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Department of the JIJ[/IS IIU Y
W A S H IN G T O N , D.C.
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634-5248

20226

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FOR IMMEDIATE RELEASE
Thursday, October 3, 1974
STATE OF MINNESOTA AND
OFFICE OF REVENUE SHARING
CONCLUDE JOINT AUDIT AGREEMENT
The U. S. Treasury Department’s Office of Revenue
Sharing and the State of Minnesota concluded joint audit
agreements in St.Paul today.

According to the terms of

the pacts, Minnesota’s State Auditor will assume responsibility
for auditing general revenue sharing funds in mote than 400
units' of Minnesota local government , and the state’s Legislative
Auditor will audit the use of shared revenues by agencies of the
state government.
The audits will be performed according to standards and
procedures put forward by the Office of Revenue Sharing in its
publication "Audit Guide arid Standards for Revenue Sharing Recipients”
Audits include both1financial practices and compliance with civil
rights and other provisions of the revenue sharing law.
The Minnesota agreements were signed at the State Capital
in St.Paul today by Rolland F. Hatfield, Minnesota’s State Auditor;
Robert A^ Whitaker, Minnesota’s Legislative Auditor; and
Graham W. Watt, Director of the U. S. Treasury Department's Office
of Revenue Sharing.

Minnesota is the fourth state to sign a joint audit
agreement with the Office of Revenue Sharing.

Similar pacts

were concluded earlier this year with the states of New York,
Michigan and Tennessee.

An agreement with the State of

Illinois will be signed in Washington on October 7.
In accepting responsibility for making revenue sharing
audits of state departments and agencies and local units
of government, Minnesota has joined the Office of Revenue
Sharing’s Cooperative State Audit Program.
"The Cooperative State Audit Program we are developing with
the assistance of state governments will make it possible to
audit units of government that receive shared revenues at the
least possible cost to all,” according to Graham Watt.

"The

Federal government will not be required to duplicate an audit
system already in place,” he said.
In addition to information provided by states through the
Cooperative State Audit Program, the Office of Revenue Sharing
will perform its own audits on a random basis and investigate
allegations of noncompliance with revenue sharing law whenever
and wherever they may occur.

As presently authorized, the general revenue sharing
program will distribute $30.2 billion to nearly 39,000 units
of state and local government over a five-year period that end
with December 1976.

Already, more than $14 billion have been

returned to states and local governments.

The next regular,

quarterly payment of shared revenues will be issued tomorrow.

D e p a rtm e n to fth e T R E A S U R Y

OFFICE OF REVENUE SHARING
WASHINGTON. D.C. 20228

TELEPHONE 634-5248

FOR IMMEDIATE RELEASE
Friday, October 4, 1974
OFFICE OF REVENUE SHARING
ISSUES OCTOBER PAYMENT
The Treasury Department’s Office of Revenue Sharing
paid $1,532,628,558 to 50 states, the District of Columbia,
and 34,819 units of local government today, in the ninth
regular distribution of revenue sharing funds since
December 1972.
The State and Local Fiscal Assistance Act of 1972
authorizes. $30.2 billion of federal funds to be shared
with states and local governments from January 1972 through
December 1976.

Today’s payment brings to $15.82 billion

the total amount sent to nearly 39,000 states, counties,
cities, towns, townships, Indian tribes and Alaskan native
villages thus far.
Approximately 3,000 local governments were not mailed
their checks today, on schedule.

Of these, 2,836 are govern

ments whose October payments are being delayed because they
failed to file one or both of two reports that are required
of all recipient governments by revenue sharing law.

The

total amount of money being held for these governments is $8,534,307.

-II

These funds will be paid by the Office of Revenue Sharing after
the required reports have been received.
These reports are the Fifth Entitlement Period Planned
Use Report (due to be returned to the Office of Revenue
Sharing by June 24, 1974) and the second Actual Use Report
(due by September 1, 1974).

Each is a simple, one-page

form.
The number of governments whose reports have not been
received dropped from 6,000 to 2,836 in September as the
result of an intensive effort by the Office of Revenue Sharing
to encourage governments to file before the checks were prepared.
Reminders were sent in the mail.

Office of Revenue Sharing staff

contacted the Governor’s office in each state and requested
help.

And as many places as possible were called on the telephone.
Last year, approximately 9,000 units of government that

had not returned their Planned and Actual Use Report forms
did not receive their October checks on schedule.
"Recipient units of government are spending their shared
revenues in a great variety of programs and projects,"
Graham W. Watt, Director of the Office of Revenue Sharing said
in discussing today’s payment.

In Hutchinson, Kansas, general revenue sharing money
has been used to establish a legal aid service and to provide
hot meals to the elderly and the poor.
Norfolk, Virginia has used some of its shared revenues
to establish its first Consumer Protection Office.
Recreation facilities have been constructed in the
poorer areas of Little Rock, Arkansas, using revenue sharing
dollars.
Los Angeles County, California and New York City,
New York both needed to use their money to subsidize mass
transit fares.
In communities as far afield as Lubbock, Texas; Battle
Creek, Michigan; Missoula County, Montana; and San Diego,
California, specially-constituted committees of citizens and
officials have developed procedures to involve individual
citizens and community groups in local decisions regarding
expenditures of shared revenues.
General revenue sharing checks are mailed to recipient
units of general government on a regular, quarterly basis in October, January, April and July.

The funds are allocated

each year according to formulas set forth in the State and
Local Fiscal Assistance Act of 1972, using data supplied by
the U. S. Bureau of the Census.
#

FOR IMMEDIATE RELEASE

October 1, 1974
TREASURY'S WEEKLY BILL OFFERING

The Department of the Treasury^ by this, pub lip, .notice, invites tenders for
two series of Treasury bills to thé aggregate amount of $4,700,000,000 » or
thereabouts, to be issued October-10, 197f4,

as follows:

91-day bills (to maturity date) inrthe amount of $2,700,000,000» or
thereabouts, representing an additional amount of bills dated July 11, 1974,
and to mature

January 9, 1975

(CUSIP No* 912793 VQ6), originally issued in

the amount èf $1,903,625,000/ the additional and original bills to be freely
interchangeable. &aP
182-day bills, for $2,000,000,000, or thereabouts, to be dated October 10, 1974,
and to mature

April 10, 1975

(CUSIP No. 912793 WD4).

The bills will be issued for cash and in exchange for Treasury bills maturing
October 10, 1974,

outstanding in the amount of $4,504,315,000, of which

Government accounts and Federal Reserve Banks, for themselves and- as agents of
foreign and international monetary authorities, presently hold $2,401,130,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and non
competitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

Monday, October 7, 1974.

Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
multiples of $5,000.

Tenders over $10,000 must be in

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.
Banking institutions and dealers who make primary markets in Government

(OVER)

securities and report daily to the Federal Reserve Bank of New York their position^*
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.
own account.

Others will not be permitted to submit tenders except for their
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 bills applied for, unless the tenders are accompanied by an
express guaranty of payment by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.

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 reject any or all tenders,
in whole or in part, and his action in any such respect shall be final.

Subject 1

to these reservations, noncompetitive tenders for each issue for $200,000 or less«
without stated price from any one bidder will be accepted in full at the average 1
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 or Branch on October 10, 1974,

in cash or«

other immediately available funds or in a like face amount of Treasury bills
maturing
ment.

October 10, 1974.

Cash and exchange tenders will receive equal treat-®

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 I
are excluded from consideration as capital assets.

Accordingly, the owner of

bills (other than life insurance companies) issued hereunder must include in his 1
Federal 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.
Department of the Treasury Circular No. 418 (current revision) and this not®
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

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

w
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c/5

FOR RELEASE AT 10:30 A.M., EDT
TUESDAY, OCTOBER 1, 19 74______
ADDRESS OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY OF THE UNITED STATES
BEFORE THE 1974 ANNUAL MEETINGS OF THE
BOARDS OF GOVERNORS OF THE
INTERNATIONAL MONETARY FUND,
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT,
INTERNATIONAL FINANCE CORPORATION, AND
INTERNATIONAL DEVELOPMENT ASSOCIATION
AT THE SHERATON PARK HOTEL
WASHINGTON, D. C *, OCTOBER 1, 1974
Mr. Chairman, Mr. Witteveen, Mr* McNamara, Fellow
Governors, Distinguished Guests:
Our recent annual meetings have reflected encouraging
changes in the international economic scene. Three years
ago, our attention was focused on the New Economic Policy
introduced by the United States to eliminate a long-standing
imbalance in the world economy. Two years ago we launched a
major reform of the international trade and payments system.
Last year we developed the broad outlines of monetary reform.
This year circumstances are different. We face a world
economic situation that is the most difficult since the years
immediately after World War II.
Our predecessors in those early
well to the great challenges of that
we can also respond appropriately to
day. But first we must identify the

postwar years responded
period.
I am confident
the challenges of our
issues correctly.

Let me declare myself now on three of these key issues.
First, I do not believe the world is in imminent danger
of a drift into cumulative recession -- though we must be
alert and ready to act quickly should the situation change
unexpectedly.
I do believe the world must concentrate its
attention and its efforts on the devastating inflation that
confronts us.
WS-114

Second, I do not believe the international financial
market is about to collapse.
I d£ believe that situations
can arise in which individual countries may face serious
problems in borrowing to cover oil and other needs. For
that reason we must all stand prepared to take cooperative
action should the need arise.
Third, I firmly believe that undue restrictions on the
production of raw materials and commodities in order to bring
about temporary increases in their prices threaten the pros
perity of all nations and call into question our ability to
maintain and strengthen an equitable and effective world
trading order.
The Inflation Problem
With respect to the first of these issues, it is clear
that most countries are no longer dealing with the familiar
trade-off of the past, balancing a little more or less in
flation against little more or less growth and employment.
We are confronted with the threat of inflationary forces so
strong and so persistent that they could jeopardize not only
the prosperity but even the stability of our societies. A
protracted continuation of inflation at present rates would
place destructive strains on the framework of our present
institutions -- financial, social and political.
Our current inflation developed from a combination of
factors: in addition to pressures emanating from cartel pricing
practices in oil, we have suffered from misfortune -- including
bad weather affecting crops around the world; bad timing -- in
the cyclical convergence of a worldwide boom; and bad policies r]
reflected in years of excessive government spending and
monetary expansion. As financial officials, we cannot be
held responsible for the weather, but we must accept responsi
bility for government policies, and we must recommend policies
that take fully into account the circumstances of the world
in which we find ourselves.
In today's circumstances, in most countrie s, there is
in my view no alternative to policies of balanc ed fiscal and
monetary restraint. We must steer a course of firm, patient,
persistent restraint of both public and private demand, and
we must maintain this course for an extended pe riod of time,
until inflation rates decrease. We must restor e the confidence of our citizens in our economic future and our ability
to maintain strong and stable currencies.

- 3 -

Some are concerned that a determined international attack
on inflation by fiscal and monetary restraint might push the
world into a deep recession, even depression.
I recognize this concern, but I do not believe we should
let it distort our judgment.
Of course, we must watch for evidence of excessive slack.
The day is long past when the fight against inflation can be
waged in any country by tolerating recession. We must remain
vigilant to the danger of cumulative recession. But if there
is some risk in moving too slowly to relax restraints, there
is also a risk -- and I believe a much greater risk -- in
moving too rapidly toward expansive policies.
If we fail to
persevere in our anti-inflation policies now, with the result
that.inflation becomes more severe, then in time counter
measures will be required that would be so drastic as to risk
sharp downturns and disruptions in economic activity.
There is a tendency to lay much of the blame on the inter
national transmission of inflation. Certainly with present
high levels of world trade and investment, developments in
any economy, be they adverse or favorable, are quickly carried
to other economies. But that does not absolve any nation
from responsibility to adapt its financial policies so as to
limit inflation and to shield its people from the ultimate
damage which inflation inflicts on employment, productivity
and social justice in our societies.
Recycling and the Strength of Capital Markets
In addition to inflation,7 public
concern has centered on
r
methods of recycling oil funds and on whether we need new
institutions to manage those flows.
So far, our existing complex of financial mechanisms,
private and intergovernmental, has proved adequate to the
task of recycling the large volumes of oil monies already
moving in the system.
Initially, the private financial markets
played the major role, adapting in imaginative and construc
tive ways. More recently, government-to-government channels
have increasingly been opened, and they will play a more im
portant role as time goes by. New financing organizations
have also been established by OPEC countries. Our interna
tional institutions -- and specifically the IMF and World
Bank -- have redirected their efforts to provide additional
ways of shifting funds from lenders to borrowers. The IMF
responded rapidly in setting up its special oil facility.

4
In our experience over the period since the sharp increase
in oil prices, three points stand out:
First, the amount of new investments abroad being accumu
lated by the oil-exporting countries is very large -- we
estimate approximately $30 billion thus far in 1974.
Second, the net capital flow into the United States from
all foreign sources, as measured by the U.S. current account
deficit, has been small, about $2 billion so far this year.
During the same period our oil import bill has been about
$12 billion larger than it was in the comparable period last
year.
Third, markets in the United Stat es are channeling very
large sums of money from foreign lende rs to foreign borrowers
Our banks have incre ased their loans to foreigners by approxi
mately $15 billion since the beginning of the year, while
incurring liabilitie s to foreigners of a slightly larger
amount. This is one kind of effective recycling. And while
some have expressed concern that exces sive oil funds would
seek to flow to the United States, and would require special
recycling efforts to move them out, th e picture thus far has
been quite different
No one can predict for sure what inflows of funds to the
U.S. will be in the future. But it is our firm intention to
maintain open capital markets, and foreign borrowers will have
free access to any funds which come here. The United States
Government offers no special subsidies or inducements to
attract capital here; neither do we place obstacles to outflows.
Nonetheless, some have expressed concern that the banking
structure may not be able to cope with strains from the large
financial flows expected in the period ahead. Amajor factor
in these doubts has been the highly publicized difficulties
of a small number of European banks and one American bank
which have raised fears of widespread financial collapse.
The difficulties of these banks developed in an atmospher0i
of worldwide inflation and of rapid increases in interest
rates.
In these circumstances, and in these relatively few
3
instances, serious management defects emerged. These_difficult!
were in no way the result of irresponsible or disruptive invest!
ment shifts by oil-exporting countries. Nor were they the
result of any failure in recycling or of any general financial
crisis in any country.

- 5 -

The lesson to be learned is this: in a time of rapid
change in interest rates and in the amounts and directions
of money flows, financial institutions must monitor their
practices carefully. Regulatory and supervisory authorities
too must be particularly vigilant. We must watch carefully
to guard against 'mismanagement and speculative excesses, for
example, in the forward exchange markets. And we must make
certain that procedures for assuring the liquidity of our
financial systems are maintained in good working order.
Central banks have taken major steps to assure this result.
Although existing financial arrangements have responded
reasonably well to the strains of the present situation, and
we believe they will continue to do so, we recognize that
this situation could change. Wè should remain alert to the
potential need for new departures. We do not believe in an
attitude of laissez-faire, come what may. If there is a clear
need for additional international lending mechanisms, the
United States will support their establishment.

We believe that various alternatives for providing such
supplementary mechanisms should be given careful study. What
ever decision is made will have profound consequences for the
future course of the World economy. We must carefully assess
what our options are and carefully consider the full consequences of alternative courses of action. The range of
possible future problems is a wide one, and many problems
can be envisaged that will never come to pass. What is
urgently needed now is careful preparation and probing
analysis.
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We must recognize that no recycling mechanism will insure
that every country can borrow unlimited amounts. Of course,
countries continue to have the responsibility to follow mone
tary, fiscal and other policies such that their requirements
for foreign borrowing are limited.
■

But we know that facilities for loans on commercial or
near-commercial terms are not likely to be sufficient for
some developing countries wbosé economic situation requires
iltiH
they .continue to find funds on concessional terms.
Traditional donors have continued to make their contributions
of such funds, ,and oil-exporting countries have made some
■y I commitments to provide Such assistance. Although the re
maining financing problem for these countries is small in
comparison with many other international flows, it is of
immense importance for those countries affected. The new
Development Committee which we are now establishing must
j give priority attention to the problems confronting these
most seriously affected developing countries.

6
Trade in Primary Products

For the past two years, world trade in primary commodities
has been subject to abnormal uncertainties and strains. Poor
crops, unusually high industrial demand for raw materials,
transport problems, and limited new investment in extractive
industries have all contributed to tremendous changes in
commodity prices. Unfortunately, new forms of trade restraint
have also begun to appear.
In the past, efforts to build a world trading system
were concentrated in opening national markets to imports.
Clearly, we need now also to address the other side of the
equation, that of supply.
The oil embargo, and the sudden and sharp increase in
the price of oil, with their disruptive effects throughout the
world economy, have, of course, brought these problems to the
forefront of our attention.
The world faces a critical decision on access to many
primary products.
In the United States we have sought in
those areas where we are exporters to show the way by maximum
efforts to increase production. Market forces today result
in the export of many items from wheat to coal which some
believe we should keep at home. But we believe an open
market in commodities will provide the best route to the
investment and increased production needed by all nations.
We believe that cooperative, market-oriented solutions
to materials problems will be most equitable and beneficial
to all nations. We intend to work for such cooperative solu
tions .
Prospects for the Future
In the face of our current difficulties -- inflation,
recycling, commodity problems -- I remain firmly confident
that, with commitment, cooperation and coordination, reason
able price stability and financial stability can be restored.
The experience of the past year has demonstrated that
although our economies have been disturbed by serious troubles,
the international trade and payments system has stood the test.

7
Flexible exchange rates during this period have served
us well. Despite enormous overall uncertainties, and sudden
change in the prospects for particular economies, exchange
markets have escaped crises that beset them in past years.
The exchange rate structure has no longer been an easy mark
for the speculator, and governments have not been limited
to the dismal choice of either financing speculative flows
or trying to hold them down by controls.
Another encouraging fact is that the framework of inter
national cooperation has remained strong. Faced with the
prospect of severe balance-of-payments deterioration, deficit
countries have on the.whole avoided short-sighted efforts to
strengthen their current account positions by introducing
restrictions and curtailing trade.
In the longer run, we look forward to reinforcing this
framework of cooperation through a broad-gauged multilateral
negotiation to strengthen the international trading system.
In the "Tokyo Round,” we hope to reach widespread agreement,
both on trade liberalization measures -- helping all countries
to use resources more efficiently through greater opportunities
for exchange of goods and services -- and on trade management
measures -- helping to solidify practices and procedures to
deal with serious trade problems in a spirit of equity and
joint endeavor.
It is gratifying that more and more govern
ments have recognized the opportunities -- and the necessity -for successful, creative negotiations on trade.
We in the U.S. Government recognize our own responsibility
to move these negotiations along. Early last year we proposed
to our Congress the Trade Reform Act to permit full U.S. par
ticipation in the trade negotiations.
It is clear that in
the intervening months the need for such negotiations has
become all the more urgent. We have therefore been working
closely with the Congress on this crucial legislation, and
we shall continue to work to insure its enactment before
the end of this year.
In the whole field of international economic relations,
I believe we are beginning to achieve a common understanding
of the nature of the problems we face. There is greater
public recognition that there lies ahead, a long, hard world
wide struggle to bring inflation under control.
Inflation
is an international problem in our interdependent world, but
the cure begins with the policies of national governments.
Success will require, on the part of governments, uncommon

8
determination and persistence. There is today increasing
awareness that unreasonable short-term exploitation of a
strong bargaining position to raise prices and costs, whether
domestically or internationally, inevitably intensifies
our problems.
Finally I am encouraged that our several years of in
tensive work to agree on improvements in the international
monetary system have now begun to bear fruit. The discus
sions of the Committee of Twenty led to agreement on many
important changes, some of which are to be introduced in an
evolutionary manner and others of which we are beginning to
implement at this meeting.

(MORE)

9
For the immediate future, the IMF’s new Interim Committee
will bring to the Fund structure a needed involvement of world
financial leaders on a regular basis, providing for them an
important new forum for consideration of the financing of
massive oil bills and the better coordination of national
policies. The Interim Committee should also increasingly ex
ercise Surveillance over nations' policies affecting inter
national payments, thereby gaining the experience from which
additional agreed guidelines for responsible behavior may be
derived.
Moreover, discussions in the Interim Committee can speed
the consideration of needed amendments to the Fund's Articles
of Agreement. These amendments, stemming from the work of the
Committee of Twenty, will help to modernize the IMF and better
equip it to deal with today's problems. For example, the
Articles should be amended so as to remove inhibitions on IMF
sales of gold in the private markets, so that the Fund, like
other official financial institutions, can mobilize its resources
when they are needed.
In order to facilitate future quota
increases, the package of amendments should also include a
provision to modify the present requirement that 25 percent of
a quota subscription be in gold. Such an amendment will be a
prerequisite for the quota increase now under consideration.
And the amendment will be necessary in any event for us to
achieve the objectives shared by all the participants in the
Committee of Twenty of removing gold from a central role in
the system and of assuring that the SDR becomes the basis of
valuation for all obligations to and from the IMF.
Preparation of an amendment to embody the results of the
current quinquennial review of quotas offers us still another
opportunity to reassess the Fund's role in helping to meet the
payments problems of member nations in light of today's needs
and under present conditions of relative flexibility in exchange
rates.
The trade pledge agreed by the Committee of Twenty provides
an additional framework for cooperative action in today's
troubled economic environment.
It will mitigate the potential
danger in the present situation of self-defeating, competitive
trade actions and bilateralism. The United States has notified
its adherence to the pledge, and I urge other nations to join
promptly in subscribing.

The new Development Committee, still another outgrowth
of the work of the Committee of Twenty, will give us an inde
pendent forum that will improve our ability to examine com
prehensively the broad spectrum of development issues. We
look forward to positive results from this new Committee’s
critical work on the problems of the countries most seriously
affected by the increase in commodity prices and on ways to
ensure that the private capital markets make a maximum contri
bution to development.
The World Bank and Its Affiliates
International cooperation for development is also being
strengthened in other ways, notably through the replenishment
of IDA. A U.S. contributiuon of $1.5 billion to the fourth
IDA replenishment has been authorized by Congress, and we
are working with our congressional leaders to find a way to
complete our ratification at the earliest possible date. A
significant new group of countries has become financially
able to join those extending development assistance on a
major scale. We would welcome an increase in their World
Bank capital accompanied by a commensurate participation in IDA.
The United States is proud of its role in the development
of the World Bank over the past quarter century. We are
confident that the Bank will respond to the challenges of the
future as it has so successfully responded in the past.
One of these challenges is to concentrate the Bank’s re
sources to accelerate growth in those developing countries
with the greatest need.
A second challenge is to continue the Bank’s annual transfer
of a portion of its income to IDA. The recent increase in
interest rates charged by the Bank is not sufficient to enable
the Bank to continue transfers to IDA in needed amounts. We
urge that the Bank's Board promptly find a way to increase
significantly the average return from new lending.
A third challenge is that the Bank find ways to strengthen
its commitment to the principle that project financing makes
sense only in a setting of appropriate national economic policies,
of effective mobilization and use of domestic resources, and
of effective utilization of the private capital and the modern
technology that is available internationally on a commercial
bas is.

11
I
should mention also that we are concerned about the
Bank's capital position. We should encourage the Bank to seek
ways to assist in the mobilization of funds by techniques
which do not require the backing of the Bank's callable capital.
Within the Bank Group, we are accustomed to thinking mainly
of the IFC in considering private capital financing. While
now small, the IFC is, in my view, a key element in the total
equation, and should be even more important in the future. But
the Bank itself needs to renew its own commitment to stimulation
of the private sectors of developing countries.
Finally, let me emphasize that the capable and dedicated
leadership and staff of the World Bank have the full confidence
and support of the United States as they face the difficult
challenges of the current situation.
Conclusion
Ladies and Gentlemen, the most prosperous period in the
history of mankind was made possible by an international frame
work which was a response to the vivid memories of the period of
a beggar-thy-neighbor world. Faced with staggering problems, the
founders of Brettoii Woods were inspired to seek cooperative
solutions in the framework of a liberal international economic
order. Out of that experience evolved an awareness -that our
economic and political destinies are inextricably linked.

Today, in the face of another set of problems, we must
again shape policies which reflect the great stake each nation
has in the growth and prosperity of others. Because I believe
that interdependence is a reality--one that all must sooner
or later come to recognize--I remain confident that we will work
out our problems in a cooperative manner.
The course which the United States will follow is clear.
Domestically we will manage our economy firmly and responsibly,
resigning ourselves neither to the inequities of continued
inflation nor to the wastefulness of recession. We will
strengthen our productive base, we will develop our own energy
resources, we will expand our agricultural output. We will
give the American people grounds for confidence in their future.
Internationally, let there be no doubt as to our course.
We will work with those who would work with us. We make no
pretense that we can, or should, try to solve these problems
alone, but neither will we abdicate our responsibility to
contribute to their solution. Together, we can solve our
problems. Let me reaffirm our desire, and total commitment,
to work with all nations to coordinate our policies to assure
the lasting prosperity of all of our peoples.
OoO

FOR RELEASE UPON DELIVERY
OCTOBER 1, 1974
REMARKS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE LATIN AMERICAN GOVERNORS LUNCHEON
SHERATON PARK HOTEL, WASHINGTON, D.C.
OCTOBER 1, 1974
I
am pleased to have the opportunity to be together with
my fellow Governors from Latin America, with President-Ortiz
Mena of the Inter-American Bank, and,with many of those from
our Congress and the Executive Branch who have a deep interest
in Latin America.
These luncheons, traditional during the World Bank and
IMF Annual Meetings, are a reflection of the "unique and special
bonds" that join my country and its southern neighbors.
The United States, has.long supported economic development
in Latin America. Our first foreign assistance program in
Latin America was initiated in 1942 with the establishment of
the Institute of Inter-American Affairs, headed by Mr. Nelson
Rockefeller.,
We are pleased that our assistance and that of others has
complemented the steadily increasing development effort of your
countries and that great progress has been made.
It is not
now appropriate, if it ever was, to view all Latin America as
a poor, underdeveloped region. Dynamic growth is visible in
most countries.
...
Some countries of Latin America do continue to need highly
concessional assistance, and the United States will continue to
provide its share. At the same time, the stronger countries
of the region have acquired, along with their growing economies,
a growing responsibility for providing assistance themselves
to the poorer countries. This does not mean that countries with
stronger economies in Latin America no longer need external
capital.
It does mean that they can soon dispense with the need
for highly concessionary assistance.
We see this matter of burden sharing within the hemisphere
as the key element in discussions on the next capital replenish
ment for the Inter-American Development Bank. The United States
is actively considering these questions and we look forward to
talking specific figures after we have consulted members of our
Legislative Branch.
(OVER)
WS-116

The central focus of our relationship in the economic
sphere is shifting from concessional aid to expansion of
trade and of capital flows on a commercial basis. We on
the financial side of the U.S. Government fully support
this development and the consequent efforts of the hemisphere
foreign ministers to re-examine the structure and mechanisms
of the Inter-American relationship. The changes which will
evolve should better reflect our growing two-way relationship
and responsibilities and lead us to mutual understanding and
resolution of such issues as expropriations and the impact
of the U.S. Countervailing Duty Law.
The general system of preferences for which we hope soon
to receive the necessary legislative authority is expected to
be particularly valuable in helping your countries diversify
your economies. We will also continue to work closely with
Latin America in the Multilateral Trade Negotiations to
establish an international framework of rules to strengthen
the international trading system.
In my remarks this morning I referred to the obstacles
to economic growth caused by the rampant inflation, particularly
in the price of energy. Many countries have been hard hit,
some in Latin America. And all of our countries are faced
with major adjustments to cope with the new and difficult
situation.
Your countries have great potential for expanding the
production of food and energy -- for your benefit and for
the benefit of the rest of the world. My country is prepared
to help with needed investment and technology in
As we move forward to work on the many problems facing
us in the hemisphere, I look forward to our continuing close
collaboration.

OoO

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

........................ j iiiiiihiijiujjih » ................................................................................................

DepartmentoftheTREASURY
■ S H IN G TO N . D.C.
O X . 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

October 2, 1974

TREASURY ANNOUNCES TENTATIVE NEGATIVE DETERMINATION
IN ANTIDUMPING INVESTIGATION ON
RAPID TRANSIT VEHICLE SEATS FROM BRAZIL
Assistant Secretary of the Treasury David R.
Macdonald announced today a tentative negative
determination in the investigation of rapid transit
vehicle seats from Brazil under the Antidumping Act,
1921, as amended. The merchandise in question con
sists of seat assemblies designed especially for
use in rapid transit system rail cars. The seats
are destined for use in the San Francisco Bay Area
Rapid Transit System and the Washington Metro System.
Notice of this decision will appear in the Federal
Register of October 3, 1974.
Comparisons between purchase price and con
structed value revealed that purchase price was
equal to or higher than the constructed value of
such or similar merchandise.
During the period of August 1973 through April
1974, sales of rapid transit vehicle seats were
valued at approximately $490,000.

PRESS BRIEFING
BY
SECRETARY OF THE TREASURY
WILLIAM E. SIMON
PRECEEDING DELIVERY OF HIS ADDRESS
TO THE PLENARY SESSION
OF THE 1974 ANNUAL MEETINGS
OF THE INTERNATIONAL MONETARY FUND
AND
WORLD BANK GROUP
TUESDAY, OCTOBER 1, 1974
SHERATON PARK HOTEL
WASHINGTON, D.C.

SECRETARY SIMON:
would get started.

Ladies and gentlemen, I thought we

We all have a busy day, and I apologize for getting
you up so early this morning.
Unfortunately, this is about the only time in my schedule
that I was free. I have met with you this year at a particularly
bad time -- with the domestic problems that we have here, and
the planning and work that has to be done to attend to them.
Let me just talk about a couple of things broadly and then
we will open it up for questions.
I would appreciate it if you
would speak up because I have an ear that is completely closed
up after my recent flight home from Europe; so that it is not
that I don’t want to respond to questions. Sometimes, I -honestly cannot hear them.
This year’s meeting comes at a time when the International
Monetary System and the wrorld economy are faced with very severe
problems: Inflation; increase in oil prices; sharp deterioration
in the balance-of-payments position of most countries.
This meeting isn’t going to produce solutions to these
very severe problems, but it offers a very excellent opportunity
for progress toward these solutions.
These same issues that I have just mentioned were the
central focus of the meetings that we had with the Goup of Five
on Saturday afternoon and Sunday morning. Our basic position
and I think this is pretty widely shared -- is that these
progblems can only be dealt with, effectively, by a coordinated
approach. Trying to deal with one problem at a time isn't
going to work.
On inflation, we think that the major problem remains:
Persistent inflationary pressures stemming, in part, perhaps
in a large part -- depending on the country -- from the high
oil prices.
The major point -- getting back to the fundamentals -is the excessive fiscal and monetary policies that have been
carried on in all of the countries, especially in the United
States, for a prolonged period of time, and the inability of
all of us to adequately -- for a long enough period -- enforce
fiscal and monetary restraint.

We don’t believe, as someone suggested, that there is a
danger of a world depression. We don’t believe that oil prices
have, themselves, been so deflationary that our Government
policy should now switch to expansion.
We have to watch for signs of a cumulative slump, be
constantly vigilant, and be prepared to act, because the
United States is not going to engage in ’’economic over-kill” .
But we are convinced that the far greater risk would be, again,
premature relaxation of anti-inflationary policies.
The end result of that would be more of the same -- more
inflation, and an even greater economic downturn so that new
and more severe restraints would have to be applied.
Now, there have been many questions in the past, and I
have spent a good deal of time explaining to my counterparts
in the fraternity of Finance Ministers, about the fiscal program
here in the United States. And I think it is important that
it be put in perspective.
When we talk about "fiscal strength” -- gradually imple
menting fiscal strength - - w e mean exactly that. As I said a
few seconds ago, we are not going to be involved in economic
over-kill. Some have voiced internationally a fear about the
United States and its fiscal program --that it creates the
danger of a world-wide recession.
When the actual numbers and the actual restraints have
been explained and clarified, I think my counterparts have been
assured that this, indeed, has not been the case.
Let's give an illustration:
Last year, our budget deficit was $3-1/2 billion; the
last fiscal year.
If one adds the off-budget items, -- $3-1/2
billion is on the unified budget basis -- if one adds the
off-budget items which have, in our judgment, the same in
flationary impact as the actual budget items, the budget deficit
would have been $20.4 billion.
Our budget expenditure last year was $268 billion. This
year, the budget that was submitted to Congress was $304.5 billion.
The President has pledged that he will have a budget, expenditurewise, of under $300 billion.

- 3 Now, let's say, for example, that figure is $299
billion. That is still a $31 billion increase in federal
expenditures on a year-to-year basis: which is in excess of
ten percent.
It would still have a slight budget deficit on
a unified basis and, if one cares to add in, again, the
off-budget items, that would, on a forecast basis, add another
$12 billion.
So one cannot categorize this as a severe fiscal restraint.
We are moving towards -- and carefully towards -- a fiscal
restraint. We will have a balanced budget. That is what the
President says. That is what we are working towards in 1976.
The second problem on everyone's mind today is the problem
of recycling.
Much has been said about the inability of the market place,
through the various existing financing channels, including the
Euro-Markets, to handle these problems.
So far the surplus of the oil producers has no t been
invested in a destabilizing way. As I stressed time and time
again, thes e investors are r esponsib le •- - in most ca ses
sophisticat ed and very conse rvative investors.

(MORE)

4
Indeed, it is in their own self-interest that they have a
strong -- and liquid -- international financial system.
OPEC countries, this year, up to date, have accumulated
about $30 billion. Now, these funds -- they have placed about
25% of this in the United States. That is the best that we
can discern at this point. We have received that amount of
funds. This 25% is far below the 60, 70 and 80 percent that
some have predicted, which would have caused them to maintain
that the United States bear the full burden of recycling.
The bilateral aid that the Arab oil producers have been
engaged in the indirect investment; the special Witteveen Fund
that was established; the SWAPS mechanism; the Kuwaiti Fund,
which was expanded from $600 million to $3.2 billion -- would
benefit not only the lesser developed Arab brethren, but all
of the nations of the world; the commercial banking system;
the Euro market; government-to-government loans -- all of
these mechanisms have worked in recycling the Arab oil pro
ducers funds. They have functioned well, even in an atmosphere
of uncertainty.
Now, that doesn’t mean that strains are not going to
develop; nor does it mean that we must not be vigilant to the
fact that strains will develop.
We must develop mechanisms that can deal with these problems
and implement them, indeed, if they are needed.
Basically, the recycling problem is a problem, and it is
being handled, at present, quite adequately in the marketplace,
and with government cooperation going on all over the world.
The major problem, of course, remains the cause; and that
is the high price of oil. We continue to believe that it is
to the best interest of the producer, as well as the consumer
nations, that the price of oil be lower.
Governments must take concerted action on this point of
the area of conservation. The United States still consumes more
energy than is required for sound economic growth.
The response, world-wide, has been a decline in demand,
in response to the very high oil prices, and I believe that the
government must urge the people to do even more.
I would expect
the President's economic policy message -- which will be
delivered next week -- will deal with that area, as well as
other areas.

- 5 .
As to the problem of the nat ions most hard hit, the most
seriously affected nations of the world -- there is a genuine
financing problem, here; and that problem is going to be taken
care of by the Committee on Trans fer of Real Resources, which
is being established formally, th is week.
They are going to direct their attention, first and foremost,
to this critical area which would be most seriously affected.
Now, as for the IMF agenda this week, it contains three
items of interest:
The new Interim Committee for the International Monetary
System will be established.
This is the direct succes sor to the C-20. We know that it
will serve to br ing the needed , policy-level attention to bear
on the system’s operation and evolution; and concentrate on the
international mo netary reform and its ultimate completion, that
obviously was di srupted during the world-wide problem of inflation 9
and by the oil s ituation.
Also, the Joint Fund-Bank Ministerial Committee on the
Transfer of Real Resources -- that I just referred to as Develop
ment Council - - w e strongly supported from the outset. The
Governors here will formally accept the C-20’s recommendations
for immediate action as put forward at our'final meeting in June
at the C-20 including: Guidelines for floating, the oil facility,
etc.
We will be pressing others to subscribe to the IMF pledge
against current-account restrictions for balance-of-payment
purposes, as recommended by the C-20. Only the U.S. and a few
others have signed up, to date, and this is probably largely
due to inertia; but we think it is important for members to sign
and get it into operation.
There are a number of issues concerning polic ies in the
World Bank and development finance that we plan to stress during
the course of these meetings -- I will leave that for you to read
in my speec h that I am giving to you this morning.
With that
questions.

I will be delighted to open the session for

MEMBER OF THE PRESS:
SECRETARY SIMON:

Yes

Mr. Secretary?
sir.

i
2— z>
. 6 .
MEMBER OF THE PRESS: Do you attach any significance to
the fact that the Kuwaitis have no delegation here; nor do
the OPEC’s nor the Arab oil producers?
If there is a significance, will you tell us what it is?
SECRETARY SIMON: Yes sir. Let me explain that to you,
because there is a very, very good reason for that.
MEMBER OF THE PRESS:

Ramadan?

SECRETARY SIMON: Ramadan is the reason.
I spoke to
Minister Atiqi and, unfortunately, when it was recognized that
the World Bank meetings were scheduled at this date, it was too
late to change it. The World Bank and the Fund are studying this
issue right now as to future dates, because this is a high,
holy, holiday for the Arab nations, and one that they adhere
to very strictly.
MEMBER OF THE PRESS: Mr. Secretary, the meeting of the
IMF was always at the same time of the year; and always they
were here.
SECRETARY SIMON: But Ramadan does not occur at the same
time every year.
It is according to the moon cycle, not the
calendar.
MEMBER OF THE PRESS:
SECRETARY SIMON:

Mr. Secretary --

Yes, sir.

MEMBER OF THE PRESS: The President and the Secretary of
State and you have made some very strong speeches about lowering
oil prices recently.
How is the United States going to follow through with that?
SECRETARY SIMON: Well, when we talk about "strong state
ments" it is a matter of making statements that fully recognize,
publicly, for everyone to understand, the impact that these
high oil prices are going to have on the world -- if they remain
at these levels for three, four, five and six years.
Now, there are several things that the United States can do
about this. Indeed, several other countries are fortunate enough
to be in the same position.

7
(1) As I said a little while ago, we can have conservation
in this country to a much greater degree than we have today.
We can reduce the demands and we can have less demand in
this area -- less growth in demand, that is than 5 to 6 percent,
which has been historical. That should be the aim.
(2) You heard me comment on so often:
Project Independence.

The supply side of

We are endowed with an abundance of natural resources and
technology in this country. We are, today, 85% self-sufficient
in energy, in my judgment, if the government would remove the
impediments -- of which there are many -- for exploration and
development of our coal resources and oil shale, etc.
We can dramatically reduce our dependence on a single area
for our oil commodity.
MEMBER OF THE PRESS: Mr. Secretary, you referred to,
casually, the Group of Five -ANOTHER MEMBER OF THE PRESS:
In.reference to the first
part of what you said, "Conservation":
Is the government willing
to enforce conservation by mandatory -- as opposed to voluntary
methods -- especially in regard to the automotive industry?
SECRETARY SIMON: That is being studied right now. As you
know, we are in the process of preparing an economic policy
message for the President next week.
I
am sure, as I said earlier, that that is going to be
one of the components of the message. The President will make
the decision as to whether there should be mandatory elements
of that program, or not.
MEMBER OF THE PRESS:
of-Five meeting.

You referred casually to the Group-

Does this mean the beginning of an "Organization of Petroleum
Importing Countries"?
SECRETARY SIMON:

I cannot hear you.

I am sorry.

MEMBER OF THE PRESS: You referred casually to the casual
meeting of the Group of Five.
Does this mean the beginning of an "Organization of the
Petroleum Importing Countries"?

SECRETARY SIMON: Well, I don’t relate the two, really.
Let me tell you that the Group of Five has been meeting for
the past two years, approximately.
It has never met on a
scheduled basis, and there are no plans for it to meet in the
future on a scheduled basis, although we have found it very
useful for the FIVE to meet with the Ministers of Finance -for the five nations to get together and discuss the major
problems of the day.
As I say, we have found that to be very useful.
As far as the consuming nations are concerned, we started
that with the February conference of the consuming nations
-- the major consumers in the world working toward the agreement
that is going to be signed at the end of this month.
Yes, sir.
MEMBER OF THE PRESS: Let me follow up on that.
Is there
a concerted effort now being made by the United States to organize
the consuming nations into a group that could resist future
embargo, or other tactics, by the OPEC nations?
SECRETARY SIMON: When you say "resist” , I would prefer to
use the term "protect against any future potential cut-off in
our supplies, that we experienced starting last October."
•»

There, again, this has already been done. We have an import
sharing program that will be signed, toward the end of October,
by all nations.
It will direct itself exactly at that -- cut
offs; be they individual cut-offs to other nations, or collective
cut-off to a group of nations -- we will immediately put in place
this plan of sharing, which also involves conservation on the part
of individual nations.
has
and
are
you

MEMBER OF THE PRESS: The British Chancellor of the Exchequer
made clear that, in his view, a world recession is an immediate
tangible danger, and that the existing IMF recycling facilities
not sufficient,
In the course of your talks with hiir , have
convinced him of the error of his ways?

1
z -*3

- 9 SECRETARY SIMON:
I did
perfectly clear -- I did not
that could happen. We must,
be very vigilant to the fact
wide economies.

not say -- and let us make that
say that that was not something
as I said in my opening remarks,
of excess and slack in the world-

As far as special facilities are concerned
special facilities -- in the Fund, we supported
proposal, and the special oil facility that was
last month. We feel that it was needed, and it
useful purpose, as well.

-- additional
the Witteveen
established
served a very

Now, if additional mechanisms are needed to further help
in the recycling, we are not going to oppose additional mechanisms.
However, we think that this should be -- as I say in my speech
this morning -- carefully studied with all of the specifics drawn
up. Let us make sure, before we implement a program like this,
that it is needed; and what its impact is going to be on the
operations of the IMF.
MEMBER OF THE PRESS: Mr. Secretary:
conservation and Project Independence.

You mentioned

Are there other such (programs) and, if so, if everything
should not work right, how long would it be before you see some
dampening of the oil prices?
••

SECRETARY SIMON: Well, we talked about work on the demand
side and the supply side. There is a major uncertainty involved
in that question; and that is: what the world-wide production
levels are.
We had a surplus of oil, three months ago, of approximately
3 million barrels a day. Reduction in demand -- below the 1973
level -- created this surplus t as I said, in response to the
price. Well, the producer nations cut back their oil production
until the surplus was reduced to about half a million barrels a
day. Today, it is somewhere in the area of a million barrels a
day. So it all depends on the supply, really. You have the
tanks full; all over the world, right now.
If the surplus con
tinues, the choice is clear. Obviously, one of two things can
happen: Either the price falls or the production is cut.
MEMBER OF THE PRESS: What I am asking is:
leverage on the oil producers?

What is your

^
-

SECRETARY SIMON: Well the leverage that we have in this
country is our abundance of natural resources -- working on
the supply side -- which, obviously, takes time -- three to
five years; and the demand side, what we can do immediately in
the reduction of demand.
Other than that, we have no leverage, per se.
MEMBER OF THE PRESS: To follow up this question, Mr.
Secretary, at the present time, the oil wells in the United
States are pumped eight hours a day, or 24 hours a day?
SECRETARY SIMON: The states regulate the amount of oil
that a well can take out.
We used to have what they called Mpro-rationingM in this
country, which actually held it down, because we were "surplus"
in the amount of oil. They have what they call a "maximum
efficiency rate". Since 1971, they have been operating at
1001 efficiency rate in their production.
As I say, this is regulated by the states.
There have been some people in charge where there are many
wells that are kept in waiting for higher price, and are not
producing as much as they should. There is a very large judg
mental issue on what kind of damage one does if he produces a
well more rapidly than it should, safely, be produced.
It gives great benefits in the short run, and it cuts down
on the production after a very short period of time, as the
State of Louisiana found out after they increased production
rather precipitously in 1967; at the last cut-off.
MEMBER OF THE PRESS: With the capital flows slowing down,
your position involved (of involvement) would be changed?
SECRETARY SIMON:

Will the capital ....?

MEMBER OF THE PRESS:
I mean, so much liquidity -- all these
monies -- the oil countries, the OPEC countries keep eyes now,
I mean, on your position on gold; on mobile dates and other
kinds: The reserves of gold will be changed.
SECRETARY SIMON:^ Well, I must admit I am not sure I quite
understood your question; but our position on gold is --

11
MEMBER OF THE PRESS:
SECRETARY SIMON:
my German.'

It is my English.

Oh, that's all right.

You should hear

Our position on gold, really, has not changed. We wish to
see it removed from the center of the monetary system; and re
placed by the SDR. We have a law in the United States which
requires -- which allows the United States citizens to own gold
at this end of this year, unless we make recommendations -- if
we find it impelling, for inflationary reasons, one way or
another -- that that should not be done.
We are watching that very closely as the end of the year
approaches; but I would say our position on gold, basically -which is well known -- is still unchanged. We still believe that
the International Monetary Fund should be allowed to sell its
gold in the market place, and that resources created as a result
of that will be useful in lending to various countries.
MEMBER OF THE PRESS: Mr. Secretary, a moment ago you said
that, on the demand side, we can do that immediately.
What are the means or methods by which we can achieve an
immediate or quick reduction in demand?
SECRETARY SIMON:
I am not going to pre-judge what the
President will decide, as far as conservation methods that will
be recommended to him.
I
just looked back at the suggestions that have been made
last winter, and I think, going from "lighting" standards to
the usual methods -- all of those things could be immediately
implemented, just as we have done in the last year.
MEMBER OF THE PRESS: Mr. Secretary, the developing countries
have asked repeatedly that there be some link between development
assistance, and the SDR's, and there is an implication that they
may use this link as a deciding point whether or not to approve
monetary reform.
What is the position of the United States on this now?
SECRETARY SIMON: Well, we promised at the C^20 meeting in
June, very seriously, that we would review our position on the
SDR aid link. That study is going on right now. We are doing
it with a completely open mind. While we oppose the direct SDR
jlink, I think that intelligent people can perhaps find other
[Ways to skin the same cat. We are looking at that right now, and
we will have our report -- hopefully - - b y winter.

X L
-

MEMBER OF THE PRESS: Mr. Secretary, will the United
States begin to sell its own holdings of gold?
SECRETARY SIMON: As I said, the Treasury Department would
feel free to sell gold to meet domestic demand. Whether or not
we recommend the sale of gold to the President, would certainly
depend on many conditions:
Inflation; balance-of-payments; the
world financial system; as well as the domestic, because there
are many who fear that it could create further disintermediation
from our thrift institutions which have suffered already, there
by creating a great burden on our housing industry.
So we have
to take all of these things into consideration.
I would not pre-judge that at all.
MEMBER OF THE PRESS:
of oil.

Mr. Secretary, Canada has plenty

Does the United States have any plans to persuade the
Canadians through trade -- I won’t call it coercion -- but
through trade measures, to lower the price of its oil to the
United States?
SECRETARY SIMON: We have had conversations with Canada
and will continue to. I met with Minister McDonald in Detroit
at the World Energy Conference two weeks ago. We have found
them to be extremely cooperative in helping us\
You talk about the high price, as measured by their export
price, which equates the world price, and say, ’’That is unfair” .
But then, let’s make sure that we take a look at the whole story
before we condemn people for actions. Canada exports to the
United States -- to our midwest states.
It has always supplied
the upper tier of the United States with oil.
They import in the East. They have no way to deliver
from West to East, although, now, they are starting to build
the Sarnia pipeline. They are importing the high priced
Venezuelan oil, and Arabian oil in the East.
They are exporting what could be cheaper oil to the midwest
in almost equal amounts.
So they felt that it was fair -indeed, if we look one step further -- if we were exporting
from California to the Far East, and importing from the mideast
into New York, I rather believe the pressures would be very
strong here in this country to make sure that the prices were
exactly equal with the balance of payments cost, as well.

- 13 So they have agreed -- Canada -- to work very closely with
us while they are building the Sarnia pipeline, and are intend
ing to deliver the oil from West to East, in Canada; but they
will do it with great care, recognizing that we need this
critical supply in the midwest. And they will attempt -- so
far as possible -- to coordinate these policies with our new
supplies. That would be brought out here.
MEMBER OF THE PRESS: Mr. Secretary, McNamara’s speech
seems to imply - - o r the Five Year Program of the World Bank
seems to imply -- that the Bank needs a capital increase
increase in subscription capital.
What is the position of the United States on that?
SECRETARY SIMON: We think the times are a little bit too
uncertain, at the present, to be making any judgments as to
Five Year Plans at this time.
We are having active discussions with our good friends
at the World Bank with whom we meet constantly on these issues.
So we have no position on agreeing or disagreeing with the
Five Year Plan. We just think that it requires a great deal
more conversation.
MEMBER OF THE PRESS:
SECRETARY SIMON:

Mr. Secretary --

Yes, sir.

MEMBER OF THE PRESS: What comment do you have on the
suggestion that it was France and West Germany, together, that
brought about a postponement of the proposed discussion by
the IMF before the end of this month on IMF gold sales by the IMF?
SECRETARY SIMON:

Again, would you repeat your question?

MEMBER OF THE PRESS: What is your comment on the report that
it was the combination of West Germany and France that forced a
postponement early this month of a discussion of an IMF staff plan
recommending gold sales?
SECRETARY SIMON:
I am not familiar with that report.
am I familiar with the postponement mentioned.

Nor

- 14 -

MEMBER OF THE PRESS: There was such a staff
memorandum prepared by the IMF staff.
It was supposed
to be discussed at this meeting.
There was such a
memorandum prepared by the staff of the IMF; and this
was the date for this particular discussion. This
is a fact.
SECRETARY SIMON:
in a formal way. No.

It never reached our level

MEMBER OF THE PRESS: Mr. Secretary, to go back
to conservation, you had earlier said that you work
on the demand side, but you then inserted -- into
your repetition of that -- that we could restrain
the growth of demand.
Now, in saying that we could "restrain the
growth of demand" do you mean to rule out the
possibility of an absolute cut in demand?

(MORE)

- 15 You also mentioned that we are dependent, in the United
States, on foreign sources of energy for only 50% of our total
supplies.
Could we not exert much more pressure on the exporting
countries, by a more serious reduction?
SECRETARY SIMON: Yes.
I guess I said it poorly.

That is what I was trying to say.

I
believe that we can have a large reduction in our demand
for energy in this country -- energy in all forms. Yes, indeed
-- if I understand your question correctly.
MEMBER OF THE PRESS: Mr. Secretary, what is the relationship
of this cut in energy consumption to a trilateral commission -a super governmental agency, which is headed up by David Rockefeller?
And what is the relationship of that body to the Committee of Five?
SECRETARY SIMON:
I don't believe -- well, there is no
relation as far as the Group of Five is concerned.
As far as the "relation" is concerned - - t o this commission -we meet with these gentlemen when they have reports, and they are
extremely helpful in many of our policy deliberations. But there
is no formal connection at all.
MEMBER OF THE PRESS: Could I ask you, Mr. Secretary, do
you think that the French idea of putting a ceiling on the price
of imported oil could be adopted by other countries?
SECRETARY SIMON:
I believe that the French put a ceiling
on the amount of imported oil.
MEMBER OF THE PRESS: No! No! Not only the amount -- the
price it would cost.
It would not go further, or, at least,
they have said so -SECRETARY SIMON: No!
I think - - i f you will look at it -that they put an overall ceiling on the amount of oil to come in.
It was not related purely to price. They may have made some
comments which I did not see.
MEMBER OF THE PRESS:
I am surprised.
I thought Mr. Fourcade
would have explained it, as he had done in France, in the States:
that the ceiling implies that it would not go further up than 51
billion francs and if the price --

??0

SECRETARY SIMON:
two issues.

Well, see here!

You may be confusing

If we bring in X amount,'1 that means,
They say, "All right.
level,
we
are
not going to spend more than Y."
"at this price
That is the point.’ It has nothing to do with saying, "We
are not going to accept oil at anything above- $11.00 a barrel."
It says: "We are not going to spend any more than --whatever
it is!?— and I see everyone nodding their heads.
MEMBER OF THE PRESS:
to say.

Yes.

Sure!

That is what I am trying

Do you think you would approve, to say that the United States
would not spend more than a certain sum of dollars, in certain
cases?
SECRETARY SIMON: Well, we have approached it differently,
in looking at the demand "elasticity", as you look at various
conservation measures. We can make the studied judgments as to
how much we would save, per conservation measure. That is always
the way we have approached conservation.
MR. PLUM: Just one more question, please.
for one more question.
MEMBER OF THE PRESS:
supplies of imported oil.

We have time

Mr. Secretary, the French have cut their

The French have cut their imports.
The

Germans have cut their imports.

The United States is considering ways to reduce imports.
SECRETARY SIMON:

Further!

MEMBER OF THE PRESS:

Further reduce imports.

Would it not be the case that if all oil-importing nations
reduce imports, the oil exporters would simply raise prices again
and again, maintaining their level of profit, despite the fact
that they are shipping less oil?
And, if so, how would this solve the monetary problem?

17
SECRETARY SIMON:
I am sorry.
I recognize that that is
a possibility, but one must consider possibilities and pro
babilities .
I don’t think that that is a ’’probability” .

No!

MEMBER OF THE PRESS: Mr. Secretary, what do you think of
Senator Jackson’s proposal that the United Stntes should take
the iead in lowering oil prices by reducing the domestic price?
SECRETARY SIMON:
I have not had an opportunity -- because
these last two days I have been involved in ’’Bank” and "Fund”
meetings -- to see Senator Jackson’s full proposal.
I will make comments on it only after I have seen it.
MEMBER OF THE PRESS:

Well, on the other question:

Could the United States take the lead in lowering oil prices
aside from what Senator Jackson proposed?
SECRETARY SIMON: When you say "take the lead” , I believe
we have taken the lead as far as the consumers conference -- to
work together -- all of the consuming nations -- on the conser
vation together, and on the supply side, and the import-sharing.
I think that this is a very good first step.
Thank you, gentlemen.
MEMBER OF THE PRESS:

Thank you.

(Whereupon, at 8:50 o ’clock, a.m., the Press Briefing
was concluded.)
0 O0

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STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON ACTIVITIES OF REGULATORY
AGENCIES RELATING TO SMALL BUSINESS
HOUSE OF REPRESENTATIVES
WASHINGTON, D.C.
OCTOBER 2, 1974

Mr. Chairman and Members of the Subcommittee:
I
welcome this opportunity to appear before you
today. To clarify a number of important matters relating
not only to the activities of the former Federal Energy
Office but also to my role as its Administrator.
First, Mr. Chairman, I want to state my great dismay
at recently published accounts regarding my invitation to
appear before your Subcommittee. It has been publicly stated
not only that I have been ’’reluctant” to appear, but have
agreed to do so only under ’’threat" of subpoena.
I
want to set the record straight on this issue. On
September 16, 1974, and again on September 19th, you
requested me to produce documents relating to the activities
which you have been investigating. We immediately conducted
an extensive search for the relevant documents, and they
were promptly made available to you.
Thereafter, you requested that I personally appear
before the Committee on September 27th. Mr. Fred Webber,
the Assistant Secretary of the Treasury in charge of
Legislative Affairs, informed you that this particular date
was not possible for me, due to the Economic Summit Conference
and previously scheduled meetings with representatives of
several foreign governments here in Washington for the
International Monetary Fund and World Bank Meetings.
He did, however, expressly state that I would be
available any time this week, at your pleasure. In addition,
Mr. Webber noted that Mr. Gerald Parsky, an Assistant
Secretary of the Treasury and my former Assistant at the
Federal Energy Office, is especially familiar with the matters
which you are reviewing, and that he would be available and
prepared to testify on September 27, 1974 if you so desired.
W S-115

On Saturday, September 21, 1974, Mr. Parsky himself
reiterated this to Mr. William Demarest, Counsel to this
Committee. Mr. Demarest thanked Mr. Parsky for our
willingness to cooperate. He added that he did not believe
our testimony would be necessary, but would let us know.
While my office was awaiting word as to whether and
when you might like me to appear, it was reported in the
press that I had "reluctantly” agreed to appear, under
"threat"of subpoena.
At no time was it suggested or even implied that I woul
be unavailable or unwilling to appear. Let me say as plainlj
as I know how: Nobody has to subpoena Bill Simon... .ever..,!
to appear before any Congressional Committee.
A look at the record will bear this out. I served as
Deputy Secretary of the Treasury Department from January 197
until my confirmation as Secretary on May 8, 1974. In
addition, from December 6, 1973, until May 8, 1974, I was
Administrator of the Federal Energy Office, now the Federal
Energy Administration.
In the 22 months since I joined the Government, I have
personally appeared here on Capital Hill at the specific
request of Members, Committees and Subcommittees of both
Houses of Congress, to give formal testimony or answer sped
questions, no fewer than 213 times: 68 times as Deputy
Secretary, 102 times as Administrator of FEO, and 43 times
as Secretary of the Treasury.
This has often involved two or three appearances a day,
and several evening sessions. In light of this record, I
feel any implication, by anyone, that I am or ever have been
reluctant to appear before the Congress on any matter with
which I have been involved, is totally uncalled for and shoul
be corrected.
In addition, I have received reports from my
staff of the informal comments which you staff has given to
the press. I deeply resent any statements or implications tl
cast reflections upon the integrity, ability, industry or
good faith of the staff who have served me in each of the
offices which I have held.
Now, turning to the substance of the Subcommittee^
inquiry, I would like to make the following points this
morning.

3
I will be glad to answer any questions you may have:
--The so-called "double dip" involves the possible
duplicated recovery of some costs by some refiners
who were directed under the allocation program to
sell crude oil to other refiners. The possibility
of this result was never focused upon by me. Only
within the past few weeks have I ever even heard the
term "double dip,’* and the interpretation of the FEO
regulations which gives rise to it was explained to
me only very recently.
--FEA has determined that recent reports on the impact
of these regulations have been greatly exaggerated.
Although I understand that approximately $40 million
now appear to have been passed through to consumers
and the so-called "banked costs" were even larger.
FEA has determined that the "double-dip" interpretation
of the regulations is not justified and is taking
remedial action.
--With respect to the original points of inquiry by this
Subcommittee, the subjects of rises in the prices of
propane and permitted increases in the price of domestic
crude oil, each occurred under predecessor agencies to
the FEO. In particular, the dramatic rise in propane
prices occurred as a result of the price rules of the
Cost of Living Council, as to which the FEO took
appropriate corrective action as the situation developed.
I am submitting for the record a brief analysis
prepared by my staff on this point. The decision to
increase the price of controlled domestic crude oil
from $4.25 per barrel to $5.25 per barrel was also,
of course, made by the Cost of Living Council.
THE "DOUBLE DIP"
There has been substantial testimony as to precisely
how the "double dip" effect occurs. While I see no need
to repeat it here, I am submitting for the record a detailed
analysis prepared by my staff on this point, and will discuss
it briefly in a moment. I think it is more important first
to set forth the background as to how the allocation
regulations were developed by FEA.
The outlines of our critical energy problem began to
emerge during the Summer of 1973. Some refiners were
increasingly unable to obtain crude oil, and the resulting
distortions had rippled throughout the energy industry. This
problem was greatly exacerbated in late October, with the
imposition of the Arab oil embargo.

4
Various allocation mechanisms to relieve this
situation were developed within the Administration,
initially by Governor John Love's Energy Policy Office.
On November 27, 1973, the Emergency Petroleum Allocation
Act of 1973 was signed into law. This Act required that
mandatory allocation regulations be published within fifteei
days, and promulgated in final form within fifteen days
thereafter. Final regulations setting forth a mandatory
allocation program were therefore due on December 27 , 1973,
Extraordinary pressures surrounded the creation of FEO
and the development of the allocation regulations. Not
only were we responsible for dealing with the major substant
issue confronting the nation, but we also had to begin by
setting up an entirely new agency. Thus, during December w
had to borrow hundreds of Federal employees, and open ten
regional offices and scores of State offices. Thirty-three
Federal agencies detailed employees to the FEO, and we were
physically spread out in ten different offices throughout
Washington.

I
would emphasize that during the initial organization
phase we pulled together a team of experienced people to del
specifically with allocation regulations. Because of the
magnitude of our responsibility, the complexity of the
developing regulations and the extraordinary demands upon iij
time, this team developed FEO regulations under the authori
which I delegated to my Deputy Administrator, John SawhillJ
and later to our General Counsel, William Walker, subject
to my overall policy direction.

There appears in the record severely derogatory comments
by members of this committee seeking to assign blame for the
chaotic situation under which we were all laboring at the FEO.
Such statements reveal little understanding of the magnitude
of the task imposed upon us by the emergency Petroleum
Allocation Act of 1973, and the unbelievable timetables which
we were called upon to meet as a brand new agency whose
personnel were derived from so many different and diverse
sources. Under all of the circumstances, I personally feel
that the FEO’S performance in those weeks was remarkable, and
I am extremely proud of our accomplishments.
In any event, in the context of your present inquiries
one factor is of paramount importance in reviewing those
hectic days: the conflict between the objectives of the
COLC price regulations and the thrust of the developing
allocation regulations. Our primary goal was to survive
the embargo, with minimal permanent damage to the economy.
The COLC price regulations allowed sellers to pass on
to their customers actual out-of-pocket cost increases. How
ever, the allocation program required refiners to sell crude
oil to other refiners, who were in many cases their competitors.
In so doing, it forced the refiner-sellers to give up their
crude oil at a sacrifice, even under COLC pass-through rules.
The seller-refiner was required to lose the profit margin that
he would have made if he had, instead, refined the crude oil
himself.
As a result, it would have been greatly to the advantage
of a refiner with overseas sources of crude oil not to import
such crude, but instead to use the available surplus foreign
refining capacity and refine his crude overseas. He would
then be able either to sell the resulting products abroad
(indeed, in some cases he would be required to do this by the
laws of the nation in which the refinery was located), or
import the foreign refined products into the United States.
In either event, the U.S. would lose imports of crude, and
our refining capacity would remain idle at a time when its
use was critically needed.
In short, we foresaw very serious disincentives to the
importation of crude oil if COLC price rules and the mandatory
allocation regulations were not properly combined.
The issue of whether and how to compensate the seller
refinery for this loss of margin generated very substantial
debate within FEO. In early December, this came to my attention
for decision. In view of the embargo and the absolute urgency
that adequate crude be available for all of our refinery capacity

I decided that the projected disincentives to imports must
not be allowed and, therefore, directly approved two
mechanisms, which have become identified as the "6%" and
”84 cent" allowances.
What has been referred to by some witnesses as a
controversy over "double dip", I am informed, may actually
have been the controversy over the alleged double recovery
argued by some to have been presented by the 6% and 84 cent
provisions.
It is obvious from the testimony before this committee
that there was and is considerable confusion as to the meaning
of these provisions. This confusion appears to have been
resolved by the positions taken by FEA yesterday that it is a
violation of FEA pricing regulations for a refiner to pass
through to its customers the so-called "double dip". I under
stand that the FEA will disallow banked costs that could other
wise be taken under a double recovery interpretation.
ROBERT BOWEN
The second matter I wish to discuss with you is the
participation of Mr. Robert Bowen in FEO's activities. Mr.
Bowen was originally employed by the Treasury Department in
the summer of 1973 after he had been selected by the Civil
Service Commission to participate in the President's Executive
Interchange Program. I was aware that under this program
Bowen retained ties with his previous employer, the Phillips
Petroleum Company, and that there was a potential for conflict
of interest problems. A memorandum was prepared by Dr. Williai
Johnson, my energy adviser at Treasury and Mr. Bowen's supervis
which outlined in detail the scope and limitations of Mr, Bowel
prospective activities. The General Counsel of the Treasury
provided me with a legal opinion which concluded that, in view
of the proposed limitations on Mr. Bowen's duties, he would not
be acting in violation of the statutory conflict of interest
prohibitions. He further concluded that I need not consider
whether or not to grant a waiver under paragraph (B) of 18 USC
208. Lawyers from the General Counsel's office personally
explained to Mr. Bowen and his supervisor, Dr. Johnson, the
relevant conflict of interests considerations. It was only
based on these assurances that Mr. Bowen was hired.
On April 8, 1974, FEO's General Counsel, Mr. Walker,
advised me that the role of Dr. Johnson's office had material!
changed at FEO, and raised the question of whether Mr. Bowens
current activities might more closely approach proscribed
conduct. Dr. Johnson delivered to me a memorandum on April 1/
1974, in which he concluded that Mr. Bowen's duties were
"generally consistent with /Treasury General Counsel's/ memory
of June 13, 1973".

However, based on the advice of the Treasury's General
Counsel I did not make the waiver determination under the
law I mentioned earlier.
I
might add that through personal association with
Mr. Bowen I came to have an extremely high regard for his
knowledge of the detailed working of the energy industry.
We relied upon him for factual information and for analysis
of such data.
I
would like to emphasize the great need that my staff
and I had for extremely technical opinions on a variety of
subjects. We simply could not have afforded to wait until
we had been able to bring in more people with the needed
expertise, without violating not only the deadlines mandated
by the Congress but our obligation to the nation to take
steps to resolve the energy shortages of last winter and
spring. We had to draw upon every resource of talent at
our disposal.
I understand, Mr. Chairman, that some question has been
raised before this committee as to whether the recent
disclosure of the possible "double dip" effect of FEO
regulations may have caused a reconsideration by the Department
of Justice of its previous position that no prosecutable offense
had been disclosed. While Mr. Petersen will of course be able
to comment more fully on this point, I might state that we have
spoken to the Department of Justice and been told that this is
not accurate. After their review of the facts more recently
developed, I am informed that the Department has determined
that no further investigation seems necessary or appropriate
at this time.
PROPANE AND OIL PRICING
Finally, let me say a few brief words about propane prices.
Contrary to the impressions that appear to be held by some
members of this committee, the only actions taken by the FEO
during and after my tenure as its administrator were directed
not towards increasing propane prices, but towards ameliorating
the severe price increases that had resulted from the earlier
policies and rules of predecessor agencies. The FEO inherited
from the COLC propane regulations that resulted in the price
increases. We amended these regulations on February 1, 1974,
so as to bring propane prices down.
The full story of propane price regulations is somewhat
technical. With your permission, I would like to submit a
short statement for the record describing in more detail the
points I have just made, and I will be happy to answer any of
your questions on this issue.

8
It seems to have been an assumption of this committee
that FEO was somehow a tool of big oil. This is not the case.
FEO did not favor the interests of big business over those of
small enterprises or the American consumer. The President
and the Congress expected FEO to act in the national interest,
and we did so, full-time, over an extended period, in a crisis
atmosphere. I am proud of FEO, and I am proud of my partici
pation in it.

0O0

APPENDIX A
TREASURY DEPARTMENT STAFF ANALYSIS
"DOUBLE DIP" REGULATIONS
On August 17, 1973, the Cost of Living Council promulgated
Subpart L - Petroleum and Petroleum Products, of the Final Phase
IV Regulations pursuant to the Economic Stabilization Act.
These regulations applied to all sales and purchases of crude
petroleum.

A two-tiered price system was adopted, providing

for a ceiling on domestic crude petroleum prices but allowing
new crude and an equivalent amount of old crude to be sold at
prices above the ceiling.

No price controls were imposed upon

imported crude petroleum and therefore even after the imposition
of price controls on domestic crude petroleum prices for
imported crude continued to escalate.
The Cost of Living Council rules continued to be
administered by the Cost of Living Council through the fall
of 1973.

On November 27, 1973, the Emergency Petroleum

Allocation Act of 1973 (Pub. L. 93-159) was enacted. This Act
required allocation and price regulations to cover crude oil,
residual fuel oil, and refined petroleum products to be
promulgated within 15 days of the date of enactment (December 27,
1973).
In order to faciliate the administration of this respon
sibility the President on December 4, 1973, by Executive Order
No. 11748 established in the Executive Office of the President,
the Federal Energy Office.

The Administrator of the FEO was

delegated the authority vested in the President pursuant to
the Emergency Petroleum Allocation Act.

The Cost of Living

Council was already administering price regulations in the
petroleum industry pursuant to the Economic Stabilization
Act of 1970, as amended, and the FEO immediately began to
work around the clock to develop comprehensive allocation
regulations.
On December 13, draft allocation regulations were
published.
A later draft of these regulations was published on
December 27th, with an effective date of January 11, 1974
and an implementation date of January 15, 1974.
Final revisions to the allocation regulations were
published, to be effective immediately, on January 15, 1974.
The regulations as finally promulgated were necessarily
complex and voluminous.

The individuals involved in drafting

the regulations, many of whom were detailed from other Federal
agencies, assisted in the drafting of one or perhaps two of
the sections at most.

There were administrative procedures

and allocation regulations for crude oil, propane, butane,
motor gasoline, aviation fuels, middle distillates, residual
fuel oil, petrochemical feedstocks, and other refined petroleum
products which had to be drafted.

In addition, there were to

be price rules for each of these products.

Further, within

each category of allocated product, supplier/purchaser

relationships had to be established, methods of allocation
had to be determined, levels of distribution had to be
isolated and defined, and reporting requirements had to be
prepared.
Given the fact that all these tasks had to be performed
and implemented in the form of Federal regulations in literally
a matter of weeks, there was bound to be some overlap and some
contradictions between the sections.
The COLC price regulations allowed sellers to pass on
to their customers actual out-of-pocket cost increases.
However, the allocation program was to require refiners to
sell crude oil to other refiners, who were in many cases their
competitors.

In so doing, it forced the refiner-sellers to

give up their crude oil at a sacrifice, even under COLC pass
through rules.

The seller-refiner would thus lose the profit

margin that he would have made if he had, instead, refined the
crude oil himself.
On the one hand, representatives of the COLC and advocates
of the then prevailing price regulations argued that only
actual out-of-pocket costs should be allowed to be passed on.
On the other hand, FEO energy and trade specialists predicted
severe reductions in imports unless some such exception to the
otherwise applicable price controls were made.
In early December, it was decided to eliminate potential
disincentives to imports by adopting two mechanisms, the ”6 V ’
and "84<£" mechanisms.

Essentially, these mechanisms were to work as follows:
to compensate the selling refiner for the costs of the actual
allocation sale, a 6% transfer charge to the buying refiner
was authorized.

This represented the standard rate charged

for such services throughout the industry.
In addition, it was decided that it would be appropriate
to compensate the selling refinery for the lost margin opportunit
It was determined that a fair estimate of such a margin would
be 2 cents per gallon, or 84 cents per barrel.
A refinery selling crude oil under the mandatory alloca
tion program was therefore to be allowed to charge the buyer
6% of the sale price, and to add 84 cents per barrel to the
price of his products.
There was substantial controversy concerning these
provisions, with some FEO staff arguing that these provisions
represent double recovery, and that the COLC regulations
provided all appropriate relief.
Notwithstanding this decision regarding the 6% and
84 cent recovery, in the hectic preparation of the actual
documents to be sent to the Federal Register for publication
during that period some errors were made.

First, in the

regulations published on December 13, the 84 cent provision
was not included.

Thereafter, in the regulations published

on January 2, 1974, the 84 cent provision was included but
the 6% transfer charge was, in effect, both given and then
taken away.

It was noted at the time by some personnel that these
errors had the accidential effect of confirming in fact the
adverse effects on imports which had been foreseen.

When

the regulations were published in draft form without the
compensatory measures, there was immediate diversion of crude
oil already in transit away from the U.S. to other destinations.
Final regulations were to have been published by
December 27th, but it was recognized on that date that there
were technical deficiencies in the regulations being sent to
the Federal Register.

Accordingly, the implementation date set fo

those regulations was January 15, and FEO staff continued in
the intervening two weeks to review and tighten up their form.
Staffs worked round the clock to complete technical revisions
and correct the errors made in previous regulations.
In the effort to tighten the regulations and implement
the policy decisions previously made, three elements of
compensation were in fact included in the final regulations
published on January 15.

The six percent transfer charge and

the 84 cent fee were included, but in addition a provision from
an earlier draft regulation to provide increases in the costs
which a seller could pass through to his own product customer
appeared as well.

This last provision appeared as Subsection

212.88(e), and gave rise to the interpretation of the regulations
which has become known as the "double dip."

6
With respect to Subsection 212.88(e), it should be
noted that it was not drafted during the period January 10-15,
but had in fact been drafted in substantially the same form
as early as November, and had appeared in a draft dated
December 8, 1973.
In addition, there would appear to be nothing either
improper or inappropriate about the approach it represents.
It would appear to have originally been directed towards the
problem of assuring full recovery of costs to a selling
refiner.

The otherwise applicable price restrictions as

they were drafted in November would have authorized a seller
to recover only an amount equal to the weighted average cost
of the oil sold.

The replacement cost of such oil at the

time of the sale would, however, predictably have been very
much greater than this average cost.

The original intent of

the language which became Subsection 212.88(e) appears to have
been to have allowed full recovery to the seller of the
actual market cost of the oil required to replace oil he had
been directed to sell.

This is an alternative method of

compensation for the seller which, under different circumstances
and in a different context, might indeed have been adopted.
In fact, however, when considered along with the other
provisions of the January 15 regulations, it represents a
compensation in excess of what had been intended by the
draftsmen.

Indeed, it was susceptible to an interpretation

7
which has become known as the "double dip" interpretation.
This interpretation would in effect allow recovery of some of
the cost elements twice:

first, the seller would be allowed

to charge his customers the increased costs of a newly
acquired barrel of oil over the costs of such oil in the
1973 base period.

Then, when he was required to sell to

another refiner, he would be able to sell under the allocation
regulations the same barrel upon which such cost increases
had already been calculated and authorized to be passed
through.
It is perhaps illustrative of the confusion surrounding
this provision that even at this late date there may still
be some confusion as to the scope of this impact.
It would seem that the "double dip" effect provides for
duplicated recovery not of the entire price at which an
allocated barrel was sold (the weighted average cost), but
only of the difference between such weighted average cost and
the 1973 base price.

Recently suggested estimates of a "double

dip" effect that would produce duplicated recovery of the
entire sale price, i.e., a double recovery of $23 to $24 per
barrel, do not appear to be in accord with even the most
generous interpretation placed upon Subsection 212.88(e) by
those few companies who appear to have taken advantage of it.
A review of the files indicates clearly that those
advisers who had argued that compensation of some sort must be

8
afforded to a selling refinery did not appreciate the ’’double
dip” effect for weeks after publication of the regulations.
Specifically, after publication of the regulations
Dr. William Johnson noted in internal memoranda the consequences
of the regulations as published.

He nowhere refers to the

possibility of a ’’double dip” recovery.

Similarly, Dr. Johnson's

deputy, Mr. Philip Essley, prepared an extensive memorandum
on the deficiencies of the regulations, which also failed to
include consideration of the interpretation which has given
rise to the ’’double dip.”
During January and February the staff of the Federal
Trade Commission was, pursuant to the Emergency Allocation Act,
engaged in an exhaustive review of the mandatory petroleum
allocation program, and all of the activities of the FEO.
This study was submitted to the President and the Congress on
March 15, 1974.

It recognizes all of the hectic circumstances

of those days, but while it discusses the allocation program
in great detail, it again does not refer to the "double dip”
recovery.
On the other hand, on January 16, 1974, the FEO General
Counsel’s office prepared an internal memorandum containing
an exhaustive review of all of the elements of the new
regulations.

This memo noted three possible interpretations

of Section 212.88(e), and while none of these interpretations
appear to be precisely that subsequently developed by witnesses

(f.0
9
before the Committee, at least the potentiality for some
double recovery was noted.
By the same token, on January 22, 1974, the Internal
Revenue Service raised 88 specific questions concerning the
regulations in a memorandum to our Executive Secretariat.
One of these questions refers to Subparagraphs 212.88(d)
and (e), and points out that "these paragraphs provide for
unwarranted profits and place the burden of those profits
on buyers not involved in the allocation transaction."
While on its face this language may seem ambiguous, the
thrust is that some "unwarranted profits" may be passed
on to the seller's customers.

While this could be a

reference to the 84 cent charge, it could also be a reference
to the "double dip" cost pass-through.
No other contemporaneous reference to the "double dip"
has been discovered in our files.
The FEO audit staff are reported to have received
several telephone inquiries from oil companies seeking
clarification of Subsection 212.88(e) as early as late
January.

There was substantial confusion among the staff

as to the appropriate response, and a staff decision was made
to request that all such telephone inquiries be submitted
in writing, so that a formal position could be developed for
future reference.

10
On March 22, such a formal inquiry was submitted by
the Mobil Oil Corporation.

It was referred by the Executive

Secretariat to the General Counsel’s office for action, and
the cover memorandum accompanying this document indicates
that neither the Administrator nor the Deputy Administrator
had seen it.
In the weeks that followed, there were differing informal
interpretations as to how the two sections actually fit
together.

The Cost of Living Council personnel suffered

from a lack of understanding as to the mechanics of the
allocation program, while the same could be said of the FEO
personnel in regard to the Cost of Living Council pricing
rules.

Major oil companies were faced with day to day

decisions in regard to petroleum product pricing and
compliance with FEO regulations and therefore had many
questions in regard to the provisions in question.
The FEO had hundreds of emergencies in the first sixty
days following the promulgation of the final price and
allocation rules.

As a first priority, FEO was concerned

with allocating needed products to ultimate consumers whether
in the form of aviation fuel for the airlines, gasoline for
the motoring public, residual oil for utilities, or heating
oil for homes.

The FEO made a conscious decision to attempt

to get the right product to the right place soon enough to
avoid serious emergencies.

The prices at which products were

11
allocated were likewise important considerations, but such
matters

lacked the same necessity for instantaneous

solutions
itself.

that were required in allocating the product
The pricing mechanisms were so designed that

any under recovery by a company could subsequently be made
up in

the market at a later date, and likewise over

recoveries by companies, whether detected internally by the
company or by external audit, could be returned to the
market so that the consumer could be made whole as the
reporting mechanisms came in to play tracking the various
transactions which were part of the allocation program.
Despite the less than immediate emergency created by
the pricing provisions which were causing the problems
associated with the double dip, the FEO did issue proposed
regulations on March 6, 1973 (less than sixty days after the
promulgation of the regulations which caused the confusion
in regard to the "double dip").

Those proposed regulations

sought comment in regard to the M84 cents per barrel pass
through on the costs of products sold by a refiner-seller
to allow recoupment of an approximation of the profit which
would have been made by refining each barrel of crude oil to
be sold under the allocation program.”

Although the

preceding language is not a formal interpretation of the
Section 212.88 price provision, it clearly indicates that

12
only the 84 cents was intended as compensation for allocated
barrels of crude oil and not the double dip interpretation
of Section 212.88.

Final regulations were promulgated on

May 14, 1974, eliminating Section 212.88 and any further
possibility of a double dip.
Finally, on October 1, 1974, in response to an inquiry
from the Mobil Oil Corporation, the FEA formally announced
their opinion that the "double dip" interpretation in their
view constitutes a violation of their pricing regualtions.
Remedial action will be taken in the event "banked" double dip
costs are sought to be passed through to customers.
Attached hereto are:
(1)

An explanation of how the "double dip"
might operate;

(2)

Calculations on the derivation of over
recovery due to "double dip"; and

(3)

List of FEO rules and regulations promulgated
from December 6, 1973 through May 19, 1974.

Attachments

Attachment (1)

EXPLANATION OF THE
"DOUBLE DIP"

FACTS:
Firm "A" a major oil company, purenases 7 0 0 , OOu/bbis p e r <iay of crude
oil during a specific month with a total cost of $6,300,000/day.

This

cost is composed to two primary elements - $3,600,000 for 500,000 bbls of
domestic crude and $2,700,000 for 200,000 bbls of foreign crude.

This

lirm is required to sell 100,000 bbls per day of its crude to small and
Independent refiners at its weighted average cost of

$9.00/bbl.

Scenario I;
Firm "A" has a total crude cost of $6,300,000 per day.

Any

recovery of costs received in excess of this would amount
to an over recovery.

Therefore, if the firm passes through

to its customers $6,300,000 per day of crude costs while
at the same receives $900,000 revenue from the sale of
crude to small refiners a "double dip" has occurred.
may be demonstrated as follows:

This

Crude Cost
Domestic Crude

500,000 bbl @$7.20 = $3,600,000

Foreign Crude

200,000 bbl @$13.SO55

Total Crude Cost

2,700,000
$6,300,000

Revenue Received From Crude
Crude Cost Passed Through To
Firm "As" Customers

$6,300,000

Revenue Received From
Allocation Sale
Total Revenue

900,000
$7,200,000

Amount of Over Recovery
Total Revenue
Total Cost
Over Recovery ("Double Dip")

$7,200,000
6,300,000
$

900,000

Senario II:
Dollar-for Dollar cost pass through without "Double Dip":

Crude Cost

$6,300,000

Revenue
Crude Cost Passed Through To
Firm "As" Customers
Revenue Received? From Allocation
Sale 100,000/bbl @$9.00

5,400,000

900,000
$6,300,000

As can be seen, the difference betyeen this

scenario and the

first, is that the appropriate deduction is made with respect to the
crude costs which are passed through to Firm "As" customers.

Attachment (2)

Derivation

of the Actual and Potential

Dollars per Gallon Petroleum Product Price Over-recovery
Due to the "Double Dip"

The following computations are made in an attempt to
derive the increased petroleum costs on a dollars per gallon basis
that:

(1) have actually been recovered in the petroleum

products markets during the past several months; and, (2)
the potential costs that might have been recovered had the
market allowed such recovery.
Current Cost Structure
Domestic Production = 8.883 mm/bd1
~
old oil = 63% or 5.596 mm/bd
decontrolled oil = 37%^ or 3.287 mm/bd
old oil price = $5.25
decontrolled oil price = $10.10
(.63) ($5.25) + (.37) ($10.10) * $3.31 + $3.74 m
$7.05 average cost of domestic crude oil
Imported Crude and Products
crude oil imports = 3.53 mm/bd1
imported petroleum products = 2.818 mm/bd1
total petroleum imports = 6.348 mm/bd1
total current oil flow = 6.348
+8.883
15.231 mm/bd

2
6.348
15.231 " 41..7%
8.883
15.231

58.3%

U.S. Cost Base before Over-recovery
(.583)($7.05)+(.417)($12.67)2
$411 + 5.28 = $9.39
° actual July composite purchases cost was $9.30 (RARP)
Actual increased costs due to over-recovery
(if passed through during one month)
° using the higher $9.36 bbl base cost we can compute the
average $ per gal. cost increase that the $40 million
over-recovery would have caused had all of this amount
of costs been passed-through during one month.
($9.39 per bbl.) (15.231 mm/bd) - $143,019 million per day
($143,019 million per day)(31 days) =
$4,433,592,000 per month
$4,433,592,000
+
40,000,000 over-recovery
$4,473,592,000/31 = $144.3094
$144,309/15.231 mm/bd - $9.4747 new per barrel average cost
after over-recovery
$9,475 - 9.39 = $.085 bfcl. increase in per barrel crude
costs due to over-recovery
$ 085
■xv— ai = $.002 gal. increase in per gallon crude costs
™ *
due to over-recovery
Potential one month increased costs due to over-recovery
$332 million _

S .3{.2t= $.0i66 gal.

- 3 Note:

The above increased petroleum product costs would probably
not have been passed-through to the market within a one
month period, but would have been spread over several
months. The following table represents how such cost
increases in dollars per gallon/per month terms might
have been spread over time.

TIME PERIOD OF COST RECOVERY IF SPREAD OVER:

actual

potential

one month
(one shot price increase)

two months

four
months

$0,002 gal.

$0,001 gal.

$0.0005
gal.

$0.0166 gal.

$0.0083 gal.

$.0042
gal.

FOOTNOTES :
^API Weekly Statistical Bulletin, September 13, 1974, latest four
weeks average daily U.S. oil production and imported crude and
products rates.
Latest PIMS data, phoned in during mid-September.

C
Attachment
FEO Rules and Regulations Drafted and Promulgated
from December 6, 1973 thru May 19, 1974
December 1973
Proposed Rules for Mandatory Fuel Allocation - covering:
° Crude oil
° Propane and butane
° Motor gasoline
° Middle distillates
° Aviation fuels
° Residual fuel oils
° Other products
° Antitrust applicability
° Reporting and record keeping requirements
° Allocations, market share and market entry
° Delegation of authority to state offices and local
boards
Signed: John C. Sawhill, Deputy Administrator
Published: December 13, 1974
38 Fed. Reg. 34414-34435 (21 pages)
Mandatory Allocation Program for Middle Distillate Fuels:
Extended to Aviation Fuels
Signed: John C. Sawhill, Deputy Administrator
Published: December 20, 1973
38 Fed. Reg. 35307, 35352 (2 pages)

2
January 1974
Rules and Regulations - covering:
° Fuel allocation and pricing [miscellaneous amendments
to correct omissions and clerical errors in parts
205, 210, 211 and 212 of FEO regulations published.
January 15, 1973 (39 FR 1929)]
° Gasoline prices:

non-product costs

° Refinery yield control program revision
Signed: William N. Walker, General Counsel
Published: February 15, 1974 (effective January 19 , 1974)
39 Fed. Reg. 6530-6532 (3 pages)
Mandatory Petroleum Allocation and Price Regulations
° Benzene and toluene amendments
° Definition of passenger transportation service
Signed: William N. Walker, General Counsel
Published: February 25, 1974
39 Fed. Reg. 7929 (1 page)
Petroleum Allocation; Cargo Freight and Mail Hauling
Signed: William N. Walker, General Counsel
Published: February 4, 1974
39 Fed. Reg. 5775 (1 page)
Proposed Rulés - Mandatory Petroleum Allocation Regulations?
Certain Allocations of Distillate Fuels
Signed: John C. Sawhill, D e p u t y Administrator
To be effective: March 1, 1974
39 Fed, Reg. 4592 (1 page)
Mandatory Petroleum Allocation and Price Regulations;
Corrections of National Supply/Capacity Ratio and
Refiners Buy/Sell List
Signed: John C. Sawhill, Deputy Administrator
Effective: January 30, 1974
39 Fed. Reg. 4450 (1 page)

3
Mandatory Petroleum Allocation:
Reporting System

Weekly Petroleum

Signed: William N. Walker, General Counsel
Effective: February 7, 1974
39 Fed. Reg. 5272 (1 page)
General Allocation and Price Rules: Mandatory Petroleum
Price Regulations: Petrochemicals Pricing and Ruling
on Supplier/Purchaser Relationships under Petroleum
Allocation Regulations
Signed: William N. Walker, General Counsel
Effective: January 31, 1974
39 Fed. Reg. 4466-67 (2 pages)
Mandatory Petroleum Price Regulations; Removal of Distillate
Production Incentive
Signed: William N. Walker, General Counsel
Effective: March 1, 1974
39 Fed. Reg. 7581-82 (2 pages)
Mandatory Petroleum Price Regulations? Special Price Rule
for Diesel Fuel Sales
Signed: William N. Walker, General Counsel
Effective: February 5, 1974
39 Fed. Reg. 4784 (1 page)
Mandatory Petroleum Allocation Regulations - covering:

° Crude oil and refinery yield control
° Propane and butane
° Motor gasoline
° Middle distillates
° Aviation fuels
° Residual fuel oil
° Petrochemical feedstocks
° Other products
° Antitrust applicability
o

Reporting and record keeping requirements

4
° Allocations, market share and market entry
Signed: John C. Sawhill, Deputy Administrator
Publication: January 2, 1974
39 Fed. Reg. 744-70 (26 pages)
Proposed Rules - Decreased Illumination of Highways;
Proposal for Comments
Signed: John C. Sawhill, Deputy Administrator
Published: January 1, 1974
Mandatory Petroleum Products, Allocation Regulations?
Motor Gasoline
Signed: John C. Sawhill, Deputy Administrator
Effective: January 11, 1974
39 Fed. Reg. 1773 (1 page)
Mandatory Petroleum Allocations? Continuation of State
Reserves Program
Signed: John C. Sawhill, Deputy Administrator
Effective: January 18, 1974
39 Fed. Reg. 2598 (1 page)
Mandatory Petroleum Allocation Regulations; Allocation
of Crude Oil
Signed: John C. Sawhill, Deputy Administrator
Effective: January 14, 1974
39 Fed. Reg. 3908 (1 page)
Mandatory Petroleum Allocation Regulations? Aviation
Fuels Allocation Methods
Signed: John C. Sawhill, Deputy Administrator
Effective: January 14, 1974
39 Fed. Reg. 3909 (1 page)
Mandatory Petroleum Allocation Regulations? Residual Fuel
Oil Conforming Amendments
Signed: John C. Sawhill, Deputy Administrator
Effective: January 14, 1974
39 Fed. Reg. 3909 (1 page)
Allocation and Procedural Regulations; Additions and
Revocations
Signed: John C. Sawhill, Deputy Administrator
Effective: January 14, 1974
39 Fed. Reg. 1924 (1 page)

5
State and Local Government Sales:

Removal of Exemptions

Signed: William N. Walker, General Counsel
Effective: October 25, 1973
39 Fed. Reg. 7176-77 (2 pages)
Gasoline Prices? Non-product Cost Pass-through
Signed: William N. Walker, General Counsel
Effective:
February 26, 1974
39 Fed. Reg. 7795-95 (2 pages)
General Allocations and Price Rules - covering:

° Refusal to sell product
0 Ruling on the impact of state tax on gross sales
Signed: William N. Walker, General Counsel
Effective: February 8, 1974
39 Fed. Reg. 5310,5311 (2 pages)
Rulings on:
° Gasoline, discrimination among purchasers
° Propane, price determination
Signed: William N. Walker, General Counsel
Published:
February 14, 1974
39 Fed. Reg. 6111-12 (2 pages

February 1974
Rules and Regulations - covering;
° Fuel allocation and pricing (miscellaneous amendments
to correct omissions and clerical errors in Parts
205, 210, 211 and 212 of FEO regulations)
° Gasoline prices:

non-product costs

° Refinery yield control program revision
Signed; William N. Walker, General Counsel
Published: January 14, 1974
Issued: February 15, 1974
39 Fed. Reg. 6530-32 (3 pages)
Mandatory Petroleum Allocation and Price Regulations covering:
° Benzene and toluene amendments
° Definition of passenger transportation service
Signed: William N. Walker, General Counsel
Effective: February 25, 1974
39 Fed. Reg. 7429 (1 page)
Petroleum Allocation; Cargo Freight and Mail Hauling
Signed: William N. Walker, General Counsel
Effective: February 4, 1974
39 Fed. Reg. 5775 (1 page)
Proposed Rules - Mandatory Petroleum Allocation Regulations;
Certain Allocations of Distillate Fuels
Signed: John C. Sawhill, Deputy Administrator
Effective: March 1, 1974
39 Fed. Reg. 4592 (1 page)
Mandatory Petroleum Allocation and Price Regulations; Correction
of Rational Supply/Capacity Ratio and Refiners Buy/Sell
List
Signed: John C. Sawhill, Deputy Administrator
Effective: January 30, 1974
39 Fed. Reg. 4450 (1 page)

7
Mandatory Petroleum Allocation:
System

Weekly Petroleum Reporting

Signed: William N. Walker, General Counsel
Effective:
February 7, 1974
39 Fed. Reg. 5272 (1 page)
General Allocation and Price Rules - concerning:
° Mandatory petroleum price regulations
° Petroleum price regulations
° Relationships under petroleum allocation regulations
Signed: John C. Sawhill, Deputy Administrator
Effective:
January 31, 1974
39 Fed. Reg. 4466-67 (4 pages)
Mandatory Petroleum Price Regulations? Removal of Distillate
Production Incentive
Signed: William N. Walker, General Counsel
Effective:
March 1, 1974
39 Fed. Reg.- 7581-82 (2 pages)
Mandatory Petroleum Price Regulations; Special Price Rule
for Diesel Fuel Sales

Signed: William N. Walker, General Counsel
Effective: February 5, 1974
39 Fed. Reg. 4784 (1 page)
State and Local Government Sales:

Removal of Exemptions

Signed: William N. Walker, General Counsel
Effective: October 25, 1974
39 Fed. Reg. 7176-77 (2 pages)
Gasoline Prices; Non-product Cost Pass-Through

Signed: William N. Walker
Effective: February 26, 1974
39 Fed. Reg. 7795-96

General Allocations and Price Rules - concerning:
0 Refusal to sell
° A ruling on the impact of state tax on gross sales
Signed: William N. Walker, General Counsel
39 Fed. Reg. 5310-11 (2 pages
Ruling on Gasoline - concerning:
° Discrimination among purchasers
° Propane price determination
Signed: William N. Walker, General Counsel
Publication: February 14, 1974
39 Fed. Reg. 6111-12 (2 pages)

March 1974
Mandatory Petroleum Allocation Regulations; Unusual Growth
Adjustment of Base Period Volumes
Signed: William N. Walker, General Counsel
Effective: March 15, 1974
39 Fed. Reg. 10156 (1 page)
Production or Disclosure of Material Information
Signed: William N. Walker, General Counsel
Effective: March 19, 1974
39 Fed. Reg. 10153 (1 page)
Proposed Rules? Jet Fuel Allocation and Pricing Rules
Signed: William E. Simon, Administrator
Published: March 4, 1974
39 Fed. Reg. 8354 (1 page)
Proposed Rules; Allocation and Pricing of Non-bonded
Aviation Fuel for International Carriers
Signed: William N. Walker, General Counsel
Published: March 25, 1974
39 Fed. Reg. 11205 (1 page)
Supplier/Purchaser Relationships for Civil Air Carriers
Signed: William N. Walker, General Counsel
Published: March 15, 1974
39 Fed. Reg. 11205 (1 page)
Mandatory Petroleum Allocation Regulations; Protection
of Crude Oil Imports
Signed: William N. Walker, General Counsel
Effective: February 27, 1974
39 Fed. Reg. 7925 (1 page)
Proposed Rules? Crude Oil Allocation Program; Crude Oil
and Refinery Yield Control
Signed: William N. Walker, General Counsel
Publication: March 5, 1974
39 Fed. Reg. 8633 (1 page)
Proposed Rules? Regulatory framework for Allocation Program
Clarification and Revision

10
Signed: William E. Simon, Administrator
Publication: March 27, 1974
39 Fed. Reg. 11768 (1 page)
Mandatory Petroleum Allocation Regulations; Monthly Reports
by Refiners and Importers
Signed: William N. Walker, General Counsel
Effective: March 18, 1974
39 Fed. Reg. 10236 (1 page)
Mandatory Petroleum Price Regulations; Re-seller Rule in
Puerto Rico
Signed: William N. Walker, General Counsel
Effective: March 18, 1974
39 Fed. Reg. 10434 (1 page)
Proposed Rule; Puerto Rico; Price Regulations and Public
Hearing
Signed: William N. Walker, General Counsel
Publication: March 18, 1974
39 Fed. Reg. 10454 (1 page)

11
April 1974
Allocation of Non-bonded Aviation Fuel and Pricing

Signed: William N. Walker, General Counsel
Publication: April 23, 1974
39 Fed. Reg. 13549, 14509 (2 pages)
Allocation and Pricing of Non-bonded Aviation Fuel

Signed: William N. Walker, General Counsel
Effective: April 8, 1974
39 Fed. Reg. 12995 (1 page)
Mandatory Petroleum Allocation Regulations; Allocation
of Crude Oil

Signed: William N. Walker, General Counsel
Effective: April 1, 1974
39 Fed. Reg. 12109 (1 page)
Proposed Rules; Propane Allocation Program

Signed: William N. Walker, General Counsel
Publication: April 5, 1974
39 Fed. Reg. 12846 (1 page)
Definition of "Covered Products" with Respect to Parts
210 and 212
Signed: William N. Walker, General Counsel
Effective:
April 3, 1974
39 Fed. Reg. 12353 (1 page)
Petroleum Price Regulations - covering:

° Price increases to reflect increases in non-product
costs
° Consignee agents commissions

° Refiners price adjustment
Signed: William N. Walker, General Counsel
Effective: April 1, 1974
39 Fed. Reg. 12011-13 (3 pages)

12
Petroleum Price Regulations; Removal of Exemption for
Federal, State and Local Government Sales
Signed: John C. Sawhill, Deputy Administrator
Effective: April 2, 1974
39 Fed. Reg. 12252 (1 page)

May 1 9 7 4

Jet Fuel; Ruling on Unrecouped Increased Product Costs

Signed: William N. Walker, General Counsel
Published: May 21, 1974
39 Fed. Reg. 18423 (1 page)
Proposed Rules; Allocated Products;
Other "Dating" Programs

"Slimmer Fill" and

Signed: William N. Walker, General Counsel
Published:
May 21, 1974
39 Fed. Reg. 18471 (1 page)
Mandatory Petroleum Allocation ‘Regulations; Revisions

Signed: John C. Sawhill, Deputy Administrator
Effective: June 1, 1974
39 Fed. Reg. 15960-83 (24 pages)
Non-bonded Aviation Fuel; Allocation

Signed: William N. Walker, General Counsel
Effective: May 16, 1974
39 Fed. Reg. 17561 (1 page)
Proposed Rules; Butane, Naphtha, and Other Products;
Allocations
Signed: William N. Walker, General Counsel
Publication:
May 16, 1974
39 Fed. Reg. 17916 (1 page)
Mandatory Crude Oil Allocation; Revision

Signed: William N. Walker, General Counsel
Effective: May 10, 1974
39 Fed. Reg. 17987 (1 page)
Mandatory Petroleum Allocation; Motor Gasoline, Retail
Sales Outlets and Mandatory Petroleum Prices; Sales of
Unleaded Gasoline

Signed: William N. Walker, General Counsel
Published: May 23, 1974
39 Fed. Reg. 18637-41 (5 pages)

14
Proposed Rules? Allocation and Pricing of Unleaded Gasoline
Signed: William N. Walker, General Counsel
Publication: May 23, 1974
39 Fed. Reg. 18666 (1 page)
Low Sulfur Petroleum Products
Signed: William N. Walker, General Counsel
Effective: April 29, 1974
39 Fed. Reg. 15137 (1 page)
Petroleum Allocation; Extension of Current Propane
Allocation Program
Signed: William N. Walker, General Counsel
Effective: April 30, 1974
39 Fed. Reg. 15138 (1 page)
Petroleum Price Regulations - covering:
° Adjustment to refiner's price formula to reflect
volume of covered products
° Correction amendments to refiners cost calculations
° Rent charged for real property used in the retailing
of gasoline
Signed: William N. Walker, General Counsel
Effective: May 30, 1974
39 Fed. Reg. 15938-40 (3 pages)
Proposed Rules? Synthetic Natural Gas Feedstock; Allocation
Regulations
Signed: William N. Walker, General Counsel
Published: May 9, 1974
39 Fed. Reg. 17237 (1 page)
Current Free Market Price for New and Released Crude Oil?
Ruling
Signed: William N. Walker, General Counsel
Published: May 16, 1974
39 Fed. Reg. 17766 (1 page)
Mandatory Petroleum Regulations? Puerto Rico
Signed: William N. Walker, General Counsel
Published: May 16, 1974
39 Fed. Reg. 17764 (1 page)

15
Proposed Rules; Mandatory Petroleum Regulations; Computation
of Landed Cost
Signed:
William N. Walker, General Counsel
Published:
May 16, 1974
39 Fed. Reg. 17771 (1 page)
Mandatory Crude Allocation Program Revisions

Signed: William N. Walker, General Counsel
Effective: May 19, 1974
39 Fed. Reg. 17288 (1 page)

APPENDIX B
TREASURY DEPARTMENT STAFF ANALYSIS
THE PROPANE PROBLEM
The problems of skyrocketing propane prices were caused
directly by the price control regulations designed to protect
the consumer.
At the outset of Phase III of the Economic Stabilization
Program on January 11, 1973, the petroleum industry was subject
to the same general guidelines which applied to most other
industries and which were to be self-administered.

As a

general guide, price increases above authorized levels could
not exceed increases in costs, and could not result in an
increase in a firm’s profit margin.
The Cost of Living Council (COLC) held hearings on
petroleum prices in February, and on March 6, 1973 imposed
mandatory controls on petroleum firms with $250 million or
more in annual sales and revenues.

The impact of the Phase III

rules on propane prices was only upon those transactions by
companies with annual sales of $250 million or more.

Thus

many small producers of propane, including many thousands of
natural gas processors, were not subject to COLC regulations.
These rules remained in effect until the freeze in June 1973.
Traditionally, major oil companies purchased significant
volumes of propane from small producers for resale.

However,

with market prices for major oil companies restricted by

price controls, non-traditional speculators and brokers moved
into the market place in the spring of 1973, outbidding the
major oil companies for small company sales of propane.

The

customers for this high priced propane were most often
interruptible industrial consumers of natural gas that was
also in short supply because of price controls.
This situation proved extremely disruptive to the
traditional supplier/purchaser relationship in the propane
market.

As a further consequence, later economic controls

for propane which utilized the base date of May 15, 1973
reflected such built-in distortions.
After June 13, 1973, prices for all petroleum products
were frozen.

The freeze remained in existence until August 19,

1973, at which time the COLC promulgated Subpart L of the
overall Phase IV regulations.
On October 2, 1973, the Cost of Living Council delegated
price stabilization authority for propane to the former Energy
Policy Office headed by Governor Love.

The transfer of pricing

authority was motivated by the need to assure effective
coordination between price and allocation controls.

The

authority to regulate propane was subsequently delegated to the
Federal Energy Office in late December of 1973, where the
original Cost of Living Council Phase IV propane rule remained
in effect until amended by the FEO on February 1, 1974.

3
The Special Propane Rule of February 1, 1974, was
designed to limit the costs which refiners would be permitted
to allocate to propane and pass on to consumers in the form
of higher prices.

Prior to the Special Propane Rule, refiners

could allocate increased crude costs to propane in whatever
amount the refiner deemed appropriate.

This aspect of

price flexibility built into the propane rule was a charac
teristic of the petroleum price rules carried over from the
Cost of Living Council.

The COLC rule thus permitted

refiners to apportion a disproportionate share of their
increased costs to propane, thereby causing substantially
dp

•

greater increases in the price of propane than increases m
the prices of other petroleum products.
On February 1 the FEO promulgated its amendment to
limit the crude costs that a refiner could allocate to
propane during any 12 month period following January 31, 1974.
The new rule had the immediate effect of reducing
propane prices from 2<#r to 6<£ per gallon at the refiner level.
Further, it prevented future propane prices from bearing a
disproportionate share of the cost allocated to propane.
This rule remained in effect throughout the spring of 1974.
Even more recently, on August 1, 1974, the FEA has
further amended the Special Propane Rule.

The new rule

provides that allocation by a refiner of crude cost to propane
is limited to an amount that is proportional to the sales

4
volume of only that propane which is actually produced by
a refiner from crude oil (typically 3%).

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Departmental t h e f R E A S U R Y
SHINSTON. DC. 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

October 3, 1974

ASSISTANT SECRETARY BRECHT NAMES
TEN TO WOMEN'S ADVISORY COMMITTEE
Assistant Secretary of the Treasury for Administration
Warren F. Brecht has appointed 10 senior level officials
to Treasury’s. Women's Advisory Committee to. inform the
Secretary and the Department on the special concerns of women.
At the initial meeting of the Committee, Mr. Brecht
said, "I hope this Committee will be able to make policy
recommendations on how to improve and strengthen the
overall Federal Women's Program within the Department, and
that it will meet at least quarterly with me and the Federal
Women's Program Coordinator to assess the overall progress
of the Program and report to the Secretary on the impact of
the Program."
Mr. Brecht appointed Anita F. Alpern, Deputy Assistant
Commissioner, IRS, the top ranking career woman in Treasury,
as chairman of the Committee. Other members are Esther C.
Lawton, Office of Personnel; Bonnie Gay, Office of the^
General Counsel; Inez S. Lee, Office of Equal Opportunity
Program, all of the Office of the Secretary; and Sadie L.
Mitchell, Bureau of Engraving & Printing; Dorothy M. Lee,
Bureau of Alcohol, Tobacco & Firearms; Gertrude Mangan.,
Bureau of Government Financial Operations; Grace Ferrill,
Bureau of Public Debt; Roberta Boylan, Comptroller of the
Currency; and Doris Robinson, U.S. Customs Service.
Perl Whelchel, Departmental Federal Women's Program
Coordinator, will serve as staff to the Committee and
Liaison to Bureau management officers and women's coordinators.
She and Helene Melzer of Public Affairs will serve on the
Committee, in advisory roles.

(over)
WS-117

Department. Paralleling these efforts, the Committee is
also seeking ways to ensure equal consideration of Treasury
women for awards and special recognition that heretofore
have been male dominated, and to energize awareness programs
involving top management.
For the longer range, the Committee has under consideration
an Annual Women's Program Conference, Treasury participation
in International Women's Year--1975, the American Bicentennial
Program, and a revision of the 1966 study on the Status of
Women in Treasury. In addition, the Committee will consider
actions relating to part-time work and day-care centers.

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D e p a rtm e n to fth e T R EA S U K Y
ISHINGTON, D C. 20220

TELEPHONE W04 2041

FOR IMMEDIATE RELEASE
Monday, October 7, 1974
2:00 P.M., E.S.T.
GENERAL REVENUE SHARING
AUDIT AGREEMENT SIGNED
BY STATE OF ILLINOIS
In a ceremony held at the Treasury Department in
Washington, D. C. today, representatives of the State of
Illinois formally agreed to review audits of revenue sharing
expenditures by 1,524 Illinois local governments each year.
The arrangement was formalized in a document signed
for the Treasury Department by Office of Revenue Sharing
Director, Graham W. Watt and for Illinois by State Comptroller
George W. Lindberg.

Also participating in the ceremony were

the following Illinois state officials: the Director of the
Special Audit Division, Ronald M. Hamelberg; Manager of Local
Audits, Peter N. Brown; and the Executive Assistant to the
Comptroller, Roger C. Nauert.
Illinois auditors will review revenue sharing expenditures
of all local governments in the state, with the exception of
cities with populations under 800 that have no utilities and
towns with annual appropriations of under $100,000.

I ft

The reviews will be made using standards put forward
by the Office of Revenue Sharing.

These include reference

to financial practices and compliance with civil rights
and other provisions of the State and Local Fiscal Assistance
Act of 1972 (revenue sharing law).

Illinois auditors will refer

apparent violations of revenue sharing law to the Office of
Revenue Sharing for action.
In signing today’s agreement, Illinois became the
sixth state to join the Office of Revenue Sharing’s Cooperative
State Audit Program.

Similar pacts have been concluded with

New York, Michigan, Tennessee, Florida and Minnesota.
’’Participation by the State of Illinois brings to more
than 5900 the number of local governments now covered by
our Cooperative State Audit Program,” Graham Watt announced.
"The program means a saving of time and money, since the Federal
government will not be duplicating an audit system already in
place,” he said.

"In addition, the work performed will be

of better quality, since the auditors are already familiar with
the laws and accounting procedures applicable in their own
states.”
In addition to the Cooperative State Audit Program, the
Office of Revenue Sharing will be performing its own audits
on a random basis and investigating allegations of noncompliance
with revenue sharing law.

-3-

<7
I 6

Nearly 39,000 units of state and local government
in the United States are receiving general revenue sharing
funds regularly.

The State and Local Fiscal Assistance

Act authorizes the distribution of $30.2 billion over a
five-year period that ends with December 1976.

More than

$15.8 billion have been distributed since the first checks
were mailed, in December 1972.

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Department of t h e f R E A S U R Y

n
October 4, 1974

FOR IMMEDIATE RELEASE

TREASURY’S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $4,700,000,000 > or
thereabouts, to be issued October 17, 1974,

as follows:

91-day bills (to maturity date) in the amount of $2,700,000,000, or
thereabouts, representing an additional amount of bills dated July 18, 1974,
and to mature January 16, 1975

(CUSIP No. 912793 VR4), originally issued in

the amount of $1,901,310,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $ 2,000,000,00(\ or thereabouts, to be dated October 17, 1974,
and to mature April 17, 1975

(CUSIP No. 912793 WE2) •

The bills will be issued for cash and in exchange for Treasury bills maturing
October 17, 1974,

outstanding in the amount of $4,506,030,000, of which

Government accounts and Federal Reserve Banks, for themselves and.as agents of
foreign and international monetary authorities, presently hold $2,597,540,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The.bills will be issued on a discount basis under competitive and non
competitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Friday, October 11, 1974.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
multiples of $5,000.

Tenders over $10,000 must be in

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.
Banking institutions and dealers who make primary markets in Government

(OVER)

securities and report daily to the Federal Reserve Bank of New York their

positions

with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.
own account.

Others will not be permitted to submit tenders except for their
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

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 reject any or all tenders,
in whole or in part, and his action in any such respect shall be final.

Subject

to these reservations, noncompetitive tenders for each issue for $200,000 or less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on

October 17, 1974,

In cash or

other immediately available funds or in a like face amount of Treasury bills
maturing
ment.

October 17, 1974.

Cash and exchange tenders will receive equal treat

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

bills (other than life insurance companies) issued hereunder must include in his
Federal 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.
Department of the Treasury Circular No. 418 (current revision) and this notice
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

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

Statements of

THE PRESIDENT
OF THE UNITED STATES
and

THE SECRETARY
OF THE TREASURY
Before the Annual Meetings
of the Boards of Governors
International Monetary Fund
and
International Bank for Reconstruction
and Development and Affiliates
S ep tem b er 3 0 - O ctober 4 , 1 9 7 4
W ashington, D.C.

THE PRESIDENT’S STATEMENT
Remarks of President Gerald R. Ford
at the
Opening Session of the 1974 Annual Meetings %
of the
Boards of Governors of the
International Monetary Fund and the World Bank Group
Septembe 30, 1974
I extend you a warm welcome. We come together
here at a time of unprecedented challenge in the world
economy. But that makes my welcome to you, who
must help solve these problems, even warmer.
The problems that confront us today are serious and
complex—a worldwide inflation at a rate far in excess of
what we can tolerate; unparalleled disruptions in the
supply of the world’s major commodities; and severe
hindrances to the real growth and progress of many
nations, including, in particular, some of the poorest
among us.
We in America view these problems soberly and
without rose-tinted glasses. B ut we believe that the same
spirit of international cooperation which brought forth
the Bretton Woods agreements a generation ago can
resolve the difficulties we face today.

My capable Secretary of the Treasury will speak in
greater detail on how we view these problems and how
we think they can be solved. But I think I can sum up
our thinking very briefly. We want solutions which serve
broad interests rather than narrow self-serving ones. We
want more cooperation not more isolation. We want
trade not protectionism. We want price stability not
inflation. We want growth not stagnation. We want a
better life for ourselves and our children.
Y ou will help to decide how this can best be done.
The United States is prepared to join with your
governments and play a constructive leadership role.
Again, welcome to Washington, and good luck in
your deliberations.

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THE SECRETARY’S STATEMENT
Address of the Honorable William E. Simon
Secretary of the Treasury of the United States
before the 1974 Annual Meetings of the
Boards of Governors of the
International Monetary Fund,
International Bank for Reconstruction and Development,
International Finance Corporation, and
International Development Association
at the Sheraton Park Hotel
Washington, D.C., October 1, 1974
Mr. Chairman, Mr. Witteveen, Mr. McNamara, Fellow
Governors, Distinguished Guests:
Our recent annual meetings have reflected encour
aging changes in the international economic scene. Three
years ago, our attention was focused on the New
Economic Policy introduced by the United States to
eliminate a long standing imbalance in the world
economy. Two years ago we launched a major reform of
the international trade and payments system. L ast year
we developed the broad outlines of monetary reform.
This year circumstances are different. We face a world
economic situation that is the most difficult since the
years immediately after World War II.
Our predecessors in those early postwar years re
sponded well to the great challenges of that period. I am
confident we can also respond appropriately to the
challenges of our day. But first we must identify the
issues correctly.
Let me declare myself now on three o f these key
issues.
First, I do not believe the world is in imminent
danger of a drift into cumulative recession—though we
must be alert and ready to act quickly should the
situation change unexpectedly. I do believe the world
must concentrate its attention and its efforts on the
devastating inflation that confronts us.
Second, I do not believe the international financial
market is about to collapse. I do believe that situations
can arise in which individual countries may face serious
problems in borrowing to cover oil and other needs. For

that reason we must all stand prepared to take coop
erative action should the need arise.
Third, I firmly believe that undue restrictions on the
production of raw materials and commodities in order to
bring about temporary increases in their prices threaten
the prosperity of all nations and call into question our
ability to maintain and strengthen an equitable and
effective world trading order.

The Inflation Problem
With respect to the first of these issues, it is clear th at
most countries are no longer dealing with the familiar
trade-off o f the past, balancing a little more or less
inflation against a little more or less growth and
employment. We are confronted with the threat of
inflationary forces so strong and so persistent that they
could jeopardize not only the prosperity but even the
stability of our societies. A protracted continuation of
inflation at present rates would place destructive strains
on the framework of our present institutions—financial,
social and political.
Our current inflation developed from a combination
o f factors: In addition to pressures emanating from
cartel pricing practices in oil, we have suffered from
misfortune—including bad weather affecting crops
around the world; bad timing—in the cyclical conver
gence of a worldwide boom ; and bad policies—reflected
in years of excessive government spending and monetary
expansion. As financial officials, we cannot be held

responsible for the weather, but we must accept respon
sibility for government policies, and we must recom
mend policies that take fully into account the circum
stances of the world in which we find ourselves.
In tod ay’s circumstances, in m ost countries, there is
in my view no alternative to policies of balanced fiscal
and monetary restraint. We must steer a course of firm,
patient, persistent restraint of both public and private
demand, and we must maintain this course for an
extended period of time, until inflation rates decrease.
We must restore the confidence of our citizens in our
economic future and our ability to maintain strong and
stable currencies.
Some are concerned that a determined international
attack on inflation by fiscal and monetary restraint
might push the world into a deep recession, even
depression.
I recognize this concern, but I do not believe we
should let it distort our judgment.
Of course we must watch for evidence of excessive
slack. The day is long past when the fight against
inflation can be waged in any country by tolerating
recession. We must remain vigilant to the danger of
cumulative recession. B ut if there is some risk in moving
too slowly to relax restraints, there is also a risk—and I
believe a much greater risk—in moving too rapidly
toward expansive policies. If we fail to persevere in our
anti-inflation policies now, with the result that inflation
becomes more severe, then in time countermeasures will
be required that would be so drastic as to risk sharp
downturns and disruptions in economic activity.
There is a tendency to lay much of the blame on the
international transmission of inflation. Certainly with
present high levels of world trade and investment,
developments in any economy, be they adverse or
favorable, are quickly carried to other economies. But
that does not absolve any nation from responsibility to
adapt its financial policies so as to limit inflation and to
shield its people from the ultimate damage which
inflation inflicts on employment, productivity and social
justice in our societies.

Recycling and the Strength of Capital Markets
In addition to inflation, public concern has centered
on methods of recycling oil funds and on whether we
need new institutions to manage those flows.
So far, our existing complex o f financial mechanisms,
private and intergovernmental, has proved adequate to
the task of recycling the large volumes of oil monies
already moving in the system. Initially, the private
financial markets played the major role, adapting in
imaginative and constructive ways. More recently, gov
ernment- to-govemment channels have increasingly been
opened, and they will play a more im portant role as time
goes by. New financing organizations have also been
established by OPEC countries. Our international insti
tutions—and specifically the IMF and World Bank—have

redirected their efforts to provide additional ways of
shifting funds from lenders to borrowers. The IMF
responded rapidly in setting up its special oil facility.
In our experience over the period since the sharp
increase in oil prices, three points stand out:
First, the amount of new investments abroad being
accumulated by the oil exporting countries is very
large—we estimate approximately S 3 0 billion thus far in
1974.
Second, the net capital flow into the United States
from all foreign sources, as measured by the U.S. current
account deficit, has been small, about $ 2 billion so far
this year. During the same period our oil import bill has
been about $ 1 2 billion larger than it was in the
comparable period last year.
Third, markets in the United States are channeling
very large sums o f money from foreign lenders to foreign
borrowers. Our banks have increased their loans to
foreigners by approximately $ 1 5 billion since the begin
ning of the year, while incurring liabilities to foreigners
of a slightly larger amount. This is one kind of effective
recycling. And while some have expressed concern that
excessive oil funds would seek to flow to the United
States, and would require special recycling efforts to
move them out, die picture thus far has been quite
different.
No one can predict for sure what inflows of funds to
the U.S. will be in the future. B ut it is our firm intention
to maintain open capital markets, and foreign borrowers
will have free access to any funds which come here. The
United States Government offers no special subsidies or
inducements to attract capital here; neither do we place
obstacles to outflows.
Nonetheless, some have expressed concern that the
banking structure may not be able to cope with strains
from the large financial flows expected in the period
ahead. A major factor in these doubts has been the
highly publicized difficulties of a small number of
European banks and one American bank which have
raised fears of widespread financial collapse.
The difficulties of these banks developed in an
atmosphere of worldwide inflation and of rapid increases
in interest rates. In these circumstances, and in these
relatively few instances, serious management defects
emerged. These difficulties were in no way the result of
irresponsible or disruptive investment shifts by oil
exporting countries. Nor were they the result of any
failure in recycling or of any general financial crisis in
any country.
The lesson to be learned is this: In a time of rapid
change in interest rates and in the amounts and
directions of money flows, financial institutions must
monitor their practices carefully. Regulatory and super
visory authorities too must be particularly vigilant. We
must watch carefully to guard against mismanagement
and speculative excesses, for example, in the forward
exchange markets. And we must make certain that
procedures for assuring the liquidity of our financial

systems are maintained in good working order. Central

banks have taken major steps to assure this result.
Although existing financial arrangements have re
sponded reasonably well to the strains of the present
situation, and we believe they will continue to do so, we
recognize that this situation could change. We should
remain alert to the potential need for new departures. We
do not believe in an attitude of laissez-faire, come what
may. If there is a clear need for additional international
lending mechanisms, the United States will support their
establishment.
We believe that various alternatives for providing such
supplementary mechanisms should be given careful
study. Whatever decision is made will have profound
consequences for the future course of the world econ
omy. We must carefully assess what our options are and
carefully consider the full consequences o f alternative
courses of action. The range of possible future problems
is a wide one, and many problems can be envisaged that
will never come to pass. What is urgently needed now is
careful preparation and probing analysis.
We must recognize that no recycling mechanism will
insure that every country can borrow unlimited
amounts. Of course, countries continue to have the
responsibility to follow monetary, fiscal and other
policies such that their requirements for foreign borrow
ing are limited.
But we know that facilities for loans on commercial
or near-commercial terms are not likely to be sufficient
for some developing countries whose economic situation
requires that they continue to find funds on conces
sional terms. Traditional donors have continued to make
their contributions of such funds, and oil exporting
countries have made some commitments to provide such
assistance. Although the remaining financing problem
for these countries is small in comparison with many
other international flows, it is of immense importance
for those countries affected. The new Development
Committee which we are now establishing must give
priority attention to the problems confronting these
most seriously affected developing countries.

Trade in Primary Products
For the past two years, world trade' in primary
commodities has been subject to abnormal uncertainties
and strains. Poor crops, unusually high industrial de
mand for raw materials, transport problems, and limited
new investment in extractive industries have all con
tributed to tremendous changes in comm odity prices.
Unfortunately, new forms of trade restraint have also
begun to appear.
In the past, efforts to build a world trading system
were concentrated in opening national markets to
imports. Clearly, we need now also to address the other
side of the equation, that o f supply.
The oil embargo, and the sudden sharp increase
m the price of oil, with their disruptive effects through

out the world economy, have, of course, brought these
problems to the forefront of our attention.
The world faces a critical decision on access to many
primary products. In the United States we have sought
in those areas where we are exporters to show the way
by maximum efforts to increase production. Market
forces today result in the export of many items from
wheat to coal which some believe we should keep at
home. But we believe an open market in commodities
will provide the best route to the investment and
increased production needed by all nations.
We believe that cooperative, market-oriented solu
tions to materials problems will be m ost equitable and
beneficial to all nations. We intend to work for such
cooperative solutions.

Prospects for the Future
In the face of our current difficulties—inflation,
recycling, comm odity problems—I remain firmly confi
dent that, with commitment, cooperation and coordi
nation, reasonable price stability and financial stability
can be restored.
The experience of the past year has demonstrated
th at although our economies have been disturbed by
serious troubles, the international trade and payments
system has stood the test.
Flexible exchange rates during this period have served
us well. Despite enormous overall uncertainties, and
sudden change in the prospects for particular economies,
exchange markets have escaped crises that beset them in
past years. The exchange rate structure has no longer
been an easy mark for the speculator, and governments
have not been limited to the dismal choice of either
financing speculative flows or trying to hold them down
by controls.
Another encouraging fact is th at the framework of
international cooperation has remained strong. Faced
with the prospect o f severe balance-of-payments deterio
ration, deficit countries have on the whole avoided
short-sighted efforts to strengthen their current account
positions by introducing restrictions and curtailing trade.
In the longer run, we look forward to reinforcing this
framework of cooperation through a broad-gauged mul
tilateral negotiation to strengthen the international
trading system. In the “ Tokyo R ound,” we hope to
reach widespread agreement, both on trade liberalization
measures—helping all countries to use resources more
efficiently through greater opportunities for exchange of
goods and services—and on trade management meas
ures—helping to solidify practices and procedures to deal
with serious trade problems in a spirit of equity and
joint endeavor. It is gratifying th at more and more
governments have recognized the opportunities—and the
necessity—for successful, creative negotiations on trade.
We in the U.S. government recognize our own re
sponsibility to move these negotiations along. Early last
year we proposed to our Congress the Trade Reform A ct

to permit full U.S. participation in the trade negotia
tions. It is clear that in the intervening months the need
for such negotiations has become all the more urgent.
We have therefore been working closely with the
Congress on this crucial legislation, and we shall continue
to work to insure its enactment before the end o f this
year.
In the whole field of international economic rela
tions, I believe we are beginning to achieve a common
understanding of the nature of the problems we face.
There is greater public recognition th at there lies ahead a
long, hard world-wide struggle to bring inflation und er.
control. Inflation is an international problem in our
interdependent world, but the cure begins with the
policies of national governments. Success will require,
on the part of governments, uncommon determination
and persistence. There is today increasing awareness th at
unreasonable short-term exploitation o f a strong bargain
ing position to raise prices and costs, whether domes
tically or internationally, inevitably intensifies our
problems.
Finally I am encouraged that our several years of
intensive work to agree on improvements in the inter
national monetary system have now begun to bear fruit.
The discussions of the Committee of Twenty led to
agreement on many important changes, some o f which
are to be introduced in an evolutionary manner and
others of which we are beginning to implement at this
meeting.
Fo r the immediate future, the IM F’s new Interim
Committee will bring to the Fund structure a needed
involvement of world financial leaders on a regular basis,
providing for them an important new forum for consid
eration o f the financing of massive oil bills and the
better coordination of national policies. The Interim
Committee should also increasingly exercise surveillance
over nations’ policies affecting international payments,
thereby gaining the experience from which additional
agreed guidelines for responsible behavior may be
derived.
Moreover, discussions in the Interim Committee can
speed the consideration of needed amendments to the
Fund’s Articles of Agreement. These amendments, stem
ming from the work of the Committee o f Twenty, will
help to modernize the IMF and better equip it to deal
with today’s problems. F o r example, the Articles should
be amended so as to remove inhibitions on IM F sales of
gold in the private markets, so th at the Fund, like other
official financial institutions, can mobilize its resources
when they are needed. In order to facilitate future quota
increases, the package of amendments should also
include a provision to modify the present requirement
th at 2 5 percent of a quota subscription be in gold. Such
an amendment will be a prerequisite for the quota
increase now under consideration. And the amendment
will be necessary in any event for us to achieve the
objectives shared by all the participants in the Com
mittee of Twenty of removing gold from a central role in

the system and o f assuring that the SDR becomes the
basis of valuation for all obligations to and from the IMF.
Preparation of an amendment to embody the results
of the current quinquennial review of quotas offers us
still another opportunity to reassess the Fund’s role in
helping to meet the payments problems o f member
nations in light o f tod ay’s needs and under present
conditions o f relative flexibility in exchange rates.
The trade pledge agreed by the Com m ittee o f Twenty
provides an additional framework for cooperative action
in today’s troubled economic environment. It will
mitigate the potential danger in the present situation of
self-defeating, competitive trade actions and bilateralism.
The United States has notified its adherence to the
pledge, and I urge other nations to join promptly in
subscribing.
The new Development Committee, still another out
growth of the work of the Committee o f Twenty, will
give us an independent forum that will improve our
ability to examine comprehensively the broad spectrum
of development issues. We look forward to positive
results from this new Committee’s critical work on the
problems of the countries m ost seriously affected by the
increase in commodity prices and on ways to ensure that
the private capital markets make a maximum contribu
tion to development.

The World Bank and its Affiliates
International cooperation for development is also
being strengthened in other ways, notably through the
replenishment of IDA. A U.S. contribution of $1.5
billion to the fourth IDA repenishment has been
authorized by Congress, and we are working with our
congressional leaders to find a way to complete our
ratification at the earliest possible date. A significant
new group of countries has become financially able to
join those extending development assistance on a major
scale. We would welcome an increase in their World
Bank capital accompanied by a commensurate partici
pation in IDA.
The United States is proud of its role in the
development of the World Bank over the past quarter
century. We are confident that the Bank will respond to
the challenges of the future as it has so successfully
responded in the past.
One of these challenges is to concentrate the Bank s
resources to accelerate growth in those developing
countries with the greatest need.
A second challenge is to continue the Bank’s annual
transfer of a portion of its income to IDA. The recent
increase in interest rates charged by the Bank is not
sufficient to enable the Bank to continue transfers to
IDA in needed amounts. We urge that the Bank’s Board
promptly find a way to increase significantly the
average return from new lending.
A third challenge is that the Bank find ways to
strengthen its comm itment to the principle that project

financing makes sense only in a setting of appropriate
national economic policies, of effective mobilization and
use of domestic resources, and o f effective utilization of
the private capital and the modern technology that is
available internationally on a commercial basis.
I should mention also that we are concerned about
the Bank’s capital position. We should encourage the
Bank to seek ways to assist in the mobilization of funds
by techniques which do not require the backing of the
Bank’s callable capital.
Within the Bank Group, we are accustomed to
thinking mainly of the IFC in considering private capital
financing. While now small, the IFC is, in my view, a key
element in the total equation, and should be even more
important in the future. But the Bank itself needs to
renew its own commitment to stimulation o f the private
sectors of developing countries.
Finally, let me emphasize that the capable and
dedicated leadership and staff of the World Bank have
the. full confidence and support of the United States as
they face the difficult challenges of the current situa
tion.

Conclusion
Ladies and Gentlemen, the m ost prosperous period in
the history of mankind was made possible by an
international framework which was a response to the
vivid memories of the period o f a beggar-thy-neighbor

world. Faced with staggering problems, the founders of
Bretton Woods were inspired to seek cooperative solu
tions in the framework of a liberal international eco
nomic order. Out of that experience evolved an aware
ness that our economic and politcal destinies are
inextricably linked.
Today, in the face of another set of problems, we
must again shape policies which reflect the great stake
each nation has in the growth and prosperity o f others.
Because I believe that interdependence is a reality—one
that all must sooner or later come to recognize—I remain
confident th at we will work out our problems in a
cooperative manner.
The course which the United States will follow is
clear. Domestically we will manage our econom y firmly
and responsibly, resigning ourselves neither to the
inequities of continued inflation nor to the wastefulness
of recession. We will strengthen our productive base, we
will develop our own energy resources, we will expand
our agricultural output. We will give the American
people grounds for confidence in their future.
Internationally, let there be no doubt as to our
course. We will work with those who would work with
us. We make no pretense that we can, or should, try to
solve these problems alone, but neither will we abdicate
our responsibility to contribute to their solution. To
gether, we can solve our problems. L e t me reaffirm our
desire, and total comm itment, to work with all nations
to coordinate our policies to assure the lasting prosperity
of all of our peoples.

Departmentof t h e T R E A S U R Y
ASHINGTON, D.C. 20220

TELEPHÖNEW04-2041

jb
FOR IMMEDIATE RELEASE

OCTOBER 4, 1974

SECRETARY SIMON AND TREASURY
MINISTER COLOMBO HOLD TALKS
The Secretary of the Treasury of the United States,
Mr. William Simon, met today with the Minister of the
Treasury of Italy, Mr. Emilio Colombo.
In the course of a long and wide-ranging conversation,
the complex problems of inflation and of the disequilibria
arising from the higher price of oil were examined.
Special regard was given to the repercussions of the higher
oil prices on domestic price levels and on the external
accounts of consumer countries, especially those whose
economies already had structural disequilibria and
conjunctural difficulties when the oil crisis broke out.
In the light of the discussions held in various international
forums, and especially at the Annual Meeting of the IMF,
the most appropriate ways to face these problems were
examined in depth.
In this connection, the desire of both countries to
cooperate closely in all international organizations was
reaffirmed to ensure rapid progress towards a system that
favors a better balance of international trade and that
promotes the proper functioning of institutions.
WS 1 1 8

(more)

The Ministers reaffirmed their support for the decision made
earlier this week by the new Interim Committee of Ministers
in the International Monetary Fund to consider "as a matter of
urgency, the adequacy of existing private and official
arrangements" for recycling of international investment.
It was recognized that Italy is among the industrialized
countries hit hardest by the oil crisis.

Minister Colombo

outlined the prospective evolution of his country's balance of
payments and the comprehensive fiscal and monetary program
implemented by the Italian Government to fight inflation and
to reduce the non-oil deficit.

He underlined that, despite

the favorable progress that has been made thus far towards the
elimination of the non-oil deficit, the high oil deficit still
gives rise to difficult financing problems even in the presence
of substantial reserves and bilateral and multilateral lines
of credit.

The two Ministers recognized that in these

circumstances special care must be exercised to avoid adding
to existing uncertainties in the international markets.
Secretary Simon recalled President Ford's recent assurances
that "the U.S. is prepared to play an appropriate, constructive
and responsible role in a return to economic equilibrium in
Italy."

In that context, the two Ministers explored a wide

range of possible concrete ways in which the two countries
might work more closely together in the interest of economic
stability in Italy and in the

international community at large.

They agreed that these conversations will be continued at an
appropriate opportunity in the near future.
0O0

Departmentof t h e J R [ J l S l l R Y
ASHINGTON, D.C. 20220

TELEPHONE W 04-2041

MEMORANDUM FOR CORRESPONDENT?:

October 4, 1974

The Secretary of the Treasury, William E. Simon,
announced today that contracts for the sale of approximately
125 million bushels of corn and wheat to the Soviet Union
during the 1974-75 marketing year are being held in abeyance.
These contracts, reported today by the Department of
Agriculture, involve about 91 million bushels of corn and
34 bushels of wheat. A portion of these contracts are
expected to be delivered from other countries.
At the direction of the President, Secretary Simon has
called the companies involved in the specific contracts,
Continental Grain Company and Cook Company to request that
they send representatives to Washington to meet with the
President tomorrow.
Secretary Simon will be in Moscow next week at which
time he will discuss the disposition of this matter with
appropriate Soviet officials.
In addition, the President has directed that all major
exporting companies be informed that for the time being,
he expects that no large contracts for grain will be signed
in the future without specific prior approval by the
White House.

oOo

WS-119

Department of theTREASURY
WASHINGTON. D.C. 20220

TELEPHONE W04-2041

V *

October 7, 4974

FOR IMMEDIATE RELEASE

SECRETARY SIMON
TO ATTEND MOSCOW MEETING
Secretary of the Treasury William E. Simon has
accepted an invitation from Soviet Minister of Foreign
Trade Nikolai Patolichev to attend a meeting of the
U.S.-U.S.S.R. Trade and Economic Council in Moscow.
He will leave Washington October 11 -- accompanied
by Treasury Under Secretary for Monetary Affairs Jack
F. Bennett, and Assistant Secretary of the Treasury
Gerald F. Parsky -- and return October 16.
Secretary Simon and Foreign Trade Minister
Patolichev are honorary directors of the Council, a
bi-national organization of businessmen formed to
promote expansion of trade and commerce between the
United States and the Soviet Union.
Donald M. Kendall, chairman of Pepsico, and
chairman of the American side of the Council, will
be among 18 chief executive officers of major United
States corporations attending the meeting.

oOo

WS-121

D e p a rtm e n to fth e T R EA S U R Y
ASHINGTON,

DC 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

October 4, 1974

STATEMENT BY
THE HONORABLE JACK F. BENNETT
UNDER SECRETARY FOR MONETARY AFFAIRS
IMF/IBRD ANNUAL MEETINGS
PRESS CONFERENCE
SHERATON PARK HOTEL
WASHINGTON, D.C.
This annual meeting was a productive one, with a heavy
schedule of both substantive and procedural questions before
the Governors throughout the week.
One major theme running through the discussion was a
general recognition of the destrictive effects of world inflation
and the need to check that inflation. There was also discussion
of the possible danger of overdoing demand reduction in the anti
inflation fight, with varying degrees of emphasis on whether that
is a likely risk. Secretary Simon made clear the United States
view that inflation overkill is not the present danger but that
we obviously must keep a careful eye on global and national
economic situations as they develop and be ready to act if the
need occurs.
There was full acceptance of the need to strengthen
international cooperation and consultation. A major accomplish
ment of the conference was the establishment of two important
new committees, the Interim Committee and the Joint Ministerial
Committee on the Transfer of Real Resources. These committees
will greatly improve the effectiveness of our international
structure by getting senior policy officials more closely involved.
Establishment of the Ministerial Committee for the Transfer
of Real Resources is a positive step forward for alleviation of
the economic strains besetting the less developed countries as
a result of the cartelization of oil pricing. We are pleased
that the Committee has adopted an interim work program which
concentrates on the problems of the Most Seriously Affected
countries, while, at the same time, directing the Executive
Secretary to prepare a proposal for a long-term program for
consideration when the Committee meets again in mid-January.

WS-120

(OVER)

The new Interim Committee has also agreed to a work
program. It has asked the IMF Executive Directors to
consider the adequacy of existing private and official
financing arrangements, and to report on possible additional
needs. The Commitee also intends to discuss the adjustment
process, quotas in the Fund, and amendments of the Fund Articles.
Additional countries have also adhered to the trade pledge
which the C-20 proposed as a means of encouraging IMF member
countries to avoid the self-defeating trade restrictions during
this critical period. Germany and Japan are among the countries
which have recently adhered.

:jwêBÊSêêMÊÊÊKSÊÊÊËÊÊIÊÊÊÊÊÊÊÊÊÊÊÊIÊÊÊÊÊÊÊÊÊÊÊÊI

Department of I h e T R E A S U R Y
SHINGTON, O.C. 20220

TELEPHONE W04-2041

v /kt
October 7, 1974

FOR RELEASE 6:30 P.M.

ASURY'S WEEKLY BILL AUCTIONS

"9 y

¿ré ■

/< J ’'y O ü - ^ 2 .

of 13-week Treasury bills and for $ 2.0billion
n series to be issued on October 10, 1974,
brve Banks today. The details are as follows:

Li.

k bills
huary 9, 1975
Equivalent
Annual Rate

‘■i n

J L ,
<r _

6.349%
7.002%
6.698%

26-week bills
maturing April 10, 1975
Price

96.309 a/
96.243
96.277

Equivalent
Annual Rate
7.301%
7.431%
7.364%

000

| for the 13-week bills were allotted 46%.
| for the 26-week bills were allotted 47%.
ACCEPTED BY FEDERAL RESERVE DISTRICTS:

( 9

Accepted_____

Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS

35.285.000
35.255.000
196.635.000
34.795.000
9,605,000
29.260.000
29.655.000
113.960.000

$
29,100,000
2,125,560,000
25.885.000
37.125.000
35.285.000
35.255.000
196.615.000
33.795.000
9,605,000
29.260.000
28.655.000
113.960.000

Applied For

Accepted

$
26,015,000 $
16,015,000
2,625,080,000 1,599,080,000
24.630.000
14.105.000
54.660.000
34.600.000
36.585.000
24.970.000
33.925.000
33.825.000
202.195.000
131,685,000
35.170.000
20.170.000
10.060.000
6,060,000
27.795.000
25.460.000
21.920.000
18.920.000
200.275.000
75.125.000

$3,130,200,000 $2,700,100,000 b/$3,298,310,000 $2,000,015,000 c/

k/Includes $361,930,000 noncompetitive tenders accepted at average price.
SJ Includes $321,625,000 noncompetitive tenders accepted at average price.

These rates are on a bank-discount basis. The equivalent coupon-issue
yields are 6.91% for the 13-week bills, and 7.76% for the 26-week bills.

Departmentof t h e T R E A S U R Y
TELEPHONE W04-2041

SHINGTON. D.C. 20220

P
FOR RELEASE 6:30 P.M.

i
■

October 7, 1974

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $ 2.7billion of 13-week Treasury bills and for $ 2.0billion
of 26-week Treasury bills, both series to be issued on October 10, 1974,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:

13-week bills
maturing January 9, 1975
Price

High
Low
Average

Equivalent
Annual Rate

98.395
98.230
98.307

6.349%
7.002%
6.698%

26-week bills
maturing April 10, 1975
Price

Equivalent
Annual Rate

96.309 a/
96.243
96.277

7.301%
7.431%
7.364%

a/ Excepting 1 tender of $385,000

Tenders at the low price for the 13-week bills were allotted 46%.
Tenders at the low price for the 26-week bills were allotted 47%.
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Applied For

Accepted

$
39,100,000 $
29,100,000
Boston
2,543,640,000 2,125,560,000
New York
25,885,000
25,885,000
Philadelphia
37,125,000
37,125,000
Cleveland
35,285,000
35,285,000
Richmond
35,255,000
35,255,000
Atlanta
196,635,000
196,615,000
Chicago
34,795,000
33,795,000
St. Louis
9,605,000
9,605,000
Minneapolis
29,260,000
29,260,000
Kansas City
29,655,000
28,655,000
Dallas
113,960,000
San Francisco
113,960,000
TOTALS

Applied For

Accepted

16,015,000
$
26,015,000 $
2,625,080,000 1,599,080,000
14,105,000
24,630,000
34,600,000
54,660,000
36,585,000
24,970,000
33,925,000
33,825,000
202,195,000
131,685,000
35,170,000
20,170,000
10,060,000
6,060,000
27,795,000
25,460,000
18,920,000
21,920,000
75,125,000
200,275,000

$3,130,200,000 $2,700,100,000 b/$3,298,310,000 $2,000,015,000 c/

b/Includes $361,930,000 noncompetitive tenders accepted at average price.
SJ Includes $321,625,000 noncompetitive tenders accepted at average price.
1/ These rates are on a bank-discount basis. The equivalent coupon-issue

yields are 6.91% for the 13-week bills, and 7.76% for the. 26-week bills.

Department of i h e T R E A S U R Y
OFFICE OF REVENUE SHARING
W A S H IN G T O N , D.C.

20226

T E L E P H O N E 634-5248

FOR INFORMATION CALL
(202) 634-5248

FOR IMMEDIATE RELEASE
Monday, October 7, 1974

GENERAL REVENUE SHARING DATA
STUDY REPORT RELEASED TODAY
The results of an intensive 20-week study of the data
used to allocate general revenue sharing funds were released
by the Treasury Department’s Office of Revenue Sharing today.
The study found that the data are generally of good quality
but that improvements can be made.
The study was initiated by the Office of Revenue Sharing
as part of its continuing efforts to improve the accuracy and
reliability of data used to allocate shared revenues to nearly
39,000 units of general government in the United States.
’’Although the data used in our revenue sharing formulas
are of good quality, we know that all data can be improved always,"
Graham W. Watt, Director of the Office of Revenue Sharing stated
in releasing today’s report.

"We are constantly working with

recipient governments and with the U. S. Bureau of the Census
to assure equity in the distribution of funds using the best,
most accurate data available," Watt said.

"The study that has

been concluded is part of that effort," he added.

The four-volume report released today was prepared at
the Office of Revenue Sharing’s request by a team of analysts
from the Stanford Research Institute of Menlo Park, California,
assisted by staff of Technology Management Incorporated, the
Center for the Continuing Study of the California Economy, Human
Resources Corporation and Westat Incorporated.
"The use of demographic, economic, and taxation data
to determine the allocation amount for each of the 39,000
recipients is ... unprecedented," those involved in the research
stated.
Shared revenues are allocated according to formulas set
forth in the State and Local Fiscal Assistance Act of 1972,
using data supplied by the U. S. Bureau of the Census on population,
per capita income and adjusted taxes.

Other data elements used

in the calculations relate to personal income, state and local
taxes, urbanized population, state individual income tax collections,
Federal individual income tax liabilities and intergovernmental
transfers.
The revenue sharing data study just completed was designed
to meet the following objectives:

-3-

Si\
8

•

To determine the relative effects on the equity
of revenue sharing allocations of the varying
degrees of currency, comprehensiveness, and
accuracy of each of the data elements used in
the allocation formulas.

•

To determine the degree of inequity that would
result in each of the next five years if present
data sources were to be used, and the resulting
impact on States and local jurisdictions that
have significantly different characteristics.

•

To identify alternative sources of data for
each of those data elements which, if present
sources were to be used, would result in
significant inequity of allocations.

•

To prepare and document a set of alternative
data plans, conduct cost and benefit analyses
of each, and make recommendations as to which
plan should be followed.

The principal findings of the report are as follows:
•

Although the general revenue sharing program
appears to be satisfying many of the goals envisioned
by Congress, a higher level of equity of allocations
can be achieved through the use of more accurate
and more current data in the computation of alloca
tion amounts for the over 39,000 units of State
and local government.

•

Lack of currency in population and per capita
income data is the major potential source of
inequity since the true situation has a propensity
to change rapidly from year to year and these two
elements have not been updated since the program
began.

•

The year-to-year fluctuations in general revenue
sharing allocations that recipient governments
have so far experienced can be attributed mainly
to the annual updating of adjusted taxes in the
allocation formula, to keep pace with changing
taxation patterns. Fluctuations are inherent
in the general revenue sharing allocation procedure
and will result whenever data are updated.

-4-

•

Although equity of allocations will be increased
by updating those population and per capita income
data elements that are taken from the 1970 Census,
when the timely data are used for the first time
in general revenue sharing computations, the change
in allocation will be significant for many recipients.

•

Equity of allocations to the 50 States and the
District of Columbia can be increased by adjusting
at the State level for underenumeration, using
the national age/sex/race underenumeration rates
prepared by the Bureau of the Census.
If the
national rates are used to adjust for underenumera
tion at the county-area and local government levels,
equity of allocations is likely to increase for larger
jurisdictions and to decrease for many smaller juris
dictions .

•

Improvments in data quality are needed for the
population of Indian tribes and Alaskan native
villages; failing a complete enumeration, the
recommended technique to improve these data is
the one under development by the Bureau of
Indian Affairs and under analysis by the Bureau
of the Census.
.'

•

Because of the complex and interactive nature of
the general revenue sharing allocation procedure,
individual improvements to individual data elements
may contribute to inequity of allocations; updating
county-area population without also updating popula
tion for the local governments in the county, for
example, will cause inequity of allocations.

•

If the population and per capita income model
currently under development and test by the
Bureau of the Census fulfills its promise, use
of these data for Entitlement Periods 6 and 7
will increase the equity of allocations.

•

Although the 1970 Census procedures produced data
that were quite adequate for the general statistical
purposes for which they were intended, 1970 Census
data for the 27,000 local governments under 2,500
population--especially per capita income data where
a 20-percent sample was used--are not suitable for
general revenue sharing purposes. The problem of
updating data for 39,000 units of government is
especially severe.

-5-

•

Longer range improvments to data quality required:
(1) better intercensal estimating techniques for
updating between censuses and better postcensal
adjustment techniques for reducing the effects
of underenumeration and underreporting, (2) mid-decade
censuses (especially for small areas), (3) the develop
ment of valid indicators of need that are more
compatible with the acquisition of reliable data,
(4) increased reliance on nationwide and Statewide
data standards and systems.

’’The most careful consideration is being given to those
improvements in the data that can be made with resources currently
available,” Graham Watt said in discussing the findings.

’’Some

of the work that needs to be done will require additional
authorization and appropriations of funds by Congress.”
The general revenue sharing program is authorized by
the State and Local Fiscal Assistance Act of 1972.

Nearly

39,000 states, counties, cities, towns, townships, Indian
tribes and Alaskan native villages have received more than $15.8
billion in shared revenues since the first checks were mailed, in
December 1972.

The law authorizes the distribution of $30.2

billion over a five-year period that ends with December 1976.

TOTALLY EMBARGOED
UNTIL 4 ;00 P.M. ,EDT

OCTOBER 8, 1974
FACT SHEET

A PROGRAM TO CONTROL INFLATION
IN A HEALTHY AND GROWING ECONOMY
Contents
Page
Introduction. . . . . . . . . . . . . . . . . . . . .

Amending the Employment Act of 1946 . . . . . . . . .

International Cooperation.

Food. . . . .

. .

...

....

........

. . . . .

. .. . . . . .. . .

Energy. . ...............................

. . . . . .

Increasing Productive Capacity. . . ............
Credit Allocation ............. . . . . . . . .
Antitrust . . ..........

5
7
19

. . .

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

20
21

Government Regulation ............

Council on Wage and Price Stability . . . . . . . . .

National Commission on Productivity . . . . . . . . . 24
Employment Assistance ..............................
Housing . . . . .

...

. . . . . .

Public Utilities.

...

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

. . . . . . . . . 30
. . 32

Thrift Institutions ................................

The Budget. . ......................................... 33
Tax Proposals .

.................................. 3 6

Citizens1Action Committee to Fight Inflation........ 42
WS-122

A PROGRAM TO CONTROL INFLATION
IN A HEALTHY AND GROWING ECONOMY

Although our economic system remains sound and strong,
with its basic vitality intact, the economy is experiencing
severe difficulties. Inflation is far too high. Too many
people are having trouble finding employment. The financial
markets are out of kilter. Interest rates are exorbitant.
Housing is suffering badly. The productive capacity of the
economy is expanding too slowly.
The origins of these problems are complex. Part of the
problem grew out of several international shocks:
—

The disastrous world-wide drop in crop production
in 1972, which sent food prices soaring.

—

Two international devaluations of the dollar, which
made the United States a.more attractive source for
other countries to buy scarce materials.

—

The tripling of crude oil prices, which exerted a
powerful and pervasive effect on our entire price
structure.

Here at home, a long period of excessively stimulative
policies created inflationary pressures that gradually and
inexorably mounted in intensity. With that condition pre
vailing, the economy could not absorb the outside shocks?
rather, those have now been built into the system, deepening
and extending our problem.
Twice within the past decade* in 1967 and in 1971-72,
we let an opportunity to regain price stability slip through
our grasp. Thus inflation has gathered momentum and has
become the chronic concern of producers and consumers alike.
Indeed, today inflation is the primary cause of our recession
fears.
—

Consumer confidence has been shaken, causing most
families to hold back on spending, as clearly
indicated by the lack of growth in the physical
volume of retail sales for the past year and a
half.

—

An "inflation premium" has been added to "true"
interest rates, so that we now have mortgages at
9-10 percent and corporate bonds at 10-12 percent.
This has warped our financial markets, including
the stock market, which were structured for an
economy with a relatively stable price level.

Another development that has created a serious economic
imbalance is the fact that our civilian labor force has been
expanding rapidly.
For the size of our labor force, there
fore, we are short on capital equipment.
During this same
period, the effectiveness of price controls in certain
sectors — e.g., steel, paper and other basic materials —
created specific bottlenecks that limited the production
capacity of the entire economy.
As a result, unemployment
was higher than it otherwise would have been.
Also, the
dampening impact of price controls on profits held back new
capital expansion programs in some of these vital industries.
Thus, because our problems are complex, it is clear
that our program to deal with them must be comprehensive.
It is also clear that the solution cannot be achieved
quickly.
There are no simple, instantaneous cures for our
difficulties.
Discipline and patience are the watchwords.
We must, therefore, have a strong policy of budgetary
and monetary restraint to work down the rate of inflation.
At the same time, we must provide the means for a healthy
long-run growth in the capacity of the economy, correct the
imbalances that have developed in recent years, and see to
it that the burdens of this effort are shared on an equitable
basis.
Some further rise in unemployment appears probable,
and we will take steps to deal with it.
However, we can and
will achieve our goals without a large increase in unemploy
ment.
There will be no economic depression in the United
States.
AMENDING THE EMPLOYMENT ACT OF 1946

The Employment Act of 1946 makes it the policy of the
Federal Government to "promote maximum employment, produc
tion and purchasing power."
Although the words "purchasing
power" have sometimes been interpreted as meaning pricelevel stability, it would nevertheless be helpful to clarify
the term and make explicit in the Employment Act the goal of

-4stability in the general price level. The American people
have a right to receive from their government stronger
assurance that policies will be followed to safeguard the
purchasing power of their money in addition to policies
that will provide abundant job opportunities and a rising
level of living.
We, therefore, suggest that the section of the Act
referred to above be amended to read as follows: ", . . for
all those able, willing, and seeking to work, to promote
maximum employment, maximum production, and stability of
the general price level."
INTERNATIONAL COOPERATION
There is much that we and other nations can do to
restore the health of the international economy. The
economic problems of one nation, as well as its policies
for dealing with them, affect other nations. Governments
thus have the responsibility not only to maintain healthy
economies but also to formulate policies in a way that
complements, rather than disrupts, the constructive efforts
of others.
This is particularly true for major economic powers
such as the United States. Our policies to reduce inflation
and restore satisfactory growth are intended to contribute
to the strengthening of the international economy. We
intend, further, to work with others so that:
—

We can ensure secure and reasonably priced goods,
particularly food and fuel, for all nations.

—

We can minimize national policy conflicts or dis
tortions that direct resources away from their
most productive uses.

—

We can provide early warning of potential shifts
in supply and demand so that nations can avoid
potential disruptions.

—

We can try to harmonize national efforts in such
areas as conservation, investment and balance of
payments management.

A small delegation led by Ambassador Eberle departed
today for Canada, Europe and Japan to discuss the policies
described herein and to explore how we can better address
and resolve common problems in a mutually supportive
fashion.
A cornerstone of our international efforts is the
multilateral trade negotiation scheduled to begin this
fall. Passage of the Trade Reform Act will provide the
United States with an opportunity to help improve the inter
national trading order and to ensure that United States
interests are well served therein. Without this bill, the
United States will be regarded abroad as lacking the tools
or the interest to build multilateral solutions to pressing
economic problems. With it, the United States can play a
leadership role in negotiating guidelines to reduce distor
tions of trade and investment that force workers or farmers
in one nation to pay for the economic policies of another
nation. We can also work toward a multilateral system of
safeguards that provide for temporary — but only temporary —
limits on imports when there is a need for certain industries
to adjust smoothly to economic shifts.

FOOD AND FIBER
Food prices are of major concern in our fight against
inflation. Because of weather problems and heavy demands
from around the world, food prices are anticipated to increase
at an annual rate of 10 percent or more over the next 18
months. Only by expanding farm production, improving pro
ductivity, and containing foreign demand can we hope to reduce
the rate of increase.
Increased production offers our brightest hope for
combating inflation, and we are committed to a program of allout food production. There are presently no government restric
tions on planting of wheat, feed grains, soybeans and cotton
(excluding extra-long-staple cotton). To remove restrictions
on rice production, we support pending legislation, but with
a noninflationary target price. In addition, new legislation,
which we support, has just been introduced to remove restrictions
on the production of peanuts and extra-long-staple cotton.
Farmers must be assured of adequate supplies of fertilizers
and fuel. The Secretary of Agriculture has been directed to
work with the interagency Fertilizer Task Force to establish a
reporting system. Fuel will be allocated if necessary. Authority

will be sought to allocate fertilizer, if that is needed.
We will work with fertilizer companies to initiate volun
tary efforts to reduce nonessential uses of fertilizer.
Over the past weekend the Federal Government initiated
a voluntary program to monitor grain exports. We can and
shall have adequate supplies at home, and through coopera
tion meet the needs of our trading partners abroad. A
committee of the Economic Policy Board will be responsible
for determining policy under this program. In addition, in
order to better allocate our supplies for export, the
President has asked that a provision be added to Public
Law 480, under which we ship food to needy countries, to
waive certain of the restrictions on shipments under that
Act on national interest or humanitarian grounds.
The U. S. Department of Agriculture and the National
Commission on Productivity have been directed to help reduce
the cost of food by improving efficiency in the agricultural
sector. The Department and the Council on Wage and Price
Stability will review marketing orders to insure that they
do not reduce food supplies. Government regulations will be
examined to elimiate those that interfere with productivity
in the food processing and distribution industries.
Upward pressure on U. S. food prices will be reduced by
helping developing nations to become more self-sufficient.
We will share our advanced agricultural technology and aid
in the construction of new fertilizer plants. We will
support food reserve and emergency food aid programs. We are
also taking steps to assure that the burden of the current
tight feed grain situation is equitably distributed.
While increased food supplies are the only effective
weapon against higher food prices in the long run, it takes
time to grow those supplies.
We cannot expect to see
immediate benefits from the initiatives outlined here. We
can, however, be confident that policies to maximize food
and fiber production and to restrain food price increases
are being pursued vigorously.

-7-

General Statement
Expensive petroleum from insecure foreign sources
jeopardizes national security, increases worldwide
inflation and places strains on the international
financial system. Therefore, in order to reduce United
States dependence upon foreign supplies of energy, the
President has decided upon the following program to
meet the current energy challenge.
The immediate objective is to reduce oil consumption
one million barrels per day by the end of 1975 below
what it would have otherwise been without affecting
industrial output. This energy program calls for both
mandatory and voluntary action.
If immediate reductions are not achieved through the
energy program presented today, the President will seek
more stringent means to insure that United States
dependence is reduced.

II. Develop a new conservation policy
During the embargo last winter, Americans responded
to energy conservation voluntarily. Now, though the
crisis is less obvious, Americans must continue'to apply
voluntary restraint in the use of energy. As part of
our continuing effort to conserve energy, the individual
American and the American Industry and Government must
think and act conservation, of not only energy but also
resources and commodities that are used in our day to day
lif e .

HI.

Specific Program
A-

Submit Legislation to Require Use of Coal and
Nuclear for New Electric Power Generation
and Conversion for Existing Plants'

The Administration’s policy is to eliminate oil
and natural gas fired plants from the Nation’s mainland
baseloaded electric capacity where it is feasible to
convert to coal or nuclear without endangering public
health. A meeting of representatives from the utilities,
the coal and nuclear industries, state regulatory

-8commissions and the relevant Federal agencies will
be called by FEA to establish within 90 days a
schedule for phasing out enough oil-fired plants
to save 1.0 million barrels per day and to
provide a list of actions required to ensure that
the schedule is met. Any legislation necessary to
accomplish this goal will be submitted afterwards.

Relevant considerations inherent in such a
program are as follows:
-- Potential for Conversion
Existing oil and gas plants that are convertible
Future plants (before 1980) scheduled
for oil or gas (30,000 MW)
Total
Goal (allowing for cases where
conversions will not be attempted)

.75 MM b/d
1.0 MM b/d
1.75 MM b/d
1.0

MM b/d

-- Costs
A.

Because future plants are in varying stag-es of
planning and development, total cost of one
million barrels per day conversion is not known.

However, reoort from utilities included in
"existing nlants" category above indicates
that 750 thousand b/d conversion costs total $106
million.
It should be noted that these
costs are considerably lower than what it
would cost to continue burning oil at current
world prices.

--Illustrative Comparison of Cost of Using Coal vs. Oil
(based on 1~ million barrels/day)
1

Cost of coal

= $ 6 million (at $25 ton)

Cost of residual

= $12.0 million/day (at $12.00 barrel)

Savings

= $6.3 million/day or $2.2 billion/year

7
/

-9-- There are approximately 500 coal fired unites that will
not meet state regulations as of June ol next year.
However, most of these could meet the primary air quality
standards (i.e. standards to protect human health).
These plants
use 185 million tons (1/3 of the nation’s total coal
consumption) of coal per year. This program would
allow these plants to continue to burn coal, thus
easing additional pressure on oil supplies.
B.

Defense Production Act

The Defense Production Act will be used selectively to ensure
sufficient .supplies of scarce materials needed for energy
development projects. This Act was recently invoked to give
priority to the delivery of supplies to expedite construction
of the Trans-Alaskan pipeline terminal facilities.
C•

Automobile Industry must Develop Program for Gasoline
Savings

During the past two sessions of Congress, legisla
tion to require fuel saving on new automobiles has been
considered. Pursuant to the Energy Supply and Environmental
Coordination Act of 1974 a specific study of one aspect
of this question is now underway. Unfortunately', the sum
total of legislative requirements on automobile manufacturers
has often caused confusion, additional cost to the consumer
and unworkable deadlines. Therefore, the President is
requesting the major automobile manufacturers to submit a
five-year"schedule of their plans to produce more efficient
automobiles. Coals on efficiency for industry to meet will
then be established.
If necessary, the President will
present legislation to the Congress for consideration.

D . Industry must Conduct Energy_Audit_and_D ev elop
Savings Programs
-—
■
• •— During the last six months, it has been demonstrated
time and again that individual companies can cut energy usage
dramatically„ Nationwide, the potential savings for all
industries under a strict conservation program can be sig
nificant c The T,resident has requested the Secretary of Commerce
to develon energv use guidelines which will suggest ways for
Industry to use energy more efficiently„ The Secretary will
also report on energv savings in specific industriestand

communicate that information to businessmen across the nation.
In addition, the Commerce Department will monitor to determine
areas of energy misuse within industry, and suggest alterna
tives to stop such waste.
E.

More rigid compliance with the maximum speed
limit of 55 miles per hour; suggest new
traffic control measures

The 55 mile soeed limit set by Congress earlier this
year has saved at least 250,000 b/d of petroleum. The
Administration will emphasize the importance of rigid enforce
ment of this limit by State and local law enforcement agencies.
In addition, the President is directing the Secretary of
Transportation to work with State officials to suggest addi
tional traffic control measures for conserving gasoline.
pt

Further Conservation within Government

The effects of energy conservation efforts within
government has been dramatic. Most agencies have far exceeded
their goals. However, governmental conservation programs will
be made stricter, and enforced more vigorously. As a top prior
ity, a review will be made of all governmentally imposed
impediments to energy conservation, in so far as they adversely
affect the day-to-day programs of both the government and the
private industry operations.
Specific actions mandated and underway, or to be
taken :
-- Thermostats lowered to 68 degrees in the winter
and raised to 78 degrees in the summer.
-- Lighting reduced in public buildings.
-- Speed limits on government vehicles reduced.
-- Cut backs ordered in the number of trips taken,
including miles driven and miles flown.
-- Car pooling locators to be set up within metropolitan
government bases.
-- Parking spaces to be allocated on a priority basis to
car poolers.
--/Smaller automobiles to be purchased to replace larger cars
/

11-

-- Decorative lighting to be reduced.
-- Outside lighting to be reduced.
-- Voluntary Conservation Actions:
G.

Reduce energy consumption in commercial buildings

The commercial sector of the economy accounts for
almost 15% of our total energy usec Studies have shown that
commercial energy requirements can be significantly reduced by
improved efficiency measures, ind by taking positive steps to
reduce lighting, heating and air conditioning. A 10% reduction
in this sector can save the equivalent of approximately
500,000 barrels of oil per day.
Reduce energy consumptior in residences
Residential consumption of energy accounts for approxi
mately 20% of total energy us30 Prudent use of heating and
air conditioning, reduced uscge of hot water, lighting and
appliances, and improved homo insulation has the potential
for saving the equivalent of well over one million barrels
of oil per dayc These steps would also, of course significantly
reduce energy costs for the consumer.
II

Reduce gasoline consumption

About one third of al. automobile travel consists of com
muting to and from work, if the average number of passengers
per commuter auto were to .ncrease by one, a reduction in gasoline
usage of well over 500,00C barrels per day could be achieved.
The resulting lower consu?iption would also reduce the commuters
out-of-pocket costs for high priced gasoline.
Regarding specific volintary actions relating to fa). (b)
and (c), the Administration wi11:
-- Encourage everyone to lower thermostats in the
home in the winter ?nd raise them in the summer.
-- Ask architects to cesign buildings with energy
conservation in mi’d.
-- Ask motorists to leep cars tuned and maintain proper
tire pressure.
-- Ask everyone to ’educe temperature settings on hot
water heaters.

12
-- Ask everyone to turn off pilot lights on furnaces
in the summer.
-- Encourage everyone to use cold water for laundry.
-- Encourage the use of public transportation.
-- Urge an increase in the use of car pools.
-- Urge reduction in use of nonessential home appliances.
-- Urge reduced use of stoves, refrigerators, televisions,
electric lights, washing machines.
-- Encourage home owners to insulate and install storm
windows.
-- Urge turning off outside gas lights.
-- Urge measures to increase the load factor on airline
flights.
J.

Request state and federal regulatory authorities to
eliminate rate schedules which encourage excessive
energy consumption
The utility industry, under both state and federal
regulations, have often developed rate structures that
encourage increased energy consumption. Regulatory
authorities should seek to design rate structures that
encourage maximum energy conservation, promote use of
generation capacity in off-peak periods, and only charge
individual categories of users the cost of the power they
actually consume.

Natural Gas Supply Act

Natural gas is an invaluable source of clean, environ
mentally sound energy. For fifteen years, the Federal Power
Commission has controlled and kept low its wellhead price, and
thus reduced incentives to the development of new domestic
supplies.
In 1957, new discoveries of natural gas totalled
approximately 22 trillion cubic feet. By 1972 this had fallen
to less than three trillion cubic feet. In 1955 the U. S.
had a 22.5 year supply of gas reserves, and in 1972 only 10.7
years.

13
The nation is now importing foreign liquefied gas
(LNG) at prices three times controlled domestic price. The
nation faces continued and increasing rates of curtailment
of gas being supplied to current users, including gas for
agricultural production.
The only real solution to the supply problem lies in
deregulation of new gas, so as to stimulate production.
Legislation to achieve this result has long been
stalled in the Congress. This logjam must be broken, so
that domestic gas reserves may be identified and brought
into production as quickly as possible.
L.

Naval Petroleum Reserves - permit maximum
production from reserve #1 (Elk Hills) and
implement full scale exploration and develop
ment of production capability of reserve #4
(Alaska)
At the present time, two Naval Petroleum
Reserves, Elk Hills, California (NPR #1), and NPR #4 in
Alaska, could, if fully developed, provide significant
production capability. Elk Hills is about 50% developed
but needs further development to place it in a state of
readiness.
It is estimated that production capability
of 160,000 barrels per day could be achieved within
two months, with thé long term maximum efficient rate
of production at about 267,000 barrels per day. The
estimated potential of NPR #1 runs as high as 1.7 billion
barrels. The vast tract in Alaska, NPR #4, is largely
unexplored but offers a significant potential for
development. Recoverable reserves are estimated to
be as much as 30 billion barrels.
The statutory authority for the naval petroleum reserves,
and oil shale is included in Chapter 641, Title 10,
U.S. Code.
Key provisions in the authority provide that
the reserves shall be used and operated for:
(1) The protection, conservation, maintenance and
testing of the reserves.

14
«
(2) The production of petroleum, gas, oil shale
or products thereof, whenever and to the
extent the Secretary of the Navy, with the
approval of the President, finds that it
is needed for national defense and production
is authorized by a joint resolution of
Congress.
The President is directing the Secretaries of Defense,
Navy and
Interior, within the next 90 days, to develop
proposals (including any needed legislation) directed toward
the exploration and development of NPR #4 as rapidly as
possible.

Clean Air Act

The Clean Air Act Amendments of 1970 represent a landmark
in our progress toward environmental protection, and definite
progress is being made in cleaning up the Nation’s air.
The Act describes very stringent guidelines for
compliance by mobile and stationary sources. Many of these
goals are achievable as drafted.
In some cases, however,
more flexibility is needed to achieve the objectives of the
Act and to allow use of coal, the nation’s most abundant
domestic energy source. The amendments that have been
transmitted to the Congress by the Administration would
provide this needed flexibility to effectively respond
to the nation’s energy problems without jeopardizing the
Act’s health related requirements. Passage of all of
these amendments will not diminish continuing efforts for
a cleaner environment.
N . Surface Mining
Coal is the nation's most abundant and available energy
resource. The Administration has proposed and long supported
surface mining legislation that would allow continued and
accelerated development of domestic coal reserves with
appropriate protection of environment values.

Severe problems still remain with some of the provisions
oi the legislation which has passed both houses of the Congress.
Its enactment as now drafted could involve not sbnly serious
production losses but inflationary cost impacts throughout the
entire economy.
Secretary Morton and his staff have been working closely
with the committee to resolve the most important of these
problems, including surface owner protection provisions, funding
absolute prohibitions of mining in certain areas, unnecessarily
broad statements of purposes, and provisions for multiple
litigation that could delay or halt ongoing production efforts.

Nuclear Plant Licensing Bill
The 9-10 years now required to bring nuclear power
plants on line must be reduced. Towards this end, Congress
should pass the Nuclear Plant Licensing Bill which will
expedite licensing and construction power costs, and
accelerate U.S. energy self-sufficiency.

^Windfall Profits Tax
Since 1973, the prices that may be charged for domestic
crude oil production have been strictly controlled by the Cost
of Living Council and the Federal Energy Administration (former
ly the Federal Energy Office).
Various measures are available to stimulate production
from our existing fields by adjusting these controls. Such
adjustments are needed on a priority basis, but they could
generate sudden profit increases for companies producing oil.

tax thath^ n f H i”;li;rati? L haSuPr0p0Sed a «indfall profits
anrf
? cushlon thls sh°ck and reduce such profits,
enactment ofUi h ^ 2r°mpt 3Cti°? by the ConSress- Expeditious
duction wirh J i
M
mea?ute is necessary to maximize proauction without un^ue enrichment of the industry.

16
Q • Deepwater Port Facilities Act
Pending legislation would authorize the Federal
Government to grant permits for the construction and operation
of offshore oil terminal facilities. Such facilities would
allow imported oil to be transported more safely and
economically on very large crude carriers, and reduce tanker
traffic in the nation’s already overcrowded harbors.
It
would encourage the construction of domestic refineries and
thus lessen U.S. dependence on imported products from foreign
refineries. An extensive environmental impact statement
already prepared indicates that the amount of oil spilled
in the nation’s harbors and coastal regions will be reduced
by these facilities.
R • Energy Research and Development Administration, ERDA
The President is urging to complete consideration of
legislation to create ERDA before the recess. ERDA’s mission
will be to develop technologies for efficiently using fossil,
nuclear and advanced energy sources to meet growing needs
and in a manner consistent with sound environmental and
safety practices. The agency will have responsibility for
policy formulation, strategy development, planning, manage
ment, conduct of the energy R§D and for working with industry
to assure that promising new technologies can be developed
and applied.
S . Accelerate Oil Leasing of Federal Lands on the Outer
Continental Shelf
Prospects for large, new discoveries of onshore oil
and gas deposits in the lower 48 states are small. For this
reason, leasing of the Federal OCS must be greatly accelerated
with a target of ten million acres annually in 1975. This
is an amount 5-times larger than the 2 million acres expected
to be leased during 1974; and 1974 in turn is twice the
acreage leased during 1973. To sustain this schedule it
will be necessary to lease frontier areas off Alaska,
California and the vHlantic coast. The accelerated leasing
program will comply with all provisions of the National
Environmental ^olicy Act, and every step will be taken to
insure that development will be carried out under environ
mentally sound conditions. The President has directed the
Secretary of Interior to meet with coastal state officials
to establish the urogram needed to rapidly develop Outer
Continental Shelf resources.

17
T . Incentives to Secondary and Tertiary Production
Under current technology, 65 billion barrels of oil
would be left in the ground in known reservoirs. Some
existing price controls have a tendency to discourage
increased production from existing oil fields, especially
declining fields. The President has directed the adjust
ment of these controls so as to maximize incentives to use
secondary and tertiary production methods in such cases.
U . Coal Leasing of Federal Lands
The government intends to complete steps to resume
leasing of federal lands in 1975 to develop the vast coal
resources underlying these lands.
Increased world oil
prices have forced the nation to look to alternative
supplies of energy. The nation’s most plentiful resource is
coal, with over 1.5 trillion tons beneath the surface of
America; public lands alone contain 200 billion tons. The
President has directed Secretary of the Interior Rogers C.B.
Morton to complete the requisite environmental impact
statements and move to establish a program for leasing coal
on Federal lands in 1975 that will insure the availability
of this resource when needed for immediate production.
V. Leasing Public Lands for Oil Shale and Geothermal
Development
Early this year, the government leased 18 tracts in
known geothermal arease Ten of these tracts, located in the
Geysers Field of Northern California, can supplement efforts
on private lands that have already proven to be of commercial
value„ The remaining tracts, in the Imperial Valley of
California, offer a testing opportunity--tapping hot,
mineralized water for commercial use as an energy source0
Early this year, four oil shale tracts were leased in
Colorado and Utah which are expected to be of commercial
valueo Developmental work, already underway, will assess
the economic and environmental feasibility of exploiting
this vast oil shale resource--estimated as containing
400 billion barrels of oil in the western United States.
The Administration will immediately re-evaluate tne
government’s oil shale and geothermal leasing programs with
a view toward encouraging more rapid development of these
resources.

Completion of Plans to Bring Alaskan Gas to Market

Exploration and development of natural gas in Alaska
is moving very rapidly. By next year, the basic information
will be available to determine whether Alaskan gas should be
brought to the U. S. via a pipeline across Alaska or a
pipeline across Alaska and through Canada.
In response to
a congressional mandate, environmental and economic analysis
for each alternative is under way, and should be completed
early next year. With the completion of these studies
and plans, the President will determine whether and what
legislation is needed to expedite access to this large
source of environmentally clean energy.

INCREASING THE PRODUCTIVE CAPACITY
OF THE ECONOMY
In the long run, the answer to inflation is an economy
with sufficient productive capacity to meet the demands of
its people. This growth can be accomplished in three inter
related ways: First, through a better-trained, bettermotivated and healthier work force. Second, through a larger
and more productive stock of plant and equipment. Third,
through an increase in the operational efficiency of workers
and their equipment -- in short, by working smarter.
Increasing Investment. To accelerate the growth of
capital investment, the President is calling for an increase
in and a restructuring of the investment tax credit. The
credit will be increased from 7 to 10 percent; for utilities
the increase is from 4 to 10 percent. The restructuring of
the credit will eliminate existing restrictions that now limit
the incentive value of the credit and that discriminate un
fairly between types of taxpayers and investments that qualify
for the credit. (See Tax Proposals.)
Strengthening the Capital Markets. The financial markets
are the centerpiece of our economic system. Healthy and freely
functioning markets to bring together savers and investors are
crucial to the expansion of the nation's plant and equipment,
which in turn is essential to the creation of new jobs and
also to the growth of productivity that permits a rise in our
standard of living. Every American has a vital stake in the
vitality of our financial markets.
The most important thing that we can do to restore the
glow of health to our capital markets is to get control of
inflation. A rapidly rising price level is the bitter enemy
of savings and investment.
As part of this anti-inflation effort, we will take a
step that will also have, of itself, a direct beneficial im
pact on our financial markets. That step is to move toward
a balanced budget, and to end the drain that past deficits
have made on our capital markets. This would mean that more
of the savings generated by our private economy could be used
for new productive investment.
And in this context, we must also take account of the
demands of the off-budget agencies of the Federal Government,
and Federal credit guarantees (for housing, student loans, etc.)

-20

as well.
We must create a better environment in the financial
markets for equity capital. In recent years, corporations
have been unable to raise adequate new equity capital. They
have been adding heavily to their debt, however, and as a
result the capital structure of business has been getting
out of balance, with too much debt and too little equity.
This is especially true for our electric utilities.
As a contribution toward the solution to this problem and
also to improve the health of our financial markets and to
encourage investment, the President has proposed tax legis
lation to provide that dividends paid on qualified preferred
stock be allowed as a deduction to the paying corporation.
The Administration also supports strongly the Financial
Institutions Act of 1973 (see Thrift Institutions), and the
securities reform legislation pending in Congress that would
authorize the Securities and Exchange Commission to establish
a national market system for securities transactions. We are
also working with the Congress to revise the treatment of
capital gains and losses in such a way as to increase effi
ciency in the flow of capital.
In addition, we support pending legislation to eliminate
the withholding tax on interest and dividend income accruing
to foreign holders of U.S. securities. Elimination of this
would stimulate a larger flow of funds to capital markets in
the United States.
CREDIT ALLOCATION
An issue that has been widely debated in recent years
is whether or not the Federal Government should intervene
directly into the financial markets to require banks and
other credit institutions to make more loans for socially
desirable purposes and less for "unproductive" purposes. In
our view, allocation of credit by the Federal Government
would be highly undesirable. There is no basis for believing
that the Government could in fact allocate credit in a way
that was acceptable to the American people.
However, the Federal Advisory Council, a statutory body
that advises the Federal Reserve Board, has suggested con
structive guidelines for credit extension by the banks on a

21-

j/ f w ?

voluntary basis. The Federal Reserve Board has endorsed
these guidelines, and expects compliance by the banks.
ANTITRUST
The elimination of outmoded government regulation must
of course be accompanied by dedicated and vigorous enforce
ment of the antitrust laws. Violation of these laws is a
serious crime. Only through maintenance of vigorous compe
tition can we realize the benefits of less regulation. Our
efforts must be strengthened. We will focus particularly on
more effective enforcement of the laws against price fixing
and bid rigging. These types of activities which increase
prices substantially cannot be permitted.
Illegal fee schedules in the professions and in real
estate closings must also be eliminated. Such conduct will
be prosecuted to the full extent of the law.
To support this intensified enforcement effort, the
President has asked for legislative enactments in two areas.
First, we must increase the penalties associated with anti
trust violations — for corporations the maximum fine should
be increased from $50,000 to $1 million while for individuals
it should be increased from $50,000 to $100,000. Second, we
must strengthen the investigation powers of the Antitrust
Division of the Department of Justice. This can be accomplished
by speedy passage of the Administration's legislation now
pending before the Congress that would amend the Antitrust
Civil Process Act, and to provide laws which would give enforce
ment agencies greater capability to detect bid rigging.
GOVERNMENT REGULATION
The Federal Government imposes many hidden and inflationary costs on our economy. Laws and regulations have been put
into effect with little concern for the underlying costs.
These billions of dollars of increased costs are passed on to
American consumers in the form of higher prices. A broad pro
gram will be undertaken to attack this problem and to identify
opportunities for change. These proposals could save billions
dollars, which could then be devoted to more productive
investments. They would also reduce the visibility and impact
of government on the American people.
The Council on Wage and Price Stability will act as a
continuing watchdog on tne m n a t i o n a r y actions of the Executive

-22

Departments and agencies to uncover laws and regulations
that raise costs and stifle economic flexibility and ini
tiative. We need to eliminate or alter many restrictive
practices of the Federal Government in areas such as trans
portation, labor and agriculture — practices that unnec
essarily increase the overall costs of goods and services.
Both the Conference on Inflation and the Joint Economic
Committee recommendations support this approach. The Council
will devote a very substantial part of its effort to this
function.
National Commission on Regulatory Reform. The indepen
dent regulatory commissions, through their broad policy
determinations and individual case decisions, create a body
of regulatory policy separate and apart from that of the rest
of the Executive Branch. The President will submit legislation
to create a National Commission on Regulatory Reform to examine
the policies, practices and procedures of these Agencies and
develop appropriate legislative and administrative recommenda
tions. Its membership should include Executive Branch,
Congressional, and private sector representation.
Inflation and Job Impact Statement. The President will
require all executive agencies to develop Inflation Impact
Statements to assess the inflationary consequences of major
legislation or regulations prior to the agency taking action.
Such an impact statement would sensitize government decision
makers to the broader consequences of government activities,
and to the tradeoff of costs versus benefits in government
programs.
The President recommends that the Congress set a similar
requirement for itself. The proposed Commission on Regulatory
Reform should examine the feasibility of legislation requiring
independent regulatory agencies to do a similar preanalysis
of their actions.
Speedier Adjudication and Proceedings. New approaches
are required to eliminate the interminable delays often
created before regulatory matters are resolved. The courts
and the independent regulatories are urged to develop new
approaches to assure prompt resolution of pending matters.
The Executive Branch will undertake a similar effort.
States and Local Governments. Other governmental units
are urged to undertake a similar broad program to bring under
control the inflationary influence of government at all levels.

I I

-23-

Enactment of Pending Legislation. There are several
important pieces of legislation now pending before Congress,
whose enactment would help to reduce the burdens now imposed
on the economy by government activities. These include the
Surface Transportation Act, the Financial Institutions Act,
Trade Reform, and the creation of a Paper Work Commission
to review the administrative "bookkeeping" requirements
levied by government on the private sector. Congress is
urged to move swiftly to enact these measures.

-24COUNCIL ON WAGE AND PRICE STABILITY
The Council on Wage and Price Stability will devote
primary emphasis to two functions: First, it will act as
a watchdog on the actions of the Executive Departments and
Agencies of the Government that raise costs and impede
competition. It will recommend needed changes in administra
tive procedures, and changes in legislation where necessary,
to correct these practices.
Second, it will monitor wage and price movements in
the private sector. In general, the Council will carry out
this function by seeking the full, voluntary cooperation of
labor, industry, and the public to solve problems of mutual
concern. The Council will cooperate fully with the President's
new Labor-Management Committee. In addition, the Council
has the power to conduct public hearings and intends to use
it to explore the justification for price and wage increases,
as appropriate.
Among other duties the Council on Wage and Price Stability
will work with the Cabinet Committee on Food and the Inter
agency Fertilizer Task Force. Also, in dealing with specific
sectors in which price pressures are particularly virulent,
efforts will have to be concentrated on food, energy, con
struction, medical care and primary industrial capacity.
The Council, however, will not be a,wage and price control
agency. Controls do not stop inflation; they did not do so
the last time around nor even in World War II when prices
increased despite severe rationing.
Indeed, controls can make inflation worse. They often
create shortages, hamper increased production, stifle growth
and cause unemployment. Ultimately, they can cause the fixer
and black marketeer to flourish while decent citizens confront
empty shelves and long waiting lines.
NATIONAL COMMISSION ON PRODUCTIVITY
Increased productivity — ■ working smarter to increase
the total economic output of our work force and equipment —
is a vital component of the drive to increase production.
This long-term goal will be pursued by a revitalized National

-25-

Commission on Productivity.
The Commission will also ex
tend and deepen the drive to increase productivity in
government — Federal, state and local.
It is important
that government set a good'example of leadership in this
effort, and we may be sure that there is no shortage of
opportunity for productivity in the operations of govern
ment.
The rest of its effort will be in the private sector,
With primary emphasis on meaningful programs at the plant
level.
Special attention will be devoted to food, trans
portation, construction and health-services.

EMPLOYMENT ASSISTANCE
Increases in unemployment have raised the Nation's
unemployment rate to 5.8 percent in September.
During this
period of high inflation and unemployment, there is a need
for Federal standby authority with minimal inflationary
impact, which will help alleviate the impact of unemploy
ment should unemployment rates rise.
Such action is neces
sary to help alleviate unemployment problems in areas most
affected and to assure that the impact of inflation does not
unduly burden those workers least able to bear the costs.
The National Employment Assistance Act of 1974 would
respond to these needs by authorizing, during the next 18month period two programs which would begin to operate
should the national unemployment rate average 6 percent or
more for 3 months:
(1) A temporary program of income replacement known as
the Special Unemployment Assistance Program for experienced
unemployed workers in areas of high unemployment who have
exhausted all other unemployment compensation or who are
not eligible for such compensation? and
(2) A program of employment projects for these same
areas, known as the Community Improvement Program.
While the primary purpose of the two programs is to
alleviate the hardships of unemployment upon individuals,
it will also alleviate the adverse impact on those local
economies hardest hit by unemployment.
The unemployment assistance benefits serve to cushion
the effects of protracted unemployment by providing addi
tional income replacement to workers who have either

-26

exhausted their regular unemployment compensation benefits
or to individuals with a demonstrated labor force attach
ment not otherwise eligible for unemployment insurance
benefits. Not only does this replace lost income, but it
provides workers with the time and opportunity to look for
work consistent with their skills and experience.
The table below shows funds and services now available
under Unemployment Compensation laws and the Comprehensive
Employment and Training Act (CETA). It also indicates how
much would become available over a twelve month period for
current unemployment programs, and for the two new proposed
programs, at average national unemployment levels of 6 per
cent and 6.5 percent.
Title II of the National Employment
Assistance Act would make a further $1 billion available if
national unemployment exceeded 7 percent on average for three
months or m o r e .
5.8%

6 .5 %

CETA Public Service Jobs
Funds: ...............
Jobs: ............. .

$1,015 mil.
170,000

CETA Other Training and
Employment
F u n d s :..............
Man Y ears:..........

$1,700 m i l .
380,000

$1,700 mil.
380,000

Unemployment Benefits
(current law)
Payments:.........
Beneficiaries:. . . .

$7,775 mil.
7.9 mil.

$8,145 mil.
8.2 mil.

$9,065 mil.
9.2 mil.

(annual rate)

National Employment
Assistance Act
Special Unemployment
Benefits
Payments...........
Beneficiaries......
UI Exhaustees.....
Previously Ineli
gible..........

...
...
---

$2,120 mil.
2.73 mil.
(.83 mil.)

$2,550 mil.
3.31 m i l .
(1.05 m i l .)

...

(1.9 mil.)

(2.26 mil.)

Community Improvement
Projects
Funds..............
Man Years of Employ
ment .............

...

$500 mil.

...

83,000

$1,250 mil.
208,000

27 t

The initiation of temporary projects by State and
local governments is perhaps the least inflationary way of
providing jobs for unemployed workers.
Jobs provided by
these projects help to cushion the loss of income due to
unemployment, while enabling State and local governments
to provide their citizens with a socially useful product.
Because projects under this program will be generated
in and geared to areas with high unemployment in which
there exists a substantial amount of available manpower,
there should be little or no adverse impact on the regular
labor market.
There is a limit of $7,000 a year for jobs
authorized by this program and therefore the average wages
will be considerably less than those earned in the private
sector.
Most workers will obtain private jobs as the
economy grows.
The added cost
offset somewhat by
fare payments, and
employees in these

of Community Improvement Projects may be
reduced demand for food stamps and wel
by some increase in tax receipts from
projects.

Basic funding provisions of the National Employment
Assistance A c t I Funds for both the Special Unemployment
Assistance Program and the Community Improvement Program
become available when the national unemployment rate-reaches
6.0 percent on average for three consecutive months.
For
the Special Unemployment Assistance Program, such funds as
are necessary are authorized if unemployment is above this
level.
For Community Improvement Program, successive
increments of funds are authorized if the national unem
ployment level reaches, for three consecutive months an
average o f :
—
—
—

6.0 percent — $500 million dollars authorized;
6.5 percent -- another $750 million dollars
authori zed; and
7.0 percent — an additional one billion dollars
authorized.

When the national unemployment rate recedes below these
respective levels for three consecutive months on average,
Federal funds for new projects will cease.

Eighty percent of the available funds for Community
Improvement Projects will be distributed by formula among

-28-

eligible applicants based on (1) the relative number of
unemployed residing in areas of substantial unemployment
within their jurisdictions, and (2) the severity of un
employment; 20 percent would be expended at the discretion
of the Secretary, principally to finance projects in areas
which become eligible after the formula distribution is
made.
The local labor market area— and balance of State—
unemployment rates determine the communities in which both
programs will be operating.
Both programs are directed to
those areas in which unemployment is highest.
Both programs
come into effect in a labor market area, with a population
of 250,000 or more, when it has an unemployment rate equal
to or in excess of 6.5 percent for three months on average.
The balance of each State not included in such areas will
constitute a single area in which the programs will become
effective subject to the same unemployment rate criterion.
When the local unemployment level recedes below 6.5 percent
on average for three consecutive months no new individuals
become eligible and no new projects may be started.
Special Unemployment Assistance Program. This new
temporary unemployment assistance program will be separate
from but supplemental to the existing Federal-State Unemploy
ment Insurance (UI) System, and is designed to extend
coverage to experienced persons in the labor force who have
exhausted their UI benefits or are otherwise ineligible for
such benefits.
The program would be operated through agree
ments with the States.
All experienced members of the
workforce will be eligible for benefits as follows;
-- They must have last worked in a labor market area
(or balance of State area) with substantial unem
ployment .
-- Benefits will be governed by benefit provisions of
each State UI law.
-- Individuals who had exhausted their benefits under
State UI programs will be eligible for a maximum of
13 weeks benefits.
-- Individuals who were not previously eligible for
State UI benefits will be eligible for a maximum of
26 weeks provided that they have attachment to labor
force as required by the relevant State UI law.

-29-

¡i?

-- Benefits for UI inéligibles will generally be the
amount that would be payable as computed under State
law if all work was performed for covered employers.
—

No new beneficiaries would be eligible after June 30,
1976.

Community Improvement Program.
—

New program is structured so that as the national
employment rate rises, more money is available for
community improvement projects.

-- Projects are limited to areas eligible for the
Special Unemployment Assistance Program.
—

Eligible applicants are prime sponsors under the
Comprehensive Employment and Training Act, in areas
that qualify.

—

Projects may be with State or local government
agencies.

—

Each Community Improvement project is limited to
6 months duration.

-- Not more than 10 percent of a sponsor's funds may be
used for administrative costs, supplies, material,
and equipment.
—

Individuals eligible for employment on these projects
are those who have exhausted their benefits under
the Special Unemployment Assistance Program.

—

Wages paid project employees must be at least the
minimum wage under the Fair Labor Standards Act, or
the State or local minimum wage, whichever is higher;
however, in no case may the wage exceed an annual
rate of $7,000.
State or local governments may not
supplement wages with their own funds.

—

Prohibitions against political activities and dis
crimination apply to the program.

The Community Improvement Program will provide funding
for projects such as conservation, maintenance or restoration
of natural resources, community beautification, anti-pollution
and environmental quality efforts, economic development and
the improvement and expansion of health, education, and recrea
tion services and such other services which contribute to the
community.

-30

INTERIM HOUSING AID

President Ford proposed extending, on a temporary basis,
the advantages offered by the Government National Mortgage
Association (GNMA or Ginnie Mae) to mortgages which are not
Federal Housing Administration (FHA) insured or Veterans
Administration (VA) guaranteed — so called "conventional"
mortgages.
Three billion dollars — an amount sufficient to
finance about 100,000 new homes — would be available. The
proposed program will be in addition to the over $19 billion
of Federal funds that have been made available over the past
year for the purchase of mortgages to supplement the buying
power of hard-pressed thrift Institutions.
GNMA currently aids in creating a supply of credit for
mortgages on new homes insured by FHA or guaranteed by VA
about 20% of the total mortgages — at reasonable interest
rates by
—

assuring, through commitments in advance, purchase
of mortgages at a pre-determined p r i c e .

—

subsidizing market interest rates to lower levels in
the event interest rates do not fall after commitments
are made.

—

guaranteeing, on a "full faith and credit basis,"
obligations secured by such mortgages.

Housing Industry Situation Critical . Over the past 22 months
—

housing starts have dropped from 2.51 million units
to 1.13 million units.

—

unemployment in the construction industry is 12.4
percent and climbing, with almost a half million
construction workers now unemployed.

—

many homebuilders are in financial difficulty.

President Ford's Proposal for Interim Housing Aid
By making conventional mortgages on new homes eligible
for purchase by GNMA, builders and homebuyers will be assisted
where home mortgage credit is scarce or non-existent.

-31-

1. Level of Commitments. Aggregate amount of commit
ments and mortgages which GNMA could hold at any time, i.e.
have purchased and not resold, could not exceed $7.75 billion.
A program of $3 billion of mortgage commitments, or enough
to finance about 100,000 new homes, is contemplated. The
precise amount would be determined on the basis of market
conditions at the time the new authority becomes law, and
additional programs would be activated as circumstances
require.
2. Mortgage Amounts, Discounts, Interest Rates, and
Downpayment Requirements. Subject to Congressional approval
the program would provide for a maximum mortgage amount of
$45,000.
The effective interest rate would be determined
on the basis of market conditions at the time the program
went into effect and would be somewhat above the rate offered
on GNMA tandem programs for FHA/VA mortgages — presently
8 3/4%. Twenty percent downpayments would be required with an
exception for down to 5% downpayments if the additional mort
gage amount is covered by a qualified private mortgage insur
ance contract so as to minimize cost of mortgagor defaults.
3. GNMA Disposition of Conventional Mortgages. Following
the precedent of existing law, GNMA could, depending upon
market or other factors, sell mortgages to the Federal National
Mortgage Association (FNMA) or the Federal Home Loan-Mortgage
Corporation (FHLMC), sell mortgages or commitments with a
provision for pooling by FNMA or FHLMC or other approved
issuers and sale by such issuers of GNMA-guaranteed "pass
through" securities or bond type securities on the market or

to the Federal Financing Bank or sell guaranteed "pass through"
securities to the Federal Financing Bank.
4. Cost and Budget Implications. Any subsidy would be
paid out of corporate funds and ultimately from Treasury
borrowing. Dollar amount of mortgages purchased would not
be excluded from budget authority, but would appear as outlays
in any fiscal year only to the extent they are not offset by
sales that year. Assuming (i) all mortgages purchased in a
given fiscal year were sold in that year, (ii) a face interest
rate of 9 1/4%, (iii) no discount points on GNMA purchase and
(iv) an average market rate at time of GNMA sale of 10%, the
budget outlays per each billion dollars of mortgages would be
about $50 million.

-32PUBLIC UTILITIES

The problems of our public utilities are extremely serious.
More than anything, they are suffering from the effects of inflation —
in particular the explosion in oil prices but also frcxn high interest
rates. Their inability to raise all the capital they need is forcing
them to reduce construction plans, which causes unemployment today
and the real threat of brown-outs tomorrow.
The most fundamental part of the solution to these problems is
for increases in the cost of electricty, reflecting high prices for
fuel, to be paid by the consumers. This means higher rates, as
painful as they are.
In the past, the utilities industry has developed rate structures
that encourage excessive energy consumption. These promotional rates
are often at lower levels than the cost of the energy provided, and
thus give a perverse incentive at a time when conservation is our
goal. Regulatory authorities should eliminate such rate schedules
promptly.
While the Federal Government will not pre-empt the regulatory
functions of the States, the States must meet their responsibilities
fully.
In addition, the restructuring of the investment tax credit and
its increase from 4 percent to 10 percent for the utilities (the
same as for businesses generally) will assist these companies in
overcoming their financial problems. The new proposal that dividends
paid on qualified preferred stock also be allowed as a deduction to
the paying corporation will also help the utilities improve their
capital structure, and energy conservation measures, mandatory and
voluntary, will hold down future financing requirements of utilities.

THRIFT INSTITUTIONS

Our savings institutions are another victim of the twin scourges
of high inflation and high interest rates. To correct this situation,
we must bring inflation down. However, we must also provide the
means for the thrift industry to restructure itself — to give these
institutions the ability to compete on an equal basis in the financial
markets and to operate effectively under all interest-rate conditions.
To this end, we urge prompt passage of the Financial Institutions
Act of 1973.

The Act will reduce the structural differences between commercial
banks and thrift institutions, primarily by permitting the thrift
institutions to engage in additional deposit and credit activities.
Passage of this Act would provide a broader range of financial ser
vices for consumers and a higher rate of return for savers. It would
improve income and liquidity in the thrift institutions. The Act
also contains provisions that will improve and support the mortgage
market.
In addition, we support the proposals now under consideration
in both the House and Senate to increase Federal insurance on private
deposits. We recommend an increase from $20,000 to $50,000 Such
an increase will reinforce public confidence in our financial system.

THE BUDGET
Control of the Federal Budget is a vital component of our antiinflation efforts. Reducing the fiscal 1975 budget is the first
step in reducing the powerful momentum of our rapidly climbing
Federal budget and thereby gaining the spending control so necessary
for 1976 and beyond. And this extended budget control will sub
stantially reduce inflation over the longer tern.
This should not suggest that budget control has no short-run
benefits. Quite the contrary. A reduction in the deficit for'
fiscal 1975 would reduce pressures in the financial markets, lower
interest rates and provide more credit for housing and other new
capital investment. It would mean that monetary policy would not
have to bear the full burden of economic policy restraint. And it
would reduce inflationary expectations by demonstrating convincingly
that the Federal government is putting its own financial house in
order.
Our program for fiscal discipline has elements on both sides
of the budget. On the revenue side we have proposed a tax surcharge
on high-income taxpayers and corporations. The increased revenues
from the surcharge will pay for the additional unemployment in
surance, the Community Improvement Program, the increased and
restructured investment tax credit and the revised tax status of
preferred stock dividends.
On the expenditure side, the President has reaffirmed his in
tention to hold budget outlays for fiscal 1975 to below $300 billion.
Cutbacks of over $5 billion will be needed to reach the goal. We are

-34
already in the fourth month of the fiscal year; thus reductions of
the amount required will be difficult to obtain. There is need for
rapid action, and the Congress and Executive together will need to
work together quickly and effectively to put expenditures on a long
term track that is consistent with the productive capacity of the
American economy and with what the American people are willing to
pay for.
The President has asked the Congress to enact a bill setting a
spending target for fiscal year 1975 of less than $300 billion. In
establishing that target, the bill outlines a plan for developing a
set of actions that would result in the necessary spending reductions
of FY 1975. These actions would be transmitted to Congress for its
consideration when it returns in November. The actions to hold down
spending will concentrate on those programs that serve special
interests, create inequities, or are less essential at this time
when fiscal discipline is so important. Concurrence of the Congress
in these proposals before the beginning of calendar year 1975 is
essential if the $300 billion target is to be achieved.
The Administration together with the Congress have already begun
to take action on this outlay control program in national defense
activities. The Congress has passed, and the President has signed,
a defense appropriation bill that will reduce defense outlays in
FY 1975 by about $2 billion. This is the largest single cut we will
be making and is a good start toward the $300 billion goal.
The remainder of the necessary outlay control plan will be
carried out in the fullest spirit of cooperation with the Congress.
Rapid consideration by the Congress of legislative proposals and
budget rescissions and deferrals under the Congressional Budget and
Impoundment Control Act of 1974 will be essential if we are to meet
our goal. Only through the most careful consultation with the Con
gress can we succeed. We must achieve a mutual understanding of the
best ways to hold dcwn the budget.
We also have to improve the content of the budget. As now
stated, the budget — because it does not adequately show the impact
of the Government's credit program — does not present to the American
people a complete picture of Federal activities and their effect on
the economy. The Federally sponsored credit agencies and the many
guarantee programs must be brought into the budget more directly.
The table below shows the estimated impact on budget expenditures
and receipts of the proposals in this message.

(
\
-35BUDGET IMPACT
FY 1975
($ billions)
New Proposals
Additional Revenues:
Tax surcharge:
Corporations
High-income individuals

+0.6
+1.0

+1.5
+1.6

-0.1
-0.1

-1.3
-0.1

-0.1
-0.7

-0.5
-2.0

Revenue Losses:
Employment assistance*
Housing program
Investment tax credit:
Individuals
Corporations
Preferred stock dividends
Net Impact

—

+0.6

-0.1
-0.9

Pending Tax Reform Bill
Pending tax reform:
Increased oil taxes
Closing loopholes**
Simplification
Other tax reform
Lcw-inccme relief
— reccmended addition
Net Impact
Budget Impact of New and
Pending Proposals

-0.5

+2.2
+0.8
-0.4
-0.2
-1.6
-0.4
+0.4

+0.1

-0.5

+1.3
+0.1
—
-1.0
-0.9
—

Note: In addition to the above items, new expenditure deferrals and
recissions will be proposed to hold fiscal 1975 expenditures belcw
$300 billion.
* For fiscal 1975, this assumes that a 6 percent unemployment rate
triggers the program into effect on Mar. 1, 1975. Note, however, that
the total expenditures for this program in fiscal 1975 will be $0.9
billion; $0.8 billion is already included in earlier budget estimates.
For fiscal 1976, this assumes that the unemployment rate falls below
6 percent and thus triggers an end to payments as of December 31, 1975.
**Minimum tax on income and limitation on accounting losses.

-36TAX PROPOSALS
Surcharge
1 *

Corporations

A 5 percent corporate tax surcharge will be imposed
effective January 1, 1975, and continuing through December
1975. The surcharge will be computed by multiplying the
corporate tax (before credits against tax, but including
the additional tax for tax preferences) by 5 percent. For
corporations with taxable years ending in 1975 or beginning
in 1975 and ending after 1975, the surcharge will be com
puted on a pro rata basis according to the number of days
of the taxable year in 1975.
2.

Individuals

A 5 percent individual tax surcharge will also be
imposed for 1975 on income tax liabilities attributable
to income above an upper income threshold.
In general, the proposal is designed to exclude from
surcharge families with adjusted gross incomes below $15,000
and single persons with adjusted gross incomes below $7,500.
However, because income tax liabilities are based on "taxable
income" rather than "adjusted gross income," it is necessary
to translate, on some average basis, the $15,000 and $7,500
into comparable "taxable income" figures. That was done as
follows:

Adjusted gross income
Standard deduction
Exemptions (assuming
4 for families
1 for single person)

Families

Single
persons

$15,000
2,000

$7,500
-1,300

-3,000
$10,000

- 750
$5,450

Thus, the surcharge will be expressed technically as a sur
charge on tax liabilities attributable to that portion of
the taxpayer's "taxable income" in excess of the $10,000 or
$5,450, as the case may be. Not all taxpayers have the same
deductions and exemptions as those assumed above. For

r^ i
<r37r
example, there will be married taxpayers with more exemptions
and deductions than those assumed, who will pay no surcharge
even though their adjusted gross incomes are somewhat greater
than $15,000. Conversely, some with fewer exemptions may
pay surtax even though their adjusted gross incomes are some
what less than $15,000.
The computation is straightforward. The taxpayer (1) com
putes his regular tax, (2) subtracts from that the amount of
tax applicable to either his $10,000 or his $5,450 exemption,
and (3) then multiplies the balance by 5 percent. For example,
a family of four filing a joint return and having $20,000 of
taxable income would calculate a regular tax of $4,380 and
subtract from that $1,820 (the tax on the first $10,000) to
arrive at $2,560 which is subject to the 5 percent surcharge
of $128. A single person with $10,000 of taxable income would
calculate a regular tax of $2,090 and subtract from that
$994.50 (the tax on the first $5,450) to arrive at $1,095.50,
which is subject to the 5 percent surcharge of $54.78.
Investment Tax Credit
The proposal to change the investment tax credit has
three principal parts:
(1) the elimination of existing
limitations and restrictions on the credit which tend to
discriminate unfairly between the types of taxpayers and
investments which qualify for the credit, (2) an increase
in the rate of the present credit from 7 percent to 10 per
cent, and (3) making the credit a reduction in basis for
depreciation purposes.
1.

Present law

An amount equal to 7 percent of the cost of qualifying
property (generally, tangible personal property used in a
trade or business) may be offset directly against income tax
liability, with the following limitations based on the
expected useful life of the property:
Useful Life
0-3 years
3-5 years
5-7 years
7 years and over

Percent of cost of
property qualifying for credit
0
33-1/3
66-2/3
100

Public utility property qualifies for only a
4 percent credit (The Ways and Means Committee
has tentatively decided to remove this
limitation).
The maximum credit which may be claimed in a
taxable year is limited to $25,000 plus one-half
of the excess of tax liability over $25,000.
Excess credits (limited by the above provision)
may generally be carried back three taxable
years and forward seven taxable years, after
which they expire if still unused.
Proposed changes
Increase the rate from 7 percent to 10 percent.
This will increase cash flow for all companies
in the immediate future. It will be offset in
future years by lesser depreciation deductions.
Eliminate the limitations based on useful life
so that all property with a life in excess of
three years will qualify for the full credit.
Eliminate the discrimination against public,
utility property so that it will qualify for
the full rate and otherwise be treated the
same as other qualifying property.
Replace the present limit on the maximum credit
which may be claimed with eventual full refundability for the excess of credits over tax
li^ility.
Credits in excess of the present
limitations may be carried back three years and
then to the succeeding three years to offset
tax liability, after which time any remaining
excess credits will be refunded directly to the
taxpayers. This will
—

Help growing companies which have present
investments which are large in comparison
with their current incomes.

—

Help companies in financial difficulties,
which get no benefit from credit because
they have little or no income tax liability
against which to apply it.

—

Help small businesses, which under present
law are more severely affected by the
restrictions and limitations.

The three-year rule postpones adverse budget impact
until revenues from basis adjustment are sufficient
to offset revenue loss from this refundable feature.
Require the taxpayer to reduce the cost of qualify
ing property for depreciation purposes by the amount
of the investment tax credit. This makes the credit
neutral with respect to long-lived and short-lived
assets and removes the present discrimination against
long-lived assets.
Retain the present $50,000 per year limitation on
qualifying used property.
Deduction for Dividends Paid on
Certain Preferred Stock
To encourage expansion of corporate equity capital and
increase the effectiveness of capital markets, it is proposed
that dividends paid on qualified preferred stock be allowed
as a deduction to the payor corporation. The provisions of
the Internal Revenue Code providing for exclusions for divi
dends received by corporations would not be applicable to
these dividends.
The deduction would only be available for cash dividends
paid on preferred stock issued after December 31, 1974, for
cash or pre-existing bona fide debt of the issuing corpora
tion. For these purposes, preferred stock would be required
to be non-voting, limited and preferred as to dividends and
entitled to a liquidating preference. The intention to
qualify preferred stock under this new provision of the
Internal Revenue Code would be required to be clearly indi
cated at the time the stock was issued.
The Tax Reform Bill
1.

Low-income taxpayer relief

We support the Tax Reform bill now pending in the Ways
and Means Committee. It provides about $1.4 billion of tax

-40relief for individuals with incomes of less than $15,000.
In addition, the Tax Reform bill would produce a long-term
revenue gain of about $500 to $600 million per year beginning
in FY 1976 and we support using those revenues when received
also to provide further income tax reductions for lower in
come families.
The principal individual tax reductions provided in the
bill are increases in the minimum standard deduction, the
standard deduction and the retirement income credit and a new
simplification deduction which for most taxpayers will be
larger than the miscellaneous, hard—to—compute deductions
which it would replace.
The tax reductions in the bill are made possible primarily
by revenues gained from tax reform measures and by increased
taxes on oil producers. The tax reform proposals are based
on Treasury proposals advanced a year and a half ago. The
two main features are:
(1) a minimum tax, designed to ensure
that all taxpayers pay some reasonable amount of tax on their
economic income, and ( 2) a provision (known as " L A L , i.e.,
limitation on artificial accounting losses) designed to elimi
nate tax shelter devices under which tax is avoided through
the deduction of artificial losses which are not real losses.
In December 1973, the Treasury proposed a windfall profits
tax on oil, which is now incorporated in the Tax Reform bill
in modified form. The Committee has also provided for the
phase-out over three years of percentage depletion on oil and
gas.
The Committee bill raises less revenue from tax reform
and oil taxes for calendar years 1974 and 1975 than the
Treasury proposed. The Treasury hopes that Congress will
restore some of the reform which the Treasury proposed.
However, it is most important that tax reform and tax reduc
tion legislation be enacted as promptly as possible and the
Administration will support the bill in its present form.
2.

Savings and investment proposals

Greater productivity in the next several years will be
critical in winding down the wage-price spiral. That will
require major new investments.
The Tax Reform bill now pending makes an important con
tribution by (i) bringing the investment credit for utilities
up to the credit generally applicable for other industries,

-41(ii) liberalizing the treatment of capital gains and losses,
and (iii) eliminating U.S. withholding tax on foreign port
folio investments, thus encouraging investment by foreigners
in the United States.
Tax Exemption for Interest
on Savings Accounts
Various proposals have been made to exempt interest on
savings accounts. We do not support any such proposal for
reasons which include the following:
(1) It would initially decrease the aggregate amount of
saving. A $750 exemption for interest on time and savings
deposits would cost about $2 billion, which the government
would have to borrow in the private market to make up. That
borrowing reduces the amount of savings available for private
investment.
(2) It would not be effective. It would not substan
tially increase savings deposits because the tax exemption
would not be a major benefit to most taxpayers. For a tax
payer in the 25 percent bracket, exemption would make a
5.25 percent account equivalent to a 7 percent taxable
account, which is still considerably below the rates avail
able elsewhere. Only high-bracket taxpayers would get major
benefits.
(3) Passbook savings may increase some, but total sav
ings will not increase. The principal effect would be some
switching. It doesn't operate as an incentive for new sav
ings because it doesn't reward the increase in savings.
(4) It would create new distortions in the credit and
investment markets.

-42
CITIZENS1 ACTION COMMITTEE TO FIGHT INFLATION
The following Citizens have already agreed to help organize
and support a voluntary private sector effort to mobilize
all Americans in the fight against inflation:
MAYOR JOSEPH ALIOTO
of San Francisco

Chairman, U. S. Conference of
Mayors

ARCH BOOTH

President, Chamber of Commerce
of the United States

RUSSELL W. FREEBURG

White House Coordinator

DAVID L. HALE

President, United States Jaycees

MRS. LILLIE HERNDON

President, National Congress of
Parents and Teachers

ROBERT P. KEIM

President, The Advertising Council

MRS. CARROLL E. MILLER

President, General Federation
of Women's Clubs

WILLIAM J. MEYER

President, Central Sprinkler Co.
Landsdale, Pennsylvania

GEORGE MYERS

President, Consumer Federation
of America

RALPH NADER

Private Citizen

LEO PERLIS

Director of Community Service,
AFL-CIO

SYLVIA PORTER

National Syndicated Columnist

GOVERNOR CALVIN RAMPTON
of Utah

Chairman, National Governors
Conference

STANFORD SMITH

President, American Newspaper
Publishers Association

FRANK STANTON

Chairman, American National
Red Cross

ROGER FELLOWS

4-H, University of Minnesota

-43-

VINCENT T. WASILEWSKI

President, National Associa
tion of Broadcasters

ROY WILKINS

Executive Director, National
Association for the
Advancement of Colored People

DOUGLAS WOODRUFF

Executive Director, American
Association of Retired
Persons

OCTOBER 8, 1974

FOR IMMEDIATE RELEASE

OFFICE OF THE WHITE HOUSE PRESS SECRETARY

THE WHITE HOUSE
PRESS CONFERENCE
OF
WILLIAM E. SIMON
SECRETARY OF THE TREASURY
FREDERIC W. HICKMAN

ASSISTANT SECRETARY FOR TAX POLICY
ROY ASH
DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
L. WILLIAM SEIDMAN
ASSISTANT TO THE PRESIDENT FOR ECONOMIC AFFAIRS
JAMES T. LYNN
SECRETARY OF HOUSING AND URBAN DEVELOPMENT
ROOM 450
OLD EXECUTIVE OFFICE BUILDING
2:40 P.M.

EDT

SECRETARY SIMON: Let me f i r s t apologize fo r the
delay in the re c e ip t of these documents. I probably w ill
not find out what happened fo r about three weeks but I
apologize fo r the inconvenience.
What you are receivin g now are the fa c t sh e e ts.
The speech does not contain a l l of the inform ation,
obviously. There are more fa c t sh eets on the way.
Ladies and gentlemen, I had o r ig in a lly scheduled
t h i s , as you know, to be a l l prepared by 2 :3 0 , and I was
going to speak fo r about 45 minutes and then accompany the
President to the H ill fo r the speech to the jo in t se ssio n .
As a r e s u lt of th is sn afu , we are la te and we obviously
would not have had much time even i f we had adhered to that
schedule.
Instead o f going to the H ill with the P resid en t,
we w ill stay down here and respond to your questions u n til
a f t e r the President sp eaks, c e r ta in ly , and then we have to
go to the H ill and b r ie f the b i-p a rtisa n lead ersh ip .
So, th is i s an e f f o r t , a sm all e f f o r t on our part
to accommodate you any way we can fo r t h i s , as I said before,
gro ss inconvenience to you and your tim e.
But, le t me s t a r t now. B ill Seidman i s s t i l l
with the President and he w ill jo in us here in a minute
and I ju s t have a few opening comments, and we have the
experts in se v eral areas here to respond to any questions
supplementary to my answers, or to answer tech n ical qu estion s.
MORE

-2

We have the A ssista n t Secretary of the Treasury
fo r Tax p o lic y , Fred Hickman, in the area o f ta x a tio n .
I am glad to be here today to d isc u ss the P re sid e n t's
program to control in fla tio n and maintain a healthy and
growing economy. Now, I guess there are some people who
are expecting a block b u ste r, something th at we are going
to announce today that i s going to be an in sta n t cure fo r
the problems th at we have.
The fa c t of the m atter i s , as we have sa id so
o fte n , there are no in stan t c u re s, no magic formula th at
i s going to cure our in fla tio n immediately.
I f the economic problems were simply the
temporary in fla tio n that often happens a f t e r the peak of
a boom or the problem of temporary unemployment th at
occurs in a re c e ssio n , the P re sid e n t’ s program could be
quite straigh t-forw ard and sim p le.
For the f i r s t p art o f i t he could put on the
brakes of f i s c a l and monetary r e s t r a in t and in dealin g
with the second, he could apply p o lic ie s th at could turn
expansive. In e ith e r c a se , balance would be resto red
f a ir l y promptly.
This time we have an in fla tio n in an economy
that i s a lso su ffe rin g from severe b a sic imbalances and
i t is a very complex problem. We a l l recognize th at our
in fla tio n didn’ t develop from ju s t one or two f a c t o r s , but
rath er a combination of fa c to r s . I t i s m ulti-dim ensional
in n atu re.
In addition to the p ressu res th at are caused by
the c a r te l p ricin g p ra c tic e s in o i l , we have a ls o su ffered
from some m isfortunes including bad weather, which has
affe c te d cro p s, bad tim ing, c y c lic a l convergence o f a
worldwide boom and bad p o lic ie s th at r e f le c t years of
excessiv e government spending and monetary expansion.
We now have to accept the r e s p o n s ib ility fo r
these government p o lic ie s and recommend p o lic ie s
th at fu lly take into account the circum stances in the world
in which we find ou‘ se lv e s.
I believe the program th at we are presentin g to
you today, th at the President i s presentin g today, does
ju s t th a t. I t i s going to be perhaps a disappointment
to those who argue fo r more government r e g u la tio n , wage and
p rice c o n tro ls, c re d it a llo c a tio n s and gaso lin e ratio n in g .
In stead , we are presentin g a program aimed at mimimizing
government c o n tro ls.
You know, we mounted I think -- and I have been
to ld by people who have been in government a good deal
longer than I -- the most comprehensive e f f o r t ever under
taken in the Government to deal with the su b ject of economic
p o lic y .
MORE

-3
I t was an e ffo r t that cut acro ss the whole lin e
of the cabinet o ffic e r s with much p a rtic ip a tio n and
d iscu ssio n .
This e ffo r t d e alt with every area of the government
and p rivate secto r a c t iv ity . We drew heavily upon the
many recommendations made at the Pre-Summit as well as
the Summit meetings. We met continuously with President Ford
to d iscu ss a l l of the fa c e ts and a l l of thei options that we
had in fron t of us.
Puring th is e f f o r t , I think a lo t o f things
became apparent to us and one that ce rta in ly s tic k s out
in my mind i s that we have in the United S tate s of America
more government than we need. V7e have more government
than most people want, and we c e rta in ly have more government
than we are w illin g to pay fo r.
Now, in th is balanced program th at we are presen tin g,
balanced as to f i s c a l and monetary p olicy approach, i t
includes firm and p e rsiste n t r e s tr a in t of both public as
w ell as private demand. At the same time i t provides
the means fo r healthy, long-run growth and the cap acity of
our economy, programs aimed at correctin g these imbalances
that have developed in recent years and a lle v ia tin g the
in eq u itable hardships th at have been imposed upon the poor.
Some fu rth er r is e in unemployment i s probable and
we are going to take ste p s to deal with th a t. However, we
can and w ill achieve our go als without a larg e r is e in
unemployment.
This i s going to be a jo in t e f f o r t . I t i s going
to be an e ffo r t of both the Congress and the Executive
Branch.
As you go through th is fa c t sh e e t, I think you
w ill id e n tify over 30 pieces of l e g is la t io n , about a th ird
of them new le g is la tio n th at goes with our new proposals
and the r e s t o f them recent le g is la tio n that has been
proposed but not enacted, to which we attach some great
sense of urgency. This i s a complete package, one th at w ill
deal with the whole problem and we should not look at i t
by ju s t taking b it s and p ieces out and picking the p arts
we lik e and don't lik e because i t i s a program that requ ires
some s a c r if ic e in ce rta in a re a s.
As we have sa id on many o c c a sio n s, th is i s not
going to be p a in le ss, nor is i t going to be a sw ift process
in the cure. We are dedicated to once and fo r a l l solving
the problem of the in sid io u s in fla tio n that we are today
experiencing.
MORE

■
■
H H
M H H H n H H H N M i

-4I t s t a r t s out, the economic program, amending the
Employment Act of 1946 , which means that we must add something
that some people have thought was im p lic it in th is and that
is the maintenance of price s t a b il it y along with our other
go als in that worthy act.
In the in tern ation al are a , our e ff o r t s are directed
at cooperative a c t iv it i e s in broad areas of food, and fu e l,
and many others which are well known to you, and they are
here in the fa c t sheet. I am being n e c e ssa rily b r ie f in
some of these areas so that I can maximize the question and
answer period, which I am sure you would lik e .
Food p rices are a major concern in our fig h t ag ain st
in fla tio n . Because of the weather and heavy demands from
around the world, current fo re c a sts an tic ip a te price in creases
We are committed and remain committed to a ll- o u t food
production.
There are presen tly no r e s tr ic tio n s government-wise
on wheat and feed grain and soybeans. In ad d itio n , we are
going to o ffe r new le g is la tio n to remove r e s tr ic tio n s on
peanuts and long sta p le cotton in addition to the ric e
le g is la tio n where we support quick passage -- that i s
already up there on the H ill -- as long as i t has a non
in f la t ionary support p ric e .
The farmer must a lso be assured of adequate
su p p lies of fu el and f e r t i l i z e r . The Secretary of A griculture
has been d irected to work with the Inter-Agency F e r t iliz e r
Task Force to e sta b lish a reportin g system. Fuel w ill be
allo cate d i f i t is n ecessary. We w ill work with f e r t i l i z e r
companies to i n i t ia t e voluntary e f f o r t s to reduce none s s e n tia l uses of f e r t i l i z e r . We w ill a lso seek, i f necessary
the necessary powers to a llo c a te f e r t i l i z e r .
It w ill be our p olicy and continue to be, to
provide conditions th at are going to enable the farmers to
dispose of th e ir e n tire output of a g ric u ltu r a l commodities
at reasonable p ric e s. The Federal Government, as you know,
w ill monitor food exports to assure th at we re ta in adequate
su p p lies at home while doing our b est to maintain and meet
the needs of our frien d s abroad.
Over th is p ast weekend we in itia te d a voluntary
program to monitor grain e x p o rts. The Committee and the
Economic Policy Board w ill be resp on sib le fo r looking at the
e n tire situ a tio n a f t e r the crop report comes ou t, I believe
the 10th of th is month.
USDA and the Council on Wage-Price S t a b ilit y have
been d irected to help reduce the co st of food by improving
e ffic ie n c y in the a g ric u ltu r a l se c to r. Upward pressure
on U.S. food p ric e s w ill be reduced by helping developing
n ations to become more s e l f - s u f f ic i e n t in the production of
th e ir own food.
MORE

In the energy a re a , expensive petroleum from
insecure foreign sources jeop ard izes our n ational se cu rity .
I t in creases worldwide in fla tio n and places str a in s on the
in te rn atio n al fin a n c ia l system. In order to reduce our
dependence on foreign s u p p lie s, we have decided upon the
follow ing program to meet th is energy ch allen ge: Our
immediate o b jective i s to reduce o il consumption by one
m illion b a rre ls per day in 1975. I am confident th at th is
ta rg e t can be achieved without a ffe c tin g any in d u str ia l
output.
MORE

This energy program c a l l s fo r both mandatory and
voluntary e f f o r t s . I f these reductions are not achieved
through the energy program th at i s presented today, we w ill
seek more strin gen t means to insure th at our dependence i s
reduced.
We have to develop conservation methods. We must
continue and reaffirm our d e sire s to conserve energy. You
a l l know -- we warned many times a f t e r the embargo ended —
that the American people might go back to sle e p , and while
we are s t i l l saving energy below what was o r ig in a lly fo re
c a s t , the amount o f the reduction i s n ot, in our judgment,
s a t is f a c to r y .
So we have to reaffirm our dedication to again
work toward the areas o f conservation th at the American
people responded to so well l a s t winter.
In order to accomplish th is g o a l, we are going
to do i t in many ways, not only on the demand sid e but on
the supply sid e as w ell. We w ill submit le g is la t io n to
require the use of co al and n uclear power fo r new e le c t r ic
power generation and conversion fo r e x istin g p la n ts.
We are s e ttin g a ta rg e t date to elim inate o il fir e d p lan ts from the N atio n 's mainland base load e le c t r ic
cap acity where i t i s fe a s ib le to convert to coal without
endangering public h ealth . We w ill use the Defense Produc
tion Act se le c tiv e ly to insure s u ff ic ie n t su p p lies o f scarce
m aterials th at are needed fo r energy development p r o je c ts.
This Act was recen tly invoked to help get m aterials fo r the
construction o f the Trans-Alaska p ip e lin e .
The automobile industry i s going to be asked to
develop programs fo r g a so lin e sav in gs. During the p ast
sev eral se ssio n s of Congress, le g is la t io n to require fu e l
savings has been considered and the nature o f th is l e g i s
la tiv e e f f o r t r e a lly has often caused confusion. We passed
some ad d itio n al c o sts to the consumer and perhaps subjected
them to some unworkable d ead lin es. T herefore, we are
requestin g the automobile manufacturers to submit to the
President a fiv e -y e ar schedule o f th e ir plans to produce
m o re-efficien t autom obiles.
Goals on e ffic ie n c y fo r industry are going to then
be e sta b lish e d by the Government. I f n ecessary , the
President w ill present le g is la t io n to the Congress fo r
co n sid eratio n .
The President has requested the Secretary of
Commerce to develop energy-use gu id elin es which w ill
su ggest ways fo r industry to use energy more e ffe c tiv e ly .
A lso, of cou rse, we need more r ig id compliance
with the maximum speed lim it. We a l l get many re p o rts.
I know many o f you have spoken to me about ’’Everybody i s
back in busin ess as u s u a l." I don’ t think i t i s quite true
but I s t i l l think th at we need more r ig id adherence to the
55-mile-an-hour speed lim it.

Not only has i t saved a good amount of petroleum — our
estim ates are 250,000 b a rre ls a day are saved because of
th is speed lim it — but i t has a lso resu lted in a sig n ific a n t
reduction in the highway death t o l l , which I consider equally
as im portant.
Ifext i s fu rth er conservation within Government.
In your fa c t sheet you w ill see many action s there th at are
very fa m ilia r to you, r e c a llin g the days of the p ast winter.
We are going to mandate these action s as fa r as Government
i s concerned. We recognize the d if f ic u lt y o f mandating
reduction o f therm ostats in people’ s homes because we c a n 't
have thousands of people running a l l over checking on
p eo p le's therm ostats at home. We have found wonderful com
pliance with that l a s t winter. We a lso expect and hope fo r
the same compliance again.
As I sa id at the o u tse t, i f our ta rg e ts are not
met we w ill be suggesting stron ger action to meet them. I
w ill not go through a l l o f the mandatory action s or the
voluntary a ctio n s.
We are a lso asking fo r le g is la tio n th at w ill in crease
domestic su p p lies of energy and there are some short-run
actio n s th at we can take.
I don't put the deregulation o f n atu ral gas as a
short-run problem but i t c e rta in ly i s n 't a long-run problem
because in three to four years we could see some ben efit
from deregulation of n atu ral gas and the attendant ad d itio n al
exploration th at we would have comes upon us very quickly, so
we are pushing fo r the deregulation o f n atu ral g a s .
There i s a short-run action — Naval Petroleum
Reserve Number 1. The President w ill submit le g is la tio n so
th at we can u t iliz e and maximize the production in NPR 1. I t
can immediately be brought up to 160,000 b a rre ls a day and,
within a short period of tim e, be brought up to s lig h t ly
over a quarter o f a m illion b a rre ls a day and perhaps more.
In ad d itio n , the President w ill propose le g is la tio n
to explore NPR 4 in A laska. This supposedly, a c c o r d i n g ’ . to
the ex p e rts, has 30 to 40 b illio n "b arrels of re se rv e s.
I hasten to add i t i s unproven because we don't
have one developed well th ere. We w ill seek th at l e g i s
la tiv e authority immediately.
As to the Clean Air Act amendments, the 13 amend
ments or 12 th at were submitted to Congress ju s t a few months
ago, are going to be resubmitted in the same form.
On su rface mining, an acceptable strip-m ining b i l l
must be passed by Congress. We have some problems with the
b i l l th at i s in the Congress rig h t now and we hope to work
these out. We think th at these problems can be reso lv ed , and
our obvious need fo r in creased coal production is important.
MORE

8There i s the nuclear plant licen sin g b i l l , the deep
water port f a c i l i t i e s , ERDA, and a l l of the other a ctio n s.
We are going to change the d e fin itio n o f secondary and t e r
tia r y recovery, which, as you a l l know, i s a more expensive
method o f producing o i l and, at the con trolled o i l p r ic e s ,
i t i s not economic fo r most o f these to be explored. As a
r e s u lt , they w ill be redefined as new o i l where p ra c tic a b le .
We w ill resume le a sin g of Federal land in 1975 to
develop the v ast coal resources underlying these lands —
leasin g public land fo r o i l shale and geothermal, and
re-evalu ate our en tire o i l shale and geothermal le a sin g
program.
We w ill have completion o f plans next year hope
fu lly to bring Alaskan gas to our market. As I say , I am
skipping over a great deal o f these a re a s. You can read
these and the d e ta ils in your fa c t sheet.
There i s in creasin g investment to accelerate the
growth of c a p ita l investment. The P resident i s c a llin g fo r
an in crease and a restru ctu rin g of the investment tax c re d it.
The cre d it w ill be in creased from 7 to 10 percent fo r
u t i l i t i e s . The actu a l in crease i s from 4- to 10 percent,
although in the present Ways and Means Committee b i l l i t
already brings u t i l i t i e s up from 4 to 7.
The re stru ctu rin g of the cre d it w ill elim inate
e x istin g r e s tr ic tio n s which now lim it the incentive value of
the cre d it and discrim in ate u n fa irly between the types of
taxpayers and investments th at q u a lify fo r the c re d it.
We a lso must strengthen our c a p ita l markets. The
c a p ita l markets are the centerpiece o f our fre e -e n te rp rise
economy. The most important tiling th at we can do to resto re
the glow of health to these markets i s to get co n tro l, of
course, over in fla tio n . A rap id ly r isin g price le v e l i s the
b it t e r enemy of savings and investment.
MORE

-9
As oart of the a n ti-in fla tio n a ry e ff o r t we w ill take
c. step that w ill a lso have a d ir e c t b e n e fic ia l impact on our
fin a n c ia l markets and th at step i s to work toward a balanced
budget and to keep i t balanced. A balanced budget means th at
a l l of the savings generated by our economy th at we would
preempt as we go through our d e f i c i t spending could be used
fc r new and productive investment.
Of course, we are a lso going to take in to account, as
we work toward t h is , the budget agen cies. y?e must create a
b e tte r environment in the fin a n c ia l markets fo r equity c a p it a l.
In recent years corporations have been unable to r a is e
adequate new equity c a p it a l. They have been adding h eavily to
th e ir debt and, as a r e s u lt , the c a p ita l stru ctu re of busin ess
has been g ettin g out of balance with too much debt and too
l i t t l e equ ity.
This i s e sp e c ia lly true fo r our e le c t r ic u t i l i t i e s .
To aid in th is area and a lso to improve the health of
our fin a n c ia l markets and to encourage investm ent, the P resident
i s proposing tax le g is la tio n to provide th at dividends paid on
q u a lifie d preferred stock be allowed as a deduction to the paying
corporation;
?7e are a lso working with Congress to r e v is e , as i s in
the Uays and ..leans b i l l , the treatment of c a p ita l gain s and lo sse s
in such a way as to in crease the e ffic ie n c y .
In ad d itio n , we support stron gly the pending le g is la tio n
to elim inate the tax on in te r e s t and dividend income accordée, to
foreign holders of U.S. s e c u r it ie s , and elim in ation of th is
impediment.
The elim in ation of th is tax would remove an impediment
from the flows of c a p ita l in to the U nite! S t a te s .
In the area of a n ti- tr u s t the elim in ation of outmoded
government regu latio n must, of cou rse, be accompanied by
dedicated and vigorous enforcement of our a n ti- tr u s t laws.
To support th is e f f o r t we have asked fo r two
l e g i s la t iv e enactments; F i r s t , in creasin g the p e n a ltie s
a sso c ia te d with a n t i“t r u s t v io la tio n s . For co rp o ratio n s, tne
maximum penalty w ill be increased from $50,000 to $1 m illio n ,
while fo r in d iv id u als i t w ill be in creased from $50,000 to
$100,000.

Second, we have to strengthen the in v e stig a tio n power
of the A nti-Trust D ivision o f the Department of J u s t ic e . This
i s going to be accomplished by speedy passage of the Adm inistra
tio n le g is la t io n now pending before the Congress.
Government regu latio n s The government imposes many
hidden and in fla tio n a ry c o sts on our economy. The broad programs
going to be undertaken to attack th is problem and id e n tify
o ppo rtu n ities fo r change.

-10

These are the so -calle d "sacred cows" th at you a l l
wrote about a f t e r many of our pre-summit meetings. The Council
on Wage-Price S t a b ilit y w ill act as a continuing watchdog on
the in fla tio n a ry action s of the fed eral government, to uncover
the laws and regu latio n s th at r a is e c o sts and s t i f l e economic
f l e x i b i l i t y and in i t ia t iv e .
r/Je have to elim inate these r e s t r ic t iv e p ra c tic e s of
the government in areas such as tran sp o rtatio n , lab o r, and
a g ric u ltu re .
The N ational Commission on Regulatory Reform: The
President i s going to submit le g is la tio n to create a n ation al
commission on regu latory reform to examine the p o lic ie s ,
p ra c tic e s and procedures o f those agencies and develop
appropriate le g is la t iv e and ad m in istrative recommendations.
This membership w ill include Members o f the Congress,
the Executive and p riv a te secto r re p re se n ta tiv e s.
The President w ill require a l l executive agencies
to develop in fla tio n impact statem ents to a ss e ss the in fla tio n a ry
and employment consequences of major le g is la tio n or regu latio n s
p rio r to any action th at the agency might contem plate.
The President a lso recommends th at Congress take
sim ila r ste p s.
New approaches are required to elim inate the
interm inable delays often created before these regu latory m atters
are reso lv ed . There are sev eral important p ieces of le g is la tio n
in your fa c t sheet we w ill a lso push in the area of regu lation
fo r immediate enactment.
The Council on Wage and P rice S t a b ilit y w ill devote
primary emphasis to two fu n ction s: F i r s t , i t w ill a c t as a
watchdog on the action s of government which r a is e c o sts and
impedes com petition. I t w ill recommend needed changes in
l e g i s la t io n .
Second, i t w ill monitor p ric e and wage movements in
the p riv a te se c to r. In gen eral, the Council w ill carry out
th is function by seeking the f u l l voluntary cooperation of
lab o r, industry and the public to solve a l l of the problems of
our mutual concern.
The Council w ill work with the P re sid e n t's new LaborManagement Committee. In ad d itio n , the Council a lso has the
power to and w ill, indeed, conduct pu blic h earin gs.
Among other d u tie s, we w ill work with the Cabinet
Committee on Food, the F e r t iliz e r Task Force, and the new
Construction Industry Advisory Group.
The Council, however, w ill not be a wage-price control
agency. Controls do not stop in fla tio n . They did not do>so the
l a s t time around, and they did not do so in World War II when
p ric e s in creased d e sp ite severe ratio n in g .

-11Controls make in flation ju st worse. They create
shortages and hamper production and s t i f l e growth and ultimately
cause unemployment.
The National Commission on Productivity w ill spend a
substantial amount of i t s energies to extend and deepen the
drive to increase productivity in government. That i s federal
state and lo cal. The re st of i t s e ffo rt w ill be devoted to the
private sector with meaningful emphasis on programs at the plant
le v e l.
Special attention is going to be devoted to construction
and health services. We are proposing the National Employment
Assistance Act of 1974. I t is going to provide standby authority
to help allev iate the impact of unemployment should unemployment
rates r ise .
This Act would authorize, during the next 12 months,
two programs.
Here i s the one error that we have been able to find
in thefact sheet.
I hope i t i s the only one. I believe your
fact sheet says 18 months. Make that 12 months.
QUESTION:

That i s on page 25.

SECRETARY SIMÓN;

All rig h t, page 25, thank you.

I t i s 12 months instead of 18 months and, consequently
the day i t ends is December 31, 1975 and not June 30, 1976. I
say we believe that i s the only error, but maybe there may be
others.
Page 29 has the same error on the fourth lin e.
should be December 31, 1975.

June 30

This Act would authorize during the next 12 months two
programs which would begin to operate, should the national
unemployment rate average six percent for three months, one,
temporary programs of income replacement known as special
unemployment assistan ce programs for experienced unemployed
workers in areas of high unemployment would exhaust a l l other
unemployment compensation not e lig ib le for such compensation?
and, two, a program of employment projects for these same areas
known as the community improvement program.
While the primary purpose of the two programs i s to
a lle v ia te the hardships of unemployment upon individuals, i t w ill
also a lle v iate the adverse impact on those local economies hardest
h it by unemployment.
The assistan ce benefits serve to cushion th e.e ffects
of protracted unemployment by providing additional income
replacement to workers who have exhausted their unemployment
benefits or to individuals with a demonstrated labor force
attachment not otherwise e lig ib le for U .I. b en efits.
You can read the balance of that including the chart
that i s in your fact sheet. That shows how you have this
triggered and the amounts of money that accompany each percentage
of unemployment three months and i t trig g ers out afte r three
months below six percent as w ell, as i t sta te s there.

-12

In the area of housing President Ford today is
proposing extending on a temporary basis the advantages offered
by GiiiiA to mortgages which are not FHA or VA, so-called con
ventional. I n itia lly , $3 b illio n w ill be dedicated to th is.
This is an amount that i s su ffic ie n t to finance approximately
100,000 homes. The proposed program w ill be in addition to the
over $19 b illio n of federal funds that have been made available
over the past year for the purchase of mortgages to supplement
the buying power of the hard-pressed th r ift in stitu tio n s.
By making conventional mortgages on new homes e lig ib le
for purchases by GNMA, builders and homebuilders are going to be
assiste d where mortgage cred it i s scarce or even nonexistent.
Authority w ill expire in 12 months and the re st of i t t e l l s you
that the commitments cannot exceed $7-3/4 b illio n being purchased
and not yet resold. The maximum mortgage amount is $45,000.
MORE -

-13Public u t i l i t i e s , I w ill skip over that. I have
already mentioned that, and the tax cred it, the increase
from four to 10 percent.
On th r ift in stitu tio n s there is the Financial
Regulation Act that was submitted a year ago August, as
well as a study of the additional ways to allev iate the
problems of disintermediation that affe c ts the th r ift
in stitu tio n s during periods of high in terest ra te s.
Control of the federal budget is a v ita l exponent
of our an ti-in flatio n e ffo rts in reducing the f is c a l *75
budget. Obviously, i t is not going to have a major impact
on the rate of in flation but i t is a f i r s t step in reducing
the powerful momentum of our rapidly climbing federal budget
and thereby gain the spending control that is so necessary
for *76 and beyond. Over the long-term, th is budget control
is going to su bstantially reduce in flatio n .
Now, our program for fis c a l disciplin e has elements
on both sides of the budget. On the revenue sid e, we propose
a surcharge on high income taxpayers and corporations.
The increased revenues from the surcharge w ill pay for the
additional unemployment insurance, the community improvement
program, the increased and restructured investment tax
credit and the revised tax statu s of the preferred stock
dividend.
On the expenditure sid e, the President has
reaffirmed his intention to hold budget outlays for fis c a l
'75 to at or below $300 b illio n . Cutbacks are going to
be needed to achieve that g o al.
The President is asking Congress to enact a b il l
establishin g a budget outlay ceilin g for *75 of $300 b illio n .
In establishing that ta rg e t, the b i l l outlines a plan for
a set of actions which w ill resu lt in the necessary outlay
reductions as stated . Upon Congress' return we w ill have
the measures of deferral and recession and w ill work with
them in the interim for their enactment.
A surcharge of five percent, a corporate surcharge,
w ill be requested effective January 1, 1975 and continuing
through December, 1975. A five percent individual tax
surcharge w ill also be imposed for '75 on income tax
l i a b i l i t i e s attributable to income above what we c a ll an
upper income threshhold.
In general, the proposal is designed to exclude
from surcharge fam ilies with adjusted gross incomes below
$15,000 and single persons with adjusted gross incomes
below $7500. However, because income tax l ia b i li t i e s are
based on taxable income rather than adjusted gross income,
it is necessary to tran slate on some average formula basis
the $15,000 and $7500 in comparable tax income figu res.
MORE

14This was done by the chart that you w ill find in your book.
The proposal to change the investment, tax credit
has three principal parts -- the elimination of existing
lim itations and restrictio n s on the credit which tend to
discriminate unfairly between the types of taxpayers and
investments which qualify for the cred it, and increase
in the rate of the present credit from seven to 10 percent,
and making the credit a reduction in basis for depreciation
purposes.
Increasing the rate from seven to IQ percent
w ill increase the cash flow to a l l companies in the
immediate future. I t , of course, is going to be o ffse t in
future years by le sse r depreciation deductions, eliminating
the lim itations based on useful lif e so that a l l properties
with l i f e in excess of three years are going to qualify
for the fu ll cred it. That is to eliminate the discrimination
against public u tility property.
It w ill replace the present lim it on the maximum
credit which may be claimed with eventual fu ll refundability
of the excess of credits over tax lia b ilit y . Credits in
excess of the present lim itations may be carried back three
years and into the succeeding three years to o ffse t tax
l ia b ilit y , afte r which time remaining excess credits are
going to be refunded d irectly to the taxpayer.
This is going to help growing companies that
have large present investments in comparison with their
current incomes, and also i t helps companies that are in
financial d iffic u ltie s that have no income tax lia b ilit y
at present against which to apply the existin g credit.
Deductions on dividends and certain preferred
stocks - - they are in the process of writing the regulations
in the Treasury on th is proposal now. Preliminary preferred
stock would be required to be non-voting to q ualify, limited
and preferred as to dividends and entitled to a liquidating
preference. The intention to qualify for preferred stock
under this new provision of the Internal Revenue code would
be required to be clearly indicated at the time that the
stock was issued. This is going to give them the a b ility
to issue stock so that the dividends would be deductible,
so they w ill have an alternative means and th is w ill hopefully
broaden their market to other c lasse s of investors.
We support the tax reform b ill now pending in
Ways and Means that provides about $1 b illio n 400 million
of tax r e lie f for individuals with incomes of le ss than
$15,000. In addition, the b ill w ill provide another $500
million to $600 million beginning in fis c a l '76 and we
support using those revenues we received also to provide
income tax reductions for these lower income people.
MORE

“

Then we talk about the tax reform b il l that is
in the Congress right now. Our proposals are a compliment
and a supplement really to the tax reform b il l . As I say,
the President is endorsing the investment credit in the
present b ill u tilizin g the treatment of cap ital gains and
the elimination of the withholding for foreigners.
That is what we attempted to do and hoped that
w ill happen with our limited tax proposals. We tried to
take a r if le approach rather than a shotgun approach and
to attack the sp ecific problems and hope that the Congress
would enact th is piece of leg islatio n as is without
amendments and separate from the tax reform b il l that is
going through the Ways and Means Committee now.
This is what the President w ill urge.
The President, in a speech next week, is going
to announce a very comprehensive voluntary program, the
very beginnings of which you w ill find right at the back
of your fact sheet.
questions.

With tl^at, gentlemen, I guess we w ill have
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-16QUESTION: There is a promise that we can leave
here at 3:40 so that we can f i le at 4 p.m. from the White •
House, and we would request permission for that.
SECRETARY SIMON: I w ill be delighted to do any
thing that you want. That is a l l righ t. We w ill pass out
the speech. We w ill try to get more fact sheets.
QUESTION: How much would the corporate and in di
vidual surtax raise in taxes?
SECRETARY SIMON:

In your chart i t is $4.7 b illio n .

QUESTION: A lo t of that is going to be taken out
in consumer purchasing power. I sn 't th is going to tend to
more recession?
SECRETARY SIMON: When you say consumer purchasing
power, you are talking about taxing individuals over $15,000
a year, which represents 28 percent of the tax returns, in di
vidual tax returns.
QUESTION:

What was that figure?

SECRETARY SIMON:

28 percent.

QUESTION: Did I hear you say $4.6 b illio n on the
surcharge? I am looking at the budget impact statement on
page 35, and i t says $1.6 b illio n .
SECRETARY SIMON: I am giving you the gross amount
that would be collected over a year, and what you have there
is the two-year impact because there are lags to the collection
of taxes and on the impact of the investment tax credit.
It doesn't a l l come in within one year and, as a matter of
fa c t, most of i t comes in the following year, and that is the
reason the numbers are d ifferen t.
QUESTION:

V/hat is that $7 b illio n breakdown there?

SECRETARY SIMON: That is 4.7 b illio n . It is 2.6
b illio n for individuals and 2.1 b illio n for corporations.
QUESTION: This proposal to permit deductions of
dividend payments on preferred stock -- do you see that as a
startin g move that you hope some day to have the budgetary
room to extend to a l l dividend payments?
SECRETARY SIMON: We did not have that in mind when
i t was proposed, Miss Shanahan. The ultimate integration of
corporate and income taxes which has occurred in most of the
in d u strial countries of the world would have a severe revenue
impact, and I would say that would have to be looked at in the
context of major tax reform. I guess i t could be described
as a limited step in that direction, but we thought th is was
a very useful tool to give public u t i l i t i e s in particu lar and
other companies in general a chance to expand th eir equity base.
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-17QUESTION: Mr. Simon, I don't think that you answered
my question. I was asking what effe ct a $2.6 b illio n cut in
consumer purchasing power would have on the economy and on the
r e t a il industry in particu lar.
SECRETARY SIMON: We did not believe that the impact
was sig n ific a n t, of a 2.6 b illio n one-year surcharge.
QUESTION: Mr. Secretary, what do you regard as the
most sign ifican t mandatory aspect of th is, the mandatory
energy portion of it ?
SECRETARY SIMON: I would say the toughest proposal
is asking the President for the powers to switch, federally,
u t i l i t i e s in th is country from o il to coal, number one, and
the amendments of the Clean Air Act, number two, and the de
regulation of natural gas. All of these are very strong actions
and they are designed really to bring out additional supplies
really in the short run.
QUESTION:
gressional action?

Are they a l l dependent upon further Con

SECRETARY SIMON:
sional action, yes, s i r .
QUESTION:

They are dependent upon Congres

What percentage i s 1 b illio n barrels a day?

SECRETARY SIMON: Today we are importing approxi
mately 6 and 1/2 million barrels a day, and we are consuming
about 16 and 1/2.
QUESTION: How much did you anticipate that we w ill
need of imported o i l , that we w ill not need to import afte r
th is program is under way, the whole million?
SECRETARY SIMON: I believe by the end of 1975 we
w ill have achieved a reduction of 1 million barrels a day.
QUESTION:

That is foreign o il?

SECRETARY SIMON:

Yes, in our imports.

QUESTION: Without
d eferrals and recession s, what
would spending in f is c a l '75 come out at?
SECRETARY SIMON: Our budget as submitted la s t January
was approximately $305 b illio n .
QUESTION:

What has Congress added to that?

MR. ASH: I t could be another $2 b illio n , but we don't
know how that le g isla tio n w ill come out.
SECRETARY SIMON: The le g isla tio n in process now could
be in the area of $2 to $3 b illio n , but the President has an
nounced that he w ill veto le g isla tio n in excess of the budget
as presented and furthermore w ill take the necessary actions to
bring i t down from the origin al approximately $305 b illio n to
at or below $300 b illio n , and he is asking Congress to enact
the le g isla tio n settin g that as a ceilin g.
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18 -

QUESTION: Mr. Secretary, you spoke of taxes for
individuals with incomes at the level of $15,000. How do you
reconcile that with the surcharge on the income of individuals
above $7500?
SECRETARY SIMON: Well, i t talks.about fam ilies, Mr.
Levine, at $15,000 and individuals at $7500 and then i t adjusts
through th is formula that we have here.
Instead of adjusted gross income, i t has to be
translated into the taxable income.
QUESTION: I understand th at, but I am referring to the
comment here, "We support the tax reform b i l l now pending in the
Ways and Means Committee which provides for tax r e lie f for
individuals with incomes of le ss than $15,000."
You are providing tax r e lie f for individuals with
le ss than $15,000 on the one hand while providing a surcharge
for individuals over $7500.
SECRETARY SIMON:

No, th is would be computed.

I s n 't th is computed in the tax reform b i l l b asically
the same way, Fred?
MR. HICKMAN: The income distribu tion in the tax reform
b i l l i s broken out simply according to adjusted c lasse s but we
are talking about the b i l l providing th is r e lie f . I t provides
more r e lie f than th at, but th is i s the portion that is
attributable to adjusted gross incomes of le ss than $15,000.
For those purposes they are not s tr ic tly comparable.
I t doesn't make any difference whether one i s single or not.
QUESTION: Could you t e l l us what these are in the
nature o f, the benefits of the program? I f you put i t a l l into
e ffe c t, what would the economy look like at the end of the fu ll
year of taxation?
MR. HICKMAN: I think we have put into place the
necessary programs to stimulate the investment in our productive
capacity in th is economy that are required. We at the same time
put into place a policy of budgetary re stra in t to match our
monetary restrain t and the unemployment assistan ce that i s going
to take cognizance of the fact that there are going to be those
that bear a disproportionate burden of d isin fla tio n p o lic ie s.
We have taken care of housing by those steps in
recognition of that.
QUESTION: Could you t e l l us what the in flation rate
would be i f you got th is whole program put into e ffe c t, what the
unemployment picture would be?
MR. HICKMAN: Well, when one looks a year in advance
and attempts to forecast anything, that i s a pretty precarious
business. You have seen a l l of the recent forecasts on what our
in flatio n rate would be and I would certainly say i t w ill be
below double-digit in flatio n that we are experiencing, but I would
not like to speculate as to what that single figure would be.
MORE

19QUESTION: The President has set a goal of bringing
in flation under control by July 4, 1976. What rate of
in flation would sa tisfy that goal?
MR. HICHMAN: I think the President has studiously
avoided settin g what one might c a ll an acceptable rate of
in fla tio n . There should be no acceptable rate of in flatio n .
We have experienced in the past year an in flation
rate that has continued in the upward sp ira l. We are
attempting — and we believe we can, with these actions
to
reverse that upward sp iral and sta r t in flatio n in a downward
pattern.
I f we continue with determined e ffo rts and through a l l
of these measures that we are suggesting, i f we are fortunate
and everything i s implemented in the near future, which we
certainly hope and believe i t w ill be, that we w ill have the
in flation rate moving down a year from now.
MORE

from now?

QUESTION:

20-

You would expect i t to turn down a year

MR. HICKMAN:

I most certainly would.

QUESTION: The corporations w ill pay $2.1 b illio n
more in taxes and how many millions of d ollars in tax benefits
w ill they get under your program?
MR. HICKMAN: Well, on the tax b en efits, i f the
investment tax credit is increased, that gives them an
annual benefit of approximately $2.7 b illio n , so in the
f i r s t year the benefit is small but in subsequent y ears,
obviously -- i t is a one-year surcharge — they would benefit
to the tune of $2.7 b illio n with an additional $100 million
for the preferred stock change.
QUESTION: What kind of regulation would be
unacceptable by a Government regulatory agency that is
counterproductive in your view?
MR. HICKMAN: When we talk about "unacceptable,'’
th is is why we have to go into th is whole regulatory process
without identifying at th is point and making sure that we
pick out areas where there are good reasons for regulation.
Regulation is supposed to protect people and not impede.
There is some strong feeling that many of our Government
regulations today impede the competitive process and raise
the price to consumers.
You have areas in the trucking industry that are
an illu stra tio n of th at, and they are very emotional issu e s.
There is the midway problem where, i f a truck is driving
100 m iles, very often i t is forced to drive around an
additional "X" number of miles because i t is not allowed to
take a certain route.
The back-haul problem is another area, but we have
to recognize at the same time that everybody's back-haul is
somebody's front-haul.
QUESTION: I f you want to save 1 m illion barrels a
day of imported o i l , why didn’ t you impose an o il import
quota of 1 m illion barrels a day?
MR. HIC MAN: We had discussed that and we discussed
everything, but we didn't want to set in place a rig id
program of a d ollar lim it or a barrel lim it. We believe we
can accomplish the same thing or more by imposing a l l of
the measures that we have recommended.
THE PRESS:

Thank you, Mr. Secretary.
END

(AT 3:38 P.M.

EDT)

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WTOP Radio News, "Secretary Simon Pledges U.S. Campaign"

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1974-10-01

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Today in Business, Report on Secretary Simon

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Oct. 9, 1974

MEMO FOR TREASURY PIOs
RE: Oil Depletion
Secretary Simon was asked about oil depletion
at today's Ways and Means hearing.
First, he was asked if the Administration really
does support the Tax Reform. Bill as it now exists.
Simon replied yes.
Then he was asked if the Administration supports
the oil depletion provisions in the bill.
Simon replied this way: Overall — all things considered—
the bill is a good bill, with many good provisions.
Obviously, in an imperfect world, the Administration
can't have everything exactly the way- it wants.
Given that pragmatic problem, the Administration
supports the bill even with its provisions
ending oil depletion allowances.
However, if "we could have our druthers" the
Administration would want to retain oil
depletion as a "carrot that helps produce revenues
needed by men searching for oil."
If we could do what we really want the Adminstration would:
1. Remove foreign depletion.
2. Retain domestic depletion.
3. Restore the original administration version of
Oil Windfall Profits -- our version is much
stronger than what is in the committee print.

D epartm en tofth eTR EASU R Y
SHINGTON, D.C. 20220

TIlSPWgNE. W04-2041

FOR IMMEDIATE RELEASE

October 9, 1974

TREASURY’S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders
for $2,000,000,000, or thereabouts, of 364-day Treasury bills to be dated
October 22, 1974,

and to mature

October 21, 1975

(CUSIP No. 912793 WU6 ).

The bills will be issued for cash and in exchange for Treasury bills
maturing October 22, 1974,

outstanding in the amount of $1,801,790,000,

of which Government accounts and Federal. Reserve Banks, for themselves and as
agents of foreign and international monetary authorities, presently hold
$1,036,180,000. These accounts may exchange bills they hold for the bills
now being offered at the average price of accepted tenders.
The bills will be issued on a discount basis under competitive and
noncompetitive bidding, and at maturity their face amount will be payable
without interest.

They will be issued in bearer form in denominations of

$10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value)
and in book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirt3/ p.m., Eastern Daylight Saving time, Wednesday, October 16, 1974.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
in multiples of $5,000.

Tenders over $10,000 must be

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.

Banking institutions and dealers who make primary markets in Government
securities and report daily to the Federal Reserve Bank of New York their
positions with respect to Government securities and borrowings thereon may
submit tenders for account of customers provided the names of the customers
are set forth in such tenders.

Others will not be permitted to submit

tenders except for their own account.

Tenders will be received without

(O V E R )

2
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 bills applied
for, unless the tenders are accompanied by an express guaranty of payment
by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of
the amount and price range of accepted bids.

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 reject any or all
tenders, in whole or in part, and his action in any such respect shall be
final.

Subject to these reservations, noncompetitive tenders for $200,000

or less without stated price from any one bidder will be accepted in full at
the average price (in three decimals) of accepted competitive bids.

Settle

ment for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on October 22, 1974,

cash or other immediately available funds or in a like face amount of Treasury
bills maturing
equal treatment.

October 22, 1974.

Cash and exchange tenders will receive

Cash adjustments will be made for differences beti-7een 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 bills (other than life insurance companies) issued hereunder must
include In his Federal 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.
Department of the Treasury 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.

O tp a rlm e n lo fth e TR EA S U R Y
OF REVENUE SHARING
W A S H IN G T O N , & C .

20226

T E L E P H O N E 634-5248

tri

FOR IMMEDIATE RELEASE
Thursday, October 10, 1974
MISSOURI TO HELP WITH
REVENUE SHARING AUDITS
A cooperative audit agreement between the State of
Missouri and the U. S. Treasury Department’s Office of Revenue
Sharing was signed in Washington this week.
Missouri State Auditor, John D. Ashcroft and Office of
Revenue Sharing Director Graham W. Watt signed an agreement
Monday that sets forth the terms under which Ashcroft’s office
will audit Missouri state agencies and 100 counties that receive
and spend general revenue sharing funds.
The audits will be performed according to standards set
forth by the Office of Revenue Sharing.
The Office of Revenue Sharing will supplement Missouri's
audits with Federally-conducted reviews of local governments,
randomly selected.
"In formalizing the work that Mr. Ashcroft’s office has
already begun to perform, Missouri has joined our Cooperative
State Audit Program," Graham Watt announced.

"Through this

effort, state -trained auditors will help to assure compliance
(Over)

with civil rights, financial practice and other provisions of
revenue sharing law."
Similar arrangements have been made with the states of
New York, Michigan, Tennessee, Florida, Minnesota and Illinois.
More than 6,000 local governments in seven states are now
covered under the Cooperative State Audit Program.
In executing the agreement, John Ashcroft stated, ”It is
important that at every level of government we seek to conserve
the resources provided by taxes.

Our agreement to continue audit

ing revenue sharing funds should help avoid duplication of auditing
efforts.

This formalization of our auditing practices also

plays an important role in developing effective federal-state
relations” .
The Office of Revenue Sharing has distributed $15.8
billion to nearly 39,000 states and local governments since
December 1972.

Of this, Missouri’s state and local governments

have received more than $293 million.
The State and Local Fiscal Assistance Act of 1972 which
established the general revenue sharing program authorizes the
distribution of $30.2 billion to states, counties, cities, towns,
townships, Indian tribes and Alaskan native villages over a
five-year period that ends with December 1976.

FOR RELEASE AT 9:00 A.M.
FRIDAY, OCTOBER 11, 1974
STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE
JOINT ECONOMIC COMMITTEE
OCTOBER 11, 1974

Mr. Chairman and Members of this Committee, I am
pleased to appear before you today to discuss the President's
economic program announced on Tuesday.
The President's program is a very broad attack on
inflation and related economic problems, comprised of an
extensive list of actions to be taken by the Executive
Branch, recommended legislation for the Congress, and
proposals for the American people acting individually.
None of these actions and recommendations is, of itself,
a blockbuster, but many are very important and all are
useful. Together they add up to a balanced, comprehensive
and integrated package of economic policy.
Thus I hope the Congress, in considering the legislative
proposals in this program, will consider it as a whole, each
part in relation to all the others. In particular I refer
to the revenue-raising and revenue-losing parts of the
package. They were designed quite intentionally to closely
balance out so that the fiscal integrity of our program would
be maintained. We would not want to see that integrity
seriously compromised.
In making those points, however, I do not mean to imply
that we consider the program inviolable in every detail

WS-123

exactly as we have presented it. Quite the contrary, we
welcome any and every better idea that can be found and
will cooperate with the Congress fully in making improvements.
In that regard, I have been interested in the early
public reactions to the program. It is clear that many
people have different ideas than we do about the appropriate
economic policy. That our proposals were criticized was
expected, of course, but it is the pattern of this criticism
that is worth noting. Most of the comments take one of two
forms. The first is that our program is not dramatic enough
or powerful enough, e.g., that instead of "biting the bullet"
we are only nibbling at it, or that we are "biting the
marshmallow." The other common reaction is that the tax
surcharge is unacceptable. What this adds up to is that
many think we are not doing enough in this economic program
and most of the others think we're doing too much. Not a
few hold both views simultaneously.
Again that's not completely surprising, but the point
I want to make here is that our program, in the light of
these conflicting criticisms, is consistent with the
political realities of the present situation. It would be
nice if we could lower rather than raise taxes and it would
be nice if we could put even more money into programs to
cushion the impact of inflation where it has fallen dispro
portionately. But we can't do those things and also achieve
our primary goal, which is to work down the rate of inflation.
I think the President's program strikes a good balance
among these competing objectives, and I hope this Committee
will help us keep that balance.
I
do not think it is necessary for me to describe the
program to you; all or most of you heard the President on
Tuesday and the principal components of the program have been
widely reported. Attached to my statement is a copy of the
"Fact Sheet" for the program, which I hope you will find
useful for details of the various programs.
One point I would like to emphasize is the temporary
nature of the proposed tax surcharge on corporations, and
upper-income groups. Among those who support it, there are
some who think it should be made permanent. I do not think
it should, not simply because of my own proclivity for
limiting the size and scope of government, but because I
believe that attitude is now held rather generally by the
American people. We have more government than we need, more

3
government than we want, and certainly
than we are willing to pay for.
One final thought: I hope the legislation proposed
by the President can move forward rapidly. I do not
suggest that Congress try to deal with the many complex
questions that are involved here in a hasty or ill-considered
way, but I most firmly believe that both houses should act
on these measures with an accelerated schedule.
Thank you very much.

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NBC Nightly News, Statement from Simon

Date:

1974-10-08

Journal:

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Department of t h e T R E A S U R Y

OFFICE

OF REVENUE SHARING
W A S H IN G T O N , D .C ,

20226

FOR IMMEDIATE RELEASE
2:30 P.M., E.S.T.
Friday, October 11, 1974
OFFICE OF REVENUE SHARING AND
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
TO WORK COOPERATIVELY
In an agreement concluded in Washington today, the
Treasury Department's Office of Revenue Sharing and the
Equal Employment Opportunity Commission (EEOC) established
procedures to assist both agencies in resolving complaints
of employment discrimination against public employers and
their contractors.
The pact was signed by Graham W. Watt, Director of the
Office of Revenue Sharing, and John H. Powell, Chairman
of the Equal Employment Opportunity Commission, in Mr. Watt's
office. '
When investigating a complaint of discrimination involv
ing a public employer, EEOC staff will seek to determine
whether general revenue sharing funds have been involved.
Where EEOC finds that shared revenues have been used in a
discriminatory activity, cases will be referred to the Office
of Revenue Sharing for action.

MIn effect, EEOC's more than 400 investigators will
be involved in the general revenue sharing Civil Rights
Compliance program," Graham Watt said today.

"This will

strengthen our efforts to assure compliance with the civil
rights provisions of revenue sharing law.

We, in turn,

will help EEOC to resolve discrimination cases quickly
and effectively."
EEOC has seven regional offices, 32 district offices
and five litigation centers.
In addition to its reports of investigations, EEOC will
make available to the Office of Revenue Sharing on a confidential
basis the employment statistics required to be filed with
EEOC by all units of government with 100 or more employees.
In turn, the Office of Revenue Sharing will help EEOC
to determine whether all governments with 15-100 employees
have kept minority employment records, as required by law.
Powell said that the agreement "is another great step
forward by government agencies as we join forces in the
battle against employment discrimination.

Job discrimination,"

he continued, "hampers severely the moral and legal right
of minorities and women in the American workforce to realize
their goals and aspirations."

-3-

Established by Title VII of the Civil Rights Act of
1964, as amended, EEOC is an independent commission that
seeks to prevent discrimination in employment based on race,
color, religion, sex or national origin.

It has jurisdiction

over some 10,000 units of government that receive general
revenue sharing funds.
Revenue sharing law provides that MNo person in the
United States shall on the grounds of race, color national
origin, or sex be excluded from participation in, be denied
the benefits of, or be subjected to discrimination under
any program or activity funded in whole or in part with
(revenue sharing funds).”
The State and Local Fiscal Assistance Act of 1972
authorizes the distribution of $30.2 billion in shared revenues
over a five-year period that ends with December 1976.

Since

the first checks were mailed in December 1972, $15.82 billion
has been paid to nearly 39,000 units of state and local govern
ment in the United States.

D e p a rtm e n to fth e T R EA S U R Y
Washington,d c .20220

telephone

m**m\

NOTE TO CORRESPONDENTS

October 10, 1974

Attached are tab les v;hich illu s t r a t e the e ffe c t of
the proposed 5 percent Surcharge on fam ilies and individual
taxpayers in varying tax situ a tio n s .

Attachment

Illustrations of the Effect of the 5 Percent Surcharge
on Four Person Families

N5
O
©
O
o

________________________ (dollars)
:_________________ Adjusted gross income (wages)
25,000:30000:40.000:5 0 . 0 0 0
:15.000:16.000: 17.000::18000:
.....

1,699

1,882

Surcharge «....... ........................... .....

.... ______

Present law tax ...................

Surcharge as percent of present tax (%)

Office of the Secretary of the Treasury
Office of Tax Analysis

Note: Calculated assuming 17 percent itemized deductions.

0.2

2,064 2,247

0.6

0.9

2,660

1.6

3,750 4,988

7,958 11,465

158

307

482

2.6

3.2

3.9

4.2

October 9, 1974

Illustrations of the Effeçt of the 5 Percent Surcharge
on Four Person Families

Case A: ......... .....................$15,000 income

Case B : ............ ......... o........ $20,000 income

Case C: ..... ......................... $50,000 income

Office of the Secretary of the Treasury
Office of Tax Analysis

October 8 , 1974

Case A: $15,000 Income

Less four personal exemptions (@ $750) .................... •«

-3,000

Less deductions for personal expenses (assumed 17 percent
of income) .......... ................................ ......

-2,550

Equals taxable i n c o m e .... I ....... ......................

9,450

Tax before surcharge .......... ............................

1,699

Less surcharge floor for joint returns ........ ...........

-1.820

Equals tax subject to surcharge.... ...................... .

Five percent surcharge ...................................

Tax after surcharge ..........................................

1,699

Tax increase (surcharge) as percent of present law tax .......

Office of the Secretary of the Treasury
Office of Tax Analysis

October 8, 1974

Case B: $20,000 Income

Wages (adjusted gross income) ....... ..................... .

$20,000

Less four personal exemptions (@ $750) ................ .

*3,000

Less deductions for personal expenses (assumed 17 percent
of income) .....................................

-3.400

Equals taxable income ........................

13,600

Tax before surcharge

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

Less surcharge floor for joint returns ....... .............

2,660
-1.820

Equals tax subject to surcharge ..............................

840

Five percent surcharge ........................

Tax after surcharge ... ....................................

2,702

Tax increase (surcharge) as percent of present law tax .......

Office of the Secretary of the Treasury
Office of Tax Analysis

October 8 , 1974

1.6%

Case C: $50,000 Income

Wages (adjusted gross income)................ ................ $50,000
Less four personal exemptions (@ $750) ....................

-3,000

Less deductions for personal expenses (assumed 17 percent
of income) ........... .......................'......

-8.500

Equals taxable income .....................................

38,500

Tax before surcharge ..................................

11,465

Less surcharge floor for joint returns ............. .

-1.820

Equals tax subject to surcharge........................... .
Five percent surcharge.... .......... *..... .................
Tax after surcharge

..... .

482
11,947

Tax increase (surcharge) as percent of present law tax .......

Office of the Secretary of the Treasury
Office of Tax Analysis

9,645

4.2%

October 8, 1974

Illustrations of the Effect of the 5 Percent Surcharge
on Single Taxpayers

Case D

...... *« .........

$ 7 500 income

Case E

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

$10 0 0 0

income

Case F

....... ....................... $15

000

income

Office of the Secretary of the Treasury
Office of Tax Analysis

October 8 , 1974

- 9 -

Case D:

$7,500 Income

Wages (adjusted gross income) .......... .....................
Less one

$ 7 ^ qq

personal exemptions (@ $750) ...... ................

-750

Less deductions for personal expenses (assumed 17 percent
of income) or minimum standard deduction ............. ......

-1,300

Equals taxable income .................. ».......

5 450

Tax before surcharge ..................................... .

995

Less surcharge floor for singLereturns ............... ........

-995

Equals tax subject to surcharge.............. ...............

Five percent surcharge................. ............... .

Tax after surcharge....... ................... ......... .

995

Tax increase (surcharge) as percent of present law tax .......

Office of the Secretary of the Treasury
Office of Tax Analysis

October 8, 1974

Case £*• $10,000 Income

Wages (adjusted gross income) ................... ..........
Less one

$10,000

personal exemptions (@ $750) .......................

Less deductions for personal expenses (assumed 17 percent
of income)

•

-750

- 1,700

Equals taxable i n c o m e ....... ............. . •......... •.......

7,550

Tax before surcharge ............... ................. .........

1,482

Less surcharge floor for single returns ......................

— “995.

Equals tax subject to surcharge ................ ........

487

Five percent surcharge .............. .................. •......
Tax after surcharge ..........................................

24
1,506

Tax increase (surcharge) as percent of present law t a x ......

Office of the Secretary of the Treasury
Office of Tax Analysis

October 8, 1974

1.6/.

Case F: $15,000 Income

Wages (adjusted gross income).................... ■••••.......
Less

one personal exemptions (@ $750) .... ....... .......

$15,000
-750

Less deductions for personal expenses (assumed 17 percent
.
\ ............. ...........................
.........
.
ofr income)
.

“2,550
— 2---

Equals taxable i n c o m e .... •••••••••........ ••............ .

11 700
|J

Tax before surcharge................... .......... ...........
Less surcharge floor for single returns ..... ........... .
,
Equals tax subject to surcharge............ .................

2 549
-995
......
1,554

Five percent surcharge..... ................ ............. .
Tax after surcharge ...................... ....................
Tax increase (surcharge) as percent of present law tax ......

Office of the Secretary of the Treasury
Office of Tax Analysis

2,627
3.1%

October 8, 1974

Illustrations of the Effect of the 5 Percent Surcharge
on Four Person Families

Case G

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

$25,000 income

Case H

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

$30,000 income

Case I

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

$40,000 income

Office of the Secretary of the Treasury
Office of Tax Analysis

October 9,

1974

Case

G: $25,000 Income

Wages (adjusted gross income)......... .................

$25,000

Less four personal exemptions ((§ $750) ............ .

-3,000

Less deductions for personal expenses (assumed 17 percent
of income) .... ........... .................................

rit»,250

Equals taxable i n c o m e .... ............. ..................... .

17,750

Tax before surcharge....... •••••.................... •......

3,750

Less surcharge floor for joint returns ................ ’.....

-.1*820
1 930

Equals tax subject to surcharge ..............................
Five percent surcharge...... ............... .................
Tax after surcharge ................. ............. ..........

97
3,847

Tax increase (surcharge) as percent of present law tax .......

Office of the Secretary of the Treasury
Office of Tax Analysis

October 9, 1974

2.6%

f i t
Case H: $30,000 Income

Wages (adjusted gross income) .................... ...........

$30,000

Less four personal exemptions ((? $750) ........... ...........

-3,000

Less deductions for personal expenses (assumed 17 percent
of income) ............... ................................ .

-5,100

Equals taxable income ........ ................ ...............

21,900

Tax before surcharge ..................... ................ .

4,988

Less surcharge floor for joint returns ......................

-JLjJ320

Equals tax subject to surcharge ..............................

3,168
158

Five percent surcharge .................................... .
Tax after surcharge ....................... ...................

, V* ^

Tax increase (surcharge) as percent of present law t a x ......

Office of the Secretary of the Treasury
Office of Tax Analysis

October 9, 1974

3.2/0

Illustrations of the Effect of the 5 Percent Surcharge
on Single Taxpayers

Case J

Case K

$2 0 , 0 0 0

income

$25,000 income

$30,000 income
Case L

Office of the Secretary of the Treasury
Office of Tax Analysis

October 9 , 1974

Case J: $20,000 Income

Wages (adjusted gross income)..........................•......
Less

one personal exemptions (@ $750) .................... .

$20,000
-750

Less deductions for personal expenses (assumed 17 percent
of income) .......... ................. ............... *.....
Equals taxable income .................. .................. .

15,850
o 783

Tax before surcharge ..... •............ ........... * •....... ••

Less surcharge floor for single returns ......... ..............

-995
......

1
Equals tax subject to surcharge ..............................

2,788
139

Five percent surcharge.......................................
Tax after surcharge ............ ................ ..............

3,922
3.7’

Tax increase (surcharge) as percent of present law tax .......

Office of the Secretary of the Treasury
Office of Tax Analysis

October 9, 1974

t '&

Case K: $25,000 Income

Wages (adjusted gross income) ................ ............. *• $25,000
Less one

personal exemptions (@ $750) ......... «•••••-••.....

Less deductions for personal expenses (assumed 17 percent
of income) ......... .............................. ....... .
Equals taxable income ....... .............. .

-750

-4,250
. 20,000

Tax before surcharge.......

5,230

Less surcharge floor for single returns .............. ******** —
surcharge .. .......

Equals tax subject to

4,235

Five percent surcharge ....................... ............. .
Tax after surcharge....... ....................... ....... ••••
Tax increase (surcharge) as percent of present law tax

Office of the Secretary of the Treasury
Office of Tax Analysis

October 9* 1974

212
J

Case L: $30,000 Income

Wages (adjusted gross income) .... • •.....$30,000
Less

one

personal exemptions (@ $750) • •• ••..... •••••••.....

-750

Less deductions for personal expenses (assumed 17 percent
of income) or minimum standard deduction.......... ....... .

-5,100

Equals taxable income .................. ..................... .

24,150

’ Tax before s u r charge...... ............... ........... .
Less surcharge floor for

s in g le

6,850

-995
1

returns

Equals tax subject to surcharge ....... ......... ........... .
Five percent surcharge ......... ••••.••••••••••....... .
Tax after surcharge •••........ ......... .....................

5,855
293
7,143

Tax increase (surcharge) as percent of present law tax .......

Office of the Secretary of the Treasury
Office of Tax Analysis

October 9, 1974

EXECUTIVE OFFICE OF THE PRESIDENT

COUNCIL ON WAGE AND PRICE STABILITY
W ashington , D.C.

20503

FOR INFORMATION CALL
202-456-2237
FOR IMMEDIATE RELEASE

October 11, 1974

COU N C I L O N W A G E A N D PRICE STABILITY M E E T S

T he Council on W a g e and Price Stability held its first formal
meeting under the Chairmanship of T r e a s u r y Secretary William
E. S i m o n this afternoon at the White H o u s e and took the
following actions:
(1) Directed the Council staff to give emphasis to two m a j o r
functions which are:
(a) monitoring w a g e and price m o v e m e n t s in the
private sector, and
(b) reviewing government policies and practices that
increase costs and prices.
(2) A p p r o v e d the Table of Organization for the Council which
will have four offices: the Office of G o v e r n m e n t Operations
and Research, the Office of W a g e and Price Monitoring,
the General Counsel and the Office of Public Affairs
and Congressional Relations. It will be staffed by about
40 persons and have a budget of $1 million.
(3) N a m e d J a m e s L. Blum, 38, of Alexandria, Virginia as
Deputy Director.
T he Director of the Council, Dr. Albert Rees, said that the
Council will focus its monitoring efforts on selected targets
not being addressed by other Federal agencies and groups. A
high priority will be on food processing and distribution. T h e
Council staff w a s instructed to consider whether sugar and anti
freeze prices should be items for immediate attention. T h e
Council will also devote a m a j o r effort to the costs and prices
of medical care.

Dr. R e e s emphasized that he expected full voluntary cooperation
with the Council's investigations and studies, but that there would
be vigorous use of public hearings in instances w h e r e this s e e m s
appropriate. In s o m e cases the Council m a y wish to m a k e
specific recommendations to the President, the Congress and
industry, based on the findings of these hearings.
In monitoring government activity the Council will select specific
targets w h e r e action is feasible and would have an impact on costs
and prices. T h e target statutes, rules, or administrative procedures
will be those that have an inflationary impact greater than their
social and economic benefits. T h e Council will also review selected
inflationary impact statements prepared by Federal agencies.
T h e Council on W a g e and Price Stability w a s established by
Public L a w 93-387, August 24, 1974 to monitor w a g e and price
behavior in the United States. M e m b e r s of the Council are:
William E. Simon, Secretary of the Treasury, C h a i r m a n
L. William Seidman, Director of the E c o n o m i c Policy Board,
Deputy C h a i r m a n
Earl L. Butz, Secretary of Agriculture
Frederick B. Dent, Secretary of C o m m e r c e
Peter J. Brennan, Secretary of L a bor
M s . A n n e Armstrong, Counsellor to the President
R o y Ash, Director, Office of M a n a g e m e n t and Budget
M s . Virginia Knauer, C o n s u m e r Advisor to the President

EXECUTIVE OFFICE OF THE PRESIDENT

COUNCIL ON WAGE AND PRICE STABILITY
W ashington , D.C.

20503

O C T O B E R 11, 1974

J A M E S L. B L U M N A M E D D E P U T Y D I R E C T O R
C O U N C I L O N W A G E A N D PRICE STABILITY

J a m e s L. B l u m today w a s n a m e d Deputy Director of the
Council on W a g e and Price Stability. A s Deputy Director he is
responsible for day to day m a n a g e m e n t of Council operations
and acts in the absence of the Director.
M r . Blum, 38, a native of Elgin, Illinois, c o m e s to the Council
f r o m the Department of L a bor w h e r e he w a s Acting Deputy
Assistant Secretary for R e s e a r c h and Evaluation, and Director
of the Office of P r o g r a m Analysis and Special Studies. Prior
to the L a b o r Department, M r . B l u m w a s with the Office of
M a n a g e m e n t and Budget as Assistant Chief of the H u m a n
Resources P r o g r a m s Division f r o m September 1970 to F e b r u a r y
1972; a budget examiner f r o m 1969 to 1970 and as a staff assistant
to Director Charles Z w i c k f r o m 1968 to 1969.
M r . B l u m also w o r k e d with the Organization for E c o n o m i c
Cooperation and Development in Paris during 1962 to 1965, and
as a consultant to the G o v e r n m e n t of Z a m b i a Office of National
Development Planning in L u s a k a during 1965 and 1966.
A 1958 graduate in economics f r o m the University of Michigan,
M r . B l u m w a s elected to Phi Beta K a p p a and Phi K a p p a Phi.
H e received his masters degree in economics also f r o m the
University of Michigan in I960, and did further graduate study
at Michigan in economics, during 1965 to 1967.
M r . B l u m is m a r r i e d to the f o r m e r M a r g e n e S w a n s o n of
Crystal Lake, Illinois. T h e y have two children and reside in
Alexandria, Virginia.

□

FOR IMMEDIATE RELEASE

October 11, 1974

MEMORANDUM TO THE PRESS:
Attached is an exchange of letters between
Secretary of the Treasury William E. Simon and
Congressman Henry S. Reuss.

THE SECRETARY OF THE TREASURY
WASHINGTON

nnr I1
uwi

O
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3?
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t

Dear Henry:
I
have read with care your recent letter on floating, and
I am happy to say that I believe we are in agreement on the
basic elements of the U.S. position with regard to floating*
As expressed in the negotiations on reform during the past two
years, the U.S* position has been that countries should have
maximum practical freedom of choice in deciding upon their
balance of payments adjustment measures. Specifically, we have
argued that countries should be free to float their currencies
so long as they adhere to internationally agreed standards that
would assure the consistency of their action with the basic
requirements of a cooperative order*
While your letter expresses support for this basic posi
tion,^ you express concern that the Treasury has assented in a
"drift toward a return to fixed exchange rate parities aa the
basis of the international monetary system” and that the U.S.
representatives in the 0 2 0 ”did not insist upon the option for
member countries to float without the need for any type of
prior authorization.”
My own observations do not reveal > however, a drift in
thinking among international financial officials toward a
return to fixed exchange rate parities. Ar large number of
officials continue to look forward in the hope that some day
— which all recognize could not be soon — par values will
represent the center of gravity of the exchange rate system,
but the experience over the past year and a half with gener
ally floating rates has in fact probably led to a much wider
recognition of the contributions which floating rates can make.
I can also report that in the discussions of the C-20
the U.S. representatives did take the position that the
International Monetary Fund should not be in a position to
prohibit a country from floating so long as that country were
willing to follow generally accepted guidelines. The Outline
of Reform finally agreed, after lengthy negotiations, to
indicate ”the general direction in which the Committee believes
that the system could evolve in the future,” provides ’’countries
will undertake obligations to maintain specified maximum exchange
rate margins for their currencies, except when authorised to
adopt floating rates.” Our position was that a requirement for
Fund authorization would be acceptable only on the understanding

that there would be an open general license for any nation
to float if it were abiding by the agreed guidelines. This
position was not agreed by others, but the Outline doe 3
provide that "the authorization will be given in accordance
with the provisions to be agreed."
Tlie Committee did agree to a3k the IMF Executive Board
to prepare draft amendments O f the Articles of ¿\grcement to
enable the Fund to legalize the position of countries with
floating rates during the interim period.
In the consideration of proposed amendments over the
coming months, the U.S. representatives will continue to
taka the position that tha option to float should be available
to any nation undertaking to observe the appropriate guidelines.
I greatly appreciate your support for this position.
Sincerely yours.
■^(Signedj[

Bill

Wilbiaa S. Simon
The Honorable
Henry S. Reuse
House of Representatives
Washington, 2). C. 20315

b,GHT PATMAN. T E X .. C H A IR M A N

Congregg of tf)e Untteb States!
JOINT ECONOMIC COMMITTEE

' w i l l i a m p r o x m i r e , w i s .. v i c e c h a i r m a n
JO H N S P A R K M A N , A L A .
J . W . F U L B R IG H T . A R K .
A B R A H A M R IB IC O F F , CO NN.
H U B E R T H . H U M P H R E Y , M IN N .
L L O Y D M . B E N T S E N , J R ., T E X .
JA C O B K . J A V IT 8 , N .Y .
C H A R L E S H . P E R C Y , IL L .
JA M E S B. PEARSON, KANS.
R IC H A R D S . S C H W E IK E R , P A .

(C R E A T E D P U R S U A N T T O S E C . S (» ) OP P U B L IC L A W J04, 7>TH C O N G R E S S )
u

R. STARK,
EXECUTIVE d i r e c t o r

WASHINGTON. D.C.

20510

August 16, 1974

The Honorable William E. Simon
Secretary
U.S. Treasury Department
Washington, D. C. 20220
Dear Mr. Secretary:
On June 14, as you know, the Committee of Twenty established
by the International Monetary Fund submitted its final report, accom
panied by an Outline of Reform. The Committee on Reform of the Inter
national Monetary System and Related Issues, as it was formally known,
has — apparently with your assent and that of the Treasury — sustained
the drift toward a return to fixed exchange rate parities as the basis
of the international monetary system. This trend disturbs me, since it
conflicts with the policy recommendations of the Joint Economic Committee,
on which I serve, and with what I understood to be the avowed position
of this Government.

I
The First Outline of Reform, presented by the C-201s chairman
on September 24, 1973, stated that:
The main features of the international monetary reform
should include: an . . . exchange rate regime based on
stable but adjustable par values and [with] floating
rates recognized as providing a useful technique in
particular situations.
This language was endorsed by Secretary Shultz in his speech before the
last annual meeting of the IMF Governors in Nairobi. He said:

There is full acceptance of the idea that the center of
gravity of the exchange rate system will be a regime of
"stable but adjustable par values," with adequately wide
margins and with floating "in particular situations."

The Honorable William E. Simon
August 16, 1974
Page 2

On November 13 and on December 5, 1973, the Subcommittee on
International Economics of the Joint Economic Committee and the Subcom
mittee on International Finance of the House Committee on Banking and
Currency conducted joint hearings to review progress toward international
monetary reform. Among the witnesses testifying were Treasury Under
Secretary Paul A. Volcker and Federal Reserve Board Chairman Arthur
F. Burns. The Joint Subcommittee on International Economics issued on
January 9, 1974, a report based on these hearings. The first recommenda
tion of this report stated:
For the foreseeable future, the dollar should continue
to float in exchange markets.
The subsequent discussion listed six reasons why a continued dollar float
seemed advisable to the Subcommittee members. The second recommendation
said:
In the drafting of an agreement to reform the international
monetary system, the U.S. monetary authorities should insist
that each IMF member retain the option of letting its cur
rency float in exchange markets without the need to obtain
ariy advance authorization from Fund authorities. The Amer
ican demand that each IMF member have an unequivocal right
to float — according to mutually agreed guidelines — should
be clearly enunciated when the Committee of Twenty again
convenes in Rome in January.
_*
In testimony before the Joint Economic Committee on February 8, 1974,
Secretary Shultz observed, "A statement put out by a subcommittee of
the Joint Economic Committee just before our own meeting was a very
helpful document." I interpreted, perhaps erroneously, this statement
to mean that' the Secretary was in general agreement with the recommenda
tions of the Subcommittee report and that this position had been
forcefully presented at the C-20 meeting in Rome.
A bipartisan majority of the entire Joint Economic Committee
endorsed and reiterated the substance of the Subcommittee’s earlier
recommendations in the full Committee’s annual report, published on
March 25. It said:
The dollar should continue to float in exchange markets
and the trend of this float should not be significantly
influenced in either direction by official intervention.

The Honorable William E. Simon
August 16, 1974
Page 3

Furthermore, any international monetary reform approved
by U.S. authorities should include for each International
Monetary Fund (IMF) member, without the need for any type
of prior authorization, the option of letting its currency
float in exchange markets for as long as that member desires.
I am enclosing with this letter a copy of both the Subcommittee and full
Committee reports for your perusal.
Despite the urgings of the Joint Economic Committee, the
Treasury, in presenting'the U.S. position to the other members of the
Committee of Twenty, did not insist upon the option for member countries
to float without the need for prior IMF authorization. The language
cited above from the First Outline of Reform is repeated verbatim in
the final outline presented by the C-20. Under the reformed inter
national monetary system envisioned by the C-20, floating exchange
rates will constitute an aberration and a departure from the desired
norm. The Committee postulates a return to the Bretton Woods system,
the essence of which was established par values for exchange rates.

explicit.

Other parts of the Outline and accompanying annexes are quite
For example, paragraph 13 says:
Countries may adopt floating rates in particular situations
subject to Fund authorization, surveillance, and review.
...
Such authorization will be given in accordance with'
provisions to be agreed, on condition that the country
undertakes to conform with agreed lines for conduct. . . .
Authorization to float may be withdrawn if the country fails
to conform with the guidelines for conduct, or if the
Fuqd decides that continued authorization to float would
be inconsistent with the international interest.

Paragraph 13 appears in Part I of the Outline, which is described as
indicating "the general direction in which the Committee believes that
the system could evolve in the future." But on the subject of floating
rates, the intentions of the Committee and the Fund are not so tenta
tive, since in paragraph 35 under Part II, which details steps to be
taken immediately, the following statement appears:
During the present period of widespread floating, countries
will be expected in their intervention and other policies
to follow guidelines on the lines of Section B of Annex 4 and
be subject to surveillance in the Fund as there described.

The Honorable William E. Simon
August 16, 1974
Page 4

The substance of Section B under Annex 4 was therefore to be implemented
immediately upon the publication of the Outline* Indeed, the guidelines
contained in this section were adopted by the Executive Board on June 13,
1974.
Section B, in an apparent reference to paragraph 13 in Part I,
presents guidelines for "a country authorized to adopt a floating rate.1'
Given this reference, the Fund authorization procedure, described in
paragraph 13, is apparently also in effect. Has the United States been
authorized to float?
The need for explicit prior authorization from the Fund is
indicated by the preliminary discussion included in Section A of Annex
4, which says in reference to Section B:
An illustrative example is set out below. Under another,
more liberal approach, a country might propose to the
Fund the adoption of a floating rate for its currency,
and provided that the country undertook to conform With
agreed guidelines for conduct, the Fund would approve
such a proposal.
The procedures laid out in Section B and paragraph 13 are less permis
sive than this alternative.
t*

I note that under paragraph 41 of Part II on immediate steps,
"The Executive Board is asked to prepare draft amendments of the Articles
of Agreement" to achieve several purposes. Among these purposes is "to
enable the Fund to legalize the position of countries with floating
rates." It is suggested that such draft amendments be presented to the
Board of Governors, i.e., the member nations, for their approval by
February 1975.
II.
The decision of the C-20 to recommend a return to "stable
[i.e., fixed] but adjustable par values" ignores current realities in
five respects. * First, monetary authorities cannot calculate enduring
par values. Second, recent history has amply demonstrated the inability
of authorities to maintain par values. Third, the ability of monetary
authorities to maintain any given par value is steadily diminishing.
Fourth, the interventionist philosophy of the Committee of Twenty hampers
the ability of exchange markets to grow and smooth exchange rate fluctua
tions. Fifth, the Report of the C-20 ignores the particular need of
countries like the United States to rely upon floating rates.

The Honorable William E. Simon
August 16, 1974
Page 5

(1) Even Theoretically Monetary Authorities Cannot Calculate Durable Par
Values.
The economic conditions that determine the abilities of trading
nations to compete with one another — - including rates of inflation, pro
ductivity groxtfth, rates of aggregate economic expansion, technological
innovations, and fluctuations in agricultural output — are changing
continuously throughout the world and at widely divergent rates. It is
folly to believe that any limited group of mortal men, such as the IMF
Council proposed in the Outline, can calculate a set of exchange rate
parities that will be appropriate and accepted in exchange markets for
more than a matter of months, if that long. No model of transactions
among IMF members is sufficiently complete, no computer is big enough,
and no crystal ball is clear enough to permit the accurate forecasting
of exchange rates on more than a very short-term basis. Moreover, for
tuitous events are always occurring to upset any smoothly projected rate
of change. Even after such random shocks have occurred, the size of
their impact frequently cannot be accurately gauged.
Exchange markets must therefore be allowed to adjust to tempor
ary phenomena. Even if subsequently part or all of this adjustment may
be reversed, such a reversal, or its extent, is no certainty. To stand .
in the way of market-directed exchange rate changes is to block the price
mechanism from inducing those responses that market participants, who far
outnumber monetary authorities and who collectively possess far more
extensive knowledge, believe to be necessary.
(2) The Historical Record Demonstrates the Inability of Monetary Author
ities to Set Appropriate Par Values.
Tfye record of central bankers and finance ministers in attempt
ing to establish exchange rates that will be durable is miserable. Never
theless, without demonstrating any improvement in their performance, the
Committee of Twenty would vest the power to set exchange rates once again
in the same group of people who have botched the job so badly in the past.
Throughout the late 1960s and early '70s, central bankers and
finance ministers, including spokesmen of the Federal Reserve and the
U.S. Treasury, insisted that our payments deficits would eventually
disappear without the need for exchange rate changes if existing programs
to promote exports, curtail American tourism abroad, limit overseas
investment, etc., were allowed sufficient time to have their full impact.
This line of argument was stoutly maintained even though some of these
programs had been initiated in the early 1960s.

The Honorable William E. Simon
August 16, 1974
Page 6

After dollar-gold convertibility was suspended in August 1971,
officials had two chances to reinstitute a set of exchange rate parities
that would be accepted by private traders, investors, and holders of liquid
assets. The first attempt came in December 1971 at the Smithsonian Con
ference. This set of rates lasted until the summer of '72, when British
authorities decided to let the pound float. Expectations of an upward
revaluation of the German mark and other European currencies strengthened
toward the end of 1972, and in early *73, officials finally abandoned
the Smithsonian.
But their next step was* to attempt to institute a new set of
exchange rate parities, and in February the Treasury once again proposed
dollar devaluation — the second decrease in the nominal gold value of
the dollar in fourteen months. This attempt to return to fixed rates
endured for a far shorter period than the Smithsonian arrangement —
less than a month. In March 1973, the authorities threw in the sponge and
decided to let the external value of most major industrial countries be
determined day-to-day by supply and demand in exchange markets. A group
of European countries, primarily the members of the EEC, resolved that
their currencies would float jointly vis-a-vis the dollar, but even this
halfway house has been largely abandoned, since currently the United
Kingdom, France, and Italy are each allowing their currencies to float
independently.
Both abortive attempts to institute new sets of exchange rate
parities for the currencies of the major industrial countries, it should
be emphasized, occurred before the producer nations announced major
increases in oil prices or any other economic upheaval that could not
be anticipated by the officials computing the new parities.
Past attempts by officials to maintain unrealistic parities
caused the United States to accumulate tens of billions of dollar
liabilities to foreign monetary authorities and produced increases in
the money supplies of surplus nations that fueled inflation. But without
any argument to the effect that the performance of officials in attempt
ing to establish durable exchange rate parities will be superior in the
future to what it was in the past, the Committee of Twenty blandly recom
mended that the same authorities who fumbled their previous .assignment be
given even more extensive, like responsibilities in the future.
(3) Potentially Massive Capital Flows Have Deprived Monetary Authorities
of the Ability to Manage Exchange Rates.
The volume of liquid assets capable of being transferred inter
nationally is today so large that no combination of official monetary
authorities can prevent exchange rate changes from occurring if holders of
liquid assets believe such changes are in keeping with economic realities.

The Honorable William E. Simon
August 16, 1974
Page 7

The Bank for International Settlements has estimated that net
foreign currency credits extended by banks in eight European countries
and by banks in certain "Eurocurrency centers" outside Europe, such as
the Bahamas, totaled the equivalent of about $170 billion at the end of
March. Short-term investments in the Eurocurrency markets by oil-producing
countries, with their huge payments surpluses, may cause the supply of
liquid funds susceptible to international transfer to grow further this
year. Nor do these totals include the huge volume of domestic currency
assets in each of the major industrial countries that can move across
international boundaries when strong expectations of impending exchange
rate changes arise.
If officials persisted in defending a set of exchange rates
among the major industrial countries that holders of liquid assets
believed were patently unrealistic, assets worth scores of billions of
dollars could move in attempts to avoid exchange rate losses or to
realize profits. In comparison with these magnitudes, the reciprocal
currency swap network among the central banks of the major industrial
countries now provides the potential for loans of a theoretical maximum
of nearly $19 billion. Total special drawing rights outstanding and
reserve positions in the Fund amount to a similar slightly smaller
magnitude. But it is virtually impossible that more than half of the
resources in the central bank swap network or a similar proportion of
all SDRs and Fund reserve positions could be mobilized to defend any
given currency or set of currencies during an exchange crisis.
A billion dollars a day have moved through exchange markets
during periods of strong expectations that rates were about to shift,
and the volume of internationally liquid mobile capital is growing
steadily. Under these circumstances, the apparent conviction held by
the Committee of Twenty that monetary authorities can successfully defend
exchange rates that are not credible in the market is an exercise in
self-delusion.» The only effective way to avoid massive international
capital flows is to continuously maintain exchange rates that holders
of liquid assets find credible. Achievement of this objective requires
frequent small shifts in exchange rates, and who can better decide what
liquid asset holders find credible than exchange markets themselves?
The C-20fs proposed guidelines for countries authorized to
adopt floating rates say, "A member would not be asked to hold any
particular rate against strong market pressure." But why does this
statement appear here — under the recommended behavior for floaters?
Does it imply that IMF members who have announced fixed parities would
be expected to hold to these rates in the face of strong market pressure?

The Honorable William E. Simon
August 16, 1974
Page 8

I would hope that no country, fixer or floater, would be expected to
follow such a policy. Past errors of this type have proved far too
costly, in terms of ballooning foreign debt burdens and induced infla
tion, to be repeated.
(4)

C-20 Interventionism Limits the Ability of Private Markets to Smooth
Exchange Rate Fluctuations.

While overlooking the poor record of monetary authorities in
attempting to set and maintain credible exchange rates, and while failing
to acknowledge the extremely limited ability of the authorities to defend
exchange rates in the face of market pressures, the guidelines proposed
by the Committee of Twenty would have central banks compete with private
exchange dealers in providing the short-term intermediation that com-^
mercial interests profitably can and should extend. The impact of thet
C-20's interventionist philosophy would therefore be to capture the profits
that private interests would otherwise earn by buying currencies low and
selling them high. Limiting the potential profits of private actors In
exchange markets inhibits the growth of these markets and retards the
development of expertise that is essential to effective smoothing of
exchange rate fluctuations.
The proposed guidelines state:
A member with a floating rate may act, through intervention,
or otherwise, to moderate movements in the exchange value '
of its currency from month-to-month and quarter-to-quarter,
and is encouraged to do so, if necessary, where factors
recognized to be temporary are at work.
(Emphasis added.)
Public authorities, including monetary authorities, should
limit their activities to the provision of services that private inter
ests can or will not. Private banks and other participants in the
exchange rate market can and do take uncovered (i.e., speculative)
positions in foreign currencies for periods from one month up to and
exceeding a year. By helping to make a futures market in foreign •
exchange, these private speculators facilitate international trade and
investment and. decrease the range of exchange rate fluctuations. Their
inducement for taking these uncovered or speculative positions is the
expectation of profit to be gained from these dealings. In buying low
and selling high — the only way to make a profit — speculators tend
to shave the troughs and peaks off fluctuations in currency values.

The Honorable William E. Simon
August 16, 1974
Page 9

Of course, all the forward positions taken in exchange markets by private
interests do not return profits, as the experiences of the Franklin National
and Herstatt Banks have recently demonstrated. But if profitable as a
continuing activity, speculation tends to smooth exchange rate fluctua
tions .
By performing the same functions themselves, monetary author
ities limit the potential profits of private exchange dealers. By
reducing profits, the authorities discourage new private interests from
entering the exchange market, they inhibit the taking of progressively
larger uncovered positions by private dealers, and interfere with the
development of additional expertise among private interests. Thus,
excessive intervention by monetary authorities hampers the development
of large, well-financed, and flexible exchange markets providing ample
volumes of forward cover in all major currencies. Monetary authorities
should restrict their activities to those jobs which private interests
clearly cannot handle and should encourage private participants in
exchange markets to expand their services to the maximum possible extent.
The unstated philosophy behind the Committee of Twenty's Outline
and intervention guidelines, however, is that the authorities should
intervene whenever an excuse for intervention can be offered, not that
authorities should stay out until there is evidence that the capabilities
of private dealers are being exceeded. The attitude implicit in the C-20
guidelines is one of skepticism and perhaps even mistrust toward the »
actions of private interests. By adopting this attitude, the Committee
tends to perpetuate that very instability that it is avowedly attempting
to prevent.
(5) A Return to Fixed Rates Would Ignore the Particular Need of the
United States to Float.
The Outline of Reform prepared by the Committee of Twenty fails
to acknowledge any differences among countries that make floating a more
appropriate exchange rate policy for some than for others. Instead, the
Outline says:
Countries may adopt floating rates in particular situations,
subject to Fund authorization, surveillance and review. . . .
Such authorization will be given in accordance with provisions
to be agreed, on condition that the country undertakes to
conform with agreed guidelines for conduct. . . • Authoriza
tion to float may be withdrawn if the country fails to conform
with the guidelines for conduct, or if the Fund decides that
continued authorization to float would be inconsistent with
the international interest.

The Honorable William E. Simon
August 16, 1974
Page 10

"International interest" is one of those conveniently vague
phrases that leaves ample latitude for subsequent interpretation by
the IMF. Certainly no one would ask the Fund to act against the inter
national interest. But what about the national interests of various IMF
members? These various interests differ according to the economic
characteristics of individual member states. Is it reasonable to jam
the exchange rate behavior of all members into the same mold? I think
not.
The industrialized countries differ markedly in the extent to
which domestic production is exported and raw materials, intermediate
products, and consumer goods are imported. Commercial exports and imports
together are equivalent to about 10 percent of the U.S. gross national
product. By comparison, the international trade of some other majorim
industrial countries, such as Great Britain, France, and Germany, isr
equivalent to about 40 percent of their GNP. These other countries,^:
therefore, can use macroeconomic demand management policies, i.e., u
monetary and fiscal policies, much more easily than the United States^
to affect their external trade positions. The United States, on the.
other hand, must rely relatively more on exchange rate changes to alfcer
prices sufficiently to avoid persistent payments surpluses and deficits.
The dramatic strengthening of the U.S. trade balance from a $7 billion
deficit in 1972 to a $600 million surplus in 1973 reflected, in party
the contribution that appropriate exchange rate policies can make to i
the maintenance of international payments equilibrium.

Differences among nations in rates of inflation, productivity
growth, and economic expansion require more or less continuous adjust
ment of exchange rates. Small changes effected by the market are
preferable to large and, in the past, oft-delayed jumps calculated by
authorities. For a country like the United States especially, a nation
with a relatively small involvement in international trade compared to
its domestic,economy, floating probably is the best mechanism for avoid
ing persistent payments disequilibria. What if the policymakers of this
country do choose frequent, small exchange rate changes determined by
the market as a preferable means of adjustment to larger, occasional
shifts in the par value for the dollar? The Outline of Reform drafted
by the Committee of Twenty would not permit the United States the option
of adopting floating exchange rates as a normal exchange rate regime.
III.
The Bretton Woods Agreements Act, which authorized U.S. member
ship in the International Monetary Fund and in the International Bank for
Reconstruction and Development (World Bank), states that "Unless Congress

The Honorable William E. Simon
August 16, 1974
Page 11
by law authorizes such action, neither the President nor any person
or agency shall on behalf of the United States . . . accept any emendraent
under Article XVII of the Articles of Agreement of the Fund." Article
XVII specifies the procedures for amending the Articles. The Articles
have been amended only once, in 1969, when the special drawing rights
facility was approved. The scope of the amendments that will presumably
be presented to the Congress for consideration sometime in 1975 will be
broader and have a more significant impact on the future of the inter—
national monetary system than the introduction of special drawing rights.
The Congress will weigh the implications of these amendments carefully
and not grant rubber stamp approval.
What would the international monetary reform proposed by the
Committee of Twenty do? Among other things, it would delegate to the
IMF the authority of determining when member states will and will not be
allowed to let the external value of their currencies be determined in
exchange markets by private supply and demand. The determination of
when a country would or would not be permitted to float its currency
would be based on "the international interest," "without apparent explicit
consideration of the national interests of individual IMF members.
Floating has in the
last year and a half proved to be a good
exchange rate regime. International trade and investment have not been
stifled but have both grown at exceptionally healthy rates. If we had
attempted to maintain fixed dollar parities in the face of the political
and economic upheavals of the past year, the calculations of authorities
would have been sent spinning.
Instead, exchange markets have adjusted
quickly and reasonably easily. Trade and investment have not been
interrupted, and the world has gone on quite smoothly.
In discussing the relative advantages and disadvantages of
fixed versus flexible exchange rates, it is critical to distinguish
between the easy certainty of hindsight and the imperfections of fore
sight. There is no trick to plotting the fluctuations in the average
external value of the dollar over the past year and a half and drawing
a trend line somewhere through the midst of these peaks and troughs. |
Economists advocating a return to fixed parities and monetary authorities
propounding their wisdom sometimes plot such a retrospective trend to
accompany the argument that if such-and-such a pattern of exchange rates
had been maintained, certain unnecessary and costly adjustments resulting
from excessive exchange rate fluctuations could have been avoided.
But there is a huge leap from plotting a smooth trend derived
from historical data and successfully forecasting future trends. If the
monetary authorities are confident in their abilities, let them place in

The Honorable William E. Simon
August 16, 1974
Page 12

a sealed envelope the level at which they would set dollar exchange rates
and the amounts of assets they believe would be necessary to defend these
rates. Then let us open this envelope a year or two from now and see
if their predictions are borne out. I am extremely skeptical that the
authorities performance would be up to snuff. Instead, I believe a return
to fixed parities would once again mean large, disruptive exchange rate
changes at irregular intervals.
In requesting the power to authorize member states to float
their currencies in exchange markets according to their interpretation
of the international interest," jthe officials of the International g
Monetary Fund would assume some of the functions of an international
c^^bral bank. For the United States to submit to this type of authority
under the guidelines that have been proposed, I believe, would be a major
The guidelines presume far too much meddling in exchange markets
by authorities. Instead, the authorities should stay out of exchange
markets except when conditions arise that private interests are clearly
unable to manage. The only guideline for central bank intervention in
exchange markets that has appealed to me is to permit such institutions
to intervene for the purpose of quelling "market disruption," i.e., when
some currencies are being offered in large amounts but there are fewtakers at any price, while other currencies are generally desired but,
unavailable. Perhaps the IMF or other monetary authorities can propose
additional sensible guidelines. But the guidelines proposed by the
Committee of Twenty are far too permissive of intervention by authorities.
*

More importantly, the Outline proposed by the Committee of
Twenty is far too stringent in not permitting countries to choose floating
exchange rates as their normal regime. Any country which desires to do
so should be permitted to float its exchange rate so long as its action
does not damage the economic interests of other members. Respecting the
interests of other members essentially means not engaging in competitive
exchange rate appreciation or depreciation. Guidelines of this type
would be.perfectly easy to devise. But under no circumstances should
the United States deny itself the option of resorting to an exchange
rate regime which since March 1973 has proved to be in the best interests
of not only this country but also the international economic community
as a whole.
A new plan of reform should be drafted that would permit IMF
members to opt for either fixed parities under one set of rules or
floating rates under another set of guidelines. To approve the plan
for reform submitted in June by the Committee of Twenty would constitute

The Honorable William E. Simon
August 16, 1974
Page 13

an excessive, unnecessary and unreasonable transfer of power to the
International Monetary Fund. If a plan such as this is submitted
sometime next year to the Congress for approval, I shall argue that
it be rejected.
The time has long since passed when the United States should
have asserted its national Interest in IMF-organized exercises to re
draft the Articles of Agreement. The next annual meeting of the
Governors will provide an excellent opportunity for the United States
to disabuse other members of the notion that we will subscribe to any
international monetary reform that deprives this country of the right
to float the dollar in exchange markets as a normal exchange rate regime.
This right should be circumscribed only to the extent that floating can
be manipulated to damage the economic interests of other countries. So
long as an IMF member refrains from causing such injury, there should
be no limitation on its right to float.
X urge you, as the United States Governor- to the International
Monetary Fund, to make an unequivocal statement to this effect in your
remarks to the assembled Governors at the forthcoming annual meeting.
I would appreciate early confirmation of your intent to make such a
statement.
Sincerely,

Henry S. Reuss, M.C.

Departmentof

^TREA |
TELEPHONE W04-2041

ASHINGTON. D C. 20220

October 11, 1974

FOR RELEASE 6:30 P.M.

RESOLTS OF TREASURY 'S WEEKLY BILL AUCTIONS

I_J ___ £ --2.Ó.'

pf 13-week Treasury bills and for $2,0 billion
|i series to be issued on October 17, 1974,
prve Banks today. The details are as follows*
k bills
nuary 16, 1975
IEquivalent
1Annual Rate
7.671%
7.785%
7.722%

26-week bills
maturing April 17, 1975
Equivalent
Annual Rate

Price

96.109 b/
96.014
96.042

7.696%
7.884%
7.829%

0 hg

1, Ÿ Ï 9

J ig

$9,465,000
$305,000

Ifor the 13-week bills were allotted 77%.
Ifor the 26-week bills were allotted 50%.
ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Accepted

Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS

256,305,000
33.490.000
5,660,000
42.430.000
25.025.000
171,000,000

$
19,985,000
I2,262,520,000
24.285.000
33.205.000
21.785.000
32.515.000
175,130,000
26.110.000
3,660,000
30.195.000
14.775.000
56.425.000

Applied For

Accepted_____

13,820,000
,820,000 $
565,000 1,710,565,000
8.325.000
,325,000
39.095.000
,095,000
16.970.000
,970,000
21.455.000
,455,000
40.835.000
,335,000
27.135.000
,135,000
3.580.000
,580,000
26.920.000
,935,000
14.785.000
,785,000
76.520.000
,520,000

$4,165,830,000 $2,700,590,000 c_/$2,954,520,000 $2,000,005,000 d/

c/ Includes $312,170,000 noncompetitive tenders accepted at average price,
d/ Includes $220,925,000 noncompetitive tenders accepted at average price.
T/ These rates are on a bank—discount basis. The equivalent coupon— issue
yields are 7.99% for the 13-week bills, and 8.26% for the 26-week bills.

FOR RELEASE 6:30 P.M.

October 11, 1974

RESULTS OF TREASURY’S WEEKLY BILL AUCTIONS
Tenders for $2.7 billion of 13-week Treasury bills and for $2,0 billion
of 26-week Treasury bills, both series to be issued on October 17, 1974,
were opened at the Federal Reserve Banks today. The details are as follows;
RANGE OF ACCEPTED
COMPETITIVE BIDS:

13-week bills
maturing January 16, 1975
Price

High
Low
Average
a/
b/

98.061 a/
98.032
98.048

Equivalent
Annual Rate
7.671%
7.785%
7.722%

26-week bills
maturing April 17, 1975
Price

Equivalent
Annual Rate

96.109 b/
96.014
96.042

7.696%
7.884%
7.829%

Excepting 3 tenders totaling $9,465,000
Excepting 2 tenders totaling $305,000

Tenders at the low price for the 13—week bills were allotted 77%.
Tenders at the low price for the 26-week bills were allotted 50%.
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Applied For

Accepted

19, 985, 000
47, 300, 000 $
Boston
$
262,
520, 000
000
398,
795,
2,
3,
New York
24,
285, 000
000
285,
49,
Philadelphia
000
33,
205,
000
56,
145,
Cleveland
000
785,
000
785,
43,
21,
Richmond
000
32,
515,
000
610,
36,
Atlanta
175, 130, 000
256, 305, 000
Chicago
26, 110, 000
000
33, 490,
St. Louis
660,
000
3, 660, 000
5,
Minneapolis
30,
195, 000
430,
000
42,
Kansas City
000
775,
14,
25, 025, 000
Dallas
,000
56,
425
171, 000, 000
San F r a n r ic p n
TOTALS

Applied For
$

Accepted

13, 820, 000
24, 820, 000 $
2 ,472, 565, 000 1, 710, 565, 000
8, 325,•000
8, 325, 000
39, 095, 000
39, 095, 000
16, 970, 000
16, 970, 000
21, 455, 000
21, 455, 000
40, 835, 000
120, 335, 000
27, 135,,000
42, 135, 000
3, 580,,000
4, 580, 000
26, 920, 000
40, 935, 000
14, 785,,000
27, 785, 000
76, 520,,000
135, 520, 000

$4, 165, 830, 000 $2, 700, 590 ,000 <2 /$2 ,954, 520, 000 $2, 000, 005 ,000

MEMO FOR THE PRESS:

SIMON INFORMAL NEWS CONFERENCE

Treasury Secretary William E. Simon and Soviet Foreign
Trade Minister Nicolai Patolichev formally opened the
offices of the US-USSR Trade and Economic Council late
Monday and then Simon told an informal news conference
that his talks with Soviet officials have been ’’extremely
friendly.”
The Treasury Secretary said he would continue the
talks on ”a whole menu of subjects” Tuesday in addition
to taking part in a meeting of the Board of Directors of
the US-USSR Trade and Economic Council. The organization
was set up last year to assist with the expansion of
American-Soviet Trade.
Simon confirmed that a three and one-half hour meeting
with Patolichev today he discussed not only the grain sale
situation but subjects including the trade bill currently
before the Congress. ”We consider the passage of the
trade bill critical and think resolution of the most favored
nation (MFN) problem absolutely of the utmost importance,
Simon told reporters. He said that he believes that a com
promise will be reached and a trade bill passed ’’before the
end of the year.” He added "we seem to be coming down the
home stretch on this issue.”
As to grain, Simon said he gave a report on the total
world grain supply, domestic supplies, demand, export
supplies and price problems. "We had a very useful give and
take on the whole issue for some time,” Simon said. He was
asked if he felt some Americans fear exports of grain.
"That is an ill-founded fear,” he said. ”We need exports.
We are a trading nation, we always have been. Our
philosophy is for open markets.,.
striving for. The quadrupling of oil just adds t
demand that we export to help pay f°r our
He emphasized that the government must also pay attention
to possible effects of exports on domestic markets. He refused
to comment when asked if he felt the grain sale would finally
go through. "We have nothing to say on that, it would be
premature," Simon said. The talks will continue Tuesday.
WS-i

0 O0

(August 31, 1974
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
(Dollar amounts in millions — rounded and will not necessarily
D ESCRIPTIO N

AM O UN T ISSUED

ATURED

Series A* 1935 thru D-1941 _
Series F and G-1941 thru 1952
iSeries J and K-1952 thru 1957

AMO UNT
REDEEM ED

AMO UNT
OU TSTAN D IN G -

5003
29521
3754

4999
29502
3748

1R.

1935
8541
137 30
16041
12631
5769
5507
5715
5677
4986
4313
4526
5187
5302
5520
5336
5035
4933
4632
4665
4765
4643
5232
5098
4992

1757
773ft
12458
14473

8051271

J38-0613-

HMATURED

¡Series E - ^ :
1941
____________________________
1942
____________________________
1943
____________________________
1944
____________________________
1945
____________________________
1946
____________________________
1947
____________________________
1948
____________________________
1949
____________________________
1950
____________________________
1951
____________________________
1952
____________________________
1953
____________________________
1954
____________________________
1955
____________________________
1956
____________________________
1957
____________________________
1958._____________________________________
1959 _____________________________________
1909_____________________________________
1961_____________________________________
1962.____________________________________
1963
____________________________
1964 _____________________________________
1965
____________________________
1966
____________________________________
1967
__________________
1968
__________________
1969
__________________

Unclassified

T otal matured
|A11 Series Total unmatured
Grand T otal ___

5Q39.
4751

4985
5746
6340
6267
3237
202.364

p r i e s H (1952 thru May, 1959) -U H (June, 1959 thru 1974) _

Total Series E and H

5343

.535_

Total Series E

Total Series H

5408

11263

4998
4644

■A.Z4JL

4637
4021
3478
3624
4081
4110
4245
4074
3801
3635

.332-93316

3773
3114
3331
3254
3164
3296

320.9..

2999
2723
2609
2614
2481
2051
455
.622.

147.728

178
1568
1368

9,20
9.43
9-^269 ,7-7..
1 0 . 83.

222.

863
970

13.38
15.67
16.97

1040

18.-32

965

19.37

833

19,36

-9.Q1.
1106

19-211
21.32

1191
1275
1262

22,46-

122-41298
12-53.1-3.49-

24.-51.
26.31

1490
1522.
19001.844..

23.10
23.65
27.05
28.92.
31 .27
32.93.
-3£u_31

36.17

1827

36,60

2112

3Q 05

21 34.20.4.0-

-3929440.48

.20282376
3132
3859
4217
2782

42.69
47.66
54.51
60.87
67.29
85.94

_=140_

54r 636

27.00

1370

,54£3_

-6112-

9831

3497

6333

24.99
64.42

15.314

7 , 609

7,703.

5 0 .3 0

217.678

155.337

62.339

38,278.
217,678.
255,95.6..

38.249
155.337
193,586

62.339
62.366

_22

Include a c c ru e d d is c o u n t .
y W r r e n t re d e m p tio n v a lu e .

^B>ption o i o w n e r b o n d s m a y b e h e l d a n d w i l l e a r n i n t e r e s t l o r a d d i t i o n a l p e r io d s a l t e r o r i g i n a l m a t u r i t y d a t e s .
Form PD 3812 (Rev. Mar. 1974) — Dept, of the Treasury — Bureau of the Public Debt

28.64
IL L

28.64
24.37

Septem ber
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
(Dollar amounts in millions - rounded and will not necessarily add to totals)
D ESC R IPTIO N

AMO UNT ISSUED

MATURED
■Series A-1935 thfu D-1941
_
¡Series F and G-1941 thru 1952
¡Series J and K-1952 thru 1957

AMO UNT
REDEEM ED

5003
29521
3754

499.9
29502
3748

1935
8544
13740
16046
12635
5773
5511
5719
5681
4991
4317
4530
5194
5309
5530
5344
5045
4940
4642
4671

1757
7740
12465
14482
11270
5002
4649
4750

AM O UN T
OU TSTAN D IN G

% O U TSTAN DIN G
O F AMO UNT ISSUED

.08
.06

18.

lUNMATURED
[Series E -^ :
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 ____________________________________
1971
____________________________
1972
____________________________
1973
____________________________
1974
________________________
Unclassified
Total Series E

ISeries H (1952 thru May, 1959) -£L
H (June, 1959 thru 1974) _
Total Series H
Total Series E and H

Total matured
All Series Total unmatured
Grand T otal ___

..4X7.2-

4652
5240

A 842.

4026
.3.482.
3628 -

804
127 5
1564
1365
771
863
282
1039
-982
83 4 „

90 -1.

4086
4116
4251
4080

.11.0.7
1192

3808

1237
1298

3841
3386
33 2?

3282.
3122
3342

9.20

128-

9.41
9.28
Q, 7 5

10.80
13.36
15.66

-18-.-9.4

18.29

19.33

29L.-32
19.89
21.32
22.46
11

1278

23.6 5
74.-52.

12.6.4.
1 2.56

1349
-14801529
18-92

28 — 2 8 .

.27-Û 6-

28.88
3 4 -,-2-2-

32.87
36.24
36w09
36.44

5107

326 5

1843

4997
.54.18..

3175
.33.1.0

18.21
2108

38.91

.5 3 2 2

322 L

2133

50 AS

2038

4996
.5.759.
6356
6284
3529

3010
2742
2624
2635
2511
2105
282

241.

785 -

-4.3

39.82
40.87
42.41
47.48
54.25
60.49
66.50
84.07

203.114

148.277

54.833

27.00

2120.

1364

-3-53Z

6331

24.88
64.14

15,354

7,657

7,695

50.12

218.468

155,934

62,528

28.62

38.278
218.468

38.249
155.934

28
62.528

256,746

1 9 4 2 -8 3 -

62,556

.07
28.62
24.36

-4761.

5483
9871

2019
2372
3124
3845
4179
2987.

|5H/ude a c c ru e d d is c o u n t .
\ 3 / f tTent a d e m p t io n v a lu e .

■ 0p ,on °* o w n e r b o n d s m a y b e h e l d e n d w i l l e a r n i n t e r e s t l o r a d d i t i o n a l p e r io d s a f t e r o r i g i n a l m a t u r i t y d a t e s .

Form PD 3812 (Rev. Mar. 1974) — Dept, of the Treasury — Bureau of the Public Debt

DepartmentoftheTREASURY
SHINGTON, D.C. 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

1974
TREASURY'S WEEKLY BILL OFFERING

The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $4,700,000,000 » or
thereabouts, to be issued October 24, 1974,

as follows:

93-day bills (to maturity date) in the amount of $2,700,000,000» or
thereabouts, representing an additional amount of bills dated July 25, 1974,
and to mature January 23, 1975

(CUSIP No. 912793 VS2), originally issued in

the amount of $1*901,350,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $2,000,000,000, or thereabouts, to be dated October 24, 1974,
and to mature April 24, 1975

(CUSIP No. 912?93 WF9).

The bills will be issued for cash and in exchange for Treasury bills maturing
October 24, 1974,

outstanding in the amount of $4,503,495,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,487,155,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and non
competitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Monday, October 21, 1974.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
multiples of $5,000.

Tenders over $10,000 must be in

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.
Banking institutions and dealers who make primary markets in Government

(OVER)

securities and report daily to the Federal Reserve Bank of New York their

positio!

with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.
own account.

Others will not be permitted to submit tenders except for their
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

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 reject any hr all tenders,
in whole or in part, and his action in any such respect shall be final.

Subject

October 24, 1974,

in cash or

other immediately available funds or in a like face amount of Treasury bills
maturing October 24, 1974.
ment.

Cash and exchange tenders will receive equal treat

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

bills (other than life insurance companies) issued hereunder must include in his
Federal 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.
Department of the Treasury Circular No. 418 (current revision) and this notn
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

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

Department o f t h e T R E A S U R Y
MjpON. DC 2TJ220

TELEPHONE W04 2041

FOR IMMEDIATE RELEASE
MEMO FOR THE PRESS:

SIMON PRESS CONFERENCE

Treasury Secretary William E. Simon told a Moscow
news conference late Tuesday that "we achieved everything
we came over to achieve" and that he would be reporting
to President Ford the results of grain discussions with
Soviet leaders.
He confirmed that he will be meeting with Communist
Party Chief Brezhnev this evening and will attend a dinner
Brezhnev is hosting for US-USSR Trade and Economic Council
leaders.
Simon again predicted that the trade bill pending in
Congress will pass "within 45 days--before Christmas.
He
said that American-Russian trade had increased from $200
million in 1973 to $1.4 billion in 1974, adding that grain
sales would be less than last year but still high. ,fWe had
very lengthy discussions here in Moscow, Minister Patolichev
and I, on the entire world grain situation, what their
demands on the market would be and what indeed the crop pro
duction would be." He said later that questions regarding
Soviet grain statistics should be addressed to their side.
On other trade matters, he said that Export-Import
Bank financing is important but not the only avenue of
credit for bilateral trade with the USSR, and that while
the talks dealt with energy, specific Soviet petroleum
sales to the United States were not brought up.
Secretary Simon reaffirmed the "extremely friendly"
nature of the talks and said that "no antagonisms"were
apparent in the frank and full discussions. He said that
the talks were valuable for expanding mutual personal
relationships between the two nations
Also in attendance at the news conference were members
of the Trade and Economic Council with Deputy Foreign Trade
Minister Vladimir S. Alkhimov presiding.
oOo
WS-123

D epartm entoftheTR EASU RY
HINGTON, D C. 20220

TELEPHONE WÛ4-2041

FOR IMMEDIATE RELEASE

TREASURY CASH FINANCING

The Treasury will raise $2.5 billion of cash by
auctioning up to $1.0 billion of notes maturing May 15,
1979, and up to $1.5 billion of bills maturing June 19,
1975.
The 4-year 6-month notes will be auctioned on a
yield basis, rather than the conventional price basis,
on Wednesday, October 23. Bidders must state the per
centage yield they will accept to two decimal places.
The coupon will be set, after the auction, to the 1/8 of
one percent which is nearest to the average yield on
accepted tenders and which produces an average price at
or below par.
The payment and delivery date for the notes
will be November 6, 1974y payment may not be made'by credit
to Treasury tax and loan accounts.
The 227-day bills will be auctioned on the conventional
price basis on Tuesday, October 29. The payment and delivery
date will be November 4y payment may not be made by credit
to Treasury tax and loan accounts.
These bills may not be
used in payment of Federal income taxes due June 15, 1975.

Department0/ theT R E A S U R Y
IhINGTON, D C. 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

October 15, 1974

TREASURY’S 227-DAY BILL OFFERING

The Department of the Treasury, by this public notice, invites tenders
for $1,500,000,000, or thereabouts, of 227-day Treasury bills, to be issued
on a discount basis under competitive and noncompetitive bidding as herein
after provided.
and will mature

The bills of this series will be dated November 4, 1974,
June 19, 1975

(CUSIP No. 912793 WZ5) when the face amount

will be payable without interest.

They will be issued in bearer form in

denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value), and in book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Standard time, October 29, 1974.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
in multiples of $5,000.

Tenders over $10,000 must be

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.

Banking institutions and dealers who make primary markets ip Government
securities and report daily to the Federal Reserve Bank of New York their
positions with respect to Government securities and borrowings thereon may
submit tenders for account of customers provided the names of the customers
are set forth in such tenders.
except for their own account.

Others will not be permitted to submit tenders
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 bills applied for, unless the
tenders are accompanied by an express guaranty of payment by an incorporated
bank or trust company.

(OVER)

Public announcement will be made by the Department of the Treasury of
the amount and price range of accepted bids.

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 reject
any or all tenders,in whole or in part, and his action in any such respect
shall be final.

Subject to these reservations, noncompetitive tenders for

$200,000 or less without stated price from any one bidder will be accepted in
full at the average price (in three decimals) of accepted competitive bids.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch in cash or other immediately
available funds on November 4, 1974.
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.

Accord-

ingly, the owner of bills (other than life insurance companies) issued here
under must include in his Federal 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.
Department of the Treasury 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.

Department of t h e T R E A S U R Y
ISHINGTON. D.C. 20220

TELEPHONE W04-2041

October 15, 1974

FOR IMMEDIATE RELEASE

TREASURY TO AUCTION $1.0 BILLION OF NEW NOTES
The Treasury will auction under competitive and noncompetitive bidding $1.0
billion, or thereabouts, of 4—1/2 year notes. The coupon rate for the notes will
be determined after tenders are allotted. The notes will be Series D-1979, dated
November 6, 1974, due May 15, 1979 (CUSIP No. 912827 DY5).
Competitive tenders for the notes must be expressed in terms of annual yield
in two decimal places, e.g., 7,91> and not in terms of a price. Tenders at the
lowest yields, and noncompetitive tenders, will be accepted to the extent required
to attain the $1.0 billion offered. After a determination is made as to which
tenders are accepted, a coupon yield will be determined to the nearest 1/8 of
1 percent necessary to make the average accepted price 100.00 or less. That will
be the rate of interest that will be paid on all of the notes. Based on such
interest rate, the price on each competitive tender allotted will be determined
and each successful competitive bidder will pay the price corresponding to the
yield he bid. Price calculations will be carried to three decimal places on the
basis of price per hundred, e.g., 99.923, and the determinations of the Secretary of
the Treasury shall be final. Tenders at a yield that will produce a price less
than 99.001 will not be accepted.
Interest on the notes will be payable on a semiannual basis on May 15 and
November 15, 1975, and thereafter on May 15 and November 15. They will be issued
in registered and bearer form in denominations of $1,000, $5,000, $10,000, $100,000
and $1,000,000, and in book-entry form to designated bidders.
Tenders will be received up to 1:30 p.m., Eastern Daylight Saving time,
Wednesday, October 23, at any Federal Reserve Bank or Branch and at the Bureau of
the Public Debt, Securities Transactions Branch, Washington, D. C. 20226; provided,
however, that noncompetitive tenders will be considered timely received if they are
mailed to any such agency under a postmark no later than Tuesday, October 22. Each
tender must be in the amount of $1,000 or a multiple thereof, and all tenders must
state the yield, if a competitive tender, or the term "noncompetitive", if a
noncompetitive tender. The notation "TENDER FOR TREASURY NOTES" should be printed
at the bottom of envelopes in which tenders are submitted.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders, in whole or in part, including the right to accept more or less
than $1.0 billion of tenders, and his action in any such respect shall be final.
Subject to these reservations, noncompetitive tenders for $500,000 or less will be
accepted in full at the average price of accepted competitive tenders, which price
will be 100.00 or less.
(OVER)

Commercial banks, which for this purpose are defined as banks accepting
demand deposits, and dealers who make primary markets in Government securities and
report daily to the Federal Reserve Bank of New York their positions with respect
to Government securities and borrowings thereon, may submit tenders for the account
of customers, provided the names of the customers are set forth in such tenders.
Others will not be permitted to submit tenders except for their own account.
Tenders will be received without deposit from commercial and other banks for
their own account, Federally-insured savings and loan associations, States, politics
subdivisions or instrumentalities thereof, public pension and retirement and other
public funds, international organizations in which the United States holds member
ship, foreign central banks and foreign States, dealers who make primary markets in
Government securities and report daily to the Federal Reserve Bank of New York their
positions with respect to Government securities and borrowings thereon, Federal
Reserve Banks, and Government accounts. Tenders from others must be accompanied by
payment of 5 percent of the face amount of notes applied for. However, bidders who
submit checks in payment on tenders submitted directly to a Federal Reserve Bank or
the Treasury may find it necessary to submit full payment for the notes with their
tenders in order to meet the time limits pertaining to checks "As hereinafter set
forth. Allotment notices will not be sent to bidders who submit noncompetitive
tenders.
Payment for accepted tenders must be completed on or before Wednesday,
November 6, 1974, at the Federal Reserve Bank or Branch or at the Bureau of the
Public Debt. Payment must be in cash, in other funds immediately available to
the Treasury by November 6, or by check drawn to the order of the Federal Reserve
Bank to which the tender is submitted, or the United States Treasury if the tender
is submitted to it, which must be received at such bank or at the Treasury no
later than:
(1) Friday, November 1, 1974, if the check is drawn on a bank in the
Federal Reserve District of the Bank to which the check is submitted, or the
Fifth Federal Reserve District in case of the Treasury, or (2) Wednesday, October 30,
1974, if the check is drawn on a bank in another district. Checks received after
the dates set forth in the preceding sentence will not be accepted unless they are
payable at a Federal Reserve Bank. Where full payment is not completed on time,
the allotment will be canceled and the deposit with the tender up to 5 percent of the
amount of notes allotted will be subject to forfeiture to the United States.
Payments may not be made through Tax and Loan Accounts.
Commercial banks are prohibited from making unsecured loans, or loans
collateralized in whole or in part by the securities bid for, to cover the deposits
required to be paid when tenders are entered, and they will be required to make
the usual certification to that effect. Other lenders are requested to refrain
from making such loans.
All bidders are required to agree not to purchase or to sell, or to make any
agreements with respect to the purchase or sale or other disposition of the notes
bid for under this offering at a specific rate or price, until after 1:30 p.m.,
Eastern Daylight Saving time, Wednesday, October 23, 1974.

Department of t h e T R E A S U R Y
kSHINGTON, D.C. 20220

TELEPHONE W04-2041

October 15, 1974

FOR IMMEDIATE RELEASE

TEXT OF MESSAGE FROM PRESIDENT FORD TO
TRADE AND ECONOMIC COUNCIL DELIVERED AT
KREMLIN OCTOBER 15 BY TREASURY SECRETARY
WILLIAM E. SIMON
I

extend my warmest greetings to the US-USSR Trade

and Economic Council on the occasion of the second meeting
of its Joint Board*
Wec.can all look back with satisfaction at the progress
made during the past three years in developing constructive
and mutually beneficial relations between our countries.
Shortly after assuming the Presidency, I pledged continuity
in our commitment to that course, for there can be no
alternative to a positive and peaceful relationship between
the Soviet Union and the United States.
Developments in the economic sphere have been particularly
striking.

Our bilateral trade turnover has grown from less

than 200 million dollars in 1970 to over 1.4 billion dollars
last year.

Negotiations between U.S. firms and Soviet

organizations are proceeding on a broad range of projects,
including examination of long-term economic cooperation
agreements.

U.S.-Soviet trade relations were once carried on

at arm's length, but now each Government has upgraded its
commercial representation in the other's capital, and American
firms have opened offices in Moscow.
WS-129
(more)

As in other areas of our relations, these accomplishments
are modest in comparison to future prospects.
we can realize them.

I am confident

To this end I have stressed to our

Congress the importance of granting most-favored-nation
treatment to imports from the Soviet Union.

The removal of

barriers to trade, however, is not all that is required.
Actual sales transactions will require the positive decisions
of business firms.

It is for that reason that I particularly

welcome the work of the US-USSR Trade and Economic Council,
which brings together representatives of U.S. firms with their
Soviet counterparts in a spirit of cooperation.
The Council deserves sincere congratulations on the progress
it has made during its short life.

I am certain that it will

make an outstanding contribution to the further development of
constructive, fruitful relations between the Soviet; Union and
the United States.

0 O0

pj ■

III

D e p a rtm e n to fth e T IfU S lIR Y
fcHINGTON. D.C. 20220

TELEPHONE W 04-2041

October 16, 1974
MEMORANDUM TO CORRESPONDENTS:
Attached is a statement submitted to the Senate
Permanent Subcommittee on Investigations of the Senate
Committee on Government Operations by Secretary Simon
today in lieu of personal testimony in response to
questions from Senator Jackson in a letter dated
October 3, on recycling of surplus funds accruing to
oil exporting nations.

ess

W S -1 2 7

THE SECRETARY OF THE TREASURY
W A S H IN G T O N

OCT 111974

Dear Mr. Chairman:
I regret that a long planned meeting of the U.S.U.S.S.R. Trade and Economic Council in Moscow will prevent
me from appearing personally before the Subcommittee on
Investigations on October 16 to discuss the recycling of
surplus funds accruing to oil exporting nations. This is
an issue of widespread world concern and one which I, as
chief economic spokesman for the Administration, am happy
to examine with the Congress.
You will recall that I submitted to the Subcommittee,
in conjunction with my testimony on September 18, a statement
on "The Financial and Economic Consequences of the Quad:cupling
of the Price of Oil." This statement summarized the infor
mation available to the Executive Branch concerning the
funds accruing to oil exporting nations and the uses to
which those funds have been put thus far this year. It
contained comments on the capacity of the oil exporting
nations to increase their imports so as to obtain payment
for their oil in real resources on a current basis. That
statement reviewed current recycling problems and the
economic outlook for oil importing nations. Very little
additional information has become available in the three
weeks since that statement was submitted.
In the interval I have, however, discussed the problems
created by the oil price increases with officials of many
other nations, principally oil importing countries. At the
annual meeting of the Boards of Governors of the IMF and
the IBRD last week, there was general acceptance of the
view I had earlier expressed that the complex of existing
financial arrangements, private and official, had worked
well to date and that considerable potential remains within
the framework of these arrangements. A number of officials

expressed concern, however, that these existing channels
might not prove fully adequate in the future. Thus it was
agreed that there should be examination of the possible
need for supplementary arrangements. The new policy level
"Interim Committee" of the IMF has asked the Executive
Directors of that organization to examine the adequacy of
existing arrangements and to report on the possible need
for new facilities at the next meeting of the Interim
Committee scheduled for mid-January.
You may be sure that I am continuing to follow develop
ments in world financial markets and the financial problems
facing individual countries with the greatest care. My views
are set forth in the address which I made to the Governors of
the IMF and the IBRD on October 1. You may wish to place the
text of this address in the record. But a number of the
specific questions raised in your letter of October 3 cannot
be answered. We must recognize that OPEC countries are not
prepared to inform fully the United States Government, other
countries, or international agencies as to the nature and
location of their investments throughout the world or their
future plans for imports of goods and services. Furthermore,
several of your questions ask for projections of future
developments that cannot validly be made. The lack of com
prehensive, detailed information on OPEC investments in other
countries does not, however, prevent us from formulating the
necessary policy decisions.
In order to contribute as much as possible to your
hearings, however, I have asked my staff to prepare responses
to your specific questions insofar as information is available.
I would be happy to have these staff responses, which are
attached, included in the record of the hearings.
The Comptroller of the Currency, Mr. James Smith, has
participated in the preparation of the responses to the
questions concerning the international activities of U.S.*
banks and concurs in the statements made.
In transmitting these responses, I would like to stress
a point I made in stating my views on the oil price problem
to the Subcommittee on September,18. Lower oil prices are
in the long-run interests of both producer and consumer
nations. Oil price increases have fanned inflation, adversely
affected living standards, distorted economies and created

payments problems. They have brought oil exporting countries
exceptionally high incomes in the short run but also the
danger of a drastic erosion of their income in the long
run. Oil prices will come down, and .the sooner they come
down the less will be the damage to the world economy.
Again, Mr. Chairman, may I express my regret in being
unable to appear in person before your Subcommittee. I
hope the information we are providing contributes to better
understanding of one of the central problems of the world
economy today.
Sincere l^,y o”u rs

Enclosures

QUESTION:

What are the short, middle and long-term financial and
economic consequences for the U.S. and other industrialized
oil consuming nations of importing oil at current OPEC
prices, and what are the consequences for the less developed
countries?
A.
What are the current rates of inflation, by country,
for industrialized oil consuming nations and for the less
developed countries? What are the projected rates of infla
tion for these countries?
ANSWER:
The financial and economic consequences of the oil price
increase were described in Secretary Simon's statement to the
Subcommittee of September 18. Data on current rates of
inflation in various countries are provided in Table 1, from
the International Monetary Fund's publication, International
Financial Statistics. Information on projected rates of
inflation is not available for most countries. Projections
prepared by the Organization for Economic Cooperation and
Development for seven major industrial countries are provided
in Table 2.

. Table 1

Changes in Consumer Prices

Per Cent Change in 12 Months*

Index Numbers: 1970=100

Monthly Data
1967

1968

1969

1970

1971

1972

1973

Oct

1973

Nov

Dec

Jan

Feb

Mar

1974
Apr

May

June

July

Industrial Countries

86.0

89.6

94.4

100.0

104.3

107.7

114.4

7.9

8.4

8.8

9.3

10.1

10.2

10.7

11.1

11.5 United States

85.2

89.2

94.0

100.0

109.4

117.2

128.0

10.0

10.3

10.6

12.0

13.2

13.5

15.2

16.0

16.5

United Kingdom

90.4
90.3
83.9
85.1
93.4
91.6
86.6
84.7
89
92.0

93.0
92.8
90.6
89.0
94.9
92.8
89.9
87.7
91
94.1

95.8
96.2
93.9
94.4
96.7
95.3
96.5
90.4
93
96.5

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100
100.0

104.7
104.3
105.8
105.5
105.3
104.8
107.5
106.2
107
106.6

111.3
110.0
112.8
111.7
111.1
110.8
115.9
113.9
114
113.7

119.7
117.7
123.3
119.9
118.8
122.8
125.2
122.4
122
123.6

7.0
6.8
10.3
8.0
6.5
11.1
7.9
7.4
7
9.5

7.9
6.7
11.3
8.4
7.4
11.4
8.0
7.7
8
10.8

7.9
7.3
12.6
8.4
7.8
12.6
8.2
7.6
8
11.9

8.1
7.5
14.4
10.3
7.4
13.2
8.1
8.5
8
11.6

8.5
8.4
13.6
11.5
7.6
14.2
8.8
8.9
10
10.0

8.9
9.5
13.8
12.2
7.2
15.2
9.2
9.0
11
9.6

9.8
10.4
14.2
13.2
7.1
15.5
8.9
8.8
10
8.8

9.6
11.6
14.3
13.5
7.2
15.4
8.8
8.7
8
9.9

10.2
12.6

__
13.7
__
__
6.9
19.3
__
8.8
. .
9.8

Industrial Europe
Austria
Belgium
Denmark
France
Germany
Italy
Netherlands
Norway
Sweden
Switzerland

89.0

9 2 .6

100.0

102.9

107.8

116.0

8.6

9.3

9.1

9.6

10.4

9.9

10.9

11.4

11.3 Canada

83.7

88.3

96.8
93.3

100.0

106.3

111.4

124.5

13.2

14.9

17.2

20.7

23.6

21.7

23.3

21.3

21.7

15
30.6

15
33.5

17
33.4

18
32.7

5.7
19.3
14.0

6.1
28.7
15.7

5.9
26.7
16.6

Ì8
31.9
43
16.3
5.7
25.5
16.4

18
30.2

6.2
19.0
14.2
16.7
21

16
33.5
32
13.4
6.1
23.2
14.2

15.3

13.9
6.9
16.6
8.9
8.2
9.6

O ther Developed Areas

94
94.8
72
86.0
94.2
86.4
92.6
86.7
85

97
97.1
88
92.4
96.4
94.0
94.6
93.7
90

100
100.0
100
100.0
100.0
100.0
100.0
100.0
100

106
103.0
107
108.9
102.3
111.9
108.2
115.7
115

114
107.5
117
118.4
105.8
123.9
117.2
129.2
135

126
123.8
141
131.8
113.9
139.9
130.6
149.1
162

91.0
85.8
91.2

93.4
89.5
93.1

96.2
93.9
96.1

100.0
100.0
100.0

106.0
110.4
105.7

112.2
118.0
112.5

122.9
127.7
123.3

88
94.4
64
82.2
92.4
81.4
88.2

13
23.2
6.5
16.6
13.9
17.7
17

13
29.3
29
12.6
5.9
17.0
13.8
17.1
17

5.7

13.2
9.3

10.2

10.2
10.2

9.0

9.4

9.7

29.4

22.4

14.3

16
529
25.0

19
652
26.4

22
699
27.8

25
746
24.1

?7
b/6
18.6

9.6

Other Europe
Finland
31.7 Greece
Iceland
Ireland
Malta
Portugal
Spain
Turkey
20 Yugoslavia
...
...
...

9.7

82
94.1
67
58
85.0
93.0
95.5
89.4
97.5
95.6
95.5
85.7
91.7
98.6
89.6
95.2
71
95.2

88
96.2
82
75
93.6
95.6
96.3
95.2
97.3
97.7
97.2
91.1
95.1
100.8
95.2
97.5
85
97.6

100
100.0
100
100
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100
100.0

135
103.6
120
120
109.0
103.1
104.3
108.4
100.5
99.5
101.8
106.7
105.8
104.9
107.1
103.5
124
103.2

213
110.3
140
213
124.6
107.8
112.5
117.0
102.0
100.1
105.5
112.9
111.1
114.6
114.5
113.1
218
106.1

92.0
89.7
94.4
88.7
90.1
87.1
93

95.4
93.2
95.0
90.6
92.0
86.8
97

97.7
96.3
98.3
95.8
94.2
93.6
96

100.0
100.0
100.0
100.0
100.0
100.0
100

104.2
103.1
104.2
103.6
112.0
119.7
105

109.2
105.3
110.9
109.0
126.4
129.4
106

86.3
91
72.5
•98.7
94.4
83.8
83.1
95.1
47

91.9
94
80.6
98.5
94.3
85.7
87.9
97.1
61

96.5
95
88.7
98.1
95.7
87.4
94.4
99.1
73

100.0
100
100.0
100.0
100.0
100.0
100.0
100.0
100

102.6
103
112.4
101.6
107.7
114.6
102.7
102.0
118

107.5
109
125.6
105.0
117.2
126.3
109.2
106.0
148

81.6
83.1
85.3
95.5
80.2
93.5
94.9
92.7
85.9

89.1
87.5
89.0
95.8
79.9
93.9
85.4
95.0
95.1

94.3
91.4
96.1
98.7
87.8
97.7
96.2
98.9
97.5

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

102.6
98.5
104.5
104.1
116.1
102.6
101.4
105.7
160.0

116.4
98.8
105.6
108.0
119.3
106.2
112.7
107.9

111.6

344
145.1
158
966
153.0

52.4
51.7
12
528
18.1

44.7
24.6
13
529
17.7

43.7
34.7
14
508
21.1

129.5
132.2
108.5
113.9
110.8
134.6
123.6
129.2
125.4
129.8
430
110.5

18.1
19.9
8.4
24.0
1.4
26.2
14.8
9.9
12.4
20.0
94.7
4.9

17.1
17.5
8.8
21.6
5.5
24.9
15.1
13.5
14.0
23.9
78.0
5.5

17.3
20.5
7.9
17.5
5.1
29.6
20.3
14.2
13.7
24.3
77.5
5.7

15.3
16.4
9.1
21.2
7.6
30.4
21.3
21.0
14.5
21.6

15.2
22.8
13.2
9.3
9.1
29.1
23.0
26.7
16.1
21.2

17.2
26.7
13.4
9.5
7.5
29.8
22.2
30.2
15.6
22.0

16.6
29.7

12.1
28.3

12.5
10.6
28.8
22.8
27.2
16.3
23.0

8.0
11.5
28.9
22.6
29.0
16.8
24.5

22.7

5.2

5.6

5.4

5.3

6.1

117.7

10.4

11.0

9.8

11.6

15.9

17.0

17.7

121.8
114.3
151.6
142.9
127

16.3
3.1
21.7
9.5
20.8

14.'i
5.3
24.9
13.5
23.4

12.9
7.0
26.4
18.6
24.1

5.7
28.5
17.0
13.5

ii.i

ii.o

5.9
37.5
17.2

¿3.4

Í4ÍÓ
9.5

15.7
8.7

Ü6
9.6

121.6
128
129.4
115.9
143.8
140.2
119.7
118.4
214

26.9
21
2.8
15.5
31.3
16.8
14.0
12.6
52

31.0
23
5.2
17.8
35.5
23.5
14.1
14.5
57

29.6
24
7.3
18.2
29.4
27.3
14.4
16.5
59

37.9
25
11.3
18.3
32.1
26.7
12.6
18.7
63

61.1
25
17.7
21.9

63.0 . 58.5
28
28
24.5
21.6
23.9
21.2

53.3

52.2

24.2
19.2

23.9

32.9
13.0
19.9
64

37.6
13.4
21.4
68

36.6
14.2
28.4
68

3¿‘¿
11.5

131.9
109.7

192
14.5

18.4
14.8

11.4
16.1

112.5

9.1

10.5

14.9

8.8

1Ì4.Ò
128.9
112.7
118.2

Computed over corresponding month of preceding year.

¿2
24.1
10.1
8.4

Source :

3.9

15.9

19.6

14
29.9
5.8
10.2

16
29.0
1.9
9.2

36 Á

14.1
25.4
67

Australia, N. Z., S. Af.
Australia
New Zealand
S. Africa
Latin America
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Dominican Rep.
Ecuador
El Salvador
Guatemala
Honduras
Jamaica
Mexico
Paraguay
Peru
Trinidad-Tobago
Uruguay
Venezuela

Less Developed Countries

70
89.2
55
46
80.3
89.4
95.4
85.8
95.0
93.9
93.1
80.9
89.7
97.9
75.3
87.9
32
94.0

Japan

17.0

12.6
29.0
26.4

Middle East
Cyprus
Egypt
Iran
Iraq
Israel
Jordan
Syria
Other Asia
China, Rep.
India
Korea
Malaysia
Pakistan
Philippines
Sri Lanka
Thailand
Viet-Nam

Other Africa
Ghana
Ivory Coast

¿7
-.6

18
-.3

__
__
__
__
__
__

Morocco
Nigeria
Senegal
Sudan
Tunisia
Zambia

In tern ation al Fin an cial S ta tistic s/
In tern ation al Monetary Fund

Table 2
OECD ESTIMATES
Consumer Prices in Seven Major Countries a/
Percentage changes, seasonally adjusted
at annual rates, estimates and forecasts
Average
1959-60
to
1970-71

From previous year
1972
1974
1973

From previous half -year
1974
1973
I
II
I
II

~TTT5
I

Canada

2,2

3.5

5.6

4.9

8.7

11 1/2

7 1/4

United States

2.4

2.6

5.3

5.4

7.9

11 1/2

9 1/4

1 1/2

Japan

5.6

4.9

lltB

10.3

19.2

29 3/4

20 1/4

France b/

4.1

6.2

7.3

6.2

9.8

Germany

2.8

5.6

7,2

6.8

7.7

7 3/4

Italy b/

3.9

5.7

10.8

12.1

11.0

19 1/2

United Kingdom

3.5

6.7

8,6

8.5

9.3

16 1/2

18 1/2

3.2

4.1

7.2

13 1/4

6.9

10.0

14 3/4

10 1/4

Total of above
countries c/

24 3/4
14
8 1/2

11 1/4

9 1/4

a/ National accounts implicit price deflator
F/ Consumer price index
c/ 1973 weights and exchange rates
Source: Economic Outlook, Organization for Econmic Cooperation and Development
"July 1974

QUESTION :

I A 1
•

t Jn

What merit, if any, is there in producer country claims
that recent price rises merely compensate them for the
increasing cost of foodstuffs, manufactured goods, and other
commodities?

ANSWER
The facts do not bear out OPEC contentions that the
recent oil price increases were justified by increases in
the prices of goods they import. Chart 1 following shows
that oil price increases have far outstripped rises in other
major commodity prices, as measured by three commodity price
indexes taken from The Economist. In the same chart, a
comparison between Saudi Arabian government revenues per
barrel and an index of OAPEC (Organization of Arab Petroelum
Exporting Countries) import prices constructed by the
Treasury Department suggests that OPEC terms of trade improved
substantially from 1955 through the 1960's. As of January
1974, a barrel of OPEC oil'in effect "bought" nearly five
times as much as in 1955.
Such comparisons can, of course, be based on a number
of different price indices, base years, etc. But regardless
of the base year used, our data indicate that the October
1973 price increases made OPEC's terms of trade more
favorable
than ever before (pre-1955 terms of trade
were doubtlessly less favorable than in 1955). The January
oil price increases, then, represented an enormous further
improvement in OPECfe already historically favorable terms of
trade.

QUESTION:

I.A.2

What dollar amounts have been expended by OPEC nations
for the importation of goods and services, by country and by
classification (e.g. industrial goods, commodities, armaments
and military equipment), for each year beginning in 1971?
ANSWER:
Complete and comparable information on the current
accounts of the OPEC countries is not available for the
years requested. Table 3 provides data on total merchandise
imports for the years 1971-73, based on information reported
by the OPEC countries' trading partners. Information on the
commodity composition of imports and the source of imports
for 1972 is presented in Table 4. The trade shares for 1972
closely approximate those for the neighboring years. Available
information on armaments purchases is provided in Table 5.
The categories shown in available trade statistics, however,
do not permit identification of significant items such as
military aircraft, armored vehicles, and artillery. Table 5,
therefore, at best only suggests the focus of some countries'
arms sales; for example, the United States and Iran, France and
Algeria, Italy and Libya.

- 7 TABLE 3

IMPORTS
(In millions of ü.S. dollars)
1971

1972

1973

11,211

14,919

20,088

Algeria

1,221

1,472

2,342

Ecuador

340

317

517

Indonesia

1,110

1,458

2,783

Iran

1,871

2,410

3,442

Iraq

694

713

898

Kuwait

650

797

1,042

Libya

699

1,038

1,904

1,511

1,505

1,876

124

170

Saudi Arabia

920

1,380

1,893

United Arab Emirates

300

423

784

1,815

2,202

2,437

OPEC Countries, Total

Nigeria
Qatar

Venezuela

Source:

Direction of Trade, Annual 1969-73
Monetary Fund

International

TABLE 4
Percentage Distribution of Imports of OPEC Countries, by Category, by Country, 1972
Total

Consumption
Goods

Manufactured
Goods

Total OPEC
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West- Eur.
Other

100
20
2
13
10
10
8
7
11
19

14
3

29
3
—
7
3
3
2
3
3
6

12
2
— ■
1
1
1
1
—
1
2

42
10

Algeria
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
7
2
2
6
16
34
11
18
4

16
2
2
—
—

14
—
—
--

43
4
—
1
4
10
16
4
5

Ecuador
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other Wes t . Eur.
Other

100
46
2
13
6
11

14
11

3
12
5

—

—
—
—

■—

1
2
6

—
—

1
1

—

1
5
2

5
9

3
—

Raw
Materials

6
3

—
—

1
—
—
—
--.
3

7
——

26
12
1
5
1
2
1
1
3
—

Machinery &
Transport

—

5
6
6
4
3
4
4

—

16
5

42
18
- .— ■

1
1

4
2
1
6

—
—

2
3

Other
3
2
—
—

—
—
—
—

■

—
—
—

—
—
—
—
—
——

1
1
-—
—
-—
—
——
—

Table 4, Cont'd

Percentage Distribution of Imports of OPEC Countries, by Category, by Country, 1972 (Cont'd)
Total
Indonesia
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
21
1
42
3
8
2
1
7
15

Iran
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
20
1
12
9
15
5
5
11
21

Iraq
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
3

Consumption
Goods

Manufactured
Goods

Raw
Materials

Machinery &
Transport

15
6

23
2

19
4

40
8

—

— —

».

—

— —

1
—

5
1
1

18
3
5

2
6

4
2

10
3

29
2

10
1

—

«-«.

— —

44
9
1
4
6
10
3
3
5
5

—

1
1
2

1
1
4
8

1
2

—

ffmeP

—

2
2
—

1
2
16

SB
2
1
3
21

— —

— —
—

7
6
__
—
—

1
_
■
_\
_

1
1
1
»...

1
8

2
5
2
6
3
9
5

i
VO
1

— —

34
1

*£
4
9
4
10
4
15
51

— —
— —

1
1

— ■

— —

1
6

Other

—

\_
miw

¿<S
X

Table 4, Cont'd
Percentage Distribution of Imports of OPEC Countries, by Category, by Country, 1972 (Cont'd)
Total

Consumption
Goods
21
2
—
—
2

Kuwait
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
16
—
17
10
8
4
5
9
32

Libya
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
8
—
5
10
10
12
29
10
15

19
—
--—
1
2
2
3
9

Nigeria
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
8
1
8
25
10
5
3
12
27

10
1
---■
1

—

—
—

2
14

—

1
—
3
3

Manufactured
Goods
39
2
-9
3
2
2
3
3
15

Raw
Materials
7
1
—
—
1
1
1
——
1
2

Machinery &
Transport
33
11
——
7
5
5
1
1
2
mmvm

44
6

3
3
2
2
12
3
—

9
__
——
——
1
1
——
4
2
3

35
1
—
4
7
2
1
1
4
14

12
—
—
——
4
2
—
—
1
4

40
4
1
3
12
6
3
3
4
7

25
2
—

3
6
7
8
10
2
3

Other

—

——
— "*

""
2
——
——

mm —

—

Table 4, Cont'd
Percentage Distribution of Imports of OPEC Countries, by Category, by Country, 1972
Total
Qatar
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
9

Saudi Arabia
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
27
1
21
10
7
4
5
10
16

lited Arab Emirates
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

—

11
21
5
6
2
7
38

100
14

Consumption
Goods
19
—

—
—
2
—
1
-1
16
24
4
—
—
1
-—
—

3
14
13
—

Manufactured
Goods

Raw.
Materials

24
1
—
6
5
2
2
1
1
6

25
3
—
12
2
2
1
1
3

Machinery &
Transport
48
7

(Cont'd)
Other

4
13
4
4

1
3
12

41
17

1
1
1

8
4
4

3
3

2
I

42
3

6
—

36
10

.—

19
14
3
1
1
5
43

—
1

13
3
1

2
9

1
21

—
—
—

—
1
““*"•

6
8
2
1
1
8

Table 4, Cont'd
Percentage Distribution of Imports of OPEC Countries, by Category, by Country, 1972 (Cont'd)
Total
Venezuela
United States
Canada
Japan
United Kingdom
West Germany
France
Italy
Other West. Eur.
Other

100
43
7
8
5
10
4
6
11
6

Consumption
Goods
9
6
-—
1
—
—

—
1
—

Manufactured
Goods
26
8
1
5
1
3
1
2
4
2

Raw
Materials
15
6
—

—

1
2
—
—
2
2

Machinery &
Transport
49
21
4
3
3
6
1
4
4
3

Other
1
1
—
—“
—“
——

I
Notes:

Source:

1.
2.
3.

Details may not add to totals because of rounding.
A dash (— ) indicates a negligible amount of imports.
Other Western Europe excludes data for Greece, Iceland, Ireland, Portugal
and Turkey.

OECD Trade Statistics

(Vi

TABLE

PARTIAL DATA FROM OFFICIAL TRADE STATISTICS RELATING TO OPEC COUNTRIES' PURCHASES OF ARMAMENTS FROM OECD COUNTRIES
1972
( M i l l i o n US

IMPORTING COUNTRY

TOTAL

OPEC

Algeria
Ecuador
Indonesia
Iran
Iraq
Kuwait
Libya
Nigeria
Qatar
Saudi Arabia
United Arab Emirates
Venezuela

EXPORTING COUNTRY
United States

Canada

175.437

.002

.070
.298
1.956
148.813
—
—
1.422
.031
—
18.382
4.465

—
—
—
—
—
—
—
—
—
—
.002

West Germany
.206

_
.074
.034
.003
—
—
—
—
—
.003
.001
.091

France
.052
.048
—
—
—
—
—
—
.001
—
—
.003

Italy
20.841

_
—
*001
3.265
—
.173
13.823

Other Western Europe*
24.852
.001
.026
.001
24.528

i__

...
. 428
.605
.440
2.106

rnLm

.001

.295

♦Does not include Portugal, Greece, Turkey, Ireland, or Iceland.
NOTE:
D a t a f o r t h e U n i t e d S t a t e s a r e t h e d i f f e r e n c e b e t w e e n t o t a l e x p o r t s to t h e i n d i c a t e d c o u n t r i e s a n d t h e e x p o r t s
i n c l u d e d in S I T C 0 t h r o u g h 9 i n O E C D t r a d e s t a t i s t i c s .
T h i s d i f f e r e n c e c o r r e s p o n d s to the S p e c i a l C a t e g o r y
e x p o r t s i n c l u d e d i n o f f i c i a l ys e x p o r t t o t a l s .
D a t a for Fran c e are f r o m off i c i a l French trade statistics.
The
C a n a d i a n , W e s t G e r m a n , I t a l i a n , a n d O t h e r W e s t e r n E u r o p e d a t a a r e S I T C 9 5 1 ( F i r e a r m s , m u n i t i o n s , m i l i t a r y items)
from OECD trade statistics.

QUESTION;

I.A.3

What are the projected dollar amounts to be expended
by the OPEC nations on imports, by country and by classifica
tion, for the years 1974, 1975 and 1976?
ANSWER;

Because of the enormous increase in the OPEC countries'
liquid assets, uncertainties over future oil consumption and oil
prices, and uncertainties about the speed and nature of real
adjustments in both the oil exporting and the oil importing
countries, projections of OPEC country imports are not
feasible.
N

QUESTION: I B .
What are the present and anticipated future trade deficits
for industrailized oil consuming nations and the less developed
countries, by country, at current and prospective rates of
inflation?
1.
To what extent and in what amount do increased oil
prices account for these deficits?
ANSWER:

The U.S. is likely to have a trade deficit in the second
half of 1974 approaching $5 billion, with some further increase
in the deficit expected in 1975. OECD estimates of trade balances
for selected other industrial countries are provided in Table 6.
Similar projections of trade balances are not available for most
developing countries; U.N. estimates of current -^account balances
for selected developing countries are provided in Table 7.
(The
effect of the oil price increases on countries* trade balances
is impossible to determine accurately. Any assessment must take
account not only of the direct impact of such price increases on
oil consumption and oil import volumes but also of increases in
exports to oil exporting countries and of changes in trade flows
caused by indirect effects of the oil price increases in the
importing countries — e.g., higher prices for exports with a high
petroleum content, and reduced levels and growth of national
income.)

16
Table 6
OECD July 1974 Estimates of Trade Balances
($ billions, f.o.b.)
Country

1974

First Half
1975

Canada

1.7

0.7

Japan

-2.3

0.2

Germany

20.3

8.5

France

-4.1

-1. 5

-12.2

-5.2

pH
O
rH
1

-3.4

U.K.
Italy

Source: Economic Outlook, OECD, July 1974

Table 7

U.N. September 1974 Estimates of Current Account
Balances for Selected Developing Countries
(Millions of dollars)

Current Account Deficit?/
1974
Bangladesh
Central African Republic
Chad
Dahomey
Democratic Yemen
El Salvador
Ghana
Guinea
Guyana
Haiti
Honduras
India
Ivory Coast
Kenya
Lesotho
Madagascar
Mali
Mauritania
Niger
Pakistan
Senegal
Sierra Leone
Somalia
Sri Janka
Sudan
United Republic of Cameroon
United Republic of Taznzania
Upper Volta
Yemen
Total

a/
b/
c/

612
39
68
23
70
78
-7
92
74
50
84
1,919
153
197
87-/
88
53
26
31
485
133
70
56
152
90
43
229
82
54

85
70
48
67
104
2,270
203
274
95-/
82
46
28
23
513
109
62
59
185
122
67
218
73
—

5,044£/

5,524£/

Minus sign indicates surplus,
Balance on trade account.
Sum of listed amounts, excluding Lesotho.

Source: United Nations

1975
657
49
80
30
—
—

-18

QUESTION I.C.
f what volume of world petroleum exports, if any, is being
made for soft currencies or in barter arrangements, and what
is the outlook for expansion of such exports to less developed
countries (and illiquid developed nations)?
ANSWER
In general, the oil producing countries have adhered to
OPEC policies and avoided granting price discounts to consumers.
Instead, they have relied largely on aid arrangements to afford
some relief to selected developing countries. Nonetheless,
several barter arrangements are under negotiation, but our
knowledge about their terms is extremely limited. Given the
small number of developing countries engaged in these negotia
tions, the potential volume of oil involved will be in all
likelihood less than 1 percent of annual world oil exports.
There are to date no reports of oil purchase agreements
involving repayment in soft currencies, although several
developing countries may be purchasing oil at discounted prices.

-19QUESTION:

I.D.

What have been the net volume of oil producer funds, by
country, flowing into various money markets: Eurodollar
deposits, U.S. bank deposits, Federal securities, industrial
bonds and commercial paper, etc.?
1.

What are the projected volumes of such funds, by
country and by market, for the years 1974, 1975, and
1976?

What, if any, mechanisms exist to monitor the influx
of these funds under the existing regulatory scheme
and what future monitoring mechanisms are contemplated?

What impact in these markets has the influx of oil
producer funds had on interest rates, and what future
impact is anticipated?

ANSWER:
Estimates of OPEC investments made between January 1 and
August 31, 1974, and available detail on the form and location
of these investments are provided in Tables 8-11.
OPEC surpluses are now accruing at a rate of roughly $5
billion per month. Future rates of accrual will, of course,
be dependent on oil prices, the volume of oil purchased from
OPEC countries by the oil importing nations, the capacity of
the OPEC countries to absorb imports of goods and services,
and the ability of the oil importing countries to supply the
goods which OPEC countries seek to buy.
We cannot project with sufficient validity to be useful
the volume of oil producer funds which may be placed in any
particular money market in the future. Our expectations as
to OPEC investment strategies were discussed in the statement
submitted to the Committee on September 18.
Oil importing countries maintain widely varying systems
to monitor capital imports. Even with the more comprehensive
systems, it is often impossible to identify with certainty
the ultimate beneficial owner of invested funds. In virtually
all countries, banks are allowed to preserve confidentiality
with respect to the identity of their depositors, and other
types of assets can be purchased through nominees.
Countries in which the major financial centers are
located generally obtain reports in varying detail from banks,

20 -

other financial institutions, brokers and corporations con
cerning the magnitude of changes in their liabilities to
foreign residents. By this means they monitor the flows of
various types of foreign funds. These flows are usually
compiled by country of the nominal investor, and there is no
assurance that the nominal investor is the actual owner of
the asset.
In recognition of the need for more and better information
on foreign investment in the United States than is now avail
able, the Administration has supported S.2840 and companion
legislation in the House which would require the Treasury and
Commerce Departments to undertake a comprehensive study of
existing foreign portfolio and direct investment in the United
States. In anticipation of the passage of this legislation,
the Treasury and Commerce Departments are making preparations
for a comprehensive survey to determine the extent of foreign
investment in the United States as of the end of 1974. In
addition, these agencies, in accordance with the provisions
of the pending legislation, (1) will study the adequacy of
information, disclosure, and reporting requirements and pro
cedures on foreign investment in the United States and (2) will
make recommendations on methods whereby information and sta
tistics on foreign direct investment can be kept current.
A number of agencies have continuing responsibility to
collect data on investment inflows. The Bureau of Economic
Analysis of the Department of Commerce collects data, on a
continuing basis, on foreign direct investment in any U.S.
business enterprise, including commercial firms and real
estate. Intermediaries must report on behalf of foreign owners.
The Treasury Department collects data on a monthly basis
from U.S. brokers, dealers and bankers on transactions in U.S.
and foreign long-term securities, both for their own account
and for customers; also, U.S. firms are required to report to
the U.S. Treasury direct dealings in securities with foreigners.
The Securities and Exchange Commission has reporting
requirements applicable to all investors, and no distinction
is made between foreign and domestic investors. Any investor
who acquires more than 5 percent of the beneficial ownership
of a class of registered securities of a corporation must file
a report identifying the investor, his residence and employ
ment, the source of funds for the acquisition and the purpose
of the transaction. In addition, an issuer of registered
securities must disclose the identity and holdings of each
person, whether domestic or foreign, who owns of record or
beneficially 10 percent or more of any class of its stock.

Under the industrial security program, defens^contractors
handling classified material are required to inform the Depart
ment of Defense whenever foreign investors own more than 6
percent of their equity. Moreover, a number of Federal
regulatory agencies obtain information on the industries for
which they have jurisdiction. These regulatory agencies include
the Civil Aeronautics Board, Federal Communications Commission,
Federal Maritime Commission, Federal Power Commission, Federal
Trade Commission, Interstate Commerce Commission, and the
Securities and Exchange Commission. While the reporting
criteria used by these regulatory agencies are not necessarily
uniform, an enormous amount of detailed information regarding
corporate ownership by U.S. and foreign interests is obtained.
A description and evaluation of these separate reports is
found in "Disclosure of Corporate Ownership" (Senate Doc. 9362,
March 4, 1974) prepared for the Committee on Government Operations
With respect to future mechanisms for monitoring foreign
investment, the Securities Exchange Commission, beginning
November 12, 1974, will conduct public hearings concerning,
inter alia, the beneficial ownership of securities and the
takeover and acquisition of U.S. corporations by foreign and
domestic investors. In its proceeding the Commission will
examine whether there is adequate disclosure to the investing
public of the ownership of voting rights and other benefits
of ownership of the securities of publicly owned corporations,
and whether there is adequate disclosure and guidance respecting
acquisitions and takeovers. The objectives of the proceeding
will include development of information on the necessity or
desirability of recommending to the Congress legislation with
respect to the possible lowering of the reporting and disclosure
thresholds, and determination whether there is a need to provide
for other means of reporting beneficial ownership in publicly
held corporations.
In the light of the widespread interest in foreign invest
ment in the United States, the Executive Branch intends to
undertake a study of the adequacy of the present data-acquisition
programs conducted by various U.S. Government agencies. In the
course of this study, we should be able to discern any signifi
cant gaps in our present reporting systems, to determine to
what extent confidentiality provisions prevent disclosure of
specific information, and to ascertain what remedial action,
if any, is necessary.
The influx of oil producer funds has probably not affected
the level of U.S. interest rates, since the Federal Reserve has
been able to offset the impact through open market operations.
Since the level of Euro-dollar rates tends to parallel that of
domestic U.S. rates, the. influx of funds has also probably not

-22
significantly affected the level of Euro-dollar rates. While
the spread between Euro-dollar rates and U.S. rates did widen
this summer, most observers attribute this phenomenon to
the effects of the collapse of the Bank Herstatt and related
market uncertainties, rather than to recycling of oil producer
revenues.
The term and risk structures of U.S. and Euro-dollar
interest rates have, however, been altered. With respect to
the term structure, this reflects the different preferences of
oil producing and oil consuming countries. Oil producing
countries have favoréd short-term, liquid assets, while the
oil consuming countries with current-account deficits have
generally sought to borrow on a long-term basis. These
preferences have reduced short-term interest rates in relation
to long-term rates.
The risk structure of interest rates has been altered, in
part, by the strains imposed on banks from the redistribution
of deposits from oil consumers to oil producers, which have
concentrated their deposits in the largest banks. Many smaller
and even some large banks have had a problem in attracting
deposits and redeposits. To compete for funds, these banks
have had to pay an interest premium. It is possible that the
structural effects may lessen over time as oil producing
countries widen their selection of investment instruments,
both with respect to maturity and risk, for a given set of
interest rates.

Table 9
Recent Monthly Changes in Bank and Money-Market Assets
of Oil Producing Countries in the United States

(Increase (+) or decrease (-); in $ million)

Venezuela

1974

Indonesia

"Other
"Other
Asia"a/ Africa"a/

TOTAL

-8

104

178

Feb.

176

-11

-110

207

262

Mar.

100

249

291

706

Apr.

561

497

165

1287

May

-49

-85

-56

203

June

460

687

237

1421

July

-108

606

1062

101

1660

Aug.

400

-77

838 b/

215

1376 b /

1531

653

3270 b/

1449

6903 b_/

Jan.

JAN.-AUG.
TOTAL

Source:

Treasury Bulletin and Treasury foreign exchange reports.

‘'Other Asia"
dominated by
respectively
collected on

and "Other Africa" groupings include and are strongly
the Middle-Eastern and African OPEC countries
-- for which individual data have not up to now been
a month-by-month basis .

Includes $200 million purchase of medium-term U.S. agency bonds.

25
Table 10
Recent Monthly Changes in Official Sterling Holdings
of Oil Producing Countries in the United Kingdom
(Incr. (+) or deer. (-); in $ million equivalents)

Banks and Money Market
Treasury
Bills
SUBTOTAL
Deposits a/

1974:

Medium Term
UK Govt.
Securities

TOTAL

•/- ■
Jan.

434

509

100

609

Feb.

-374

121

-253

235

-18

-59

247

188

249

Apr.

1235

1302

1314

May

-637

460

-177

-12

-189

-35

197

162

213

Mar.

June

$& 1

Jan.-June
564
1167
1731
447
Total
Source: Bank of England Quarterly Bulletin, September 1974
a/ Includes banks, local authorities, and hire-purchase finance
companies.

2178

Table

Recent Monthly Changes in Euro-Currency Holdings of
Oil Producing Countries m Banks in United Kingdom
(Incr. (+) or deer. (-); in $ million equivalent)

1974:

Venezuela

Middle East
Oil Producers a/

Algeria

Nigeria

Indonesia

TOTAL

Jan.

500

-8

-23

522

Feb.

874

-18

953

Mar.

908

107

-2

-4

1030

Apr.

130

1651

157

1973

May

-58

984

137

-1

1122

1407

234

7007

82
0
1244
June
40
Jan.-June
152
Total
6161
488
-28
Source: Bank of England Quarterly Bulletin, September 1974
a/ Includes Libyan Arab Republic

i
to
ON
|

QUESTION:

I E.

Which other industrialized consumer nations and in what
amounts, have received substantial surplus funds of oil
producing nations?
ANSWER:
Our information on the investment of OPEC funds in other
nations is very incomplete. From the information available at
this time, we believe other industrial nations that have re
ceived substantial inflows of capital from OPEC countries in
clude the U .K ., France and Japan. Some funds have apparently been
invested in Germany.
All of the foreign exchange receipts of OPEC countries that
are not spent for imports of goods or services must be invested
somewhere in the non-OPEC countries in some form. The OPEC
countries have an extremely wide choice of types of investment
and of geographic locations for their investments. Presumably
each OPEC government or official agency receiving the foreign
exchange will make its own independent choice as to where it
places its money and in what type of instrument.

28
QUESTION:

IF.

What proportion of future surplus oil revenues will be offset
by the export of goods and services from consumer nations to the
oil producing countries?
1. What is the nature and estimated dollar volume of these
projected exports by consumer nations?
2. To what extent and in what amounts will oil producers
absorb surplus revenues in internal economic development?
ANSWER;
As indicated in the answer to question I .A. 3., we are unable
to provide the projections requested.

QUESTION:

II,

To what extent are existing private financial institutions
sucessfully accommodating the near-term recycling of surplus
oil revenues?
ANSWER:
The bulk of oil-producer accumulations to date has
been placed with banks and other private financial institutions.
The private financial markets have, in our view, proved broadly
adequate to the immediate task of recycling and have shown
ingenuity in devising new techniques to adapt to and cope with
strains arising from the massive increase in capital flows.

QUESTION;

II.A.

What is the dollar amount of surplus funds that has been
recycled by the international banking system, i.e., transferred
from oil producing to oil consuming nations, during the last
year, and what are the amounts expected to be recycled in the
coming year?
ANSWER:
Private estimates of overall growth in the Euro-currency
market, broadly defined, are provided in Table 12. It is
estimated that between January and August 31, 1974, some
$13 billion of OPEC investments was placed in the Euro-currency
markets (see Table 8).
Tables 13-15 provide estimates of medium and long-term
international lending activities. There are no estimates as
to the proportion of these loans taken up directly or indirectly
by the OPEC countries.

31
TABLE 12

____ Recent Estimates_________
of Worldwide Euro-Banking Market^
(Estimated foreign currency liabilities of banks
in major European countries plus Bahamas, Canada,
Japan, and Singapore; in $ billions)

Outstanding
liabilities
at end of:

Gross

Netf*/

1973:

June
Sept.
Dec.

235
265
295

125
140
155

1974:

Mar.
June
July

330
360
370

170
185
190

Adjusted to exclude double counting that results
from interbank redepositing.

Source:

World Financial Markets. Morgan Guaranty Trust
Company

32
Table

A vailable Monthly In dicators of In tern ation al
Borrowing on Medium- and Long-Term C apital Markets
(in $ million)

1974

Euro- and Other Non-US Markets
Med-Term
Euro-Bank
New Issues of
Loan
Euro- and Other
Foreign Bonds Commitments TOTAL

MEMO: U.S. Market
Change in
Long-Term
New Foreign
US-Bank
Bond Issues
Claims
(Mainly Canada)
59

2150

327

Feb.

239

1784

2023

144

Mar.

309

2898

3207

189

176

Apr.

4854 a/

4918 a/

273

613

May

279

4989 b/

5268 b/

June

154

2317

2471

556

294

July

128

1290

1418

336

(-)

Aug.

176

1293

1469

(-)

Jan.-Aug.
Total
1349

21575

22924

1903

•Ian.

Sources:

(-)

1067

Bond issu e s: World Financial Markets, Morgan Guaranty Trust Company
Euro-bank commitments : IBRD
US-bank claim s: Treasury Dept.

Of which $1.7 billion to Italy and $1.5 billion to France,
leaving $1654 and $1718 million, respectively, for other.

b/ Of which $2.5 billion to UK, leaving $2489 and $2768
— million, respectively, for other.

Table

New International Bond Issues
1974
(millions of dollars)
Jan, Feb,
Foreign Bonds
issued in the
United States

Total
Aug.

Sept.

Jan-Sept

336

325

2 f228

147

May

June

July

273

556

March

April

189

327

144

State enterprises 124

100

184

150

702

Governments

125

185

309

175

783

Int'l Org.

148

Foreign companies

Euro and Foreign
Bonds Issued
outside the U.S.

394

239

309

279

154

128

176

115

1,464

Companies

104

125

615

State enterprises

108

383

Governments

235

Int'l Org,

108

113

229

327

383

498

337

329

710

564

440

a.7921^

Total

Source;

204

World Financial Markets, Morgan Guaranty Trust Company

Table 15
Medium Term Euro-Currency Credits
1974
(millions of dollars)

Developed Countrie s
Less Developed Countries

“

July

Aug.

Feb.

March

April

May

June

1,335

1,146

1,734

3,584

4,135

1,102

572

924

14,532

815

638

1,164

1,270

854

1,215

718

369

7,043

2,150

1,784

2,898

4,854

4,989

2,317

1,290

1,293

Not included is $869 million lent to non-members of IBRD, mainly Eastern Europe

Source

IBRD

Jan.Aug.

Jan.

21,575Ì/

35
QUESTION:

II.B

What effect has the process of recycling surplus oil
revenues had upon the stability of the international banking
system?
ANSWER:

Concern for the soundness of the international banking
system has stemmed largely from well publicized instances of
difficulties of a few banks in the U.S. and abroad. Yet
those banks' financial difficulties have been the result of
factors unrelated to the large increase in oil exporter in
vestment funds in the international banking system. They
arose in an atmosphere of rapid inflation and rising interest
rates and were associated with management problems.
In fact, banks and other financial institutions have
generally performed well in handling sharply increased capital
flows and in adapting to the new situation. But there have
been, and will be, strains.
One source of strains on international banks is the oil
exporters' preference for short-term placement of their excess
revenues, while banks conventionally lend longer term. In
this situation prudently managed banks have become more
selective in accepting placements, thus reinforcing a recent
tendency on the part of oil exporters to make longer-term
placements with banks and to arrange direct placements with
borrowers outside the banking system.
For the international banks, shifts in ownership of
monetary assets from oil importing to exporting countries
have probably also resulted in -a greater concentration or
ownership of deposits. This development also gives banks
reason for caution.
At the same time, oil exporters have become more selective
in the choice of banks with which to deal, seeking out the
larger and more secure financial institutions. These banks
have been able to obtain funds from oil producers at interest
rates below the market. At the same time, smaller banks
have experienced difficulties in obtaining funds, leading
to a "tiering" of the interbank market.
Finally, banks now appear more selective in their lending
practices. While this greater selectivity may increase the
difficulties facing some borrowers, this practice also serves
to insulate the international banks from the strains created
by the higher oil prices.

QUESTION;

II.B.l

What specific regulatory mechanisms exist to evaluate
the performance, solvency, and risk exposure of foreign
branches, subsidiaries and consortia engaged in the recycling
process abroad?
ANSWER:
The central bank governors of countries that are members
of the Group of Ten* agreed to intensify the exchange of in
formation between central banks on the activities of banks
operating in international markets and, where appropriate, to
tighten regulations governing foreign exchange operations.
They also reviewed the problem of the lender of last resort
in the Euro-markets and concluded that means where available
for that purpose and could be used whenever necessary. The
Federal Reserve Board may wish to comment further on this
question.
In the United States, responsibility for the evaluation
of the performance, solvency, and risk exposure of the foreign
operations of U.S. banks is shared between the Federal Reserve
Board and the Comptroller of the Currency, if the U.S. bank
is a national bank, as most of the large U.S. banks are. The
Federal Reserve will comment on its regulatory procedures;
the following comments are directed to the activities of
the Comptroller of the Currency.
Since its creation in 1863, the Office of the Comptroller
of the Currency has been an integral part of the national bank
ing system and has been responsible for the examination o
national banks on a regular basis. These examinations include
the evaluation of all the bank's assets, both domestic and
foreign. Examinations also include an evaluation of the .
soundness and solvency of the bank and, for banks engaged in
international business, an evaluation of the country risks
taken by each bank.
During the 1960's, U.S. banks expanded their overseas
operations dramatically. As of January 1, 1967, only seven
national banks had overseas branches; in six years the
number had increased to 83 national banks with 581 foreign

*Belgium, Canada, France, Germany, Italy, Japan, the Netherlands,
Sweden, the United Kingdom and the United States. Switzerland,
while not a member, also participates.

branches. Concomitantly with this expansion in overseas
banking, the Comptroller's Office adapted, its supervisory
activities. During the late 1960's, the Comptroller's
Office developed detailed instructions and forms to be used
in obtaining information from foreign branches and foreign
âffüi^tes of U.S. banks, and reguirements as to supportive
data were notified to national banks in early 1970. Generally
these data include the names, amounts and credit information
pertaining to all investments and to 70— 80 percent of all
extensions of credit. The examiner's report on the foreign
operations of a bank is combined with a simultaneous report
on the domestic operations to give a statement of the examined
bank's overall position.
Direct examinations are also made overseas. More than
150 bank examiners from the 14 domestic regions form a
cadre for periodic overseas detail to conduct examinations of
original records, collateral documents, borrowers' financial
statements, operational and internal control procedures at
foreign facility, and examination of foreign exchange
activities. Since the first of this year, direct assignments
of examiners to the international departments of 100 of the
largest U.S. banks reinforce the effectiveness of the overseas
examination. Moreover, in the interests of economy, and
in view of the concentration of branches of U.S. banks in
London, the Comptroller's Office in September 1972 assigned
three bank examiners to the American Embassy in London to
make examinations of London banking offices in coordination
with the examinations being conducted in the 14 domestic
regions.
Other countries have similarly tightened their examination
procedures. For example, the German authorities, who had
®ar^-fer established new procedures and guidelines to limit
exchange transactions by banks, have established a
liquidity bank" and have proposed revisions to their banking
legislation. The Luxembourg authorities and the Bank of
England have also developed more precise guidance for indigenous
banks and foreign facilities, in particular consortia banks,
o protect the safety and soundness of their banking systems.

QUESTION:

II.B.2.

To what extent do present banking and governmental
arrangements assure the continued liquidity of banks
facing
a potentially abrupt withdrawal of short-term petrodollar deposits?
ANSWER:
As indicated above, central bankers recently reviewed this
question and concluded that means were available for this
purpose and could be used as necessary. To ensure the
liquidity of banks, however', is not the same as ensuring
the solvency of individual institutions.

QUESTION;

II.B.3.

What surveillance or control mechanisms exist to prevent
unduly risky foreign exchange transactions by U.S. banks?
ANSWER:
Apart from the authority available to the bank regulatory
agencies— the Comptroller of the Currency and the Board of
Governors of the Federal Reserve System— there are no control
mechanisms which could be used to prevent unduly risky foreign
exchange transactions by U.S. banks. With regard to surveillance
mechanisms, the Treasury Department is about to put into effect
a new reporting requirement under which banks in the United
States, including the agencies and branches of foreign banks,
and the foreign branches and subsidiaries of U.S. banks, will
provide weekly and monthly reports on their position in nine
major foreign currencies. These reports are provided for in
the September 1973 amendment to the Par Value Modification
Act, and arise from concern over the position of the dollar
in the exchange markets ratfyer than concern over the risk
exposure of individual banks. The weekly reports will
enable us to monitor current developments in the foreign
exchange markets as they might affect the exchange value of
the dollar, and the monthly reports will give a more com
prehensive view of the banks' positions in major foreign
currencies. The monthly reports are sufficiently detailed
so that they will be of some value to the bank regulatory
agencies by providing a general indication of a bank's
foreign exchange exposure and of changes in its activities
in these currencies.

40
QUESTION:

II.C.

For what period can the private banking sector, unassisted,
meet the credit demands of oil consuming nations within the
limits of prudent risk exposure?
1. What is the potential for an adverse impact on the
domestic operations of U.S. banks in the absence of assistance
for recycling surplus oil revenues?
2. What monetary and fiscal policies are needed to
complement the recycling effort and will these precipitate
further deterioration in the domestic economy?
ANSWER:
We do not expect the private banking sector alone to meet
the credit needs of oil consuming countries. As explained
in more detail elsewhere, this role has been played by a
complex of mechanisms, and we expect that numerous channels
for financial flows will continue to be utilized in the future.
It is reasonable to anticipate that private channels will
continue to play a major role.
So long as banks follow prudent banking practices and
manage their operations carefully, there is no reason to
expect their domestic operations to be adversely affected by
the problems of recycling. Banks are not pressured to lend
against their own judgment. We have encouraged our banks and
our bank regulators to exercise vigilance in the face of
abrupt increases in the volume of international capital flows.
The banks themselves are very much aware of the need to follow
sound banking practices. There is a need to be sure that
capitalization is adequate to deal with substantially expanded
volumes of operations, and banks will have to be particularly
careful in evaluating their foreign lending, but these are
problems to which banks are well accustomed. These problems
are not peculiar to foreign lending.
There is no reason to expect that significant adjustments
in U.S. monetary and fiscal policies will be undertaken for
the purpose of the recycling effort. The Federal Reserve
System takes into account capital inflows and outflows in
executing its monetary policies, but both fiscal and monetary
policy must continue to be directed at controlling inflation
within the context of appropriate growth rates.

- 41 -

QUESTION III.
To what extent do existing statutory authorities and
legal regulations compel or enable Federal agencies, foreign
central banks, or other world organizations to provide funding
and assistance to private financial institutions facing problems
of short-term liquidity, or imminent collapse and bankruptcy?
A.

What provision has been made, by or between government
agencies, to assist the foreign branches of U.S. banks
with such problems?

What provision has been made, by or between government
agencies, to assist foreign subsidiaries of U.S. banks
and multinational consortia in which U.S. banks
participate?
1.

To what extent and under what circumstances will
government agencies assist these foreign branches,
subsidiaries and consortia, and what domestic or
international repercussions might such assistance
entail?

What domestic or international consequences would
follow the denial of such assistance?

What international agreements, if any, clarify the
responsibility of the host and home countries with
regard to subsidiary and multi-national financial
institutions?

What problems have accompanied the expansion of foreign
operations by U.S. banks, and what specific regulatory
adjustments have been required to deal with these
difficulties?

What new proposals have been or are being studied to
assure adequate supervision of foreign banking activi
ties, and when will additional regulations, if any,
be promulgated?

ANSWER:
The response to this question will be provided by the
Federal Reserve Board.

42
QUESTION:

IV.

What policy or set of policies, bilateral or in coopera
tion with international authorities, has been devised to
alleviate the plight of consumer nations unable to secure
funds in private money markets?

ANSWER:
A variety of channels, both bilateral and multilateral,
is available and has been used to assist those countries which
may not have adequate access to private markets to meet their
needs.
Currently available information is summarized below:
—

The IMF oil facility, presently having about $3.5
billion in resources borrowed from oil producers,
has begun operations and has made loans totaling
$0.7 billion to 23 countries, developed and develop
ing.
In addition, net drawings on the IMF's regular
resources have amounted to about $1.7 billion thus
far in 1974.
Substantial amounts remain available
through the oil facility, and through the Fund's
regular facilities — which can be supplemented by
the existing "General Arrangements to Borrow,"
presently totaling some $6.6 billion.

—

The Federal Reserve swap network, totaling some
$20 billion, remains virtually unused.

—

In June, the major industrial countries agreed in
principle that gold could be used as collateral for
international loans, and pursuant to this agreement
Germany has extended a $2 billion credit to Italy.

—

The EC member states have agreed to provide Italy
a further extension of an existing $1.9 billion
loan, and discussions are underway concerning a
possible medium-term credit.

-- The EC is also considering a joint borrowing from oil
exporters to assist member states with their' financing
needs.
—

The oil producers have made direct loans to a number
of developed countries, including Iranian credits of
$1.2 billion to the U.K. and of $1 billion to France.
Press reports suggest that Japan has also obtained a
credit of $1 billion from an oil producing country.

—

The OPEC countries also have made commitments totaling
$18 billion for the year ending September 1, 1974, to
developing countries and multilateral lending institu
tions.
Although the terms of these commitments vary
greatly and disbursements will probably extend over a
number of years, we believe that $3 billion (including
$500 million in purchases of IBRD bonds) is a reasonable
estimate of actual disbursements for the 1974 calendar
year to August 31, 1974.

QUESTION:

IV. A .

What is the impact on industrial consumer nations of
allowing existing market conditions to determine credit allo
cations?
ANSWER:
The key question is not the impact of particular finan
cial arrangements but the impact of the price increases them
selves on the real incomes and living standards of the oil
importing
countries.
We believe the private financial markets have performed
well in abosrbing large flows of funds from the oil producers
and allocating those funds among countries. The markets should
be expected to continue to perform this function for the bulk
of the flows. However, the private markets are not the ex
clusive means of recycling oil related capital flows. Inevit
ably, the private financial markets played the major role in
the immediate aftermath of the oil price increases. More
recently, government-to-government channels have increasingly
been opened, and they may well play a more important role as
time goes by. New financing organizations have also been
established by OPEC countries, and the IMF and World Bank
have redirected their efforts to provide additional ways of
shifting funds from lenders to borrowers.
Although existing financial arrangements have responded
reasonably well to the strains of the present situation, and
we believe they will continue to do so, we recognize that this
situation could change. If there is a clear need for additional
international lending arrangements, the United States will
support their establishment. Since the range of possible future
problems is a wide one, and many problems that can be envisaged
will never come to pass, what is urgently heeded now is careful
preparation and probing analysis of the adequacy of existing
mechanisms and proposals for new supplemental arrangements.

44
QUESTION:

IV.B

What is the impact on the less developed countries of
allowing existing market conditions to determine credit
allocation?
ANSWER:
The answer to the foregoing question applies generally
to the better off developing countries. However, it is
generally recognized that the private market and existing
official mechanisms are not adequate for the most seriously
affected and poorest of the developing countries. These coun
tries have limited debt service capacities and cannot afford
to assume greater debt burdens. These countries must have
access to highly concessional or grant financing if they are
to avoid serious set-backs to their development programs and
economic well-being. This issue is to be given urgent
attention by the newly created joint IMF/IBRD Ministerial
Committee on the Transfer of Real Resources.

45
QUESTION:

IV. C

%\)

Which of these industrialized or less developed countries
if any, are confronted with the potential of near-term
bankruptcy or financial collapse?
ANSWER:
At present, the major industrial and better off developing
countries are obtaining the financing they need from the
existing complex of private and official sources. While
situations can arise in which individual countries face serious
problems in borrowing to cover oil and other needs, it is im
possible to say what future conditions may be and which of
the more advanced countries may face difficulties. For that
reason all must stand prepared to take cooperative action
should the need arise. Much will ultimately depend on the
degree of success in curbing inflation, conserving energy use
and developing alternative energy supplies, and the future
course of oil prices.
With regard to the most seriously affected developing
nations, the danger is very-serious disruption of economic
activity, production, development and growth. As noted in
the answer to the previous question, this problem is being
given priority attention. The United Nations has identified
some twenty-nine (29) countries which may not be able to finance
a desirable level of imports during the current year. These
are Cameroon, Central African Republic, Chad, Kenya, Lesotho,
Malagasy Republic, Mali, Mauritania, Niger, Sierra Leone,
Somalia, Sudan, Tanzania, Upper Volta, Bangladesh, India, Pakistan,
Sri Lanka, Haiti, Senegal, El Salvador, Guyana, Honduras,
Dahomey, Ghana, Ivory Coast, Guinea, the Yemen Arab Republic,
and the Democratic Republic of Yemen.

46
QUESTION:
What
bilateral
to assist
financial

IV.C.l.
emergency or contingency planning exists, whether
or in cooperation with international authorities,
countries in the event of such bankruptcy or
collapse?

ANSWER:
Existing channels to assist more advanced countries in
meeting their financing need have been described earlier.
U.S. views on the question of new arrangements is contained
in the responses to questions IV.A. and IV.E.
Emergency or contingency plans to assist the most
seriously affected developing countries will be discussed
in the newly established Joint Ministerial Committee on the
Transfer of Real Resources, as noted above, as well as in the
United Nations. The President announced a three point U.S.
program:
(1) an increase in the value of our food aid, (2)
an increased emphasis in our traditional and continuing
foreign aid program upon improving agricultural capacity
in developing nations, and (3) an international effort
regarding food reserves.

47
QUESTION:

IV.C.2.

In what amounts might assistance be required
which institutions would it be channeled?

ANSWER:

The UN estimates the additional critical requirement
for the most seriously affected developing countries will be
in the range of $2 billion in each of 1974 and 1975 as a
result of the oil price increases.
A variety of channels is being used to funnel resources
to these countries. The oil exporters have made commitments
of concessional assistance totaling $1.9 billion over a period
of years, of which as much as $700 million may be disbursed
in the short-run. The U.S. will be providing almost $1 billion
in ordinary and fast-disbursing assistance. New aid pledged
for disbursement through the U.N. Emergency Operation is in
excess of $100 million, consisting of contributions from
Venezuela, Algeria, Iceland and the EC. The EC has promised
$150 million, of which $30 million will be available for
disbursement by the UN. The EC has indicated willingness
to increase its commitment to up to $500 million (although
it is not clear that this is all new incremental assistance),
contingent upon the pledge of proportional quantities from
the U.S., the oil exporters and others. The IMF oil facility
could provide up to a maximum of $1.7 billion in credits to the
most seriously affected developing nations if sufficient funds
are available to the facility, though the terms of loans from the
oil facility do not meet the need for consessional financing on
the part of the most seriously affected developing countries.
Other donor bilateral assistance is continuing and, in some
cases, increasing. In the aggregate, the reaction to the
identified need has been formidable, but according to most estimates,
including our own, insufficient to the requirement. We estimate
that after all known commitments are provided there will remain a
gap of somewhat less than $1 billion spread among a small number
of countries.

QUESTION:

IV C 3.

What impact would the giving of aid have for the economies
of the donors and what conseguences would follow the denial of
such assistance?
ANSWER:
The provision of aid by the U.S, and other industrial
countries is intended to accomplish a transfer of real resources
from the donors to the receipients and, other things being equal,
should mean an increase in the total demand for the former's goods
and services for export to the latter. However, if our estimates
of $1-2 billion of assistance required are accurate, this aid
will have only a marginal effect on total demand in the donor
countries. Aid from the major oil producing countries should have
no significant impact on the donors' economies, since it would
simply represent a change in the oil producers' portfolios of
financial assets.
If means were not available for individual countries to
finance their higher-cost oil imports they could be forced to take
measures to reduce the growth of domestic income and the level of
both oil and non-oil imports. The countries least able to obtain
financing or adjust to higher oil import costs are typically those
already at the lowest levels of development and per capita income.
Without outside assistance, some of them might be pushed below
subsistence levels of income.
Action on a significant scale by countries of a substantial
size disigned to reduce imports in the face of large oil deficits
would have important secondary effects, in that a resultant con
traction of world trade would be reflected in the reduced exports
of other countries, which might in turn be forced to take defla
tionary or competitive steps to offset the deterioration of their
own external positions. This general problem is by no means ex
clusive to the developing countries and was noted in the following
terms by the Committee of Twenty at a meeting in Rome immediately
following the oil price increases:
"Members of the Committee began by reviewing important recent
developments, including the large rise in oil prices and the
implications for the world economy. They expressed serious con
cern at the abrupt and significant changes in prospect for the
balance of payments structure.
"They recognized that the current account surpluses of oil
producing countries would be very greatly increased, and that
many other countries — both developed and developing — would
have to face large current account deficits. In these difficult
circumstances the Committee agreed that in managing their inter
national payments, countries must not adopt policies which would
merely aggravate the problems of other countries. Accordingly,

- 49

they stressed the importance of avoiding competitive depreciation
and the escalation of restrictions on trade and payments. They!
further resolved to pursue policies that would sustain appropriate
levels of economic activity and employment, while minimizing
inflation. They recognized that serious difficulties would be
created for many developing countries and that their needs for
financial resources will be greatly increased; and they urged all
countries with available resources to make every effort to supply
these needs on appropriate terms. The Committee agreed that there
should be the closest international cooperation and consultation
in pursuit of these objectives. They noted that the International
Monetary Fund, the World Bank, and other international organiza
tions are concerned to find orderly means by which the changes
in current account positions may be financed, and they urged that
these organizations should cooperate in finding an early solution
to these questions, particularly in relation to the difficult
problems facing non-oil producing developing countries."

QUESTION;

IV, D .

What special programs, bilateral or under the auspices
of international authorities, currently provide credit to
oil consuming nations and what dollar amounts have been
extended under them?
ANSWER;
These programs have been described in the answers to
other questions.

- 51 QUESTION;

IV. E ,

What new programs are anticipated and what estimated
dollar amounts will be required to meet the future credit needs
of oil consuming nations?
1. What analysis has been undertaken to assess the
adequacy of an expanded special oil facility under IMF
supervision, and what conclusions and policy options are
suggested thereby?
2« What analysis has been undertaken to assess the
feasibility of organizing the proposed Fund for Capital
Recycling, and what conclusions and policy options are
suggested thereby?
3. What analysis has been undertaken to determine the
need for other cooperative international action, such as a
special petrodollar recycling facility massively funded by
thirty or more billions of dollars?
4. What analysis has been undertaken of proposals to
use the financial leverage of the economically strongest
oil consuming nations, including a possible limitation of
incoming oil surpluses to a level not exceeding the deficits
of their own oil balance of trade?
ANSWER:

The question is impossible to answer with any precision or
confidence at this time. The prospective size of oil
exporters' surpluses is marked by great uncertainty concerning
oil prices, energy conservation and diversification in the oil
importing countries, the pace of import expansion in the oil
exporting countries and the rate of real adjustment to higher
oil prices that individual oil-importing countries will want
to achieve. The possible need for new, supplemental credit
programs is subject not only to these uncertainties, but
also to questions about the geographical distribution of oil
producer investments in the future and the extent to which the
existing private and official channels will be adequate to
handle any needed redistribution of funds.
These questions were a focal point of the discussion at
the IMF/IBRD annual meetings two weeks ago. It was generally
recognized that the private financial markets and other
existing financial mechanisms had worked well to date, and that
considerable potential remained within the framework of these
arrangements. There was also a widely expressed concern that
existing channels might not prove fully adequate in the future,
that preparatory work on possible supplementary arrangements
should be undertaken. Several proposals were put forward for
further study and elaboration, including expansion of the

special IMF oil facility, a separate new IMF oil facility,
an oil-importing country mechanism and a joint consumerproducer investment agency.
The needed analysis of the problem and of these and
other proposals is under way; At its inaugural meeting
October 3, the new policy-level "Interim Committee" of the
IMF requested the Executive Directors to consider as a
matter of urgency the adequacy of existing private and
official arrangements and to report on the possible need for
additional arrangements, including through the IMF. The
Executive Directors will consider this question on a priority
basis and are expected to report in time for the next meeting
of the Interim Committee, scheduled for mid-January 1975.

QUESTION:

What are the long-term implications of recycling and the
concomitant transfer of wealth, and which nations will bear
the ultimate burden?
ANSWER:
The increase in oil prices poses a real economic burden
on oil importing countries, which must transfer an increased
portion of their national output to pay for imported oil*
It is the unwillingness of countries to assume this real cost
which will lead them to undertake energy conservation and
development of alternative supplies in order to reduce their
dependence on imported oil priced at unreasonable levels.
Even if countries borrow now to pay for oil imports, they
will continue to be faced with the real economic costs as
their accumulated debts are serviced and paid.

QUESTION;

V.A.

In what amounts and on what terms have oil producing
nations extended credit to the consuming nations, whether
directly or through international agencies?
ANSWER;
Available information on the aggregate amount of oil
producer credits and direct loans to industrial countries is
incorporated in the answers to preceding questions. Examples
of some of the major credits from OPEC countries, principally
to developing countries, include the following.
Loans to the IMF oil facility totaling the equivalent
of about $3 billion, from Abu Dhabi, Iran, Kuwait, Oman,
Saudi Arabia, and Venezuela. The IMF pays seven percent
interest for the use of these funds over a period of 4-7 years.
In July 1974, the Kuwaiti Parliament formally approved a
$3 billion increase in the paid-in capital of its Economic
Development Fund (from $340 million to $3.38 billion).
According to Iran's Chief OPEC Delegate, Iran has
concluded bilateral agreements involving soft loans of some $1.5
billion over the next three to five years. This assistance is
divided between project aid and financing for oil purchases by
several developing countries, including India, Pakistan,
Afghanistan, Morocco, Senegal, and Jordan.
The charter of the Islamic Development Bank, to be
capitalized by oil exporters and others, has been formally
approved. It is expected to begin operations in late 1974
with capital of $3 billion. Loans will be extended interestfree .
An Arab Fund
million. Paid-in
$130 million. It
the oil purchases

for Africa has received pledges of $200
capital as of mid-July 1974 amounted to
will be a revolving fund used to finance
of the poorest African countries.

The United Arab Emirates tripled the capital of the Abu
Dhabi Development Loan Fund from $169 million to $500 million
in May 1974. The UAE government also responded to an appeal
by UN Secretary General Kurt Waldheim for emergency assistance
to the hardest-hit less developed countries. Foreign Affairs
Minister Ghobash pledged that his country will strive to extend
bilateral and multilateral grants totaling $400 million during
1974.

OPEC country purchases of IBRD bonds totaled approximately
$700 million during the year ending June 30, 1974. Approximately
$675 million of this amount involved purchases of World Bank
bonds. Generally, the OPEC countries receive near-commerical
rates of interest (8%) on these investments.

QUESTION: V.B.
Under what conditions, if any, will oil producing nations
share in bearing the risk of defaulted loans made to consumer
nations of questionable credit worthiness?
ANSWER;
In the broadest terms, the value of OPEC financial claims
depends upon a prosperous world economy and a stable inter
national financial system. There is no way they can avoid
this risk, no matter what specific types of protection they
seek. They have recognized their interest in a stable financial
system and have acted as prudent and conservative investors.
On credits provided directly to borrowers or through investments
in private markets, the oil producers must assume the risks
of defaults as would any other investor. As members of
international financial institutions, the oil producers will
also assume a proportionate share of any risk these
institutions assume.

QUESTION: V. C .

To what extent have oil-induced trade deficits compelled
importing nations to adopt mutually damaging trade, investment
and monetary policies, and to what extent are such policies
anticipated?
pSWER:

The oil importing nations have in general not sought to
(offset oil-induced trade deficits by introducing trade, investment
and monetary policies which would transfer the burden of adjust
ment to other oil importers. The major trading countries have
[instead tried to avoid such measures.
(See also answer to question
IV. C. 3.)
Their commitment to avoid self-defeating beggar-thy neighbor
trade policies was given form in the OECD pledge undertaken at the
Annual Ministerial Meeting, May 29-30, 1974. The members of the
OECD, a group which includes all the major industrialized trading
nations, unanimously pledged for one year to avoid recourse (1) to
measures of either a general or specific nature to restrict imports
or other current account transactions, (2) to measures to stimulate
artificially exports or other current account transactions, and
(3) to export restrictions contrary to the objectives of the
[declaration.
In the same spirit the IMF 's Committee of Twenty recommended
consideration of an amendment to the Articles of Agreement of the
Fund to provide that no member government would, without prior
IMF approval, introduce restrictions or subsidies on merchandise
¡trade or services for balance of payments reasons. Until such an
amendment could be adopted, the Committee of Twenty and the IMF
have invited countries to pledge themselves on a voluntary basis
hot to introduce or itensify trade or other current account
pleasures for balance of payments purposes that are subject to the
jurisdiction of the GATT, or to recommend them to their legislatures,
[without a finding by the Fund that there is balance of payments
justification for such measures. The U.S. and a number of other
countries have adhered to the pledge and we expect it to take
effect shortly.
The major trade restricition taken to correct a balance of
payments deficit in part due to oil-price increases is Italy's
system of import deposits. These deposits are now being phased out.
Other trade restrictive measures have also been taken recently,
¡but they were imposed for reasons other than to correct balance of
Payments difficulties resulting from oil imports. Examples are
Japan's, the European Community's and Canada's import restrictions
on beef in response to low domestic prices and world beef surpluses.

58-

There have also been some trade restrictions by less-developJ
countries at least in part due to oil-induced trade deficits, such
as the tariff increases by Brazil, but they have been relatively
few and of limited trade impact.
In general, the cooperative and responsible trade, monetary
and investment policies of the oil-importing countries have been
most encouraging. Countries' behavior to date provides healthy
indications of the widespread recognition of the dangers of
competitive actions and of countries' determination to resist the
pressures for mutually damaging and ultimately self-defeating
policies.

59
QUESTION;

V.D.

/L \J I L

To what extent will the failure to provide l/dequate
international recycling facilities induce oil exporting
nations to reduce future production, and to what extent
will the provision of such facilities signify the abandon
ment of efforts to reduce the price of oil?
ANSWER:
As long as their investments are secure, thé OPEC
countries have only a limited interest in ensuring that
each individual country is able to meet its financing needs.
(This interest relates to the impact on demand of retrench
ment in oil consumers due to financial difficulties.) With
ample opportunities for attractive investments presently
available, the financial incentives for oil producers are
clearly on the side of production and investment today
rather than leaving oil in the ground. Today's $10 per
barrel of oil, if left in the ground as an investment
alternative to financial assets earning 8 percent, would
have to rise in price to $21.59 per barrel by 1984, an
unlikely prospect. And the longer uneconomic prices are
maintained, the greater the loss will be to consumers and
producers alike. In fact, oil producers may well find that
oil left in the ground will be unsalable in the future even
at lower prices, as consumers seek to protect the investments
made in developing new oil supplies and alternative energy
sources.
The availability of mechanisms to assist oil importing
countries to meet their financing needs will not eliminate
the real economic costs of higher oil prices or the incen
tives to reduce dependence on imported oil. The amounts
borrowed today will have to be repaid later in real goods and
services.
1

QUESTION:

V.E.

Assuming no agreement upon adequate recycling mechanisms,
nor any reduction in the price of oil, what will be the short
and long-term impact on the less developed countries and the
stability of international social order.
ANSWER:
As noted earlier, the question of assistance for the
developing countries, especially the most seriously affected
by the oil price rise, is separate from the general financing
questions associated with the issue of recycling. The impact
of failure to provide the concessionary assistance many
developing countries require has been discussed earlier.

GPO

882-182

Departmentof
SHINGTON,

D.C. 20220

theT
TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

MEMO TO THE PRESS:

October 15, 1974

TEXT OF SIMON OPENING STATEMENT
AT THE SECOND BOARD MEETING OF
THE US-USSR TRADE & ECONOMIC COUNCIL
IN MOSCOW

Much has happened since the first meeting of the
Joint Board last February in Washington, There have been
unprecedented events in the political life of my country.
Many things have not changed however; high among these
is the desire of the United States to further the
development of peaceful, fruitful relations with the
Soviet Union. As President Ford told the Congress shortly
after taking office: "To the Soviet Union, I pledge
continuity in our commitment to the course of the past
three years . . , There can be no alternative to a
positive and peaceful relationship between our nations,"
We are here today to discuss economic and trade
relations between our countries. Nowhere is there more
concrete evidence of the progress we are making than in
this fieldo Our bilateral trade is rapidly approaching the
three-year goal of $2-3 billion trade turnover which was
set at the 1973 Summit. In 1973 alone, US-USSR trade
turnover was $1,4 billion. Although total trade is down
somewhat this year after the exceptionally large agricultural
shipments of 1973, U.S. sales of machinery and equipment
products have risen sharply, and USSR exports to the United
States have shown a very substantial increase.
Seventeen American firms now have received permission
to open accredited offices in Moscow. Eximbank loans for the
Soviet Union have increased to 470 million dollars.
Impressive contracts have been signed in the last nine
months for the Kama River truck plant, the Moscow Trade Center,
the fertilizer project, and equipment for gas pipeline
development.
WS-131

2
The U.S. commercial office opened for business in Moscow
last spring. In addition to smaller exhibits staged in its
display area, my government recently sponsored U.S. firms*
participation in two major Soviet trade shows (health and
plastics manufacturing equipment) and organized a
successful solo exhibition of American machine tools in
Sokolniki Park.
Our two governments are pledged to continue this momentum.
In the long-term agreement signed in June, both formally
agreed to facilitate economic, industrial, and technical
cooperation and exchange information on economic trends.
Progress has also been made in resolving the policy
problems which could inhibit further growth. Soon after enter
ing the White House, President Ford emphasized to Congress the
importance he attached to granting most-favored-nation status
to the Soviet Union. I look forward to early resolution of the
Trade Reform Bill which I believe will bring about
satisfactory exim legislation. This will clear the impediments
on the path of an expanding trade relationship.
The United States Government will continue to help clear
away obstacles to improvement in our economic and commercial
relations. In the final analysis, however, the action
responsibility for each U.S.-Soviet commercial transaction
rests with the private sector of our economy. It is for this
reason that we encouraged the formation of the Trade and
Economic Council, which brings together officials from your
ministries and trading organizations and top management
representatives from our firms -- it is these people who are
doing the actual work of expanding trade.
As we all know, the Council was formed as the result of a
protocol entered into in June of 1973 by Minister Patolichev
and my predecessor, Secretary Shultz. It*s important, however,
to remember that while the Council is the creation of the two
governments, on the U.S. side, it has been adopted by the
private sector -- our business community. As an Honorary
Director of the Council, I am pleased to note that the child
of these two governments is healthy and growing at a rapid
pace, and I am pleased with the care and upbringing it is
being given by the U.S. Government. I voice our appreciation
for the support and help given the Council since its
inception by the Soviet Government.

While the role of the Council is to foster and promote
the growth of the U.S.-Soviet Trade and Economic relation
ship and while I am confident that the U.S, Congress will
approve legislation so necessary to the normalization of
this realtionship, I also envisage that out of this improved
relationship will emerge a larger joint economic role for
our two countries. Given the extraordinary global economic
inter-relationship of all countries, there is a greater
than ever need for responsibility and cooperation between
nations. It is hard to conceive of a solution fair to all
countries large and small in any area of major interest
without the full and close cooperation of the US-USSR.
Since February, the Council has developed into a
fully functioning organization. Binational staffs are now
at work on some sixty major projects in New York and
Moscow. The Council has found excellent office space in
Manhattan, and yesterday we dedicated the attractive
offices on the Shevchenko Embankment.
The Subcommittee
on Science and Technology concluded a productive first
meeting a few days ago in New York.
This is an excellent beginning, but is only a beginning
and I am confident that it foreshadows even greater accom
plishments in the future as the Council realizes its full
potential in the development of fruitful economic relations
between our countries.
As an Honorary Director of the US-USSR Trade and
Economic Council, I commend my fellow directors and the
Council staff for the progress you have made so far. I
wish you well in your deliberations at this meeting, and
I urge you to work diligently to create an economic fabric
between our two countries of so many strands so closely
interwoven that not only is there no visible seam, but also
that it is so strong as to be virtually unbreakable.
So while we work to intermesh and synchronize our
different economic systems, we also work to prepare and
strengthen ourselves for jointly addressing in harmony
the problems of creating a better world for all countries
and all people.
0O0

Department of th eTELEPHONE
T R E A W04-2041
SURY

ASHINGTON. D C. 20220

sf|P
FOR IMMEDIATE RELEASE

October 16, 1974

FOREIGN CURRENCY REPORT FORM REGULATIONS
The Amendment to the Treasury regulations requiring
weekly and monthly reports by banks on the Treasury Foreign
Currency report forms was published today in the Federal
Register. The forms and instructions, as approved by the
Office of Management and Budget, will be published in the
Register on Monday, October 21. Reports to be filed by
non-banks covering their positions in specified currencies
will be instituted in the near future.
Initial reports by banks on the new monthly forms are
required covering data as of the last business day of November,
and on the weekly forms as of December 4, 1974.
The new reports are required by Title II of Public Law
93-110, which amended the Par Value Modification Act, and
which required the Treasury to institute new statistical
reports of the foreign currency transactions of banks and
other business concerns in the United States and of foreign
branches and majority-owned foreign subsidiaries of U.S. firms.
The reports will furnish information on the activities of large
banks and other firms which affect the position of the dollar
in the foreign exchange market.
The reports will provide data on the spot and forward
positions and assets and liabilities of banks in the United
States, including agencies and branches of foreign banks, and
of foreign branches and majority-owned foreign subsidiaries of
U.S. banks. Reports will be required of positions in nine
major currencies (Belgian francs, Canadian dollars, Dutch
guilders, French francs, German marks, Italian lire, Japanese
yen, Swiss francs, and United Kingdom pounds) and,"in the case
of reports filed on behalf of foreign branches and subsidiaries
of U.S. banks, in U.S. dollars.
The reporting exemptions are intended to limit reporting
to major banks which are active in the foreign exchange market.
The exemptions will be adjusted at a later date, if necessary,
to accomplish this purpose.

WS-130

In addition to requiring weekly and monthly reports from
banks, the new regulations provide that the Treasury may require
special reports when conditions in the exchange market warrant,
and may also conduct special surveys related to the data.
An earlier version of the proposed regulations and proposed
forms and instructions was published in the Federal Register on
June 27, 1974, with provision for written comment. A number of
revisions to the proposed forms and instructions were made on
the basis of the comments received.

oOo

TITLE 31 — MONEY AND FINANCE: TREASURY
CHAPTER 1 T- MONETARY OFFICES, DEPARTMENT
OF THE TREASURY
PART 128 —
TRANSACTIONS IN FOREIGN EXCHANGE,
TRANSFERS OF CREDÏT AND EXPORT
OF COIN AND CURRENCY

This amendment is issued pursuant to the authority
conferred in Title II of Public Law 93-110, 87 Stat. 352,
31 U.S.C, 1141-1143.

Notice of the proposed.rulemaking

was published in the Federal Register (39 FR 23830) on
June 27, 1974.

The proposed amendments prescribed supple

mental reporting requirements relating to foreign currency
transactions by.large U.S. enterprises and their foreign
affiliates to provide additional data on the nature and
source of flows of mobile capital.

The Department also

published on June 27, 1974, notice of proposed reporting
forms which would implement the supplemental reporting
requirements.

A number of comments were received following

publication and have been given consideration.
This amendment differs from the published proposed
amendment in that it does not include the proposed report
forms for nonbanking firms as described in proposed
sections 128.35 and 128.36,

The proposed report forms

for nonbanking firms are being given further study in
light of the public comments received thereon.

Those

forms will be prescribed by a subsequent amendment to
Part 128.

2
* The other differences between this amendment and
the published proposal reflect comments received.
With respect to confidentiality, the legend on the
forms states "Data reported on this form will be held
in confidence.
ions.)"

(See Part I. Section A of the instruct-

Pursuant to the'-legend, data furnished on the

forms bv individual respondents will not be publiclv
disclosed, but this data mav be included in publiclv
disclosed aggregates, and mav be furnished to other
Federal agencies to the extent authorized bv the
Federal Reports Act.

U.S.C. 3501*. et seq.

A new section 128.3 has been added to the proposed
regulations to clarify further the use to which the data
reported on the forms may be put.

Section 128.3 provides

that the information reported by individual respondents
on the new foreign currency report forms and the existing
foreign exchange report forms will not be disclosed publicly
by the Department of the Treasury or by any other agency
having access to the information pursuant to law.

The

section states that aggregate data derived from reports on
these forms may be published or released in a manner which

will not reveal the amounts reported by any individual
reporting bank or nonbanking firm.

Finally, the section

provides that the Department may furnish to other Federal
agencies data reported on these forms to the extent
'

authorized by the Federal Reports Act.
In addition, several revisions to the proposed bank
report forms and instructions were made.
follows:

(1)

These were as

the elimination of the requirement to report

the percentage of total exchange contracts which were with
banks, since such a requirement would have been unduly burden
some; (2)

the exclusion from the weekly forms of forward

contracts representing hedges or loans and deposits so as
to avoid creating a distortion in the reported net position;
(3)

the exclusion from Forms FC-2 and 2a of local currency

assets and liabilities with residents of the host country
as irrelevant to the purpose of the forms; (H)

the addition

of the U.S. dollar to the currencies to be reported on Forms
FC-2 and 2a in order to complete the data on branch positions;
(5)

a reduction in the effective exemption levels so as to

insure adequate reporting under current market conditions ;
(6)

the addition of the Italian lira to the foreign curren<
cies to be reported; (7) the inclusion of nonbanking
subsidiaries in the reports to be filed by banks, to

conform to Federal
Reserve
practice;
and (8)
*
.
1„
v ^ •clarification
of a number of the definitions.

Section 128.37 providing authority to require special
reports has been revised to explain more fully the nature
of the special reports that may be required.

These reports

may include special surveys of components of the foreign
currency reports and of related data.
1.

Section 128.2 is revised to read as follows:

Sec. 128.2
(a)

Reports.
In order to effectuate the purposes of the

Emergency Banking Act of 1933 (12 U.S.C. 95a) and Execu
tive Order 6560 of January 15, 1934

(Part 127 of this

chapter), and in order that information requested by the
International Monetary Fund under the articles of agree
ment of the Fund may be obtained in accordance with
section 8(a) of the Bretton Woods Agreements Act (sec.
8(a) 59 Stat. 515; 22 U.S.C. 286f and Executive Order
No. 10033, 14 FR 561; 3 CFR, 1949 Supp.), every person
subject to the jurisdiction of the United States engaging
(1) in any transaction in foreign exchange; (2) in any
transfer of credit between any person within the United
States and any person outside of the United States; or
(3) in the export or withdrawal from the United States of

5
any currency or silver coin which is legal tender in the
United States, shall furnish information relative thereto
to such extent and in such manner and at such intervals
as is required by report forms and instructions prescribed
in Subpart B of this. part.
(b)

In order to effectuate the purposes of the

Emergency Banking Act (12 U.S.C* 95a) and Executive Order
6560 of January 15, 1934 (Part 127 of this chapter), and
to provide additional data on the nature and source of
flows of mobile capital, including transactions by large
United States business enterprises and their foreign
affiliates, as required by Title II of Public Law 93-110
(87 Stat. 352), every United States person engaging (1) in
any transaction in foreign exchange; (2) in any transfer
of credit between any person within the United States and
any person outside the United States ; or (3) in the export
or withdrawal from the United States of any currency or
silver coin which is legal tender in the United States,
shall furnish information relative thereto to such extent
and in such manner and at such intervals as is required
by report forms and instructions prescribed in Subpart C
of this part.

Information shall also be furnished by

every United States person or persons with regard to any

6
t

foreign person controlled by such United States person
or persons as provided in Subpart C of this part.

Cc)

All persons required to report, other than bankers

and banking institutions, shall furnish the reports required
under Subparts B and C of this part to the Federal Reserve
Bank of New York.

Bankers and banking institutions shall

furnish the required reports to the Federal Reserve Bank
of the district in which such banker or banking institu
tion has its principal place of business in the United
States.

In the event that any person required to report

has no principal place of business within a Federal Reserve
district, the information shall be furnished directly
to the Office of the Assistant Secretary for International
Affairs, Department of the Treasury, Washington* D.C. 20220
or to such agency as the Department of the Treasury may
designate.
(Title II, Public Law 93-110, 87 Stat. 352 (31 U.S.C. ÏÎ411143))
2.

Section 128.3 is redesignated as section 128.5.

A new section 128.3 is added to read as follows:

Sec. 128.3

Use of information reported.

The information reported on the forms required under
Subparts B and C will not be disclosed publicly by the

Department of the Treasury or by any* other Federal agency
having access to the information as provided herein.

Data

reported on these forms may be published or released in
the aggregate in a manner which will not reveal the
amounts reported by any individual reporting bank or
nonbanking firm.

The Department may furnish to other Federal

agencies data reported on these forms to the extent
permitted by the Federal Reports Act, 44 U.S.C. 3501,
et seq.
4.

A new section 128.4 is added to read as follows:

Sec. 128.4
(a)

Penalties.
Whoever willfully fails to submit a report

required under this part may be criminally prosecuted and
upon conviction fined not more than $10,000, or, if a
natural person, may be imprisoned for not more than ten
years, or both.

Any officer, director, or agent of any cor

poration who knowingly participates in such violation may
be punished by a like fine, imprisonment, or both.
(b)

Whoever fails to submit a report required under

Subpart 0 of this part may be assessed a civil penalty
not exceeding $10,000.
(Section 2, Emergency Banking Act of 1933, 48 Stat. 1
V*

/ J

- *• ■ ■ ■ ■

■ ■ 3 8

fl j

.C ■■ J -

.. C Q

(12 U.S.C. 95a); Section 203, Public Law 93-110, 87 Stat.
352 (31 U.S.C. 111*3))

8
5*

The heading for Subpart B is revised to read as

set forth below:

.. .

SUBPART B -DESCRIPTION OF
FORMS PRESCRIBED UNDER THIS SUBPART
6.

A new Subpart C is added to read as follows:

Subpart C —

Description of Forms Prescribed Under this
Subpart

Sec. 128.30
128.31

Copies.
Foreign Currency Form FC-1:

Weekly report

of positions in specified foreign currencies
of banks in the United States.
128.32

Foreign Currency Form FC-la:

Monthly report

of assets, liabilities, and positions in
specified foreign currencies of banks in
the United States.
128.33

Foreign Currency Form FC-2:

Weekly consoli

dated report of positions in specified
currencies of foreign branches and subsidi
aries of United States banks.
128.34

Foreign Currency Form FC-2a:

Monthly consoli

dated report of assets, liabilities, and
positions in specified currencies of foreign
branches and subsidiaries of United States
banks.

128.35

[Reserved]

128.36

[Reserved]

128.37

Special reports.

•

Authority:

Title II, Pub. L. 93-110, 87

Stat. 352 (31 U.S.C. 1141-1143)
SUBPART C - DESCRIPTION OF FORMS
PRESCRIBED UNDER THIS SUBPART
Sec. 128.30

Copies.

Copies of the forms described in this subpart with
instructions may be obtained from a Federal Reserve Bank
or from the Office of the Assistant Secretary for Inter
national Affairs, Department of the Treasury, Washington,
D.C.

20220.

Sec. 128.31

Foreign Currency Form FC-1:

Weekly

report of positions in specified
foreign currencies of banks in the
United States.
On this form bankers and banking institutions in the
United States are required to report weekly to a Federal
Reserve Bank their positions in the foreign currencies
specified on the form, as of the close of business on
Wednesday.

10
Sec. 128.32

Foreign Currency Form FC-la:

Monthly

report of assets, liabilities, and
positions in specified foreign curren
cies of banks in the United States.
On this form bankers and banking institutions in
the United States are required to report monthly to a
Federal Reserve Bank their assets, liabilities, and
positions in the foreign currencies specified on the
form, as of the last day of business of the month.
Sec. 128.33

Foreign Currency Form FC-2:

Weekly con

solidated report of positions in
specified currencies of foreign branches
and subsidiaries of United States banks.
On this form United States bankers and banking
institutions are required to report weekly to a Federal
Reserve Bank the consolidated positions of their foreign
branches and majority-owned foreign subsidiaries in the
currencies specified on the form as of the close of
business on Wednesday.
Sec. 128.34

Foreign Currency Form FC-2a:

Monthly

consolidated report of assets, liabilities,
and positions in specified currencies of
foreign branches and subsidiaries of
United States banks.

On this report form United States bankers and
banking institutions are required' to report monthly to
a Federal Reserve Bank the consolidated assets, liabili
ties, and positions of their foreign branches and
majority-owned foreign subsidiaries in the currencies
specified on the form as of the last day of business
of the month.
Sec. 128.35 [reserved]

Sec. 128.36 [reserved]
Sec. 128.37 Special reports.
At times when prompt or expanded information on
current conditions in the foreign exchange market is
needed by the Department of the Treasury, special reports
may be required at more frequent intervals or at different
intervals than those specified on the forms, covering
more detailed information than that required by the forms,
and covering information related to that required by the
forms.

Special reports may be required to be submitted

by telegraph or other rapid means of communication.

12
Effective date - This amendment becomes effective
on November 29, 197if.

//s// Signed
Charles A. Cooper
Assistant Secretary

Date:

OCT 1 0 1974

of TREASURY

Department the
INGTQN, D .C. 20220

TELEPHONE W 04-2041

FOR RELEASE 6? 30 P M

October 16, 1974
TREASURY’S 52-WEEK BILL AUCTION

a/ l

)Q / y *

pf 52-week Treasury bills to be dated
are October 21, 1975, vere opened at the
the details are as follows:
"7* ' 6 ^

BIDS:
V __

(Excepting 4 tenders totaling $230,000)

^
Lvalent annual rate 7.604%
(.valent annual rate 7.680%
tvalent annual rate 7.629% 1/

/7 y

¿.
rere allotted 11%.
Accepted

arranta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Fra.nci sen
|

TOTALS

id For
,005,000
,610,000
1,255,000
1,515,000
,565,000
J, 235,000
445,865,000
30,320,000
12,255,000
14,610,000
23,855,000
222,570,000

Accepted
*
6,505,000
1,614,920,000
4,255,000
23,395,000
5,055,000
7,335,000
240,935,000
5,320,000
2,255,000
6,510,000
13,655,000
70,270,000

$3,577,660,000

$2,000,410,000

i/ This is on a bank discount basis.
2/ Includes $ 89,330,000

by federal reserve districts :

The equivalent coupon issue yield is 8.21%.

noncompetitive tenders accepted at the average price.

Department of

Tth
eR EA S U R Y

INGTON, D C. 20220

TELEPHONE W 04-2041

FOR RELEASE 6:30 P.M.

October 16, 1974

RESULTS OF TREASURY'S 52-WEEK BILL AUCTION
Tenders for $2.0 billion of 52-week Treasury bills to be dated
October 22, 1974,
and to mature October 21, 1975, were opened at the
Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
High
Low
Average

92.312
92.235
92.286

(Excepting 4 tenders totaling $230,000)

Equivalent annual rate 7.604%
Equivalent annual rate 7.680%
Equivalent annual rate 7.629% 1/

Ef' v’

"■ ; • E*ltl v

Tenders at the low price were allotted 11%.
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Applied For
$
23,005,000
2,721,610,000
29,255,000
35,515,000
10,565,000
8,235,000
445,865,000
30,320,000
12,255,000
14,610,000
23,855,000
222,570,000

Accepted
*
6,505,000
1,614,920,000
4.255.000
23.395.000
5.055.000
7.335.000
240,935,000
5.320.000
2.255.000
6.510.000
13.655.000
70.270.000

TOTALS

$3,577,660,000

$2,000,410,000

1/ This is on a bank discount basis.
Vj Includes $ 89,330,000

The equivalent coupon issue yield is 8.21%

noncompetitive tenders accepted at the average price

For Release On Delivery
STATEMENT OF ALBERT REES, DIRECTOR OF
COUNCIL ON WAGE AND PRICE STABILITY
BEFORE THE JOINT ECONOMIC COMMITTEE
ROOM 1202, DIRKSEH BUILDING
FRIDAY, 10:00 AM, OCTOBER 18, 197A

I a m very happy to appear before the Joint Economic Committe
today and to provide whatever information I can about our plans
for the Council on Wage and Price Stability and the part it
can play in helping to restrain inflation.
The Council has had some staff since September 30th. For
the first week it was just m y secretary and myself. W e now
have six, including the Deputy Director, Mr. James Blum, who
is with m e today. W e are moving steadily but carefully
toward our full complement of about 40 staff members.
Of the seven functions setforth for us in Public Law 93-387,
we plan to give particular emphasis to two: first, monitoring
wage and price movements in the private sector; and second,
studying those policies and practices of the government itself
that have the effect of raising costs and prices, and making
recommendations for their correction. W e choose this emphasis
not because the other five functions are unimportant--they most
certainly are not -- but because in those areas we share
responsibility with other Federal agencies.

In the process of wage price monitoring we
expect to get the full voluntary cooperation of labor
and industry in providing the information we need
to do our job. Where it seems appropriate, we will
make vigorous use of our authority to hold public
hearings, and to make recommendations based on
the findings of these hearings.
On the price side, the President has directed us
to give first priority to studying the processing and
distribution of food to discover areas where productivity
can be raised and costs and prices can be lowered.
The rise in food prices in the past year has
has caused hardship for many consumers, especially
the poor and the elderly. Within the food area, we
are especially concerned at the moment with the
price of sugar and of products that use sugar, such as
soft drinks, candy, and breakfast cereals.
Other areas of special concern include the
rising cost of medical care, including hospital bills,
physicians fees, and prescription drugs. A narrower

but very timely area of interest is the high price
and short supply of antifreeze, and we are looking
into that matter right now.
On the wage side, the current negotiations of
greatest interest are those affecting the pay of
airline pilots and of coal miners. W e would like to
do anything we can to help see that the settlements
reached do not have a serious inflationary impact.
In the area of government operations, the
President has asked the Congress to create a
National Commission on Regulatory Reform to
re-examine the independent regulatory agencies. This
means that the primary concern of the Council on Wage
and Price Stability will be with the Departments and
other agencies of the Executive Branch, with emphasis
on actions which have an inflationary impact greater
than their social and economic benefits.
Mr. Chairman, thank you for your attention.
Mr. Blum and I would be most happy to answer any
questions as fully and frankly as we can.

Federal Financing Bank lending activity for the period
September 30 - October 18 was as follows:
-- On October 10, the Bank purchased $2.3 million of
notes from the Department of Health, Education and Welfare.
The notes were previously acquired by HEW under the Medical
Facilities Loan Program. The Bank has purchased $27.6 million
of the notes, fulfilling the commitment made by the Bank to
HEW on May 24, 1974.
-- On October 11, the Bank closed four transactions with
the National Railroad Passenger Corporation (Amtrak). All
transactions are guaranteed by the Department of Transportation:
(1) The Bank made a $180 million loan to Amtrak at an
interest rate of 8.70% to mature on September 30, 1975. Pro
ceeds from the loan were used to refinance Amtrak’s outstanding
loans with the Bank.
(2) The Bank closed a $100 million renewable 91-day
line of credit with Amtrak. Amtrak made an initial drawing
of $3.7 million at an interest rate of 8.213%.
(3) The Bank provided $27.4 million of long-term
financing for 81 locomotives at an interest rate of 8.75%.
The loan matures on July 15, 1988.
(4) The Bank provided $9.9 million of long-term
financing for 29 locomotives also at an interest rate of
8.75%. The loan matures on January 15, 1989.
Federal Financing Bank loans outstanding presently exceed
$2.8 billion and unfilled commitments total almost $1.9 billion.
The Bank has made loans to eight Federal agencies and other
borrowers whose obligations are guaranteed by the Federal
Government.

oOo

202-964-2615

Press inquiries:

SUMMARY OF LENDING ACTIVITY
September 30 - October 18, 1974

Department o f t h e T R E A S U R Y
WASHINGTON. O C. 20220

■

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

October 18, 1974

SECRETARY SIMON HONORS
144 TREASURY EMPLOYEES
Treasury Secretary William E. Simon recognized the
distinguished contributions and Federal service of 144
Treasury employees today at the Department’s Annual Awards
ceremony in the Departmental Auditorium in Washington.
Among 12 Exceptional Service Awards were two made
posthumously to a pair of U.S. Customs patrol officers,
killed last April while intercepting narcotics smugglers
in Arizona.
In honoring Treasury employees, Secretary Simon said,
"There are those who would say that excellence of performance
is no longer in style. You who are to be recognized today,
and thousands of other Treasury employees who have been
recognized this past year under the incentive awards program,
are witnesses to the contrary. Your collective efforts have
resulted in untold tangible benefits to our Treasury operations."
Through employee suggestions he noted, the Treasury
Department netted more than a million dollars of first-year
savings, the highest level achieved in the past five years;
and by their special achievements recognized under the awards
program, employees raised the total of tangible benefits to
almost $2 million.
The two Customs officers who received, posthumously,
Exceptional Service Awards, the hi ghest award which may be
recommended for presentation by th e Secretary, were Charles
J. Bokinskie, 26, whose award was accepted by his parents,
Mr. and Mrs. Jerome A. Bokinskie of Ogden, Utah, and Louis
D. Dixon, 32, whose widow, Mrs. Ce leste L. Dixon of Southport,
North Carolina received the award. His mother, Mrs. Gwendolyn
Dixon, was also present. Both off icers were attached to the
U.S. Customs Service in Los Angele
Other honors included:
23 recipients of Meritorious
Service Awards, the second highest award to be recommended
for presentation by the Secretary.

WS-132

-- 56 monetary awards to employees for outstanding
suggestions or services which effected significant monetary
savings, increased efficiency, or improvements in Government
operations. The highest individual award of $1,270 went to
Samuel M. Petrille, inspector with the building and mechanical
division of the U.S. Mint in Philadelphia, Pennsylvania.
-- 16 supervisors for notable achievements in encouraging
efficiency and economy.
-- 16 awards for excellence in furthering special
Government programs requiring special attention and extra
effort from the executive branch of the Government.
For longevity in the career Federal service one man was
recognized for 50 years’ service, and one woman and ten men
were honored for 40 years’ service.
The Secretary’s awards to Bureaus went to the Bureau of
Engraving and Printing, for its performance Awards program;
the Bureau of the Mint, for its suggestions program; the
Internal Revenue Service, for cost reduction and management
improvement; and the Savings Bonds Division, for safety.

OoO

FO REW O RD
This ceremony honors 144 T reasury employees w h o are in th e
vanguard of this D epartm ent’s effort to give the people of our
country increased efficiency and effectiveness in th eir Governm ent.
There are those w h o would say th a t excellence o f performance
is no longer in style. Y o u w h o are to be recognized to d ay , and
thousands of o th er Treasury employees w h o have been recognized
this past year under the incentive awards p rogram , are witnesses
to the contrary. Y o u r collective efforts h ave resulted in untold
tangible benefits to our Treasury operations. In addition, your
suggestions have netted m ore th an a m illion dollars o f first-year
savings, the h ighest level achieved in the past 5 years, and your
special achievements recognized under th e program raised the
total of tangible benefits to alm ost $ 2 m illion.
Today’s cerem ony is but a small token o f appreciation. Please
accept my congratulations and w arm w elcom e to you r families
and friends.

1974
PROGRAM
ANNUAL AWARDS CEREMONY
DEPARTMENT OF THE TREASURY
M usic....................................................................... ......... . .U .S . A rm y Band
Presentation of C olors..........................Jo in t Armed Forces C olor D etail
The N ational Anthem .......................................................... U .S . A rm y Band
Introductions.......................... ........................... ...W arren F . B rech t
A ssistant Secretary for A dm inistration
Remarks............................................. ......;

. . . . . . . . Wi l l i am E . Simon
Secretary o f th e T reasury

Announcing A w ard R ecipien ts............................................ A rch S. R am say
D irector of Personnel
Presentation of A w ard s.................................... .........
.W illiam E . Simon
Secretary o f th e T reasury
Employee Suggestions and Services
Suggester-of-the-Y ear
Awards to Supervisors
Recognition for Special G overnm ent-W ide Program s
Career Service R ecognition (W ash in g to n , D .C . area)
The Secretary’s Aw ards to Bureaus
Performance Aw ards P rogram
Suggestion Aw ards P rogram
Cost R eduction and M anagem ent Im provem ent
Safety P rogram
Meritorious Service Aw ards
Exceptional Service Aw ards
Alexander H am ilton Aw ards
M usical Selection........................................................U .S . A rm y Band

1974

ANNUAL AWARDS CEREMONY
DEPARTMENT OF THE TREASURY
TREASURY AWARDS COMMITTEE
Chairman
Arch S. Ramsay
Director of Personnel
Members
Donald L. E. Ritger
Deputy General Counsel
James B. Clawson
Deputy Assistant Secretary
(Enforcement, Operations and Tariff Affairs)
David Mosso
Deputy Fiscal Assistant Secretary
John A. Hurley
Assistant Commissioner (Administration)
U. S. Customs Service
Joseph T. Davis
Assistant Commissioner (Administration)
Internal Revenue Service
Arnold Bresnick
Assistant Director for Administration
Bureau of the Mint
Stanley N. D u n n
Chief, Office of Industrial Relations
Bureau of Engraving and Printing
Stanley D. Allen
Chief, Management Analysis Division
Office of Management and Organization

EMPLOYEE SUGGESTIONS AND SERVICES
Recognition by t i t Secretary o f outstan din g suggestion s or exem plary services which served
to effect significan t monetary sav in g s, increased efficiency, or im provem ents in Government
operations.

J. Bizzoco, Building Maintenance Foreman, Building
and Mechanical Division, U.S. Assay Office, Bureau of the Mint,
N e w York, N.Y.

G regory

For displaying outstanding initiative in recommending five
separate suggestions which have proven to be most beneficial
to the operation of the N e w York Assay Office. Estimated
savings— $16,733. Suggestion Awards— $865.

Nancy I. Brown, Management Analyst, Management Analysis
Division, U.S. Customs Service, N e w York, N.Y.
For coordinating the completion of construction of the new
U.S. Customhouse, World Trade Center; accomplishing the
orderly move of over 1,500 employees and ensuring that the
mission of the U.S. Customs Service proceeded uninterrupted
through this transition. Special Achievement Award— $500.
W. Andrew C arothbrs, Jr., Legislative Attorney Advisor for
the Office of Chief Counsel, Office of the Comptroller of the
Currency
For outstanding performance in the implementation of
proposals made by the President’s Commission on Financial
Structure and Regulation into a legislative program which
resulted in the recommended Financial Institutions Act
draft bill of 1973. Special Achievement Award— $750.

Kenneth Cbdbno , Customs Inspector, U.S. Customs Service,
San Ysidro, Calif.
For his excellent cooperation with the Federal Bureau of
Investigation concerning a bribery attempt which resulted
in the arrest of two individuals and the seizure of $2,500
pay-offmoney. Special Achievement Award— $1,000.

Sheldon C ohen, Internal Revenue A gen t, Internal Revenue
Service, C h icag o , 111.
F o r excellence in representing th e G overnm ent as an expert
w itness in crim inal ta x cases in th e C h icago D istrict. Special
Achievem ent A w ard— $600.

B ernice C ontarino, U n it Supervisor, D ata Conversion Branch,
Internal Revenue Service C enter, A ndover, M ass.
F o r her suggestion regarding Individual Performance Index
L istin g . Estim ated savings— $ 1 2 ,8 0 8 . Suggestion Aw ard$625.

J oseph R . C oppola, Special A gen t, Office o f Investigations,
C ounterfeit D ivision, U .S . Secret Service
F o r conducting a number of extrem ely im portan t and difficult
crim inal investigations w h ich

resulted

in the arrest of

numerous persons and the seizure of large sums in counterfeit
notes. Special Achievem ent A w ard— $750.

Sidney C ox, A ssistant Fiscal A ssistant Secretary
F o r outstanding direction o f a comprehensive study of the
T reasu ry’s ta x and loan account system th a t resulted in the
adoption of conclusions w h ich w ill have far-reaching sig
nificance in th e future m anagem ent of th e Treasury’s cash
balances. Special A chievem ent A w ard— $ 1 ,0 0 0 .

William P . C rewe (R esign ed ), Form erly D irector, Operations
and P lanning D ivision, Office of the C hief Counsel, Internal
Revenue Service
F o r exceptional legal, m anagerial and executive ability
displayed w h ile occupying th e position of D irector, Opera
tions and Planning D ivision, Office o f th e C hief Counsel,
Internal Revenue Service. Special Achievem ent Aw ard

$500.

V ictor E . D el T redici, N atio n al Bank E xam in er, Office of the
C om ptroller of th e Currency, San F ran cisco, C alif.
F o r leadership, outstanding efforts and dedication in con
ducting schools for recently commissioned N ation al Bank
Exam iners w h ile perform ing his regular duties as Nationa
Bank E xam in er. Special Achievem ent A w ard— $500.

D erkasch, Special A gen t, Office of Investigations,
U.S. Secret Service, N ew Y o rk , N .Y .

G regory

For conducting a series o f com plex crim inal investigations
which resulted in th e suppression of a conspiracy to defraud
the Federal Governm ent and th e public o f large sums of
money th rou gh interstate transp ortation of stolen and forged
Treasury bonds. Special Achievem ent A w ard— $500.

Bruce W . D iggelman , M ail Specialist, U .S . Customs Service,
Oakland, Calif.
For suggesting th a t a printed n o tice, exp laining th e reason
for a h igh er rate o f d u ty on goods m anufactured in th e
People’s R epublic o f C hina, be attached to appropriate
packages, thus im proving relations w ith th e im porting
public. Estim ated savings— $ 1 0 ,0 5 0 .

Suggestion A w ard—

$555.

William D oyle, Supervisory Customs Inspector, R egion 1, U .S .
Customs Service, B oston, M ass.
For exem plary perform ance exhibited in th e Custom s pre
clearance operation in M alto n A irp ort at T o ro n to , O n tario .
Special Achievem ent A w ard— $500.

Alfred G ates, E le ctrica l Leader, Production M aintenance
Division, U .S . A ssay Office, Bureau o f th e M in t, San F ran cisco,
Calif.
For spearheading six separate group suggestions adopted
during fiscal year 1974 resulting in a large savings in the
operations o f th e San F ran cisco A ssay Office. E stim ated
savings— $ 1 27,234. Suggestion Aw ards— $553.

Gary E . G illiam , O perations Research A n alyst, Office o f Com
puter Science, Office o f th e Secretary
For assisting in th e developm ent o f th e m ethod ology for
the m erging of m icrod ata bases for th e Office o f T a x A nalysis,
which w ill result in g reat savings to th e G overnm ent.
Special Achievem ent A w ard— $689.

J ames G ilmartin , Special A gen t, Office o f In vestigation s, U .S .
Secret Service, N ew Y o rk , N .Y .
For conducting a series o f com plex crim inal investigations
which resulted in th e suppression o f a conspiracy to defraud
the Federal G overnm ent and th e public of large sums of
money th rou gh in terstate tran sp ortation o f stolen and forged
Treasury bonds. Special Achievem ent A w ard— $500.
7

J ohn B. H arvey, M iscellaneous Documents E xam in er, U.S.
Customs Service, M iam i, F la .
F o r suggesting a separate form for th e collection o f liabilities
on low -valued pilfered m erchandise, thus im proving rela
tions w ith th e im porting public. E stim ated savings— $70,500.
Suggestion A w ard— $ 1 ,0 5 5 .

D avid G . H ayes, A ssociate D irector for th e Department of
Banking and E co n o m ic R esearch, Office o f th e Com ptroller of
th e Currency
F o r outstanding perform ance in th e im plem entation of the
proposals made by th e President’s Com m ission on Financial
Structure and R egulation in to a legislative program which
resulted in th e recommended Fin an cial Institutions Act
draft bill o f 1973. Special A chievem ent A w ard— $750.

Walter E . H illman , J r ., Custom s Inspector, U .S . Customs
Service, C alexico, C alif.
F o r keen awareness and alert observation w h ich resulted in
th e seizure, w ith o u t p rior inform ation, o f 1% pounds of
heroin w ith an estim ated street value o f one-half million
dollars. Special Achievem ent A w ard— $500.

E nid F ay H ogge, D ata Transcriber, Internal Revenue Service
C enter, Ogden, U ta h
F o r creativeness and orig in ality in developing an idea that
has resulted in substantial economies to th e Federal Govern
m ent and th e taxp ay in g public. Estim ated savings— $43,350.
Suggestion A w ard— $920.

Alexander R . H onoré, Supervisory Customs P a tro l Officer,
U .S . Custom s Service, L os Angeles, C alif.
F o r expert leadership and guidance of the A ir Security Pro
gram th rou gh a m ost difficult period in w h ich th e hijacking
of aircraft, bomb th reats and physical assault by passengers
w ere a con stan t th re a t to th e airlines and th eir employees.
Special Achievem ent A w ard— $500.

Walter B. I verson , Customs Inspector, U .S . Customs Service,
C alexico , C alif.
F o r keen awareness and alert observation w h ich resulted in
th e seizure, w ith o u t prior inform ation, o f 14 pounds and
5 ounces o f heroin w ith an estim ated street valu e of $7-6
m illion. Special Achievem ent A w ard— $500.

Jo h n F . K i e r n a n , A ssistant Personnel Officer, Personnel Ad
ministration Staff, Bureau o f G overnm ent Fin an cial O perations
For an outstanding contribution to th e Bureau’s Personnel
Management P rogram th rou gh his devotion and com m itm ent
over a prolonged period o f tim e to resolving com plex staffing,
employee relation s, and organ ization al m atters. Special
Achievement A w ard— $500.

Ed w a r d S. K op czak , Chief, M iscellaneous T a x Form s Section,
Tax Form s Developm ent B ranch, Internal Revenue Service
For his suggestion concerning th e recording o f F IC A amounts
on Form s W -2 w h ich w as adopted by th e Service and nine
other Governm ent agencies. E stim ated savings— $ 2 2 ,6 0 0 .
Suggestion A w ard— $650.

Thomas B. C . L e d d y , D eputy D irector, Office of In ternation al
Monetary Credit and Investm ent Affairs, Office o f th e A ssistant
Secretary for In ternation al Affairs
For his outstanding contributions as key official in th e
preparation o f U .S . positions on broad issues related to
monetary reform and operation o f th e m onetary system .
Special Achievem ent A w ard— $ 1 ,0 0 0 .

R obert E . L e n t , Custom s Inspector, U .S . Custom s Service,
International A irp ort, L o s Angeles, C alif.
For contributing to im proved Custom s operations by sug
gesting th e addition o f m anifest numbers on all entries.
Estim ated savings— $ 2 0 ,0 0 0 . Suggestion A w ard— $800.

D ennis E . L o g u e , Form erly In ternation al E co n o m ist, Office of
the Assistant Secretary for In ternation al Affairs
For his role in in itiatin g econom ic research and o rig in atin g ,
organizing and preparing T reasury papers developing alterna
tives and recom m ending policies on th e L a w o f th e Sea
issues. Special Achievem ent A w ard— $500.

A ntonio L o n a r d o , Section Chief, Com puter B ran ch, Internal
Revenue Service C enter, Andover, M ass.
For ingenuity and o rig in ality displayed in th e submission of
five adopted suggestions p rim arily involving th e com puter
system. Estim ated savings— $ 1 9 ,6 4 4 . Suggestion Aw ards—
$1,155.

9
558-358 0

74 - 2

A lfred L u e b b e n , M achine Shop Forem an, U .S . A ssay Office,
Bureau o f th e M in t, San F ran cisco, C alif.
F o r displaying in itiativ e and o rig in ality in his suggestion
to con vert th e conventional p ro o f presses from a manual
operation to an au to m atic dual stam ping process. Estimated
savings— $ 1 3 ,3 7 5 . Suggestion A w ard— $635.

P eter G. L y n a r d , T a x L a w Specialist, R eorganization Branch,
Incom e T a x D ivision, Office o f th e A ssistant Commissioner
(T e ch n ica l), Internal Revenue Service
F o r extrao rd in ary handling, under th e m ost trying cir
cum stances, o f a h ig h ly publicized and extrem ely complicated
tech n ical advice request, and th e issuance o f th e compre
hensive, precedential reply in a lucid and well-reasoned
manner. Special Achievem ent A w ard— $650.

W illiam L . M archi , Senior O perations Officer, D u ty Assess
m ent D ivision, U .S . Custom s Service
F o r designing and im plem enting n atio n ally th e Customs
procedures necessary to co lle ct, verify, and rep ort the new
co st insurance and freigh t/freigh t on board statistical data
on im ported m erchandise. Special Achievem ent Award—
$500.

R o y C. M cD o n a l d ,A u d itor, Office o f R egional Inspector, South
w est R egion , Internal Revenue Service, D allas, T e x .
F o r developing internal audit techniques w h ich were used
a t th e Internal Revenue Service Centers to determ ine that a
number of unmarried taxp ayers w ere erroneously using the
head o f household rates, resulting in additional assessment
o f revenue am ounting to $ 1 0 .2 m illion for fiscal year 1974.
Special A chievem ent A w ard— $500.
L ois L . M uir , T a x E xam in er, C ollection & T axp ay er Service
D ivision, In terview and Service Section, Southeast Region,
Internal Revenue Service, A tla n ta , G a.
F o r suggesting a simplified procedure for handling refund
inquiries elim inating approxim ately 2 0 0 to 300 return calls
d aily.
$565.

E stim ated

savings— $ 1 0 ,4 7 1 .

Suggestion

Award—

J. M u r p h y , M ach in ist, C onstruction and M aintenance
Division, Bureau o f E n g rav in g and Prin ting

T homas

For proposing a m ethod w hereby postage stam p sheets can
be wrapped w ith o u t an involved and extensive paper
straightening process. Estim ated savings— $ 9 ,8 6 3 annually.
Suggestion A w ard— $545.
Wallace

S. N athan, R egional Counsel, Office o f th e C om ptroller

of the Currency, N ew Y o rk , N .Y .
For exceptional dedication and superior perform ance as
Regional Counsel for th e Second N atio n al Bank R egion
of the Office of th e C om ptroller o f th e Currency. Special
Achievement A w ard— $500.

Sheri L. N ewman, Budget A n aly st, Budget and R eports Section,
Fiscal M anagem ent B ran ch, Southeast R egion , Internal Reve
nue Service, A tlan ta, G a.
For suggesting a procedural im provem ent in th e Service’s
payroll/tim ekeeping system , producing a salary saving and
increased employee m orale due to reduction of employee
salary check errors. E stim ated savings— $ 1 5 ,0 0 0 . Suggestion
Award— $750.

Leade O rvis, Forester, Internal Revenue Service, Seattle, W ash.
For an extraord in ary contribution to th e econom y, efficiency
and effectiveness of G overnm ent operations th ro u g h applica
tion of au tom atic d a ta processing. Estim ated

savings—

$38,000. Suggestion A w ard— $890.

William H. Parsons, J r ., A ssociate A tto rn ey , In terpretative
Division, Office of th e C hief Counsel, Internal Revenue Service
For significant legal services provided to personnel o f th e
Internal Revenue Service in th e processing o f an unusual
corporate ta x case w ith extrem ely com plex ta x issues and
involving hundreds o f taxp ayers and m illions o f dollars in
taxes. Special A chievem ent A w ard— $500.

Samuel M . P etrille , Inspector, M echanical Systems, Building
and Mechanical D ivision, U .S. M in t, P hiladelphia, P a.
For suggesting th e recovery and reuse o f hydraulic fluid
used in hydraulic systems th rou gh ou t th e M in t and for
eliminating costly in term ittent failures of a conveyor line
at the Philadelphia

M in t.

Estim ated

savings— $ 5 3 ,5 0 5 .

Suggestion A w ard— $ 1 ,2 7 0 .

B asil N . P e t r o u , F oreign Affairs Officer, Office of the Assistant
Secretary for T rade, E n erg y , and Fin an cial Resources Policy
C oordination
F o r his role in in itiatin g econom ic research and originating,
organizing and preparing Treasury papers developing alterna
tives and recommending policies on th e L a w of the Sea
issues. Special Achievem ent A w ard— $500.

V ictor J . R e n a g h a n , S r., M anagem ent A n alyst, U .S . Customs
Service
F o r contributions to international cooperation through the
development of a m anagem ent inform ation system for the
G overnm ent of V ietn am

Custom s.

Special Achievement

A w ard— $500.

M a r y O . R e n e g a r , Supervisory T a x E xam in er, Accounting
B ran ch, D ata Conversion and A ccounting D ivision, Internal
Revenue Service C enter, A ustin, T ex.
F o r providing outstanding assistance in the development
o f and training on procedural instructions for Phase II of
th e integrated D a ta R etrieval System. Special Achievement
A w ard— $500.

G l e n T . R ichardson , Custom s P a tro l Officer, U .S . Customs
Service, San Pedro, Calif.
F o r keen awareness and alert observation w h ich resulted in
th e seizure, w ith o u t p rior know ledge, o f approximately 9
pounds of cocaine. Special A chievem ent A w ard— $500.

K e n n e t h E. R y a n ,Senior C rim inal In vestigator (Special Agent),
Office o f Investigations, U .S . Customs Service, Houston, Tex.
F o r outstanding leadership and direction in th e transfer of
enforcem ent functions and personnel of th e H ouston region to
th e D rug Enforcem ent A dm inistration. Special Achievement
A w ard— $500.

R a y m o n d G . Se e w a l d , Supervisory Customs Inspector, U.S.
Customs Service, San Y sid ro , Calif.
F o r alert and careful inspection of m erchandise, which re
sulted in th e U .S . Custom s Service collectin g $77,826,473
in penalties and preventing a $ 3 2 ,8 6 3 loss o f revenue. Special
A chievem ent A w ard— $500.

Richard

Seibert, General M echanic Forem an, U .S . M in t, San

Francisco, Calif.
For performance far beyond the call o f duty in support o f th e
restoration o f th e Old M in t Building in San Fran cisco. Special
Achievement A w ard— $500.
H e n r y S i l v e s t r o , M anagem ent A n alyst, A dm inistrative D iv i

sion, Plans and Program s Section, Internal Revenue Service
Center, Andover, M ass.
For a suggestion to prevent mixed d ata blocks from p roces
sing to good tape. Estim ated savings— $1 0 7 ,6 2 5 . Suggestion
Award— $605-

Richard J . Sw e e n e y , International E co n o m ist, Office of th e
Assistant Secretary for International Affairs
For his role in in itiatin g econom ic research and o rig in atin g ,
organizing and preparing Treasury papers developing alterna
tives and recom mending policies on th e L a w o f th e Sea issues.
Special Achievem ent A w ard— $500.

Alice S. T eate , T axp ay er Service R epresentative, Internal
Revenue Service, Southeast R egion , Jack so n v ille, F la .
For suggestions to im prove th e ta x forms package sent to
tax practitioners. E stim ated savings— $ 1 3 ,3 5 0 . Suggestion
Award— $560.

O scar L . T y r e e , C hief, Branch N o . 2 , In terpretative D ivision,
Office of the C hief Counsel, Internal Revenue Service
For significant legal services provided to personnel o f th e
Internal Revenue Service in th e processing of an unusual
corporate ta x case w ith extrem ely com plex ta x issues and
involving hundreds o f taxpayers and m illions o f dollars in
taxes. Special Achievem ent A w ard— $500.

James C. W aters , C hief, E xam in atio n B ran ch, Processing D i
vision, Internal Revenue Service C enter, P hiladelphia, P a.
For suggesting th a t tw o files be merged and a different co lo r
ink used for each calendar year, thus m aking it easier to
purge the file and d rastically reducing research a ctiv ity .
Estimated savings— $ 5 5 ,4 5 3 . Suggestion A w ard— $980.

A n d r e w J . W ilson (R e tire d ), Form erly Chief, Office of Financial
M anagem ent, Bureau of E ngravin g and P rinting
For

consistently

dem onstrating

exceptional

competence,

in teg rity , sound judgment and devotion to the field of
financial adm inistration in efficiently m anaging the complex
financial program
A w ard— $500.

o f th e

Bureau.

Special

Achievement

A ugustine A . A lbino ,C ost A ccou n tan t, C ost Accounting Divi
sion, Philadelphia M in t

D o n a l d E . V o g t ,Systems A ccou n tan t, Office o f Administration,
Bureau o f th e M in t
F o r outstanding performance in developing new cost account
ing procedures a t th e Old M in t to allow for proper allocation
of com puter usage charges to various program s. Group
Special Achievem ent A w ard— $ 1 ,0 0 0 .

J ohn R a m e y ,Jr., Special A gen t, Colum bia, S.C.
R . Je r ry E m b r e e ,Special A gen t, G reenville, S.C.
Bureau of A lco h o l, T o b acco , and Firearm s
F o r skill and dedication in the in vestigation o f an extremely
com plex crim inal case w h ich resulted in a substantial
accom plishm ent

achieving

Achievem ent A w ard— $ 1 ,0 0 0 .

justice.

G roup

Special

SUGGESTER-OF-THE-YEAR
A lfred G ates, E lectrical

Leader,

P roduction

M aintenance

Division, U .S. Assay Office, Bureau of the M in t, San F ran cisco ,
Calif.
For his

outstanding

contributions

the D epartm ent’s

suggestion p rogram during fiscal year 1974.

SUPERVISOR OF THE SUGGESTEROF-THE-YEAR
G or do n P. W o o d , E lectrica l Forem an, P roduction M aintenance
Division, U .S. Assay Office, Bureau o f th e M in t, San F ran cisco ,
Calif.

BUREAU SUGGESTERS-OF-THE-YEAR
To m m y J . B o l t o n , Com puter O p erator, E lectro n ic O perations
Branch, Disbursing C enter, Bureau of G overnm ent F in an cial
Operations, A ustin, T ex.

Thomas J . M u r p h y , M ach in ist, C onstruction and M aintenance
Division, Bureau of E n g rav in g and P rin ting

James C. W aters , Chief, E xam in atio n

B ran ch,

Processing

Division, Internal Revenue Service C enter, P hiladelphia, P a.

AWARDS TO SUPERVISORS
Recognition by the Secretary o f notable achievem ents by supervisors in encouraging employee
contributions to efficiency an d economy. These supervisors were selected from Bureau nominees
after consideration o f such facto rs a s the size o f groups supervised, the value o f contributions,
an d the nature o f action by the supervisor.

R obert S. A ttorri ,Chief, Processing D ivision, Internal Revenue
Service C enter, Philad elp h ia, P a.
F o r dedicated leadership and m o tiv atio n w h ich resulted in
cost reduction and th e increased efficiency of his employees
w h o consistently responded to taxp ay er inquiries and prob
lems in a manner w h ich g reatly enhanced the public image
o f the Internal Revenue Service.

Ja m es A . B r u n o , A ssistant Forem an, Food C oupon Finishing
Section, P ostage Stam p D ivision, Bureau o f E ngraving and
Prin ting
F o r outstanding leadership in encouraging his employees to
perform th eir duties w ith a h ig h degree o f effectiveness,
and

for

providing

appropriate

recognition

for

their

achievements.

Jo h n L . C l a r k , Supervisory A dm inistrative A ssistant (Chief),
W h ole N o te B ranch, D ivision o f Cash Services, Banking and
Cash M anagem ent, Bureau o f G overnm ent F in an cial Operations
F o r outstanding achievem ents and effective leadership in
train in g, m o tiv atin g and encouraging employees to perform
a t a h ig h degree o f efficiency and econom y.

E leanore

C o n d o n , Supervisory

O perating

Accountant

(C h ief, A ccounts and C ontrol B ra n ch ), A ccounting Opera
tions, D ivision o f G overnm ent A ccounts and R eports, Bureau
o f G overnm ent Fin an cial O perations
F o r excep tion al m anagerial ab ility and d evotion to duty in
supervising and encouraging her subordinates to perform
consistently at a h ig h degree o f efficiency and effectiveness
during a period o f g reatly increased w o rk volum e.

G eorge W . H e n d e r s o n , Supervisory O perating A ccou n tan t,
General Ledger B ran ch, D ivision o f G overnm ent A ccounts and
Reports, Bureau o f G overnm ent Fin an cial O perations
For outstanding m anagerial ab ility in th e successful resolu
tion of additional w o rk assigned to his B ranch th rou gh
m otivation

his

employees

tow ard

excellence

performance.

R obert G. K a n e , Supervisory E le ctrica l Engineer, Building and
Mechanical D ivision, U .S . M in t, Philadelphia, P a.
For outstanding leadership and supervision w h ich have
resulted in an increase in th e number o f suggestions sub
mitted by his employees and th e tim ely processing o f sug
gestions received from employees of o th er divisions.
G e r a l d i n e B.

P y l a n t . A ssistant Chief, Special Paym ents and

Claims B ranch, T reasury Disbursing C enter, Bureau o f G overn
ment Financial O perations, Birm ingham , A la.
For exceptional

leadership

and

perform ance

B ranch

reorganization, staffing and train in g, and in im plem enting
procedures related to th e Supplemental Security Incom e
program.

Linda Piper R eid , M an ager, R eview and Rulings B ran ch, D ivi
sion of Securities O peration s, Bureau o f th e Public Debt
For dem onstrating consistently outstanding tech n ical com
petence, innovative planning and concern for subordinates,
and

m aintaining

th e

high est

professional

m anagem ent

standards.

Joseph F . R uffley , S r., D eputy A ssistant C om ptroller for A udit
ing, Bureau o f G overnm ent F in an cial O perations
For extraord in ary achievem ent in leadership and manage
ment of a group o f professional auditors m otivated by a
common incentive for excellence in perform ance and career
development.

R ichard C. Se n n e t t , Chief, Office o f Engineering, Bureau o f
Engraving and P rin ting
For personal leadership and genuine interest in stim u latin g
and m otivatin g employees and officials of th e Bureau of
Engraving and P rin tin g to be co st conscious and alert to
ways of im proving operations and increasing production.
17
558-358 0

74 - 3

E leanor Sue Smith , Chief, Cash T ransactions C ontrol Section,
Principal Accounts Branch, D ivision o f Public Debt Accounts
Bureau o f th e Public Debt
F o r her h igh sense of dedication, and her ab ility to manage
and m otiv ate employees in regularly m eeting rigid deadlines
and in effecting m ajor operational changes w ith o u t sacrificing
accuracy and q uality.

H elen C . Smith , Supervisory A ccou n ting T echnician, Accounts
C ontrol G roup, Claim s and R uling Section, D ivision of Loans
and C urrency, Bureau o f th e Public D ebt, C h icag o , 111.
F o r superior skill in supervising employees responsible for
m aintenance o f accounting records, for an unusual ability to
train and develop new employees, and for her willingness and
cooperation in accepting o th er im portan t assignments as
needed.

Stanley Soloway, Fines, Penalties, and Forfeitures Officer,
N ew Y o rk Seaport A rea, U .S . Custom s Service, N ew York,
N .Y .
F o r his continuing efforts in im proving job effort, orienting
members o f th e M aritim e Industry and m o tiv atin g employees
to achieve results beneficial to the collection o f revenue.

Joseph M . W a g n e r , Supervisory A ccou n tan t, A ccounting and
R eportin g B ranch, Budget and Finance D ivision, Bureau of the
M in t
F o r outstanding leadership as measured by th e ability of his
employees to produce at extrem ely h igh levels o f performance
in order to meet increased w orkloads.

Warren L . Wegener , N atio n al Bank E xam in er, Office of the
C om ptroller o f th e Currency, M inneapolis, M inn.
F o r outstanding leadership and adm inistrative and technical
ab ility in supervising recently commissioned and Assistant
N atio n al Bank Exam iners during th e exam ination of na
tion al banks and for effective supervision and manpower
u tilization resulting in th e h ighest im provem ent in work
p rod u ctivity in th e N in th N ation al Bank Region.

G ordon P . Wood, E le ctrica l Forem an, Production Maintenance
D ivision, U .S . Assay Office, Bureau of th e M in t, San Francisco,
C alif.
F o r outstanding leadership in encouraging and motivating
employees to subm it h igh quality suggestions, resulting in
substantial co st reductions and increased efficiency at the
San Fran cisco Assay Office.

SPECIAL AWARDS FOR EXCELLENCE
IN FURTHERING SPECIAL GOVERN
MENT-WIDE PROGRAMS
Recognition by the Secretary fo r outstanding contributions to the furtherance o f a number
of Government-wide program s in which the President h as asked fo r sp ecial attention- an d
extra effort from the executive branch of the Government.

Elting A r n o l d , Special A ssistant to th e General Counsel,
Office of the Secretary
For his extensive contribution to th e developm ent o f th e
Treasury E nvironm ental Q u ality P rogram , his sage counsel
in aiding th e D epartm ent’s conform ance w ith th e N atio n al
Environmental P ro tectio n A ct, and his outstanding role as
legal coord in ator for T reasury in w o rk in g w ith o th er agencies
to protect our environm ent.

G arland V . B ell ,Chief, Office o f Security, Bureau of E n g rav in g
and Printing
For leadership in furthering th e conservation of energy
resources by reducing the use o f electricity and by th e form a
tion of carpools th rou gh th e Bureau’s park in g program .

G eraldine C h a p m a n , Personnel Staffing Specialist, Internal
Revenue Service C enter, A ndover, M ass.
For outstanding ab ility in providing guidance, leadership
and understanding

th e

ed ucationally

disadvantaged

through encouraging and m o tiv atin g th e handicapped to
become productive em ployees.

M attie L . C r o m w e l l , A ssistant Chief, E xam in atio n Section,
Review and Rulings B ran ch, D ivision o f Securities O perations,
Bureau of the Public Debt
For exceptional ab ility and effectiveness in com m unicating,
counseling and assisting banks, brokerage houses and in
dividual security holders in m atters relatin g to Treasury
securities.
19

A n t h o n y V . D iSilvestre , M anagem ent A n alyst, Management
Analysis D ivision, Office of M anagem ent and Organization,
Office o f the S ecretary
F o r his outstanding con tribu tions to

th e Treasury En

vironm ental Q u ality P ro g ram w h ich , th ro u g h his efforts,
has become an activ e, effective op eration; a model for other
Federal agencies; and an im portan t avenue for inter-depart
m ental cooperation and for coordination w ith in th e Depart
m ent.

M a r s h a L . G a l l o , E m ployee R elations Specialist, Personnel
A dm inistration
Operations

Staff,

Bureau

Governm ent

Financial

F o r her tech n ical com petence in personnel m anagem ent mat
ters and for h er consistent ta c t, fairness and im partiality in
effecting solutions to personnel grievances and in counseling
o f employees.

W illiam A . H a w t h o r n e , D eputy A ssistant to th e Director
(P u b lic A ffairs), U .S . Secret Service
F o r excep tion al service in form ulating and executing policies
and procedures w h ich have resulted in improved service to
the public; and in itiativ e and im agin ation in assisting in the
im plem entation o f th e public affairs p rogram o f th e United
States Secret Service.

C harles H . Je n ki ns , J r . , R egional Fiscal M anagem ent Officer,
Southeast R egion , Internal Revenue Service, A tla n ta , Ga.
For

outstanding

accom plishm ents

support

of Equal

Em ploym ent O p p ortu n ity, p articu larly in th e areas of hiring
and p rom otin g m inorities and w om en, creatin g new job
opportunities, and dem onstrating sensitive treatm en t of all
employees.

M a r g a r e t K o w a l s k i , Securities E xam in er, Claim s and Ruling
Section, Division o f Loans and Currency, Bureau of the Public
D ebt, C h icag o , 111.
F o r excellence in handling savings bond transaction s, ability
to effectively train new employees in th e m ore difficult
aspects of th e w o rk , and willingness and cooperation in
accepting additional duties and responsibilities to promote
continued h igh level service to investors in U .S . Savings
Bonds.

John J- M a c k , Special A ssistant to th e R egional Com m issioner,
Region I X , U .S . Customs Service, C h icag o , 111.
For outstanding contributions in th e in stallation o f the
Treasury Enforcem ent and Com m unications System in the
Chicago R egion o f th e U .S . Customs Service.

Lola M a n n , Procurem ent A gen t, R egion I X , U .S . Custom s
Service, C h icago, 111.
For

outstanding

contributions

tow ard

upgrading

and

modernizing th e U .S . Custom s Service facilities in R egion I X .

Betty Je a n M cL a i n , O ccupational H ealth N urse, Parkersburg
Office, Bureau o f th e Public D ebt, Parkersburg, W .V a .
For excellence in th e establishm ent and developm ent o f aq
outstanding h ealth m aintenance program for th e Parkers
burg Office o f th e Bureau and for professional sk ill, dedica
tion and innovation w h ich have earned her th e h ighest
respect and led to her h ealth unit being used as a m odel for
both Federal and p rivate facilities.

Sylvester A. M e l o n e , Supervisory Custom s Inspector, U .S
Customs Service, N ew ark , N .J.
For superior technical sk ill, leadership, and com petence in
successfully carryin g ou t responsibilities in th e area of A rm s,
Detector D og P rogram , Security and Public Service.

W illiam Sa n s o n e , Chief, Em ployee M anagem ent R elations
Branch, U .S. Customs Service, N ew Y o rk , N . Y .
For achievements in th e im plem entation of th e Federal L ab o r
Management

R elation s

P ro g ram

w h ich

exem plify

th e

qualities necessary for th e Federal governm ent to pursue a
constructive program in this field and for perform ance w h ich
has served as a model for th ose occupying sim ilar positions
throughout th e D epartm ent.

Florence N. Spr at ley , Supervisory C lerical A ssistan t, P o stag e
Stamp Division, Bureau o f E n g rav in g and P rinting
For superior contributions to th e Federal E qual E m ploym ent
Opportunity P rogram in th e Bureau of E n gravin g and P rin t
ing through personal involvem ent and m o tiv atio n o f others.

C a r l o J . St a l l o , Personnel M anagem ent Specialist, Office of
Industrial R elation s, Bureau o f E n g rav in g and Printing
F o r his in itiativ e and resourcefulness in developing, imple
m enting and carrying out very comprehensive and wellrounded train in g and education program s w hereby many
disadvantaged employees o f th e Bureau could qualify for
advancem ent.

E d w i n P . T r a i n o r , R egional Com m issioner, M idw est Region,
Internal Revenue Service, C h icag o , 111.
F o r outstanding executive leadership, positive commitment,
and superior accom plishm ents in m aking E qual Employment
O p portunity a reality in th e M idw est R egion of the Internal
Revenue Service.

R u d y V illarreal , D irector, D ivision o f Cash Services, Banking
and Cash M anagem ent,

Bureau o f G overnm ent Financial

O perations
For

excellence

im proving

com m unications w ith

and

m aintaining

and services to

effective

th e public, thus

enhancing th e im age of th e D epartm ent.

M ichael G . H a r r y m a n ,Personnel Officer
T heresa P r o t o , Personnel Staffing Specialist
V ictoria Sears ,M anagem ent A nalyst
U .S . A ssay Office, Bureau o f th e M in t, San Fran cisco, Calif.
F o r outstanding accom plishm ents in h irin g handicapped
persons and m aking V eteran R eadjustm ent Appointments
d uring fiscal year 1974.

G e o r g e G. A m b r o s e , A ssistant D irector, Office of Production
F r a n k R . D e L e o ,H ead, Federal Reserve L iaison D ivision, Office
of Public Services

B e n j a m i n M . H o r t o n ,Traffic M anagem ent Specialist, Office of
P rod uction , Bureau o f th e M in t
F o r significant contributions to m anagem ent improvement
th rou gh a m ore effective means for coin shipm ent and storage,
resulting in significant savings and increased service to the
public.
Office o f Revenue Sharing, Office o f th e Secretary
F o r unusual in itiativ e and performance o f duties in a new
and unique federal program .

CAREER SERVICE RECOGNITION
Recognition by the Secretary o f employees in the W ashington, D .C ., area who attain ed 50,
45, or 40 years of F ederal service during fisc a l y ear 1974.

50 Y ears o f F ed eral Service
Clarence M . Bow les (R e tire d )

Bureau o f E n g rav in g
and P rin tin g

40 Y ears o f F ed eral Service
Edgar F . Barnes

Bureau o f th e Pub lic
D ebt

John S. C ostello
John D. Gw in

Internal Revenue Service
Office o f th e Com p
tro ller o f th e
Currency

Iola S. Holler
Edwin C. H oover

Office o f th e Secretary
Internal Revenue
Service

Henry L . Kone

Bureau o f E n gravin g
and P rin ting

Carl W . Nelson (R e tire d )

Bureau o f E n g rav in g
and P rin ting

Leonard J . R alston (R e tire d )

Bureau o f A lco h o l,
T o b acco and Fire
arms

James W . Segars

U .S . Customs Service

Schuyler W . Shew maker

Bureau o f th e Public
Debt

Ralph A . Y ates (R e tire d )

U .S . Custom s Service

THE SECRETARY’S ANNUAL AWARDS
The Secretary o f the Treasury presents honorary aw ards each y ear to recognise bureaus for
outstanding performance in a number o f areas.

SECRETARY’S AWARD FOR INCENTIVE AWARDS
PROGRAM (PERFORMANCE)
Bureau o f Engraving an d Printing
F o r outstanding overall results in effectively recognizing
employee performance w h ich significantly exceeded normal
job requirements. O ver 37 percent o f all personnel of the
Bureau received cash awards o r h ig h q u ality p ay increases,
and tangible benefits from

services recognized

averaged

nearly $ 5 ,0 0 0 per 100 employees.

SECRETARY’S AWARD FOR INCENTIVE AWARDS
PROGRAM (SUGGESTIONS)
Bureau o f the M int
F o r th e best overall results in th e suggestion program during
fiscal year 1974. F o r each 100 employees on its rolls the Bureau
had over 4 adopted suggestions and estim ated savings of
$6,7 0 0 .

SECRETARY’S AWARD FOR SIGNIFICANT
ACCOMPLISHMENT IN THE COST REDUC
TION AND MANAGEMENT IMPROVEMENT
PROGRAM
In tern al Revenue Service
F o r sustained superior achievem ents in th e Incentive Awards
P ro g ram during fiscal year 1974 w h ich resulted in over a
m illion dollars in tangible benefits.

SECRETARY’S AWARD FOR SAFETY
Savings bon ds D ivision
For sh ow in g th e greatest reduction in th e frequency o f
disabling injuries over th e preceding th ree year average for
Bureaus w ith under 1 ,8 0 0 * personnel. D ivision reduced its
rate to 2 .1 injuries per m illion m an-hours w o rk ed , a reduc
tion of 3 6 .4 % over th e previous three year average.
*No Bureau in the over 1,800 personnel category qualified for the award.

MERITORIOUS SERVICE AWARDS
The M eritorious Service A w ard is next to the h ip e st which m ay he recommended fo r presenta
tion by the Secretary. I t is conferred on employees who render m eritorious service within or
beyond their required duties.

C harles R. B a k e r , D irector, Foreign B anking Staff, Bureau of
G overnm ent Fin an cial O perations
F o r outstanding tech n ical com petence and leadership in
d irectin g significant im provements in th e overseas military
banking

p rogram ,

thereby

expanding

banking

services

available to servicem en overseas and effecting savings to the
G overnm ent.

C l a u d e D. B a l d w i n , D irector, Research D ivision, Office of the
A ssistant Com m issioner (P lan n in g and R esearch ), Internal
Revenue Service
F o r extensive assistance rendered to T reasury policymakers,
staffs o f C ongressional C om m ittees, and th e Office o f Manage
m ent and Budget in th e developm ent and d raftin g o f the new
com prehensive pension legislation .

G e o r g e A . B a l y ,T echn ical A ssistant to th e Com m issioner of the
Public Debt
F o r his significant contributions to th e effective implementa
tio n o f debt m anagem ent policies and decisions w h ich have
had a d irect im pact upon th e conduct o f th e offerings of
billions o f dollars of Treasury securities each year.

W illiam H o w a r d B easley ,III, form erly Special A ssistant to the
D eputy Secretary
F o r im portant contributions to the success of econom ic and
financial projects o f m ajor concern to the D epartm ent and
to the A dm inistration.

A lbert G . B e r ge sen , R egional Com m issioner, U .S. Customs
Service, L o s Angeles, Calif.
F o r in itiativ e

and leadership w h ich

h ave inspired and

m otivated employees in all functions th ro u g h o u t the region
and w h ich have been invaluable in establishing effective
w o rk in g relationships th rou gh ou t private industry and the
Federal Governm ent.

R o b e r t B l o o m , C hief Counsel for th e Office o f th e C om ptroller

of the Currency
For significant contributions to the successful accom plish
ment of the mission and responsibilities o f the Office o f the
Comptroller th rou gh his technical and adm inistrative
expertise w h ich has been invaluable in both th e im plem enta
tion and the form ulation o f new statutes and regulations in
the field o f banking and bank exam ination.
A ctu ary, A ctuarial B ran ch, M iscellaneous and
Special Provisions T a x D ivision, Office of th e A ssistant C om

Ira C o h e n ,

missioner (T ech n ical), Internal Revenue Service
For his extensive assistance rendered to Treasury p o licy
makers, staffs of Congressional C om m ittees, and the Office
of M anagement and Budget in the development and drafting
of the new comprehensive pension legislation.

R onald A. D a l l , A ssistant D irector, E qual O pportunity P ro
gram, Office o f th e Secretary
For unusual com petence, in itiative and leadership dem on
strated in furthering th e im plem entation of an effective
Federal Equal E m ploym ent O pportunity P rogram w ith in th e
Department.
J ack B. D u n n , State D irector, U .S . Savings Bonds D ivision,

Newark, N .J.
For outstanding service and unusual com petence and personal
dedication dem onstrated in directing th e operations o f th e
Sales Program in N ew Jersey and for invaluable assistance
provided to the n ational program .

U rsula Far re ll , Form erly W h ite House F ello w and E xecu tiv e
Assistant to th e Secretary
For her com plete dedication to the responsibilities o f her
position including her m ajor role in the in itiatio n and suc
cessful com pletion of the D epartm ent’s study o f cap ital
markets and o th er special projects.
E. Jay Finkel , D irecto r, Office o f Developing N ation s Fin an ce,
Office of the A ssistant Secretary for In ternation al Affairs
For exceptional effectiveness in the form ation and implemen
tation of U .S . Governm ent p olicy in connection w ith the
international development lending institutions.

C harles G. G a l l a g h e r , Systems M an ager, Office of Revenue
Sharing, Office of the Secretary
F o r successful translation , w ith in severe tim e restraints,
of a com plex law and uniquely new type of m ajor

Federal

fiscal assistance to 39,000 S tate and local governments
into an efficient, dependable, computer-based operation.

K e n n e t h S. G ia nn oul es , Special A gen t, U .S . Secret Service
F o r distinguished service, unusual com petence and dedicated
personal leadership in origin atin g and implementing pro
gram s w h ich developed th e W ash in gton N atio n al Central
Bureau, International Crim inal P olice O rganization into an
effective, fully operational and w ell know n Bureau and
increased th e efficiency o f the law enforcem ent effort in the
United States and abroad.

Jo h n K lossner , D eputy D irector, Office o f G old and Silver
O perations, Office of the Secretary
F o r his unique expertise in the in tricate w orkings of the
A m erican gold m arket from the producing mines to the final
consumer.

W illiam M . L ieber ,Supervisory A ttorney-A dviser (T a x Legisla
tio n ), Internal Revenue Service
F o r extensive assistance rendered to Treasury policymakers,
staffs of Congressional com m ittees, and th e Office of Manage
ment and Budget in the development and drafting of the new
comprehensive pension legislation.

D e a n E . M iller ,D eputy C om ptroller o f the Currency for Trusts
F o r providing decisive leadership in the development of the
C om p troller’s tru st departm ent and for his administrative
ab ility and professional expertise w h ich h ave been instru
m ental in th e development of a staff o f trust specialists who
dem onstrate unusually h igh standards in bank trust examina
tion.

R obert A . M ulli n , D eputy C om ptroller o f th e Currency for
In ternational Banking
F o r consistently displaying outstanding performance in
form ulating and m aintaining unusually h igh standards
of bank supervision through the exam ination of the inter
national departments of one hundred of the largest
banks and all overseas branches.

national

Calvin

N i n o m i y a , A ssistant C hief Counsel, Bureau o f th e

Public Debt
For the outstanding ab ility and professional com petence
he has consistently displayed in dealing w ith a w ide range
of highly com plex legal problems involved in the m anage
ment and adm inistration of the public debt.

D ario A. Pagliai , D eputy Com m issioner, Bureau of G overn
ment Financial Operations
For distinguished service and exceptional com petence in
administering and directing a com p lexity of fiscal and
monetary program s o f nation al and international significance
both in his present position and form erly as D eputy Treasurer
of the United States.

Alan S. Sh a c h t e r , Form erly L ab o r R elations Officer, Office of
the Secretary
For outstanding com petence and leadership and im p o rtan t
contributions to th e m anagem ent and progressive effective
ness of the D epartm ent’s L a b o r R elations P rogram th ro u g h
out a period of rapid change and g ro w th in the labor relations
area.
R onald C.

T o w n s , Special A gent in C harge, Office of Investiga

tions, U .S. Secret Service, O k lah om a C ity , O kla.
For distinguished service and unusual com petence and
dedicated personal leadership in origin atin g, developing
and implementing a sophisticated program for th e g ath erin g ,
analysis and retrieval o f protective intelligence.
J ohn O . T u r n e r , D eputy A ssistant Com m issioner, C om p troller,

Bureau of G overnm ent Fin an cial O perations
For exceptional contributions to the successful operation o f
the financial m anagem ent systems of the Bureau o f G o v
ernment Financial O perations and in his form er position as
Deputy C om ptroller o f th e Bureau o f A ccounts.

W allace W asserstein, D irecto r, Governm ent A ccounting Sys
tems Staff, Bureau o f G overnm ent Fin an cial Operations
For exceptional resourcefulness and technical ab ility in
developing effective and innovative systems of accounting
having m ajor im pact on all Federal agencies, S tate, and local
governments and th e public a t large.

EXCEPTIONAL SERVICE AWARDS
T h is is the highest aw ard which m ay he recommended fo r presentation by the Secretary.
The aw ard is conferred on employees who d istin gu ish them selves by exceptional service within
or beyond their required duties.

C harles J . B okinskie (D eceased), F o rm erly Customs Patrol
Officer, U .S . Customs Service, L o s Angeles, Calif.
In carryin g o u t his duties, he h ero ically gave his life to
prevent narcotics from entering th e U nited States.

W eir M . B r o w n , D eputy U .S . Perm anent Representative to the
O rganization for E co n o m ic C ooperation and Development,
Office o f th e A ssistant Secretary for In ternation al Affairs.
F o r dedicated service to th e D epartm ent and outstanding
contributions to th e developm ent o f th e framework of
econom ic coop eration am ong th e member countries of the
O EC D

(O rg an izatio n

for

E co n o m ic

C ooperation

and

D evelopm ent).

Sa m Y . C ross, D eputy A ssistant Secretary for International
M o n etary and Investm ent Affairs, Office o f the Assistant
Secretary for In ternational Affairs
F o r outstanding com petence and resourcefulness in coping
w ith developments, often uncharted, in th e com plex field
o f international m onetary p olicy and for invaluable advice
and counsel to T reasury p olicy officials in preparations for
and

p articip ation

intensive

in ternational

monetary

negotiations.
L ouis D. D ixon (D eceased), Form erly Custom s P a tro l Officer,
U .S . Customs Service, L o s Angeles, C alif.
In carryin g ou t his duties, he h eroically gave his life to
prevent narcotics from entering th e U nited States.

E d w a r d J . F itzgerald , J r . (R e tire d ), Form erly Deputy Com
m issioner, Internal Revenue Service
F o r distinguished service to th e D epartm ent and for excep
tion al

contributions

th e

im provem ent

m anagem ent in th e Internal Revenue Service.
30

executive

R obert R .

F r e d l u n d , D irector, Office of A dm inistrative P ro

grams, Office of the Secretary
For his broad-gauged, im aginative leadership in im proving
the effectiveness o f adm inistrative program s th ro u g h o u t
the D epartm ent, and for providing an unusually h igh calibre
of adm inistrative support to three successive Secretaries
of the Treasury.
R a y m o n d F . H a r l e s s (R e tire d ), Form erly D eputy C om m issioner,

Internal Revenue Service
For exceptional service as D eputy Com m issioner to tw o
Commissioners o f Internal Revenue and for his capable
service for a period of tim e as A ctin g Com m issioner a t
which tim e he represented th e Service in appearances before
Congressional com m ittees.

John M . H ennessy ,Form erly A ssistant Secretary for International
Affairs
For his exceptional contributions to the form ulation and
execution of Treasury p olicy on a w ide v ariety of com plex
international financial issues, including bilateral aid, debt
rescheduling, trade, m onetary reform , and the provision o f
U.S. financial contributions to th e resources of international
development lending institutions.
Edmund J .

L in e h a n ,

D irecto r,

A dvertising

and P rom otion

Branch, U .S . Savings Bonds D ivision
For consistently rendering invaluable advice, support and
professional com petence in providing effective and dynam ic
advertising m aterial and- p rom otional a ctiv ity to further
the objectives and carry out the mission of th e Savings Bonds
Division.

Joh n P. S. Ste mp le (R e tire d ), Form erly A ssistant D irector
(Investigator T rain in g )

of the Consolidated

Federal

Law

Enforcement Training Center
F or consistently dem onstrating in itiativ e, im agin ation and
superior m anagerial ab ility as a directing force in th e es
tablishm ent o f a permanent interagency law enforcem ent
training facility.
31

A r t h u r B. W hite (R e tire d ), Form erly Special A ssistant to the
C hief Counsel, Internal Revenue Service
F o r significant contributions tow ard the efficient operation
of the C hief Counsel’s Office, especially in the h igh ly tech
nical area o f ta x law in terpretation and for his outstanding
professional com petence and leadership w h ich have been a
m ajor influence in establishing and sustaining the high
standards o f the C hief Counsel’s Office.
F . L isle W i d m a n , D irector, Office of International Monetary
Affairs, Office o f th e A ssistant Secretary for International
Affairs
F o r outstanding contribution to the form ulation and imple
m entation o f U .S . policies tow ard o th e r industrialized
nations and his outstanding cap acity to perceive emerging
problems, suggest innovative
p olicy decisions,

responses,

and

implement

ALEXANDER HAMILTON AWARDS
This aw ard is conferred by the Secretary to in d iv id u als personally designated by him to be so
honored. I t is generally restricted to the highest officials o f the D epartm ent who have worked
closely with the Secretary fo r a su b stan tial period o f tim e an d who have dem onstrated out
standing leadership during th a t period.

J ames J .

o w ley

(R e tire d ), Form erly D irector, U .S .

Secret

Service
Fo r exceptional professional com petence and leadership
and for outstanding public service to the U nited States
during a career th a t included service under six Presidents.

33
U .S . GOVERNMENT PRINTING O FFIC E : 1 9 7 4

0 -5 5 8 -3 5 8

ALEXAND ER HAM ILTON
First Secretary of the Treasury

Department o f
M liT O N ,

D.C. 2Q220

theTREASURY

l f ?TELEPHONE W 04-2041

FOR IMMEDIATE RELEASE

October 18, 1974
TREASURY’S WEEKLY BILL OFFERING

The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $4,700,000,000 > or
thereabouts, to be issued October 31, 1974,

as follows:

91-day bills (to maturity date) in the amount of $2,700,000,000» or
thereabouts, representing an additional amount of bills dated August 1, 1974,
and to mature January 30, 1975

(CUSIP No. 912793 V T 0 ) , originally issued in

the amount of $1,901,985,000, the additional and original bills to be freely
interchangeable.

182-day bills, for $2,000,000,000, or thereabouts, to be dated October 31, 1974,
and to mature May 1, 1975

(CUSIP No. 912793 WG7 ).

The bills will be issued for cash and in exchange for Treasury bills maturing
October 31, 1974,

outstanding in the amount of $4,503,660,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,676,735,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and non
competitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

Friday, October 25, 1974.

Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
multiples of $5,000.

Tenders over $10,000 must be in

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. j
Fractions may not be used.
Banking institutions and dealers who make primary markets in Government

(OVER)

securities and report daily to the Federal Reserve Bank of New York their positiol
with respect to Government securities and borrowings thereon may submit tenders I
for account of customers provided the names of the customers are set forth in
such tenders.
own account.

Others will not be permitted to submit tenders except for their
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

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 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 les|
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues]
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on

October 31, 1974,

in cash oj

other immediately available funds or in a like face amount of Treasury bills
maturing October 31, 1974.
ment.

Cash and exchange tenders will receive equal treat-j

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

bills (other than life insurance companies) issued hereunder must include in
Federal income tax

hisj

return, as ordinary gain or loss, the difference between

the price paid for the bills, whether on original issue or on subsequent

purchasj

and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this non
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

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

Ikpartment of t h e T R E A S U R Y
StlNGTON. D.C. 2 0 2 2 0

TELEPHONE W 0 4 - 2 0 4 1

FOR IMMEDIATE RELEASE

October 18, 1974

OFFICE OF ECONOMIC STABILIZATION
ISSUES JULY 24--OCTOBER 17, 1974
PHASE IV DECISION LIST
MEMO TO CORRESPONDENTS:
The attached decision list describes the first
remedial action taken with respect to the Phase IV execu
tive compensation regulations. For the first time OES
has issued a remedial order to Kimberly-Clark Corp. requiring
restitution of $466,946 excess incentive bonuses paid to 27
top management executives in violation of the wage control
rules. The item is listed on the attached page one and also,
in detail, in a two-page addendum, by Andrew T.H. Munroe,
Director, Office of Economic Stabilization, Department of
the Treasury. His telephone number is 254-3275, or 254-8460.

A tta ch m e n t

W S -133

From July 24, 1974 through October 17, 1974, the Office of
Economic Stabilization (OES), Department of Treasury, has taken
the following actions:
Compliance Actions
Remedial Orders
Coldwater Seafood Corp. - Remedial order issued requiring refunds
of $186,000 for violation of base period
profit margin limitation.
Kimberly-Clark Corp. -

Remedial order issued requiring

•

restitution of $466,946 excess incentive
bonuses paid to top executives in
violation of 6 CFR,

Part 152, Subpart K.

(See attached Addendum)
Remedial Orders Vacated
Cives Corp. -

Vacated a remedial order requiring Cives
to make refunds in the amount of its profit
margin overage for its 1972 fiscal year.

Pentair Industries -

Vacated the remedial order issued by IRS
requiring Tentair to make refunds of $1.3
million for violating the base profit margin
limitation.

Approval of Completion of Voluntary Compliance Plan
Goodin Co.

Accepted a certification of price reduction
totalling $45,736.63 in full performance
of the film's voluntary compliance plan.

Masco, Corp. -

Accepted a certification of price reduction
totalling $123,000 in full performance of
the firm's voluntary compliance plan.
Compromise Settlement

OES has accepted an offer of $10,000.00 from the Caristo Construction
Corporation in full settlement of civil claims based upon the
following violation: profit margin violation for its 1973 fiscal year.
The Caristo Construction Corporation is located in Brooklyn, N. Y.

OES has accepted an offer of $150,000.00 from the John W. Cowper
Company, Inc. in full settlement of civil claims for the following
violation: profit margin violation for its 1973 fiscal year.
Tne John W. Cowper Company, Inc. is located in Buffalo, N. Y.

OES has accepted an offer of $500.00 from Neff Masonry, Inc., in
full settlement of civil claims for the following violation: pay
adjustment in May and July 1973, in violation of §201.10, 201.11,
130.76 and 130.79 of the Economic Stabilization Regulations.
Neff Masonry, Inc., located in Harrisonburg, Virginia, is a
construction company.

OES has accepted an offer of $10,000 from Scripto, Inc. in full
settlement of civil claims based upon an alleged profit margin
violation for its 1973 fiscal year.
Scripto, Inc. is located in Atlanta, Ga.
Price
Requests for Exception - Approvals
Beverage Management, Inc. - Request for exception from the filing
requirements applicable to food manufacturers
required by 6

CFR

150.606.

Requests for Exception - Denials
Orrick Oil Company and Orrick Oil Company in behalf of Orrick
Truck Stop -

Request for exception from the provisions
of 6

CFR

Part 140 to increase the

price of diesel fuel in excess of the
freeze price.
Perdue, Inc. -

Request for exception to the gross revenue
formula of 6 C.F.R. 150.606(c)(1) as
applied to its soybean operations.

Requests for Reconsideration - Approvals
Campbell Soup Co. -

Request for reconsideration of an order
of the Cost of Living Council denying
petitioner’s request that its subsidiary,
Godiva Chocolatier, Inc., be allowed an
adjustment of base period revenues in the
gross margin formula so as to eliminate
its first quarter overage.

Requests for Reconsidération - Denials
Scripto, Inc. -

Request for reconsideration of an order
of the Internal Revenue Service denying
petitioner’s request for an exception to
the profit margin limitation contained in
6

CFR

150.11 for its 1973 fiscal year.

4
Health
Requests for Exception
OES acted on 217 Requests for Exception.

Of that number, 5 were

approved in full, 23 were partially approved, 32 were denied and
157 were closed or dismissed without prejudice.

Requests for Reconsideration
OES acted on 50 Requests for Reconsideration.

Of that number, 2

were granted, 18 were partially approved, 17 were denied and 13
were closed or dismissed without prejudice.

Compliance Actions
OES acted on 315 compliance cases.

In 18 cases it ordered price

reductions and refunds, Notices of Probable Violation were issued
in 25 cases, Notices of Probable Violation were vacated in 39
cases, Voluntary Compliance Agreements were accepted'in 2 cases
and denied in 1 case, and 230 cases were closed or dismissed.

Copies of all of the OES orders discussed above, except for
the Notices of Probable Violation, are available for inspection at
the OES Public Reference Room, 2000 M Street, N. W . , Washington, D. C.

5
Addendum

The Office of Economic Stabilization (OES), Department of
the Treasury, ruled in a Remedial Order issued on October 17, 1974,
that the Kimberly-Clark Corporation, of Neenah, Wisconsin, paid
excessive bonuses to 27 of its top management executives in violation
of the wage control rules.

The company was ordered to collect

$466,946 from the executives.

This amount represents excess

incentive bonus payments made by Kimberly-Clark to its top corporate
officers and directors in early 1974, for services performed by them
during calendar year 1973.
In 1973, the Cost of Living Council issued regulations requiring
every firm to designate an Executive Control Croup (ECG) composed
of its top officers and directors.

Salary and bonus payments to

the ECG were subject to separate mandatory wage control limitations.
Payment of salaries or bonuses in excess of the applicable limitations
could not be made without an exception granted by the Council.
Exceptions were granted only in cases of extreme hardship or severe
inequity.
The OES determined that Kimberly-Clark paid, under its incontl\<.
bonus plan, $466,946 over the applicable limit to members of its
ECG, without requesting or receiving approval to make such payments.
These payments were therefore made in violation of the Economic
Stabilization Act of 1970, as amended.

In July 1974, the OES Issued a Notice of Probable Violation
to Kimberly-Clark, describing the violation and offering the
company an opportunity to present evidence or arguments relating
to thè case or to collect the excess payments voluntarily from
the top management executives involved.

Since that time, representa

tives of Kimberly-Clark have met with officials of the OES.

However,

the company has not voluntarily accomplished the required restitution,
so a Remedial Order was issued in accordance with OES regulations.
The Remedial Order directs Kimberly-Clark Corporation to
collect $466,946 from the 27 affected executives not later than
November 30, 1974.

The company and its executives are permitted

to determine the method of repayment and the amount each individual
will repay, so long as the total amount is repaid.

The Order also

states that Kimberly-Clark should be required to pay civil penalties
to the United States in the amount of $2500 per violation.
The affected parties may request the OES to review its order,
and may appear personally before the agency.

However, if the order

is not altered or rescinded administratively, and if its requirements
are not complied with, the case will be referred to the U. S.
Department of Justice for prosecution.

FOR IMMEDIATE RELEASE

October 19, 1974

U.S.-U.S.S.R. AGREEMENT TO
LIMIT SOVIET GRAIN PURCHASES
Secretary of the Treasury William E. Simon today announced
conclusion of an agreement with the Soviet Union on purchases
of U.S. grains during the current crop year.
The Soviet Union agreed to limit its total grain purchases
from the U.S. this crop year to 2.2 million tons including 1
million tons of corn and 1.2 million tons of wheat.
An addditional 1 million tons of grain contracted for
earlier this month can be delivered from other exporting
countries. The Soviet purchasing agency for grains will make
the necessary purchase arrangements with U.S. export firms.
The Soviet Union also agreed to make no further purchases
in the U.S. market this crop year, which ends next summer.
Further, the Soviet Union agreed to work with the United
States toward development of a supply/demand data system for
grains.
The agreement followed talks in Moscow by Secretary
Simon with Minister of Foreign Trade N. S. Patolichev.
Secretary Simon was in the Soviet Union October 12-15 for
the opening of the Moscow office of the U.S.-U.S.S.R. Trade
and Economic Council.
The grain talks were scheduled following the Soviets’
buying activity in the United States earlier this month. At
that time, the Soviet Union placed orders with two U.S. export
firms for the purchase of 3.2 million tons of U.S. grain,
including 2.3 million tons of corn and 900,000 tons of wheat
for delivery during the 1974/75 crop year which ends next
summer. Following talks with President Ford on October 5, the
presidents of the two export firms agreed to hold these sales
in abeyance until after Secretary Simon’s visit to Moscow.

WS-134

This year's Soviet purchases of U.S. grain will be small
compared with purchases during the past 2 years. The Soviet
Union bought 17 million tons of U.S. grain during 1972 and 7
million tons in 1973. The smaller purchases in 1974 are in
line with smaller export availabilities of U.S. grain as a
result of the disappointing corn harvest this year. The United
States has harvested a record wheat crop, but the corn crop
is expected to be down 16 percent from last year's record
harvest. Total U.S. feed grain production is expected to be
down 18 percent.
In his talks with Soviet officials, Secretary Simon
emphasized that the United States wants to continue develop
ing its agricultural trade with the Soviet Union. The Soviets
advised Secretary Simon that the Soviet Union will have an
adequate harvest this year but that imports are needed for
specialized livestock production units.
Secretary Simon reviewed with Soviet officials the type
of grain data that the United States receives from other
countries that purchase U.S. grain. The Soviets agreed to
work toward the development of a data exchange system on
grain between the two governments.
oOo

DETERMINATION OF SALES AT NOT LESS
THAN FAIR VALUE ON 45 R.P.M. FLAT SPINDLE ADAPTERS
FROM THE UNITED KINGDbM
Assistant Secretary of the Treasury David R. Macdonald
announced today a determination that 45 R.P.M. Flat Spindle
Adapters from the United Kingdom are not being, nor are likely
to be, sold at less than fair value within the meaning of
the Antidumping Act, 1921, as amended. These adapters fit
over the spindle of a record changer thereby enabling the
automatic play of 45 R.P.M. records. Notice of this decision
will appear in the Federal Register of October 22, 1974.
A Notice of Tentative Negative Determination was
published in the Federal Register of August 15, 1974.
During the period of January 1, 1974 through June 30,
1974, imports of 45 r.p.m. flat spindle adapters from the
United Kingdom were valued at roughly $500,000.
*

D epartm entoftheTR EASU RY
ASHINGTON. D X . 20220

TELEPHONE W04 2041

October 21, 1974
FOR RELEASE 6:30 P.M.,

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2.7 billion of 13-week Treasury bills and for $2.0 billion
of 26-week Treasury bills, both series to be issued on October 24, 1974,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:

13-week bills
maturing January 23, 1975
Price

High
Low
Average

Equivalent
Annual Rate
7.481%
7.536%
7.524%

98.109 a/
98.095
98.098

a/ Excepting 1 tender of $10,000;

26-week bills
maturing April 24, 1975
Price

Equivalent
Annual Rate

96.299 b/
96.237
96.260

7.321%
7.443%
7.398%

b/ Excepting 1 tender of $200,000

/
Tenders at the low price for the 13-week bills were allotted 52%.
Tenders at the low price for the 26-week bills were allotted 59%.
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
(1

District

Applied For

Accepted______

24,460,000
43.340.000 $
Boston
$
2,302,855,000
3,829,665,000
New York
30.285.000
57.225.000
Philadelphia
41.110.000
115.980.000
Cleveland
27.885.000
48.685.000
Richmond
31.275.000
33.700.000
Atlanta
34.685.000
205.165.000
Chicago
36.830.000
50.955.000
St. Louis
4,985,000
12.985.000
Minneapolis
32.190.000
39.905.000
Kansas City
18.085.000
28.135.000
Dallas
116,225,000
279.740.000
San Francisco
TOTALS

Applied For
$

Accepted

29,750,000 $
19,750,000
2,666,275,000 1,565,880,000
13.505.000
13,505;000
30.235.000
35.285.000
27.985.000
37.435.000
28.465.000
28.580.000
146.600.000
96.560.000
31.085.000
40.085.000
10.140.000
10.640.000
25.730.000
26.940.000
16.775.000
24.175.000
134,000,000
186.965.000

$4,745,480,000 $2,700,870,000 c/$3,246,235,000 $2,000,110,000 d/

S./ Includes $423,740,000 noncompetitive tenders accepted at average price.
d_/ Includes $ 281,500,000 noncompetitive tenders accepted at average price.

1/ These rates are on a bank-discount basis.

The equivalent coupon*issue
yields are 7.78% for the 13-week bills, and 7.79% for the. 26-week bills.

D ep artm en tofth eTR iAS lIR Y
SHINGTON. O.C. 20220

TELEPHONE W04-2041

FOR RELEASE AT 3:15 P.M., EDT
OCTOBER 21, 1974
REMARKS BY THE HONORABLE STEPHEN S. GARDNER
DEPUTY SECRETARY OF THE TREASURY
BEFORE THE
AMERICAN BANKERS ASSOCIATION CONVENTION
HONOLULU, HAWAII
MONDAY, OCTOBER 21, 1974
Good Morning,
I am delighted to be asked to speak at your Convention.
Until August 2, technically I guess, I was a member of the
ABA, and no one had ever asked me to speak at this prestigious
meeting. There may be a message here -- if you want to get
ahead with the ABA, get out of banking or if you really want
to impress bankers get out of the ABA.
Seriously, it is an honor and a priviledge to address this
distinguished group, representative of one of America's great
industries -- an industry that has been as innovative and
progressive in the post-war world as any other complex of
American business which characterizes the heretofore vaunted
economic strength of our society. It is important that my
assessment of your vitality is correct. We are at the con
fluence of a series of economic pressures unlike any this
country has experienced since the '30's. The problems are
different and, I believe, solvable; but they are forcing
structural changes on our economy of great significance.
That is the reason I left an easier position in banking
to go to Washington as Bill Simon's deputy. Since my commissioning
on August 2, he has become the chief economic spokesman for the
Administration and the Chairman of the Economic Policy Board,
in addition to his Cabinet role as Secretary of the Treasury.
And so I have the opportunity this morning to talk to you from
two vantage points -- as Deputy to a principal economic policy
maker; and as a relative stranger to the Washington scene who
has just had a unique opportunity to assess government with what
you might politely say is a fresh perspective.

WS-135

As many bankers, I was not much of a Washington watcher.
A Chairman Patman watcher and a Fed watcher, yes. But an
amateur political analyst and devotee, no.
Now I have a new deep respect for the people of government.
The personal dedication and quality of work performed at the
highest levels rivals anything I have seen in the private sector.
There is professionalism and unique candor perhaps because of
the stratification in government employment. Career people seem
to spend less time telling the boss what he would like to hear
and more time telling him what he should hear.
Certainly there is bureaucracy and inefficiency in
Washington but not as much as you believe and there are no
other words for working conditions except tough, and demanding
-- the hours, the deadlines, the crises.
But the structure of democracy that we revere is the
greatest challenge. The checks and balances work to perfection
and unbelievably narrow the realm of the possible. The whole
country is the Administration’s constituency and most of those
with smaller constituencies have to get elected every two years.
Anything but unusual leadership has very little chance to manage.
With those comments I want to give you my perspective of
the new Administration’s potential for economic leadership.
It is good.
It is good because of the Administration's openness, candor
and propensity to listen to the country, the experts and the
Congress and make tough decisions.
Lets look at the economic summit.
On August 12, the economic crisis was elevated to the
prime program target of a new Administration. Working quickly,
a series of 12 mini-summit conferences were arranged across the
country beginning on September 5th. Eventually, 900 people were
invited for day-long meetings in Washington, Pittsburgh, Detroit,
Chicago, Atlanta, Dallas, Los Angeles and New York.
A steering
committee of the Congress joined with the Administration in
setting up the meetings, and a full public record was kept and
published after each meeting. People of all persuasions and
expertise were heard in these first meetings, and 323 suggestions
and recommendations were catalogued and analyzed.

3
Then all the participants of all of the preliminary
meetings were invited to Washington for a meeting of one and
one-half daysT duration, televised and covered by the press
and chaired by President Ford. Selected delegates from each
of the mini-summits presented their findings and the Congressional
leadership spoke at length.
Immediately after the 12:30 adjournment on the 28th -- at
2:00 p.m. that Saturday afternoon, to be exact -- Administration
experts from many disciplines of government began to analyze
the record.
That team worked steadily through to Monday, October 7,
sifting and weighing the record and developing position papers
for the President on alternative courses of action. Then on
October 8 -- 33 days after the process was first started -President Ford went before the Congress to propose a compre
hensive, 10-point program to combat inflation and cushion the
effects of inflation for its hardest-hit victims.
\

It was a unique event in the annals of American government.
We would be wise now to ask ourselves what it all meant.
More than anything else, it helped to educate .the par
ticipants and the American people about the detail of the
problems of our economy.
It confirmed that there was no con
sensus for an easy panacea.
It underlined the need for a broad
attack on inflation on many fronts and the need to help those
most seriously affected.
To many of us who participated, the conference also made
another thing clear: that is, there is already a great deal
of legislation awaiting action by the Congress that would
specifically and effectively deal with the effects of inflation
and would help to eliminate some of its causes. That list
includes the Trade Reform Act, the Financial Institutions Act,
and the Tax Reform Bill, among others# that have languished
in committees for many, many months.
In his first address to the Congress, President Ford made
it clear that he wanted to work closely with the Congress in
pushing forward on the economic front. "My motto toward the
Congress," he said, "is communication, conciliation, compromise,
■and cooperation." I think it is fair to say that the President s
economic program was shaped within that imperative.
In Government
not too much gets done by acclamation.

4
There were many critics, but as at the summit conferences
themselves they had difficulty focusing on one major flaw or
one overriding cause to discredit the plan.
Most frequently it was said that the President’s program
was too modest, that it promised to bite the bullet but, instead,
gave the standard anesthesia. In my view, that comment is
unrealistic. To hope for overwhelming support of a broad,
bold program involving many Congressional committees and sub
committees and partisan participants less than a month before
a Congressional election strains ones imagination.
The President reminded us just a few nights ago, that
he had asked the Congress for a three-month delay in Federal
pay raises -- a delay that would have saved $800 million and
was certainly justified -- but the Congress overruled him.
And among the items that were specifically requested in the
President’s new 10-point program was a request that before
it left for home the Congress place a $300 billion ceiling
on fiscal 1975 spending. The next time you read about the
failure of the President to ask for bold plans, you might ask
yourself what happened to that request.
This is the first time in my memory that a proposed tax
increase has been called "biting the marshmallow." I also
cannot imagine that with as many social activists as there are
in America there were many cheers for cutting $5 billion from
Federal spending.
I can't imagine that re-examining the
Federal regulatory agencies and recommending changes will not
gore someone's ox, nor do I believe that promising controls
on oil consumption if voluntary and technological efforts
fail to reduce foreign imports is a soft idea, easy for the
American people to chew on.
The critics of the program to reduce oil imports by one
million barrels a day apparently did not study the recom
mendations in the accompanying press release which proposed
more than 20 ways that should be used to reach this goal and
suggested that if we really went at it, we could save more.

5
Then, too, those who have ruled against the cruel
burden of a 5 percent surtax seem to overlook the fact that
a family of four with an adjusted gross income of $20,000
a year might pay only $42 more in the 1975 taxable year.
The $42 may be a burden but certainly it is not as cruel as
the hidden tax extracted from their income by inflation.
You may also have read that the tax reform bill now
before the House Ways and Means Committee and endorsed by
the President is nothing but a travesty. This is the bill
that would limit artificial accounting losses, would establish
a minimum income tax beyond which tax shelters have no value,
would impose a windfall profits tax on oil producers, would
phase out oil depletion allowances, and would increase
personal exemptions so that individuals in lower income
brackets would gain some $1.6 billion in tax relief.
Is
this a travesty?
But we have heard the critics out and the first stage
of the exercise has given some key indications of this
Administration's character, resolve, and ability to deal
practically with the second most serious economic crisis of
this century.
There is hope that with such leadership the interminable
partisan delays of government can be lessened. There is a
disposition to make tough decisions and we have had evidence
of that in other than the economic program.
And there is something else of equal significance. The
program, in addition to dealing with the casualties of
inflation, the crisis in energy, the control of federal spending,
embraces and deals responsively and openly with the touchstone
of free enterprise, the capital markets, investment, and
business incentives. The liberalization of the investment
tax credit, the deductibility of preferred dividends, the
elimination of withholding taxes on foreign investments,
the liberalization of capital gains taxation, the National
Commission on Regulatory Reform proposal (which would hack
away at the anachronisms of the thirties that are still with
us restricting competition and raising costs) are measures
that offer positive help to the business of creating jobs,
improving efficiency and raising productivity. But the program
is balanced and raises corporate taxes and promises more
effective enforcement of laws against price fixing and bid
rigging, and increased anti-trust fines, so the critics could
not and did not find the encouragement to business an over
riding cause for discréditâtion.

6
If we can talk dispassionately again about the need
for business profits, for encouraging investment, and finding
ways to ameliorate the most severe environmental and regu
latory restrictions, we have a chance to use all of our
unique economic strengths to find the shortest and most
direct route towards slowing inflation.
And time is against us. In your business and mine,
I share your concerns about the ability of our institutions
to hold strong against the financial strains of inflation,
and the incredible shifts of dollar holdings.
But I
believe that the banking system is reacting with characteristic
imagination and is making progres.s in adapting to the problem.
Many of you, faced with overwhelming offers of short-term
funds, are insisting on longer maturities and lower rates
than the lenders would like. But the lenders are also
beginning to show great wisdom, looking for other places to
put their money, such as government securities, advance pay
ments for imports, phased loans to governments, credits to
nationalized industries and corporate borrowers, real estate,
and equity of large corporations. These shifts into non
banking channels will help to ease these pressures.
I would also say that in our experiences with the financial
authorities of the OPEC nations, we have generally found them
to be responsible and conservative investment managers.
Increasingly we are coming to believe that their future in
vestments will be influenced by financial considerations that
we have traditionally associated with Western-style capitalism.
And the question of whether wemay need additional re
cycling facilities, in our opinion, is not yet settled. So
far, the existing complex of financial mechanisms, private
and intergovernment, seems adequate. But government-togovernment channels are also opening up, and we are seeing
both the OPEC nations and our international institutions
such as the World Bank and IMF become more responsive. Should
the strains grow heavier, however, let me assure you that the
U.S. will support the establishment of additional international
lending mechanisms.
I said earlier that inflation is forcing structural
changes of great significance on our economy. Banking will
not and should not escape. But for different reasons and
in a different economic climate you have been experiencing
dramatic changes at your own instigation for the last few years.

The powerful economic forces now holding us hostage will
accelerate this process, and some of the illogical patchwork
of regulation and customs and practices that inhibit competition
and weaken financial institutions will be among the casualties
of structural change.
But I have no doubt but that you have the financial
acumen and management skill to survive this era and capitalize
on it.
And in a broader context I have no doubt but that the new
administration, suffering no distractions, will continue with
bold, practical programs, and tough decisions popular or
not, to mobilize the country's resources against inflation.
I think the economic message and the process by which it
was developed tells us this. It also gives me confidence that
we will not accede to the clamor for controls on wages,
prices and credit allocation and ever-increasing government
but will rely again on the dramatic powerful incentives of a
free market place that are the unique characteristic of
America's greatness.

0O0

Department of th e T R E A S U R Y
•HINGTON, D.C. 20220

TELEPHONE W04-2041

FOR RELEASE UPON DELIVERY
ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE ELECTRONIC INDUSTRIES ASSOCIATION
9 P.M. PDT, OCTOBER 22, 1974
Good evening.
It is a privilege to join you tonight
for this anniversary celebration and to bring to you the
warmest greetings and congratulations of the President of
the United States. Your presence here marks not only five
decades of achievement as an industry but a long history
of contributions to our nation's welfare. Along with millions
of other Americans, I take great pleasure in saluting you on
this occasion.
I know that your celebration is not entirely carefree,0
for many of you are worried about the present state of our
economy. Just last week I returned, from a trip to Moscow,
where an American delegation conferred with the Soviets on
ways of expanding trade between our countries. Several
distinguished representatives of the electronics industry
took part in those conferences, and in our talks over a
four-day period, I can assure you that they made me acutely
aware of your concerns as leaders of the business community.
Tonight I want to address some of those concerns directly.’
My perspectives on our economy are shaped in large
measure by my own experiences in the Government. When
I first came to the Treasury two years ago, I was warned
that I would have to worry far more about the prophets of
gloom than the prophets of prosperity. That was good advice,
and I think I've learned my lesson now.
My first experience came in the fall of 1973 when
the Arab nations slapped on the oil embargo and oil prices
began shooting up. Almost immediately there were dire pre
dictions that the Western world was heading toward economic
strangulation. More than one Congressman foresaw cold homes
and closed schools, while others predicted unemployment rates
in the neighborhood of 8-10 and even 12 percent.

WS-137

In my opinion, the cries of imminent disaster were un
justified by the facts and ignored the flexibility of our
economic system as well as the ability of our people to rise
to the challenge. We went to work within the Administration
with a program that many thought was far too timid, but
through patience, determination, and a large degree of voluntary
sacrifice by the American people, we came through that emergency
with only minor dislocations to the economy.
Early this year, the prophets of gloom and doom shifted
their focus to Watergate and the so-called crisis of the
Presidency. Again there were dark predictions that the
Republic could not stand the strain, that the government
would come to a virtual halt, and that our democracy was
headed for the scrap heap.
Experience once again showed that it was unwise to sell
the American system short. The Congress proved that it could
act responsibly, the work of government went relentlessly
forward, and our people discovered that our political insti
tutions were stronger and more resilient than anyone believed.
Looking back, there is a certain familiar syndrome to
some of the difficulties we have faced in recent years. Too
often, whether the challenge has been in our urban centers
or in the rice patties of Vietnam, whether it has been the
gas we consume or the air we breathe, we have found that our
difficulties are blown far out of proportion. Suddenly the
problems become crisis. Hands are wrung, alarms clang on
the nightly news, and spirits are shaken.
I am afraid that it has become more fashionable to tear
down America than to build her up. Our opinion leaders in
politics, in the press, and in other walks of life are too
quick to expect the worst and too impatient to work for the
best. One critic has recently asserted that our establishment
is now afflicted with a massive "failure and guilt complex";
he may be wiser than many of us admit.
I must add that the government is not without blame in
this process. As soon as the rocks start flying, its spokes
men are immediately on the defensive and begin churning out
so much fluffy-headed optimism that Herblock has rightfully
asked whether the government owns a Good News Machine. The
false headcounts in Vietnam are one example of official Good
News, the promises of the Great Society are another. When
the government oversells or overpromises, it is almost certain
to confuse the public and eventually destroy its sacred trust.

3
Fortunately, there has always been a middle ground where
constructive action can go forward. While some people panic
and others purr out the good news, our more responsible leaders
roll up their sleeves, the American people pull together, and
eventually we find a series of solutions. The problems may
not be totally solved, but at least the crises go out of fashion.
There are lessons here for us all. Those in government
have a responsibility to take off the rose-colored glasses and
tell it precisely as they see it. Those outside the government,
whether in the private sector or in political opposition, also
have a duty to remain cool, stay away from loose talk, and avoid
being stampeded into half-baked solutions.
I say all of this because I fear the doomsayers are at
work again -- this time on our economy.
I am not here to
dispel all of the gloom: We do have genuine and serious
problems on our hands. But we will only make them worse if
we become captives of the extreme rhetoric that we hear too
often today. One of my predecessors, George Humphrey, used
to say that we can never spend ourselves rich. That is
certainly true, but it may be possible that we can talk our
selves poor.
The solutions to our problems -- and I think there are
solutions short of the apocalypse -- lie in the direction of
intelligent restraint, reasonable sacrifice, and a shifting
of priorities.
Let me review four of the more popular doomsday predictions
that are now current about the economy and give you my own
perspective on them.
The Oil Challenge
First, it is said that the oil cartel has our economy
in a perilous, unbreakable hammerlock.
I would be the first to agree that the oil problem is
of the first magnitude, especially for our European and
Japanese friends as well as the developing nations. We estimate
that OPEC countries received $15 billion from oil trade in
1972, $25 billion in 1973, and now with the quadrupling of
prices, their earnings are likely to reach the $100 billion
mark in 1974. Their trade balance for the current year is
likely to be in excess of $50 billion, and by 1980, if present
trends continue, their total accumulations could exceed $500
billion.
Imbalances of this magnitude cannot continue. They
are neither economically nor politically tolerable.

- 4 There are sound reasons to believe, however, that the
present trends will not continue indefinitely.
The Arabs themselves now realize that their policies
are exerting enormous pressures on consumer nations to
become more self-sufficient. Since 1972, significant dis
coveries of oil have been made in 26 areas of the world -outside the OPEC bloc -- and countries such as Britain are
now working to convert these deposits into major sources
of export trade. Here in the United States, we have vast
quantities of natural resources.
If we harness enough capital
to our developing technologies, we can increase America's
energy production far beyond what seemed likely before the
embargo.
While Project Independence holds out our best hope for
the future, we realize that, it is long-range in nature and
that we must take other steps in the meantime. As you know,
the President has set a goal of reducing our current import
levels of oil by one million barrels a day by the end of 1975.
Some have suggested that we follow the example of France,
placing a mandatory restriction on the quantities of oil we
will import, but we prefer to follow a different course. First
of all, we are seeking to make greater use of our own domestic
resources, particularly coal and oil. With appropriate legis
lation, for instance, we can draw upon the oil deposits in our
Naval Petroleum Reserves and we can require our electric
utilities to convert from oil to coal. Second, we can achieve
significant savings by cutting back on waste and unnecessary
uses of energy. As we learned last year, voluntary conserva
tion can and must be a vital part of our energy effort. Our
goal of reducing imports may be tough, but it is not unrealistic,
and we are fully capable of achieving it.
In my meetings with the Arab leaders, I have tried to
impr ess upon them that their oil policies are not only bad
poli tics but bad economics. One day they may find their oil
mark et tending sharply downward -- and once it is gone, even
lowe r prices will not bring it back. That argument has not
yet persuaded them, but there are some recent indications
that they have gained a better understanding of it. In the
* us to
'
ractice vigorous conservation
inte rim, it is up to
^islation that will expand our
here at home, to pass the
...
.
.
_losely
with all consuming nations,
more
work
to
lies,
and
supp
I am certa
certain we can do each of these things,
rich and poor.
and if we do, we can overc 3 a major part of the energy
chal lenge.

Maintaining a Healthy Financial System
A second and related concern of the modern doomsayers
is the health of our financial system. They fear that the
world will be unable to cope with the financing needs arising
from high cost of the oil and that large, unpredictable flows
of oil money will lead to the collapse of the international
banking system.
The fact is that our present complex of financing
arrangements has already proved that it can recycle large
volumes of oil money. At first, the private financial
markets played the major role and they played it constructively
and imaginatively. The banks were faced with offers of far
more short-term deposits than they could reasonably handle,
and they began insisting upon longer maturities and lower
rates of interest. The lenders soon began adapting by looking
for additional places to invest their money, including govern
ment securities, credits to nationalized industries and cor
porate borrowers, and corporate equity. These shifts into
non-banking channels are easing the pressures on the banking
system, and ultimately they should reduce the possiblity of
precipitous flows of money.
In more recent months, other channels have also been
opened up in order to assist in the recycling. Oil exporting
countries have begun to engage in direct loans, governments
have begun to engage in more direct dealings with other
governments, and the IMF oil facility has been launched.
Some, of course, are now pressing for the establishment
of still more recycling facilities. Certainly, if a clear
need for additional international lending mechanisms should
develop, we would support their establishment. But as of
this moment, we believe that additional study should be under
taken before new facilities are established.
Let me also add that in my personal experiences, I have
found most of the financial authorities of the Arab nations
to be highly responsible and conservative investment managers
We have every reason to believe that their future investments
will be influenced by financial considerations that we have
traditionally associated with Western-style capitalism.

Another factor contributing to the concern about the
international banking system has been the highly publicized
difficulties of several European banks and the failure of
Franklin National, one of the largest American banks. But
these problems were not associated with disruptive investment
shifts of OPEC monies or with any failure or recycling mechanisms.
Rather they stemmed from management defects which became evident
in a climate of rapid inflation and rising interest rates. They
are not an indictment of the banking system itself--that is still
healthy.
In this regard, I must re-emphasize that the government
is not prepared to bail out the stockholders and creditors of
commercial banks that fail because of bad management. As the
Wall Street Journal recently noted, there should be "no safety
net for bunglers."
Fear of a Great Depression
A third notion that we hear from the doomsayers is the
fear that we are heading pell mell toward another Great
Depression.
Let's look at the facts:
-- First, our economy today still has massive strengths.
Plant and equipment spending is up 12 percent this year, and
the record levels of unfilled orders are convincing evidence
that this strong trend is continuing. Total employment hit
another all-time high in September, and despite all the talk
of world-wide economic collapse, American exports continue to
grow rapidly.
--Second, the dimensions of the present slowdown
simply do not approach the depression years.
In the 1930's
unemployment soared to 25 percent; today, unemployment is
less than 6 percent.

7
-- Third, the economic and financial structure is
far different today. In the 1930*s we allowed the economy
to suffer a massive monetary dehydration, so that by 1933
the money supply had fallen by about 1/3 below what would
have been consistent with full employment. The government
was unwilling or unable to cope with bank failures and other
difficulties; today, the Federal Reserve System has become
a lender of last resort, while the Federal Deposit Insurance
Corporation and its sister agencies stand solidly behind our
financial institutions, giving depositors the confidence
they need.
-- Finally, the structure of our economy has changed
so that the men and women who hold jobs that are vulnerable
to cyclical changes in the economy make up a much smaller
part of our labor force than they did forty years ago.
In my opinion, the facts make it clear that we should
have no fear of plunging over the precipice. Some of you
may respond that if we are not on the brink of a depression,
we are by some definitions in the midst of a recession.
I
do not want to quarrel with you on that issue, and I would
certainly agree that there is considerable slack in the
economy. The President also recognizes this fact, and through
his proposals for an expanded public employment program,
increased unemployment benefits and assistance for the housing
industry, he is seeking to cushion the effects for those who
have been hardest hit.
Granted that the economy has its weak spots, let me
re-emphasize, however, that we are not headed for a depression.
This point is extremely important, not simply to allay fears
but to steer us away from the dangerous opinion that our first
job is to stimulate the economy. Nothing could be more
destructive, for a major campaign against an imaginary
depression would drive prices through the roof and make the
eventual cure to inflation much more painful.
Fears of Inflation
I come then to our fourth and final fear about the
economy: the fear of a devastating period of inflation.
It is on this one front that I am often tempted to join
my colleagues in conjuring up visions of an Armageddon. We
are now in the grips of the worst peacetime inflation that we
have ever known. As a society, we are not equipped to deal
with it indefinitely. Our economy, particularly our financial
system, is structured in a way that is inconsistent with
prolonged, double-digit inflation. If allowed to continue
unchecked, inflation could eventually set group against group
and undermine our democratic institutions.

,
As inflation has mounted in recent months, Americans have
already paid a heavy toll:
-- The average worker has suffered a 4 percent decline
in his real spendable earnings over the past year.
-- Corporate profits are also being chewed up, despite
what you read. After adjustment for the effects of inflation
on inventory values and capital consumption allowances, the
retained earnings of non-financial corporations in 1973 were
less than one-fifth of what they were in 1965.
-- Similarly, there has been a decline of almost $500
billion in equity values for 30 million stockholders since
early 1973, inflicting heavy potential losses on individual
families, pension funds and a wide range of financial
institutions.
The list could go on and on. But, once again, I would
urge that this is no time to hang black crape all over the
economy. Those who suggest, for instance, that we are
heading for the runaway inflation that Germany suffered during
the early 1920s are magnifying our problems far beyond their
reasonable bounds.
To look on the brighter side, let's keep in mind that
about half of our recent inflation can be attributed to special
factors that were unpredictable and uncontrollable,' and--more
importantly--are unlikely to occur again. It is extremely
improbable that oil prices will quadruple again, and by all
rights they should retreat. Agricultural crops are more
upredictable, but despite some recent deterioration, we are
unlikely to have another price explosion of the 1973 scale.
There should also be no fear of another devaluation of the
dollar. As you know, we have had two devaluations of the
dollar which achieved their main goal of making our exports
more competitive, but as expected, also contributed temporarily
to our inflation at home. In short, the influence of special
factors in driving up the price level should be steadily
weakening. That is good news for all of us.
y ^Xjtojiat concerns me today is not the one-shot nature of these
v'special factors but whether we have the will and the wisdom to
cope with the other forces in our economy that bear equal
responsibility for today's inflation and have been building
up steam for so many years that they have a momentum of their own.
One of these is the burgeoning Federal budget. It took
185 years for this country to get the Federal budget up to the
$100 billion mark, a line we crossed in 1961. Only nine more
years were required to pass the $200 billion mark, and then only
four more years to reach the $300 billion range. The rate of
growth over the past decade has been almost twice that of the
previous decade, and there has been only one budget surplus
since 1956.

When the Federal budget runs a deficit year after year,
especially during periods of high economic activity which we
have enjoyed over the past decade, it becomes a major source
of economic and financial instability. The huge Federal
deficits of the 1960s and 1970s have added enormously to
aggregate demand for goods and services, and have thus been
directly responsible for upward pressures on the price level.
Heavy borrowing by the Federal sector has also been an important
contributing factor to the persistent rise in interest rates
and to the strains that have developed in money and capital
markets. Worse still, continuation of budget deficits
has tended to undermine the confidence of the public in the
capacity of our government to deal with inflation.
If the present inflationary problem is to be solved and
interest rates brought down to reasonable levels, the Federal
budget must be brought into better balance. This is the most
important single step that could be taken to restore the
confidence to people in their own and our nation*s economic
future.
In my own view, monetary policy has also been overly
stimulative in the past decade and must be regarded as another
culprit of our current troubles. Between 1955 and 1965, the
money supply grew at a rate of about 2-1/2 percent a year,
and we enjoyed a period of reasonable price stability. Since
1965, the annual rate of increase in the money supply has
more than doubled to 6 percent, and it is no accident that
price levels have skyrocketed.
What, then, is to be done?
-- First, we must sharply rein in Federal spending.
President Ford asked the Congress to set a $300 billion
spending limit on the 1975 budget before it went home for
the elections; I am sad to observe that the Congress has not
complied. The $300 billion limit, in my view, is well
within reason. In fact, I would prefer to work as rapidly
as possible toward regular budgeting surpluses so that we
could free up more funds for capital investments.

10
-- Second, we must enact new spending programs only
if we are willing to pay for them. We have all heard the
cheers for the President's proposals to liberalize the
investment tax credit, to help the unemployed, and to prop
up the housing industry, but what are we to make of the jeering
at the proposal for a 5 percent surtax? It's time to be honest
with the American people, to face up to the fact that if we vote
for expensive new programs, we must pay for them -- either in
regular taxes or in the form of the cruelest tax of them all-inflation.
"" Third, the Federal Reserve must complement this fiscal
discipline by keeping a reasonably close rein on the growth
of money and credit.
Fourth, we must begin shifting far more of our resources
into capital investments. It is startling to realize that
between 1960 and 1973, the growth in productivity for the
average American was the lowest for any major industrialized
nation in the Western world. Our annual growth rate in
productivity was only 3 percent, compared to 6 percent for
the French and Germans and more than 10 percent for the Japanese.
And the reason is very clear: During these same years, the
United States was devoting less than one-fifth of its total
output to capital investment--one of the smallest percentages
of any nation in the Western world. Productivity is the key
to expanding our industrial base, and unless we reawaken to that
fact, we are in for years of trouble.
Finally, I want to call for your support for President
Ford’s WIN program. The sceptics may wince at the oldfashioned patriotism of the WIN program, but I would suggest
to you that these are the same sceptics who believed that Americans!
would never cooperate with the voluntary energy measures last
year. They were wrong then, and they’re wrong now.
Ladies and Gentlemen:
In speaking to you tonight, I do not mean to underestimate
our problems or to deny that there may be rough weather ahead.
If we leave our problems untended, a storm could break over
our heads.
But I would urge upon you this single thought: America
is still incredibly strong, powered by the largest and most
dynamic marketplace in the world. Our President has proposed
a program that is complex, multi-dimensional and toughter than
many realize. We have the resources and we know the way to
succeed. With firmness, with patience, and most importantly
of all--with faith in ourselves--we will succeed.

"If history teaches us anything," President Eisenhower
once observed, "it is this lesson: so far as the economic
potential of our nation is concerned, the believers in the
future of America have always been the realists. I count
myself as one of this company."
Let us hope tonight that more Americans will join that
company in the days ahead.
Thank you.

DepartmentoftheTREASURY
ASHINGTOM, D C. 2 0 2 2 0

TELEPHONE W O 4-204T

FOR IMMEDIATE RELEASE

October 23, 1974

JAMES SITES NAMED SPECIAL ASSISTANT
TO TREASURY SECRETARY FOR PUBLIC AFFAIRS
Secretary of the Treasury William E. Simon announced
today that he will name James N. Sites as Special Assistant
for Public Affairs. He will also be responsible for public
affairs activities for the Secretary in his capacity as
Chairman of the Economic Policy Board. He has been vice
president in charge of the Washington, D.C. office of Carl
Byoir § Associates for the past six years.
Sites will succeed Joseph Loftus, who retired earlier
this year.
Sites, 50, has been a reporter and communications executive
for 26 years. He is a native of Pittsburgh, holds a degree in
journalism from Detroit’s Wayne State University, and served
four years in the U.S. Merchant Marine during World War II.
Sites has been an editor for the Whaley-Eaton newsletters,
Business Week and the Chrysler Motors Magazine and has written
extensively for national publications on economic and political
subj ects.
Prior to joining Carl Byoir § Associates in 1968, he served
14 years with the Association of American Railroads, where he
was assistant vice president in charge of public relations.
In 1961 Sites was awarded an Eisenhower Exchange Fellowship
for a year's study of foreign transport networks. His book,
"Quest for Crisis," published in 1963, is considered an
authority in this subject area.
Sites is a member of the national Press Club, the Public
Relations Society of America (Accredited) and Kenwood Country
Club. He is also on the editorial advisory board of Public
Relations News and is a director of the Public Members Association
communications advisors to the U.S. Information Agency and the
State Department.

oOo

WS-136

D epartm entofth eTR EASU R Y
ASHINGTON, D.C. 2 0 2 2 0

TELEPHONE W 04-2Q 41

Robert E. Dewar, Chairman of the Board and Chief Executive Officer,
bj S. Kresge Co., Troy, Mich. , is appointed volunteer State Chairman for
the Savings Bonds Program in Michigan by Secretary of the Treasury Wilnam E. Simon, effective November 17.
He succeeds William V. Luneburg, President and Chief Operating Of
ficer, American Motors Corp., Detroit, who has served since November
■72. Luneburg will receive the Treasury’s special "Twin-Seal Plaque",
in recognition of his service.
Dewar will head a committee of business, banking, labor, government

tnd media leaders who -- in cooperation with the U. S. Savings Bonds Di
vision -- assist in promoting Bond sales in Michigan.
He is a native of Traverse City, Mich., where he was born November
tj> 1922 . He attended Alma College, Alma, Mich., from 1940 to 1942. In
1943, he joined the Naval Air Corps, serving in the Pilot Control Bomb
ing Squadron of Pacific Fleet Air Wing One. After his discharge in 1946,
ie attended Wayne State University, Detroit, from which he graduated with
a LLB degree in 1948. He has also attended the University of Michigan
1’aduate School of Business Administration.
After a year of general law practice, Dewar joined Kresge’s Legal
Ipartment in 1949. He was appointed Assistant to the President in 1960,
pd subsequently advanced through the following posts: Assistant Vice
resident, Finance, 1963; Financial Vice President, 1965; Administrative
pee President and Director, 1966; Executive Vice President, Administra
ron and Finance, 1968, and President and Chief Administrative Officer,
|70. He assumed his present post in 1972 .
Dewar is active in many business, civic and professional organizaions, including -- National Business Council for Consumer Affairs. New
Itroit Committee; Economic Club of Detroit; Michigan State Bar Assn.;
etroit Symphony Board; Detroit Institute of Arts Founders Society, and
etroit Athletic Club.
I He and his wife, the former Nancy Miller, have three children -■oert E., Jr., Jane Elizabeth and John.

oOo

Department of theTREASURY
ASHINGTON, D X 20220

T E L E P H O N E W 0 4-2 0 41

FOR IMMEDIATE RELEASE

October 23, 1974

RESULTS OF AUCTION OF 4-1/2 YEAR TREASURY NOTES

The Treasury has accepted $1.0 billion of the $2.3 billion of
tenders received for the 4-1/2 year notes auctioned today. The range
of accepted competitive bids was as follows:
Lowest yield
Highest yield
Average yield

7.78%
7.93%
7.89%

a./

The interest rate on the notes will be 7-7/8%. At the 7-7/8%
rate, the above yields result in the following prices:
Low-yield price
100.349
High-yield price
99.787
Average-yield price
99.937
The $1.0 billion of accepted tenders includes 13 % of the amount
of notes bid for at the highest yield and $0.2 billion of noncompetitive
tenders accepted at the average yield.

a/ Excepting 2 tenders totaling $101,000

FOR RELEASE ON DELIVERY
REMARKS BY THOMAS W. WOLFE
DIRECTOR, OFFICE OF DOMESTIC GOLD AND SILVER OPERATIONS
BEFORE THE AMERICAN METAL MARKET GOLD FORUM
HOTEL ROOSEVELT, NEW YORK CITY
WEDNESDAY, OCTOBER 23, 1974
2:;30 P. M. , E. D. T.

On next December 31 — or earlier if the President so elects — all
statutory restrictions on the ownership of gold will end. Americans will
be free to buy, sell and hold gold just as they do other basic commodities.
There will be no residue of Government rules, regulations, guidelines or
hints beyond those that would normally apply to business transactions in
general.
In short, the United States will have a gold market that is as
free and open as in any country in the world.
The wording of the statute which provides for an end to restrictions
on gold ownership best defines the new status of gold in the private
market.
Let me quote from the relevant section of P.L. 93-373 — slightly
edited for clarity.
"No provision of any law . . . rule, regulation or order
(now) in effect may be construed to prohibit any person from
purchasing, holding, selling, or otherwise dealing in gold
in the United States or abroad."
The Congressional intent that dealing in gold should h ave.essentially
the same status as trading in other basic commodities is clear. But this
does not mean that gold will be accorded a unique status in the marketplace,
exempt from laws and regulations generally applicable to trading in
commodities.
Government agencies — Federal, state and l o c a l — which
have regulatory responsibilities over the financial and commodity markets
can be expected to encompass gold in their activities where applicable and
appropriate.
Such agencies as the SEC, the Comptroller of the Currency,
and the Federal Trade Commission are assessing their possible role when
gold trading begins.
The important consideration is that whatever monitoring
or regulatory activity these agencies may undertake will be only in the
context of existing statutory authority and not with the intent of
singling out gold for special treatment.

At the present time we can’t be certain how strong American demand
for gold will be when controls end, but we do know that all of it will be
reflected in higher imports in the absence of Government sales.
If there
are increased imports they will come from the only available sources of
new supply, i.e., South Africa and the Soviet Union. A combination of
strong demand for gold and higher prices could have a very substantial
and adverse impact on the balance of payments for 1975.
In this situation
it seems prudent to be prepared to make gold sales from the Government
stock if the need becomes clear.
This would not involve more than a small
percentage of our total holdings.
In addition to reducing the balance of
payments deficit such sales would increase federal receipts and effect a
modest contribution toward a balance in the Federal budget.
The opening of the American gold market to all comers has naturally
stimulated a good deal of thinking by would-be participants as to how
banks, brokerage houses, department stores, and even a chain of beauty
parlors, have been mentioned in the press as at least looking into the
situation.
In all of these plans the key consideration, of course, is
how^large the sustained demand for gold will be following an end to controls.
I will not here hazard an opinion on this enigmatic question, but for those
who are in the business of assessing the gold outlook I might offer a few
facts on market behavior in the recent past which seems to me to be relevant.
The production of gold on a large scale is a relatively recent
historical development.
Nearly half of all gold production since earliest
historical times has occurred in the past 25 years.
Following World War II
world gold output expanded rapidly and reached an all time high in 1970
of about 41 million ounces, according to Bureau of Mines estimates. Since
1970 world gold production has shown a substantial decline.
In 1974
production of gold outside the Soviet Union is estimated to be only about
32 million ounces.
This year the gold output in the United States will
be not much over 1 million ounces.
On the demand side the industrial and commercial use of gold also
rose rapidly after World War II, and by 1972 probably at least equaled
world gold production. However, for most of the post war period _ well
into the^1960's — world gold production was substantially in excess of
total private demand
including investment as well as commercial and
industrial consumption.
The excess of supply was absorbed in official
reserves which increased steadily until the mid-1960's.
It should be
noted that over this period the real price of gold — in constant dollars —
declined steadily and reached an all time historical low in the first half
of 1970.
However, although gold production has declined since the 1970 peak,
industrial and commercial buying has declined even more sharply. We are
once again — as in the 1950's — in a situation in which there is
substantial surplus of gold production over basic demand. ' In 1973 and
again this year the market demand for gold has been largely sustained by
heavy purchases for speculation and investment.

Let me present a few figures on the American industrial use of gold
which support this point.
For many years American industry has been the
largest constant buyer of gold in the world market.
In the peak demand
year of 1972, American net industrial gold consumption totaled 7.3 million
ounces — about 15 percent of the world supply.
In 1973 U. S. industrial
purchases declined to 6.7 million ounces.
In the first half of 1974
U. S. industrial demand totaled only 2.2 million ounces, and for the full
year is likely to be the lowest since the early 1960’s. Estimates from
other sources show a comparable world downtrend in industrial gold demand.
But while industrial gold buying has been on a sharp downtrend, a
new demand factor has developed in the American market in the past year
or so.
In December 1973 the gold regulations were interpreted to permit
the purchase of any gold coin originally minted prior to I960, including
restrikes of these coins in subsequent years. The practical effect of
this interpretation was to open the American market to so-called "bullion”
coins, mainly of Mexican and Austrian origin. As a result, in the first
8 months of this year Americans purchased nearly 2 million ounces of gold
in coins valued at about $340 million.
For the year as a whole,. United
States imports of gold will be between 8 and 9 million ounces — perhaps
5 million ounces for industrial use and between 3-1/2 and 4 million ounces
in bullion coins bought by individuals.
The significance of the volume of gold coin buying by Americans in
1974 should not be underestimated.
It could be a reasonably accurate
measure of the total investment demand for gold* These coins are widely
available and it is likely that the great majority of Americans who have
an inclination to invest in gold are fully aware of this availability.
Moreover, in terms of gold content the price of these coins is comparable
to the small gold units that will be available after the end of gold
restrictions.
In a practical sense, the supply-demand chañe1 of a major
segment of the potential gold market has already been established.
This raises a further question as to what additional areas of non
industrial gold demand will be active in the coming year.
In this
connection, non-industrial gold buyers c a n v a s a working hypothesis,, be
divided into two broad categories in terms of basic motive.
First, there
are the speculators, motivated mainly by the hope of short-run profits.
The interest of this group is likely to focus on the futures market when
gold is included among the commodities traded.
It should be noted that
the attention of speculative funds is attracted mainly by the expectation
of price movements — either way. Whether the anticipated movement is up
or down depends on the changing preponderance of opinion.
The second major category of possible gold buyers might be termed the
"safe haven" investors — those who, grown fearful of all other investment
outlets, somehow see gold as a safe haven — the answer to a timid
investor’s prayer — whose rising value will steadily parallel the cost

of living index with perhaps a small annual bonus to boot. Although the
recent price behavior of gold — and indeed its historical past — offers
little support for a role as a guaranteed hedge against movements in the
general price level, there is apparently a popular belief to this effect.
But it remains to be seen whether this popular notion will be translated
into a significant volume of investment and how well the faith stands up
against the shock of adverse price movements.
In any event, it seems obvious that either the speculators or the
safe haven investors are going to be sadly disappointed once the new gold
market gets ^under way. % guess is that it will be the latter. The
popular notion that gold is the answer to the timid investor's prayer
requires an impossible combination of the rigidly fixed monetary price
that prevailed for centuries prior to March 17, 1968 and the most favorable
aspect of free price movements since that time. The key point is that the
free gold commodity market which first came into being on March 18, 1968
represented a total break with the past and there is no turning back.
^The significance of this change is profound.
The traditions,
institutional practices, and habits of thought pertaining to gold dealing
which have their roots in the long historical period prior to 1968 are
largely irrelevant in the new environment.
Gold is now a ccmmodity priced
in a free market and with a highly volatile recent price record. Gold
dealing in the United States under these conditions will be a wholly new
activity for which the historical past offers no reliable guide.
In this
context, we can assume that those government authorities who have
regulatory responsibilities over financial and commodity market activity
will be keeping a close watch on developments, and it would be reasonable
to expect that appropriate measures will be recommended if the situation
so warrants.
But frankly, I do not expect any difficult long range problems to
develop when the gold market gets under way.
In the initial stages the
inexperience of some buyers and sellers, and perhaps a degree of over
exuberance on the part of some of the dealers will probably result in
temporary difficulties.
But I would expect that for the most part these
problems can be resolved by the institutional structure of the market
itself and will not require direct government corrective action. As the
commodity and financial markets become accustomed to gold dealing, the
focus of public attention will gradually blur, the number of active
traders will be thinned out to the essential specialists, and gold will
assume its proper place in the hierarchy of world traded commodities.

o 0 o 0 o 0 o

of TREASURY

Department the
»SHINGTON. D C. 20220

TELEPHONE W04-2041

FOR RELEASE AT 8:00 P.M. OCTOBER 24, 1974
THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE FINANCIAL WORLD’S ANNUAL AWARDS BANOUET
NEW YORK CITY, OCTOBER 24, 1974
It is a great privilege to join you tonight for the Annual
Awards Banquet sponsored by Financial World and to bring you the
warmest greetings of the President of the United States.
For many of you, as you exchange views on the economy, I
am sure that tonight’s banquet is a more sobering experience
than many in years past. The litany of economic problems is
certainly formidable. Prices are still going up, while production
and employment are turning down. Oil prices are still too high,
and stock prices are too low. Consumer purchasing power is off,
and consumer spirits have sagged even further. One politician
out on the stump this fall is talking about a housewife who
bought a three-pound steak and couldn’t decide whether to
barbecue it or bronze it.
I wish I could promise you the millenium in the morning,
but I can’t. Our problems are not going to disappear quickly.
I would, however, like to suggest three propositions to you
tonight.
First, the root cause of many of our difficulties and
the cause upon which we must concentrate first and foremost
is inflation.
Second, contrary to some reports, there is no mystery
about the reasons for our inflation nor is there really any
doubt about the cures.
-- Third, what we need now to whip inflation -- and I am
convinced we can whip inflation --is something that is in
preciously short supply; the confidence and the courage to
get the job done.
Inflation: The Chief Problem
Clearly the economy is now afflicted with both a high
rate of inflation and relative slack in production.
I would
argue, however, that the slowing of the economy is far less
threatening to us than inflation.
WES-138

While the slowdown is a serious concern, it is important
to keep it in perspective. Our economy still has massive
strengths. Plant and equipment spending is up 12 percent this
year, and the record levels of unfilled orders are convincing
evidence that this strong trend is continuing. While the rate
of unemployment climbed recently, it is still less than 6
percent. We are also continuing to create new jobs in the
economy -- more than 7-1/2 million in the past 4 years -- and
total employment hit another all-time high in September. In
addition, despite all the talk of a world-wide economic
collapse, American exports are continuing to grow rapidly.
Some alarmists are warning us today that we are heading
toward a Great Depression.
I am convinced they are wrong.
The economy is much stronger and healthier today than it was
in the 1930s. Our unemployment rate is less than one-foufth
of what it was then, and we have established income maintenance
systems such as Social Security and unemployment compensation
that put a strong floor under income levels.
In addition,
our banking system is much better equipped to deal with strains
on the financial system, and the structure of our economy has
changed so that we have far fewer men and women in jobs that
are vulnerable to cyclical changes in the economy.
In short,
the facts make it clear that we should have no fear of plunging
over the precipice.
'
Inflation, on the other hand, does pose a grave threat
to both our economy and our society. We are now in the grips
of the worst peacetime inflation we have ever known. Our
economy, particularly our financial system, is structured in
a way that is inconsistent with prolonged, double-digit inflation
If allowed to continue unchecked, inflation could eventually set
group against group and undermine our democratic social and
political institutions.
As prices have mounted in recent months, Americans have
already paid a heavy toll:
-- The average worker has suffered a 4 percent decline
in his real spendable earnings over the past year.
-- Corporate profits are also being chewed up, despite
the headlines. After adjustment for the effects of inflation
of inventory values and capital consumption allowances, the
retained earnings of non-financial corporations in 1973 were
less than one-fifth of what they were in 1965.

-- Similarly, there has been a decline of more than $400
billion in equity values for 30 million stockholders since
early 1973, inflicting heavy potential losses on individual
families, pension funds and a wide range of financial
institutions.
Clearly, the public also perceives the dangers of inflation.
The most recent Gallup poll shows that 81 percent feel that
inflation is now their main concern, and this was the highest
degree of concern for any problem that Gallup has registered
in a quarter of a century. Another recent poll shows that
67 percent of all households believe that inflation will cause
greater hardship than unemployment next year, while only 25
percent have greater fear of unemployment. Even among lower
income groups -- those hardest hit by layoffs -- inflation
outpolls unemployment as a problem by margins of about two
to One.
I find it necessary to press these points tonight because
we now face rising pressures from some commentators to shift
our attention away from inflation to what they believe is a
deepening recession. They urge that we abandon the idea of
restrictive monetary and fiscal policies and once again pump
more stimulus into the economy.
I do not want to quarrel over the question of whether
or not we now have a true recession. That we can leave to
the statistician. What is important is the basic fact,
recognized by all, that we do have a combination of declining
economic activity and virulent, double digit inflation -stagflation if you will. What is equally important is that
the President has proposed a broad, comprehensive and balanced
program to deal these multidimensional difficulties -- a
program that can and will work.
While the temptation to abandon restrictive policies in
favor of general pump priming may be attractive to some, it
is a temptation that must be stoutly resisted.
If we choose
that course, we will very rapidly find ourselves on the path
to higher and higher rates of inflation and heading toward
an even greater morass. Another round of rampant inflation,
I’m afraid, would create almost irresistable pressures to
establish a new system of mandatory wage and price controls -controls that would probably be more complex and stultifying than
before. Controls simply do not cure inflation; that is a lesson
we all should have learned from the experience of the past
three years. That is why the President remains adamantly
opposed to them.

4
Furthermore -- and I think this is a point that is often
overlooked - - a n attempt to stimulate economic activity now
would intensify rather than solve our problems of economic
sluggishness and rising unemployment. We must remember that
a primary cause of the slowdown was inflation itself. It
was inflation, through its impact on our financial markets,
that dried up the supply of mortgage credit and sent the
housing industry into a tailspin. And it was inflation,
through its debilitating impact on consumer confidence, that
caused the biggest reduction of consumer retail purchases in
postwar history. These are two sectors of the economy that
have been the weakest, and thus it is inflation that bears
major responsibility for the sluggishness and for rising
unemployment. To pump up the economy now would only make
those problems worse.
In short, only by concentrating our
primary attack on rising prices will we be able to wring
out inflation and restore a pattern of healthy, stable growth
to our economy.
Causes and Cures for Inflation
Let us turn then to the causes of our inflation and
what must be done to cure it. In my view, it results from
a series of misfortunes which can generally be categorized
under the titles of bad luck, bad timing, and bad policies.
Under bad luck, the two most prominent items are food
and oil. Food prices have risen enormously because of the
decrease in worldwide crop production in 1972 and because
of the triple whammy that crops have suffered this year in
the United States -- a wet spring, a dry summer and an early
frost. The story of oil prices is more familiar, and one which
I need not repeat. It should be sufficient to point out that
oil prices have quadrupled in a year and that the cost of oil
imports this year will be $16 billion higher than in 1973.
As for bad timing, it is not generally recognized that most
of the world’s industrialized nations experienced a simultaneous
boom in the early 1970s. One consequence was to put significant
pressure on prices of all internationally traded commodities,
pressure that is still rippling through the economy.

- 5 -

Finally, I have listed the category of bad policy -- bad
fiscal and monetary policy -- and because this issue is of
fundamental importance, I want to pursue it for a moment.
By almost any measure, we have experienced a monstrous
growth in spending by the Federal government. It took 185
years for this country to get the Federal budget up to the
$100 billion mark, a line we crossed in 1961. Only nine more
years were required to pass the $200 billion mark, and then
only four more years to reach the $300 billion range. The
rate of growth over the past decade has been almost twice
that of the previous decade.
This growth may not have hurt us as badly had we been
willing to pay for it, but since 1960 - - a period of 14 years
we have managed a budget surplus in only one year. When the
Federal budget runs a deficit year after year, especially
during period of high economic activity that we have enjoyed
during most of the past decade, it becomes a major source of

economic and financial instability. The huge Federal deficits
of the 1960s and 1970s have added enormously to aggregate
demand for goods and services, and have thus been directly
responsible for upward pressures on the price level. Heavy
borrowing by the Federal sector has also been an important
contributing factor to the steady rise in interest rates and
to the strains that have developed in money and capital markets.
Worse still, continuation of budget deficits has tended to erode
the confidence of the public in the capacity of our government
to deal with inflation.
Also, monetary policy must bear an equal share of
responsibility for our current inflation. Like our fiscal
policies, it has injected far more stimulation into the economy
over the past decade than was either necessary or healthy.
Between 1955 and 1965, the money supply grew at a rate of about
2-1/2 percent a year, and we enjoyed a period of reasonable
price stability. Since 1965, the annual rate of increase in
the money supply has more than doubled to 6 percent, and it is
no accident that price levels have shot upwards.
Recognizing that these are the basic causes for our
current inflation, what then is the cure?
To some extent, we are fortunate because the inflationary
causes I have associated with bad luck and bad timing are
gradually dissipating and are unlikely to occur again soon.
Food prices are still rising too rapidly, but it is highly
improbable that we will have another explosion of last year's
magnitude. We are also unlikely to have another simultaneous
boom among industrialized countries. And oil prices are no
longer rising -- in fact, by all rights they should retreat.
Because of these special factors of food and oil account
for almost half of our present inflation, we have reason to
be hopeful of a decline in the rate of inflation. But we
must not rest on hope alone. Even some decline in inflation
will leave us with a very strong underlying rate of inflation -perhaps 8 or 9 percent -- a rate of increase that is entirely
unacceptable. Thus, we must Biso take strong and effective
action.
As business leaders, the most important action you can
take is to help maintain reasonable wage and price stability
in the private sector. Until the past few months, workers showed
admirable restraint in holding down wage demands, but now there
are intense pressures to catch up. It is up to all of us -- b us in es s
labor and government -- to work cooperatively together to keep
both wages and prices at reasonable levels. As we do, we must
recognize that we face a long, tough fight. Our problems did not
develop overnight, but have been building up momentum over a
decade. In just the same way, it will take time to purge them
from our system.

Within the government, we must continue to count on
the Federal Reserve to maintain a close rein on the growth
of money and credit. The restraint practiced by the Fed
has already carried us part way to our eventual goal of
curing inflation without imposing intolerable penalties on
the economy’s growth patterns. Personally, I believe that
Arthur Burns and his colleagues deserve a great deal of credit
for the courage and wisdom they have shown.
It is within the context of what the Federal Reserve
has already accomplished that President Ford is now moving
to curb inflation. The President has proposed a 31-point
program that is much tougher than many realize and is aimed
squarely at inflation.
One of its most important components it its frontal attack
on the Federal budget. The President is asking that the Congress
enact a $300 billion ceiling on this year’s budget, and he has
promised the necessary spending cuts to bring it into line.
These cuts will reduce the Treasury’s demands on the credit
markets and permit interest rates to ease off. Thus the Federal
Reserve will no longer bear the primary burden of the anti-inflation
fight by itself. In my opinion, these budget proposals represent
a major test of our fiscal discipline, because the actions taken
now on the 1975 budget will determine.the pattern of spending
in 1976 and beyond.
A second major component of the Presidnet’s program is a
comprehensive attack on the energy problem. Over the long
term, the President is urging that we get on with Project
Independence -- with legislation to deregulate the price of
natural gas, to accelerate off shore leasing, to speed up
nuclear licensing, and the like -- so that we can become more
self-sufficient in energy. For the short term, President Ford
has set an ambitious goal of reducing oil imports by a million
barrels a day by the end of 1975. To reach that goal, he is
calling for an immediate expansion of domestic supplies and a
return to the energy saving habits of last winter.
It will
not be easy to spur voluntary action when the emergency is
not readily apparent, but through your efforts and through
the efforts of thousands who will participate in the WIN
program, we have great hopes for success.
Still a third component of the new economic package is
a broad-guaged effort to alleviate the worst effects of the
current squeeze and to pay for it through new taxes. Those
hardest hit by our economic difficulties -- individuals in
lower-income brackets -- would be helped through tax relief,
an expanded public employment program and extended jobless
benefits. The business community would be given additional
investment incentives through an increase in the investment
lax credit and a change in the Internal Revenue Code permitting
tax deductions for preferred stock dividends. The President

also asked for additional assistance for the housing industry,
and just a few days ago he was pleased to sign such a bill
into law.
These programs to cushion inflation where it strikes
with disproportionate force are important for two reasons.
First, Americans are compassionate people, always concerned
with the underdog, the unfortunate and the disadvantaged --■
and this fairmindedness should extend to those hardest hit by
our economic difficulties. Second, if we are going to lick
this inflation, it is going to be a long, hard effort, one
that will require us to take the unpleasant-tasting medicine
of fiscal and monetary restraint for some years to come. Only
if we have effective programs to share that burden equitably
will we have the necessary, broad political acceptance of those
tough policies so that they can be maintained long enough to
do the job.
But we should all recognize that each of these measures
costs money, and if we are serious about fiscal discipline, we
must raise new taxes. It's time to be honest with the American
people, to face up to the fact that if we vote for expensive
new programs, we must learn to pay for them? either in regular
taxes or in the form of the cruelest tax of all--inflation. The
President has chosen to bell the cat by calling for a 5% surtax.
Many Congressmen have already written off the surtax because
they think it is unpopular, but I submit that the surtax is a
supreme test of our will to fight inflation.
A Question of Confidence and Courage
Looking over the economic scene, it becomes clearer to
me each day that the overriding question is not whether we
know how to cure inflation -- we do -- but whether we can
summon up the confidence and the courage to get it done.
There is a certain sickness eating away at the American
spirit. As we open the paper each day, we are confronted
with the prophets of doom and gloom who tell us that our
democracy is headed for the scrap heap. Our more fashionable
opinion leaders in politics, in the press, and in other walks
of life have become too quick to expect the worst and too
impatient to work for the best.
I say to you that it is time to stop tearing down America
and start building her up again. America is still incredibly
strong, powered by the largest and most dynamic free market
place in the world. We may have great weaknesses, but we also
have great strengths. In fighting inflation, let us begin
building on those strengths once again and bring an end to
this ceaseless harping on what's wrong with America.

- 9 -

I don’t mean to imply that if we change our attitude
from pessimism to confidence, all of our problems will
vanish. Boosterism is not what I ’m talking about. What
I'm talking about is hard work and realism and determination.
Let's also face the fact that the road will not be easy.
To be blunt, we'll have to show far more guts that we have
in the past. Since the days of the Great Depression, it has
been an unstated policy in Washington that it is more important
to ward off another recession than to worry about the creeping
rise in prices. Inflation seemed like a small penalty to pay,
and indeed, over the years it became the easy way out. This
trend accelerated tremendously in the 1960s, when we set off
on the biggest spending binge this country has ever known.
Now the bills are coming due and we are asking people to
tighten their belts, to endure a few pains as we bring this
insidious disease under control.
So far, you will have noted that the Congress refused
to go along with the President in delaying a pay increase for
Federal employees. Similarly, it failed on his request to
vote a lid on spending before going home for the elections.
To me, this is a good lesson in showing just how tough the
President's program is. In fact, the President is calling
for a new kind of political courage in the United States,
and only if we get it will we have a fighting chance against
inflation.
Dr. Paul McCracken put it this way earlier this week:
"The question is not whether the President's program is
strong enough. The real danger is whether it is too strong
for the marshmallow vertebrae in the congressional backbone."
For everyone's sake, let us hope that the Congress,
the Executive, and indeed, the American people, stand up
firmly to the test in the months ahead.
Thank you.
OoO

:SF

Department of th e T R E A S U R Y
SHINGTON, D.Ç. 20220

TELEPHONE WQ4-2Q4Í

FOR RELEASE ON DELIVERY
REMARKS BY THOMAS W. WOLFE
DIRECTOR, OFFICE OF DOMESTIC GOLD AND SILVER OPERATIONS
BEFORE THE AMERICAN BANKERS ASSOCIATION'S ANNUAL CONVENTION
HONOLULU INTERNATIONAL CENTER, HONOLULU, HAWAII
MONDAY, OCTOBER 21, 1974
2:00 P. M., LOCAL TIME

On next December 31 — or earlier if the President so elects — all
statutory restrictions on the ownership of gold will end. Americans
will be free to buy, sell and hold gold just as they do other basic
commodities. There will be no residue of Government rules, regulations,
guidelines or hints beyond those that would normally .apply to business
transactions in general. In short, the United States will have a gold
market that is as free and open as in any country in the world.
A great many banks are taking a hard look at the possibility of
actively participating in the new gold market. But being more
regulation conscious than other sectors of the economy, many banks have
asked whether they will be permitted to deal in gold. This is not an
idle question. In contrast to the accepted legal status of individuals
and non-financial corporations, banking powers under the law are exclusive
and the omission of any power is an implied prohibition. However, national
banks have the authority under Section 24 of the National Bank Act to buy
and sell bullion, defined as gold and silver, subject, of course, to such
conditions as the Comptroller of the Currency may consider appropriate.
State chartered banks have comparable authority to deal in bullion under
state banking laws. So, not later than next January 1 those banks that
so elect may once again include gold in the range of services available
to their customers.
The right to deal in gold by banks for their own or customer accounts
does not, of course mean that all banks have an obligation to take on
this function. Whether and in what way a bank may participate in the new
gold market is a matter for management decision based essentially on the
time honored profit motive. In making this decision any potential gold
dealer should, of course, have some awareness of the present scope of the
gold market — who buys gold, how much, where it comes from — and what
new developments lie ahead. In this context let me briefly outline the
supply—demand situation for gold in this country as it is now, set forth
a few of the factors that are likely to effect changes following an end to
gold controls, and offer a few thoughts on the potential role of the banks
in the new environment.

The production of gold on a large scale is a relatively recent
historical development. Since King Solomon’s time the total production
of gold throughout the world is estimated to be about 2-1/2 billion ounces.
Nearly 80 percent of this amount has been mined since 1900 and about half
of it in the past 25 years. Annual world gold output reached its peak
in 1970 at about 48 million ounces. Of this total South Africa produced
about 30 million ounces, the Soviet Union perhaps 7 or 8 million ounces,
and the United States about lrl/2 million ounces. Since 1970 world gold
production has shown a substantial decline. In 1974 the production of gold
outside the Soviet Union is estimated to be only about 30 million ounces.
This year United States gold output will be not much over 1 million ounces.
On the demand side the industrial and commercial use of gold rose
rapidly after World War II and by 1972 probably at least equaled world
gold production. However, over the past couple of years commercial gold
buying has dropped sharply — largely in response to higher prices — ^and
is now substantially short of world gold production. In 1973 and again
this year the market demand for gold has been largely sustained by heavy
purchases for speculation and investment.
For many years American industry has been the largest constant buyer
of gold in the world market. In the peak demand year of 1972, American
industrial gold consumption totaled over 7 million ounces — about 15
percent of the world supply. Since our mining production was less than
1-1/2 million ounces, United States gold imports in that year totaled
nearly 6 million ounces. Over the past year or so industrial gold
consumption in the United States has sharply declined, and gold bullion
imports this year will probably be well under 2 million ounces.
But while industrial gold buying has been on a sharp downtrend, a
new demand factor has developed in the American market in the past year or
so. In December of 1973 the gold regulations were interpreted to permit
the purchase of any gold coin originally minted prior tot1960, including
restrikes of these coins in subsequent years. The practical effect of^ ^
this interpretation was to open the American market to so-called ’’bullion
coins, mainly of Mexican and Austrian origin. As a result, in the first
8 months of this year Americans purchased nearly 2 million ounces of gold
in coins valued at about $340 million. For the year as a whole, United
States imports of gold will be between 8 and 9 million ounces — perhaps
5 million ounces for industrial use and between 3-1/2 and 4 million ounces
in bullion coins bought by individuals.
But what about the future? What will happen when gold controls ^end?
At present we can’t be certain how strong American demand for gold^will be,
but we do know that all of it will be reflected in higher imports in the
absence of Government sales. If there are increased^imports they will
come from the only available sources of new supply, i.e., South Africa an
the Soviet Union. A combination of strong demand for gold and higher
prices could have a very substantial and adverse impact on the balance o
payments for 1975. In this situation it seems prudent to be prepared to
make gold sales from the Government stock if the need becomes clear. This
would not involve more than a small percentage of our total holdings. | n J
addition to reducing the balance of payments deficit such sales would me

federal receipts and effect a modest contribution toward a balance in tl
Federal budget.
In this new situation banks are considering various ways in which
they might participate in the gold market. Options being considered cover
a broad range from the simple direct sale of gold to investors all the
way to fairly exotic instruments such as gold convertible CD’s.
My colleagues on the panel will be enlightening you on the technical
details of possible gold market dealing from a banker's standpoint. For
my part I think it may be useful to offer a few cautionary thoughts on the
possible scope of the new market.
The forecasts of demand in the coming year have ranged from a
substantial surge in public buying and much higher gold prices to a minor
ripple of demand that might generate a sell-off by disappointed speculators
and an actual drop in the gold price. Let me present a few reasons that
seem mildly persuasive to me why an extraordinary surge in gold demand may
not occur.
(1) There is nothing in the .American historical past to indicate
any great public interest in holding gold. Gold was not widely held as a
store of wealth here when it was freely available prior to 1933. It is
worth noting that the Canadians have not been heavy gold buyers and the
lifting of ownership restraints for the Japanese last year created only a
short-run spurt in public buying which quickly faded.
(2) Since December 1971 the so-called "bullion" gold coins have been
available for purchase by .Americans in virtually unlimited quantities. But
as I noted earlier, the demand for these coins has not been unduly heavy
despite active promotion in the market.
(3) Holders of gold bullion, particularly in small amounts do not,
in any practical sense, have a liquid investment. As a freely traded
commodity there is always the risk of a substantial swing in the price.
Over the past year the price of gold has made several short-run movements —
down as well as up — of 15 percent or more. But even apart from the
commodity price risk, there is a substantial gap between the buy-sell
price necessarily quoted by dealers of gold in small quantities.
(4) Gold is an investment which gives no current return to the holder.
At the present high level of interest rates this sacrifice is a considerable
cost factor, particularly over an extended period of time.
(5) Investors in gold must take account of the veiy large stock of
gold held in official reserves throughout the world. The United States
alone holds about 276 million ounces, an amount several times larger than
present annual world gold production. The possibility of using a portion
of this reserve to satisfy new public demand is a factor that must be taken
into account by any prudent investor.

(6)
And finally, any banker contemplating gold dealing must recognize
that he will face formidable competition from other sectors of the market,
not to mention his fellow bankers. As a free commodity, gold in the coming
year can be bought- and sold by anyone. Whatever the extent of market
demand the gold business is certain to be among the most highly competitive
in the American economy. In this situation the profits to the average
bank in gold sales are likely to be at best minor, even including a modest
boost to the safe deposit rental business.
But even if the direct sale of gold turns out to be more of a cost
burden rather than a source of revenue to banks, I doubt that our
enterprising and innovative bankers will give up the game easily. For
modem bankers the return of gold to commodity status in a sense turns the
clock back to the 17th century when the goldsmiths of Lombard Street
conceived the idea of issuing more and more paper receipts against less
and less gold deposits and thereby established the basic principle of the
modem banking system. But for American bankers of today there is a
difference that should not be overlooked. Unlike the ancient Lombards,
American bankers operate in an environment of long established and, on
the whole, attentive federal and state regulatory authorities.
In assessing the gold market from a banker's viewpoint, the key point
is that a free gold commodity market — with fluctuating prices determined
by essentially unpredictable supply and demand — is a very recent
historical phenomenon. As a practical matter the free gold market dates
only from March 17, 1968 when the two-tier gold price came into being.
For centuries prior to that date — the price of gold for anyone was rigidly
fixed by political authorities based essentially on its monetary status.
However, the one factor that has in the past distinguished gold from other
commodities — a fixed trading price — has now gone by the board. The
significance of this change, particularly for bankers, is profound. All^
of the banking traditions, institutional practices, regulations, and habits
of thought pertaining to bank gold dealing, which have their roots in the
long historical period prior to 1968, are largely irrelevant in the^new
environment. Gold is now a commodity priced in a free market and with a
highly volatile recent price record. For banks, gold dealing under these
conditions will be a wholly new activity for which the historical past
offers no reliable guide — either for the bankers or the bank regulators.
In this context we can assume that the banking authorities will be keeping
a close watch on developments, and it would be reasonable to expect
appropriate guidance will be forthcoming if the situation so warrants.

CHAIR: llovt It's my pleasure to introduce to you our speaker,
taps never in the history of our country and the world has the position
Secretary of the United States treasury been snore Important. Our nation
E: this time Is fortunate to have a man with a proven successful record
Ith in industry and government to head this Important cabinet position.
■th an extensive and successful financial background, Mr. Simon first joined
L government In December of 1972 as Deputy Secretary of the Treasury.

■ike that time he has teen responsible for heading up the President's Federal
Bjgfqy Office# was Chairman of t!is Oil Policy Committee# and# In 1974# was
K m in as the sixty-third Secretary of the Treasury. As Secretary end
fisf financial officer of our country# Mr. Simon advises President Ford >jg]i economics fiscal and financial policies for this nation. In additions
»also plays a major role in formulating# recommsmdlrsg and coordinating
stenmtional monetary end trade policy. And President’Fercl has just appointed
Is Chairman of the new Economic Policy Board.
He heads a department of over one hundred thousand people who
5]]set the nation8s tar.es» pay the nation's bills# keep track^of ^tha government*
(counts# print Its money# issue its coins and manage the public debt.
Simon also has major law effforcemsnt rasponsfbi.11 ties as supervisor
the U. S. Secret Service and tM 0. $. Customs. In addition, he serves
I chairman and the United States' governor m many national.and International
luncils and economic committees.
A nativa of Paterson# flew Jersey, father of. savori €lr?ldran5 ^
b has. just returned fresa an important and successful trip to Russia.
;
Ison speaks to its tonight ©toot ©yr nation's current economic ano interna.'ciccai
financial problems. It's with a great deal of pleasvre^ that I Introduce
lr speaker to you for this evening# tifi Secretary of the United States
ifeasury» the Honorable itili1am E. Simon*
[Applause.]
SECRETARY OF THE TREASURY MILL!AM E. SIMON: Thznk ym very
|sh9 Hr. Presidents, distinguished guests. And fra r^y spare time t pKay
P'V and tennis and svjini. And I look forward to.the year 2024 when I can
pa back'and he311 in v ite me and talk with you about the than current problems
fet wa have in our country# the environment and ths economy and big government
N the housing problems 6a the moon# and other things that feaily I cannot
Iresee at this time.
But at present# and tonight# I*d sort of like to just focus
p soma of the smaller problems# perhaps# that we have today# without daring,
p look Into the future. And I want to say at the outset that It's a privilege
Ff ma to be here with you and celebrate this momentous occasion with you ,
u! tonight. And I bring you the warm greetings and warm wishes from the
Resident of the United States.

[Applause.]
Your presence here marks not only five decades of achievement
Is an Industry, but a ionq history of contributions to our nation’s welfare*
ilong with millions of other Americans, I take great pleasure in saluting
lou tonight* I know that your celebration is not entirely carefree, for
•of you are worried about the present state of our economy*^ Oust last
U i returned from a trip to Moscow where an American delegation conferred
[tfj the Soviets on ways of expanding trade between our two countries.
eral distinguished representatives of the electronics industry took part
|n these conferences;, and in our talks over a four day period I can assure
they made ms acutely aware of your concerns as leaders of the business
m ity .

Tonight I’d like to address soma of these concerns directly,
perspectives on our economy are shaped in large measure by my own experiences
|n the government, iihen I first cams to tns !ressury two years ago , I v,fas
amed that I would have to worry far more about^the prophets of gloom than
prophets ©f prosperity. Believe me, l have learned my lesson wail.
My first experience came in the fall of 1973 when the Arab, nations
■©nosed the oil embargo, end than the oil crisis exploded. _ Almost
there ware dire predictions that the Western world was headset towara economic
iragulation. More than one congressman foresaw cola hennas ana closes

were ur.just 1f 1-2d
i the facts, and .they totally ignoreet 'the;f 1exlbillty. M \Jiii £¿COPiOmic system
m\m. Uq vjsnt to
H8 thought wss far
i 'cr«ni'3i'¡ckm dec?res
?pl ej arill sac r if Ice a
ons to our sconcmy.
peus to Watergal

join shilrted thei F
in there
idsAcy.
the sinrs i n, the
iDCrciCy was headed

the scrap heap. Experience once again showed that it was unwise to
il our American*system short* The Congress proved it could act responsibly,
is work of government went relentlessly forward, and our people discovered
tt our political institutions ware, stronger and more resident than anyone

ftieved*
Looking back, there’s a certain familiar syndrome to soma of
.« difficulties w e ’vs faced in recent -years* Too often9 whether the cnalleng?
been in the urban canters or the rice paddies of Vietnam, whether^ it
been the c?as we corsums or the air that ws breathe, w e ‘vs found that
p* difficulties ere blown far out of proportion. Suddenly the problems
pcoaa crises* Hands are wrung; alarms cleng on the nightly news; and cur
spirits are shaken,..understandably« i*m afraid It’s bacoma more fashionable

3jto tear America down than to build her up.
Our opinion leaders in polities* in the press and in other walks
life are too quick to expect the worst and too impatient to work for
Be bast. One critic has recently asserted that our establishment*1s now
[fflieisd with a massive failure and guilt complex. He may be wiser than
ny of us admit* 1 must add that the government is not without blame in
|his process* As soon as the rocks start flying, its spokesmen are immediately
the defensive and begin churning out so much fluffy-headed optimism that
lock has rightfully asked whether the government owns a good news machine,
false headcounts in Vietnam — that's an example. The promises of the
It Society is another. When the government oversells or overpromises,
t5s almost certain to confuse the public and eventually to destroy its
cre-d tryst.

Fortunately* there's always been a middle ground where constructive
[ctioa can go forward. While soma people panicle and others purr out the
4 news* our more responsible leaders roll up their sleeves* the American
fie pull together» and, eventually* we find a series of solutions* The
pbiens may not be totally solved« but at least the crises go cut of fashion*
There are lessons here for us all. Those in government have
responsibility to taka off the rose colored glasses and tell it precisely
they see it. Those oytside the government* whether in the private sector
ip the pol iticai opposition* also have a duty to remain calm* stay fivsoy
irresponsible tall: and avoid being stampeded Into half-baked solutions*
1 say all of this because l fear that the cloomsayers ara at.
rk again* this tinisen our economy. Vm not hare to dispel all the gloom,
do have genuine and serious problems on our hands. But m mil only
ike thm worse if vie become captives of the extrema rhetoric that wa tear
oflan today.
One of my predecesso s* Ssorge Humphreys* used to say that we
* never spend ourselves rich, That's certainly true. But it may be possibleft wa can talk ourselves poor, And ons of tbs gantlcsnen who csss up tonight
say hall© while I m s s ittin g bars at the table said,' ®ften ate we going
step talking ourselves down? Vty business is fine, and ail my friends
and, sura* we'vs always rad problems,
p fine. Sure* we5vat got probl
why don't we stop this by sinisss? Ms can talk oursslvas Into trouble.*
[ind this is the massage* This 1$ the massage that I find when I visit Middle
unfortunately* because that's whore
f-ica* which isn't all too' oft
And I wish soma of that could indeed
P rsal heartbeat is in America
Pve to Washington and the media
Vr-ti ¿«J» ^

[Applause.]
They askad m if I was going to fsd hoc" tonight* and I wasn't

-4 La to. But that was part of it. And Î hope the media will Indeed pick
iat'up and play that back in New York City and Washington.
[Applause.]
Because I* frankly, am getting a little bit fed up with all
firresponsible conversation, because I think by now with the exposure
U pve had you people know that I like to tell it like it is. And If
•s bad news, that*s’all right. Sooner of later you're going to find it
[tm way, and I'll tell it to you just like I ses it, because you 11
fidsrstand — [applause] -- and you'll respond like American people always
|ve responded, tte'rs tough people. And wa work together to solve problems,
1st like we *re going to work together to solve this one.
The solutions to our problems — and 1 think there are solutions
lort of the apocalypse that some predict — lie in the direction of into Hi gem
Istraint, reasonable sacrifice and soma shifting of priorities. Let ms
blew four of the more popular doomsday predictions that’are now current
but our economy and just give you some perspective on tnsnu
First, it*s said that the oil cartel has our economy in a perilous,
febreakahie hammerlock. I3d he the first to agree that the oil problem
Js of the first magnitude, especially for cur European and Japanese friends,
Is wail as for all of the developing nations, The OrEC nations race'sved
fifteen billion from oil trade lb *72; twenty-five billion in *73; and now,
Hth the quadrupling of prices, they'll receive a hunored^ billion, jspproxinrtrcary,
k 1974. Thair surplus for this year is going to be in the area of sixty
lllljon dollars. And if present trends,continues their total accuaiusated^
fcrplus could exceed five« six hundred billion dollars. ^Imbalances o f tvps
isgnityde cannot continue. They are net, neither economically nor politically,
pisrable. Thera are sound reasons to believe? however, that the present
rends are not going to continue indefinitely. The Arabs themselves now
lealiza that their policies era exerting enormous pressures -on consunisr
letions to become self-suff1cient* Sines 1972, significant discoveries
pf oil have been found In twenty-six areas of the v;o?id outside of tha_ OvbC
jloc, and .countries such as firsat Britain ara row working to convert these
Pposifs Into major export -trade sources.

I
Bare ip the tl. S. we have vast quantities of natural ‘
resources.
■ we harness'enough capital to our developing technologies, wa cars increase
P-srica's energy production far beyond what seemed Hkaiy prior to vna embargo.
m Q Project Independence holds out our best hope for t-ns tuiiure, we rea fixe
Pat It's long-range in nature and that vie have to take other steps in the

fcantima.
As you know, the President has set a goal of reducing our currant
levals of oil by one million barrels a day by the
of 1975. Soma
lavs suggested that we follow the French example of placing a mandatory

s\
5
ItHction on the quantity of oil that we will Import. But we prefer to
how a different course. First of all» v/a*ra seeking to make greater
iof our om domestic resources, especially coal and oil. With appropriate
¡islatlon, for instance, m can draw upon the oil deposits of Naval Petroleum
km #1* Via can require electric utilities to convert, where 1t*s environmentally
y 9 from oil to coal.
Second, we can achieve significant savings by cutting back on
te and unnecessary uses of energy. As we learned last year, voluntary
kervatlon can and must be a vital part of the our energy effort. Our
p-of reducing>Imports may ba tough, but it's not unrealistic, and we
Ifully capable of achieving It.

In my meetings with the Arab leaders, I have tried to impress
m them that their oil policies are not only bad polities, but bad economics,
day they may find their oil market trending sharply downward, and once
Is gone even lower prices Isn't go'big to bring It back. That argument
k not yet persuaded th m , but there are soma recent indications that they*re
ping a better understanding about If. In the Interim, it*s up to us
■practice vigorous conservation here at home, to pass the legislation
It will expand oyr supplies and to work mor-a closely with all consuming
lions, rich and poor. l*m certain we can do each of these things. And
§?s do, we car* overcome a major portion of the energy challenge.
A second and related concern of the modern dociBsayers is tha
#tb of our financial system. They fear that the world will be unable
pope with the financing rrasds arising from high costs of oil and that
ns» unpredictable flows o f oil money m l 1 lead to collapse of the International
ping system* The fact is that our present complex of financial arrangements
Is already proved that it can recycle large volumes of oil money.
At first,
private financial markets played tim major role, and thay played it
istructivaly and Imaginatively. The banks were faced with offers o f far
rp short-teeai deposits than they could reasonably handle, and they began
luting upon longer maturities and lower rates of Interest. The lenders
P sdaptccl by looking fo r alternate places to -invest, including government
ferities, credits to Industries and corporations, as wall as e q u itie s.
ps shifts into non-banking channels have feesn easing the pressures on
| Asking systems, and, u ltim a te ly* they should reduce the possibility
peelpitots flows of money.

In more resent months, other channel5 'have also h$m opened
1» order'to assist in the recycling. Oil exporting countries have begun
-engage in direct loans, {tover*$@nts have begun lending to other governments
I tee IMF oil facility. Some, o f course3 &m nm pressing for the establishment
PSi!i m re recycling facilities. Certainly If a clear need fo r additional
Pmatiohal lending mechanisms should develop, we m a id support Its establishment.
h
of this moment, m- believe that additional study should immediately

-6e undertaken before nev# facilities are established.
Let me also add that in my personal experience* I have found
t of the financial authorities of the Arab nations to be highly responsible
conservative Investment managers. I have every reason to believe that
ir future investments will be influenced by financial considerations
t m have traditionally associated with Western style capitalism.
Another factor contributing to the concern about the international
png system has boon the highly publicized difficulties of several European
cs and.the failure of cur Franklin National Bank, one of our largest,
these problems were not associated with disruptive investment shifts
OPEC moneys or with any. failure of recycling mechanisms* Bather, they
d from'management defects* which became evident in a climate of rapid
Inflation and rising Interest rates. They are hot an Indictment of the
liking system. It is healthy.
In this regard9 I have to -emphasize that the government is not
rajared to ball out the stockholders and creditors of dc^isrcial banks
it fail because of bad management. As the Hall Street Journal recently
ted, there should be no safety net for bunglers.
A third notion that we hear from the doomsaysrs is thatfear
ft vis8ra heading pell-mell toHard another Groat Depression. Let’s look
It the facts. First, |#r economy today has massive strengths. Plant and
fcyipmsnt spending is mp twelve percent this $rear* and the record levels
J? unfilled orders are convincing evidence that this strong trend is continuing
Iota! employment hit another al'i-tisue high in September* and* despite all
talk of*a worldwide economic collapse* American exports continue to

Second* ths dimensions cf the present slowdown simply don't
In the 1330s* unemployment soared to twsnty‘ve percent. Today it 1s under six percent.
poach the Oppression: years.

Third* the economic and financial structure is far different

Sy»

In the 1930s* we allowed the .economy to suffer a massive m m t a r y

hydration* so that by 1S33 the money supply had fallen, by thirty-»three
Isrcsnt. The gomrment was unwilling and unable to caps with bank failures
pd other difficulties. Today the Federal Reserve System has become a lender
last resort, and the FDIC mid its sister agendas stand solidly behind
pr financial institutions* giving depositors the confidence that they require.
Finally* ifc© structure of our economy has changed so that men
W isojasB who hold" jobs that are vulnerable to the cyclical changes sake
■P a much smaller part of our labor force than they did forty years ago «
|n ;ny opinion* the facts make I t clear that m should have no fear.of plunging
Rer the precipice, Soma of you m y respond that i f m are at the brink

|T Qdepressions we*re» by some definitions 1b the sridsts of a recession.

-7 ~

(don't want to quarrel with you on this Issue, and I would certainly agree
list there's considerable slack in the economy. The President also recognises
his feet and» through his proposals for expanded public employment? increased
[gBpIsynieni benefits and assistance to the housing industry» ha's seeking
o cushion the effects for those who have been hardest hit.
'Granted that the eeensiqy has its weak spots? let ms re~smphasize,
paver? that wa-’re not headed for a depression. This point is extremely
[pertaht not simply to allay tha fears9 but to steer us away from the dangerous
pinion that our first job is to stimulate the economy. Nothing could be
[re destructive? for a major campaign against an Imaginary depression would
live prices through the roof add make the eventual cure to inflation mush?
[eh ¡nora painful.
I cone then to m r fourth and filial fear about the economy*
fear of a devastating period of Inflation, It. is on this mié front
11 Vm often tempted to join my colleagues in conjuring, up visions of
UrsBgeddon. We're now in the grips of the worst peacetime Inflation that
have ever kmmi* As a society, we're m t equipped to mal with It indefinitely
Ip economy? especially our financial system? Is structured in a way that
p.tarns istent with prolongad double-digit inflation* If allomé to coniliter©
packed? Inflation mulé eventually set group against group and undermine
w úmmr&tíc 1asfcite¿1 o n s *
As inflation has mounted In raeant months» Americans have already
[id a very heavy to! 1 * The average worker has suffered a four percent
pine in his real spendable earnings over the past year. Corporate profits
re also being chawed up? despite what jgai rücll After adjustment for tha
|f@sts of inflation on Inventory values and capital consumption allowances?
m retained earnings of ££m-fir&;i£ial corporations in 1973 were less than
IHrifth of what they were in 1965. Similarly? tilers has bean a declina
6» aliost five hundred billion dollars In equity values for thirty million
pkholders since early *73» 1of1 feting heavy potential losses mi individual
pillos? pension funds and a wide range of financias Institutions.
The list could go on and on? but? osé» again? 1 5cl urge that
l*s;ls no time to liij black crape all i#ér the aeosomy. fhfc'áé who suggest?
lHnstanc$3 that wa'ra heading for tha nmaway inflation tilt Germany
■t’% e d during the early 1920s "are minifying ¿ur problems far beyond thsir
■ssoáiab!q bounds.
To look on tile brighter side, lot's keep fa mind that about

m of our recent inflation can fee attributed to special factors that imre
P^tHctefele and uncontrollable and? more important* are most unlikely
(occur.agalli. It's extremely improbable % m t oil prices vriii quadruple
i5^» and* by all rights* they should retreat. Agricuiturai crops ara

-8-

H unpredictable, but# despite some recent deterioration, we're unlikely
co have another price explosion of the 1873 scale. There should also be
fear of another devaluation of the dollar. As you know, we've had two
valuations, which achieved their main goal of making our exports more
titivs. But, as expected. It also contributed temporarily to our inflation
n m at home.
In short, the influence of special factors in driving up the
cs level should be steadily weakenings and this factor is good news for
What concerns ma today Is not the one-shot nature of these special
•ctors, but whether wa have the will and the wisdom to cope with the other
in our economy that bear equal responsibility for today's inflation
have been building up steam for so many years that they have a momentum
ill of their ^os% One of these is the federal budget. It took a hundred
etghty-ffye years for our federal budget to reach ore hundred billion
liars, 1961* It took us nine years to get to two hundred bit 11on dollars,
four years to get to three hundred billion dollars. .The rats of growth
m the past decade has been almost twice that of the previous decade*
there lias been only one budget surplus since 1956* ifhat a horrid record!
[Applause.]
lihsn the federal budget r u m a deficit year after year, especially
ng periods of high economic activity» which we have enjoyed ocsr the
t decade, it becomes a major source of economic and financial Instability,
hugs federal deficits of the sixties end the seventies have added enormously

..... P
___1 .... important P ........_______ H I H
psistent rise in interest rates and the strains that have developed In
N y and capital markets. Horse still| continuation of budget deficits
s tended to undermine the confidence of the public in the capacity of
i government to deal with inflation.
If the present inflationary problem's going to bo solved and
Purest rates brought down to reasonable 1ovals, the federal budget must
f fought Into balance. This 1s the most important single step that could
F taken to restore the confidence of the people — [applause] **« In tbs if
rp
Qur ration’s economic future. In my own view, monetary policy has.
|*so boon overly stimulative arid lias' to be regarded as another culprit in
► current problems. Between 1955 and 1965» tha mney supply grew at a
iscs^rr two and a half percent. For the past decade. It’s grown at s rate
I* six percent, and it’s no accident that price levels leva skyrocketed.
.
Mhat then is to be done? First, we must sharply rain fn federal
■tending, President Ford asked the Congress to set a three hundred billion
P u a r spending limit on the 375 budget before it went home for the elections
I ® sad to observe that the Congress has not compiled. The three hundred

-9lion dollar limit, in ny view, is well within reason. That’s what I
written on this page. It's modest by any comparison, in my judgment,
fact, I would prefer to work as rapidly as possible toward regular budgeting
lyses so that we could free up more funds for capital investment.

If I can digress for a moment here, I was looking out the airplane
this afternoon after having read the Congressional Quarterly predicting
it’s going to happen in the congressional races. And I ’m not a politician.
Ion*i~understand about these things. And 1*11 go back home and be sitting
in this audience la another year or two front nm* where I was two years
, And I testify a good deal in Congress. I had reason to research this
»nfcly* and I have made in the two years l 1ve been there tv,?o hundred and
Iteen or sixteen appearances in Congress — In two years -- which seems
'sot sorna sort of a record. And I thought of the testimonies. If all
[se fellows are elected next year that the Congressional Quarterly told
are going to get sleeted, all these liberals in conservatives* clothing
what they*re saying and from what I read in thè newspaper* and I just
liter at th* thought,
Isni sure I won’t live through' that experience
testifying before these big spenders when they arrivo injfesfiington and
i they*-?! do to all of you. So I caution all of you
[applause] —
[don61 cars* I’m not a partisan fallow, cr.d I don't cara whether you go
and vote for the Republcans or Democrats9 but make sure that the fellows
Jt p — that come down to Washington and legislate and run our country
m mean what they say and they’re not back up here talking about cutting
ping and 1t*s all lip service.
[Applause.]
That reminds ms of one of my testimonies recently where one
the'senators said to me — ftfi said, "You know, aren’t you happy. Hr.
tary? Me sent you down a letter to the President yesterday with fifty( up signatures demanding that the budget be balanced next year .*■ And I
pd "That's just nifty, senator. And you know what you did? You made
ft' clay very happy. And the next day you passed two billion dollar relief
p* the beef Industry.ts Eighty-seven votes passed that one. I*m not saying
it -the beef industry doesn't need it, hut probably -Hal 1 Street does a
Itti a bit, and twenty-seven other Industries at thè same time. And if
P don’t £t the sarta time find out where we're going to raise the money
|° Py for all this rail of wo* re giving to everybody, than Goti tie!p us a
few-years- from row* And that’s your responsibility right put there.
[Applause.]

_
But I'm getting off the track, and A? and UP and all the rest
I tha$ will be vary angry with ma» not to mention all my friends In the
paia and Congress, if it does get on the air.
I
Second, wa mast enact new spending programs only if we're willing
[o pay fov* them. It seems I just finished saying that. Ma5ve all heard

10 -

|chsers for tha President's proposals to liberalize the Inv&stmant fax
iit9 to help the unemployed, to prop up tha housing industry. But what
to make of the jeering about the five percent surtax? It's tima
ise honest with the American people, to faca up to the fact that if we
for expansiva or special new programs, we have to pay for them. We
pay for them in regular taxes, or we pay for them with the cruelest
of all -- Inflation.
[Applause.]
Thirds the Federal Reserve must complement this fiscal discipline
|leaping a reasonably close rein on the growth of money and credit.
Fourths we must begin shifting far more of our resources into .
fcital investments. It is startling to realize that between 1950 and 1973,
H growth in productivity for the .average American was the lowest for any
jar industrialized nation in the Western world* Our annual growth rate
productivity was only three percent compared to six percent for the French
G-mans, mors than ten percent for the Japanese. And the reason's very
iar. During these same years tha United States was devoting less than
1-fifth of its total output to capital Investment, the smallest percentage **
'any nation in the Hastens world* Productivity is tha key to expanding
industrial basa, m á unless mb re-aviaken to that fact, we're 1n for
' trouble*
Finally, I want to call for your support for President Ford5s
ilii program. Tha skeptics are wincing at the old-fashioned patriotism of
la ¡fifi program. But l would suggest to you that these are the same skeptics
lie believed that Americans would never cooperate with a voluntary energy
pssage last year*

[Applause«]
They were wrozig then* and they're wrong now.
ladles and gentseme», if* speaking to you tonight, I don't mean
v underestimate our problems or to deny that there Is going to be rough
psthar ¿head* If we leave our problems untended, a storm is going to break
jpoyor our heads. But I would urge upon you this single thought: America
still incredibly strong, powered by the largest and most dynamic marketplace
Jr/';- world. Our President has proposed a program that's complex arid multidimensional
8^; laugher than many people realize. We have the resources and we know
■¡¡to succeed. With firmness arid patience and, most importantly of all»
Jto faith in ourselves, we will succeed.

I,
s ^If history teaches us anything» President Eisenhower once observed,
Eq k
lessor. So far as the economic potential of our nation Is concerned,
P 2 believers 1« tha future of America have always been tha realists. And j
■count ^ysalf as one of his company. And let's hops tonight that more
P e c a n s will join that company in the days ahead.

~n~
Thank you.
[Applause.]
CHAIR: Thank yous Hr* Secretary Simon for a vary serious and
nfcivg talk toc I think5 a very serious and attentive audience. I think
¡might express the feelings of most of you when I say that your remarks
k really encouraging.
Ladies and gentlemen3 again as m continue cur celebration this
ping* ! certainly want to thank Hr. Simon m u Mrs. Simon for joining
helping celebrate our fiftieth Golden Anniversary Celebration*

D epartm entoftheTREASURY
SHINGTON. D C. 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

October 25, 1974

TAPERED ROLLER BEARINGS
TREASURY ANNOUNCES CLARIFICATION OF DETERMINATION
OF SALES AT LESS THAN FAIR VALUE
The Treasury Department issued today a clarification
of its less than fair value determination in the anti
dumping investigation of tapered roller bearings from
Japan. The Treasury notice states that the
"determination was the result of
price comparisons based upon veri
fied information and data submitted
throughout the period of investi
gation with regard to tapered
roller bearings, including inner
race or cone assemblies and outer
races or cups, exported to and
sold in the United States, either
as a unit or separately, with
identical merchandise sold in
Japan."
Notice of the clarification will be published in the
Federal Register of October 29, 1974.
Due to some confusion as to the definition of the
term "tapered roller bearings" in the sales at less
than fair value determination, the purpose of this
notice is to clarify that term to indicate that the
cone assemblies and cups, as defined above, were
included and continue to be included in the sales
at less than fair value determination.
#

D epartm entoftheTR EASU RY
SHINGTON, D.C. 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

October 25, 1974

ANTIDUMPING INVESTIGATION INITIATED ON
VINYL CLAD FENCE FABRIC FROM CANADA
Assistant Secretary of the Treasury, David R.
Macdonald, announced today the initiation of an anti
dumping investigation on vinyl clad fence fabric from
Canada.
Vinyl clad fence fabric consists of galvanized
steel wire coated with plasticized vinyl chloride
which is woven to form the mesh used as the body of
chain link fences.
The announcement followed a summary investigation
conducted by the U.S. Customs Service. Information
received tends to indicate that the prices of the
merchandise sold for exportation to the United States
are less than the prices of such or similar merchan
dise sold in the home market.
Notice of this action will be published in the
Federal Register of October 29, 1974.
During the period of July 1973 through June
1974, imports of vinyl clad fence fabric from Canada
were valued at roughly $6 million.
#

department of t h e f R E A S U R Y
SHINGTON.

D.C. 20220

TELEPHONE W04-2041

ctober 25, 1974

FOR IMMEDIATE RELEASE
EXPORT CREDIT AGREEMENT

At the annual meeting of the International Monetary
Fund and the World Bank earlier this month, representatives
of France, Germany, Japan, Italy, U.K. and the U.S. held
discussions which have led to the signing of an agreement
on export credits. The countries have agreed that, as a
general principle from now, public support for interest
rates of each commercial export credit of a length longer
than five years would be devised so that a rate at least
equal to 7.5 percent should prevail.
In addition, the countries represented committed them
selves as a general rule not to provide official support for
export credits of three years or more for export transactions
among themselves and with other wealthy countries.
This agreement to coordinate interest rates is related
to, but distinct from, the negotiations on a gentlemen's
agreement on export credits, on interest rates and other
export credit conditions. Negotiations on that gentlemen's
agreement will continue with the above and several other
major countries.

oOo

WS-139

DepartmentofthejjfEASURY
WASHINGTON. D.C. 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

October 25, 197A
TREASURY’S WEEKLY BILL OFFERING

The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $4,800,000,000 , or
thereabouts, to be issued November 7, 1974,

as follows:

91-day bills (to maturity date) in the amount of $2,700,000,000, or
thereabouts, representing an additional amount of bills dated August 8, 1974,
and to mature February 6, 1975

(CUSIP No. 912793 VU7), originally issued in

the amount of $2,006,960,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $2,100,000,000, or thereabouts, to be dated November 7, 1974,
and to mature May 8, 1975

(CUSIP No. 912793 WH5).

The bills will be issued for cash and in exchange for Treasury bills maturing
November 7, 1974,

outstanding in the amount of $4,556,850,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,620,690,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and non
competitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

Standard time, Friday, November 1, 1974.

Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
multiples of $5,000.

Tenders over $10,000 must be in

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.
Banking institutions and dealers who make primary markets in Government

(OVER)

securities and report daily to the Federal Reserve Bank of New York their

position^

with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.
own account.

Others will not be permitted to submit tenders except for their
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

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 reject any or all tenders,
in whole or in part, and his action in any such respect shall be final.

Subject

in cash or

other immediately available funds or in a like face amount of Treasury bills
maturing November 7, 1974.
ment.

Cash and exchange tenders will receive equal treat

Cash adjustments will be made for differences between the par value of

Accordingly, the owner of

bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

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

Department o f t h e T R E A S U R Y
SHINGTON, D.C, 20220

TltEP H O N E W04-2041

FOR IMMEDIATE RELEASE

October 25, 1974

DR. SIDNEY L. JONES
NAMED AIDE TO TREASURY SECRETARY
Secretary of the Treasury William E. Simon today
announced the appointment of Dr. Sidney L. Jones as
Counsellor to the Secretary of the Treasury. Dr. Jones'
office will be at the Treasury but his primary responsi
bility will be assisting the Secretary in his role as
Chairman of the new Economic Policy Board. Dr. Jones
has been serving as Deputy Assistant to the President
and Deputy to the Counsellor to the President for
Economic Policy.
The appointment is effective immediately.
Dr. Jones has been serving on the White House staff
since July of this year. Previously, from July 9, 1973
to July 9, 1974 he was Assistant Secretary of Commerce
for Economic Affairs. Prior to that he was Minister
Counsellor for Economic Affairs in the U.S. Mission to
the North Atlantic Treaty Organization at Brussels.
From August 1969 to August 1971, Dr. Jones served
with the Council of Economic Advisers, serving first
as a senior staff economist and then as Special
Assistant to the Chairman. From 1965 to 1969 and
during 1971-72, he was Professor of Finance in the
University of Michigan's Graduate School of Business
Administration. From 1960 to 1965, he was Assistant
Professor and then Associate Professor of Finance at
Northwestern University.
He has also been a director of Bradley Woods
and Company, an investment advisory firm in New York
City and Washington, D.C.
Dr. Jones was born September 23, 1933. He was
valedictorian of the 1954 graduating class at Utah
State University and then served as an officer in the
U.S. Army until 1956. He received his M.B.A. (1958)
and Ph.D. (1960) degrees from Stanford University.
He is married to the former Marlene Stewart.
They have five children and live in Potomac, Maryland.

REMARKS OF WILLLAIi .
AT THE SECOND JOINT
U.S.S.R. TRADE
MOSCOW,

olMON, SECRETARY OF THE TREASURY
BOARD MEETING OF THE U.S.AND ECONOMIC COUNCIL
OCT. 15, 1974

Much has happened since the first meeting of the Joint
Board last February In Washington.

There have been unprecedented

events in the political life of my country.
Many things have not changed. However, high among these is
the desire of the United States to further' the development of
peaceful, fruitful relations with the Soviet Union.

President Ford told the Congress shortly after taking office,
"To the Soviet Union, I pledge continuity in our commitment to
the course of the past three years . . . there can be no
alternative to a positive and peaceful relationship between
our nations ."
We are here today to discuss economic and trade relations
between our countries.

Nowhere is there more concrete evidence

of the progress we are making than in jthis field.

Our

bilateral trade is rapidly approaching the three year goal of
$2-3 billion trade turnover which was set at the 1973 Summit.
In 1973 alone, U .S .—U .S .S .R . trade turnover
billion.

was $1.4

Although total trade is down somewhat this year after

the exceptionally large agricultural shipments of 1973, U.S.
sales of machinery and equipment products have risen sharply,
and U .S .S .R. exports to the United States have shown a very
su bs ta n tia 1 Increase.
Seventeen American firtn9 now have received permission to
open accredited offices in Moscow.

ExJmbank loans for the

"Soviet Union have increased to 470 million dollars.

Impressive

contracts have been signed in the last nine months for the Kama
River Truck Plant, the Moscow Trade Center, the Fertilizer
Project, and equipment for gas pipeline development..

The U.S. Commercial Office opened for business in Moscow
last spring. In addition to smaller/exhibits staged in its
display area, my Government recently sponsored U.S. firms
participation in two major Soviet trade shows (Health and
Plastics Manufacturing Equipment) and organized a successful
solo exhibition of American Machine Tools in Sokolniki Park.
Our two Governments are pledged to continue this momentum.
i
.
In the Long-Term Agreement signed in June, both- formally
agreed to facilitate economic, industrial, and technical
cooperation and exchange iiformation on economic trends.
Progress has also been made in resolving the policy problems
which could inhibit further growth..Soon after entering the
White House, President Ford emphasized to Congress the importance
he attached to granting Most—Favored—Na tion status to. the
Soviet Union.

I look forward to early resolution of

the Trade Reform Bill which I believe will bring about satis
factory Exlm legislation.

This will clear the impediments on

the path of an expanding trade re?la t ionsltJ p .
The United States Government will continue to help
clear away obstacles to improvement in our economic and
commercial relations.

In the final analysis, however, the

action responsibility for each U.S.-Soviet commercial
transaction rests with the private sector of our economy.

is for this reason that we encouraged the formation of the
Trade and Economic Council, which brings together officials

from your Ministries and trading organizations and top
management representatives from our firms —

it is

these people who are doing the actual work of expanding trade.
As we all know, the Council war. formed as the result of a
protocol entered into in June of 1973 by Minister Patolichev
and my predecessor, Secretary Shultz.

It's important, however,

to remember that while the Council is the creation of the
two Governments, on the U.S. side, it has been adopted by the
private sector —

our business community. As an Honorary

Director of the Council, I am pleased to note that the
child of these two Governments is healthy and growing at a
rapid pace, and I am pleased with the care and upbringing
it is being given by the U.S. business community. Also,
speaking for the U.S. Government, I voice our appreciation
for the support and help given the Council since its inception
by the Soviet Government.
While the role of the Council is to foster and promote the
growth of the U.S.-Soviet trade and economic relationship and
while I am confident that the U.S. Congress will approve
legislaticn so necessary to the normalization of this relation
ship, I also envisage that out of this improved relationship
will emerge a larger joint economic role for our two countries
Given the extraordinary global economic inter-relationship
of all countries, there is a greater than ever need for
responsibility and cooperation between nations.

It is hard

to conceive of a solution fair to all countries large and
small in any area of major interest without the full and
close cooperation of the U.S. and U.S.S.R.
Since February, the Council has developed into a fully
functioning organization.

Binational staffs are now at

work on some sixty major projects in New York and Moscow.
The Council has found excellent office space in Manhattan,
and yesterday we dedicated the attractive offices on the
Shevchenko Embankment.

The Subcommittee on Science and

Technology concluded a productive first meeting a few
days ago in New York.
This is an excellent beginning, but it is only a beginning

and I am confident that it foreshad.ows even greater accomplish
I
ments in the future as the Council;’realizes its full potential
in the development of fruitful economic relations between
our countries.

As an Honorary Director of the U .S .-U.S .S.R . Trade and
Economic Council, I commend my fellow Directors and the
Council Staff for the progress you have made so far. I wish
you well in your deliberations at this meeting, and I urge you
to work diligently to create an economic fabric between our
two countries of so many strands so closely interwoven that
not only is there no visible seam, but also that it is so
strong as to be virtually unbreakable.
So while we work to intermesh and synchronize our different
economic systems, we also work to prepare and strengthen
ourselves for jointly addressing in harmony the problems of
creating a better world for all countries and all people.

rîrï
D epartm entofth eTR EASU R Y
ASHINGTON. D C. 20220

TELEPHONE W04-2041

October 25, 1974

FCTIONS
11s and for $2.0 billion
on October 31, 1974,
i details are as follows:

'/frs

¡6-week bills
ing May 1, 1975

I/1A-J7' W K ‘

-fl (rhHE, S T"
fV c

y!/g

y / ? /

%,ffj~

Equivalent
Annual Rate
7.714%
7.817%
7.766%
1/

were allotted 63%
were allotted 17%.
7 .7 ^ 4

/î

M/k.

7<Bf^

fêiïë-fiï?

S f

SERVE DISTRICTS:

foinji^-

^ % rj

Accepted____
ed For
$
10,440,000
1,905,000
1,675,955,000
,985,000
10.050.000
,110,000
37.975.000
,985,000
41.135.000
,785,000
12.775.000
,075,000
62.595.000
,595,000
9.050.000
,500,000
2.695.000
,695,000
20.895.000
,910,000
13.110.000
| n o , ooo
103,615,000
,615,000
L270,000 $2,000,290,000 &J
•ted at average price.
(ted at average price,
ivalent coupon“issue
for the 26-week bills.

D epartm en tofth eTR EASU R Y
ASUNCION, D.C. 20220

TELEPHONE W04-2041

FOR RELEASE 6:30 P.H.

October 25, 1974

RESULTS OF TREASURY’S WEEKLY BILL AUCTIONS
Tenders for $2.7 billion of 13-week Treasury bills and for $2.0 billion
of 26-week Treasury bills, both series to be issued on October 31, 1974,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
13-week bills
:
26-week bills
COMPETITIVE BIDS: maturing J a n u a r y 30, 1975 : maturing M a y 1, 1975
Equivalent
Equivalent
:
Annual Rate
Annual Rate
: Price
Price
7.714%
96.100
98.042 a/
7.746%
High
97.984“
7.975%
7.817%
96.048
Low
98.005
7.892% i/ : 96.074
7.766%
1/
Average
a/

E x c e p t i n g 2 tenders totaling $5,035,000

Tenders at the low price for the 13-week bills were allotted 63%.
Tenders at the low price for the 26-week bills were allotted 17%.
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Accepted
Applied For
Accepted
Applied For
District
Boston
$r\ 37,355,000 $ 27,355, 000
$ 20,905,000 $ 10, 440, 000
2,805,985,000 1,675,955, 000
2,133,775,
1,685,905,000
000
New York
35,110,000
10, 050, 000
27,100,000
000
27,100,
Philadelphia
000
37,975,
57,985,000
52,520,000
52,520,
000
Cleveland
000
135,
85,785,000
41,
28,225,
33,225,000
000
Richmond
12, 775, 000
13, 075,000
27,625,000
27,455, 000
Atlanta
62,595, 000
182,595,000
200,220,000
000
144,220,
Chicago
32,500,000
9,050, 000
000
260,000
26,260,
41,
St. Louis
695,000
2
,695, 000
2
,
000
360,000
360,
5,
5,
Minneapolis
000
20,895,
30,910,000
000
47,695,000
695,
41,
Kansas City
000
no,
110,000
18,
13,
000
290,000
290,
21,
21,
Dallac
103,615, 000
170?615,000
184, 950,000
164, 950, 000
TOTALS $3,364,505,000 $2 ,700,205, 000 b/ ,456, 270, 000 $2, 000,290, 000
h/ Includes $ 337,920,000noncompetitive tenders accepted at average price.
y Includes $ 165,090,000noncompetitive tenders accepted at average price.
_1/ These rates are on a bank—discount basis. The equivalent coupon—issue
yields are 8.16% for the 13-week bills, and 8.20% for the 26-week bills.

FOR IMMEDIATE RELEASE

STATEMENT OF THE HONORABLE EDWARD C. SCHMULTS
UNDER SECRETARY OF THE TREASURY
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION'S
ANNUAL INCENTIVE AWARDS CEREMONY
THURSDAY, OCTOBER 24, 1974

I am pleased to have been invited here this afternoon
to address you. Having been with the Treasury for about a
year and a half now, I have attended some of our own depart
mental and bureau award ceremonies. These have been happy
occasions and so I appreciate the opportunity to participate
in your awards ceremony where members of the staff will be
recognized for their significant contributions.
Treasury, with its manufacturing operations — the
Bureau of Engraving and Printing and the Mint — and its law
enforcement agencies, gives safety awards to units whose
accident rates are kept low. I think that this past year
has been one during which those of you whose business has
taken you to Wall Street, Montgomery Street, or LaSalle
Street, and who have made it back, deserve safety awards —
if not hazardous duty pay.
The SEC has earned a reputation over these past 40 years
as being one of the "premier" organizations in the Federal
Government. Your professional competence at every level is
well-known throughout the securities industry and throughout
Government at large. I know this to be true not only from my
Treasury experience in working with you on recent securities
reform legislation but also from a fifteen-year career as a
securities lawyer. Personally, I believe this agency has
never been stronger, both at the Commissioner and staff levels
But this is not to say that the SEC is perfect. Every Govern
ment agency can do better. There have been legitimate
criticisms leveled at the Commission over its 40-year history.
There also have been unjustified accusations and the recent
harsh criticism coming from a troubled securities industry
fits this label.

The basic charge has been that the Commission is not
doing enough to help the industry in its present crisis.
Contrary to what some would have us believe, the problems
facing the securities industry have not been caused or
intensified by SEC regulation. They stem from inflation and
related fundamental changes which have adversely affected
this country's capital markets. And looking at the other
side of the coin — just as the SEC is not the cause of these
problems, it cannot provide the cure for them.
Inflation and the high interest rates it has brought are
the real culprits behind the problems now facing our capital
markets. I would like to spend a few minutes outlining
Treasury's view of how inflation has affected our capital
markets and how some of the Government's policies for curbing
inflation will seek to remedy the situation which now exists.
It is no accident that the U.S. capital markets have
achieved the preeminent place in the world's financial
structure. The size of our markets is about three times
that of all of the capital markets in the rest of the world
combined. The basic underlying reason for this is that our
money and capital markets have been free and competitive.
Another reason — largely due to the enormous contributions
of the Securities and Exchange Commission — is the confidence
that investors have had in the fairness and efficiency of our
markets. The response to this freedom and investor perception
has been the development of a large array of different
financial assets and institutions which have been tailored to
the propensities and needs of investors and savers throughout
our country; indeed, throughout the developed part of the
world.
The outstanding performance of our capital markets during
the past two centuries has been marred, however, by events of
the past decade. During this recent period, our capital
markets have been bruised and battered by an inflation which
reached a record peacetime annual rate of 12 percent during
the past year.
Let me briefly discuss the underlying causes of this
inflation. The price explosion of 1973-74 is attributable
to a series of severe and, I believe, temporary shocks that
originated mostly outside the U.S. economic system
coupled
with almost a decade of excessively stimulative fiscal and
monetary policies.
The temporary shocks I refer to include: the worldwide
crop failures of 1972; scarcities of internationally-traded
raw materials; the arab oil embargo and the subsequent

3
quadrupling of the import cost of oil as a result of the
policies adopted by the oil exporting countries.
But all these special factors would have run their course
and faded away had our general economic policies not already
been far too stimulative for a long period of time.
Let me give you two examples of how policy changed in
the mid-1960s. First, on the fiscal side: from 1955 to
1965, Federal expenditures rose at roughly a 6 percent annual
rate. From 1965 to 1974, however, Federal expenditures surged
to a 10 percent annual rate of growth. This rapid spending
growth created huge Federal deficits, which, coming as they
did during periods of high business activity, added enormously
to economic demands. These deficits were directly responsible
for creating strong upward pressures on the price level.
Second, monetary policy also broke out of a previously
established pattern. From 1955 to 1965 the money supply
grew at a 2-1/2 percent annual rate. Since 1965, the growth
rate has more than doubled to a 6 percent annual pace. It is
no accident that during the earlier period we had a rather
stable price performance, but since 1965 we have had the worst
peacetime inflation in our history.
This recent inflation has, in turn, caused serious distur
bances in our capital markets. Interest rates have increased
to levels that we have not previously known in over a century
of recorded business experience. It should be noted that
Government deficit spending not only has contributed to high
levels of aggregate demand, but also has directly affected
the level of interest rates. In 1969 new debt issues of
Federal, State and local governments, and U.S. Government
agencies amounted to 49 percent of all funds raised through
borrowings in our capital markets; by 1973 the figure reached
a staggering 67 percent. In other words, government was
responsible for two out of every three dollars borrowed in
our capital markets in 1973.
Corporate profits have been another casualty of inflation.
In 1973, profits after taxes for nonfinancial corporations
were estimated at $55 billion, which appears relatively large.
However, if replacement costs for inventory and depreciation
were charged, profits after taxes would be reduced to $26.5
billion. And, if dividends are then deducted as necessary
payments to obtain capital from investors, retained earnings
available for new plant and equipment can be shown to have
been only $2.8 billion. This represents a deep plunge from
the 1965 and 1955 levels of $18.4 billion and $8.6 billion,
respectively, in available retained earnings similarly adjusted

4
Another way of measuring corporate profitability is to
look at the rate of return on the replacement cost of plant,
equipment, and inventories. In 1973 this rate of return was
3.4 percent, as compared with 9.4 percent in 1965 and 8.2 per
cent in 1955. This decline in rate of return has resulted
from inflation-caused increases in the costs of replacing
capital assets and decreases in the purchasing power of
profits currently generated.
Inflation, high interest rates, and low corporate profits
and rates of return have been the crucial factors in depressing
all major indices of stock prices to the 12-year lows experi
enced this year. It is no wonder that investors, many with
the real value of their accumulated assets heavily eroded by
capital losses as well as by inflation, have adopted a cautious
attitude toward committing new funds. This weakening of
investment incentives has occurred at just the time when the
need for new capital for energy development, mass transit,
environmental requirements, industrial modernization, and
other goals is most urgent.
After years of fiscal and monetary abuse, inflation is
now deeply imbedded in our economy. Our financial and
economic systems — and in particular our capital markets —
have not been structured to operate with prolonged double
digit inflation. Thus, given the statutory authority which
the Commission has, it simply is not realistic to say that
there could be some action which the SEC could take to restore
the vitality of our capital markets.
What can be done? Control of the Federal budget is a
vital component of our anti-inflation efforts. Over the past
14 years this Government has had one surplus and 13 deficits.
It is imperative that fiscal policy join the anti-inflation
fight rather than contribute to inflation. President Ford's
policy to control spending and balance the budget and a
disciplined monetary policy are essential prerequisites if
inflation is to be controlled. Following such a course will
directly benefit the capital markets since a balanced budget
will reduce Government borrowing activities and enlarge the
flow of savings available to the private sector for investment.
At the same time that we adopt this budget policy, there
is a critical need to increase the productive capacity of the
economy in the years ahead. To accelerate the growth of
capital investment needed to do this, the President has pro
posed an increase to 10 percent in the investment tax credit,
as well as a restructuring of it. He also has proposed that
the dividends paid on qualified preferred stock be allowed
as a tax deduction to the paying corporation. This proposal

5
should encourage corporations to raise new equity capital,
and thereby improve their capital structure as well as
enhance their aggregate capital investments. In addition,
we are working with the Congress to liberalize the tax treat
ment of capital gains and losses so as to facilitate the flow
of capital to the most productive investments. Finally, we
are supporting pending legislation to eliminate the with
holding tax on interest and dividend income accruing to
foreign holders of U.S. securities. Elimination of this tax
would stimulate a larger flow of funds to U.S. capital markets.
The importance of all these policies is a clear recognition
that we must begin to shift far more of our resources into
capital markets.
To focus more specifically upon the present problems of
our capital markets, and steps that might be taken to alleviate
them, as you may know, Secretary Simon is establishing a
special office devoted to capital markets policy. We feel
that this is an action that is long overdue. Some of the
points raised in my talk illustrate Treasury's role with regard
to the capital markets and the ways in which our policies can
promote investment and savings decisions. Tax policy, the
government securities business, and our general financial and
economic responsibilities are some of the major areas where
the policies we formulate affect the capital markets. Our
international experience will also be of major benefit in
focusing upon developments in world capital markets — ^
particularly the role of private markets in the recycling of
oil revenues. I stress that we see our role as complementary
to, and not competitive with, the work of this Commission. As
we undertake our new responsibilities, we look forward to
working in close partnership with your agency and the Congress.
Since it appears that fiscal and monetary policy over the
last decade has been the prime underlying cause of inflation,
perhaps we can begin by bearing some of the current criticism
coming from the securities industry and thus make your task
of regulating that industry in these troubled times a bit more
bearable.
Chairman Garrett told me that this would be a gala
occasion and so my remarks should be happy and light. I
chose to overlook his injunction because it was not followed
up by a staff letter of comment. The statistics I mentioned
were neither happy nor light, but I think they are more mean
ingful than the reaction of the statistician who, when
observed with one leg in a bucket of ice water and the other
in a bucket of scalding water, was asked how he felt and
replied, "On the average, not bad."

In closing, I want to offer my congratulations to those
of you who will be receiving awards here today. You and the
others in the audience who are with the Commission can be
proud of your agency's achievements over these past 40 years.
I am confident that on your 50th birthday the staff will look
back with pride on the significant contributions that this
group will have made to the vitality of our capital markets.
For you, more than any other group or organization, are
responsible for building investor confidence in the integrity
of this country's capital markets.

oOo

D epartm entofth eTR EASU R Y
ASHINGim D.C. 20220

TELEPHONE W04-2041

FOR RELEASE AT 12:30 P.M., EDT
SATURDAY, OCTOBER 26, 1974
REMARKS OF THE HONORABLE EDGAR R. FIEDLER
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE INAUGURAL MEETINGS OF THE
EASTERN ECONOMIC ASSOCIATION
ALBANY, NEW YORK
OCTOBER 26, 1974
Day before yesterday, the New York Stock Exchange
celebrated — if that's the word — the 45th anniversary of
"Black Thursday", the beginning of the debacle on Wall Street
in 1929. Although the debacle of 1974 on Wall Street has
induced some comparisons with the events of 4^1/2 decades
earlier, our economic difficulties today are of a very
different nature and origin than those following 1929. Then
the primary problem was depression with its shockingly high
rate of unemployment. Today our primary problem is the
shockingly high rate of inflation.
This is not to say that our economic difficulties
today are of only one dimension. We not only have inflation,
but sluggish economic activity along with it. In a word,
stagflation. But I put the inflation dimension of our
problems at the head of the list, not only because it is
so severe and not only because the decline in activity will
be (by 1930's standards at least) quite limited, but also
because the basic source of the weakness in activity comes
from the inflation itself.
This is a point worth some emphasis. The same forces
causing prices to rise so virulently are also producing the
economic downturn. It has been inflation that has dried up
the supply of mortgage credit and sent housing into a tailspin
And it has been inflation that has crushed consumer confidence
and put the brakes on consumer spending harder than at any
time since World War II. These are the two weakest sectors
of the economy, and thus it is the inflation itself that is

WS-141

2
the basic cause of our economic sluggishness and rising
unemployment. In shaping policy to deal with our economic
difficulties, therefore, we must continue to put top priority
on the fight against inflation — even though it is so much
easier and, from a short-term point of view so much more
enjoyable to fight recession.
Causes of Inflation
What policies we use to counter inflation depend in
part on its causes. In the long-run, e.g., two decades,
the monetarists are right: It is the supply of money that
is the strategic variable in determining what happens to the
general price level. But to know that is not much help in
solving the problems we face in the short- and intermediaterange future. We must know what it is that causes changes
in the quantity of money. Equally important, we must
recognize that there can be extremely important non-monetary
influences on the general price index in the short-run.
On this latter point we have had over the past couple
of years two of the most prominent examples imaginable: food
and energy. In the long-run, what happens to prices of
individual commodities, or commodity classes, is of little
or no consequence to the rate of inflation. But in the shortrun, even for several years, commodity groups as important as
food and fuel can have a very powerful effect.
Workers Loss of Income
While on this topic, there is a related point that
deserves much more attention than it has received. When peal
incomes are discussed, we often hear statements like,
"inflation has cut the real spendable purchasing power of
the average nonfarm worker's paycheck by 4 percent over the
past 12 months". In a pure arithmetic sense, that statement
can't be denied. Yet it seems to me to misrepresent what
has actually taken place, namely a transfer of real income
out of the pockets of nonfarm workers.
Farm prices went up because food supplies went down,
through natural causes. Energy prices went up because oil
supplies went down, through unnatural causes.. In both cases,
to get the food and fuel he wants at higher relative prices
the nonfarm worker must give up more of his real income to
farmers and to owners of oil both here and abroad. Thus it
is the reduction of supplies of both food and fuel that is
the real cause of the worker's loss of real income, not the
inflation. The inflation is a measure of what has taken
place, but not the cause of it.

3
This point is not just a matter of semantics or
a nice essay question for Economics 201, but also has
serious ramifications for our future rate of inflation.
Quite understandably, workers do not want to accept this loss
of real income — they don *t want to be taken advantage of
by either a quixotic Mother Nature or by the countries that
produce petroleum. Workers want that real income back.
Accordingly, wage demands and wage settlements have escalated
sharply since the end of controls. But since the worker's
loss was not his employer's gain — i.e., corporate profits
in almost all sectors of the economy are still in the normal
range — there is no way for these accelerated wage pressures
to be met except through another round of price hikes. The
attempt by workers to catch up, to make up for their lost
real income, is thus doomed to failure. As a group workers
will be no better off — and we are all likely to be worse
off. The price increases associated with reduced supplies
of food and fuel will have been built into the system? they
will have become embedded into our inflation rate on both
the wage and price sides.
More Fundamental Causes
But the horrendous rate at which the price level has
been rising is not due solely to bad luck, as in the case of
food and fuel. It is also traceable to the doggedJpursuit
of bad policies for a decade or more, including:
-- Fiscal policy; not only the rapid growth of
spending from the mid-i960's on with its
accompanying deficits in prosperous years as
well as slack years, but also the massive
proliferation of off-budget lending programs.
—

Monetary policy; the accelerated growth in
money and credit throughout the past decade,
over and above what was in some sense
"mandated" by Federal spending and lending
programs, and which has succeeded only in
bringing us higher prices and higher interest
rates.

—

The maintenance for many years of an inter
nationally overvalued dollar, which dampened
inflation in the United States, but contributed
to the inadequate expansion of capacity by most
of our basic materials industries — steel,
paper, etc. — where almost all of our inflationary
bottlenecks were experienced in 1973 when we

4
reached the limits of economic expansion.
Then, when the devaluations of 1971 and 1973
occurred the U.S. suddenly became the most
favorable place to buy those scarce raw
materials, which added another special burst
of price pressures to our recent inflation.
—

Wage and price controls, which did little to
control inflation overall but which did, in
those areas where prices were suppressed, create
economic distortions. Perhaps the best examples
are those same basic materials industries, where
controls kept prices and profits at low levels
causing expansion plans to be further delayed.
Then in the Spring of 1974, when the controls
ended, those price pressures came out of the
bottle with a rush.

Thus bad economic policies joined hands with bad luck
to create the rampaging inflation we are stuck with today.
How much of the inflation we should allocate to each cause
is impossible to determine, because of the strong interactions
that are surely involved. We can safely say, however, that
the country would have been in much better shape to weather
the food and fuel crises without so much inflationary damagef
had we not had bad economic policies for so long.
In this catalogue of the causes of inflation, I have
not thus far said anything about oligopoly, administered
prices and wages, and the greed of labor leaders and business
managers. The omission is deliberate. Not that such conditions
and characteristics do not exist. Quite the contrary. Greed,
for example, is as prevalent in business and labor as it is
in academe, in politics, and everywhere else. But I personally
do not see greed or oligopoly or administered prices and
wages as bearing any major responsibility for our inflation.
Cures for Inflation
About the only sure thing that can be said about curbing
inflation is that the process is unpopular. Catching the
inflationary disease and then curing it are like a wild night
on the town: the first few drinks appear to have decidedly
pleasant effects, but oh that hangover!

5
Since bad luck was a significant part of the accelera
tion of inflationary momentum over the past few years, it would
be nice if we could have a run of good luck to help us with
the deceleration. We had better not count on it, however.
The critical requirement is to pursue the necessary
monetary and fiscal discipline consistently and persistently^
to keep the economy operating within the limits of its capacity
to produce. It is essential, in my opinion, that we establish
and maintain a moderate degree of slack in the economy for
a number of years.
This does not mean a depression. Decidedly not. After
a period of weakness, of the sort we are now in, it is vital
that economic growth resume at a normal pace. Business sales
can show a healthy growth, but that growth will have to be
constrained so that if one businessman tries to raise prices
too fast there will be a competitor someplace with extra
capacity who will take the orders away from the first company.
Employment can grow, too, but our labor markets must have
a little slack in them, so that the joint worker-management
process of wage determination can result in a gradual
deceleration of the upward trend of pay scales. A small gap
will have to be maintained between our total economic capacity
and the level of demand, if we are to achieve a meaningful
slowdown in the rate of inflation.
That is not a happy prescription. No one likes to see
total income and output restrained below maximum. No one
likes to put off increases in worthwhile Federal spending
programs, or to forego the pleasures of a tax cut. No one
likes to have credit less easily available, or to see the
growth of business profits held back for a while. Most
important, no one is happy with the prospect of unemployment
averaging slightly higher than it otherwise would. But if
we are to regain control over inflation, there is no other
way. These costs,which are not negligible, must be met.
There is no acceptable alternative, because the costs of
continued rapid inflation are much higher.
Some people think there is an easier way in the form
of controls of one sort or another. I cannot accept that.
We and other countries have tried comprehensive, mandatory
controls, and they just don't work — short-term gains are
sometimes realized, but only at the expense of long-term
pains. And more benign versions of direct government inter
vention — guidelines or social compacts — suffer the same

shortcomings. Generally, they don't provide any effective
restraint on inflation, and where they do impact on individual
price and wage decisions they do more harm than good. Thus,
I conclude that the only choice is to operate our growing
economy with a moderate margin of slack for an extended
period of time.
The Present Situation
An effective policy to curb inflation is already underway.
Our policies have already produced enough restraint to develop
the necessary margin of slack in the economy, as is becoming
clearer every week. The first crucial step in the anti-inflation
fight is therefore behind us.
The restraint created thus far, however, has come almost
entirely from the monetary side. The Federal Reserve has been
bearing the burden of restrictive policies substantially by
itself. Thus the second vital step is to redress this imbalance
between monetary and fiscal policies by achieving greater
control of the budget. I would argue that total restraint
from both major policy tools need not be any tougher than has
been the case over the past year — perhaps slightly less,
in fact — but there is a compelling argument for changing
the mix. It is vital that we ease pressures in the credit
markets, so that interest rates can ease off and so that
funds again flow to the beleagured housing industry.
The third and final step for policy will be to keep
a moderate degree of economic slack in existence for some
time to come. We must not be pressured into a new round of
overheating. To achieve this goal we must be sure to have
effective programs in place to cushion the impact of inflation
where it strikes with disproportionate force — programs such
as direct aid to housing, low-income tax relief, extended
unemployment benefits and an expanded public employment program.
These programs are important for two reasons: First, they
are important as a simple matter of compassion for the unlucky
and the disadvantaged. Second, if we are to keep the slack
in existence, we must be sure that its burden is shared
equitably throughout society, so that this policy attains
a broad and durable political acceptance. Otherwise the
American people will opt for a new round of excessive economic
policy stimulus — i.e., more of what got us into this mess
in the first place.
*

In conclusion, I can only express my hope that the
American people will choose to take the unpleasant-tasting

7
medicine of fiscal and monetary discipline. It is not an
ideal solution and it is not an easy solution. None exists.
But it is a better choice than another try at controls or
than trying to live with double-digit inflation. Our economy
will survive in any event, but I believe we will experience
less economic difficulty if we follow the path of selfdiscipline .

0 O0

Department of t h e T R E A S U R Y
ASHINGTON. D C.

20220

T E L E P H O N E W 0 4-2 0 4V

FOR RELEASE AT 1:00 P.M., EST
MONDAY, OCTOBER 28, 1974
REMARKS BY
THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE INDEPENDENT PETROLEUM ASSOCIATION
DALLAS, TEXAS, OCTOBER 28, 1974

La d i e s a n d G e n t l e m e n , it is a p r i v i l e g e t o s p e a k
BEFORE THIS ANNUAL CONVENTION OF THE INDEPENDENT PETROLEUM
As s o c i a t i o n a n d t o b r i n g y o u t h e w a r m e s t g r e e t i n g s o f t h e
Pr e s i d e n t o f t h e Un i t e d S t a t e s ,

I AM ALSO DELIGHTED THAT AFTER A TWO-YEAR FRIENDSHIP
WITH YOUR ASSOCIATION, I FINALLY HAVE THE OPPORTUNITY TO
MEET MANY OF YOUR MEMBERS FACE-TO-FACE.
that

I THINK YOU KNOW

I a m o n e o f y o u r g r e a t e s t a d m i r e r s . T o m e , THE

In d e p e n d e n t P e t r o l e u m p r o d u c e r s s y m b o l i z e t h e v e r y b e s t
OF THE FREE ENTERPRISE SPIRIT IN AMERICA,
THE FRONT LINES OF CAPITALISM —

YOU ARE OUT ON

TAKING HEAVY RISKS, FACING

STEEP COMPETITION, AND PLACING BOTH YOUR MONEY AND YOUR
CAREERS IN THE BALANCE.

WS-143

Too

many

Am e r i c a n s h a v e f o r g o t t e n t h a t t h e f r e e

ENTERPRISE SYSTEM IS THE ENGINE THAT PULLS THE TRAIN OF
Am e r i c a n b u s i n e s s a n d i n d u s t r y , t h e t r a i n t h a t i n c l u d e s
AS CARGO THE JOBS OF TWO-THIRDS OF THE WORKING MEN AND
WOMEN IN THIS NATION.

CONVENIENCE AND SECURITY HAVE

REPLACED COMPETITION AND SELF RELIANCE AS THE GOALS FOR
MANY OF OUR COUNTRYMEN, THE IDEA OF FREE ENTERPRISE SEEMS
TO HAVE LOST ITS SHEEN.

I KNOW, HOWEVER, THAT THOSE OF

YOU WHO ARE INDEPENDENT PRODUCERS HAVE NEVER LOST SIGHT
OF THE IDEALS THAT HAVE TRANSFORMED THIS COUNTRY INTO
MAN'S "LAST BEST HOPE", AND I BELIEVE THAT YOU REPRESENT
ONE OF OUR GREATEST HOPES FOR THE FUTURE.

Mo r e o v e r , n o o n e c a n f a i l t o a p p r e c i a t e t h e c o n t r i
bution

YOU MAKE TO AMERICA'S CRITICAL NEED FOR MORE ENERGY.

T he 10,000 i n d e p e n d e n t p r o d u c e r s n o w d r i l l m o r e t h a n 80 per
cent

OF ALL EXPLORATORY WELLS AND PRODUCE MORE THAN A THIRD

OF THE TOTAL CRUDE OIL OUTPUT IN THE UNITED STATES.

YOUR

ROLE HAS BEEN AN IMPORTANT ONE, AND TODAY I WANT TO TELL
YOU WHY IT WILL BECOME EVEN MORE IMPORTANT IN THE YEARS AHEAD.

U.S.

E n e r g y Po l i c y : F u n d a m e n t a l Ch a n g e s
T h e e n e r g y p o l i c y of t h e Un i t e d S t a t e s is n o w in t h e

MIDST OF A SWEEPING CHANGE IN DIRECTION.

FOR MANY YEARS,

THAT POLICY WAS BASED UPON THE ASSUMPTION THAT WE WOULD
ALWAY^ BE ABLE TO OBTAIN ALL OF THE ENERGY WE WANTED AT
/

- 3 BARGAIN-BASEMENT RATES.

FOREIGN OIL WAS INEXPENSIVE AND

SEEMED LIMITLESS IN QUANTITY.

THUS APPEARED TO BE

GOOD BUSINESS AND SOUND DIPLOMACY TO INCREASE OIL IMPORTS,
EVEN AT THE EXPENSE OF MANY OF THE INDEPENDENT PRODUCERS
HERE AT HOME.

As WE HAVE LEARNED TO OUR REGRET, HOWEVER, OUR
POLICY PROVED TO BE A DOUBLE-EDGED SWORD.

LED DIRECTLY

TO A GROWING DEPENDENCE UPON OTHER NATIONS AND A DECLINE
IN EXPLORATION AND PRODUCTION WITHIN THE UNITED STATES,

THE TIME OF OUR EMBARGO LAST YEAR, OUR DEMAND FOR OIL WAS
GROWING AT A RATE OF ABOUT A OR 5 PERCENT A YEAR AND MOST
OF THAT NEW DEMAND WAS BEING MET BY IMPORTS,

W e HAD ALREADY

BECOME DEPENDENT UPON FOREIGN OIL FOR OVER ONE-THIRD OF OUR
PETROLEUM NEEDS.

If THAT TREND HAD NOT BEEN BROKEN BY THE

EMBARGO, WE COULD EASILY HAVE BECOME RELIANT UPON OTHER
NATIONS FOR AS MUCH AS 50 PERCENT OF OUR OIL NEEDS WITHIN
JUST A FEW YEARS.

T he l e g a c y of o u r e n e r g y p o l i c y is n o w c l e a r f o r a l l
TO SEE:

WE ALLOWED OUR DOMESTIC ENERGY BASE TO ERODE SO

BADLY THAT WE BECAME HIGHLY VULNERABLE TO FOREIGN EXTORTION,
Fo r t u n a t e l y , w e r e m a i n e d m o r e s e l f - s u f f i c i e n t t h a n m a n y o f
OUR INDUSTRIALIZED FRIENDS, BUT WE KNOW NOW THAT WE SHOULD
NEVER HAVE ALLOWED OUR OWN DEMANDS FOR ENERGY TO OUTSTRIP
OUR OWN SUPPLIES AS FAR AS THEY DID.

If THERE IS ANY GOOD

THAT HAS COME FROM THE OIL CARTEL/

IT IS CERTAINLY THE FACT

THAT IT AWAKENED US TO THE DANGER BEFORE IT WAS TOO LATE,

NOW THAT THE FOREIGN OIL CARTEL HAS SOLIDIFIED ITS
POSITION/

IT IS IMPORTANT TO RECOGNIZE JUST HOW LARGE A

PRICE WE ARE PAYING FOR OUR MISTAKES,

OVER THE PAST YEAR/

1974 THE
o i l , As a

THE WORLD PRICE OF OIL HAS QUADRUPLED/ AND IN
St a t e s

will

pay

$25

out

billion

for

foreign

UNITED
result/

DESPITE A STRONG GROWTH IN OUR OWN EXPORTS/ WE ARE FACING A

BALANCE-OF-PAYMENTS DEFICIT THIS YEAR OF SOME
Mo r e

importantly/ we

are

now caught

INFLATION IN OUR HISTORY —

in t h e

worst

BILLION.
peacetime

INFLATION THAT HAS BEEN SIGNI

FICANTLY FUELED BY THE HIGHER COST OF ENERGY,

AS FOR THE NATIONS OF THE OPEC BLOC, WE ESTIMATE THAT
THEY RECEIVED
IN

1973/

$15

BILLION FROM OIL TRADE IN

1972/ $25

BILLION

AND NOW WITH SKYROCKETING PRICES/ THEIR EARNINGS

ARE LIKELY TO REACH THE

$100

BILLION MARK IN

1974.

THEIR TRADE

SURPLUS FOR THE CURRENT YEAR WILL PROBABLY BE IN EXCESS OF

$60

BILLION/ AND BY

1980/

IF PRESENT TRENDS CONTINUE/ THEIR

TOTAL ACCUMULATIONS COULD EXCEED

$500

THIS MAGNITUDE CANNOT CONTINUE,

THEY ARE NEITHER ECONOMICALLY

BILLION.

IMBALANCES OF

NOR POLITICALLY TOLERABLE.

There

are

U n i t e d St a t e s

some
in a

who

believe

that

the

perilous/ unbreakable

Ar a b s

now

have the

hammerlock.

- 5 TOTALLY DISAGREE, AND I DO SO ON THE VERY SOLID GROUNDS OF
ECONOMIC REALISM AND AMERICAN TRADITION,

A NATION THAT CAN

TAME THE WILDERNESS, THAT HAS THE MOST DYNAMIC FREE MARKET
PLACE IN THE HISTORY OF MAN, THAT CAN LIFT THE STANDARD OF
LIVING TO HEIGHTS HITHERTO UNKNOWN, AND CAN THEN PLACE MEN
ON THE MOON —

THAT NATION, IF IT ALLOWS FREE ENTERPRISE

FULL FREEDOM, IS NOT GOING TO BE COWED BY THE SUDDEN THREAT
OF BLACKMAIL.

In m y

m e e t i n g s w i t h the

Arab l e a d e r s ,

have tried to

IMPRESS UPON THEM THAT THEIR OIL POLICIES ARE NOT ONLY BAD
POLITICS BUT BAD ECONOMICS.

ONE DAY THEY MAY FIND THEIR

OIL MARKET TENDING SHARPLY DOWNWARD —

AND ONCE IT IS GONE,

EVEN LOWER PRICES WILL NOT BRING IT BACK,

Th e y h a v e n o t y e t b e e n p e r s u a d e d , b u t I t h i n k t h e y a r e
NOW BEGINNING TO RECOGNIZE THE ECONOMIC REALITY THAT THEIR
POLICIES ARE EXERTING ENORMOUS PRESSURES ON THE UNITED STATES
AND OTHER CONSUMER COUNTRIES TO BECOME MORE SELF-SUFFICIENT.
S ince 19 72 , s i g n i f i c a n t d i s c o v e r i e s o f o i l h a v e b e e n m a d e
IN 26 AREAS OF THE WORLD —

OUTSIDE THE OPEC BLOC —

AND

COUNTRIES SUCH AS BRITAIN ARE NOW WORKING TO CONVERT THESE
DEPOSITS INTO MAJOR ENERGY SOURCES.

H ere in t h e Un i t e d S t a t e s , w e a r e e v e n m o r e a m b i t i o u s :
WE ARE SEEKING AN IMMEDIATE REDUCTION IN OUR FOREIGN IMPORTS,
AND OVER THE LONGER HAUL, WE ARE SEEKING A CAPACITY FOR FULL
SELF-SUFFICIENCY.

THE GENERAL OUTLINES FOR BOTH ENDEAVORS

WERE SET FORTH BY PRESIDENT FORD TWO WEEKS AGO WHEN HE WENT
BEFORE THE CONGRESS TO PROPOSE A 31-POINT, ANTI-INFLATION
PROGRAM —

A PROGRAM, INCIDENTALLY, THAT IS MUCH TOUGHER

THAN MANY HAVE RECOGNIZED.

AS YOU KNOW, THE PRESIDENT HAS SET A GOAL OF REDUCING
OUR CURRENT IMPORT LEVELS OF OIL BY ONE MILLION BARRELS A
DAY BY THE END OF 1975.

THAT GOAL MAY BE DIFFICULT, BUT

IT IS NOT UNREALISTIC —

AND WE ARE FULLY CAPABLE OF ACHIEVING

it.

For o n e t h i n g , s i g n i f i c a n t s a v i n g s c a n b e r e a l i z e d through

CUTBACKS ON WASTE AND UNNECESSARY USES OF ENERGY.

LEARNED LAST WINTER, VOLUNTARY CONSERVATION WORKS AND WORKS
INCREDIBLY WELL.
ENERGY EFFORT.

MUST NOW BE A VITAL PART OF OUR RENEWED

BUT WE WILL NOT RELY UPON CONSERVATION ALONE

OVER THE COMING YEAR:

WE MUST ALSO BEGIN TO MAKE GREATER

USE OF OUR OWN DOMESTIC RESOURCES, PARTICULARLY COAL AND OIL.

T h e P r e s i d e n t is p r e s s i n g f o r l e g i s l a t i o n t h a t w o u l d
ALLOW MAXIMUM PRODUCTION OF THE OIL DEPOSITS IN THE NAVAL
P e t r o l e u m R e s e r v e s in Ca l i f o r n i a a n d A l a s k a .

is a l s o

ASKING FOR IMMEDIATE ACTION ON THE BILL TO DEREGULATE THE
PRICE OF NEWLY DEVELOPED NATURAL GAS.

In ADDITION,

HE IS

- 7 REQUESTING LEGISLATION THAT WOULD REQUIRE ELECTRIC
UTILITIES TO CONVERT FROM OIL TO COAL.

HlS EVENTUAL GOAL

IS TO ELIMINATE OIL AND NATURAL GAS FIRED PLANTS FROM THE
n a t i o n 's

BASELOADED ELECTRIC CAPACITY IN THOSE PLANTS WHICH

CAN CONVERT TO COAL OR NUCLEAR POWER WITHOUT ENDANGERING
PUBLIC HEALTH,

WlTHIN 90 DAYS, THE FEDERAL ENERGY ADMIN

ISTRATION IS TO CALL A MEETING WITH REPRESENTATIVES OF
INDUSTRY, THE STATE REGULATORY COMMISSIONS, AND FEDERAL
AGENCIES TO ESTABLISH A SCHEDULE FOR CONVERSION,

Pr o j e c t In d e p e n d e n c e :

Ho p e f o r t h e F u t u r e

Ov e r t h e l o n g r u n , w e r e m a i n d e t e r m i n e d t o m o v e t o w a r d
SELF-SUFFICIENCY FOR THE UNITED STATES THROUGH PROJECT
In d e p e n d e n c e . S o m e s k e p t i c s a s k w h e t h e r Pr o j e c t In d e p e n d e n c e
has r u n o u t o f

steam:

It h a s n 't -- b u t w e s o m e t i m e s w o n d e r

Co n g r e s s h a s . W h e n it c o m e s t o p a s s i n g e n e r g y l e g i s l a t i o n

Wa s h i n g t o n , w e s t i l l s e e m t o be in t h e a g e of t h e h o r s e

and b u g g y .

So m e of t h e m o s t i m p o r t a n t e n e r g y b i l l s in t h e c o u n t r y
HAVE LAIN DORMANT ON CAPITAL HlLL FOR AS LONG AS THREE YEARS.
As OF TODAY, THERE ARE OVER 15 CRITICAL PIECES OF CRITICAL
ENERGY LEGISLATION THAT ARE CAUGHT IN THE LOGJAM,

O f THOSE,

NONE IS MORE IMPORTANT THAN THE BILL TO DEREGULATE THE PRICE
OF NEWLY DEVELOPED NATURAL GAS.

I KNOW THAT YOUR ASSOCIATION

SUPPORTS THIS MEASURE AS WELL AS OTHERS, AND I URGE YOU TO

RENEW YOUR EFFORTS TO OBTAIN THEIR PASSAGE.

Pr o j e c t In d e p e n d e n c e s h o u l d h a v e a d i r e c t a n d v e r y
IMPORTANT IMPACT UPON EACH OF YOU.

I f CORRECTLY DESIGNED

AND IMPLEMENTED, WE BELIEVE IT CAN PROVIDE A CONTEXT IN WHICH
MARKET-ORIENTED —
ARE POSSIBLE.

AND MUCH MORE EFFECTIVE —

ENERGY POLICIES

By REMOVING THE PRICE BARRIERS WHICH HELD DOWN

ENERGY PRICES IN THE UNITED STATES TO ARTIFICIAL LEVELS, WE
CAN EXPAND PRODUCTION AND ENCOURAGE FURTHER CONSERVATION.
Mo r e o v e r , m o d i f i e d g o v e r n m e n t r e g u l a t i o n s a n d p o l i c i e s should
LEAD TO ENORMOUS GAINS IN EFFICIENCY.

AS A LIFETIME ADVOCATE OF COMPETITIVE ENTERPRISE, I AM
CONVINCED THAT EACH OF YOU COULD DO A BETTER JOB IF YOU WERE
FREE OF CONTROLS.

For TOO MANY YEARS THE GOVERNMENT HAS

POSED MAJOR OBSTACLES TO EFFICIENT MARKET ALLOCATION IN ENERGY,

We REGULATE THE PRICE AND DISTRIBUTION OF NATURAL GAS; WE
MANIPULATE THE PRICING AND DISTRIBUTION SYSTEM IN OIL; WE
REQUIRE LENGTHY AND CUMBERSOME PROCESSES FOR OBTAINING LICENSES
AND RATE APPROVALS; AND WE IMPOSE ENVIRONMENTAL RESTRAINTS OF
QUESTIONABLE VALIDITY UPON BOTH THE PRODUCTION AND COMBUSTION
OF FOSSIL FUEL.

I KNOW THAT I CAN SPEAK FOR PRESIDENT FORD IN PLEDGING
TO YOU THAT WE WILL WORK TOWARD CREATING GREATER FREEDOM IN
THE ENERGY MARKETPLACE.

LET ME TURN DIRECTLY TO FOUR ISSUES

v 4

- 9 -

OF ACUTE CONCERN TO YOU IN THIS RESPECT! THE DEPLETION
ALLOWANCE, SECONDARY AND TERTIARY PRODUCTION, LEASING ON
Fe d e r a l La n d s , a n d t h e d e r e g u l a t i o n of n a t u r a l g a s ,

T he D e p l e t i o n A l l o w a n c e
During th e past two w e e k s , t h e r e have been several
CONFLICTING REPORTS REGARDING THE ADMINISTRATION'S
POSITION ON THE ELIMINATION OF THE DOMESTIC DEPLETION
ALLOWANCE.

I KNOW THAT YOU FIRMLY SUPPORT THE CONTINUATION

OF THAT ALLOWANCE, AND I WANT TO BE STRAIGHTFORWARD WITH
YOU.

Our b a s i c p o s i t i o n n o w is t h e s a m e a s in t h e p a s t :
WE FAVOR THE REMOVAL OF THE FOREIGN DEPLETION ALLOWANCE,
AND WE OPPOSE THE REMOVAL OF THE DOMESTIC DEPLETION
ALLOWANCE.

HOWEVER —

AND LET ME STRESS THIS —

A PROVISION

TO ELIMINATE THE DOMESTIC DEPLETION ALLOWANCE IS CONTAINED
in t h e
and

T a x R e f o r m A c t of 197A t h a t is n o w in t h e Ho u s e Wa y s

M e a n s Co m m i t t e e . T h a t b i l l h a s m a n y o t h e r p r o v i s i o n s

th a t w e b e l i e v e w o u l d m a k e s i g n i f i c a n t

THE TAX STRUCTURE —
Am e r i c a n —

improvements

IMPROVEMENTS THAT WOULD BENEFIT EVERY

so t h a t if t h e b i l l c o m e s b e f o r e t h e Pr e s i d e n t

IN ITS PRESENT FORM, HE HAS PROMISED THAT HE WILL SIGN IT.

L et m e a l s o s t r e s s t h e P r e s i d e n t is c o m m i t t e d
TO THE POSITION THAT BOTH OIL AND GAS SHOULD EVENTUALLY
BE SOLD ON A FREE MARKET BASIS.

I CANNOT GIVE YOU A

TARGET DATE FOR DECONTROLLING DOMESTIC OIL PRICES.

YOU KNOW, THAT DECISION MUST BE MADE WITHIN THE CONTEXT
OF AN INFLATIONARY ECONOMY —

AND AS OF TODAY, THE

OVERWHELMING MAJORITY OF OUR PEOPLE AGREE THAT INFLATION
IS OUR NUMBER ONE DOMESTIC PROBLEM.

D e c o n t r o l of S e c o n d a r y a n d Tertiary. Productim

A RELATED

ISSUE OF CONCERN TO ALL OIL PRODUCERS IS

SECONDARY AND TERTIARY PRODUCTION.

It IS ESTIMATED THAT

THERE ARE SUBSTANTIAL RESERVES OF OIL NOW UNDERGROUND
THAT COULD BE RECOVERED IF GREATER USE WERE MADE OF
SECONDARY AND TERTIARY PRODUCTION METHODS.

EXISTING

PRICE CONTROLS, HOWEVER, TEND TO DISCOURAGE THESE FORMS
OF PRODUCTION.

his re cen t s p eec h to the

Co n g r e s s , Pr e s i d e n t

Fo r d m a d e it c l e a r t h a t he w i l l a d j u s t t h e s e c o n t r o l s ,
MAXIMIZING INCENTIVES TO USE SUCH PRODUCTION METHODS,
S e c r e t a r y M o r t o n a n d t h e E n e r g y R e s o u r c e s Co u n c i l a r e
CURRENTLY DEFINING THE GUIDELINES WHICH WE WILL USE TO
IMPLEMENT PRICE DECONTROL FOR THIS PURPOSE.

SPECIFICALLY ENVISION THIS POLICY AS AN AID FOR ALLOWING

-11 -

SMALL, HIGH-COST PRODUCERS TO FINANCE MORE SOPHISTICATED
METHODS OF RECOVERY TECHNIQUES,

In ADDITION, THIS PROVISION

MAY MAKE IT MORE READILY POSSIBLE TO UNITIZE PRODUCTION FROM
SEVERAL OLD FIELDS THROUGH THE UNITED STATES,

MOREOVER, THESE

ADJUSTMENTS WILL ALLOW US TO MOVE AHEAD WITH A MORE ORDERLY
PHASE-OUT OF THE TWO-TIER PRICE CONTROL SYSTEM.

Ac c e l e r a t i o n of O il L e a s i n g on F e d e r a l _La n d s
St i l l a n o t h e r a r e a t h a t h o l d s o u t g r e a t h o p e f o r us
is t h e

O u t e r Co n t i n e n t a l S h e l f , a r e g i o n t h a t m a y b e r i c h

IN OIL DEPOSITS,

THE ADMINISTRATION'S GOAL IS TO SHARPLY

ACCELERATE FEDERAL LEASING OF THOSE LANDS SO THAT BY 1975
WE WILL BE LEASING 20 MILLION ACRES A YEAR —

FIVE-TIMES

AS MUCH AS DURING 1974.

It IS ALSO THE ADMINISTRATION'S POLICY TO ENCOURAGE
PARTICIPATION BY THE INDEPENDENTS IN THIS FRONTIER AREA LEASING,

In THE PAST, IT HAS OFTEN BEEN DIFFICULT FOR THE SMALL PRO
DUCER TO COMPETE WITH LARGE OIL COMPANIES FOR THE MOST LUCRA
TIVE F e d e r a l l e a s e s b e c a u s e b o n u s b i d s w e r e e x t r e m e l y h i g h
AND LANDS BEING LEASED WERE LIMITED IN AMOUNT.

To COMBAT

THIS PROBLEM, WE RECENTLY EXPERIMENTED WITH A ROYALTY BONUS
BID SYSTEM WHICH GREATLY REDUCES THE FRONT-END MONEY THAT A
PRODUCER MUST PUT UP FOR HIS LEASE.

O f THE TEN EXPERIMENTAL

LEASES OF THIS TYPE, MOST OF THE LAND LEASED WAS AWARDED TO
INDEPENDENTS.

INNOVATIVE SCHEMES OF THIS SORT APPEAR TO

HOLD OUT CONSIDERABLE PROMISE FOR THE INDEPENDENT PRODUCER
AND SHOULD ENCOURAGE GREATER COMPETITION AS WE ACCELERATE
THE DEVELOPMENT OF OUR FEDERAL LANDS.

D e r e g u l a t i n g t h e P r i c e o f Na t u r a l Gas

A FOURTH

MEASURE THAT

WANT TO ADDRESS THIS MORNING

IS THE BILL TO DEREGULATE THE PRICE OF NEW NATURAL GAS.

there

done by

is a c l a s s i c

e x a m p l e o f t h e m i s c h i e f t h a t c a n be

F e d e r a l i n t e r v e n t i o n in t h e p r i v a t e m a r k e t p l a c e ,

IT IS CERTAINLY THE CASE OF NATURAL GAS.

For MANY YEARS,

DESPITE REPEATED WARNINGS BY EXPERTS, THE FEDERAL POWER
Co m m i s s i o n h a s c o n t r o l l e d t h e w e l l h e a d p r i c e o f n a t u r a l
GAS AT AN ABNORMALLY LOW LEVEL AND HAS THUS REDUCED THE
INCENTIVES FOR THE DEVELOPMENT OF NEW DOMESTIC SUPPLIES.

I n 1957, NEW DISCOVERIES
imately

of n a t u r a l gas t o t a l l e d a p p r o x

22 TRILLION CUBIC FEET.

By 1972, NEW DISCOVERIES

WERE LESS THAN ONE-SEVENTH OF THAT LEVEL.

I n 1955, THE

Un i t e d St a t e s h a d a 22.5 y e a r s of g a s r e s e r v e s . By 1972,
AS THE EXPERTS WARNED, GAS RESERVES HAD FALLEN TO 10.7
YEARS.

I n FACT, WE ARE NOW IMPORTING FOREIGN LIQUIFIED

GAS AT PRICES THREE TIMES THOSE OF CONTROLLED DOMESTIC
PRICES, AND WE ARE FACING CURTAILMENTS AGAIN THIS WINTER
FOR NATURAL GAS CONSUMERS.

T he o n l y r e a l i s t i c s o l u t i o n t o t h e s u p p l y p r o g r a m
LIES IN THE DEREGULATION OF NEW GAS, A MOVE WHICH WOULD
DEFINITELY STIMULATE PRODUCTION.

NATURAL GAS, AS YOU

- 13 -

< v \

KNOW, IS AN INVALUABLE SOURCE OF CLEAN, ENVIRONMENTALLY
SAFE ENERGY.

Congress

IN OUR VIEW, IT IS THUS ESSENTIAL THAT THE

move forward as quickly as possible in acting upon

THE NATURAL GAS LEGISLATION.

Mf f t t n g N ationai

Earlier

He e d s

today , I said that questions of energy policy

MUST BE SETTLED WITHIN THE BROADER CONTEXT OF NATIONAL
NEEDS AND CONCERNS.

FREQUENTLY THERE WILL BE CONFLICTS

BETWEEN THE INTERESTS OF ONE GROUP AND THOSE OF ANOTHER.

Insofar

as possible, it is our belief that conflicts of an

ECONOMIC NATURE SHOULD BE WORKED OUT IN A FREE MARKETPLACE.

But

these are difficult times and there will be occasions

WHEN THE GOVERNMENT IN WASHINGTON MUST MAKE HARD CHOICES.

In that

process,

I CAN

only pledge to you that we will be ,

AS FAIRMINDED AND AS HONEST WITH YOU AS POSSIBLE.

One

national problem that is of particular concern to

ME TODAY, ESPECIALLY IN COMING TO TEXAS, IS THE HEALTH OF
THE CATTLE INDUSTRY.

LET ME PURSUE THAT FOR A MOMENT.

BOTH

FEEDERS AND RANCHERS ARE UNDER HEAVY FINANCIAL PRESSURE AND
MANY ARE FACED WITH THE THREAT OF BEING DRIVEN OUT OF BUSI
ness.

Recause

of bad weather and poor crops ,
* the cost of

PRODUCTION HAS SKYROCKETED.
BEAR ALL OF THE BLAME*.

BUT CROPS AND WEATHER DO NOT

THE GOVERNMENT WHICH IMPOSED A PRICE

FREEZE IN 1973 MUST ALSO ACCEPT ITS SHARE.

VIE RECOGNIZE THE

- M

NEED TO CORRECT WHAT WAS FOOLISHLY

DONE EARLIER -- AND

THROUGH THE EMERGENCY LIVESTOCK CREDIT ACT OF 1974, ENACTED
last

J u l y , w e h o p e t h a t s o m e a s s i s t a n c e w a s p r o v i d e d for

THE INDUSTRY.

He a r e n o w r e v i e w i n g o t h e r p o l i c i e s a f f e c t i n g t h e l i v e
stock

INDUSTRY TO SEE WHETHER ADDITIONAL CHANGES MIGHT BE

MADE TO ACHIEVE OUR LONG-TERM GOAL:

A HEALTHY AND GROWING

INDUSTRY THAT IS FREE FROM UNDUE GOVERNMENTAL INTERFERENCE.
A ll o f us —

in g o v e r n m e n t , in t h e

BANKING COMMUNITY —

WHERE

I'M

industry, and

in t h e

SURE THERE IS F U L L RECOGNITION

OF THE NEED FOR REASONABLE AND RESPONSIBLE LIVESTOCK LENDING
r\-'A Hi TWO CtlMffOW .56 (fJi?0H3 3 MITAW
POLICIES DURING THIS DIFFICULT TIME — ALL OF US WILL HAVE
TO WORK TOGETHER TOWARD THIS END.

I AM CONFIDENT "THAT THE

INDUSTRY WILL SURMOUNT ITS TEMPORARY PROBLEMS AND GO ON TO
A MORE PROSPEROUS FUTURE.

A n o t h e r c o n c e r n t h i s m o r n i n g -- a n d o n e t h a t h a s s t i r r e d
UP A CONTROVERSY

- f IS THE PRESIDENT'S NEW TAX PROGRA

T h i s is a b r o a d -g a u g e d e f f o r t t o a l l e v i a t e t h e w o r s t e f f e c t s
OF THE CURRENT ECONOMIC SQUEEZE AND TO PAY FOR SUCH ASSISTANCE
EFFORTS THROUGH NEW TAXES.

THOSE HARDEST HIT —

INDIVIDUALS

IN LOWER-INCOME BRACKETS ~

WOULD BE HELPED THROUGH TAX RE

LIEF AND AN EXPANDED PROGRAM OF PUBLIC EMPLOYMENT AND JOBLESS.
BENEFITS, WHILE THE BUSINESS COMMUNITY WOULD BE PROVIDED
ADDITIONAL INCENTIVES FOR INVESTMENT.
/

BOTH OF THESE EFFORTS,

- 15 -

—

PARTICULARLY THE EFFORT TO HELP LOWER-INCOME AMERICANS, ARE
INTENDED TO SERVE THE BROAD PURPOSES OF BEING FAIR AND
ADVANCING THE NATION'S GENERAL WELFARE.

Bu t w e s h o u l d c l e a r l y r e c o g n i z e t h a t e a c h o f t h e s e
MEASURES ALSO COSTS MONEY, AND IF WE ARE SERIOUS ABOUT FISCAL
DISCIPLINE, WE MUST RAISE NEW TAXES,
with the

I t ' s TIME TO BE HONEST

A m e r i c a n p e o p l e , t o f a c e up to t h e f a c t t h a t if w e

VOTE FOR EXPENSIVE NEW PROGRAMS, WE MUST LEARN TO PAY FOR
THEM, EITHER IN REGULAR TAXES OR IN THE FORM OF THE CRUELEST
TAX OF THEM ALL —

INFLATION.

T he Pr e s i d e n t h a s c h o s e n t o b e l l t h e c a t b y c a l l i n g f o r
A 5 PERCENT SURTAX.

MANY CONGRESSMEN HAVE ALREADY WRITTEN

OFF THE SURTAX BECAUSE THEY THINK IT IS UNPOPULAR, BUT I
SUBMIT THAT THE SURTAX IS A SUPREME TEST OF OUR WILL TO
FIGHT INFLATION.

W he n t h e Co n g r e s s r e t u r n s t o Wa s h i n g t o n n e x t m o n t h ,
I AM SURE YOU WILL SEE A GREATER RUSH TO PASS PROGRAMS THAT
COST MONEY THAN TO PROGRAMS THAT RAISE MONEY.

To GO DOWN

THAT PATH WOULD BE AN EXTREMELY SERIOUS MISTAKE, FOR THE
bloated

F e d e r a l b u d g e t is o n e o f t h e p r i m e c u l p r i t s b e h i n d

THE INFLATION THAT IS RANGING IN THIS COUNTRY TODAY.

THERE IS ANYTHING WHICH IS CLEAR TODAY, IT IS THE FACT THAT
WE ARE ALREADY PAYING FOR MORE GOVERNMENT THAN WE NEED, MORE
GOVERNMENT THAN MOST PEOPLE WANT, AND CERTAINLY MORE GOVERNMENT

16 -

THAN WE ARE WILLING TO PAY FOR.

becomes clearer to me each day that the overriding

QUESTION IS NOT WHETHER WE KNOW HOW TO CURE INFLATION —

WE DO

BUT WHETHER WE CAN SUMMON UP THE CONFIDENCE AND THE COURAGE TO
GET IT DONE.
T h e r e ' is a c e r t a i n s i c k n e s s e a t i n g a w a y a t t h e A m e r i c a n
spirit.

we open the paper each d a y / we are confronted

WITH THE PROPHETS OF DOOM AND GLOOM WHO TELL US THAT OUR
DEMOCRACY IS HEADED FOR THE SCRAP HEAP.

OUR MORE FASHION

ABLE OPINION LEADERS IN POLITICS; IN THE PRESS; AND IN OTHER
WALKS OF LIFE HAVE BECOME TOO QUICK TO EXPECT THE WORST AND
TOO IMPATIENT TO WORK FOR THE BEST.

I SAY TO YOU THAT IT IS TIME TO STOP TEARING DOWN AMERICA
AND START BUILDING HER UP AGAIN.

AMERICA IS STILL INCREDIBLY

STRONG; POWERED BY THE LARGEST AND MOST DYNAMIC FREE MARKET
PLACE IN THE WORLD.

W e MAY HAVE GREAT WEAKNESSES; BUT WE

ALSO HAVE GREAT STRENGTHS.

In FIGHTING INFLATION; LET US

BEGIN BUILDING ON THOSE STRENGTHS ONCE AGAIN AND BRING AN
END TO THIS CEASELESS HARPING ON WHAT'S WRONG WITH AMERICA.

RY PRESSING FOR A MASSIVE NEW ENERGY PROGRAM; BY CALLING
FOR NEW TAXES; BY ASKING FOR NEW MEASURES TO SPUR INVEST
MENT AND TO HELP THE UNEMPLOYED; AND BY PUSHING FOR MANY
OTHER MEASURES THAT ADDRESS OUR ECONOMIC TROUBLES; PRESIDENT

- 17 -

l
Fo r d h a s p r e s e n t e d a s t e r n t e s t t o t h e Co n g r e s s .

f a ct, the

P r e s i d e n t is c a l l i n g fo r a n e w k i n d o f

POLITICAL COURAGE IN THE UNITED STATES, AND ONLY IF WE
GET IT WILL WE HAVE A FIGHTING CHANCE AGAINST INFLATION.

I LOOK FORWARD TO MEMBERS OF CONGRESS:RETURNING TO
Wa s h i n g t o n a f t e r t h e e l e c t i o n s a n d t o t h e o p p o r t u n i t y
TO WORK IN PARTNERSHIP WITH THEM IN PASSING THE
LEGISLATION THAT IS CRITICAL TO OUR ECONOMY,
OF ACTION IS UPON US, AND ALL OF US —
the

THE HOUR

THE EXECUTIVE,

Co n g r e s s , a n d t h e A m e r i c a n p e o p l e —

must now

PULL TOGETHER TO GUIDE OUR NATION SAFELY THROUGH
THIS ECONOMIC STORM.

As INDEPENDENT PETROLEUM PRODUCERS, YOU HAVE A
VITAL ROLE TO PLAY IN THIS PROCESS.
THAT WE CAN COUNT ON YOU.

Th a n k y o u .

* * * # *

I AM CONFIDENT

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Citation Information
Document Type: Transcript

Number of Pages Removed: 11

Author(s):
Title:

Issues & Answers

Date:

1974-10-27

Journal:

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

SECRETARY SIMON

Washington, DC
October 31, 1974

DEPARTMENT OF THE TREASURY

KEN SCHEIBEL: k?e v/i17 go to the questions now and start off
[with an easy one. Why should a non-economist be able to run the economy?
SECRETARY OF THE TREASURY WILLIAM SIMON: Well, I guess you have
to look back — I guess soma of the things that X could say in ‘
response
[to that won!d perhaps be considered immodest, but I will attempt to answer
that without being immodest.
One can look back at the role of the Secretary of the Treasury,
the chief financial officer, and on most occasions the chief economic officer
of the United States. The great majorities of Secretaries of the Treasury
kom from,my background, which is banking. I've been an investment banker
|for 22 years. I have worked with many economists in the private world and
[in the world of banking.
It isn't that we don't have economists in government, you know,
p have a very large staff of economists, very competent economists, out[standing economists, in the Treasury Department, lie hove a Council of Economic
[Advisers, whose chairman is the direct adviser to the President on economic ‘
affairs. What wa attempt to do is get a wal 1-rounded team of people who
[approach the problem, perhaps from different vantage points, and therefore
p'ra not accused of having tunnel visions. And we think that with the
variety of people with varied backgrounds and experience that this is the
[correct way to approach it. At least that has traditionally been tha way
in the Federal Government to approach this problem.
We have had In the history of the Treasury Department — and
people are often surprised whan I ask this question. I ask how many economists
lave been Secretary of tha Treasury. Well, only one, George Shultz, who
p s a very fine Secretary of the Treasury.
I
SCHEIBEL: Mr. Secretary, you are reportedly one of the key Adminlstrati
Pncials who disfavored Sawhill. ¿hy did you feel he wouldn't be a good
psniber of the team?
I
SECRETARY SIMON: You know, I talk sometimes, and I don't like
IJ be disrespectful and critical because i always find that you, in the
final analysis, most times gat more with honey than with the other variety
I? baling with people. And I have always had a good relation, I believe,
pjth the press, and very often I see them go off half-cocked, and that's
8<* right. Everybody makes mistakes. And I would say that this is one

-2- ’
¡of those areas where some people went off half-cocked.
John Sawhlll and I have worked together very closely 1n the two
sI've been in government. He Vías my deputy at the Federal Energy Administre
I recommended him very strongly to President Nixon to serve as my replacement
¡This recommendation was obviously accepted. I moved over simultaneously
tes the Secretary of the Treasury to deal with another area of the problems
pat beset us today.
Änd tba President put in place a new energy team» and in my role
¡as Secretary of the Treasury and Chairman of the Economic Policy Board*
lit
not my function to be reconmsnding personnel and favoring and disfavoring,
¡I haveextremely high regard for John Sawhill. He is a terrifically capable
[human being, and I certainly hope that he accepts another position in our
¡government, because we need capable people like this in government.
SCHEIBEL:

Two questions...

[Äpplause]
SCHEIBEL:
lclrcumstances...

Are we in a recession?

If not, why not?

Under what

[Laughter]
SCHEIBEL: Under what circumstances of economic weakness might
emphasis of policy shift towards stimulus?
SECRETARY SIMON: If not, why not? You notice in all of my responses
the question of are we in a recession or aren't we in a recession —
W people are always concentrating on attempting to pick words of public
[officials and create conflict or differences of opinion.
I think the semantical argument of whether or not m sre In a
ecession 1s unimportant. Vie have a body, the National Bureau of Economic
Research, that is the officially accepted body who designates whether wa
are not, have been, or what have you 1rv a recession* Thus far they
,2ve not made this determination. It very likely will be determined, in
judgment, to have been a recession.
The point of the matter is that- we understand what the economic
Jroblsms that vie face in our country today. We*re suffering from extremely
|*Sh inflation rates. We*re suffering from a rising unemployment rate and
0 very, very sluggish economy, on the one hand.
Now, if ws ware dealing with just the simple problem of recession
just the simple problem of inflation, a single-dimension economic problem,
r you will, the President’s program could be very straightforward. For

-3the matter of the recession, he could stimulate the economy. And in a very
lew months you’d see very tangible results, if It were a matter of just

same
results.
Unfortunately right now, our problems are not of a single dimension;.
Ihsy're multi-dimensional. And our balanced program deals with the problem
of the sluggishness In the economy. It puts ths balanced approach [unintelligible]
fiscal and monetary restraint* all the legislation that's required, the
surtax to pay for those that bear the disproportionate burden, so that we
[can once again get the economy back on the proper track.
As I said in my speech, and didn't elaborate to that great an
¡extent on the mystery, or lack of mystery, as to how we got here. You know,
this reminds me terribly of the many occasions I had this past winter to
explain the energy problem to the American people. There wasn't any mystery
* we got in that problem, and there’s no mystery how we got in this economic
Jess. There are fundamental causes and there are extra special factors,
p d the fundamental causes are excessive fiscal and monetary policies for
at least ths last decade, where we've seen federal spending — the growth
m federal spending has been 1n excess of 102 for the last decade, Now
lhat's versus under 6% in the decade before that, when wa had a reasonable
rate of inflation. We've had budget deficits in the past 13 — in the past
P years, flow budget deficits are necessary during times of seme economic
slack, but unfortunately these deficits occurred during very high economic
tlvity. Honey supply grew at a rate in this past decade of 6% versus
■na 2 1/22 in the decade before. And then wa have the very familiar quadrupling
If oil prices, ths bad weather that affected the crops and caused the explosion
In prices, the much overlooked fact of ths simultaneous boom that occurred
|n all industrial countries, creating tremendous demand for our industrially
traded raw materials.
I
Now ordinarily, as these things pass — special factors passed
prough an economy and had their effect of pushing prices up, when they
finished and they worked their way through, as they ramified through the
foray, the inflation rate would recede to what you and I might say are
fasonable levels. But unfortunately, w e 5re paying for the excesses of
r e past decade, and 1t is not going to recede to what you and I would call
P acceptable rate of inflation, and it's going to be very stubborn. And
Pat s why we say that this problem did not come upon us overnight and it
P not going to disappear overnight, and it's going to require discipliné.
I
And anybody who thinks that that isn't tough medicine in the
jnted States of America, in this great democracy, isn't paying attention.
[Applause]
SCHEIBEL:

*
Now that congressional leaders have publicly opposed

-4the proposed 5% surtax, wi11 the Administration present a new proposal,
or pursue what appears to be a dead end?
SECRETARY SIMON: Well, it’s all in the eyes of the beholder,
this dead end that we have right now* You know, I think you people have
been in Washington a good deal longer than I have, and I*d borrow one of
hour terms, that we’re in the silly season right now, just before election,
and nobody likes to — nobody likes to go home and run on a platform of
[favoring higher taxes. The American people pay too much taxes, yes. And
I certainly go along with that.
But on the other hand, we have to look at having an economic
jpoHcy, recognizing that it’s going to take time to cure our problem of
^Inflation in our country. And w e ’re going to have to have policies that
lie they have discipline over a sustained period of time, that they’re
erate, but more importantly, that they’re also humane, that they’re humane
fin that they assist people who are inevitably going to bear the disproportionate
¡share of our policies, of any disinflationary policy.
I
In other words, v/e have to pay for the additional spending, and
It’s about time we started to pay in this country for the additional spending
Instead of legislating these budget deficits year after year after year.
I
And I*d just like to ask the people, ask the American people:
■ 5s,surtax for one year
and you can look at the tax tables w e ’ve presented,
■hey ve all been published in the newspapers, where a person with an average
■erdly of two, making $20,000 a year, is going to pay an additional $42
■n tax. Now, that is not too much discipline to exact.
I
And what’s the alternative? Bo m begin to tax just a little
■or one year, until our budget process can pick up the needed productivity
capacity Increase that we’re striving for through part of our proposals?
|r do we end up with the cruelest tax of all and the most rearessive tax
of all? - inflation.

[Applause]
SCHEIBEL:
,
I M

What’s going to happen to the stock market?

[Laughter]
SECRETARY SIMON:

One of my associates just yelled, ‘‘Don’t touch

[Laughter]
I
SECRETARY SIMON: You know, there is no secret here either about
jnavlor in stock markets and bond markets and interest rates. The stock *

-5 -

arket is not Wall Street. The stock market Is the United States of America,
¡and the prices on the stock market and the interest rates that are extant
Hn our capital markets today reflect the confidence, or lack of confidence,
(on the part of every American in this country, what he demands In return
for the money that he lends, a safe investment. And we've built in such
inflationary expectations into the American people, through years of irresponsible
¡policies, that we have eroded this confidence.
So, we not only have to bring down the real rats of inflation,
Jut at the same time we have to work on the inflation psychology that has
:oine ingrained, and convince the American people that they have a government
nat they can have confidence in, that Is going to run their economy in
(a proper fashion and not In a political fashion.
You know, I think that in recent days we've seen a stock market
hat has done considerably better. Änd I hope, although it’s too early
q tell, that people are beginning to believe that we are dead serious,
ally, about curing inflation, that we're going to put a program into
¡place, and we are not, as we have so often in the past, cop-outing with
ss seemingly attractive short-run alternatives that will end us hack
In the soup again a year to a year and a half from now* If we fall prey
p that type advice, you can look for a worse inflation rate in 1976, and
pa are not going to relax on this policy.
SOMEIBEL: The question is, Mr. Secretary: When will the Administration
bite the bullet — reduce all government expense 10%, insist that business
and unions do the same? In other words, do like any family would do who's
|eeo living beyond their means and wanted to restore confidence and integrity.
!

SECRETARY SIMON: Mali, you know since I became Secretary of
Treasury In the beginning of May, at that time I was a rather lonely
loice as far as federal spending is concerned. I now have a fair amount
ft company.
I would he delighted to cut the budget just as far as anybody
Pse would. Anybody who accuses us of too much fiscal restraint — there
ssain, 1t*s a complex subject and people very often don’t bother taking
■ look at the facts. W e *ve talked a great deal about fiscal restraint;
p haven't done anything yet..
,

■nn k<v»
Evea if we cut back our budget this year from 305 billion to
I S “11*ion, which we*re going to, that still represents an increase of
r*
, on* which is an il% increase, over last year’s federal expenditures.
■nat re attempting to do 1s what we know v/e can accomplish. I mean it’s
wT^ to say "Reduce all government expenses !ö%." X ’don't know whether
P u mean expenses, because if you’re just talking about the pure massive
Bureaucracy 10%, you’re not .-talking' about that terribly much money. A good
pa; of our programs are of the legislative variety, and it’s going to take
Bgislation to begin to cut back on them.
W e ’are one-third of the time through this fiscal year.

So we

think realistically to move toward the balanced budget during this fiscal
year, to cut five-to-six billion dollars is a realistic program. It removes
the United States Government, to that extent, from our encroachment on the
capital markets, and thereby it gives a very positive effect to reduction
In interest rates, and than we'll move toward the balanced budget as we
go through our budgetary process next year. And we think that this is the
practical way to approach it.
SCHEIBEL: Why are the oil-consuming countries not forming a
monopoly to offset the exorbitant demands of the monopoly formed by the
OPEC countries?
‘
SECRETARY SIMON: I think he said why they're not forming § monopsony.
And that's all right. We can form a monopsony or a monopoly. We do have
8 nionopoly of consumer countries and they have a monopoly of producer countries.
And 1t boils down to the fact that they have 70% of the oil In this world,
and we have to consume, depending on the country, various percentages of
this oil.
We've all seen what the economic impact is in an economy just
by the slight cutback in the embargo last year of 2 l/2-to-3 million barrels

^ d8y*

There are economic considerations; there are political considerations.
The Arabs for a time, and I stress, for a time can get away with this extortion.
But the time, and it's bag inning to become apparent to everybody what I've
said for some time — and I have never put a price on it. It's just newspapermen
who love to quote ms putting a time on it. It's not whether oil prices
are going to corns down or not; it is when they're coming down. And they're
coming down for a combination of political as well as economic matters.
All one has to do is go look at the 26 major discoveries outside
;0T the GREC nations in oil, the activity that's going en in ail of the countries
in the world in the area of alternate sources. And if we don't begin in
this country — and I've been down here now two years, and for almost all
toess two years we've had some very simple legislation to deal with this,
the strip-mining area, in the deregulation of natural gas, and all of
the energy bills that we've got on the Hill that still lay there dormant.
^
And people say, '’Deregulation of natural gas. You*re fighting
Pi with the prices." What ws want is deregulation of new natural gas that
p m bring on additional supply in this country. Additional supply is the
pR«y thing that's ever going to bring the price down.
f
that's the alternative? The alternative is to pay the blackmail
tnat $ being charged us by the other countries. And we're importing at
presto four times the price in the INS area today what it would require
nsre in this country.
Our policies hav&>always bean for the short-run, attractive expedient,

o
O

-7Ld if there are two areas that have been giving us the most trouble in
the last two years, that reflect extraordinarily irresponsible government
policies, it's the area of food and fuel. And it's about time we did something
¡hat looked for the long-term, long-run best interest of the American people,
tnd that's the program that we have in place right now.
[Applause]
SCHEI8&: I wonder how it happens. There's a couple political
(questions here, Mr. Secretary. If you were running for Congress in f^aine
today, would you advocate a sugar-beet refinery or an oil refinery?
The next one:
would you accept?

Rocky's nomination 1s in trouble.

If withdrav^n,

[Laughter]
SECRETARY SIMON: Well, I wasn't prepared — they weren't in
i^y briefing book, fellas, that you sent ms, these two questions.
If I were running in Maine, would I advocate a sugar-beet refinery?
I'm not even sure I know what a sugar-beet refinery is.
I have recommended an oil refinery in Maine, and that created
some considerable controversy up there I'm told, also. So I scratched that
off try vacation schedule 1n the future.
.
,
I will recommend an oil refinery anyi^here and everywhere on the
East Coast, because 1t*s — there again, the irresponsible policies and
many of the problems we have with the environmentalists, my dear friends,
that have created tbs problems of lack of "refinery capacity in this country,
which force us to pay for the high-priced product that comes into this country.
This 1s beginning to seep 1n now that refineries do not billow out the black
S!3Dke that they did 30 years ago. He have clean refineries In this country,
1 we've demonstrated that to flew England congressman who wa took out to
Hingham, Hasblngton last year. So we're beginning to see, hopefully,
some movement there.
We have great refinery expansion and
¡the drawing board, and it behooves all of us to
pat wa can to increase the productive capacity
putting impediments, government impediments, in

new construction plans on
really assist in every way
in this country, and stop
their place.

[Applause]
SECRETARY SIMON*: As far as Mr. Rockefeller's nomination — I
probably would have been smarter just to go on to the next question* but
P always seem to want to answer everything that's asked, unfortunately,
N d that usually gets me in trouble. Nelson Rockefeller Is going to be

confirmed as the next Vice President of the United States. And what he
is being accused of today* 1*11 suggest, if everybody'd just sit back for
ilittle or go take a cold showér and sit back a little bit, he's being
îccused of being generous in many areas, and that makes me rather sad.
So I look forward to Nelson’s confirmation in the very near future.
[Applause]
SCREIBEL:

At one point you were a strong supporter of the gasoline

. Even though President Ford has declined to endorse such a tax, do

m personally still favor the tax?

SECRETARY SIMON: Talking about getting in trouble. I don't
;hink that there's any one single person in the history of government —
Ithink I say this with some certainty — that has been turned down so many
pss on one suggestion, such as the gasoline -tax. Two Presidents have
;urned me down several times. And that's all right, because we have options,
nd you deal with options in two ways. You deal with them in "Will they
otha job that they're designed to do?" and "Is it possible to pass them?"
nd what seems to perhaps you and me sometimes to be great common sense
nd in the best Interests and give all the major benefits very often is
ot possible.
So, what we have to do is not only what's right for the American
sople in raising the revenues and conserving energy, but also what we know
tot wa can passed in a reasonable period of time, because time is of the
¡ssence.

SCHEÎ8EL: Will there be any changes in the administration of
fiti-dumping and countervailing duty laws, with or without the trade bill?
I
SECRETARY SIMON: Well, we've made some administrative changes
p the anti «dumping and countervailing duty laws in the last couple of years.
M what we're expecting now is that the trade bill vdll be passed in the
|ar future. And what we seek, of course, is air open system and a removal
r nor»-tariff and tariff barriers and bounties and grants, and I believe
F can accomplish this. But we have the laws in anti-dumping and countervailing
P protect us In the interim.
I
SCHEX8EL: What is your feeling about suggestions we eat and
pnsuma less so that we can increase our aid to depressed nations?
SECRETARY SIMON: Vieil, when we talk about — I have not seen
r related, I must admit, about — suggestions about eating and consume
ps so that we can — in order to increase our aid to depressed countries.
I

He have a responsibility and we've always been a very compassionate
Vie have s responsibility to other less fortunate
■untries in the world. Thera is no doubt about that. Vie continué to pursue

m a very humane people.

¡hose policies- We will pursue them, however, not to the deleterious effect
bon our domestic economy as far as the price structure or our American
¡onsusnar.
But obviously — and you heard nie say this so often last winter —
that we have been great wastrels. And I used to say that about energy,
¡nd then I'd go on to say that with 6% of the world's population we use
¡555 of the world’s energy, yell, you don't have to restrict this to fuel,
it gees through every area.
I
We have been such a fortunate people, a people blessed — and
this 1s a very important point that you should constantly reflect upon when
fe listen to all the suggestions about the changes that are required in
bur country, that we have been blessed. Vie*ye been blessed with an economic
lystem that's provided this country with the greatest prosperity and the
highest standard ©f living and the greatest personal freedom, that I spoke
of before, of any country in the history of this world. And let us not,
again, for tha short-run, seemingly attractive alternatives that are being
Suggested« ever forget this.
We are on the right road. It is not going to be easy. It will
ke pinful. Our policies will be humane in dealing with the pain. But
if we cop out this time, the pain will bs far, far greater.
[Applause]
SCHEIBEL: Why did the brutally high rates of interest last summer
seel! to increase rather than decrease inflationary pressures?
SECRETARY S I M : We can argue that interest rates have some
effect on inflation rates. But I do not go along with the brutally high
Interest rates of last si&isnsr increasing, as this question implies, rather
pan decreasing inflationary pressures.
I
There again» a high rate of Interest, working its way through
p a economy, has Its Inflationary impact. But our inflation is a very virulent^
p a caused by all of the measures that-I spoke of before. And interest
rates and high interest rates are a result of our inflation. They are not
a cause. And when wa wring Inflation out of .our economy, you will see interest
fates decline. You sea Interest rates declining today, in response to a
slightly easier monetary policy, but as importantly, you're beginning to
see the expectation of a lower rate of inflation. And as we bring this
Inflation rate'down, we will once again return to moderate interest rates,
find not before.
I

,
SCHEIBEL: Hr. Secretary, please tell us If you favor total decontrol
oil prices, when, under what conditions.
.
SECRETARY S I M :

I do favor total decontrol of oil prices.

10-

low don't everybody run out of the room, and that'll probably be the headline

|1nthe

Star tonight —

Simon Favors Decontrol of Oil Prices.

When? I don't know. The conditions today are rather extraordinary,
Lith the OPEC-controlled prices. Obviously, the additional supply is going
to bring great pressure on these prices. There Is no doubt about that.
Under what conditions and when is really the same question,

be will continue to watch that very closely and make sure that any decontrol

Irogram that 1s put forth in the Administration would be dons on a phased
lasls that would have tha least Inflationary impact»

But a decontrol of domestic prices at this time, remembering
that about 55 to 60 percent of the oil in this country that's produced domestically
Is presently under control, a decontrol of prices immediately, as far as
|its price effect is concerned, on all tha studies that I*vs seen dons by
Independent as well as government economists, has been somewhere in tha
■rea of two to four cents per gallon of gasoline. Me're not talking ascot
e significant so-called rip-off.
I always loved that terra rip-off. When I look at the government
policies that we've had in so many areas, it's your government that's the
rip-off, not the free enterprise system in this country, because...
[Applause]

SECRETARY S I M :
...the policies that ws've put in place in
bny areas in the last — in the last many, many years have been responsible
lor the high prices we're seeing in many areas today.
And wait till wa start. Just wait till you hear the rhetoric
lext year from the special-Interest group when we start on the ICC and some
Of our other sacred cows. It'll be a very interesting experience, and I'll
b anxious to see the support that we get, or do not get.
SCHEIBEL:
pour \m button?

A very serious question, Mr. Secretary:

Where is

[Laughter]
I
SECRETARY S I M : By golly, you know, I have a bigger one here,
p sorry. I change suits once in a while.* This was given to me — I'm
pllscting WIN buttons. We not only have our own government WIN buttons,
pfcwa have lots of people out 1n this country that are manufacturing WIN
Pttons for their own, or buying them, and giving them out ot their own
ployees.
I
You know, I read a lot in the newspaper about voluntarism and
111 of this patriotism and our program won't work. And I hope I've dispelled

• li

the notion in a lot of you today that what w e ’re suggesting is voluntarism#
lecause it isn’t. Most of what we suggest is darn tough. But what w e ’re
_ suggesting is the traditional spirit* the American spirit and the patriotism
[hat has always come through. When the American people have the facts about
I problem* we all get together behind the wheel and solve ’em. And w e ’re
loing to do it now* and we’re going to do it behind the leadership of President
ford because he is not going to back down on the program, and this time
are not going to cop out.
[Applause]
SCHEIBEt: Mr. Secretary* before 1 ask the final question today*
I'd like to present to you our certificate of appreciation. It’s tha National
Jpress Club certificate of appreciation for recognition of meritorious service
p cmTespond@ntsB press* radio and television* in the Nation’s Capital.
*
Also* another little gift* Hr. Secretary. You know* one of your
Predecessors over at the Treasury was digging around in tha vault one day
fend he found a few million Carson City silver dollars. And we were digging
¡around here tha other day and ws found a collector’s item* too* and X want
Eo present it to you now. And it is the original Nat’ional Press Club* which*
ss I said* like the silver dollar is rare. Now maybe instead of wearing
it, you'll want to put it in the vault at the Treasury.
SECRETARY SIMON:

0 h 9 thank you, Ken.

Thank you very much.

[Applause]
SCHEIBEt:

Not ready for the final question* not yet.

This winter* Hr. Secretary* if the lights go out at the Treasury
of the policies you have in effect* or because of the ones you don’t9
don’t want you to be in the dark, of course* So now I want to present
. candles t® you. These* ladies and gentlemen* are red* white and blue,
they will give their all* and m hopefully will keep you and your staff
p the light* running the econoa^y. Also a box of National Press Club matches ■+
p keep them lighted.
Now tha final question: Don’t you think the National Press Club
showed admirable restraint today by not turning on the air conditioning*
pd thereby saving energy?
[Laughter and applause]
SECRETARY SIMON:
[Laughter]

Thank you, and I almost suffered in silence.
*

SECRETARY SIMON: It again has been a pleasure to visit with
N » and I look forward to coming back in the near future and responding

to y o u r questions.
And I look forward 1n the Interim to having the pleasure
(of meeting with many of you in my office or 1r» other places.

Thank you very much.

Department

oftheTREASURY

Washington , d .c . 20220

telephone

W04-2041

FOR RELEASE 6:30 P.M.

October 29, 1974

RESULTS OF TREASURY'S 227-DAY BILL AUCTION
Tenders for $1.5 billion of 227-day Treasury bills to be dated
November 4, 1974, and to mature June 19, 1975, were opened at the
Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED COMPETITITVE BIDS:
High
Low
Average -

95.021
94.987
94.998

(Excepting 2 tenders totaling $20,000)

Equivalent annual rate 7.896%
Equivalent annual rate 7.950%
Equivalent annual rate 7.933%

Tenders at the low price were allotted 100%.

TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Accepted

Applied For

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

7,120,000
2,476,010,000
62,000,000
136,125,000
33,350,000
2,970,000
458,325,000
38,650,000
32,335,000
6,045,000
14,825,000
591,685,000

$3,859,440,000

This is on a bank-discount basis.

Includes $

4 8 ,505,000

3 , 120,000
962.465.000
24.400.000
54.125.000
4.450.000
2.660.000
83.575.000
9.050.000
1.085.000
2.035.000
1.825.000
351.685.000

$1,500,475,000
The equivalent coupon-issue yield is 8.40%.

noncompetitive tenders accepted at the average price.

Department

oftheTREASURY

IhlNGTON. D.C. 20220

TELEPHONE W04-2041

n
l?-"
FOR RELEA SE UPON DE LIVERY

REMARKS BY THE HO NO R A BL E CHARLES 0. SETHNESS,
U.S. EX ECU TI V E DIRECTOR, IN T ER N A T IO N A L
BANK FOR R E C O N S T R U C T I O N AND DEVELOPMENT,
BEFORE THE CHICAGO A S S O C I A T IO N OF COM ME RCE AND INDUSTRY
CHICAGO, ILLINOIS, 12:00 N O O N CST, O C T O B E R 28, 1974
Vermont Royster titled a recent column in the Wall Street Journal,
"The Central Question.”

His concern was not only identifying the central

question of our times, but also to comment on the way our elected and
appointed officials think about all of the critical choices facing us as a
society.

He began his column by pointing obliquely to the difference be

tween simply a good, competent leader and those with vision.

He said:

"One among the many things that raise some political
leaders to larger than life size, giving them the name of
statesmen, is the ability to recognize the central questions
of their times and the courage to act on them*

It is a

quality that endears them to history, though not always to
their contemporaries.

It is a quality much needed among us

now."
Well, I'm not immodest enough to stand before you today and suggest
that I am a statesman or that history will even remark my passing.

The

important point in Vermont Royster's column has to do not only with recognizing
critical issues —

this certainly is vital —

but also with the implication

that farseeing leaders and their policies may not always be immediately
politically popular.

In our democratic society it is always a dilemma as to

how much its leaders should reflect public opinion and how much they should
seek to guide it.

WS-144

The answer to this dilemma for the statesman lies not

only in feeling the pulse of the public, but also in prescribing an appro
priate regimen in response.
What is appropriate and responsive varies from case to case, but
at the very least, if the pulse is slowing and the patient is slipping, one
could seek to alleviate this decline.

One would hope to turn it around*

and move to a more healthy stability.

This reversing of a trend is not always

easy, and may in fact not be consistent with the patient’s own short term
view of his needs.
I use this medical example because my trips from Washington are
designed not only to relate to you what I do there, but also to take the
pulse of the nation on what we broadly think of as foreign aid.

The results

of my pulse-taking over the recent past have been sober indeed.

I have

found an increasingly large number of American people who wish to disengage
from overseas commitments and entanglements.

In particular, many are asking

why we should continue to assist other countries when our own domestic needs
are formidable and when past recipients of our aid seem not to remember our
generosity.

These concerns are real, and have had a decisive impact on our

overseas assistance programs.
In quantitative terms the prognosis is very serious.
vital signs are deteriorating.

Already the

Official development assistance as a percent

age of GNP was 0.21% in fiscal year 1974 for the United States.

That is to

say, of all the goods and services produced in this country last year we
made only 0.21% available to needy people of the world ■— less than 1/25 of
the average annual increment in our production over the 1969-73 period. As
a point of comparison, in 1949 at the time of the Marshall Plan we made 2.8%

- 39

of our total production available.

Looked at another way the U.S. ranked

14th out of 17 Western countries which provide assistance.

France, the

United Kingdom and even Portugal did proportionately more than we did.
about 1% of the U.S. federal budget goes for foreign assistance.

Only

And for

those who would ask that the OPEC countries pick up all of the burden, one
must answer that their liquidity is only a year old, is based on the sale of
a non-renewable resource, and that in several cases the proportion of their
GNP going to foreign assistance is already many times what we are doing.
What these figures and comments illustrate is that even though the absolute
amounts of assistance we make available may seem high, in reality they are
very low in relationship to our wealth, and must be maintained and increased
not only to do our fair share, but also to motivate and support the efforts of
others.
But this is just one side of the situation. What about the other
side? What has been happening in the needy countries at the same time we have
been less forthcoming? What has happened is that on the whole their needs
have increased, so that the gap between what is needed and what is available
has grown even wider.

Part of this increase in need stems from one of the

great difficulties which is troubling us .... inflation.
we must look at the situation relatively.

But here again

No matter how vexing inflation is

to us with our relative wealth, it may be the difference between life and
death for the poor of the world.

Lest you think this is an exaggeration,

consider the fact that at this very moment there are people in South Asia
succumbing to hunger-induced disease because their governments cannot afford
the high price of grain.

As Mr. McNamara said recently in Washington,

•'It is true that the affluent nations in the face
of shortages and inflation, and in order to continue to
expand aid, may have to accept for the time being some
selective reduction in their already immensely high
standard of living.

If they have to, they can absorb

such inconveniences.
"But for the poorest countries such a downward
adjustment is a very different matter.

For them down

ward does not mean inconvenience, but appalling
deprivation.

And for millions of individuals in these

countries downward means simply the risk of death.
The point is that our problems stemming from inflation are huge, but for the
underdeveloped countries inflation implies a fatal erosion of their already
meager resources..
This then is the situation:

at the precise moment the needs have

increased, our commitment to helping others seems to have diminished.

It is

my view that this turning inward must be arrested; we must take some actions
for the long run health of the patient, even though the short run medicine
may seem bitter to some.

The '’bitter" medicine I propose is simply that we

as Americans be as generous to others in need now as we have been in the past.
To do this we will undoubtedly generate both personal and political controversy
but in the long run the reasons for doing so are compelling.
Succinctly put, I believe a renewed commitment to providing foreign
assistance certainly will not hurt us in the short run, surely will help us “
the long run, and may well save millions from lives which now are almost
inconceivably stunted and degraded in human terms.

Why won’t a renewed commitment to foreign assistance hurt us?
This is a good question and one which I indicated earlier many people are
asking.

Although we must acknowledge that there is a cost, albeit a

relatively small one, we should also recall that almost all of what is called
foreign assistance comprises loans to foreign countries.
is true —

These are —

loans on easy terms, but it is not a give-away program.

what is lent out will ultimately be repaid us.

Most of

Second, in the process of

using the proceeds of these loans, the borrowers purchase large amounts of
American goods.

Thus, there is no substantive strain on our international

payments position, production of vital commodities is stimulated and foreign
buyers are exposed to American firms.

Certainly none of this hurts us.

Finally, one cannot even argue that budgeting for foreign aid has an infla
tionary impact under current conditions.

Only if our economy were suffering

from aggregate excess demand might this be the case.

Given our declining

real output, such manifestly is not the case.
So foreign aid doesn't hurt us.
to this is a clear yes.

But does it help us?

My answer

The extent of our basic international economic

inter depence with others was abundantly demonstrated by what has been called
the "oil crisis."

If nothing else we should have learned from this that our

fate is closely tied with the fate of others.

We ignore them at our peril,

since politico-economic decisions made on the other side of the globe can
affect our daily lives.

An open, generous and cooperative international stance

is not only an obligation of our preeminent world position, but necessary for
a stable and viable future.
It is probably arguable that the U.S. could in some sense be
totally self-contained and self-sufficient, and that we really need have

little to do with other nations.

We could insulate ourselves from others

and their needs, but only at the cost of cutting ourselves off from their
products and ignoring the consequences of their internal instability.

This

could only be done at the cost of gross inefficiencies, at a drastically
lower standard of living, and in a state of increased international confron
tation and uncertainty.

Not only is all of this undesirable in itself but

it will be unnecessary if we are sufficiently open, international and genuinely
cooperative in our outlook.
have any real choice:

Given these kinds of options I do not feel we

we must continue

and should increase our assistance

to others in the world whose hope for their future to a significant degree
depends on us.

If you will, the transfusion is not only salutary for the

patient, but.of significant benefit to the donor.

Finally, I do not think

we can or should evade the less pragmatic side of the issue
dimension.

the moral

Quite simply, what we as a nation do may make the difference

for many individuals between lives of misery and lives which are slightly
better.

And if we choose not to respond to an intensifying of the degrada

tion of others, in an important sense we degrade ourselves.
fool ourselves.

We should not

The problems are huge and, as a practical matter, there

may be no way to avoid widespread starvation in the near term.
cannot and almost certainly will not meet all the needs.

We probably

But insofar as

we do assist some of the poor of the world to help themselves lead productive
lives above a mere subsistence level, we will have done something humanly Posl
tive, and in my view imperative.
physical health.

> ental and moral health is as important as

E X E C U T IV E O FFIC E O F T H E PRESID EN T

COUNCIL ON W AGE AND PRICE STABILITY
W ashington , D .C.

20503

FOR IMMEDIATE RELEASE
Wednesday, October 30, 1974

For information call:
456-2237

GEORGE C. EADS
APPOINTED
ASSISTANT DIRECTOR
COUNCIL ON WAGE AND PRICE STABILITY
Albert Rees, Director of the Council on Wage and Price Stability announced
today the appointment of George C. Eads, 32, as Assistant Director, Office
of Government Operations and Research. He will be responsible for
coordinating the monitoring and review of government practices and policies
that have the effect of raising costs and prices.
Mr. Eads comes to the Council from the National Science Foundation where
he was project manager for the program sponsoring research in government
regulation and its effects on productivity. His prior experience includes
teaching economics at George Washington University, Princeton, Harvard,
and Yale. He also spent one year at the Department of Justice as Chief
Economic Advisor to the Assistant Attorney General, Antitrust Division.
Mr. Eads has specialized in studying government operations and has consulted
for the Department of Transportation, Civil Aeronautics Board and the
Council of Economic Advisors. He has testified as an expert witness before
the CAB and the U.S. Tariff Commission. He has written many articles and
reviews on industrial organization and regulated industries.
A 1964 Summa Cum Laude Graduate in Economics from the University of Colorado,
Mr. Eads received his MA and PhD from Yale in 1965 and 1968. He was born
in Clarksdale, Texas, and raised in Yuma, Arizona.
Mr. Eads and his wife Margaret reside in Washington, D.C.
o 0 o
CWPS-3

E X E C U T IV E O FFIC E O F T H E PRESID EN T

COUNCIL ON W AGE AND PRICE STABILITY
W ashington, D.C.

FOR RELEASE AT 9:15 a.m. EST
Thursday, October 31, 1974

20503

For information call:
(202) 456-2237

Keynote Address by Albert Rees, Director
Council on Wage and Price Stability
before the
Conference on Productivity Costs
and Prices in the Food Industry
Washington, D.C.
The Council on Wage and Price Stability is most grateful to Secretary Butz,
one of the members of the Council, for co-sponsoring this Conference with
us and for the v/ork of the U.S. Department of Agriculture in organizing
it on short notice.
There is no single subject of more concern to consumers today than the
rise in the price of food. In the twelve months from September, 1973
to September, 1974 the price of food consumed at home rose 10.9 percent,
and further increases are still expected. The price of cereals and
bakery products rose 28.7 percent, and the price of sugar has almost
tripled.
These sharp rises in the price of food are particularly hard on the poor
and the elderly. Food makes up somewhat less than a fourth of the total
budget of a middle income family, but it makes up more than a third of a
budget of a poorfamily. Largely for this reason, the price index for
the poor, which is not an official government statistic, has been rising
more rapidly than the official Consumers Price Index, which is based on
a broader range of incomes.
Some of the causes of the rise in the price of food are beyond our control.
Some arise from natural disasters, such as hurricanes, drought, floods,
and early frost. Some originate beyond our borders, like the rise in
the world price of raw sugar.
Many of the causes, however, are not beyond our control. The purpose of
this conference is to identify those problems contributing to the high
price of food that we can solve, and to begin to organize ourselves
effectively to do something about them. We can cut waste, we can improve
efficiency, and we can get food from the farm to shopping bag faster,
fresher, and at a lower cost.
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CWPS-4

One of the basic causes of the high price of food is a critical shortage
of fertilizer# We must do everything possible to break the bottlenecks
in fertilizer production and in its transportation to market. Sometimes
we must suspend time-honored rules and practices to make this possible.
In this time of critical fertilizer shortaae, we should cut back sharply
the use of fertilizer on lawns and golf courses to permit more fertilizer
to be used on farms and vegetable gardens. I am informed by experts tnat
the United States uses more fertilizer to grow lawns than India, with
its much larger population, uses on all of its crops.
Farmers and consumers alike are upset, even irate, about the sharp recent
increases in marketing margins on food. In some cases these margins may
have been unduly compressed by price and wage controls in 1972, 1973, arid
the early part of this year. Some widening of margins was probably needed
to provide workers with a fair wage for their labor and businessmen with
a fair return on their capital. But as one looks at what has happened
since the end of controls, one cannot help wondering whether this process
has not gone far enough, and in some cases too far. Consumers may be
willing to believe that no one in this country can do much if anything
about the price of raw sugar. They may nevertheless suspect that sugar
refiners have been taking advantage of the shortage to raise their margins
unduly, and this is a question worthy of careful exploration.
On average, the spread between the farm price and the retail price of
food is expected to increase 21 percent between 1973 and 1974. This
would be nearly three times larger than the largest previous increase.
From third quarter 1973 to third quarter 1974, estimated farm-retail
spreads increased 15 percent for beef, 194 percent for sugar, and an
unbelievable 303 percent for dry navy beans.
Let me give one more specific example of the change in marketing margins.
According to the U.S. Department of Agriculture, in 1973 the average
retail price of butter was 92 cents a pound, the average wholesale price
was 70 cents, and the margin between these prices was 22 cents. In the
first eight months of this year the retail price on average was three
cents higher than in 1973, even though the wholesale price was five
cents lower. The margin between these prices rose by eight cents, from
22 cents a pound to 30 cents a pound, an increase of 36 percent.
The retail price of butter reached a peak in the last quarter of 1973
and has since fallen by about 11 cents a pound. However, the estimated
net farm value has fallen in the same period by 17 cents. The total
marketing margin has risen by 6 cents, and the farmer's share of a
dollar spent on butter is now far lower than it has been at any time
since 1947.
(more)

- 3 -

T / ìi-

I have learned by sad experience in my first month as a government
official what response to expect to such a story. Everyone involved
in the processing, distribution, and transportation of butter will
reply that he is not responsible for this increase in marketing margins,
and each will have a convincing story to tell to justify his position.
The invisible button I see on too many lapels does not read "WIN" for
"Whip Inflation Now," but "Inflation is the Other Fellow's Fault."
But our purpose here is not to assess blame or to point fingers at
people. It is to find solutions to problems. And when solutions can
be found, everyone is better off.
Not long ago, the National Commission on Productivity became concerned
about the slow delivery of fruits and vegetables from the West to the
East Coasts. Through much hard work, they succeeded in establishing
a unit train from California to New York. This required cooperation
from the railroads, the railroad unions, and the Interstate Commerce
Commission.
This train has been in operation for the past year and has cut the load
cycle time of mechanical refrigerator cars in transcontinental service
from over 30 days to 21 days, which is the equivalent of adding about
900 cars to the fleet at $45,000 per car.
In my judgment, the biggest single source of potential gains in productivity
in the food distribution chain lies in transportation. In many cases,
improving efficiency in transportation will require changes in the
rules of the independent regulatory agencies of government, or in the
legislation that prescribes their activities. We are using outmoded
laws and rules from the days of the horse and buggy to regulate trans
portation in the age of the jet-plane and the interstate highway. It
is for this reason that I welcome wholeheartedly the President's
request for the creation of a National Commission on Regulatory Reform.
However, we cannot wait for such a commission to complete its task
before making any changes in our methods of transporting food. The
task is too urgent. We must begin now laying the groundwork for this
commission and doing some of the most obvious and urgent things. In
a time of rampant inflation and critical fuel shortages, it is simply
intolerable to have trucks required to follow circuitous routes or to
allow freight cars to stand idle or to travel empty when they could
be carrying food to market or fertilizer to our farms.
There are also some inefficiences in the food industry that result from
working rules embodied in collective bargaining agreements. Since I
have recently been quoted on this subject in a trade journal in a way
(more)

- 4 that is subject to serious misinterpretation, I should like to set the
record straight. I should like to assure my friends in the labor
movement and in management--if I still have any friends after three
years of administering wage controls--that in my view, which I have
expressed before the Joint Economic Committee, any changes in these
working rules in the interests of lowering costs must be made through
the process of free, voluntary collective bargaining when the agreements
expire. The Council on Wage and Price Stability does not have the
authority to modify any of the terms of any collective bargaining
agreement, and it does not seek such authority. Moreover, in my opinion
those who benefit from these working rules are entitled to appropriate
compensation for agreeing to •modify them.
All producers have certain valuable and hard won rights that protect
their livelihood, by law, by contract or by tradition. None of us is
anxious to give up such rights, whether we are workers, farmers, corporate
executives, college teachers or government officials.
But perhaps in times like these we want to consider not only our own
rights, but other peoples' problems. What can we do for the mother
sending her children off to school who finds that the prices of cereal
and milk have risen sharply, that the price of sugar has skyrocketed,
and that her income has remained the same? What can we do for the
cattle raiser caught between the low price of livestock and the high
price of feed, and whose loan is coming due at the bank? What can we
do for the auto worker who is unemployed in part because people are
paying so much for food that they must postpone the purchase of a new
car?
It simply will not do for any of us to dismiss these problems, either
here at this conference or elsewhere, by saying that inflation is the
other fellow's fault. We must start saying what each of us is prepared
to do to help lower costs, increase productivity, and get inflation
under control. We must use that celebrated American ingenuity to find
solutions. We must re-examine the way we do things, and not continue
to do them in the same old way just because it is the way they have
always been done, but begin to do them the way that will get the most
food to the most hungry people in the least time.
I have been an economist for more than twenty-five years. Never in
that quarter of a century can I remember a time when we have suffered
from the terrible combination of high and rising prices and rising un
employment from which we suffer right now. Surely this is not a time
for business as usual, collective bargaining as usual, or even govenment
as usual. We have got to do better than that. We can, and we will.
o 0 o
/CWPS-4
/

Department of t h e T R [ A $ U R Y
ASHINGTON, D C. 20220

TELEPHONE W04-2041

For information on submitting tenders:

TELEPHONE W04-2604

FOR IMMEDIATE RELEASE

October 30, 1974

TREASURY ANNOUNCES NOVEMBER REFINANCING
The Treasury will auction to the public next week up to $2.5 billion of 3—year
notes, up to $1.75 billion of 7-year notes, and up to $0.6 billion of 8-1/2% 24-1/2
year bonds. This will refund $4.3 billion of notes and bonds maturing November 15,
and will raise $0.5 billion new cash. The coupon rates for the notes will be
determined after tenders are allotted. Additional amounts of the notes and bonds
will be allotted to Government accounts and the Federal Reserve Banks in exchange
for the maturing securities, of which they hold $2.4 billion.
The notes and bonds to be auctioned will be:
Treasury notes of Series E-1977 dated November 15, 1974, due
November 15, 1977 (CUSIP No. 912827 DZ2) with interest payable
on May 15 and November 15,
Treasury Notes of Series B—1981 dated November 15, 1974, due
November 15, 1981 (CUSIP No. 912827 EA6) with interest payable
on May 15 and November 15, and
an additional amount of 8—1/2% Treasury Bonds of 1994—99 dated
May 15, 1974, due May 15, 1999, callable at the option of the
United States on any interest payment date on and after May 15,
1994 (CUSIP No. 912810 BR8) with interest payable on May 15 and
November 15.
The 3-year notes will be issued in registered and bearer form in denominations
of $5,000, $10,000, $100,000 and $1,000,000. The 7-year notes and the bonds will be
issued in registered and bearer form in denominations of $1,000, $5,000, $10,000,
$100,000 and $1,000,000. The notes and bonds will be issued in book-entry form to
designated bidders. Delivery of bearer bonds will be made on November 15, 1974, and
December 3, 1974. Bearer notes will be available on November 25, 1974. A purchaser
of bearer notes may elect to receive an interim certificate on November 15, which
shall be a bearer security exchangeable at face value for Treasury notes of the
appropriate series when available.
Tenders for the 3-year notes will be received up to 1:30 p.m., Eastern Standard
time, Wednesday, November 6, tenders for the 7-year notes will be received up to 1:30
p.m., Eastern Standard time, Thursday, November 7, and tenders for the bonds will be
received up to 2:30 p.m., Eastern Standard time, Friday, November 8 at any Federal
Reserve Bank or Branch and at the Bureau of the Public Debt, Washington, D. C. 20226;
provided, however, that noncompetitive tenders will be considered timely received if
they are mailed to any such agency under a postmark no later than November 5 for the
3-year notes, November 6 for the 7-year notes, and November 7 for the bonds. Each
tender for the 3-year notes must be in the amount of $5,000 or a multiple thereof.
Each tender for the 7-year notes and the bonds must be in the amount of $1,000 or a
multiple thereof. Each tender must state the price or yield offered, if a
competitive tender, or the term "noncompetitive", if a noncompetitive tender.

-2'
Competitive tenders for the notes must be expressed in terms of annual yield
in two decimal places, e.g., 7.91, and not in terms of a price. Tenders at the
lowest yields, and noncompetitive tenders, will be accepted to the extent required
to attain the amounts offered. After a determination is made as to which tenders
are accepted, a coupon yield will be determined for each issue to the nearest 1/8
of 1 percent necessary to make the average accepted prices 100.00 or less. Those
will be the rates of interest that will be paid on all of the notes of each issue.
Based on such interest rates, the price on each competitive tender allotted will
be determined and each successful competitive bidder will pay the price corresponding
to the yield he bid. Price calculations will be carried to three decimal places on
the basis of price per hundred, e.g., 99.923, and the determinations of the Secretary
of the Treasury shall be final. Tenders at a yield that will produce a price less
than 99.251 for the 3-year notes and 98.251 for the 7-year notes will not be accepted.
Noncompetitive bidders will be required to pay the average price of accepted
competitive tenders; the price will be 100.00 or less.
Competitive tenders for the bonds must be expressed on the basis of price, with
two decimals, e.g., 100.00. Tenders at a price less than 94.01 will not be accepted.
Tenders at the highest prices will be accepted to the extent required to attain
the amount offered.
Successful competitive bidders will be required to pay for the
bonds at the price they bid. Noncompetitive bidders will be required to pay the
average price of all accepted competitive tenders; the price may be 100.00, or more
or less than 100.00.
Fractions may not be used in tenders. The notation "TENDER FOR TREASURY NOTES
(Series E-1977 or B-1981)" or "TENDER FOR TREASURY BONDS" should be printed at the
bottom of the envelopes in which the tenders are submitted.
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 $500,000 or less
for each issue will be accepted in full at the average price of accepted competitive
tenders.
Commercial banks, which for this purpose are defined as banks accepting demand
deposits, and dealers who make primary markets in Government securities and report
daily to the Federal Reserve Bank of New York their positions with respect to
Government securities and borrowings thereon, may submit tenders for the account of
customers, provided the names of the customers are set forth in such tenders.
Others will not be permitted to submit tenders except for their own account.
Tenders will be received without deposit from commercial and other banks for
their own account, Federally—insured savings and loan associations, States, political
subdivisions or instrumentalities thereof, public pension and retirement and other
public funds, international organizations in which the United States holds m e m b e rs h ip !
foreign central banks and foreign States, dealers who make primary markets in
Government securities and report daily to the Federal Reserve Bank of New York their
positions with respect to Government securities and borrowings thereon, Federal
Reserve Banks, and Government accounts. Tenders from others must be accompanied by
payment of 5 percent of the face amount of securities applied for. However, bidders
who submit checks in payment on tenders submitted directly to a Federal Reserve Bank
or the Treasury may find it necessary to submit full payment for the securities wit
their tenders in order to meet the time limits pertaining to checks as hereinafter
set forth. Allotment notices will not be sent to bidders who submit noncompetitive
tenders.

-3Payment for accepted tenders roust be completed on or before Friday,
November 15, 1974, at the Federal Reserve Bank or Branch or at the Bureau of the
Public Debt, except that payment for up to 50 percent of the amount of bonds
allotted may be deferred until December 3, 1974, as set forth in the following
paragraph. Payment must be in cash, 5—3/4% Treasury Notes of Series A—1974 or
3-7/8% Treasury Bonds of 1974, which will be accepted at par, in other funds
immediately available to the Treasury by November 15, or by check drawn to the
order of the Federal Reserve Bank to which the tender is submitted, or the United
States Treasury if the tender is submitted to it, which must be received at such
bank or at the Treasury no later than:
(1) Tuesday, November 12, 1974, if the
check is drawn on a bank in the Federal Reserve District of the Bank to which the
check is submitted, or the Fifth Federal Reserve District in case of the Treasury,
or (2) Friday, November 8, 1974, if the check is drawn on a bank in another district.
Checks received after the dates set forth in the preceding sentence will not be
accepted unless they are payable at a Federal Reserve Bank. Where full payment
is not completed on time, the allotment will be canceled and the deposit with the
tender up to 5 percent of the amount of securities allotted will be subject to
forfeiture to the United States.
If partial payment for the bonds is to be deferred until December 3, 1974, the
bidder must indicate on the tender form the amount of bonds allotted on which pay
ment will be deferred. Accrued interest from November 15 to December 3, 1974,
will be charged on the deferred payment at the rate of $4.22652 per $1,000 face
value. In the case of partial payment from bidders who are required to submit
a 5 percent deposit with their tender, 5 percent of the total amount of bonds
allotted, adjusted to the next higher multiple of $1,000, will be withheld from
delivery until the total amount due on the bonds allotted is paid.
Commercial banks are prohibited from making unsecured loans» or loans
collateralized in whole or in part by the securities bid for, to cover the deposits
required to be paid when tenders are entered, and they will be required to make
the usual certification to that effect. Other lenders are requested to refrain
from making such loans.
All bidders are required to agree not to purchase or to sell, or to make any
agreements with respect to the purchase or sale or other disposition of the notes
or bonds bid for under this offering at a specific rate or price, until after the
closing hour for the receipt of tenders for each particular issue.

DepamentofthefRjffiURY ¡ ¡W Ê
20220
YASHIN6T0I»;. D.C.
D.C. 20220

LIU L^a

TELEPHONE W04-2041

if
FOR IMMEDIATE RELEASE

October 31, 1974

EMERGENCY LOAN GUARANTEE BOARD
ANNOUNCES LOCKHEED PARTIAL REPAYMENT
The Emergency Loan Guarantee Board announced that
Lockheed Aircraft Corporation has reduced loans outstanding
under Government guarantee from $245 million to $230 million
by repayment yesterday of $15 million to the Company*s
lending banks.

Lockheed is authorized under terms of its agreement
with the Emergency Loan Guarantee Board to borrow np to a
maximum of $250 million under Government guarantee.

oOo

WS-145

DepartmentofthefREASURY
[WASHINGTON, D.C. 20220

TELEPHONE W04-2Û4T

FOR IMMEDIATE RELEASE

October 31,1974

JOHN H. HARPER NAMED AS
TREASURY SPECIAL ASSISTANT
Secretary of the Treasury William Simon has named
John Harris Harper as a Special Assistant. Mr. Harper will
assist Secretary Simon in his duties as Chairman of the
President's Economic Policy Board by assisting the Secretary
in assuring prompt implementation of the President's
economic program.
Mr. Harper, a native of Florence, Alabama, has been
Deputy Assistant Administrator for Operations, Regulations
and Compliance at the Federal Energy Administration, an
assignment he took during the Arab Oil embargo.
A lawyer, Mr. Harper received his undergraduate and
law degrees at Emory University, Atlanta, Georgia, and is
a member of the Alabama, District of Columbia and Georgia
bars. He came to Washington in the middle 60's as an
administrative assistant to Representative John J. Flynt,
Jr. of Georgia. He returned to Alabama to practice law
in Birmingham. He later joined the Investment Bankers
Association in Washington, D.C. as Assistant General Counsel
and before joining the Energy Administration was Legislative
Counsel for the National Association of Electric Companies
in Washington, D. C.
Mr. Harper is married to the former Margaret Munger
McCall and lives in Cabin John, Maryland. They have two
daughters.

oOo

WS-142

TREASllRY

Departmentof
WASHINGTON. D.C. 20220

t
TELEPHONE W04-2041

R E M A R K S O F TH E H O N O RA BLE C H A R L E S A. C O O P E R
A SSISTA N T S E C R E T A R Y O F TH E T R E A S U R Y
F O R IN TER N A TIO N A L A F F A IR S
B E F O R E TH E
F A R E A S T -A M E R IC A COUN CIL O F C O M M E R C E AND IN D U STR Y IN C.
AT TH E PLA Z A H O TEL
NEW Y O R K , NEW Y O R K , O C T O B E R 2 3 , 1974

T h is m onth m a rk s the a n n iv e r s a r y of the Y om K ippur W a r, the
oil e m b a rg o , and the f i r s t of the s e r i e s of m a jo r o il p r ic e i n c r e a s e s .
O ver the p a st y e a r th e r e h a s b een a g r e a t deal .of d is c u s s io n about
the b ro ad im p lic a tio n s of the 11en e rg y sh o c k " fo r the w orld econ om y .
In the hope of helping to fo cu s th at d is c u s s io n , I would lik e today
to look at A sian e x p e rie n c e with th is p ro b lem a s b ro a d ly r e p r e s e n
ta tiv e of the e x p e rie n c e of the oil im p o rtin g w orld. Ja p a n , a developed
cou n try; Ind ia, B a n g la d e sh and the Indochina n atio n s a s c o u n trie s
which w e re e x p e rie n c in g s e r io u s d ifficu lty even b e fo r e thé en e rg y
c r i s i s , with v e ry low p e r c a p ita in co m e and grow th r a t e s and sc a n t
fo re ig n exch an g e r e s e r v e s ; and fin a lly , K o r e a , the R ep u b lic of C hina
and the P h ilip p in e s a s developing c o u n trie s w hich w e re doing w ell - a ch iev in g im p r e s s iv e r a t e s of grow th and a stro n g ex p o rt p e r fo r m a n c e - b e fo re thé d isru p tio n s w hich began a y e a r ago. '
T h e w orld econ om y is now going through a p e rio d of u n p reced en ted
a d ju stm en t. We e s tim a te at the T r e a s u r y th at the O P E C c o u n trie s
w ill a m a s s Su rplu s re v e n u e s th is y e a r of so m e $ 5 5 b illio n . A s
a c o n se q u e n ce , the r e s t of th e w orld w ill run a c u r r e n t a ccou n t
d e fic it of the sa m e m agnitu de. O il im p o r te r s as a group cannot
c o lle c tiv e ly re d u ce th e ir c u r r e n t acco u n t d e fic it and individual e ffo r ts
to do so w ill in e v ita b ly a ffe c t the p o sitio n s of o th er c o u n tr ie s . T o the
ex ten t th at drawdowns in fo re ig n exch an ge r e s e r v e s c a n 't or don't
m eet the b ill, th e ir c u rre n t accou n t d e fic its m u st be fin a n ced by
what am ounts to b o rro w in g - - inclu d in g, of c o u r s e , O P E C in v e stm e n ts
of a ll k in d s.

It s e e m s to m e th at in our d is c u s s io n s of r e c y c lin g we could
fo cu s so m e u sefu l atten tio n on the p ro b le m s p o sed by d iffe r e n c e s
b etw een c o u n tr ie s ' a b ility and w illin g n e s s to b o rro w . F o r so m e
c o u n tr ie s , b o rro w in g has b een a f a m ilia r and e ffe c tiv e m ea n s of
b a la n cin g th e ir e x te r n a l a c co u n ts. F o r o th e r s , e s p e c ia lly p o o re r
L D C 's , it has b een a d e s ire d so lu tio n with the a v a ila b ility o r c r e d it
the lim itin g fa c t o r . O th er n atio n s tr a d itio n a lly have tr ie d to avoid
in c r e a s in g th e ir e x te r n a l in d e b te d n ess. T h e s e d iffe r e n c e s in
attitu d e s and a b ilitie s p e r s is t and have im p o rta n t im p lic a tio n s fo r
the way ih w hich the O P E C fin a n c ia l su rp lu s is ch an n eled to the
r e s t of the w orld .
F o r ex a m p le , Ja p a n , ju dging by both e x p e rie n c e and announced
p o lic y o b je c tiv e s , is a cou n try th at is not p re p a re d sim p ly to b o rro w
to fin a n ce a c u r r e n t accou n t d e fic it fo r a su sta in ed p e rio d and is
p re p a re d to a c c e p t the eco n o m ic a d ju stm e n ts n e c e s s a r y to lim it su ch
b o rro w in g . Ja p a n w as am ong th o se w hose b a la n c e of p ay m en ts
w as h a rd e s t hit by h ig h er oil p r i c e s . R ely in g on oil fo r 75% of its
e n e rg y r e q u ire m e n ts and im p o rtin g a ll it s o il, Ja p a n fa c e d the p r o s p e c t
of a m a s s iv e in c r e a s e in its o il im p o rt b ill to so m eth in g on the o r d e r
of $20 b illio n in 1974 in the a fte rm a th of the o il p r ic e in c r e a s e s . In
1 9 7 3 , the Ja p a n e s e c u r r e n t acco u n t p o sitio n had d e te r io r a te d by so m e
$6 1/2 b illio n to ap p p ro xim ate b a la n c e , a fte r y e a r s of s u b sta n tia l
s u rp lu s . Although a m o d est im p ro v em en t in th e n o n -o il c u r r e n t
acco u n t w as fo r e s e e n , h ig h e r o il p r ic e s w e re ex p e cte d to push th e
c u r r e n t accou n t b a la n c e into a d e fic it ap p ro ach in g $ 7 - 8 b illio n .
It now a p p e a rs that Ja p a n 's c u r r e n t acco u n t d e fic it in 1 9 7 4 w ill
be c o n s id e ra b ly l e s s than e a r l i e r a n ticip a te d and m ay even b e m oving
into b a la n ce o r s u rp lu s. T h e c u r r e n t acco u n t d e fic it p eaked in the
f i r s t q u a r te r of 1 9 7 4 , at about $ 2 . 5 b illio n , s e a s o n a lly a d ju sted , and
had ju s t about d isa p p e a re d in the th ird q u a r te r . In p a r t, th is
im p ro v em e n t is due to red u ced volu m es of oil im p o rts in r e s p o n s e
to h ig h er o il p r i c e s . In p a r t, it r e s u lt s fro m the d o m e stic slow dow n,
w hich, coupled with continued stro n g dem and fo r Ja p a n e s e p ro d u cts
in o v e r s e a s m a r k e ts , has y ield ed an a b so lu te red u ctio n in r e a l im p o rts
and a s u rg e in e x p o rts . T h e n o n -o il tra d e a cco u n ts have now m oved
into a su rp lu s w hich f a r e x c e e d s the c o rre sp o n d in g fig u r e s fo r the
s a m e p e rio d la s t y e a r .

- 3 -

Ja p a n h a s, pf c o u r s e , b orrow ed su b sta n tia l am ounts ab ro a d th is
y e a r . In the f i r s t th re e q u a r te r s , the net e x te r n a l p o sitio n of
Ja p a n e s e c o m m e r c ia l banks d eclin ed by about $8 b illio n . R e la x a tio n
of r e s t r ic t io n s on lo n g -te r m c a p ita l inflow s a ls o co n trib u ted to a
su b sta n tia l red u ctio n in net c a p ita l outflow s to slig h tly o v er $3 b illio n
thus fa r th is y e a r , as co m p ared with a lm o s t $7 b illio n in the sa m e
p e rio d a y e a r ago. T h e d e fic it th is y e a r has b een fin an ced without
m a jo r d ifficu lty , lea v in g Ja p a n w ell p o sitio n ed to b o rro w add ition al
funds a b ro ad should the need a r i s e . B u t Ja p a n 's p o sitio n is ra p id ly
m oving to the point at w hich ad d ition al net b o rro w in g w ill not be
n ecessary .
J a p a n 's d e s ir e to im p ro v e its b a la n c e of p ay m en ts p o sitio n has
a cco rd e d w ell w ith its d o m e stic p o lic ie s w hich have resp o n d ed to
rapid in fla tio n and to the n a tio n 's tra d itio n a l s o c ia l o b je c tiv e s .
C on su m er p r ic e s w e re clip p ing ahead e a r l i e r th is y e a r at a 25%
annual r a t e and whole s a le p r ic e s at a 35% p a c e . A v irtu a l wage
ex p lo sio n th is p a st sp rin g brought in fla tio n into the h ea d lin es and
into the p o litic a l a r e n a . F a c e d with the u n a cce p ta b le p r o s p e c t of
in d u stry la y o ffs and unem ploym ent a s a r e s u lt of w a g e -p r ic e p r e s s u r e s ,
the Ja p a n e s e a u th o ritie s tu rned th e ir e ffo r ts to a d e term in ed a tta ck
on in fla tio n . Ja p a n has thus ch o sen to tigh ten its b e lt and a c ce p t
low er le v e ls of n atio n al in co m e to dam pen in fla tio n and the r e s u ltin g
slowdown in e co n o m ic a c tiv ity has b een a su b s ta n tia l fa c to r in tu rn in g
its e x te rn a l a cco u n ts around.
T h e sp eed and m agnitude of the tu rn arou n d in Ja p a n 's e x te r n a l
p o sitio n in e v ita b ly r a i s e s q u estio n s about the in te rn a tio n a l c o n se q u e n ce s
of th is d evelop m en t. Som e have argu ed th a t, if the w orld p aym en ts
p a ttern is to be s u s ta in a b le and e q u ita b le, Ja p a n should now be
running a c u r r e n t acco u n t d e fic it and tak in g advantage of its d e m o n stra ted
c re d it w o rth in e ss to fin a n ce that d e fic it. It has b een noted that
th e re h as b een a n o tic e a b le d e p re c ia tio n of the yen r a te th is y e a r .
It is a ls o w idely b e lie v e d that the Ja p a n e s e a u th o ritie s have an im p o rta n t
d egree of c o n tro l o v er c a p ita l m ov em en ts that can be u sed to in flu en ce
exchange m a rk e t p r e s s u r e s .
C le a r ly , h ow ev er, Ja p a n has not had r e c o u r s e to the kinds of
tro u b le so m e co m p e titiv e p r a c t ic e s that c o u n trie s have b een c r itic iz e d
fo r in e a r l i e r p e rio d s . Ja p a n has a cce p te d and ad h ered to the
o b lig ation s of the p led ges n eg o tiated in the O ECD and the IM F to
avoid r e s t r ic t iv e m e a s u re s a ffe c tin g c u r r e n t accou n t tr a n s a c tio n s ,
as w ell as the in tro d u ctio n of ex p o rt s u b s id ie s . It has not in terv en ed
in the fo re ig n exch an g e m a rk e t to d riv e down the yen ex ch an ge r a te ,

- 4 -

and in fa c t h as on o c c a s io n in terv e n ed to su pport the yen . Nor can
the slowdown in grow th in Ja p a n th is y e a r , p a r a lle lin g the d e clin e
in eco n o m ic a c tiv ity around the in d u stria l w o rld , and needed to fight
d angerou s in fla tio n r a t e s , be c o n sid e re d a fo rm of c o m p e titiv e d efla tio n .
Y e t the fa c t r e m a in s th at the s tr o n g e r c u r r e n t a ccou n t b a la n ce
a ch iev e d th is y e a r in Ja p a n , and the fa v o ra b le p r o s p e c ts fo r
m ain tain in g su ch a p o sitio n n ex t y e a r , in ev ita b ly p o s e s d iffic u ltie s
fo r o th er oil im p o rtin g c o u n trie s who a ls o p r e fe r to a d ju st r a th e r
than sim p ly to expand th e ir b o rro w in g to c o v e r h ig h e r d e fic its .
T h e fo u rfo ld in c r e a s e in o il p r ic e s a ls o hit h ard a n o th er group of
A sia n c o u n trie s - - the r e la tiv e ly p oor L D C 's of South A s ia and the
Ind ochina p e n in su la . W ith la r g e se g m e n ts of th e ir population liv in g
in deep p o v erty even b e fo re the e n e rg y c r i s i s , the sh a rp ly h ig h er
fu el c o s t s , s h o rta g e s and p r ic e in c r e a s e s of f e r t i l i z e r s , and the
u n p reced en ted round of glob al in fla tio n a ll s e r v e d to add to th e ir
b u rd en s, p a r tic u la r ly s in c e the ex p o rt p e r fo r m a n c e of th e s e c o u n trie s
h as not b een stro n g .
U nlike Ja p a n , th e s e c o u n trie s w ere fa c in g s e r io u s b a la n c e of paym en ts
p ro b le m s b e fo r e the oil p r ic e in c r e a s e s . B y and la r g e , th ey en joyed
only lim ite d a c c e s s to p riv a te fin a n c ia l m a r k e ts , and depended e x te n siv e ly
on in fu sio n s of fo re ig n o ffic ia l funds to fin a n ce th e ir d e fic its . W ith
lim ite d r e s o u r c e s and lim ite d fle x ib ility fo r ad ju stm en t in the s h o r t ru n , th e s e c o u n trie s need to b o rro w su b sta n tia l su m s of m oney to
fin a n ce th e ir d e fic its th is y e a r and in the y e a r s im m e d ia te ly ahead.
T h e s e c o u n tr ie s , of c o u r s e , a r e not without m ean s to a d ju st to
the p r e s e n t d iffic u ltie s . In Ind ia, fo r ex a m p le , a c tio n h as been taken
to re d u c e the volu m e of oil im p o rts 5 p e r c e n t. P ro d u ctio n of d o m e stic
c o a l, w hich is in abundant supply, is to be in c r e a s e d . T a x in c e n tiv e s
have b een p rov id ed to en co u ra g e s w itc h -o v e r s fro m oil to c o a l fo r
in d u s tria l u s e s . C o n tra c ts have b een sig n ed fo r e x p lo ra tio n fo r oil
in the B a y of B e n g a l, and p ro m is in g r e s u lts have b een obtained in
an o th er o ffs h o re a r e a , the B om bay H igh. In the lo n g e r ru n , of
c o u r s e , ch an g es in the s tr u c tu r e of In d ia 's a g r ic u ltu r a l d istrib u tio n
s y s te m , ta x s y s te m , fo re ig n in v e stm en t p o licy and o th er eco n o m ic
p o lic ie s a r e needed, not ju s t to a d ju st to c u r r e n t p ro b le m s but to
p ro m o te grow th and developm ent of the Indian econ om y on a
su sta in e d b a s is .

It is not r e a l i s t i c , h o w ev er, to ex p e ct the p o o r e r n a tio n s o f A s ia
to a d ju st fu lly to the changed eco n o m ic con d ition s in the w orld econ om y .
C o n c e ss io n a l aid is needed, and is being provided through tra d itio n a l
b ila t e r a l aid p r o g ra m s , new o il p ro d u ce r ch a n n e ls, and, o f c o u r s e ,
the in te rn a tio n a l developm ent b an k s. At the sa m e tim e , even fo r th e s e
n a tio n s, the in d u stria l n atio n s o f the w orld w ill have th e ir la r g e s t
im p a c t through c o m m e r c ia l in v e stm e n t and tra d e flo w s, and in th is
s e n s e , what is m o st im p o rta n t a r e the eco n o m ic co n d itio n s that p r e v a il
in Ja p a n , the U .S . and W e s te rn E u ro p e o v e r the c o u r s e of the n ext
m onths and y e a r s .
K o r e a , Taiw an and the P h ilip p in e s ex em p lify a m id d le group of
developing c o u n trie s that had m ade g r e a t p r o g r e s s in red u cin g th e ir
dependence and aid b e fo re the e n e rg y c r i s i s but now fa c e the p r o s p e c t
of having to fin an ce en la rg ed c u r r e n t a cco u n t d e fic its by draw ing down
r e s e r v e s and b orrow in g h eav ily fro m a com b in ation of p r iv a te and pu blic
c a p ita l s o u r c e s . It is c e r ta in ly not a p ro s p e c t th ey a c c e p t happily
but it is one they can a c c e p t, at le a s t fo r a p e rio d of tim e .
K o re a h as se rv e d a s an ex am p le of how a developing nation with
few n a tu ra l r e s o u r c e s could u se it s la b o r and m a n a g e r ia l ta le n t to
develop a pow erfu l in d u stria l b a s e . P r im a r ily by p r o c e s s in g im p o rted
raw m a t e r ia ls into m an u factu red e x p o r ts , th at co u n try saw its e x p o rts
r i s e 35% annu ally in the p e rio d 1 9 6 8 -7 3 . W ith th is stro n g grow th in
e x p o rts , K o re a e x p e rie n c e d lit t le d ifficu lty in obtain in g fo re ig n lo a n s
and a ttra c tin g the fo re ig n d ir e c t in v e stm e n t needed to b a la n ce its
e x te rn a l a c co u n ts.
W ith no p e tro le u m r e s o u r c e s , K o re a w as h ard h it by th e o il p r ic e
i n c r e a s e s . Including a s m a ll in c r e a s e in v o lu m e, P O L im p o rts w hich
c o s t ju s t o v e r $300 m illio n in 1973 a r e ex p ected to c o s t $ 1 . 2 b illio n
this y e a r . K o re a hopes to in c r e a s e e x p o rts again th is y e a r a t the
r a te o f r e c e n t y e a r s . N o n e th e le ss, K o r e a 's c u r r e n t a cco u n t b a la n ce
w ill s t i l l be in d e fic it by a p p ro x im a te ly $ 1 .1 to $ 1 .2 b illio n th is y e a r - th re e tim e s the 1973 le v e l.
T o fin an ce th is d e fic it, K o re a n a u th o ritie s a r e seek in g about $500
m illio n of ad d itional sh o rt-an d m e d iu m -term c a p ita l th is y e a r fro m
p riv a te banks and ex p o rt c r e d it in s titu tio n s . T he G o v ern m en t a ls o
is en co u rag in g fu rth e r d ir e c t in v e stm e n t by p riv a te fo re ig n fir m s ,
p a r tic u la r ly in the e x p o rt s e c t o r w h ere they a lre a d y p lay an im p o rta n t
r o le . T he RO K is a ls o attem p tin g to in c r e a s e the le v e l of b orrow in g
from p u b lic in stitu tio n s su ch a s the A sia n D evelop m en t B an k and the
In te rn a tio n a l M on etary Fund. K o r e a 's p ro b a b le a c c e s s to the IM F
oil fa c ility th is y e a r w ill fin a n ce about o n e -fo u rth of the in c r e m e n ta l
c o st o f P O L p ro d u cts in 1974.

T aiw an and the P h ilip p in s have m ade p r o g r e s s s im i la r to that
o f K o re a in r e c e n t y e a r s , and they fa c e s im i la r p r o s p e c ts . T a iw a n 's
o il im p o rt b ill is ex p e cted to r i s e so m e $ 5 0 0 m illio n th is y e a r ; th at
o f the P ilip p in e s by about the sa m e am ount. T h ey too can b o rro w fro m
a m ix of p riv a te and p u b lic s o u r c e s .
B u t none of th e s e c o u n trie s w ill want to do so in any g r e a t e r am ounts
than is needed to o ffs e t the in c r e a s e d c o s t s of th e ir own o il b ill.
And, lik e M a la y s ia and S in g a p o re , they have e x p e rie n c e d s u c c e s s in
developing ra p id ly grow ing ex p o rt m a r k e ts fo r t h e ir p ro d u c ts, and can
b e n e fit on the ex p o rt sid e fro m h ig h e r w orld p r i c e s . T h ey have a
r e a l a b ility to a d ju st to changed co n d itio n s and to lim it the p o ten tia l
grow th in, th e ir in d e b te d n e ss.
In s h o r t, eco n o m ic p r o s p e c ts of A sia n n a tio n s have a ll b een
s e r io u s ly h it by the o il p r ic e i n c r e a s e s — through in fla tio n , slo w e r
r a t e s of eco n o m ic a c tiv ity and v a rio u s d e g r e e s of fin a n c ia l p r e s s u r e s .
And a ll a r e ad ju stin g - though not by any m e a n s in the sa m e way.
Two key is s u e s need c a r e fu l c o n s id e ra tio n .
T he f i r s t c e n te r s on the a s s o c ia tio n betw een r e s p o n s ib le n a tio n a l
and in te rn a tio n a l b e h a v io r in an in c r e a s in g ly in terd ep en d en t w orld .
T he en e rg y sh ock h as a d v e r s e ly a ffe c te d eco n o m ic p r o s p e c ts in a ll o il
im p o rtin g c o u n tr ie s . W e a r e now w itn e ssin g d e term in ed n a tio n a l
r e s p o n s e s to th e s e s t r a in s , and undoubtedly so m e c o u n tr ie s could
in the s h o r t - t e r m resp o n d m o re ad eq u ately than o th e r s . Y e t to the
e x te n t th at individual n atio n s a r e s u c c e s s fu l in re a c h in g th e ir g o a ls ,
o th e r s m ay have g r e a t e r d iffic u lty in a tta in in g th e ir o b je c tiv e s .
U nlik e the p a s t, the in te rn a tio n a l a d ju stm en t p r o c e s s is not takin g p la c e
in an en v iro n m en t o f grow th and p r o s p e r ity but in one o f r e la tiv e
sta g n a tio n . A t no tim e in r e c e n t h is to r y h as the eco n o m ic i n t e r
depend ence of the w orld p osed su ch a c h a lla n g e . D o m e stic o b je c tiv e s
and in te rn a tio n a l r e s p o n s ib ilit ie s m u st be sim u lta n e o u sly fa ce d up to.
B u t what is a c o u n try 's in te rn a tio n a l r e s p o n s ib ility ? Do c r e d i t
w orthy c o u n trie s have a s p e c ia l o b lig a tio n to a c c e p t c u r r e n t a cco u n t
d e fic its in the sh o rt run to e a s e the a d ju stm en t b u rd en s of th o se who
la c k the a b ility to b o rro w ? If so , does a co u n try have an o b lig a tio n
to take p o s itiv e a c tio n in th e s e c ir c u m s t a n c e s , o r i s it adequ ate m e r e ly
to avoid c o m p e titiv e p r a c t i c e s ? I w ill not p a s s ju d gm en t on such
co m p le x m a tte r s today. I do fe e l, h ow ever, that it i s is e s s e n tia l
th at the o il im p o rtin g c o u n trie s continue to se e k to b ro ad en th e ir
u n d erstan d in g of th e ir sh a re d g o a ls and sh a re d r e s p o n s ib ilit ie s , and
th at the p a ce o f in te rn a tio n a l c o n su lta tio n , fo r m a l and in fo r m a l, be
m ain tain ed in o rd e r to r e a c h the kind of co n se n su s needed to develop
new r u le s and u n d erstan d in g s a p p ro p ria te to the changed c ir c u m s ta n c e s
o f the w orld econ om y .

-7 -

T he secon d m a jo r is s u e we m u st ta c k le in v o lv es the r e s p e c tiv e
r e s p o n s ib ilit ie s o f the p riv a te and p u blic s e c t o r s . T hu s fa r th is
y e a r , p riv a te fin a n c ia l m a rk e ts have ad ju sted w ell to the s tr a in s
c r e a te d by abru p t s h ifts in the p a tte rn of in te rn a tio n a l c a p ita l flo w s.
N ation al banking s y s te m s have played a p ro m in en t r o le in the r e
c y c lin g p r o c e s s , and they w ill c e r ta in ly continue to play an im p o rta n t
on e. B u t g o v ern m e n ts and in te rn a tio n a l in stitu tio n s have in c r e a s in g ly
p a r tic ip a te d . We s e e grow ing ev id en ce that new fin a n c ia l r e la t io n
sh ip s a r e being e s ta b lis h e d d ir e c tly w ith the O P E C c o u n tr ie s . A
s p e c ia l o il fa c ilit y h as been e s ta b lis h e d in the IM F .
Although the co m p lex of e x istin g fin an cin g m e c h a n is m s h as been
e ffe c tiv e so f a r , th at is not the whole s to r y . C e r ta in ly so m e L D C 's
have an im m e d ia te and p r e s s in g need fo r su b sta n tia l p u blic a s s is t a n c e
on c o n c e s s io n a l t e r m s . The new D evelop m en t C o m m ittee e s ta b lis h e d
under the a e g is of the IM F and IB R D w ill give p r io r ity a tten tio n to
th is p ro b le m . F o r the w orld econ om y , g e n e r a lly , h ow ever c o n c e s s
io n al aid is h ard ly the a n sw e r.
M any p a r tic u la r c o n c e rn s have been e x p r e s s e d and so lu tio n s of
one kind o r an o th er p r o fe r r e d . We b e lie v e th e re is g r e a t dynamism
and fle x ib ility in p riv a te fin a n c ia l and c o m m e r c ia l m a r k e ts , and th at
m a r k e t a d ju stm e n ts w ill o v e r tim e m ake a fu ndam ental co n trib u tio n .
A t p r e s e n t, the U. S. m a in ta in s an open m ind on w h eth er new i n s t i
tu tio n al a d ju stm e n ts a r e n e c e s s a r y . H ow ever, a s S e c r e t a r y Sim on
in d ica ted a t the In te rn a tio n a l M on etary Fu n d , if th e r e is a d e m o n stra ted
need that new fin an cin g m e c h a n is m s a r e n eed ed , the U. S. would
su pport th e ir e s ta b lis h m e n t. T he im p o rta n t thing is to p r e p a r e
c a r e fu lly so th at we can m ove p ro m p tly if a need should b eco m e
ev id en t.
T he n atio n s of F a r E a s t A s ia fa c e a p a r tic u la r ly d iffic u lt p erio d
of u n c e rta in ty and tr a n s itio n . T h e trad in g and in v e stm en t p a tte rn s
w hich have se rv e d so w ell to p ro m o te the d evelopm ent of m any of
th e se n atio n s w ill be s tra in e d by the en e rg y sh o ck . In A s ia , a s e l s e
w h ere, the p u blic and p riv a te s e c t o r s a r e both stru g g lin g to cope
with the new eco n o m ic and fin a n c ia l b u rd en s. T he fu tu re eco n o m ic
h ealth o f th e se n atio n s w ill depend not only on pu blic p o lic y , but a ls o
on the in itia tiv e and im ag in atio n of the p riv a te s e c t o r . T h o se
r e la tiv e ly lib e r a l e c o n o m ie s of A s ia have been the b rig h t sp o ts of the
p a st d ecad e, and that fa c t m u st not be fo rg o tte n . P o lit ic a l and eco n o m ic
co n d itio n s have p e rh a p s been m o re p ro p itio u s in the p a st, but the
r e a l c h a lle n g e is to e n su re that the o v e r - a ll fra m e w o rk of the w orld
econom y p e r m its p riv a te in d u stry and c o m m e rc e to continue to play
the dynam ic ro le in the fu tu re that they have in the p a st. The r e a l
trag ed y would co m e if in try in g to a d ju st to p r e s e n t eco n o m ic and
p o litic a l s t r a in s , we w e re to allow con d ition s to develop in w hich fr e e
m a r k e ts , p riv a te in stitu tio n s , and in te rn a tio n a l tra d e and in v e stm en t

tu rned out to be m uch l e s s p ow erfu l en g in es of eco n o m ic grow th and
d evelop m ent than has b een the c a s e in the p a st th re e d e ca d e s. A s ia
h as shown how p ow erfu l th e s e f o r c e s can b e. A s we w ork w ith o th e r
n atio n s to m anage c u r r e n t e co n o m ic p r o b le m s , it is e s s e n t ia l th at
e ffe c tiv e in stitu tio n a l fo ru m s and w o rk ab le r u le s of in te rn a tio n a l
b e h a v io r be developed w hich p e r m it the v ir tu e s of a lib e r a l w orld
eco n o m ic sy s te m to be su sta in e d . In th is en d ea v o r, what g o v ern m e n ts
a g re e to is not m o re im p o rta n t than what p riv a te in v e s to r s and t r a d e r s
do. And, in th is s e n s e , I am p le a se d to know th at your C ou n cil w ill
continue to w ork to su pport and s u sta in v ig o ro u s eco n o m ic in te rch a n g e
betw een A s ia and the U nited S ta te s . The so lu tio n to the p ro b le m of
an in terd ep en d en t w orld lie s in m o re in terd ep en d en ce - - not l e s s .

FOR RELEASE TUESDAY, NOVEMBER 12
TREASURY SECRETARY SIMON NAMES HAUGE OF MANUFACTURERS HANOVER
AS 1975 CHAIRMAN OF U. S. INDUSTRIAL PAYROLL SAVINGS COMMITTEE
Gabriel Hauge, Chairman of the Board, Manufacturers Hanover Trust
Co., Manufacturers Hanover Corp., New York, is to be 1975 Chairman of
the U. S. Industrial Payroll Savings Committee, as appointed by Secre
tary of the Treasury William E. Simon. He is the first representative
of the banking industry to serve as Chairman.
Since its formation in late 1962, the Committee, composed of chief
executives of leading industries, has sparked the sale of U. S. Savings
Bonds through the Payroll Savings Plan.
Hauge will succeed John D. deButts, Chairman of the Board and Chief
Executive Officer, American Telephone and Telegraph Co. He will take
office as 13th Chairman at the annual meeting of the Committee in Wash
ington, January 16. Hauge served on the Committee in 1973 and 1974, as
Banking Industry Chairman.
In naming Hauge, Secretary Simon said -- "I am delighted that you
nave agreed to be our 1975 Chairman of the t|| S. Industrial Payroll
Savings Committee. You have assured a continuation of the outstanding
eadership which has made the Committee a vital force in the management
jOf the public debt and in promoting the stability of our economy . . .
iour acceptance of the Chairmanship means a great deal to me and to the
Nation."
The mission of the Committee is to stimulate systematic savings via
pegular purchase of Series E Bonds by employees throughout the nation.
mployers will be urged to sign up at least one of every two employees
pot now participating in the Payroll Plan, and to obtain an increase in
pllotment from at least one of every two employees now enrolled.
Hauge voiced a keen belief in the Bond Program and the vital role
Ft plays in the battle against inflation. "It is to the best interests

( over )

of every American, every industry, to support such a program that helps
combat inflation and encourages fiscal stability. Our Bond Program does
both. First, it works to offset inflation by removing money temporarily
from the spending stream. Second, and no less imperative, it serves im
measurably in aiding the debt management of the Treasury. The average
seven-year life-span of Savings Bonds is more than twice that of other
government securities. The result is that Americans who buy Bonds are
furthering the national economy, while receiving a good return on their
money."
Hauge was born in Hawley, Minn., March 7, 1914. He attended Con
cordia College, Moorhead, Minn., earning an AB degree in 1935. After
a year as Assistant Dean of Men and Coach of Forensics at Concordia, he
entered Harvard University, receiving an MA in Economics in 1938. From
1938 to 1942, Hauge taught economics, first at Harvard and, beginning in
1940, at Princeton.
In 1942, he joined the Navy, seeing fleet action in
the Pacific Theater. He earned his PhD in Economics at Harvard m 1947.
Following graduation, he joined the New York State Banking Depart
ment, as Chief of the Division of Research and Statistics. He moved to
McGraw-Hill Publishing Co., Inc., in 1950, where he was Assistant to the
Chairman of the Executive Committee, also Editor of the "Trend section
of "Business Week". Hauge worked on the Eisenhower campaign stafr m
1952, and was named Administrative Assistant to the President for Eco
nomic Affairs in January 1953. He became Special Assistant to the Pres
ident for Economic Affairs in July 1956.
;
He joined Manufacturers Trust Co., in October 1958, as Chairman of
the Finance Committee and, when that bank became Manufacturers Hanover
Trust Co., in 1961, he was named Vice Chairman of the Board. He has
since served as President of the Company, 1963-1971, and President of^
Manufacturers Hanover Corp., 1969-1971. He assumed his present post m
1971.
Hauge serves on the Boards of Manufacturers Hanover International
Finance Corp.; Manufacturers Hanover International Banking Corp.; Amer
ican Metal Climax, Inc.; Chrysler Corp.; New York Life Insurance Co.;
Council on Foreign Relations, Inc.; National Council on U. S./China
Trade; Julliard Musical Foundation; Greater New York Fund; Business Lom
mittee for the Arts, Inc.; United Fund of Greater New York. He is also
a member of the Federal Advisory Council of the Federal Reserve System,
New York Urban Coalition, Inc.; The Century Association; University
Club; New York Athletic Club, and the Economic Club of New York.
He and his wife, the former Helen Lansdowne Resor, have seven chil
dren -- Ann Bayliss, 25; Stephen Burnet and John Resor, 23; Barbara
Thompson, 22; Susan Lansdowne, 20; Elisabeth Larsen, 17, and Caroline
Clark, 12.
oOo

Department of
SHINGTON, D C 20220

theTREASURYj
TELEPHONE W 0 4 2041

FOR RELEASE AT 1:00 P.M. OCTOBER 31, 1974
ADDRESS OF WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE NATIONAL PRESS CLUB
WASHINGTON, D.C.
Good afternoon.
It is certainly a pleasure to return to
the Press Club. Speaking here is always an exhilerating
experience, and I’m glad to be back.
The problems of the economy, of course, are the occasion
for my visit this afternoon. Before turning to your questions,
I would like to devote a few moments to a brief overview of
those problems as well as their solutions.
Most of you are very familiar with the litany of economic
problems facing us today. Prices are still galloping upwards,
while production and employment are turning down. Oil prices
are still too high, and stock prices are too low. Consumer
purchasing is off, and consumer spirits have sagged even
further. As one of our political friends is suggesting this
fall, the housewife who buys a three-pound steak isn’t sure
whether she should barbecue it or bronze it.
This is not a picture of glowing health, but by any
fair set of measurements, the patient is in much better shape
than many people think. Actually, there are no mysteries
about the cause of sickness, nor in my opinion is there any
real doubt about the cure. To me, the real question is
whether we have enough wisdom and political courage to take
the right medicine.
General prescriptions for the economy now seem to fall
into three categories. Each presentation contains many
different variables, but for the sake of time and simplicity
let me describe them in the broadest terms.
The first, generally speaking, is to begin stimulating
the economy through fiscal and monetary policy and then,
in order to contain the new inflationary pressures that
would be created, to impose some new form of wage and price
controls. The advantage of this approach, it is said, is

WS-147

that we would have the best of both worlds: we would avoid
sliding into a deep recession or even a depression, and
we would also be saved from the ravages of inflation.
Moreover, we would have the pleasure of instant relief.
The second alternative, one that you hear about in
frequent ly~T)ut— one that we could easily slip into if w e ’re
not careful, is to take no medicine at all. To those who
advocate this position, the costs of curing our inflation
seem greater than the costs of inflation itself. Let’s
just live with inflation, they say.
Then there is a third option, the option that the
Administration supports, which concentrates the attack
first and foremost upon inflation. The theory is that
through the classic discipline of fiscal and monetary
restraint as well as other measures, we can gradually
bring down the rate of inflation.
The medicine should
never be so strong that we send the economy into a
serious tailspin, but it must be strong enough that we
continue to have some slack in the economy. There will
be significant costs and hardships, but these can be
cushioned by public employment programs, tax relief for
lower-income families, and the like.

MORE
V

3
Furthermore, without seriously weakening the fight against
inflation, we can inject economic stimulus into unusually
weak areas of the economy like housing. And where inflation
results from shortages, as in food and fuel, we can encourage
greater production by taking positive steps such as conservation
of fuel and by carefully lifting the shackles of government
control. This is a complex, multi-dimensional approach, but
with patience and discipline, it will gradually reduce
inflation an<* restore production and employment to a state of
good health. Moreover, it will preserve the free enterprise
system that I believe is essential to our future growth.
Some critics suggest that we have already tried this
third approach and it failed. I disagree. The fact is that
w^®nev?r we have tried it, we have copped out before it became
effective. One of the best examples occurred only a short time
ago. After a rapid acceleration in the rate of inflation during
the late 1960s, a program of fiscal and monetary restraint was
started in 1969. As a result, inflation peaked out at 6 percent
and then declined slowly to the 3 percent zone by 1972. The
upward momentum of inflation had been stopped. But then,
instead of maintaining the policies of moderation, we became
more expansive again and we very swiftly propelled ourselves
into the inflation that we are experiencing today.
There has also been an ominous tendency in recent
years for every round of inflation to carry us to a higher
plateau. As the rate of inflation goes higher, inflationary
expectations are increased, new escalator clauses are included
m contracts and other inflationary forces are built into the
economy.
It thus becomes a much more difficult task to return
to the inflation rates of earlier years.
We*re not the only ones who have been unwilling to
stick to a policy of moderation. The British and many of the
European nations have followed the same path of least resistance,
and they are also paying a heavy penalty today. Only West Germany
has been resolute, and they now have the lowest rate of inflation
in the industrialized world -- and one of the healthiest economies.
New Controls:

A Way to Wreck the Economy

Having set forth the Administration^ general approach
it is only fair that I tell you why I oppose the other alternatives.
It s very simple: They wonft work. The Ford program may not
be pleasant-tasting medicine, but it has the clear and unique
virtue of being the only program that promises a long-term solution.

4
My chief objection to stimulating the economy while also
imposing wage and price controls is that controls will only
create new havoc in this country. Throughout history, economic
controls have proved that they are utterly unable to cure inflation
We see the same failure today in England where inflation is
running between 15-20 percent, and yet controls have been in
place there for many months. Short-term gains can sometimes be
realized, as we found here in 1972, but over time controls
produce serious inequities and serious distortions in the economy
and they seriously weaken the incentives for new investment.
Ultimately, controls would destroy our economy and destroy
our freedom.
Some political candidates this fall are asserting
that our controls would have worked last time if we had only
left them in place. That answer, ladies and gentlemen, is
an open invitation to a centralized economy, and it cannot
be said often enough that centralizing the American economy
is the surest means we have of killing the goose that lays
the golden egg. What we need in this country is less
government, not more government.
Another major flaw of any new pump-priming program
is that it attacks the wrong problem first. In my view,
inflation presents not only a greater threat than the fear of
a deep recession but really bears a large share of
responsibility for producing the current sluggishness in
the economy.

This is a point that is often overlooked. Yet it was the
high rate of inflation, through its impact on the financial
markets, that dried up the supply of mortgage credit and sent
the housing industry into a tailspin. And it was inflation,
through its debilitating effect on consumer confidence, that
caused the biggest reduction of consumer retail purchases in
postwar history. These are two sectors of our economy that
have been the weakest, and inflation takes the blame.
Ironically then, pumping up the economy would only make these
problems worse. Only by concentrating our primary attack on
rising prices will we be able to wring out inflation and restore
a pattern of stable, healthy growth to our economy. We have
missed similar opportunities in the past. For once, let us
attack the causes of inflation, not the results.
Why Action is Imperative
It is at this point in the argument that someone throws
up his hands in disgust and says it’s so complicated and
costly to cure inflation that the best solution is to do
nothing. Just let the inflation run on.
I submit that this is a policy of despair -- and a policy
that is cruel and. intolerable. It assumes that everybody can
cope with inflation, but we know from recent experience that
this is untrue. It would also do nothing to cure the problems
of sluggish growth. Only if we have credible anti-inflationary
policies will we put the zip back into the economy. Finally,
this policy would surely weaken our resolve to keep the economy
from overheating again.
There is no escape from economic discipline. Bad govern
ment policies on both the fiscal and monetary fronts helped to
get us into this mess, and if we want to get out, we are going
to have to change our ways.
The Ford Program:

Comprehensive and Effective

The Ford economic program, I believe, is aimed squarely
at our number one problem --inflation -- but it is also com
prehensive enough to assault many other problems now embedded
in our economy;
-- It seeks to curb the incredible growth in Federal
spending by cutting $5-6 billion from our current budget and
even more from next year’s budget.

-- By applying a new measure of restraint to Federal
spending, it permits the Federal Reserve to ease up gently
on monetary policy. The Federal Reserve should no longer have
to bear the sole burden of the fight against inflation.
-- In addition, the Ford Program seeks to cushion the
effects of its anti-inflationary policies by providing ex
panded public employment and jobless benefits to the unemployed
as well as additional tax relief to lower-income Americans.
-- It seeks to stimulate long-term capital investments
by industry -- investments that will create new jobs and new
products at lower prices - - b y strengthening tax incentives.
-- In a supreme test of our will to combat inflation,
it seeks to balance the cost of thes6 new programs with a
5 percent surtax on individual and corporate taxpayers.
The amount of tax required by, this one-year measure will
be extremely small for the great majority of our population.
-- In addition, the President is trying to alleviate
the effects of oil prices by reducing our imports of foreign
oil by one million barrels a day by the end of next year.
-- And to reduce the commodity shortages that how exist
in the food and fuel areas, the President is trying to secure
the legislation that would encourage far greater domestic
production of both.
There are more than 45 points to the Ford economic pro
gram, but this brief summation should show that it is
comprehensive and attacks a variety of problems simulta
neously. To those who insist that it is too weak, I ask
whether you seriously think the Congress will be easily
persuaded to come even this far.
One analysis I saw last weekend suggested that if the
Ford Administration would be willing to drop some of the
so-called weaker measures, such as the surtax and spending
cuts, then maybe it could obtain passage of some really
tough measures like gas rationing. Let's not kid ourselves.
The proposals that are on the Hill now are already tough
enough. I can assure you that if the Congress will accept
them, we will already be a long way down the road toward
an ultimate solution.

Speaking Out as Treasury Secretary
To me, then, the cure to our problems is clear cut.
The difficult question is whether we have the courage and
the wisdom to stick it out until the medicine has had
time to take effect.
In recent weeks, I have made a point of speaking out
against government policies of the past 20 years, including
some that are still in effect. You will hear more of that
in the future, because I consider current government policies
to be our single greatest threat in the fight against
inflation.

There are some areas, of course, where the government does
have a constructive and important role to play. But we
are long overdue in wiping out the many government policies
that stunt the growth of our economy and fuel the fires
of inflation.
In coming weeks, within the Economic Policy Board, we
will be focusing on a number of key questions to determine
whether specific changes should be made in government
policies. Among those questions will be:
----

The role of the regulatory agencies;
The efficiency of our transportation system;
The capability of the agricultural sector;
.The degree of competition in financial markets;
The tradeoff of environmental and economic
concerns; and,
The efficiency of government procurement policies.

In a meeting of the Executive Committee of the Economic
Policy Board this morning, we worked on two issues that
concern every housewife in America: the cost of sugar and
the profits of middlemen in the food industry.
In that session, I directed the Council on Wage and
Price Stability to hold public hearings as soon as possible
on the price of sugar, concentrating particularly on the
margin between the price of raw sugar and the price of
refined sugar. At this hearing, representatives of sugar
refiners, sugar-using industries, and consumers will be
invited to appear. When we get the facts, we will take
whatever action is warranted.
We have also asked Albert Rees to report back to the
Board on the results of a meeting which the Council of Wage
and Price Stability and the Department of Agriculture are
holding today with all elements of the food industry on
profit margins in the food industry. It greatly concerns
me that farm prices have declined 9 percent, while consumer
prices for food have gone up 6 percent. In addition, the
spread between the farm price and retail price of food is
expected to increase 21 percent between 1973 and 1974.
This jump is three times larger than anything we have ever
experienced before. After the distortions of the wage and
price controls and the freeze on food prices, some adjustment
is necessary but these major developments seem totally
inconsistent with the direction of farm prices. With times
as difficult as they are, we cannot permit one segment of
the economy to reap unjust enrichment at the expense of
everyone else.

9
In many of the areas that the Economic Policy Board will
be considering, action will doubtlessly be needed -- action
not just by the Executive Branch but by the Congress and
the private sector as well. And to secure the cooperation
of all elements of our economy, we will need public support.
It is clear that the public already shares our great
concern for inflation. A recent Gallup poll showed that 81
percent regarded inflation as the country's number one problem
the highest rating that any problem has received in a quarter
of a century.
It is not so clear, however, whether the
public fully understands why we consider a balanced program
of moderate restraint to be the best solution. Nor is it
clear that the public would rally behind a concerted effort
to hack away at some of the government's sacred cows that do
far more harm than good.
To get that message across, we must rely upon you -- the
leaders of the press. Of course, I would not ask you to
defend the Administration's position, but I earnestly appeal
to you to help the American people understand the choices that
we face. And I want to work with you more closely so that
you will fully understand the complexity of our problems and
can carry out your duties as writers, editors and broadcasters
For that very reason, I am especially grateful for the
opportunity t o .speak here today and I look forward now to
answering your questions.
Thank you.
0 O0

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NBC Nightly News, "Retail Food Prices Under Scrutiny"

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1974-10-31

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1974-10-28

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D e p a rtm e n to fth e T R E A S U R Y
[WASHINGTON, D.C. 20220

TELEPHONE W04-2041

L
MEMORANDUM TO CORRESPONDENTS

/
November 1, 1974

Attached is the text of a letter from Treasury
Secretary Simon to Collier Carbon and Chemical Corp.,
a subsidiary of Union Oil Company of California, granting
on a limited basis, a request for a waiver of the Jones
Act.
Secretary Simon1s action will permit the company to
transport anhydrous ammonia from Alaska to the Pacific
Northwest in foreign bottoms to alleviate a serious
fertilizer shortage. The shortage is threatening the
production of wheat, barley and other commodities, as
well as certified hay and grass seeds that are marketed
and used for crop production throughout the United States.
Grant of the waiver was strongly urged by the Secretary
of Agriculture.
The waiver, which is limited in scope and duration,
was granted because of the loss of a refrigerated barge for
which a suitable U.S. flag replacement vessel is not available
If this shipping capacity were not replaced, the potential
supply of fertilizer available to the Pacific Northwest would
be reduced by approximately one-third from a level that is
already considered inadequate.

OoO

WS-149

THE SECRETARY OF THE TREASURY
W A S H IN G T O N

J974

Dear Mr. Henderson:
In accordance with your request of October 30, 1974,
and a recommendation of the Secretary of Agriculture, and
pursuant to the authority of the Act of December 27, 1950,
(64 Stat. 1120), compliance with the applicable provisions
of the navigation laws, including but not necessarily
limited to section 883, title 46, United States Code, is
hereby waived to the extent necessary to permit the
transportation of anhydrous ammonia by any foreign flag
vessel from Kenai, Alaska, to Rivergate, Oregon (North
Portland, Oregon). This waiver is effective immediately
and terminates on December 31, 1975.
I deem that a waiver on the conditions outlined above
is presently necessary in the interest of national defense.
While no commitment can be made at this time, if the con
ditions found to be present at this time, including the
circumstances of the need for anhydrous ammonia fertilizer
in the Pacific Northwest, and available methods of delivery,
are substantially unchanged from the present, I will consider
your request for extension of this waiver for not more than
two periods of one year each.
Appropriate United States Customs Service officials
have been notified of this waiver.

Mr. T. C. Henderson
President
Collier Carbon and Chemical Corp.
P. 0. Box 60455
Los Angeles, California
90060

Department o f the T R E A S U R Y
W
ashington ,

20220

telephone

W0 4 «20 * g

FOR IMMEDIATE RELEASE

1974

TREASURY TO SURVEY FOREIGN PORTFOLIO INVESTMENT IN U.S.
The Department of the Treasury published today in the
Federal Register proposed regulations, instructions, and
forms to implement its responsibilities under the Foreign
Investment Study Act of 1974 (Public Law 93-479).
Signed by President Ford on October 26, 1974, the Act
directs the Secretary of the Treasury to conduct a comprehen
sive, overall study of foreign portfolio investment in the
United States. A parallel study of direct investment will
be conducted by the Department of Commerce.

A major part of the Treasury study will be a benchmark
survey of foreign portfolio investment in the United States
as of December 31, 1974. For purposes of the survey,
foreign portfolio investment includes all securities of a
United States corporation, including stocks, bonds, and
other evidence of ownership or long-term indebtedness, held
by a foreign person owning less than 10 percent of the
voting securities of the corporation. Investment by foreigners
who own a 10 percent or greater interest will be reported to
the Department of Commerce.
In addition to corporate interests, the Treasury survey
will cover foreign portfolio ownership of limited partner
ship interests, investment trust certificates, and other
evidences of ownership or indebtedness of non-corporate
enterprises. Exempted from the survey, however, are debt
obligations which have an original maturity of one year or
less.
Reports will be required from all U.S. issuers of
securities having assets of more than $20 million, or $50
million in the case of banks, on Form FPI-1. Firms with
assets of less than these amounts will be required to file
only if they have evidence of foreign investment and all
issuers having assets and annual sales of less than $1,000,000
respectively are exempted from the reporting requirements.
Reports on Form FPI-2 will be required from U.S.
persons who may be acting as holders of record (e.g.,

WS-146

nominees, trustees, fiduciaries) on behalf of foreign persons.
Holders of record which hold no more than $25,000 of United
States investments on behalf of foreign persons, parents
acting as custodians for minors, and certain estates and
trusts will be exempt from the reporting requirements.
The reports will be due on March 1, 1975. The Treasury
expects to publish final regulations, forms and instructions
in the Federal Register early in December. It is antici
pated that~~forrniTan3""Tnstructions will be available in early
January at which time they will be mailed to the larger
issuers and holders of record.
Prior to final publication, the Treasury will consider
comments on the regulations, forms and instructions as pub
lished in proposed form. Comments should be submitted in
writing by November 22, 1974, to the Foreign Portfolio
Investment Project, Office of the Assistant Secretary for
International Affairs, Room 5064, Department of the Treasury,
Washington, D. C. 20220.

"T-, ù

FOR IM M EDIATE R E L E A SE

OCTOBER 28, 1974

O ffice of the White House P r e s s S e c re ta ry
THE WHITE HOUSE
STA TEM EN T BY THE PRESID EN T
It g iv es m e g re a t p le a su re to have signed S. 2840, the "F o re ig n In
vestm ent Study Act of 1974. "
A recen t study by the executive branch concluded that the av ailab le
inform ation on the activ itie s of fo reign in v e sto rs in the United States
is inadequate. The b ill I sign into law today w ill go a long way toward
rem edying that deficien cy.
This b ill provid es fo r the D epartm ents of C om m erce and the T re a su ry
to undertake com preh en sive stu d ies of fo reign d ire ct and portfolio in
vestm ent in the United S ta te s. Under the authority provided by the b ill
they w ill (1) conduct "ben ch m ark" su rv e y s of all existin g fo reign d ire c t
and portfolio investm ent in the U. S. ; (2) analyze the effects of fo reign
investm ent on the U. S. econom y; (3) review our existin g reportin g
req u irem en ts that apply to fo reign in v e sto rs; and (4) m ake recom m endations
on m ean s fo r u s to keep our inform ation and s ta tis t ic s on fo reign in
vestm ent cu rren t. T h ese su rv e y s w ill be conducted e a rly next y e a r
and cover d ata for 1974; an in terim rep o rt of the re su lts w ill be su b
m itted to the C o n g re ss twelve months afte r the date of enactm ent of
this act and a full and com plete rep o rt, together with ap p rop riate
recom m en dation s, within eighteen months of the date of enactm ent.
When this study is com pleted, we w ill be in a position to know better
how to conduct ongoing m onitoring of fo reign investm ent activity in the
United S ta te s. E a r lie r , this A d m in istration had opposed new reportin g
sy ste m s which would have lacked the ben efits of the inform ation which
w ill be gen erated by the action s under S. 2840. We are not opposed to
keeping a watch on fo reign in vestm en t, but we do want to do it in the
m ost efficien t and helpful way, with the aid of the g re a te st p o ssib le
amount of d ata.
As I sign this act, I re a ffirm that it is intended to gather inform ation
only. It is not in any sen se a sign of a change in A m e ric a 's trad ition al
open door policy tow ards fo reign in vestm en t. We continue to believe
that the operation of fre e m ark et fo r c e s w ill d ire c t worldwide investm ent
flows in the m o st productive way. T h erefo re my A dm inistration w ill
oppose any new re stric tio n on fo reign investm ent in the United States
except w here absolu tely n e c e ssa r y on national secu rity grounds or to
p ro tect an e sse n tia l national in te re st.

E X E C U T I V E OFFICE O F T H E P R E S I D E N T

COUNCIL ON WAGE AND PRICE STABILITY
W ashington, D.C.

20503

For information call:
(202) 456-6757

FOR IMMEDIATE RELEASE
November 1, 1974

COUNCIL ON WAGE AND PRICE STABILITY TO
HOLD HEARING, ON INVENTORY REPRICING
Shelf inventory repricing practices in supermarkets and other retail
stores will be the topic of a hearing by the Council on Wage and
Price Stability, to be held on November 13, Council Director
Albert Rees announced today.
The hearing, to be held at 9 i30 a.m. in Room 2008 NEOB will be^
cochaired by the Consumer Advisor to the President, Ms. Virginia
Knauer.
Mr. Rees said, "The practice of changing the price of merchandise
already on the shelves is upsetting to shoppers. W e are interested
in finding out what the justification for this practice is, if any,
and why some food chains are unwilling to change their policy while
others have been able to do so successfully.
Ms. Knauer, a Member of the Council, said, "This has been a matter
of great concern to consumers everywhere. Fortunately, there seems
to be a growing awareness in the industry that this practice should
be changed. We hope this hearing will provide a catalyst for further
acti on."
Testifying at the hearing, which will be open to the public, will be
representatives of major food chains and consumer groups.

o 0 o

CWPS-5

[WASHINGTON, D C. 20220

TELEPHONE W04-2Q41

November 1, 1974

FOR IMMEDIATE RELEASE
TREASURY1S WEEKLY BILL OFFERING

The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $4,900,000,000 , or
thereabouts, to be issued November 14, 1974,

as follows:

91-day bills (to maturity date) in the amount of $2,800,000,000, or
thereabouts, representing an additional amount of bills dated August 15, 1974,
and to mature February 13, 1975

(CUSIP No. 912793 W 5 ) , originally issued in

the amount of $ 2,004,240,00Q the additional and original bills to be freely
interchangeable.
182-day bills, for $2,100,000,0005 or thereabouts, to be dated November 14, 1974,
and to mature May 15, 1975

(CUSIP No.

912793 WJl) •

The bills will be issued for cash and in exchange for Treasury bills maturing
November 14, 1974,

outstanding in the amount of $4,706,875,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,765,627,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and non
competitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Standard time, Friday, November 8, 1974.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
multiples of $5,000.

Tenders over $10,000 must be in

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.
Banking institutions and dealers who make primary markets in Government

(OVER)

securities and report daily to the Federal Reserve Bank of New York their positions
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.
own account.

Others will not be permitted to submit tenders except for their
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

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 reject any or all tenders,
in whole or in part, and his action in any such respect shall be final.

Subject

in cash or

other immediately available funds or in a like face amount of Treasury bills
maturing November 14, 1974.
ment.

Cash and exchange tenders will receive equal treat

Cash adjustments will be made for differences between the par value of

Accordingly, the owner of

bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

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

Departmentof theTREA$URY
SHINGTON, D C. 20220

T E L E P H O N E W 0 4-2 0 41

FOR RELEASE ON DELIVERY AT 2:00 P.M.
ADDRESS BY WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE WHITE HOUSE FIELD CONFERENCE
ON DOMESTIC AND ECONOMIC AFFAIRS
THE COLISEUM, PORTLAND, OREGON, NOVEMBER 1, 1974
Good afternoon.
It is a great pleasure for me to visit
the State of Oregon and especially the City of Roses.
In the two years that I have served in the Government,
I have frequently had the opportunity to work with your
Congressmen, your Senators and your fine Governor, Tom McCall.
Based on that experience, I can certainly understand why
this State has won a shining reputation for its leadership.
So it is good to come here today.
Recognizing that you will be hearing a number of speeches
at this conference, I thought I would speak rather briefly
about the overall state of our economy, tell you what w e ’re
trying to do to solve some of the problems, and then open up
the floor for a lengthier question and answer session.
Most of you are familiar with the litany of economic
problems now confronting us. Prices are still going up,
while production and employment are turning down. Stock
prices are too low, but oil prices are too high. Consumer
purchasing power is off and consumer spirits have sagged
even further.
One politician out on the stump this fall
is talking about a housewife who bought a three-pound
steak and couldn’t decide whether to barbecue it or bronze
it.
Inflation:

Number One Danger

Some people say that we are looking down the wrong
end of a double-barreled shotgun, with inflation in one
barrel and recession in the other.
I would agree, but
of the two dangers, I would argue that inflation presents
a far greater threat than recession.
In fact, inflation
is one of the causes of our sluggishness. To solve our
problems, we must therefore concentrate first and foremost
on inflation.

WS-148

The sluggishness in the economy is a serious concern,
but it is important to keep it in perspective. Our economy
still has massive strengths. Plant and equipment spending
is up 12 percent this year. Despite all the talk of a world
wide economic collapse, American exports are also continuing
to grow rapidly. The rate of unemployment, while climbing,
is still less than 6 percent. We are also continuing to
create new jobs in the economy -- more than 7-1/2 million
in the past four years -- and total employment hit another
all-time high in September.
Here in Oregon the rate of unemployment showed a slight
dip in September from the previous month, dropping from 5.5
percent to 5.3 percent on an unadjusted basis. Moreover,
during the past year, 24,000 new jobs were created here.
We recognize that this is not a picture of glowing
health, and we must remain alert to the possibility of a
further downturn in the economy. But for now, it is clear
that we are in no danger of plunging over the economic
precipice.
I would urge you to remember that. Let us not
fall prey once again to the doomsayers who are predicting
a depression and would have us abandon the policies of
moderation and restraint that are essential for a full
economic recovery.
The Costs of Inflation
Those policies are squarely aimed at the number one
economic problem facing us today: inflation. We arenow in
the grips of the worst peacetime inflation in United States
history. Neither the economy nor the people of this country
can live with it for a sustained period of time.
As prices have mounted in recent months, Americans
have already paid a heavy toll:
-- The average worker has suffered a 4 percent decline
in his real spendable earnings over the past year.
-- Corporate profits are also being chewed up, despite
the headlines. After adjustment for the effects of inflation
on inventory values and capital consumption allowances, the
retained earnings of non-financial corporations in 1973 were
less than one-fifth of what they were in 1965.
-- Similarly, there has been a decline of more than
$400 billion in equity values for 30 million stockholders
since early 1973, inflicting heavy potential losses on in
dividual families, pension funds and a wide range of financial
institutions.

3
One aspect of our current inflation that is frequently
overlooked is the extent to which it has caused the sluggish
ness in the economy.
It was the high rate of inflation, through
its impact on the financial markets, that dried up the supply
of mortgage credit and sent the housing industry into a tail
spin. And it was inflation, through its debilitating effect
on consumer confidence, that caused the biggest reduction of
consumer retail purchases in postwar history. These are two
sectors of the economy that have been the weakest, and in
flation takes the blame.
Ironically then, pumping up the economy would make these
problems worse. Only by focusing our primary attack on rising
prices will we be able to wring out inflation and restore a
pattern of healthy, stable growth to our economy. We have
missed similar opportunities in the past. For once, let us
attack the causes and not the results of inflation.
The Causes of Inflation
Despite the staggering rate of inflation, I would once
again urge that this is no time to hang black crape all over
the economy.
To look on the brighter side, let’s keep in mind that
more than half of our recent inflation can be attributed to
special factors, including the recent quadrupling of oil
_
prices, crop setbacks in 1972 and 1973, and the boom that many
of the industrialized nations all experienced together in the
early 1970s. None of these things should happen again m the
foreseeable future.
Oil prices, for instance, should not continue to ri se ,
and by all rights they should retreat. The internat ional price
of oil is far higher than it should be. For both po litical
and economic reasons, the current international pnic e of oil
is not sustainable. Economically, die price level is exerting
enormous pressures on other nations to become more self-sufficient
There have been 26 major oil finds outside the OPEC bloc in
recent months -- discoveries that should help to inc rease world
supplies. Moreover, countries such as the United. bt ates and
France are making a major effort to conserve energy and reduce
foreign imports.
In view of the pressures that are building
up, I think it’s no longer a question of whether oil prices
will fall but when they will fall.

We should recognize, however, that even as the special
factors sue as oil prices and crop failures work their way
through the economy, there are other, more fundamental causes
of inflation still at work. They have been building up over
more than a decade of irresponsible governmental policies,
so that it will take time to get rid of them. But for the
first time, I think w e ’re dead serious about making the
effort.
One of these fundamental causes is the Federal budget -a monster that hit the $100 billion mark in 1961, the $200
billion figure in 1970, and the $300 billion range in 1974.
In only one year of the last fourteen has the Government
been able to balance its books.
'
When the government continually engages in deficit
financing, especially with huge sums of money in rather tight
markets, it automatically becomes a major source of instability.
It drives up prices by increasing aggregate demand.
It drives
up interest rates through Federal borrowing in the money
markets. And of utmost importance, it smashes public con
fidence in the ability of the Government to deal with
inflation.
'
In my opinion, Federal monetary policy has also pumped
too much stimulation into the economy over the past decade.
Between 1953 and 1965, the money supply grew at a rate of
about 2-1/2 percent a year, and we enjoyed reasonable price
stability. Since 1965, the rate of growth in the money supply
has doubled to six percent a year.
It is no coincidence that
during this same period prices have skyrocketed.
It is less apparent but no less trufe that many of the
Government's regulatory policies -- policies that stunt
economic growth and encourage inflation -- are at the source
of our difficulties today. Two- of the best examples are food
and fuel, two areas where the government has stifled production
for an unconscionable length of time.1 Those policies must
be changed.
Today we have more government than we need, more
government than most people want, and certainly more
government than most people are willing to pay for.

M l

The Ford Economic Program
As you can see, our problems are complex.
If we only
had to worry about recession, the solutions would be simple
and relief would come quickly. Similarly, if we only had to
worry about inflation, the answers would be straight-forward.
Because our problems are multi-dimensional, however, our
policies must be multi-dimensional -- concentrating first and
foremost upon inflation but also assaulting the many other
problems embedded in our economy.
That is precisely what President Ford’s program is
designed to do. It is a comprehensive program, encompassing
some 45 points in all, but it will work if we have the patience
and political courage to make it stick.
In essence, here is
what it would do:
-- It would curb the incredible growth in Federal spending
by cutting $5-6 billion from our current budget and it would
give us a much better chance of balancing the budget in future
years.
-- By applying a new measure of restraint to Federal
spending, it would permit the Federal Reserve to exercise
more flexibility in monetary policy. Fiscal and monetary
policies would be in better balance so that the Federal Reserve
should no longer have to bear the sole burden of the fight
against inflation.
-- In addition, the Ford Program would cushion the
effects of its policies by providing expanded public em
ployment and jobless benefits to the unemployed as well as
additional tax relief to lower-income Americans.
Let us
all recognize that lower-income Americans frequently bear
a disproportionate share of the burden in the fight against
inflation.
It is essential that our policies be humane and
compassionate.
-- The Ford economic program would also stimulate long
term capital investment by industry -- investment that will
create new jobs and new products at lower prices -- by
strengthening tax incentives.
-- In a real test of our will to combat inflation, it
would balance the cost of these new programs with a 5 percent
surtax on individual and corporate taxpayers. This tax would
last for only one year, and its cost will be extremely small
for the great majority of our population.

-- The President is also trying to alleviate the
effects of oil prices by reducing our imports of foreign
oil by one million barrels a day by the end of next year.
-- And to reduce the commodity shortages that now
exist in the food and fuel areas, the President is pressing
for legislation that would encourage far greater domestic
production of both.
This program is based four-square upon one of the most
comprehensive examinations of the American economy that we
have ever had. The summit conference last month gave us an
excellent chance not only to educate the public about our
problems but to draw upon the best minds in the country in
order to find the answers.
Some critics have said that our program is too weak,
that w e ’re only nibbling the bullet or biting a marshmallow.
Well, I’ve never heard a tax increase characterized that way
before, and w e ’re only kidding ourselves if we think that it
will be easy to cut the budget.
In coming weeks, we will also
be taking a hard look at the sacred cows in Government such as
the ICC, and I can guarantee you that our actions will lead to
a hard fight. And again, the Ford program resists the easy,
seemingly attractive alternative of overheating thé economy.
We know that’s the wrong thing to do, and we plan to stand firm.
In short, the Ford program is tougher than most people realize.
Other critics who have railed against the cruel burden
of a surtax seem to have overlooked the fact that a typical
family of four with an adjusted gross income of $20, 000 would
pay only $42 more in taxes for this program.
I say that that
is a small burden, and it is certainly not as cruel as the
hidden tax on their income that inflation has extrac ted.
The art of politics continues to be the art of the possible.
Everyone in Washington, and indeed everyone out here in Oregon,
knows that this is the toughest program that we will be able to
get through the Congress.
If we succeed, I can assure you that
we will make major progress toward solving our economic problems.
Can We Stick To It?
The major question confron tin g u s , I woul d re- emphas ize,
is not whether we know how to cur e infl ation -- we do. Th ere
is really no mystery about the causes 0f our curren t probl ems,
nor is there any doubt about th e cure # The ma jor question is
whether we have the courage and the w isdom to stick it out unt
the medicine has had time to ta ke effec t

7
In recent years there has been an extremely unfortunate
tendency for this country to choose the short-term, easy way
out instead of the policies that would make our economy health 1 er
in the long-run.
It's a "fly now, pay later" philosophy on a
grand scale.
It has been apparent for many years that the best way to
curb inflation is to apply policies of fiscal and moderate
restraint. But w e ’ve only been willing to do it in fits and
starts. Whenever it starts hurting a little bit, we cave in
to the political pressures and begin overheating the economy,
only making inflation worse.
Indeed, every new bout of inflation
seems to carry us to a higher plateau, so that the rate of
inflation that was intolerable only a few years ago now seems
like the promised land.
It thus becomes a much more difficult
task to work our way back down to the inflation rates of earlier
years.
We went through this syndrome only a short time ago. After
a rapid acceleration in the rate of inflation during the late
1960s, a program of fiscal and monetary restraint was started
in 1969. As a result, inflation peaked out around 5 percent and
started to decline in 1971. The upward momentum of inflation
had been stopped. But then, instead of maintaining the policies
of moderation, we became more expansive again -- and we very
swiftly propelled ourselves into the inflation that rages today.
We ’re not the only ones who have made this mistake. The
path of least resistance has also been followed in recent years
by many European nations, and they are also paying the price today.
Only West Germany has been resolute, and they now have the
lowest rate of inflation in the industrialized world -- and one
of the healthiest economies.
I think we have learned our lesson and this time, my
friends, w e ’re not going to cop out. These stop-and-go policies
must cease. W e 're going to ride this tiger of inflation until
we have it licked.
Let me warn you that there will be temptations to take the
easy way out again. We can already hear the siren songs from
those who want to pump up the economy again. Those are the same
people who called for controls the last time around, and they
will be at it again before long. I hope we have learned our
lesson that controls produce serious inequities and serious
distortions in the economy, and they badly weaken the incentives
for new investment. Ultimately, controls would destroy our
economy and destroy our freedom.

8
It c a n n o t b e s a i d o f t e n e n o u g h t h a t a c e n t r a l i z e d e c o n o m y
in A m e r i c a is t he s u r e s t m e a n s w e h a v e o f k i l l i n g the g o o s e
t h a t l ay s t he g o l d e n egg.
W h a t w e n e e d in t h is c o u n t r y is
n o t m o r e g o v e r n m e n t b u t l e ss g o v e r n m e n t .
A h a l f c e n t u r y ago, W o o d r o w W i l s o n p r o v i d e d us w i t h a key
to the f i g h t a g a i n s t i n f l a t i o n w h e n h e d e s c r i b e d h o w a n o t h e r
k i n d of w a r h a d b e e n w o n *
M I t e ll you, f e l l o w c i t i z e n s , t h a t
the w a r w a s w o n b y t he A m e r i c a n s p i r i t , " he said.
"... It o n l y
t o o k h a l f as l o n g to t r a i n an A m e r i c a n a r m y as a n y o t h e r ,
b e c a u s e y o u h a d o n l y to t r a i n t h e m to go o n e w a y . "
L a d i e s a n d g e n t l e m e n , t h e d o o m s a y e r s a m o n g us w h o say
t h a t A m e r i c a is in a s e r i o u s d e c l i n e a n d t h a t w e s h o u l d a b a n d o n
t he i n f l a t i o n f i g h t a r e o n l y s o u n d i n g t he c a l l to r e t r e a t .
If
all o f us -- t he C o n g r e s s , the E x e c u t i v e , a n d e s p e c i a l l y the
A m e r i c a n p e o p l e -- w i l l r a l l y b e h i n d t h e f i g h t a g a i n s t inflation,
it c a n c e r t a i n l y b e w on .
It w i l l n o t be easy.
We will need
a s t r o n g m e a s u r e of p a t i e n c e a n d s e l f - s a c r i f i c e .
But it c a n
b e done.
A n d I k n o w t h a t as r e p r e s e n t a t i v e s o f this f i ne st ate
y o u c a n be c o u n t e d o n f or help.
Thank

you.

oOo

D e p a rtm e n t t h e T R E A S U R Y ^ f
______ . .

■SH1NGT0N. D C 20220

tn u n m c

\k tr\A

TELEPHQNE W 0 4 2041

V-

FOR RELEASE 6:30 P.M.
lASURY’S WEEKLY BILL AUCTIONS
of 13-week Treasury bills and for $2.1 billion
h series to be issued on November 7, 1974,
ferve Banks today. The details are as follows:

1 ’7 i (
b . m

k bills
Iruary 6, 1974

26-week bills
maturing ^ aY 8, 1975

Equivalent
!Annual Rate

Price

7.718%
7.952%
7.880%

Equivalent
Annual Rate

96.092
96.011
96.028

7.730%
7.890%
7.857%

7 *

000
for the 13-week bills were allotted
for the 26-week bills were allotted

98%
66%

i
CCEPTED BY FEDERAL RESERVE DISTRICTS:

M M

Accepted

Applied For

Accepted_____

30.960.000
1,130,475,000
36.555.000
60.055.000
26.665.000
32.660.000
152.960.000
34.785.000
20.845.000
32.350.000
37.960.000
103.965.000

$
24,275,000 $
14,275,000
2,722,405,000 1,746,365,000
36.430.000
21,430,000
40.930.000
25,930,000
18.060.000
18,060,000
17.095.000
17,095,000
189.555.000
118,200,000
33.830.000
18,330,000
12.935.000
6,935,000
20.930.000
19,920,000
18.195.000
16,195,000
170.975.000
77,285,000

665.000
Richmond
660.000
Atlanta
970.000
Chicago
785.000
St. Louis
845.000
Minneapolis
360.000
Kansas City
960.000
Dallas
965,000
San Francisco
$3,408,095,000 $2,700,235,000 b/$3,305,615,000 $2,100,020,000 sJ
TOTALS
b/Includes $ 417,890,000 noncompetitive tenders accepted at average price.
cj Includes $ 211,115,000 noncompetitive tenders accepted at average price.
_1/ These rates are on a bank—discount basis. The equivalent coupon issue
yields are 8.15% for the 13-week bills, and 8.30% for the 26-week bills.

Department

oftheTRHSUKYjß

------- n r O C
nnnnft
IHINGTON.
20220

T ELEP H O N E WQ4-2041

***-

FOR RELEASE 6:30 P.M.
RESULTS OF TREASURY’S WEEKLY BILL AUCTIONS
Tenders for $2.7 billion of 13-week Treasury bills and for $2.1 billion
of 26-week Treasury bills, both series to be issued on November 7, 1974,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:

13-week bills
maturing February 6, 1974
Price

Equivalent
Annual Rate

26-week bills
maturing May 8, 1975
Price

Equivalent
Annual Rate

96.092
96.011
96.028

7.730%
7.890%
7.857%

Tenders at the low price for the 13-week bills were allotted
Tenders at the low price for the 26-week bills were allotted

98%.
66%.

High
Low
Average

98.049 a/
97.990
98.008

7.718%
7.952%
7.880%

a} Excepting 1 tender of $920,000

TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Applied For

Accepted

30, 960, 000
$
A0, 960, 000 $
Boston
000
475, 000
2,130,
2,671,
115,
New York
555,
000
36,
555, 000
36,
Philadelphia
60,
000
055, 000
70,
255,
Cleveland
26,
,000
000
665
665,
26,
Richmond
32,
660
000
32,
000
660,
Atlanta
152,
000
960,
000
242,
970,
Chicago
34, 785, 000
46, 785, 000
St. Louis
000
20, 845 000
845,
20,
Minneapolis
32, 350 000
32,
000
360,
Kansas City
37,
960. 000
000
37,
960,
Dallas
000
103,
965,
000
965,
San Francisco
148,
TOTALS

Applied For

Accepted

$
24, 275, 000 $
14, 275, 000
2,722, 405, 000 1,746, 365, 000
36, 430, 000
21, 430, 000
40, 930, 000
25, 930, 000
18, 060, 000
18, 060, 000
095,
000
17,
17, 095, 000
118, 200, 000
189, 555, 000
33, 830, 000
18, 330, 000
935,
000
12,
6, 935. 000
20, 930, 000
19, 920, 000
18, 195, 000
16, 195, 000
77, 285, 000
170, 975, 000

$3,408,095,000 $2,700,235,000 W $ 3 , 305,615,000 $2,100,020,000 sJ

b/ Includes $ 417,890,000 noncompetitive tenders accepted at average price,
c/ Includes $ 211,115,000 noncompetitive tenders accepted at average price.
1/ These rates are on a bank-discount basis. The equivalent coupon-issue
yields are 8.15% for the 13-week bills, and 8.30% for the 26-week bills.

October

OF
21

LENDING ACTIVITY
- November

Federal Financing Bank
O c t o b e r 21 - N o v e m b e r 1 w a s

1974

lending activity
as f o l l o w s :

for

the p e r i o d

O n O c t o b e r 22, t he B a n k s i g n e d a $30 m i l l i o n c o m m i t m e n t
wit h the D e p a r t m e n t of H e a l t h , E d u c a t i o n , a n d W e l f a r e to p u r
chase n o t e s i s s u e d b y p u b l i c a g e n c i e s a n d p r e v i o u s l y p u r c h a s e d
by H E W u n d e r the M e d i c a l F a c i l i t i e s L o a n P r o g r a m .
O n the s a m e
day, the B a n k p u r c h a s e d $1 m i l l i o n o f t h e s e n o t e s at an i n t e r e s t
rate of 8.75%.
On O c t o b e r 23, the B a n k p u r c h a s e d $2 m i l l i o n o f S m a l l
B u s i n e s s I n v e s t m e n t C o m p a n y 1 0 - y e a r d e b e n t u r e s at an i n t e r e s t
rate of 8.50%.
T h e s e c u r i t i e s are g u a r a n t e e d b y the S m a l l
Business A d m i n i s t r a t i o n .
O n O c t o b e r 24, the B a n k p u r c h a s e d $130 m i l l i o n o f 9 8 - d a y
notes f r o m the T e n n e s s e e V a l l e y A u t h o r i t y at 8 . 0 7 % i n t e r e s t .
P r o c e e d s of the l o a n w e r e to r e f i n a n c e $100 m i l l i o n in n o t e s
p r e v i o u s l y s o l d to the B a n k a n d to r a i s e $30 m i l l i o n in n e w
funds f or TVA.
O n O c t o b e r 24, the B a n k p u r c h a s e d $500 m i l l i o n of 5 - y e a r
C e r t i f i c a t e s of B e n e f i c i a l O w n e r s h i p f r o m the F a r m e r s H o m e
A d m i n i s t r a t i o n at an i n t e r e s t r a t e of 8 . 4 4 % on an a n n u a l b a s i s .
On O c t o b e r 31, the B a n k p u r c h a s e d
Tennessee V a l l e y A u t h o r i t y Power Bonds
8.50%.

$300 m i l l i o n 5 - y e a r
at a n i n t e r e s t r a t e

On O c t o b e r 31, the B a n k m a d e a $80 m i l l i o n 9 1 - d a y l oa n
to the S t u d e n t L o a n M a r k e t i n g A s s o c i a t i o n ( S a l l i e Mae) to
r e f u n d a m a t u r i n g $100 m i l l i o n n o t e h e l d b y the FFB.
The
i n t e r e s t r a t e on t h e n e w l o a n is 8.60%.

(OVER)

202-964-2615

Press inquiries:
SUMMARY

Department of
Wa s h in g t o n , o . c . 20220

^T
teleph o n e

W04 2041

IEi
OVEMBER 5, 1974

FOR IMMEDIATE RELEASE

U.S. BOARD FOR ENROLLMENT OF ACTUARIES
ESTABLISHED UNDER NEW PENSION LAW
A Joint Board for the Enrollment of Actuaries, required
under the recently enacted Employee Retirement Income
Security Act of 1974, has been established by Treasury
Secretary William E. Simon and Labor Secretary Peter J. Brennan.
The Joint Board will establish standards and qualifications
for persons performing actuarial services in connection with
employee benefit plans covered by the new law.

Only persons

enrolled with the Joint Board will be permitted to prepare
and sign actuarial statements that are required from all pension
benefit plans under the law.
The initial membership of the Joint Board comprises:
The
The
The
The
The

Deputy Secretary of the Treasury, or his delegate;
General Counsel of the Treasury, or his delegate;
Commissioner of Internal Revenue, or his delegate;
Under Secretary of Labor, or his delegate;
Solicitor of Labor, or his delegate.

The Order establishing the Joint Board and making the initial
appointments is scheduled to be published in the Federal Register
for Tuesday, November 5, 1974.
Attachment
WS-150

oOo

A copy of the text is attached.

DEPARTMENT OF LABOR
DEPARTMENT OF THE TREASURY
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

Establishment, Delegation of Authority and
Appointment of Members for the Joint
Board for the Enrollment of Actuaries

Establishment of Joint Board.

Pursuant to

section 3041 of the Employee Retirement Income Security
Act of 1974, there is hereby established a Joint Board for
the Enrollment of Actuaries.
2.

Duties of Joint Board.

The Joint Board shall

have responsibility for
(A)

establishing standards and qualifications

for persons performing actuarial services with
respect to employee benefit plans covered by the
Act to practice before the Department of Labor and
the Internal Revenue Service,
(B)

enrolling individuals pursuant to those

standards and qualifications, and
(C)

suspending or terminating the enrollment

of such individuals, pursuant to section 3042 of the

-3-

The Deputy Secretary of the Treasury,
or his Delegate;
The General Counsel for the Department
of the Treasury, or his Delegate;
The Commissioner of Internal Revenue,
or his Delegate;
The Under Secretary of Labor,
or his Delegate;
The Solicitor of Labor,
or his Delegate.
Signed at Washington, D.C. this 31st day of October, 1974.

signed: Peter J. Brennan
Secretary of Labor

signed: William E. Simon
Secretary of the Treasury

Employee
All
by

Retirement

regulations
t he

Secretary
they

3.
not

are

than

five

a p p o i n t e d by

t he

shall

Secretary

Such

bylaws

Employee

Treasury

or h i s

delegate

before

The Joi n t

Board

shall

jointly

Labor
or

and

the p l e a s u r e

who

the

separately
shall

consist

than nine m e m b e r s ,

Secretaries

the

(and

The Joi n t
to b y l a w s )
exercise

Labor

or h i s

as m e m b e r s

Board

shall

Secretary
in s u c h

determine.

the

its

Each

appointing

delegate

prior

following

conduct

shall

and

for

its

Secretary

adoption.

a re

the

section

Security Act

approved

the

their

persons

Board

bylaws

and powers.

delegate

the Joint

Income

the

to b y l a w s )

or his

The

propose

rights

established pursuant

Retirement

shall

relating

amendments

Appointments.

Actuaries

the

Secretaries.

Treasury

appointed

and

Secretary

Secretary of

delegate

two

serve

(and amendments
and

Board shall be approved

or his

either

the

Bylaws.

business

1974.

Labor

nor more

t he

Treasury,

proportions

i s s ue d .

member

t he

Security Act

the J o i n t

Membership.

l es s

Income

Secretary

Enrollment

304 1

1974:

hereby

the

E X E C U T IV E O FFIC E O F T H E PRESID EN T

COUNCIL ON WAGE AND PRICE STABILITY
Washington , D.C.

20503

For information call
(202) 456-6757

FOR IMMEDIATE RELEASE
Wednesday, November 6, 1974

COUNCIL ON WAGE AND PRICE STABILITY
SETS DATE FOR SUGAR HEARINGS
The substantial increase in the price of sugar will be the topic of
a hearing by the Council on Wage and Price Stability, to be held on
November 25, Council Director Albert Rees announced today.
In making the announcement, Mr. Rees said, “The price of sugar has
tripled over the last year. We are interested in finding out what
factors have caused this increase and what could possibly be done
to.bring the price down."
Testifying at the hearing, which will begin at 10:00 a.m. in Room 2008
of the New Executive Office Building, will be representatives of sugar
producers, refiners and industrial users, as well as consumer groups.

o 0 o

CWPS-6

DepartmentoftheTREASURY
TELEP H O N E W04 2041

I a SHINGTON, D.C. 20220

November 7, 1974

FOR IMMEDIATE RELEASE
TREASURY’S 52-WEEK BILL OFFERING

The Department of the Treasury, by this public notice, invites tenders
for $2,000,000,000, or thereabouts, of 364-day Treasury bills to be dated
November 19, 1974,

and to mature

November 18, 1975 (CUSIP No.

912793 WV4).

The bills will be issued for cash and in exchange for Treasury bills
maturing November 19, 1974,

outstanding in the amount of $ 1,800,640,000

of which Government accounts and Federal Reserve Banks, for themselves and as
agents of foreign and international monetary authorities, presently hold

$ 1,134,740,000.These accounts may exchange bills they hold for the bills
now being offered at the average price of accepted tenders.
The bills will be issued on a discount basis under competitive and
noncompetitive bidding, and at maturity their face amount will be payable
without interest.

They will be issued in bearer form in denominations of

$10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value),
and in book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
Wednesday, November 13, 1974.

one-thirty p.m., Eastern Standard time,

Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
in multiples of $5,000.

Tenders over $10,000 must be

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.

Others will not be permitted to submit

tenders except for their own account.

Tenders will be received without

(OVER)

deposit from incorporated banks and trust companies and from responsible
and recognized dealers in investment securities.

Tenders from others must

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 reject any or all
tenders, in whole or in part, and his action in any such respect shall be
final.

Subject to these reservations, noncompetitive tenders for $200,000

or less without stated price from any one bidder will be accepted in full at
the average price (in three decimals) of accepted competitive bids.

Settle

ment for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on November 19, 1974,

cash or other immediately available funds or in a like face amount of Treasury
bills maturing November 19, 1974.
equal treatment.

Cash and exchange tenders will receive

Cash adjustments will be made for differences between the

par value of maturing bills accepted in exchange and the is.sue 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 bills (other than life insurance companies) issued hereunder must
include in his Federal 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.
Department of the Treasury 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.

ASHINGTÛN, DC. 2 0 »

TELEP H O N E W04-2Q41

November 6, 1974

FOR IMMEDIATE RELEASE
RESULTS OF AUCTION OF 3-YEAR TREASURY NOTES

The Treasury has accepted $2.5 billion of the $4.3 billion of
tenders received from the public for the 3—year notes auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield
Highest yield
Average yield

7.78%
7.87%
7.85%

The interest rate on the notes will be 7-3/4%. At the 7-3/4%
rate, the above yields result in the following prices:
Low-yield price
High-yield price
Average-yield price

99.921
99.685
99.737

The $2.5 billion of accepted tenders includes 82 % of the amount
of notes bid for at the highest yield, and $0.6 billion of noncompetitive
tenders accepted at the average yield.
In addition, $1.1 billion of the notes were allotted to Federal
Reserve Banks and Government accounts at the average yield, in exchange
for securities maturing November 15.

a/ Excepting 4 tenders totaling $185,000

November 6, 1974

MEMORANDUM TO CORRESPONDENTS

The attached exchange of correspondence is made
available in response to public inquires concerning
the gold provisions of Public Law 93-373.

0 O0

WS-151

THE DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.

20220

OFFICE* OF
domestic g o l d an d s i l v e r o p e r a t io n s

NOV 6

1974

Dear Walter:
Thank you for your letter of October 25, 1974
following up our telephone conversation and ^setting
forth your ideas as to when the gold provisions of
Public Law 93-373 will take effect.
As your letter observes, the legislation itself
states that its provisions "shall take effect either
on December 31, 1974" or some earlier date if the
President so determines. You express the view that
the face of the statute plainly indicates that the
termination of the gold restrictions will take place
on December 31, 1974, and that it will -become lega.1
to begin transactions in gold immediately on that date.
We have looked into the matter of the effectiye
date, and we concur with your conclusion that it will
be legal to deal with gold pursuant to Public Law 93-373
on December 31, 1974. As your letter recognizes,
uncertainty concerning the date may have grown out of
the feeling in some quarters that the Congressional intent
was to make a "clean break" at year-end. In fact, you may
have seen some gold advertising which appears to presuppose
that January L 1975 will be the first date when transactions
in gold will be legal. The legislative history of the
enactment is itself somewhat contradictory on the point and
contains language that would arguably support either the
December 31, 1974 or the January 1, 1975 date.
Nonetheless, we have Concluded that the plain *
language of the statute as well as basic rules of statutory
interpretation indicate clearly that December 31, 1
i

the final operative date.
Sincerely yours,

Thomas W. Wolfe
Director, Office of Domestic
Gold and Silver Operations

Walter Freedman, Esquire
Freedman, Levy, Kroll & Simonds
1730 K Street, N. W.
Washington, D. C. 20006

LAV/ C P F I C E S

n IlTER

FREEDMAN
LJlton P KROLL
LflNOLD LEVY
bfiROME H. S I M O N D S
PETER E PANARITES
FRED A. LITTLE
MICHAEL I. SMITH
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PATRICIA G. A X E L R A O

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Fr e e d m a n . L evy.K r o l l & S i m o n d s
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1730 K STREET. NO R TH W ES T
W A S H I N G T O N , O. C. 2 0 0 0 6
AREA

CODE

202

.331-8550

CABLE

'ATTO R N E YS

October 25, 1974

Dear T o m :
This letter is written in accordance with our recent
telephone conversations in which I raised with you the question
of the proper interpretation of the a m e n d e d section 3(c) of Public
L a w 93-110 enacted into law on August 14, 1974. (P. L. 93-373)
A s amended, the section states that the prohibition
limiting people f r o m purchasing, holding, selling or otherwise
dealing in gold in the United States and abroad shall take effect
either "on D e c e m b e r 31, 1974, or at any time prior to such date
that the President finds and reports . . . . "
Obviously if the President fixes a date for the resumption
of trading in gold prior to D e c e m b e r 31, 1974, that date will govern.
In the event, however, the President fails to act, thus permitting the
trading to r e s u m e simply by the expiration of time, the question
arises whether trading can begin pn D e c e m b e r 31, 1974.
I a m not unmindful that during m u c h of the discussion
leading to the adoption of the a m e n d m e n t , it w a s a s s u m e d by s o m e
that the ban would end with the year end and that trading would be
r e s u m e d at the start of the n e w year. However, the clear and unequiv
ocal w o r d s used by the Con g r e s s - and these, of course, necessarily
control - stipulate that the prohibition against any ban in trading takes
effect "on" D e c e m b e r 31, 1974.
It is our opinion therefore, that the C o m m o d i t y Exchange,
Inc. ( " C O M E X " ) , which plans to permit trading in gold on its exchange,
can c o m m e n c e such trading with the opening of business on D e c e m b e r

Fr e e d m a n , L evy , K r o l l <& S i m o n d s

31, 1974. I would like to have you confirm that your office
does not take a co n trary view of the am endatory language
contained in P . L . 93-373.
All good w ish es.
Sin cerely ,

W alter F reed m an

M r. T hom as W. Wolfe
O ffice of D om estic S ilv e r and Gold O perations
D epartm ent of the T r e a su r y
W ashington, D. C. 20220

FOR R E L EA S E U P O N D E L I VE RY

ILS.

R EM AR K S BY THE H O N O R A B L E J O HN M. PORGES
E X E C U T I V E D IRECTOR, I N T E R - A M E R I C A N D E V E L O P M E N T BANK
B E F O R E THE B U R L I N G T O N ROTARY CLUB
BURLINGTON, VERMONT, O C T O B E R 21, 1974

I a m delighted to be in Burlington and happy to have this opportunity
to talk with you about the economic situation in Latin America»

As United

States Executive Director of the Inter-American Development Bank, and as
a commercial banker with 20 years of prior experience in the region, I have
observed significant changes in the southern part of our hemisphere.
Let m e first tell you about the work of the Inter-American Development
Bank and then talk about oil, the supply of other raw materials and the trade
and investment stake of our country in Latin America,
Since its establishment in 1959» the Inter- A m e r ican Bank has played
a critical and catalytic role in the economic and social advance of its m e m b e r
countries „
» Through its direct loans for industry and agriculture, respectively
16 per cent and 24 per cent of total cumulative lending, as well as through
loans channeled through Latin American development banks to those sectors,
the Bank contributes greatly to the growth of the region's directly productive
sectors -- most of it benefiting the growth of the region's private sector,
» Through its basic infrastructure loans for electric power (20
per cent of total lending), highways and communications facilities (another
20 per cent of total lending), the Bank provides the basic underpinnings which
also enable private enterprise to grow and prosper.

o Through its education and technical cooperation loans, it
provides the professional technology and skilled m a n p o w e r needed by
the region's productive enterprises and in addition contributes to the
solution of the region's pressing employment and underemployment
problem s„
• Finally, through its support of such social sectors as water and
sanitation systems, housing for low-income sectors and assistance to smallscale farmers, the Bank helps to improve the quality of life of countless
Latin A i m ricans far beyond their expectations of just a decade ago.
taken together, education and various other loans with important social
impact, account for nearly 20 per cent of the Bank's cumulative lending
a ctivity.
Before going on with the work cf the Inter-American Bank, which
in addition to helping Latin America has been a boon to the United States
in terms of employment and exports, I would like to consider the general
economic situation of Latin America today and focus on recent developments.
You are aware, I a m sure, of the U.S. Government's commitment
to a mature and responsible relationship with Latin America.

This relationship

calls for a m o r e equal partnership in which the nations of the region make
their own basic decisions about economic and social development questions.
It also emphasizes genuine multilateral cooperation in international economic
matters as opposed to the former bilateral relationships.

U.S. support of

the growing role of the Inter-American Development Bank (IDB) at the same
time that our own bilateral assistance efforts decline, clearly illustrates this
aspect of our relationship.

Nonetheless, problems have remained.

There has always been a

feeling in the region that the U.S„ Government has not paid enough attention
to Latin American economic and social aspirations,,

In this connection, the

Latin nations press hard for greater access to our own vast market for their
manufactured goods,,

They seek generalized preference arrangements with

all the developed countries or a special arrangement with the United States.
A special relationship with the United States on trade has long been
sought by Latin America.

Recent events in petroleum production now point

up the advantages of such a relationship to the United States.
Last winter, when oil supplies from the Middle East were cut
off, the flow continued uninterrupted from Venezuela«, Ecuador, Trinidad and
Tobago and Bolivia are becoming important producers.

Mexico is now

self-sufficient in oil, and newspaper accounts indicate extraordinarily large
strikes in Chiapas and Tabasco.

Intensive exploration is now going forward

in the jungles of Eastern Peru.
The southern part of this hemisphere can help provide us with
significant supplies of oil.

Mexico, for example, has declined for the m o m e n t

to join with O P E C countries and is not compelled to adhere to established
price levels.
Yes, we have been hard hit by the energy problem.
directly the increased costs of gasoline and fuels for heating.

W e have felt
There have

also been additional increased costs of transportation passed through to a
range of goods affecting all aspects of our lives.

-4 -

W e could face parallel situations of shortage in other raw and
semiprocessed materials -- bauxite, for example, which w e import from
Jamaica and Surinam,

I cannot emphasize enough that the United States has

an overwhelming interest in developing good economic relationships with
Latin American countries and in assuring ourselves of adequate and reliable
supplies of critical raw materials.
Let m e place in perspective the overall trading relationships between
the United States and Latin America.

In proportionate terms, that trade has

been m o r e important to the region than to us.

In 1973, for example, 12. 5 per

cent of United States exports went to Latin America, while 11. 7 per cent of
its imports c a m e from that region.

B y contrast, these sam e countries got nearly

40 per cent of their imports from the United States and sent the United States
30 per cent of their exports.
Another important change affecting our trading relationship is also
occurring - - a shift in Latin American development strategy from import
substitution to export promotion.

In the past, Latin America threw up tariff

barriers against imports of certain products to protect infant industries.

m a n y instances, high cost and inefficient industries were created behind
these walls.

However, this process is now at an end and attention turns to

the export of manufactured goods as an important next step in economic
growth and development.

Naturally, labor-intensive industries, in which

developing countries have a competitive advantage, have received first attention.

For example, textile imports to the United States from Mexico, Peru,
El Salvador, Nicaragua, Brazil and Haiti, and shoe imports from Brazil
and Argentina have increased significantly in recent years,,

The new Latin

American strategy of export promotion depends, of course, on the willingness
of other nations to import these products.
The House of Representatives has passed, and the Senate is now
considering the Trade R e f o r m Act, which includes authority for the conduct
of the next round of trade negotiations.

One section of this legislation would

allow the removal of tariffs on most manufactured goods from the lesser
developed countries.
would not be included.

S o m e sensitive items, such as textiles and footwear
The Latin American countries are very interested

in the progress of this legislation and clearly want a preference for their
manufactured goods.

S o m e of them have expressed interest in a special

U, S„ preference arrangement for them.

W e believe, however, that our

best interests and theirs would be better served by a world-wide generalized
preference scheme in a liberalized trading system,
I already have mentioned the energy problem and suggested that the
supply of other critical raw materials such as bauxite, which w e get from
Jamaica and Surinam, m a y c o m e into question.

F r o m Mexico w e get

strontium, flourine and cadmium; from Peru copper, tellurium, silver and
bismuth; from Bolivia tin and antimony, and from Venezuela iron ore as well
as petroleum.

In upcoming negotiations the Latin Americans will, I think,

link assured access to petroleum and the other raw materials with our
willingness to permit the entry of their manufactured goods into our markets.

Let m e briefly touch on the question of U.S. private investment
in Latin America»

In 1972, the book value of holdings was $16, 644 million»

M u c h of it is concentrated in specific countries and economic sectors»
Four countries -- Venezuela, Brazil, Mexico and Argentina u- accounted
for m o r e than 60 per cent of the total»

Overall, the manufacturing sector

in 1972 accounted for 33»4 per cent of total U»S. investment in the region,
compared to 18. 3 per cent in I960.

In Mexico and Brazil, this sectoral

concentration is particularly high, reaching70 per cent.
In current circumstances of radical change, there are large
possibilities for the disruption of regular patterns of trade and investment.
The question of international liquidity has c o m e again to the fore.

W h ere

will the industrialized oil user countries and, for that matter, n o n - O P E C
developing countries, find the additional m o n e y needed to pay the higher
prices for oil?

H o w will the oil-producing countries use the additional

resources they gain?

W e now have s o m e parts of the answers to these two

questions as to where excess funds have been channelled this year.

The way

in which they are answered fully will affect also the lending roles of the
international development banks, including the Inter-American Bank.
These are matters which naturally pose a challenge for the Bank
in the future, and the Bank is already beginning to focus on them.

Latin

America, which is developing rapidly, still needs the catalytic push of the
Bank and it will continue to need it in the future.

As a whole, Latin America's

growth in statistical terms has been amazing, thanks to the performance of
\
such key countries as Brazil.

-7 At the Bank w e take pride in having been so closely allie
effort.

Since the Bank m a d e its first loan for a water supply project in

Arequipa, Peru, back in February 1961, it has approved m o r e than
$6.4 billion in s o m e 750 loans, of both a hard and a soft nature, to support
the region's economic and social growth.

Its m e m b e r s h i p has increased to

24 countries with the addition of three newly emerging independent countries
of the Caribbean -- Barbados, Jamaica and Trinidad and Tobago -- and,
in 1972, of Canada.

W e now look to Western Europe and Japan for mem b e r s h i p

and new inputs of financial resources to supplement what has been provided
by the United States and Canada.

At the s a m e time, the United States hopes

to continue its level of support.
Total resources now amount to m o r e than $10.3 billion, thanks to
the timely support the Bank has received in replenishing its resources from
its own membership, with the primary contributor being the United States,
as well as from n o n - m e m b e r countries in Europe and Japan, w ho have given
the Bank access to their capital markets.

With the conditions prevailing in

the world today, that support is becoming increasingly difficult to obtain,
and in the future w e will need to exert our utmost efforts to ensure that w e have
a pipeline of resources that will enable us to fill the role assigned to us of
acting as a development bridge for the region.
A brief analysis shows that in 13 years of lending to both the public
and private sectors in Latin America, the Bank has financed in the critically
important field of agriculture the improvement of almost 7.5 million acres

of land and has ultimately authorized approximately 1 million loans to small
and intermediate farmers, including scores of rural cooperatives, for a
total of m o r e than $1 billion dollars through intermediate lending agencies.
In the field of transportation and communication, the Bank has
financed the construction or improvement of nearly 12, 000 miles of road
networks, m o r e than 1, 500 miles of gas pipelines, the modernization of
8 major ports and the installation of telecommunications systems in 7
countries.
In the electric power field, Bank loans have helped
to install electric plants with a total capacity of 2.7 million kilowatts,
to construct m o r e than 15, 000 miles of transmission and distribution
lines and to improve electrical services in 460 communities.
Bank financing is helping to build or improve m o r e than 70
large industrial plants --of which 47 are now in operation.

Likewise,

Bank credits channelled to small- and medium-size private entrepreneurs
in Latin America through the region's development banks are helping
to construct an additional 5, 100 smaller private industrial enterprises.
Our financing of water supply and sewage systems has benefited urban
and rural areas with a population of approximately 55 million people.
M o r e than 900, 000 students are benefiting from the Bank's operations
in advanced, vocational and technical education.
In export financing, the Bank has authorized s ome $100 million
to help finance intraregional exports of capital goods.

And, in the field

of preinvestment, 240 studies have been financed directly by the Bank
and another 360 through the resources lent by the Bank to various
national planning agencies.
I have sought to indicate in these remarks that Latin A m e rica
is making extraordinary progress in development, thanks substantially
to its own efforts, but also to the catalytic support which the region has
received from such agencies as the Inter-American Bank.

I have also

sought to point out the strong interdependence that exists between
Latin America and the United States, brought h o m e to us so starkly
by the energy situation in which we find ourselves.
In closing, I would like to indicate how important w e at the Bank
and in the United States' Government view the support which you, the
public, give to the Inter-American Development Bank.

In the years

ahead, the programs of the Bank will require even further support from
the business community and from civic organizations like the Rotary as
well as from our elected representatives.
I would like to pay tribute, if I may, to the Vermont Congressional
delegation w h o have been so supportive of this institution's efforts
in the Hemisphere.

Congressman Mallary, Senator Stafford and the Dean

of the Senate, Senator George Aiken have all been most helpful.
It is difficult, w h e n speaking of Latin America, to mention a m a n
w h o has m a d e a m o r e significant contribution to understanding in the
Hemisphere than Senator Aiken.

His knowledge and w i s d o m of Latin Am e r i c a n

affairs is great.

He is known and respected throughout the Hemisphere.

Senator Aiken was indeed one of the earliest supporters of the InterAmerican Development Bank, having had a very significant role in
advocating its establishment in 1959.

He has counseled often with our Bank's

President Antonio Ortiz Mena, the former Finance Minister of Mexico.
W h e n I first c a m e to Washington, and was approaching the day for m y
confirmation hearing before the Senate Foreign Relations Committee,
I called on Senator Aiken in his office.

I was welcomed by Mrs. Lola Aiken

and received w a r m l y by "the Governor. " For s o m e years Latin America
has been m y "beat, " first as a professor of Latin American affairs and
then as a Vice President of the Mo r g a n Guaranty Bank in charge of
Latin America.

I listened for m o r e than twenty minutes while Senator Aiken

spoke of his numerous friendships, his experiences in Latin America, and
his hopes for future cooperation between this country and the peoples of
Latin America.

This was a most heartening experience for m e personally.

W e shall miss his wise and kindly leadership in the Senate.
Fortunately, I understand that they are not giving up their residence in
Washington, and I look forward to m a n y opportunities to ask his guidance
and advice in the future.
I a m now available for any questions you might have.
Thank you for your attention.

E X E C U T IV E O FFIC E O F T H E PR ESID EN T

COUNCIL ON WAGE AND PRICE STABILITY
W ashington , D.C.

20503

FOR RELEASE ON DELIVERY

R e m a r k s by Albert Rees, Director
Council on W a g e and Price Stability
at the
Annual Convention of the N e w Jersey Education Association
Atlantic City, N e w Jersey
N o v e m b e r 7 1 1974

- 10-00 a. m.

W h e n I agreed to m e e t with you today, I w a s still a professor
at Princeton, with no thought that I would be going anywhere else.
W h e n I k n e w that I w a s about to b e c o m e Director of the Council on
W a g e and Price Stability I got in touch with Dr. Reilly and Dr. Hipp
and asked, "Do you still want m e ? " T h e y very kindly said "yes"
and here I a m. Fortunately, the things I have to say in m y n e w
role are the s a m e things I would have said in m y old one.
I want to talk today about h o w inflation affects us as teachers
and what w e can do about it. Y o u will, I hope, forgive m e if I
still refer to myself as a teacher - I have been a teacher for
twenty-five years, and a government official for about five weeks.
Inflation is a substantial and continuous rise in the general
level of prices. It is generally m e a s u r e d by a price index, such
as the C o n s u m e r Price Index or CPI, though there w e r e inflations
long before there w e r e price indexes. S o m e t i m e s one hears
inflation defined in other ways, such as "too m u c h m o n e y chasing
too few goods, " but that is not so m u c h a definition as a first
attempt at an explanation.
T he causes of inflation are not always the same, nor always
simple. The great hyperinflations of the past, such as the
G e r m a n hyperinflation of the early 1920's, which gave us the
billion m a r k postage stamp, w e r e caused almost entirely by
excessive quantities of money. A too rapid growth of the m o n e y
CWPS - 7

2
supply is also an important cause of milder inflations, and
unfortunately a burst of rapid monetary growth can continue to
raise the price level even after the growth in the m o n e y supply
has returned to m o r e n o r m a l rates.
Persistent government deficits are also a cause of inflation,
though economists disagree as to whether they operate directly
on the price level, or indirectly through encouraging expansion
of the m o n e y supply to finance the deficits. T h e budget of the
Federal government has been in deficit in all but one of the last
fourteen years, and this is undoubtedly an important source of
our present problems.
S o m e economists believe that collective bargaining is a
cause of inflation, and I share that view to a limited degree. The
spread of unionism and collective bargaining to n e w areas of
the economy, such as municipal government, public schools,
universities, and nonprofit hospitals has probably contributed
to a rise in local taxes, college tuition, and hospital fees.
However, this contribution is m o r e relevant to the gradual
inflation of the past decade than to the rapid inflation of the
past two years.
Increases in the profits of corporations which dominate
markets and w h o s e p o w e r is exerted intermittently can contribute
to inflation, and s e e m s to have done so since w a g e and price
controls expired at the end of April. However, those w h o b l a m e
inflation largely on m o n opoly p o w e r are taking a view that can
be kindly described as simplistic.
T he United States devalued the dollar relative to other
currencies in August 1971 and again in early 1973. In m y opinion,
these devaluations w e r e absolutely necessary to check our
m a s s i v e balance of payments deficits and to protect the jobs of
millions of A m e r i c a n w o r k e r s in a w a y that would not seriously
impair the efficiency of our economy. However, devaluation
lowers the foreign price of the things w e sell to other countries,
and raises the dollar price of the things w e buy. It contributes
to inflation both by encouraging exports and by discouraging imports.
Finally, shortages of commodities can contribute to
inflation - this is the "too few goods" that the m o n e y chases.

have had serious crop losses f r o m floods, droughts, hurricanes,
and early frost and these have been heavily responsible for
sharp increases in the price of food. Such events would not c o n
tribute to inflation if the quantity of m o n e y w a s adjusted d o w n w a r d
to offset t h e m and if other prices w e r e flexible downward, but
such is not the case. However, w e should not be too quick to
b l a m e all our troubles on Mother Nature - there have always
been floods and droughts and hurricanes, and they have not
always caused inflation.
Let us n o w ask w h o gains and w h o loses f r o m inflation. The
simplest set of answers deals with borrowers and lenders. If I
b o r r o w dollars with high purchasing p o w e r and repay m y contractual
debt in the s a m e n u m b e r of dollars w h o s e value is eroded by
inflation, I a m a gainer and the lender is a loser. That is w h y
during an inflation everyone wants to b o r r o w and no one wants to
lend, and as a result interest rates rise. Indeed, high interest
rates are m u c h m o r e a result of inflation than a cause.
T he second predictable effect of inflation is on income
distribution. Those receiving fixed m o n e y incomes lose, including
pensioners, bondholders, and those w h o receive rents fixed under
long t e r m leases. The people w h o m a k e these payments gain
correspondingly. T h e effect of inflation on w a g e earners is less
predictable. In the past year, w a g e s on average have not quite
kept up with inflation.
Because the recent rise in food prices has been especially
large, the effect of our current inflation has been especially severe
on the poor. A poor family spends m o r e than a third of its budget
on food, while a middle income family spends s o m e w h a t less than
a fourth.
It is very hazardous to try to predict the future course of
inflation, and m a n y good economists w h o have tried to do so in
the past have been proved w r o n g by events. Nevertheless, two
predictions s e e m reasonably safe. O n e is that a year f r o m n o w
inflation will still be a serious problem. T he second is that it
will not be nearly as serious then as it is now. There are two
m a i n reasons for believing that inflation will still be with us at
the end of 1975. T h e first is poor corn and soybean crops, which
will contribute to n e w increases in the price of m e a t and poultry.

4
T h e second is a pattern of w a g e settlements in excess of
productivity increases, which ensures a further rise in labor
costs per unit of output.
T h e reasons for expecting the rate of inflation to decrease
are equally strong. First, there has been a considerable decline
in the prices of r a w materials other than foodstuffs, which
should eventually be reflected in the prices of finished goods.
Second, the fact that w a g e increases have been smaller than
price increases leaves r o o m for the rate of price increases
to wind down. Last, but by no m e a n s least, there has been a
very pronounced softening of the e c o n o m y in the past year, as
shown by rising u n e m p l o y m e n t and lower rates of utilization
of capacity. While in m a n y respects this is unhappy news, it
will almost certainly help to restrain price increases. I would
look for the effects of w e a k e r aggregate d e m a n d to show t h e m
selves at first, not so m u c h in the prices m a r k e d on the labels,
but in m o r e and bigger sales and m o r e bargains for the shopper
w h o is willing to hunt for them.
I have been asked to discuss h o w teachers can protect t h e m
selves against inflation, and unfortunately that is not an easy
question to answer. S o m e of the assets that w e r e supposed to
be good hedges or protections against inflation, such as c o m m o n
stocks, have done very badly indeed in the past few years. It is
nevertheless still true that over long periods of time c o m m o n
stocks have increased in value m o r e than prices have gone up.
Perhaps the asset that has increased m o s t in value in recent
years is the single family h o m e , though this is not true in s o m e
N e w Jersey cities w h e r e property tax rates are exceptionally
high. A s h o m e mortgages b e c o m e available on better terms,
buying one's o w n h o m e m a y be the best protection against
inflation available to m o s t middle income families. Finally, if
one wants to hold assets w h o s e dollar value is fixed, it pays to
hunt for good rates of interest. M a n y thrift institutions are n o w
paying high rates for long-term savings, and such rates m a y
not be available a year f r o m now.
T he prospects for teachers at the bargaining table in the
near future are not as good as they w e r e a few years ago. Voters
are resisting proposals that would increase taxes; foundations
are cutting their gifts to educational institutions; and declining

5
enrollments, creeping up through the age structure of students,
are reducing the d e m a n d for teachers. It will probably not be
possible to do m u c h m o r e through collective bargaining than to
prevent the present level of real earnings f r o m being eroded.
O n e thing w e can do to help control inflation is to be informed
c o n s u m e r s and to teach our students to be informed consumers.
M a n y years ago the late W e s l e y Clair Mitchell, a Columbia
University professor w h o w a s a m a j o r contributor to the develop
men t of price index numbers, wrote an essay entitled "The
B a c k w a r d Art of Spending Money. " That essay n o w s e e m s
archaic in its details, but the central idea conveyed by the title
is as true as ever. W e spend far m o r e time and effort defending
our interests as producers than w e spend defending our interests
as consumers. M y agency gets letters f r o m c o n s u m e r s asking
"why is the price of item X higher at store A than at store B
around the corner. " I don't k n o w the reason for that situation,
but I do k n o w what one should do about it. First, one shoul
point out the difference to the m a n a g e r of store A. Second, one
should bu y the item at the store w h e r e it is cheaper.
O n e of the m o s t certain w a y s of saving substantial amounts
of m o n e y is to buy the so-called house brands, the labels of the
supermarket chains, department stores, and drug store chains,
rather than nationally advertised brands. If you feel that the
national brand is worth the difference in price, of course you
should continue to buy it. A n d if you say, "But I already n o w
about house brands, " let m e ask " Do your students k n o w it.
W h e n it c o m e s to such difficult subjects as buying insurance,
buying cars, or buying houses, I a m not at all sure that our
educational syst e m is doing what it should to teach students h o w
to get the value they pay for.
T h ere m a y also be cases in which w e want to advise students
to use less of products w h o s e price has risen sharply. Certainly
one would not advise school children to drink less milk no matter
what the price. But w h e n the price of sugar triples, as it has in
the past year, I would not hesitate to advise students to eat less
candy, to avoid presweetened cereals, and to drink less so t
drinks. Such behavior will not only help to bring d o w n the price
of sugar, but it will also be good for their teeth. If they will
substitute fruits for sweets it will further improve their diet.

6
Of c o u rse , I do not m ean that this is a ll that should be
done about the high p ric e of su g a r. Other, m ore d irect
m e a su re s a r e a lso under way.
We can a lso help to fight inflation a s citizen s by working
to defeat law s that r a is e c o sts and p r ic e s u n less they c re a te
so c ia l ben efits that a re c le a rly in e x c e ss of th eir c o sts. That
is p a rt of what I am trying to do in W ashington, and I hope
that I can count on your help.

CWPS - 7

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FOR RELEASE AT 8:00 P.M., CST
ADDRESS BY WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE ECONOMIC CLUB OF CHICAGO
CHICAGO, ILLINOIS, WEDNESDAY, NOVEMBER 6, 1974
Good evening.
It is a privilege to speak to such a
prestigious audience and to bring you the warmest greetings
of the President of the United States.
With most of the election results now official, I know
that many of you are asking tonight about the impact of
yesterday’s voting on the future of the country. Since I
am not a politician -- and if I were, I’m not sure I would
admit it tonight -- I will spare you a political analysis of
the results.
I would, however, like to touch briefly upon
some of the questions that the elections have raised about
future directions in economic policy.
I have read a considerable amount of speculation that
once the elections were over, the Administration would abandon
the economic proposals it submitted to the Congress four weeks
ago.
Let me set the record straight: we are not backing down.
We are not retreating from our positions. We will stand and
fight for the President's economic program because we continue
to believe it is in the best interests of all Americans.
Nothing has happened in either the political or economic arenas
to change our views.
I do not mean to imply that we are unwilling to compromise,
especially on details. As a co-equal branch of the Government,
the Congress bears an equal responsibility for helping us get
into this mess and it must share equally in helping us get out.
We must therefore work together to hammer out legislation. But
within the Administration we remain committed to a policy of
moderation and restraint -- a policy that still offers by far
the best hope of curbing inflation and restoring a pattern of
healthy, stable growth to our economy. The actions required

WS-152

will often be tough and unpopular, but we will work with the
Congress as closely and cooperatively as possible in order to
get the job done.
There has also been some speculation that when the
Congress returns to Washington for the closing weeks of this
session, it will deliberately drag its feet on economic legis
lation. Some Democrats, it is reported, want to delay important
actions until next year when they will have larger, more com
fortable majorities in both houses of the Congress.
I have too much respect for the Congress to believe such
speculation. The Members of Congress know that our economic
problems are not going to be solved until there is decisive
action on Capitol Hill. The longer we wait, the worse those
problems could become and the more that people will have to
suffer.
Back in 1871, when Mrs. O ’Leary’s cow kicked over that 1
lamp, there was a terrible fire here in Chicago. But think
how much worse it would have been if the fire chief had said,
’’Sorry, Mr. Mayor, we aren’t going to start fighting this fire
until next Monday when we'll have some fresh recruits on hand.
They're better fire-fighters than these fellows, so let's wait
until then.”
Inflation is not yet out of control, but it would be grossly
irresponsible not to contain it as quickly as possible.
I am
sure that all members of Congress will want to act quickly, and
I look forward to the opportunity to work with them in a con
certed attack on our economic troubles.
If the Congress refuses to act in the next few weeks, we
should recognize that position for what it is -- a conscious,
deliberate decision to let inflation rage on.
Inflation:

The Number One Domestic Problem

Inflation is our number one domestic problem in the United
States. Prices are going up faster than at any time in our
peacetime history, and if they continue at this pace, they will
undermine the very foundations upon which this nation is built.
This is not to say that our problems are of only one dimension.
All of you are aware that we are also confronted with a growing
sluggishness in our economy.
In my judgment, the current economic
malaise will eventually be recorded as a recession, but I would

(

urge anyone who calls it a recession to use that term most
advisedly. This is not a recession in the classic sense,
nor does it call for the classic remedies.
Instead, we must
recognize that much of the sluggishness in the economy was
touched off by inflation. Therefore, the way to cure our
economic troubles is to concentrate our attack not on the
recessionary aspects of the economy but on the real enemy,
inflation.
The extent to which inflation has caused the general
slowdown in the economy is frequently overlooked.. Yet it
was inflation that dried up the supply of mortgage money and
thus sent the housing industry into a tailspin. And inflation
was the force that crushed consumer confidence, causing the
biggest reduction in consumer purchasing since World War II.
Housing and consumer purchasing are now the two weakest sectors
of the economy, and in both cases inflation is the culprit.
Thus, inflation must now be the chief target of our economic
policies.
In choosing our weapons, let us also be clear about the
causes of inflation itself. Those causes can generally be
placed in two categories: a series of special factors that
unexpectedly hit the economy in the early 1970’s, and another
set of powerful, underlying forces that have been building up
for more than a decade.
Among the special factors, the most critical has been
the explosion in food prices.
It was triggered by a drop in
worldwide crop production in 1972 and the situation was then
worsened by a series of misfortunes this year here at home -namely, a wet spring, a dry summer and an early frost. As a
result, consumer food prices have shot up over 30% in less
than two years.
The food price explosion is however one of several factors.
There has also been a quadrupling of oil prices during the
past year, a factor whose importance is only now being fully
realized. There was also a simultaneous economic boom among
the industrialized nations in 1972 and 1973 which placed heavy
pressures on the prices of all internationally traded commodities.
And the inescapable and long-overdue devaluations of the dollar
in 1971 and 1973 also served to make our products more attractive
abroad and thus added another special burst of price pressures
here at home. Further contributing were the accumulated dis
tortions of three years of wage and price controls.

4
Fortunately, all of these special factors are now losing
some of their impact and they are very unlikely to occur again.
Economic and political constraints should even bring a reduction
in oil prices. The question is no longer whether oil prices
will come down but when they will come down.
Even as these special factors recede, however, the problem
of inflation is still with us, as strong as ever. That is
because we have had more than a decade of political decisions
that have permitted, encouraged and even forced the demand for
goods and services to outrun the productive capacity of our
economy. Simply stated, we have increased Government spending
faster than we have been willing to pay for it, and we have
been willing to create more new money and credit than the
economy could effectively absorb. As a result, fundamental
inflationary forces have gathered enormous momentum and are
now deeply embedded in our economic structure.
The monstrous growth of the Federal budget is a prime
example of our troubles.
It took 185 years for the budget to
reach the $100 billion mark, nine more years to hit $200 billion,
and only four more years to reach the $300 billion level. And
in only one year of the last fourteen has the Government been
able to balance its budget books.
In the last 10 years alone,
Federal deficits have reached a staggering total of $103 billion.
Yet even the unified budget, as huge as it is,. seriously
understates the full impact of the Federal Government on the
financial markets. What it ignores is the ominous growth in
"off-budget financing." A large volume of credit, as you know,
is now guaranteed by Federal agencies -- to assist public and
private housing, urban and rural development, transportation,
health, education, small business and other activities.
In
recent fiscal years, total Federal and Federally assisted
borrowings have grown to approximately one-half of all the
funds raised through borrowings in the capital markets.
It is
important that we reverse this trend.
When the Federal budget runs a deficit year after year,
especially during periods of high economic activity which we
have enjoyed over the past decade, it becomes a major source
of economic and financial instability. The huge Federal
deficits of the 1960s and 1970s have added enormously to
aggregate demand for goods and services, and have thus been
directly responsible for upward pressures on the price level.
Heavy borrowing by the Federal sector has also been an important
contributing factor to the persistent rise in interest rates
and to the strains that have developed in money and capital
markets. Worse still, continuation of budget deficits
has tended to undermine the confidence of the public in the
capacity of our government to deal with inflation.

5
5

? ?

If the present inflationary problem is to be solved and
interest rates brought down to reasonable levels, the Federal
budget must be brought into better balance. This is the most
important single step that could be taken to restore the
confidence to people in their own and our nation*s economic
future.
In my own view, monetary policy has also been overly
stimulative in the past decade and must be regarded as another
culprit of our current troubles. Between 1955 and 1965, the
money supply grew at a rate of about 2-1/2 percent a year,
and we enjoyed a period of reasonable price stability. Since
1965, the annual rate of increase in the money supply has
more than doubled to 6 percent, and it is no accident that
price levels have skyrocketed.

It is less apparent but certainly no less true that the
regulatory practices of the Government are also at fault. The
blanket of rules and regulations woven together over the past
40 years is now so heavy that it is stifling the growth of our
economy. Food and fuel policies are excellent examples, for
both have discouraged full production. The so-called sacred
cows of the Federal Government now pose a significant threat to
our battle against inflation.
I know they are powerful, and I
know that the special interest groups will fight hard to save
them, but this is a fight that we can neither avoid nor afford
to lose.

What, then, is to be done?
-- First,
President Ford
spending limit
the elections;
complied.

we must sharply rein in Federal spending.
asked the Congress to set a $300 billion
on the 1975 budget before it went home for
I am sad to observe that the Congress has not

-- Second, we must enact new spending programs only
if we are willing to pay for them. We have all heard the
cheers for the President’s proposals to liberalize the
investment tax credit, to help the unemployed, and to prop
up the housing industry, but what are we to make of the jeering
at the proposal for a 5 percent surtax? It’s time to be honest
with the American people, to face up to the fact that if we
vote for expensive new programs, we must pay for them
either in regular taxes or in the form of the cruelest tax
of them all -- inflation.
-- Third, the Federal Reserve must complement this fiscal
discipline by keeping a reasonably close rein on the growth
of money and credit.
-- Fourth, we must begin shifting far more of our re
sources into capital investments.
It is startling to realize
that between 1960 and 1973, the growth in productivity for the
average American was the lowest for any major industrialized
nation in the Western world. Our annual growth rate in
productivity was only 3 percent, compared to 6 percent for
the French and Germans and more than 10 percent for the Japanese.
And the reason is very clear: During these same years, the
United States was devoting less than one-fifth of its total
output to capital investment -- one of the smallest percentages
of any nation in the Western world. Productivity is the key
to expanding our industrial base, and unless we reawaken to
that fact, we are in for years of trouble.

Let me ask you here tonight: when are we going to halt
the growth of Big Government? When are we going to show our
concern that one-sixth of the working men and women in this
country are now employed by government and more than 30
percent of our Gross National Product is consumed by govern
ment? When are we going to stop creating new government
mechanisms that feed the bureaucracy but strangle free enter
prise? It has certainly become apparent to me -- and I hope
it is evident to you -- that we have more government than
we need, more government than most people want, and certainly
more government than we are willing to pay for.
Finding A Cure
One of the surest things that can be said about curbing
inflation is that the process is unpopular.
Inflation is like
a wild night on the town: the first few drinks have a decidedly
pleasant effect, but the hangover is hell.
The critical requirement now is to pursue a consistent
policy of monetary and fiscal discipline.
It is essential
that we establish and maintain a moderate degree of slack in
the economy for the foreseeable future. Of course, business
sales and employment must both continue to grow. But there
must be a small gap between capacity and the level of demand,
so that the forces of competition can dampen inflationary
pressures.
To a considerable degree, our anti-inflationary policies
have already produced the margin of slack that is necessary.
The first crucial step is thus behind us.
So far, however, the restraint has come mainly from the
monetary side --the Federal Reserve. Now we must redress
this imbalance between monetary and fiscal policies by
achieving greater control of the budget. More effective
fiscal policies, halting the upward momentum of both regular
Federal spending and off-budget financing, will allow the
Federal Reserve to ease pressures in the credit markets.
Interest rates can then ease off and funds can again flow
into the housing industry.
Furthermore, we must firmly resist pressures to overheat
the economy again. We can do that by enacting effective pro
grams to cushion the impact of inflation where it strikes with
disproportionate force -- programs such as low-income tax
relief, extended unemployment benefits and expanded public
employment. These programs are not only humane but they
ensure that the burdens of inflation are borne equally. Only
in this way can we win broad and durable support for the
long-term struggle against inflation.

The Ford economic program is just the right medicine
because it is carefully constructed to meet all of these
objectives.
It would curb the growth rate of the Federal
budget, but it would also cushion the effects of its policies
for those who bear a disporportionate burden of the.fight
against inflation.
It would require a new measure of dis
cipline from those of us who can afford it by temporarily
raising our taxes in order to pay for new programs. And
it would alleviate commodity shortages in areas such as
food and fuel through conservation and through legislation
that would expand production.
Furthermore, the Ford economic program would provide
new incentives for business to make long-term investments -investments that will create new jobs and new products at
lower prices.
I cannot overemphasize the importance of this
final point.
It is startling to realize and well worth
repeating that between 1960 and 1973 the growth in productivity
for the average American worker was lower than anywhere else
in the industrialized countries of the West. Why? Because
we devoted less of our total output to capital investment
than almost anywhere else. It is essential that this country
begin encouraging a shift away from consumption and toward
greater savings and investment. That is the sure road to
growth and prosperity for our free enterprise system.
Anyone who thinks this Ford program is too weak is mis
judging the willingness of the Congress to come even this far.
It will be tough to enact this program and it will be tough
to stick to it. Sometimes resisting the easy thing, the
thing that is seemingly attractive, is the most difficult
thing to do, and that is the course that the President has
chosen.
I fear that when the Congress returns to Washington,
there will be growing political pressures to abandon our
policies of moderation in favor of greater stimulation.
Repeatedly in the past, we have succumbed to those pressures
because that was the popular, easy way out. But the gains
were only illusory: easy money and expanded Federal spending
led to higher prices, and as inflation became a way of life,
prices climbed faster and faster. Today the rate of inflation
is so high that it could tear apart the very fabric of our
society. For once, let us stand firm and attack the causes
of inflation instead of its results.
If we succumb once again, the pressures for new wage
and price controls will be irresistible, and those controls
are certain to be more stultifying and costly than before.
When will we learn that controls only produce great inequities,
distortions, shortages, unemployment, and ultimately more
inflation? When will we unleash our free enterprise syftem,
letting it continue its earlier progress toward making America
the most prosperous people *n
istory o man.

It cannot be said often enough that centralizing the
American economy is the surest means we have of killing the
goose that lays the golden egg. And make no mistake: the
free enterprise system in American is in grave danger today.
George Will, a columnist, wrote a remarkably perceptive
piece recently in which he argued that we are "meandering
mindlessly toward a serfdom that is no less real for being
bland." The growing power of the central government he
said, "affects society the way hemlock affected Socrates:
Numbing begins in the extremities and moves inexorably unti
it extinguishes the spark of life." Unless warned, "A
society, unlike Socrates, does not know it is dying until
it is too weak to care."
I strenuously disagree with the doomsayers who say that
the Ameircan economy is on the verge of collapse, but I do
believe that if we want to preserve the free enterprise
system in this country, w e ’re going to have to fight for it.
That's what this battle against inflation is all about.
It
will not be easy. Patience and self-sacrifice will be re
quired. But it can be done if all of us -- especially men
women like you, the leaders of our society -- work at it
together.
Thank you.

OoO

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Title:

Radio 15 News, Statement by Secretary Simon

Date:

1974-11-07

Journal:

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Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

D epartm entoftheTR EASU RY
SHINGTON, D.C. 20220

T E L E P H O N E W 0 4-2 0 41

FOR IMMEDIATE RELEASE

November 7, 1974

RESULTS OF AUCTION OF 7-YEAR TREASURY NOTES

The Treasury has accepted $ 1.75 billion of the $3.3 billion of
tenders received from the public for the 7-year notes auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield
Highest yield
Average yield

7.75%
7.86%
7.82%

The interest rate on the notes will be 7-3/4%. At the 7-3/4%
rate, the above yields result in the following prices:
Low-yield price
High-yield price
Average-yield price

100.000
99.416
99,628

The $1.75 billion of accepted tenders includes
8 % of the amount
of notes bid for at the highest yield, and $0.2 billion of noncompetitive
tenders accepted at the average yield.
In addition, $0.9 billion of the notes were allotted to Federal
Reserve Banks and Government accounts at the average yield, in exchange
for securities maturing November 15.

Department of th e T R E A S U R Y
OFFICE OF REVENUE SHARING
W A S H IN G T O N , D .C .

■I

20226

T E L E P H O N E 634-5248

FOR IMMEDIATE RELEASE
Wednesday, November 13
KENTUCKY JOINS REVENUE SHARING
AUDIT PROGRAM
The State of Kentucky and the Treasury Department's
Office of Revenue Sharing today signed a cooperative audit
agreement.

Under the agreement, Kentucky will audit revenue

sharing expenditures of its state agencies and 118 counties
using audit standards and procedures set forth by the Office
of Revenue Sharing.
The pact was signed by Ms . Mary Louise Foust,'Auditor
of Public Accounts for the State of Kentucky and Graham W. Watt,
Director of the Office of Revenue Sharing in a ceremony at the
Office of Revenue Sharing this morning.
Similar agreements have been concluded with New York,
Michigan, Tennessee, Florida, Minnesota, Illinois, Missouri,
Oregon, Wyoming, North Dakota, South Dakota, Arizona and
Arkansas.

More than 7700 local governments are now covered

in the Office of Revenue Sharing's Cooperative State Audit Program,
a program designed to achieve audit coverage of revenue sharing
recipients at least cost but with greatest effectiveness.

-More-

Through its Cooperative State Audit Program, the Office
of Revenue Sharing is enlisting the assistance of state audit
agencies to assure compliance with financial practice, civil
rights and other provisions of revenue sharing law.

In addition,

the Office of Revenue Sharing will perform audits of recipient
governments in all states, randomly selected.
The Office of Revenue Sharing has distributed more than
$15 billion to nearly 39,000 state and local governments since
December 1972.

The State and Local Fiscal Assistance Act of

1972 which established the general revenue sharing program
authorizes distribution of $30.2 billion dollars to states and
local units of general government over a five year period ending
with December, 1976.

FOR IMMEDIATE RELEASE

November 8, 1974

RESULTS OF TREASURY BOND AUCTION
The Treasury has accepted $ 600 million of the $1,813 million of
tenders received from the public for the 24-1/2 year 8-1/2% bonds
auctioned today. The range of accepted competitive bids was as follows:
Price

Approximate Yield
To First Callable
Date

High
Low
Average

103.50
102.79
103.04

8.14%
8.21%
8.19%

To Maturity
8.17%
8.23%
8.21%

The $ 6C)0 million of accepted tenders includes 55% of .the amount
of bonds bid for at the low price, and $52 million of noncompetitive
tenders accepted at the average price.
In addition, $338 million of the bonds were allotted to Federal
Reserve Banks and Government accounts at the average price, in exchange
for securities maturing November 15.

MeT

Department of

T ELEP H O N E W04-2Q41

WASHINGTON. D .C . 20220

:i..:i1
H'.H
IH
is

FOR RELEASE 6:30 P.M.

November 8, 1974
U

¡ 3 " *-»-4

s u r y *s w e e k l y b i l l a u c t i o n s

of 13-week Treasury bills and for $2-1 billion
[:h series to be issued on November 14, 1974,
Urve Banks today. The details are as follows:

YYû

7 YS 7

k b u is
»bruary 13, 1975
Equivalent
Annual Rate

T o

26-week bills
maturing May 15, 1975
Equivalent
Annual Rate

Price

7.560%
7.623%
7.604%

96.192 b/
96.173 ~
96.182

7.532%
7.570%
7.552%

ng $5,200,000

boo
s

y & f,z & j'i/j-

7,3 ? r

t for the 13-week bills were allotted 36%.
1 for the 26-week bills were allotted 9%.
ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Accepted

Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS

69.565.000
63.640.000
48.815.000
366.980.000
48.490.000
9,930,000
54.320.000
44.150.000
196.190.000

$
30,465,000
! 2,245,030,000
59.550.000
63.855.000
42.070.000
38.160.000
117.400.000
25.490.000
3,670,000
31.180.000
28.750.000
115.600.000

Applied For
$

32,285,000
3,031,225,000
43.680.000
66.345.000
49.095.000
36.600.000
249.305.000
46.760.000

8,7 L5,000
42.860.000
32.450.000
213.690.000

Accepted
22.205.000
787,820,000
43.680.000
41.075.000
20.645.000
20.525.000
70.805.000
21.060.000
2,715,000
23.870.000
16.850.000
29.340.000

$4,491,210,000 $2,801,220,000 c/$3,853,010,000 $2,100,590,000 d/

SJ Includes $466,665,000 noncompetitive tenders accepted at average price.
—1
' Includes $274,720,000 noncompetitive tenders accepted at average price.

A / These rates are on a bank-discount basis. The equivalent coupon-issue
yields are 7*8(5% for the 13-week bills, and 7.96% for the, 26-week bills.

Department of
WASHINGTON, DC. 20220

TELEPHONE W04-2041
USI

FOR RELEASE 6:30 P.M.

November 8, 1974

RESULTS OF TREASURY’S WEEKLY BILL AUCTIONS
Tenders for $2.8 billion of 13-week Treasury bills and for $2.1 billion
of 26-week Treasury bills, both series to be issued on November 14, 1974,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
COiMPETITIVE BIDS:

13-week bills
maturing February 13, 1975
Price

High
Low
Average

98.089 a/
98.073
98.078

Equivalent
Annual Rate
7.560%
7.623%
7.604%

26-week bills
maturing May 15, 1975
Price

96.192 b/
96.173
96.182

Equivalent
Annual Rate
7.532%
7.570%
7.552%

a/ Excepting 2 tenders totaling $5,200,000
b/ Excepting 1 tender of $20,000

Tenders at the low price for the 13-week bills were allotted 36%.
Tenders at the low price for the 26-week bills were allotted 9%.
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Applied For

Accepted

44,250,000 $
30,465,000
Boston
$
3 ,484,815,000 2,245,030,000
New York
60,065,000
Philadelphia
59,550,000
69,565,000
63,855,000
Cleveland
63,640,000
42,070,000
Richmond
48,815,000
38,160,000
Atlanta
366,980,000
117,400,000
Chicago
48,490,000
25,490,000
St. Louis
9,930,000
3,670,000
Minneapolis
54,320,000
31,180,000
Kansas City
44,150,000
28,750,000
Dallas
196,190,000
115,600,000
San Francisco
TOTALS

Applied For
$

Accepted

32,285,000 $
22,205,000
3,031,225,000 1,787,820,000
43,680,000
43,680,000
66,345,000
41,075,000
49,095,000
20,645,000
36,600,000
20,525,000
249,305,000
70,805,000
46,760,000
21,060,000
8,715,000
2,715,000
23,870,000
42,860,000
16,850,000
32,450,000
29,340,000
213,690,000

$4 ,491,210,000 $2,801,220,000 c/$3,853,010,000 $2,100,590,000 d/

Includes $466,665,000 noncompetitive tenders accepted at average price.
— / Includes $274,720,000 noncompetitive tenders accepted at average price.
.1/ These rates are on a bank-discount basis. The equivalent coupon-issue
yields are 7.86% for the 13-week bills, and 7.96% for the, 26-week bills.

Departmentof the T R E A S U R Y
T ELEP H O N E W04-2041

1SHIN6T0N, O C . 20220

November 12, 1974

FOR IMMEDIATE RELEASE
TREASURY’S WEEKLY BILL OFFERING

The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $ 4,900,000,000» or
thereabouts, to be issued November 21, 1974,

as follows:

91-day bills (to maturity date) in the amount of $2,800,000,000» or
thereabouts, representing an additional amount of bills dated August 22, 1974,
and to mature February 20, 1975

(CUSIP No. 912793 VW3 ) » originally issued in

the amount of $2,001,830,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $2,100,000,000, or thereabouts, to be dated November 21, 1974,
and to mature May 22, 1975

(CUSIP No. 912793 WK8 ) •

The bills will be issued for cash and in exchange for Treasury bills maturing
November 21, 1974,

outstanding in the amount of $4,708,580,000» of which'

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,597,285,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and non
competitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Standard time, Monday, November 18, 1974.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
multiples of $5,000.

Tenders over $10,000 must be in

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.
Banking institutions and dealera who make primary markets in Government

(OVER)

securities and report daily to the Federal Reserve Bank of New York their position
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.
own account.

Others will not be permitted to submit tenders except for their
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

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 reject any or all tenders,
in whole or in part, and his action in any such respect shall be final.

Subject

November 21, 1974, in cash or

other immediately available funds or in a like face amount of Treasury bills
maturing November 21, 1974.
ment.

Cash and exchange tenders will receive equal treat

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

bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

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

U N ITED STATES SAVINGS BONDS ISSUED AND R ED EE M ED THROUGH October 3'
(Dollar amounts in m illio ns — rounded and w ill not n ece ssa rily add to totaM^

DESCRIPTION

AMOUNT ISSUED—'

Matured
I S e r ie s A-1935 thru D-1941
I S e r ie s P and G-1941 thru 1952
S e r ie s J and K-1952 thru 1957
UNMATURED
I S e r ie s E ^ :
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
1971
1972
1973
1974
Unclassified
I

at-

ls
is

Total Series E

*7"

% OUTSTANDING
OF AMOUNT ISSUED

5003
29521
3754

4999
29501
3748

4
20
5

.08
.07
.13

1936
8548
13748
16050
12640
5776
5515
5723
5686
4995
4321
4534
5199
5314
5537
5351
5051
4945
4647
4679
4781
4661
5252
5118
5007
5429
5372
5058
47 71
5008
5774
6373
6302
4091
7 03

1758
7746
12474
14493
11280
5007
4655
47 56
4649
4032
3483
3634
4094
4125
4260
4089
3816
3649
3393
3330
3291
3132
3353
3277
3187
3325
3241
3024
27 5 7
? A /, ?
2659
2547
2169
7C1
767

177
801
1274
. 1557
1360
769
860
966
1036
963
833
899
1 105
1 1 QO
1 277
1262
1235
1296
1254
1349
1490
1529
1899
1841
1820
2103
2131
20 3 3
901 4
? 367
31 1 5
3826
4133
3 390
- 64

9,14
9.37
9.27
9.70
10.76
13.31
1 5. 5Q
1 6 68
18.22
19.28
19.28
19.83
21,95
99 3Q
99 0 6
23Ì58
24.45
26.21
26.98
28.83
91 1 7
32.80
36

35.97
36.35
38.73
39.67
40.19
49 91
A7

59, Q5
60 0 3
65.58
82.86

148803

55091

27.02

5485
9939

4132
3572

1353
6366

2. 4. 67
64.05

15424

7704

7719

50,04

Total Series E and H

219318

156507

62810

28.53

Total matured
Total unmatured
Grand Total
-------- ------- -------------------------------------

38278
219316
257596

38248
156505
194755

29
62811
62839

.07
28.61
2 . 4 . 39

Total Series H

otic* 1

AMOUNT
,
OUTSTANDING-^-/

203894

I Series H (1952 thru May, 1959) -M
H (June. 1959 thru 1974)

ase,

AMOUNT
REDEEMED—/

All Series

[2 /
- _________
j j F u'r e n t r e d e m p tio n v a lu e .

option o f o w n e r b o n d s m a y b e h e l d a n d w i l l e a r n i n t e r e s t fo r a d d i t i o n a l p e r io d s a f t e r o r i g i n a l m a t u r i t y d a t e s .

Form PD 3812

(Rev. Mar. 1974) —Dept, of the Treasury —Bureau of the Public Debt

.....

D e p a rtm e n to fth e fR EA S lIR Y
ASHINGTON,

D.C. 20220

TELEPHONE W 0 4-2 0 41

MEMORANDUM FOR CORRESPONDENTS

November 12, 1974

In response to questions, Jack F. Bennett, Under Secretary
for Monetary Affairs, stated today that the U.S. Treasury
position continues to be that the Congress would be requested
to postpone the date of December 31, at which time private
United States investment in gold bullion would be permitted,
only if there were developments in foreign exchange or financial
markets making such a change desirable. At the present time,
however, such conditions do not exist, and the Treasury does
not anticipate that conditions will necessitate such a request
to the Congress.

oOo

WS-153

Department of I h e T R E A S U R Y
OFFICE OF REVENUE SHARING
WASHINGTON, D.C. 20226

FOR IMMEDIATE RELEASE
Monday, November 18, 1974
1238 LOCAL GOVERNMENTS ADDED
TO REVENUE SHARING AUDIT PROGRAM
.State auditors from Louisiana, Mississippi, Nebraska,
New Mexico and Washington formally agreed today to audit expendi
tures of general revenue sharing money in their State agencies and
units of local government, using standards established by the U.S.
Treasury Department’s Office of Revenue Sharing.
In a ceremony held at the Admiral Semmes Hotel in Mobile,
Alabama this morning, Graham W. Watt, Director of the Office of
Revenue Sharing, concluded separate agreements with representatives
of the five states, as follows:
•

Joseph H. Burris, Legislative Auditor, State of
Louisiana:

To perform audits of all State agencies

and 62 Louisiana counties.
•

W. Hamp King, State Auditor of Mississippi:

f t 8 fy

perform audits of all State agencies and 82 Mississippi
counties.
•

Ray A.C. Johnson, Auditor of Public Accounts,
State of Nebraska:

To perform audits of all

State agencies and 627 units of Nebraska local government.
-more -

•

Frank M. Olmstead, State Auditor of New Mexico:
To perform audits of all State agencies and
123 units of New Mexico local government.

•

Robert V. Graham, State Auditor of Washington:
To perform audits of all State agencies and
344 units of Washington local government.

Today's ceremony was held in conjunction with the annual
meeting of the National Association of State Auditors, Comptrollers
and Treasurers.
In executing the agreements, the States involved joined the
Office of Revenue Sharing's Cooperative State Audit Program.
The program is designed to enlist the assistance and utilize the
capabilities of state audit agencies in assuring compliance with
financial practice, civil rights and other provisions of revenue
sharing law.
\Services already being performed by state audit agencies are bei
--expended to cover revenue sharing audit requirements.

In addition,

since the audits will be performed in accordance with the Office
of Revenue Sharing's "Audit Guide", state auditors will determine
compliance with Equal Employment Opportunity Commission reporting
requirements.

Where a state auditor finds a recipient government

to be involved in a current civil rights investigation, information
regarding the matter will be noted.

-more-

Reports indicating noncomplianc«

-3-

with civil rights or other provisions of revenue sharing law will
be referred to the Office of Revenue Sharing for appropriate action.
"Participation by the five states that have concluded agree
ments with us today brings to more than 9000 the number of local
governments now covered by our Cooperative State Audit Program,"
Graham Watt announced.

"The program means a saving of time and

money, since the Federal government will not be duplicating an
audit system already in place," he said.

"In addition, the work

performed will be of better quality, since the auditors are already
familiar with the laws and accounting procedures applicable in
their own states."
Nineteen states have concluded cooperative audit agreements
with the Office of Revenue Sharing to date.

In addition to the

five states that joined the program today, the following states
have concluded comparable agreements:

New York, Michigan, Tennessee,

Florida, Minnesota, Missouri, Illinois, Oregon, Wyoming, Arizona,
North Dakota, South Dakota, Arkansas and Kentucky.
In addition to the Cooperative State Audit Program, the Office
of Revenue Sharing will be performing its own audits on a random
basis and investigating allegations of noncompliance with revenue
sharing law, wherever and whenever they may occur.
The Office of Revenue Sharing has distributed $15.8 billion
to nearly 39,000 states and local governments since December 1972.
The State and Local Fiscal Assistance Act of 1972 which established
-more-

-4-

the general revenue sharing program authorizes the distribution
of $30.2 billion to states, counties, cities, towns, townships,
Indian tribes and Alaskan native villages over a five-year period
that ends with December 1976.

Department of th e T R E A S U R Y
SHINGTON, D.C. 20220

TELEPHONE W04-2041

FOR RELEASE UPON DELIVERY, NOVEMBER 14, 12 NOON EST
REMARKS BY DAVID MOSSO
DEPUTY FISCAL ASSISTANT SECRETARY
DEPARTMENT OF THE TREASURY
BEFORE THE UNITED STATES LEAGUE OF SAVINGS ASSOCIATIONS
ON TREASURY’S DIRECT DEPOSIT PROGRAM
THURSDAY, NOVEMBER 14, 1974
SAN FRANCISCO, CALIFORNIA
I am very glad to be here this morning and to take
part in your 82nd Annual Convention. My subject, the
Treasury's program for direct deposit of Federal benefit
payments in financial organizations, is one that may not
impact your operations to a large extent in the very near
future; but it is one which has significant longer-range
implications.
Many of you have heard something about the direct
deposit program, either from Treasury press releases and
meetings of your representatives with Treasury systems people,
of through articles in your Association publications.
In
its basic form, the program embraces any method of making
payments by credit to a payee's account in a bank or thrift
institution rather than by delivery of a check or cash to the
payee personally. Direct deposit is not synonymous with
electronic funds transfer, but electronic transfer is the
ultimate method on our present horizon. There are several
intervening steps to be taken, however, before we get that
far.
The concept of direct deposits is not new, of course.
In the Federal Government it goes back more than 15 years
and is now used for over 20 million Federal salary payments
annually, principally by means of composite checks accompanied
by payee-account listings.
In 1972, the Treasury supported
legislation to extend this option to the large-volume monthly
payments under Federal benefit programs, such as social
security, veterans, civil service retirement and the new
supplemental security income benefit program which has been
administered by the Federal Government since the beginning
of this year.

WS-155

Following passage of the legislation, the Treasury and
the Social Security Administration agreed to develop an
optional direct deposit-electronic funds transfer program
for social security and supplemental security income benefits.
The program is being developed in cooperation with the Federal
Reserve System, financial associations such as your own, and
the concerned Federal regulatory agencies.
It will be implemented in three stages, beginning this
month, and will culminate in a system for distribution of funds
via electronic transfers of payment data. Participation in the
program will be entirely voluntary for both the financial
organizations and the beneficiaries involved.
x
The principal objectives of the program may be stated
succinctly:
-- To prevent the loss, theft and forgery of checks,
-- To turn the tide of paper that is choking the
financial system and the mails,
-- To reduce costs borne by the social security trust
funds or by the general taxpayer.
The need is clear. Since 1961, the monthly volume of
checks issued for Federal benefit programs has more than
doubled -- now amounting to over 40 million payments monthly,
one-half billion payments a year. Social security annuitants
alone number 27 million, and that figure is growing at a rate
of over one million net additions per year. The dollar total
for social security benefits and supplemental security income
benefits alone is now over $60 billion a year.
As you might expect, there is a more than proportionate
increase in the number of check claims we process as the volume
of these benefit payments goes up. Specifically, the incidence
of loss and forgery of Treasury checks has increased over 60
percent in the last five years. Last year alone we handled
800,000 claims for lost or stolen checks, over 50,000 involving
forgeries.
In recent years we have found that check thefts are often
a product of organized criminal elements, resulting in mass
losses of checks. But no matter how these losses occur, the
result is always hardship and inconvenience for the payees,
losses for the financial organizations and increased costs for
the Treasury.

3
During Phase I of the program, social security and
supplemental security income beneficiaries residing in Georgia
were given the option, at the beginning of this month, to
enroll in the program and to have their monthly checks sent
to a financial organization of their choice for credit to their
accounts.
In April 1975, beneficiaries residing in Florida will be
given the option to enroll. Beginning in July 1975, the option
will be extended to beneficiaries in the rest of the United
States. During this initial period, when a person chooses
the direct deposit method, an individual check will be drawn
in the beneficiary’s name and mailed to the financial organi
zation. The financial orgnaization will negotiate the check
under a power-of-attorney procedure.
As a test, half of the Georgia beneficiaries were sent
the enrollment forms with their checks and half were told
that the forms are available at their district social security
office or their financial organization. The method that is
most effective in producing responses from beneficiaries will
be used in the Florida test in April.
h During the pilot phase of the program, it will be necessary
for" participating financial organizations to forward certain
conmiunications from the Social Security Administration to bene
ficiaries. These are program-information inserts that are now
enclosed with checks going to home addresses, and will continue
to be enclosed with checks going to financial organization
addresses. This forwarding procedure should only be required
until September 1975 when Phase II of the program begins. At
this point the Social Security Administration should have the
capability for maintaining a dual address file for each payee
and for sending informational material directly to the bene
ficiary’s home address. At about this same time, we will begin
making payments with checks drawn in the financial organization’s
name rather than the payee’s name.

Phase III of the program will involve distribution of
payments by electronic transfer. For this phase a pilot project
will again be conducted in the States of Georgia and Florida.
This is scheduled for the latter half of 1975 or early 1976.
After successful completion of the pilot project, the Treasury
will begin conversion of direct deposit payments to a nationwide
electronic funds transfer system.

4
The program elements up to the point of issuing a check
will be the same as in Phase II, but instead of a check the
payment will be made by magnetic tape. Our present plans
are to furnish payment records on magnetic tape to Federal
Reserve banks which will in turn make payment by charging the
Treasury's general account and crediting the reserve accounts
of Federal Reserve member banks with the total amount of payments
to be made to them or their correspondent non-member financial
organizations. The Federal Reserve Bank will provide individual
records in paper, card, or electronic form, as required by the
receiving financial organization, for use in posting beneficiaries'
accounts.
Perhaps I should also address an aspect of the proposed*1
EFT system which I know is of particular concern to the savings
and loan industry. Although we ultimately may have several
options for distributing the electronic information from our
disbursing offices to financial organizations, at this point the
only available system is through electronic communication channels
of the Federal Reserve System.
We are fully aware of the concerns this poses for thrift
institutions and other financial organizations that are not
members of the Federal Reserve System. However, data.transmission
systems may evolve which will elmiminate the need for thrift
insititutions to receive data via commercial banks.
This could occur, for example, if the Federal Reserve System
altered its operations so as to provide information directly to
thrift institutions, or if the thrift institutions themselves
should develop data transmission systems independent of the
Federal Reserve.
I should point out in this connection that recent Federal
legislation established a 26-member Electronic Funds Transfer
Commission to study and make recommendations to the President
and the Congress on the policy and operating ramifications of
public and private EFT systems.
The Commission has up to two years to make its final recom
mendations on administrative procedures and proposed legislation
it feels are necessary to, among other things, preserve competition
among financial institutions and other businesses utilizing such
systems, to assure that Government regulation in such systems is
kept to a minimum, and to assure protection of privacy for
individuals. The Secretary of the Treasury, the Chairman of
the Home Loan Bank Board, and the Chairman of the Board of

J f

5
Governors of the Federal Reserve System will be members of the
special Commission. We expect to be working closely with the
Commission as we proceed with the development and installation
of our direct deposit and electronic funds transfer system.
For obvious reasons, neither the Social Security Adminis
tration nor the Treasury Department may encourage beneficiaries
to select a particular financial organization under the direct
deposit program, but every reasonable effort will be made on
our part to inform beneficiaries of the potential benefits of
the direct deposit system. By September 1975, regular social
security and supplemental security income beneficiaries in all
50 states will have received with their regular checks a stuffer
outlining the features of direct deposit and the procedures for
enrollment. As new beneficiaries apply for benefits at the
social security district offices, they will be given information
on the direct deposit program and will be offered the opportunity
to enroll.
iB '
' '
1
,1
Financial organizations will be encouraged, of course, to
promote the direct deposit program in accordance with the scheduled
implementation plan for their geographical area, but we will need
to place some restrictions on the promotional materials used to
publicize the program. For example, promotional material cannot
suggest that the program is not completely voluntary, or that the
Federal Government favors a particular institution or class of
institution, or imposes a fee for direct deposit service. All of
this will be discussed in detail in information that will be pro
vided to all participating financial organizations.
The direct deposit progam has significant benefits for the
payee in terms of improved service. Chief among these will be
the virtual elimination of check losses and forgeries. Even
routine cases of non-receipt, where a check is simply lost in
the mail, result in a two-to-three-week delay to the payee before
a substitute check can be issued; and the more difficult forgery
cases can cause delays of six weeks or more.
Another benefit is uninterrupted deposit service when the
beneficiary is away from home for any period. Federal employees
in the direct deposit program find this feature very desirable.
Another problem we hear about from beneficiaries with some
regularity is their inability to cash a Government check at a
financial organization. This is because they do not have a
checking or savings account, and since the establishment of a
financial relationship between the payee and a financial organi
zation is prerequisite to the direct deposit procedure, that
problem will be eliminated.

That, of course, is a primary point to you in the financial
industry. You can share in some of the benefits the system
holds for the Treasury and the beneficiary.
Increased system
efficiency means fewer headaches for you in terms of forgeries
and other losses affecting your depositors. But you measure
success in large part by the ability to attract new depositors
and the direct deposit system could help do that.
I've already
indicated the volume and dollar figures for the social security
payment rolls.
As we bring other payment programs into the system, the
monthly volume will reach well over 45 million payments and
the dollar amount will be in the neighborhood of $90 to $100
billion per year. Not all annuitants and beneficiaries will
take part in the program of course; but our goal for monthly
electronic transfers for recurring payments is 40 percent of the
total check issue volume by 1979.
In this whole undertaking, our number one goal is to improve
disbursing service to beneficiaries by providing a more reliable
and efficient system for paying benefits. The secondary goal
is to reduce operating costs and lessen the impact of Treasury's
disbursing operations on the financial community and the Postal
Service.
The potential for reducing costs through the electronic
funds transfer system is singularly significant. At present,
it costs the Treasury four cents, not including postage, to
issue, pay and reconcile a Treasury check. There is every reason
to believe that electronic fund transfers can be accomplished
for not more than two cents. Therefore, each payment accomplished
by such means will reduce operating costs by two cents, 50 per
cent. In addition, it will eliminate entirely the cost of
postage, ten cents, or an overall cost reduction of 85 percent
per payment. Based on the best estimates available at this
time of the extent to which recipients of recurring payments
will choose to be paid at financial organizations, the time frame
in which the Government can accomplish the systems revisions,
and the point at which the capability will exist within the
financial community to accept electronic fund transfers, we
believe that about 3 million payments per month can be made by
electronic transfer by 1977.
This volume is projected to reach 16 million payments monthly
by the end of fiscal year 1979. The dollar aggregate for these
payments will be. in the neighborhood of $3.5 billion each month,
over $40 billion a year. Therefore, the benefits to all of us
^ — ^re extremely significant, and for that reason we are fully
cblnmiJ^ed to the program's success. To realize its maximum
contribution will require dedication and zeal on our part, a
willingness to cooperate on the part of the financial community
file payment agencies, and, above all, the confidence of the
payees.

I want to thank you for your kind invitation to meet with
you today and for your cooperation in the past in meeting with
our staffs to discuss the systems elements of this forwardlooking program. The Treasury has invested, and will continue
to invest, a significant amount of resources to improve our
payment systems. This is the boldest step we have taken so far,
and we hope the most significant in terms of return on investment.
We think that it will be; and that we will be able in a few
years to look back on this period as a milestone in the improve
ment of financial delivery systems.
Thank you.

0 O0

Department of thefREA SU RY
IASHINGTON. D.C. 20220

TELEPHONE W04-2041

FOR RELEASE AT 11:00 A.M.

November 12 , 1974'

ADDRESS BY WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE AMERICAN PETROLEUM INSTITUTE
NEW YORK CITY, NOVEMBER 12, 1974
I welcome this opportunity to address the American Petroleum
Institute and to bring you the warmest greetings of the President
of the United States.
All of you know that these are times of great challenge
for America and for your industry. America must undertake a
dramatic expansion of its energy base in order to regain its
independence from foreign lands. Your industry must obtain
more freedom and more capital than you have had in the past
to carry out that expansion. Yet the greatest challenge of all
is to convince a skeptical American public that these initiatives
deserve their support. Educating and persuading the people will
be a big job for both of us, and I urge you to give it highest
priority during the coming year.
Before turning to your questions, I want to give you my
own views on the major energy issues that confront us today.
U.S. Energy Policy:

In Process of Change

The energy policy of the United States is now in the midst
of a sweeping change.
For many years, that policy was based
upon the assumption that we would always be able to obtain all
of the energy we wanted at bargain basement rates. Foreign oil
was inexpensive and seemed limitless in quantity.
It thus
appeared to be good business and sound diplomacy to increase
oil imports.
To our chagrin, however, we have now learned that our
policy was a double-edged sword.
It led directly to a growing
dependence upon other nations and a decline in exploration and
production within the United States. By the time of the embargo
last year, foreign oil accounted for one-third of our petroleum
consumption and our dependence on it was still surging upwards.

WS-154

The legacy of that policy is now clear: we allowed our
domestic energy base to erode so badly that we became highly
vulnerable to foreign extortion. We should never have allowed
our demands for energy to outstrip our own supplies as far as
they did.
If there is any good that has come from the embargo
and the quadrupling of oil prices, it is certainly the fact
that they awakened us to the danger before it was too late.
We are now paying an extraordinary price for our mistakes.
In 1974 the United States will be dunned $25 billion for
foreign oil, and our balance-of-payments deficit is likely
to be $5 billion. More importantly, we are now caught in the
worst peacetime inflation in our history -- inflation that has
been significantly fueled by the higher cost of energy. As for
the OPEC nations, their trade surplus for the current year will
probably be in excess of $60 billion, and by 1980, if present
trends continue, their total accumulation could exceed $500
billion.
Imbalances of this magnitude cannot continue. They
are neither economically nor politically tolerable.
There are some who believe that the Arabs now have the
United States in a perilous, unbreakable hammerlock.
I totally
disagree, and I do so on the very solid grounds of American
tradition and economic realism. A nation that can tame the
wilderness, that has the most dynamic free marketplace in the
history of man, that can lift the standard of living to heights
never before known, and can place men on the moon -- that nation,
if it allows its economic system real freedom, is not going to
surrender to a small band of blackmailers.
In my meetings with the Arab leaders, I have tried to
impress upon them that their oil policies are not only bad
politics but bad economics. They should recognize that they
are exerting enormous pressures on the United States and other
countries to become more self-sufficient.
Since 1972, signi
ficant discoveries of oil have been made in 26 areas of the
world -- outside the OPEC bloc -- and countries such as Britain
are now working to convert these deposits into major energy
sources. As consuming nations expand production and cut back
on consumption, the only way the present high price can be
maintained, even on a temporary basis, is for producers to
cut back production. The OPEC ministers know that every
barrel sold today is worth more to them than every barrel left
in the ground. Selling now and investing the money is simply
more profitable than selling later. For example, to match the
long run return on an investment made today at 8 percent per
year, a barrel of today’s ten dollar oil left in the ground
until 1984 would have to bring more than $21.59 -- a price
that is hopelessly unrealistic. Moreover, the Arab nations
cannot expect to remain aloof from the dangers of social
unresls^nnd political instability that their policies are
creating^ound the world.

In short, I believe that economic and political reali
ties will eventually force oil prices to come down. As of
the moment, oil diplomacy is particularly delicate and in
the short run there may even be some further efforts to
increase prices. But over the long run, the question is
no longer whether oil prices will come down but when they
will come down.
Energy Conservation Alone Is Not Enough
In the meantime, it is absolutely vital that the United
States put its own house in order. Supply and demand must
be brought into better balance here at home, so that foreign
nations will never again be able to put an oil dagger to our
throat.
Three weeks ago, the Ford Foundation published a major
energy study that asserted the United States should solve its
energy problems between now and 1985 by rigorous conservation
policies and not through expanded production. By enacting a
variety of mandatory conservation measures, they said, we
could cut in half the growth rate for U.S. energy Consumption
and could thereby postpone for another 10 years "massive new
commitments" to expanding our domestic supplies.
Few people in the Government today believe more strongly
in the need for energy conservation than I do. The magnificent
success of the American people last winter in cutting out waste
ful and unnecessary uses of energy convinces me that the sound
conservation measures must continue to play an important role
in solving our energy problems.
Yet I think that it would be unwise to rely exclusively
upon conservation measures as a means of solving our energy
problems. For one thing, unless we expand our own resources,
we are dooming ourselves to permanent dependence upon the OPEC
nations for at least a third of our oil needs - a posture that
will only encourage further mischief and price gouging on their
part. Moreover, it seems likely that total reliance upon con
servation would lead to massive new interventions by the govern
ment in the private sector. Heavy taxes would be placed on auto
commuters, Detroit would be required to meet stiff new construc
tion standards written in Washington, and government subsidy
programs would have to be significantly enlarged.
Inevitably,
such conservation measures would create fresh distortions in
the economy and imperil our changes for economic growth.

4
Let us have a sound conservation program but let us
pursue it in tandem with an equally sound and vigorous program
of greater energy production. Only with that kind of dual
policy will we be able to regain our prosperity at home and
freedom abroad.
Another important energy study is to be published later
this afternoon, and I commend it to your attention.
It is
a thorough work completed under the direction of the Federal
Energy Administration and entitled "Project Independence Report."
It makes it clear that significant gains can be made through
both conservation and the accelerated development of our vast
resources. Many of our allies do not have our good fortune
of being able to choose both options. We thus have a respon
sibility to ourselves and to the rest of the world to move
forward on both fronts.
Three Essentials for Expanding Production
In order to accelerate domestic production, I would submit
that we must concentrate our efforts in three areas:
(1)

Greater Freedom from Government Regulation

First, the government must act decisively to free producers
from Federal laws and regulations which discourage growth. For
too many years the Government has posed major obstacles to the
efficient market allocation in energy. We regulate the price
and distribution of natural gas; we manipulate the pricing and
distribution system in oil; we require lengthy and cumbersome
processes for obtaining licenses and rate approvals; and we
impose environmental restraints of questionable validity upon
both the production and combustion of fossil fuel. As a life
time advocate of competitive enterprise, I am convinced that
each of you could do a better job if you were free from govern
ment controls. And I know that I can speak for President Ford
in pledging to you that we will work toward creating greater
freedom in the energy marketplace.
Because many of these government shackles have been imposed
through the legislative process, we must obtain the support of
the Congress to remove them. As you know, the Congress has not
been favorably disposed to many of our energy initiatives, and
over 15 critical pieces of energy legislation are now caught
in a logjam on Capitol Hill. There is continuing hope,, however,
and we plan to work as closely with the Congress as possible
to secure passage of these bills.
Since you are thoroughly
familiar with this legislation, I will touch upon only three
measures of particular importance.

Jsi
5
-- Perhaps the most significant energy bill before the
Congress would deregulate the price of new natural gas. I
disagree with those who say that deregulation will only raise
prices and will not raise production. Our studies show that
deregulation should bring a substantial increase in production,
and that in the absence of deregulation, production is very
likely to sag.
-- We also want to work with the Congress to encourage
further development in the Naval Petroleum Reserves in California
and Alaska.
-- And we would like to see the Congress move quickly on
our amendments to the Clean Air Act. These amendments would
permit greater reliance on coal without jeopardizing national
health standards.
Within the Administration, we are also moving on a number
of fronts where executive action is required. High on the agenda
is our effort to sharply accelerate the Federal leasing of lands
on the Outer Continental Shelf so that by 1975 we will be leasing
10 million acres a year -- five times as much as during 1974.
Tomorrow the governors of several Atlantic and Pacific states
affected by the offshore leasing will come to the White House,
where leading members of the Administration will brief them
on the current status of off-shore leasing. This meeting ind
others to follow could be an important stimulus for the off-shore
leasing program. Secretary Morton and the Energy Resources Council
are also working now on ways to increase secondary and tertiary
production of oil, and we are pushing ahead with plans for^brihging
Alaskan gas to market. Each of these areas holds out bright hope
for the future, and I can assure you that we remain committed to
developing them fully.
(2)

Expanding Capital Investments

A second key area where effective action must be taken to
expand domestic production of energy is in capital investments.
Probably no aspect of our energy problems is less understood or
appreciated by the public.
There are a variety of estimates of how much capital invest
ment will be needed, but by almost any reasonable measure, it will
be immense. One study which I have previously cited in Con
gressional testimony indicates that the requirements for energy

6
capital between now and 1985 will be in the range of $850 billion,
and that study assumed a rate of inflation that is less than
half of what we are now experiencing. Moreover, there will be
many other needs for capital in the years ahead -- to improve
our housing stock, to rebuild some of our basic industries,
to provide new systems of transportation, and to clean up the
environment. The total cost of pollution controls alone may
reach $100 billion.
These programs will require such huge amounts of new
investment that I think we need a complete shifting of
priorities within the United States -- shifting away from
policies that promote consumption toward policies that promote
greater savings and investment. We must face up to the fact
that between 1960 and 1973, the growth in productivity for
the average American worker was the lowest of any major indus
trialized country in the Western world. And the reason is very
clear: during those same years, the United States was devoting
less than one-fifth of its total output to capital investment -one of the smallest percentages of any nation in the Western
world. Capital investment is thus the key to maintaining a
strong industrial base in this country.
How and where the capital for the energy industry will be
obtained in coming years is not yet clear, but it is apparent
that one important source must be company profits. All sectors
of our economy must have adequate profits in order to have both
the incentive and the wherewithal for new investment. While
no sector of the economy should reap unjust rewards, we must
avoid regulation and legislation that is punitive of profits
honestly earned. One of your greatest challenges is to help
the American people understand that there is a difference between
profiteering and profitmaking.
(3)

Bringing Inflation Under Control

The third area where decisive action is essential in order
to accelerate energy production is in bringing inflation under
control.

3 2 ^ 2 7

Inflation is now our number one domestic problem, and
its effects are felt everywhere.
Inflation is the greatest
enemy of savings and investment. George Gallup finds that
Americans are more concerned about inflation than any other
issue they have faced in a quarter of a century. Within the
energy industry, it is certainly true that our hopes for ex
panding production will rest in large measure upon our ability
to whip inflation.
If the costs of materials used in drilling
and completing wells continue to rise at the rate of 27 percent
a year, as they have this year, then the costs of investments
for expanding production will skyrocket.
What has caused this inflation and what can we do to
conquer it?
There is no mystery about the causes of inflation, just
as there is really no doubt about the cure. A large part of
the current inflation is attributable to a series of economic
shocks, mostly arising outside our own economy. The most
obvious ones were the quadrupling of oil prices during the
past year, serious crop setbacks in 1972 and 1974, and the
distortions caused by wage and price controls. Less obvious
were the inflationary effects of a simultaneous boom that
took place in virtually all industrialized countries in the
early 1970s. And the devaluations of the dollar in 1971 and
1973 -- while necessary because the dollar was overvalued -made our domestic products more attractive to foreign buyers
and thus increased demand pressures here at home. Fortunately,
none of these special factors should occur again in the fore
seeable future, and each is now dissipating in force.
Even as these special factors work their way through our
economy, however, we should recognize that there are other,
more ominous forces that have been building up for more than
a decade and now underlie our entire pricing structure.
These are the forces upon which we must center our attack.
One of them is the Federal budget. The enormous growth
in Federal spending -- from $100 billion in 1961 to $200
billion in 1970 and $300 billion in 1974 -- has meant that
m only one year of the past 14 has the Government been able
to balance its books.
Federal deficits over the last decade
have come to a staggering total of $104 billion. Moreover,
we have created a number of off-budget agencies which now
draw heavily upon funds in private capital markets.
When the Federal budget runs a deficit year after year,
especially during periods of high economic activity which we
have enjoyed over the past decade, it becomes a major source

of economic and financial instability. The huge Federal
deficits of the 1960s and 1970s have added enormously to
aggregate demands for goods and services, and have thus been
directly responsible for upward pressures on the price level.
Heavy jorrowing by the Federal sector has also been an im
portant contributing factor to the persistent rise in interest
rates and to the strains that have developed in money and
capital markets. Worse still, continuation of budget deficits
has tended to undermine the confidence of the people in the
capacity of our government to deal with inflation.
As one of my colleagues in the Government has said, we
have a love-hate relationship with inflation. We hate infla
tion, but we love everything that causes it. We have been
altogether too willing to engage in deficit financing and
easy credit policies because they give us a fleeting sense
of prosperity. We have been too ready to acquiesce to the
special interest groups -- those who demanded higher wages,
higher farm prices, and protection from cheap foreign goods
because it was easier to join them than fight them. The
private interest has been triumphing over the public in
terest, the short-term over the long-term, and the political
over the economic. And today we're paying the price.
By now, it
is clear to you
more government
government than

has become apparent to me and I hope that it
that we have more government than -we need,
than most people want, and certainly more
we are willing to pay for.

To counter inflation effectively, then, I would urge
that we pursue a consistent policy of moderation and restraint
in our fiscal and monetary affairs. So far, the Federal
Reserve has had to bear almost the sole burden of dampening
inflation. Now we must redress that imbalance by reining in
the growth of Federal spending. This means that if we pass
new spending programs, we must also have the courage to raise
enough taxes to pay for them. Beyond fiscal and monetary
restraint, we must also enact effective programs to cushion
the impact of inflation where it strikes with disproportionate
force -- programs such as low-income tax relief, extended
unemployment benefits, and expanded public employment. Only
by ensuring that the burdens of inflation are borne as equi
tably as possible can we win broad and durable support for
the long-term fight against inflation.
Finally, we must sternly resist the temptation to over
heat the economy again. We can and must remain alert to the
problems of unemployment and other signs of recession, and

9
we must take effective actions to counter their effects. By
the same token, however, we should not abandon our policies
of moderation in fiscal and monetary affairs in favor of a
general program of stimulation. We have tried that before
in years past, and each time we have found that we overheated
the economy and ultimately made our problems worse.
If we
take the easy way out again this time, the pressures for new
economic controls will be irresistible -- and down the road
we can expect even worse inflation and more unemployment than
we have today.
Moreover, we should recognize what has caused much of
our current sluggishness.
It was the high rate of inflation,
through its impact on the financial markets, that dried up
the supply of mortgage credit and sent the housing industry
into a tailspin. And it was inflation, through its debilitating
effect on consumer confidence, that caused the biggest reduc
tion of consumer retail purchases in postwar history. These
are the two weakest sectors of the economy, and inflation is
the culprit. Thus I would agree that we must concentrate
our attack first and foremost upon inflation and not succumb
to the temptation of pumping new, inflationary stimulus into
the economy.
My greatest concern today is not whether we know how to
solve our economic problems -- we do -- but whether* we have
the wisdom and the courage to take the right medicine. A
recent poll commissioned by Time Magazine shows that the
national mood is bleak -- almost 80 percent of our people
are pessimistic about the future -- and social resentment
is rising.
In these circumstances, there is very likely to
be strong political pressures to begin pumping up the economy
again.
For once, let us resist those pressures, as tempting as
they may be. Let us attack the causes of inflation and not
its results. Let us do what we know is right, not what we
know is easy. Let us take the hard way, not because it is
hard but because it is the only way to put our economic house
in order, which is the only way to ensure lasting prosperity,
and maintain our economic freedom.
Thank you.

0 O0

Departmentof
ÉAtTr1É‘
RSHIN
GTON, D.C.

20220

^TREAJ [
T ELEP H O N E W04-2O41

FOR IMMEDIATE RELEASE

November 13, 1974

Attached is the third decision list released by the
Office of Economic Stabilization.

Henry H. Perritt, Jr.,

Acting Director of OES, can be reached at 202-254-8610 for
additional information.

Attachment
WS-156

From October 17, 1974 through November 8, 1974, the Office
of Economic Stabilization (OES), Department of Treasury, has
taken the following actions:
Compliance Actions
Remedial Orders
R. R. Donnelley & Sons Company - The OES has issued a remedial order
Chicago, 111*
to Donnelley, finding that Donnelley
has paid incentive bonuses to its top
executives that exceed by $160,168 the
maximum amount permitted by 6 CFR., Part
152, Subpart K for fiscal 1973.

The

remedial order requires the executives
to repay this amount to Donnelley.
Donnelley and the affected executives
have requested review of the order.
Request for Reconsideration of Remedial Order - Denial
Schiavone Construction Company ~ The OES has taken a final administrative
Secaucus, New Jersey
action denying Schiavone1s request for
reconsideration of a remedial order, issued
May 24, 1974, for violation of its base
period profit margin for its fiscal year
ending September 30, 1972.

By November 22,

1974, Schiavone must refund $2,585,000 to
customers for whom Work was performed in

Schiavone's 1972 fiscal year.

December 2, 1974, Schiavone must present
evidence of its compliance with this
order to the OES.

Failure to comply

will subject Schiavone to legal action
by the Department of Justice to enforce
compliance.

Health
Requests for Exception
OES acted on 71 Requests for Exception.

Of that number, 7 were approved

in full, 30 were partially approved and 34 were denied.
Requests for Reconsideration
OES acted on 42 Requests for Reconsideration.

Of that cumber 2 were

granted, 18 were partially approved and 22 were deniecf*
Compliance Actions
OES acted on 49 health compliance cases.

Price reductions and/or

refunds^ were ordered in 21 cases; Notices of Probable Violation were
issued in 25 cases; Voluntary Compliance Agreements were accepted in
2 cases and denied in 1 case.
Copies of all of the OES orders discussed above, except for the
Notices of Probable Violation, are available for inspection at the
OES Public Reference Room, 2000 M Street, N. W., Washington, D. C.

Department of t h e T R E A $ l M Y
WASHINGTON, D.C 20220

TELEP H O N E W04-2041

FOR RELEASE 6:30 P.M.

November 13, 1974

RESULTS OF TREASURY’S 52-WEEK BILL AUCTION

Tenders for $2.0 billion of 52-week Treasury bills to be dated
November 19, 1974, and to mature November 18, 1975, were opened at the
Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
High
Low
Average

- 92.600
- 92.529
- 92.556

(Excepting 1 tender .of $95,000)

Equivalent annual rate 7.319%
Equivalent annual rate 7.389%
Equivalent annual rate 7.362% \ f

Tenders at the low price were allotted 55%.
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:

District

Applied For

Accepted

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

$
22,415,000
2,961,385,000
2,430,000
65,385,000
30,275,000
16,255,000
427,290,000
45,515,000
8,570,000
9,540,000
18,000,000
193,330,000

$
3,415,000
1,572,110,000
2,430,000
35,285,000
15,275,000
8,205,000
248,655,000
19,765,000
2,570,000
6,880,000
5,550,000
80,130,000

TOTALS

$3,800,390,000

$2,000,270,000

This is on a bank discount basis.

£/ Includes $63,090,000

The equivalent coupon issue yield is 7,91%

noncompetitive tenders accepted at the average price.

Department
OFFICE

O F

ofIheTREASURY