thoughts and actions of the
~ixon Administration.
But we need your support -- YOllr strong
support in order for revenue sharing to become a reality.
lienee, if you agree with me that revenue sharing will be a good
thing for our country, then it is up to you to work for it.
I thank you for the opportunity to be here. It is
always a pleasure for a Treasury official not to have to
collect taxes but to talk about giving some of them back.
000
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 20, 1971
TREASURY REVIEWS THE LAST TWO YEARS
Secretary of the Treasury David M. Kennedy today
issued the following review of the Department's activities
during the last two years:
The Treasury Department's responsibilities and
interests cover a broad range of domestic and international
matters. Looking back over the past two years, I believe
it is fair to say that we have been both active and successful in many areas.
ECONOMIC POLICY: For the past two years, Treasury has
been in the policy forefront of the Administration's battle
against inflation. By early 1970, excessive demand had been
successfully curbed. Now we are dealing with the difficult
problem of the cost-push pressures of rising prices and
wages while fostering economic expansion.
As is well known, the battle against inflation has been
a difficult one because inflation was galloping along when
this Administration took office two years ago. The infla··
tion had been set off by a $25 billion federal deficit
imposed upon an economy operating near full capacity.
Looking ahead, we could see two alternatives: either
continue the inflation-generating policy and reap a whirlwind of economic ti.'uuLles, or encourage a gradual cooling
which would cause the economy to level out and recover
from the ravages of inflation.
We chose the latter course and imposed restraints on
federal spending, the basic cause of inflation. At the
same time, the independent Federal Reserve Board set a
parallel course and imposed monetary restraint. The
result: The economy -- and the rate of inflation -slowed down. Although momentum continued to push prices
upward, the annual rate of increase in retail and wholesale prices has been slower over the past year; and we
will see further improvement in the months ahead.
K-S72
2
Of course, in our measured deceleration from the
upthrust of a substantial inflation there has been some
real pain. Unemployment has been an area of serious
concern.
It should be recognized that the pain
serious as
it is -- is partly a transient cost of a shift from a
wartime to a peacetime economy. The 1971 budget for the
first time since 1950 devoted more funds to human resources
than to defense needs. It is reasonable to predict that
this same emphasis will be reflected in the 1972 budget.
Although the unemployment rate rose to an average of nearly
5 percent in 1970, that level was below the 5.7 percent
average for the pre-Viet Nam years of 1960-64. Neither
should we lose sight of the fact that the absolute number
of jobs has grown during the two years to 79 million from
77 million at the beginning of 1969.
Many of those on the unemployed rolls, as the
President points out, are there as a result of the winding
down of the Viet Nam War, a move applauded by most people.
While we are now trying to keep cost-push pressures
under tight rein, at the same time we are encouraging
economic growth. A measure of our success is that productivity is on the rise again. As I stated in my recent
annual Report to the Congress, "Continued gains in productivity, coupled with restraint in wage bargaining and
pricing decisions, will be needed in fiscal 1971 in order
to restore better balance to the cost-price structure."
The goal of a sustainable, non-inflationary high
employment rate of growth is not an easy one to reach; but
as we move in this direction, the benefits will be widely
shared and welcomed. There are encouraging signs in recent
statistics. More importantly, the Federal Reserve continues
to increase the supply of money, which is a force for a
rising economy. The federal budget this year and the one
prepared for next year will be stimulative without being
inflationary.
Looking ahead, we do not think the Nation wants a
schizophrenic economy, one that is sharply up and then
precipitiously down. While the medicine we had to
administer to bring down the inflationary fever was not
always pleasant, as a result of having taken the cu~e,
we are now in the more fortunate position of fosterlng
an economy which will move upward at sustainable rates.
3
TAX REFORM: Treasury has played a major role in
helping to secure equitable taxation for all citizens
through the Tax Reform Act of 1969. Treasury experts
worked closely with the Congress in the development of
the final version of the Act, which makes the following
important reforms among others: A large number of highincome persons who had paid little or no Federal income
tax previously must now pay their fair share; the tax
liabilities of more than 9 million people who are at or
below the poverty level have been reduced by the Low
Income Allowances; the use of the simple standard
deduction has been increased to benefit 31 million taxpayers; and tax-free foundations have been brought under
clos~scrutiny without restraining their legally
sanctioned activities.
A major accomplishment of the tax counsel division
of Treasury and its Internal Revenue Service was the
writing of regulations required by the provisions of
the 1969 Act. The Act required 179 sets of regulations,
and at year end all but 6 had been completed or were in
the final stages of completion. Countin~ 24 temporary
reeulations, the Department proposed and wrote more
regulations in 1970 than in any other year.
LAW ENfORCEMENT: As the Nation's second largest
law enforcement aeeney, Treasury has in the past two
years int~nsified the war on crime with a host of new
activities. Tr~usury added 915 Customs employees to aid
in the drive against drug smuggling; implemented the new
rxecutive Protective Service to help protect foreign
missions in Washincton; and established a system to hire
~nJ train the men who will become the permanent skymarshals for the Department of Transportation.
Treasury has also supplied almost half the experts
for the Strike Forces working against organized crime
under direction of the Justice Department and has set
up procedures for licensing the sale of explosives under
the new law against terrorist bombing. In addition,
Treasury has established the new Consolidated Fe~eral
Law Enforcement Training Center, which will provlde more
professional training facilities for officers of both
Treasury and other United States agencles.
4
Treasury's capabilities in law enforcement were
demonstrated fully during the 25th anniversary of the
United Nations this past fall, when Treasury's Secret
Service Bureau protected 45 heads of state over a
period of several days.
Treasury has also been instrumental in fostering
legislation to limit the use of secret foreign bank
accounts to further unlawful purposes, without unduly
hampering legitimate banking operations.
INTERNATIONAL FINANCE:
In the international field,
Treasury obtained final agreement on the new world
reserve asset, Special Drawing Rights (SDR's), which
helped strengthen the world monetary system. Significantly, Treasury successfully urged the issuance of
SDR's in amounts which world trade requires. Treasury
has also worked to increase U.S. use of multilateral
institutions as a means of aiding developing nations.
SAVINGS BONDS:
In the area of interest rates,
Treasury proposed, and Congress approved, an increase
in the interest rates on U.S. Savings Bonds, which are
held by millions of Americans who save. And, at the
same time, Treasury's fiscal policies are now fostering
a steady decline in the interest rates that the government must pay in the market place when it borrows the
huge sums involved in Treasury financing operations.
FINANCIAL INSTITUTIONS: Treasury has been the prime
mover in promoting legislation to prevent over-concentration in the banking field, through passage this session
by the Congress of the one-bank holding company bill.
A section of this bill, incidentally, provides for the
issuance of a dollar coin honoring President Eisenhower.
The Treasury also was responsible for the Admi~is
tration's part in drafting the recently enacted leglslation to establish a Securities Investor Protection
Corporation (SIPC).
This corporation will insure
investors against losses caused by failure of br~ker
dealer firms.
It does not protect investors agalnst
market losses.
5
Under the plan each investor will be protected up
to a maximum of $50,000 for cash and securities maintained
with brokers and dealers.
Of the $50,000 total no more
than $20,000 may be in the form of cash balances left with
broker-dealer firms.
All broker-dealer firms registered under the Securities
and Lxchange Act and members of national securities exchanges
are required to be members of S.I.P.C.
Through industry
assessments S.I.P.C. will establish an lnsurance fund that
will be backed by additional borrowing authority of up to
$1 billion from the Treasury.
HOUSING:
To help solve the Nation's housing shortage,
Treasury officials persuaded commercial banks, life insurance
companies and pension fund trustees to increase their investment in residential mortgages (or mortgage-backed bonds) in
1970. At the same time, Treasury issued new regulations to
aid low-income housing through new tax incentives. And,
partly to help steer money into the housing markets, Treasury
raised the minimum denomination of Treasury bills from
$1,000 to $10,000 in an action that slowed the outflow of
money from savings institutions.
MI;WRITY ENTERPRISE:
In the Administration's campaign
to support minority enterprise efforts, Treasury has worked
with banks to increase the minority employment and to
develop a new program in cooperation with other federal
agencies to increase the flow of federal funds into minorityowned hanks.
ENVIRONMENTAL PROTECTION:
Cooperating in the fight to
save the environment, Treasury now destroys worn-out
currency by maceration rather than by burning. Treasury
has proposed a tax on lead additives in gasoline to spur
conversion from leaded to unleaded gasoline.
In addition,
Treasury has proposed the creation of an Environmental
Financing Agency to support the purchase of local obligations for waste treatment plants for localities that would
otherwise not be able to obtain reasonably priced credit.
TRADE:
In the trade area, Treasury has expedited
action against unfair trading practices of foreign companies trying to "dump" goods in the United States at
prices lower than those in the home country. At the
same time, through the Customs Bureau, Treasury has
extensively modernized antiquated customs procedures and
taken new actions against criminals operating at su~h
major entry points as Kennedy Airport in New York Clty.
6
UNfINISHED BUSINESS:
We have not accomplished all
that we had hoped in the past two years, and much remains
to be done.
Perhaps of most national public importance is the
innovative plan for sharing Federal revenues which we
developed in conjunction with state and local governments.
Although Congress has not yet held hearings on the plan,
we believe that it will become the most significant
opportunity for improving the Nation's financial structure
through action" in 1971.
Another Treasury proposal that was not acted upon by
Congress was the idea of creating the Domestic International
Sales Corporation (DISC).
The purpose of DISC is to
encourage domestic corporations to establish export subsidiaries here in this country, rather than establish
manufacturing subsidiaries abroad, thus supporting domestic
employment.
It would equalize tax treatment between
domestic corporations manufacturing for export and overseas
subsidiaries of U.S. corporations.
DISC would not only
encourage exports which would improve the Nation's balance
of trade, it would also help to save jobs for the American
labor force.
We hope that the new Congress will move promptly to
enact this important legiSlation.
000
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
JP.N ~ 0 ;971
Fon U1HEDIATE RELEASE
WIT'rlHOLDING OF APPRAISEMENT ON SHEET GLASS FROM TAIWAN
AEsistant Secretary of the Treazury Eugene T. Rossides announced
today that the Bureau of Customs is
offi~ers
instru~ting
its Customs field
to withhold appraisement of sheet glass from Taiwan pending
a determination as to whether this merchandise is being sold at less
than fair value within the meaning of the Antidumping Act.
This
latter determination will be made within 3 months of the withholding
of appraisement notice.
In the event of a determination of sales at less than fair
value, the case would then be referred to the Tariff Commission
for a determination of injury.
If the Tariff Commission were to
make zuch a determination, dumping duties would be assessable on
all entries (effected after the date of withholding) of sheet glass
on which dumping margins exist.
During the period January 1, 1969, through September 1970,
Gheet elass imports from Taiwan totaled approximately $2,930,000.
The Dtpartmentof the
WASHINGTON, D.C. 20220
)R
TREASURY
TELEPHONE W04·2041
IMMEDIATE RELEASE
January 20., 1971
TREASURY'S MONTHLY BILL OFFERING
The Treasury Departmen.t, by this public notice, invites tenders for
wo series of Treasury bills to the aggregate amount of $1,70.0.,0.0.0.,0.0.0.,
r thereabouts, for cash and in exchange for Treasury bills
aturing January 31, 1971, in the amount of $ 1,50.3,356,0.0.0.,
s follows:
272-day bills (to maturity date) to be issued February 1, 1971,
or thereabouts, representing an
dditional amount of bills dated October 31, 1970.,
and to mature
etober 31, 1971
(CUSIP No. 912793 KT2) originally issued in the
mount of $1,20.1,370,0.0.0.,
the additional and original bills to be
reely interchangeable.
n the amount of $50.0.,0.0.0.,0.0.0.,
365-day bills, [or $1,20.0.,0.0.0.,0.0.0.,
or thereabouts, to be dated
anuary 31,1971,
and to mature January 31,1972
CUSIP No. 912793 ME3) .
The bills of both series will be issued on a discount basis under
ompetitive and noncompetitive bidding as hereinafter provided, and at
laturity their face amount will be payable without interest. They will
Ie issued in bearer form only, and in denominations of $10,0.00, $15,000,
,50,000, $10.0,000, 5500,000 and $1,0.00,000 (maturity value).
Tender,s,'wi11 be received at Federal Reserve Banks and Branches up
to tb~"c~osJrTg hour, one-thirty p.m., Eastern Standard
t1~"'1'I)4-esday, January 26, 1971.
Tenders will not be received
I.t th~:. t.reasury Department, Washington. Each tender mus t be for a
m,~t!l.1t1lum·of $16,0.0.0.. Tenders over $10.,0.0.0. must be in multiples of
$5,000. In the case of competitive tenders the price offered mu~t
be expressed on the basis of 10.0., with not more than th~ee decimals,
e.g. 99.925. Fractions may not be used. (Notwithstanding the fact
~hlt the one-year bills will run for 365 days, the discount rate will
e 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
~de on the printed forms and forwarded in the special envelopes which
~h111 be supplied by Federal Reserve Banks or Branches on application
t ere for •
- 2 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
trust company.
Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following ~vhich public announcemenl
will be made by the Treasury Department of the amount and price range
accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or reiection 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 bidde
will be accepted in full at the average price (in three decimals) of
accepted competitive bids for the respective issues. Settlement for
accepted tenders in accordance with the bids must be made or completed
at the Federal Reserve Bank on February 1, 1971,
in cash or other immediately available funds or in a like face amount 0
Treasury bills maturing January 31, 1971~ provided, however, that
settlement for tenders submitted to the Federal Reserve Bank of Chicago
must be completed at that Bank on Februat"y 2, 1971, and must include on
day's acct"ued intet"est if the settlement is made with other than Treasu
bills maturing Januat"y 31. Cash and exchange tenders will receive equa
treatment. Cash adjustments will be made fot diffet"ences between the
pat" value of matut"ing bills accepted in exchange and the issue price of
the new bills.
Under Sections 454 (b) and 1221 (5) of the Inter'nal Revenue Code o.
1954 the amount of discount at which bills issueri hereunder are sold is
cons ide red to acc rue ~vhen the bi 11 s are sol d. redeemed or otherwise
disposed of, and the bills are excluded from'consideration as capit~l
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued het"eunder must include in his income tax
return, as ordinary gain or loss, the differte:nce between the price paid
for the 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 t"eturn is made.
Treasury Department Circular No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govet"n the
conditions of their issue. Copies of the cit-cular may be obtained from
anv Federal Reserve Bank or Branch.
or· o
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
OR IMMEDIATE RELEASE
January 20, 1971
TREASURY ANNOU1~CES $29.6 BILLION REFUNDING
The Treasury today annolli1ced that it is offering holders of $29.6 billion of
otes and bonds maturing February 15, March IS, and November 15, 1971, and February 15,
972, an opportunity to exchange their holdings for a 6-1/4% 7 -year note or a 5 - 7/8%
-1/2 year note. The public holds $19.5 billion of the securities eligible for
xchange, and about $10.1 billion is held by Federal Reserve and Government accounts.
The securities eligible for exchange are as followB:
5-3/8%
7-3/4%
2-1/2%
5-3/8%
7-3/4%
3-7/8%
4-3/4%
Treasu~y
Notes of Series C-1971, maturing
Notes of Series D-1971, maturing
Bonds of 1966-71, maturing March
Notes of Series B-1971, maturing
Notes of Series G-1971, maturing
Bonds of 1971, matu~ing November
Treasu~ Notes of Series A-1972, maturing
7-1/2?b Treasury Notes of Series C-1972, maturing
4% Treasury Bonds of 1972, matu~ing February 15,
Treasury
Treasury
Treasury
Treasury
Treasury
February
February
15, 1971
November
November
15, 1971
February
Februa:cy
1972
15, 1971
15, 1971
15, 1971
15, 1971
15, 1972
15, 1972
Interest will be adjusted as of February 15, 1971, for the secuTities due
3l'ch 15, 1971, November 15, 1971, and February 15, 1972.
The notes being offered in exchange are:
6-1/4%"Treasury Notes of Series A-1978, dated February 15, 1971, due
February 15, 1978, at pal'; and
5-7/8% Treasury Notes of Series C-1975, dated February 15, 1971, due
August 15, 1975, at par.
Details showing cash and interest adjustments applying in exchanges of
!curities due March 15 and November 15, 1971, and February 15, 1972, appear in
e t.able at the end of this release.
Cash subscriptions will not be received.
Subscriptions books for the offering will be open until 8:00 p.m., local time,
'Mesday, January 27, 1971. To be timely subscriptions MUST BE RECEIVED by a
deral Reserve Bank or Branch or by the Office of the Treasurer of the United
ates by such time, except that subscriptions addressed to a Federal Reserve Bank
Branch or to the Office of the Treasurer of the United States postmarked before
Might, Tuesday, January 26, 1971, will be deemed to be timely.
The notes will be made available in registered as well as bearer form in
nominations of $1,000, $5,000, $10,000, $100,000 and $1,000,000. All subscribers
requesting registered notes will be required to furnish appropriate identifying
numbers as required on tax retUl'ns and other documents submitted to the Internal
Revenue Service.
The payment and deli very date for the notes "Till be February 16.
Any coupons dated February 15, 1971, on notes and bonds tendered in exchar.ge
3hould be detached and cashed when due. The February 15, 1971, interest due on
registered notes and bonds will be pa.id by issue of interest checks in regular
~ourse to holders of record on January 15, 1971, the date the transfer books closed.
~oupons dated March 15, May l5, August 15 and November 15, 1971, and February 15,
L972, must be attached to the appropria.te securities when they are surrendered.
Table of payments to or by Subscribers in exchanges
for the 5-7/8% notes and the 6-1/4% notes
(In dollars per $100 face value)
To
I
v'
.......,
v.J
:>
(')
0
"0
1972
'<
C)
H)
t-__
n
ad
::r
I Total
Note
Note
)25
860
1,738
9,689
43
46
44
334
21
62
6
33
2
23
58
327
83
39
25
385
159
132
60
766
47
39
71
593
241
171
195
2,080
423
274
998
5,662
021
1,561
3,131
19,509
323
445
2114
10,105
344
2.006
3.375
(1)
t-1
(1)
()Q
c
I--'
Q)
rt
r-.
0
:::
'fl
r-.
Ul
Q:l
n
n
:ll
(')
::r
(1)
Q.
-
,
\...A:,
J
v[1
-.
January_20~
29 ,614
1971
----
I
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 21,1971
TREASURY ANNOUNCES IMPLEMENTATION
OF ANTI-CARGO THEFT REGULATIONS
Eugene T. Rossides, Assistant Secretary of the
Treasury for Enforcement and Operations, announced today
revised Customs regulations to implement the first phase
of Treasury's program to combat cargo theft. The regulations establish a uniform system of accountability for
international cargo and will go into effect on April 1, 1971.
Mr. Rossides stated that the regulations, which will be
published in the Federal Register on January 22, 1971, "are
part of the three-point action program to prevent cargo
theft initiated by the Treasury Department last year. The
two other parts of the Treasury program involve (1) a
rulemaking nearing final stages which will set standards
[or personnel identification and improved physical security
in cargo areas, and (2)
legislation to be proposed in this
session of Congress which will authorize the Secretary of
the Treasury to set national standards for storage and handling
o[ international cargo."
The regulations tighten the carrier's accountability
[or international cargo, from time of unloading from a
vessel or aircraft to delivery to the importer or his
agent. They establish procedures for agreement between
the carrier and the importer as to any quantities manifested
which were not delivered. The carrier will be required to
report to Customs the cause for any discrepancy. If the loss
occurs while the merchandise is in the physical custody of
the carrier, the carrier will be liable for duties owing on
the undeliv~red amounts.
Hr. Rossides said:
"In addition, these regulations
will provide for the first time a solid data base to
measure the actual extent and character of theft of international cargo during that part of the trade chain over
which U.S. Customs has cognizance.
A copy of the regulations is attached.
1\-')73
EV 014.1 ALS
{T.D. 71- 22
Impleme~tution.of a Uniform System of Accounting
Concernlng Manlfested and Entered Quantities of
Merch~ndisc-Customs Regulations Amended
Parts 4, 6, 8, 15, 18, and 123, Customs Regulations
amended
TREl\SURY DEPARTMENT
OFFICE OF THE CO~~ISSIONER OF CUSTOMS
Washington, D. C.
TITLE 19--CUSTOMS DUTIES
CHl\PTER I--BUREAU OF CUSTOMS
PART 4--VESSELS IN FOREIGN AND DOMr.STIC TRADES
PART 6--AIR COMMERCE TIEGULATIONS
PART 8--LIABILITY FOR DGTIES; ENTRY
OF IMPORTED MERCHANDISE
PART 15--RF.LIEF FROM DUTIES O~J Hr.RCIIl,NDISE LOST, STOLEN.
DESTROYED, INJURED, ABANDONED, OR SHORT-SHIPPED
PART 18--TMNSPORTATIOlJ IN BOND AND
MERClIANDISE IN TRANSIT
PART 123--CUSTOHS RELl\TIONS
\~ITH
CANADA AND MEXICO
On June 6, 1970, 'a notice of proposed rule making
was published in the Federal Register (35 F.R. 8829).
Interested persons were given
written corrunents,
w~s
opportunity to submit
suggestion or objections regarding the
proposed regulations.
conunents
~n
The time for submission of such
extended by a notice which appeared in the
Federal Register of July 8, 1970 (35 F.R. 10962).
Representations submitted pursuant to the above notices
were carefully considered and on the basis of such
2
comments, the notice of June 6, 1970, was republished,
in amended form,
in the Federal Register of December 1,
1970 (35 P.R. 18284).
Interested persons were given an
opportunity to submit written comments, suggestions or
objections.
Representations submitted pursuant to the
December 1, 1970, notice have been carefully considered.
The amendments as proposed, with minor editorial
changes and the addition of a
15.8, in order to clarify
th~t
paragr~ph
(d) to section
section, are adopted as
set forth below:
~mcn~mcnts
These
R.S. 251,
~s
~mendcd,
are issued under the
~uthority
of
secs. 439, 440, 459, 460, 484,
498(a), 505, 584, 623, 624, 46 Stat. 712, as ampnde n ,
717, as amended, 722, as amended, 728, as amended, 732,
as
~mcndcd,
72
St~t.
748, as amended, 759,
~s
799, as amended; 5 U.S.C.
amended, sec. 1109,
301, 19 U.S.C. 66,
1439, 1440, 1459, 1460,' 1484, 1498 (a), 1505, 1584, 1623,
1624, 49 U.S.C. 1509.
Effective date:
effective on April
l.(
These amendments shall be
1971.:.
( '\
<>':">~\lv~\ \\,~,,~\'lh~
Commissioner.> of Customs
APP2.
4~,
\\
/~~ Wt/-:.£A ~
Assistan~Secretar ,Oo~r~~~asury
(\
-
3 ') '6
3
PART 4-VESSELS IN FOREIGN AND
DOMESTIC TRADES
In I 4.12, paragraph (a) 18 amended
to read:
§ 4.12
Correelion ohaanieeel.
(a) (1) Vessel masters or agenta shall
notify the dl8trict c:Urector on Customs
Form 6831 of shortagee (merchancl1se
manifested, but not found), or overages
(merchancUae found, but not man1f~sted)
of merchancUae.
(2) Shortages Bhall be reported to the
district director by the master or agent
of the veuel by endorsement on the
importer's claim for Bhortage on CUBtoma
Porm 5831 as Pl"OVIded for In I 15.8(a) (2)
of thtB chapter or within 30 days after
the date of entry of the vesael, whichAver III later. Satlsfactorv evidence to
support the claim of nonimportation 23 or of
proper dlap()81&lon, or OUler correctlve
action (aee I f.8f) shall be obtained by
the master or agent and ahall be
retained In the carrier's me for 1 year.
(3) Ov..... sball be reported to the
d1Btrict cl1rector wttbin 30 days after the
date of enR7 of the vessel by completion
of a poet -t17" or SUitable explanation
of corrective act101l (lee I f.3f) on the
CUstoms Ponn 6831.
(f) The dist.rlct director shall' adv1Be
the master or apnt ollly of those discrepancies which are Dot timely reported
by the master or agent. The muter or
agent shall sattafactorlly NIIOlve the
matter within 30 d.ys.
(5) Unless the required notiftcatlon
and explanation 18 made timely and the
district director 18 satlsfted that the disr.reoancies resulted ftom clerical error
or other mistake and that there has been no
loss 01 reven~ (ana m tne case '01 a
discrepancy not Initially reported by the
, master or &lent that there was a valid
reason for the faUure to so report), applicable 'penalties under section 584,
Tariff Act of 1830, as amended, shall be
assessed (see I 23.23 of thtB chapter). Por
the purpose of assesstnr such penalties,
tJ;le value of the merchandise shall be
determined as prescribed In 123.12 of
this chapter. The fact that the master
or owner had no knowledge of a
discrepancy shall not relieve him from
the penalty.
•
•
•
•
•
4
PART 6-AII COMMllCE
REGULATIONS
In § 6.7, paragraph (h) 1.8 amended to
read:
§ 6,7
Documents for entry•
•
•
•
•
(h) The provis1ons of sectiooa 440'"
and 584'", TarUr Act of 1830," amended,
relate, respectively, to post entry for
correction of and to penalttel for falsity
or lack of a manifest. TbOle provisions
are appUcable to aircraft arriving from
a place outside the United states with
merchandise and unaccompanied baggage for which a manifest 1.8 required to
be filed. The time limitations and the
requirements for notification set forth
in § 4.12 of this chapter with respect to
the correction of vessel manifests are
applicable to the correction of aircraft
manifests. Post entry to add to a manifest any merchandise omitted from or
which does not agree with the manifest
may be made by the airline on a separate
copy of the cargo manifest form marked
or stamped "POst Entry." Correction of
a manifest to delete merchandise not
found on board the aircraft at the time
of arrival may be made by submission of
a separate copy of the cario manifest
form marked or stamped "Shortage
Declaration." Such copies shall list the
merchandise involved, state the reasons
for the discrepancy, and bear a signed
declaration of the aircraft commander
or an authorized agent reading "I declare
to the best of my knowledge and belief
that the overages or shortages described
herein occurred for the reasons stated.
I also certify that evidence to support a
claim of nOnimportation of the merchandise, proper disposition elsewhere or
other corrective action will be retalned in
the carrier's fUes (or a period of at least
1 year and will be made avallable to
Customa on pemand." U a COPJ of the
cargo manifest· Is not so uaed, Customs
Form 5931 shall be used for corrections
of the manifest. Unless the required
notification and explanation are made
timely and the district director is satlsfipd that the discreoancies resulted from
clerical error or other mistake and that there
has neen no lOss to the revenue (and In
the case of a discrepancy not initially
reported by the master or agent that
there was a valid reason for the failure
to so report), applicable penalties under
section 584, Tariff Act of 1930, as
amended, shall be assessed. For the purpose of assessing such penalties, the
value of the merchandise shall be determined as prescribed in § 23.12 of thiB
chapter. The fact that the aircraft commander or owner bad no knowledge of a
discrepancy shall not relieve him from
the penalty.
(Sec. 844, 46 Stat. 7Er8, eec. 1109,72 Stat. 799;
19 U.S.C. 1644, ~ U.S.C. 1609)
5
'ART a-LIABILITY FOR DUTIES;
ENTRY 0' IMPOITED MERCHANDISE
In '1.31. parqrapla (b) .. amended
to read:
• 8.18
ReI__
ander bond I
depo.it 01
........ dati., pennil•
•
•
•
•
•
(b) The est.lmatect du.ties. 11 any.
having been depoatted as required by section 506. Tariff Act of 1930· and the
bond 1lJed. an authorization for deUvery
on Cuatoma Porm 7501-A shall be 188ued
aile! dellvered to the IJDporter or hiB
&pnt. to be bJ him sent to the inspector
in charre of the merchancUae. who ahall
authorlH the carrier to .se1tver that part
of the merchancUae not dealanated for
examination. and which the carrier has
retained under the provlalona of section
ttt. TarlJr Act of 1930. as amended, with
dJlcrepancles between the involcecl-en-
tered quantities Ind the qUlntitles delivered to the consignee b, the carrier Icoounted
tor 1n accordance w1th the provislons ot section 15.8 of this
chaptera Prov1ded. That the
dlstrict director rna, authorize
an examining offioer to release
both- examined and unexamined
paokage, in I shipment examined
b, suoh officer at a plaoe not
In oharge or I customs offioer
when this oan be done without
In, rell 'interference with the
performanoe of the Ix••lntng
6ttlce~'s duties.
•
•
•
•
•
(Seca. 4&4. 505. 828,48 Stat. m. AI amended.
'182. AI amended, ,at, .. ameDded; l' VB.O.
1.... 1101.1. .'
6
PART 15-1EUEf FIOM DUTB ON
MIiICHANDISI LOA', ITQI.8I, DiSTROYED, 1NJU1m, AlANDOtB,
OR SHOIT-SHIPPED
Section 15.8 11 arnel1ded • niad:
§ 15.8 Sho...... III fa..... 01' . . . . . . .
qu.nti ... Of ............... , ... ~
.gee, defielenelella C Rl IF • . , . . . .
agee, definidoa . , ...............
merebandUe.
( a) (1) An importer will be allowed to
file a consumption or warehouae entry
for less than the invoiced and man1t8lted
amount of merchandise where the number of packages of merchandlle "permitted" and deUvered ~ blm by the
carrier, under the iDUDed1a&e 4eliveJ')'
provisions of § 8.59 of tbIa chapter 11 leu
than the amount invoiced _Imd manifested, provided there b 1l1ed with the
entry a CUstoms Form 6831. In triplicate
executed by both the JlDporter and the
importing carrier or bonded carrier, and
the said carrier declares therein that the
missing package(s) were not avaDable
for release by the carrier within the provisions of 19 U.S.C. 1448(&).
(2) Allowance shall be made 1D the
assessment of duties for loft or mIas1ng
packages of merchand1ae Included!n an
er try whenever it Is estabUahed to the
satisfaction of the district director of
Customs before the liquidation of the
entry becomes final that the merchan-
dise claimed to be lost or mlsstng was not
permitted (see paragraph (c) of th1a aeotion). A claim for such allowance must
be made on Customs porm 6931. In tri-.
plicate, executed by thetmporter and tJte
imparting carrier or bonded carrier,as
appropriate. Where the importing or
bonded carrier refUB88 to execute the
Form 5931. a claim may be allowed If
the importer properly executes the Porm
5931 and attaches copies of the dock rec::ipt or other document evidencing non;: 'celpt of the missing or lOIt pactqu.
WIlen there Is a cWrerence betweeB the
quantities shown on an importina
carrier's manifest and the Quantity permitted to the importer, dUtiea or llQulctated damages shall be al-.ed UDder
the provisions of 19 U.s.C. " ... or the
proviSions of the carrier'l bond, unleaa
the carrier corrects his manlfs (lee
~ 4.12 of this chapter). LIQuidated damages for lost or missln. packaalea aball
be assessed aga1.nllt • .boDded OODUDOD
carrier in accordance with I 11.1 of tb1a
chapter.
.
(3) An allowance shall be made in the
assessment of duties for deftck'Dclea In
a package or packages when:
(1) The importer files a CU8toma Ponn
5931. in tripUcate, executed by theltnporter alone, where the cJaJm ~ made
that the shortage was coneealed and the
district director satlsfles bJmIelt .. to
the valld1ty of the cla1ml;
or
7
(U) In the cue of UDCQDcealed abort- .
a,eI. the importer fUel a CUstoms Porm
a831. III tr1III1o&te. IDD\ItIId bJ both the
importer aDd tbt ~ carrltr.
(b) AlloWUICI tor dlftclency in any
examlnatton pack... reported to the
d.istrict d.irector by a CUatoma omcer
aball be made In the Uquldation of the
entry. but DO CUtama omcer elloept ODe
maklnl an examtnatton contemplated by
section 499. TarUr Act of 1930. as
amended. Ihall report a IUPPosed deftcleney to the d.1Itriet director unless It
1s estabUshed to the satisfaction of the
reporting omeer that the merebancllle
was not Imported.
(e) Merchand.1lt II "perm1tted" when
CUstoms has authorized the carrier to
make delivery to the cODlllDee or subseQuent carrier and
( 1) These partlel in Interest. or their
agents. have made a Joint determination
of quantities: Or
(2) The carrier.
its option. Independently declares the Quantity to be
pennitted by CUstoms·by:
(l) Furnlshtn, a allDed statement to
CUstoms that at leut , day. have
elapsed sinoe t.he nonalgnee or
his agent waa notitied thlt
CUltoms hid luthor1zed de11ver"
thlt the merohandise waa and is
a.ailable tor d.liver~, and that
a determlnation ot quantlty ot
merchandise aval1able tor delive~
hal been made, indioeting tha date
on whioh the aaid determination
wa. madel and
(1i) BJ tiling the alid .tatement no later than the oloae ot
bu.iness'on the next working da,
atter luoh datermination his been
made.
(d)
Suoh joint determination
or independent determination, aa
.et torth in parlgraph (0) (1) or
(0) (2) ot this seotion, shill
not result in thl oarrier's being
11.ble tor dut, with respeot to
an amount greater thin the amount
ot an, disorepano, between the
manitested quantit, and the
jointl, determined or independentl, determined quantit~.
a'
8
PAR T 18-TIANSPOITATION
BOND AND MEICHANDISE
TRANSIT
IN
IN
In § 18.2, paragraph (1)) is amended
to read:
§ 10.2
•
Receiptltyeurler,..mteet.
•
•
•
•
•
,.
•
•
•
(b) A manifest, CUBtamI?arm 7512,
conta1n1ng a descrlpttoD at the merchandise shall be prepared by the carrier
or shIpper and Ilgned ~ the agent of
the camer whenever merchandise ls being transported In bond. An c:optes of
the in bond manifest shall be IIIgned bv
the importing camer or hls acent and
the in bond carrler or hls aaeat to incHcate the quantity de11vered for transporta tion in bond. When there ls no cUacrepancy between the quantity manifested by the tmportinl camer and the
quantity delivered to the In bond carrler,
the district director may authorize
waiving the signat1\res of the puttee
in interest as to de11vered quantities. Except as prescribed In SUbpart D of Part
123 of thls chapter, relating to merchandise in transit through the tJn1ted states
between ports in conttauous foreign territory, a separate set shall be prepared
for each entry and, if the consignment
is contained in more than one conveyance, a separate set shall be prepared
for each conveyance.
In § 18.6 paragraphs (b) and (c) are
amended to read:
§ 18.6 Short shipments; 8hortages; entry
and allowance.
•
•
•
•
•
•
(b) When there' is a shortage of one
or more packages or nondelivery of an
entire shipment, and inquiry by the carrier diSCloses that the merchandise has
been delivered directly to the consignee,
entry therefor may be accepted if the
merchandise can be recovered intact
without any of the packages having been
opened, In such cases, any shortage from
the invoice quantity shall be presumed
to have occurred while the merchandise
was in the possession of the bonded
can-ier.
(c) If the merchandise cannot be rerovered int.act, as above specified, entry
shall not be accepted and there shall be
spnt to the initial bonded carrier a demand for liquidated damages on Customs
Form 5955-A, in the case of nondelivery
of an entire shipment or on Customs
Form 5931, in the case of a, partial
shortage,
.
9
PART 123-CUSTOMS RELATIONS
WITH CANADA AND MEXICO
In Part 123, 1123.918 added as follows:
§ 123.9 Correction of manife~t.
(a) Provisions applicable. The provisions of sections 440 and 584, Tar1Jf Act
of 1930, as amended (19 U.S.C. 1440 and
1584), relate, respectively, to post entry
for correction of and to penalties for
falsity or lack of a manifest. Those proviSions are applicable to all vehicles and to
vessels of leas than 5 net tons arrivlne
from a place outside the United States
and required to ftle a manifest. The time
l1m1tations, requirement for notification,
and the penalty provisions set forth in
I 4.12 of th1a chapter with respect to the
tlon of vessel manifests are appl1C Ie to the correction of manifests of all
cles and of vessels of less than 5 net
toils arriving from a contiguous country
otherwise th:&n by sea.
(b) Report bl discrepancies. Post entry to add to a manifest any merchandise
omitted from or which does not agree
with the manlfest may be made on a
separate copy of the cargo manifest form
marked or stamped "Post Entry." Correction of a manitest to delete merchandise not found on the vehicle or vessel at
the time of arrival may be made by subml!lSlon ot a separate copy of the cariO
mnnlCest form marked or stamped
"Shortage Declaration." Such oopiea
shall. list the merchandise involved aDd
state the reasons for the discrepanq. If
a copy of the cargo manifest 18 not 10
used, Customs Form 5931 shall be UIed
for corrections of the manifest.
·
E
(c) Statement on mani/est required.
The Post EDtry or Shortage Declaration
shall bear a signed statement of the person in charge ot the vehicle or vessel, or
an authorized agent, reacl1Dc, "I declare
to the best of my Imowledce and tielief
that the overage or short&lle described
herein occurred tor the reasons stated. 1
also certify that evidence to support a
claim ot nonimportation or proper disposition ot merchandise w1ll be retained
In the carrier's ftlea for a period of at
least 1 year and wUl be made available
to Customs on demand."
Before action is taken on the proposed
amendments, consideration will be given
to all relevant data, views, or arguments
which are submitted in writing to the
Commissioner ot Customs, BUreau of
Customs, Washington, D.C. 20228, and
received no later than 15 days from the
date of publication of this notice in the
FEDERAL REGISTER. No hearing will be
held.
MYLES J. AMBROSE,
[SEALl
Commissioner 01 Customs.
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
NTION:
FINANC IAL ED ITOR
Rt~r.F.ASE
6: 30 P.M.,
.ay. January 25. 1971.
RESULTS OF TREASURY'S WEEKLY
BILL OFFERING
The 1'reasury Department announced that the tenders for two serie:::; of Treasury
.s, one series to be an additional issue of the bills dated October 29, 1970 ,ruld
other series to be dated January 28, 1971 , which were offered on January 19, 1971,
! opened at the Federal Reserve Banks today.
Tenders were invited for *2,000,000,000,
,hereabouts, of 91 -day bills and for $1,400,000,000, or thereabouts, of
182-chy
.5. The details of the two series are as follows:
iE OF ACCEPTED
'ETITlVE BIDS:
High
Low
Average
~
91-day Treasury bills
maturing April 29, 1971
Approx. Equiv.
Price
Annual Rate
182-day Treasury bills
maturing July 29, 1971
Approx. Equjv.
Price
Annual Rate
98.948 ~
98.930
98.938
97 .887 ~
97 .845
97.859
4.162%
4.233%
4.201%
Y
4.180%
4.263%
4.235%
Y
Excepting 1 tender of $465,000; ~ Excepting 1 tender of $5,000,000
49~ of the amount of 91-day bills bid for at the low price was accepted
78% of the amount of 182-day bills bid for at the low price was accepted
U TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESF~VE DISTRICTS:
istrict
)ston
ew York
r1iladelphia
leveland
iclunond
tlanta
~ica.co
t. LOUis
inneapolis
9Jlsas City
aUas
9Jl Francisco
TO'rALS
AEElied For
$ 22,165,000
2,255,935,000
68,735 ,000
45,915,000
13,575,000
39,165,000
219,945,000
67,550,000
30,435,000
32,025,000
29,335,000
120,350,000
$2,945,130,000
AcceEted
22,165,000
it
1,503,185,000
48,735 ,000
34,895,000
13,575,000
26,480,000
165 , 635 ,000
51,750,000
24,435,000
25,025,000
13,815,000
70,320,000
AEElied For
13,705,000
1,796,610,000
20,845,000
36,450,000
3,750,000
27,725,000
183,515,000
32,935,000
25,995,000
17,395 ,000
25,550,000
158,525,000
$
$2,000,015,000 ~ $2,343,000,000
AcceEted
13,705,000
1,049,510,000
20,845,000
19,450,000
3,750,000
18,725,000
llO ,115 ,000
22,335,000
24,335,000
17 ,095 ,000
11,050,000
89,225,000
$
$1,400,140,000
Y
InclUdes $261,335,000 noncompetitive tenders accepted at the aver~e price of 98.938
InclUdes *98,100,000
noncompetitive tenders accepted at the avcrac;e price of 97.859
These rates are on a bank discount bas is. 'l'he equivalent coupon issue yields arc
4.31,~ for the 91-day bills, and 4.39% for the 182-day bills.
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 26, 1971
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
",400,000,000, or thereabouts, for cash and in exchange for Treasury
bills maturing February 4, 1971,
in the amount of $3,430,045,000,
as follows:
r
91-day bills (to maturity date) to be issued February 4, 1971,
in the amount of $2~,OOO, 000,000,
or thereabouts, representing an
additional amount o£--bills dated November 5,1970,
and to mature
May' 6" '1971
(CUSIP No. 912793 KGO ) origrt1alty "issued in
the amount of $1,402,410,000,
the additional and ariginal bills to be
freely interchangeab1e~.
182- d,lY bills, for $1,400,000,000, O'r' thereabouts., to be dated
February 4, 1971,
and to mature August 5, 1971
(CeSJP 10. 912793 Le8).
The bills of. both s~ries will be issued on a discount basis under
competiti'ye, ana, noncompetive' bidding as hereinafter provided, and ctt
Illaturitytheir face amount will be payable without interes·t. They will
be issll.ed .in bearer form only, and in denominations of $10,000,
$15,O{)O, $50,000, $100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up
t~ the closing'hour, one-thirty p.m., Eastern Standard
tlme, "Monday,- February 1, 1971.
Tenders will not be received
at the Treasury Department, Washington. Each tender must be for a
~inimum of $10,000.
Tenders over $10,000 must be in multiples of
$5,,000,,:. ,In, the case of competitive tenders the price offered must be
express:~d on the basis of 100, with not more than three decimals,
et-$\.,:.J9.'l~:~5. Fractions· may not be used. It is urged that tenders be
nade on the printed forms and forwarded in the special envelopes which
~ill be supplied by Federal Reserve Banks or Branche.s on application
:herefor.
•
Banking institutions generally may submit tenders for a~count of
.ustomers provided the names of the customers are set forth 1n such
tenders. Others than banking institutions will not be permitted to
- 2 submit tenders except for their Qwn account. Tenders will be receive
without deposit from incorporated banks .and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are accompan
by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at th,
Federal Reserve Banks and Branches, following which public a~nouncemel
will be made by the Treasury Department of the amount and price range
of accepted bids. Only those submitting competitive tenders will be
advised of the acceptance or rejection thereof. The Secretary of the
Treasury expressly reserves the right to accept or reiect any or all
t-enders, in whole or in part, and his ac tion in any such respect shall
be final. Subject to these res~rvations, 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 decimal
of accepted competitive bids for the respective issues. Settlement fc
accepted tenders in accordance ~ith the bids must be made or completed
at the Federal Reserve Bank on February 4, 197~,
in cash or other immediately available funds or in a like face amount
Treasury bills maturing February 4, 1971.
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.
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code
of 1954 the amount of discount at which bills issued hereunder are sol
is considered to accrue when the bills are sold, redeemed or otherwise
disposed of, and the bills are excluded from consideration 8S capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) issued hereunder must include in his income tax
return, as ordinary gain or loss, the difference between the price pail
for the bills, whether on original issue or on subsequent purchase, aro
the amount actually received either upon sale or redemption at maturit:
during the taxable year for which the return is made.
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 frru
any Federal Reserve Bank or Branch.
000
J . ,- /
(
,.. -
GENERAL REVENUE SHARING WITH STATES AND LOCALITIES
General Description
The principal features of the President's general revenuesharing proposal for 1971 reflect the basic formulae and
specifications which were a part of the legislation introduced in the 9lst Congress. The key elements are:
(1) An annual appropriation of a designated proportion
of the personal income tax base;
(2) a distribution of these funds to the 50 States
on a per capita basis; adjusted for revenue effort.
(3) inclusion of all cities, counties and townships
on the basis of a clearly defined and equitable
"pass-through" formula, and
(4) no Federal program or project "strings" governing
the use of the funds.
However, the new proposal contains some significant changes.
In addition to specifying a substantially more generous
total appropriation for revenue sharing, it also provides
for a much larger allocation to local governments. Also,
an incentive feature has been added to encourage the formulation of intra-state distribution procedures more closely in
line with each state's particular requirements.
Annual Appropriation
The permanent annual appropriation, automatically
determined each fiscal year, will in fiscal 1972 provide
revenue-sharing funds equal to 1.3 percent of the Federal
individual income tax base. This will provide an estimated
first full-year outlay of $5 billion. The appropriation for
each fiscal year thereafter will reflect the year-to-year
change in total taxable income reported on Federal individual
income tax returns.
Distribution Among States
The distribution among the states of each year's total
appropriation will be divided into two parts -- a basic
2
payment of 90 percent of the total appropriation and an
incentive payment of 10 percent of the total. Incentive
payments will be made only to those states adopting an
alternative intra-state formula (see below). The unallocated portion of the appropriation set aside for incentive
payments will carryover to the succeeding fiscal year
distribution.
Each state's allocation of either its basic or incentive
payment will be based on its share of national population,
adjusted for its revenue effort. This adjustment is designed
to provide states with some incentive to maintain (and even
expand) their efforts to use their own tax resourc~s to meet
their needs. All states will receive the basic payment. The
incentive payment is available to a state when, together with
its local governments, it adopts its own plan for the distribution of funds within the state as an alternative to the
formula prescribed by the proposed legislation (described
below). This incentive payment encourages state and local
governments to utilize the flexibility provided by the bill
and to adopt a procedure whereby funds are allocated in the
manner most consistent with their own requirements.
Distribution Within a State
Until or unless an alternative plan is approved, the
distribution of revenue-sharing funds within a state will
follow the formula prescribed in the bill. Under the
formula, there are two major steps involved in the calculations. First, the total proportion which a state must share
with its general local governments corresponds to the ratio
of the general revenues raised by' all units of local government in the state to the combined total of general revenues
raised by the states and these units of government. Second,
the proportion of this local share which an individual city,
county, or township government receives corresponds to the
ratio of its own general revenues to the total general
revenues raised by all general-purpose local governments in
the state.
There is no m1n1mum-size requirement for a local government to participate but only general-purpose local governments are eligible for direct sharing. On the average, this
distribution formula results in about one-half of all
revenue-sharing funds going to local governments.
3
Adopting an Alternative Formula
To further encourage a more responsive Federal system,
we will emphasize the procedure whereby any state, working
with its local governments, may adopt an alternative formula
for the intra-state distribution of a state's total payment.
A proposed plan must be enacted by the state government and
approved by a resolution of a majority of the governing
bodies (representing a majority of the population) of each
class of govern~ent which may participate in the voting
major municipalities, major townships, and counties.
The plan would then be filed by the state governor
with the Secretary of the Treasury not later than 90 days
preceding the fir.st calendar year quarter to which the
alternative distribution procedure will apply. Major
municipalities are those which have a population of 2,500
or more. Major townships are those which have a population
of 2,500 or more and an employment ratio which establishes
that it is a "general-purpose" local government. Adoption
of an alternative plan entitles a state to receive the
incentive payment described above.
Restrictions on Use of Funds
The bill maintains the policy that these funds have
no program or project "strings'~ connected with their use.
The requirements are minimal: (1) that the states carry
out the requirement to share funds with their local governments; (2) that this local sharing be in addition to current
sharing efforts; and (3) that all' recipient governments
provide a reasonable amount of informational reporting to
the Treasury Department for the funds they receive. Those
safeguards against discrimination provided by law for all
grants of Federal funds to states will also apply to distributions of revenue-sharing funds.
General Provisions
The program will continue to operate automatically,
avoiding any requirement for the establishment of a new
Federal bureau or agency. The same general supervisory
powers for the Secretary of the Treasury and the governor
of any state and the provisions for judicial review as were
present in the 1969 bill are provided in the 1971 proposal.
-1-
SECTION 101--SHORT TITLE
(a) Short title.--Subsection (a) of section 101 provides that
the Act may be cited as the "GpneraJ Revenue-Sharing Act of 1971."
SECTION
(a)
201--DEFINITIONS
In general.--Subsection (a) provides general definitions
for purposes of the Act.
Fiscal year.
Paragraph (1) provides that the term "fiscal year" means the
fiscal year of the Federal Government of the United States.
General revenue.
Paragraph (2) provides that the term "general revenue" of State
and local governments means general revenue from their own resources,
as defined by the Bureau of the Census of the Department of Comnerce,
provided that in the case of the District of Columbia it includes the
Federal payment authorized under
47 D.C. Code section 5201(a).
Governor.
Paragraph (3) of section 201(a) provides that the term "Governor"
means the chief executive officer of a State or his delegate.
Individual income tax returns
Paragraph (4) provides that the term "individual income tax returns" means the returns of tax required to be filed on the income of
individuals under the Internal Revenue laws.
Local government.
Paragraph (5) provides that the term "local government" means
a municipality, county or township (but does not include independent
school districts or special districts), as such terms are defined and
used by the Bureau of the Census.
- 2 -
Personal income.
Paragraph (6) provides that the term "personal income" means personal income as defined by the Office of Business Economics of the
Department of Commerce.
Population •.
Paragraph (7) provides that the term "population" means total
resident population, as defined and used by the Bureau of the Census.
Secretarl·
Paragraph (8) provides that the term "Secretary" means the Secretary
of the Treasury or his delegate.
State.
Paragraph (9) provides that the term "State" means the several
States of the United States and the District of Columbia.
Bureau of the Census.
Paragraph (10) provides that the term "Bureau of the Census" means
the Bureau of the Census of the Department of Commerce.
Taxable income.
Paragraph (11) provides that the term "taxable income" means taxable income as defined by the Internal Revenue laws.
Units of government.
Paragraph (12) provides that the term "units of government" means
all units of local government (including independent school districts
and special districts), as defined and used by the Bureau of the Census.
- 3
Major Municipality.
Paragraph (1] provides that the term "major municipality" means
any municipality with a population of more than 2,500 as reported
by the Bureau of the Census;
Maj or Township.
Paragraph (14) provides that the term "major township" means any
township with a population of more than 2,500
as reported by the Bureau
of the Census if its employment ratio is not less than one-half of the
average employment ratio for all major municipalities in such state.
Employment ratio.
Paragraph (15) provides that the term "employment ratio" means a
fraction the numerator of which is the total number of employees of any
major municipality or major township and the denominator of which is the
population of such governmental unit.
(b) Changes and modifications in definition&--Subsection (b) of
section 201 provides that the definitions in subsection (a) shall be
based on the latest published
reports available, and the Internal
- 4Revenue laws in effect, on the date of enactment of this Act.
The
Secretary may, by regulation, change or otherwise modify the definition in subsection (a) (other than paragraphs 1, 3, 8, 9,
10, and 1)) in
order to reflect any change or modification thereof made subsequent
to such date.
SECTION 301--REVENUE SHARING APPROPRIATION
(a)
Appropriation.--Section 301 provides that for each fiscal
year beginning on or after July 1, 1971, there shall be appropriated
an amount equal to 1.3
percent of the total taxable income reported
on Federal individual income returns for the calendar year for which
the latest published statistical data are available from the Department of the Treasury at the beginning of such fiscal year.
(b)
Fiscal year limitation.--Subsection (b) provides that
amounts appropriated pursuant to this Act shall remain available
without fiscal year limitation for the expenditures authorized by
this Act.
- 5 SECTION
(a)
401--PAYMENTS TO STATES
In general.--Subsection (a) provides that for any fiscal
year each State is entitled to an amount, determined by the Secretary,
equal to the amount appropriated for such year pursuant to section 301
plus any undistributed amount of the prior year's incentive allocation
(less 10 percent of the sum of such amounts) multiplied by the factor
for such State.
(b) Incentive payment.--Subsection (b) provides that any State
which together with its local governments
adopts an alternative
formula for the distribution of funds among the State and its local
governments
shall receive an amount equal to the 10 percent incentive
allocation multiplied by the factor for such State.
(c)
State factor.--Paragraphs 1 and 2 of sUbsection (c) provide
that each State's factor shall be obtained by (1) multiplying such State's
population by its revenue effort, and (2) dividing the product obtained
in paragraph 1 by the sum of such products for all States.
(d)
Revenue effort.--Subsection (d) provides that the revenue
effort of each State for any fiscal year is obtained by dividing the
total general revenue derived by such State and all of its units of
government from their own resources by the total personal income for
such State.
(e) Payments.--Subsection (e) provides that the payments determined under subsection (a) of this section shall be paid by the Secretary to the Governor of each State at such times as the Secretary may
determine during any fiscal year, but not less often than once each
calendar year quarter.
-6(f) Data determinations.--Subsection (f) provides that for each
fiscal year, the Secretary shall, on the basis of the latest available
data for all States furnished by the Department of Commerce,
determine the population of each State referable to the same point in
time, the total annual general revenues of each State (including all
units of government), and the total annual personal income, for each
statf
(g) Final and conclusive determinations.--Subsection (g) provides
that all determinations by the Secretary under sections 301 and 401
shall be final and conclusive.
SECTION
50l--PAYMENTS BY STATES TO LOCAL GOVERNMENTS
(a) Computation of pass-through amount.--Subsection (a) of section 501 provides that the local governments of each State are entitled
to an amount equal to the payment to such State pursuant to section
401 multiplied by a lmcal distribution factor computed on the basis of
the latest data available from the Department of Commerce.
Numerator.
The numerator of the l[cal distribution factor is the total general
revenues derived by all units of governments in such State from
their own resources.
Denominator.
The denominator of the distribution fraction is the total general
revenues derived by such State
and all of its units of government from
their own resources.
(b)
Payment to each local government.--Subsection (b) provides
that each State shall pay to each local government an amount
equal to the amount determined under subsection (a) of section 501
multiplied by the ratio of such local government's general revenue from
its own resources to the general revenues of all local governments in
such State from their own resources.
- 7 (c) Alternative distribution formula.--Subsection (c) of section
501 provides that the Secretary shall accept an alternative formula for
the distribution of funds, if so requested by the state, provided such
formula is approved by the State and by its general-purpose local g(wernmenh
Approval.
(1) state.--Paragraph (1) of subsection (c) provides
that the alternative formula must be approved by the State in
the same manner as authorized in such state's constitution for
the enactment- of its own
1aws~'
(2) General-purpose local governments.--Paragraph (2) of subsection (c) provides that the alternative formula must be approved
by a formal resolution by more than one-half of the
govern~lg
bodies
(representing a majority of the population) of each of the following
classes of government in such State:
(a) major municipalities,
(b) counties, and (c) major townships.
Filing.
The alternative formula must be filed not later than 90 days preceding the calendar year quarter to which it would be applicable.
Period of effectiveness.
The provisions of the formula are effective for the period provided
in such alternative formula or for a 5-year period, whichever is shorter.
Modification or termination of formula.
The alternative formula may be modified or terminated if such
modification or termination is approved by the State and its local
governments in the same manner as provided for
formula.
adopting
such
- 8 SECTION 601--QUALIFICATIONS
(a)
In general.--Subsection (a) of section 601 provides that,
in order to qualify for payments under this Act, a State Government
must warrant to the Secretary that it waives immunity from suit by
its local governments in the United States Court of Appeals under
the provisions of this Act.
The State must give the Secretary such
other assurances as he may require that the State and its local
government will use and account for such revenue sharing funds in accordance with this Act.
Governmental purposes.
Paragraph (1) of subsection (a) provides that payments received
pursuant to this Act shall be used for a state or local government's
governmental purposes.
Accounting and disbursement.
Paragraph (2) of SUbsection (a) provides that a state and its
local governments shall use proper accounting procedures for payments
received under this Act and that such state will use such fiscal and
accounting procedures as may be necessary to assure that it properly
disburses amounts to which the looal governments are entitled.
Compliance.
Paragraph (3) of SUbsection (a) provides that a State and its
local governments must provide the Secretary, on reasonable notice,
access to, and the right to examine, any book, document, paper, or
record
that he may reasonably require for the purpose of reviewing
- 9 compliance with this Act.
Reports.
Paragraph
(4) of sUbsection (a) provides that the State and its
local governments shall make such reports to the Secretary in such
form and containing such information as he may reasonably require,
including therein any computations made pursuant to section 501.
(b) Maintenance of Existing Payments.--Subsection (b) of section
601 provides that, except when an alternative formula is adopted pursuant to section 50l(c), a State's aggregate payments to all of its
local governments for such State's fiscal year (from all sources
other than amounts received under this Act) shall be an amount not
less than the average proportion of such State's general revenues received by its local governments for the three fiscal years of such
State next preceding the date of enactment of this Act.
show to the satisfaction of the Secretary
A State may
that it should not be re-
quired to meet this maintenance standard where there has been a transfer from a local government to the State of a financial responsibility
for direct support of a facility or service.
SECTION
701--POWERS OF THE SECRETARY
(a) Regulations. Subsection (a) of section 701 provides that the
Secretary is authorized to prescribe reasonable rules and regulations
for carrying out the provisions of this Act and to request from any
Federal agency statistical data, reports and such other information
as he may deem necessary for the purpose of carrying out his functions
under this Act.
- 10-
(b) Failure of Compliance by state Government.
In general.
Subsection (b) of section 701 provides that if,
after giving reasonable notice and an opportunity for a hearing, the
Secretary determines that a State Government has failed to comply with
any rule or regulation of this Act, he shall proceed as specified in
this section.
Notification.
The Secretary shall notify the Governor that if the state Government fails to take corrective action within 60 days from the date of
a determination that it has failed to comply with this Act, further
payments to such State (in excess of the amounts to which the local
governments of such State are entitled under section 501) will be
withheld for the remainder of the fiscal year and for any subsequent
fiscal year, until such time as the Secretary is satisfied that appropriate corrective action has been taken and that there will no
longer be any failure to comply. Until he is satisfied, the Secretary
shall make no further payments.
(c) Cancellation of Payments.
Subsection (c) of section 701
provides that if a State Government fails to comply with the provisions of this Act for a period of six months after the expiration of
a 60-day notice that its payments will be withheld, the Secretary
shall cancel any payment withheld pursuant to SUbsection (b) for the
current and for any subsequent fiscal year.
- 11 -
Reapportionment of payments.
The Secretary shall reapportion
any cancelled payments to all other States then entitled to receive
payments under section 401 of this Act, in proportion to the original
installments paid to such States for the fiscal year to which such
cancelled payments pertain.
Distribution to local governments.
Amounts redistributed to
states pursuant to section 701 are considered payments made pursuant
to section 401.
The local governments of each State shall receive
the amounts to which they are entitled pursuant to section 501.
(d) Payments to local governments.
Subsection (d) of section
701 provides that if payments to a State Government are withheld or
cancelled pursuant to this section, the Secretary shall continue to
pay to the Governor of such State the amount to which the local
governments of such State are entitled
under
section 501
(computed as if the payment to such State had been made) and such
State shall continue to distribute such amounts among its local
governments.
(e) Failure of compliance by local government.
(1)
In general.--Subsection (e) of section 701 provides
that the Governor shall be responsible for determining that local
governments within his State have complied with the requirements
of this Act and the rules and regulations issued pursuant thereto.
- 12-
(2) Notice of failure of compliance.--Subsection (f) of
section 701 provides that if after giving reasonable notice and
an opportunity for a hearing to the chief executive officer of a
local government, a Governor determines that a local government
within his State has failed to comply with this Act, he shall
notify such local government that if it fails to take corrective
action within 60 days from the date of such determination, further payments to such local government will be withheld for the
remainder of the fiscal year and for any subsequent fiscal. year
and until such time as he is satisfied that appropriate corrective action has been taken.
Notification to Secretary. _
The Governor shall notify the Secretary of his action.
Cancellation of payments.
If a local government fails to comply for a period of six
months after the expiration of the 60-day notice, the Governor shall
cancel any payments withheld for the current and for any subsequent
fiscal year.
Reapportionment. The Governor shall reapportion and pay any cancelled payment to all other local governments of such state then
entitled to receive payments pursuant to section 501, in proportion to
the original payments made to such local governments for the fiscal
year to which the cancelled payments pertain.
SECTION 80l.--JUDICIAL REVIEW
(a) In general.--Filing of a petition for review.
Subsection
(a) of section 801 provides that any State or local government which
- ]3 receives a 60-day notice pursuant to a determination that payments to
it will be withheld may, within 60 days after receiving such notice,
file with the United States Court of Appeals for the circuit in which
such State or local government is located, or in the United states
Court of Appeals for the District of Columbia, a petition for review
of the Secretary's action.
A copy of the petition shall be transmitted
to the Secretary.
Record of Proceedings.
The Secretary shall file, in the appropriate Court, the record
of the proceedings on which he based his action.
(b) Objections to Secretary's actionr- Subsection (b) of section
801 provides that no objection to the action of the Secretary shall
be considered by the Court unless such objection had been urged before the Secretary, or unless there were reasonable grounds for a
failure to do so.
(c) Jurisdiction of Court.--Subsection (c) of section 801 provides that the Court may affirm or modify the Secretary's action, or
set it aside, in whole or in part.
Findings of fact.
The findings of fact by the Secretary, if supported by substantial
evidence, shall be conclusive.
If any finding is not supported by
substantial evidence, the Court may remand the case to the Secretary
to take further evidence, and the Secretary may thereupon make new
findings of fact and may modify his previous actions.
- 14 (d) Review.--Subsection (d) of section 801 provides that the
judgment of the Court shall be subject to review by the Supreme
Court of the United States upon certiorari or certification, as provided in section 1254 of Title 28 of the United States Code.
(e) Cancellation of Payments.--Subsection (c) of section 801 provides that, in the event that judicial proceedings are instituted
pursuant to this section, the Secretary shall, after the expiration
of the six months period provided in section 701 or the point at which
any judicial decision becomes final, whichever is later, cancel, reapportion, and pay any payments withheld pursuant to section 701 for
the current and any subsequent fiscal year.
(f) The term "Secretary".--Subsection (f) of section 801 provides that, for the purposes of section 801, the term "Secretary"
means the Secretary of the Treasury, or the Governor of a State,
whichever is appropriate.
SECTION 901.--REPORT BY THE SECRETARY
In general.--Section 901 provides that the Secretary of the
Treasury shall report to the President of the United States and the
Congress, as soon as is practicable after the end of the fiscal year,
on the operation of this Act during the preceding fiscal year.
SECTION 1101.--CIVIL RIGHTS ACT
Section 1101 provides that the provisions of section 602 of
Title VI of the Civil Rights Act of
1964 (78 Stat. 252) will include
amounts distributed pursuant to the Act.
-15SECTION 1201.--ADMINISTRATIVE EXPENSES
In genera1.--Section 1201 authorizes an appropriation of such
sums as may be necessary for the administrative expenses required tf"'l
carry out the functions of the Federal Government under this Act.
January 25, 1971
The following table show~ estimates of the money which
each state would receive during the first full year
under the President's new General Revenue Sharing Plan.
Besides General Revenue Sharing, an additional sum of $11
billion would go to the states under the Special Revenue
Sharing Program. State-by-state allocations for that
six-part program will be available later.
STATE TOTAL
STATE TOTAL
(millions)
Alabama •••••••••••.•
Alaska ..••.••••••••.
$ 82.0
$ 8.5
Arizona ............
Arkansas ...........
California .........
Colorado ...........
Connecticut ........
$ 51.5
$ 43.0
$590.0
$ 60.0
$ 59.0
$ 13.5
$ 23.0
$167.5
$107.5
$ 23.5
$ 20.0
$220.0
$116.0
$ 74.5
$ 54.0
$ 78.0
$101.5
$ 23.0
$ 92.5
$136.0
$229.0
$107.5
$ 61.5
$ 96.5
$ 19.0
.
.
.
.
.
Delaware . . . . . . . . . . . .
D. C • • •••••••••••••
Florida . . . . . . . . . . . . .
Geor~~a ..•..........
HaWa1.1 ••••••••••••••
Idaho . . . . . . • . . . • . . . •
Illinois ........... .
Indiana ............•
Iowa .......•.•••••.•
Kansas ••••••••••••••
Kentucky ........... .
Louisiana .......... .
Maine .....••.••..•.•
Maryland ........... .
Massachusetts ...... .
Michigan ......•.•••.
Minnesota .......... .
Mississippi ........ .
Missouri ........... .
Montana •••••••••••••
(millions)
Nebraska ........... .
Nevada .............. .
New Hampshire ...... .
New Jersey ......... .
New Mexico ......... .
New york ......... ···
North Carolina ..... .
North Dakota ....... .
Ohio . . . . . . . . . . . . . . . .
Oklahoma ........... .
Oregon ............. .
Pennsylvania ....... .
Rhode Island ....... .
South Carolina ..... .
South Dakota ....... .
Tennessee .......... .
Te xas •••••••••••••••
Utah .•..•••.........
Vermont ............ .
Virginia .......... · .
Washington ......... .
West Virginia ...... .
Wisconsin ....... ····
Wyoming •.••..•....•.
United States
$39.0
$ 14.0
$ 15.0
$154.0
$ 32.0
$534.0
$113.5
$ 20.5
$212.5
$ 63.5
$ 57.0
$246.0
$ 21.0
$ 56.5
$ 19.0
$ 87.0
$243.0
$ 28.5
$ 12.0
$104.5
$ 92.0
$ 41.5
$124.5
$ 11.5
$5,000.0
The Dtpartmentof the
WASHINGTON, D.C. 20220
.TTENTION:
TREASURY
TELEPHONE W04·2041
FINANCIAL EDITOR
'OR RELEASE 6:30 P.M.,
~uesday, January 26, 1971.
RESULTS OF TREASURY'S MONTHLY BILL OFFERlNG
The Treasury Department announced that the tenders for two series of Treasury
lills, one series to be an additional issue of the bills dated October 31, 1970
, and
;he other series to be dated January 31, 1971
, which were offered on January 20, 1971,
lere opened at the Federal Reserve Banks today. Tenders were invited for $500,000,000,
Ir thereabouts, of 272-day bills and for $1,200,000,000, or thereabouts, of
365-dB¥
lills. The details of the two series are as follows:
lANGE OF ACCEPTED
272 -day Treasury bills
:OMPETITIVE BIDS: _ _....;m.;.;.;a;;;..t;;.;;ur;:;..:i;.;.;n:.liilg~O,..;.c,..;.t...;..ob...;..e...;..r~3.....;;1~,:-...;;;;1;.;;.9,..;.7::.1_
Approx. Equiv.
Price
Annual Rate
High
Low
Average
96.812
96.752
96.775
!I
4.219%
4.299%
4.268%
365-dB¥ Treasury bills
maturing January 31, 1972
Approx. Equiv.
Annual Rate
Price
95.762
95 .645
95 .693
!/
EI
4.180~
4.2S""~
4. 2~\e%
0)./
.'
EI
!I
Excepting 1 tender of $200,000;
Excepting 3 tenders totaling $1 3').:, ~':'O:.·l
20~of the amount of 272-day bills bid for at the low price was accepted
85~ of the amount of 365-dB¥ bills bid for at the low price was accepted
DTAL Tk:NDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
AEElied For
$ 10,1l0,000
968,790 ,000
1,170,000
1,360,000
720,000
12,585,000
76,545,000
7,915,000
16,600,000
2,390,000
23,500,000
162 228°2°°0
$1,283,965,000
Acce,Eted
$
10,110,000
380,790 ,000
1,170,000
1,360,000
720,000
5,785,000
47,545,000
6,915,000
11,600,000
2,390,000
5,500,000
26,280,000
$500,165 ,000£1
AEElied For
$
10,430,000
AcceEted
$
10 ,430 ,000
1,373,035,000
2,485,000
34,820,000
1,575,000
18,700,000
15 6 , 290 ,000
20,225,000
19,185,000
10,555,000
24,320,000
138,975,000
841,785 ,000
2,485,000
34,800,000
1,575,000
14,700,000
138,540,000
17,225,000
19,185,000
9,305,000
10,320,000
99,975,000
$1,810,595 ,000
$1,200,325,000 ~
Includes $16,055,000
noncompetitive tenders accepted at the average price of 96.775
InclUdes $38,240,000
noncompetitive tenders accepted at the average price of 95.693
These rates are on a bank discount basis. The equivalent coupon issue yields are
4.4~ for the 272-d~y bills, and 4.45% for the 365-day bills.
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR RELEASE AT 11:00 A.M. ~ST
WEDNESDAY. JANUARY 27, 1971
REMARKS OF THE HONORABLE DAVID M. KENNEDY
SECRETARY OF THE TREASURY
BEFORE
THE GEORGIA ASSOCIATION OF BROADCASTERS
ATHENS, GEORGIA
It is a pleasure to be with you today.
Recent decades
have seen an industrial transformation of your region.
And
now a new and progressive spirit is broadening areas of
opportunity for all of your citizens.
Any visitor senses
and respects the vast strides your region has been making.
There are lessons here for all of us to learn.
Today,
however, I will be concerned primarily with national economic
events.
This is the time of year in Washington when major
decisions are being made on economic and financial policy.
President Nixon has already pointed the way with his stirring
State of the Union Message.
But the President's Economic
and Budget Messages are still to come.
There is, therefore,
an interlude during which the remarks of any Administration
official on the economic and financial situation must be
pitched in a minor key.
K-S74
- 2 There is also the complication that it is sometimes
difficult to remember exactly which of the budgetary and
financial numbers are suitable for mention in public company,
and which are still marked for future release.
Indeed, this
is a time of year when one can speak more freely the less
one knows of the actual facts.
My problem today is increased
since your business -- at which I know you are very good -is getting news and broadcasting it.
You will understand,
therefore, why my remarks must be fairly general and without
any news breaks of the sort that sometimes generate a lively
interest.
There are perhaps some compensations.
Preoccupation
with numbers or technical details may tend at times to divert
our attention from larger issues that will be of enduring
significance.
Today, I would like to review with you one of
those larger economic issues -- inflation and the progress
we have made in dealing with it.
I will take a look back
over my two years in the Treasury -- not in terms of the full
range of those activities for that would be a major undertaking, but simply in terms of the inflation problem.
J 7 ()
- 3 -
When this Administration took office two years ago
the Nation was faced with extremely serious inflationary
pressures.
An upsurge in Federal defense spending after
mid-1965 was piled on top of sharply rising Federal spending
for nondefense purposes.
The economy was already moving
toward full employment under its own momentum and this
extra stimulus was too much.
Total demand quickly became
excessive and inflation for a time took on its classic
form:
too much money chaSing too few goods.
The error in policy during the mid-1960's was the failure
to pay for the sharply expanded defense effort through a
curtailment of Federal spending increases for nondefense
purposes, or an increase in taxes.
This failure to cut
expenditures or raise taxes placed an excessive burden on
monetary policy.
of the day.
Tight money inevitably became the order
Belatedly at mid-196B, a tax increase was
finally passed in the form of the 10 percent surcharge.
By then, however, a very strong inflationary momentum had
built up, and a move toward monetary ease in the second half.
of 1968 had subsequently to be reversed.
- 4 In early 1969 there were two basic policy alternatives:
continue an inflation-generating policy despite its shortterm distortions and long-run risks; or, apply sufficient
economic restraint to cool down the economy and check the
trend toward chronic inflation.
The latter, and more
responsible, alternative was chosen.
The chances were that
the application of economic restraint would cause considerable
temporary pain and hardship, but the alternative of caving
in to inflation was still less attractive -- indeed, it did
not deserve, or receive, serious consideration.
We chose, therefore, to deal directly with the problem and
imposed restraints on Federal spending, the basic cause of inflation.
Between fiscal 1965 and fiscal 1968, total Federal
outlays had risen by about $60 billion.
To be sure, national
defense outlays rose by about $31 billion of that total.
But
Federal nondefense outlays rose nearly as much, by more than
$29 billion.
In three short years, total Federal outlays rose
by 50 percent and nondefense outlays by more than 40 percent.
Small wonder that the economy turned onto a sharply
inflationary course.
- 5 -
In the next two fiscal years, national defense outlays
were flattened out and we applied tight restraint on Federal
nondefense spending.
Total Federal outlays were held to a
rise of about 5 percent a year, in contrast to about 15 percent a year in the 1965-1968 period.
This move to fiscal
restraint was supplemented during much of 1969 by monetary
restraint.
in 1968.
The money supply had grown at more than 7-1/2 percent
The rate of monetary growth was cut back to 3 percent
in 1969 with very little growth occurring after midyear.
The application of restraint was successful in removing
the
excess demand -- the basic and original cause of/inflationary
problem.
By late 1969 and early 1970, total spending --
both private and public -- was back within the potential
productive capacity of the economy for the first time since
1965.
As we know all too well, this did not signal a quick end
to inflation.
The successful application of restraint did,
however, remove the basic cause of inflation -- excess demand
-- and created an environment within which remaining inflationary
pressures could gradually diminish.
- 6 -
Current inflationary difficulties, usefully described
as "cost-push", are a lagged response to the earlier excess
demand.
One of the basic distortions of the inflationary
process occurs in the wage-price area.
Prices will very often
outrun wage increases in the very early stages of an inflation.
But this soon leads to higher wage demands thus pushing up
costs.
Profit margins narrow unless a business is able to
pass on wage increases in the form of price increases.
To
the extent that price increases are passed on, further wage
increases are likely to be demanded, and so on.
is aggravated by the fact that total productivity
The situation
output
per manhour -- tends to falloff temporarily when demand is
restrained and output grows more slowly.
Wages and prices
may continue their upward and self-defeating spiral for a
considerable period of time -- even after demand has been
cut back.
There are, however, clear signs of improvement in the
inflationary situation despite the continuing pressures from
the cost side.
Consumer prices rose at about a 6 percent
- 7 annual rate in the second half of 1969 and the first half
of 1970.
The increase since mid-1970 has been closer to
4-1/2 percent.
Wholesale prices rose at about a 2 percent
annual rate in the second half of 1970 and were virtually
flat by the end of the year.
In the second half of 1969
they were growing at more than a 4 percent rate.
sensitive
More
if less comprehensive -- price measures show
even greater improvement.
For example, late this month an
index of industrial raw materials prices was more than
10 percent below the level of a year earlier.
In general,
those prices that react quickly to changes in demand, or
reflect special supply conditions, have been reacting about
on schedule.
But there are also some areas in which prices and costs
continue to rise at a disturbing rate.
Recognition of the
complexity and difficulty of the problem has been clearly reflected
in the Administration's anti-inflationary policies in the
wage-price area.
the first.
Wage-price controls were ruled out from
So-called "incomes policies" in which government
- 8 -
determines, or tries to determine, the various income
shares going to different groups in the economy have not
worked
~
successfully in foreign countries.
Efforts
in this country during part of the 1960's with the less
formal guideposts approach were hardly crowned with success.
The present Administration has proceeded cautiously
in the wage-price area, recognizing that there are no
panaceas.
The stubborn nature of the inflation probleml-as
made a pragmatic approach the only feasible one.
Last summer
President Nixon established the "inflation alerts" and a
Productivity Commission.
More recently there has been
some intensification of the government's efforts in the
wage-price field.
Further specific steps may be required
within the framework outlined by the President.
In the last
analysis, government does have an inescapable responsibility
for the control of infla tion.
The only ques tion is how tha t
responsibility can best be met without harmfully impinging
upon the private decision-making process.
Inflation will surely remain a problem for some time
to come.
But the crucially important steps to bring it under
- 9 -
control have already been taken.
Therefore, fiscal and
monetary policy have moved into a new phase.
There is a
need now for a re-expansion of the economy to reduce unemployment and raise output.
It is sometimes argued that to
re-expand the economy before the last vestiges of inflation
are removed may risk a return to earlier rates of price
increase.
It is important to recognize the risks of
inflation but not to exaggerate them.
The current inflation -- coexisting with an appreciable
amount of unemployment -- is a cost-push inflation and primarily
takes the form of a distorted relationship between money
wages and productivity.
During the period 1960-1965, compensa-
tion per manhour (money wages plus fringe benefits) rose at
an average of a little over 4 percent a year.
Productivity
rose only a little less than 4 percent a year and unit labor
costs were very nearly constant as were the wholesale prices
of industrial commodities.
In sharp contract in 1969, the
rise in compensation exceeded 7 percent, productivity rose
only fractionally, and unit labor costs rose 6-1/2 percent.
- 10 -
But during 1970, a better productivity trend began to emerge
after the first quarter with productivity gains at more than
a 4 percent annual rate.
Fourth quarter figures, when available,
may be distorted by the General Motors strike.
Past experience suggests that as the economy expands
productivity gains well above the normal may be achieved for
a considerable period of time.
-- and should
-~
Also, money compensation can
rise less rapidly as the rate of price
advance declines.
Thus the existing gap between money wages
and productivity can be narrowed from both sides.
Paradoxically,
a fairly
brisk expansion might do more to
relieve upward cost pressures than a halting and incomplete one.
Too slow a pace of expansion would mean sluggish improvement in
productivity and perhaps very little relief from "cost-push
pressures.
il
Once excess demand has been removed for an
appreciable period of time, there is little point in keeping
the economy in a sluggish state.
The key to restoration of
balance in costs and prices in the existing situation is a
strong productive expansion, but one that stays within the
extreme outer limits of capacity and does not return us to a
condition of excess demand.
This is the path along which
- 11 -
economic policy will be seeking to direct the economy over
the next year or two.
The main policy tools are fiscal and monetary policy.
Responsibility for determining the appropriate course of
monetary policy is properly that of the Federal Reserve.
I will confine my attention, therefore, to the role that
fiscal policy will be called upon to play.
As I have already
indicated, fiscal policy moved in a restraining direction
in 1969, primarily through very close restraint on Federal
nondefense expenditures.
That restraint was a short-run
imperative if excess demand inflation were to be checked.
But now with the economy moving into the phase of steady
expansion, there is a need for a budgetary rule which will
avoid excessive spending yet help to stabilize the economy.
It is no secret that the principle of annual balance
in the Federal budget is a defective guide in terms of the
stability of the economy.
For example, when the economy
slows down and tax revenues falloff the Federal budget
runs a deficit.
Efforts to restore budget balance quickly
by raising taxes and cutting expenditure, would simply drive
the economy down farther and be self-defeating.
- 12 Yet we cannot safely abandon all connection between
Federal spending and taxes, leaving each year's budget
decisions to be made on an ad hoc basis depending solely
upon whether the economy seems to need a stimulant or a
depressant.
In the last analysis, the best test of the
worthwhileness of any particular amount of Federal spending
is a democratically determined willingness on the part of
the public to pay at least that much in taxes.
In an effort to retain this crucial control over the
growth of Federal spending without compromising the ability
of the budget to help stabilize the economy, President Nixon
has advanced a full employment budget rule.
The rule is
that save in exceptional circumstances Federal budget outlays
should not exceed the amount of revenue the economy would
produce when operating at full employment.
In the current situation with the economy temporarily
well below full employment, an actual budget deficit is
acceptable as a part of the program to promote economic
stability.
But there should be some objective guide to the
- 13 maximum expenditures that might be contemplated without
departing from the principle of long-run budgetary stability.
The revenues that would be generated at full employment
provide such a guide.
It is worth emphasizing that this rule sets an upper
limit on Federal spending, but does not specify an amount
by which Federal expenditures should necessarily increase
year in and year out.
If Federal spending can be held
below this limit while meeting urgent national needs, then
tax reductions or retirement of the Federal debt would be
in order.
Suitably employed the full employment budget concept
may become a valuable and widely accepted tool of budget
planning.
Certainly one hopes that this will prove to be
the case.
In any event, however, this concept will in no
way supplant or substitute for our regular and accepted
ways of arriving at the budget totals.
It will simply
provide an approximate guide in arriving at an overall Federal
expenditure total consistent with the needs of the economic
situation.
- 14 In concentrating today upon the inflation problem and
the emerging expansion, I have singled out but one aspect
of our domestic problems.
Still, a strong productive
domestic economy with relatively stable prices will be the
foundation upon which much of our future progress in many
directions will inevitably come to rest.
The strength and persistence of recent inflationary
pressures should serve as a reminder to all of us how
important it is to avoid excessive Federal spending and a
destabilizing Federal budget.
There are limits to how
fast we can force the pace of economic expansion and limits
to how much the Federal sector can do.
The policies of the last two years have set the stage
for expansion of the economy.
The task now will be to
insure that the expansion proceeds at a brisk but orderly
pace, without return to the heavy inflationary pressures of
recent years.
0)0
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR RELEASE UPON DELIVERY
REMARKS OF THE HONORABLE E~IN S. COHEN
ASSIStANT SECREtARy OF THE TREASURY FOR tAX POLICY
BEFORE THE tAX SECTION
NEW YORK StATE BAR ASSOCIATION
THE NEW YORK HILTON, EAST BALLROOM
NEW YORK, N. Y.
JANUARY 28, 1971, 12:30 P.M., EST
The opportunity you have so graciously accorded to me
to return to New York and speak to you today brin&s back
treasured memories of almost thirty years of practice of law
in this exciting and teeming metropolis.
They were fascinating
yearl, filled with sttmulating experiences shared with so many
of you.
It wa. hare that I learned with you the lawyer's
dedication not only to service to his own client but to the
even larger effort of improving the structure and administration of the law for all our fellow citizens.
Six years ago I left you to return ,to my native state to
teach.
(Later, at my confirmation hearings, Senator Dirksen,
in deep and sonorous tones, described this move as conforming
K-575
- 2
~
to that old refrain, "Carry Me Jack to Old Vlqiany.")
t
tbo\llbt I waa going to a quiet retir_t ill academia, bUC
academia proved no lonaer quiet and, as
SaDe
of you kuw far
better than I, 1 was not the retiring type.
Two years ago to this very day I sat with you at this
luncheon and heard the Honorable John W. Byrnes, ranking
Republican member of the Committee on Ways and Means, issue
a rallying call for tax reform.
Two days later I received a
call to the Treasury, and plunged into the swift currents of
a sweeping legislative reform of the tax structure.
As I say
these words a new thought strikes me that should nave occurred
to me long ago:
when currents run in opposite directions at
the same time they form an eddy.
This doubtless accounts for
my selection for the post.
The Tax Reform Act was signed into law by the President on
December 30, 1969.
We immediately launched an intensive drive
to bring forth the massive regulations that are so essential
to the understanding and practical operation of these important
statutory changes.
We divided this extensive work into 178 separate regulations
projects.
In a period of slightly more than a year, we had by
the beginning of this week brought to a conclusion 37 of these pro~
- 3 -
through issuance of temporary or final regulations, and 41
regulations are pending in published notices of proposed rule
making.
Of the remaining 100 projects, one was at the Federal
Register awaiting publication, 82 had been fully drafted and
were under review, and 13 had been partly drafted.
Only four
of the 178 projects remain to be started.
We shall press forward with this regulations program with
~11
the resources at our command.
Within the next several weeks
we hope to issue notices of proposed rule making under the 1969
Act with respect to:
- original issue discount (§ 1232);
- stock dividends (§ 305);
- restricted property (§ 83);
- recapture of depreciation on real property (§ 1250);
- accumulation trusts (§§ 665-669);
- moving expenses (§§ 217 and 82);
- franchises (§ 1253);
- "lump sum" distributions from pension and profitsharing plans (§ 72(n»; and
_ distribution by corporations of appreciated property
(§ 311(d».
In addition, we expect to issue within this period the final
regulations regarding pooled income funds (§ 642(c)(5»
and to
-
4
-
republish in proposed form regulations
d
h 1
un er t e 968 industrial
revenue bond legislation.
We are exerting every effort in these regulations to
achieve practical, meaningful results that will carry out the
basic purposes of the Tax Reform Act without unduly technical
construction.
As an illustration, we have tried to carry out
the Congressional mandate of the many provisions relating to
private foundations in a manner that will permit them to carry
out their important charitable, educational and scientific
service to the nation without unnecessary restrictions, while
remaining faithful to the task of preventing recurrence of
abuses of the past and insuring public knowledge of their
activities.
We were pleased to note that we were recently
commended for our work in the private foundation regulations
by Mr. David F. Freeman, President of the Council on Foundations.
We believe the process of developing the regulations has
been improved by creation within the Service and the Treasury
of a Policy Committee, composed of senior officials, to whom
important fundamental policy issues can be referred for resolution at as early a stage as possible.
This has minimized the
need for making fundamental changes in the draft regulations
when they reach their later stages of development.
In addition,
- 5 changes in the rules governing public hearings have expedited
those proceedings and have made the oral arguments and comments
of substantial value to us.
The comments we have received on proposed regulations have
often been of great assistance, but none more so than those
furnished to us by the New York State Bar Association.
I bring
to you today, personally and on behalf of Treasury, our sincere
thanks for the countless hours of devoted public service which
your officers and committees have given to the betterment of
the federal tax laws during my term in office.
Your comments
on the proposed regulations, as well as on legislative proposals,
have been of the highest caliber -- incisive, timely, discerning.
I trust that these words of well-deserved praise will spur you
to continue your outstanding contribution to the development of
the tax law.
We are striving for regulations that are not unduly complex
and will not cause endless unnecessary controversy over factual
issues as long as the end result is a reasonable onc.
We must
constantly bear in mind that we now have some 77 million corporate
and individual income tax returns filed annually and yet we
bring to trial in the courts no more than 1,500 cases annually.
This was one of the important reasons that led us recently
to the conclusion that the reserve ratio test should not be
- 6 retained in the field of depreciation.
The statute requires th
Internal Revenue Service to make a "reasonable allowance" for
exhaustion, wear and tear, and obsolescence of equipment.
Ther
is no one answer to what is within the bounds of "reasonable."
One cannot possibly predict with certainty the period over whicl
an asset purchased today will contribute to business profits
future years.
~I
One of the most important elements is future
technological obsolescence as distinguished from mere physical
exhaustion of equipment.
nte reserve ratio test looks backwards
to previous experience of the particular taxpayer, but prior
history is but one factor to be considered in estimating future
obsolescence in this era of ever-quickening technological
advances and increasing competition resulting from industrializa
tion of other nations.
Introduced in a 1962 Revenue Procedure, the operation of
the reserve ratio test was suspended for the first three years,
and in 1965 it was watered down by additional transition rules
and other limitations.
We gave extensive consideration to
altering it further, but concluded that it was already too compl
to be readily understood, that it was unfair between competitors
and that no one test based upon past history is adequate to
forecast future events.
Indeed the 1962 and 1965 rulings stated
explicitly that if the taxpayer failed to meet the reserve
- 7 ratio test he could still sustain his claimed depreciation
allowance on the basis of "all the facts and circtDl1stances."
This residual "facts and circtDl1stances" rule furnishes no real
guidance to the administrative settlement of the large ntDl1ber
of cases that must be disposed of.
We believe that as a matter of sound administrative practice
the taxpayer's claimed allowance should not be disturbed if it
is within a range of 20%, plus or minus, from the guideline
lives under the Asset Depreciation Range system we are proposing
to establish by regulation.
That range will be within the vary-
ing spectrum of experience by companies within the particular
industries, and as an administrative rule of thumb will eliminate endless controversy between the Service and taxpayers.
We hope to issue proposed regulations covering the Asset
Depreciation Range system within the next few weeks and look
forward to receiving your comments and suggestions.
Another matter of regulations policy that has similarly
caused us serious concern has been the application of section
482 of the Code, relating to transactions between affiliated
companies.
We are currently nearing the end of a review of all
of the some I , 000 cases under that section which were referred
- 8 to international examiners for consideration in the year 1968.
The section 482 regulations relating to interest on inter-company
loans establish as an administrative rule of thumb that 4%
interest will be acceptable, even though interest rates on
comparable loans during the past few years have generally been
substantially above that figure.
Yet with respect to sales of
merchandise between affiliates no similar "safe haven" rule
exists, and the complex series of tests for establishing
reasonable transfer prices on merchandise sales require factual
information that is frequently difficult to obtain.
This
problem seems to be especially acute when an attempt must be
made to use comparable data in transactions between other companies, not involving the taxpayer, since both the Service and
the taxpayer experience difficulties in securing that type of
information.
It is too early as yet to appraise the results of
our survey, but we hope they will help lead to some feasible
modifications.
Many of you are interested, I know, as a matter of public
concern and on behalf of clients, in the provisions of the federal income tax law that bear upon housing.
In the 1969 Reform
Act, the previously existing rules regarding depreciation with
respect to new housing projects were left undisturbed, especially
- 9 because many of the programs under the Housing and Urban
Development Act of 1968 were designed with those rules of the
tax law in mind.
We recommended, and the Congress agreed, that
the tax law should not encourage new housing construction to
the exclusion of rehabilitation of existing housing.
We should
not place a premium upon the use of the bulldozer and the
wrecking crane to make room for new construction, when a comparable incentive might lead to the preservation, modernization
and continued use of the housing that provides unique historical
qualities to our existing communities.
Accordingly, the 1969 Act provides, under specified limitations, for a five ,year write-off of the cost of rehabilitating
existing housing for occupancy by low and moderate income tenants.
On August 4, 1970 we issued proposed regulations under this
provision and received 'many helpful comments and suggestions.
One of the principal problems has been the development of reasonable rules for determining whether the tenants are in the low
and moderate income category.
We had proposed that the measure-
ment of a tenant's income be based upon tax law concepts; but
in the light of the comments received we have concluded, at least
tentatively, that taxpayers can also use for this purpose, at
their option, the concepts of income currently used by the
- 10 Department of Housing and Urban Development under section 236
of the Housing Act of 1968.
We think this will substantially
simplify compliance with the new provision of the tax law and
expand its usefulness.
Moreover, we now anticipate that the
final regulations will accept income levels up to the maximum
permitted under the section 236 housing programs (i.e., the
so-called section 236 "exception" limits).
A second major question that was raised in the comments to
the proposed rehabilitation regulations was whether the five year
write-off may be claimed by an investor who first places the
rehabilitated property in service but did not own the property
when it was rehabilitated.
For example, a contractor might acquil
the property, rehabilitate it, and sell it to one or more investOl
who place it in service.
In order to conform the administration
of this provision to existing depreciation principles, the final
regulations will permit the write-off to the investor in these
circumstances, but it will not be allowed to any subsequent user
of the property.
By clarifying this point, the regulations will
conform to normal real estate investment practices and, we
believe, further increase the usefulness of the new provision in
stimulating housing rehabilitation.
The 1969 Act provides for termination of the amortization for
rehabilitation projects undertaken after 1974.
The experience
under the provision will be examined and Congress can determine
before the end of 1974 whether it wishes to continue this provis ic
-
/")
i
)
- 11 -
in effect.
We think this is a desirable method of dealing with
experimental tax law incentives, for it requires a periodic
review of their effectiveness and desirability and prevents
their continuance in perpetuity unless affirmative Congressional
action is taken to renew them.
Turning now to legislative matters, when your officers
in November asked me to speak to you today they asked that I
talk about prospects for 1971 tax legislation, and I had hoped
that I would be in a position to do so.
However, the course
of events in the intervening period necessarily leaves unclear
at the moment the role which tax legislation may have on the
schedule of the Ways and Means Committee and the Finance Committee.
As you know, vital legislation affecting social security, welfare
and trade was not finally acted upon in the last Congress and
will doubtless be high on the agenda of these Committees in the
new Congress.
The President's dramatic program for revenue
sharing will be the subject of public hearings and consideration,
and important legislation regarding health insurance is also
likely to receive attention.
Moreover, in view of the pending
change in command at the Treasury, we shall want to review with
our new Secretary the many studies that we have been conducting
in significant areas of the tax law.
- 12 There are, however, some legislative matters which have
not been given widespread attention, but which I believe you
may wish to review and give us the benefit of your comments.
In the last Congress there was introduced by Chairman Mills a
bill (H.R. 17971), designed to eliminate from the Internal
Revenue Code provisions which are obsolete, and to simplify and
shorten some of the recurring language in the Code.
It has been
reintroduced in the new Congress as H.R. 25, and is entitled
the "Internal Revenue Code Simplification Act of 1971." Known
colloquially as the "Deadwood Bill," it would affect more than
a thousand sections of the Code, repealing some 150 sections and
making changes in more than 800 other provisions.
It has been
developed over many months by the staffs of the Joint Committee
on Internal Revenue Taxation and the Treasury Department.
It
deserves your close study because some provisions that we think
are obsolete might for some unusual reason still be of significanc,
to particular taxpayers in situations of which we are unaware.
Among the changes in language which the bill would make
would be one which would avoid the need for using the expressioo
"the Secretary or his delegate" in hundreds of places throughout
Code.
Ins tead, where appropriate, only the word "Secretary" would
be used and in a single provision it would be defined to mean
()
(
')
- 13
"the Secretary or his de legate. "
-
//
..
~I... ~/
I
It has been estimated that this
minor change will save 5,000 words in the Internal Revenue Code.
Another simplification would be to introduce the phrase
"ordinary income" to replace the c\.Dllbersome oft-repeated phrase
"gain from the sale or exchange of property which is not a
capital asset."
This would at long last give official statutory
sanction to a term which we have constantly been using in practice.
I would refer you also to a series of minor bills, passed
in the closing days of the last Congress, that deal, among other
matters, with
- section 367, the provision requiring prior approval
of the Commissioner in the case of tax-free
transactions involving foreign corporations;
- section 368, in relation to statutory mergers;
- seddDn 311(d), relating to recognition of capital
gain to corporations distributing appreciated
property to their shareholders in redemption of
their stock; and
- section 902, relating to the foreign tax credit.
We have received a n\.Dllber of inquiries as to whether these
four bills represent the only statutory changes that are contemplated in these provisions.
While I cannot venture a predic-
tion as to when further legislative action on these provisions
would occur, we did advise the Committees that we thought further
- 14 legislation involving these sections was required; and we
believe that at the appropriate time the Committees will give
further consideration to these subjects.
We have given much study to a thorough revision of section
367 as well as to section 3ll(d).
In addition, we incline to
the view that the 1968 and 1970 amendments to the statutory merg,
provisions, while they may seem simple and logical extensions
of the prior statute, have taken us to a point where the role
of subsidiary corporations in statutory mergers warrants reexamination.
Your committ:!ees have given us comments on some of these
topics, and we should be grateful for any further thoughts and
suggestions you might wish to give us.
We have undertaken also in recent months a review of a
variety of problems that have arisen under the procedural provisions in Subtitle F of the Internal Revenue Code.
We are giving
consideration to such matters as
- the possibility of providing some statute of
limitations for civil tax liability in fraud
cases;
- correcting some of the many shortcomings in
section 1311, which deals with the mitigation
of the effect of the statute of limitations
when inconsistent positions are taken;
_ revising some of the complex rules regarding
penalties for underestimates of individual
and corporate tax liability;
- 15 - eliminating some of the present inconsistencies
in the statutes of limitations on deficiencies
and refunds;
- eliminating inconsistencies in the computation of
interest; and
- overcoming other difficulties and anomalies that
have grown up through the years in the procedural provisions of the tax law.
In the near future we should like to review some of the possible
changes with your committees and with other interested groups,
and in the meantime we solicit any suggestions you may have for
_procedural improvement.
I might also mention a procedural change we are studying
with respect to corporations under Subchapter S, which, in general,
r~lieves
certain corporations from tax and in essence requires
that each shareholder account in his own return for his pro rata
share of the corporate net income or loss.
limits the number of shareholders to 10.
At present the statute
Last year, in connection
with proposals relating to small business, the Administration
recommended that- the limit be raised from 10 to 30, and this
proposal has been resubmitted in the present Congress.
The
recommendation was made in order that this provision might be
made of greater use to small business organizations with a somewhat larger number of shareholders.
- 16 Expanding the number of shareholders may underscore a
possible procedural difficulty that now exists when any revision of a Subchapter S corporation's income or loss is made on
audit, since the case of each taxpayer must be litigated or
settled separately.
We are studying the possibility of
solving this problem by giving the courts jurisdiction in such
cases to determine the corporate net income or loss in a single
proceeding involving the corporation, even though no tax liability of the corporation itself is involved.
After the final
determination is made of the corporation's income or loss, an
additional tax could be collected or a refund would be granted
to the individual shareholders as a matter of mathematical
adjustment.
The statute of limitations in the case of the
shareholders would be suspended solely for the purpose of
permitting this mathematical adjustment to be made.
We think such a procedure might prove feasible and might
produce significant administrative simplification in dealing
with Subchapter S corporations.
If it developed satisfactorily
in the case of those companies, it might possibly be extended
to partnerships and estates or trusts.
Again we should be
grateful for views or comments you might have on this subject.
.c>
(
X
) ) ~,
- 17 Despite the imperfections, despite the complexities, our
Internal Revenue Code is a remarkable document that is complemented by the most efficient and dedicated tax collectors in
the world.
We can point with pride to the fact that the cost
of collecting $195 billion in federal tax revenues in the fiscal
year 1970 and administering the tax law was no more than $886 million, or only 45 cents for every $100 collected.
Also, as
April 15 approaches and we all perform our duty as taxpaying
citizens, we should note with satisfaction that the overall
burden of taxation in the United States, including federal,
state and local, is lower than that of almost all the major
industrialized nations of the world.
For example, the available
data show that the total taxes collected in the United States,
including social security taxes, as a percentage of gross national
product is lower than that in the Common Market countries
the Scandinavian countries, Canada or the United Kingdom.
Despite these encouraging facts and figures, we recognize
that much remains to be done to fmprove the equity of our tax
laws and sfmp1ify its structure.
We shall continue to strive
for these fmprovements that the public demands and that the
public undeniably deserves.
000
The Department of the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
MEMORANDUM FOR CORRESPONDENTS:
B~cause
January 28, 1971
of the widespread public interest in
revenue sharing, a preprint copy of the attached
article scheduled for publication in the
February, 1971, issue of BANKING is forwarded
for your
~nformation.
Attachment
Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Article
Number of Pages Removed: 3
Author(s): Murray L. Weidenbaum
Title:
"Why Revenue Sharing?"
Date:
1971-02-01
Journal:
Banking
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 28, 1971
DECISION ON FROZEN FRENCH FRIED POTATOES
UNDER THE ANTIDUMPING ACT
The Treasury Department announces that a determination has
been made that frozen trench fried potatoes manufactured by McCain
Foods Limited, Florenceville, New Brunswick, Canada, are not being,
nor likely to be, sold at less than fair value within the meaning
of the Antidumping Act, 1921, as amended (19 U.S.C. 160 et seg.).
A tentative negative determination was published in the
Federal Register on October 22, 1970.
This notice invited submission
of written views and requests for an opportunity to present views
orally.
No submissions or requests were received.
During the period January 1969 through May 1970, frozen
~ench
fried potatoes valued at approximately $431,345 were
exported to the United States by McCain Foods Limited, Florenceville.
New Brunswick, Canada.
If If II
The Dtpartmentof the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 29, 1971
DECISION ON CAST OR ROLLED GLASS
UNDER THE ANTIDUMPING ACT
The Treasury Department announced today the issuance of
a tentative determination of no sales at less than fair value
in connection with its antidumping investigation of cast or
rolled glass from Japan.
The notice will be published in the Federal Register
on January 30, 1971.
Information gathered in this investigation shows that the
price to buyers in the home market was lower than the price to
buyers in the United States.
Appraisement of the above-described merchandise from Japan
has not been withheld.
The total value of cast or rolled glass imported from Japan
during the period January 1, 1969, through September 30, 1970,
was approximately $1,143,000.
II II II
The Department o{ the
WASHINGTON, D.C. 20220
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 29, 1971
TREASURY BUYS $250 MILLION IN FOREIGN
CURRENCIES FROM THE INTERNATIONAL MONETARY FUND
The United States today announced it is purchasing $250
million of foreign currencies from the International Monetary
Fund. The drawing will be evenly split between Belgian francs
and Netherlands guilders. It was also announced that $100
million in Special Drawing Rights were recently sold to the
Netherlands for dollars. $110 million were sold to Belgium i~
December.
This use of the United States reserve assets was undertaken
to purchase a portion of the dollars which had been accumulated
by the countries in question over approximately the past seven
months and which had been largely covered by short-term swap
drawings of the Federal Reserve.
The drawing of currencies from the Fund represents use of
most of the net creditor position of the United States in the
IMF. The United States still has all of its fully automatic
drawing rights equivalent to its gold tranche position, which,
following the quota increase at the end of last yea~ now amounts
to $1,675 million.
The U. S. holdings of Special Drawing Rights amounted to
$1,568 million on January 1, 1971, following this year's
allocation of $717 million.
000
K-576
I'
The Department of the
WASHINGTON, D.C. 20220
y)
TREASURY
TELEPHONE W04·2041
FOR IMMEDIATE RELEASE
January 29, 1971
SECRETARY KENNEDY HONORS THREE OFFICIALS
FOR OUTSTANDING LEADERSHIP AND SERVICE
Secretary of the Treasury David M. Kennedy has presented
the Alexander Hamilton Award -- the Treasury Department's
highest honor -- to three members of his staff. The awards,
recognizing outstanding and unusual leadership in the work
of the Department, went to:
Edwin S. Cohen
Assistant Secretary for Tax Policy;
John S. Nolan,
Deputy Assistant Secretary for Tax Policy;
James E. Smith,
Special Assistant to the Secretary
(Congressional Relations)
Mr. Cohen, a native of Richmond, Virginia, and a
professor of law at the University of Virginia before taking
office as Assistant Secretary in March 1969, was honored for
his "imaginative and untiring leadership" of Treasury's tax
legislation and tax analysis programs. The award citation
noted that Mr. Cohen played a major role in development of the
historic Tax Reform Act of 1969, and said that "his efforts
to achieve tax equity have renewed the faith of the American
people in our voluntary tax system."
Mr. Nolan, a Washington, D. C. tax attorney prior to
his Treasury Department appointment in April 1969, was honored
for his important contributions to the Department's
comprehensive tax program. The citation accompanying the
award said that Mr. Nolan's "expert direction" of Treasury
studies and other work "helped to furnish a sound technical
base for the Tax Reform Act of 1969." The citation also
K-577
(OVER)
- 2 recognized Mr. Nolan's leadership in developing the many
complex regulations required to carry out the Reform Act.
Mr. Smith, who has served as Special Assistant to the
Secretary (Congressional Relations) since February 1969, was
cited for the key part he has played "in the enactment of a
landmark Treasury legislative program." The citation pointed
out that Mr. Smith '~as been especially outstanding in
successfully representing the Department and its programs to
concerned committees and members of Congress. This effectiveness
was greatly enhanced by his active participation in policy
planning and legislative formulation ... "
Mr. Smith is a native of Aberdeen, South Dakota.
He formerly was on the Washington staff of the American
Bankers Association as Deputy Manager and Associate Federal
Legislative Counsel.
Copies of the citations accompanying the awards are
attached.
000
Attachments
CIT A T ION
ALEXANDER HAMILTON AWARD
Edwin S. Cohen
As Assistant Secretary for Tax Policy, Edwin S. Cohen
has provided imaginative and untiring leadership to the
Department of the Treasury's tax legislation and tax
analysis programs.
The heavy demands on his time and energy did not deter
him from his pursuit of excellence in performing his duties.
Mr. Cohen will long be remembered for the major role
he played in developing the massive Tax Reform Act of 1969,
the biggest single revision in the Internal Revenue Code
since it was adopted in 1913. His efforts to achieve tax
equity have renewed the faith of the American people in our
voluntary tax system.
COP Y
CIT
ATION
----
ALEXANDER HAMILTON AWARD
John S.
---
Nolan
As Deputy Assistant Secretary for Tax Policy, John S. Nolan
has been outstandingly effective in assuring a comprehensive tax
program.
Mr. Nolan's expert direction of a variety of technical
studies, coupled with facile coordination of the work of many
committees and organizations, helped to furnish a sound
technical base for the Tax Reform Act of 1969. His superior
performance in preparing for tax reform has been exceeded only
by his subsequent work in the preparation of the numerous
complex regulations required for its implemention.
COP Y
CIT
ATION
----
ALEXANDER HAMILTON AWARD
James E. Smith
As Special Assistant to the Secretary (Congressional
Relations), James E. Smith has played a major role in the
enactment of a landmark Treasury legislative program.
Mr. Smith has been especially outstanding in successfully
representing the Department and its programs to concerned
committees and members of Congress. This effectiveness was
greatly enhanced by his active participation in policy
planning and legislative formulation in addition to his
continuing responsibility for the Department's relations
with Congress.
Department of the
TREASURY
TElEPHONE W04·2041
I.C.2822O
FOR IMMEDIATE RELEASE
January 29, 1971
PRICES SET FOR EISENHOWER SILVER DOLLARS
Eugene T. Rossides, Assistant Secretary of the
Treasury, Enforcement and Operations, today announced
the following premium prices for special Eisenhower dollar
coins to be made of a 40 percent silver alloy:
$10.00 per coin for the proof, and
$ 3.00 per coin for the uncirculated.
The Mint will announce ordering details for these
collectors coins shortly. It is emphasized that orders
will not be accepted prior to July 1, 1971.
The Mint plans to produce 150 million of the silver
content coins. Cupro-nickel dollar coins also will be
made for general circulation, but will not appear until
late in the year.
Attachment
K-578
THE DEPARTMENT OF THE TREASURY
WASHINGTON. D.C.
20220
OFFICE OF
IDIRECTOR OF THE MINT
I
PROOF COINS. These are pieces made from carefully
sl'!lected blanks that have been highly polished before
being fed to the presses. The dies, made solely for this
purpose, are also highly polished, and are buffed during
use. In order to minimize scratches and abrasions the
coins are hand-fed to a slow-moving press. The slower
action assures sharper, more even impressions and makes
the design much more distinct. Each coin is struck twice.
The finished coins have an almost mirror surface.
For the most part, the finish on modern-day proofs is
mirror-like. After heat treating, each coinage die has a
frosted appearance and texture throughout its entire surface.
The field, or background, is then highly polished to a mirror
finish. The portrait, and all other design elements in relief, are still frosted. Once in production, the action of
successive coining tends to polish the portrait; the two-toned
effect gradually disappears.
Proof coin manufacture requires the same careful, painstaking
finishing operations as do pieces of expensive jewelry. Each
coin is reviewed to detect any defects which may have occurred in the manufacturing operations. All condemned or
otherwise imperfect coins are melted.
UNCIRCULA TED COINS. These are pieces minted on highspeed prc.'-)ses, moved along conveyors, and run through
counting machines. No attempt is made to impart a special
finish. Each coin is struck only once. The Treasury cannot
guarantee th:lt these coins will be entirely free from blemishes.
Kap Freedom in YOllr_ F"tllr~ lVito US. Savinf!,s BondJ
~eDepartmentol the TREASURY
ISHINGTON. D.C. 20220
TELEPHONE W04-2041
FOR n.n,1EDIATE RELEASE
January 29, 1971
RESULTS OF TREASURY REFUNDING
The Treasury announced that $15.9 billion of the $29.6 billion of the
nine eligible issues of securities have been exchanged, including $10.8 billion
of the -p19.5 billion held by the general public. Exchanges totaled ~ 7 . G billion
for the 5-7/8% notes maturinG AUOlst 15, 1975, and *8.3 billion for the 6-1/4~
notes maturing February 15, 1978.
Following is a summary of exchanges ~ the general public (amounts in
millions) :
ELIGIBLE FUR EXCHANGE
TO BE ISSUED
Description
Amount
5-3/8% notes 2/15/71
7-3/4% notes 2/15/71
Subtotal
<j;
2-1/2% bonds 3/15/71
5-3/810
notes 11/15/71
7-3/4% notes 11/15/71
3-7/8% bonds 11/15/71
4-3/4% notes 2/15/72
7-1/2~ notes 2/15/72
4% bonds
2/15/72
Subtoto.l
Total
'. 2,285
5-7/8%
Notes
8/15/75
UNEXCHANGED
6-1/4~~
Notes
2/15/78
Total
--
Total
-; of
Eligible
t· 2,145
$ 140
1 2°21
2 2161
1 2996
42141
732
314
450
764
247
24.4
1,441
3,101
2,230
1,561
3,131
2 2°21
13,485
325
325
754
516
390
607
2 2917
396
500
716
439
295
647
2 2993
721
825
1,470
955
685
1 2254
5 ,91O
72u
2,276
760
606
2,446
767
7 2575
50.0
73.4
34.1
38.8
78.1
38.0
56.2
--
19 2 509
5 2211
5 2604
1° 2815
8 2694
44.6
,~
$ 1,140
2 2728
5,013
1,005
975
1 2980
1 2°11
oj.>
872
-
6.1
26.8
17.4
Federal Reserve Banks and Government accounts exchanged $ 5.0billion of
eligible securities, including $ 0.3 billion maturing February 15, 1971, ~ 0.2
billion maturing r·iarch 15, 1971, $ 4.2 billion maturing November 15, 1971, and
.~ 0.3 billion maturing February 15, 1972.
These exchanges totaled $ 2.3 billion
for the 5-7 /8~, notes and :;, ::::.7 billion for the 6-1/4j., notes.
Treas.
u.s.
Treasury Dept.
III
10
• A13P4
v.l7l
Press Releases
Treas.
III
10
.A13P4
u. s.
Treasurl DeQt.
AUTHOR
Press Releases
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v.l7l
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