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LIBRARY
ROOM 5030
JUN 1 4 W R

TREASURY DEPARTMENT

DepartmentoftheTREASURY
\SHINGTON, DC. 20220

TELEPHONE W04-2041

ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE AMERICAN ADVERTISING FEDERATION
WASHINGTON, D.C., JUNE 2, ]975

Mr. -Sharp, Members of the American Advertising Federation,
and Distinguished Guests:
I .want to thank you for your generous invitation to
keynote this Annual Convention and, more particularly, for
your willingness to meet at this earlier time.
Jim Sites informs me that you will have a heavy schedule
of speakers while you are here. For those of you who are
rather new to this city, you. will soon discover why Washington is the only town in the country where sound travels
faster than light. Perhaps you who are so deeply involved
in communications might even be helpful here in speeding up
the transmission of light.
c

In view of your hectic schedule, I will be brief in
talking about our national economy and then, in the time
remaining, try to answer any questions you may have.
For understandable reasons-/- most economic policy makers
in Washington have been preoccupied in recent months with
the problems of ending the recession and slowing the rate of
inflation. Fortunately, we are making significant headway
on both fronts.
The sharp upturn in leading business indicators reported
last week is but one of many signs that we are at or past
the bottom of the recession. Consumer purchases have been
increasing this year at about the same rate that they were
declining late last year, and the inventory backlog has been
appreciably reduced. As prospects for real personal income
have improved, wage increases have been moderate, averaging
approximately 7-]/2 percent per annum during the last seven
months. In addition, a decline in short-term interest rates
and a large inflow of savings into our thrift institutions
have set the stage for a recovery in the housing industry.

- 2Housing permits and housing starts both picked up last
month. Moreover, new orders for durable goods rose 9.8
percent in April, the largest increase in eight years.
The rise in consumer confidence is largely attributable
to our progress against inflation. Although the inflation
threat has by no means been eliminated, recent price developments have been definitely encouraging.
I could continue with a long list of other indicators — many of them strong, a few of them weak — but let
me come directly to my main point: we are most assuredly
moving toward a period of recovery and as we do, it is
imperative that we lift our eyes from the problems of the
moment and begin to take a longer look at our economic
future.
One of the major reasons why we have had a chronic case
of inflation in this country, followed almost inevitably by
a severe recession is that for over a decade we have been
living only for the moment, rarely for the future. In our
government, we have had one budget deficit after another —
]4 in the past ]5 years -- so that we have built inflationary
pressures as well as inflationary expectations into the very
fabric of our economy. Our monetary policies, partly in an
effort to accommodate our deficits, have also pumped excessive
stimulation into the economy over a ]0-year period. In the
private sector we have for many years overconsumed and
underinvested, so that eventually -- in ]973 and early
]974 — we began to experience capacity shortages in some of
our most critical industries. And we have elected politicians
who have promised us that we can control pollution, rebuild
our medical system, overhaul our transportation, guarantee
the good life to the poor and the aged, provide a college
education for everyone, feed the world, improve our weapon
systems, and continue to increase everybody's real income —
all at the same time. Clearly, we have been burning the
candle at both ends — simultaneously living off our inheritance
and mortgaging our future in a desperate bid for instant
prosperity for everyone. It should hardly come as any
surprise that our overindulgent past has finally caught up
with us.
As we begin now to work our way out of this quagmire,
it is time to start directing our attention away from the
instant gratifications of today and toward the challenges of
tomorrow. We must put our economy on a course that is
sustainable both politically and economically over the long
run.

- 3 -

The Immediate Test
The most important test of our resolve is occurring
right now as we hammer out policies that will affect the
shape of our economic recovery. Clearly our basic objective
is to ensure that our recovery is strong enough to reduce
unemployment but does not proceed so rapidly that we sacrifice
the prospects for steady progress. Above all, we must
resist the temptations of excessively stimulative fiscal and
monetary policies. They might help to pull us out of the
recession more quickly, but in the end they are almost
certain to generate a new burst of inflation and
then another recession.n.
A second danger of oversized Government deficits — and
one that I have heavily emphasized in recent months -- would
arise in our private capital markets. The critical
danger would come not this year during a period of economic
slack but next year and beyond when the recovery takes hold
and we have a rising tide of private and public demands for
the funds in the capital markets.
*

The impact of huge Federal demands during a period of
recovery would depend, of course, upon the monetary policies
of the Federal Reserve. If the Fed pursued a moderate
policy, there is a possibility that huge Federal borrowing
needs could drive up interest.rates and abort the process of
recovery. The other alternative is that the Fed might seek
to accommodate the government's borrowing requirements by
creating a more rapid growth in money and credit. That
might postpone the adverse impact on the recovery for perhaps
a year or two, but the consequences of that action would
soon catch up with us in the form of reaccelerated inflation.
The only way to avoid such dire choices is to follow a
course of prudence in our fiscal affairs.
I am not predicting that these events will take place;
rather, I am warning of the possible consequences of foolish
policies. If we act wisely, the process of recovery will be
sustained and durable. If we ignore the lessons of the
past, we face a sorrowful repetition of the boom and bust
roller coaster that has become so depressingly.familiar.
The Longer-Run Challenges
Let me turn now to some of the longer-range challenges
that we face, for in making policy choices both in government
and in the private sector, we should be looking not just at
the next 2 to 3 years but also at the next decade and beyond.

- 4In the interests of brevity, I will do little more than
enumerate what I believe to be the most significant economic
challenges ahead:
The first is to achieve a basic shift in our domestic
orientation away from the heavy emphasis we place upon
personal consumption and government spending and toward a
much greater emphasis upon savings and capital investment.
Over the last several years, we have tilted our economy too
far in the wrong direction so that we have had the worst
record of capital investment among the major industrialized
nations of the Free World. Our emphasis upon consumption
and spending must be held to blame, as must the deteriorating
state of corporate profits. As a result of our poor performance,
we have also had one of the lowest records of productivity
growth. It bears repeating to every audience that only by
increasing productivity can we also raise the standard of
living. Looking ahead, if we are to realize our hopes for
an expanding economy and increasing productivity our best
estimate is that the amount of capital investment over the
next decade will have to be three times as large as it has
been in the last decade.
r

A second great challenge lying ahead is to curb the
enormous growth in government spending and roll back the
tide of government regulations that now engulf almost every
aspect of our private enterprise system.1 The irresponsible
governmental policies of the past led us straight down the
primrose path, and we must be vigilant in avoiding that
course in the future. The public is not yet fully aware of
how much economic damage has been caused in Washington, but
I think the message is beginning to get through.
A third great challenge is to develop much greater
self-sufficiency in energy. We must undertake a drastic
restructuring of our governmental policies and create an
economic environment that will encourage the investment of
as much as $] trillion in energy development before 1985.
Judging from the recent performance by some members of this
Congress and the gross delays and dillydallying that have
characterized the last few months, we have our work cut out
for us. Fortunately, we have a President who will continue
to exert strong leadership in this field.
A fourth challenge that I would suggest today is in our
foreign economic policy: with interdependence now a reality,
we must be strong and innovative in working with other
nations to create more effective international approaches to
the problems of food, international finance, and energy. And
we
letcan
us make
recognize
to a at
stable
the world
same time
— indeed,
that the
the
greatest
single most
contribution

I
important element in our international economic policy — is
to maintain a strong, non-inflationary economy here at home.
A final challenge — and one that is the most crucial
to the preservation of our personal liberties — is to
preserve and strengthen the free enterprise system in this
country. Private enterprise is under heavier attack today
than at any time in this century. The distrust and suspicion
that stains our national institutions, ranging from the
halls of government to our places of worship, is directed
most forcefully ..at American business. There is a mindless
disregard that the free enterprise system that has given
this nation the highest standard of living and the greatest
prosperity known to man lies at the very foundation of our
system of personal and political freedom. Free enterprise
is certainly on the defensive, and the hour for saving it —
and our personal freedoms as well -- has grown very late,
indeed.
Ladies and gentlemen: A few months ago I had the
Conclusion
privilege of preparing an article for one of our national
magazines, the Reader's Digest, on the economic troubles
that have resulted from misguided fiscal and monetary policies
and heavy handed governmental regulation of private enterprise.
The outpouring of letters I received, all strong in their
support, convinced me that a large number of Americans share
the views I have expressed here this morning. What also
interested me about those letters was the consistent theme
that ran through them, asking simply this: What can I do to
help?
Without presuming to tell you how the advertising
industry should be run, let me suggest to you what you might
do to help -- because believe me, your help is very much
needed. The most important contribution you can make to
strengthening the free enterprise system in this country is
to maintain the highest possible standards in your own industry.
Advertising is often maligned in the public press, but in a
society as complex as ours, it is a central pillar, of the
free market. Without advertising, neither buyers nor sellers
can be fully effective in the marketplace. As consultant
Steuart Britt remarked once, "Doing business without advertising
is like winking at a girl in the dark. You know what you
are doing, but nobody else does." Well, if consumers are to
know what they are doing, it is essential that we maintain a
strong advertising industry.

- 6 -

Consumer confidence, I might add, is a central key to
economic recovery. And you who communicate so directly with
buyers can influence this profoundly. A major issue for
consumers today, of course, is truth in advertising. That
concern is understandable; what is less clear is how to meet
it. I am particularly encouraged by the voluntary efforts
your organization has undertaken to regulate your own industry.
In a free society, I believe that self-regulation is always
to be preferred to government regulation and I can only wish
you every success in your endeavor.
I would also like to commend you on your growing support
for public service advertising. I know from past experience
with members of the Ad Council who support the Government's
Payroll Savings Program just how effective and helpful such
advertising can be.
In conculsion, I would make a special appeal for your
help in informing the American people of our economic
challenges so that the message of free enterprise will r.ing
unmistakably clear here in Washington. I ask that you seek
to preserve and strengthen the standards of professional
excellence in your own industry so that you will not invite
further governmental regulation. And I urge your support
for policies that will keep America strong and resolute in
the world so that our children may grow* up in a land both
free and at peace.
Let us recognize that a time of great challenge also
represents a time of great opportunity -- the opportunity to
realize a goal that should guide every public official in
the land. From the crucible of inflation and recession, let
us work to turn over to our children a country that is
better and stronger .— that offers each of our citizens a
greater chance for personal and spiritual enrichment -- than
the country we have inherited. Let us act not just for our
sakes, but for our children and our children's children
because, in the final analysis, they are the ones who must
live with our decisions. Each of us is the trustee of their
Thank you.
future.

Contact:

Riqhard B. Self
x8256

June 2, 1975
FOR IMMEDIATE RELEASE
TREASURY ANNOUNCES TERMINATION
OF COUNTERVAILING DUTY INVESTIGATIONS
Assistant Secretary of the Treasury David R. Macdonald
announced today the termination of countervailing duty investigations on certain steel products from Great Britain,
Belgium, France, the Netherlands, Luxembourg, 77est Germany,
Italy and Austria; shoes from West Germany, and tie fabrics
from Japan, Korea and West Germany. Notices to this effect
will be published in the Federal Register of June 3, 1975.
The investigations are being terminated on the basis of
written requests by the petitioners that their petitions
be withdrawn.
Notices of Receipt of Countervailing Duty Petitions
for all but the Italian steel case were published in the
Federal Register of January 15, 1975. The Notice covering Italian steel appeared in the March 7, 1975, Federal
Register. Under the Countervailing Duty Law (19 U.S.C. 1303)
the Secretary of the Treasury is required to determine
within 12 months after the receipt of a petition in satisfactory form whether or not a "bounty or grant" is being
paid or bestowed on imported merchandise. A preliminary
determination must be issued within six months after
receipt of the petition. If the Treasury Department were
to receive in satisfactory form new petitions alleging
that bounties or grants are being paid on any of the abovementioned products, new investigations will be initiated.

# # #

FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE HOUSE WAYS AND MEANS COMMITTEE
WASHINGTON, D.C.
JUNE 2, 1975
Mr. Chairman and Members of this distinguished Committee:
It is time again to consider the borrowing authority
of the Treasury Department.
The present temporary debt ceiling of $531 billion,
which was enacted by the Congress on February 19, will
expire at the end of this month. On July 1, in the absence
of new legislation, the Treasury will be unable to issue
any new debt obligations of any kind.
In the past, Secretaries of the Treasury have come to
the Congress -- as I have today --to request an increase
in the debt limit only when the Treasury was close to running
out of borrowing authority. I have doubts, however, whether
this procedure has really insured the most productive
consultation between the Congress and the Administration.
For that reason, I would like to discuss with you today some
possible new departures.
Under the new procedures prescribed in the congressional
budget and Impoundment Control Act of 1974, the Congress has
now established its own timetable for determining the
government's aggregate receipts, outlays, deficit, and debt.
As the new congressional budget and debt limit process is
placed into effect, it would seem to me appropriate for this
Committee to consider shifting its focus from the amount of
the debt to the way in which the debt is managed; that is, to
the timing of debt issues, the size of denominations, the
maturity structure, and the marketing techniques.
While a detailed account 0f the stewardship of the
Secretary of the Treasury with regard to these debt management matters is already presented to the Congress each year
in the Annual Report of the Secretary of the Treasury on the
State of Finances, we would be happy to work with this Committee
in any way that it sees fit in terms of scheduling oversight
hearings for the review of these important governmental
activities in greater depth.
WS-3Z2

- 2In this regard, I should note the considerable discussion
in recent months of the potential impact of large federal
deficits on the prospects for economic recovery. I think
Dr. McCracken put the matter succinctly when he noted before
the Joint Economic Committee earlier this year that:
"If the financial community has been slow
to appreciate the role of fiscal policy in
the management of the economy, economists
have been slow to face fully the implications
of the fact that Treasury financing and private
borrowing do compete for funds in the same money
and capital markets. And Treasury requirements
are now large enough so that their impact on
financing in the private sector must be faced
quite explicitly."
For the fiscal year 1976, the Congress has already
spoken with regard to the debt limit. The Congressional
budget resolution for fiscal 1976, which was adopted by the
Congress only three weeks ago, on May 14, provided for an
$86.6 billion increase in the debt limit to a figure of
$617.6 billion for the fiscal year ending June 30, 1976.
I understand that this congressional action does not
have the force of law in the sense of providing the Treasury
with borrowing authority after the end of this month, Yet,
I wonder whether it would not be more productive if we just
accepted that number and got down to a more substantive
discussion of the real issues of debt management.
We all know that there is no widespread inclination
to use the debt ceiling as a real determinant of federal
spending and taxing. Decisions on those subjects are made
by the Congress in other legislation, and once the taxes
are set and the spending is mandated, the government has no
choice but to borrow to cover the differences between its
revenues and outlays.
I can accept the $617.6 billion figure as a reasonable
estimate of the peak borrowing of the Treasury in the next
fiscal year despite the fact, which you all know, that the
fiscal 1976 budget deficit figure adopted by the Congress
in its May 14 action is significantly larger than the deficit
proposed by the President.
In suggesting acceptance of the congressional number,
I am influenced by several considerations.

First, it is my understanding that the Congress in
setting its debt ceiling figure was concentrating on a
forecast of the June 30, 1976, debt level. Normally,
however, the debt will be as much as $5 billion higher a
few weeks earlier in mid-June just before the heavy June
tax receipts are received.
Second, I understand that the Congress was operating
with an estimate which is about $5 billion lower than our
current estimate of federal borrowing which will be subject
to the debt ceiling even though the purpose is to finance
federal agency programs which have been placed outside the
budget.
Taking into account the peak debt needs and our higher
estimate for financing off-budget programs, our debt ceiling
request under traditional procedures would be $613 billion,
compared to the congressional figure of $617.6 billion.
Given the uncertainty in all these estimates, I question
whether this relatively small difference is worth an extensive
legislative exercise.
Indeed, in view of the new congressional procedures,
the Committee may wish to consider doing away with separate
legislation on the debt ceiling and concentrating on our
debt management operations.
On the other hand, if the Committee feels that legislation
in addition to the budget resolution is still essential, I am
inclined to recommend that it adopt the $617.6 billion ceiling
already approved by the Congress, though of course I would not
oppose a $613 billion ceiling. In this connection, Table I
attached to my statement shows our estimates, based on the
President's proposed budget program in 1976, of debt subject
to statutory limitation at the end of each month through
fiscal year 1976, as well as the peak debt in mid-June 1976.
The estimates include all Treasury borrowing to finance both budget
and off-budget programs and make the usual assumptions of a
$6 billion cash balance and $3 billion margin for contingencies.
In light of the very large deficits that we have been
financing and will need to finance in the coming year, whether
we look at the congressional numbers or the President's, I
think it is important for the Congress and the American people
to understand what the Treasury has been doing in the area of
debt management.

- 4 There are tables and charts attached to my statement
which show first, the ownership of total outstanding
Treasury debt over the past year; second, offerings of new
marketable securities by maturity in recent years; and
third, changes in the maturity structure of the marketable
debt in recent years.
Also attached to my statement is a complete file of
this year's financing announcements, including transcripts
of press conferences.
I believe that analysis of this data will support a
conclusion by this Committee and the Congress that the
Treasury has been financing the deficit in a responsible
and constructive manner. Although, I must say that I am
personally deeply concerned by the notion I sometimes hear
expressed that there is some simple answer to financing
the deficits which will avert painlessly all risks which
are inherent in operations of this magnitude.
In making our financing decisions, we have sought and
obtained the best advice of practical and experienced
market participants and financial leaders.
The government borrowing committee of the American
Bankers Association numbers among its membership senior
bank officers from banks in all geographical areas of the
country and of a wide range of sizes from the very iargest to
quite small banks. Commercial banks are the largest private
purchasers of government securities. Advice on bank demands
for new government securities is vital.
The government securities and federal agencies committee oi
the Securities Industry Association similarly includes senior
officials of institutions active in the government securities
market, a number of whom have served also in responsible
positions in government -- several in the Treasury as Assistants
to the Secretary for Debt Management. This committee also has
a broad view of the market.
We have not followed the advisory committee recommendations
in all respects, for the ultimate judgements have been ours, as
they should be. But the advice has been valuable, and the resu!
have indeed been satisfactory. I agree completely with the wis<
of their consistent advice that to raise the tremendous sums we
require, without extreme disturbance to our financial structure
we must issue securities in all the different maturity ranges;
and we must do our best to halt the long, continued concentrate
of our debt in short-dated securities.

1
I
- 5The members of both advisory committees have been in
full agreement that the Treasury must tap all maturity sectors
of the market and that its offerings should be designed to
create and build an upward sloping yield curve to appeal to
nonbank investors and to improve the maturity structure of the
debt. They have pointed out also that such policies would
provide some protection against excessive monetary growth.
The importance of an upward sloping yield curve should
not be underestimated. In the words of one committee:
Because the majority of institutional
investors borrow short-term funds and invest
them longer -- this is true of commercial banks,
of savings institutions and others -- anything
that raises short-term rates destroys the incentive
to invest longer term, be it in mortgages, corporate
bonds, or stocks. This is because any action that
makes short rates higher than otherwise simply
increases the risks of investing long, and destroys
the incentive or need to extend investment maturities.
I should particularly call your attention to the
attached charts showing the recent course of interest rates.
As the charts indicate, many interest rates rose steadily
from mid-February up until the announcement of May 1 of our May
refunding and cash financing.
The Treasury has been accused of having "talked up" these
interest rates and has also been blamed by some for the market
difficulties encountered by corporate and other borrowers in
this period.
There is, in fact, very little, if any, lasting market
effect from a statement by the Secretary of the Treasury or
any other person regarding the course of future market rates
unless the facts support his conclusions.
Those who make decisions in markets do not survive for
long by acting on statements that are not based on fact. Market
reactions to statements which are not based on facts are temporary
and self-correcting. The key to market moves is what market
participants perceive as the realities of current and prospective
financial conditions. These, in turn, are determined by
existing and anticipated conditions of the supply and demand for
savings, including the present and prospective federal deficits.
I would like to point out that as Secretary of the Treasury
it is my responsibility to maintain the financial integrity of
the U.S. Government and, in so doing, to speak out whenever that

- 6 integrity is threatened. Unfortunately, the cause of a
problem is too frequently attributed to the messenger rather
than to the message itselfo As someone has said, it's like
blaming the obstetrician for the baby. As you all well know,
in the period between February and May, it appeared that the
federal deficits for fiscal 1975 and fiscal 1976 were increasing
almost without limit. And I think that the apparent trends
during this period clearly were responsible for the observed
behavior of interest rates.
Similarly, the market rally following our May financing
announcement was based on the downward revision in the
anticipated federal deficit resulting from larger than
anticipated corporate and individual tax receipts and the
immediate relief to the market provided by the reduction in
our estimated borrowing requirements for the two months of May
and June. In evaluating this market performance, it is an
important fact that financing our deficits will add as much
as 50% or more to private holdings of marketable Treasury
securities in an eighteen month period from this January to next
June.
But there is a further factor which has since helped the
decline in rates. This is the growing signs of greater
Congressional recognition of the financial and economic dangers
of excessive budget deficits. Our experience has provided a
clear indication that further declines in interest rates from
now on depend on a firm grasp on the budget situation, on
continued progress against inflation, and on continued progress
in improving the financial structure of our business firms.
All of these things are essential to achieving a solidly based
and long-lasting recovery of the economy.
I have also attached to my statement a schedule of
securities maturing through June 19760 The refunding of
these securities will be in addition to our new cash
financing requirements.
Based on the Administration's assumption of a $60
billion deficit in fiscal 1976, these new cash requirements,
including off-budget financing, will total nearly $73
billion -- $38.2 billion in the July-December 1975 half
and $34.5 billion in the January-June 1976 half.
This means a gross financing job, apart from regular bill
roll-overs, of $115 billion.
The magnitude of this financing job requires the
greatest flexibility with regard to the maturities in
every new securities offering. The way to minimize the cost

- 7to the taxpayer, as well as to minimize the market impact of
Treasury borrowings, is to sell our securities to a wide
rate of investors, so that there is no undue impact of any
particular sector of the market.
Under present law, however, there is a statutory
limitation of $10 billion on the amount of bonds held by
the general public with interest rates in excess of 4-1/4
percent. Treasury notes, which are not subject to an interest
limitation, are restricted to a maximum maturity of 7 years.
Since 1965, interest yields required by the market on
longer-term Treasury securities have been in excess of 4-1/4
percent, and the Congress has acted on three occasions in this
decade to provide the Treasury with effective authority to issue
long-term securities:
In 1967, the maximum maturity on Treasury
notes was increased from 5 years to the
present maximum of 7 years, thus exempting
issues up to 7 years from the 4-1/4 percent
limitation.
In 1971, the Treasury was authorized to issue
up to $10 billion of bonds without regard to the
4-1/4 percent ceilingo
Then, in 1973, the $10 billion exemption from the
4-1/4 percent ceiling was amended so that it would
apply only to bonds outstanding in the hands of
the public. The effect was to exclude any bonds
held by government accounts, including the Federal
Reserve Banks, in calculating the amount outstanding
against the $io billion limitation.
The Treasury has used almost $8.5 billion of the $10
billion bond authority. This leaves a balance of $1.5
billion.
In light of the magnitude of our projected refunding
and new money needs in FY 1976 and beyond -- and also in
light of the basic need to restructure the debt to redress
the neglect of past years -- the flexibility which I now have
for conducting our borrowing operations is grossly inadequate.
The weight of practical and experienced market advice,
as I have already indicated, is that we should offer securities
in all maturity areas to minimize the risk of an adverse impact
on any particular sector. Indeed, unless we can offer securities
in all the maturity ranges where demand exists, debt management
is complicated and the ultimate cost of financing our deficits
is
is likely to be increased. Obviously, this means a market judgment
called for at the time of any financing, and if our choices

- 8 are restricted by inadequate authority to issue a range of
securities, such choices are made more difficult and the
results are likely to be' less likely satisfactory.
In this connection, I should mention the sometimes
erroneous conclusions about the impact of Treasury financing
operations of particular sectors of the economy. There is a
tendency, for example to think of housing in terms of permanent,
30-year mortgage financing, but as every home builder knows,
the availability of construction financing is as important to
getting a job started as the permanent financing is to getting
the job completed. We also know the deposit flow to financial
institutions, such as the savings and loan associations, is far
more sensitive to the competition of shorter-term Treasury
obligations than to the competition of longer-term obligations.
Indeed, every sector of the economy, every aspect of our
financial markets, is so interrelated that the undue weighting
of Treasury financing in any particular maturity area can have
adverse effects throughout the whole market -- which could largely
have been avoided by a better choice of new securities.
As we move forward into the recovery phase, there is an
additional reason for concern with our debt structure.
It is obvious that a substantial portion of our financing
in the future, as in the past, will have to be handled in the
short and intermediate area. But if we concentrate our new
offerings entirely in the short-and intermediate-term areas,
then, when the economy has achieved a substantial measure of
recovery, the problems of the Federal Reserve would be greatly
complicated. Short-term Treasury debt is very near to money
and can be liquidated to provide funds for other purposes at
small cost unless there is a substantial rise in interest rates0
In my judgment, and I believe this is a judgment shared by other
market professionals, excessive amounts of short-term Treasury
debt could contribute to another situation in which we could
get an excessive rise in short-term interest rates, with the
whole panoply of adverse economic and financial consequences
such as developed in 1966, 1969-70, and again in 1973.
This is obviously not an immediate problem, but as the
recovery develops and private credit demands expand, commercial
banks and other lenders will attempt to liquidate Treasury securiti
to obtain funds for lending to the private sector. But, if
Treasury demands are still large and together with private
demands threaten to reignite inflationary pressures, the Federal
Reserve System will have to resist this liquidation by the private
sector, and the result could be a sharp rise in short-term
interest rates. The alterntive -- Federal Reserve purchases

from the private sector -- monetization of the debt -- could
temporarily restrain such a rise in rates, but only at the
expense of adding to the inflationary potential.
Beyond this I am persuaded that inability of the Treasury
Department to utilize all maturity sectors, including the longterm sector, would be interpreted by the market, and generally,
as indicative of a lack of will to deal with the inflation
which is still our basic,long-run economic problem. Whether
that were or were not a valid concern, it would be an important
psychological barrier to the reductions in longer-term rates, which
I perceive as essential if we are to restore health to the housing
industry and are to encourage the business investment which is
needed if this country's economic progress is not to falter.
Long-term interest rates have continued to reflect and ingrained
inflationary expectation. Our financing should be conducted
in a way that will help to overcome that expectation -- not in
a way which would tend to confirm it„
For these reasons, I believe the time is now appropriate
to increase the size of the exception to the 4-1/4 percent
ceiling on bonds and to further extend the maximum maturity of
Treasury notes.
I specifically recommend, with regard to the 4-1/4 percent
ceiling, that the exception be increased from $10 billion tO
$20 biliion. I wish to emphasize as strongly as I can that
market conditions are unpredictable, so that the amount of longerterm issues which might be issued in any specific period could vary
greatly, depending upon market demands„ The record indicates,
however, that we have been responsible and sensitive to
financial and economic conditions in our use of the exception to
the 4-1/4 percent limit. We will continue to be responsible
and sensitive.
I also strongly recommend that the maximum maturity of
Treasury notes be extended from the present 7 years to 10
years. This extension of the maximum note maturity, assuming
that market conditions permit, would be a powerful tool in helping
to arrest the decline in the average maturity of the debt and
the concentration in short-term issues which has taken place.
Further, I want to urge that early consideration be given
to removing the 6 percent rate ceiling on savings bonds. Such
action would allow the rate on savings bonds to be varied from
time to time in accordance with changing financial circumstances
in the interest of both savers and taxpayers. Such flexibility
would obviously need to be exercised with due regard to the
impact of savings bonds rate changes on depositary institutions.
As experience has demonstrated, however, there is no way
permanently to insulate these institutions from the effects of
changing economic circumstances0 We have, therefore, proposed a

- 10 | -

Financial Institutions Act which will allow the removal
of regulation Q-type ceilings by providing the thrift
institutions with expanded powers which will improve their
ability to compete without a federal crutch.
The urgency of the need for these tools is, I believe,
underscored by the fact that during this calendar year the
total amount of marketable debt held by the public has
increased by $25.8 billion,, The amount in maturities in
excess of 20 years has increased by less than $700 million;
while the amount with maturities of 2 years or less has
increased by $19.8 billion.
The Treasury will handle its management job responsibly.
I urge you to act promptly to give us the tools to do the
job.

oOo

TABLE 1
PUBLIC DEBT
SUBJECT TO LIMITATION
FISCAL YEAR 1976
Based on Estimated
Budget receipts of $299.0 Billion,
Outlays of $358.9 Billion,
Unified Budget Deficit of $59.9 Billion,
and Off-Budget Outlays of $14.2 Billion
($ Billions)
Operating
Public Debt
Cash
Subject to
Balance
Limitation
ESTIMATED
1975

With Usual
$3 Billion
Margin For
Contingencies

June 30

533

536

July 31

540

543

Aug. 31

548

551

Sept. 30

547

550

Oct. 31

553

556

Nov. 30

560

563

Dec. 31

567

570

Jan. 31

569

572

Feb. 29

579

582

Mar. 31

591

594

Apr. 15

600

603

Apr. 30

593

596

May 31

605

608

June 15 (peak)

610

613

June 30

607

610

1976

Table 2
Estimated Ownership of Treasury Public Debt Securities

End
of
Month

(Par values 1/ in billions of dollars)
Nonbank Investors
:
:
: State : Foreign
: Total
: Outand
: Other
Fed : private-:\ Commer-: Individ- Insurance•• Mutual: Cor- : and :
:
&
: stand- *
: ly
cial :
uals :companies : sav- : pora-: local : inter- :• mves: ing
: GA : held
:: banks
: ings : tions:govern-:national •: tors
: banks:
4/ : ments :
5/
:
6/
:
3/
2/

1974
June

475.1

218.7

256.4

53.2

80.7

5.9

2.6

10.8

28.3

57.7

17.3

July

475.3

215.6

259.7

53.9

81.6

5.7

2.6

11.3

28.8

56.9

18.8

Aug.

481.8

222.8

259.0

53.0

82.6

5.7

2.6

11.0

29.2

56.0

19.0

Sept.

481.5

221.6

259.8

52.9

83.3

5.8

2.5

10.5

29.3

56.0

19.5

Oct.

480.2

217.8

262.5

53.5

83.8

5.9

2.5

11.2

28.8

56.6

20.3

Nov.

485.4

220.0

265.3

54.5

84.3

5.9

2.5

11.0

28.7

58.3

20.1

Dec.

492.7

221.7

271.0

56.5

84.8

6.1

2.5

11.0

29.2

58.4

22.4

Jan.

494.1

220.4

273.8

54.5

85.3

6.2

2.6

11.3

30.0

61.5

22.3

Feb.

499.7

220.8

278.9

56.9

85.3

6.2

2.7

11.4

30.5

64.6

21.3

Mar.

509.7

219.9

289.8

62.0

85.7

6.6

2.9

12.0

29.7

65.0

25.9

Apr.

516.7

225.9

290.9

63.0

86.1

6.7

3.2

12.5

29.8

65.2

24.4

1975

Office of the Secretary of the Treasury
Office of Debt Analysis

May 30, 1975

- 2 United States savings bonds are included at current redemption
value.
Consists of commercial banks, trust companies, and stock savings
banks in the United States and in Territories and island possessions.
Figures exclude securities held in trust departments.
Includes partnerships and personal trust accounts.
Exclusive of banks and insurance companies.
Consists of the investments of foreign balances and international
accounts in the United States. Beginning with July 1974 the
figures exclude noninterest-bearing notes issued to the
International Monetary Fund.
Consists of savings and loan associations, nonprofit
institutions, corporate pension trust funds, and dealers
and brokers. Also included are certain government deposit
accounts and government-sponsored agencies.

Preliminary
0DA-6/1/75
Table 3
OFFERINGS OF MARKETABLE SECURITIES 1/
January 1-June 6, 1975
(amounts in billions of dollars)

Maturity

TOTAL OFFERINGS
Under 2 Years
Bills

mo,
mo,
mo,
mo,
mo,
mo,
mo,
mo,
mo,

issued
issued
issued
issued
issued
issued
issued
issued
issued

1/9
3/3
3/3
3/25
3/31
4/8
4/30
5/27
6/6

100.0

34.5

69.4

19.7

39.6

yr-4
yr-3
yr-0
yr-8
yr-3
yr-0

mo,
mo,
mo,
mo,
mo,
mo,

issued
issued
issued
issued
issued
issued

1/7
2/18
2/18
3/19
5/1.5
5/15

7-20 Years
15 yr-0 mo, issued 4/7
Over 20 Years
20/25 yr-0 mo, issued 2/18
25/30' yr-0 mo, issued 5/15

29.8

0.8
1.7
1.7
1.6
2.6
1.5
1.6
2.0
1.5
12.4

2-7 Years
4
3
6
6
3
7

$49.8

14.8

Coupons
yr-3
yr-6
yr-0
yr-2
yr-0
yr-8
yr-0
yr-0
yr-5

: % of Total

15.7
2.4
1.6

13, 26-week bills
52-week bills
Other bills

1
1
2
1
2
1
2
2
1

Amount

25.0

1.3
3.3
1.8
1.8
2.8
1.6
1.3

2.5

1.3
1.6

3.1

0.8
0.8

1/ Excludes exchange offerings to Federal Reserve and Government Accounts.

Table 4
Marketable Maturities Through June 30, 1976
(Issued or announced through June 6, 1975)
(in billions of dollars)

Treasury Bills
Regular weekly
52-week
Other

$129.3
100.1
26.4
2.8

Coupons and Other
1975
June 30 bill 1/
5-7/8% note 8715/75
8-3/8% note 9/30/75
1-1/2% note 10/1/75
7% note 11/15/75
7% note 12/31/75

$ 39.4

1976
January 31 bill 1/
6-1/4% note 2/15/76
5-7/8% note 2/15/76
8% note 3/31/76
1-1/2% note 4/1/76
6-1/2% note 5/15/76
5-3/4% note 5/15/76
6% note 5/31/76
8-3/4% note 6/30/76
Total

Office of the Secretary of the Treasury
Office of Debt Analysis

2.0
2.7
2.0
*
3.1
1.7
2.0
3.7.
4.9
2.3
*
2.7
2.8
1.6
2.7
$168.7

May 30, 1975

1/ Treasury bills in two-year note cycle slot.
*" Less than $50 million
Note:

Figures may not add to totals because of rounding.

Chart 1

MATURITY DISTRIBUTION OF PRIVATELY HELD
TREASURY MARKETABLE DEBT
$Bil.

1-2 Years

2-3 Years

3-5 Years

5-7 Years

Over 7 Years

12.1

16.3

April 1975
Notes &
L h-_jLi Bonds

90 9
^

14.7

17.8

ET3

April 1974
20.6

14.7

15.0

11.2

16.5

U.''.l

April 1973
22.0

Office oi the Secretary ol the Treasury
Oliic. ot Debt Analysis

16.0

21.7

9.9

17.4

May 27. 1975 5

Chart

SHORT TERM INTEREST RATES
Weekly Averages
%

15
14
Federal Funds
Rate
Week Ending
May 28, 1975

Prime Rate

tt-fP ^

.<T..-..-*
&$?•

i i

i i i

1972

Otfice of the Secretary of the Treasury
Office ol Debt Analysis

i i

1973
Calendar Years

1974

13
12
11
10
9
8
7
6
5
4
3

1975

May 28.1975 9

CHART

INTEREST RATES
Weekly Averages
%

Prime Rate

3 Month ^
Treasury Bill Rate
:i

«t H y

l i li !

I i I I Hi

J A
1974

A M
1975

StH"'*1' .1" . '' " I1 T' fj*.u'>

Xay 30 1975 8

IVf A l . v

S H O R T

T E F?IVI I N T E R E S T
Weekly Averages

R A T E S

Department of theTREASURY
\SHINGTQN, DC. 20220

TELEPHONE W04-2041

Contact

Richard B. Self
x8256

June 2, 1975
FOR IMMEDIATE RELEASE
TREASURY ANNOUNCES TERMINATION
OF COUNTERVAILING DUTY INVESTIGATIONS
Assistant Secretary of the Treasury David R. Macdonald
announced today the termination of countervailing duty investigations on certain steel products from Great Britain,
Belgium, France, the Netherlands, Luxembourg, 7est Germany,
Italy and Austria; shoes from West Germany, and tie fabrics
from Japan, Korea and West Germany. Notices to this effect
will be published in the Federal Register of June 3, 1975.
The investigations are being terminated on the basis of
written requests by the petitioners that their petitions
be withdrawn.
Notices of Receipt of Countervailing Duty Petitions
for all but the Italian steel case were published in the
Federal Register of January 15, 1975. The Notice covering Italian steel appeared in the March 7, 1975, Federal
Register. Under the Countervailing Duty Law (19 U.S.C. 1303)
the Secretary of the Treasury is required to determine
within 12 months after the receipt of a petition in satisfactory form whether or not a "bounty or grant" is being
paid or bestowed on imported merchandise. A preliminary
determination must be issued within six months after
receipt of the petition. If the Treasury Department were
to receive in satisfactory form new petitions alleging
that bounties or grants are being paid on any of the abovementioned products, new investigations will be initiated.

# # #

Department of theTREASURY
WASHINGTON, D.C. 20220

TELEPHONE WO4-2041
/789

-n
June 2, 1975

FOR IMMEDIATE RELEASE
RESULTS OF TREASURYfS WEEKLY BILL AUCTIONS

Tenders for $2.8 billion of 13-week Treasury bills and for $2.7 billion
of 26-week Treasury bills, both series to be issued on June 5, 1975,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing September 4, 1975
Price
High
Low
Average

Discount
Rate

98.680 a/5.222%
98.664
5.285%
98.671
5.258%

26-week bills
maturing December 4, 1975
Investment
Rate 1/

Investment
Rate 1/

Price

Discount
Rate

5.38%
5.45%
5.42%

97.260
97.198
97.217

5.67%
5.420%
5.80%
5.542%
5.76%
5.505%

a/ Excepting 1 tender of $30,000
Tenders at the low price for the 13-week bills were allotted 24%.
Tenders at the low price for the 26-week bills were allotted 91%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Received

$
45,745,000
Boston
3,946,285,000
New York
39,865,000
Philadelphia
140,090,000
Cleveland
34,560,000
Richmond
35,190,000
Atlanta
321,280,000
Chicago
45,825,000
St. Louis
27,765,000
Minneapolis
44,295,000
Kansas City
30,825,000
Dallas
903,215,000
San Francisco
TOTALS $5,614,940,000

Accepted
$
27,595,000
1,724,080,000
39,865,000
47,450,000
25,360,000
29,940,000
87,180,000
31,305,000
18,965,000
39,260,000
21,825,000
708,415,000

Received
$
18,950,000
3,268,815,000
7,825,000
44,615,000
9,885,000
55,770,000
199,935,000
27,090,000
22,880,000
23,565,000
18,285,000
199,350,000

$2,801,240,000 b/$3,896,965,000

Accepted
$
8,950,000
2,278,015,000
7,700,000
39,615,000
9,885,000
45,770,000
149,485,000
17,590,000
22,380,000
21,065,000
18,285,000
81,450,000
$2,700,190,000 c/

b/ Includes $445,850,000 noncompetitive tenders from the public.
c / Includes $158,420,000 noncompetitive tenders from the public.
1/ Equivalent coupon-issue yield.

- 2In this regard, I should note the considerable discussion
in recent months of the potential impact of large federal
deficits on the prospects for economic recovery. I think
Dr. McCracken put the matter succinctly when he noted before
the Joint Economic Committee earlier this year that: .
"If the financial community has been slow
to appreciate the role of fiscal policy in
the management of the economy, economists
have been slow to face fully the implications
of the fact that Treasury financing and private
borrowing do compete for funds in the same money
and capital markets. And Treasury requirements
are now large enough so that their impact on
financing in the private sector must be faced
quite explicitly."
For the Tiscal year 1976, the Congress has already
spoken with regard to the debt limit. The Congressional
budget resolution for fiscal 1976, which was adopted by the
Congress only three weeks ago, on May 14, provided for an
$86.6 billion increase in the debt limit to a figure of
$617.6 billion for the fiscal year ending June 30, 1976.
I understand that this congressional action does not
have the force of law in the sense of providing the Treasury
with borrowing authority after the end of this month. Yet,
I wonder whether it would not be more productive if we just
accepted that number and got down to a more substantive
discussion of the real issues of debt management.
We all know that there is no widespread inclination
to use the debt ceiling as a real determinant of federal
spending and taxing. Decisions on those subjects are made
by the Congress in other legislation, and once the taxes
are set and the spending is mandated, the government has no
choice but to borrow to cover the differences between its
revenues and outlays.
I can accept the $617.6 billion figure as a reasonable
estimate of the peak borrowing of the Treasury in the next
fiscal year despite the fact, which you all know, that the
fiscal 1976 budget deficit figure adopted by the Congress
in its May 14 action is significantly larger than the deficit
proposed by the President.
In suggesting acceptance of the congressional number,
I am influenced by several considerations.

9
First, it is my understanding that the Congress in
setting its debt ceiling figure was concentrating on a
forecast of the June 30, 1976, debt level. Normally,
however, the debt will be as much as $5 billion higher a
few weeks earlier in mid-June just before the heavy June
tax receipts are received.
Second, I understand that the Congress was operating
with an estimate which is about $5 billion lower than our
current estimate of federal borrowing which will be subject
to the debt ceiling even though the purpose is to finance
federal agency programs which have been placed outside the
budget.
Taking into account the peak debt needs and our higher
estimate for financing off-budget programs, our debt ceiling
request under traditional procedures would be $613 billion,
compared to the congressional figure of $617.6 billion.
Given the uncertainty in all these estimates, I question
whether this relatively small difference is worth an extensive
legislative exercise.
Indeed, in view of the new congressional procedures,
the Committee may wish to consider doing away with separate
legislation on the debt ceiling and concentrating on our
debt management operations.
On the other hand, if the Committee feels that legislation
in addition to the budget resolution is still essential, I am
inclined to recommend that it adopt the $617.6 billion ceiling
already approved by the Congress, though of course I would not
oppose a $613 billion ceiling. In this connection, Table I
attached to my statement shows our estimates, based on the
President's proposed budget program in 1976, of debt subject
to statutory limitation at the end of each month through
fiscal year 1976, as well as the peak debt in mid-June 1976.
The estimates include all Treasury borrowing to finance both budge
and off-budget programs and make the usual assumptions of a
$6 billion cash balance and $3 billion margin for contingencies.
In light of the very large deficits that we have been
financing and will need to finance in the coming year, whether
we look at the congressional numbers or the President's, I
think it is important for the Congress and the American people
to understand what the Treasury has been doing in the area of
debt management.

- 4 There are tables and charts attached to my statement
which show first, the ownership of total outstanding
Treasury debt over the past year; second, offerings of new
marketable securities by maturity in recent years; and
third, changes in the maturity structure of the marketable
debt in recent years.
Also attached to my statement is a complete file of
this year's financing announcements, including transcripts
of press conferences.
I believe that analysis of this data will support a
conclusion by this Committee and the Congress that the
Treasury has been financing the deficit in a responsible
and constructive manner. Although, I must say that I am
personally deeply concerned by the notion I sometimes hear
expressed that there is some simple answer to financing
the deficits which will avert painlessly all risks which
are inherent in operations of this magnitude.
In making our financing decisions, we have sought and
obtained the best advice of practical and experienced
market participants and financial leaders.
The government borrowing committee of the American
Bankers Association numbers among its membership senior
bank officers from banks in all geographical areas of the
country and of a wide range of sizes from the very largest to
quite small banks. Commercial banks are the largest private
purchasers of government securities. Advice on bank demands
for new government securities is vital.
The government securities and federal agencies committee of
the Securities Industry Association similarly includes senior
officials of institutions active in the government securities
market, a number of whom have served also in responsible
positions in government -- several in the Treasury as Assistants
to the Secretary for Debt Management. This committee also has
a broad view of the market.
We have not followed the advisory committee recommendations
in all respects, for the ultimate judgements have been ours, as
they should be. But the advice has been valuable, and the result
have indeed been satisfactory. I agree completely with the wisdc
of their consistent advice that to raise the tremendous sums we
require, without extreme disturbance to our financial structure,
we must issue securities in all the different maturity ranges;
and we must do our best to halt the long, continued concentration
of our debt in short-dated securities.

- 5 The members of both advisory committees have been in
full agreement that the Treasury must tap all maturity sectors
of the market and that its offerings should be designed to
create and build an upward sloping yield curve to appeal to
nonbank investors and to improve the maturity structure of the
debt. They have pointed out also that such policies would
provide some protection against excessive monetary growth.
The importance of an upward sloping yield curve should
not be underestimated. In the words of one committee:
Because the majority of institutional
investors borrow short-term funds and invest
them longer -- this is true of commercial banks,
of savings institutions and others -- anything
that raises short-term rates destroys the incentive
to invest longer term, be it in mortgages, corporate
bonds, or stocks. This is because any action that
makes short rates higher than otherwise simply
increases the risks of investing long, and destroys
the incentive or need to extend investment maturities.
I should particularly call your attention to the
attached charts showing the recent course of interest rates.
As the charts indicate, many interest rates rose steadily
from mid-February up until the announcement of May 1 of our May
refunding and cash financing.
The Treasury has been accused of having "talked up" these
interest rates and has also been blamed by some for the market
difficulties encountered by corporate and other borrowers in
this period.
There is, in fact, very little, if any, lasting market
effect from a statement by the Secretary of the Treasury or
any other person regarding the course of future market rates
unless the facts support his conclusions.
Those who make decisions in markets do not survive for
long by acting on statements that are not based on fact. Market
reactions to statements which are not based on facts are tempora
and self-correcting. The key to market moves is what market
participants perceive as the realities of current and prospectiv
financial conditions. These, in turn, are determined by
existing and anticipated conditions of the supply and demand for
savings, including the present and prospective federal deficits.
I would like to point out that as Secretary of the Treasury
it is my responsibility to maintain the financial integrity of
the U.S. Government and, in so doing, to speak out whenever that

- 6 integrity is threatened. Unfortunately, the cause of a
problem is too frequently attributed to the messenger rather
than to the message itself« As someone has said, it's like
blaming the obstetrician for the baby. As you all well know,
in the period between February and May, it appeared that the
federal deficits for fiscal 1975 and fiscal 1976 were increasing
almost without limit. And I think that the apparent trends
during this period clearly were responsible for the observed
behavior of interest rates.
Similarly, the market rally following our May financing
announcement was based on the downward revision in the
anticipated federal deficit resulting from larger than
anticipated corporate and individual tax receipts and the
immediate relief to the market provided by the reduction in
our estimated borrowing requirements for the two months of May
and June. In evaluating this market performance, it is an
important fact that financing our deficits will add as much
as 50% or more to private holdings of marketable Treasury
securities in an eighteen month period from this January to next
June.
But there is a further factor which has since helped the
decline in rates. This is the growing signs of greater
Congressional recognition of the financial and economic dangers
of excessive budget deficits. Our experience has provided a
clear indication that further declines in interest rates from
now on depend on a firm grasp on the budget situation, on
continued progress against inflation, and on continued progress
in improving the financial structure of our business firms.
All of these things are essential to achieving a solidly based
and long-lasting recovery of the economy.
I have also attached to my statement a schedule of
securities maturing through June 19760 The refunding of
these securities will be in addition to our new cash
financing requirements.
Based on the Administration's assumption of a $60
billion deficit in fiscal 1976, these new cash requirements,
including off-budget financing, will total nearly $73
billion -- $38.2 billion in the July-December 1975 half
and $34.5 billion in the January-June 1976 half.
This means a gross financing job, apart from regular bill
roll-overs, of $115 billion.
The magnitude of this financing job requires the
greatest flexibility with regard to the maturities in
every new securities offering. The way to minimize the cost

to the taxpayer, as well as to minimize the market impact of
Treasury borrowings, is to sell our securities to a wide
rate of investors, so that there is no undue impact of any
particular sector of the market.
Under present law, however, there is a statutory
limitation of $10 billion on the amount of bonds held by
the general public with interest rates in excess of 4-1/4
percent. Treasury notes, which are not subject to an interest
limitation, are restricted to a maximum maturity of 7 years.
Since 1965, interest yields required by the market on
longer-term Treasury securities have been in excess of 4-1/4
percent, and the Congress has acted on three occasions in this
decade to provide the Treasury with effective authority to issue
long-term securities:
In 196 7, the maximum maturity on Treasury
notes was increased from 5 years to the
present maximum of 7 years, thus exempting
issues up to 7 years from the 4-1/4 percent
limitation.
In 1971, the Treasury was authorized to issue
up to $10 billion of bonds without regard to the
4-1/4 percent ceilingo
Then, in 1973, the $10 billion exemption from the
4-1/4 percent ceiling was amended so that it would
apply only to bonds outstanding in the hands of
the public. The effect was to exclude any bonds
held by government accounts, including the Federal
Reserve Banks, in calculating the amount outstanding
against the $10 billion limitation.
The Treasury has used almost $8.5 billion of the $10
billion bond authority. This leaves a balance of $1.5
billion.
In light of the magnitude of our projected refunding
and new money needs in FY 19 76 and beyond -- and also in
light of the basic need to restructure the debt to redress
the neglect of past years -- the flexibility which I now have
for conducting our borrowing operations is grossly inadequate.
The weight of practical and experienced market advice,
as I have already indicated, is that we should offer securities
in all maturity areas to minimize the risk of an adverse impact
on any particular sector. Indeed, unless we can offer securities
in all the maturity ranges where demand exists, debt management
is complicated and the ultimate cost of financing our deficits
is likely to be increased. Obviously, this means a market judgmen
is called for at the time of any financing, and if our choices

- 8 are restricted by inadequate authority to issue a range of
securities, such choices are made more difficult and the
results are likely to be- less likely satisfactory.
In this connection, I should mention the sometimes
erroneous conclusions about the impact of Treasury financing
operations of particular sectors of the economy. There is a
tendency, for example to think of housing in terms of permanent,
30-year mortgage financing, but as every home builder knows,
the availability of construction financing is as important to
getting a job started as the permanent financing is to getting
the job completed. We also know the deposit flow to financial
institutions, such as the savings and loan associations, is far
more sensitive to the competition of shorter-term Treasury
obligations than to the competition of longer-term obligations.
Indeed, every sector of the economy, every aspect of our
financial markets, is so interrelated that the undue weighting
of Treasury financing in any particular maturity area can have
adverse effects throughout the whole market -- which could largely
have been avoided by a better choice of new securities.
As we move forward into the recovery phase, there is an
additional reason for concern with our debt structure.
It is obvious that a substantial portion of our financing
in the future, as in the past, will have to be handled in the
short and intermediate area. But if we concentrate our new
offerings entirely in the short-and intermediate-term areas,
then, when the economy has achieved a substantial measure of
recovery, the problems of the Federal Reserve would be greatly
complicated. Short-term Treasury debt is very near to money
and can be liquidated to provide funds for other purposes at
small cost unless there is a substantial rise in interest ratesD
In my judgment, and I believe this is a judgment shared by other
market professionals, excessive amounts of short-term Treasury
debt could contribute to another situation in which we could
get an excessive rise in short-term interest rates, with the
whole panoply of adverse economic and financial consequences
such as developed in 1966, 1969-70, and again in 1973.
This is obviously not an immediate problem, but as the
recovery develops and private credit demands expand, commercial
banks and other lenders will attempt to liquidate Treasury securitie
to obtain funds for lending to the private sector. But, if
Treasury demands are still large and together with private
demands threaten to reignite inflationary pressures, the Federal
Reserve System will have to resist this liquidation by the private
sector, and the result could be a sharp rise in short-term
interest rates. The alterntive -- Federal Reserve purchases

7^
from the private sector -- monetization of the debt -- could
temporarily restrain such a rise in rates, but only at the
expense of adding to the inflationary potential.
Beyond this I am persuaded that inability of the Treasury
Department to utilize all maturity sectors, including the longterm sector, would be interpreted by the market, and generally,
as indicative of a lack of will to deal with the inflation
which is still our basic,long-run economic problem. Whether
that were or were not a valid concern, it would be an important
psychological barrier to the reductions in longer-term rates, whic
I perceive as essential if we are to restore health to the housing
industry and are to encourage the business investment which is
needed if this country's economic progress is not to falter.
Long-term interest rates have continued to reflect and ingrained
inflationary expectation. Our financing should be conducted
in a way that will help to overcome that expectation -- not in
a way which would tend to confirm it„
For these reasons, I believe the time is now appropriate
to increase the size of the exception to the 4-1/4 percent
ceiling on bonds and to further extend the maximum maturity of
Treasury notes.
I specifically recommend, with regard to the 4-1/4 percent
ceiling, that the exception be increased from $10 billion tO
$20 billion. I wish to emphasize as strongly as I can that
market conditions are unpredictable, so that the amount of longerterm issues which might be issued in any specific period could vai
greatly, depending upon market demands0 The record indicates,
however, that we have been responsible and sensitive to
financial and economic conditions in our use of the exception to
the 4-1/4 percent limit. We will continue to be responsible
and sensitive.
I also strongly recommend that the maximum maturity of
Treasury notes be extended from the present 7 years to 10
years. This extension of the maximum note maturity, assuming
that market conditions permit, would be a powerful tool in helping
to arrest the decline in the average maturity of the debt and
the concentration in short-term issues which has taken place.
Further, I want to urge that early consideration be given
to removing the 6 percent rate ceiling on savings bonds. Such
action would allow the rate on savings bonds to be varied from
time to time in accordance with changing financial circumstances
in the interest of both savers and taxpayers. Such flexibility
would obviously need to be exercised with due regard to the
impact of savings bonds rate changes on depositary institutions.
As experience has demonstrated, however, there is no way
permanently to insulate these institutions from the effects of
changing economic circumstances0 We have, therefore, proposed a

- 1 -) -

oOo

TABLE 1
PUBLIC DEBT
SUBJECT TO LIMITATION
FISCAL YEAR 1976
Based on Estimated
Budget receipts of $299.0 Billion,
Outlays of $358.9 Billion,
Unified Budget Deficit of $59.9 Billion,
and Off-Budget Outlays of $14-2 Billion
($ Billions)
Public Debt
Operating
Subject to
Cash
Limitation
Balance
ESTIMATED
1975

With Usual
$3 Billion
Margin For
Contingencies

June 30

533

536

July 31

540

543

Aug. 31

548

551

Sept. 30

547

550

Oct. 31

553

556

Nov. 30

560

563

Dec. 31

567

570

Jan. 31

569

572

Feb. 29

579

582

Mar. 31

591

594

Apr. 15

600

603

Apr. 30

593

596

May 31

605

608

June 15 (peak)

610

613

June 30

607

610

1976

Table 2
Estimated Ownership of Treasury Public Debt Securities

End
of
Month
1974
June
July

Outstanding
475.1

(Par values 1/ in billions of dollars)
NonbanK Investors
Foreign
State
Total
and
and
Fed private- Commer- Individ- Insurance Mutual Corsavpora- local
uals
inter&
companies
cial
ly
ings
tions govern- national
GA
banks
held
3/
banks
4/
5/
ments
2/
57.7
28.3
10.8
2.6
5.9
80.7
53.2
218.7 256.4

Other
investors
6/
17.3

475.3 215.6 259.7

53.9

81.6

5.7

2.6

11.3

28.8

56.9

18.8

Aug.

481.8 222.8 259.0

53.0

82.6

5.7

2.6

11.0

29.2

56.0

19.0

Sept.

481.5 221.6 259.8

52.9

83.3

5.8

2.5

10.5

29.3

56.0

19.5

Oct.

480.2 217.8 262.5

53.5

83.8

5.9

2.5

11.2

28.8

56.6

20.3

Nov.

485.4 220.0 265.3

54.5

84.3

5.9

2.5

11.0

28.7

58.3

20.1

Dec.

492.7 221.7 271.0

56.5

84.8

6.1

2.5

11.0

29.2

58.4

22.4

Jan.

494.1 220.4 273.8

54.5

85.3

6.2

2.6

11.3

30.0

61.5

22.3

Feb.

499.7 220.8 278.9

56.9

85.3

6.2

2.7

11.4

30.5

64.6

21.3

Mar.

509.7 219.9 289.8

62.0

85.7

6.6

2.9

12.0

29.7

65.0

25.9

Apr.-

516.7 225.9 290.9

63.0

86.1

6.7

3.2

12.5

29.8

65.2

24.4

1975

Office of the Secretary 6f the Treasury
Office of Debt Analysis

May 30, 1975

- 2United States savings bonds are included at current redemption
value.
Consists of commercial banks, trust companies, and stock savings
banks in the United States and in Territories and island possessions.
Figures exclude securities held in trust departments.
Includes partnerships and personal trust accounts.
Exclusive of banks and insurance companies.
Consists of the investments of foreign balances and international
accounts in the United States. Beginning with July 1974 the
figures exclude noninterest-bearing notes issued to the
International Monetary Fund.
Consists of savings and loan associations, nonprofit
institutions, corporate pension trust funds, and dealers
and brokers. Also included are certain government deposit
accounts and government-sponsored agencies.

Preliminary
ODA-6/1/75
Table 3
OFFERINGS OF MARKETABLE SECURITIES 1/
January 1-June 6, 1975
(amounts in billions of dollars)

Maturity

% of Total

TOTAL OFFERINGS
Under 2 Years
Bills
13, 26-week bills
52^week bills
Other bills

yr-3 mo,
yr-6 mo,
yr-0 mo,
yr-2 mo,
yr-0 mo,
yr-8 mo,
yr-0 mo,
yr-0 mo,
yr-5 mo,

34.5

69.4

19.7

39.6

2.4
1.6
14.8

issued
issued
issued
issued
issued
issued
issued
issued
issued

1/9
3/3
3/3
3/25
3/31
4/8
4/30
5/27
6/6

2-7 Years
4
3
6
6
3
7

100.0

15.7

Coupons
1
1
2
1
2
1
2
2
1

$49.8

0.8
1.7
1.7
1.6
2.6
1.5
1.6
2.0
1.5
12.4

yr-4 mo,
yr-3 mo,
yr-0 mo,
yr-8 mo,
yr-3 mo,
yr-0 mo,

issued
issued
issued
issued
issued
issued

1/7
2/18
2/18
3/19
5/15
5/15

7-20 Years
15 yr-0 mo, issued 4/7
Over 20 Years
20/25 yr-0 mo, issued 2/18
25/30 yr-0 mo, issued 5/15

29.8

25.0

1.3
3.3
1.8
1.8
2.8
1.6
1.3

2.5

1.3
1.6
0.8
0.8

3.1

Table 4
Marketable Maturities Through June 30, 1976
(Issued or announced through June 6, 1975)
(in billions of dollars)

Treasury Bills
Regular weekly
52-week
Other

$129.3
100.1
26.4
2.8

Coupons and Other
1975
June 30 bill 1/
5-7/8% note 8715/75
8-3/8% note 9/30/75
1-1/2% note 10/1/75
7% note 11/15/75
7% note 12/31/75

$ 39.4

1976
January 31 bill 1/
6-1/4% note 2/15/76
5-7/8% note 2/15/76
8% note 3/31/76
1-1/2% note 4/1/76
6-1/2% note 5/15/76
5-3/4% note 5/15/76
6% note 5/31/76
8-3/4% note 6/30/76
Total

Office of the Secretary of the Treasury
Office of Debt Analysis

2.0
2.7
2.0
*

3.1
1.7

2.,0
3.,7
4.,9
2.,3
*

2..7
2..8
1..6
2.,7
$168.7

May 30, 1975

1/ Treasury bills in two-year note cycle slot.
*" Less than $50 million
Note: Figures may not add to totals because of rounding.

Chart 1

MATURITY DISTRIBUTION OF PRIVATELY HELD
TREASURY MARKETABLE DEBT
1-2 Years

2-3 Years

3-5 Years

5-7 Years

Over 7 Years

12.1

16.3

112

16.5

9.9

17.4

April 1975
'4 Notes & 9 Q 9
3
Bonds
***

14.7

17.8

April 1974
20.6

14.7

15.0

April 1973
22.0

OWiea of Ih. Socratary ol lh« Treasury
Oflic* of Debt Analysis

16.0

21.7

May 27. 197S 5

Chart 2

SHORT TERM INTEREST RATES
Weekly Averages
%

15
14

14
Federal Funds
Rate

13
12
11
10
9

13
12
Week Ending
May 28,1975

11
10
9

8
7
Prime Rate ~* .-.
6
•C1JC3J
5K n
4
**••
3
i
i i i i 1 1
i i

8
7
3 Month
Treasury
Discount Rate

6
5
4

/£•••-•••'
1972

Otlic. ol trt. Swretary ol Ih. Treasury
Otlic ol Debt Analysis

i i

1973
Calendar Years

• i

1 1

i i i

1974

1975

May 2*. 1975-9

CHART

INTEREST RATES
Weekly Averages
%

Prime Rate

i ~ ^ ' \

3 Month ^
Treasury Bill Rate
J_L

F
Of re ol the Seoet.m o» H>e Treasury
0«ice of Debt An.nw,

J J
1974

M A M
1975
TXay 30 1975 8

NEWS CONFERENCE
BY
UNDER SECRETARY JACK F. BENNETT
TREASURY FINANCING PLANS
JANUARY 22, 1975

2
UNDER SECRETARY BENNETT: As you know, the Secretary
is speaking, right now, to the Ways and Means Committee
on the President's Economic and Energy Program and he will
be speaking again, tomorrow morning, to the Ways and Means
Committee on the Treasury Financing Plans through Fiscal
Year '76, and on the need for a substantial increase in the
debt ceiling. And, in view of his appearances, I will concentrate today just on the financing situation in the current
half-year period.
During this period of the year, traditionally, we have
limited net financing needs. For example, from 1970 through
1974, our net needs really varied around zero, from a high
of $3.9 billion one year to a low of a negative $5 billion
last year. But this year, we have a growth industry. The
forecast increase in our Treasury marketable debt this half
year period is $28 billion. Now, that is on top of the $17
billion of maturing, longer term coupon issues and, of course,
on top of the regular bill cycles.
Now, these are the borrowing plans based on the President's program. Of course, if the Congress were to increase
the deficit, the borrowings would be even larger than the
$28 billion.
So far this year, out of the $28 billion needed in this
half year, we have already borrowed $3.3 billion through a
couple of short coupon issues and increases in the regular
bills.
Today, I would like to announce plans for raising $5.3
billion of new money between now and early March, in addition
to the refundings.
Obviously, the $3.3 billion we have already raised,
and the $5.3 billion that I want to announce today, leave
about $19 billion more to be financed later in this halfyear period.
Some of that increase will probably come in the "bill"
area. We plan to retain the flexibility to vary the amount
of weekly announcement on the bills.
We have been using that flexibility, lately, only in
the upper direction, and we will probably do so again in
the coming weeks--but not always in exactly the same amount.
Two weeks ago, we announced an increase of $200 million.
Yesterday, we announced an increase of $300 million.

In addition, we probably have to have some additional
coupon issues, but we do not anticipate any such issue--other
than the ones being announced today--before mid-March. Such
an issue remains a possibility for late March or April.
Now I would like to get down to the three announcements
for today.
Firstly: The one-year bill offering—which is scheduled
to be paid for on February llth--to replace the $1.8 billion
maturing--will be increased, by $300 million, to $2.1 billion.
This is not an advance announcement. The formal announcement will be out on January 30.
MEMBER OF THE PRESS: That was--those numbers, again?
UNDER SECRETARY BENNETT: There is $1.8 billion maturing
on February 11. We are going to refund that and raise $300
million--that is increase it to $2.1 billion. We will formally announce it later, but I want to announce now the full
package of our financing plans--other than the weekly bills
--through early March.
The second thing that I would like to announce is in
the paper you have: the three securities to be issued on
Tuesday, Februrary 18th.
As you see, there is a total of $5.5 billion and, since
there is little over $3-1/2 billion of publicly held notes
maturing, it will be raising almost $2 billion by that
operation. Each of these three are going to be auctioned
on a yield basis. As you can see, the three are the $3
billion, 3-1/4 years, maturing May 1978; $1-3/4 billion,
6-year note, maturing in 1981; and the $3/4 billion--the
25 year bond--maturing in the year 2000. Although that security is callable in 1995, it does go into the year 2000. This
is our first venture into the year 2000 and beyond.
We also--as we did last time--are providing that at
the option of the investor, payment for up to one-half of
the bond can be deferred for a few weeks; literally through
March 3rd.
In view of the decline in interest rates, and the
lengths of these securities we are issuing, you will note
that they will be issued in denominations as low as $1,000.

4
Thirdly: I would like to announce, now, that we expect
to sell $3 billion of notes for payment on March 3, in addition to the refunding I have just announced. I expect
that we will issue the formal announcement of these notes
on Februrary 11, and we will auction them on February 19.
There will be two note issues, each of $1-1/2 billion;
the first will mature the last day of February 1977. That
is, in two years. The other, on August 31, 1976. That is,
in eighteen months. So there are two issues: one for two
years, and one for 18 months.
Now, you can see that these two new notes resemble the
two-year notes that we have been issuing on a regular cycle
in an amount of about $2 billion on the last day of each
quarter.
In the coming months, we will be studying the possibility
of establishing regular month-end, rather than quarter-end
cycle, two year notes; and these two notes to be issued on
March 3 would, obviously, fit neatly into such a cycle.
If we do this--if we establish this cycle--it might
still be appropriate that the amounts issued in the third
month of each quarter might be a bit larger than the others,
because there may be more demand for the quarter-end notes.
In any event, of course, we will have a regular quarter
note maturing at the end of March.
Now, I would be happy to consider any questions, but
the Wire Services may like to go now. I suggest that they
observe an embargo until 4:35 p.m.--all right?
MR. PLUM: Fine!
MEMBER OF THE PRESS: Make it 4:45!
UNDER SECRETARY BENNETT: 4:45?
MEMBER OF THE PRESS: Right.
UNDER SECRETARY BENNETT: That's all right with
me. 4:45.
MEMBER OF THE PRESS: That is even better.
UNDER SECRETARY BENNETT: Any questions?

V
MEMBER OF THE PRESS: Would you give/us some more
details on the debt limit?
UNDER SECRETARY BENNETT: No! Those will be
announced tomorrow.
MEMBER OF THE PRESS: Would this financing carry
you beyond the debt limit if it is not raised?
UNDER SECRETARY BENNETT: Oh, yes! The present
debt ceiling is $495 billion. We are almost $495 billion
right now, and we have another $28 billion right here.
MEMBER OF THE PRESS: And when does the $495 billion
last until?
UNDER SECRETARY BENNETT: Well, literally, under
the law, it would expire March 31, 1975.
MEMBER OF THE PRESS: March 31.
Well, that means that even the financing announced
today will take you over the top. I mean, the one that is in
our piece of paper.
UNDER SECRETARY BENNETT: The total package we
announced today will take us over the top. Yes.
MEMBER OF THE PRESS: So you would need ah increase
before February 18, would you not?
UNDER SECRETARY BENNETT: There are some variations
in our cash. I think you better wait and let the Secretary
go into that in greater detail tomorrow.
MEMBER OF THE PRESS: The Secretary told the Ways
and Means Committee today that February 18 was the date.
UNDER SECRETARY BENNETT: He did?
MEMBER OF THE PRESS: Yes!
UNDER SECRETARY BENNETT: That is news to me.
MEMBER OF THE PRESS: Yes, sir.
ANOTHER MEMBER OF THE PRESS: You said that you
did not--you will have some more coupon stuff--but not before
mid-March.

6
UNDER SECRETARY BENNETT:

Right!

MEMBER OF THE PRESS: I assume that means with the
.exception of the third item that you have announced?
UNDER SECRETARY BENNETT: With the exception of the
things we announced today.
MEMBER OF THE PRESS: The one-and-a-half -Yes?
UNDER SECRETARY BENNETT: There will be no more coupons
before mid-March. We haven1t decided the financing after that.
We have not decided the weekly bills even from now until March,
but we do want to announce that there will be no more coupons,
in all probability before mid-March.
MEMBER OF THE PRESS: Would you expect every weekly
bill to be increased by something?
UNDER SECRETARY BENNETT: Well, we are going to vary
it, but they have all been increased lately.
MEMBER OF THE PRESS: I missed the first part of
this. You may have answered this questions, but is the new
cash that is in the refinancing part of the $3.3 billion you
said you have borrowed?
UNDER SECRETARY BENNETT: No! What I said was that
we need approximately $28 billion new cash this half year.
We have already raised $3.3 billion. We are proposing, in these
three steps I announced today, to raise $5.3 billion. That
leaves another $19 billion to pick up. Some of that $19 billion
will come from bills. The rest will come after early March.
MEMBER OF THE PRESS: The $28 billion that you began
with is the Treasury's marketable debt borrowing base. Is
that about equal to what the budget deficit is going to be in
this half year?
UNDER SECRETARY BENNETT: It includes the borrowing by
the Treasury on behalf of the Federal Financing Bank, of course,
which is not in it.
MEMBER OF THE PRESS: The $28 billion includes the
Federal Financing Bank?
UNDER SECRETARY BENNETT: No! It includes borrowing
by the Treasury to lend to the Federal Financing Bank. It
does not --we have not at this point forecast any market
borrowing by the Federal Financing Bank. It would probably

cost more if the Federal Financing Bank borrowed-^through the
market, so we are only planning to borrow through the Treasury.
MEMBER OF THE PRESS: Would the $28 billion of total
borrowing be the most for any such period -- the highest ever
for a six-month period?
UNDER SECRETARY BENNETT: Well, it certainly is outside
of the ball park for the first half.
Let me just check one thing.
Now, my numbers only go back to 1970, but it is
clearly well above any half year that is on this record through
1970. I would doubt if we have anything that large in the
years before that.
MEMBER OF THE PRESS: How about the war years?
UNDER SECRETARY BENNETT: Did you say something?
MEMBER OF THE PRESS: I was thinking back in
World War II.
UNDER SECRETARY BENNETT: I would think so. I don't
have the literal record.
MEMBER OF THE PRESS: How much has the Federal
Financing Bank borrowed from the Treasury and how much is it
authorized to borrow?
UNDER SECRETARY BENNETT: The Federal Financing Bank,
so far, has borrowed about $1.5 billion on the market, and
$3.5 billion from the Treasury.
I am sorry. $3 billion from the Treasury; $1.5 billion
from the market, at this point.
MEMBER OF THE PRESS: And how much is it authorized
to borrow from the Treasury?
UNDER SECRETARY BENNETT: It is authorized to borrow
from the market $15 billion.
It has no limit on borrowing from the Treasury.

8
MEMBER OF THE PRESS: If, perchance, the Congress
should not enact the tax rebate and, instead enact a reduction
of withholding taxes which would be strung out through the
whole year for the same rough amount, your number here would
be somewhat smaller, would it not, in the first half?
UNDER SECRETARY BENNETT: It depends on how soon it
started, I suppose. I am sure Congress could take action
that would increase this.
MEMBER OF THE PRESS: Or decrease it?
UNDER SECRETARY BENNETT: Or decrease it -- either
one.
MEMBER OF THE PRESS: If they don't enact it -this includes $6 billion worth of rebate in May, doesn't it?
UNDER SECRETARY BENNETT: Yes! This is, literally,
based on the program as he presented it.
MEMBER OF THE PRESS: Mr. Bennett, what kind of
impact do you expect a borrowing of this size to have on
interest rates in the market?
UNDER SECRETARY BENNETT: Well, it is difficult to
balance. On the one hand, the kind of activity we have been
having, you notice, has been pusing them down. This size of
borrowing pushes in the other direction. What is the net?
I don't propose, at this moment, to forecast.
MEMBER OF THE PRESS: Are you contemplating any
changes in the treatment of tax and loan accounts except for
the reducing average life of those deposits as you have been
doing regularly?
UNDER SECRETARY BENNETT: We will be talking to
the Congress, soon, on the tax and loan accounts.
MEMBER OF THE PRESS: Would you consider moving
in the opposite direction and making those accounts more
valuable to the banks, so they would be better able to help
you financing?
UNDER SECRETARY BENNETT: I would not think so.
MEMBER OF THE PRESS: You say you don't know?

~)V

UNDER SECRETARY BENNETT: I would not think we would
be moving in the other direction. We are moving, rather,
in the direction of paying directly for services, and keeping
all the balances and not using that as a way of inducing some
investors to buy --to provide services. We are moving away
from the tie-in deal, in other words.
MEMBER OF THE PRESS: This, conceivably, could set
short term interest rates climbing again?
UNDER SECRETARY BENNETT: Well, you have, again,
opposing forces. In other words, there has just been a reduction
in the reserve requirements, and this moves in the other direction,
but what is the net? That markets have known that we were
coming --we have been anticipated with these new announcements -we had to have more borrowing.
MEMBER OF THE PRESS: I was not here for the last
meeting.
What is the purpose of giving the bond buyers a couple
of extra weeks to pay half of their subscription?
UNDER SECRETARY BENNETT: There is plenty of time for
those who get money on the 18th to place it. We thought there
might be some people, if given a little more time to scrape
it together and plan it, who would be willing to buy the
securities, if they could pay for it in two installments.
Of course, in recent periods, the largest we have financed of
a very long term security was $600 million. We are stepping
this up to $750 million.
MEMBER OF THE PRESS: On the $1,000 minimum, what was
it? I know you switched back and forth a few times?
UNDER SECRETARY BENNETT: What is what?
MEMBER OF THE PRESS: The $1,000 minimum -- you
switched back and forth in past auctions -- the last auction -the note auction -- what was last minimum?
UNDER SECRETARY BENNETT: The last thing we had,
the minimum was $5,000 early this month.
MEMBER OF THE PRESS:

When was it last $1,000?

12
UNDER SECRETARY BENNETT: We have a projection.
I am sorry. I don't know whether I should release
that number because Ash and Simon are testifying on this.
I don't want to steal the things they are putting on.
MEMBER OF THE PRESS: Is it possible to say
whether it will be less than the first half of last year?
If not, "Okay".
I am just wondering if this might ease a little of
the pressure.
UNDER SECRETARY BENNETT: Yes.
I don't have the detailed numbers and Mr. Snyder
tells me they are not good, anyhow. So I guess I better
not give them to you.
MEMBER OF THE PRESS: Why do you have the February 18
date for the new securities?
UNDER SECRETARY BENNETT: Well, they mature on the
15th, which is a Saturday. Monday the 17th is a holiday.
MEMBER OF THE PRESS: You don't need the money over
that 3-day period.
UNDER SECRETARY BENNETT: They don't get paid off
until the actual outflow.
It is a 3-day weekend.
I think I will see you more often this year!
(Whereupon, the Press Briefing was concluded at 4:45 pm).

News Conference
By
Under Secretary Jack F. Bennett
Treasury Financing Plans
February 24, 1975

2
UNDER SECRETARY BENNETT: Gentlemen and ladies, I am
grateful for your coming today because we have an awful lot
of financing to do and we figure that the more we can inform
our potential customers the better off we will be.
We have to give a lot of careful attention to this and
maybe do some innovative things. For that reason, we had
an unusual meeting today with our two advisory committees.
We have a Securities Industry Association Advisory Committee and an American Bankers Association Advisory Committee.
They usually come in once every three months before our
quarterly announcements. We had them in again today, not to
talk specific announcements but to have them view the total
problem for the whole year and give us their thinking.
That package I gave you there is a package they were
given and I thought you might find it useful to have. We
gave them a little bit of background, which I also would like
to give you to bring you up to date on the size of financing
needs.
We last met a month ago on the 22nd of January and the
financings which we announced then and had announced earlier
would raise $10.6 billion for this current half-year period.
At that time we said that we anticipated we would be
issuing no new coupon issues, before mid-March, that is issues
over one year, beyond those then being announced. And that
is still our anticipation.
But, we do anticipate the need to borrow in the coupon
area, about $7 billion worth between the middle of March and
the middle of April. Now, that would be in addition to what
we raise in the bill area.
So far this year we have used our flexibility to vary
the weekly and monthly bill announcements always in the upward direction and we have raised this year$3.1 billion in
increases on the bills as they mature. We will probably continue to raise money but I don't want to specify the exact
amount because we need some flexibility in the bill area. I
hope we don't need much flexibility with respect to that
announcement of $7 billion. There is some uncertainty about
that, particularly in the estimates of tax receipts.
There is a lot of uncertainty, of course, about the
impact of congressional action, but that primarily comes after
the middle of April.

•

The House Ways and Means Committee tax bill, H.R. 2166,
would leave us with an estimated$4.4 billion additional borrowing requirement this half year above the President's Program. If the President's Energy Program were blocked, that
would add another $1.1 billion.
Congress has already taken some action with respect to
food stamps which would add $200 million in this half year.
Now, there have been some actions, of course, other
than Congressional actions. The President announced the
release of the Highway Trust Fund, but that has only $100
million effect during this half year period. There have been
a lot of other things. We took in less from an off shore lease
and there have been variations in taxes.
The President's Program as proposed would have left us
with a borrowing need in this half year of about $28 billion?
a little over $28 billion, of which, we have done $10.6 billion
and I am announcing today that we will be doing $7 billion.
That will leave another $11 billion to be done in the bill
area or in later coupon issues.
Measures that Congress could take could take easily that
$11 billion to $21 billion if I add all these different things
together.
The second half of the year, of course, is even more
uncertain. You recall the President's Program called for borrowing net new money in the second half of the year of $37 billion. That number would be obviously bigger %o the extent
that Congress does not agree with his rescission proposals.
But the main reason I wanted to talk to you today, was
about the specifics of the financing that we're thinking of
for the period mid-March to mid-April, I'd like to not make
any formal announcement of those in the sense that we're
putting out the formal announcement today. I'd like to pass
around a piece of paper that tells you what we're now thinking
of. This is not a commitment to do exactly these things.
We will make the formal announcements and commitments
as we get closer to the dates, but this is our present thinking
and I think it might be helpful if the market knew it so they
can be prepared. We could change the amounts or the dates or
the times but this is definitely our current thinking.
Pass that around, Jack, will you.

4
These announcements that you are about to see are for
five different coupon issues. Two of them are further filling
in the two-year note cycle on the end of a month that we began in recent weeks.
One of them is the regular quarter end two-year refunding. The other two are longer coupons. One for almost seven
years and one for over 15 years.
Now, please bear in mind that whij.e these are going on
we will probably also be raising additional funds in the bill
area.
Now, the first one shown there, for payment on March 19
would be a reopening of a note that is now outstanding and
matures in 1981. The others are new securities.
The third one, which is the regular quarter end is a
Treasury refinancing of a Federal Financing Bank piece of
paper that is maturing. When that piece of paper matures the
Federal Financing Bank will not have any securities held by
the public. They will all be held by Treasury.
QUESTION: Why is there net--you have a net cash to be
raised on that third item of a billion?
UNDER SECRETARY BENNETT: Well, there is $1.2 billion
publicly held of the FFB bill that is maturing on the 31st
of March, We are issuing it to the public for $2.2 billion
so we are only raising $1 billion of net new money from the
public.
Now, on that particular security since it is existing,
the Fed and other holders have some in addition to the public
holdings.
QUESTION: So you are actually raising $8.2 in that period,
you will be auctioning $8.2?
UNDER SECRETARY BENNETT: Yes.
Now, during this period ahead, in additon to the bills
we will actually be auctioning, we will be auctioning $12
billion. We have the regular refunding on the 15th of May,
We have these two quarter end refundings and we have tax
anticipation bills and cash management bills maturing in April
and June, so that adds up to $12 billion in addition to the
$7 billion here, all in addition to what we do in bills,
QUESTION: Rut those are just roll-overs.

UNDER SECRETARY BENNETT: The $12 billion that is coming
up is just a roll-over. So, between now and the end of this
half year, we have $12 billion of ordinary roll-overs, $7 billion of coupons I am announcing today, plus $11 to $21 billion
some portion of which will be coupons. The coupons presumably
will be after the middle of April but the bills will start
before then.
QUESTION: Is it $7 today or is it $8 today?
UNDER SECRETARY BENNETT: I think the left-hand columns
add up to $8 billion--try it and see.
QUESTION: The items you listed that Congress is in the
process of doing or in the case of food stamps has done, add
up to only just under $6 billion and yet you said there could
easily be an additional $11 billion for this past half year,
UNDER SECRETARY BENNETT: I said from $11 billion to $21
billion.
QUESTION: An additional $10, right?
UNDER SECRETARY BENNETT: Well, I mentioned also the
Highway Trust Fund as one.
QUESTION: Yes.
UNDER SECRETARY BENNETT: And, in addition to that we
lost some money on the off-shore lease sales. We may lose
some more.
QUESTION: You are also talking about revenue shortfalls?
UNDER SECRETARY BENNETT: Well, wait a minute. There is
an addition to the rest of the program. There is the President's $17 billion for the fiscal 1976. There is another $27
billion for the remainder of this half-year that is still up
for consideration in addition to the tax bill.
QUESTION: The rescissions.
UNDER SECRETARY BENNETT: The rescissions.
QUESTION: How about the revenue in-flow, is that falling short of the rescissions?
UNDER SECRETARY BENNETT: At the moment we don't have
any particular revenue additions.

6
QUESTION: Is the reason that the House Tax Bill would
impose upon you an estimated $4.4 billion more than the President's Program, the fact that the rebate comes all in one go.
UNDER SECRETARY BENNETT: Well, both larger and sooner,
the total tax.
QUESTION: If that is approved, would the $28 billion
figure you have been using for the first half of the year be
revised to what, $32.4?
UNDER SECRETARY BENNETT: Well, the tax bill alone would
take this figure of $28 billion up $4.4 billion. It depends
on how many things you added on top. If you added on the
rescission or energy, I am not predicting, I am just trying t
say what some of these effects would be on the total need,
QUESTION: I don't see where you get another $4,4 billion from the Ways and Means tax bill. How do you break
that down?
UNDER SECRETARY BENNETT: Well, the $4.4 billion is in
this half year. It would not be as large an effect in the
second half.
QUESTION: Except for bills, are you giving the market
assurance that you won't raise any more than $7 billion in
this time period?
UNDER SECRETARY BENNETT: I am giving them a strong
expectation. I don't want to give a full assurance. Just
as last time we thought it was useful to say to the market
we did not anticipate it would be necessary to come back for
coupon issues before mid-March and as it turned out we
didn't. We want the market to have this because this is a
lot of notes and bonds to absorb but it is not a guarantee,
QUESTION: How much of these additions that you have
outlined here will be carried over into subsequent 6-month
periods as well? You orginally estimated, I think it was $90
billion over the next 18 months.
UNDER SECRETARY BENNETT: Well, the tax bill, for
example, would also have a small additional impact in terms
of our borrowing in the second half. This is not just a
transfer from the second half to the first half,
QUESTION: Is it possible to estimate what the total
impact is over this 18-month period?

UNDER SECRETARY BENNETT: I can give you an estimate on
the second half. It is a couple of hundred million, but I
don't have an estimate for the first half of 19 76.
QUESTION: Did you have a breakdown on the $4.4 billion?
UNDER SECRETARY BENNETT: How much of it is the withholding and how much is the rebate you mean?
QUESTION: Why it should be $4,4 billion more than the
present rebate in the last half-year?
UNDER SECRETARY BENNETT: Well, let's say in the two
halves of the year it is $4.6 billion. Is Fitzpatrick back
there somewhere? Do you have a breakdown of the $4,4 billion?
(Off-the-record discussion)
Well, here is a little bit of the answer, The individual rebate in the President's Program was $4,9 billion and
in the tax bill is $8.1 billion.
QUESTION: It is because it all comes in one payment?
UNDER SECRETARY BENNETT: This is the amount in this
half-year. Ours was in one payment. A little bit has
slopped over.
QUESTION: Your half of yourswould have been in the second half-year.
UNDER SECRETARY BENNETT: No. There was a slop-over
effect. We had individual rebates altogether of $4.9 billion
in the first part and $7.3 billion in the second half because
of the slop-over. It was nominally split but some of it
would not get cashed until the second half.
Now, where is the tax withholding effect on there?
(Off-the-record discussion)
I don't know the details.
QUESTION: I am not clear which one of these five is
what you'd call a regular quarterly.
UNDER SECRETARY BENNETT: March 31. You see we have established in the last couple of years a regular quarterly cycle.
At the end of every calendar quarter we had a two-year note,
generally in the $2 billion range. This one, which happened to
be the only Federal Financing Bank issue on the Treasury

8
date was smaller. It was $1.5 billion, but the Fed owns
$300 million of it, so it is $1.2 billion publicly held.
QUESTION: And it was a Federal Financing Bank issue
instead of a regular quarterly?
UNDER SECRETARY BENNETT: As we announced last time we
began to fill in the space between the quarters. Two of
these issues that I announced today are the same type of a
animal, filling in quarters. Now, there are still some holes
left in a 2-year monthly cycle but four will be filled in,
in addition to the regular quarter end issues that were
already there.
QUESTION: You talked about innovation earlier. Can
you give us any ideas what sort of ideas you are considering
at this stage?
UNDER SECRETARY BENNETT: Well, one is this monthly twoyear cycle.
To some extent it is an innovation to be doing this
much longer term coupon in between the regular refundings,
We had lots of other ideas given to us today to think about
in terms of cycles further out. People have raised the idea
of going back to perpetuals and they have generally canvassed
the whole framework of Treasury financings,
QUESTION: Did the advisory committees that you talked
to today, did members of them express any preference for a
longer issue.
UNDER SECRETARY BENNETT: Let me say that this piece of
paper I have given you is not something I gave them. They
were not aware. We developed this since we met them,
QUESTION: What I mean is did they suggest that the
market might -UNDER SECRETARY BENNETT; There is a basic refrain in
both committees and a lot of other advice we are getting that
at the moment we have an opportunity to issue some longer term
securities. They can't be sure that later this year when the
economy starts picking up that we will be able to and should nc
ignore this opportunity.
They also feel that we have to try to preserve a yield
curve if we are going to provide an adequate incentive for
the investors to lengthen their debt and the intermediaries
to lengthen theirs.

9
QUESTION: Did your advisory committees express any
fears or qualms about money raising operations of Treasury,
particularly the $10 billion?
UNDER SECRETARY BENNETT: We did not ask them whether
this was too much money or too little.
QUESTION: And they did not volunteer anything either.
UNDER SECRETARY BENNETT: We did not ask them. They
are technical.
QUESTION: Do you have any estimates about private
financing?
UNDER SECRETARY BENNETT; Well, that package we gave
you has a recent estimate of the Treasury projected flow of
funds for the year.
QUESTION: What do you anticipate market reaction to be?
UNDER SECRETARY BENNETT: Well, I hope that it will be
favorable in the sense that we are coming clean with the
needs. I don't think tha amount that we are announcing today
should be a surprise to anyone because we indicated last time
what the amounts would be. So what we are trying to do
today is give plenty of notice so that the investors can
get ready and find a place for it.
Okay. Thank you very much.
(Whereupon, at 5:05 p.m. the press conference was
concluded.)

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L/6
UNDER SECRETARY BENNETT: Good afternoon. I appreciate
your coming around.
We think it is helpful to discuss the Treasury Financing
Plan in advance to help investors prepare for the market. I
would like to discuss our short-term financial outlook.
At the time of the President's Message early this year,
we had a conference, you may recall, and projected $28 billion
of net new money borrowing by the Treasury in this current half
year.
Our best guess -- the one on which we are working at the
moment -- is that that number will be about $41 billion in this
half year, including the effects of the new Tax Legislation and
assuming that the one-time payments to Social Security recipients
are appropriated in time to be paid in this half year.
MEMBER OF THE PRESS: How much are they?
UNDER SECRETARY BENNETT: $1.7 billion.
Now, of that $41 billion, we have now accomplished -- or
at least announced -- $23.3 billion so far this year.
Now, that, of course, is in addition to roll-overs of
maturing securities. So far this year, we have already had
the $4.8 billion of maturing, privately held, securities other
than bills.
Normally, these days, we talk about the "new money."
We, also, have maturing regular securities in the remainder
of this half year as well. We have $10.7 billion maturing between now and the end of this fiscal year.
But the main thing is that we now must project about $17-1/2
billion of net new money borrowing between now and mid-year.
Out of that $17-1/2 billion, I would like to give today a projection of our financing from now up until our mid-May regular
refunding. That is a projection apart from the regular weekly
bills. This projection is not a firm promise, but it is our
best information.
You will recall that in the last press conference of this
type, -- that was on February 24 -- we announced projected
borrowing through April 15 of five coupon securities and, in
fact, since then, we have announced exactly those five securities.
We did move earlier, the date of payment of the last one by six
days. We did come through with the exact same securities and,
of course, over that period, as we expected, we have made some
variations in the weekly bills.

- 2Now, the projection for this period from now until mid-May
contains just two issues, other than the weekly bills. Each
of these issues will be for $1.5 billion.
The first one is the one announced today, for which you
have the handout there. That is a bill to be issued on April 14
for 9-1/2 months to mature at the end of next January.
I would like to make clear that, with this bill, we are
not attempting to re-establish a 9-month bill cycle; rather,
we are moving further in the direction of establishing a regular
month-end two-year note cycle by filling in some of the blanks.
I would expect that this 9-1/2 month bill will be rolledover, when it matures, into a regular two-year month-end note.
Moreover, the second issue -- which we are projecting today,
is a note to be issued on April 30, for exactly two years, to
mature on April 30, 1977. You can see that, with that, we are
filling in some of the holes in this two-year cycle.
Chuck, will you pass around that table, the spacing chart.
We have the short end of the spacing chart that you might
look at. You can see that, beginning the first of next year,
we have already filled in about eleven of the available monthend slots. There are still five to go.
MEMBER OF THE PRESS: What was that?
UNDER SECRETARY BENNETT: On this chart which Chuck is
passing out, we see that starting the first of next year up until
two years from now there are about 16 month ends. We will have,
with this announcement, filled in eleven of the available monthend slots with these two-year type securities. There are still
about five open.
MEMBER OF THE PRESS: Why not 24?
UNDER SECRETARY BENNETT: Financing is so great this year,
we have not bothered to fill in any of the rest of the '75's.
We would just have to finance it all over again.
I am really starting my thinking with the first of next
year; but there are 24 if you add in the rest of this year.
I hope, as I started to say at the beginning, that this
type of projection six weeks in advance will help the investors
prepare. As you know, we have an auction tomorrow of a 19-month
security that also fits into this two-year cycle, but, then,
our next big announcement will be at the end of April, when we
announce the scheduled refunding on May 15. I would not be

1)
surprised if, on that occasion, in addition to the refunding,
we raise some cash as well.
That announcement of the refunding will be made on May first.
I think that is all I have in mind.
Do you have any questions?
MEMBER OF THE PRESS: Mr. Bennett, between now and mid-May,
with the two $1.5 billion issues, how much extra in new cash
would you expect to raise with the weekly bill offer?
UNDER SECRETARY BENNETT: I don't propose to announce that.
In recent weeks, we have been raising $700 to $800 million per
week, but we have to keep some flexibility here.
MEMBER OF THE PRESS: And you said at the outset that you
had accomplished -UNDER SECRETARY BENNETT: (Interposing) We raised $600 million
in our most recent announcement of a one-year bill.
I am sorry:
MEMBER OF THE PRESS: You said at the outset that you had
accomplished, or announced, $23.3 billion so far this fiscal
year. You thought about $41 billion.
That equals about $17.7 billion left. You used a $17.2
billion figure.
UNDER SECRETARY BENNETT: $17-1/2!
MEMBER OF THE PRESS: Of which only "three" are being disclosed today.
UNDER SECRETARY BENNETT: Right!
MEMBER OF THE PRESS: Plus some bills -- to an amount we
don't know.
UNDER SECRETARY BENNETT: I am not announcing any bills.
MEMBER OF THE PRESS: No.
UNDER SECRETARY BENNETT: There will be bills during that
period. We will be raising some money between now and the refunding with bills.

- 4 MEMBER OF THE PRESS:
billion.

But not enough to make up the $17

UNDER SECRETARY BENNETT: Oh, no! There is plenty to do
in the refunding and thereafter.
MEMBER OF THE PRESS: Does the grand total and, therefore,
the $17-1/2 billion still to go assume that the Treasury will
borrow to cover the tax -- the entire amount of the tax rebate
in this six-month period?
UNDER SECRETARY BENNETT: This projection that I am working
off of and planning financing assumes that the entire tax rebate
will be cash before the end of June.
MEMBER OF THE PRESS: Right!
Secondly, you mentioned an appropriation for the special
$50 Social Security -UNDER SECRETARY BENNETT: I think the bill that the President
just signed is a bill authorizing payments for the Social Security
There still has to be an appropriation of that money.
MEMBER OF THE PRESS: You previously had estimated, I think,
$37 billion for the following half year.
Do you have a revision on that as well?
UNDER SECRETARY BENNETT: I don't have a really decent one.
I would think it would be in the order of $40 billion or somewhat more, but I don't have a really detailed one. It was $37
billion when I was projecting $28 billion for the first half.
I don't have a really reliable forecast for the second half.
MEMBER OF THE PRESS: Mr. Bennett, the difference between
your estimate for this half last time and this time is about
$13 billion.
I think the Tax Bill would be about $6 or $7 billion,
wouldn't it?
What would be the rest?
UNDER SECRETARY BENNETT: Well, actually, it is the differenc
between this time and the time before last. Last time, I was
using numbers closer to $38 billion. They had gone up toward
$38 billion.

- 5To go back to the time before, I was using $28 billion:
$6 billion plus is the effect during this half year of the tax
bill.
MEMBER OF THE PRESS: Let's put it this way: Does the figure
that you are citing here include any Bills currently under consideration which you expect to be passed, or is this all legislation which is already on the books?
UNDER SECRETARY BENNETT: No. This does not include any
new Bills.
Of this $13 billion difference from $28 billion to $41 billion,
the biggest piece is the Tax Bill, $6 billion plus.
There were a number of other things that effected the difference
The lease receipts on some gas and oil lease sales were less than
expected, in the order of $2-1/2 billion. Failure to act on some
of the rescissions requested by the President, $2-1/2 billion, and
a number of other things, Food Stamps, $100 million or less on
the Highway Trust Fund, a lot of little things.
The biggest chunk of the $13 billion would be the $6 billion
plus on the Tax Bill.
MEMBER OF THE PRESS: How much did you say for the gas and
oil?
UNDER SECRETARY BENNETT: On the order of $2-1/2 billion.
That is just a forecast. Only part of it has passed.
MEMBER OF THE PRESS: Has any of the change resulted from
less-than-expected receipts?
UNDER SECRETARY BENNETT: I don't think there is any major
receipt change here.
MEMBER OF THE PRESS: Is this possible to be done in a $60
billion deficit?
UNDER SECRETARY BENNETT: That rough number I was throwing
out for the second half of the year was, but the $60 billion
deficit is for the next fiscal year.
MEMBER OF THE PRESS: What is the approximate outlook then,
for the fiscal year that is now ending?

- 6UNDER SECRETARY BENNETT:

Sorry?

MEMBER OF THE PRESS: What is the approximate outlook
if you can give us one -- for the fiscal year now ending
the deficit. The budget deficit.
UNDER SECRETARY BENNETT: I don't like to forecast budget
deficits. It is not my business.
MEMBER OF THE PRESS: Well, but maybe you can do something
besides forecast. How about estimated?
UNDER SECRETARY BENNETT: Well, I can estimate the cash -MEMBER OF THE PRESS: Ten years -- I mean ten months of
the year are passed aren't they?
UNDER SECRETARY BENNETT: There is another part of Washington
that is responsible for announcing budget deficits. I am responsible for announcing monetary, "real money." They keep the
books over there.
MEMBER OF THE PRESS: Mr. Bennett, most of the five issues,
or the five issues that you sold in that last series are all
seling at a discount now, and yet, Treasury bills seem to be
holding up in price, and the yields are down.
How many more bills can be absorbed before that market
starts to sell at a discount?
UNDER SECRETARY BENNETT: Our need for financing is so great
that we can't afford to neglect any part of the market.
MEMBER OF THE PRESS: How much aid are you getting -- how
much in foreign purchases do you see in what has taken place
from January first to now, in Treasuries and, particularly, bills?
UNDER SECRETARY BENNETT: We have been announcing -- each
week -- the amount of the purchases for the Fed and foreign
monetary accounts. Let's see if I have a number, here, on the
total foreign purchases. It is complicated.
We have, of course, three types of foreign purchases. We
still have some of the non-marketables that we used to deal with
in the "Germanys" and the "Japanese", and the traditional Central
Banks. There are still some changes there. We have not issued
any of that type to any of the OPEC investors. We did, but they
have matured.

E3
There are a lot of purchases that they make directly in
the market. Then, there are those which are made through the
Fed on behalf of the foreign monetary institutions, and I would
guess that the acquisitions of the various foreign monetary
institutions over this period are in the order of $2 billion -a little bit less than $2 billion.
I guess if you add up all of these weekly announcements,
it would do, I would say, $1-1/4 billion.
MEMBER OF THE PRESS: Since when?
UNDER SECRETARY BENNETT: The first of the year.
MEMBER OF THE PRESS: Foreign purchases?
UNDER SECRETARY BENNETT: Foreign purchases in the weekly
auctions.
MEMBER OF THE PRESS: Plus, possibly, some additional in the
market?
UNDER SECRETARY BENNETT: Plus a lot more in the market!
MEMBER OF THE PRESS: How much will the Treasury be raising
in all, then, in this fiscal half, including roll-overs?
Is it fifty-six?
UNDER SECRETARY BENNETT: Well, strictly speaking, when we
are talking about roll-over statistics, it includes the fact that
we roll-over every week, and every month, three month, and sixmonth, and one-year maturity bills. But if you leave these regular
bills aside and you add up the $41 billion which we have to do,
the $4.8 billion other than regular bills that we have already
done, and the $10.7 billion that we have coming -MEMBER OF THE PRESS: Does that include some "Tabs"?
UNDER SECRETARY BENNETT: $56-1/2 billion is the total, in
this half year, of that type of borrowing.
MEMBER OF THE PRESS: The 10.7 is coupon issues?
UNDER SECRETARY BENNETT: The $10.7 billion is coupons, plus
Tabs and cash management bills, everything except the regular
weekly and annual bills. It includes Tabs and cash management
bills maturing in April and June.

- 8MEMBER OF THE PRESS: The $23.3 billion new money that you
mentioned in the beginning carries through tomorrow's auction,
and is cut off at that point, on anything else beyond that.
UNDER SECRETARY BENNETT: Yes!
MEMBER OF THE PRESS: Also, I don't think you suggested
when the auction of the $1-1/2 billion of two-year notes would be.
UNDER SECRETARY BENNETT: I have not announced it. We will
announce, formally, the auction date later.
MEMBER OF THE PRESS: The payment would be April 30?
UNDER SECRETARY BENNETT: Yes.
MEMBER OF THE PRESS: Mr. Bennett, earlier, at the February
24th briefing, you expressed some concern about the ability of
capital markets to absorb this.
Just what would you say about the ability now, with this
extra burden?
UNDER SECRETARY BENNETT: Well, of course, at that time,
rates were going down. That stopped, and our main concern continues to be, not the immediate future, but the situation after
the recovery becomes more pronounced.
MEMBER OF THE PRESS: Could you be a little more explicit?
Do you feel that Calendar '75 is not a problem now, because
there is no pronounced recovery of any kind occurring now.
UNDER SECRETARY BENNETT: No. But I say, you know, there are
some signs that maybe it is on the verge of starting. But I am
not expressing any concern about this period that we are talking
about here. We have considerable concern about it thereafter.
MEMBER OF THE PRESS: Do you mean that the $40 billion in the
second half -- or approximately $40 billion?
UNDER SECRETARY BENNETT: Yes!
MEMBER OF THE PRESS: Will this cause any problem -- increased
competition -- to the New York City issues that are going to be
coming up?

- 9/

UNDER SECRETARY BENNETT: Well, let's see.
would be for payment, by coincidence, April 14.

Their next issue

MEMBER OF THE PRESS: And then I think they have some that
they will be having come due, too.
UNDER SECRETARY BENNETT: There will be some, thereafter,
but they were thinking of a short issue on April 14 , I think,
and this one that we are talking about here is 9-1/2 months.
So it is in the same order. It will be auctioned at different
times.
MEMBER OF THE PRESS: Do you see this as causing much of
a problem for them?
UNDER SECRETARY BENNETT: Sorry?
MEMBER OF THE PRESS: Will this cause much of a problem for
them?
UNDER SECRETARY BENNETT: No! The amount of money that they
are talking about, in terms of what we are talking about, is just
peanuts!
MEMBER OF THE PRESS: You say that refinancing might be
announced on May 1, and, if my recollection is right, that is
a Thursday.
UNDER SECRETARY BENNETT: We are changing the day, this time,
because the Secretary and I are scheduled to get back on Monday
night from the Asian Development Bank. We want Tuesday and
Wednesday to get ready.
MEMBER OF THE PRESS: How big is the mid-May refunding?
UNDER SECRETARY BENNETT: It is maturing, at the moment at
$3.8 or $3.9 billion which is it? $3.8 billion?
That could change between now and then.
MEMBER OF THE PRESS: Thank you.
UNDER SECRETARY BENNETT: Thank you.
(Whereupon, the Press Briefing was concluded at 4:30 o'clock,
p.m.)
oOo

News Conference
By
Under Secretary Jack F. Bennett
Treasury Financing Plans
May 1, 1975

2
UNDER SECRETARY BENNETT: Some of you may not have
met Ralph Forbes, the new Special Assistant to the Secretary,
Debt Management. We are fortunate to have him come to us
after eleven years with the National Bank of Boston.
What I am going to say at the beginning of this conference I have written down, so you don't have to take extreme
notes. The copies will be handed to you in a few minutes, as
soon as the Xerox machine spews them out; in addition to
the formal announcement that I have given you, and the background
material, which is the same material we gave to the two
Advisory Committees yesterday, as reported to us this morning.
Ladies and gentlemen: We appreciate your coming here
today, for we are grateful for your help in making the details
of our Treasury security offerings widely known. This is the
fourth such conference this year.
Over the course of these conferences, the estimates
of the Government's needs to borrow from the public over the
current half year period have varied. On January 22 the estimated
increase in indebtedness to the public from December 30, 1974
to June 30, 1975 was $28 billion. On February 24, the estimate
was up to $38 billion. A month ago, on March 31, the estimate
was $41 billion. Today, our best estimate is $36 billion.
Since the last conference tax payments have been coming in
larger than expected so that the estimate of total budget receipts
for the current fiscal year ending June 30 have been revised
upward from $275 billion to $282 billion, though of course,
considerable uncertainty remains even for this fiscal year's
receipts.
Of the total of $36 billion of expected increase in
debt outstanding in this half year, $28-1/2 billion has already
been accomplished or announced through the first four months,
that is, through yesterday, April 30, leaving $7-1/2 billion
still to be arranged. Of that amount, some portion is
expected to be arranged through the sale of Savings Bonds, leaving
$6-3/4 billion to be raised net through sales of marketable
securities to the public in issues not yet announced, that is,
in addition to the sales we have already announced through the
sale of 3 and 6 month bills to be paid for on Thursday of
next week.
That $6-3/4 billion net still to be raised in the
market is in addition to amounts to be raised to pay off securities
maturing during this period, that is the weekly maturities of
3 and 6 month bills; the one year bill maturing on June 3rd;
the copuon securities maturing on May 15, of which some are held
by the Federal Reserve Banks, which we assume will roll over

their investment, and of which $3.8 billion are held by the
public; the regular quarter-end security maturing on June 30
of $2 billion; and finally the cash management and tax
anticipation hills maturing in mid-June in the amount of
$2.75 billion.
Of these maturities the market would confidently
expect that we would roll over all the maturities except
that $2.75 billion of cash management and tax anticipation
bills, so that I tend to look at our market financing decision
to be how to raise in new borroing the $6-3/4 billion of net
increase in indebtedness plus the $2.75 billion, for a total
of $9-1/2 billion.
In raising that $9-1/2 billion we have to make
difficult decisions on which maturities to offer. One factor
we have to take into account is that we have been concerntratin
our borrowing very heavily in the short maturities with the
result that the average length of our marketable debt has been
declining, from 5 years, 9 months at the end of 1964 to
2 years, 9 months at the end of 1974, to 2 years, 8 months
yesterday, as indicated in one of the charts in the background
material we have distributed to you. As a net result of the
passage of time, the maturity of some securities, and new
issues by us, the Treasury now has outstanding $300 million
fewer securities maturing in over 7 years than it did at the
beginning of the year. As of yesterday, of the $205 billion
of marketable Treasury securities in the hands of the public,
691 matures in 2 years or less, 231 matures in 2 to 7 years,
and only 8% matures in more than 7 years.
The financing plan we have come up with does not,
however, make much change in the average length of the debt.
Under that plan the average length of the debt at the end of
June is expected to be 2 years and 9 months, and that average
length would be reduced further thereafter until our next
longer term issue.
Our financing plan consists of three parts; several
securities which we are formally announcing today for sale
next week in the separate announcement you have received;
three coupon issues which we are tentatively projecting
for sale late this month and next month but have not finally
decided upon though we are announcing our projections at this
time for the information of prospective purchasers, and thirdl)
some expected increases in our bill issues which will be decide
and announced later in the light of our actual cash position.

4
The securities being offered today are: $2.75 billion,
3-1/4 year notes maturing August 15, 1978; $1.5 billion,
7 year notes maturing May 15, 1982; and $.750 billion, 30 year
bonds maturing May 15, 2005.
These securities total $5 billion and will raise
$1.2 billion in cash. They will be auctioned in maturity
order next week on Tuesday, Wednesday, and Thursday by yield
auction. The minimum denomination will be $5,000 for the
3-1/4 year note and $1,000 for the longer term securities.
The payment for the new securities will be on May 15 except
that purchasers will have the option to pay for the 30 year
bond on June 2.
In addition to these securities we anticipate three
coupon issues to fit into our new 2-year note cycle. The
first will be for $2 billion maturing on May 31, 1977, auctioned
on May 14 for payment on May 27. I understand that the
Home Loan Bank system has announced today the paydown of
$1.3 billion of maturing securities on that date. The second
security will be a 16 month $1.5 billion note maturing October 31,
1976, to be auctioned on May 22nd, and paid for on June 6. The
third will be a roll over of the $2 billion maturity on June 30
to June 30, 1977, probably to be auctioned on June 17.
In addition to these securities sold to the public,
we would expect some purchases of the same marketable securities
will be made by foreign monetary authorities. For planning
purposes, we assume these purchases will total about $600 million.
To achieve our forecast total financing need of
$9-1/2 billion, we shall probably have in addition to raise
some amount, now forecast at $4.2 billion, through additions
to our bills outstanding. We have five weekly bill maturities
and one yearly bill maturity prior to mid-June, our traditional
cash low point, I intend to maintain flexibility by not
announcing individual amounts for the prospective bill sales.
Finally, I would like to mention that our current
estimate of the required net increase in our indebtedness
in the second half of the year is now about $40 billion if the
Congress accepts the President's recommendation of a $60 billion
budget deficit for the fiscal year 1976. Of course, our
borrowing requirement will be higher if the budget deficit
is increased.
Now, I'd be happy to attempt to answer any questions.

9,
MEMBER OF THE PRESS: Secretary Bennett, do your
upward revisions of revenue for this fiscal year have any
• likelihood of high revenues for next year, also?
UNDER SECRETARY BENNETT: We asked that questions
today, and the answer was, "No".
MEMBER OF THE PRESS: Do you have any explanation
why revenues are better than you expected?
UNDER SECRETARY BENNETT: It has not been "withholdi]
It has been tax returns, final tax returns.
MEMBER OF THE PRESS: Individuals?
UNDER SECRETARY BENNETT:
MEMBER OF THE PRESS:

Both.

Corporate, too?

UNDER SECRETARY BENNETT:

Individual and Corporate.

A lot of it has happened in recent days.
MEMBER OF THE PRESS: Do you have any information
about why those liabilities are higher than you had anticipate*
UNDER SECRETARY BENNETT:

Why the tax liabilities an

higher?
All I know at the moment is that it has come in fast*
and they've revised the estimates.
MEMBER OF THE PRESS: The latest official estimate
for the budget deficit for fiscal 1975 is $46 billion.
UNDER SECRETARY BENNETT: Wait a minute. I will
check. The latest number published in the Economic Indicator
is $49.7 billion, I believe.
What number did you say?
MEMBER OF THE PRESS: That is probably in N.I.A.
The number I get from O.M.B. has been 46.
UNDER SECRETARY BENNETT:

That is not N.I.A., is it?

6
MEMBER OF THE PRESS:

No, sir.

UNDER SECRETARY BENNETT: This is not N.I.A. This
is the April Economic Indicator. It is $49.7 billion.
MEMBER OF THE PRESS: Is that figure an estimate for
the deficit for the fiscal year?
UNDER SECRETARY BENNETT: This is the estimate
for the deficit for the fiscal year 1975; $49.7 billion.
Now, that had in it the receipt estimate of $274.5 billion.
MEMBER OF THE PRESS: So the deficit could be closer
to $42 billion, rather than $50 billion?
UNDER SECRETARY BENNETT: I don't know and if I knew,
I couldn't say what variations there may be in the outlay
estimates. Jim Lynn has to announce that. The latest official
deficit is $49.7 billion based on $274.5 billion. Now, we
have guessed the receipts would be $282 billion.
MEMBER OF THE PRESS: Congress seems close to
recommending a deficit figure of about $10 billion higher for
fiscal 1976 than the President suggested.
Do you think the market could handle a deficit in
the range of $70 billion?
UNDER SECRETARY BENNETT: The experience I have had
here is that Treasury is always able to borrow. The question
is not whether the Treasury can borrow, but whether there is a
damage from the amount we borrow.
At the moment, the market is in good shape. When the
recovery gets more under way, as I said many times, that is
the worry.
MEMBER OF THE PRESS: What is the limit on your long
term borrowing?
UNDER SECRETARY BENNETT: We now have authority
to issue, in addition to what we have already issued, $2.1
billion. We are only proposing to issue, here, $750 million.
However, we will be going forward, in a matter of days, to
ask the Congress to increase our debt ceiling. You recall debt
ceiling expires end of June.
At the same time, we will ask the Congress to increase
our long term borrowing.

7
MEMBER OF THE PRESS: Is that seven years or more?
UNDER SECRETARY BENNETT: Sorry?
MEMBER OF THE PRESS: Seven years or more -- is
that the term?
UNDER SECRETARY BENNETT: Seven years or more, at
rates above 4-1/41.
MEMBER OF THE PRESS: What was the ceiling? What
was the amount? Did you say 2.1? Is that what remains?
UNDER SECRETARY BENNETT: $2.1 billion is what is le
Originally, it was $10 billion, all long term. Then it was
$10 billion for those in the market, not counting those held
by the Fed and the Government accounts.
MEMBER OF THE PRESS: 2.1 is due and remaining?
UNDER SECRETARY BENNETT: Out of the two different
definitions of $10 billion.
MEMBER OF THE PRESS: Is the $28-1/2 billion figure
that you already raised the same as the figure in Secretary
Gardner's letter to Senator Humphrey that was published.
Somebody has suggested there was an error in that.
UNDER SECRETARY BENNETT: As I recall, he showed
in his figures a borrowing in this half year of $41 billion.
MEMBER OF THE PRESS: Yes, but the amount already
raised, to April 30,came out at 28.3. Somebody suggested that
that figure should have been about $24 billion. But, if I am
talking about something you have never heard of, just forget i
UNDER SECRETARY BENNETT: Our number includes the bi
through next Thursday. Our number, at the moment, is
$28-1/2 billion.
MEMBER OF THE PRESS: The bills through Thursday?
UNDER SECRETARY BENNETT: Yes! That, of course,
includes savings bonds, and a few odds and ends.
MEMBER OF THE PRESS: By reducing your borrowing
by only $5 billion -- your estimate for the full half year
by only $5 billion -- with your receipts going up to
seven, you are going to be better off in terms of cash by
$2 billion at the beginning of the next fiscal year.

8
UNDER SECRETARY BENNETT: No! Our forecast, here,
is based on fiscal year end cash of $6-1/2 billion, $6-1/2 billion.
MEMBER OF THE PRESS: What was your previous
reporting?
UNDER SECRETARY BENNETT: In the same order. You
won't be able to make any deductions from what I am telling
you, as to what happens, because, when I was talking to
you a month ago about our borrowing plans, I was not using
the last public budget figures. I was using our internal
estimates. Unfortunately, that arithmetic won't work.
MEMBER OF THE PRESS: I am not sure why not.
UNDER SECRETARY BENNETT: Because I was not using
the latest public budget figures when I was talking to you,
I was using our operating figures.
MEMBER OF THE PRESS: Could we say, then, that you
were assuming outlays -- then, you were assuming outlays
were going to be $2 billion higher than the latest official
estimate?
UNDER SECRETARY BENNETT: We still have the question
of the slippage, because there are a lot of non-budget things.
All I can say at the moment, is that we have reduced our
borrowing estimate from $41 to $36 billion.
We can also tell you from the last public receipt
estimate, we have gone from $274.5 to $282 billion. The
derivation from that on the outlay side will be difficult, but
if you call Jim Lynn, he may be ready to tell you. I tried
to reach him this afternoon to ask him whether he would like
for me to tell you, but I couldn't reach him. If you call
him, he may tell you.
MEMBER OF THE PRESS: Would you please go over, then,
how you reached the $9.5 billion in new cash.
UNDER SECRETARY BENNETT: We are raising $1.2 billion
in the May 15 refunding. We are raising $2 billion by the
end-of-May note.
We are raising $1-1/2 billion on the June 6 note.
We are assuming $600 million from the Foreign
Monetary Authorities. And then, I assume, $4.2 billion in bill
additions. I hope that adds up.

9
\

MEMBER OF THE PRESS: That $600 million figure from
foreign buying -- how much foreign buying has there been?
UNDER SECRETARY BENNETT: About $1-1/4 billion so
far this year. That is, foreign buying under this procedure.
There has been additional foreign buying in the market,
but not through this special procedure. This special
procedure, we started the first of the year.
That estimate you have in this text has been published,
I guess. The $6 billion total foreign increase and holding of
Treasury securities in the first three months, but don't
read that as OPEC!
You will recall that our numbers for the last year
of OPEC investments here were $11 billion, of which between
$6 and $7 billion were in Treasury securities. They have
continued to invest this year, but OPEC investments here, this
year, are running at a lower rate than last year. It is hard
to make much out of the numbers we have, but they are coming
in at a somewhat lower rate.
While I have you, I might point out another thing
that worried me. I was reading in one of your newspapers this
morning, "Dollar hits a new low in Paris".
I have a feeling that this headline is a little
misleading. It is true that the French franc has been going
up relative to all currency but, in fact, the dollar now
is where it was about the beginning of the year, the beginning
of January, and it's strengthened considerably.
We had an average devaluation, let us say, on
February 28, of 18.81. Now it is 16.31. So that is a
substantial strengthening of the dollar over the last
2-1/2 months.
The Swiss franc, for example, is now weaker relative
to the dollar than it was at the end of last year, a couple of
percentage points weaker.
I think that is a story that some of you have not
noticed, but the dollar has been strengthening.
I used to point out that the dollar strengthened
more from May of last year to its high point at the end of
August, then it weakened from then to February; this is still
true.

10
The fact is that the dollar has also strengthened
considerably, since its fall, from February.
The headline that says the dollar is at an alltime low in Paris,
somehow gives the flavor that the weakening
of the dollar continues. It is that the French have been going
up relatively below the European currencies and the dollar.
On the average, we have done pretty well.
MEMBER OF THE PRESS: Do you have any comment on
the criticism of Senator Humphrey and others about issuing
any long bonds at all, and what you expect the inclusion
of the long bond in this package will have on the bond market?
UNDER SECRETARY BENNETT: Well, what we have included
here, $.75 billion, of course, is less than the last one we
issued. The last one was $1.25 billion.
Also, since he made those statements, we have had
a chance to talk to him and, of course, stress how the average
length of our debt had been going down and a large proportion
of the debt is short term, and all of the traditional reasons
why it is important that we not be overly dependent on short
term, including the fact that short term rates are relevant to
business activity, particular,y to inventories, just as long
term rates are relevant to other parts.
MEMBER OF THE PRESS: Mr. Bennett, would the increase
in outlays suggest that our economy may be a little stronger
than the economic statistics would indicate?
UNDER SECRETARY BENNETT: Increase in taxes?
MEMBER OF THE PRESS: The receipts, yes. All right.
UNDER SECRETARY BENNETT: I would rather not jump
to conclusions.
MEMBER OF THE PRESS: How much of the "7" merely
reflects inflation -- where you are getting bigger taxes?
UNDER SECRETARY BENNETT: Of course, when they
originally made the estimates, they were trying to take
inflation into account.
That is all rather new and not fully analyzed.

11
MEMBER OF THE PRESS: When you said "individual and
corporate returns", do these returns indicate higher
liabilities for Calendar '74, for the most part; or are
we talking about some corporate liabilities for later periods?
UNDER SECRETARY BENNETT: For the individual, it
would be Calendar 1974.
For the corporations, I don't know whether the
payments reflect the 1974 or 1975 base for the payment of
estimated taxes.
MEMBER OF THE PRESS: How much effect has the
change in the shift to inventories had on corporate tax
receipts?
UNDER SECRETARY BENNETT: Do you have an estimate?
MY SNYDER: Initially, it was estimated that the
shift in treatment would amount to about $3 and $4 billion.
That has been in the estimates ever since Hector was a pup!
So there has not been any indication of any more than that.
MEMBER OF THE PRESS: Mr. Bennett, on the $6 billion
for the first half of this year, what was the non-O'PEC part?
UNDER SECRETARY BENNETT: What is the non-OPEC part?
MEMBER OF THE PRESS: Yes!
UNDER SECRETARY BENNETT: I don't want to give a
specific number, but I would say the bulk of it.
Are the Wire Service people ready to go? Can we
hold it? Will five minutes be all right? Twenty minutes
to 5:00 -- embargo.
MEMBER OF THE PRESS: This afternoon, the House-in
dealing with its current resolution on the budget -- adopted
an amendment by Congressman Reuss which more or less suggests
to the Ways and Means Committee that they find ways of raising
$3 billion by closing a variety of loopholes in the tax law
fiscal '76.
At the head of the list was the Domestic International
Sales Corporation, which he said represented a tax expenditure
of $1.3 billion during fiscal '76.

12
Given the strength of our exports at this time, and
the much larger revenue loss associated with that -- than
the Treasury originally estimated -- are you considering,
suggesting -- or agreeing to -- elimination of DISC?
UNDER SECRETARY BENNETT: While I am not the
Treasury spokesman on tax policy, from long experience with
the Domestic International Sales Corporation, I am very
skeptical of estimates, and what will be raised.
In general, the Treasury position has been that what
we have accomplished in the revision of the International
Tax and this Tax Bill just passed was appropriate. We ought to
see what happens.
I better ask Fred Hickman for the details. But we
were quite happy with what happened in the International
area up to now. We don't at the moment have any additional
recommendations.
MEMBER OF THE PRESS: Does the financing package
that you have announced today -- through June 30 -- cover the
entire tax rebate?
UNDER SECRETARY BENNETT: Yes! There is another thinthat I might mention. It also covers the Social Security
*
payment which we are assuming will be mailed in mid-May.
The Congress has not appropriated the money. They are
having some problems on it, but it does have to assume they
are all paid. The checks have all been made out for mailing.
MEMBER OF THE PRESS: At 81?
UNDER SECRETAR_ BENNETT: No!
MR. SNYDER: $50.00.
UNDER SECRETARY BENNETT: Okay. Thank you.
(Whereupon, the Press Briefing was concluded.)

DepartmentoftheTREASURY
WASHINGTON, DC. 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

une 3, 1975
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 $5,200,000,000 , or
thereabouts, to be issued June 12, 1975,

as follows:

91-day bills (to maturity date) in the amount of $2,600,000,000, or
thereabouts, representing an additional amount of bills dated

March 13, 1975,

and to mature September 11, 1975 (CUSIP No. 912793 XN1), originally issued in
the amount of $2,501,895,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $2,600,000,000, or thereabouts, to be dated June 12, 1975,
and to mature December 11, 1975

(CUSIP No. 912793 YB6).

The bills will be issued for cash and in exchange for Treasury bills maturing
June 12, 1975,

outstanding in the amount of $4,704,610,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,725,795,000.
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 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-thirty p.m., Eastern Daylight Saving time, Monday, June 9, 1975.
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)

-2securities 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 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 each issue for $500,000 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

June 12, 1975,

in cash or

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

June 12, 1975.

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

DepartmentoftheTREASURY
/ASHINGTON, DC. 20220

TELEPHONE W04-2041

FOR RELEASE UPON DELIVERY

II
yy>/

REMARKS OF THE HONORABLE RICHARD R. ALBRECHT
GENERAL COUNSEL OF THE TREASURY DEPARTMENT
AT THE ANNUAL AWARDS LUNCHEON
OF THE
SEATTLE-KING COUNTY MUNICIPAL LEAGUE
PLAZA HOTEL, SEATTLE, WASHINGTON
12:00 NOON, TUESDAY, JUNE 3, 1975

Mr. Henry, honored guests, and members and friends of the Municipal League:
It is indeed an honor for me to be here today to join you in
recognizing the outstanding organizations and individuals of this community
for their contributions to local government. It is the selfless and
dedicated efforts of citizens and public servants such as those being
honored here today that are the real strength of our local governments. My
congratulations to each of you and to the Municipal League for recognizing
publicly your accomplishments. As many of you know, I have long had a
great interest in local government, its' organization and its' performance.
I believe that when units of local government are given adequate tools they
are capable of responding quickly and effectively to local needs. In the
ten months since I left Seattle to enter Federal service, I have had no
cause to lose any of that confidence in local government.
When a person, especially one from several thousands of miles away,
goes to Washington, D.C. to become a part of the administration of the
Federal government, it is common for his friends back home to observe and
remark upon the symptoms of Potomac Fever as they set in. The first
symptoms are said to be the onset of a conviction that the nation's capitol
is not only the center of all wisdom, but the source of the only possible
solutions to all of the nation's problems. I have examined my own
symptoms—objectively, of course—and concluded that it is the Federal
government and not I that suffers from the disease.
A neophyte Federal official is almost immediately affected by a sense
of wonderment that any organization so large and complex as the Federal
establishment can accomplish anything at all. Of course, bureaucratic
inertia develops in any large organization whether in government, industry,
academia, or elsewhere. But in the case of the Federal government, the
inertia is compounded by the number of organizational units, each with its
own set of rules, to be observed in arriving at a governmental decision.

WS-324

-2-

The Treasury Department has about 115,000 employees with eleven
operating bureaus and a headquarters staff to coordinate and provide
policy guidance. Each of the bureaus has its own set of rules and
reporting relationships designed to make it possible to carry out its
assigned program. Each, in turn, has a well-defined relationship with
headquarters' staff and appropriate policy officials. It is possible,
when necessary, to formulate in a relatively short time a Departmental
position on a major issue of general concern throughout the Department.
However, even this requires sufficient knowledge of the system to shortcut some of the conventional machinery. The complexities of the decision
making process expand geometrically as an issue becomes of importance to
more than one Executive department. Each has its own bureaucracy, often
responding to one or more constituencies in or out of government, as well
as occasionally protecting its institutional turf from threatened invasion,
from within or without. Then, of course, there are the so-called
"independent" agencies who are part of neither the Executive nor the
Legislative Branches, but each invariably with an entrenched set of rules
and not all of those rules were fashioned for the purpose of aiding
in the formulation of policies responsive to current needs.
And the Congress itself may be becoming a victim of bureaucratic proliferation. Every year sees an increasing number of committees and
subcommittees, each with a staff of its own. The very existence of a new
subcommittee and its staff should alert the world to the fact that more
bills will be introduced, hearings held and bills reported. Often there
is a strong need for legislation, but I am cynical enough to wonder
occasionally whether that need is felt as acutely by the citizens of this
country as it is by special interest lobbies or by the Congressional
Committee and its staff as they seek to establish a record of accomplishment and to establish and then protect the committee's jurisdiction
from invastion by other committees.
This Congressional bureaucracy has a major impact on the Executive
Branch and its bureaucracies. Since the 94th Congress convened on •-*
January 14, there have been 51 occasions when a top Treasury official has
been called upon to testify formally before a committee or subcommittee of the
Congress. The Secretary of the Treasury himself has testified on 21 7
occasions during that period. Coupling this fact with the Secretary's
other national and international commitments, I have calculated that
Secretary Simon has testified more than one out of every five days he was
in Washington and Congress was in session. And, of course, on many of those
occasions extensive preparation involving a number of top Treasury officials
was required .
I do not mean to suggest that legislative oversight is not an
important part of the role of Congress, but I wonder how much is
contributed to efficient and effective government when a number of
different committees and subcommittees investigate what is essentially
an identical matter. Nor would I suggest that Congress should act on

-3important issues of the day without having the views of the responsible Executive Branch officials or an adequate factual basis and
understanding of the issues. But one must wonder how soon the
Congressional bureaucracy will reach the point where the trees obscure
the forest.
In spite of what I have just said, leadership still works and,
fortunately for all of us, is present at the top of the Federal
establishment. It is still possible for the President and his Cabinet
to have an impact on the course of events and to provide direction to
the government and to the country. President Ford's bold steps and
comprehensive proposals to Congress in the energy area have successfully
brought attention to the severity of the energy problems facing the
country- While acceptable solutions have yet to emerge, the President's
leadership has forced all concerned to remain focused on the problem.

The President's recent decisive action with respect to the capture
by Cambodia of the freighter Mayaquez is another example of the kind of
leadership the country deserves and wants. This and other recent actions,
I believe, will help restore the sense of mutual trust and confidence
between the people of America and their President—something that is
essential not only in dealing with the dramatic and difficult problems,
both domestic and international, facing our country today, but the
every day problems as well.
Another observation that might be made by a newcomer to the shores of
the Potomac is that in spite of all the bureaucratic impediments, there
remains in this country an incredibly firm faith that the Federal government can solve any problem confronting our society—be it social, educational,
economic, environmental, or what have you. As a nation, we have not yet met
a challenge head-on that we could not handle. One of the problems, however,
with the American approach to dealing with problems is that we have looked
increasingly to the Federal government for solutions. The Federal response
usually takes the form of a massive commitment of resources—whether dollars,
manpower, material, or technology. This all-out commitment of resources can
be likened to a shot-gun approach—not as efficient as a rifle, but less
likely to miss the target completely or to inflict a mortal wound on an
unintended target.
There has also been a tendency for us to pay attention to symptoms and
to fashion treatment to alleviate symptoms rather than to eliminate the
causes. If the disease is inflation, the cure that comes to mind is wage
and price controls, not a remedy that seeks to treat the causes of inflation.
If interest rates are too high, the Federal government's response is often
an attempt to legislate lower rates. If high interest rates threaten to

-4crowd out some borrowers, there are those who believe the Federal
government should allocate credit on some basis of supposed national
priorities. If a recession causes unemployment, all too often the
only proposed solution is more Federally-funded jobs. These, of course,
serve as a palliative, but should not be a substitute for efforts
genuinely calculated to stimulate the private sector from which the jobs
were lost. Our record as a nation is not one of a failure to respond
but rather one whose response is often characterized by impatience and
by a short-sighted failure to remember even the most recent past. And
we tend to react to present crises rather than attempting to take
actions now that will prevent the crises from developing.
Unfortunately, the Federal government is encouraged by others,
including state and local governments, to pursue this course. The City
of New York is the most recent, well publicized and perhaps the most
dramatic example. Faced with an inability to borrow the necessary funds
to meet its commitments—both for maturing debt and for current payroll
and other expenses—the city sought relief from the Federal government for
what was described as a "temporary cash flow problem". But the inability
to borrow money when money is available to other borrowers is the result
not of "cash flow problems" but of a lack of confidence in the creditworthiness of the borrower. Columnist George Will has said that saying
New York has a "cash flow problem" is like saying the Sahara has a water
flow problem. The travails of New York City are, of course, no less real
because they are inaccurately described. The City of New York has a total
debt of $14 billion of which almost $6 billion is short-term debt. Over
$2 billion of a $13 billion annual budget is required for debt service.
The city now has only half as many manufacturing jobs as it had in 1955.
New York's total employment is below what it was in 1950, and four out of
every five jobs in recent years was a government job. Residents of New
York City are the most heavily taxed of any in the nation. In addition
to Federal and state taxes, they pay an 8% sales tax on consumer goods
and a city income tax of up to 3 1/2%. Property tax rates proposed for
next year are more than 75% higher than those for 1966.
These statistics should cause us to question our approach and to
become aware that the continued application of more money does not in and
of itself assure success. And, further, there is a limit to how much
government—inefficient government—taxpayers can or will afford. Sooner
or later, government officials at all levels—local, state and Federal—
must make some hard decisions on what should be priorities for governmental
action. In addition, and this is perhaps more difficult, attention must be
paid to long range solutions that get at the causes,rather than simply
treating the symptoms of contemporary urban problems. The solutions can
be found, yet political realities often make it necessary to provide interim
relief for symptoms. But providing symptomatic relief often diverts
attention and energy away from the treatment of the basic disease.

\>4
-5I would not suggest that the Federal government does not share a
responsibility to deal with the situations confronting the urban environment and local government. The Federal government's participation, however,
should be one of helping to facilitate solutions by local governments to
the problems they perceive and to which they assign high priority.

During the first 150 years of our national experience, local governments were able to meet community and state needs from their own revenues.
They provided the traditional governmental services expected of local
governments—education, public safety and a judicial system, and construction
and maintenance of highways and roads. They were financially independent of
the Federal government and relied primarily on property taxes for their
revenue. Year by year over the past several decades, the public has demanded
increasing services in a growing number of areas—health, recreation,
cultural facilities and activities, mass transit, environmental protection,
and various social service programs. During that period the Federal government has assumed an increasing involvement in the financing—and in the
shaping — o f the day-to-day operations of local governments. As recently
as 1950, Federal aid to state and local governments totaled only $2 billion,
"only" that is by today's standards. By 1960 they were at $7 billion.
Next year they will reach $52 billion. Last year Federal financial aid
represented more than 20% of all state and local revenues.
Unfortunately, Federal programs have often been accompanied by regulations and restrictions stifling local initiatives and limiting the ability
of local officials to fashion a solution in response to local needs.

A further complication was the fact that the availability of Federal
grant programs served to distort local priorities and inhibited the development of local planning and management capability. Some officials became
adept at identifying Federal programs with funds available and fitting
local affairs in to the molds that would produce a flow of dollars from
that categorical grant till. This activity often diverted attention and
energy from the development of capacity to assess the local situation,
assign priorities and develop and implement reforms. While the categorical
grant approach funded many worthwhile projects, it was not always effective
in responding to real and immediate local needs.
Another obvious disparity that developed was that some units of local
government learned how to "pl a v the game" better than others. It spawned
a whole generation of local experts knowledgeable in the art of "grantsmanship"
who could justify their presence on the local payroll by their ability to
generate many more dollars in Federal grants than their presence cost the
local government. This, of course, exaggerated the discrepancies among
governmental units, and particularly discriminated against the small and
medium sized communities across the country.

-6-

A few years ago the Administration and Congress began to examine in
detail the problems the system had created. In response to the urging of
local governments, reforms in the system began to take shape.. They
included: decentralization of Federal management functions—in other
words regional and area offices of many Federal agencies; maximum
possible sharing of planning and management with state and local
officials; consolidation of overlapping Federal grant programs; and
easing of Federal administrative requirements.
These all represented efforts to focus attention on the functions
best and most efficiently performed at the most appropriate level of
government without the abdication by the Federal government of responsibilities it had previously assumed.
General Revenue Sharing is one of the most significant of these
reforms. Since its enactment in November 1972, the General Revenue
Sharing program has distributed $18.9 billion to states and communities
across the nation. Governments in the State of Washington will have
received a total of $273 million over the first five entitlement periods
to date (covering the period January 1972 to March 1975). The revenue
sharing partnership has worked to combine the efficiency of the Federal
taxing mechanism with the advantages of local decision making by locally
elected officials, who know the needs and priorities of their own states
and communi t i es.
Let me briefly list what I feel are some of the revenue sharing
program's advantages:
— It is predictable. Congress appropriated the funds five
years in advance. Recipient units of government know that
they can expect to receive their revenue sharing payments
each October, January, April, and July.
— It is flexible. Shared revenues are to be used almost entirely
as recipient governments want and need to use them. The few
restrictions that do exist can be listed on one side of a
sheet of paper, double-spaced.
— It is free of red tape. Revenue Sharing law requires only
two simple forms to be filed with the Office of Revenue
Sharing each year.
— It is equitable. No applications are required and the money
is allocated to each of nearly 39,000 units of general government fairly and objectively. Relating data supplied by the
Census Bureau to formulas contained in the law, our computer
determines the size of each recipient government's checks.
There is no room for value judgment or personal predispositions
in this procedure, and the recipient governments are kept fully
informed every step of the way. All data and reports of all
allocated amounts are published by the Office of Revenue Sharing
at regular intervals.

—

It is universal in its effects. The money goes to all states,
counties, cities, towns, townships, Indian tribes, and Alaskan
native villages in the United States. The grantsmanship game
is eliminated. General Revenue Sharing recognizes that although
different types and sizes of places have very different needs,
they are, nonetheless, all very real needs.

— It is inexpensive to administer. We are now spending approximately
13/100th of one percent of the funds we distribute to administer
the program. Our total revenue sharing staff is fewer than 100
people.
There are those who oppose the program, primarily on the ground that
it represents a radical departure from other Federal aid programs. The
program has also been criticized on the grounds that it has been the cause
of reductions in the amount of Federal categorical assistance available to
state and local governments. In point of fact, Federal aid, both inclusive
and exclusive of the revenue sharing program, has continued to grow since
fiscal year 1972 when revenue sharing first went into effect. It is true
that the rate of growth of Federal aid has slowed since fiscal year 1973.
To an extent, the fact that Federal aid is not growing as rapidly is a
reflection of the exceptionally rapid increase that took place during the
fiscal 1971-73 period. It is important to note that FY 1973 included
$3 billion of retroactive revenue sharing payments for FY 1972, inflating
the total in FY 1973 in contrast to prior and succeeding years. Further,
on January 1, 1974, the supplemental income security program operated by
the Social Security Administration replaced a Federal grant program. This
contributed to a decline in the FY 1974 total grant level although it
represented a substantial increase in the Federal effort.
Let me give you some idea of what state and local governments have
been doing with their revenue sharing funds. State governments have
reported that during FY 1974, 82% of the shared revenues allocated to them
had been utilized for operations and maintenance purposes, while 18% had
been expended for capital purposes. Local recipients classified 52% of
their expenditures of revenue sharing funds as meeting operation or
maintenance needs and 48% going for capital commitments. It is interesting
to note, however, that the four largest local governments in this area,
King County, Seattle, Bellevue and Renton, each spent over 90% of their
1974 funding for operations and maintenance purposes.
As a group, states reported spending about half (52%) of GRS funds
in educational uses in the form of assistance for primary and secondary
education at the local level. The State of Washington on the other hand
received approximately $29 million in FY 1974 and distributed all of these
funds to school districts throughout the state. Other states reported

-8-

allocation of the balance of their GRS monies fairly evenly for public
transportation services (8%), health (7%), multipurpose^general government (7%), and social services for the poor and aged (6%).
Local governments reported that the largest portion of their
entitlements (36%) went for public safety services. Public transportation (19%), general government capital expenditures (11%), environmental
protection services (11%), health (7%), and recreation (7%) accounted for
most of the remainder of the funds covered by the FY 1974 use reports.
In fiscal year 1974, King County received $6.5 million, had a total
of $11 million available (or about $4.5 million unspent from its prior
allocation) and spent $6.1 million. Of this sum, $2.3 million (48%) was
classified as public safety expenditures, $1.5 million (25%) for
recreation, and $1.2 million (20%) for financial administration.
Seattle received $8.9 million, had a total of $15.5 million available
and expended $10.85 million in FY 1974. Nine million of the amount
expended was classified as going for public safety needs.
Bellevue received $525,000, had $547,000 available and spent $523,000.
The two primary uses to which Bellevue's money was applied were libraries
($290,000) and public safety ($170,000).
Finally, Renton received $645,000, had a total of $688,000 available
and spent it all. Renton's major uses were recreation ($216,000), public
transportation ($164,000), and public safety, ($161,000).
The revenue sharing program is presently due to expire at the end of
1976. President Ford
announced his intention to seek renewal of
General Revenue Sharing this year. He is aware that states and local
governments need to know soon whether they can expect to receive shared
revenues past December 1976 and in what general amounts. The White House
has recently transmitted proposed legislation to Congress, expressing^
confidence in the system that has provided substantial financial assistance
to state and local governments while recognizing their ability and responsibility to determine local priorities.
Revenue Sharing is not the only tangible result of the Federal
government's reevaluation of its financial relationship with local
governments. In August of last year, legislation was enacted which
completely revamped twenty-five years of special purpose grants for
urban renewal. Under the new Community Development Act, cities are
eligible (almost automatically) for annual block grants with few strings
attached. The law affords city officials considerable discretion in the
expenditure of the funds, but requires at least two public hearings to
assure public participation in the decision making process. Hopefully,
a process such as this will not only provide resources to assist local
governments in meeting their needs, but also foster a greater awareness
by the local citizenry of what those needs are and a participation in
the process of determining priorities.

Federal tax policy can also have a significant financial impact on
local governments. In 1968-69 Congress limited the issuance of taxexempt bonds for industrial development projects and for arbitrage
purposes. However, the statute contains a number of exceptions to its
general limitations. In recent years the Treasury Department has become
increasingly concerned about the proliferation of bonds for various
exempt purposes, such as pollution control. In our view industrial
development bonds are inefficient tools to provide incentives for development, particularly in view of the substantial loss of tax revenues, both.
state and Federal. Many state and local officials are now agreeing that
such bond issues also bid up the costs of financing conventional municipal
projects such as schools, streets and parks. For this reason the Municipal
Finance Officers Association recently called for eliminating or substantially
limiting the pollution control exemption. We anticipate that Congress will
consider the matter this year.
Meanwhile, Treasury is engaged in revising its regulations relating to
the determination of what is a pollution control facility in light of
technological changes since 1968. We anticipate that new proposed regulations will be published within several weeks. We are also attempting to
complete a revision of the regulations dealing with arbitrage bonds as
they apply to advance refunding arrangments.
Two years ago, Treasury recommended that Congress enact a taxable bond
alternative, under which the Federal government would pay a portion of a
municipality's net interest cost in return for an election to issue bonds
the interest on which would be taxable. It seems likely that we will make
a similar proposal this year. The taxable bond approach is intended simply
as an option, which state and local issuers could select or decline. We
are convinced that municipalities can benefit from the election by reducing
their borrowing costs significantly. It can also reduce the volume of taxexempt interest flowing to high-bracket taxpayers at the expense of Federal
and state governments. We hope that state and local officials, who
have now had time to consider this proposal, will see it in proper
perspective. Of course, we stand ready to work with them to remedy
technical problems and achieve a viable option.
These programs, whether in operation or proposed, are examples
of the evolutionary process occurring in the relationships of the
Federal government to state and local governments and the relationship
of all three to the people they all serve. The evidence is mounting
that the moving of decision making closer to the people improves the
service to the public and reduces needless duplication of effort in
meeting the needs of individual communities. The Federal government
is helping through its financial dealings with local governments.
With the help of dedicated people in and out of government like those
honored today, we will move ever closer to the realization of our
objectives.
Thank you.

Departmental theTREASURY
WASHINGTON, DC. 20220

TELEPHONE W04-2041

June 3, 1975

FOR IMMEDIATE RELEASE

MEMORANDUM FOR CORRESPONDENTS
Secretary Simon, Under Secretary Bennett, and Assistant
Secretary Parsky met this morning with Felix Rohatyn, Richard
Shinn and John Heimann, representing Governor Carey's Advisory
Committee on the financial outlook for the City of New York.
The advisors gave Treasury officials a progress report on
their activities, and Secretary Simon expressed appreciation
for being informed on the helpful work the Committee has done.
oOo

ANNUAL BUSINESS CONFERENCE

I ^%

SPONSORED BY THE NEW JERSEY SALES EXECUTIVE CLUB AND
RUTGERS UNIVERSITY
NEW BRUNSWICK, NEW JERSEY, JUNE 3, 1975
MR. BECK, DISTINGUISHED GUESTS, AND FELLOW NEW JERSEYANS:

I HAVE ALWAYS REGARDED THIS AS ONE OF THE MOST PRESTIGIOUS
FORUMS IN THE STATE, SO THAT I FEEL DEEPLY HONORED TO BE
HERE SPEAKING TO YOU TODAY,

MEMBERS OF MY STAFF SOMETIMES COUNSEL ME AGAINST TRIPS
TO NEW JERSEY BECAUSE THEY SAY...THAT INEVITABLY I STIR UP
POLITICAL SPECULATION,

AS I HAVE SAID BEFORE, THERE IS

INDEED BIPARTISAN SUPPORT FOR MY RETURN TO NEW JERSEY,

SOME

OF MY REPUBLICAN FRIENDS THINK THAT WOULD BE THE BEST W.\Y TO
SAVE TRENTON, WHILE SOME DEMOCRATS THINK IT WOULD BE THE
BEST WAY TO SAVE WASHINGTON,

NONETHELESS, LET ME MAKE IT CLEAR THAT MY APPEARANCES
IN THE STATE THIS WEEK ARE STRICTLY NON-POLITICAL. TODAY,

AS FAR AS I'M CONCERNED, I AM HERE ONLY TO TALK ABOUT THE
ECONOMY WITH YOU, LATER THIS WEEK I WILL BE BACK FOR THE
GRADUATIONS OF TWO OF MY CHILDREN, I CAN ASSURE YOU THAT I
AM NOT RUNNING FOR ANYTHING IN MY FAMILY, EVEN IF I WERE/
AFTER TWO-AND-A-HALF YEARS IN WASHINGTON/ I DON'T THINK THEY
WOULD ELECT ME.
a

I WOULD LIKE TO FOCUS OUR DISCUSSIONS TODAY ON THE
LONG-RANGE CHALLENGES FOR OUR ECONOMY,

FOR UNDERSTANDABLE REASONS/ MOST ECONOMIC POLICY MAKERS
IN WASHINGTON HAVE BEEN PREOCCUPIED IN RECENT MONTHS WITH
/

THE PROBLEMS OF ENDING THE RECESSION AND SLOWING THE RATE OF
INFLATION. FORTUNATELY/ WE ARE MAKING SIGNIFICANT HEADWAY
ON BOTH FRONTS,

THE SHARP UPTURN IN LEADING BUSINESS INDICATORS REPORTED
LAST WEEK IS BUT ONE OF THE MANY SIGNS THAT WE ARE AT OR PAST

'"THE BOTTOM OF THE RECESSION.

\d9

RETAIL SALES HAVE BEEN INCREASING

THIS YEAR AT ABOUT THE SAME RATE THAT THEY WERE DECLINING
LATE LAST YEAR/ AND THE INVENTORY BACKLOG HAS BEEN SHARPLY
REDUCED, WHILE WAGE INCREASES HAVE BEEN MODERATE/ AVERAGING
APPROXIMATELY 7-1/2 PERCENT PER ANNUM DURING THE LAST SEVEN
MONTHS/ THE DECREASE IN THE RATE OF INFLATION HAS MEANT THAT
WORKERS SHOULD SOON BEGIN TO EXPERIENCE INCREASES IN REAL
EARNINGS, IN ADDITION/ A DECLINE IN SHORT-TERM INTEREST
RATES AND A LARGE INFLOW OF SAVINGS INTO OUR THRIFT INSTITUTIONS
HAVE SET THE STAGE FOR A RECOVERY IN THE HOUSING INDUSTRY.
HOUSING PERMITS AND HOUSING STARTS BOTH PICKED UP LAST
MONTH, MOREOVER, NEW ORDERS FOR DURABLE GOODS ROSE 9,8
PERCENT IN APRIL/ THE LARGEST INCREASE IN EIGHT YEARS,

THE RISE IN CONSUMER CONFIDENCE IS LARGELY ATTRIBUTABLE
TO OUR PROGRESS AGAINST INFLATION, ALTHOUGH THE INFLATION
THREAT HAS BY NO MEANS BEEN ELIMINATED/ RECENT PRICE DEVELOPMENTS HAVE BEEN DEFINITELY ENCOURAGING,

MOREOVER/ THE GOVERNMENT IS NOT LEAVING THE PROSPECTS
FOR RECOVERY ENTIRELY TO CHANCE BUT IS WORKING TO STRENGTHEN
AND ASSIST THE NATURAL/ CYCLICAL FORCES WITHIN THE ECONOMY.
THE FEDERAL RESERVE HAS ALREADY EASED MONETARY CONDITIONS
SUBSTANTIALLY, AND BOARD CHAIRMAN ARTHUR BURNS HAS MADE IT
CLEAR THAT THE FEDERAL RESERVE WILL CONTINUE TO SUPPORT THE
RECOVERY WHILE AVOIDING EXCESSIVE STIMULATION, AT THE SAME
TIME/ THE CONGRESS HAS PASSED AND THE PRESIDENT HAS SIGNED
THE BIGGEST TAX CUT IN OUR HISTORY. COMBINED WITH A LARGE
FEDERAL DEFICIT, THE TAX BOOST WILL GIVE A STRONG BOOST TO
THE ECONOMY.

I COULD CONTINUE WITH A LONG LIST OF OTHER INDICATORS -- MANY OF THEM STRONG, A FEW OF THEM WEAK — BUT LET
ME COME DIRECTLY TO MY MAIN POINT: WE ARE MOST ASSUREDLY
MOVING TOWARD A PERIOD OF RECOVERY AND AS WE DO, IT IS
IMPERATIVE THAT WE BEGIN TO TAKE A LONGER LOOK AT OUR ECONOMIC
FUTURE.

!<-

ONE OF THE MAJOR REASONS WHY WE HAVE HAD A CHRONIC CASE
OF INFLATION IN THIS COUNTRY, FOLLOWED ALMOST INEVITABLY BY
\ SEVERE RECESSION/ IS THAT FOR OVER A DECADE WE HAVE BEEN
LIVING ONLY FOR-,THE MOMENT, RARELY FOR THE FUTURE, IN OUR
GOVERNMENT, WE HAVE HAD ONE BUDGET DEFICIT AFTER ANOTHER —
^ IN THE PAST 15 YEARS — SO THAT WE HAVE BUILT INFLATIONARY
PRESSURES AS WELL AS INFLATIONARY EXPECTATIONS INTO THE
VERY FABRIC OF OUR ECONOMY. OUR MONETARY POLICIES, PARTLY
IN AN EFFORT TO ACCOMMODATE OUR DEFICITS, HAVE ALSO
PUMPED EXCESSIVE STIMULATION INTO THE ECONOMY OVER A
10-YEAR PERIOD, IN THE PRIVATE SECTOR WE HAVE FOR MANY
YEARS OVERCONSUMED AND UNDERINVESTED, SO THAT EVENTUALLY —
IN 1973 AND EARLY 1974 ~ WE BEGAN TO EXPERIENCE CAPACITY
SHORTAGES IN SOME OF OUR MOST CRITICAL INDUSTRIES. AND
WE HAVE ELECTED POLITICIANS WHO HAVE PROMISED US THAT WE CAN
RESTORE OUR ENVIRONMENT TO NEAR-PRISTINE STATE, OVERHAUL OUR

- 6-

]

TRANSPORTATION SYSTEM, DRAMATICALLY EXPAND OUR HOUSING
STOCK, EXPLORE THE UNIVERSE, DEVELOP OUR ENERGY RESOURCES,
PAY FOR A GROWING WELFARE SYSTEM, PROVIDE A COLLEGE EDUCATION
FOR EVERYONE, MODERNIZE OUR MILITARY FORCES, FEED THE WORLD,
AND CONTINUE TO INCREASE EVERYBODY'S REAL INCOME — ALL
INSTANTANEOUSLY. CLEARLY, WE HAVE BEEN BURNING THE CANDLE
AT BOTH ENDS -- SIMULTANEOUSLY LIVING OFF OUR INHERITANCE
AND MORTGAGING OUR FUTURE IN A DESPERATE BID FOR INSTANT
PROSPERITY FOR EVERYONE. IT SHOULD HARDLY COME AS ANY
SURPRISE THAT OUR OVER INDULGENT PAST HAS FINALLY CAUGHT
UP WITH US.

AS WE BEGIN NOW TO WORK OUR WAY OUT OF THIS QUAGMlRf ,
IT IS TIME TO START DIRECTING OUR ATTENTION AWAY FROM THE
INSTANT GRATIFICATIONS OF TODAY AND TOWARD THE CHALLENGES OF
TOMORROW. WE MUST PUT OUR ECONOMY ON A COURSE THAT IS
SUSTAINABLE BOTH POLITICALLY AND ECONOMICALLY OVER THE LONG
RUN.

IE
THF IMMEDIATE TEST
THE MOST IMPORTANT TEST OF OUR RESOLVE IS OCCURRING
RIGHT NOW AS WE HAMMER OUT POLICIES THAT WILL AFFECT THE
SHAPE OF OUR ECONOMIC RECOVERY. CLEARLY OUR BASIC OBJECTIVE
IS TO ENSURE THAT OUR RECOVERY IS STRONG ENOUGH TO REDUCE
UNEMPLOYMENT BUT DOES NOT PROCEED SO RAPIDLY THAT WE SACRIFIC
THE PROSPECTS FOR STEADY PROGRESS. ABOVE ALL, WE MUST
RESIST THE TEMPTATIONS OF EXCESSIVELY STIMULATIVE FISCAL AND
MONETARY POLICIES. THEY MIGHT HELP TO PULL US OUT OF THE
RECESSION MORE QUICKLY, BUT IN THE END THEY ARE ALMOST
CERTAIN TO GENERATE A NEW BURST OF INFLATION AND
THEN ANOTHER RECESSION,

A SECOND DANGER OF OVERSIZED GOVERNMENT DEFICITS -- AND
ONE THAT I HAVE EMPHASIZED IN RECENT MONTHS — WOULD ARISE

- 8-

] 9^

IN OUR PRIVATE CAPITAL MARKETS. THE CRITICAL DANGER WOULD
COME NOT THIS YEAR DURING A PERIOD OF ECONOMIC SLACK BUT
NEXT* YEAR AND BEYOND WHEN THE RECOVERY TAKES' HOLD AND WE
HAVE A RISING TIDE OF PRIVATE AND PUBLIC DEMANDS FOR THE
FUNDS IN THE CAPITAL MARKETS.

THE IMPACT OF HUGE FEDERAL DEMANDS DURING A PERIOD OF
RECOVERY WOULD DEPEND, OF COURSE, UPON THE MONETARY POLICIES
OF THE FEDERAL RESERVE, IF THE FED PURSUED A MODERATE
POLICY, THERE IS A POSSIBILITY THAT HUGE FEDERAL BORROWING
NEEDS COULD DRIVE UP INTEREST RATES AND ABORT THE PROCESS OF
RECOVERY, THE OTHER ALTERNATIVE IS THAT THE FED MIGHT SEEK
TO ACCOMODATE THE GOVERNMENT'S BORROWING REQUIREMENTS 3Y
CREATING A MORE RAPID GROWTH IF: MONEY AND CREDIT, THAT
MIGHT POSTPONE THE ADVERSE IMPACT ON THE RECOVERY FOR PERHAPS
A YEAR OR TWO, BUT THE CONSEQUENCES OF THAT ACTION WOULD
SOON CATCH UP WITH US IN THE FORM OF REACCELERATED INFLATION,

,</c
THE ONLY WAY TO AVOID SUCH DIRE CHOICES IS TO FOLLOW A
COURSE OF PRUDENCE IN OUR FISCAL AFFAIRS,

I AM NOT PREDICTING THAT THESE EVENTS WILL TAKE PLACE;
RATHER, I AM WARNING OF THE POSSIBLE CONSEQUENCES OF FOOLISH
POLICIES, IF WE ACT WISELY, THE PROCESS OF RECOVERY WILL BE
SUSTAINED AND DURABLE, IF WE IGNORE THE LESSONS OF THE
PAST/ WE FACE A SORROWFUL REPETITION OF THE BOOM AND BUST
ROLLER COASTER THAT HAS BECOME SO DEPRESSINGLY FAMILIAR,

THE LONGER-RUN CHALLENGES

•LET ME TURN NOW TO SOME OF THE LONGER-RANGE CHALLENGES
THAT WE FACE/ FOR IN MAKING POLICY CHOICES BOTH IN GOVERNMENT
AND IN THE PRIVATE SECTOR, WE SHOULD BE LOOKING NOT JUST AT
THE NEXT YEAR OR TWO BUT ALSO AT THE NEXT DECADE AND BEYOND,

\LJ9
IN THE INTERESTS OF BREVITY, I WILL DO LITTLE MORE THAN
ENUMERATE WHAT I BELIEVE TO BE THE MOST SIGNIFICANT ECONOMIC
CHALLENGES AHEAD:

THE FIRST IS TO ACHIEVE A BASIC SHIFT IN OUR DOMESTIC
ORIENTATION AWAY FROM THE HEAVY EMPHASIS WE'PLACE UPON
PERSONAL CONSUMPTION AND GOVERNMENT SPENDING AND TOWARD A
MUCH GREATER EMPHASIS UPON SAVINGS AND CAPITAL INVESTMENT.
OVER THE LAST SEVERAL YEARS, WE HAVE TILTED OUR ECONOMY TOO
FAR IN THE WRONG DIRECTION SO THAT WE HAVE HAD THE WORST
RECORD OF CAPITAL INVESTMENT AMONG THE MAJOR INDUSTRIALIZED
NATIONS OF THE FREE WORLD. OUR EMPHASIS UPON CONSUMPTION
AND SPENDING MUST BE HELD TO BLAME, AS MUST THE DETERIORATING
STATE OF CORPORATE PROFITS, AS A RESULT OF OUR POOR PERFORMAN
WE HAVE ALSO HAD ONE OF THE LOWEST RECORDS OF PRODUCTIVITY
GROWTH. IT BEARS REPEATING TO EVERY AUDIENCE THAT ONLY BY
INCREASING PRODUCTIVITY CAN WE ALSO RAISE THE STANDARD OF LIV3

-11 LOOKING AHEAD, IF WE ARE TO REALIZE OUR HOPES FOR AN EXPANDir>
ECONOMY AND INCREASING PRODUCTIVITY OUR BEST ESTIMATE IS
THAT THE AMOUNT OF CAPITAL INVESTMENT OVER THE NEXT DECADE
WILL HAVE TO BE THREE TIMES AS LARGE AS IT HAS BEEN IN THE
LAST DECADE,

A SECOND GREAT CHALLENGE LYING AHEAD IS TO CURB THE
ENORMOUS GROWTH IN GOVERNMENT SPENDING AND- ROLL BACK THE
TIDE OF GOVERNMENT REGULATIONS THAT NOW ENGULF ALMOST EVERY
ASPECT OF OUR PRIVATE ENTERPRISE SYSTEM.

IN A SUBTLE BUT INSIDIOUS WAY, GOVERNMENTAL REGULATIONS
HAVE SPREAD THROUGHOUT OUR SOCIETY SO THAT TODAY THEY
ENCUMBER ALMOST EVERY PHASE OF BUSINESS AND INDUSTRIAL LIFE
AND COST CONSUMERS UNTOLD BILLIONS OF DOLLARS,

THE INDEPENDENT REGULATORY AGENCIES OF THE GOVERNMENT
EXERCISE DIRECT CONTROL OVER ALL FORMS OF INTERSTATE TRANSPORTATION, POWER GENERATION, THE SECURITIES MARKET, AND

ELECTRONICS COMMUNICATION —

INDUSTRIES THAT ACCOUNT FOR

MORE THAN 10 PERCENT OF EVERYTHING MADE AND SOLD IN THE
UNITED STATES. THROUGH A PROLIFERATION OF ENVIRONMENTAL
AND SAFETY LAWS, SUBSIDY PROGRAMS, CONTRACTING AUTHORITIES
AND OTHER DEVICES, FEDERAL REGULATORS HAVE ALSO HEAVILY
SUPPLANTED THE DECISIONS OF PRIVATE CITIZENS IN THE MARITIME,
AUTO/ DEFENSE/ DRUG/ TRADE AND AGRICULTURAL INDUSTRIES.

MANY GOVERNMENTAL REGULATIONS SERVE WORTHY PURPOSES
AND MUST BE CONTINUED/ BUT LOOKED UPON AS A WHOLE/ THE SYSTEM
OF GOVERNMENTAL REGULATION NOW POSES ONE OF THE LARGEST
SINGLE THREATS TO OUR ECONOMIC FREEDOMS. FOR OUR PART/
PRESIDENT FORD HAS MADE IT CLEAR THAT THE REGULATORY PROCESS
IS ONE OF THE PRIMARY TARGETS FOR REFORM DURING THIS
ADMINISTRATION,

OBVIOUSLY, THE EXPLOSIVE GROWTH OF GOVERNMENT AND THE
ATTENDANT GROWTH IN THE COST OF GOVERNMENT SHOULD BE ALARMINC

- 13 TO US ALL, JUST AS THE MUSHROOMING OF GOVERNMENTAL^0
REGULATIONS MUST BE A MATTER OF GRAVE CONCERN. TOGETHER,
THESE GOVERNMENTAL POLICIES THAT HAVE BEEN. DEVELOPING FOR
MORE THAN 40 YEARS AND HAVE ACCELERATED DURING THE PAST
DECADE HAVE HELPED TO LEAD US STRAIGHT DOWN THE PRIMROSE
PATH, AND WF MUST BE VIGILANT IN AVOIDING THAT COURSE IN
THE FUTURE. THE PUBLIC IS NOT YET FULLY AWARE OF HOW MUCH
ECONOMIC DAMAGE HAS BEEN CAUSED IN WASHINGTON, BUT THE
MESSAGE IS BEGINNING TO GET THROUGH.

A THIRD GREAT CHALLENGE FACING THE UNITED STATES IS TO
DEVELOP MUCH GREATER SELF-SUFFICIENCY IN ENERGY, WE MUSI-

UNDERTAKE A DRASTIC RESTRUCTURING OF OUR GOVERNMENTAL POLICIE
AND CREATE AN ECONOMIC ENVIRONMENT THAT WILL ENCOURAGE THE
y*

INVESTMENT OF AS MUCH AS $1 TRILLION IN ENERGY DEVELOPMENT
BEFORE 1985. JUDGING FROM THE'RECENT PERFORMANCE BY SOME
MEMBERS OF THIS CONGRESS AND THE GROSS DAWDLING AND DELAY
THAT HAVE CHARACTERIZED THE LAST FEW MONTHS, WE HAVE OUR

-mWORK CUT OUT FOR US. FORTUNATELY, WE HAVE A PRESIDENT WHO
WILL CONTINUE TO EXERT'STRONG LEADERSHIP IN THIS FIELD.

• A FOURTH CHALLENGE THAT I WOULD SUGGEST TODAY IS IN OUR
FOREIGN ECONOMIC POLICY: WITH INTERDEPENDENCE NOW A REALITY,
WE MUST BE STRONG AND INNOVATIVE IN WORKING WITH OTHER
NATIONS TO CREATE MORE EFFECTIVE INTERNATIONAL APPROACHES TO
THE PROBLEMS OF FOOD/ INTERNATIONAL FINANCE, AND ENERGY. AND

LET US RECOGNIZE AT THE SAME TIME THAT THE GREATEST CONTRIBUT
WE CAN MAKE TO A STABLE WORLD -- INDEED, THE SINGLE MOST
IMPORTANT ELEMENT IN OUR INTERNATIONAL ECONOMIC POLICY ~ IS
TO MAINTAIN A STRONG, NON-INFLATIONARY ECONOMY HERE AT HOME.

A FINAL CHALLENGE ~ AND ONE THAT IS THE MOST CRUCIAL
TO THE PRESERVATION OF OUR PERSONAL LIBERTIES -- IS TO
PRESERVE AND STRENGTHEN THE FREE ENTERPRISE SYSTEM IN THIS
COUNTRY, BELIEVE ME, I CAN UNDERSTAND THE FRUSTRATIONS YOU
FEEL IN YOUR BUSINESSES AS YOU FILL OUT ENDLESS NUMBERS OF
GOVERNMENTAL FORMS AND WORRY CONTINUALLY ABOUT COMPLYING

WITH GOVERNMENTAL REGULATIONS.

TOGETHER WE MUST WORK TO

RESIST THE CONTINUING GOVERNMENTAL ENCROACHMENTS THAT COST
US SO MUCH IN TERMS OF BOTH MONEY AND FREEDOM. AND LET
THERE BE NO MISTAKE: UNLESS WE WORK TO CHANGE DIRECTIONS
4 •

IN THIS COUNTRY, ECONOMIC FREEDOMS AS WE HAVE KNOWN THEM
WILL WITHER AWAY IN THE UNITED STATES, THE DISTRUST AND
SUSPICION THAT STAINS OUR NATIONAL INSTITUTIONS, RANGING
FROM THE HALLS OF GOVERNMENT TO OUR PLACES OF WORSHIP, IS
NOW DIRECTED MOST FORCEFULLY AT AMERICAN BUSINESS, THERE IS
A MINDLESS DISREGARD THAT THE'FREE ENTERPRISE SYSTEM THAT
HAS GIVEN THIS NATION THE HIGHEST STANDARD OF LIVING AND THE
GREATEST PROSPERITY KNOWN TO MAN LIES AT THE VERY FOUNDATION
OF OUR SYSTEM OF PERSONAL AND POLITICAL FREEDOM, WHENEVER
THE PRIVATE SECTOR FAILS TO MEET A NEW CHALLENGE WITHIN OUR
SOCIETY, THERE IS IMMEDIATELY POPULAR PRESSURE FOR THE
FORCES OF GOVERNMENT TO FILL THE VACUUM, FREE ENTERPRISE IS
CERTAINLY ON THE DEFENSIVE, AND THE HOUR FOR SAVING IT ~

-16-

AND OUR PERSONAL FREEDOMS AS WELL — HAS GROWN VERY LATE,
INDEED.

CONCLUSION
LADIES AND GENTLEMEN: A FEW MONTHS AGO I HAD THE
PRIVILEGE OF PREPARING AN ARTICLE FOR ONE OF OUR NATIONAL
MAGAZINES, THE READER'S DIGEST, ON THE ECONOMIC TROUBLES

THAT HAVE RESULTED FROM MISGUIDED FISCAL AND MONETARY POLICIES
AND HEAVY HANDED GOVERNMENTAL REGULATION. THE OUTPOURING OF
LETTERS I RECEIVED, ALL STRONG IN THEIR SUPPORT, CONVINCED
ME THAT A LARGE NUMBER OF AMERICANS SHARE THE VIEWS I HAVE
EXPRESSED HERE TODAY. WHAT ALSO INTERESTED ME ABOUT THOSE
LETTERS WAS THE CONSISTENT THEME THAT RAN THROUGH THEM,
ASKING SIMPLY THIS: WHAT CAN I DO TO HELP?

WITHOUT PRESUMING TO TELL YOU HOW TO RUN YOUR BUSINESSES,
LET ME TELL YOU HOW YOU CAN HELP BECAUSE, AS I HAVE TRIED TO
MAKE CLEAR, YOUR HELP IS VERY MUCH NEEDED. I WOULD MAKE A
SPECIAL APPEAL THAT YOU SEEK TO PRESERVE AND STRENGTHEN THE

19/
COMPETITIVE MARKETPLACE WITHIN YOUR OWN INDUSTRY SO THAT YOU
WILL NOT INVITE FURTHER REGULATION OF ALL INDUSTRIES, To
REGAIN THE CONFIDENCE OF THE AMERICAN PEOPLE, PRIVATE BUSINESS
MUST ALSO RESPOND TO RISING DEMANDS FOR HONESTY AND FAIR
DEALING IN TRADE. THE FEW ABUSES THAT DO EXIST-IN THE
CORPORATE SYSTEM WILL ALWAYS BE QUICKLY SEIZED UPON BY THOSE
WHO BELIEVE THAT ECONOMY OUGHT TO BE RUN BY THE GOVERNMENT,
I ALSO ASK FOR YOUR HELP IN STEMMING THE FLOW OF BUSINESSMEN
WHO COME TO WASHINGTON IN SEARCH OF SUBSIDIES AND PROTECTION
FROM ECONOMIC COMPETITION -- A PRACTICE THAT HAS ONLY AIDED ANT
ABETTED THE MOVEMENT TO SHACKLE OUR FREE i NTERPRISE SYSTEM,
I WOULD MAKE A SPECIAL APPEAL TO YOU FOR \al.P IN BRINGIivo
THE MESSAGE OF FREE ENTERPRISE TO MORE OR li!E AMERI CARPEOPLE AND ESPECIALLY TO OUR YOUNG PEOPLE WHO ARE STUDYING
IN DISTINGUISHED SCHOOLS SUCH AS RUTGERS. AND I URGE YOU.
SUPPORT FOR POLICIES THAT WILL KEEP AMERICA STRONG AND

; 9T
RESOLUTE SO THAT OUR CHILDREN MAY GROW UP IN A LAND THAT IS
PROSPEROUS AND AT PEACE.

LET US RECOGNIZE THAT A TIME OF GREAT CHALLENGE ALSO
REPRESENTS A TIME OF GREAT OPPORTUNITY ~

THE OPPORTUNITY TO

REALIZE A GOAL THAT SHOULD BE CHERISHED BY EVERY PUBLIC
OFFICIAL IN THE LAND,

FROM THE CRUCIBLE OF INFLATION AND

RECESSION, LET US WORK TO TURN OVER TO OUR CHILDREN A COUNTRY
THAT IS BETTER AND STRONGER —

THAT OFFERS EACH OF OUR

CITIZENS A GREATER CHANCE FOR PERSONAL AND SPIRITUAL ENRICHMENT
THAN THE COUNTRY WE HAVE INHERITED.

LET US ACT NOT JUST FOR

OUR SAKES, BUT FOR OUR CHILDREN AND OUR CHILDREN'S CHILDREN
BECAUSE, IN THE FINAL ANALYSIS, THEY ARE THE ONES WHO MUST
LIVE WITH OUR DECISIONS,

EACH OF US IS THE TRUSTEE OF THEIR

FUTURE.

THANK YOU,

FOR RELEASE UPON DELIVERY

REMARKS OF THE HONORABLE RICHARD R. ALBRECHT
GENERAL COUNSEL OF THE TREASURY DEPARTMENT
BEFORE THE
ROTARY CLUB OF SEATTLE
OLYMPIC HOTEL, SEATTLE, WASHINGTON
12:00 NOON, WEDNESDAY, JUNE k, 1975

Mr. Alkire, members and friends of the Seattle Rotary Club:
It is a pleasure for me to be back in Seattle and to share with
you some of my observations after 10 months in government. As you
know, an expert is often defined as a person with a briefcase who is
more than 50 miles from home. I still regard this as home, so I can
hold myself out as an expert on the Pacific Northwest around the
Treasury Department—even though most of my information on recent
developments out here is secondhand. There are enough economists
around Treasury to prevent the lawyers from making or interpreting
economic policy, but perhaps I am far enough from Washington today to
make some observations which include the economy without serious risk.
I claim no expertise in either analyzing or influencing the course
of the economy. In the 10 months that I have been in Washington the
consumer price index has gone up at an annual rate of nearly 10 percent.
The real Gross National Product has declined in every quarter--the most
recent quarter at the rate of 11.3$ per annum. The National Debt has
gone from $1+76 billion to $526 billion and a request for another increase in the debt ceiling is being made to Congress this week. Unemployment has hit 8.9$ and there has been a 12.8$, drop in the rate of
industrial production.
If you associate those statistics with my arrival in Washington,
however, I will ask you please to note that the Dow Jones average has
gone from a low 58^ last October to last week's 817; the prime rate has
dropped from 13$ to 7$; and each of you has received or is about to
receive from the Federal government a check for $100 to $200 as a rebate
on your 197^ taxes.
WS-325

-2When I went to Washington, the city was still in the grips of the
political paralysis that ultimately resulted in the first resignation by
an American President and the inauguration of the first U.S. President
who has not been a candidate in a national election. Although concerns
about inflation were being voiced by many in government, the nation was
preoccupied with other matters. President Ford attempted to focus
national attention on the economy and on inflation with a series of
inflation summit conferences last October. At that time it was not
generally anticipated that the depressing effects of inflation would
produce the rapid economic decline we have seen in the past six or eight
months.
Today, I would like to share with you a few of my own observations
concerning the challenges facing our country and its economy in the days
and months ahead. I am sure we could get general agreement today that
the greatest domestic challenges facing the country are in the area of
our economic well-being. The way in which we address these challenges
is bound to affect each of our lives, and unless these challenges are
met responsibly, I believe the nation will face much more serious problems than it does today.
As the statistics I just quoted indicate, we have just experienced—
and are still in—the worst inflationary spiral in recent memory.
Although persistent rises in the cost of living have become a part of
the American way of life, the increases were usually gradual.' The
rampant inflation in some other nations was looked on by Americans as
something that "couldn't happen here." But in the last year or so, we
have experienced our own round of "double digit" inflation.
Much of the development of this country and our approach to solving
the problems the country has faced has been based upon an assumption
that we have a virtually inexhaustible supply of natural resources that
could be exploited at reasonable prices and without adverse side-effects.
In particular, we have enjoyed the wasteful luxury of cheap energy. The
Arab oil boycott in late 1973 made us suddenly and painfully aware of the
extent to which we had become dependent on others for our supply of that
energy. The subsequent quadrupling of worldwide petroleum prices by the
petroleum exporting countries set off an inflationary shock wave through
all aspects of our economy and suddenly made us aware of the impact cheap
energy had had on our daily lives.
At about the same time as oil prices were raised, several years of
bad weather and poor crops produced worldwide shortages of food and feed
grains resulted in a dramatic rise in food prices. There was also pent-up
pressure for price and wage increases as a period of wage and price

controls came to an end last year. These one-shot factors, however, do
not account for all of the inflation of the last 12 months. In fact,
the ripple effect of those items has pretty much run its course, but we
are still experiencing an increase in the consumer price index at a rate
of over 7$ per year. In some respects, inflation has fed on itself as
the inflationary psychology prompts the consumer to want to buy even
though the price is high just to get in ahead of the next price increase.
To a considerable degree the inflation of the past year is a result
of the fiscal and monetary policies of the last ten years. We financed
a war in Viet Nam with budget deficits and without any cutback in domestic
social programs. At the conclusion of this fiscal year, we will record
our fourteenth Federal budget deficit of the last fifteen years, and the
fortieth deficit of the past forty-eight years.
In addition to these factors, we have suddenly added a whole series
of costs to many items we use in our daily lives because of our sudden
awareness that our natural resources are not inexhaustible and that if
we are to preserve our environment as a reasonably hospitable one for
civilized man, we must show more concern for the side-effects of steps
that are taken in the name of "progress."
The fact that it costs 20$ more to produce an automobile that has
an acceptably low rate of air pollution should not deter us from paying
that cost just because we have not paid it over the past fifty years.
We should recognize its inflationary effect and be sure that in paying
the cost we are getting our money's worth and that we are in fact improving our environment.
Inflation run rampant was also a major cause of the current recession—the deepest and most severe since World War II. The same
inflation consciousness on the part of the consumer that caused inflation
for a time to feed on itself ultimately resulted in a loss of confidence.
With the loss of consumer confidence came a postponement of major purchasing decisions. This resulted in the past year in massive and
unprecedented inventory build-ups as production was still geared to a
higher purchasing level.
The steep decline in our economy has now ended and key indicators
now give us cause for confidence that the recession is over. The
challenge we face now is to fashion a recovery that will restore jobs
for the unemployed without once again overheating the economy so as to
stimulate another and more severe round of inflation to be followed once
again by a more severe recession.

-kBut meeting the challenges of inflation and unemployment will not
necessarily assure us that we have met one of the more fundamental
problems facing our society. The productivity of the American worker
has long been a symbol of America's superior industrial capability.
That productivity and its increase over the years are attributable to
a great degree to American technology and the fact that the American
worker has available to him productive machinery and equipment that
makes him still the most productive worker in the world. We have the
most advanced technology, an increasingly better educated work force
and highly skilled management. But that productivity and productive
capacity has been eroded. In recent years, our emphasis has been increasingly on consumption. Also, we are spending more of our resources
for services, governmental and otherwise, where productivity increases
are more difficult to achieve.
Capital investment continues to increase in the United States and
our capital-to-labor ratio is still relatively high, but during recent
years other nations have allocated a substantially larger share of
their total resources to new capital formation. A study prepared by
the Treasury Department indicates that total U.S. fixed investment as
a share of national output during the time period 1960-1973 was 17»5$«
This figure ranks the U.S. last among a group of eleven major industrial
nations; our investment rate was 7.2 percentage points below the average
commitment of the entire group. Comparable percentage figures for some
other countries include Japan with 35$> West Germany with 25.8$, France,
2U.5$, and Canada, 21.8$. Not surprisingly, the average annual increase
in output per man-hour was greater in each of those countries than in
the U.S.
Of course, the unusually large size of the U.S. economy and its relatively advanced stage of development creates a different investment
environment than that of the countries that are developing or rebuilding
their industrial capacity. A more important influence, however, has been
the historical priority placed on consumption in the U.S. economy. This
consumption has, of course, created a strong demand for goods and
services and thus sustained output, employment and investment. But
personal consumption in 197^- totaled 63$ of our Gross National Product
and total government purchase of goods and services amounted to 22$,
leaving only 15$ for gross private domestic investment. It should not
be surprising if an American industry seeking to expand its productive
capacity or to improve the productivity of its workers by purchasing new
plant and equipment is faced with the prospect of a shortage of capital
with which to expand.

-5It should be apparent from the experience of recent years that we
must invest adequate funds in new plant and equipment—as well as in
education and training—in order to increase our nation's productivity
and thereby raise our standard of living even further. A substantial
volume of capital investment will be required solely for replacement
and modernization of existing facilities. And, of course, the solutions
to our energy problems, whether for the development of conventional
energy sources or for the development of technology and equipment for
alternative sources, will require massive amounts of capital.
One factor influencing the national rate of capital investment is
the pattern of government policies. Government policies can influence
not only the rate of capital investment but the character of those investments. The government has imposed an increasing number of environmental and safety standards for production facilities. For example, a
recent estimate is that 12$ of the steel industry's investments in 1972
were related to health and safety standards mandated by the government.
While such standards may be highly desirable, and perhaps overdue, we
should recognize that, to the extent these investments do not increase
total productive capacity, the imposition of those requirements should
carry with it an obligation to encourage the availability of the additional capital to finance them.
As I have indicated, one unfamiliar challenge facing the country
is that related to our supply of energy. Much of our industry, government, and our way of life has depended upon and has been fashioned by
an abundance of inexpensive energy. In spite of warnings over the
course of the past decade that our supply of petroleum and other readily
available energy resources was not inexhaustible, it took an embargo by
the Arab countries and a quadrupling of crude oil prices by the oil
producing nations to make us suddenly aware of the amount of energy we
waste. New exploration and development that was prompted by the embargo
and the dramatic rise in prices, coupled with a reduction in demand due
to conservation efforts and the current worldwide recession, have produced once again an excess of energy producing capacity in the world.
Unfortunately, this quickly produces an apparent lack of real concern
on the part of the American public for the importance of the problem.
How quickly we forget the long lines at the gas station to get ten
gallons on our designated odd or even day of the month I What is needed
is a continuing awareness of the need for conservation and at the same
time the necessary resources and capital to develop and make available
alternative sources of energy, be it new sources of petroleum and
petroleum products, the gasification of coal, the development of shale
and tarsands, or totally new technology and sources of energy.

-6Another question we must face in the near future is the amount of
government we want, the amount of government we can afford, and the
amount we are willing to pay for. The approaching national Bicentennial
is a suitable milestone at which we might pause and look at the direction
we are heading. It took 186 years for the annual Federal budget to reach
$100 billion. Only nine more years were required to break the $200 billion
figure and four more years to reach $300 billion, a record we are establishing this year. I recognize that the impact of these figures is
tempered somewhat by the increase of the size of our entire economy during
those periods and because of the effect of inflation on the value of a
dollar. The trend is nonetheless clear. Total government spending now
accounts for about one-third of our Gross National Product. If recent
trends in income transfer payments continue, total government spending
will command as much as 60$ of our GNP by the year 2000.
Not only is government commanding an increasing share of our national
resources, but the increasing burden of Federal regulations threatens to
stifle an economy that has produced the highest standard of living and
the greatest productivity known to man.
National Journal Reports, a publication reporting on the Washington
scene, recently carried a brief insert describing the reporting requirements on one company, Standard Oil Company of Indiana. It reported that
at the end of 197^, Standard centralized its reporting staff in a single
office in its Chicago headquarters. At that point, Standard was required
to file about 1,000 reports a year with some 35 Federal agencies including
not only the Federal Energy Administration and the Federal Power Commission,
but some less likely ones as the Bureau of Indian Affairs and the Small
Business Administration. Since the beginning of this year, the Federal
government has hit Standard with 16 major new reports that must be submitted regularly. And, of course, there is duplication. The company must
report its oil and gas reserves to the FEA, the FPC, the FTC and the
U.S. Geological Survey. Each, of course, has its own form with a little
different twist.
We have regulatory agencies exercising direct control over air,
rail, and truck transportation, power generation, television, radio, and
the securities markets. Increasing regulations govern the design and
manufacture of automobiles as well as the roads they travel on and the
fuel they burn. Most of the regulatory process was originally designed
to protect the consumer. But now we have a serious proposal that has
passed the Senate by a large margin for the creation of a new Federal
bureaucracy--an agency to represent the consumer before other Federal
agencies.

1^
-7-

It is a cardinal rule of the bureaucracy that it is much easier to
establish a new agency than it is to abolish one. Recent press reports
have highlighted the efforts of one congressman to eliminate the existence
of a Mine Safety Appeal Board that has been in existence for four years
and has yet to have a single appeal referred to it. The expected workload for the Board has never materialized, yet it is there and difficult
to abolish. This agency has only two employees and an annual budget of
about $50,000, but its presence should cause us to wonder whether there
are others.
Times change; problems change; our national priorities change; and
occasionally the need for government regulations changes. I would suggest
that a thorough periodic review of the authority and responsibility of
each regulatory agency and of every government program is becoming necessary. Hopefully, this can be done without the creation of another agency
to do it. We may need to muster the political courage to eliminate some
government regulations and let the free enterprise marketplace work.
While listing some of the challenges I see ahead and describing
their serious nature, I am confident that we have the ability to meet
those challenges0 As a nation we have never failed to deal with the
challenges we have chosen to meet head-on. I still have a great confidence in our capacity to change course when necessary, to apply the resources required to meet our priorities, and to permit American ingenuity
and resourcefulness to work.
The Administration is moving to deal with these challenges.
President Ford has taken the initiative in dealing with the energy
situation and is taking the action that is within his authority. He
has also ordered that all legislation and significant new regulations
proposed by Federal agencies be accompanied by a certificate that the
inflationary impact of the proposal has been considered in its formulation. The Treasury Department has established an office of financial
resources planning to concern itself with governmental policies towards
our capital markets. The Administration is urging the Congress to
establish a National Center on Productivity to look for ways of increasing
productivity and increasing our competitive position in an interdependent
world. We have proposed a financial institutions act that will broaden
the powers of many of our financial institutions and increase competition
among them. Tax reform proposals are being formulated that will include
steps to stimulate and encourage capital formation. The President has
announced his intention to schedule a meeting with the regulatory agencies
to explore ways in which unnecessary government constraints can be eliminated from regulated businesses.

-8To accomplish this, however, the American people must have confidence in the American system and its ability to function. The three
branches of our Federal government need a degree of mutual respect and
trust in order for each to play its important role in the fashioning
and implementation of our response to these challenges. The confidence
of the American people has been shaken by the events of recent years.
An unmistakable sense of distrust has been permitted to invade the relationships between the Congress and the Executive Branch. I believe
President Ford has demonstrated his capacity to lead and at the same
time to listen to responsible voices in the Congress and elsewhere who
have something constructive to contribute on the issues of the day.
Most importantly, he has begun the task of rebuilding the confidence
of the American people in their government by showing that he has trust
in the American people. The challenges we face are many and formidable.
I have every confidence in our ability to meet them, and to emerge
stronger to meet those that follow.
Thank you.

Departmental theTREASURY
ASHINGTON, DC. 20220

TELEPHONE W04-2041

FOR IMMEDIATE RELEASE

Ifi

STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE JOINT ECONOMIC COMMITTEE
WASHINGTON, D.C., JUNE 4, 1975, 10:00 AM

Mr.

Chairman and Members of the Committee:

It is a pleasure to be here today and to participate in
your review of the economic and financial situation. These
are always valuable sessions. That is particularly the case
this year.
There is fairly general agreement that the economy is
poised for recovery after having experienced the first prolonged period of peacetime inflation in our history and the
deepest recession since the 1930fs. There is much less
agreement on the exact path that the economic recovery will
or should take, and on the risks that will be encountered
along the way. Yet, now is the time when many of the crucial
decisions on economic policy must be made. Therefore, I
welcome the opportunity to give you my appraisal of the situation and to hear yours.
THE ECONOMIC OUTLOOK
A wide range of evidence suggests that the current
recession is now in the process of reversing direction. But
recovery from this low point will not quickly be evident in
all of the measures of economic activity. For example,
further increases in the rate of unemployment cannot be
ruled out. As history tells us, unemployment tends to lag
on the upside of the cycle. Employers were slow to resort
to layoffs when the economy turned down in 1974 and may now
be slow to rehire until the recovery is well underway.
Real growth will be resuming in an underemployed economy,
but one that still has an underlying, built-in rate of
inflation that is unacceptably high. Our immediate need is
to reduce the rate of unemployment to much more tolerable
levels. But we must go about this essential task in such a
way that the recovery of the economy is not soon choked off, and
higher rates of inflation are not quickly recreated. Instead,
we
should do all that we can to direct the economy
WS-326

- 2onto a path of recovery that can be sustained over a long period
of time. There is only one way that we can possibly achieve and
maintain low rates of unemployment and that is in an environment
of reasonably stable prices.
In my opinion, there are at least two major constraints
on how far and how fast the current recovery can go. One is
the state of our financial markets and their ability to handle
large Federal deficits along with the credit requirements of
the private sector. The other is the state of our industrial
capacity and its ability to support a strong recovery without
encountering serious bottlenecks. I would like to examine with
you this morning these potential financial and industrial
limitations on economic recovery and consider what their influence
is likely to be.
On the surface it may seem premature to be concerned now
about potential limitations on an expansion that is not yet a
statistical reality. But now is the time to examine these and
other possible barriers to the healthy economic recovery we all
desire, rather than later when it will be too late to adjust our
policies. Events over the past decade indicate all too clearly
the need to anticipate the economic effects of our policies well
in advance, if we are to avoid overdoing them and thereby
creating a new boom-and-bust roller coaster for the economy.
Federal Deficits and Financial Markets
There has been considerable discussion in recent months of the
potential impact of large Federal deficits on the prospects for
economic recovery. I think Paul McCracken put the matter succinctly
when he noted before your Committee earlier this year that:
If the financial community has been slow to
appreciate the role of fiscal policy in the management
of the economy, economists have been slow to face fully
the implications of the fact that Treasury financing and
private borrowing do compete for funds in the same money
and capital markets. And Treasury requirements are now large
enough so that their impact on financing in the private
sector must be faced quite explicitly.
As I have said on many occasions, it is the timing of the
Federal deficits that is the key to a proper understanding of the
problem. My concern all along has not been with calendar 1975.
I expect some strains, but basically I think the financing of our
Federal deficits will be manageable this year. Serious problems
are not likely to appear near the bottom of a recession when monetary
policy is easing and when private short-term demands for credit are
falling.

For example, short-term business borrowing at banks and
in the commercial paper market has fallen by $5 billion thus
far this year, in contrast to increases of $10 billion and
$12 billion in the comparable periods of 1973 and 1974. This
does make room temporarily for the financing of Federal deficits,
although it does not rule out periods of temporary market congestion, particularly since long-term corporate demands on the
bond markets have not followed the pattern of recession decline.
For example, corporations have brought to market a record $15
billion of long-term securities this year up sharply from $4
billion and $8-^ billion in the comparable periods of 1973 and
1974. On balance, however, although there have been some
financial strains, the weakness of the economy makes the Federal
financing task for this year manageable, and to date our outsized
Federal deficits have not created serious new problems.
However, we should not forget the continuing problems of
high inflation, high inflationary expectations and high interest
rates. All are still very much with us and it is disconcerting
that we are starting this economic recovery at levels well above
those of any previous postwar recessions.
But what happens next year and the year after, as the economic
recovery progresses? We can take little comfort from getting
through 1975 without difficulty, if problems develop in 1976 or
1977. The important thing is to prevent the problems from developi
at any time.
We cannot be sure that they will not. There is a growing
awareness among market participants and economists that there
is a danger of serious financial trouble once the economic recovery
gets well underway. Short-term private credit demand could turn
around rapidly and add to total credit demands rather than subtracting from them. In such a setting, there is a strong possibili
that an imbalance will develop between the total of government plus
private borrowing and the prospective supply of funds at any feasib
rate of monetary expansion. As a result, interest rates may rise
sharply and not all private borrowers will obtain credit; some will
be crowded out of the market.
This issue of "crowding out" has a number of different facets,
which we should try to keep separate for a full understanding of
the issue. A few observers have attached the "crowding out" label
to the decisions in recent months by some high-quality borrowers
to defer their bond issues. In fact, those actions are not really
crowding out, since the companies involved will obtain credit from
alternative sources, probably from the banking system. What they
have done is to temporarily "opt out" (rather than being "crowded
out") of the long-term market on their business judgment that the
terms of their borrowing will be better later.

- 4Nor is "crowding out" something that happens only on
special occasions with a bell going off to announce the fact.
It is, rather, a permanent condition of the credit markets in
the sense that demand always exceeds supply and thus some
would-be borrowers -- financially shaky companies or municipalities
that are at the bottom of the quality list -- are constantly
being crowded out at the margin.
But that is not the issue here. What we are talking about
here is the impact of large and cumulative Federal deficits on
the availability of credit to private borrowers who would otherwise
be able to obtain and use those funds. Federal debt always has
the highest credit rating, so when the Treasury comes into the
credit market for funds it does so at the head of the line and,
inevitably, some private borrowers get pushed out of the line at
the other end. The larger total demand for credit raises the
level of interest rates and makes many otherwise viable projects -sometimes whole industries, such as housing or utilities -unprofitable.
There is no escape from this outcome. We are sometimes
advised to avoid competing with private borrowers in the longterm markets by concentrating all Treasury issues in short
maturities. It is not generally understood to what extent we
have been doing just that over the years. As the attached chart
shows, the average maturity of outstanding privately held marketable
Treasury debt has fallen from 5 years and 9 months in 1965 to 2 years
and 8 months currently. So far this year we have done 81 percent
of our borrowing at short-term (0-2 years), 15 percent in the
intermediate markets (2-7 years) and only 4 percent in long
maturities. It is clear, therefore, that our borrowing activities
have been heavily concentrated at the short end of the maturity
spectrum. And with what results? Has it prevented long-term
interest rates from rising over the past decade? Hardly!
Some people say too much short Treasury debt creates inflation,
but that idea is often disputed and we cannot be sure one way or
the other. One point on which there is no controversy, however,
is that a constant Treasury presence in the market place, rolling
over one large issue of short-term debt after another, is highly
disruptive to all the financial markets.
For this and other reasons, we receive a great deal of advice
to borrow in all parts of the market. For example, the Government
and Federal Agencies Securities Committee of the Securities Industry
Association advised us in their report of February 24, 1975, as
follows:
The Treasury should tap all maturity areas,
including the untouched 9 to 15 year sector...
and
Treasury offerings should be designed to create
and build an upsloping yield curve, even in the

0-1 year bill market. This is fundamental to
\
accomplishing any desirable "ownership" or "maturity
structure" that will get this financing job done.
We have not followed the recommendations of our advisory
committees in all respects, for the ultimate judgments have
been ours, as they should be. But I agree completely with
the wisdom of their consistent advice that to raise the
tremendous sums we require, without extreme distrubance to
our financial structure, we must issue securities in all the
different maturity ranges; and we must do our best to halt
the long, continued concentration of our debt in short-dated
securities.
I also agree that the Treasury should design its offerings
to create and build an upward sloping yield curve to appeal
to nonbank investors and to improve the maturity structure
of the debt. The importance of an upward sloping yield
curve should not be underestimated. As the Securities
Industry Association committee put it:
Because the majority of institutional investors
borrow short-term funds and invest them longer -this is true of commercial banks, of savings
institutions and others -- anything that raises
short-term rates destroys the incentive to invest
longer term, be it in mortgages, corporate bonds,
or stocks. This is because any action that makes
short rates higher than otherwise simply increases
the risks of investing long, and destroys the
incentive or need to extend investment maturities.
Similarly, the weight of practical and experienced
market advice, as I have already indicated, is that we
should offer securities in all maturity areas to minimize
the risk of an adverse impact on any particular sector.
Indeed, unless we can offer securities in all the maturity
ranges where demand exists, debt management is complicated
and the ultimate cost of financing our deficits is likely to
be increased.
In this connection, I should mention the sometimes
erroneous conclusions about the impact of Treasury financing
operations on particular sectors of the economy. There is a
tendency, for example, to think of housing in terms of
permanent, 30-year mortgage financing, but as every home
builder knows, the availability of construction financing is
as important to getting a job started as the permanent
financing is to getting the job completed. We also know the
deposit flow to financial institutions, such as the savings
and loan associations, is far more sensitive to the

- 6competition of shorter-term Treasury obligations than to the
competition of longer-term obligations. Indeed, every sector
of the economy, every aspect of our financial markets, is to
interrelated that the undue weighting of Treasury financing
in any particular maturity area can have adverse effects
throughout the whole market -- which could largely have been
avoided by a better choice of new securities.
As we move forward into the recovery phase, there is an
additional reason for concern with our debt structure. It is
obvious that a substantial portion of our financing in the future,
as in the past, will have to be handled in the short and intermediate
area. But if we concentrate our new offerings entirely in the
short- and intermediate-term areas, then, when the economy has
achieved a substantial measure of recovery, the problems of the
Federal Reserve would be greatly complicated. Short-term Treasury
debt is very near to money and can be liquidated to provide funds
for other purposes at small cost unless there is a substantial
rise in interest rates. In my judgment, and I believe this is
a judgment shared by other market professionals, excessive amounts
of short-term Treasury debt could contribute to another situation
in which we could get an excessive rise in short-term interest
rates, with the whole panoply of adverse economic and financial
consequences such as developed in 1966, 1969-70, and again in 1973.
A further reason why there is no escape from the process by
which large and cumulative deficits lead to rising interest rates
is the fact that excessive borrowing at short term is perceived
in the credit markets as a portent of inflation. And. when
inflationary expectations are intensified, borrowers increase
their demands for long-term funds because they expect future
shortages and higher rates, but at the same time lenders are
reluctant to make commitments for long periods. Thus demand
in the long-term market is increased and supply is reduced.
The inevitable result is a crowding out of some private borrowers
at the margin and a rise in interest rates in the long-term markets
as well as for short-term instruments. The sheer size of the
cumulative deficits is the basic force, and there is no escape
from their effects.
Of course, some see an escape in the form of a Federal Reserve
policy that leads to a rapid expansion in money and credit. Such
action might postpone the problem for a while, but only for a while.
In the end, we would only have still more rapid inflation, still
higher interest rates and still another severe recession.
As I have repeatedly emphasized, this result -- the crowding
out and the new explosion of prices -- is not inevitable. But
as we look ahead to the prospect of continuing large deficits,
I believe the risk is a very serious one. It can be limited,
however. The exercise of close restraint over Federal expenditures,
which in turn would keep our deficits and our borrowing requirements
in check, can minimize the danger that the economy will encounter

any binding financial constraints over the next couple qfV^
years.
There are three closely related factors that explain
why a potential financial constraint to the recovery of the
economy exists in the current situation, where none has
shown up in previous postwar recoveries. First, a decade of
inflation has begun to limit the absorptive capacity of our
financial markets and seriously affected their functioning.
Second, the Federal Government through its deficit financing
and rapidly expanding credit programs has preempted a very
large share of the total securities markets in recent years.
Third, and most crucial of all, there is an enormous forward
momentum in Federal expenditures. Unless we check that
runaway growth, there is a serious risk in my opinion that
the Federal Government itself may clog the financial markets
and choke off economic recovery.
We must not be lulled into a false sense of security by
the improvement in financial markets and the very successful
recent Treasury financings. From January through June of
this year we will have raised some $36 billion in a slack
economy while monetary policy was easing. Another $70 to $75
billion or more will need to be raised in the coming fiscal
year while the economy is recovering and private credit
demands are rising.
Ideally, the Federal budget would then begin to move
back toward balance, but we delude ourselves if we assume
that such a benign state of affairs will develop automatically.
Over the past decade, Federal expenditures have shown a
consistent tendency to outrun receipts. We must take effective
steps to restrain that tendency. Otherwise, some future
session of this Committee will be examining on an even more
urgent
basis
same problems we face today.
The Effect
of the
Discussion.
Because I have tried to point out the risks of unsound
fiscal policy, and ways to minimize that risk, a number of
critics have accused me of crying wolf and creating a climate
of doubt and apprehension in the credit markets. I would
like to make two points about these accusations.
First, it is the responsibility of the Secretary of the
Treasury to maintain the U.S. Government's financial integrity.
Speaking out on developments that endanger that integrity is
a necessary and vital part of the job, though it will win no
popularity contests. Surely I would be criticized still more
vehemently if I were to refrain from speaking out when in my
judgment there was a risk of the government pursuing harmful
policies.

- 8Second, even allowing for the shaky state of public
confidence in the Government's ability to manage the economy
in this uncertain world, it is nonsense to contend that my
comments on the subject are going to create chaos in the
credit markets. Could anyone possibly think that participants
in the financial markets do not have the sense to recognize
these dangers by themselves, i.e., in the absence of comments
from Washington? They know what is going on, because every
financial house of any size in this country has analysts
assigned to keep track of the Federal budget. They know how
important it is to conditions in the financial markets, and
that it can cause severe difficulties.
They knew, for example, of the heavy demands by both
corporations and state and local governments for long-term
funds this year --and they knew it back at the beginning of
the year, long before the enormous size of our deficits
became general knowledge and long before "crowding out"
became a popular debating topic. These huge demands were
not caused by rhetoric from Washington or anywhere else. And
it was those huge demands that kept long-term interest rates
as high as they are. To me,therefore, it seems naive to
blame the debate or the debaters for what has been happening.
There is, in fact, very little, if any, lasting market
effect from a statement by the Secretary of the Treasury or
any other person regarding the course of future market rates
unless the facts support his conclusions. Those who make
decisions in markets do not survive for long by acting on
statements that are not based on fact. Market reactions to
statements which are not based on facts are temporary and
self-correcting. The key determinant of market moves is
what the participants perceive as the realities of current
and prospective financial conditions. These are based on
current actual conditions in the market and on anticipated
conditions of the supply and demand for savings, which
includes the present and prospective deficits. Unfortunately,
the cause of a problem is too frequently attributed to the
messenger rather than to the message itself. Or, as the
Wall Street Journal so aptly stated, that's like blaming the
obstetricians for rising birth rates.
Furthermore, it is not as though this crowding out
debate has been purely one sided. While I and others have
been warning of the dangers of excessive budget deficits,
many others have been publicly disparaging those warnings.
The press release issued by this Committee on May 15 is
a case in point. It reports on a survey of 28 economists
and financial people about the impact of the budget deficits
on the credit markets. A poll was made of the responses and
the results were announced as 20 who felt the deficits could
be financed easily, 5 who dissented and 3 who were uncertain.

- 9You, Mr. Chairman, very fairly included in the full
texts of the letters from the 28 individuals in the Congressional
Record (April 30 and May 15). Our examination of those
letters suggests that the real unanimity reported in the
press release applies only to the current financing of the
deficit, i.e., at or close to the bottom of the recession.
That is not, however, what I have been focusing on. What I
have said repeatedly is that a $60 billion deficit for FY
1976, although it will involve some financial strains, is
manageable but that a deficit in the range of $80 to $100
billion will clearly move us into the zone of serious danger -not this year but in calendar 1976 and beyond when the
economic recovery gets into full swing and private credit
demands are strongly on the rise again. If we analyze the
letters from your survey for what they say about this alternative
question, a very different view emerges. Much of the optimism
evaporates and about half of your respondents express varying
degrees of apprehension.
For example, in your remarks on this survey in the
Senate on May 15 you quote Guy Noyes of Morgan Guaranty
Trust as saying:
Based on our analysis of prospective demands for
credit from the private sector in calendar 1975,
it is our tentative judgment that there will not
literally be any "crowding out" of private borrowings
this year as a consequence of Treasury debt offerings, even
if the Treasury's new money needs in 1975 total $75
billion to $80 billion, as now seems likely. Room for
the large volume of Treasury financing seems likely to
exist because of the marked softening now in evidence
in private credit demands.
Let me go on, however, to quote the remainder of his
letter, which reads as follows (continuing directly on from
the quotation above):
I would stress that this is something we cannot be
certain about, but it is our working assumption as of
the moment. Such an accommodation of combined Treasuryprivate financing needs seems possible without any
radical shift by the Federal Reserve from the sort of
monetary policy it is now pursuing. This is not to say,
however, that the task of the Federal Reserve in the
months ahead will be an easy one. Credit markets are
very fragile and nervous and can react adversly to
a policy stance on the part of the Fed that they sense
to be less accommodative or, on the other hand, too
accommodative, i.e., inflationary.

- 10 Major questions do exist, however, about the possible
occurrence of serious frictions in money and capital
markets beyond calendar 1975 if the Treasury's needs
for new money remain as large as is implied by the
deficit figure of $75 billion for fiscal 1976, which
you cite in your letter. We are assuming that calendar
year 1976 will witness a fairly strong expansion of
private credit demands, and such an expansion - it seems
to us - can be accommodated without outsized increases in
monetary aggregates and without steep escalation of
interest rates only if the Treasury's money needs are
in the process of diminishing. This again is a matter
of judgment, but in shaping the budget for fiscal year
1976 and fiscal year 1977, we would be strongly
inclined to lean as far as possible in the direction
of limiting the size of the budget deficit. Otherwise,
an uncomfortably large risk will prevail that interest
rates will again climb steeply and weaken or abort the
recovery or that to prevent such weakening or abortion
the Federal Reserve will have to be excessively
accommodative to a degree that nurtures inflation.
We would put a high premium on fiscal restraint by
the Congress and the Administration from this point
on and would particularly urge that new programs with
indefinite life spans be avoided in responding to the
current recession problem. Keeping stimulus temporary
and measured is critically important if we are to
avoid a repetition of the national bias toward
excessive pressure on real resources that has been
so destabilizing in the past decade.
Finally, it seems to us highly important that both
monetary policy and debt-management policy remain
flexible to adapt to changing conditions. The Federal
Reserve seems intent on trying to accommodate recovery
without recreating sloppy money conditions. We applaud
that objective and believe that the Board and the
Federal Open Market Committee should retain full
discretion in deciding how to shift policy to the
changing signals transmitted by money and capital
markets and the economy. Likewise, the Treasury
should tailor particular offerings to the changing
technical conditions of markets. This will undoubtedly
mean a very heavy volume of short-term debt offerings,
but we would certainly urge that the Treasury be left
to tap the intermediate-term and longer-term markets if
that seems appropriate from time to time.

- 11 Thus, Mr. Noyes1 full letter carries a rather different
message from what is suggested by the sentences you quote.
His conclusion that Treasury borrowings will not congest the
financial markets pertains only to calendar 1975. The remainder of
his letter, however, raises serious questions about the
consequences of continuing large deficits in 1976 and 1977.
There is a further point about this survey that deserves
emphasis. Almost all of the respondents who do not anticipate
difficulty in financing the deficit, either this year or later,
qualify their position with comments such as "provided the Federal
Reserve is sufficiently accommodative." This is a vital facet of
the issue; it gets to the heart of the matter. It represents exactly
what we are opposed to.
Of course the Federal Reserve can temporarily avoid a
financial confrontation brought on by excessive public and
private credit demands. All the Federal Reserve has to do is to
be "sufficiently accommodative." But should it be? The answer
has to be "no", because in this situation "sufficiently
accommodative" is very likely to mean that money and credit will
be created in excessive amounts. In turn, too much money and
credit will set in motion the same unhappy boom-and-bust
rollercoaster that we're suffering from now: First, an expansion
that goes too fast and carries too far, then shortages and an"-^:;
acceleration of inflation back to double-digit rates again and70
finally, another recession and rising unemployment. In the process
we are almost sure to have another increase in the proportion of"
our total economic income that is channeled through government.
The point I believe most people miss here is this: although
excessive credit creation can postpone for awhile the financial
difficulties caused by excessive Federal credit demands, it
cannot escape them permanently.
The Room for Economic Expansion
In some ways the concern I have about excessive
Federal borrowing possibly crowding out private credit requirements extends also to the possibility of our runnine
into shortages of industrial capacity too early in the
expansion. Unfortunately, while the ability to restrain
Federal spending and reduce the resulting financial pressures
does presumably lie within our power, there are not many things
that can be done which would quickly expand our industrial
capacity. But the issue of the adequacy of industrial capacity
is an important one, not only in terms of our policies for cyclical
expansion, but also in terms of its implications for long-run growth

- 12 Superficially, there would appear to be an extremely large
margin of unutilized resources, both material and human, at the
present time. For example, the total unemployment rate has risen
sharply and is at a postwar high. The so-called GNP "gap" expressed
as a percentage of potential output also suggests that there is
a very large margin for expansion. Indeed, no one doubts that we
need and must have a strong expansion of real output over a long
period of time. However, all of the aggregate measures of unutilized resources may be seriously defective as a guide to how
far and how fast the economic recovery can safely proceed.
I am inclined to believe that there are serious measurement
problems in determining just how much effective economic capacity
we actually have. There have been sweeping changes in recent
years, inadequately reflected in the
available statistics, for which we may not be making suitable
allowance in our economic policies. In some cases we have
gained improved understanding of the problems we face. Research
by George Perry of the Brookings Institution and others has,
for example, pointed up the implications of demographic change
in the labor force for full employment policy. It is
questionable in my opinion whether we have enlarged our
understanding of capital investment in any comparable way.
It is possible, for example, that the sharp change in the
relative price of energy combined with government-mandated
increases in safety and pollution requirements may have rendered
some significant part of our economic structure technologically
obsolete. This may even have left the economy in such a position
that we will begin to encounter difficulties in expanding output
at a much earlier stage of the cyclical process than we expect.
This is only a possibility, not a certainty. Such a situation
would only be temporary. But until the adjustments to a new
equilibrium had been made — and this might be a matter of years
rather than months — there could be important effects on output
and employment. At times we may be too ready to view all of our
problems simply in terms of pumping in or siphoning out a
certain amount of purchasing power. However, where our economic
problems are deep-seated and structural, no such easy remedies
are available.
A more specific possibility is that the economy may run
into the same kind of economic bottleneck that constrained us
so severely in 1973: the shortage of capacity in the basic
materials processing industries, such as steel, non-ferrous
metals, paper, cement, fertilizer, and some chemicals. Indexes
of capacity utilization in these areas and for manufacturing as
a whole compiled by the Federal Reserve and the Department of
Commerce seem to show that a rather substantial degree of excess
capacity has now emerged.

Other indexes, however, show much smaller margins of
unutilized capacity in manufacturing, although all the series
show sizable declines in utilization over the past six months
as one would expect. For example, the measures of capacity
utilization maintained by the Wharton School at the University
of Pennsylvania and by the Conference Board, both of which have
historically run at substantially higher levels than the two
government series, suggest that the slack in our manufacturing
facilities is not all that extensive.
I recall very clearly in 1971 and 1972 how we all thought
there was room for plenty of economic expansion. We were saying
the same thing then that many are saying now: full speed ahead
on monetarv and fiscal policy because it will be a long time before
we get back to full utilization of our resources. Well, it
didn't turn out that way; the limits of our capacity to expand
showed up in the first half of 1973 — long before we thought
possible in 1971 and 1972. We have to be careful about
repeating that error in the next couple of years.
Another lesson of our experience in the early 1970s is
that we have to watch the availability of capacity in key
individual industries as well as for the economy or the
manufacturing sector as a whole. We found that shortages in
a few key areas — the basic materials processors in 1973 — can
set the limits on expansion even when considerable slack exists
elsewhere.
In April, for example, one survey (Rinfret-Boston) shows
the iron and steel industry with a capacity utilization rate
of 86 percent, down some 10 percentage points from last fall
but still relatively high. Suppose that the economic recovery
now getting under way carries the steel industry — or one or
more of the other basic materials industries — back to full
capacity operations before the rest of the economy is there.
In such a situation increases in economic output would be slow
in coming from there on out and the improvement in unemployment
would stop far short of what we all desire. Simultaneously, if
fiscal and monetary policy were still expansionary, widespread
inflationary pressures would soon develop.
I am not saying this is going to happen. We know that
the basic materials industries have increased their capital
spending plans sharply since 1973 — and especially since the
end of the price controls (which increased their profit margins
and thus gave them both the incentive and the wherewithal to
make new investment). Whether this new investment will be
adequate, and whether it will come on stream early enough to
avoid capacity bottlenecks of this sort remains to be seen.
But it is something we must take fully into account as we set
economic policy now and in the period ahead.

- 14 -

In some ways, the concern I expressed earlier in this paper
about excessive Federal borrowing possibly "crowding out"
private credit needs is very similar to this possibility of
running into shortages of basic materials too early in the
expansion. In other words, a bottleneck could develop in the
financial markets that would choke off the general economic
expansion, even though unused resources — both men and machines
were readily available throughout the economy.
Conclusion
Even if we don't run into bottlenecks of any sort —
financial or industrial — that would choke off the expansion
too early, we still have to worry about the possibility of
excessive fiscal stimulus in FY 1976. The reason for that
concern is the strong tendency for Federal spending programs
to gather momentum over the years. It is very difficult to
turn off any Federal spending program and all too easy to begin
new ones. Decisions on Federal spending programs that will
produce a large deficit in fiscal 19 76 are almost sure also
to produce large deficits in fiscal 1977 and beyond. What that
means is that right now we are sowing the seeds of future
trouble, even if that trouble is several years down the road.
Politically, most people in this town will not want to worry
about 1977 and 1978. But if we want to achieve a sustainable
prosperity -- if we want to avoid a new boom-and-bust cycle —
then we must set the stage for it now by curbing the excessive
momentum of growth in Federal spending.
-oOo-

ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE
NATIONAL INVEST IN AMERICA COUNCIL
WASHINGTON, D.C., JUNE 4, 1975
SENATOR BROCK/ JOHN HARPER, AND FRIENDS OF THE NATIONAL
INVEST IN AMERICA COUNCIL:

I AM DEEPLY HONORED TO RECEIVE THIS AWARD TODAY,
ESPECIALLY IN THE COMPANY OF SUCH DISTINGUISHED GENTLEMEN
AS JAMES J. KILPATRICK AND FLETCHER BYROM.

I WOULD ALSO LIKE TO JOIN OUR OTHER SPEAKERS IN PAYING
TRIBUTE TO THE FINE EFFORTS OF INVEST IN AMERICA,

THERE CAN

BE NO DOUBT THAT THE FREE ENTERPRISE SYSTEM IN THIS COUNTRY
HAS ITS BACK TO THE WALL, AND THE HOUR FOR SAVING IT —
WELL AS THE PERSONAL FREEDOMS IT PROTECTS —

HAS BECOME VERY

LATE, INDEED. INVEST IN AMERICA IS ONE OF THE FEW TRULY
DYNAMIC AND EFFECTIVE GRASS-ROOTS ORGANIZATIONS THAT IS
FIGHTING ON THE FRONT LINES IN ITS DEFENSE.

FORTUNATELY, SOME OF THE IDEAS WHICH ENERGIZE THIS
ORGANIZATION ARE FINALLY BEGINNING TO PENETRATE THE PUBLIC
PSYCHE, NOT MANY YEARS AGO THOSE WHO WARNED OF THE PERILS
OF BIG GOVERNMENT OFTEN SOUNDED LIKE VOICES IN THE WILDERNESS,
THEIR CRIES DROWNED OUT BY THE PROMISES OF UNIVERSAL HAPPINESS
COMING FROM THE SUPPORTERS OF FANCY NEW SOCIAL PROGRAMS.
NOW, AS THOSE PROMISES HAVE BECOME ASHES IN OUR MOUTH AND AS
WE HAVE DISCOVERED THAT THE VOTES FOR MORE PROGRESS MEANT
ONLY A MANDATE FOR MORE GOVERNMENT, PEOPLE ARE WAKING UP TO
THE DANGERS POSED BY OVERGROWN BUREAUCRACIES AND OVERZEALOUS
BUREAUCRATS. ONE POLL AFTER ANOTHER SHOWS THAT MILLIONS OF
AMERICANS ARE FED UP WITH WASHINGTON -- BOTH ITS POLITICS
AND ITS INSTITUTIONS. THERE IS WIDESPREAD DISBELIEF NOW
THAT THE GOVERNMENT — AND ESPECIALLY GOVERNMENT SPENDING —
CAN SOLVE OUR MAJOR SOCIAL PROBLEMS.

YET, LET US RECOGNIZE THAT AS PUBLIC CONFIDENCE IN THE
GOVERNMENT HAS DROPPED, THERE HAS BEEN NO COUNTERVAILING

1M
INCREASE IN THE PUBLIC'S FAITH IN BUSINESS.

PRIVATE ENTERPRISE

HAS NOT YET CONVINCED PEOPLE THAT IT IS A REALISTIC ALTERNATIVE
TO PUBLIC ENTERPRISE. IF ANYTHING, BELIEF IN BUSINESS HAS
DROPPED MORE SHARPLY THAN IN GOVERNMENT. IN 1966, ACCORDING
TO Lou HARRIS, 55 PERCENT OF THE AMERICAN PEOPLE EXPRESSED
GREAT CONFIDENCE IN BUSINESS; BY 1973, THAT NUMBER HAD
PLUNGED TO 29 PERCENT. NO OTHER PRIVATE OR PUBLIC INSTITUTION
SUFFERED SUCH A LARGE DROP.

IN THIS AND IN MANY OTHER AREAS OF OUR NATIONAL LIFE,
WHAT WE SEE IS GENERAL CONFUSION ABOUT OUR VALUES AND OUR
FUTURE — A PEOPLE LESS IN NEED OF SPECIFIC ANSWERS THAN A
SOCIAL AND MORAL COMPASS. FOR TOO MANY AMERICANS, THE
POLITICS OF HOPE HAVE BECOME THE POLITICS OF DESPAIR.

SHOULD WE, THEN, TURN OUR BACKS IN DEFEAT AND SLINK
AWAY? SHOULD WE ACCEPT THE CONCLUSION OF SOME OBSERVERS THAT
WE WILL ULTIMATELY LACK THE POLITICAL AND ECONOMIC WISDOM

no
TO COPE WITH THE POST-INDUSTRIAL WORLD? CLEARLY NOT, WE
HAVE NOT COME ALL THIS WAY, ACROSS THE CENTURIES, ACROSS THE
OCEANS, ACROSS THE MOUNTAINS, ACROSS THE PRARIES, AS WINSTON
CHURCHILL ONCE SAID, BECAUSE WE ARE MADE OF SUGAR CANDY.

INSTEAD, I WOULD URGE WE RECOGNIZE THAT A TIME OF GREAT
CHALLENGE IS ALSO A TIME OF GREAT OPPORTUNITY.
THE TIME FOR QUITTERS BUT FOR BUILDERS ~

THIS IS NOT

MEN WITH VISION

WHO CAN SEE WHAT IS BEST IN AMERICA AND BUILD UPON IT,
SAY WE ARE IN NEED OF LEADERSHIP.

THEY

I SAY THIS IS THE TIME

FOR FREE ENTERPRISE TO SHOW THAT LEADERSHIP ~

TO RISE UP

AND PROVE WHAT IT CAN DO, NOT JUST FOR A FEW AMERICANS BUT
FOR ALL AMERICANS.

ALL OF US KNOW THAT IN THE YEARS AHEAD, SOMEONE MUST
DEVELOP VAST NEW ENERGY RESOURCES, CONSTRUCT MILLIONS OF HOMES
THAT ARE WITHIN THE PRICE RANGE OF THE AVERAGE FAMILY, OVERHAUL
OUR TRANSPORTATION SYSTEM, AND RESTORE OUR ENVIRONMENT.
IS BETTER EQUIPPED TO DO THIS THAN THE MEN AND WOMEN OF

WHO

- 5-

hf
AMERICAN INDUSTRY? NO ONE, BUT WHO WILL DO IT IF THEY
FAIL? GOVERNMENT — BECAUSE PUBLIC PRESSURE NEARLY ALWAYS

COMPELS AN ALREADY WILLING GOVERNMENT TO MUSCLE ITS WAY INTO
VACUUMS LEFT IN OUR ECONOMY BY PRIVATE ENTERPRISE,

EVERYDAY I HEAR ARGUMENTS THAT THE GOVERNMENT CAN SOLVE
MANY OF PEOPLE'S PROBLEMS BY PAYING MORE MONEY TO THEM.
THAT IS CALLED SOCIAL COMPASSION, LET'S RECOGNIZE IT FOR
WHAT IT TRULY IS: SOCIAL NONSENSE, IT IS THE FALSE NOTION
THAT HAS LED US TO ELECT POLITICIANS WHO PROMISE EVERYONE A
FREE LUNCH AND NEVER BOTHER TO TELL US THAT OUR CHILDREN
WILL HAVE TO PICK UP THE TAB. INDEED, THE BILLS HAVE ALREADY
STARTED TO ARRIVE IN THE FORM OF CHRONIC INFLATION, FOLLOWED
BY THE WORST RECESSION IN A GENERATION, GOVERNMENT SPENDING,
AS IT HAS BEEN FORCED SKYWARDS, HAS BEEN ONE OF THE PRIMARY
CAUSES OF THE INFLATION THAT HAS CONTINUALLY AFFLICTED THIS
COUNTRY OVER THE PAST DECADE, AND INFLATION, AS ONE STUDY
AFTER ANOTHER HAS SHOWN, IS THE GREATEST ENEMY OF THE POOR,

NOBODY SUFFERS MORE FROM INFLATION THAN THE ECONOMICALLY
DISADVANTAGED, THE BEST WAY TO ACHIEVE HIGHER LIVING STANDARDS —
INDEED, THE ONLY WAY — IS TO EXPAND OUR ECONOMIC BASE,
CREATING NEW JOBS, RAISING OUR LEVELS OF PRODUCTIVITY, AND
ALLOWING MORE PEOPLE TO WORK FOR THEM SELVES,

WHAT, THEN SHOULD BE DONE?
y>

A PRIMARY REQUIREMENT FOR THE FUTURE IS TO STOP DELUDING
OURSELVES ABOUT THE PRESENT. CONTRARY TO WHAT YOU OFTEN
READ, OUR ECONOMY IS NOT ON THE PERMANENTLY DISABLED LIST
TODAY, AWAITING ITS FINAL RITES, THIS ECONOMY IS STILL
STRONG AND DYNAMIC, IF WE WILL ONLY STOP ABUSING IT AND
RELEASE ITS FULL ENERGIES, IT WILL PROVE ONCE AGAIN THAT IT
IS THE MOST POWERFUL ENGINE FOR SOCIAL PROGRESS ANYWHERE IN
THE WORLD. I AM ALSO SICK AND TIRED OF APOLOGIZING FOR THE
FREE ENTERPRISE SYSTEM IN THIS COUNTRY, OUR SYSTEM NEEDS NO

APOLOGIES,

OVER THE YEARS, IT HAS PROVIDED US WITH THE

HIGHEST STANDARD OF LIVING AND THE GREATEST PROSPERITY THAT
MAN HAS EVER KNOWN,

LET US RECOGNIZE JUST HOW FAR OUR ECONOMIC SYSTEM HAS
HELPED TO BRING US IN RECENT YEARS:

— IN LESS THAN TWO

DECADES, THE REAL

PURCHASING POWER

OF THE AVERAGE AMERICAN FAMILY HAS JUMPED BY ROUGHLY 40
PERCENT -- AND THAT'S AFTER INFLATION AND TAXES,

— POVERTY HAS BEEN REDUCED BY MORE THAN A THIRD; AND,

-- 20 MILLION NEW JOBS HAVE BEEN CREATED;

NOR SHOULD WE IGNORE THE FACT THAT DURING THESE SAME
YEARS OUR SYSTEM HAS SURVIVED ONE OF THE MOST TRAUMATIC WARS
IN OUR HISTORY, THE HEART-RENDING ASSASINATIONS OF SEVERAL
NATIONAL LEADERS, AND A CONSTITUTIONAL CRISIS IN THE HIGHEST
OFFICE IN THE LAND.

- 8 -

\ r\ si

AS ONE OF MY FAVORITE COLUMNISTS, JAMES J. KlLPATRICK,
WROTE NOT LONG AGO, "FOR ALL ITS FAULTS, THIS GREAT AND
ROBUST NATION HAS A TREMENDOUS CAPACITY FOR PERCEIVING AND
OVERCOMING ERROR ... WE MAY BE THE BIGGEST BUNCH OF BELLYACHERS
ON EARTH AND WE MAY CARRY ON LIKE CASSANDRA COMPOUNDED, BUT
IN THE CRUNCH WE ARE UNBEATABLE,"

RECOGNIZING, THEN, THAT OUR SYSTEM IS STILL POTENT BUT
THAT IT HAS BEEN WEAKENED BY YEARS OF MISGUIDED GOVERNMENTAL
AND SOCIAL POLICIES, I BELIEVE THAT WE CAN BEGIN TO DETERMINE
AN AGENDA FOR THE FUTURE.

ONE OF OUR FIRST PRIORITIES, I WOULD SUGGEST, IS TO
ACHIEVE A BASIC SHIFT IN OUR DOMESTIC ORIENTATION AWAY FROM
THE HEAVY EMPHASIS WE PLACE UPON PERSONAL CONSUMPTION AND
GOVERNMENT SPENDING AND TOWARD A MUCH GREATER EMPHASIS UPON
SAVINGS AND CAPITAL INVESTMENT, OVER THE LAST SEVERAL
YEARS, WE HAVE TILTED OUR ECONOMY TOO FAR IN THE WRONG
DIRECTION SO THAT WE HAVE HAD THE WORST RECORD OF CAPITAL

(E
INVESTMENT AMONG THE MAJOR INDUSTRIALIZED NATIONS OF THE
FREE WORLD. OUR EMPHASIS UPON CONSUMPTION AND SPENDING MUST
BE HELD TO BLAME, AS MUST THE DETERIORATING STATE OF CORPORATE
PROFITS. AS A RESULT OF OUR POOR PERFORMANCE, WE HAVE ALSO
HAD ONE OF THE LOWEST RECORDS OF PRODUCTIVITY GROWTH. IT
BEARS REPEATING TO EVERY AUDIENCE THAT ONLY BY INCREASING
PRODUCTIVITY CAN WE ALSO RAISE THE STANDARD OF LIVING.

LOOKING AHEAD, IF WE ARE TO REALIZE OUR HOPES FOR AN
EXPANDING ECONOMY AND INCREASING PRODUCTIVITY, OUR BEST
ESTIMATE IS THAT THE AMOUNT OF CAPITAL INVESTMENT OVER THE
NEXT DECADE WILL HAVE TO BE THREE TIMES AS LARGE AS IT HAS
BEEN IN THE LAST DECADE. AND OF COURSE, AS INVEST IN AMERICA
REALIZES, OUR INVESTMENTS MUST EXTEND BEYOND BRICKS AND
MORTAR: WE MUST ALSO INVEST IN HUMAN CAPITAL, FOR THE
TALENTS AND INGENUITY OF THE AMERICAN PEOPLE CONTINUE TO BE
OUR SINGLE MOST IMPORTANT NATURAL RESOURCE.

A SECOND GREAT CHALLENGE LYING AHEAD IS TO CURB THE
ENORMOUS GROWTH IN GOVERNMENT SPENDING AND ROLL BACK THE
TIDE OF GOVERNMENT REGULATIONS THAT NOW ENGULF ALMOST EVERY
ASPECT OF OUR PRIVATE ENTERPRISE SYSTEM.

THE INDEPENDENT REGULATORY AGENCIES OF THE GOVERNMENT
EXERCISE DIRECT CONTROL OVER ALL FORMS OF INTERSTATE TRANSPORTATION, POWER GENERATION, THE SECURITIES MARKET, AND
ELECTRONICS COMMUNICATION ~ INDUSTRIES THAT ACCOUNT FOR
MORE THAN 10 PERCENT OF EVERYTHING MADE AND SOLD IN THE
UNITED STATES. THROUGH A PROLIFERATION OF ENVIRONMENTAL AND
SAFETY LAWS, SUBSIDY PROGRAMS, CONTRACTING AUTHORITIES AND
OTHER DEVICES, FEDERAL REGULATORS HAVE ALSO HEAVILY SUPPLANTED
THE DECISIONS OF PRIVATE CITIZENS IN THE MARITIME, AUTO,

DEFENSE, DRUG, TRADE AND AGRICULTURAL INDUSTRIES,

MANY GOVERNMENTAL REGULATIONS SERVE WORTHY PURPOSES AND
MUST BE CONTINUED, BUT LOOKED AT AS A WHOLE, THE SYSTEM OF
GOVERNMENTAL REGULATION NOW POSES ONE OF THE LARGEST SINGLE
THREATS TO OUR ECONOMIC FREEDOMS. FOR OUR PART, PRESIDENT
FORD HAS MADE.IT CLEAR THAT THE REGULATORY PROCESS IS ONE OF
THE PRIMARY TARGETS FOR REFORM DURING THIS ADMINISTRATION.

OBVIOUSLY, THE EXPLOSIVE GROWTH OF GOVERNMENT AND THE
ATTENDANT GROWTH IN THE COST OF GOVERNMENT SHOULD BE ALARMING
TO US ALL, JUST AS THE MUSHROOMING OF GOVERNMENTAL REGULATIONS
MUST BE A MATTER OF GRAVE CONCERN, TOGETHER, THESE GOVERNMENTAL
POLICIES HAVE HELPED TO LEAD US STRAIGHT DOWN THE PRIMROSE
PATH, AND WE MUST NOT ONLY REVERSE THEM BUT WE MUST BE
VIGILANT IN AVOIDING THAT COURSE IN THE FUTURE. THE PUBLIC
IS NOT YET FULLY AWARE OF HOW MUCH ECONOMIC DAMAGE HAS BEEN
CAUSED IN WASHINGTON, BUT THE MESSAGE IS BEGINNING TO GET
THROUGH.

A THIRD GREAT CHALLENGE FACING THE UNITED STATES IS J (9
DEVELOP MUCH GREATER SELF-SUFFICIENCY IN ENERGY. WE MUST .
UNDERTAKE A DRASTIC RESTRUCTURING OF OUR GOVERNMENTAL POLICIES
AND CREATE AN ECONOMIC ENVIRONMENT THAT WILL ENCOURAGE THE
INVESTMENT OF AS MUCH AS $1 TRILLION IN ENERGY DEVELOPMENT
BEFORE 1985. JUDGING FROM THE RECENT PERFORMANCE BY SOME
MEMBERS OF THIS CONGRESS AND THE GROSS DAWDLING AND DELAY
THAT HAVE CHARACTERIZED THE LAST FEW MONTHS, WE HAVE OUR
WORK CUT OUT FOR US, FORTUNATELY, WE HAVE A PRESIDENT WHO
WILL CONTINUE TO EXERT STRONG LEADERSHIP IN THIS FIELD.

A FOURTH CHALLENGE THAT I WOULD SUGGEST TODAY IS IN OUR
FOREIGN ECONOMIC POLICY: WITH INTERDEPENDENCE NOW A REALITY,
WE MUST BE STRONG AND INNOVATIVE IN WORKING WITH OTHER
NATIONS TO CREATE MORE EFFECTIVE INTERNATIONAL APPROACHES TO
THE PROBLEMS OF FOOD, INTERNATIONAL FINANCE, AND ENERGY.
BUT LET US RECOGNIZE AT THE SAME TIME THAT THE GREATEST
CONTRIBUTION WE CAN MAKE TO A STABLE WORLD ~ INDEED, THE

KEY ELEMENT IN OUR INTERNATIONAL ECONOMIC POLICY -- IS ITO \
MAINTAIN A STRONG, NON-INFLATIONARY ECONOMY HERE AT HOME,

;

A FINAL CHALLENGE ~ AND ONE THAT IS THE MOST CRUCIAL
TO THE PRESERVATION OF OUR PERSONAL LIBERTIES ~ IS TO
PRESERVE AND STRENGTHEN THE FREE ENTERPRISE SYSTEM IN THIS
COUNTRY. LET THERE BE NO MISTAKE: UNLESS WE WORK*TO
CHANGE DIRECTIONS, ECONOMIC FREEDOMS AS WE HAVE KNOWN THEM
WILL WITHER AWAY IN THE UNITED STATES, THIS IS THE GREAT
TASK OF ORGANIZATIONS SUCH AS INVEST IN AMERICA: TO EDUCATE
THE PEOPLE OF THIS COUNTRY ABOUT OUR ECONOMY SO THAT WE WILL
KEEP THE BEST OF OUR SYSTEM, CAST OUT THE WORST, AND MAKE
SURE THAT WE KNOW THE DIFFERENCE, THIS JOB OF EDUCATION
MUST ASSUREDLY BEGIN IN OUR SCHOOLS ~ IN THE HIGH SCHOOLS
AND COLLEGES ACROSS THE NATION WHERE KARL MARX IS BETTER
KNOWN THAN ADAM SMITH, THE MISUNDERSTANDINGS ABOUT
SOCIALISM AND CAPITALISM THAT EXIST IN OUR SCHOOLS
TODAY BORDER ON A NATIONAL SCANDAL, "HOW," AS SOCIAL CRITIC

IRVIN KRISTOL ASKED

[)

NOT LONG AGO/ "HAVE WE MANAGED TO RAISE

A WHOLE GENERATION OF YOUNG PEOPLE WHO DO NOT KNOW HOW THEIR
PARENTS MAKE A LIVING." I'M NOT SURE I KNOW THE ANSWER, BUT
LET US WORK TOGETHER TO SEE THAT IN THE NEXT GENERATION, THE
QUESTION WILL NOT BE ASKED AGAIN,

NEITHER CORPORATIONS ~ NOR CONGRESSMEN, FOR THAT
MATTER — CAN LIVE BY WORDS ALONE, HOWEVER. THEY MUST ALSO
PROVE THEMSELVES TO THE AMERICAN PEOPLE BY THEIR DEEDS.
THAT IS WHY IT IS SO CRITICAL THAT WE NOT RELY SOLELY UPON
THE EDUCATIONAL PROCESS, AS ESSENTIAL AS THAT IS. WE MUST
ALSO ACT CONTRUCTIVELY WITHIN THE FRAMEWORK OF OUR INDUSTRIAL
SOCIETY TO MEET OUR ECONOMIC CHALLENGES HEAD-ON. WE MUST
SEEK TO PRESERVE AND STRENGTHEN THE COMPETITIVE MARKETPLACES
WITHIN EACH OF OUR INDUSTRIES SO THAT WE WILL NOT INVITE
FURTHER REGULATION OF ALL INDUSTRIES, To REGAIN THE CONFIDENCE
OF THE AMERICAN PEOPLE, PRIVATE BUSINESS MUST RESPOND TO
RISING DEMANDS FOR HONEST AND FAIR DEALING. THE FEW ABUSES

THAT DO EXIST IN THE CORPORATE SYSTEM WILL ALWAYS BE QUICKLY
SEIZED UPON BY THOSE WHO BELIEVE THE ECONOMY OUGHT TO BE RUN
BY THE GOVERNMENT. I ALSO ASK FOR YOUR HELP IN STEMMING THE
FLOW OF BUSINESSMEN WHO COME TO WASHINGTON IN SEARCH OF
SUBSIDIES AND PROTECTION FROM ECONOMIC COMPETITION -- A
PRACTICE THAT HAS ONLY AIDED AND ABETTED THE MOVEMENT TO
SHACKLE OUR FREE ENTERPRISE SYSTEM. I WOULD MAKE A SPECIAL
APPEAL TO YOU, AND ESPECIALLY TO THE CONGRESSIONAL LEADERS
HERE TODAY, TO HELP US KEEP THE LID ON FEDERAL DEFICITS SO
THAT WE WILL NOT ABORT THE PROCESS OF ECONOMIC RECOVERY.
AND I URGE YOUR SUPPORT FOR POLICIES THAT WILL KEEP AMERICA
STRONG AND RESOLUTE SO THAT OUR CHILDREN MAY GROW UP IN A
LAND THAT IS PROSPEROUS AND AT PEACE.

FROM THE CRUCIBLE OF INFLATION AND RECESSION,, LET US
WORK TO TURN OVER TO OUR CHILDREN A COUNTRY THAT IS BETTER
AND STRONGER ~ THAT OFFERS EACH OF OUR CITIZENS A GREATER
CHANCE FOR PERSONAL AND SPIRITUAL ENRICHMENT — THAN THE

I
COUNTRY WE HAVE INHERITED.

LET US ACT NOT JUST FOR OUI

SAKES, BUT FOR OUR CHILDREN AND OUR CHILDREN'S CHILDREN
BECAUSE, IN THE FINAL ANALYSIS, THEY ARE THE ONES WHO MUST
LIVE WITH OUR DECISIONS, EACH OF US IS THE TRUSTEE OF THEIR
FUTURE,

THANK YOU,

# # # #

DepartmentoltheTREASURY
/ASHINGTON. DC. 20220

TELEPHONE W04-2041

L.F. Potts
X2951
June 4, 1975
Contact

FOR IMMEDIATE RELEASE

TREASURY ANNOUNCES WITHHOLDING OF APPRAISEMENT AND
TENTATIVE DISCONTINUANCE OF ANTIDUMPING INVESTIGATION
ON CERTAIN NON-POWERED MECHANICS* TOOLS FROM JAPAN
Assistant Secretary of the Treasury David R„ Macdonald
announced today a withholding of appraisement on certain
mechanics' tools, namely chisels, hammers and sledges (with
or without handles), vises, c-clamps, punches, and battery
service tools from Japan pending a determination as to whether
they are being sold at less than fair value within the meaning
of the Antidumping Act, 1921, as amended.
Appraisement will be withheld for a period not to exceed
six months from the date of publication of the "Withholding
of Appraisement Notice" in the Federal Register. Under the
Antidumping Act, the Secretary of the Treasury is required to
withhold appraisement whenever he has reasonable cause to
believe or suspect that sales at less than fair value may be
taking place.
Hammers from Imoto Hamono Co., Ltd., Kyoto Tool Co., Ltd.,
and Hirota Tekko K.K., and battery post and terminal cleaning
brushes, from Japan Export Brush Co., Ltd., are excluded from
this withholding of appraisement since 100 percent or virtually
100 percent of their export sales of these articles during the
period under consideration were examined and the home market price,
third country price, or constructed value, as appropriate, was
found to be lower than the purchase price of identical merchandise
in every instance.
Mr. Macdonald also announced the tentative discontinuance
of the antidumping investigation concerning non-powered precision measuring hand tools from Japan, i.e., micrometers,
vernier calipers, and dial indicators. As to these tools, the
Federal Register notice reads in part:

(OVER)

- 2 Comparisons between purchase price or exporter's
sales price and the applicable adjusted home market
price revealed some instances where purchase price or
exporter's sales price was lower than the adjusted home
market price of such or similar merchandise. However,
these were determined to be minimal in terms of the
volume of export sales involved.
In addition, formal assurances were received from
the Japanese manufacturers who accounted for substantially
all of the exportations of non-powered measuring tools to
the United States during the period of investigation that
they would make no future sales at less than fair value
within the meaning of the Act.
These decisions will appear in the Federal Register of
June 5, 19 75.
Imports of all the tools under consideration for calendar
year 1973 were valued at approximately $8.1 million; the precision measuring instruments accounted for $5.5 million of that
total.

DepartmentoftheTREASURY
ASHINGTON, DC. 20220

TELEPHONE W04-2041

FOR RELEASE ON DELIVERY
FRIDAY, June 6, 1975

i
U

STATEMENT OF THE HONORABLE CHARLES A. COOPER
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE FOREIGN OPERATIONS SUBCOMMITTEE
OF THE SENATE APPROPRIATIONS COMMITTEE
JUNE 6, 1975 AT 10:00 A.M. EDT
Gentlemen, I am here today to support the Administration's
request for funding of the international development banks.
Over the past three decades the United States has been the
leading force in the development and expansion of the World
Bank, the Inter-American Bank and the Asian Development Bank.
We also assisted with drafting the Charter of the African
Development Fund.
In the main part of my statement, I will try not to
overburden the presentation with statistical details in order ''
to focus more directly on the basic rationale for U.S. support
of these banks. I have, however, annexed to my presentation
further data on each individual bank covering such matters as
the capital structure and the number and type of loans for •
their respective institutions. Also included for the record
is an annex on the African Development Fund, for which the
> • «••
Administration has submitted a bill to the Congress to provided
for U.S. participation. I would like in this introduction, to ,
discuss what the development banks are, what they do, and why
it is in the U.S. national interest to support them in their
activities.
Let me start off by stating very clearly that we in Treasury
do not believe development of the poorer countries is orimarily
a matter of money. Certainly money is needed. But the key
factors determining the success of development efforts are the
policies each country follows and the efforts each makes to
increase production. The building of sound and efficient
institutions in developing countries is essential to assure a
maximum development impact from whatever resources are available.
It is precisely in such areas as economic policies and
priorities and institution building that the development banks
play their most important role.
The banks can direct their
funds to support successful development efforts made by the
countries
WS-328 themselves and thereby reinforce their technical and

- 2policy assistance roles. We continue through our Executive
Directors to stress in each of the banks that simply lending
money is not enough and that the bank's role in helping improve
the priorities and institution building capabilities of developing
countries is fundamental.
The development banks have developed highly competent
professional international staffs which help the developing
countries with the complex problems of priority setting and
institution building. These international staffs bring together
outstanding professionals from both developed and developing
countries. In both the World Bank and the Inter-American
Bank there are more Americans than any other nationality and
overall Americans make up about 25 percent of the development
bank staffs.
From the U.S. national point of view it is clear that these
banks encourage development in the poorer countries along lines
which are both effective and compatible with our own economy.
The development banks of course lend to countries which have
a wide range of economic systems. As apolitical institutions
the bflnks do not try to change the basic economic system a
country has chosen for itself. However, within this constraint
the banks stress the role of market forces in the effective
allocation of resources, the development of outward-looking
trading economies, the critical role of private enterprise, and
the importance of spreading development benefits to the poorer
people. In recent years the banks have placed greater emphasis
on agriculture, the family farm, and cooperatives - - a n emphasis
we have encouraged and supported. In short, the basic approach
of the international development banks to economic development
is consistent with U.S. views, including views consistently
expressed by the Congress.
We of course believe that use of the market and the
provision of incentives and a favorable climate for individual
initiative are the most effective ways of speeding development
and of sharing the fruits of economic growth among all the
people. With the help of these banks a great many of the
developing countries are finding, in a very practical and
pragmatic way, the advantages of a market-orlcntcd, private
initiative approach. There are of course adaptations to local
conditions; these are needed and desirable. The multi-national
character of the banks strengthens them in assisting with such
adaptations, in many cases assisting more effectively than any
single bilateral donor could.

- 3 -

Let me take just a few examples to illustrate how the
banks promote economic development that is compatible with
our own economy and therefore serves our national interests
in both the short and long run.
^
Procurement Practices. It is important to development
that governments are effective in administering large procurement programs honestly and efficiently. For procurement with
their financing all the development banks not only require^
international competitive bidding but also help teach institutions in the developing countries how to administer such
bidding fairly and effectively. The borrowing countries as
well as our own industry, exporters, and contractors benefit
from the insistence by the banks on standard rules in this
regard. The borrowers get high quality products and services
at competitive prices and our firms are assured access to bankfinanced contracts. Open competitive bidding practices get
built into the procurement systems of borrowing countries and
over time they tend to be applied even on non-bank financed
projects. Our exporters benefit from the wider adoption of
such practices.
Fostering Private Enterprise. The development banks provide
substantial support to trie private sector in most of the countries
where the banks have made loans. They supply capital primarily
by lending to domestic development finance companies which
both raise additional domestic capital and re-lend to local
industry, commerce and agriculture. The banks have made loans
through December 1974 aggregating more than $3 billion for tnis
type of catalytic program. In addition, the International
Finance Corporation has made a total of 332 commitments in over
50 countries for $1.4 billion to help develop the private sector.
Expanding and strengthening the private sector is one way the
banks help build economies in developing countries with which
our economy can have compatible trade and investment relationships.
Aid
to Agricultural Sector. Many loans have also been
directed towards enhancing the opportunities and ability of
private farmers, including small holders and cooperatives, to
increase their production and income. By December 31, 1974,
the development banks had channeled $7 billion into the agricultural sector. The World Bank, the. largest lender, had
invested $5 billion, the IDB $1.7 billion, and the ADB $0.3
billion. The development of private farming, including family
farms, on a widespread basis is a basic American tradition,
and we strongly support the efforts of the banks in this area.

- 4 The development banks are part of an international
structure in which the developed and developing countries
work together on international problems. By cooperating with
the other developed countries in funding these institutions
we improve the effectiveness of our own efforts. Other donor
countries strongly support this cooperative approach and
multilateral institutions are being used for an increasing
share of total non-communist development assistance.
In 1965, three percent of Official Development Assistance
(funds for concessional assistance and capital subscriptions)
flowed through the four international development banks (IBRD,
ADB, IDB and AFDB). By 1973 their share had grown to 12 percent
of ODA. In addition the banks channeled larger amounts to the
developing countries through hard loans financed by their
borrowing in world capital markets.
Bilateral aid remains, of course, of major importance.
There are special aspects of economic assistance that require
bilateral programs, especially where we have special techniques
or products to impart, where we have special interests in
individual projects or programs, or where security considerations
are heavily involved. But U.S. support for the multilateral
institutions is essential if we are to meet today's and
tomorrow's challenges of improving the prospects for the
millions in developing countries which our bilateral programs
do not reach. By channeling part of our total economic assistance funds through the development banks we help bring forward
much larger amounts of assistance from other donors and thereby
facilitate faster development of the poorer borrowing countries
than would be possible with our money alone. By using the banks
we can avoid what could develop into a costly competitiveness
among donor countries. The guarantees we and others provide
in the form of callable capital, which will probably never be
needed, permit the banks to mobilize very large amounts of funds
from the private capital markets worldwide.
These institutions provide an effective and cooperative
international approach to the economic development of the third
world. They provide the developed and developing countries with
an established and systematic framework for consultations on
economic policies, development needs, and economic performance.
The development banks are not debating societies which engage in
seemingly endless rhetoric about this or that restructuring of
the world economy -- they are working institutions that get
things done.

So far, I have been discussing the merits of the banks
as a group of similar institutions and it is reasonable to ask
why our funding requests involve four banks -- why not just
one? Since most of the developing countries belong to the
World Bank, why the need for regional banks? Despite the
greater resources and the longer period of experience of the
World Bank, the regional banks have an important role to play
and reflect the desires and needs of their regional members
for organizations aware of and responsive to the unique problems
of each region. The regional banks, drawing a large part of
their staffs from the countries of the region, have expertise
and understanding of local conditions, and local needs and
problems which must be taken into account in the transfer of
technology to these areas. Larger, more complex projects are
usually directed to the World Bank initially, but even then
the World Bank often collaborates with the regional banks in
joint financing.
Now let me turn to the appropriations which are required
to keep these institutions operating effectively in FY 1976.
The lending programs anticipated by the World Bank Group,
the Inter-American Bank and the Asian Development Bank in
FY 1976 approximate 8.2 billion dollars. To provide the U.S.
support for this level of lending we are, at this time, asking
for appropriations of $820.6 million. This total compares
with $1,006 million requested last year, and $619 million
actually appropriated for the development banks last year.
For several reasons, our contribution, on the order of 10
percent of this year's lending program, provides essential
underpinning for much larger flows of assistance to poorer
countries. First there is the interdependence of our contribution and those of other donor countries, i.e., we provide
only a fractional part of the contribution to each bank or
fund -- a third in IDA, somewhat less in the ADB, more in the
IDB. Second the banks' capital subscriptions and guarantee
authority support the borrowing of large sums in the private
capital markets of the member countries. Finally, the repayment of loans provides funds which are then re-lent to
support new projects. Japanese and European repayments on
old IBRD loans, for example, are helping to finance new projects.
Other countries such as Iceland and Gabon are no longer borrowing.
There are substantial repayments by many countries that are
still receiving loans.
The $820.6 million appropriation being requested for
FY 1976 for the individual banks calls for $375 million for

- 6 IDA; $275 million for the Fund for Special Operations of the
IDB; $50 million for the Asian Development Bank Special Funds,
$24.1 million for the paid-in portion of Ordinary Capital of
the ADB, and $96.5 million for ADB callable capital. The
requested appropriations are for installments of each institution's ongoing program for their resource replenishment.
These programs had been negotiated with other donor countries
after consultation with Congressional committees. In these
negotiations we have sought, and achieved, broader burdensharing.
U.S. contributions to these replenishments are essential to
insure the participation of others and the continued operation
of the institutions at effective levels. The Congress has
earlier authorized programs for these purposes, covering these
amounts.
I should note at this point that we will later be asking
for an authorization and supplementary appropriation to enable
the U.S. to participate in the replenishment of the Ordinary
Capital of the IDB. This request will be presented after
further consultations with the Committee and after negotiations
with the other members of the Bank. Also, if the Congress
authorizes a U.S. contribution to the African Development Fund,
for which bills are pending, we shall be requesting an appropriation for that purpose.
Let me now turn to some particular issues which I know
are of interest to the Committee. First, what is the effect
of our support for the development banks on our balance of
payments? Excluding funds held by the development banks in
U.S. financial markets, the total of all the inflows and outflows of dollars resulting from transactions involving the
banks from their inception to end 1974 (nearly 30 years for
the IBRD) has resulted in a net receipt of about $600 million
by the U.S. In addition the banks maintain substantial investments in U.S. financial assets as a result of timing
differences between borrowing and disbursement of funds. As
of the end of 1974, they held about $1.8 billion in long term
investments in the U.S., and they also have large amounts in
short term assets.

The absolute magnitudes of the various types of flows
are of course much larger — e.g., the total net outflow of
capital (subscriptions paid-in plus net sales of bonds,
loan participation, etc. in the U.S.) totalled over $6-billion
as of end 1974, while development bank financed purchases of
U.S. goods and services and direct expenditures of the banks
in the U.S. totalled nearly $7-billion. Thus, I can safely
say that the net balance of payments impact of our involvement
in the development banks has been very small indeed, and
over time the sums made available as a result of U.S. capital
subscriptions and the banks' access to U.S. financial markets
have been more than equalled by purchases of goods and
services in the U.S.
In addition, of course, some portion of the funds invested
in the U.S. awaiting disbursement to finance ongoing development
projects will also be spent on U.S. exports of goods and
services. Over the years, our share of development bank
financed procurement of goods and services has averaged 28 percent.
This percentage has fallen off slightly in more recent years as
our share of world exports has fallen. We are intensifying
efforts to increase the U.S. share. In short, our assistance
to developing countries through the development banks does not
strain our balance of payments.
In the longer run we benefit, as the development of the
borrowing countries proceeds, making them more reliable and
active trading partners with which to develop our foreign
commerce.
Let me turn now to the reasons President Ford and
Secretary Simon decided it was essential for us to ratify the
Fourth IDA replenishment. We faced a serious dilemma.
In January of this year IDA had virtually exhausted its funds
available for commitment. IDA had been operating for six
months on advance commitments by other countries against
pledges that would become fully effective only when the United
States would sign up for the Fourth Replenishment. Additional
advance contributions were not coming forward. Without U.S.
ratification of our $1.5-billion share of the replenishment,
the continued use of $3.0-billion in contributions promised
by other donor countries was not possible. As most IDA loans
are to countries with less than $200 per capita income, the
lack of further IDA financing would have slowed development
in many of the poorest developing countries. Prompt U.S.
ratification was imperative to avoid a situation in which the
U.S. appeared to be responsible for stopping a large part of
assistance from Western countries to the poorest developing
countries.

- 8 -

On the other hand, we are keenly aware that such contributions can only be made through the normal appropriations
processes and Congress had not yet considered even the first
installment of our contribution to IDA IV. So, to enable IDA
to continue its lending to the poorest of the developing
countries, the Administration ratified the IDA IV Replenishment with the explicit notification to the IDA that "in accord
with customary United States legal procedures, the U.S. contributions will be provided only after enactment of the
necessary appropriations bills by the Congress". This is
the first time this Committee is formally considering appropriations to IDA IV. I believe that both the burden sharing and
•other aspects of this replenishment meet the desires of the
Committee to hold down U.S. expenditures while expanding the
development effectiveness of IDA.
We faced a situation in the Asian Development Bank similar
to that in IDA. Our contribution to the capital of the Asian
Bank consists of two parts - the paid-in component, 20 percent,
which is contributed partly in cash and partly by letter of
credit and the callable contribution, 80 percent, which is
our guarantee in the unlikely event of a call on this capital
because of defaults on many ADB loans. For FY 1975, the Congres
appropriated $24.1 million for the paid-in portion of our
subscription of the first year of a three-year ADB capital
replenishment. However, the Congress did not appropriate
the callable portion. It: was neither feasible nor logical
to proceed with the paid-in contribution, which involves budget
outlays, and not the callable portion. Moreover, we already
have appropriations for $120.6 million of callable capital in
the ADB as a result of our initial contribution. Therefore,
we subscribed for the total first year contribution with the
callable subscription based on the authorizing legislation
PL 93-537. However, I would point out: that we did not sign
up for the entire three-year subscription because we believe
it is proper for the Congress to review this issue of appropriation of ADB capital this year. We are again requesting
appropriation of the callable as well as the paid-in capital
because the. ADB is a relatively new bank and the availability
of additional appropriated callable capital would provide
additional confidence to investors in ADB bonds.
Last year Congressional members raised many questions
about the newly rich oil-exporting countries. One of the key
questions was: What are these countries doing to assist others?

\(c/ "
In 1974 the OPEC countries stepped up their aid commitments -in the form of loans and grants -- to the tune of some $8.5billion, up from $3-billion in 1973. Disbursements of OPEC
assistance totalled about $2.5-billion in 1974. In addition
OPEC countries purchased substantial amounts of World Bank
bonds and loaned funds to the IMF oil facility. OPEC country
aid does not make up for a more than quadrupling of oil prices
and their assistance tended to be concentrated in areas close
to the lending countries, but these figures do indicate that
the OPEC countries are moving into the aid field in a substantial way. We are encouraging them to continue to do so
and in particular to provide more of their concessional
•assistance through the development banks, including early
contributions to IDA.
-E
We want to expand the burden-sharing aspect of the development banks' operations by opening new relationships between
the banks and capital surplus oil-exporting countries. Continued U.S. contributions are essential, however, if such new
relationships are to be brought about. It is clear that others
will not give more if we give less. If we maintain our support
for the institutions, we can encourage others to do more.
The increased financial strength of the OPEC countries
offers new opportunities for cooperation with them in respect
to the development banks. Most of these countries have in the
past been borrowers of the banks. Now lending to them is being
carefully monitored and lending to them on concessional terms
has been virtually phased out. OPEC countries are participating
in the newly formed Development Committee where new initiatives
in meeting overall development needs are being studied.
Venezuela has established a $5C0-million trust fund,
which is being administered by the IDB, thus increasing
the resources available to that institution. And while
we were disappointed in the lack of concessional resources
in this new trust fund, the Venezuelan Government has
indicated that it is seeking wayn to make available additional
funds on soft terms. The World Bank is discussing with OPEC
countries the need for contributions to support concessional
lending.
Next let me turn to the problem of earmarking.
In addition to the ay>propri .ations, the Administration is
requesting the removal of the "earmarking" provisions of
FY 75 appropriations legislation lor Liui Fund lor Special
Operations of the IDB. We agree with the underlying
Congressional interest that the IDB should emphasize projects

- 10 -

that directly help low-income groups and we are encouraging
bank management in this direction. However, it is not always
easy to find sound technical projects which effectively benefit
the poor while increasing production or providing needed
services at costs which the recipients can afford. Partly
because other projects may have higher economic payoff,
projects benefitting the lower-income groups may sometimes
not be given the highest priority by the borrowing country.
We do not believe that earmarking is the way to approach
this problem of reaching the lower-income groups. The Bank
is already making substantial loans to cooperatives and will
make more new loans to cooperatives this year than the
earmarked amount. The Bank is also proceeding with a substantial
grant to further the development of credit unions in Latin
America. This technical assistance grant procedure promises
to be more effective than loans in reaching the poor at this
stage when many of the existing credit unions which might be
borrowers are primarily urban and middle class and when the
need is to spread credit union activity to rural areas and
productive activities. Finally, savings and loan associations
in Latin America are almost exclusively middle and upper class
oriented. IDB lending to such institutions to finance housing
that only the relatively well-off, urban population could
afford would be inconsistent with the IDB's and our own general
development thrust.
The imposition of earmarking flies in the face of the
multilateral decision-making process by making the development
banks merely the administrator of funds provided under
restrictive conditions. If even five or six donor countries
engaged in such a practice, the mangements of the banks would
find it virtually impossible to support coherent development
programs in borrowing countries and the multilateral process
of setting priorities would be negated. And if one country
insists on such a practice, wc can expect others to try to
impose their priorities which may or may not be in the economic
field. Whore there are specific individual programs which
the Congress wishes to earmark money to support, this should
be done through our bilateral aid program.

\Vi
We are continuously working at improving our oversight
activities in regard to the banks1 lending programs and
project implementation. Embassy, AID and Treasury officials
make visits to projects as frequently as possible. At every
opportunity we encourage and facilitate project visits by
members of Congress. As I stressed earlier, we believe that
the basic thrust of the policies and operations of the development
banks is in the right direction. We continue to seek
improvements. However, given the institutional and multilateral
framework in which we participate, we must accept the fact
.that we sometimes can get results only gradually.
The recent past provides examples of how policies in
these institutions can be changed in emphasis. In the case of
program loans we have seen the World Bank attaching more
conditions to insure more effective economic performance on
the part of the borrowing country. Vie see a greater emphasis
on agricultural development as perceptions of the food
requirements of the world are refined, largely with U.S.
•leadership. We see a gradual but growing emphasis on projects
to benefit the poorest 40 percent of the population in
borrowing countries as the question of income distribution
is analyzed. In the past few years our influence has been used
to introduce systems of post evaluation of loans and projects
into the management systems of the banks as suggested by the
Congress and we believe that considerable progress has been
made. But in such efforts our influence must be used in
cooperation with other member countries and within the structure
of the charters of the banks in order to.preserve them as
effective international institutions.
Mr. Chairman, members of the Subcommittee, what we are
looking at here, when we propose additional funding for the
international development banks, is part of the world economic
agenda — the agenda of an increasingly interdependent world
economy. We continue to be reminded in very forceful terms
of the interdependence of nations and the importance of mutual
economic cooperation. This part of the agenda involves
economic development in the third world — development
assistance. Other areas of interdependence are on the agenda
also — international trade, international finance, energy and
raw materials — and all are closely linked to the question of
providing development assistance to less developed countries.

- 12 -

We seek the cooperation and participation of the
less-developed countries in dealing with trade, finance,
energy, raw material problems. The less-developed countries
give high priority to the prospects for their own economic
development and they seek to maximize the assistance which
can be obtained from the developed and other more fortunate
countries. The continuation of our assistance in financing
their development is closely related to their ability and
willingness to cooperate with us in other economic fields.
In view of the Committee's interest in project information,
we are alr;o annexing sample data on lending in three countries.
We are providing this additional material for the record for
the first time this year to illustrate the role and impact of
development bank lending activities in the context of
individual countries. We are, of course, prepared to supply
data on additional projects, countries, or additional
information on the international financial institutions at
.your request.
We have also been discussing with the Committee's staff
the provision of additional information to keep the Committee
fully informed on operations of the development banks throughout the year. It is our hope that we shall be able to work out
informal arrangements to preserve the confidential nature of
operational information generated by these international
organizations while at the same time permitting this Committee
to keep current on questions and trends in the programs of each
of the development banks of which we are a member. We would
welcome an input of Congressional vieirs and ideas throughout
the year as we develop our policies on bank operations in the
National Advisory Council -- the interagency group charged
with coordinating U.S. Government policies in relation to these
institutions. Of course we are only one member of these banks
and cannot always immediately affect their operations.
Mr. Chairman, you and this committee have a difficult
task in weighing the many appropriations for foreign operations.
In conclusion I ask that you keep in mind the importance of
the broad framework of international cooperation of which the
development banks are an integral part as you consider the
appropriations needed for these banks to do their job of
accelerating development worldwide.
-0O0-

ANNEX I

COLOMBIA

(A)

THE IMPACT OF THE IFI's

Two of the international financial institutions (IFIs),
the World Bank and the Inter-American Development Bank,
have had and continue to have large lending programs in
Colombia. Through December 31, 1974, the World Bank had
made 58 loans totaling $1,147.9 million and the IDB 70
loans totaling $620.3 million (see Table I). Loans on
"hard terms1' to Colombia from the IBRD and IDB (Ordinary
Capital) totaled $1,447.3 million, or 81 percent of the
funds approved. The remaining 19 percent of the funds
on "soft terms" included 1 credit from IDA (1961)
for $19.5 million and 28 loans from the FSO for $233.6
million of the IDB and 12 loans for $67.8 million from
other sources, including the Social Progress Trust Fund,
administered by the IDB.Table I
Sector

Institution

Aflric.

Ino\

Power

Trans. &
Conin.

Health*
Water Suoply

Pre-Ihvestoent

Educ.

Urban

World Bank

8.0

35.3

•

87.0

56.3

12.1

27.6

78.3

583.2

372.2

187.9

20.1

62.9

78.3

. 1

84.1

252.5

350.2

286.2

131.6

89.0

37.0

233.0

173.1

289.5

Nmber of projects
Anount ($ million)

Total

1.147.9

IDB
Nunber of projects
Anoint ($ million)
Total
Number of
projects
Amount
- ($ million)

70
620.3

128
1.768.2

- 2 -

For the most part, the IFIs have directed their
efforts to production-oriented activities which carry
social as well as economic benefits. Projects are
developed to combine the objectives of increasing output with increases in employment and improving the incomes of the poor, particularly in the rural areas. For
example, the IBRD made a $5 million loan to Colombia's "
Institute for Agrarian Reform (INCORA) to develop 6,000
hectares for dry farming by supplementing the flood protection and drainage works and it will extend the area
being improved by another 11,000 hectares. The benefits
are measured in terms of the increased employment
and the production of crops and milk resulting in increased
income
for approximately 1,800 farm families.
Past
Loans
In agriculture, for example, loans are made to improve extension services, credit for fertilizer, seed
and other on-farm investments, and for farm-to-market
or access roads. In addition, funds are also made
available to improve marketing systems. The IBRD has
financed improvements for wholesale food markets in
Bogota, Cali and Medelin. The project includes not only
the construction of new facilities but, more importantly,
it includes introducing product grading and standardization as well as the development of price information
systems. Similarly, IDB's loan to the Empresa de Energia
Electrica de Bogota ($21.0 million) included funds for the
extension of electricity to 15 rural communities and to 24
smaller localities involving the construction of 70 km of
34.5 kv rural feeder lines and 95 km of secondary lines.
Although the extension of service is not directly profitable, it is hoped that by improving services to rural
communities the migration to the overcrowded low income
"barrios" of cities will be reduced.
Both IBRD and IDB have been active in the "social"
sectors, particularly improving water supply and sewerage
facilities. These loans are concerned directly with improving the "quality of life" by increasing the water
available and extending the distribution system in the
cities, particularly to low income areas. The same projects usually extend the sewer systems intended also to
contribute to improving environmental conditions by
raising hygienic standards and reducing pollution. The
quality of life is also directly affected by the loans
for education. The IBRD has concentrated on secondary
education
the objectives
IDB of
on university
education.
For
both
crease
institutions,
theand
efficiency
the are
system
theby
same,
reducing
namely
the
innumber

of drop-outs and eliminating repeaters, and redirecting the
curricula along the lines required by Colombia's economic
growth. The IBRD has focused on providing more diversified
secondary education for 109,000 students by introducing
new curricula combining practical and academic subjects
geared to current economic requirements. As such, the
project will contribute significantly to reducing the
proportion of students in the "academically" oriented
secondary schools from 70 to 55 percent. The project is
also assisting a program for rural comprehensive secondary
schools enrolling 7,000 students, thereby providing a lower
secondary education that is now lacking in rural areas.
The IDB's efforts in the universities is similarly directed
but, additional attention is also being paid to encouraging
students from low income groups through the use of student
loan funds to attend universities thereby fostering equal
educational opportunities. A great deal of attention is
being given to future manpower needs particularly in
engineering and agronomy, two fields directly related to
economy's requirements. IDB's loan to the Industrial
University of Santander is expected to facilitate an
increase in the proportion of students in fields directly
related to requirements from 12 percent in 1971 to 43
percent by 1975.
The historical emphasis of the Banks on infrastructure
projects, i.e,, power, transport and communications, stems
from the need to develop and utilize Colombia's hydroelectric resources, not only to supply the growing needs
of the economy, but also to substitute for the more expensive
thermal systems. Moreover, the development of a transportation system is a necessary complement to other economic
activities, particularly in the case of Colombia where the
difficult terrain adds significantly to the cost of economic
activity. Moreover, many of the transport projects are
directly related to programs in industry and agriculture
to eliminate the economy's dependence on coffee by encouraging
other exports and lowering transportation costs.
Current Activities
Over the next several years the IFIs are expected to
make an increasing contribution to agriculture and industry,
with particular emphasis on projects involving small and
medium size farmholdings and industrial enterprises. The
other major focus of activities will be in such social
sectors as education and water supply. Projects in the
traditional sectors of Bank lending -- electric power and
development.
transportation
the
assistanceNevertheless,
is
— required
are likely
to
the
to
facilitate
be
Banks'
continued
past
necessary
as
but
well
only
institutional
aswhere
future

activities in these sectors provide the basic support
necessary for forward progress in the more directly
productive sectors such as industry and agriculture.
Economic Growth
Although it would be difficult to draw any direct
relationship between the Banks'programs^and Colombians
economic growth, the country has shown impressive gains
in the recent past. The rate of economic growth has
accelerated to more than 7 percent per annum, and the
expansion of non-traditional exports has been remarkable.
Exports of manufactured goods have increased from $148
million in 1970 to an estimated $829 million in 1974,
an increase of more than five times. Such improvements
are very much needed in order to accelerate employment
generation and to raise gross national product per
capita, currently $400 to a more acceptable level.
Colombia's efforts to expand exports have been
amply rewarded in recent years. Total merchandise
exports amounted to $1,334 million in 1973, of which
over half came from non-coffee items. Allowing for
price increases, this represents a fourfold increase
(representing an average annual real growth of 24 percent)
in non-traditional exports since 1965-67. Rapidly
expanding exports accompanied by more slowly raising
imports have improved the balance of payment position.
Nevertheless, Colombia also needs to spread the benefit
from growth more widely in order to surmount problems of
poverty and population pressures in both rural and urban
areas. Concentration of land ownership, technical backwardness, and underemployment characterize most rural
areas. In urban areas, pressures of population growth
compounded by heavy migration from the countryside? have
generated serious unemployment and a severe housing deficit
Prospects for coping with these problems seen brighter as
a result of the accelerated growth uDon « M ! S IZ n ? t*
C l o m b i a n
economy has embarked in the g s t several years
°

ANNEX I

(B)

REPUBLIC OF KOREA

Impact of the IFIs
The World Bank, the IBRD and IDA, and the Asian
Development Bank (ADB) have been important but not the
only contributors of capital resources to Korea's economic
growth. Only 11 percent of gross public capital inflows
for 1974 come from the International Development Banks.
Past Loans
As shown in the table below the World Bank and ADB
made 46 loans totaling $946.1 million to Korea through
December 31, 1974. The World Bank made 23 loans for $609.8
million, including 8 IDA credits for $107.3 million. The
ADB extended 23 loans for $336.3 million. Only one of these
loans, for vocational training institutes totaling $3.7
million, was from Special Funds, i.e., on concessional
terms. Consequently, Korea has received very little in the
way of concessional assistance from the IFIs.

Table I
Sector
is tl tut ion

Agric.

Ind.

Power

Tourism

Transport &
Communications

Health &
Water Supply

Educ.

Total

>rld Bank
Number of Projects
Amount ($ millions)

7
130.5

4
95.0

2
32.3

9
177.0

3
42.1

9
162.8

13
272. Q

3
42.1

1
25.0

8
301.5

2
' 57.8

23
609.8

lian Development Bank
Number of Projects
Amount ($ millions)

5
41.1

3
40.1

1
3.7

23
336.3

13
342.6

3
40.1

4
61.5

46
946.1

)tal
Number of Projects
Amount ($ millions)

1
25.0

- 2 -

Between 1960 and 1974 manufacturing output grew at
an annual average rate of 18 percent and the export of
manufacturers at an even faster rate. This expansion
placed a severe strain on the transport sector, mainly
because of the relatively modest amounts invested
previously in this sector. Because of this deficiency
and because of the large capital requirements for such
projects, a significant portion of the IFI's investments
were in the transport sector. For example, the World
Bank made four loans to the railroads alone totaling
$109 million. The benefits are in the form of lower
transport costs and the avoidance of diverting bulk^
traffic to more expensive transport modes. Some railroad investments will also facilitate and reduce the
cost of coal, whose production is being encouraged as
a substitute for imported petroleum.
The IFIs are also helping Korea develop a balanced
transportation network. The ADB-financed the SeoulInchon Expressway, an important link between the industries
concentrated around Seoul and the port of Inchon. The
IBRD is also helping to improve the national highway network. The roads selected for construction, improvement
or paving under one project alone constitute nearly 9
percent of the entire national road system. Further,
it will help establish an urgently needed maintenance
system to protect the large investments already made.
These road projects will help reduce the present high
road transport cost by lowering vehicle operating costs
and saving passengers' travel time, and they will provide
year-round access to and within several relatively isolated
areas. Finally, the Bank has also lent funds for port improvements at Busan and Mukho. These two projects consisted
of both cost reducing and capacity increasing investments.
Both ADB and the World Bank have been active in the
industrial sector, mostly by channelling funds through
intermediate credit institutions (ICIs) rather than
through direct loans. The ADB has made seven loans
totaling $145 million and the World Bank four loans for
$95 million to the ICIs. The Korean Development Finance
Corporation (KDFC) has been the largest recipient receiving five loans from the Banks totaling $125 million.
These funds have provided the foreign exchange needed
by sub-borrowers to carry out their investment projects.
The KDFC was established to assist private enterprise by
providing
medium
and
long-term
financing.
While
these
role
external
they and
are the
funds
indispensable
other
are
not
ICIs
a
and
has
majority
act
been
as
more
of
a catalyst.
the
important
funds
KDFC's
required,
because

of the high professional standards maintained, particularly
in appraising projects which, in turn, encourages other
capital contributors to associate their capital with them.
The Medium Industry Bank (MIB) , a recipient of three
loans from the ADB totaling $55 million, concentrates on
financing the foreign exchange cost of small and mediumsized enterprises engaged in manufacturing, mining,
transportation and construction. Small and medium-sized
industries play an important role in Korea; for example,
in 1971 they constituted 97 percent of total manufacturing
establishments, employed 45 percent of total manufacturing
employment, and contributed 28 percent of total manufactured
exports. The Korea Development Bank (KDB) , also the
recipient of three loans from the ADB totaling $60 million,
concentrates its attention on medium and long-term loans.
In 1973, it accounted for a little under half of all medium
and long-term loans made by the banking sector; it
directly financed 8 percent of total fixed capital formation and 16 percent of total fixed investment in the
manufacturing sector.
The Banks' participation in agriculture is designed
to increase productivity and incomes and, in general,
improve the quality of rural life. For example, the
World Bank is financing an agricultural credit project
to help finance sub-loans for approximately 12,000 farmers
for fruit orchards, seri-culture, and the breeding of
poultry and swine. The Bank is also helping to finance
the Yong San Gang irrigation project to irrigate 33,000
hectares in one of the most drought-prone areas of Korea.
The project will not only bring about substantial increases in production, mostly through higher productivity,
but production activities will shift from the traditional
rice-barley sequence into higher value crops including
garlic, potatoes, cabbage and fruit. ADB is also involved
in agriculture and it is financing part of an irrigation
system south of the Imjim River. This project is expected
to increase production thereby increasing self-sufficiency
in food production and saving foreign exchange totaling $2
million per year, as well as increasing income about $1,200
per farm household to an average annual income of $3,100.
The IFIs' loans in the "social" sectors consists of
7 loans for $101.6 million. The ADB is financing two
projects for $34.4 million to improve and expand the
potable water supply system for Seoul. The project will
benefit
a total
population
million
and it
will
improve
the quality
of of
the7water
forpeople
industrial
use.

- 4In the education sector, the IFIs have focused their
lending on vocational education and training.
The
IBRD has financed two projects, one has been focused
on the expansion and equipping of 27 technical, commercial
and agricultural high schools, five post secondary higher
schools and four teacher training departments. The
second project was to provide equipment for extensions
to buildings of 18 technical and 14 agricultural high
schools; 10 higher schools/junior colleges for industrial,
agricultural, fishery and nursing training; colleges of
agriculture, engineering and natural sciences in nine
universities and a merchant marine college. The ADB's
project was to, establish a series of vocational training
institutes. These, projects will contribute by providing
the skills required by Korea's economic growth.
Current Economic Situation
Korea's economic performance over the last decade has
been outstanding. In the period 1964-73, the GNP growth
rate average 10 percent a year in real terms, and real
per capita income more than doubled. The rapid rise of
output and an appreciable decline in the population growth
rate were major reasons for the rapid rise in income. A
key factor in the growth of the economy has been the
increase of manufactured exports from $60 million in 1964
to $2,800 million in 1973. This growth transformed Korea
from an economy dependent on agriculture to one
based on increasing industrialization.
Nevertheless, Korea is faced with two economic
problems. There is the resource management problem resulting in the heavy reliance on external capital and
the question of distributing the growth benefits, arising
out of faster productivity growth in manufacturing than
in agriculture. Although income distribution is generally
more equitable -in Korea than in other comparable developing
countries, the benefits of economic growth have not been
shared evenly. Furthermore, the favorable economic
developments were interrupted by external developments
in 1974. The sharp rise in the price of petroleum, the
recession in the Japanese and U.S. economies and the high
level of grain import prices combined to bring about
a major change in short run economic prospects. Owing
to its poor natural resource endowment and because of its
economic structure and growth strategy, Korea was severely
affected by these international developments. The balance

of payments position was weakened, the growth rate xor
output and employment slowed, and inflationary pressures
increased. The Government is, however, taking the
necessary policy measures to combat these problems.
In general, the Government is also committed to accepting
the necessary adjustment arising from the high energy
and other import costs.
Future Activities
The IFIs are participating in Korea's drive to improve its economic position by shifting its focus of
attention to agriculture. A recent IBRD agricultural
sector mission provided the basis for a number of
additional high priority agricultural projects. A
second livestock project, the second stage of the Yong
San Gang irrigation project, Okseo irrigation and
regional development project and the Miho Cheon and
Naeseong-Cheon watershed development project have been
identified and are under preparation. A rural infrastructure
project and follow-up projects in irrigation and agricultural
products processing are also being considered- Another
major emphasis in Korea's current economic plans is the
development of industries such as steel, shipbuilding,
and machine tools which IFIs are likely to participate
in, if only indirectly through the ICIs. The further
development of the industrial and agricultural sectors
and of exports will require concurrent infrastructural
development but the transport sector will be given relatively less emphasis than in the past.

ANNEX I C

KENYA
The Impact of the IFIs

Background
In terms of overall growth, Kenya's economic performance
has been impressive in almost all respects. During the period
since 1964, GDP has grown at an average rate of about 7 percent
in real terms,twhich has allowed significant gains in per
capita income despite the high population growth rate. Average
per capita income had risen to $180 in 1973, which is about the
median for African countries. This growth rate has been
supported by a high and growing rate of investment in both the
public and private sectors. In the early 1970s, fixed capital
formation accounted for over 25 percent of monetary GDP, which
is an exceptionally high investment rate. The role of the
IFIs, particularly the World Bank, has been not only to supply
capital but also technical assistance. Most of the technical
assistance has gone into "institution" building and assistance
in the preparation of projects suitable for external financing.
Past Loans
The IFIs active in Kenya, the World Bank and African
Development Bank (AFDB), have made a total of 27 loans for
$263.7 million (see Table I). In addition, Kenya has been
one of the beneficiaries of nine loans totaling $205.8 million
which have been extended from the World Bank for the development of common regional services (railways, ports, telecommunications and finance for industry) operated cooperatively for the
three Partner States of the East African Community - Kenya,
Tanzania and Uganda. Of the World Bank's direct lending, $253.6
million, almost half, $122.8 million, has been from IDA on
concessional terms. This high proportion of concessional
assistance is due to Kenya's low per capita income. On a
sectoral basis, most of the World Bank's lending to Kenya has
been for infrastructure, particularly transportation. This
is also true for the AFDB which has extended three loans
totaling $8.9 million for transportation. Other sectors,
particularly agriculture, but also education, family planning
and water supply have also received some support.

- 2-

Sector
Institution

Transport & Water
AETJC
Ind.
Power

Communications

Supply

Pop.

Educ.

1
12.0

2
13.1

Total

World Bank
Number of Projects
Amount (? millions)

8
52.6

1
5.0

1
23.0

9
139.6

1
8.3

23
253.6

African Dev. Bank
Number of Projects
Amount ($ millions)

1
1.2

3
8.9

10.1

Total
Number of Projects 8 2
Amount (S millions)
52.6

6.2

1
23.0

12
148.5

1
8.3

1
12.0

2
13.1

27
263.7

The transport sector has received about 56 percent of
the total funds lent by the IFIs to Kenya directly. One of
the loans in this sector was the first World Bank loan for
airports ($29 million). The funds not only helped construct
the new international terminal buildings but aprons, parallel
taxiways, control towers, etc. Moreover, the loan also
financed assistance to improve and strengthen the new Aerodromes
Department of the Ministry of Power and Communications. Kenya
earns over 12 percent of its foreign exchange from tourists.
The growth of tourism in recent years has made it one of the
most rapidly expanding sectors of the economy. With the great
majority of tourists arriving by air, the improvements to the
Nairobi Airport were considered among the highest investment
priorities.
The bulk of the World Bank's investments in transportation
as well as the AFDB's investments are in roads directly
related to agriculture. They have financed several projects
for the constructon and improvement of feeder roads,, tea
collection roads, settlement and selected trunk roads throughout the country. The main economic benefits of these roads
are the increased level of agricultural production induced
by improving the infrastructure, as well as the benefits from
lower vehicle operating costs. Some of the feeder and trunk
roads included in the projects are extensions of roads constructe

EC
under previous projects or improvement of such roads as a
result of traffic increases. Most of the roads will ensure
all weather access to factories and markets for the smallholders which, in turn, should encourage these farmers to
produce perishables, particularly milk. The World Bank has
also financed improvements on the major road links of Kenya;
for example, it has financed improvements on the busiest
section of the Nairobi-Mombasa trunk route and the international trunk road to Tanzania. Traffic on these sections
is currently 10,000 vehicles per day and is* conservatively
estimated to double in the next ten years.
The World Bank has financed a total of 8 projects in
agriculture totaling $52.6 million. Agriculture has received
priority attention due to the recognition by the Bank that
most of the assistance must be in the directly productive
sectors and where there will be a maximum impact on new
employment. For example, the Bank has lent funds to the Kenya
Tea Development Authority (KTDA) to finance sub-loans to 17
factories to process tea. As a result of J:he project, new
employment will be provided for some 2,00GT workers; and it
will enable some 35,000 growers to obtain, at maturity of
their plantings, an average annual income of $170 after all
payments to KTDA. This is appreciably more than thev could
obtain from the production of alternative crops in"the tea
areas. Moreover, the project is also expected to earn $18.0
million a year in foreign exchange as a result of the additional
tea exports. Other agricultural projects include funds to help
finance medium and long-term loans for on-farm investments and
machinery, as well as short term loans for incremental working
capital and providing improved management and technical
services to individual farmers. Some of the projects are
designed specifically for the smallholder. These projects
extend credit to small commercial farmers, with net incomes
of no more than $200 per year. One project is focused on
financing smallholder farm investments in crop production
(about 3,000 loans); livestock (4,000 sub-loans); poultry
(700 loans) and machinery (100 loans). It is estimated that
about 8,000 farmers will receive financial support providing
about 7,600 full time jobs and incremental farm wages of
approximately $0.3 million annually excluding any secondary
employment effects.

-4 The World Bank has also been active in education,
family planning, improving water supply systems, and sites
and services. In education, the Bank has financed two
projects for $13 million. The first project increased the
number of places in general secondary schools, technical
schools,and primary teacher training colleges.
The second
project concentrated on supporting agricultural education at
the secondary level and assisted in establishing Kenya's
first university Faculty of Agriculture.
The population project is focusing on training an
adequate number of paramedical field personnel to extend
family planning services; strengthening the rural health system
infrastructure; and developing an appropriate institution to
support family planning services. The main objectives are to
improve maternal and child health and to strengthen and extend
the delivery of family planning services which,_ by 1984, are
expected to substantially reduce malnutrition and infant
mortality. The program is expected to result in the recruitment of 640,000 new acceptors and avert some 150,000 births
by 1979. This will reduce the crude birth rate from about
48 per thousand in 1974 to 43 in 1979, a decline in the rate
of natural increase from an estimated 3.3 percent to about
3.0 percent.
The sites and services project represents a new
approach to providing new, improved housing as well as city
services - including water supplies, sewerage, and power to low income citizens on a large scale. This particular
project will finance 6,000 serviced lots for self-help
housing together with the related on-site infrastructure and
community facilities; financing for materials loans to enable
allotees to construct self-help dwellings on /the lots; and
trunk sewerage to service the site. This particular project
is one of the first of its kind the Bank has done and it is
expected to demonstrate the value of this approach to alleviating housing shortages in Nairobi as well as other cities and
towns. The basic advantage of the approach is the provision
of housing at a lower cost than has hitherto been achieved.
The project will directly assist 6,000 households in obtaining
shelter, will provide self-help employment opportunities for
project beneficiaries and it will stimulate the construction
industry.

;^r

Current Economic Situation
In spite of Kenya's good economic performance, it is
•till a very poor country. Moreover, the exceptionally
high investment rate has put a strain on Kenya's economic
resource base and subsequently on the balance of payments,
despite the fact that the domestic saving rate, about 20
percent, is one of the highest in the developing countries.
Additionally, Kenya must deal effectively with unemployment
and rural poverty if it is to maintain or increase its rate
of economic growth. However, a number of indicators suggest
that it will become more difficult to maintain the momentum
gained in the past; this follows from the fact that the more
obvious development opportunities have already been exploited.
Capital/output ratios have been rising, savings have shown
some signs of leveling off and the increasing resource gap
has started to put pressure on the balance of payments.
The basic development strategy is to induce the economy
to operate more efficiently, both in utilizing fewer inputs
of scarce resources (particularly capital and skilled labor)
and in generating greater benefits. This requires both a
change in the structure of growth,with less investment in
infrastructure and greater investment in agriculture and
domestic,resource-based industries, and a change'in the
process of growth in all sectors, particularly through changes
in the prices of factors of production.
Future IFI Lending Activities
In the future the World Bank intends to give- even greater
emphasis to agriculture and other directly productive sectors,
particularly to projects which are likely to bring more
Immediate benefits to a large number of people and will, as
much as possible, increase Kenya's foreign exchange earnings.
The Bank's Agricultural Survey mission identified a number of
projects that are currently being prepared. For example, a
new forestry project to expand industrial pine plantations
will be ready for financing soon. Other projects currently
being worked on include an integrated crop production project,
an Irrigation project in the lower Tana River basin, and a
project to augment sugar production. Yet, while the major
emphasis will continue to be on directly productive agriculture,
there is a need for complementary development of rural infrastructure; consequently, the Bank will finance projects for

- 6 rural water supply systems and access roads. A wildlife
and tourism project is also being developed for new tourist
circuits and to help spread the benefits to a larger number
of rural communities. Concurrently, substantial investment
continues to be required to keep public services abreast
of economic growth. Consequently, the Bank is likely to
become involved in a number of projects, for example, an
oil pipeline project to move the increasing volumes of petroleum
products from Mombasa to Nairobi and a power project to keep pace
with the rapidly growing demand for electricity. It is expected
that in view of the high capital cost of some of these projects,
a significant amount of bilateral financing will be associated
with Bank financing.

ANNEX II

' -AH
INTERNATIONAL DEVELOPMENT ASSOCIATION

The $375 million the Administration is requesting in
FY 1976 for the International Development Association (IDA)
represents the initial installment of the IDA Fourth
Replenishment (IDA IV) which was authorized by Congress
in July, 1974. This compares with an average annual
installment appropriated for the IDA Third Replenishment of
$401 million which included an average annual maintenance
of value payment of $81 million.

IDA IV contributions

will not be subject to maintenance of value adjustments.
The U.S. share of the $4.5 billion IDA IV will be 33
percent, or $1.5 billion, down from previous U.S. shares
averaging 41 percent since the inception of the organization
in 1960. The negotiated U.S. share of IDA III was 40 percent, or $960 million of a $2.4 billion total.
While the IDA IV Agreement will support net lending
commitments over the period FY 75-77, it gives donors the

r»

option of deferring their initial contribution to FY 76,
and then paying in four installments extending through
FY 79.

The U.S. proposes to follow this course.

Most of

the other donor countries have already paid the first
installment of their contributions, and thus will be paying
in over a shorter period.

The proposed U.S. contribution

in FY 76 is essential if IDA is to operate at the lending
levels contemplated under the IDA IV Agreement subscribed
to by a total of 25 donor countries.
The IDA provides concessional credits to the world's
poorest countries which cannot afford to borrow at the near
commercial terms of standard World Bank loans,. Sixty-six
countries of Asia, Africa, and Latin America with annual
per capita incomes below $375 have received IDA credits.
Currently, most credits go to countries with per capita
income of less than $200.

The greatest concentration of

projects is in Asia and Africa which have received 68 and
25 percent, respectively, of total IDA commitments.

India,

Pakistan, and Bangladesh have received 54 percent of all
IDA credits since 1960.
Recent changes in the world economy have had a
seriously adverse impact on these developing countries.
Sharp increases in the prices of oil and some foods coupled
with continued inflation in the industrial countries, and

-3-

•

1 ^

more recently the effects of recession on world market
prices of primary commodities, have worsened the terms
of trade for many developing countries which depend on
IDA.

IDA funds are not used to pay bills for oil, food

or other consumables.

But continued financial assistance

from IDA is vitally necessary if the momentum of development in the poorest of the developing countries is to be
maintained -- even at a reduced level.

There is little

disagreement that;taken as a group, the developing economies
are for the present, at least, more rather than less
dependent upon external assistance.

The interests of the

United States would be poorly served under these circumstances
if we failed to join in the international effort which IDA
exemplifies.
IDA credits are extended on highly concessional terms:
repayment over 50 years at 3/4 of 1%.% This is consistent
with their fundamental purpose, which is to provide badly
needed assistance to the borrower rather than yield a
commercial rate of return to the lender.

Most of the

countries which borrow from IDA lack the capacity to service
external debt on conventional terras, and even if they
could, repayment on conventional terms would mean a lower
rate of return for the borrowing country itself, and thus
a smaller contribution to improved living standards and

- 4rising domestic savings and investment capacities.
Just as IDA lends to the poorest of its member countries
it also seeks to reach the poorest citizens within those
countries.

The pattern of income distribution in most

countries is a sensitive political issue; the ability of
an international institution «>to exert influence over it
depends to a very large extent on the attitudes of national
authorities.

But to the fullest degree possible, IDA, and

the World Bank generally, work towards the achievement of
more equitable income distribution^. Wherever possible,
their lending activities are concentrated on projects which,
in addition to contributing to economic development, have
a maximum impact in raising incomes and expanding employment
opportunities for the poor.
It should be emphasized, though, that the purpose is not
relief or make work.

It is rather to expand productivity,

for only in this way can lasting improvement in the lives
of the poor be achieved.

Towards this end all IDA projects

are appraised against strict rate of return standards, in
exactly the same manner as projects supported by World Bank
loans on harder terms.
In testimony before this Subcommittee last year;we
spoke of the beginning steps which had been taken in the
World Bank to carry out the initiative declared by Mr.
McNamara in his 1973 Annual Meeting speech in Nairobi

to help the poor, particularly in the rural areas. Much
has been done during the past year to carry this work
forward.

The number of projects which in a direct and

immediate sense benefit the lowest income groups ha.*?
continued to move sharply upward.
IDA has recently given even greater emphasis to
agricultural and integrated rural development projects
in an effort to raise world food production and to stimulate economic growth in the least developed countries of
the world -- which are primarily agricultural nations.
Whereas in the FY 1964-68 period IDA committed only 14
percent of its resources to agricultural development, the
corresponding amount for FY 1974 was 28 percent, and to
date in FY 1975 it is 37 percent.
Wherever possible agricultural projects seek to
increase the productivity of the smalj. farmer.

Furthermore,

an increasing number of agricultural projects provide for
additional components such as clinics, schools, and potable
water supply.
Education and population also continue to receive
major emphasis.

In education a new thrust has been given

in the direction of vocational and technical training.
A $15 million credit was recently extended for a population

- 6project in Bangladesh.

It will support a program which

aims at reducing the nation's rate of population growth
.by more than one-half over the next 25 years.

Six countries

through their bilateral programs will provide an additional
$27 million.

There is definitely an increasing awareness

among the developing countries that improvement in human
skills, and the curbing of excessive* population growth,
can be as important to economic development, if not more
important, than the accumulation of physical capital.
Virtually every week the Board of Directors of the
World Bank, with its votes weighted proportionately to
financial contributions, approves IDA credits for projects
making a critical contribution towards improving the
living standards of the desperately poor.

Typical are

four projects approved in recent months.

Late in April of this year, a $5 million credit was
approved to help finance an integrated agricultural
development project in Sierra Leone.

It calls for the

construction and improvement of about 300 miles of roads,
200 village wells, credit for investment in on-farm
development, 17 market centers, and technical assistance.
It will result in additional annual production of 10,500
tons of rice, 3,200 tons of palm oil, 750 tons of palm

9°
kernels, 550 tons of cocoa,and 1,100 tons of groundnuts.
The increased.production will help the country save about
$500 million in foreign exchange each year.

About 14,000

poor farmers and their families will directly benefit.

additional 65,000 farmers will benefit from improved
communication and services.
In August of 1974,an $11 million IDA credit was approved
for Paraguay to support a three-year lending program to
about 2,000 small farmers in public settlement colonies
in the eastern region of that country.

In addition, it,

will finance the construction of about 26 primary schools,
two health centers, three community centers, 60 km of allweather roads and the purchase of equipment for the
construction and maintenance of 250 km of earth roads in
the region. An estimated total of 7,000 low income rural
families, about 42,000 people, will benefit from these
improvements.
A $6 million credit of the Kingdom of Jordan was
approved two months ago to help finance a second education
project, the total cost of which is estimated to be $17.4
million.

Its goals are (i) expanding and reinforcing

vocational and technical education; (ii) supporting rural
development projects in the Jordan valley through a pilot
scheme of non-formal education; and (iii) promoting quality

- 8 improvements, rationalization and economy of operation in
secondary education.

The project will include, among

other things, the construction, equipping and furnishing
of a polytechnic institute for 240 students, a technical
training complex with an annual output of 400 trained
workers, a rural development center with approximately 1,000
trainees per year,

three comprehensive secondary schools

enrolling 6,300 students, and a program of related technical
assistance.
Early this year, the IDA provided $35 million for an
agricultural project under India's drought-prone areas
program.

The project consist mainly of minor irrigation

works, soil and moisture conservation works to protect
925,000 acres, pasture improvement, aforrestation, dry
farming development and improved dairy production.

The

project will mitigate the impact of future droughts and
yield an annual increase in crop production of about 58,000
tons, principally foodgrains and oilseeds.

About 85,000

man-years of short-term employment will be generated over
the project period, and about 20,000 man-years of permanent
employment will be created.

Measures to improve credit

flow, research,and training will have permanent benefits.
The project will improve the income of some 225,000 rural
households, most of whom belong to the poorest segments

of the population.

(Since December 1974, the United States

registered a negative vote on this and seven other IDA
credits for India in accordance with an amendment to last
year's IDA legislation which requires that the U.S. vote
against IDA credits to any country exploding a nuclear
device which has not adhered to the Nuclear Non-Proliferation Treaty.)
All IDA projects are subjected to rigorous technical
and economic appraisal before being submitted to the Board
of Directors for approval.

Firm cost estimates are made;

required technical and managerial assistance is provided
for; and institutional reforms essential to the projects'
success are insisted upon as a condition of fund disbursement .
Once a project is approved by the Board its subsequent
execution is closely watched.

CarefuJ. supervision is

exercised at the procurement stage to assure compliance
with fair international competitive bidding and the award
of contracts to the lowest evaluated bidder.

Funds are

disbursed only against satisfactory documents evidencing
progress of the project in conformity with the credit and
project agreement.

Progress reports are regularly received

and monitored, and frequent on-site inspections are made
by staff officials.

Moreover, as each new credit is brought

- 10 forward for approval, the Board of Directors receives a
status report on all on-going projects in the particular
country involved so as to assess its capabilities for
taking on further work.
Effective internal auditing and evaluation functions
are also well established.

The Evaluation Department,

established a few years ago at U.S. urging, has continued
to grow in stature and effectiveness.

It assesses past

results for the purpose of strengthening future operations.
It undertakes broad country and sector program evaluations.
It also evaluates all individual projects within one year
after loan or credit funds have been fully disbursed.

the past year it was agreed, again at U.S. urging, that
the Evaluation Unit will report directly to the Board of
Directors.

Having had an opportunity now to examine a

number of its reports, we can assure «you that they pull
no punches.

They are prepared and submitted with full

independence.
The managerial and technical excellence of the World
iBank is widely recognized throughout the world.

Of the

joint IBRD/IDA professional staff, roughly 27% comes from
the United States.
A number of developing countries which once received
IDA credits have now advanced economically to the point
where it is no longer necessary.

Moreover, three countries

•

which borrow from the World Bank are making contributions
to IDA IV.

They are Spain, Israel and Yugoslavia.

Among the oil exporting countries, only Kuwait, which
has contributed to IDA since 1960, is pledged to make a
contribution to IDA IV, the negotiation of which preceded
the increases in oil prices which occurred in 1973-74.
The World Bank, however, is in active contact with all of
the oil exporting countries to solicit their cooperation
and efforts to assist the developing countries.

The Eank

is urging the oil surplus countries to participate in the
future as contributing members of IDA.
strongly supports this goal.

The United States

In the meantime, a number of

these countries have joined with IDA in co-financing
projects.

To date they have contributed $146 million to

a total of nine projects.

This significantly expands

the scope of IDA's activities.
The Administration firmly believes that IDA has been,
and continues to be, an effective and valuable instrument
for the advancement of vital interests which the U.S. shares
with other nations of the world.

Its importance to U.S.

foreign interests, both political and economic, is great.
The Appropriation requested today will enable the
United States to carry out its share of the IDA IV Agreement
negotiated among 25 governments to attack a problem common
to all nations.

I urge the Committee to act favorably

and promptly on it.

ANNEX III

INTER-AMERICAN DEVELOPMENT BANK

J/jf

The Administration is requesting $275 million for the
Inter-American Development Bank's Fund for Special Operations
(FSO) . This Fund is the source of lending to support projects
largely in the poorest Latin American countries.

The amount being

requested represents the final installment of a U.S. contribution,
totalling $1.0 billion, which was negotiated by the Executive
Branch in April, 1970, and authorized by the Congress in legislation
enacted in December, 1970, and March, 1972.
Approximately $90 million in convertible currencies will
remain uncommitted in the FSO at the end of the present calendar
year.

This margin would be so small as to preclude meaningful

planning and processing of applications for funding in 1976.
This expectation is based on projected dollar lending from the
FSO of approximately $410 million in 1975, as compared with $342
million in 1974, and $315 million in 1973.

The $275 million re-

quested by the Administration would provide for carryover of about
$365 million at the end of 1975.

This alone would not suffice

to maintain lending in 1976 at the contemplated 1975 level; however, it would permit lending to go forward in an orderly fashion
in anticipation of additional funds that should become available
in the latter part of 1976.
The Fund for Special Operations is an extremely important
part of the Inter-American Bank's structure.

The FSO has financed,

in all member countries, projects that, while very worthwhile and
SOCiallv imoortant* . flro nnf- 1-flr^lir *-<-* nani=»i-of-ia Q

c h r o a m nf

inrnmo

-2sufficient to amortize financing of the type available from
the IDB's Ordinary Capital resources.

Examples of such sectors

are health, education, and rural water supply.
It is important to note that in accordance with established
Bank policy and at U.S. urging, the most developed Latin
American members are receiving a declining amount of FSO resources.

FSO convertible currency commitments to Argentina,

Brazil, Mexico, and Venezuela dropped from $90 million in 1973
to $67 million in 1974, and are expected to be substantially
lower in 1975.

Venezuela voluntarily refrained from requesting

any FSO (and also Ordinary Capital) loans in 1974 and we anticipate that the other three advanced countries also will not
receive convertible currency loans from the FSO after 1975.

This

will enable the Bank to concentrate its soft-term lending on the
neediest member countries and emphasize those sectors that have
the greatest direct impact on low-income groups, such as agriculture,
education, health, and water supply and sewerage.
In addition, the Latin American member countries contribute
their own currencies to the FSO and the Bank has been using an
increasingly large proportion of these resources for loans in the
contributing country.

Under a special four-currency agreement, the

Bank also can lend currencies of its most developed member countries -- Argentina, Brazil, Mexico and Venezuela -- for
projects in the other member countries.

In brief, the Latin America!

countries are financing through the Bank a greater share df their
own economic development needs.

Members of the Subcommittee know that the 1975 Appropriations
Act requires that of the total of $225 million approved for the
IDB's FSO, $50 million may be used

only for specific designated

uses ($15 million for savings and loan associations, $10 million
for credit unions, and $25 million for cooperatives).

The

Administration is sympathetic with the main thrust of Congress's
desire to see that an increasing proportion of IDB lending
directly benefits the low income groups in Latin America, but
believes that earmarking is not the appropriate way to achieve
this objective.
The IDB, in fact, has done a considerable amount of lending to benefit the poor.

In agriculture, for example, about

$1.6 billion, or over 21 percent of total IDB lending, has been
directly related to projects designed to help Latin America's
low income rural sector.

Between a quarter and perhaps as much

as a third of the Bank's total commitments for agriculture
have benefitted small farmer cooperatives and other types of small
farmer groups.

Also, the IDB has helped improve living standards

of low income sectors in Latin America's cities through loans
totalling more than $1 billion for water and sewerage systems,
housing, and urban renewal.
The Administration agrees that the IDB should be doing relatively more to help the low income groups and is continually
pressing Bank management in that direction.
with this general thrust.

Other members agree

However, it is not easy to find

technically sound projects which effectively reach the poor.
And in some situations these projects may not be given the highest

-4priority by the borrowing country because other projects
may have higher economic payoff.
In any case, the Administration believes that earmarking is
not the way to approach this problem.

The Bank is already

making substantial loans to cooperatives and is programming more
for this purpose during this year than the earmarked amount.

The

Bank is also proceeding with a substantial grant to further the
development of credit unions in Latin America.

This type of

assistance promises to be more effective than loans for credit
unions at this juncture when many potential borrowers among
existing credit unions are mainly urban and middle class-oriented.
In Latin America the real need is to spread credit union activity
to rural areas and productive activities, and the IDB grant
approach is well suited to the present situation.

Finally,

since IDB lending to savings and loan associations in Latin America
would benefit mainly the middle and upper class, such lending
would be inconsistent with the IDB's and the U.S.'s general
development thrust.
The benefits would be far outweighed by the rigidities if
earmarking were introduced in the Bank's operations.

First,

the potential effects could well be contrary to the multilateral
nature of the Bank and to the interests of the United States.
Second, the earmarking could establish a precedent for other
special interests and for other governments to insist on similar
special conditions.

At the recent Annual Meeting in Santo Domingo,

IDB President Ortiz Mena, and also the Governor for Colombia,
Carlos Sanz de Santamaria,voiced serious concern that the

9l
that the introduction of earmarking would be contrary to the
letter and spirit of the IDB Charter and could undermine the
ability of the Bank Management to allocate resources according
to technical and economic criteria.

In view of this situation,

the Administration is requesting and strongly urging the deletion
of the earmarking provisions that were attached to the Appropriations
Act approved by Congress in March, 1975. This does not mean that
we disagree with the Congressional mandate that the IDB should
increase its efforts to do more lending aimed directly at
helping the low income groups in Latin America.

As indicated

previously, quite the contrary is true.
With respect to Ordinary Capital, the IDB

is expected to

run out of these resources to make new commitments Well before
the end of 1975. For this reason, on the basis of consultations
with the Congress, the Executive Branch began discussions at
the Annual Meeting with other member countries on the replenishment of IDB Ordinary Capital resources. A working group
was established, including the U.S. and seven Latin American
countries, to work out an overall replenishment proposal for
presentation to a special meeting of the IDB Board of Governors at
the time of the IMF/World Bank Meetings in Washington in early
September of this year.

It is anticipated that sometime soon

thereafter the Administration will be seeking authorization of
U.S. participation in the 1976-^78 replenishment at approximately the
same level — about $1.8 billion -- as in the last replenishment.
This will involve a request for appropriation of some funds in
FY 1976 for subscription to capital shares, most of which will

-6be callable only.

There is no plan to request any appropriation

for the FSO in FY 1976 beyond the $275 million remaining under
our commitment of April, 1970, and currently under consideration.
It is helpful to place the current appropriations request
and the plans for future requests in the context of what we have
already achieved in burden-sharing.

Negotiations have been

completed for a group of 10 Eurpoean countries, Japan, and Israel
to join the IDB.

Those countries have pledged themselves to con-

tribute approximately $375 million in cash to the FSO over the
three years 1976-78. We expect these countries to make available
the first of their resources for the FSO in the latter part of 1976
after they have completed their internal government procedures
and approvals for entry into the IDB.
Burden-sharing should not be limited, however, to the
industrial countries.

The Administration also looks for the

most advanced Latin American countries to make some of their contributions
to the FSO.

to the upcoming replenishment in convertible currencies
These contributions would occur largely in 1977 and

1978, and would not have any impact on available commitment
authority in 1976. Members of the Subcommittee already know
that the Venezuelan Government has established a $500 million
Trust Fund for Ordinary Capital-type lending operations by the
IDB.

A total of $160 million of this Fund will be committed

during this calendar year, but this will not entirely bridge the
gap caused by the IDB's projected shortage of Ordinary Capital.
Contributions from non-regional members and the most developed

Latin American countries will reduce the financial burden for
the United States.

By no means, however, do they eliminate the

need for U.S. funding of the IDB in the future.
The IDB supports economic and social development in a part
of the world of special interest to the United States.

For this

reason the United States was a key supporter of the Bank's
establishment in 1959. The IDB has since become a leading
source of official financing for Latin America.

Drawing the

bulk of its staff from Latin American member countries, the IDB
has been in a unique position to apply its thorough knowledge
of the region toward economic development.

In many fields

affecting low income groups -- such as rural water supply, selfhelp housing, and health —

the Bank has been an innovative lender.

It has also assisted private enterprise in its lending through
development finance companies, and to farmers by its loans
through agricultural and livestock credit institutions.
On the management side, the IDB has done a good job in containing staff growth and limiting administrative expense.

It has

been in the vanguard among development banks in establishing a
Group of Controllers which is independent of management and
responsible only to the Board of Directors.

Thus far, the Group

of Controllers has completed 13 reports which are, in fact,
operational audits and which enable the Board of Directors to
have close oversight of the Bank's activities.

-8In response to concern expressed in the past by the
Committee and the Congress about the follow-up on IDB loan
projects, the Executive Branch initiated an active program of
inspection trips to the field covering the IDB's lending.
Representatives of the Executive Branch and from the Congress
have inspected many IDB projects over the past two years. Most
recently a group of Treasury officials and Members and professional
staff from the House Banking and Currency Committee made visits
to the sites of a variety of IDB projects in the Dominican
Republic, Colombia, Guatemala, and Mexico during and immediately
following the 16th Annual Meeting. These project visit trips
have yielded concrete evidence that IDB loans are contributing
significantly to economic and social development in Latin America.
To summarize, the IDB is a well-run regional development bank.
The burden of providing economic assistance is now being shared
more equitably with prospective non-regional members and with
the more advanced regional countries.

The IDB

is making a

successful contribution to the growth and development of an area
of key importance to the United States.

For all these reasons,

the IDB deserves continued strong U.S. support and the
Administration recommends that the Subcommittee approve the
appropriations request for IDB's FSO for FY 1976 and for removal
from the Appropriations Act of March 1975 of the earmarking
provisions on U.S. contributions to the FSO.

ANNEX IV
ASIAN DEVELOPMENT BANK

•u>S
For FY 1976 the Administration is requesting a total of
$170.6 million as part of the U.S. contribution to the Ordinary
Capital of the Asian Development Bank (ADB) and for the second
stage U.S. contribution to the Asian Development Fund (ADF) . The
ADF was established in 1974 to combine all concessionary loan
funds administered by the ADB into a single lending fund, the
ADF.
With respect to the Ordinary Capital of the ADB, the FY 1976
budget includes a total of $120.6 million, of which $24.1 million
would be paid-in, and $96.5 million in the form of
capital.

callable

These amounts are part of the $361.9 million authorized

by Public Law 93-537 in December 1974 as the total U.S. contribution to the ADB's first replenishment of Ordinary Capital.
The U.S. contribution to the ADB's original Ordinary Capital
totalled $241.2 million, of which $120.6 million was paid-in,
and $120.6 million callable.
The Congress appropriated only the paid-in capital portion
($24.1 million) of the Administration's FY 1975 request.

The

Executive Branch believes this Congressional action reflected
a desire to proceed with some subscription to the Bank's Ordinary
Capital increase.

We have therefore subscribed to only $120.6

million, or one-third of the $361.9 million authorized.

This

subscription has raised the U.S. voting power in the ADB to
only 9.7 percent form the previous low level of 6.8 percent.
You will note that we are again requesting an appropriation
of callable capital.

The circumstances in which callable capital

-2would actually be required are unlikely in the extreme.
Nevertheless, in the case of the ADB, which is still a relatively
young institution, we believe callable capital should be appropriated in order to help the Bank in establishing its credit~
worthiness in the international capital markets, particularly
in the United States market.
The Administration's FY 1976 request for $50 million for
the Special Funds of the Asian Development Bank would provide for
the U.S second stage contribution to the concessional loan
window of the Asian Development Bank.

The United States completed

its first stage contribution of $100 million to the ADF this
March when the Congress appropriated a second $50 million. As
was the case in the past, arrangements have been made for other
countries to go ahead with their second stage contributions by
June 30, so that the ADB can continue its concessional lending
operations through the summer.

For orderly lending operations

to go forward to the poorest of the ADF's borrowing countries,
it is important

for the U.S. to participate in a timely manner.

Appropriation of this $50 million contribution will bring
the total U.S. contribution to the Bank's Special Funds to $150
million.

Together with other countries' contributions on the

order of $580 million plus set-aside resources of the ADB, this
would provide some $775 million in Special Funds resources as of
December 31, 1975.

By the end.of 1975, the ADB expects $740

million of that total will have been committed.

By the early part

of 1976, therefore, the ADB would have only about $35 million of
these concessional funds at its disposal for further commitments.

The ADB is presently proposing that a replenishment of the
concessional resources of the ADF take place early in 1976 to
provide resources for the 1976-78 Special Funds lending targets.
ADB management is proposing a replenishment of $1 billion.

the recent ADB Annual Meeting, there was an initial informal
discussion with the management and donor member countries of the
ADB on the Bank's proposed Asian Development Fund replenishment.
The U.S. representatives were careful to make no comments as to
any level of USG participation and reiterated that both the
level and the scheduling of any future U.S. contributions would
require Congressional approval.
The Asian Development Bank provides the cooperative ..framework
of a regional, international financial institution in which regional
borrowers as well as lenders and non-regional donors work for the
economic development of the region.

An example of this cooperation

is the informal agreement that India is not a borrower, thereby
enabling the Bank to use its scarce lending resources for projects
in the other disadvantaged regional countries.

Although a

young institution, the ADB's accomplishments in contributing to
the economic growth of the developing countries in Asia warrant
U.S. support.

Through our active participation, we can give

concrete evidence of our interest in the region at a time of crisis.
As Secretary Simon pointed out in his speech at the ADB
Annual Meeting in Manila last April, Asia has a special significance
for the United States.

To those nations present at the meeting

and to the world, he echoed President Ford's promise that the U.S.

-4would continue to work cooperatively with others in maintaining
the security and in building the prosperity of the region.

an increasingly interdependent world, the United States, as a
nation of the Pacific as well as the Atlantic, must remain involved.
The competence of the Asian Development Bank is a strong asset
in assisting our efforts to achieve these goals.

AFRICAN DEVELOPMENT FUND

On April 17 of this year, the Administration submitted
a bill to the Congress to provide for U.S. participation
in the African Development Fund (AFDF). If the Congress
passes this legislation authorizing a $15 million U.S. participation in the AFDF, the Administration has prepared for
later transmittal a request for $15 million in appropriations, to be made available to the AFDF in three equal
annual installments of $5 million each.
The AFDF is the concessional loan arm of the African
Development Bank (AFDB) . The AFDF was established in
June, 1973, to complement the activities of the Bank by
providing low-interest financing for high priority projects
in the poorest nations in Africa. The Bank itself was
established in the early 1960's to assist in the economic
and social development of the newly independent African
nations and to provide economic cooperation among them.
The Bank's membership is composed of 41 African countries>
with no industrialized members.
Through December 31, 1974, the African Development
Bank had authorized $214 million for Ordinary Capital
loans, mainly in the areas of transportation and public
utilities. Its paid-in capital amounted to $225 . million,
and it had about $13 million of borrowed resources. Since
1972 all the Bank's loans have been made at 6% with maturities
from 5 to 20 years plus a variable grace period.
In an effort to increase the involvement of nonregional industrial nations in African development efforts
the Bank undertook discussions with the United States and
other countries to establish a concessional loan facility
associated with the Bank. After six years of negotiations,
and with U.S. assistance in drafting the charter, the Fund
was inaugurated in July, 1973. The present participants
in the Fund are fourteen donor countries from Europe, Brazil,
Japan, and the member countries of the African Development
Bank. Saudi Arabia and Argentina are expected to join this sumir.er
The Fund is legally separate from the Bank and managed
by its own Board of Directors, half of whom are chosen by
the Bank and half by the donor countries, six for each
group. All loans, except those for studies, have a maturity
of fifty years including a ten year grace period. Principal
is repaid in the eleventh through the twentieth year at one
percent interest and at three percent thereafter. A service

- 2 charge of 3/4 of one percent is payable on undisbursed
amounts.
A 75% weighted vote is required for all
operational decisions. The Fund uses the Bank's staff
and draws upon its expertise.
Since the Fund's establishment, donor nations including
Saudi Arabia and Argentina pledged about $147 million, in concession
loan resources and the Bank has contributed another $7 million.
From the beginning of its operations In mid*1973 through
the end of 1974, the Fund has made 17 loans totalling $47
million to finance development projects and feasibility
studies in thirteen countries. Seven of these loans for
$18.5 million have been for long term development projects
such as village wells, roads, earthen dams, and rice
development in the drought-affected countries of the Sahel
(Mauritania, Mali, Upper Volta, and Chad).
The proposed U.S. contribution of $15 million for the
African Development Fund -- which represents about 10
percent of the contributions so far pledged — would bring
the level of total contributions to about $169 million. The
United States would be the fourth largest contributor,
after Canada, Japan and Germany, which have each pledged
$15 million or above.
Because the U.S. participated in the drafting of
the Agreement establishing the Fund, we were eligible to
be an "original participant" had we contributed to the Fund
by December 31, 1974. This would have made our membership
in the Fund automatic and entitled us to elect an Executive
Director at the next election of Directors. Because we did
not meet the deadline, the terms of our membership are not
at this moment defined. We believe that if the proposed
authorization is approved we can negotiate membership in
the Fund under terms similar to the original charter conditions .
Our relations with Africa are becoming more significant as
U.S. traders and investors are drawn increasingly to the continent. Participation in the Fund is consistent with our
national interest in building cooperative economic relations
with the African nations and would be viewed by these countries
as a clear indication of our interest in their growth and
prosperity. We also stand to gain access to a potential
source of export earnings when we join the Fund since, under
the Articles of the Fund, procurement of goods and services
for projects is restricted to member nations.

In addition to these benefits which should accure to
the U.S. from a comparatively modest participation in the
Fund, it should be noted that the actual budget impact
of the $15 million contribution will be spread over
several years. Initially, our contribution would take the
form of non-interest bearing letters of credit which
become budget outlays only when cashed as needed. The
outlays would probably total $2 million in each of the
first two fiscal years of our participation and about
$4 million in each of the ensuing two years.

is-

Hello, I'm delighted to be with you today.

It's

always a pleasure to return to New Mexico, and it's
very nice to look out at the audience and see such
young, handsome people looking back. Both of my young
people — a son and daughter — are several years beyond high school, and I miss having teenagers around
the house.
The month of June is important to all of us.
Thirty-one Junes ago I myself graduated from the small
high school at Mountainair, New Mexico. Twenty-seven
years ago last Saturday, I graduated from the University of New Mexico in the morning, and married my
husband, Ed Neff, that afternoon. This set the pattern of my life for many years. But then last year,
on June 21, 1974, I was sworn-in as the 35th Treasurer
of the United States; and right there in my middlessence
I began a whole new life.

Remarks by the Honorable Francine I. Neff at Los Alamos
High School, Los Alamos, New Mexico on June 9, 197 5.

In the past year, I've traveled to 28 states on
behalf of Treasury business; I've become deeply involved in the United States Savings Bonds Program;
my name has appeared on millions of dollars worth
of United States currency; and my job has expanded
my mincj, which is good, and my waistline, which isn't
so good. My days now are a mixture of exhileration
and exhaustion.
The past year has been exciting for you too.
The senior year at any school is memorable. After
today, you'll be separating from old friends for new
experiences, but you will never forget these days.
I know I never did. In fact, I am planning to attend
my own Mountainair High School class reunion in only
12 more days.
As you and I lived through last year — you here
in Los Alamos, and I in Washington learning my new
job -- as we lived through these 12 months, there were
many changes in the world around us. It's been an
historical time all right, perhaps a little too historical. For who among us would have predicted a year
ago that by this June -— The United States would have a new President
and Vice President, and both would be appointed rather
than elected.
— The United States would have suffered the hiqhest

. .

inflation in its peacetime history.
v
— We would have experienced the worst recession in
a generation.
—

100 billion dollars of the world's wealth would

have gone from oil-consuming industrial nations to a
small band of developing nations.
-- And major changes in our long involvement in
Asia would occur.
National and world events moved so quickly and with
such publicity that we were all aware of them.

But there

was another story, during this time, that escaped the
headlines.

And that story is how well our country's

political and economic systems operated during periods
of extra-ordinary stress.
Time and time again, as major new developments
flashed before us on the television screen, the Calamity
Janes and Joes in our midst would announce that this was
the end —

the final convolution before Armageddan.

The

media disaster lobby worked overtime; yet here we are under
a New Mexico sky that hasn't fallen in, still driving cars
with gas in them —

for a price -- and still alive with

great expectations for the future.
Let's look at some developments this past year, some
predictions, and some results.

And, because economic news

was so important, let's begin with that.

y (<>
I'm sure you remember that when the oil embargo
was imposed, there were predictions that Americans would
be unable to cope.

People would freeze, industry would

experience massive disruptions, and the lines in front
of gas stations would stretch for miles.
What really happened was that we sacrificed some
of our conveniences; the economy was jolted but managed
to stay on a tolerable course; and the number among us
who experienced genuine suffering was relatively small.
The gloom-spreaders then predicted that because
the price of foreign oil had zoomed upward, the international money system would collapse as massive sums of
money were transferred within world markets.
In fact, financial institutions responded with
considerable skill.

Funds from the oil-producing nations

were rather widely distributed.

And new oil discoveries

outside of the Mideast, and new production within the
United States, will eventually mean lowered prices.
Then, let's look at the dollar.

From September

of last year to this February, the dollar v/eakened on
the foreign exchange market as the United States took
the lead in reducing interest rates.

On a trade-weighted

basis, the decline was a bit less than 5 percent, although
against a few individual currencies, such as the Swiss

1(U
franc, it dropped considerably more.
This led to reports that the dollar was on its
deathbed.

However, as our recession began to bottom

out, the dollar strengthened.

And, our competitive

position in international markets is still fairly strong
because, as bad as our inflation has been, it was still
worse in many other countries.
For a final example, let's look at inflation and
recession.
You may remember that a few months ago there was
talk among some people that we were heading into another
Great Depression.
While we certainly have had a recession, it did not
compare to conditions in the 1930's.

Unemployment

figures, even as they peak this summer, are considerably
less than half of the 193 0 figures, and there are such
current safety nets as Social Security, medicare, food
stamps, and unemployment payments, none of which existed
in the early 1930's.
Further, most economic experts agree that the recession
is now scraping bottom, and that a recovery vThile maybe
not as vigorous as v/c would like to see, is occuring.
As for inflation, there were fears expressed that
we might have a South-American type rise in prices that
would make 12 percent inflation seem mild.

But the Business

-5-

9-s
franc, it dropped considerably more.
This led to reports that the dollar was on its
deathbed.

However, as our recession began to bottom

out, the dollar strengthened.

And, our competitive

Unemployment

figures, even as they peak this summer, are considerably
less than half of the 193 0 figures, and there are such
current safety nets as Social Security, medicare, food
stamps, and unemployment payments, none of which existed
in the early 193 0's.
Further, most economic experts agree that the recession
is now scraping bottom, and that a recovery while maybe
not as vigorous as we would like to see, is occuring.
As for inflation, there were fears expressed that
we might have a South-American type rise in prices that
would make 12 percent inflation seem mild.

But the Business

Council, a group of top executives, now say they project
consumer prices will rise to less than 9 percent this
year, and will slow to around 5 percent in the first
half of next year.
These are examples of why I say the real, longterm story of the past year is not the individual shocks
to our American free enterprise economic system but the
fact that, despite these shocks, the system functioned
so well.
Our economy reminds me of what Great Britain's Sir
Winston Churchill once said about democracy. "Democracy,"
said Sir Winston, "is the worst form of government, except for all of those other forms of government that
have been tried from time to time."
Similarly, the free enterprise system, that has
brought us the greatest mass prosperity ever known in
history, can be praised not as super-good, but as better
than all its competitors.
Under the free enterprise economic system, the
medium income of Americans has doubled in the last
25 years, even taking inflation into account. Working
conditions for most people have dramatically improved
and the number of Americans going to college has more
than doubled -- perhaps the greatest example of upward
mobility in history.

No other country has our manpower, our brainpower,
our technology. Yet, some of our citizens have lost
faith in their economic system. I think this is partly
because the doomsayers choose always to look through
a glass darkly.
Perhaps now is the time to doubt our institutions
less and our doubters more. I am 100 percent with my
boss, Secretary of the Treasury William Simon, when
he says that "those who take a perverse delight in
proclaiming the end of the American Dream are dead
wrong."
After all of this, some people may accuse me of
loving my country, and they're right. As a child
in Mountainair, I was taught to love your family,
your community and your country. As a teenager,
I sold war bonds at the Mountainair Post Office on
Saturday mornings. I thought then that patriotism
was a willingness to die for your country.
That's still one way to define it. But loving
your country also means a willingness to live for it —

to say "yes" to America in sickness and in health, till
death us do part — and to accept the resulting obligations.
What are those obligations we have towards society?
Well, my office at the Treasury Department in Washington, D.C. is next door to the White House. So I often
see young men and women protestors marching and picketing
around the President's home for many diverse causes. In
fact, sometimes the noise of the loudspeakers,and the
traffic tie-ups^ are quite severe.
The opportunity to demonstrate on the streets is a
basic right of all Americans. But I wonder ... who speaks
. . . who marches ... for society as a whole? Who supports
or defends our society -- as a society -- when it is attacked, as it seems to be almost daily?
Angry young men and women may think that a society
is made of granite. But you and I know that any modern
civilization is enormously intricate. It holds together
because thousands of spoken and unspoken acts and beliefs
and forms of cooperation are repeated daily. Even strong
societies are vulnerable to their own citizens. And no
society -- no social contract -- can hold together forever
if the forces that beat upon it are too strong for too long.
The ultimate fate of any nation is determined by the
willingness of its citizens to voluntarily give that society

some part of their time, trust and money, and to agree
that the great majority of its citizens will follow
certain norms of behavoir. We are called the United
States of America, and voluntary unity is one of our
strengths.
This year, Americans will begin to celebrate our
nation's Bicentennial,
In 25 more years, we will celebrate the beginning of a
new century. And in that year of 2,000 A.D., some of you
will be attending the high school graduation of your own
son or daughter.
Stop a moment and consider. What will you do in
the next 25 years to make your children's future better
or worse than yours is today? By your actions, and those
of other high school students graduating this month all
across the country, you can give your children a better
start than you had -- or a worse one. And if you are not
happy with the problems my generation handed to you,
then these next 25 years are the time to see that the
same problems aren't handed on to another generation.
You, the graduating seniors of Los Alamos High School,
have had an exceptional academic preparation for the future
Some 27 among you have been honored by the National Merit
Program. Numerous other individuals have received awards

in sports, music, mathematics and other scholastic fields.
You are known throughout our state as a top high school.
So we will be expecting great things from you. We
will expect you to measure yourself against high goals,
recognizing always that academic excellence is only one
kind of excellence.
As you receive your diplomas and leave these grounds,
some of you will look forward to entering a business or
trade, while many of you will continue your
education. Whichever you do, do it with enthusiasm and
energy. Build your personal castles in the air, and then
put foundations under them. Don't ever settle for a life
that is either secondhand or second best.
If you choose college — make it a good productive
period of your life. If you go to work -- do a terrific
job. If you choose marriage and perhaps parenthood.
give that your best. But whatever you do, never stop
growing and never feel you are alone, because you do belong to a community, a state, a Nation. As you go in to
new activities, continue to cherish old friends. And enjoy
life.
Sometimes we are made to feel that happiness is selfish
as though our laughter diminishes the happiness of other
people. But it's exactly the opposite. Laughter is lifegiving; it is joy, rather than anguish, we should seek as
the ideal.

And finally, I would like to recall to you that,
in this world we all share, there is much more than
war or hatred or economic upsets. There is love and
laughter and there are wonderful opportunities for all
of us to use every ounce of

brains and heart and

spirit that we possess.
If the new life you are about to start is kind,
then rejoice and enjoy and help others along.
If life hands you a lemon, then go make lemonade —
and make the best darn lemonade in town.
Your school, Los Alamos High School, has given you
all it can for your future life.
Now go on to learn more, give more, laugh more and
live more elsewhere.
And know that you go with the very best hopes and
prayers of everyone here today for your future.
Thank you.

Department of theTREASURY
ASHINGTON, DC. 20220

TELEPHONE W04-2041

FOR RELEASE ON DELIVERY 10:00 A.M., MONDAY, JUNE 9, 1975

STATEMENT OF THE HONORABLE JAMES J. FEATHERSTONE
DEPUTY ASSISTANT SECRETARY FOR ENFORCEMENT
BEFORE THE
SUBCOMMITTEE ON BUILDINGS AND GROUNDS
OF THE
SENATE COMMITTEE ON PUBLIC WORKS
ON
H. R. 12, AN INCREASE OF THE UNIFORMED
OFFICERS IN THE EXECUTIVE PROTECTIVE SERVICE
JUNE 9, 1975
10:00 A.M.
Mr. Chairman:
I am pleased to appear before this Subcommittee
to discuss the further review by the Treasury Department
of the need to raise the statutory ceiling on the number
of uniformed officers in the Executive Protective Service
from 850 to 1,200. My testimony today is directed
specifically to certain proposals which are presently
embodied in H. R. 12.
As you are aware, on March 17, the Treasury Department testified before the House Subcommittee on Public
Buildings and Grounds concerning the urgent need of the
Executive Protective Service to raise its manpower

- 2ceiling in order to assign more officers to foreign
mission duty in Washington, D. C. Most of the descriptive part of that testimony is also reflected in the
report accompanying H. R. 12, and I shall not repeat
it today.
Since that time, we have carefully reviewed our
position and consulted with the Office of Management
and Budget regarding the cost aspects of H. R. 12. As
a result, we have concluded that the reimbursement
provisions contained in section 1(d)(1) of H. R. 12
are not acceptable since they would require substantial
outlays at a time when we are making strong efforts
to reduce Federal spending and assist the recovery of
our economy. We must also realize that the cost
expansions through such a program are likely to prove
to be far beyond current annual expectations.
Instituting reimbursements for State and local
governments for the assistance which is an historic
part of their duty under our federal system of government is contrary to the cooperative nature of law
enforcement in the United States and would augur a

- 3 shift in the balance of law enforcement responsibility
from the State and local authorities to the Federal
government.
Furthermore, the use of reimbursements in this
area of principally State and local responsibility
will act as a precedent for similar procedures in
other areas. This is not in the best interests of
either the Federal government or the State and local
entities which comprise our federal system of government. We, therefore, must oppose the reimbursement
provisions of H. R. 12.
The same general considerations of budgetary
restraint on Federal programs, particularly in a time
of economic difficulty, also call for our opposition
to the creation of additional supergrade positions
in the Secret Service (section 3 of H. R. 12).
We also believe it is important to note that our
concurrence in section 1(a) of H. R. 12, which provides
for assignment of EPS officers in metropolitan areas
with twenty or more foreign missions, is based upon the
construction of section 202, as amended by H. R. 12,

- 4 that the determination of "extraordinary protective
needs required" is to be made by the Secretary of the
Treasury. The request of the "affected metropolitan
area" is nothing more than a request; and, presumably,
some demonstration of "extraordinary protective needs"
will be presented for the Secretary's consideration.
Of course, the Secretary is not bound by the request
or the evidence of local authorities in support of
their request; and he may make his determination based
upon information presented only from sources other than
the requesters. This authority of the Secretary is
embodied in his authority to supervise the Executive
Protective Service.
With the elimination of the reimbursement provisions
of H. R. 12, the retroactive effective date of July 1,
1974, is superfluous and should be stricken. If some
form of reimbursement were to be entertained by the
Subcommittee despite our objections, we believe that
the effective date must not be retroactive but instead
concurrent or prospective.

- 5 The bill as drafted is not consistent with Administration
objectives. However, with amendments deleting both the
reimbursement provisions and the additional supergrade
positions, which are contrary to the budgetary program
of the Administration, and with the understanding that
the legislative history and report on the bill will
reflect the exclusive authority of the Secretary to
determine extraordinary protective needs, we will support
this legislation to increase the manpower ceiling of the
Executive Protective Service.
I shall be glad to answer any questions you may
have.
0O0

Department of theTREASURY
ASHINGTON, DC. 20220

TELEPHONE W04-2041

Llr_
FOR IMMEDIATE RELEASE

j u n e 9, 1975

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2.6 billion of 13-week Treasury bills and for $2.6 billion
of 26-week Treasury bills, both series to be issued on June 12, 1975,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing September 11, 1975
Discount Investment
Price
High
Low
Average

98.731 a/
98.714
98.716

Rate
5.020%
5.087%
5.080%

Rate 1/
5.17%
5.24%
5.23%

26-week bills
maturing December 11, 1975
Price

Discount
Rate

Investment
Rate 1/

97.356b/ 5.230% 5.46%
97.320
5.301%
5.54%
97.329
5.283%
5.52%

a/ Excepting 1 tender of $140,000
b/ Excepting 1 tender of $10,000,000
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 100%,
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS: District

Received

Boston
$
42,165,000
New York
3 ,555,755,000
Philadelphia
32,795,000
Cleveland
97,995,000
Richmond
28,350,000
Atlanta
32,725,000
Chicago
301,890,000
St. Louis
44,720,000
16,880,000
Minneapolis
40,415,000
Kansas City
43,500,000
Dallas
San Francisco 339,310,000
TOTALS^576,500,000

Accepted

Received

Accepted

$
30,065,000 :$
31,450,000 $
8,450,000
2,060,315,000 : 3,431,235,000 2,149,235,000
32,545,000 :
5,190,000
5,190,000
47,295,000 :
96,050,000
45,550,000
27,850,000 :
25,805,000
22,805,000
28,755,000
61,820,000
14,820,000
124,200,000 :
182,910,000
74,410,000
29,220,000 :
64,265,000
18,965,000
8,880,000
13,265,000
3,265,000
36,230,000 :
21,645,000
17,835,000
18,300,000 •
13,090,000
8,090,000
160,705,000 :
319,870,000
231,870,000
$2,604,360,000 c/$4,266,595,000

$2,600,485,000 d/

c/
- Includes $454,015,000 noncompetitive tenders from the public.
- Includes $163,800,000 noncompetitive tenders from the public.
_\l Equivalent coupon-issue, yield.

Departmental theTREASURY
ASHINGTON, D.C. 20220

TELEPHONE WO4-2041

<^A^- / ^^^^^^^^
FOR IMMEDIATE RELEASE

June 10, 1975

DONALD E. SYVRUD
APPOINTED DIRECTOR OF OFFICE OF
INTERNATIONAL MONETARY AFFAIRS
Secretary of the Treasury William E. Simon has appointed
Donald E. Syvrud as Director of the Office of International
Monetary Affairs. He moves up from the post of Deputy to the
Assistant Secretary for International Affairs, succeeding F. Lisle
Widman who now serves as the Deputy Assistant Secretary for
International Monetary and Investment Affairs.
In his new assignment, Mr. Syvrud will have a major
responsibility in formulating and implementing Treasury policies
to maintain a stable international monetary system, with particular emphasis on United States economic and financial relationships with the industrial countries.
Mr. Syvrud began his career as an international economist
in October 1954 with the State Department, serving in Washington
and Oslo, Norway. He joined Treasury Department in February
1963, and remained in Washington until August 1965 when he was
transferred to Rio de Janeiro as Treasury Representative at the
American Embassy.
From July 1970 to August 1971, he was on Treasury leave as
a Federal Executive Fellow with the Brookings Institution of
Washington. Since 1972, Mr. Syvrud has had broad responsibilities
for international economic and financial policy planning, and
represented the United States on the Committee of Twenty Technical
Group on the Transfer of Resources, which led to the new joint
Development Committee of the International Monetary Fund and World
Bank.
Mr. Syvrud has studied at the University of Minnesota, the
University of Oslo, Norway, the London School of Economics, and
holds a Ph.D. in Economics from the University of Wisconsin. He
has authored several articles in economic journals and recently
a book on the Foundations of Brazilian Economic Growth. During
World War II and Korea, he served in the Army as an infantry
officer, attaining the rank of captain.
Born in Mt. Horeb, Wisconsin in 1924, Mr. Syvrud is married
to the former Beverly Wurtzler of Madison, Wisconsin. They have
four children: Karen 19, Erik 18, Knute 16, and Liv, 12.
WS-330
oOo

W^^^-W^-\y-\y-\y-\y-\-^-r-r-\y-\-f

FOR RELEASE 4:00 P.M.

June 10, 1975
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 $4,500,000,000 , or
thereabouts, to be issued June 19, 1975,

as follows:

91-day bills (to maturity date) in the amount of $2,200,000,000, or
thereabouts, representing an additional amount of bills dated March 20, 1975,
and to mature September 18, 1975 (CUSIP No. 912793 XP6), originally issued in
the amount of $2,501,550,000, the additional and original bills to be freely
Interchangeable.
182-day bills, for $2,300,000,000, or thereabouts, to be dated June 19, 1975,
and to mature December 18, 1975

(CUSIP No. 912793 YC4).

The bills will be issued for cash and in exchange for Treasury bills maturing
June 19, 1975,

outstanding in the amount of $6,005,595,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $3,189,810,000.
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 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-thirty p.m., Eastern Daylight Saving time, Monday, June 16, 1975.
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)

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

in cash or

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

June 19, 1975.

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

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

WASHINGTON, D.C 20220

NAWS
June 10, 197

FOR IMMEDIATE RELEASE

'i.2.

SUMMARY OF LENDING ACTIVITY
May 6 - May 31, 1975
Federal Financing Bank lending activity for the
period May 6 through May 31, 1975, was announced as
follows by Roland H. Cook, Secretary:
The Bank made the following loans to utility
companies guaranteed by the Rural Electrification
Administration:
May 6. $2.9 million to the Citizens
Telephone Company at an interest rate of
8.551. The loan matures December 31, 2009.
May 19. The Allied Telephone Company
borrowed $639,000 from the FFB at 8.50%
interest to mature December 31, 2009.
May 20. The Bank advanced $1.5 million
to the South Mississippi Electric Power
Association. The interest rate is 7.141
and the maturity is May 23, 1977.
May 30. The Oglethorpe Electric Membership
Corporation borrowed $1,698,000 from the Bank.
The interest rate is 7.1251 and the maturity is
June 10, 1977.
The United States Railway Association made the
following drawings against its lines of credit:
May 9:

$1,058,000 at an interest rate of 5.801

May 21

$2,640,000 at an interest rate of 5.50%

May 26

$4,000 at an interest rate of 5.57%

May 29

$6.5 million at an interest rate of 5.55%
- More -

Press inquiri
202-964-26

federal financing bank

2
USRA borrowing from the Federal Financing Bank is
guaranteed by the Department of Transportation.
On May 12, the General Services Administration made
a $17,460 drawing against their $107 million commitment
with the FFB. The interest rate is 8.65% and the loan
matures November 15, 2004.
On May 15, AMTRAK, the National Railroad Passenger
Corporation, made a $5 million drawing against its line
of credit at an interest rate of 5.544%.
On May 21, the Bank purchased the following debentures
from the Small Business Investment Companies:
Company

Amount

Interest Rate

Maturity

First Capital Corp.
of Chicago

$2,500,000

7.56%

5/1/78

First Capital Corp.
of Chicago

$2,500,000

8.16

5/1/82

The First Connecticut
Small Business
Investment Co.
$3,300,000

8.28

5/1/85
5/1/85

Doan Resources Corp. $ 500,000 8.28
Venture Capital Corp.
of New Mexico
$

290,000

8.28

5/1/85

Venturtech Capital,
Inc.

300,000

8.28%

5/1/85

On May 28, the Bank purchased a $500 million 5-year
Certificate of Beneficial Ownership from the Farmers Home
Administration at an annual interest rate of 8.03%.
On May 28, the Tennessee Valley Authority borrowed
$300 million from the FFB; $200 million at 8.35% interest
maturing May 31, 1988, and $100 million at 5.50% interest
maturing August 28, 1975.

- More -

2^
On May 28, the Export-Import Bank of the United States
sold a 3-year serial obligation in the amount of
$4,049,400,000 to the Bank at a rate of 7 1/8%. This was
the first borrowing by Eximbank from the Bank and the funds
were used to repay Eximbank's outstanding debt at the
Treasury.
On May 30, the Bank purchased two serial obligations
from the United States Postal Service. One obligation,
with a final maturity of May 30, 1980, was purchased at a
rate of 7.80%; the second obligation, with a final maturity
of May 30, 1985, was purchased at a rate of 8.20%. The
Bank currently holds United States Postal Service obligations
in the amount of $1.5 billion.
Federal Financing Bank loans outstanding on May 31,
1975, total $13 billion.
oOo

Departmental theJREASURY
WASHINGTON, D.C. 20220

TELEPHONE W04-2041

For Release Upon Delivery
REMARKS OF DR. H. I. LIEBLING
DEPUTY DIRECTOR, OFFICE OF FINANCIAL ANALYSIS
OFFICE OF THE SECRETARY, U.S. TREASURY DEPARTMENT
AT THE
LOS ANGELES AREA CHAMBER OF COMMERCE
1975 MIDYEAR BUSINESS OUTLOOK CONFERENCE
LOS ANGELES, CALIFORNIA
JUNE 5, 1975

THE "TILTED V" ECONOMIC OUTLOOK
I am particularly pleased to address this audience at
this time and on this occasion for very special reasons. As
a Government official in the career service who has participated in several administrations in the central Federal
forecasting group, my views have sometimes differed from
those that subsequently became official doctrine. When my
forecasts differed from the official ones, my talks on those
occasions were murky enough to leave room for alternative
interpretations. This time, I am emboldened to be clear and
crisp — though I differ from the official economic projections underlying the budget of last January, and as they were
recently revised. The Government won't mind, I think, if I
introduce some nuances and variations that differ from the
official forecast — especially since CEA Chairman Greenspan
set a precedent last Monday of offering his variation from
that official forecast. So what follows should be taken as
my own personal view.
To begin with, you might look upon both the official
forecasts for 1975 and 1976 which were made last January and
subsequently as being relatively free from ideological
predilections. Despite fears that these forecasts might
have been influenced by the philosophies of Ayn Rand,
J. P. Morgan, and whoever moveth Roy Ash, these did not
enter into the forecasts for 1975 and 1976. This was in
contrast with many of the official forecasts made in former

- 2 -

administrations. In the Kennedy and Johnson administrations, ideological persuasions appeared to have affected the
forecasts, as the economic advisors in those times tended to
view the risks of inflation as smaller than the risks of
getting too little real economic growth and too much unemployment. As a result, the forecasts of GNP in current
dollars typically were too low — in fact, they were low six
out of the seven years between 1963 and 1969. The average
shortfall in the GNP forecast was one percent or nearly $15
billion at present levels of GNP. And usually, it was the
underestimate of price advance which contributed to the
error. The factor behind the shortfalls in the GNP forecast
was not hard to find: it was mainly due to the doctrine of
"fiscal drag." In that view because of long-run tax drag on
individuals -- somehow corporations were overlooked — the
economy tended towards long-run sluggishness. If the economy
was buoyant in any current period, that was considered a
temporary turn of good health from an otherwise fundamental
trend towards anemia. Avoiding that condition required
steady fiscal transfusions to regain health.
In the meantime, heavy deficits were incurred and,
finally, when the huge Vietnam outlays were piled on top of
the Great Society Programs, the Administration requested an
income tax surcharge. But, when that was finally enacted in
mid-1968, a spirit of "What have I wrought?" emerged.
Forecasts for the last half of 1968 and 1969 turned gloomy
and recommendations were made for stimulative monetary
action. But, here again, these forecasts had underestimated
the strength of the economy, which, surtax or no, remained
unimpaired, and economic activity and spending continued
merrily upward. The cost of all this, of course, was strong
inflation in 1969 and entry into the era of double digit
inflation or nearly that.
Since 1969, the forecasts have tended to be euphoric —
and they, too, appeared as influenced by doctrinal bent,
especially those for 1970 and 1971, which included that
famous "1065" GNP forecast for 1971. Subsequently, the
forecasts did tend to be near "actuals," but most often due
to completely fortuituous circumstances. For example, the
forecast for 1974 hit the bull's eye. But no award should
be given for this success. Consumption expenditures were
projected to rise sharply during 1974, while investment
expenditures were supposed to advance moderately. In fact,
the reverse happened. Not only that, but the recession
which developed in the last quarter of 1974 was not only
unforeseen at the beginning of the year but remained so as
late as September.

- 3 -

The forecast for 1975 was far from being euphoric, and,
indeed, it was downright gloomy. And, as I have indicated,
it was relatively free from ideological persuasion. That
forecast can be summarized as follows: "...The economy is
likely to continue its downward course in the first half of
1975 and to move onto the road of recovery in the second
half. The first-half decline is likely to be severe, however, and the subsequent recovery will still leave the level
of output in the fourth quarter about the same as a year
earlier. For 1975 as a whole, real GNP will probably be
about 3 percent below the average of 1974. The rate of
inflation will be very high in the first half of the year...
but it should subside in the second half...By the final
quarter an inflation rate of about 7 percent is projected..."
In other words, a "V" pattern was projected. However,
I would think that the "V" pattern which then was contemplated was shallower than that which is actually developing.
Clearly, the events of early 1975 now indicate that the arms
of the "V" will be very deep.
Moreover, as I will describe in detail later, I
would think that the shape of the economic outlook will be more like a tilted "V", one that
leans to the right.
The circumstances which I would expect to create this
pattern of a tilted "V" are clearly visible in the situation which has already developed thus far this year and in
what might reasonably be expected during the second half of
1975 and going into 1976. The circumstances already known
are based on comprehensive statistics for the first quarter
and the few figures that are now available for April and
May. With respect to the first quarter, the revised figures
for real GNP when they were released three weeks ago showed an
even deeper decline in the first quarter than had been
estimated earlier. This generated many headlines to the
effect that the economy was in even deeper trouble than had
been forecasted earlier. Indeed, some who had allowed
themselves to become a bit optimistic, beat a hasty retreat
to previously held positions of "no growth in the rest of
1975." Their policy recommendation, of course, was more
fiscal and monetary stimulus than is presently being contemplated either by the Administration or by Congress.

- 4 -

Looking at the same facts, however, it should be
clearly evident that the steep decline in real GNP during
the first quarter — because it was centered in inventory
liquidation — represented a preliminary and necessary
condition for the turnaround to gains in production and
employment. Indeed, the steeper the decline of GNP — as
long as it was due to inventory liquidation — the more
optimistic could be the forecast for the rest of 1975; for
it is now clear that the recession was caused by the several
factors leading to the overbuilding of inventories in relationship to sales, a buildup which reached a post-war high.
Of course, liquidation of inventories does not necessarily assure economic expansion. Liquidation can be
accomplished by cutting production (and employment) at a
faster rate than shipments and sales are falling. And,
indeed, in that process, the loss of jobs reduces income,
and therefore, demand. Such a path would assure a cumulative downturn with possibly awesome consequences. That was
the theory of those who only a few months ago were predicting not recession but depression.
On the other hand, should liquidation develop because
demand stands firm and is rising, then it would represent a
much happier prospect. In fact, that was inherent in the
first quarter GNP numbers. Nearly all of that 11% decline
in real GNP at annual rate was accounted for by a reduction
of inventory, partly in reaction to cutbacks in production
and employment, but also due to a remarkable steadiness in
final sales. These final sales (representing GNP less
inventory change) turned from a massive negative in the
fourth quarter of 1974 to roughly "no change" during the
first quarter of this year. Moreover, the flat first
quarter performance of final sales almost certainly will be
followed by an advance in the second quarter. This will be
particularly the result of strengthening purchases by
consumers. Retail sales turned vigorous early this year.
Between December and April, total retail sales rose at an
annual rate of 12.3%. If a forecasted value for May is
included, based on weekly sales reports, the addition of
that month would raise the annual rate change since last
December to 15 1/2%.
What is even more significant is the vigor of
retail sales after allowance for price changes.
"Real" retail sales between December and April
increased at an annual rate of 8.0%. If a forecast for May is included, the annual rate
change becomes 10%.

l$7
These figures clearly show not only a change in
consumer attitudes, but something beyond that — a resurgence
in purchases. Looking at these figures, there would appear
to be some problem in explaining why retail sales should
have turned vigorous during a period when unemployment was
rising. Nevertheless, these are the facts. Furthermore,
the strength had been demonstrated even before the rebates
were paid out in accordance with the Tax Reduction Act of
1975. Presumably, May figures were particularly strong as a
result of the rebates. It should be remembered, however,
that the turnaround in consumer behavior had already occurred.
I am not suggesting that this rate of increase of
consumer purchases will be sustained indefinitely. Indeed,
if that were so, such a strong rate of growth would become
worrisome. But, clearly, there has been a turnaround in
consumer behavior and, as a result, previously high inventorysales ratios have been or are in the process of declining.
The figures do not yet show this clearly. In March, total
business inventories in relationship to sales registered a
ratio of 1.69 which compared with 1.46 a year earlier. The
component group of retail trade, however, does show a declining stock-sales ratio. Leaving aside automobiles, which has
its special problems, the March ratio in the nonautomotive
retail group at 1.45 was down from 1.51 in late 1974, thereby
returning to the level of about a year ago. Furthermore,
declines in these ratios among various retail groups were
widespread. And, finally, there is every indication that
inventory-sales ratios at retail have declined again in
April and May.
That is not to say that inventories are no longer
burdensome, though the latest April statistics did show a
decline in the manufacturing inventory-sales ratio to 1.87,
down from 1.96 in March and below the 1.89 of last December.
The situation becomes even brighter for producers of consumer type goods, with ratios declining to about early 1974
levels. For other sectors of manufacturing, however, less
favorable levels still prevail — a development which leads
to the following observation:
A dichotomy appears to characterize the economy
presently and for the remainder of 1975. While
the new and optimistic feature in the economic
situation is the resurgence in retail sales, the
fact is that producers of capital goods as well
as the industries supplying them are continuing to register the impact of the recession.

- 6 -

Efforts to liquidate inventories in that sector
of the economy have not been entirely successful.
The overhang of stocks still remains heavy for
them. Some time needs to elapse before liquidation is accomplished.
In contrast, consumer spending already has risen so
much that shelves have tended to be cleared and increased
orders have already been placed with manufacturers. That
was the brightest spot in the big increase in the April rate
of new orders received by manufacturers.
While total manufacturers' new orders rose 6 1/2%
in April, new orders for home goods of various
types increased 11 1/2%.
Resurgence in consumer spending and its consequences
lead me to the conclusion that a turnaround in the economy
is in process, but that total economic growth may not be
strongly positive during the last half of 1975 until the
effects at the consumer level ramify back to producers and
result in further liquidation of inventories, greater
utilization of capacity and — possibly not sooner than
1976 — an increase in capital goods spending.
But what is the evidence that any turnaround has
occurred? I would cite the following statistics which would
support that view.
• First of all, the resurgence of retail sales to which
reference already has been made.
• The rise in new orders received by manufacturers,
especially for consumer goods.
• The rise in the number of industries now showing
employment advances. In April, 4 3% of 172 industries
reported employment gains as compared with 17% in
February. I would bet that May will also show up
favorably.
• Job accession rates in manufacturing have been rising
and layoff rates have been declining since last winter.
The "help wanted" index rose in April for the first
time since last summer.

1E3><• Industrial production edged downward by only 0.4% in
April, which compares with the 2.2% decline averaged
during the previous six months. There is a good chance
of a termination of declines in this index in May.
• Housing permits for April were very strong and probably
indicate some small turnaround in this sector of the
economy. Mortgage commitments have begun to rise as a
result of greater liquidity at thrift institutions.
Still, the backlog of houses continues as a drag in
this sector, as well as high house prices. On balance,
it would appear that at least some small contribution
toward improved total economic activity will be made by
the housing sector.
All of this would seem to add up to a turnaround in
economic activity already in progress, though modest in
proportion. My own view is that real GNP growth in the
second quarter will register something close to zero. For
the second half of 1975, the economy appears poised to score
rates of real growth of at least 4% and possibly more — a
view which differs from that of many forecasters, both in
and out of the Government. It will take some time before
the dichotomy of circumstances which exists between producers
and consumers is resolved.
During this period of time, no dramatic changes in the
unemployment rate might be expected, mainly because even as
production rises, the first impact is generally reflected in
increased hours of work but in only small increases in
employment, while the labor force continues to grow. But
those circumstances should not panic us, and policy makers
should not respond to the rise in the rate which will surely
emerge by concluding that more stimulation in the economy is
required.
The pattern that I would foresee is that slower growth
in 1975 will be a prelude to much stronger growth in 1976.
By that time, the acceleration in consumer spending will
have caused the dissipation of the overhang of inventories;
factory utilization rates will have risen; and, an improved
atmosphere for capital spending will have resulted. Some
time in 1976, increased capital spending will come on top of
increased consumer spending. The economy of 1975, which
would have appeared to have run out of steam in the last
half of 1975 in retrospect would appear only as being in a
preparatory stage for the 1976 expansion. Indeed, the head
of steam that will be developing for 1976 should propel the
economy to a 7% to 8% growth rate for most quarters of that
year.

- 8 -

If that pattern were to develop, it would follow that
enough economic policy stimulus already exists in the economy
right now; that some time needs to elapse before its full
effects are reflected; and, that 1976 should represent a
period of watchful waiting in case some moderation of that
stimulus might be required.
A scenario of the tilted "V" remains a judgment.
Indeed, the history of business cycles indicates that forces
for strong expansion arise from unexpected sources. At the
end of 1972, for example, it appeared on the basis of the
usual — but I would think faulty — measures of unutilized
capacity, such as the gap between actual and potential real
GNP and the aggregate unemployment rate, that there was some
room to grow. However, the fact is that the demand for raw
materials, the great strength in capital goods spending,
etc., were relatively unforeseen. Indeed, in 1973, capacity
shortages resulted in a peak utilization rate in major
materials producing industries of 93%.
This rate presumably plummeted to 70.5% in the first quarter of 1975. But,
if we take as a standard the first year recovery in the
rebound from the 1958 recession, this utilization rate might
quickly advance back to the 90% range within a year or so
from the cycle trough of this spring.
Looking back at the events of the past year, it is
clear to me that, despite special factors which need to be
taken into account, the business cycle in which we are in
the midst is not so different from some others in the postWorld War II period. This would mean that a tilted "V"
could be realized and that it does promise recovery to good
rates of growth, though we may have to wait a while for
them.
ooOoo

mAMaA___________m

wk-mmA^

Department of theTREASURY
WASHINGTON. DC 20220

TELEPHONE W04-2041

FOR RELEASE UPON DELIVERY

STATEMENT OF THE HONORABLE RICHARD R. ALBRECHT
GENERAL COUNSEL OF THE TREASURY DEPARTMENT
AT THE JOINT HEARING ON THE U.S. EMBARGO OF CUBA
BEFORE THE
SUBCOMMITTEE ON TRADE AND COMMERCE
AND THE
SUBCOMMITTEE ON INTERNATIONAL ORGANIZATIONS
OF THE
HOUSE COMMITTEE ON INTERNATIONAL RELATIONS
WASHINGTON, D.C
WEDNESDAY, JUNE 11, 1975
Mr. Chairman and Members of the Subcommittees:
I am pleased to appear before your Subcommittees today to review
the impact of the Treasury regulations restricting commercial and
financial transactions with Cuba and blocking Cuban assets in the
United States. I am accompanied by Stanley Sommerfield, the Acting
Director of the Treasury's Office of Foreign Assets Control, which
administers these regulations.
My prepared statement will comment on the seven specific topics
identified in Chairman Bingham's letter of May 19 in the order in which
they appear in that letter.
The Legislative and Administrative Basis for
Treasury Implementation of the Embargo
Essentially the Cuban Assets Control Regulations block all assets
in the United States in which Cuba or Cuban nationals have or have had
an interest as of the effective date of the regulations (July 8, 19&3)
and prohibit virtually all direct or indirect commercial or financial
transactions by persons subject to the jurisdiction of the United States
with Cuba or with Cuban nationals. The Treasury regulations are an
integral part of the total embargo imposed by the United States on Cuba
pursuant to a National Security Council decision that implements
Resolution 1-3-B of the Ninth Meeting of the Foreign Ministers of the
Organization of American States. They are issued under the authority

WS-329

-2of Section 620(a) of the Foreign Assistance Act and Section 5(b) of
the Trading with the Enemy Act.
The regulations are modelled on the regulations used by the
Treasury Department to conduct the World War II blocking control
program. They parallel the blocking restrictions currently in effect
with respect to North Korea, North and South Viet Nam and Cambodia
and with respect to Chinese assets blocked prior to 1971• They serve
the same functions by isolating Cuba commercially; protecting Cubans
in Cuba from having their assets in the United States confiscated by
Cuban authorities; preserving Cuban assets for future disposition; and
denying Cuba access to dollar earnings and to dollar financial facilities.
Trends in Applications for Licenses and
Treasury Policy and Decisions on Applications
The Treasury Regulations prohibit imports of Cuban origin merchandise without a license. Exports to Cuba on the other hand are
subject to the license authority of the Department of Commerce. The
Treasury Department has received relatively few applications for import
licenses since the announcement of the total embargo on trade with Cuba
in I963. Initially, a number of applications were filed to license
shipments of tobacco and other goods that had left Cuba prior to the
effective date of the embargo. Since then, the principal applications
received have been from persons who have purchased Cuban origin goods
while visiting other foreign countries.
It is general policy to deny all applications for import licenses
in accordance with the United States policy toward Cuba. One exception
is made for the importation of books and other publications for scholarly
research purposes. Licenses for this purpose are issued after consultation with the Library of Congress or the National Science Foundation.
In order to avoid conflicts with First Amendment rights, the Treasury
also licenses all imports of publications from Cuba by any person, provided any payment for those publications is deposited in a blocked
account in a domestic bank in the name of the Cuban seller. The
Treasury does not in any way restrict the content of the publications
which may be imported under such licenses, i.e., no censorship exists.
Policy regarding exports from the United States is primarily a
matter for the Commerce Department. The Treasury regulations contain
a general license authorizing all exports from the U.S. to Cuba which
have Commerce Department approval. It is not necessary to seek a
Treasury document or license if Commerce has authorized the export.

There is one condition — payment for the export may not be made from
frozen Cuban bank accounts in the United States. The Treasury's role
is basically a financial one — we believe it desirable to prohibit
the use of frozen assets and the extension of credit to Cuba by U.S.
exporters and banks for exports having Commerce Department approval.
In the administration of the Cuban Assets Control Regulations,
the Office of Foreign Assets Control seeks the views of the Department
of State in all matters of foreign policy and consults other government
departments, particularly the Commerce Department and the Department of
Defense, as well as other Treasury bureaus and agencies such as the
Customs Service whenever their regulations or concerns are also involved.
Enforcement of the Treasury Regulations
There have been over three hundred investigations of suspected
violations of the Cuban Assets Control Regulations. Four cases were
referred to the Justice Department for criminal prosecution. One of
these cases, involving smuggling of Cuban cigars, resulted in conviction under Section 5^5 of Title 18 of the United States Code. In the
remaining three cases prosecution was declined by the Justice Department. Civil fines and penalties imposed to date in 16 cases totaled
approximately $715>000.
Treasury Regulations and Policy with Respect
to American Subsidiaries in Foreign Countries
That Permit Trade with Cuba
The Treasury Regulations do not require that a license be obtained
for transactions with Cuba by American subsidiaries abroad (other than
banks, insurance, and marine transport firms). The regulations do,
however, apply to American citizens who are officers or directors or
principal management personnel of such subsidiaries. Such citizens are
required not to authorize or allow the subsidiaries in question to trade
with Cuba. The absence of a license requirement for foreign subsidiaries
is an attempt to minimize questions of the so-called extraterritorial
application of United States regulations to corporations in foreign
jurisdictions. We believe these subsidiary controls to be fully in
accord with international law, but recognize that they can become the
source of international disagreement.
Problems have been encountered with foreign governments having a
policy of promoting trade with Cuba. In such situations the aim of
U.S. policy and the policy of the local government are not in harmony.
We believe there are important reasons why such subsidiary trade should
be controlled by the United States. It would be inequitable for a

-uUnited States firm with a foreign subsidiary to be able to profit
from trade with Cuba by its foreign subsidiary, while its domestic
United States competitor without a foreign subsidiary is precluded
from such trade by the embargo. Similarly, it is unfair to American
labor when an employer with a foreign subsidiary is able to fill Cuban
orders using foreign labor at the plant of its subsidiary, while workers
in competitive plants in the U.S. cannot do so. It is undesirable to
permit the effectiveness of the U.S. embargo to be undermined by the
supply of manufactured goods from foreign subsidiaries of U.S. manufacturers .
On the other hand, it is apparent that some foreign countries
object to the so-called "extraterritorial" effect of these subsidiary
controls although they seek out the benefits of U.S. investment in
plants in their country and the provision of American technology and
management expertise.
Clearly these situations present a potential for disruption of
relations between the U.S. and foreign countries. In appropriate cases,
licenses have been issued on occasion to avoid excessive foreign relations problems. Requests for licenses of this type have increased
noticeably in the last few months, since the Secretary of State announced that U.S. policy towards Cuba is being reviewed.
Nature and Amount of the Blocked Assets
In 196*+ a census was taken of the blocked Cuban assets to determine
the amount and type of property affected, and the nature of the Cuban
interest therein. The purpose was to obtain information concerning the
assets that would be useful to the Treasury in the administration of
the Regulations; to the Congress at such time as it considers legislation providing for the ultimate disposition of the blocked assets; and
to the State Department in the event of a possible claims settlement
negotiation with Cuba. A brief analysis of the results of the census
with statistical tables prepared by the staff of the Office of Foreign
Assets Control is attached to this statement. The total value of
blocked Cuban assets that would be available for compensation of claims
in the event that a decision were made to use the assets for this purpose
would be about $30 million. On the other hand, American claims against
Cuba are in excess of $1.5 billion.
Before concluding this review of the Treasury's role in the Cuban
embargo, I would like to note that H.R. 6382, a bill that would terminate
the Cuban embargo by nullifying the Cuban Assets Control Regulations,

-5would apparently permit or require the release of the blocked Cuban
assets without any settlement agreement concerning claims by Americans
against the Cuban authorities.
Thank you.

TREASURY DEPARTMENT
OFFICE OF FOREIGN ASSETS CONTROL
CENSUS OF BLOCKED CUBAN ASSETS IN THE UNITED STATES

Background of the Census

The Office of Foreign Assets Control of the Treasury Department
had conducted a census of Cuban assets in the United States which were
blocked under the Cuban Assets Control Regulations [31 CFR 515.101 et,
seq.]. The Regulations were issued by the Secretary of the Treasury
on July 8, 1963 under Section 5(b) of the Trading With the Enemy Act
of 1917, as amended, to implement the policy of an economic embargo
of Cuba set forth in Proclamation 3447, which was issued by the President under Section 620(a) of the Foreign Assistance Act of 1961, P.L.
87-195. The Regulations superseded the Cuban Import Regulations which
were issued on February 7, 1962 to accomplish the more limited objective of preventing unlicensed imports of Cuban goods or goods which
passed through Cuba or contained Cuban components. The Cuban Assets
Control Regulation? prohibit as of July 8, 1963 all persons subject
to the jurisdiction of the United States from engaging in any direct
or indirect financial or commercial transaction with the Cuban Government or with Cuban nationals except as licensed by the Treasury.
In addition to imposing a total embargo on dealings with Cuba, the
Regulations freeze all Cuban-owned assets located within the jurisdiction of the United States.
II. Scope of the Census
The Census was undertaken in order to obtain reasonably accurate
data concerning Cuban assets blocked in the United States by the Cuban
Assets Control Regulations. It was felt that such data would be useful
to the Foreign Assets Control in its administration of the Cuban Assets
Control Regulations; to the Congress in considering any proposed claims
settlement legislation; or to the State Department in any possible future claims settlement negotiation with a successor regime in Cuba.
The census report forms were distributed to approximately 8,000
individuals, corporations, banks and other organizations in the United
States. Forms were sent to persons and organizations on the Control's
standard mailing list and to others not on the mailing list who were
thought to hold blocked Cuban assets. Additional forms were distributed
by the Federal Reserve Banks to financial institutions in their respective districts. The Regulations requiring the filing of census reports
were published in the Federal Register on January 31, 1964 and were publicized in the press and through the Federal Reserve Banks. In this
regard, -'it is likely that the census totals are incomplete since there

ATTACHMENT

- 2 are undoubtedly persons in the United States holding blocked Cuban
assets who were unaware of the reporting requirements despite the
distribution and publication described herein. The deadline for
filing reports was March 15, 1964. Extensions of time for filing
were granted where necessary.
* III. The Reporting Requirement
The Cuban Census Regulations provided for two types of reporting
forms. The first type, Form TFR-607, was used for reporting property
in the United States in which Cuba or Cuban nationals had an interest.
The second type, Form TFR-608, was used for reporting organizations
in the United States substantially owned or controlled by Cuba or its
nationals, e.g.t United States branches of Cuban companies.
The Census Regulations required reports from all individuals,
corporations and other organizations subject to the jurisdiction of
the United States holding blocked Cuban property valued at $1,000 or
more. Cuban property of less than $1,000 was not included in the
reporting requirements because it was felt that the total of Cuban
assets below $1,000 would not be a significant amount, and therefore
did not warrant the additional administrative burden on reporters.
Persons having control, custody, or possession of assets in which
there was a Cuban interest on July 8, 1963 were required to report
those assets. Thus, reports were required, for instance, from lawyers
administering estates having Cuban beneficiaries, from insurance companies with policies on Cuban lives, from banks with Cuban accounts,
and from corporations with Cuban stockholders or bondholders.
Persons in the United States who had contracts with Cubans or
were indebted to Cubans, or against whom Cubans asserted claims in
connection with pre-freezing transactions, were required to report
the Cuban interests involved. All property in which there was a
Cuban interest was required to be reported whether or not the reporter also had a claim against Cuba or a Cuban national or contested
the validity of the Cuban claim against him. Reports in this category
included accounts due Cuban firms by United States firms for tobacco,
sugar and other goods sold to the United States before the embargo
cut off Cuban trade. Some of the Cuban claims have become the subject
of litigation brought by the Cuban Government as successor to nationalized Cuban companies. The amounts claimed by Cuba in such litigation
were reportable Cuban assets, even though the U. S. firm's liability
was disputed or was subject to counterclaims against the Cuban Government based on expropriation of property.

All corporations, partnerships, trusts and other organizations
organized in the United States were required to report with respect
to any shares, bonds, debentures or other securities in which there
was a Cuban Interest.
Report8 were also required for the assets in the United States
of corporations and other organizations organized under the laws of
Cuba or having their principal place of business in Cuba and for the
assets of firms substantially owned or controlled by Cubans.
Excluded from the reporting requirements were the following types
of property: patents, trademarks, copyrights and inventions, except
royalties due and unpaid. The property of Cuban refugees in the United
States who are unblocked under the Regulations and thus able to dispose
freely of their United States property, was not required to be reported.
Form TFR-607 classified the reportable property under the following
categories:
1. Bullion, currency, and coin
2. Deposits
3. Notes, drafts, and debts to national maturing
within one year from date of obligation
4. Other notes, drafts, and debts to national
5. Financial securities (stocks and bonds, etc.)
payable in dollars
6. Financial securities (stocks and bonds, etc.)
not payable in dollars
7. Interests of associated foreign persons
8. Miscellaneous personal property and personal
property liens
9. Real property, mortgages, and other rights to
real property
10. Interests in estates and trusts
11.

Insurance policies and annuities

- 4Form TFR-607 also required information as to whether the Cuban
national whose property was reported was an individual, corporation,
partnership, unincorporated association or other entity. The reporter was likewise instructed to identify itself as a principal
agent, trustee, banker or other entity. Reporters were instructed
to value the property reported at the market price as of the close
of business on July 7, 1963, or if market price was unknown, an
estimated value on that date. The Control recognized that in some
cages the value of property might be indeterminable, and in such
instances the reporter was not required to report the value of the
property but only to indicate the ownership of the property and to
give a description of it. Where the only values obtainable were in
foreign currencies, reporters were instructed to convert the values
into U. S. dollar amounts according to the exchange rates set forth
in the Census Regulations.
IV. Results
A. Summary
Excluding duplicate reports for the same property and other unnecessary reports, 3750 TFR-607 reports were filed by approximately
200 different reporters. Only one TFR-608, reporting the U. S. branch
of a Cuban enterprise, was filed. The Control did not expect to receive many TFR-608 reports since the number of Cuban-owned firms in
the United States was believed to be negligible. The Control expects
to receive a few additional reports from organizations that have been
granted extensions in their reporting deadlines beyond the date of
this report. The majority of the reports filed covered bank accounts,
insurance policies and stocks and bonds registered in the name of
Cubans. The reporting banks were concentrated in New York City and
the Miami, Florida area.
A total of $148.8 million of Cuban assets in the United States
was reported. Of this total $19.6 million is reported to be property
owned by or claimed by the Cuban Government and its agencies. As will
be explained below in greater detail, most of this $19.6 million does
not constitute a net asset of the Cuban Government since most of the
property claimed by Cuba is in the form of claims asserted against
institutions in the United States. These institutions are believed
to have claims against Cuba greatly in excess of the amounts reported
to be the property of Cuba.
Approximately $70 million of the total sura represents stocks and
bonds issued by the subsidiary of a U. S. holding company to persons
in Cuba. The subsidiary operated almost exclusively in Cuba. The

IE
- 5 subsidiary's indebtedness to Cubans was secured principally by its
physical assets in Cuba which were expropriated by the Castro regime
in 1960. Consequently, the $70 million is for all practical purposes
unsecured and there is no property in the United States which could
be liquidated and used to satisfy the claims of Americans against
Cuba.
The census totals indicate that Cuban individuals as of July 8,
1963 owned or claimed 26 percent of the total Cuban assets in the
United States, while corporations and other organizations in Cuba
owned approximately 61 percent. The Cuban Government and its agencies were reported as having an interest in 13 percent.
Of the total sum reported, $125.1 million was reported by United
States corporations and other organizations with branches, subsidiaries
or other assets in Cuba which were expropriated. These companies have
potential claims against Cuba greatly in excess of the amount reported
by them as blocked property owed to Cuba or Cuban nationals. A detailed
statistical breakdown of the specific types of property is appended.
It should be borne in mind that the Census figures are as of July 8, c
1963, and there have been frequent changes in the totals since that date.
The primary reason for this is that the assets of Cuban refugees who have
come to the United States after July 8, 1963, are unblocked under a general
license.
Secondly, reporters such as banks, large corporations and stockbrokers relied in many instances on the address of record on their books
as evidence that the property owner was in Cuba on July 8, 1963 and therefore reported the property as blocked. If, however, the property owner
was in fact out of Cuba on that date, but had failed to notify the reporter of his change of address, then the account would be unblocked
upon receipt of evidence to this effect.
Again, debits to blocked accounts are licensed by the Treasury for
such purposes as payment to Federal and State taxes, bank charges, expenses of administration of blocked estates, etc. All of these licensed
debits would result in changes after July 8, 1963 in the blocked amounts.
Similarly, additions to blocked accounts would result from earnings such
as interest on savings accounts, stock dividends, etc.

- 6 B. Analysis of Individual Blocked Accounts
The property in the United States of individual persons in Cuba
totalled $38.4 million. This includes $17.5 million in unsecured
obligations of the firm described in (E) below. Of the remainder,
$10.8 million is in demand deposits and savings accounts primarily
in New York and Florida banks. A majority of these individual
accounts fall within a $1,000 to $10,000 range and are in most
instances owned jointly by husband and wife, parents and children,
or brother and sister. The owners of these accounts appear to be
middle income Cuban families who placed some of their savings In
the United States for safekeeping.
Included in the total amount reported for individuals in Cuba
are the accounts of residents of Cuba who are not Cuban citizens.
The total number of such persons is not large but includes several
United States citizens resident in Cuba as well as foreign diplomatic
personnel and other non-Cubans. The Control has issued a few specific
licenses unblocking the United States accounts of foreign embassies
in Cuba and the United States accounts of foreign diplomatic persons
in Cuba. These licenses are granted only on the application of the
interested party. Many diplomats in Cuba who may be entitled to unblocking licenses had not applied for unblocking on July 8, 1963 and
their accounts are therefore included in the totals. Also, Americans
living in Cuba may withdraw up to $1,000 per month from their blocked
accounts for necessary living expenses in Cuba of themselves and their
households under a general license in the Regulations. Several Americans
are known to be using this authorization.
Insurance companies and corporations report $5.3 million due to
Cubans under insurance policies and annuity plans. This total includes
various pension accounts due, in most cases, to former Cuban employees
of branches or subsidiaries in Cuba of American firms. There are approximately 100 blocked pension accounts due to agricultural workers
alone. There are also a few individuals in Cuba who are entitled to
United States veteran's benefits or social security benefits. No reports were required for insurance policies on Cuban lives issued by
the Cuban branches of American insurance companies if the policies
were payable in pesos only in Cuba. Policies payable in dollars in
the United States were required to be reported, but the companies involved do not have access to their branches' records in Cuba, and have
not yet furnished complete reports. These companies are presently
engaged in litigation of their obligations to pay on such policies.

- 7 C. Analysis of Blocked Assets of the Cuban Government
The total assets in the United States of the Cuban Government and
its agencies was reported to be $19.6 million. There Is, however, soma
duplication in this total. For example, United States banks reported
deposits held for Cuban banks. At the same time, checks and letters
of.credit outstanding against such deposits were blocked and were required to be reported separately. Therefore, in a few instances there
were a number of reports involving the same bank deposit. Ihe total
government assets consists of bank deposits, letters of credit and checks,
funds held by American banks acting as fiscal agents for various pre-Castro
Cuban bond issues and amounts claimed by Cuba in pending litigation. Cuban
Government general bank deposits total approximately $725,000; letters of
credit and blocked checks drawn by Banco Nacional de Cuba total approximately $700,000; special accounts held by American banks as fiscal agents
for Cuban Government bond issues total about $675,000; claims asserted by
the Government of Cuba against United States firms for debts allegedly due
to Cuba in its own right or as successor to nationalized Cuban firms total
approximately $12.5 million. In addition, there are certain blocked Cuban
Government accounts held indirectly through foreign banks; the amount in
such accounts has not yet been ascertained.
^
Accounts totaling approximately $100,000 are reported for the former
Cuban Embassy in Washington and the Cuban Permanent Mission to the U. N.
The special accounts mentioned above are reported to be earmarked for debt
service on Republic of Cuba public works sinking fund bonds, sugar stabilization fund bonds and other bonds. Payments in many instances would be
made to bondholders who are Americans, In addition, American firms are
reported to be guarantors of approximately $3.7 million worth of loans
and other transactions in which Cuba claims an interest.
The $19.6 million total includes approximately $12 million in suits
pending in United States courts brought by the present Government of Cuba
against American firms. In most of these Suits, the American defendants
have counterclaims, in some cases arising out of pre-embargo business operations, but more often based on the expropriation of their assets in
Cuba.
D. Analysis_of Blocked Assets of Cuban Corporations and Other
Cuban Organizations
The census total includes $90.6 million which is owed to or claimed
by firms incorporated under the laws of Cuba. The $90.6 million includes
$53 million of the unsecured indebtedness of the firm described in (E)
below, leaving some $38 million in other corporate assets here, principally
due from American parent firms to their expropriated Cuban subsidiaries.

- 8 **• Blocked Cuban Interests Unsecured by Property in the
United States
As was noted in the Summary of Results, a corporation organized
in Florida and doinc business exclusively in Cuba has reported that
approximately $70 million worth of its stocks and bonds are held by
persons and organizations in Cuba.
These reports require a special explanation. The amount reported
by the company is correctly reported under the Census Regulations and
is propertly included in the census total because the company is a
United States corporation and a portion of its bonds and stocks are
held by persons in Cuba. However, since the assets of the company
which secure the indebtedness are in Cuba and were expropriated by
the Cuban Government, there is no property subject to United States
jurisdiction which could be liquidated. The stocks and bonds involved
are therefore of little or no value for vesting purposes.

-\ 9
Table I

VALUE OF U.S. ASSETS CWNED BY CUBA AND CUBAN NATIONALS,
CLASSIFIED BY TYPE OF ASSET AND LOCATION OF CWNER

JULY 8, 1963

Cuba
Bullion, currency and coin
Deposits
Notes, drafts and debts
maturing within one year
Other notes, drafts and
debts to national
Financial securities
payable in dollars
Financial securities not
payable in dollars
Interest of associated
foreign persons
Miscellaneous personal
property and liens
Real property, mortgages
and other rights
Interest in estates
and trusts
Insurance policies and
annuities
All other property

Not Cuba

Unknown

3,386
lb,573,71*

3,673
2,879,927

79,985

33,507,0^8

2,205

168, V75

2,U36,62U

11,157

3,727,570

226,671

71,291,6^9

52,950

U07,020

128,819

6,221

^77,909

—

5*^,577

—

5,305,^26
12,807^55
lkk,Qok,in

8,536
3,598,360

—

8,262
175,250
1*31,972

Table II

VALUE OF U . S . ASSETS OWNED BY CUBA AND CUBAN NATIONALS
CLASSIFIED BY TYPE OF ASSET AND TYPE OF CWNER

Bul3J.on, currency
and coin
Deposits
Notes, drafts and
debts maturing
within one year
Other notes, drafts and
debts to national
Financial securities
payable in dollars
Financial securities not
payable in dollars
Interest o f associated
foreign persons
Miscellaneous personal
property and liens
Real property, mortgages
and other rights
Interest in estates
and trusts
Insurance policies and
annuities
All other property

Partnership

Ind1 T 1 dual

Corporation

3,386
10,811*-, 796

3,673
5,32i*,708

177,763

33,051

33,289,12k

1M*,097

1,363,889

798,076

27^,957

2,667,838

1,019,12U

1*,81*0

17,516,7^7

k9,2^9,^39

Unincorp.
Assoc.

Unknown

Other

5^,193
1,161,09^

1,072

—

1*2,381

l68,Vf5

—

10,859

—

262,^39

—

k, 578,1*13

—

1*07,020

—

135,Oto

—

1,05*

—

397,679

—

8,030

—

79,176
5^2,159
5,31^,19^
107,9**0
38,1*3,176

—

370,013
90,597,871

609,687

5^,193

2,14-18

—

12,50l+,752

18,960,035

169,51*7

BLOCKED CUBAN ASSETS ANALYSIS

Total Blocked Cuban Assets

$151.8 million (including Moscow & Mex. cover accts)
148.8 million (Census total in Rept. & Testimony
excluding known cover accts.)
Breakdown:
Corporate, partnership, other:
Total:
$90.6 million
Less
53. million in worthless Cuban electric

Available for vesting
$37.6
per SLS plan; Cuba com- Less 30.
pensates in pesos.
1.
1.8
.9
Available for vesting
per SLS plan; Cuba compensates in pesos.

million
million due subs, of North Amer. Sugar
million to Golodetz subs.
million to Trans-Cuba
million CAV U.S. assets

$ 4.8 million

( owed probably to non-American
owned Cuban corps)

Government Assets
Total:
$22.3 million (with known cover accts)
19.6 million (Census total in Rept. of
Test, excluding cover accts.)
Less worthless assets:
$ 2.6 million -- peso loans of GMAC
1.2 million -- peso guarantee
1.2 million -- approx. Govt.-held
Cuban electric

$14.6 million
Less 12.3 million

Cuban claims vs. N.Y. Banks
sub. to counterclaims and
set-offs

- 2 $2.3 million
less assets against
which Americans and
a foreign gov't have
claims plus embassy,
etc .
$670,000
260,000
407,000
575,000

-----

80,000 --

bond funds
embassy
Prensa Latina
Canadian claims
to deposit
Misc .

Available for
Cuban Claims bill
$302,000
Individual Assets:
Total:
less worthless assets

Available for vesting
under SLS plan; Cuba
to compensate in pesos.

of which

$38.4 million
17 . 5 million in Cuban electric
holdings
$20.9 million
10.8 million
5.3 million
4.8 million

Available for vesting
in future under SLS
plan -- (Cuba to pay
compensation in pesos
in Cuba)
corporate

$32.8 million
4.8 million
$37.6 million

plus
individual

$20.9

Total:

$58 . 5 million

Compare with estimated U.S. claims
against Cuba

$ 1.5 billion

is in bank deposits
in insurance policies
and pensions
is in stocks of U.S.
corps., estates &
misc .

U.S.. beneficially .
owned non U.S. owned

- 3 Total Blocked Cuban Assets
Worthless (Cuban Electric bonds 71.7 million.
3.8 million other)
Balance
By Category:

Total

Corporate
Government
Individual

90.6
19.6
38.4
148.6

Corporate net American-owned
Balance

Government Total
Worthless
Balance
(Subject to U.

Worthless

148
75
73

53.0
5.0
17.5

37
14
20

75.5

37.6
32.8
4.8

19.6
5.0
14.6
bank counterclaims 12.3)

For information on submitting tenders:

TELEPHONE WO4-2604

FOR IMMEDIATE RELEASE

June 11, 1975

TREASURY TO AUCTION $2.0 BILLION OF NOTES
The Treasury will auction to the public under competitive and noncompetitive
bidding up to $2.0 billion of 2-year notes. The coupon rate for the notes will
be determined after tenders are allotted. Additional amounts of the notes may
be issued at the average price of accepted tenders to Government accounts and to
Federal Reserve Banks for themselves and as agents of foreign and international
monetary authorities.
The notes will be Treasury Notes of Series J-1977 dated June 30, 1975, due
June 30, 1977 (CUSIP No. 912827 EQ 1) with interest payable semiannually on
December 31, 1975, June 30, 1976, December 31, 1976, and June 30, 1977. They
will be issued in registered and bearer form in denominations of $5,000, $10,000,
$100,000 and $1,000,000, and they will be available for issue in book-entry form.
Payment for the notes must be made on June 30, 1975. Payment may not be made
through tax and loan accounts. Notes in bearer form will be delivered on June 30,
1975.
Tenders will be received up to 1:30 p.m., Eastern Daylight Saving time,
Tuesday, June 17, 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 Monday, June 16.
Each tender must be in the
amount of $5,000 or a multiple thereof, and all tenders must state the yield
desired, if a competitive tender, or the term "noncompetitive", if a noncompetitive
tender. Fractions may not be used in tenders. The notation "TENDER FOR TREASURY
NOTES" should be printed at the bottom of envelopes in which tenders are submitted.
Competitive tenders must be expressed in terms of annual yield in two decimal
places, e.g., 7.11, 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
amount 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 100.000 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 99.501 will not be accepted.

(OVER)

-2The 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 will be accepted in full at the average price of accepted competitive tenders,
which price will be 100.000 or less.
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
membership, 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 Monday, June 30,
1975, at the Federal Reserve Bank or Branch or at the Bureau of the Public Debt in
cash, in other funds immediately available to the Treasury by June 30, 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) Wednesday, June 25, 1975,
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 the case
of the Treasury, or (2) Monday, June 23, 1975, 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.

—^-—mmm*-

DepartmentoftheTREASURY
WASHINGTON, DC. 20220

TELEPHONE W04-2041

FOR RELEASE ON DELIVERY
AT 7:00 A.M. EDT JUNE 13, 1975

ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE INTERNATIONAL MONETARY CONFERENCE
OF THE AMERICAN BANKERS ASSOCIATION
AMSTERDAM, JUNE 13, 19 7 5
I welcome this opportunity to appear before you today
as you conclude your annual conference on international
monetary affairs. This gathering has a well-established
reputation as one of the most important and prestigious in
the financial world, and I am pleased to see that this
year's meeting is continuing that tradition.
The past year has been tumultuous for both the banking
community and the governments seeking to adjust to the
challenges of the international economy. Each of us has had
to deal with the continuing shock of high oil prices and
large-scale movements of money between nations, with inflation
that has abated but remains at unacceptably high levels, and
with a severe and widespread recession that appears
to be nearing its end.
We recognize that in meeting these challenges the
policies and economic performance of the United States still
bear heavily upon the fortunes of all other major industrialized
nations. Today, I would like to ask you to join with me in
a sweeping overview of my government's approach to the
international economy in which we participate. Our policies
are not as well understood as they should be, and I hope
that today I can place them in clearer perspective.
In particular, I want to respond to four accusations
which have been leveled against the United States' foreign
economic policies in recent months.
First, our Government has been accused of neglecting
the value of the dollar. I agree. We have.
Second, our Government has been accused of encouraging
the oil exporting nations to raise their prices. I agree.
We have.

ws/S3i

2
Third, our Government has been accused of believing
that greater emphasis should be placed on a free market
approach to problems of the international economy. I agree.
We have.
Finally, our Government has been accused of not having
an international economic policy. On that charge, I disagree,
and I do so most emphatically.
Let me turn now to a more detailed consideration of
each of these issues.
Neglecting the Value of the Dollar
Periodically, the United States has been charged with
neglecting the value of the dollar.
I must say to you that in a very basic sense, we have
indeed done too little to defend our currency. During the
last 10 years, the value of the dollar as measured by the
Consumer Price Index has fallen by 41 percent in the United
States - - a direct result of the most prolonged period of
inflation in our peacetime history.
I mention this figure to illustrate that the value of
the dollar is essentially based upon the condition of the
United States economy. The dollar's exchange rate in large
part records how well the American economy is performing in
comparison to other economies. Thus, to maintain a strong
dollar, the essential requirement is to assure a vibrant,
inflation- free economy at home. This is the true defense
of the dollar and amounts to the single most important
contribution we can make to the health of the international
economy.
Yet, over the past decade, the United States has pursued
excessive and misguided fiscal and monetary policies which
have built strong, inflationary forces into the structure of
our economy. Moreover, in the private sector, we have
discouraged the process of savings and capital investment to
such a degree that our record of capital investment since
1960 has been the lowest of any of the major industrialized
nations. By 1973, we began to experience capacity shortages
in some of our most basic industries, seriously aggravating
the pressures of inflation. There, were, of course, other
factors contributing to the extraordinary rates of inflation
we have experienced recently -- such as the fourfold increases
in the price of crude oil and adverse food conditions-but the underlying causes of our inflation have been those
mistaken policies that started in the mid 1960s.

tv°

Nor can we ignore the fact that the same forces that caused the
inflationary wave that engulfed the United States in 1973 and 1974-in addition to weakening the power of the dollar--were the major
factors
causing the recession in the
United States. Most economists now recognize that the housing
industry and retail sales both fell sharply under the pressures
of inflation, precipitating the economy's downward slide.
Thus, as we emerge from this current recession, we believe
that we must proceed with a high degree of prudence. The
central goal of our domestic economic policy is to achieve a
period of sustained, durable economic growth without bringing
on a resurgence of inflation. There is now abundant evidence
that natural, cyclical forces within the economy in addition
to expansionary governmental policies are bringing us out of
the recession. The government is certainly not leaving matters
to chance. The largest tax cut in our history is now exerting
a positive influence on the economy, as are the current budget
deficits. In addition, the Federal Reserve has eased monetary
conditions substantially and Board Chairman Arthur Burns has
recently indicated that the Fed will continue to support the
process of recovery by 5 to 7-1/2 percent growth in the money sunply.
In warming up the economy, however, we must avoid the
temptations of overheating it. It is tempting to seek an
immediate end to the problems of unemployment, but in the long
run, that course would only lead to a sorrowful repetition of
the boom and bust cycle of the past and would condemn millions
of Americans -- not to mention the citizens of other countries
whose economic fortunes are closely tied to our own-to years of further hardship and suffering. We are determined,
even at great political risk, to pursue balanced economic policies policies that make sense not just for one year but for years
to come.
It is in this sense that I can report to you today that
we fully intend to do a better job of protecting the value of
the dollar in the future.
Debates over the dollar quickly lead, of course, to differing
views on exchange rate policies. Contrary to those who believe
that we must try to return to a more rigid international monetary
system or even one based on gold. I am a strong advocate of a
more flexible system that reflects the diversity of the real
world and allows nations greater freedom of choice in specific
exchange rate arrangements, provided that they act in accordance
with an agreed code of international behavior. Additionally, the
united States is working for a system in which the role of

- 4 gold is lessened so that we may curtail the destabilizing
effects of that commodity on the monetary system. This
objective is widely shared, and the International Monetary
Fund's ministerial Interim Committee has formally agreed to
seek arrangements "to ensure that the role of gold in the
international system would be gradually reduced."
Meanwhile, the combination of flexible rates and informal
intergovernmental consultations developed over the last few
years has worked remarkably well. You must only ask yourself
how a more rigid international monetary system would have
reacted to the shocks caused by the oil embargo and cutbacks
in oil production, by economic boom and recession, and by
widely disparate rates of inflation in different countries.
It seems apparent that without increased exchange rate
flexibility, we would have suffered huge and destabilizing
reserve movements and the exchange market closures of the
past. Moreover, we should not forget that the old system
was abandoned because it didn't work: it only encouraged
speculation, led to frequent devaluations, and allowed
rapidly inflating countries to indulge themselves by "exporting"
their inflation to others. While I do not suggest that I
have the wisdom to define a system that will work for all
ages, I do believe that to return now to a more brittle
international monetary system would prove to be disruptive
of international trade and investment and would be damaging
not only to the United States but to foreign economies as
well.
We should also recognize just how stable the dollar has
been relative to other currencies during this period of widespread
floating. When judged appropriately in relation to a relevant weighted
average of other currencies, its value has increased about 3 percent
over the past three months; it is stronger today than it was
a year ago; and its value today is almost exactly what it
was in early 1973, when generalized floating of currencies
began. During this period, in fact, the dollar has been the
most stable of the world*s five major currencies.
Some have expressed concern over the growth in monetary
reserves in 1974 and the early months of 1975, suggesting that
excessive international liquidity particularly in the form of
dollar assets, may have given impetus to worldwide inflation.
They recall similar concerns voiced in earlier years when reserves
were accumulating in the hands of European and Japanese monetary
authorities. Looking behind the statistics, however, there are
important differences between the situation of earlier years and
that of today. In earlier years, a number of the countries
accumulating reserves felt that those reserves were making it more
difficult to restrain domestic credit, and in some cases controls
were applied to capital imports in order to facilitate restrictive
credit policies0 By contrast, nearly all of the net additions to
reserves
last year,
reported
by consumers
the International
Monetary
were
industrialized
acquired
by
nations.
the as
major
Many
oil oil
exporting
countries,
were able
not
tothe
avoid Fund,

reserve losses only by borrowing abroad or by attracting
capital inflows to meet their increased payments to the oil
exporters. Few of the oil importing nations, we believe, felt
that international flows of liquid funds were interfering with
internal monetary policies aimed at restraining domestic
inflationary pressures. We also have some doubts about the
usefulness and even the validity of data on international
reserves. We know, for example that not all liquid investments
of the oil producing nations have been reported in the reserve
data. And, on the other hand, we know that the foreign investments
of most of the oil producers are not for the purpose of
intervening in exchange markets to maintain exchange rates; they
are a temporary safekeeping of internal wealth. Under the
circumstances, the very concept of reserves tends to become
useless. Moreover, these reported reserve increases have
accrued largely to governments and have been acquired by
conscious governmental policies -- not as unwanted inflows
of funds attracted by relatively restrictive credit policies.
Thus the reserve situation today is quite different from that of
earlier years. My comments are not meant to suggest, of course,
that higher oil prices have not been inflationary -- only that
their contribution to inflation has resulted mainly from the
impact of those prices on the cost of production in consuming
nations rather than the enlarged, statistical total of the
world's liquid reserves.

- MORE -

- 6
Raising Oil Prices
A second indictment of the United States is that we
have in effect been encouraging the oil exporting nations to
raise their prices.
Again, I must confess that through a failure in our
policies at home we have invited foreign oil producers to
take advantage of us, though we strongly believe their
policies are mistaken and will prove contrary to their own
interests.
By a slowness to heed the warnings of those who foresaw
the energy crisis more than two decades ago, we sowed the
seeds for that crisis. By our failure to alter our patterns
of consumption more rapidly to conserve energy, we have
allowed higher import prices to persist longer than they
might have otherwise. And by our hesitancy to accept the
need to develop new energy sources, we have given the cartel
reason to believe they can continue raising their prices
with impunity.
It is not easy to change comfortable habits. That
there will be pains in adjusting to a new energy balance is
inevitable. But we can no longer afford a "mafiana" philosophy.
Several European nations have already begun the process of
adjustment; the time is long past for us to begin as well.
The dependence of the United States upon foreign oil supplies
has actually increased since the embargo, and unless we soon
reverse directions, we will be reliant upon foreign sources for
as much as 50% of our oil by the end of the decade.
After the most intensive consideration, the Administration
early this year put forward a strong and balanced program to
bring about the needed adjustments in the United States to the
new energy balance. While several members of the Congress are
seeking to develop an effective program, the fact remains that
the over-all performance of the Congress in the energy field
over the last several months -- and indeed, over the last several
years -- has been marked by unconscionable dwadling and delay.
Only the strong leadership of President Ford has averted a total
failure in America's energy policies.
Nonetheless, I continue to remain optimistic about the
future because there is a growing awareness in the United States
that we can neither accept nor afford the monopolistic practices
of the OPEC nations. We have been warned by the oil producers
in recent weeks that they intend another large-scale price increase this fall, and some have attempted to justify that increase on an alleged 35 percent reduction in their purchasing
power in 1974. As long as we lack an effective energy program,
such price increases may be possible, but let there be no mistake
the
sheer
demagoguery
used
to
them.
The
IMF
basis
equivalent
index about
which
points,
of
isbut
acited
24as
percent
the
for a
index
change
loss shows,
in
in
purchasing
their
thatjustify
prices,
increase
power
and
went
is of
the
up
that
35

.7 amount, at least one-third can in effect, be traced back to the
earlier increases in oil prices. In effect, the oil producers have
exacerbated worldwide inflation through their policies and now
claim that because of that inflation, they are entitled to further
price increases. Moreover, since 1955 the terms of trade of
their oil exports have risen five times in comparison to the
commodities they import, and since 1960, the export prices for
oil have risen by seven times in comparison to their import
prices.
Attempts to justify a new oil price increase on the basis
of reduced purchasing power are just as fallacious as the efforts
to justify earlier price increases on the basis of price rises in
other commodities. The OPEC cartel has often cited a fourfold rise
in the price of wheat, a 1200 percent increase in the price of
vegetable oil, and 2700 percent rise in the price of sugar as
reason to raise oil prices. That argument conveniently ignores
several basic realities. One is the fact that those other
commodities are traded in essentially free markets, and changes
in price have taken place in direct response to changing supply
and demand conditions. This has been illustrated by the fact
that wheat farmers have expanded production as prices have risen;
by contrast, the oil cartel has restricted production as prices
have risen. Second, it is important to emphasize that there have
been decreases as well as increases in the prices of these other
commodities. The price of wheat in U.S. markets, for instance,
is almost 50 percent less than it was in early 1974, and raw
sugar has declined from a peak of 65 cents per pound to 15
cents a pound today. If the OPEC nations truly followed the
pricing patterns of other commodities, consumers today would
be paying far less for oil today -- and the interests of the
entire world would be advanced.
I would hope that our Congress would be spurred to
action not only be the increasing vulnerability of the
United States but also by the realization that OPEC's policies
are not invulnerable either. As the recession has helped to
reduce worldwide demand for oil, OPEC has been forced to
shut in a third of its productive capacity -- over 12 million
barrels a day --in order to hold the line on prices. Furthermore,
during the past three years, as the OPEC countries recognize,
significant discoveries of oil have been made in some 25 to
30 areas of the world outside OPEC, uncovering reserves
estimated at roughly 35 billion barrels. These fields could
produce 8 million additional barrels a day by the early
1980's, and this does not include new production from the
U.S., the Soviet Union, and the People's Republic of China.
The fact that in the face of slackening demand the OPEC
nations are continuing to cut production rather than price
underscores
theupon
conclusion
that
their
pricing
policies are
based
far more
political
than
economic
realities.'

-8 If, however, the consuming nations adopt effective conservation
and development policies, the day will inevitably come when
market forces will once again begin to function effectively
and oil prices will be reduced.
The efforts of the United States to become more selfsufficient in energy and to develop greater solidarity with
other consumer nations do not stem from a desire to confront
the OPEC countries or to block their economic development.
To the contrary, we fully support their aspirations for
development. Through joint economic commissions as well as less
formal bilateral contacts we are working cooperatively with these
countries to establish their industrial and agricultural bases
and to improve the living standards of their people. Thus, we
are prepared to work with them in accelerating their economic
development. For their part, these countries must recognize
the responsibilities inherent in their new international role.
They must realize that we continue to oppose arbitrary,
monopolistic pricing policies imposed without regard to economic
realities and exacting enormous penalties on the developing nations
of the world. We are convinced that they can achieve their
development objectives on a more secure basis with substantially
lower oil prices. Extreme policies will only prove harmful to them
AasFree
Orientation
wellMarket
as those
of the rest of the world.
A third charge leveled against the United States is
that we are clinging unrealistically to the notion that more
reliance should be placed upon a free market approach to the
problems of both the international and domestic economies.
I have no hesitancy in saying that we believe that a free
market will generally bring greater economic and social benefits
than a market dominated by government. We are deeply committed
to the principles of free trade and investment. We believe that
the world community would be better served by removing many of
the barriers that now exist to trade. We continue to welcome
foreign investments in the United States and believe that foreign
investment can make a significant contribution to the development
of other countries. And we are anxiously seeking to discourage
all people, including our own, from turning inwards, seeking
refuge from today!s economic storms at the expense of other natio
The tragic consequences of the beggar-thy-neighbor policies of
the 1930s should be ample proof that a liberal economic order
is far preferable to one marked by isolationism and restrictive
trade.

a^
Just as we favor a minimum of governmental interference
in international commerce, we also believe that our Government
should permit a maximum amount of freedom for the private
sector at home. In fact, in many areas of our national life,
such as oil and gas production, we would like to remove the
many impediments that government has erected and release the
full energies of our economy. We are mindful of the fact that
several of the developing countries which have given wide scope
to free enterprise have made remarkable economic progress.
Indeed, history has long shown that a free enterprise approach
is more productive than any other system known to man and, while
it does not automatically guarantee an extension of personal and
social freedoms, it is certainly a more powerful safeguard
against their erosion than any other economic system.
The resiliency of the international market oriented system
has been vividly demonstrated during the financial turbulence
of the past year and a half. Last year, speaking to your
conference in Williamsburg, I expressed confidence that our
private financial markets and our institutions would adapt safely
and flexibly to the challenges of redistributing OPEC monies.
Experience since then lends support to that view. Last year an
estimated $60 billion of OPEC funds passed through the
international financial system without occasioning serious
economic disruption, showing that the system could accommodate
itself far better than most skeptics believed.
Our commitment to a liberal economic order does not mean,
however, that we are rigid ideologues who can see no role for
government.
I do not mean to imply, for example, that the private markets
have been, or are expected to be, our sole reliance in all
eventualities. It is true that the United States has
not favored a proliferation or an unbridled expansion of official
financing mechanisms which seemed to us to carry important
drawbacks. But we have taken the initiative to establish a major
new facility among the OECD countries which provides an insurance
mechanism for our financial system.
We have also sought agreement on a major, one-third
expansion in the quotas, and hence the lending power of the
International Monetary Fund. We have agreed with special and
temporary arrangements within the IMF to help meet financing needs
of member nations whose oil import costs have risen sharply.
And, for those developing countries hardest hit by the increase
in oil and other commodity prices, we have put forward proposals
for a Special Trust Fund to assist them.
The
issue
government
inofthe
developing
system
has of
recently
countries
arisen
for aintervention
New
in the
Economic
context
Order.
theeconomic
In
call
theby
process

- 10 of seeking to improve their
countries advocate sweeping
international commerce. In
would actually impede their

economic conditions, these
changes in the rules of
our view, many of these changes
economic development.

The United States has long supported, in word and in deed,
the legitimate aspirations of the developing countries to improve
the conditions of life of their peoples. We also support their
desire to participate more fully in the benefits of an expanding
world economy. We are prepared to join with them in serious
discussions to map out those policies and those actions best
suited to continued progress toward a better and more prosperous
way of life.
Difficult questions must be faced in the process of
carrying out the searching reevaluation of relations with the
developing countries now under way. Fundamental to this process
is a careful reexamination of various forms of income transfer.
In addition, we must seek a better recognition of the beneficial
role that private investors now play in bringing about development,
and we must find means of fostering policies within the developing
countries that will most advance their prosperity.
While we are anxious to address these questions with
imagination as well as compassion, I believe that the answer to
the problems of development lies in strengthening the current
international economic system rather than a radical restructuring
of it. Rather than sweeping aside all of the arrangements of
the post-war era, let us proceed on a case-by-case, issue-by-issue,
problem-by-problem basis. The developing countries, as well as
the industrial nations, would suffer from any misguided attempt
to reverse the present movement toward greater liberalization of
trade.
Many countries, of course, do not share our dedication to
a market-oriented economy. That there will be philosophical
differences even among Free World countries is inevitable.
Despite a common bond, each of us has a different world outlook,
deriving from our varied experiences and national traditions.
Nonetheless, we must not ignore how well the cooperative
arrangements of the post World War II period have been able
to accommodate these differences without undue strain. That systei
has rendered important gains to the developing countries.
The industrial countries have freely committed themselves to an
extensive program of financial assistance both bilaterally and^
through international institutions. Not only have the developing
countries profited from the liberalization of world trade which
has gone forward, but there is now agreement to extend special
preferences to them in our trading rules. As a consequence, many
developing countries, particularly the middle income group, have
been able to grow more rapidly than most developed countries.

1 ^ /
My plea, then, is for a renewed sense of realism in our
international economic relations. There is so much that can
be done to improve the lives of all that is in the mutual
interest of all that it would be foolish indeed to sacrifice
the possible at the altar of the unrealistic.
International Economic Policy Vacuum
A fourth accusation I sometimes read is that the United
States Government has no international economic policy.
I can hardly believe that anyone seriously accepts that
view. The truth is that no nation is more intimately involved
in shaping a cooperative international economic order.
No nation is more deeply concerned with the welfare of other
nations. In difficult times, I can understand why some might
argue that since problems are many and progress is slow there
must be no policy, but those who accuse us of lacking

- 12 a policy often appear to have something else in mind.
I am particularly concerned with the mistaken notion
that our international economic policy consists of the
various technical arrangements and procedural mechanisms
to which we are a party --so that the more of such machinery
that exists, the better our policy. I emphatically disagree.
The core of our international economic policy is our dedication
to certain fundamental principles which express our commitment
to a liberal international economic order. It is on the
strength of our dedication, and our effectiveness and
perseverance in its application, that our international economic
policy must be tested.
The fundamental principles we espouse are not novel or
surprising, but we believe they are essential to a dynamic
and equitable international economic order:
--We are firmly committed to avoiding begger-thy-neighbor
policies, as most recently affirmed by the OECD countries when
they renewed their trade pledge at last month's Ministerial
meeting in Paris.
--We support the liberalization of world trade and are
currently concentrating our efforts on the Multilateral Trade
Negotiations in Geneva.
--We are committed to the free movement of capital investments,
tempered only by the need to safeguard essential national interests.
--We support a wide variety of mechanisms for providing
financial and technical assistance and transferring real resources
to the developing world.
--We have explicitly committed ourselves to joining with
other nations in examining the problems of trade in oil and
other commodities so that we may adopt policies benefiting both
producers and consumers.
--We are committed to maintaining a sound dollar in the
only way that is possible: by assuring the strength and stability
of the economy at home.
--We are pledged to work with other nations to develop longrange solutions to the energy challenge, and we intend to make a
major contribution to that effort by achieving greater energy
self-sufficiency at home.
-- We are committed to working with others to achieve
an orderly and constructive evolution of international monetary
arrangements.
-- And in all these International endeavors, we are committed
to a spirit of full cooperation and conciliation among all nations
with whom we share this planet.

- 13 -

E5V

Building upon these foundations, the United States has
made a forthright and diligent effort to work with other nations
in developing better solutions to the problems of energy, food,
international finance, and other major issues. We believe that
considerable progress has been made over the past year. Each
step forward may have been modest, but the cumulative effect
has been very substantial. Without the trappings and fanfare
of a Bretton Woods conference, without claims that a system
for all seasons has been engraved on parchment, we have begun
to define a course that can guide us through one of the most
turbulent periods of this century.
I have just flown to Amsterdam this morning from meetings
of the Interim Committee and the Development Committee. As you
know, the members of the Interim Committee have not yet been
able to reach full agreement on a package of important measures
to modernize the international monetary system. While we were
disappointed that a final agreement was beyond our grasp in Paris,
I was heartened by our progress in narrowing the range of
contentious issues and I believe that we now have a foundation
for a future accord. The two major issues that remain to be
resolved relate to gold and exchange rate systems. We believe
that the final package must be consistent with the agreed upon
goal of reducing the importance of gold in the monetary system
and must allow each country freedom to determine its own system
of monetary exchange, but within that framework we think that
there is ample room for agreement.
The developments in Paris confirm our belief that the
industrialized nations intend to resolve their differences and
serve the interests of the entire world community if they work
together in a spirit of conciliation and cooperation. We intend
to be firm in our approach but not inflexible, principled but
not impractical, dedicated but not domineering. And we intend
to achieve resuits.
Conclusion
Ladies and Gentlemen: In sketching here the outlines
of the United States international economic policies for the
1970s, I have not sought to address the role that the private
sector, and particularly the banking community, must play in
rising to the challenges of today, though as you must know,
I regard that role to be more critical than that of our
national governments.
I wanted to dwell on our governmental policies because
they are in need of clarification and because we must all begin
to recognize how long and difficult our agenda is for the future.
The issues I have discussed here will be the subject of many
more hours of intensive negotiations with my fellow Finance
Ministers. The questions are complex, the pressures on policy
makers manifold, and the challenge to their creativity great.
It will not always be easy to resist the short-run palliative

- 14 which seems to promise immediate relief but undermines the long-run
vitality of our system. I am certain, however, that if we can
approach these tasks in an enhanced spirit of cooperation and
enlightened realism and if we can count on the full support of
the American people, we will continue to find better ways of
advancing the causes of peace and shared prosperity.
Thank you.

- 0O0 -

Department of theTREASURY
WASHINGTON, DC. 20220

TELEPHONE W04-2041

vo
FOR IMMEDIATE RELEASE

Contact: Herbert C.Shelley
964-8256
June 13, 1975

TWO ACTIONS ANNOUNCED UNDER ANTIDUMPING ACT
Acting Assistant Secretary of the Treasury, James J.
Featherstone announced today that electric golf cars from
Poland are being, or are likely to be, sold at less than
fair value within the meaning of the Antidumping Act of
1921, as amended.
The case now will be referred to the U.S. International Trade Commission for a determination as to whether
an American industry is being, or is likely to be, injured
by reason of the imports of the Polish electric golf cars.
In the event of an affirmative injury determination, dumping duties will be assessed on all entries of the subject
golf cars on which dumping margins exist.
A "Withholding of Appraisement Notice", published in
the Federal Register of March 14, 1975, stated that there
was reasonable cause to believe or suspect that there were
sales at less than fair value., Pursuant to this notice,
interested persons were afforded the opportunity to present
oral and written views prior to the final determination in
this case.
During calendar year 1974, imports of the subject merchandise from Poland were valued at roughly $3 million. - Contact: Herbert C. Shelley
964-8256
In a second action, Mr. Featherstone announced the
initiation of an antidumping investigation on imports of polymethyl methacrylate polymers from Japan.
Polymethyl methacrylate polymer is a stiff, transparent,
high molecular weight polymer with outstanding resistance to
ultraviolet radiation and is made by polymerizing methyl
methacrylate.

(OVER)

-2Mr. Featherstone's announcement followed a summary
investigation conducted by the U.S. Customs Service after
receipt of a petition alleging that dumping was occurring
in the United States. The information received tends to
indicate that the prices of the merchandise sold for exportation to the United States are less than the prices
for home consumption.
During the period January 1974 through March 1975,
imports of the subject merchandise from Japan were valued
at approximately $2,677,000. — Contact: L.F. Potts
964-2951
Notice of both actions will be published in the
Federal Register of June 16, 1975.
#

FOR IMMEDIATE RELEASE

June 13, 1975

GERALD MURPHY NAMED
DEPUTY COMMISSIONER OF GOVERNMENT FINANCIAL OPERATIONS
Secretary of the Treasury William E. Simon has announced
the appointment of Gerald Murphy to the position of Deputy
Commissioner of Government Financial Operations.
Mr. Murphy is a career official who entered the Federal
Service with the Department of the Navy in January 1957. He
subsequently joined the Department of the Treasury, Bureau
of Accounts, in October 1959 as a Fiscal Accountant and served
in a variety of staff positions. He served as Director of the
Division of Government Financial Operations within the Bureau
of Accounts immediately prior to that Bureau's merger with the
Office of the Treasurer, U.S. With the inception of the new
Bureau of Government Financial Operations, he was designated
as Assistant Commissioner, Governmentwide Accounting.
Mr. Murphy received a Bachelor's degree in Commercial
Science from Benjamin Franklin University, graduating with
honors in 1960, and a Master's degree in Commercial Science
from the same university in 1963. He has also attended
Southeastern University and American University.
Mr. Murphy was a member of the faculty at Southeastern
University for five years and has been teaching at the U. S.
Department of Agriculture Graduate School since 1970. He is
a member of the American Institute of Certified Public
Accountants and currently serves as a National Officer in the
Federal Government Accountants' Association. He is also a
former recipient of Treasury's Meritorious Service Award and
the Secretary's Special Act or Service Award.
He is married to the former Harriet Gottlick of Westfield,
New Jersey, and they have three children, William, Janet and
Kathleen. Mr. Murphy and his family reside in Silver Spring,
Maryland.
oOo
WS-332

>^9

UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH May 1975
(Dollar amounts in millions - rounded and will not necessarily add to totals)
DESCRIPTION

MATURED
CoriPQ A - 1 Q 3 5 thru D - 1 Q 4 1

Scrips P and G-1941 thru 1952
g^fjps .1 and K-1952 thru 1957

A M O U N T ISSUED—'

AMOUNT
REDEEMED—'

5003
29529
3754

4999
29502
3749

1942
8575
13789
16105
12698
5803
5544
5755
5720
5027
4349
4562
5236

1767
7782
12531
14564
11341
5043
4693
4798
4694
4074
3523

AMOUNT
OUTSTANDING—'

"', OUTSTANDING
OF A M O U N T ISSUED

4
19
5

.08
.06
.13

UNMATURED
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
197R
UnclassifipH
Total Series E
Series H M 952 thru M a y 1QRQA-2/
H (June, 1959 thru 1 9 7 ^
Total Series H
Total Series E and H

All Series

Total matured
Total unmatured
Grand Total

175

9.01

793
1258
1541
1357
761
851
957
1026

9.25
9.12
9.56
10.68
13.11
15.35
16.63
17.94

954

18.98
18.99

826
891
1097
1180
1775
1256
1230
1289
1242
1340
1479
1516
1883
1818
1798
2072
2092
2032
2009
7319
3047
3733

19.51
?,0.9 5
77.04
77.87

3671
4140
4174
4313
4140
3866
3702
3445
3386
3 353
3196
3434
3363
3271
3477
3361
3121
2846
7771
2826
2759
2491
1820
106

- 3925
4661
1260

641

305

209669

152433

57248

57.57
61.18
71.92
92.17
32.24
27.30

5484
10304

4190
3748

1295
6556

23.61
63.63

15788

7938

7851

49.7 3

225457

160371

65099

28.87

38286

38250
160371
198621

.07

65099

28.87

65177

74.69

5355

5588
5396
5096
4991
4687
4725
4831
4712
5317
5181
5068
5499
5453
51 53
4ft 5 5

5090
587 3
6484
6416
6481
1367
946

225457
26-1743

Include accrued discount.
Current redemption value.
bonds may be held and will earn interest tor additional periods after original maturity dates.
Form PD 3812 (Rev. Nov. 1974)- Dept. of the Treasury - Bureau of the Puhlir Debt

23.28
74.14
25.83

26.50
28.36
30.61
32.17
35.41
35.09
35.48
37.68
38.36
39.43
41.38
4 5.56
51.88

FOR IMMEDIATE RELEASE

June 13, 1975

EXECUTIVE OFFICE OF THE PRESIDENT

o<7

COUNCIL ON WAGE AND PRICE STABILITY
726 JACKSON PLACE, N.W.
WASHINGTON, D.C. 20506

FOR RELEASE AT 9:30 A,M. EDT
Tuesday, June 17, 1975

FOR INFORMATION CALL:
(202) 456-6757

COUNCIL ON WAGE AND PRICE STABILITY
RELEASES STUDY ON
CONCENTRATED INDUSTRY, ADMINISTERED PRICES AND INFLATION

Following the Council on Wage and Price Stability's April 14
Conference on Concentration, Administered Prices and Inflation, Professor Ralph Beals of Amherst College was commissioned
by the Council to prepare a summary of the conference and
survey recent empirical research in the field.
Attached is the report he prepared for the Council.

o 0o

Attachment

CWPS-52

CONCENTRATED INDUSTRIES, ADMINISTERED PRICES
AND INFLATION:
A SURVEY OF RECENT EMPIRICAL RESEARCH

by Ralph E. Beals
Amherst College

Prepared for the Council on Wage and Price Stability

^5f
ABSTRACT
CONCENTRATED INDUSTRIES, ADMINISTERED PRICES AND INFLATION:
A SURVEY OF RECENT EMPIRICAL RESEARCH
Although it is widely believed that there is some
important connection between inflation, administered prices,
and industrial concentration, it is by no means clear what
that connection is. This paper, by surveying empirical
research bearing on the behavior of prices of concentrated
industries relative to prices of less concentrated industries, attempts to discover whether a connection exists.
The first suggestions of different price behavior in
the concentrated and unconcentrated industries arose in the
Depression. Gardiner Means advanced the "administered-price"
thesis that the administrative control over prices in markets where there are relatively small numbers of firms results in less price flexibility than is found in more competitive markets. According to his administered-price
thesis, prices in concentrated industries tend to fall less
than market-determined prices during periods of recession
and to rise less than market-determined prices during periods
of expansion.
The Means Thesis finds some support both during the
Depression and in the post-WW II period, if one is prepared
to assume that BLS wholesale price indexes accurately reflect transactions prices. Within a general picture of wide
dispersion of industrial price movements in all periods,
there does seem to be more stability in BLS prices for concentrated industries over the business cycle. In the recessions of 19 69-70 and 1974, for example, prices on average
did not fall but continued to rise; and in those periods
prices in concentrated industries on average rose more than
prices in unconcentrated industries.
Whether this is a real phenomenon or results from the
predominance of list prices rather than actual transaction
prices in the WPI is a matter of controversy. But even if
the BLS data are accepted at face value, it would not follow
that concentrated industries would be to blame for inflation.
For most of the past twenty years average BLS wholesale
prices in the concentrated industries have risen less
i

rapidly than prices in the unconcentrated industries.
Only by looking at BLS wholesale prices for short reces
sionary periods or by arbitrarily grouping industries
into concentrated and unconcentrated categories can one
show that prices in concentrated industries have risen
more than prices in unconcentrated industries.

Ito
It is very widely believed that there is some important connection between inflation, administered prices and
industrial concentration. Yet it is by no means clear or
agreed just what that connection is. Certainly the empirical evidence has been subject to varying and conflicting
interpretation.
This paper, following on the Conference on Concentration, Administered Prices and Inflation conducted by the
Council on Wage and Price Stability, is an attempt to survey recent empirical evidence bearing on the behavior of
prices for concentrated industries as compared to prices
in unconcentrated or relatively competitive industries.
In the literature two principal questions have been asked:
(1) are prices less flexible cyclically in highly concentrated industries than in less concentrated industries,
and (2) how are price changes related to changes in direct
costs for concentrated and unconcentrated industries in
recession and expansion? As will be seen, even if clear
answers to these questions are obtained, one may still be
some distance from knowing whether, or how, concentrated
industries give an inflationary bias to the economy and
an even greater distance from knowing what policy actions
would be appropriate. Nonetheless, the questions are a
start.
The paper is divided into four parts. The first part
deals with the origins of the administered-price thesis
and its development up through the end of the 1950s. Empirical literature is summarized and attention is called to
difficulties of definition, interpretation and data reliability. This part includes an analysis of the attempts to
test the administered-price thesis using the Stigler-Kindahl
transaction price data for 1957-1962.
The next two parts focus on research covering the
period of the 1960s and 1970s. Part II reports on general trends and patterns in price movements for concentrated and unconcentrated industries. Part III surveys
the accumulated evidence on the relation of price changes
in direct cost and indicators of demand. In Part IV an
attempt is made to assess the wisdom of various recommendations which have been advanced for public policy action,
and some suggestions are offered for further study.
1

I
The Administered-Price Thesis: Depression Evidence
The administered-price thesis was first advanced by
Gardiner C. Means in an attempt to explain the fact that
some prices fell much more than others during the depression period 1929-1933.±/ He contrasted administered prices
with market prices: "A market price is one which is made
in a market as a result of the interaction of buyers and
sellers," whereas "An administered price is essentially
different. It is a price which is set by administrative
action and held constant for a period of time. ".2/ He had
noticed a positive correlation between the frequency with
which prices changed over 1926 to 1933 and the extent of
the drop in price from 1929 to 1932.
Although his definition of "administered price" on
its fact encompasses prices as set in many unconcentrated
industries (e.g. , as in a typical retail store) ,__/ the
administered-price thesis of price inflexibility has from
the beginning been associated with the presence of market
power and industrial concentration. In 1939 Means wrote
While many factors influence price insensitivity,
the dominant factor making for depression insensitivity of prices is the administrative control
over prices which results from the relatively
small number of concerns dominating certain markets.!/
The 1939 study just cited presented a scatter diagram
of the relation between the four-firm concentration ratio
for 1935 and the percent change in price over 1929-1932
for 37 selected manufacturing industries. A positivelysloped regression line was obtained; the correlation coefficient was 0.385. There should be little doubt from his
1/
Industrial
and their
Inflexibility,
formulation
of Prices
this early
"test"Relative
that Means
traced the
Senate
Doc.
13,
74th
Congress,
1st
Session,
1935.
cause of inflexibility of administered prices to the
2/ Ibid., p. 1.
3/ Indeed, Means states "Administered prices should not
be confused with monopoly. The presence of administered
prices does not indicate the presence of monopoly." Ibid.
4/ National Resources Committee, The Structure of the
American Economy, Part I, 1939, p. 143. [emphasis added]
2

U* (
presence of market power. But, while he used the concentration ratio as the principal measure of market power,
he screened the data very selectively, with the effect of
making a high concentration ratio a necessary but not
sufficient indicator of market power for purposes of testing his administered-price hypothesis.
To arrive at his 37 data points Means began with prices
and concentration ratios for 282 Census industries; fewer
than 1 in 7 of the available data points were selected.
Four criteria for deleting industries were stated: (1)
the product of the industry is not "relatively homogeneous,"
(2) the product is not produced "for a national or international market," (3) less than "one-third of the value of
the product is believed to come from manufacturing activity," and (4) "reasonably reliable data" on prices are not
available.!./ These standards are hardly ambiguous and,
given that they were applied after the fact, it is not
surprising that the results Means obtained have been regarded with some skepticism. When additional observations
deleted by Means are used the relationship found by Means
is less strong. __/
Another important criticism of the Means analysis
focused on his use of the BLS Wholesale Price Indexes.
These indexes are based on nominal or quoted prices which
fail to reflect rebates, special allowances and the like
which may have been used to shave prices in periods of
slow business. To overcome this, Willard L. Thorp and
Walter F. Crowder used "average realized prices" (equal
to the total value of a product in given years divided by
the quantity of that product manufactured in those years).—/
The 1933-1929 ratios of average realized prices were plotted
against the corresponding concentration ratios using all
407 products for which comparable data were available for
1/
Ibid.,
1929,
1933 p.
and142.
1937.1/ The authors concluded that "changes
2/ Jules Backman, "Economic Concentration and Price Inflexibility, " Review of Economics and Statistics, XL,
4 (November 1958), 399-404.
3/ Willard L. Thorp and Walter F. Crowder, The Structure
of Industry, Monograph No. 27, Temporary National Economic
Committee (Washington: U.S. Government Printing Office,
1941). See pp. 338-340 and pp. 357-365.
4/ Ibid., pp. 346-347.

in the average realized prices of products with high concentration ratios were neither significantly more nor
less than the changes of products with low concentration."!/
This study was, in turn, criticized for failing to be
selective in choosing products. When Jules Backman
attempted to apply Means' criteria to the Thorp-Crowder
data he deleted 190 products. For the 217 remaining observations a positive correlation of 0.178 was obtained between realized price and concentration ratio.U
One further analysis of price movements in the Depression is of interest. Alfred C. Neal urged the view that
price changes should be related to changes in average
direct cost.1/ On the basis of his analysis of prices
in 107 manufacturing industries for the period 1929-1933
he rejected explicitly Means' conclusion as quoted above
(p. 2) and instead asserted that "amplitude of price
decline in depression is for the most part explained (in
the statistical sense) by amplitude of direct cost decline,
a matter over which particular industries have little if
any discretion."!/ He did find, however, that concentration had "a small but significant influence upon the
decline in the difference between unit price and unit
direct cost. . . . This margin tended to decline least
where concentration was high; most where it was low-"JL/
It should also be noted here that Means did not confine his thesis of limited flexibility of administered
prices to recession periods. He expected and found increases of administered prices from 1933 to 1937 to be
smaller than the average increases of market prices.
1/

Ibid., p. 360

2/ Jules Backman, OJD. cit., p. 404.
3/ Industrial Concentration and Price Inflexibility
(Washington: American Council on Public Affairs,
1942).
4/ Ibid., p. 124.
5/ Ibid., pp. 165-166.

* * * * * *

The preceding discussion of the origins of the
administered-price thesis and of empirical research
based on Depression data may well seem a bit remote
from today's problem of inflation in the presence of
substantial unemployment. Indeed, it is, except that
few of the definitional questions, data problems and
other difficulties encountered and recognized then have
yet been solved or laid to rest. The reliability of the
BLS Wholesale Price Indexes, the appropriate measure of
concentration, and the use of selective criteria (other
than the concentration ratio), to determine industries
in which administered-price behavior should be expected
have all figured in controversial recent writing. The
role of direct cost changes in the determination of price
changes has been the subject of considerable research
recently but is still less than fully understood. Finally,
it is clear that in analyses and discussions of inflation
the term "administered prices" has been used to denote
phenomena much broader and, in some cases, quite different
from relative inflexibility of prices for concentrated
industries in business recession and expansion. More on
Administrative
Inflation
these points will
follow in the succeeding sections.
Following World War II there was an expansion which
peaked in late 1948, then a mild recession in 1949 followed
by the Korean War boom. Prices moved sharply upward in
both expansions reflecting the pull of excess demand;
prices fell substantially in the 1949 recession. The
pattern changed a bit in the 1953-1954 downturn. Between
1953 and 1954 real GNP fell 1.4 percent and unemployment
rose from 2.9 percent to 5.5 percent, but prices did not
fall: the implicit price deflator rose 1.5 percent and
the wholesale price was stable.1/ Demand was strong in
1955, especially for investment goods, and there was a
strong recovery; real GNP grew 7.6 percent from 19 54 to
1955, unemployment dropped to 4.4 percent. The expansion
continued to the middle of 19 57 but at a slower pace.
There was dissatisfaction that unemployment did not drop
1/ For convenience, some basic indicators of changes
in general economic conditions are presented in Table
A-l, appended.

below 4 percent and that the price level continued to
rise. It was noted that industrial prices rose at
higher rates in 1956 and 1957 than they had in 1955
while farm prices fell in 1956. Steel and auto prices,
particularly, increased in 1956 despite weak demand and
the presence of excess capacity.
In July 1957 the Kefauver committee began hearings
on the subject of "Administered Prices." Senator
Kefauver left no doubt about the subject of the committee's concern:
In opening these hearings on "Administered
Prices," the Subcommittee on Antitrust and
Monopoly is trying to come to grips with what
is probably the Nation's current No. 1 domestic
economic problem—the problem of inflation. We
are concerned particularly with the extent to
which administered prices in concentrated industries may contribute to this problem. 1/
Dr. Means testified before the committee to the effect
that administered prices had tended to rise faster than
market prices in the most recent expansion (e.g., " . . .
the price rise from the summer of 1955 to the summer or
fall of 1956 was a combination of market and administrative
inflation while the rise since last fall has been primarily administrative"^/). His original administeredprice thesis had been that administered prices tend to
fall less than market prices in contractions and to rise
less in subsequent expansions. Now, the idea had been
transformed to a new proposition that firms with market
power might cause prices to rise faster than the market,
thus producing "administrative inflation."
It seems that Means thought of administration inflation as a new but permanent phenomenon likely to have a
secular effect on the rate of inflation. In gathering
and presenting empirical evidence he chose to begin the
1/ Administered Prices, Hearings before the Subcommittee on Antitrust and Monopoly of the Committee on the
Judiciary, U.S. Senate, 85th Congress, 1st Session,
1957, p. 1.
2/ Ibid., p. 99.

Cl(s9>
period at the 1953 business cycle peak and extend it as
far as data were available—first to 1957, then to
October, 1958.!/ Other investigators followed this
lead and tended to ignore cyclical fluctuations after
1953.
Means' analysis was based on a division of 15 BLS
major product groups into three industry categories:
concentrated, mixed and competitive. The major product
groups categorized as concentrated had the greatest price
increases and those designated competitive all had smaller
or negative price changes. The assignments to categories
were made subjectively, however, and did not correspond
closely to assignments made on the basis of concentration
measures.!/ The industries within a BLS major product
group are not homogeneous with respect to concentration
nor with respect to price movement.__/
Quite a number of studies of inflation in specific
concentrated industries (including steel, automobiles,
machinery, asphalt) were undertaken for the Kefauver committee, for the Joint Economic Committee or under other
sponsorship. Otto Eckstein and Gary Fromm concluded that
increases in steel prices and steel wages were "caused to
a substantial degree by the exercise of market power";
and, "If steel prices had behaved like other industrial
prices, the total wholesale price index would have risen
by 40 percent less over the last decade [actually 19471958] and less by 52 percent since 1953."!/ Thomas A.
Wilson, on the other hand, found that machinery prices
1/ Administrative Inflation and Public Policy (Washington: Anderson Kramer Associates, 1959), passim.
2/ See Jules Backman, "Do Administered Prices Create
a Problem?" in Administered Prices: A Compendium on
Public Policy, Subcommittee on Antitrust and Monopoly
of the Committee on the Judiciary, U.S. Senate, 88th
Congress, 1st Session, 1963, pp. 25-43.
3/ Means has continued to use broad groupings of industries in recent work including that presented to the
CWPS Conference. See discussion below at pp. 27-28.
4/ "Steel and the Postwar Inflation," Study Paper No. 2
prepared in connection with the Study of Employment,
Growth and Price Levels, Joint Economic Committee, U.S.
Congress, 1959, p. 34.

rose largely because of demand pressure during the
period 1954-58.1/
A test of the general hypothesis that the rate of
price increase depends positively on market power as
measured by industry concentration ratio was attempted
by DePodwin and Selden.2/ They regressed 1959-1953
price ratios against 19 54 concentration ratios for 322
5-digit product classes and for 155 4-digit product
classes. The regressions, when done on a one industryone point basis, produced small positive correlation
coefficients, all insignificantly different from zero.
On the basis of these results the authors conclude
against the "administrative inflation hypothesis."
Means has criticized this study, principally on the
grounds that a linear regression of price increase against
concentration misrepresents his hypothesis._±/ First,
"concentration" is not a proper substitute for "pricing
power" and, second, he does not contend that the greater
the pricing power the greater the price rise, only that
"the major contribution to the price rise came from among
those product groups whose prices were administered and
in which there was a substantial degree of pricing power."!/
There are good reasons to look for discontinuity or
non-linearity in the hypothesized relationship. Data are
regularly di- or trichotomized to facilitate this.^/ But,
it has been difficult or impossible to date to find a
1/ "An Analysis of the Inflation in Machinery Prices,"
Study Paper No. 3 prepared in connection with the Study
of Employment, Growth and Price Levels, Joint Economic
Committee, U.S. Congress, 1959.
2/ Horace J. DePodwin and Richard T. Selden, "Business
Pricing Policies and Inflation," Journal of Political
Economy, LXXI, 2 (April 1963).
3/ "Business Pricing Policies and Inflation: A Comment"
in Hearings on Economic Concentration before the Subcommittee on Antitrust and Monopoly of the Committee on the
Judiciary, U.S. Senate, 88th Congress, 2nd Session, 1964,
pp. 489-497.
4/ Ibid., p. 492
5/ There is no hint of non-linearity or discontinuity in
the loose scatter of the DePodwin-Selden data.

scheme for classifying industries that satisfies Dr.
Means, and he has not suggested any acceptable measure
for pricing power that others could use. The other
force of the criticism is that one should be sure to
include observations over the full range of concentration ratios in the data set. Still, it seems evident
that researchers will continue to look for simple linear
relations as well.!/
A technical matter on the proper method of doing
regression analysis also arose in connection with the
DePodwin-Selden paper. Means alleges that to test his
hypothesis price ratio and concentration ratio data should
be weighted by the BLS index weight for the corresponding
industry. 2/ Regression analysis of industry price increase
should be based on unweighted data (see Appendix B ) .
Except for the studies of steel or other selected
industries none of the work discussed above has taken
cost or demand into explicit account. In a paper published in 1966 Leonard W. Weiss took an important step
by introducing measures of changes in direct costs and
output into the relation of price changes to concentration. 2/ He began with the DePodwin-Selden data for 4digit industries but was able to obtain comparable cost
data for only 81 industries over the 1953-59 period. He
found a significant positive relation between price change
and concentration after controlling for changes in output,
unit material costs and either labor productivity or unit
labor costs. Similar regressions for the period 19 59-63
yielded coefficients for the cost variables little changed
from those in the 1953-59 regressions. The concentration
ratio, however, took on a negative but insignificant coefficient
in each
As study
Weiss featured
later noted,
1/ Means'
owncase.
initial
prominently a linear
regression of price change against concentration ratio
using 37 carefully screened points he judged to represent
industries with market power.
2/ "Business Pricing Policies and Inflation: A Comment,"
op» cit., p. 495. A position similar to that of Means is
argued by Alfred E. Kahn, "Market Power Inflation," chapter
7 of The Roots of Inflation, John D. Blair editor (New
York: Burt Franklin & Co., Inc., 1975), pp. 261-262.
3/ "Business Pricing Policies and Inflation Reconsidered,"
Journal of Political Economy, LXXIV, 2 (April 1966), 177-187.

These results were interpreted at the time to
indicate that rising prices in concentrated
industries during the 1950s were a temporary,
delayed reaction to the inflations of World
War II and the Korean War, during which periods
the more concentrated industries had experienced relatively smaller price increases than
had the competitive sector.!/
This work by Weiss has been a basis for most of the
recent work which takes direct costs into account. It is
thus a starting point for most of the research to be discussed in Part III of this survey.
A Means-Administered Test of the Administered-Price Thesis
In 1970, Stigler and Kindahl-!' published a book containing new price indexes based on transaction reports
from buyers. These new National Bureau (NB) price series
were compiled in order to allow better tests than can be
made with the BLS data of whether "administered prices"
are unresponsive to general business fluctuations.
Gardiner Means!/ saw these new NB data as reconfirming
the "administered-price thesis" through a test he devised.
His interpretation was questioned and his test extended
by J. Fred Weston, Steven Lustgarten and Nanci Grottke.!/
Comments on the test from Dr. Means and Dr. Weston appear
both in the hearings before the Senate Banking committee on
S. 409JL/
and in
transcript of
the Conference
at CWPS.
1/
"The Role
ofthe
Concentration
in Recent
Inflation,"
The
1970 Midyear Review of the State of the Economy, Hearings
before the Joint Economic Committee, 91st Congress, 2nd
Session, Part 1, 1970, p. 115,
2/ George J. Stigler and James K. Kindahl, The Behavior
of Industrial Prices (New York: National Bureau of
Economic Research, 1970).
3/ Gardiner C. Means, "The Administered-Price Thesis
Reconfirmed," American Economic Review, LXII, 3 (June
1972), 292-306.
4/ "The Administered-Price Thesis Denied: Note, "American Economic Review, LXIV, 1 (March 1974), 232-234.
5/ Council on Wage and Price Stability Act, Amendments
of 1975, Hearings before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, 94th Congress, 1st
Session, 1975, pp. 283-284, 326-331.
10

Us
Since the new examination of the administered-price
thesis has figured in these recent discussions it should
be assessed. It is placed at this point in part because
the period of the test is 1957-1962 and in part to get
it out of the way of more relevant material to follow.
Basically, the administered-price thesis
holds that a large body of industrial prices
do not behave in the fashion that classical
theory would lead us to expect . . . .
The departure from classical behavior in
a business cycle could theoretically take any
of three forms. In a recession an administered
price might fall substantially less than classically competitive market prices; it might show
no substantial change or it might rise contracyclically . . . .
Similarly, in a recovery,
an administered price might rise less, show no
change, or actually fall.!/
Means here emphasizes that his thesis is one of relative inflexibility. Perverse (contracyclical) price movement is confirming of the thesis; and indeed, as he sets
his terms, he expects that only strongly procyclical price
movements can deny his administered-price thesis. In so
specifying, he seems to imply that "administrative inflation" is a separate and distinct phenomenon, not a part
of the "administered-price thesis." In the expansion of
1954-1957 administered prices were found to rise more
rapidly than market prices. This denial of the "administered-price thesis" was labeled, nonetheless, "administrative inflation." Is it claimed that "administrative
inflation" is a secular problem superimposed on the cyclical inflexibility resulting from administered prices?
Back to the test: the elements needed are a set of
prices free of list-price bias for a set of commodities
which meet the requirements of the administered-price
thesis, a definition or determination of the dating of
cycles and, so that relative flexibility can be judged,
a series measuring the movement of market prices. Means
has
examined"The
theAdministered-Price
NB data, thrown out
13 commodities
which
1/ Means,
Thesis
Reconfirmed,"
0£. cit., pp. 292-293.

he classes as market-dominated, and certified that 50
commodities do "meet the requirements of the administered-price thesis and can provide a test of that thesis."!/
He has also determined the timing of two cycles over the
period June 1957 - March 1962. These do not coincide fully
with the National Bureau reference cycles for the period
but we shall let him administer the test, and not quibble.
In his recent article, Means based his test on a
"truncated version" of his thesis,!/ He based his test
on the absolute changes of the administered prices rather
than on their changes relative to market prices; thus, in
a contraction, prices which increased or did not fall were
judged as not conforming. Means assumed that this would
bias the test against him ("Of course, if the statistics
support this truncated version . . . they also support the
full administered-price thesis although the reverse does
not follow"!/), but he did not check this against the evidence.
Weston, Lustgarten and Grottke found data to test the
full version of the thesis.!/ They noted that in testimony
before the Kefauver committee Means had identified five
commodity groups as the competitive industries.!/ The groups
are farm products, processed foods, hides, leather and products, lumber and wood products, and textiles and apparelIf one may presume that there is little or no list-price
bias associated with prices in the competitive industries,
the BLS wholesale price indexes may reasonably be used to
show price changes in the competitive industries. Weston,
Lustgarten and Grottke therefore used the "average price
changes in these five categories" as "the deflator to the
National Bureau . . . price series" for the 50 administeredprice series..§/ Thus, using industry categories identified
by Means as competitive, they were able to calculate an
index of competitive prices and to determine relative price
changes for the administered-price products.
1/ Ibid., p. 295.
2/ Ibid., pp. 295-296.
3/ Ibid., p. 295.
4/ Weston, Lustgarten and Grottke, o£. cit.
5/ Ibid., p. 234. Cf. G.C. Means, Administrative Inflation and Public Policy, op. cit., passim.
6/

Ibid., p. 234.

99Table 1 shows the counts of the numbers of prices
increasing, remaining unchanged or decreasing on an
absolute basis, and on a relative basis, in each of four
cycle phases.!/ The more important data are the numbers
indicating relative changes. In the contractions the
results are overwhelmingly in disagreement with Means'
thesis; fully 90 percent of the individual administered
prices declined relative to the index of market-determined
prices. In the first expansion period the administeredprice series were again more cyclically responsive than
TABLE 1. Distributions of Price Changes for 50 Administered Prices,
Absolute Change and Change Relative to Competitive Prices

Price change

Contraction
(7/57-4/58)
Absolute Relative

Expansion
(A/58-6/59)
Absolute Relative

Contraction
(1/60-1/61)
Absolute Relative

Expansion
(1/61-3/62)
Absolute Relative

Increase 15 4 17 29 12 2 5 1
No change 19 1 10 8 14 3 16 6
Decrease 16 45 23 13 24 45 29 43

competitive prices; for 29 of the 50 products prices rose
relative to the competitive price index, price movements
for another 8 products matched the movement of the competitive index. Only in the expansion from January 19 61
to March 1962 did the administered prices behave as predicted by the administered-price thesis. In this period
the administered prices were not so flexible; 43 of the 50
prices declined or failed to rise as fast as the competitive price index. The test, although it follows Means'
guidance, gives the administered-price thesis no support.!/
1/ The data on absolute changes are not reported fully by
Means but are given in an article by Stigler and Kindahl.
The changes relative to the competitive price index are
given in Table 2 of Weston et al., o£ cit., p. 233. The
Stigler-Kindahl article is "Industrial Prices, as Administered by Dr. Means," American Economic Review, LXIII, 4
(September 1973), 717-721. See Table 1, p. 720. "No
change" indicates that the change over the period averaged
less than 0.05 percent per month in absolute value.
2/ Cf. Weston, Lustgarten and Grottke, 0£. cit., p. 234.
Means has objected to this test on the grounds that his
thesis "is concerned uith industrial prices" but the competitive price index 'includes farm and food prices."
(Footnote continued on following page).

But more surprising and more significant is the fact
that the "truncated" administered-price thesis fares better
than the full thesis. Comparison of figures in Table 1
shows that in both contractions more prices declined relative to the competitive index than declined absolutely; and,
in the first expansion there were more relative increases
than absolute increases. This is clearly contrary to
Means' expectation. It happens because competitive prices
have moved contracyclically. That is, the competitive price
index rose in both contraction periods. Also, in the first
expansion competitive price fell, contrary to Means' assumption.
It is not only the constructed competitive price index
that failed to move procyclically. The consumer price
index rose throughout the test period; and, it rose faster
during both of the contraction periods than it did in either
of the expansion periods. The wholesale price index rose
during both contraction periods. It also rose in the Meansspecified expansion of April 1958 - June 1959, but not so
fast as in either the preceding or succeeding contractions.
In the expansion of January 1961 - March 1962 the wholesale
price index declined.
The most important point in all of this is that prices
change—sometimes up, sometimes down. And relative prices
change too; rarely do all prices rise or fall together.
One simply cannot expect regular procyclical movement of
prices. Even if or when the price indexes follow the rise
and fall of economic activity there will be many individual
exceptions. Demand does not rise and fall for all commodi. ties together; and, prices are also affected by cost changes
which may not move coincidentally with the cycle or may
change only at intervals or only after a lag. Even within
major product groups there frequently will be divergent price
movements for the individual products.
(Footnote continued from previous page).
Yet only one paragraph later he defines the thesis as
follows: "The thesis holds further that in the absence
of such market power, as in the case of wheat and cotton,
a fall in demand from a recession will tend to result in
a fall in price. . . . But in the presence of such market
power, prices will tend to fall little, remain unchanged
or rise in a recession. . . . "
[emphasis added], see
Means, "Additional Statement" in Council on Wage and Price
Stability Act, Amendments of 1975, op cit., p. 283.

1 A

One other point bears emphasis here. The industries
used in testing the administered-price thesis were chosen
selectively by Dr, Means. But the criteria for selection
remain unspecified and very difficult to infer. The problem of administered prices is usually viewed as a problem
associated with concentrated industries. Means has certainly argued that there is such a connection and during
the CWPS conference he expressed his "appreciation of the
extent to which the concentration ratios are being used
today in analyzing concentration problems."!/ Yet only 10
of the 50 products he approved for testing the administeredprice thesis have concentration ratios which are more than
60 percent. Further, when the directions of price movements
were compared—for the entire original set of 63 products—
no significant difference in pattern was found to exist
between the concentrated and relatively unconcentrated
industries.!/
If "administered-price industries" are to be singled
out for special scrutiny as a part of public policy to
avoid, prevent or retard inflation then, simply to make
such policy operational there must at a minimum be a definition of what industries are involved. No definition is
yet evident. It is clear that there are great differences
in concentration and price movements for industries within
broad product groups. The data of the test period provide
no evidence that concentration is a good predictor of a
relation between cyclical demand variation and price change.
If a relation important for explaining inflation is to be
found it will surely take II
into account cost changes and
probably
take
intoemployment
account notions
of demand shift
Economic should
growth,
high
and relatively
stable
more
refined
than
general
cyclical
change.
prices in the early 1960s were accompanied by loss of
interest in the administered-price idea. But accelerating inflation at the end of the decade, particularly the
failure of prices to fall in response to reduced aggregate
1/ CWPS, Conference on Concentration, Administered Prices,
and Inflation, Washington, D.C., April 14, 1975, Transcript,
p. 18.
2/ Weston, Lustgarten and Grottke, 0£ cit.

demand in the 1969-1970 recession, stimulated new interest and a rush of new research on price inflexibility and
the possible relation of industrial concentration to
inflation.
Concentrated industries have been claimed to use market power both to keep prices more stable cyclically and
to raise prices (or price-cost margins) in periods of
recession or slowly growing demand. Both claims have been
examined empirically in the recent past.
Cyclical Price Flexibility and Concentration
Phillip Cagan presented the results of a newly published study of cyclical price flexibility to the CWPS
Conference.!/ Using approximately 1100 BLS wholesale
price series running from 1947 through 1970, he demonstrated that in each succeeding recession since World War
II there was a tendency for a smaller average decline in
price. The pattern is uniform and especially clear when
rate of price change in a recession is regarded as a
decline from the rate of price increase in the immediately
preceding expansion. So regarded, the average recession
rate of decline progressed from 11.7 percent in 1948-49 to
no deviation from the expansion rate in 1969-70. See
Table 2 which reproduces parts of Cagan's Table 3 and
Table 4.!/
Cagan's analysis also shows that there is considerable dispersion in the rates of recession price change.
* And this dispersion has not declined in successive recessions along with the amplitude of price change. The average deviation of price changes from the mean was higher in
1948-49 than in any subsequent recession, but since 195354 the average deviations have shown no tendency to decline.
1/
"Changes
ingiven
the Recession
Behavior
Prices
These
data are
in the last
columnof
ofWholesale
Table 2.!/
in the 1920's and Post-World War II," Explorations in
Economic Research, 2, 1 (Winter 1975), 54-104. In the
CWPS Conference Transcript see pp. 24-34.
2/ Ibid., p. 70 and p. 74.
3/ Cagan also argues that dispersion in the recessions of
the 1920s was greater than it has been since 1948-49.
Ibid., p. 73.

Ep
TABLE 2. Mean, Median and Dispersion of the Distribution of Rates of
Change of 1,100-odd Wholesale Prices in Post-World War II
Recessions (percent per year).

Recession

Mean
(unweighted)

Median

Dis pers ion
(Average Deviation from Mean)

1.0
1.3
1.0
3.4

5.6
6.3
5.6
6.6

Rates of Change in Recessions
1948-49 -6.3 -1.0 10.1
1953-54
-0.4
1957-58
0.5
1960-61
-0.3
1969-70
2.7

Recession Rates Minus Preceding Expansion Rates
1948-49 -11.7 -9.5 11.8
1953-54
-4.0
1957-58
-2.2
1960-61
-1.1
1969-70
0.1

-3.5
-2.0
-0.7
0.6

6.2
7.3
7.0
6.5

The next question to ask of Cagan f s data is how do
the distributions of recession rates of price change differ between classes of industries with different levels
of concentration ratio? Do concentrated industries fix
prices oligopolistically and respond slowly or little to
changes in demand? The answer he obtains is fairly clear.
The most concentrated industries have in each recession
been least responsive. The average decrease in rate of
price change has been smaller and the dispersion also
smaller than for the less concentrated industry categories. While the general phenomenon of upward shift in the
price change distribution from recession to recession is
observed for all three concentration groups, it is slightly
less pronounced for the group of industries with concentration ratios between 0 and 33. See Table 3, which is
taken from Cagan's Table 7 and Chart 11.!/
1/

Ibid., p. 88 and p. 86.

TABLE 3. Mean and Dispersion of Rates of Change of Wholesale Prices
in Post-World War II Recessions for Industries Classified
by Concentration Ratio, (recession rates minus preceding
expansion rates; in percent per year)
Recession

Dispersion (Average Absolute
Deviation from Mean)

Mean
0<CR<33

34<CR<67

68<CR<100

0<CR<33

-11.8
-4.2
-1.5
-2.2
-2.5

-13.0
-4.2
-3.1
-0.5

-11.2
-2.7
-1.0
-0.2

3.3

0.6

10.7
6.4
5.8
7.4
5.6

First 4
recessions

376

482

126

1969-70

366

474

123

.218

.484

.789

1948-49
1953-54
1957-58
1960-61
1969-70

34<CR<67

68<CR<100

11.9
5.3
6.3
5.7
6.0

Number of
indus tries:

Average value
of concentration ratio

Cagan showed that more durable products and those
with high value added also tend to be somewhat less price
flexible. As he noted, since durable goods industries
tend to be concentrated and have high value added one
should take these interconnections into account when
assessing the causal connection between observed price
inflexibility of the concentrated industries and the
presence of concentration, per se.!/
In conclusion Cagan re-emphasized the presence of
considerable dispersion in price movements. Even though
this dispersion is slightly less among the concentrated
industries the overall dispersion has not decreased and
concentration has not increased substantially since
1/

Ibid., p. 89.

7.6
3.2
4.6
3.4
3.9

1
World War II, The principal change is that the distribution of price changes has shifted up; there is
less downward flexibility of prices in recessions.
Difficulties for oligopolistic industries in responding to demand change, lags in price adjustments
behind cost changes and anticipations of greater inflation all play a role in the process of inflation
but none can explain the shift in distribution, the
general decline in price response. In Cagan's view
the explanation must be found in aggregate economic
terms not in structural changes. Past failures to
reverse inflation encourage the view that inflation
will not be curbed and this leads to smaller response
to declines in demand.
John M. Blair has used the new BLS "industry-sector" price indexes to analyse the movement of prices in
the recession of December 1969 to December 197 0 and
recovery of December 1970 to December 1971.!/'!/ Price
changes in the 1970 recession could be matched with 5digit S.I.C. concentration ratios for 347 products. The

1/ Economic Concentration (New York: Harcourt
Brace Jovanovich, Inc., 1972), pp. 545-549 and
"Market Power and Inflation: A Short-Run Target
Return Model," Journal of Economic Issues, VIII,
2 (June 1974), 453-478.
2/ There was an NBER reference-cycle trough in
November 1969 and a peak in November 1970.

distribution of direction of change classified by concentration ratio is shown in Table 4 below,!/
TABLE 4. Distribution of Industry-Sector Price Movements by
Concentration Ratios, December 1969 - December 1970
(numbers of product classes)
Direction of Price Change
Increase
No changea
Decrease
Total

Unconcentrated
0<CR*25

Intermediate
25*CR*49

Concentrated
50*CR

Total

230

J>2

140

134

347

a No change = change of less than 2% in absolute value.

There was a great deal of divergent movement of
prices in the 5-digit industries during the 1969-1970
recession. Prices tended to increase. There appears to
have been a slightly greater tendency for prices in the
concentrated industries to increase than for those in
the unconcentrated group (68 percent vs. 60 percent).
This is much the same pattern as that obtained by Cagan.
Calculations of average annual percentage change in
price and the standard deviation of changes for 19691970 as derived from a study of 235 four-digit S.I.C.
industries paired with BLS price indexes give similar
results again.!/ Price changes for 81 concentrated
1/ Economic Concentration, Table 20-10, pp. 546-547.
Blair includes the data shown here as part of Table II-I
in "Inflation in the United States: A Short-Run Target
Return Model," chapter 2 of The Roots of Inflation, John
M. Blair, editor (New York: Burt Franklin & Co., Inc.,
1975), pp. 33-67. Unfortunately the data are misarranged
there and, correspondingly, the analysis appearing on
p. 38 is invalid.
2/ J. Fred Weston and Steven H. Lustgarten, "Concentration and Wage-Price Changes" in Industrial Concentration:
The New Learning, Harvey J. Goldschmid, H. Michael Mann
(Footnote continued on following page).

19
industries (CR > 50%) average a 4.12 percent increase
and their distribution has standard deviation of 4.96
percent. If this same distribution applied to Blair's
data (Table 4) and if normality could be assumed then
in the 134 concentrated industries one would expect 89
increases, 30 no changes and 15 decreases. Compare these
projections with the actual figures 91, 34 and 9. Weston
and Lustgarten's data yield an average increase of 4.22
percent and standard deviation of 4.53 percent for the
intermediate group of industries; and a smaller average
increase of 2.81 percent for the unconcentrated industries with a larger standard deviation (5.80 percent).
All the data sources give the same result. In the
recession of 1969-70 price movements were quite diverse,
but tended to increase for industries in all three
concentration groups. The more concentrated industries
tended to increase a little more than the unconcentrated.
(Footnote continued from previous page).
and J. Fred Weston, editors (Boston: Little, Brown and
Company, 1974), p. 312. Standard deviation estimates
for the price change distributions have been calculated
from the given standard errors of the means. Groups
(3) and (4) have been combined to obtain results for
the concentrated industry group.
1/ Blair, "Inflation in the United States, o£. cit.,
selectively edited the "industry-sector" data and presented a table and analysis of price change in 296 remaining product classes. He read some of his results
to the CWPS Conference (see Transcript, pp. 117-125).
These purported to show strong upward movement (5.9 percent) in weighted averages of price movements for concentrated industries and equal negative movement (-6.1
percent) for the unconcentrated industries. It proved
impossible to clear up inconsistencies in reporting or
tell what the impact of selectivity had actually been.
Blair added 22 farm products and 3 scrap materials—
"all products of low concentration"—to the original
347 products but ended up with 137 highly concentrated
industries as compared with an original 134. In a footnote showing the results for the "aggregate sample" of
369 the number of unconcentrated industries is given
as 70, three fewer than are included in the "selective"
data.

Changes in Wholesale Prices, 1954-1975
So far, discussion has focused on flexibility and
cyclical variation in prices of concentrated industries
in comparison to unconcentrated industries. In this
section some basic data on the course of price movements
for various overlapping periods since 1954 will be examined. Also, an attempt will be made to understand some
apparently conflicting interpretations and representations
of the pattern of inflation since 1967.
All the difficulties of measuring price change over
a cycle phase or a short period are probably small compared to the problems implicit in measuring prices and
interpreting change over periods as long as a decade. It
seems widely agreed that despite the best efforts of the
Bureau of Labor Statistics wholesale prices do not adequately or accurately allow for technical changes and
quality improvements. Yet another look at price developments over the past twenty years may provide a useful
background for studying the dynamics of inflation.
Table 5 below is derived from Table 5 of the statement of J. Fred Weston before the Senate Banking Committee
in March!/ and from Table Nl provided by Weston as part
of his prepared statement for the CWPS conference,!/ It
shows that for all periods covered except 1969-70 (line 6)
and January 1974 - January 1975 (line 12) the average rate
of price increase in the least concentrated group of industries exceeded the rate of price increase in the most
highly concentrated group of industries. Both exceptions
• are for one year periods. Both of the years are years of
recession: 1970 and 1974 are the only years since 1958
in which real GNP has declined from the level of the preceding year. See Appendix Table A-l.
The evidence is that in the past twenty years the
concentrated industries have tended to moderate the rate
1/ Council on Wage and Price Stability Act, Amendments
of 1975, op. cit., p. 325.
2/ "Updating of Basic Tables - For Presentation to CWPS,
Washington, April 14, 1975," mimeo. To derive annual
rates of change and corresponding standard errors the
figures given in Table Nl have been divided by the number
of years in the period.

TABLE 5. Average Annual Percentage Price Change for Selected Time
Periods, 1954-1975, by Level of Industry Concentration

CR<25

25<CR<50

50<CR<75

CR>75

All

N=132

N=150

N=76

N=23

N=381

1.70
(.23)a

1.79
(.22)

1.77
(.29)

1.58
(.67)

1.74
(.14)

N=65

N=89

N=59

N-22

N-235

(2) 1958-63

.28
(.20)

.40
(.16)

.39
(.29)

-.24
(.42)

.31
(.12)

(3) 1963-66

1.98
(.29)

1.56
(.29)

.86
(.27)

-.28
(.71)

(4) 1968-65

.51
(.15)

.54
(.14)

.42
(.22)

-.35
(.45)

.31
(.17)
.42
(.10)

(5) 1966-69

2.89
(.33)

2.40
(.26)

2.59
(.36)

1.85
(.75)

2.53
(.18)

(6) 1969-70

2.01
(.72)

4.22
(.48)

4.03
(.58)

4.39
(1.29)

3.80
(.32)

N«14

N=31

N=32

N=14

N=91

(7) 1970-73

12.56
(3.25)

9.58
(1.82)

4.86
(.55)

2.86
(.86)

7.34
(.87)

(8) 1966-73

7.47
(1.42)

5.83
(.70)

4.33
(.44)

2.54
(.73)

5.05
(.40)

N«17

N=29

N=28

N=12

N=86

8.78
(.69)

9.02
(.86)

8.55
(.94)

5.88
(1.05)

8.38
(.48)

(10) 1970Jan. 1974

9.49
(1.44)

10.08
(2.63)

6.49
(1.38)

3.28
(.68)

7.85
(1.04)

(11) 1970Jan. 1975

11.16
(1-11)
14.6
(4.6)

12.48
(1.67)

10.86
(1.21)

8.54
(1.41)

11.14
(.75)

19.5
(4.4)

22.0
(2.2)

24.2
(4.7)

20.0
(2.0)

Period

(1) 1954-58

(9) 1967-75

(12) Jan. 1974Jan. 1975

Standard errors are shown in parentheses below the corresponding means

of price increase. Market power has not been used generally to raise prices at a rapid average rate. This is
not surprising since continued price increases without
regard to demand would be inconsistent with desire for
maximum profits. Further, average price changes in all
four concentration level groups of industries have tended
to move together.!/ The acceleration in aggregate demand
growth beginning in 1966 pulled prices up in industries
at all levels of concentration, and produced a sharp break
with the first half of the 1960s. The response to increased
demand after 1970 was also general.
It has already been noted that the figures for the
recession of 19 69-1970 give about the same picture as that
discussed by Cagan (see pp. 20-21 above), The 1974 data
suggest that in the rapid recent inflation the pattern of
diminished price decline in successive recessions which
he discerned is continuing. For 1969-70 he found prices
rose at a rate of 2.7 percent which was essentially a continuation of the inflation rate in the preceding expansion.
From lines (10) and (12) of Table 5 it can be seen that
the 1974 average price increase of 20 percent represents
a 12 percent increase over the preceding expansion rate of
price increase. If this recent observation is taken
seriously it certainly supports a view that prices have
continued to become less flexible in the recent decline
of economic activity.
Another View of Recent Inflation
, At the CWPS Conference Gardiner Means argued again that
1/ It is generally presumed that prices of individual concentrated industries are generally less variable from yearto-year than prices in individual competitive industries.
This, it seems, has seldom been tested directly. Thus it
may be well to note that David Quails, in his contribution
to the CWPS Conference ("Price Stability in Concentrated
Industries," mimeo; also see Conference Transcript, pp.
34-40), offered a small piece of direct evidence on the
variability of prices. Using 1957-70 data for 30 fourdigit S.I.C. industries he found the annual percentage
changes in price and for each industry calculated the
variance of these percentage changes. The average variance among 19 concentrated industries (CR > 50%) was 6.2
while the average for the 11 other ("moderate-to-low concentration") industries was 39.0. Clearly, for his "selected" and small sampling of industries prices in unconcen94
trated industries are markedly
more variable than prices
in the concentrated industries.

V
administered prices in concentrated industries were
responsible for a large part of the current inflation.-/
As part of his case he used data on four price indexes
(each a part of the BLS wholesale price index) and
traced their courses since 1967 on a chart. The chart
has been reproduced and appears here as Chart 1.
The four indexes are for (1) farm products,
(2) fuel and related products, (3) six "concentrated
industry groups", and (4) two "competitive industry
groups." Prices for the "concentrated industry" groups
are represented by a weighted index of price movements
for the following six BLS major (2-digit) product groups:
rubber and plastic products; pulp, paper and allied products; metals and metal products; machinery and equipment; nonmetallic mineral products; and transportation
equipment. The "competitive industry groups" are textile products and apparel plus hides, skins, leather and
related products.
Means remarked at the Conference that the
indexes interweave through five years until farm prices
break away in mid-1972 and begin to rise sharply; the
rise in fuel prices begins in 1973. He calls special
attention to the behavior in 1974 of the indexes for his
concentrated industry groups and his competitive industry groups. In the first quarter of 1974 the two indexes
are at the same level, but then they part. As Means
noted, the concentrated industry index "has forged ahead,
rising 23 percent since the first quarter of 1974 while
the competitive industry index is hardly higher than a
year ago."!/
Is this a correct picture of what has happened
as between concentrated and competitive industries? Is
it consistent with the data examined earlier? What is
the explanation of the apparent divergence of competitive
industry prices and concentrated industry prices? These
1/ "Statement
by Gardiner
C. Means,"
on Conappear
to be important
questions.
Dr.Conference
Courtenay Slater
centration, Administered Prices and Inflation, CWPS,
April 14, 1975, mimeo. Also see Conference Transcript,
pp. 7-19.
2/ Conference Transcript, p. 12.

/-•FUEL

230

CHART 1

MAJOR WHOLESALE CONTRIBUTORS
TO INFLATION

220

210

1967 to February 1975
200

190

I
r:
Source: B.L.S. Annual averages or quarterly averages

180

FARM

..\ PRODUCTS

Index for Concentrated Groups combines the weighted
figures for the following groups:
•
•
•
•
•
•

170

rubber and plastic products
pulp, paper and allied products
metal and metal products
machinery and equipment
non-metallic mineral products
transportation equipment

CONCENTRATED
INDUSTRY
GROUPS

Index for Competitive Groups combines the weighted
figures for textile oroducts and aoparel with hides.
skins, leather and related products.

160

150

140 —

130 —

120 —

110 —

100 ^--_J

1967

Source:

"Statement by Gardiner C. Means," Conference on Concentration, Administered Prices and Inflation, CWPS, April 14, 1975, mimeo.

2?*
of the J.E.C, Staff closed the conference with her statement that Congress will demand an explanation of these
data and that until a satisfactory objective study shows
otherwise, everyone in Congress will blame concentrated
industries for the increase in prices, true or not.l/
A complete study of the factors accounting for
the divergent movements depicted in Chart 1 for 1974
will not be undertaken here. Surely the boom in material
prices that preceded 1974 affected costs in many industries within Means1 "concentrated industry groups." And
the end of Phase IV may have made some difference. But
here and for now attention will be focused on whether the
chart accurately represents price movements for concentrated vs. unconcentrated industry. Begin by recalling
that it has already been demonstrated that in the 1974
recession prices increased more on average for the most
concentrated industries than for the least concentrated.
But, on average, prices in both concentrated and unconcentrated industries increased, contrary to the impression
created by the chart.
The chart is also misleading in other important
respects. First, to repeat, there is a great deal of
disparity in the direction and strength of price movement. Charts plotting averages or indexes do not bring
this out. Second, Means has based his analysis and his
chart on price indexes for his own classifications of
major product groups. He has been selective in choosing
how to represent concentrated industry and competitive
industry. And, all the major product groups contain
industries that are highly concentrated along with others
that are unconcentrated; the industries within a major
product group are not homogeneous with regard to concentration ratio.!/
In his chart, Means has omitted altogether five
of the 15 BLS major product groups. Four are omitted
because they "tend to be mixtures of competitive and concentrated
1/ Ibid., industries";
pp. 143-146, the fifth, lumber and wood products, was omitted because "it reflects special problems
2/ Means also used major product groups to discuss the
effects of concentration in his analysis of inflation
during 1953-59. He was criticized for it by Backman who
demonstrated that major product groups contained industries with quite diverse concentration. See p. 8 supra.

of the housing industry."i/ According to Means, if it
had been included "it would have strengthened the picture of the sensitive-priced industries" and, therefore,
"the question of the inappropriateness of that index"
would probably have been raised.!/ If one looks up the
history of the lumber-and-wood-products price index for
1967-1975 it becomes difficult to accept Means1 explanation for the omission. It is true that lumber prices
declined sharply during 1974 but the fall was from a high
level,!/ Further, lumber prices grew rapidly from the
beginning of 1971 through April 1974 and, in 1967 index
terms, were above farm-product prices until August 1973
and above the fuel price index until May 1974. The lumber index is plotted along with the indexes for Means'
concentrated industry groups and competitive industry
groups in Chart A-2, found in Appendix A. If lumber
were included as a competitive industry group the picture would be changed. The competitive industry index
would still show a drop in the last half of 1974 but,
through the second quarter of 1974, the index for competitive industry groups would have been above the index
for concentrated groups.
A more fundamental problem in interpreting
Means' chart follows from the fact that the industries
in his concentrated industry groups are not typically
much more concentrated than the industries of his competitive industry groups. Table 6 below shows the distribution by concentration ratio of the four-digit industries within the major product groups. Two-thirds of
the industries within the "concentrated industry groups"
are not concentrated: that is, they have concentration
ratios less than .50. Meanwhile, 10 of the 72 industries
in the competitive industry groups have concentration
ratios greater than .50. Product groups excluded as mixtures of competitive and concentrated industries seem to
have a higher fraction of concentrated industries than do
the "concentrated industry groups."
During
1974 prices
tended to
1/ Conference
Transcript,
p. rise
11. faster in the
2/ Ibid.
3/ The decline from the peak of 200.2 in April 1974
to the low of 164.7 in January 1975 was a drop of 17.7
percent in 9 months.

TABLE 6.

Distribution of Industries within BLS Major Product Groups
by Concentration Ratio

Product Group

0<CR<25

25<CR<50

50<CR<75

75<CR<100

Total

"Competitive Industry Groups":
Textiles and Apparel

Hides, Skins, Leather, etc.

7
(9.7%)

3
(4.2%)

Totals

35
(48.6%)

27
(37.5%)

"Concentrated Industry Groups":
Rubber and plastic products

Pulp, paper and allied products

5
17

Metals and metal products

Machinery and equipment

Nonmetallic mineral products.

__2

Transportation equipment
Totals

50
(29.2%)

66
(38.6%)

40
(23.4%)

8
(61.5%)

4
(30.8%)

1
(7.7%)

15
(8.8%)

171

Others (competitive):
Lumber and wood products

0
(0%)

Others (mixed):
Chemicals and allied products

Furniture and household durables

__7

7
(9.7%)

Miscellaneous products
Totals

Source:

18
(25.0%)

29
(40. 3%)

18
(25.0%)

J. Fred Weston, Table M-2 of material prepared for the CWPS subsequent to
The Conference on Concentration, Administered Prices and Inflation.

concentrated industries than in unconcentrated industries. By classifying industries as competitive or concentrated on a selective but arbitrary basis Means produces a chart which misrepresents the relation of concentration to price change. A more accurate picture of
the relation of price change to concentration in 1974 is
obtained from the scatter diagrams which were prepared
by Charles Guy of the CWPS staff and distributed to Conference participants.i/ These show a wide scatter and
low R 2 but, in most cases, significant positive slope to
the relation between price change and concentration. To
see the effect of Means1 misclassifications more fully and
clearly it would be helpful if the data used by Guy could
be matched with the appropriate BLS major product groups
so that scatter diagrams could be made separately for the
industries of Means'* "concentrated
industry groups" and
* * * * *
his "competitive industry groups."
The general pattern which emerges from all the
evidence examined is one of wide dispersion in price
changes during all periods combined with a persistent
tendency for prices in concentrated industries to be less
variable than competitive prices. In expansions the concentrated industries have a lower average rate of price
increase than the unconcentrated industries, and in
recession periods the concentrated industry rise on average relative to competitive market prices. In the most
recent recessions wholesale prices have not generally
» fallen.
Empirical work in this area has not proceeded
from a strong theoretical base. The most appealing
explanations of the patterns observed emphasize lags in
price adjustments due either to uncertainties on the
parts of oligopolists about the reactions of others or
the extent of their market power or else to a desire to
retard entry and preserve monopoly profits. The lag
explanation is generally consistent with the pattern of
price movements.
1/ "Memorandum for Arnold Collery" re "Price Change and
Industry Concentration," April 8, 1975. See particularly
Graphs 8-11, 18, 19, 22 and 23. The corresponding regressions results are given in Tables 2 and 3 of Guy's memorandum.

9S
To this point little explicit attention has been
given to the effects of cost changes on prices. Patterns
of price change have been examined in expansion and^
recession and compared across industrial concentration
levels without regard for possible differences in costs.
Price adjustment seems to lag in concentrated industry;
and, this shows up in different average responses by
concentrated and unconcentrated industries to cyclical
demand variations. How do price changes relate to cost
changes? Can the patterns in price movements be explained
by costs; or, is the rate of price change still related
to the level of industrial concentration after costs are
taken into account?
Theories of administrative inflation conflict on what
cost-price relation should be expected. It has been suggested variously that high profits in concentrated industries lead to demand for wage increases which in turn
raise prices, or that market power in concentrated industries leads to carelessness with regard to costs, and thus
to faster cost increases, because it is felt that they can
be passed on. It has also been implied that market power
will be used to raise prices when there is no change in
either demand or cost.i/
To understand the role of concentrated industry in
the inflation process it is helpful—perhaps necessary but,
unfortunately, not sufficient—to know the relation between cost change and price change for industries with different concentration levels. Table 7 provides some relevant data on changes in one important cost component—
labor costs—in comparison with price changes. Observe
first that the table gives no evidence that costs rise
faster in the concentrated industries. In every period
except the 1969-70 recession the most concentrated group
of industries has the slowest increase in unit labor costs.
If wages
were highby
and
rising C.
rapidly
inEconomic
the concentrated
1/
Cf. Statement
Gardiner
Means,
Concentration, Hearings before the Subcommittee on Antitrust
and Monopoly of the Committee on the Judiciary, U.S.
Senate, 88th Congress, 2nd Session, 1964, p. 22. See
also his description of the events of the recent past in
the Conference transcript, pp. 12-13.

TABLE 7. Average Annual Percentage Change in Prices and Unit Labor
Cost, 1954-1970, by Level of Industrial Concentration

Period

CR < 25

25<CR<50.

50<CR<75

CR > 75

ULC

Price

ULC

Price

ULC

Price

ULC

Price

1954-1958

1.57

1.70

1.52

1.79

1.52

1.77

0.70

1.58

1958-1963

-0.48

0.28

-0.99

0.40

-1.01

0.39

-1.38

-0.24

1963-1966

-0.16

1.98

0.43

1.56

-0.59

0.86

-0.73

-0.28

1966-1969

3.95

2.89

2.86

2.40

2.92

2.59

1.51

1.85

1969-1970

4.37

2.81

6.62

4.22

5.82

4.03

7.76

4.39

Note: The industry coverage is not the same for the ULC and price data.
For details check the source listed below.
Source: J. Fred Weston and Steven H. Lustgarten, "Concentration and
Wage-Price Changes," in Industrial Concentration: The New
Learning, edited by Harvey J. Goldschmid, H. Michael Mann and
J. Fred Weston (Boston: Little, Brown and Company, 1974),
pp. 307-338. See Table 19, p. 309 and Table 20, p. 312.
industries the increases were more nearly equalled by
productivity gains in the most concentrated industries
. than was so in the less concentrated industries. Price
changes reveal the same pattern: prices rose least in
the most concentrated industries except during 1969-70.
From 1958-1966 unit labor costs were falling fairly generally but only in the most concentrated industries did
average price fall. Yet, on the other hand, the figures
indicate that for 1966-69 while prices rose faster in
the less concentrated industries the rate of price
increases fell short of the rate of labor cost increase
in all groups except the most concentrated one.
The data of Table 7 indicate no tendency for labor
costs to rise faster in the concentrated industries.
Also, the data show no obvious or large divergence of
price and cost related to concentration level. The evidence is still seriously incomplete, however. Even when
unit labor cost is a large fraction of price changes in
other costs demand may affect price. If the effect of

concentration is to be determined all these other factors
should be taken into account too.
Recognizing this, a number of similar multipleregression studies have been done for various periods in
efforts to estimate the contribution of industrial concentration to price change. All are based on a cross section of industries and attempt to explain change in price
over a time period by changes in direct cost components,
quantity change and the level of industrial concentration.
By including cost and demand measures in the regression
relation the plan is to "control" for their effects and
thus obtain a good estimate of the effect of concentration.
A summary of findings on the effect of the CR variable
(the four-firm concentration ratio) is given in Table 8.
Despite the fact that a variety of data sources was
used and that the periods chosen for study do not coincide fully, the results given in Table 8 are in rough
agreement concerning the relation of the concentration
ratio to price changes over different periods. The relation changes with the period.
As was noted earlier,!/ Weiss found significant
positive effect of concentration on price change in the
period 1953-59. This result is confirmed by Weston and
Lustgarten for 1954-58. In the early and middle 1960s
the sign of the coefficient of concentration ratio is
generally weakly negative; that is, it is negative but
not significantly different from zero statistically. In
the late 1960s (1966-69 or 1967-69) the effect remained
negative but tended to become larger and more significant.!/
In the 1969-70 recession period despite the fact that prices
tend to rise more in the concentrated industries than the
unconcentrated!/ the difference is explained by cost and
output changes, not by use of market power. The coefficient of CR is found to be negative (but insignificantly
so) by Cagan and by Weston-Lustgarten; in the Licari-Shen
1/ Page 9, supra.
2/ Dalton's results appear to be exceptions both for
1958-63 and 1966-69. There are technical reasons for
believing these estimates may be erroneous. See the
text, p. 39,
3/ Cf. pp. 16-21, supra.

TABLE 8,

The Rate of Price Change and Industrial Concentration.
A Summary of Results of Multiple Regression Studies,
Various Periods, 1953-1970.

Author
(Date of Study)

(1) Weiss (1966)

(2) Weiss (1970)

(3) Ripley-Segal (1973)a
(4) Dalton (1973)b

(5) Cagan (1974)c

(7) Guy (1975)

—

Effect of CR (t value)

Othei• Variables Included

1953-59

Positive (2.5)

Q(0), ULC(+), UMC(+)

1959-63

Negative (0.6)

Q(0), ULC(+), UMC(+)

A3
82

1963-68

Negative (1.1

Q(-), ULC(O), UMC(+)

1967-68

Negative (2.5)

Q(o), ULC(+), UMC(+)

395

1959-69

1958-63

Positive (2.3)

Q(-), ULC(+), UMC*(+), L0C(0)

1963-66

Negative (0.04)

Q(-), ULC*(0) , UMC*(+), L0C(0)

1966-69

Positive (1.4)

Q(0), ULC*(+) , UMC*(+), L0C(+)

1967-69

-2.5

(2.4)

ULC*( .93), UMC*(.81)

224

(8) Licari-Shen (1975)

Period

(6) Weston-Lustgarten (1974)

General Notes:

Observations

—

Q(0), ULCo(.50), ULC1(.28), UMC(+)

1969-70

-1.8

(1.1)

ULC*( .32), UMC*(.86)

1970-71

+3.6

(2.3)

ULC*( .00), UMC*(1.07)

1954-58

Positive (2.5)

Q(0), ULC(+), UMC(+)

1958-65

Negative (1.6)

Q(0), ULC(0), UMC(+)

1966-69

Negative (2.0)

1969-70

Negative (0.8)

Q(-), ULC(-), UMC(+)
Q(0), ULC(+), UMC(+)

1954-70

Negative (0.7)

Q(-). ULC(-), UMC(+)

1971-72

Negative (0.7)

Q(0). ULC(O). UMC(+)

1968-72

Negative (0.6)

Q(+), ULC(+), UMC(+)

1961-69

Positive (0.1)

Q(+), ULC(+), UMC(+)

1961-66

Negative (0.9)

Q(0). ULC(+), UMC(+)

1966-69

Negative (0.2)

Q(0), ULC(+) , UMC(+)

1969-70

Positive (0.8)

Q(+), ULC(+), UMC(+)

All variables except CR are in the form of a ratio; the value in the last year of the period is
divided by the value in the first year. Exceptions: Rlpley-Segal (3) and Cagan (5) use
percentage change, as AQ/Q.

— The dependent variable is the price ratio except in sets (3) and (5), where it is AP/P— Definitions: Q - Quantity shipped
ULC - Unit labor cost
ULC* -"weighted ULC (see text)
UMC - Unit material cost
UMC* => weighted UMC (see text)
LOC • Dummy variable taking value 1 to indicate a local product for which CR is
believed to be tnisleadingly small.
— In reporting on other variables 0 denotes less than 1 standard error from 0, - denotes more than
one standard error below zero (not necessarily significant) and + more than one standard error
above zero.
A dummy
variable
Other
Notes:
a - was introduced to test for different response to ULC for concentrated (CR^ 50)
and unconcentrated (CR < 50) Industry. ULC (.50) denotes that for unconcentrated industry
a coefficient of .50 was obtained; for concentrated industry the corresponding coefficient
was .28, significantly lower. UMC was not used directly; rather total material cost
(- Q'UMC) was used along with ULC and Q.
b - Dalton Introduced weighting of the ULC and UMC variables.
c - Cagan'a dependent variable is AP/P expressed as a percent.

References for Table 8
(1) Leonard W. Weiss, "Business Pricing Policies and Inflation Reconsidered,"
Journal of Political Economy, LXXIV, 2 (April 1966), 177-187.
(2) Leonard W. Weiss, "The Role of Concentration in Recent Inflation" in
The 1970 Midyear Review of the State of the Economy, Hearings before
the Joint Economic Committee, 91st Congress, 2nd Session, Part 1,
1970, 115-121.
(3) Frank C. Ripley and Lydia Segal, "Price Determination in 395 Manufacturing Industries," The Review of Economics and Statistics, LV, 3
(August 1973), 263-271.
(4) James A. Dalton, "Administered Inflation and Business Pricing: Another
Look," The Review of Economics and Statistics, LV, 4 (November 1973),
516-519.
(5) Phillip Cagan, "Inflation and Market Structure, 1967-1973," NBER
Working Paper No. 33 (February 1974).
(6) J. Fred Weston and Steven H. Lustgarten, "Concentration and Wage-Price
Changes" in Industrial Concentration: The New Learning, edited by
Harvey G. Goldschmid, H. Michael Mann and J. Fred Weston (Boston:
Little, Brown and Company, 1974), 307-338.
(7) Charles Guy, Memorandum on "Price Change and Industry Concentration,"
CWPS, April 8, 1975.
(8) Joseph A. Licari and R. Shen, prepared statement for the Conference on
Concentration, Administered Prices and Inflation, CWPS, Washington,
April 14, 1975.

results it is positivef but again insignificant. Cagan
finds a strong positive effect of concentration in
1970-71, although Guy's results are weakly negative for
1971-72,
The pattern for the effect of concentration ratio
is consistent with delayed response to demand change by
concentrated industries. Throughout the long expansion
of the 1960s the concentration ratio tended to have a
negative effect. The coefficient stayed negative through
the 1969-70 recession, but then the coefficient shifted
to become positive as prices in the concentrated industries "caught up" in 1970-71.
Looking at the effects of the other variables in the
regressions, it is clear that output change, included to
indicate demand shifts, has with few exceptions no significant effect.!/ The cost variables are considerably more
important in explaining price increases.
A Pricing Equation
Before going further it will be well to try to state
more clearly the relation which is intended to explain
industrial price increases. Most of the research done to
date on administered-pricing and inflation has been heavily
empirical and lacking in systematic theoretical specification. Thus, most of the regressions reported in Table 8
are based on little more theory than the idea that explanatory variables other than CR should be introduced in order
* to control for changes in demand and costs. As will be
seen below, the results suffer as a consequence.
Consider the impact of a 10 percent increase in unit
labor cost for two different industries, one of which is
labor intensive with, say, 60 percent of its total cost
accounted for by labor cost. Suppose in the other industry labor costs are only 10 percent of total cost. The
10 percent increase in unit labor cost would seem to raise
1/ There is reason to think this effect might be attenuated by the existence of simultaneous relations. If
a concentrated industry shows little price response to a
given demand change then there will be a larger output
response than would have occurred in a competitive industry. Cf. David Quails, "Price Stability in Concentrated
Industry," p. 3 and footnote 2.
36

2
unit total cost by 6 percent in the first industry and
only 1 percent in the second. As James A. Dalton
pointed out through this example, surely the impact on
prices should be greater for the first firm.!/ Yet when
change in unit labor cost is put into a cross-section
regression for control implicitly it is assumed that the
impact of a given change is the same in all industries.
Pursuing this a bit further, write price as the sum
of unit labor cost, unit material cost and the residual,
comprising return to capital and profit (denoted^).
P = ULC + UMC +1T .
The percentage change in price from period 0 to period 1
will be identically
Pn - Pn ULC-, - ULCn UMC. - UMCft TT - IT
1
0_
1
0
1
0
1

' • •

—

——————————-~~—»^

0
0
0
0
This may more conveniently be written in terms of the rates
of change of costs as

w.&

where AP is the percentage change in price, &ULC is the
percentage change in unit labor cost, AUMC is the percentage change in unit material cost, and £TC is -the percentage
change in the "profit" residual. The terms (H|9 , fH|9 , te\
are the shares of the respective cost elements in price;
they are a set of weights which add to one.
Target-return pricing models allow that administered
prices are usually set periodically on the basis of standard
cost estimates. Variations in quantity and misestimates of
wages or material prices cause differences between actual
and expected labor and material cost. These result in variations in the profit margin. This margin itself is sometimes targeted by applying a target rate of return to a
standard capital-output ratio; or this may be done through
a markup applied to standard ULC and UMC, The rate-ofreturn target or the markup factor would presumably be
1/

James A. Dalton, oj>. cit., p. 516.

related to the extent of market power and possibly to
expected demand changes.1/
In administered-price industries price changes might
thus become &P = w AULC S + w AUMCS + f(AQ,CR). If one
L
M
imagines that standard-cost adjustments lag behind or
understate actual changes in ULC and UMC so that AULC S =
b,AULC and AUMC S = b^ALTMC, then one can rationalize a price
equation
P = b + b w AULC + b w AUMC + b AQ + b CR + e.
O I L
2 M
3
4
An alternative notion of the lag is that although
cost changes are fully anticipated, cautious oligopolists
adjust slowly so that only partial adjustment takes place
within the period of change and in each period there is a
lagged carryover of response to earlier changes in costs.
One might attempt to catch this effect by including lagged
cost changes directly in the regression, but so far it
appears not to have been tried.
Other methods have been used to capture, or attempt to
capture, the difference between expected standard cost and
actual cost. It has been argued, for example, that wage
changes will quickly be reflected in standard costs and thus
in prices, but that changes in productivity will show up in
standard-cost calculations and prices only slowly. Thus,
it is argued, the percentage changes in the wage rate (AW)
and productivity change [A(Q/L)] should be introduced separately. It is expected that AW andA(Q/L) will have coefficients of different magnitude; since AULC = AW - A(Q/L)
using AULC forces these two different coefficients to be
the same.!/
In any case, the price equation formulated above suggests again that the measures of direct cost change appropriate
1/ Cf. Otto Eckstein and Gary Fromm, "The Price Equation,"
American Economic Review, LVIII, 5 pt. 1 (December, 1968),
1159-1183.
2/ Cf. Frances Ferguson Esposito and Louis Esposito,
"Industry Price Changes, Market Structure and Inflation"
to appear in Pathways to Macroeconomics: Essays in Honor
of Alice Bourneuf, edited by D.A. Belsley, E.J. Kane,
P.A. Samuelson, and R.M. Solow (Columbus: Ohio State University Press, no date), mimeo, pp. 5-7.

in
for a price adjustment relation are wL ULC and wM UMC,
rather than the unweighted rates of cost change. Since
the lag hypothesis seems to rest on differential reactions
to, or speeds of reaction to, cost changes between concentrated and unconcentrated industries, it would also seem
sensible to estimate separate relations for groups of industires at different concentration levels, rather than relying on CR to pick up the differences.
Back to Table 8. Of the studies reported there only
those of Dalton and Cagan have made use of share-weighted
cost changes. The other results do not achieve the desired
control for cost changes, and thus are of questionable
validity. Dalton*s results make the problem of interpretation especially difficult because they stand out in conflict
to other results. His results for both 1958-63 and 1966-69
conflict with those of both Weiss and Weston-Lustgarten.
His 1966-69 findings also conflict with those of Cagan,
who along with Dalton used the preferred cost variables.
This will have to remain an unresolved difference for now,
but further examination of Dalton's tables suggests that
he may have made an error in carrying out the regression
analysis.—/
The Price-Cost Relationship and Concentration
Over the past ten years macroeconomists have given a
good deal of attention to estimates of relations intended
to depict how prices respond to cost and demand changes.
These price adjustments equations combined with corresponding wage adjustment functions provide estimates of Phillips
curves. These functions have been estimated on time series
data. Although the price adjustment equations are premised
on some form of mark-up costing, the analysis has not usually
been done on a disaggregated basis or with special attention
to concentrated industries. Cost variables seem to be more
1/ It seems likely that Dalton may have regressed the
price ratio (PJ/PQ) on (QJ/QQ) , CR, w L ULC^ULCg and
w UMC /UMC instead of regressing AP on AQ, CR, w AULC and
w AUMC as he reports he did. The suspicion is based on an
attempt to reconcile the size of the intercept he reports with
the known fact that the regression line must pass through the
point of means for all variables. This speculation is not
certain and has not been confirmed by Dalton. If it is
correct his estimates are biased. See Appendix C.

important than demand in explaining price change. =/
Otto Eckstein and David Wyss have used disaggregated
time series data to study price adjustment in 16 two or
three digit S.I.C. industries at various levels of concentration.!/ Quarterly data were used for 1954-1969.
Their preferred equations differ between industries in a
pattern related to concentration. For the least concentrated industries the significant variables in explaining
price changes are cost variables. In the middle range of
concentration levels demand (as indicated by the capacity
utilization rate) plays a significant role along with the
cost variables. Finally, for the three most concentrated
industries considered (autos, tobacco, and nonferrous
metals) the preferred equations all find prices increasing
in response to decline in the profit-to-equity ratio.
Interest costs also enter but other cost and demand!/ variables have insignificant coefficients.
Eckstein and Wyss interpret the results as confirming
the target-return model for the concentrated industries.
Since the preferred labor cost variable is change in hourly
wage rather than change in unit labor cost the results may
be seen as confirming general use of standard costing. The
size of the coefficient for wage change is large enough to
indicate prompt and full or more than full pass-through of
the cost increase to price. Obviously, their results indicate that market structure (as indicated by concentration)
1/ For
a survey
of these
empirical These
studiesresults
see William
D.
does
matter
in price
adjustment.!/
and the
Nordhaus, "Recent Development in Price Dynamics" in The
Econometrics of Price Determination edited by Otto Eckstein
(Washington: Board of Governors of the Federal Reserve System and Social Science Research Council, 1972), pp. 16-49.
2/ "Industry Price Equations" in Eckstein, op. cit., pp.
113-165.
3/ An exception: Capacity utilization is significant for
nonferrous metals.
V Wesley J. Yordan, Jr. in his quarterly time-series study
of price response in 7 concentrated and 7 unconcentrated
industries for 1947-58 found that a common regression fit
data for both the concentrated and unconcentrated industries.
"Industrial Concentration and Price Flexibility in Inflation: Price Response Rates in Fourteen Industries, 19 4758," The Review of Economics and Statistics, XLIII, 3
(August 1961), 287-294.
"

interpretations have been criticized as lacking in theoretical basis and for the informality of statistical procedures by which preferred equations were chosen from
among a multitude of contenders.!/ They did not attempt
wage adjustment equations comparable to their price equations .
There have been two cross-section studies of price
adjustment which allow for different relations depending
on concentration level. One, by Cagan, was discussed at
the CWPS Conference; a first result was given in Table 8,
supra.!/ The other, by Frances Ferguson Esposito and Louis
Esposito, is based on change in two separate periods of the
1960s: 1963-66 and 1966-69.V The results of these studies
are mixed, and on some points the two are in some conflict.
They do not cover the same periods, but 1966-69 and 1967-69
should give comparable results.
The Espositos use data for 321 four-digit S.I.C. industries classified into three groups on the basis of concentration ratio. The dividing points are at concentration
levels of .40 and .70. The low concentration group (CR< .40)
contains 153 industries, the middle group contains 128 industries and the high concentration group contains 40 industries. They do separate regressions for each concentration
class. Cagan has data for 86 four-digit industries. He
also has three concentration ratio classes, with boundaries
at .44 and .67. The numbers of industries in the groups
are 38, 34 and 14, from low to high.i/ Cagan reports no
completely separate regressions by group, but uses dummy
variables
to allow different
for
some
variables
1/ See Discussions
by Robertcoefficients
J. Gordon and
Zvi
Griliches
or
combinations
variables.
in Eckstein,
op.of
cit.,
pp. 202-212 and pp. 213-215.
2/ Phillip Cagan, "Inflation and Market Structure, 19671973," NBER Working Paper No. 33, February 1974, mimeo.
3/ "Industry Price Changes, Market Structure and Inflation," o£. cit.
4/ Cagan has adjusted the concentration ratios of "13
selected local industries" to reflect average regional
ratios. He states that these adjustments "improve the
fit, but not dramatically." Cagan, "Inflation and Market
Structure, 1967-1973," p. 8.

The Espositos hypothesize that percentage change in
price is a function of share-weighted percentage changes
in unit labor costs, unit material costs and the ratio
of depreciable assets to output plus the percentage change
in the ratio of inventories to sales (a demand indicator).
They replace the change in unit labor cost by measures of
wage change and productivity change to test their oligopoly
model for which the price response to wage increase is
expected to be larger than the response to productivity
increase. No lagged variables are introduced.
For both time periods they conclude that the highly
concentrated industries respond faster and more fully to
changes in labor cost or material cost than the moderately
concentrated industries. In the 1963-66 period the least
concentrated industries were also least responsive to cost
changes, and the only group to respond to the demand variable. In 1966-69 the low group showed about the same response to cost change as did the high group (both were more
responsive than the moderately concentrated industries) and
none of the groups was directly responsive to demand. This
finding is consistent with the expectation that uncertainties of conjectural variations are most important in industries at the middle level of concentration. The Espositos
reason that the middle group was less responsive to cost
changes in 1966-69 than in 1963-66 because during the inflationary period of 1966-69 cost changes were larger and more
frequent than they had been in the earlier period.
They also find that the introduction of separate wage
and productivity variables leads to improvement in the fit
of the price adjustment equation for the moderately concentrated industry group- This tends to indicate a reliance
on a standard cost pricing rule. They find no significant
difference in overall fit for the high and low groups in
1966-69 but both differ from the moderate group. Prices in
the moderate group responded only partially to cost change
and There
thus tended
to lag behindtechnical
prices in
the which
unconcentrated
1/
is an unfortunate
error
may affect
and the
highly
concentrated
industries
during 1966-69.!/
some
or all
of the
conclusions
of the Esposito
paper. They
have regressed price ratio on the other variables also in
ratio form. They rely on the correct theorem that when cost
variables are unweighted, regression with ratios will give
coefficients identical to those obtained using percentage
changes to justify using ratio in a regression with shareweighted cost variables. The weights make a difference.
See Appendix C. The Espositos have, in effect, cited the
equivalence of Equations (la) and (lb), but then treated
Equation (3) as equivalent to (2). This is not justifiable.
42

9-h
Cagan's first results are those reported in Table 8.
These assume the same response to weighted cost changes
for industries at all levels of concentration but allow
for an effect of the concentration ratio. As was noted
before (p. 35 supra), in 1967-69 the CR coefficient is
negative, indicating smaller price increase for the more
concentrated industries; then, in the expansion of 1970-71
the coefficient becomes strongly positive.
When the industry groups are allowed to have different
response rates to cost changes, the middle group is least
responsive, at least for the period 1967-69.1/ This result
confirms that of the Espositos, although the coefficient
differences do not appear to be statistically significant.
In 19 69-70 and 1970-71 no clear pattern emerges as to the
size of response coefficients. In general, it appears that
material costs are passed on quickly by all three groups;!/
the response to labor cost change is quite variable, and
none of the coefficient estimates for labor cost is significant after 1967-69. Quantity sold is introduced in some
regressions to indicate demand. The coefficients are never
significant and the coefficients of other variables are not
greatly affected by the presence or absence of the quantity
change.
Cagan interprets his results as showing differential
lags in response to cost changes as between concentrated
and unconcentrated industries. The evidence is not inconsistent with that interpretation, but neither is it compelling.
after allowing
forStructure,
the estimated
effects of
1/ Cagan,Even
"Inflation
and Market
1967-1973,"
current
changes, the concentration ratio has a signiTable
3,cost
p. 18.
ficant
negative the
coefficient
in 1967-69 and
significant
2/
Exception:
high concentration
group
in 1969-70.
positive
coefficient
in of
1970-71,!/
that in itself
does
3/
A technical
point
possiblebut
importance:
Cagan
has
not done independent regression for the three separate
data sets, as the Espositos did. When he allows different
cost response coefficients he has still forced the intercept to be the same for each group. There is no good reason for so requiring. And the results he reports in Table
5 give one reason to think quite different estimates would
be obtained. The detected effect of CR may simply be to
accomplish the unpermitted shift of the intercept. If it
should turn out for 1970-71 that the material cost response
coefficients remain approximately one for all 3 groups, and
the labor cost response coefficient about zero, but the CR
(Footnote continued on following page).

not suffice to demonstrate that the increase of the later
period is a lagged response to earlier cost increases, or
that it is limited to a "catch-up," What about the fact
that the response to labor cost change is so erratic? Why
not introduce lagged cost changes directly and attempt to
capture the hypothesized effect in a regression?
The lag hypothesis is the best we have but there is
much more to be done before we understand the role of market structure or concentration in price adjustments. And
even more work is needed to see how concentration may affect
the adjustments of wages or other costs to demand and anticipated price change.
IV
Empirical evidence supports the view that prices in
the concentrated industries behave somewhat differently
than prices in the unconcentrated industries over the cycle.
There is no recognizable long-run disparity in the average
rates of price change between concentrated and unconcentrated industry, but there does seem to be more cyclical
stability in the prices of concentrated industries. On
average they appear to rise less than competitive prices
in expansions but have recently fallen less or risen more
in recessions. There is great disparity in industrial
price movements all the time. Level of concentration in
no period explains directly a large part of the variation
in pricesThe price adjustment process is not well understood
and has not been extensively researched. Such evidence as
there is suggests that prices in neither concentrated nor
unconcentrated industries respond strongly to demand changes;
measurement of demand change may be a major problem in this
result, however. Oligopolistic or moderately concentrated
industries tend to show smaller within-period response to
changes in cost than do unconcentrated industries. This is
consistent with a hypothesis that concentrated industries
(Footnote continued from previous page).
coefficient becomes zero and differing intercepts are
found, what should one conclude? We still have only conjectures which would explain the differences in intercept.
Of course, it may also happen that the response coefficients change once the arbitrary restriction on the intercept is abandoned.

EE/
experience a lagged reaction to cost changes; this might
cause prices to rise more slowly in expansion and then
continue up in a subsequent recession. But no attempt
has been made to introduce lags and estimate this delayed
reaction directly. Nor is the evidence of smaller initial response especially clear cut or strong; unless the
lag is sizable it is not likely to carry over in reversals
during later periods.
Research on the dynamics of the problem must also
take into account the effects of demand changes and expected price changes on costs. If concentrated industries
transmit demand shifts in such a way as to speed or increase wage or other cost changes in other sectors first
then it may be possible that prices in concentrated industries lag not because of delayed reaction to cost changes
but through prompt reaction to relatively delayed cost
increases. There is little that is well understood here.

V?
BIB-1

BIBLIOGRAPHY

Books and Periodicals
Ackley, Gardner. "Administered Prices and the Inflation Process," American
Economic Review, XLIX, 2 (May 1959), 419-430.
Backman, Jules. "Economic Concentration and Price Inflexibility," Review
of Economics and Statistics, XL, 4 (November 1958), 399-404.
Blair, John M. "Administered Prices: A Phenomenon in Search of a Theory,"
American Economic Review, XLIX, 2 (May 1959), 431-450.
. "Market Power and Inflation: A Short-Run Target Return Model,"
Journal of Economic Issues, VIII, 2 (June 1974), 453-478.
. "Means, Thorp and Neal on Price Inflexibility," The Review of
Economics and Statistics, XXXVIII, 4 (November 1956), 427-435.
, ed. Roots of Inflation (New York: Burt Franklin and Co., Inc.,
1975).
Bronfenbrenner, Martin, and Holzman, Franklyn D. "A Survey of Inflation
Theory," American Economic Review, LIII, 4 (September 1963), 593-661.
Cagan, Phillip. "Changes in the Recession Behavior of Wholesale Prices in
the 1920's and Post-World War II," Explorations in Economic Research,
2, 1 (Winter 1975).
. The Hydra-Headed Monster: The Problem of Inflation in the United
States (Washington: American Enterprise Institute for Public Policy
Research, 1974).
Dalton, James A. "Administered Inflation and Business Pricing: Another Look,
The Review of Economics and Statistics, LV, 4 (November 1973),
516-519.
DePodwin, Horace J., and Selden, Richard T. "Business Pricing Policies and
Inflation," Journal of Political Economy, LXXI, 2 (April 1963),
116-127.
Eckstein, Otto, ed. The Econometrics of Price Determination (Washington:
Board of Governors of the Federal Reserve System and Social Science
Research Council, 1972).
» and Fromm, Gary. "The Price Equation," American Economic Review,
LVIII, 5, pt. 1 (December 1968), 1159-1183.
Eichner, Alfred A. "A Theory of the Determination of the Mark-up Under Oligopoly," Ecmiomic_^Journal, 83 (Decmeber 1973), 1184-1200.

BIB-2

Goldschmid, Harvey J., Mann, H. Michael, and Weston, J. Fred, eds.
Industrial Concentration: The New Learning (Boston: Little, Brown
and Co., 1974).
Means, Gardiner C. "The Administered-Price Thesis Reconfirmed," American
Economic Review, LXII, 3 (June 1972), 292-306.
. Administrative Inflation and Public Policy (Washington: Anderson
Kramer Associates, 1959).
. The Structure of the American Economy (National Resources Committee, Part I, 1939).
Neal, Alfred C. Industrial Concentration and Price Inflexibility (Washington:
American Council on Public Affairs, 1942).
Ripley, Frank C, and Segal, Lydia. "Price Determination in 395 Manufacturing Industries," The Review of Economics and Statistics, LV, 3
(August 1973), 263-271.
Scherer, Frederic M. Industrial Market Structure and Economic Performance
(Chicago: Rand McNally & Company, 1970).
Stigler, George J., and Kindahl, James K. The Behavior of Industrial Prices
(New York: National Bureau of Economic Research, 1970).
. "Industrial Prices as Administered by Dr. Means," American Economic
Review, LXIII, 4 (September 1973), 717-721.
Weiss, Leonard. "Business Pricing Policies and Inflation Reconsidered,"
Journal of Political Economy, LXXIV, 2 (April 1966), 177-187.
Weston, J. Fred., Lustgarten, Steven, and Grottke, Nanci. "The AdministeredPrice Thesis Denied: Note," American Economic Review, LXIV, 1
(March 1974), 232-234.
Wiles, Peter. "Cost Inflation and the State of Economic Theory," Economic
Journal, 83 (June 1973), 377-398.
Yordan, Wesley J. "Industrial Concentration and Price Flexibility in Inflation: Price Response Rates in Fourteen Industries, 1947-1958,"
The Review of Economics and Statistics, XLII, 3 (August 1961), 287-294.

BIB-3

U. S. Government Publications
Administered Prices. Hearings before the Subcommittee on Antitrust and
Monopoly of the Committee on the Judiciary, U.S. Senate, 85th
Congress, 1st Session, Part 1 (1957).
Administered Prices: A Compendium on Public Policy. Committee Print,
Subcommittee on Antitrust and Monopoly of the Committee of the
Judiciary, U.S. Senate, 88th Congress, 1st Session (1963).
Council on Wage and Price Stability Act Amendments of 1975. Hearings
before the Committee on Banking, Housing and Urban Affairs,
U.S. Senate, 94th Congress, 1st Session (1975).
Eckstein, Otto, and Brinner, Roger. The Inflation Process in the United
States. A study prepared for use of the Joint Economic Committee,
U.S. Congress (1972).
, and'Fromm, Gary. "Steel and the Postwar Inflation," Study Paper
No. 2 prepared in connection with the Study of Employment, Growth
and Price Levels, Joint Economic Committee, U.S. Congress (1959).
Economic Concentration. Hearings before the Subcommittee on Antitrust and
Monopoly of the Committee on the Judiciary, U.S. Senate, 88th
Congress, 2nd Session, Part 1 (1964).
Economic Report of the President, February 1975.
Means, Gardiner C. Industrial Prices and Their Relative Inflexibility.
U.S. Senate Document 13, 74th Congress, 1st Session (1935).
The 1970 Midyear Review of the State of the Economy. Hearings before the
Joint Economic Committee, 91st Congress, 2nd Session, Part 1 (1970),
Thorp, Willard L., and Crowder, Walter F. The Structure of Industry.
Monograph No. 27, Temporary National Economic Committee (Washington
U.S. Government Printing Office, 1941).
Wilson, Thomas A. "An Analysis of the Inflation in Machinery Prices,"
Study Paper No. 3, Study of Employment, Growth and Price Levels,
Joint Economic Committee, U.S. Congress (1959).

BIB-4

Unpublished Materials

Cagan, Phillip. "Inflation and Market Structure, 1967-1973," NBER Working
Paper No. 33 (February 1974).
Conference on Concentration, Administered Prices and Inflation, CWPS,
Transcript, Washington, D. C , April 14, 1975.
Esposito, Frances Ferguson, and Esposito, Louis. "Industry Price Changes,
Market Structure and Inflation" to appear in Pathways to Macroeconomics:
Essays in Honor of Alice Bourneuf, edited by D. A. Belsley, E. J. Kane,
P. A. Samuelson, and R. M. Solow (Columbus: Ohio State University
Press, no date), mimeo.
Guy, Charles. "Price Change and Industry Concentration," Memorandum for
CWPS, April 8, 1975.
Licari, Joseph A., and Shen, R. Prepared statement for the Conference on
Concentration, Administered Prices and Inflation, CWPS, Washington,
D. C , April 14, 1975.
Means, Gardiner C. Prepared statement for the Conference on Concentration
Administered Prices and Inflation, CWPS, Washington, D. C , April 14,
1975.
Quails, David. "Price Stability in Concentrated Industries," CWPS Conference.
Weston, J. Fred. "Evaluation of the Prenotification Proposal," CWPS
Conference (mimeo).
. "Evaluation of the Presentation by Dr. Means to CWPS, March 14,
1975" (mimeo).
. "Updating of Basic Tables—For Presentation to CWPS," Washington,
April 14, 1975 (mimeo).

%9^

Appendix A.

Tables and Charts.

TABLE A-l.

Year

Unemployment
Rate,
All Workers

Economic Indicators, U. S., 1946-1974

Real GNP
_

Year--to-Year Percentage Change :Ln:
Wholesale Price Index
Implicit Price
All
Industrial
Deflator for• GNP
Commodities
Commodities
_

-0.9

11.9

23.1

22.1

4.4
0.2

6.6

8.2

8.6

-0.6

-5.0

-2.1

1946
1947
1948
1949

3.9%

3.9
3.8
5.9

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5

9.6
7.9
3.0
4.5

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974P

6.4

1.3
6.8
2.1
1.0
1.5
1.4
3.4
3.7
2.5
1.7

5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5

2.5
1.9
6.6
4.0
5.4
6.3
6.5
2.6
4.7
2.7

1.6
1.3
1.1
1.3
1.6
1.8
2.8
3.2
4.0
4.8

4.9
5.9
5.6
4.9
5.6

-0.4

3.3
6.2
5.9

5.5
4.5
3.4
5.6

-2.2

10.2

-1.4

7.6
1.8
1.5
-1.1

—

3.9

3.6

11.4
-2.7
-1.4

10.4
-2.3

0.2
0.2
3.3
2.9
1.4
0.2

0.8
0.2
2.2
4.5
2.8
0.3
1.8

0.1

-0.4

-0.5

0.3

-0.3

-0.1

0.2
2.0
3.3
0.2
2.5
3.9

0.5
1.3
2.2
1.5
2.5
3.4

3.7
3.2
4.6

3.8
3.6
3.4
6.8

13.1
18.9

22.2

p = preliminary.
Source:

Economic Report of the President, February 1975, pp. 251, 254, 279,
309.

CHART A-2.

230

MAJOR WHOLESALE CONTRIBUTORS

230

TO INFLATION
*1©

1967 fo February 1975

Lumber and
Wood Products

300

—

S o w : B.LJL At»mtlmmtfitm^uinyw*<i utrm/it

tio

trOn tm C—anut—1 Craup. a W m
Wfon tar 9* to'kr-i— «r«uw:

ex <—+m4

• tvke*7 M d piMtk products
• OTtM «"0" in.Hl produce

4CCNTRATC0

170

INdUSTRV
OHOUM

• *wupof «•»« *qu«nw«t
I * £ A *•> Cwoprtitm C<«upt oam»ii»w ttw w q M r t
K * n far tt« t>k procueu <«d » M K * wttM i«4*i
* • » . b*!** tn4 r.UIcd product!.

ISO
COMPfTlTlve
' ^

•N0UST4Y
CROUW

uo
t»

120

110

• PhaMt III I
-too

ill
1M9

lit I I V

19W

19CT

I | II | III | I V

i j n | III | ivi I

1970

1971

ni iv

1973

n | m [i

I I n I III I iv

1973.

1975

Wholesale price index for lumber and wood products (code 08).
1967

100.0

1968

113.3

1969 I

136.5

II 130.0
III -117.8
IV -119.7

-137.4
-142.7
II
III -147.6
IV -149.5

-114.3
II 114.2
III 113.9
IV 112.0

1972 I

-117.7

1973 I

1970 I

1971 I

II -125.2
III -133.2
IV -131.9

-161.7

1974 I

II
III
IV

186.4
196.8
184.2
166.9

1975 I -167.9

II -184.0
III -179.5
IV -183.7

Source: Mont
Monthly Labor Review, various issues. Data are quarterly averages
.«„t.U1..

Appendix B.

A note on weighting regressions by industry sales.

Suppose P^ denotes the value of a price index for product class i

(i s 1, 2, . . ., n) in the period (say, year) denoted j. Let PJ be the
value of the all-commodity index, and let w. represent the value of sales
of the i product relative to total sales of all products in the index
base period.

Then

2 1
Now, suppose P./P. is related to the corresponding concentration,

C., by the following linear relation

—r = a + 3C. + u., i = 1, 2, . . ., n.
P

The u.fs are assumed to be independent normal random variables each with
mean zero and the same unknown variance a2. The u.fs are independent of the
C's.
Then, it is well known that the method of least squares (ordinary linear
regression) gives the unbiased estimators a and 3 with minimum variance.
3. The alternative estimation method for a and 3 advocated by Means
is that of "weighted regression"; the w.'s defined above are the weights.
To visualize this weighted regression first multiply the basic relation for
each industry through by the corresponding weight to obtain

\ = a w. + 3 (w. C.) + w. u..
i I pl I
i
i i

EEr
B-2

The error in this relation (w.u.) still has mean zero but its
2 2
variance is w.a .

Each observation will have a different error variance;

in other words, the new errors are heteroskedastic.
Ordinary least-squares regression of the weighted price-ratio variable,
2 1
w.(P./P.), against w. and w.C. will yield the weighted regression estimates
of a and 3.

The estimators obtained are unbiased but they have larger

variances than the corresponding estimators from the unweighted regression.
Only if the original error variances were inversely proportional to
the square of

industry sales would the weighted regression be definitely

superior to the unweighted regression.

There seems to be no reason to

expect that the error variances in the price change-to-concentration relation
are inversely related to sales volume.
Since both the weighted and unweighted regressions give unbiased
estimators differences in the actual values obtained must be attributed to
chance.

Since the unweighted regression gives estimators with smaller vari-

ance the unweighted regression estimators should be regarded as the more
reliable.

4. If a clear-cut criterion (e.g., CR > 50 for the concentrated
industries, CR < 25 for the competitive industries) were available on which
industries could be classified, the contribution of each classification to
total price increase could be calculated directly,without regression, as
follows:
/p2

The contribution of concentrated industries would be the sum of w.f—r

M
for all industries i for which CR > 50.

£ wj

jl.

Denote this contribution

Similarly the contribution to inflation of competitive (atomistic)

B-3
2,
industries may be denoted

Z w.f-rrl.

* Ml
But comparison of these two "contribution" figures will surely not
suffice for a meaningful test of the administrative-inflation hypothesis.
Suppose the concentrated group was so defined as to include 70 percent of
total sales, £ w. = .70. Then, even if prices in all industries rose by
C x
the same percent, the "bulk" of the increase would come from the concentrated
sector.

The contributions found above must be compared to the fractions of

total sales accounted for by the respective groups: That is, the concentrated group would be said to have contributed more to inflation than the
atomistic group if

E w.
C X

I w.
A X

These ratios are nothing but weighted-average price changes for the
two groups.

If the average price increase in the concentrated group exceeds

the average price increase in the atomistic group then the administrative
inflation hypothesis would tend to be confirmed.
This procedure is available only if standards exist for defining groups.
Regression is available without these agreed standards.

c
Appendix C. A note on estimation of the price change relation.

1." Consider the regression equation
(la)

= b + b

AQ + b 2 AULC + b

AUMC + b^ CR + e,

in which e is the error term. AP, AQ, AULC, AUMC denote percentage changes
p

l - p0
over the period from year 0 to year 1. Thus, e.g. AP =
. This is
F
0
the relation most of the studies summarized in Table 8 intend to determine;
prime attention is given to b,, measuring the effect of industrial concentration on price change when cost and demand changes are "controlled."
It has been usual to work with the variables in ratio form rather than
as changes. Notice that

P-J/PQ

= [PQ + (P, - Po^/,po

= 1 + AP

» °-^%

+ A

Q»

etc. Substituting, it is readily shown that Equation (la) is equivalent to
(lb) Px/P0 = BQ + b1(Q1/QQ) + b2(ULC1/ULC ) + b^UMC^UMCg) + b4 CR + e,
where BQ = bQ + 1 - b1 - b2 - b3It follows from this equivalence that regression of P /P against the
ratios

Q-J/QQ,

ULC^ULCg and

UMC^UMCQ

plus CR (as in lb) yields exactly the

same coefficient estimates b-, b~, b , b, as are obtained by regressing
AP on AQ, AULC, AUMC and CR, as in (la).

2. When the cost variables are weighted by the respective share fractions
there is no comparable equivalence.
Suppose

(2a) AP = aQ +

S]AQ

+ a2(wLAULC) + a^v^UMC) + a4 CR + e.

C-2

Now substitute as before.

The resulting equation, equivalent to (2a)

is
(2b) P^/PQ = AQ + a1(Q1/Q()) + a^ ULC^/ULC^) + a3(wM UMC^UMCQ)
+ a4 CR - a2 wL - a3 wM + e,

with A = a. + 1 - a .
o
0
i
In the cross section of industries w_ and ww vary. Indeed, that is why
L
M
they were introduced as weights. If they are omitted, so that p-i/Fn is
regressed on Q-,/Q0> w ULC./ULC0, w UMC./UMC0 and CR, the relation obtained
is
(3) V1/?Q = cQ + ^(Q^^/QQ) + c2(wL ULCJ^/ULCQ) + c3(wM UMC1/UMC0)
+ c. CR + e'.
4
The coefficients of (3) will not be the same as those of Equation (2a).
Biased estimators will be obtained.

DepartmtntoftheTREASURY §[
ASHINGTON, D.C. 20220

TELEPHONE WQ4-2041

FOR IMMEDIATE RELEASE

June 16, 1975

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2.2 billion of 13-week Treasury bills and for $2.3 billion
of 26-week Treasury bills, both series to be issued on June 19, 1975,
were opened at the Federal Reserve Banks today. The details are as follows:
26-week bills
maturing December 18, 1975

RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing September 18, 1975
Price
High
Low
Average

Discount
Rate

98.822
98.781
98.795

Investment
Rate 1/

Price

Discount
Rate

Investment
Rate 1/

4.79%
4.96%
4.91%

97.447
97.392
97.407

5.050%
5.159%
5.129%

5.27%
5.39%
5.35%

4.660%
4.822%
4.767%

Tenders at the low price for the 13-week bills were allotted 98%.
Tenders at the low price for the 26-x^eek bills were allotted 77%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY F£DFf--.\L RESERVE DISTRICTS: '
District

Received

Accepted

Boston
$
38,110,000 $ 27,070,000
New York
3,096,595,000
1,726,625,000
Philadelphia
27,270,000
27,270,000
Cleveland
43,480,000
42,680,000
Richmond
32,845,000
22,845,000
Atlanta
35,800,000
35,800,000
Chicago
241,850,000
142,850,000
St. Louis
44,405,000
29,405,000
Minneapolis
19,440,000
7,440,000
Kansas City
43,045,000
40,410,000
Dallas
27,310,000
27,310,000
San Francisco
151,545.000
70,345,000
TOTALS $3,801,695,000

Received
$
18,530,000
3,226,510,000
5,300,000
15,400,000
18,525,000
15,920,000
190,800,000
33,175,000
19,675,000
18,855,000
17,460,000
184,395,000

$2,200,050,000 a#3,764,545,000

Accepted
$
8,530,000
2,001,360,000
5,100,000
14,875,000
8,525,000
15,920,000
79,300,000
26,175,000
19,675,000
18,855,000
13,460,000
89,165,000
$2,300,940,000 b/

a/ Includes $413,060,000 noncompetitive tenders from the public.
y Includes $153,165,000 noncompetitive tenders from the public.
}_/ Equivalent coupon-issue yield.

FOR IMMEDIATE RELEASE
Contact:

June 18, 19 7 5
H. Melzer
964-8706

SECRETARY SIMON LAUNCHES
TREASURY WOMEN'S PROGRAM
Treasury Secretary William E. Simon will kick-off
Treasury Women's Day at 9:30 a.m. Wednesday, June 18
in the Departmental Auditorium, Washington.
Planned as the Department of the Treasury's official observance of International Women's Year, Secretary
Simon will address his remarks to the Washington-based
employees of the 120,000 members of the Department, the
second oldest Federal Department in the government.
Although women were first employed by the Treasury
over a century ago, the occasion marks the first time
that a Secretary has addressed the distaff members of
the Department, of which there are now over 50,000
nationwide.
The morning program will be chaired by Anita Alpern,
Assistant Commissioner of IRS for Planning and Research,
who is also chairperson of the Treasury Women's Advisory
Committee. She will introduce Dr. Estelle Ramey, professor of physiology and bio-physics, at Georgetown
Medical School, whose topic will be "Sex Hormones and
Executive Ability."
Management and supervisory-level employees have been
particularly invited to the morning session to hear Dr.
Ramey.
After luncheon recess, Warren F. Brecht, Assistant
Secretary (Administration), will summarize the morning
session and make brief comments before introducing the
afternoon speaker. The Honorable C. Delores Tucker,
Secretary of the Commonwealth of Pennsylvania, will
speak on "A Treasury of Women." Ms. Tucker is an eminent
civil rights leader, active in the women's rights movement and in community, state and national civic and political activities.

WS-333

(OVER)

A panel discussion, "The Grade Game: Skirting the
Success Factor," will offer opportunity for audience
participation by Treasury employees. Five Treasury
women will lead the discussion to be moderated by Marian
Cosgrove, Coordinator of Special Programs, Continuing
Education for Women Center, George Washington University,
Five senior-level Treasury women will
initiate the discussion. They are Miss Alpern, the top
ranking woman career civil servant in the Department;
Esther Lawton, Deputy Director of Personnel; Inez Lee,
Deputy Director of Equal Opportunity Programs; Bonnie Gay,
attorney, Office of the General Counsel, and Amelia Eaton,
physical science administrator, U.S. Customs Service,
New York.

RESULTS OF AUCTION OF 2-YEAR TREASURY NOTES

The Treasury has accepted $2.0 billion of the $2.6 billion of
tenders received from the public for the 2-year notes auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 6.50% 1/
Highest yield
Average yield

6.69%
6.61%

The interest rate on the notes will be 6-1/2%. At the 6-1/2% rate,
the above yields result in the following prices:
Low-yield price 100.000
High-yield price
Average-yield price

99.650
99.797

The $2.0 billion of accepted tenders includes 95 % 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, $0.2 billion of tenders were accepted at the average-yield
price from Government accounts and from Federal Reserve Banks for themselves
and as agents of foreign and international monetary authorities.

1/ Excepting 3 tenders totaling $1,570,000

FOR RELEASE 4:00 P.M.

June 17, 1975
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 $4,500,000,000 > or
thereabouts, to be issued

June 26, 1975,

as follows:

91-day bills (to maturity date) in the amount of $2,200,000,000* or
thereabouts, representing an additional amount of bills dated March 27, 1975,
and to mature September 25, 1975 (CUSIP No. 912793 XQ4), originally issued in
the amount of $2,600,440,000, the additional and original bills to be freely
interchangeable.
183-day bills, for $2,300,000,000, or thereabouts, to be dated June 26, 1975,
and to mature December 26, 1975

(CUSIP No. 912793 YD2).

The bills will be issued for cash and in exchange for Treasury bills maturing
June 26, 1975,

outstanding in the amount of $4,505,830,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,667,575,000.
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 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-thirty p.m., Eastern Daylight Saving time, Monday, June 23, 1975.
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)

-2securities 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.

Others will not be permitted to submit tenders except for their

own account.

Tenders will be received without deposit from incorporated banks

and trust companies and from responsible and recognized dealers in investment
securities.

Tenders from others must be accompanied by payment of 2 percent of

Those submitting competitive tenders

will be advised of the acceptance or rejection thereof.

The Secretary of the

in cash or

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

June 26, 1975.

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

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 notici
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

ii(
FOR IMMEDIATE RELEASE
ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE AMERICAN COAL ASSOCIATION
WASHINGTON, D.C., JUNE 17, 1975
Mr. Bagge, Members of the American Coal Association, and Distinguished Guests:
I take great personal pleasure in joining you here today.
When Carl Bagge called me a few days ago to ask if I would
accept a special speaking invitation for this luncheon, there could
be only one answer. I have known Carl and many of the members of
this organization for some time, and I have always felt a great deal
of affection and respect for all of you. Moreover, I think it's
important to focus greater public attention on the problems and the
potential of the coal industry, because the only way that America can
become more self sufficient in energy -- as we must -- is to place
much heavier reliance on coal. America is literally sitting on top
of the biggest coal mine in the world, and yet -- largely because of
governmental interference --we can neither mine it nor burn it in
anything approaching the degree that we should. The way that we've
discouraged the development of our most abundant natural resource
reads like a chapter from Alice in Wonderland, and it's long past
time that we put our energy house in order. If my appearance here
today can advance that cause, I will be doubly grateful for the
opportunity to meet with you.
Were our economic problems isolated to coal, I might not be as
concerned as I am, but as you look across the broad spectrum of
challenges facing our nation in the 1970s, you discover one area after
another which is crying our for reform.
There is always a tendency in this city to look for someone else
to blame when something goes wrong, especially on the pocketbook issues.
If food prices go up, we blame the farmer or the middle man; if other
prices go up, we blame big business or big labor, and on and on.
There is an element of truth to this, but if people really want to know
the source of our economic problems, I suggest that we begin looking
m the mirror. You have heard it said that the recession was manuWS-334
factured and labeled "Made in Washington, D.C." I happen to agree

- 2with that, because this recession is a product of inflation, and
inflation is a product of the misguided economic policies that have
been made in this city over the last decade -- policies that have
accumulated $145 billion in Federal deficits since 1965, policies
that have legislated a national energy shortage, and policies that
have shackled our private enterprise system and discouraged investment in its future. The American people are catching on to this
process. They realize that the inflation generated out of Washington
helped to cause this recession and they are beginning to support
policies that will lead to sustained price stabilization. Our greatest
hope for the future continues to lie in the basic wisdom and common
sense of our people who know that neither man nor government can long
survive by continually living beyond their means.
While it has not yet received much attention in the press, I
trust that this city's latest failure to face up to the economic
facts of life will not go unnoticed. It happened only a few miles
from here last night. As many of you know it is the responsibility
of the Secretary of the Treasury to make a regular pilgrimage to
Capitol Hill to ask for an increase in the national debt ceiling.
Why? Because the Congress continually enacts legislation that requires
us to spend more money than we receive in revenues. Just a few days
ago, I went to the Hill and told the House Ways and Means Committee
that we had to raise the debt ceiling before June 30 or the government could no longer pay its bills. It is never a pleasant duty
to ask for an increase in the debt ceiling, but the policies of
recent years leave us no other choice. Raising the debt ceiling is
strictly a matter of paying for past sins.
So what did the House of Representatives, in all of its wisdom,
do last night? First, they voted to reduce the proposed ceiling to
$599.99 billion, a figure that may pack some political sex appeal, but
as everyone knows, is below the minimum requirement. That they
turned around and voted down the new ceiling altogether, killing the
bill less than two weeks before the present ceiling expires. And
who voted in that majority against raising the ceiling? Who had the
temerity to lecture us on the horrors of a large national debt? Why,
many of the very same people who have been voting to increase the size
of the Federal budget and increase our Federal deficits. With one
hand, they vote to appear sympathetic and socially concerned, and
then with the other, they vote to be sound and frugal. Can we really
take this exercise seriously? When are we going to start giving the
American people credit for the intelligence they possess? The
American people know that we can no longer afford "politics as usual",
and they must only look with sorrow and anxiety at these political
theatrics in the seat of our democracy.
And let me add this thought: the question of responsible economic
policies in Washington is not a partisan issue. It cuts across all
lines. We may be conservatives or liberals on social issues, we
may be Republicans or Democrats at the ballot box, but when it comes
to matters of economic policy, there is only one choice: between policies
been
that
for too
unsound.
aremany
sound
years,
and those
the policies
that are that
unsound.
have come
And the
out of
sadWashington
fact is that
have

VIE
Let us step back for a few moments and look at the road we've
been on for the past decade or so and then where we should be head
in the future.
One of the so-called mistakes I've made in Washington
is to ask that people change their perspective and begin
looking farther ahead. For too many in this city, the
future is measured not by the end of the century but by
the date of the next election. I deeply believe that this
nation has been plunged into one of the most difficult economic
periods in its history because we have insisted for more than
a decade on taking every possible shortcut to prosperity,
choosing both guns and butter, buying a great society on the
layaway plan, sacrificing economic to political considerations,
and losing sight of many of the virtues that have been the
driving force behind our national growth.
It is understandable that in recent months economic
policy makers have been preoccupied with the problems of
recession and inflation. Our recession has been severe and
has created hardships for millions of Americans who had already
been battered by the highest level of inflation in our peacetime history. Now however, as the recession nears its end,
as inflation has abated, and as the nation stands poised for a
period of economic recovery, it is essential that we raise our
sights and begin to take a longer view. If we can learn the
lessons of the past, we can put our economy on a course that is
sustainable, both politically and economically,for years to come.
If, on the other hand, we refuse to accept the lessons of the
last decade -- if we are blind to the causes of our problems
and to the needs of the future -- then we are very apt to repeat
the same mistakes and condemn ourselves to a sorrowful repetition
of the boom and bust cycles of the past.
Despite the reports that you sometimes read, there is no
real mystery about how we got into this mess, nor should there
be much dispute about how we get out. Let's face it: our
economy is in trouble today because we have tried to live
beyond our means for so many years and we have so seriously
abused and restricted the free enterprise system that has been the
foundation of our economic abundance. More and more we have
turned to the government to solve our problems, when in our
hearts we always knew that genuine progress comes only through the
sweat and determination of free men and women.
No one can be so empty headed as to denouce all forms of
governmental activity, but the rapid growth of government in
recent years has exceeded anything in our history and has had a
powerful impact upon our economic growth.
It took 186 years for the Federal budget to reach $100
billion, a line it crossed in 1962. Then only nine more
years were required to reach $200 billion and only four more
years to reach $300 billion--a record we are setting this year.

- 4As we have opened the floodgates on the Federal budget, government
spending has become a dominant force within our economy. Total
government spending today accounts for about a third of our GNP-almost three times the level of pre-Depression years -- and if
recent trends prevail, government spending could account for
as much as 60% of our GNP by the year 2000.
That growth has frightening implications. When any
government taxes any more than half of what a people produce,
robbing them of their economic freedoms, can there be any
doubt that the loss of their social and personal freedoms will
follow close behind?
It has never been politically popular, of course, to
increase taxes, so that increased Federal spending has meant
a string of Federal deficits -- 14 in the last 15 years. As
a result, the Government over the past decade has been required
to borrow a quarter of a trillion dollars from the private capital
markets that have always been the centerpiece of our free
enterprise system. In this calendar year alone, the Treasury
Department will be required to borrow at least $80 billion -- over
a billion and a half dollars a week.
Monetary policy has also been a culprit of our economic
troubles. From 1955 to 1965, the money supply grew at an
average rate of 2 1/2 percent a year, and we enjoyed a period
of reasonable price stability. Since 1965, however, the rate
of growth has more than doubled to 6 percent a year, far more
than the economy could reasonably absorb. With the money supply
growing so much more rapidly than the economy itself, it is no
accident that inflation has become a serious problem.
A related trend which has had a destructive impact upon
the economy in recent years has been the enormous proliferation
of Federal regulations and laws which restrict the operation of
private enterprise. I know that excessive governmental intervention
has become a major concern in the energy industry. Let me assure
you of this: You are not alone. An increasing number of producers
as well as consumers are complaining about this burden. Consider
just a few examples of the regulatory process in action:
--It is almost twice as far from San Francisco to Los
Angeles than from New York to Washington, and yet the air fare
on the California trip is almost a third cheaper. Why? Because
airlines operating intrastate in California are not controlled
by Federal regulators.
--The Government also requires the railroads to maintain
as many as 50,000 miles of track that may no longer be needed,
creating additional financial burdens for an industry already
in peril.

- 5--Studies made by the government itself indicate thtt
costs mandated by Federal rules added $320 to the price
of a 1974 car.
--No one knows precisely how much the total cost of the
Federal regulatory structure has been, but Professor
Tom Moore at the Hoover Institute estimates that just in trucking
and surface transportation alone, governmental regulations add
about $10 billion a year to the bill paid by consumers.
While governmental intervention has proved costly in many areas
of our economy, it is perhaps in the energy field that it is now
causing the most significant problems. Indeed, I believe that more
than anyone else, the United States government has created the energy
shortage that we have today.
It has been apparent for more than 20 years that the United States
has been on a collision course with its own energy policies. Yet
repeated warnings by experts and hundreds of witnesses before
Congressional committees have all been ignored. The OPEC nations
realized what was happening too and, while we blissfully refused to act,
they acted very decisively to take advantage of our growing vulnerability
Today we are reliant upon them for more than 38 percent of our oil needs,
and unless we soon reverse course, we will depend on them for more than
half of our oil before the end of this decade.
Now we read that they are threatening to raise their prices once
more because, they say, their purchasing power has been reduced by
35 percent. We've looked at their alleged justifications, and I can
tell you this: they're phoney. Indeed, there is no economic justification for the prices they are already charging, much less an
increase. Their prices reflect the decision of a monopoly acting
out of what they mistakenly believe is their best political interest.
They should know that another price increase will have a devastating
impact upon the nations of the Third World, will damage the prospects
for economic recovery in the industrialized nations, and will
ultimately backfire on the oil producers themselves. Not only can we
in the United States not tolerate another price increase but we
should be actively working to lower the prices that already exist.
Again, let us ask ourselves how we could find ourselves in
this position? How could the wealthiest and most powerful nation
on
earth allow itself to be boxed in like this? The answer, I think,
is clear: over the years we have erected so many impediments to
expanded production that now the energy industry is practically bound
hand and foot by governmental laws and red tape.
-- Despite continual warnings from experts, the Federal Power
Commission has been required for more than two decades to keep the
wellhead price of natural gas at an abnormally low level in order to
hold down prices for consumers. But these controls have reduced the
incentives for development of new domestic supplies, so that predictably there is much less natural gas than we need today.

- 6-

-- Instead of learning from the natural gas experience, we are
now repeating our mistakes in the oil industry where we have again
imposed price controls. And again the result is predictable: by
keeping the prices of natural gas and domestic oil at fictitiously low
levels which destroys the incentive for new production, we are forcing
consumers to buy more expensive products from foreign oil sources and
are willingly subjecting ourselves to their blackmail.
-- In the field of nuclear energy, the story is again a sad
one. This country was a pioneer in the development of nuclearpower. Yet today it can take up to 11 years to build a nuclear
power plant in the United States and only 4 to 4% years in Europe
and Japan. Why? Because of our excessive governmental regulation.
-- Many of you could speak more eloquently on the problems
of the coal industry than I can, but it is worth repeating here
today that this nation has about a third of all the recoverable
coal reserves in the world. We are the largest exporter of coal
in the world, and at 1973 levels of consumption we have enough coal
to burn for 800 years. Yet coal production in the United States
today is lower than it was thirty years ago. In 1960, coal represented 23% of our energy consumption; last year this droppped to
18%. This trend has to be reversed. Coal is the answer now. Our
goal of 1.2 billion tons per year of production by 1985 will not
be reached if we do not remove government impediments and create
incentives for expanded production. The recent attempt by the
Congress to pass strip mining legislation that would create
disincentives to production, unnecessarily add to costs, and
adversely affect jobs illustrates the wrong direction for energy
policy. Fortunately, the President's veto prevailed.
We must continue to recognize that the chief barriers to
all new energy production lie at our own doorstep, right here in
Washington, D.C., in the problems created by the Clean Air Act,
the moratorium on coal leasing as well as price and supply regulation
affecting oil and gas. This Administration is firmly in favor of
protecting the public health through balanced clean air standards
and protecting the environment. At the same time, while never losing
sight of our environmental and safety concerns, we must strive to ensu
that our policies are properly balanced to meet our expanding energy n
I wish that I could tell you today that a resolution of the
present impasse on national energy policy is clearly within sight.
Judging from recent events on Capitol Hill, however, I cannot be so
reassuring. The President has set forth a positive, comprehensive
program. He remains ready to work with the Congress to hammer out a
national policy that would be acceptable to both branches of government. We are still waiting, however, for a more concrete, unified
response from the Congress. In the meantime, the President will
continue to exercise as much leadership as he can within the letter
of the law.
But we cannot continue in this fashion much longer. Either we
wake
of
like
the
up
Samson
Middle
to the
weEast.
have
energygiven
challenge
it all soon,
away or
to we
these
aremodern-day
going to find
Delilahs
that

Let me turn now to a related subject: the general condition
of private industry today. It is a tragic fact that over the last
decade, as the forces of big government have been overfed and overnourished, the free enterprise system has gradually been weakened.
As we have strengthened the public sector, we have directed billions
of dollars away from the private sector and we have discouraged
savings and investment in the future.
The record of capital investment in the United States in recent
years has been the lowest of any major industrialized nation in the
Free World. From 1960 through 1973, total fixed investment in the
U.S. averaged 17*5 percent a year of our real national output,
compared to 35 percent in Japan, and 26 percent in West Germany.
Not surprisingly, our record of productivity growth during this
same period was also among the lowest of the major industrialized
nations.
Increased capital investment leads to increases in productivity,
and it cannot be said often enough that increased productivity
is the only means we have of raising the standard of living.
Why have we failed to build and expand our industrial base?
A fundamental reason, I would argue, is that we have had policies
which promote personal consumption and Federal spending at the
expense of savings, investment and capital formation. Too many
of our financial resources have been diverted to their least
production use, the Government, instead of their most productive
use, the private sector. A related part of the problem has been
the serious deterioration in corporate profits since the mid-1960s.
Contrary to popular opinion, after-tax profits measured in real
terms have dropped by 50 percent since 1965. It is not unfair
to say that we have been and remain today in a profits depression
in the United States.
The interaction of the various trends that I have mentioned
here today -- excessive fiscal and monetary policies, overzealous
regulation by the government, and inadequate capital formation and
economic growth -- has had a number of effects within the economy,
but none has been more significant than the general inflation that
has resulted. Since the mid-1960s, we have been plagued with an
inflation rate that has gradually climbed from one plateau to the
next. In recent years, that rate was exacerbated by the quadrupling
of oil prices and the increase in food prices, but as those special
factors disappear, it will be apparent that the underlying reasons
for our current inflation have been the misguided policies that
began back in the mid-1960s.
Economists have also begun to recognize that more than any
other factor, inflation was responsible for causing today's recession. As prices skyrocketed and real incomes were eroded,
consumer confidence fell and we experienced the worst drop in
retail sales in a quarter of a century. Similarly, as prices
rose, funds were drawn out of the thrift institutions, interest
rates
driven
up,
and and
the
bottom
fell
outmaking
of
housing
years.
mental
of
industry.
thewere
past,
economic
We
we
must
problem,
are
never
doomed
forget
tounless
repeat
thatwethe
inflation
avoid
agonies
isthe
of
our
the
most
mistakes
last
fundatwo

- 0

Policies for the Future
What, then, should be our policies for the future?
First and foremost, we must continue to support the forces
of economic recovery so that we can end the hardships of unemployment. In warming up the economy, however, we must be equally
careful not to overheat it. That may require a slower period
of recovery than we would like, but we are only buying more
trouble for ourselves over the long run if we resort to shortterm palliatives.
The most immediate test of our resolve is occurring right
now as we face up to the question of Federal spending. President
Ford is resisting the temptation of trying to spend our way back
to prosperity, fighting hard to hold the Federal deficit for
the coming fiscal year to $60 billion.
We have been heartened
by the votes of the Congress to impose a voluntary ceiling near
that level, but it is not yet clear whether the Congress has the
will to obey its own mandate. There is a continuing danger that
the Congress could force the deficit much higher and if so, we
will run a serious risk of setting off a new wave of inflation.
It is time that we rejected the glittering promises of instant
prosperity offered by the big spenders; we should know from hard
experience just how hollow those promises are and how they only
create a worse mess than we already have.
As we regain our prosperity, our second goal must be to
restore much greater discipline to our fiscal and monetary policies.
Instead of an unbroken string of Federal deficits, we should begin
to pursue budget surpluses in good years so that we can free up
more funds for capital investment.
Third, we must lift the dead hand of governmental regulation
from the many areas where it smothers economic incentives and growth.
This goal is particularly relevant in the field of energy. If we
are to achieve greater self sufficiency in energy, as I believe
we must, then we must accelerate the development of resources such
as goal by striking a reasonable balance between environmental and
energy requirements. The restraints imposed by the Government upon
production, sale and use of our energy resources are unnecessarily
restrictive and should be swiftly revised.
Still a fourth basic challenge that we face in the days
ahead is to achieve a fundamental shift in our domestic policies
so that we place less emphasis upon consumption and government
spending and more upon savings, investment and capital formation.
While estimates of future capital needs are always difficult, a
variety of studies have concluded that our investment needs during
the next decade will be almost triple the amount of recent years.
Investment demands will be particularly acute in the field of
energy. General projections of energy industry requirements over
the next decade range from $750 billion to $1 trillion. Utilities
will need the greatest portion of these funds, but we must also
channel
tens
of
billions
of
dollars
into accelerated
development
clear
of
forpetroleum,
future
that
we
development
will
natural
not gas,
of
realize
energy
coal
that
and
resources
potential
non-fossil
is so
great,
fuels.
long but
as
The
the
itpotential
is

- 9

government ignores the financial realities involved and inhibits
the process of capital formation.
Finally, we must begin to place greater reliance upon the
free enterprise system once again and less upon government. The
private enterprise system has long been a cornerstone of our
freedoms and has provided this nation with the greatest prosperity
and the highest standard of living ever known. But in today's
economic turbulence, there are continuing temptations to replace
that system with the forces of centralized government. The
government has become so huge and domineering -- and we have turned
to it so often for solutions that have fallen short of our dreams -that the time has come to rediscover how much can be accomplished
by private enterprise and by men and women who are free to determine their own destinies.
In coming years, if we continue to be seduced by the siren songs
of big government, we will not only inflict enormous damage upon our
economy but we will also sweep away the most powerful engine for
social enterprise anywhere in the world, our free enterprise system,
and replace it with an economy that is managed and directed by the
same people who have given us the worst peacetime inflation in our
history and the most severe recession in more than a generation.
Ladies and Gentlemen: What I have said to you here today
expresses my deepest convictions as a public servant. I came to
Washington two and one half years ago because -- as corny as it
may sound in this age of cynicism -- I wanted to try to repay just
a small amount of what this country has given to me. And I am
proud to be here. But when I see what is happening in Washington
today, I can only shudder about the world that we are building for
our children.
I have had the good fortune to spend most of my professional
life in the heart of our financial world. Anyone who spends a
great deal of time there and is willing and able to learn about
the workings of the marketplace gains a basic grasp of what constitutes the difference that I referred to earlier between sound
and unsound policies. And I am terribly saddened and frequently
outraged -- as I am sure the American people must be too --by some
of the practices that I now encounter in our nation's Capital.
What we are talking about here are the issues that will
determine what this country will be like for a generation or more
to come. We have a choice: we can either continue to compound
the errors of the past, or we can renew the foundations of our
economic system and begin to build wisely and soundly for the future.
The American people know this and there is no question in my mind
where they stand, but I also believe that as a nation we will make
the right decisions about the future only if more of our citizens

- 10 -

-- Americans of strength and character like those of you here
today -- are willing to fight for their convictions. I urge
you to stand up and be counted.
Thank you very much.
0O0

federal financing bank

WASHINGTON, D.C. 20220

a) CM

a> o

0
FOR IMMEDIATE RELEASE

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Contact:

Jack Plum
964-2615
June 18, 1975

FEDERAL FINANCING BANK COUNCIL TO MEET FRIDAY
The Advisory Council of the Federal Financing Bank will
meet Friday, June 20, at Main Treasury, to discuss Bank borrowing
and lending policies approved by the Board of Directors earlier
this month. The Council will also review operations of the Bank
since its activation 13 months ago.
The Advisory Council was created by Executive Order in May
1974. Secretary of the Treasury William E. Simon is chairman.
Other members include the Secretaries of Agriculture, Commerce,
HEW, HUD, and the Department of Transportation, the President of
the Export-Import Bank, and the Postmaster General.
The Bank was established by Act of the Congress in December
1973, and began operations in May 1974.
In its thirteen months of operation, the Bank has made 150
advances involving programs of 15 agencies, for a total of $13
billion in loans outstanding. The four principal agencies using
the facilities of the Federal Financing Bank have been the Farmers
Home Administration of the Department of Agriculture, the ExportImport Bank, the Postal Service, and the Tennessee Valley Authority
The Bank, subject to the general supervision and direction
of the Secretary of the Treasury, is an instrumentality of the
United States authorized to issue its own securities. However,
the Bank currently is financing operations by borrowing from the
Treasury rather than by issuing obligations publicly.
The Federal Financing Bank is authorized to make commitments
to purchase and sell any obligation which is issued, sold, or
guaranteed by a Federal agency. By coordinating and consolidating
the financing of Federal agencies and other borrowers whose obligations are guaranteed by the Federal government, the Bank contributes to the more orderly approach to the securities market,
reducing the frequency of Federally sponsored financing while
lowering costs to the U.S. government of borrowing in the capital
markets.
oOo

_n in

federal financing bank

en 9
c/> C M

WASHINGTON, D.C. 20220

g> O
n" CM

FOR IMMEDIATE RELEASE

Contact:

Jack Plum
964-2615
June 18, 1975

FEDERAL FINANCING BANK COUNCIL TO MEET FRIDAY
The Advisory Council of the Federal Financing Bank will
meet Friday, June 20, at Main Treasury, to discuss Bank borrowing
and lending policies approved by the Board of Directors earlier
this month. The Council will also review operations of the Bank
since its activation 13 months ago.
The Advisory Council was created by Executive Order in May
1974.
Secretary of the Treasury William E. Simon is chairman.
Other members include the Secretaries of Agriculture, Commerce,
HEW, HUD, and the Department of Transportation, the President of
the Export-Import Bank, and the Postmaster General.
The Bank was established by Act of the Congress in December
1973, and began operations in May 1974.
In its thirteen months of operation, the Bank has made 150
advances involving programs of 15 agencies, for a total of $13
billion in loans outstanding. The four principal agencies using
the facilities of the Federal Financing Bank have been the Farmers
Home Administration of the Department of Agriculture, the ExportImport Bank, the Postal Service, and the Tennessee Valley Authority
The Bank, subject to the general supervision and direction
of the Secretary of the Treasury, is an instrumentality of the
United States authorized to issue its own securities. However,
the Bank currently is financing operations by borrowing from the
Treasury rather than by issuing obligations publicly.
The Federal Financing Bank is authorized to make commitments
to purchase and sell any obligation which is issued, sold, or
guaranteed by a Federal agency. By coordinating and consolidating
the financing of Federal agencies and other borrowers whose obligations are guaranteed by the Federal government, the Bank contributes to the more orderly approach to the securities market,
reducing the frequency of Federally sponsored financing while
lowering costs to the U.S. government of borrowing in the capital
markets.
oOo

Thank you for inviting me here today.

It's lovely

to be back in my own sunny, wonderful Southwest. My
husband Ed has driven down from Albuquerque, which is
super, and of course I enjoy being "back home" with
CPA wives this morning.
You know, the month of June is very special to me.
Last June 21, I became the 3 5th Treasurer of the United
States. And 27 Junes ago, I became Mrs. Edward J. Neff.
Both were major events in my life. But I have 27 years
invested in the joy and the job of being Mrs. Edward Neff,
wife and mother, and that is the central point of my
existence, the bedrock of my life. Without Ed to help
me stretch my mind and interests, I don't know that I
would be either interested in, or qualified, to become
the United States Treasurer. So I welcome this opportunity
to say what you girls already know -- Certified Public
Accountants make super husbands!
Today, I'd like to talk about ourselves — about
women. And I'm going to say something we already know,
which is that women work very hard.

Remarks by the Honorable Francine I. Neff before the
Texas Society of CPA wives in Fl Paso, Texas on June 19,
1975.

We work inside our homes as wives and mothers.
Some 43 percent of American wives also hold outside
jobs. And, in addition, millions of us volunteer for
important community tasks.
The whole subject of volunteerism turns me on,
because I don't really think the country appreciates
the enormous value of this huge work force. Stop and
think for a minute what would happen tomorrow if
America's 70 million volunteers walked off their jobs.
Think of the chaos in our hospitals; think of the cancelled school programs; the children that would go
hungry in community nurseries; the art museums that
would close their doors; the fires that are controlled
by volunteer firemen; the parks and playgrounds that
would never be planned or built. The quality of
American life would go "plonk" without volunteers to
give us what money can't buy. In fact,the Center for
Voluntary Action in Washington, D. C. has guestir.ated
that volunteers contribute 50 billion dollars yearly
to America's Gross National Product.
My point is that today's women do their fair and
full share of the Nation's work in many different way-s.
We don't get all the recognition or financial rewards
we might, but conditions are certainly better than they
used to be. When I became United States Treasurer a
year ago, I discovered that the very first woman worker

-3-

at the Treasury Department was a Mrs. Helen Bennett.
In 1861, she was allowed to substitute for her husband,
who was ill, but she had to work under his name to conceal the fact that Treasury had a womjin employee. After
her husband died, Mrs. Bennett married again and continued to work, this time under her brother's name. She
did so well that a few years later one of my early predecessors as Treasurer of the United States -- a man of
course -- hired several more women because, in his words,
"Women will be cheaper." In fact, he paid them just half
of what the men received.
That's ancient history, of course. Today the Treasury
Department has a woman director of the Bureau of the Mint,
and I am the Treasurer and National Director of the United
States Savings Bonds Division. These are appointive
positions, but we also have a Treasury woman with a
Civil Service GS-18 rating, which is the very highest
Civil Service grade, and is a rating held by only eight
women in the entire Federal Government.
Women have progressed in other fields as well. In
politics, there is a woman governor of Connecticut, a
woman lieutenant governor in New York, and a woman, Mrs.
Carla Hills, who is President Ford's Secretary of Housing
and Urban Development. And, a good friend of mine, Mary
Louise Smith, is the first woman chairman of the Republican
National Committee. This is especially interesting v:hen
we remember that no American woman could even vote until

-4-

the 1920fs.
We don't need a cigarette ad to tell us that
women have come a long way.

In fact, some of us may

wonder if the proposed Equal Rights Amendment to the
Constitution —

the E.R.A. —

is needed' today.

know that it generates quite a bit of controversy.
I must tell you that I believe in the Equal Rights
Amendment, although I wish it were called the Equal
Rights and Responsibilities Amendment, as I feel that
every right has a responsibility attached to it. And
I must add that I feel the Equal Rights Amendment is
particularly needed not for the super-achievers among
us, who will go forward regardless, but for the great
majority of women who need the encouragement of legal
equality to improve their lives.
The language of the E.R.A. is short and simple:
"Equality of rights under the lav; shall not be denied
or abridged by the United States or by any state on
account of sex."

This handful of words began its

journey to Congress 52 years ago, but the amendment
didn't pass the House and Senate until 1972.

It must

be ratified by 38 states within the next four years to
become law.

At present 34 states have said "Yes" to

ERA.
The Equal Rights Amendment concerns legal equality
only.

And what it doesn' t do for us is just as important

as what it does do.

-5-

3
—

ERA does not force, or even encourage, women

to go out and work.
—

It does not invalidate present alimony, child

support, or custody laws.
—

It does not invade privacy by requiring common

bathing or sleeping facilities anywhere.
—

It does not concern itself with the social

relationships of men and women.
— And it certainly does not take

women off

of any pedestal .
The Equal Rights Amendment does not downgrade the
homemaker, and of couse it doesn't change our biological
functions.

We will still have the children,and husbands

and wives will still be responsible for their offspring,
and will continue to divide the work of r.arriage
they see fit.

ERA will not make more women compete in

the work force; but, as I said earlier, about 43 percent
of American wives are already working outside the home,
and ERA can make it easier for them to obtain better jobs.
Some opponents of ERA feel that the government might
draft the mothers of small children for military service
sometime in the future.
Well, nobody at all is being drafted today.

But

if a draft were reinstated, it's highly unlikely that
young mothers would ever be considered.

Scmeone always

has to take care of children, and the first choice in

3 o \America would remain the mothers. Nobody enjoys being
drafted for military service, but even during the
height of America's involvement in Vietnam —
1968 —

back in

only 7 percent of the eligible men were inducted,

and only about 1 percent of them ever saw combat.

the vision of wives and mothers slugging it out in the
front lines is highly improbable.
Finally, some people seem to feel that the Equal
Rights Amendment would sweep women off of a soft cushy
pedestal.
Well, we all appreciate courtesy and chivalry.
But about half of all women between 18 and 6 5 already
work.

More than 60 percent of American adults living

in poverty are women.

Nine out of ten American women

will work at paid jobs sometime in their lives.

The

high cost of living -- the high divorce rate -- the large
numbers of women already working -- these are already
facts and E.R.A. is simply taking account of them.
Courtesy and kindness and good humor will always be
desirable.

But we don't need legal inequality for r.en

and women to genuinely love and respect each other.
The Equal Rights Amendment provides for legal
equality, and that's all.

-7-

mi
Let's not be sidetracked by frivolous issues.
ERA will not improve or change anyone's morals or
manners or I.Q. It simply gives us the legal opportunity to be the best person we can be. , The rest,
as always, is up to each individual.
The opportunity to be the best that we can is
what America is all about —
our lives —

responsible freedom in

free speech, a free press and let's not

forget the free enterprise system.

I'm a firm believer

in the marketplace economy, and so is my super boss in
Washington, Treasury Secretary Simon.
Secretary Simon is very concerned with the current
inflation and recession.

He feels, as do I, that a

major reason for our economic problems is Big Government
and the resulting big budgets and bigger deficits.

that regard, I would like to mention two financial
figures of importance to us all.
First, the public debt of our Nation is over 530
billion dollars, and growing fast.

The money goes for

many government programs that people seem to want, but
don't seem to want to pay for.

Somehow7, these programs

have got to be cut back.
And the- other big figure is -- would you believe -a Congressional spending ceiling for fiscal year 197 6
that is around $367 billion dollars.

That's over a

billion dollars a day, every day of the year, that will

EE
be spent by your elected government.
$367 billion dollars is mind-bogglihg, even for
Texans who are used to superlatives. But if you don't
like the idea that your government is spending so much,
then call, write, wire,or talk to your Congressman.

Any

housewife can tell Congress that fiscal input and fiscal
output sometime, somewhere, have to balance —

and I

hope millions of housewives tell their Congressmen just
that.
Of course, the Treasury Department doesn't decide
the Federal budget or how to spend the money, except
for its own allotment.

But Treasury must raise these

enormous sums of money through taxes, deficit financing,
and the like.
There are different opinions as to how the country's
financial markets will absorb the enormous credit demands
being made by the government.

Timing is critical.

The

financing can probably be done without too much difficulty
at the present time because of the slack in the economy.
But when the economy picks up more steam, perhaps late
this year or next, then there may be some very real danger.
The size of the problem

will depend upon the volume of

federal credit demands competing with the credit needs of
the private sector.
Another question at Treasury is whether the government's deficit should be financed in Treasury bills and

other short-term instruments, or by the Treasury
borrowing some of its requirements in the long-term
capital markets.
We feel that the best debt management is diversification. While the largest portion of the debt will
remain in relatively short maturities, some of it must
be spread elsewhere in order to minimize the possible
volatility of the short-term money markets.
As the United States Treasurer, and the National
Director of the U. S. Savings Bonds Program, I'm pleased
to say that Savings Bonds play an important role in our
Nation's debt management program.
About 23 percent of the privately held portion of
our public debt is held in the form of Savings Bonds.
This 23 percent totals more than $65 billion dollars worth
of bonds. And this is important because Savings Bonds
are the least inflationary way to finance our debt. Bonds
remain outstanding for approximately 6 years, as contrasted
to less than 3 years of outstanding life for other marketable
instruments. And, of course, financing a rapidly maturing
debt can be difficult and costly.
Savings Bonds are good for America, and they're
also good for individual Americans. They are a safe,
painless way to build your financial reserves, if you,
like me, have yearnings that exceed your earnings.

-10-

I'm also proud of our bond program because 97

percent of the people selling bonds are unpaid volunteers. I feel right at home with these men and women,
because I too have been a volunteer for everything from
the PTA to the GOP to the president of the New Mexico
CPA auxiliary. In fact, even way back as an adolescent,
I sold War Bonds in my hometown of Mountainair, New Mexico,
when World War Two was in the headlines instead of the
history books.
I'm sure some of you have worked in the Savings
Bonds program — and thank you. I know that you have
received great satisfaction from helping to build our
Nation's future.
The future concerns all of us. My own two children
— a boy and a girl — are now in their early twenties.
When they were teenagers, I often talked with various
groups of high school students throughout New Mexico.
I discussed many subjects but I often brought some part
of the speech around to the free enterprise system. And
I would ask students how much money they thought businessmen
made in the way of profits.
Well, it was an eye-opener to me to find that most
of these bright boys and girls thought businessmen made
after-tax profits of around 40 to 50 or even 60 percent.
When I explained that after-tax profits actually averaged
somewhere around 5 percent or less, they didn't believe

-11-

me. They were convinced that businessmen were rolling '
in money. I was often reminded of w7hat the educator
Irving Kristol wrote: "How have we managed to raise a
whole generation of young people who do not know how their
parents make a living?"
Now, economics is not very sexy -- it can't be
sung or danced or played on a guitar. But there is
something wrong when, as parents we fail to provide our
children with a reasonably accurate view of the economic
system which shapes their society and their lives. Surely
there is a challenge to us here to help see that our
children, and their children, understand something so
important to their future.
When I accepted your invitation to speak today, I
did a little research on the Texas school system. And
I was very pleased to discover that, beginning this fall,
all Texas elementary and secondary schools will require
a course in economics and the economic system, under
Texas House Bill 1118. I'm told that right now you have
workshops and in-service teacher education programs going
on. I understand the program is bilingual and will
include groups of Texas businessmen and other working
people who will go into the classrooms and talk about
their jobs and problems and opportunities.
This is grand and I hope economic education becomes
widespread throughout America. I often think that if I
were not the United States Treasurer, I would love to become

involved in working out some fresh, new, exciting ways to
teach our kids the economic A.B.C.'s. I hope the idea
excites you, too, because it needs the kind of excellent
leadership CPA wives can give.
Well, I hadn't meant to talk this long, but sometimes I forget to watch the clock. I have not said much
about the Nation's economic problems, because I know
you're aware of them already. But I would like to
say that, despite any problems, and we have them, this
is still a strong and wonderful country.
People have caused our problems, and people can
solve them. Let's all become part of the problemsolving process. June 19th of 197 5 is a great time to
be alive. Let's be alive to our personal opportunities
for a better existence. And let's work with other women
and men to dream dreams and then to turn them into
realities.
Thank you.

Thursday, June 19, 1975

QUESTIONS AND ANSWERS
ON
THE PUBLIC DEBT
Public attention is focused on the national debt as the
Treasury prepares to sell enormous amounts of securities to
finance unprecedented Federal deficits expected for fiscal
years 1975 and 1976.
Having to finance such deficits, as Treasury Secretary
William E. Simon has stated, risks putting severe strains on
the nation's financial system, especially as the economy recovers and private demand for credit in the capital markets
rises. Exactly how severe depends largely on control -- now
and in the future --of excessive spending which drives the
federal budget into the red.
The Treasury Department has prepared the attached questions
and answers on budget and debt problems and policies in order
to answer frequently-asked questions.

TREASURY DEBT OPERATIONS
QUESTION: What is the national debt?

ANSWER: The term national debt refers to the public debt of
the United States, which includes Treasury obligations
issued under the Second Liberty Bond Act, as amended,
and a small amount of other items.
The term "national debt" is also used to refer to the
debt subject to statutory limit. This is essentially
the same as the public debt, except that the currency
items are excluded and the guaranteed debt of federal
agencies, such as FHA debentures, are included. Also
included is the remaining amount of participation
certificates still outstanding which were originally
issued in fiscal year 1968 under the Participation
Sales Act of 1966. Data on the debt subject to statutory
limit appear in the Monthly Statement of the Public Debt
and in more detail in the monthly Treasury Bulletin.
Data on the guaranteed debt of agencies also appear in
the much
Monthly
of debt?
the Public Debt.
QUESTION: How
is Statement
the national
ANSWER: As of May 31, 1975, the public debt of the United States
totalled $528.2 billion -- $54.3 billion more than a
year earlier.
Interest on the public debt was $29.3 billion in fiscal
1974 and is estimated to reach $32.9 billion in fiscal
1975 and $36.0 billion in fiscal 1976. Interest on the
public debt is the third largest budget item and is
exceeded only by national defense outlays and income
security payments.
The average interest rate on the interest-bearing part
of the public debt was 6.416 percent on May 31, compared
to 6.529 percent a year earlier.
QUESTION: How much is the Federal debt expected to increase?
ANSWER: The Federal deficit is estimated at $42.6 billion in
fiscal year 1975 and $59.9 billion in fiscal year 1976.
Receipt, outlay, deficit and outstanding debt estimates
are presented in Table 1. Financing our deficits will
add as much as 50 percent or more to private holdings
of marketable Treasury securities in the 18-month period
from January 1975 to June 1976.

2 The Office of Management and Budget has prepared
projections of the Federal budget t hrough fiscal year
1980. These projections assume tha t Federal program
levels remain constant, except wher e they would change
under current law or .specific Admin istration recommendations. The anticipated increa se in energy research
and development programs is the Pre sident's major
spending initiative in 1976-77. Gi ven these assumptions,
the Federal deficit is expected to be $34.0 billion in
fiscal 1977, with smaller deficits in each year before
the surplus projected for fiscal ye ar 1980.
TABLE 1
Budget Totals
(fiscal years; in billions of dollars)
Description
Receipts

1975
estimated

1976
estimated

$ 264.9

$ 281.0

$ 299.0

268.4

323.6

358.9

-3.5

-42.6

-59.9

486.2
346.1
476.0

544.5
396.9
534.0

617.5
470.9
607.1

1974
actual

Outlays
Deficit

(-)

Outstanding debt, end of year
Gross Federal debt
Debt held by the public
Debt subject to limit

Source:

Office of Management and Budget, Mid-Session
Review of the 197 6 Budget

3"
QUESTION: How does the gross Federal debt differ from the public
debt?
ANSWER: The public debt includes only securities issued by the
Treasury Department, while the gross Federal debt also
includes the debt of certain Federal agencies which totaled
$11.4 billion at the end of 1974. The Government National
Mortgage Association ($4.3 billion), the Export-Import
Bank of the United States ($2.9 billion), the Tennessee
Valley Authority ($2.1 billion), and Defense Department
family housing assistance program ($1.3 billion) account
for most of this agency debt.
QUESTION: If the national debt is already so large, why are we
running these huge deficits?
ANSWER: The federal deficits expected for fiscal years 1975 and
1976 reflect in large part the anticipated adverse impact
of the recession on individual and business income and
thus on Federal tax receipts. In addition, legislation
was enacted in March which provides rebates on 1974 individual income taxes and other temporary reductions
in federal taxation to help stimulate the economy.
Further, because of the recession greater Federal outlays
have been provided for income maintenance programs,
including unemployment insurance, social security, and
veterans' benefits. An attempt to balance the federal
budget in a recession by cutting back federal outlays or
raising taxes could aggravate downward pressures on the
economy, increase unemployment and intensify economic
hardship.
Administration policy is aimed, however, at balancing
the federal budget over the course of the business cycle
to promote both economic stability and investment. Thus,
while deficits in the federal budget are desirable and
even inevitable in a recession, the budget tide must
be reversed when economic strength is regained.

- 4QUESTION: Who owns the national debt?
ANSWER: Holders of public debt securities can be divided into
three broad categories: (1) Private investors, (2)
Government Accounts and (3) the Federal Reserve System.
(The estimated ownership of public debt securities in
1946 and during years 1970 to 1974 is presented in
Table 2.) Owners of public debt securities received
interest totalling $31.3 billion in calendar year 1974.
At the end of 1974 private investors held $271.0 billion,
or about 55 percent of public debt securities. Individuals
held the largest share of that, $84.8 billion, of which
$63.4 billion was in United States savings bonds.
Government accounts, including the social security
trust funds which are required by law to invest their
surpluses in Federal securities, held $141.2 billion,
or 29 percent of public debt securities outstanding at
the end of 1974.
Federal government securities are income-earning assets
of the government accounts which augment the funds
available to make social security and other benefit
payments.
The Federal Reserve has acquired its portfolio over the
years in the course of open-market operations to affect
the supply of money and credit available in the economy.
At the end of 1974, the System's holdings totalled $80.5
billion, or 16 percent of public debt securities outstanding.
Federal Reserve earnings are returned to the Treasury
after deductions for operating expenses and a nominal
dividend on paid-in capital of member banks. In calendar
year 1974, the System's gross earnings amounted to $6.3
billion, of which $5.6 billion was returned to the
Treasury.

, Table 2
Estimated Ownership of Public Debt Securities
(In billions of dollars)
: Calendar
: Feb. 28,:
: Dec. 31,: Dec. 31,: Dec. 31,•: Dec. 31,: Dec. 31,.:year 1974
:
1946 :
1970 :
1971 :: 1972
1973 •
1974 :: Change
::
$ 93.8
63.9

$ 62.7
81.9

$ 65.3
74.0

$ 67.7
74.7

$ 60.3
77.3

$ 56.5
84.8

- 3.8
+ 7-5

Nonfinancial corporations....
State and Local Governments..
Foreign and international....

35.5
19.9
6.7
2.4
9.5

9.8
7.3
27.8
20.6
19.9

9.3
11.4
25.4
46.9
15.6

8.7
9.8
28.9
55.3
17.6

9.3
10.9
29.2
55.5
19.3

8.6
11.0
29.2
58.4
22.5

- 0.7
+ 0.1
0.0
+ 2.9
+ 3.2

Held by private investors....

231.6

229.9

247.9

262.5

261.8

271.0

+ 9.2

22.9
24.7

62.1
97.1

70.2
106.0

69.9
116.9

78.5
129.6

80.5
141.2

+ 2.0
+11.6

$279.2

$389.2

$424.1

$449.3

$469.9

$492.7

+22.8

Individuals
Insurance companies and

Office of the Secretary of the Treasury
Office of Debt Analysis

- 6 QUESTION: Does the public debt represent all of the liabilities
of the United States Government?
ANSWER: No. In addition to the public debt, several government
agencies are authorized to sell their own debt to the
public and to other government agencies and funds. The
gross Federal debt includes the public debt as well as
agency borrowing.
Contingent liabilities as of the end of the fiscal year
are published each January in the Statement of Liabilities
and Other Financial Commitments of the United States
Government. They cover a wide range of Federal loan
insurance and guarantee programs -- for example, at the
end of fiscal year 1974, FHA mortgage insurance ($90
billion), Federal insurance of deposits at banks ($442
billion) and thrift institutions (220 billion), and VA
mortgage guarantees ($26 billion) -- as well as liabilities under various pension plans, including social
security and railroad and civil service retirement. Longterm Government contracts and undelivered orders are also
included.
Since the probability varies greatly that these different
types of contingencies will actually result in Government outlays, the categories of contingent liabilities
cannot
be about
totaled
in any
way.
QUESTION: Why
worry
growth
inmeaningful
the Federal
debt so long as
the economy continues to expand?
ANSWER: The ratio of Federal debt to gross national product had
been declining since the end of World War II and many
economists and others have suggested that the debt
could continue to climb without creating an undue burden
on the economy so long as the economy continues to grow.
However, that ratio is now increasing, reflecting large
deficits and a slower GNP growth in terms of current
dollars. In the last 10 years GNP in current dollars has
grown by approximately 100 percent while Federal spending
has increased by more than 160 percent. Our ability to
limit Federal spending is directly related to the health
of the economy. If Federal spending is not controlled,
the economic recovery could be aborted at an early stage.
More important, in the long run, excessive Federal
spending and large Federal deficits pose serious problems
for investment in productive capacity in the U.S., since
the financing of Federal deficits competes with private
financing needs.

31?
Capital investment in the U.S. has lagged behind
investment in other industrialized countries for the
past several years. Indeed, the low level of investment in the U.S. can be disastrous for the long term,
whether from the standpoint of our international posture
or of assuring Americans at all income levels a better
standard of living.
QUESTION: What would happen if Congress simply refused to raise
the statutory debt limitation?
ANSWER: Without the ability to borrow, the Federal Government
within a few days would not be able to pay its bills
or meet its payrolls.
QUESTION: Can the statutory debt ceiling be used effectively to
control growth of Federal spending or the size of the
debt?
ANSWER: The debt ceiling has a very poor record as a device to
control the Federal budget. In fact, it has the potential
to have an adverse impact on the objectives of countercyclical Federal fiscal policy.
In a recession, when a shortfall in receipts causes the
deficit to grow, the debt limit can stand in the way of
deficit spending to stimulate the economy. Conversely,
the debt ceiling provides no budget discipline in an
economic expansion when receipts are high and Federal
spending restraint is needed to prevent the economy from
overheating.
As a practical matter, the deficit and the debt are the
result of Congressional actions on spending and taxing
programs. Attempting to prevent the debt from rising
once those vital decisions have been made merely impairs
the Government's ability to pay its bills.
The Congressional Budget Reform Act of 1974 provides the
mechanism for the Congress to set overall Federal outlay
and revenue targets with a view to the impact of the
Federal budget on the economy. Each action to change
spending, revenues, and the debt can be examined within
the context of the whole rather than piecemeal. This is
an important step toward gaining control over the Federal
budget.

- 8QUESTION

ANSWER:

Will the large Federal deficits expected in the forseeable future crowd other borrowers out of the credit
markets?

Since its securities are backed by the taxing and money
powers of the United States, the Federal Government has
first claim on funds available in the U.S. credit market.
Excessive Federal competition for available credit,
therefore, could push other borrowers out of the market,
with extremely serious economic consequences.
Current private credit demand already is unusually
high for a recession, reflecting the impact of inflation
on corporate profits and business and individual liquidity.
Private credit demand is expected to increase further
as the economy recovers. And this pickup in private
financing needs, including home mortgage credit, is
likely to occur at the same time Treasury financing
demands are heaviest, in fiscal year 1976.
The government sector -- including the U. S. Treasury
and Federal and sponsored agencies, plus State and local
governments -- are estimated to account for 80 percent
of funds raised in the securities markets in fiscal year
1976.
On a broader basis, which includes home mortgages and
short-term credit, as well as issues of debt securities,
the total Government share is estimated at about 50
percent of the total flow of funds in the U.S. financial
markets in fiscal year 1976.
Excessive Federal demand for capital funds would
particularly crowd out mortgage borrowers and mediumto-lower-rated business borrowers.
QUESTION: With heavy Federal Government borrowing and with signs
pointing toward increased private borrowing needs as
the economy recovers, what is the likely course of interest rates?
ANSWER: The timing and degree of interest rate movements depend
on a wide range of economic and financial factors. However, we can see potential pressures developing in the
financial markets that could prevent interest rates from
declining much further than they already have, particularly
in the long-term area of the market.

In addition to heavier borrowings, the possibility
that prices will soar again poses a threat to continuing declines in interest rates. Inflation is
the worst enemy of long-term fixed-income securities.
If monetary policy is overly expansionary and if
Federal spending is not restrained, an unprecedented
round of inflation and high interest rates could be
touched off.
While price increases have slowed in recent months,
there is ample evidence that inflationary expectations
persist. Investors insist on adding an inflation premium
to the return they must receive to entice them to purchase long-term securities.
Prime grade corporate bond yields have fallen little
from the peak reached in late summer 1974, even though
rates on short-term market instruments dropped dramatically. Also, there has been a trend toward shorter
note and bond issues as investors have demonstrated
a preference for intermediate term -- 5-to 10-year -maturities to avoid the uncertainties of tying up funds
for longer periods.x
QUESTION: What would be the consequences if the Federal Reserve
System moved to accommodate Federal and private financing
needs in an effort to prevent interest rates from rising?
ANSWER: The Federal Reserve System's transactions in Federal
securities are undertaken to expand or contract reserves
available to the Nation's banking system, and thus affect
the money supply and availability of credit in the U.S.
economy. Overly expansionary monetary policy would sow
the seeds for a resurgence of inflation.
If the Federal Reserve were to accommodate the Federal
Government's enormous borrowing needs and private credit
demand, interest rates might be held down for awhile.
But inevitably we woule have to pay the price of such
policy in the form of accelerated inflation and even
higher interest rates, followed by recession and higher
unemployment.

- 10 QUESTION: If a large volume of Treasury issues and heavier
private credit demand combine to push interest rates
upward again, at what point will savers begin to withdraw funds from financial institutions? In other words,
when will disintermediation begin?
ANSWER: These pressures begin to build when interest rates,
especially on short-term market instruments, rise above
rates that current Federal regulations allow financial
institutions to pay on time and savings deposits. There
was an increase in new money from non-competitive bids
in weekly auctions of Treasury bills, for example, when
bill rates rose above 7 percent on a discount basis
last summer.
While some savers withdrew their funds from financial
institutions to invest in Treasury securities directly,
the bulk of funds appears to have been invested in
obligations of other issuers and mutual funds that
specialize in money market instruments.
Tabulations of actual subscriptions in Treasury sales
of notes and bonds show that sales to individuals could
account for only a small fraction of savings outflows.
Even in August 1974, when the Treasury sold two notes
with 9% coupons in a denomination as small as $1,000
non-competitive sales to individuals in amounts of less
than $10,000 totalled about $225 million. This figure
represented less than one-eighth of the savings outflow
in that month.
The Treasury has attempted to balance the legitimate
interest U.S. citizens have in purchasing their Government's securities on the one hand, and the problems that
withdrawals of savings create for financial institutions
and the homebuilding industry on the other.
Americans should have an opportunity to invest in marketable securities of their Government without undue
difficulty. In this connection, most Treasury notes
and all Treasury bonds sold in the past year or so have
been available in a $1,000 amount.

9 )9
QUESTION: To minimize the impact of the enormous volume of
Treasury financing on the credit markets, should the
Treasury confine its offerings of securities to shortterm maturities?
ANSWER: Reflecting the large proportion of Treasury financing
that has been done in the short-term market, the passage
of time and maturity of privately-held marketable Treasury
securities has moved steadily downward over the past 10
years, reaching 2 years and 9 months in April 1975.
(See chart 1) Frequent and large Treasury borrowing
operations to raise new cash as well as to refund
maturing issues can lead only to increasing the volatility
of interest rate movements, especially in short-term
maturities, with destabilizing consequences for the
economy.
About 70 percent of marketable Treasury securities held
by private investors mature in 2 years or less, while
22 percent mature in 2 to 7 years and only 8 percent
mature in more than 7 years. (See charts 2-4). Even
excluding Treasury bills, which mature in 1 year or less,
the debt that is characterized as intermediate and longterm average only 4 years and 8 months. Clearly, the
Treasury must offer securities in all maturity areas to
achieve a more stable debt structure.
Treasury Department supports legislation to increase the
flexibility to offer securities on terms in line with
current market conditions. A major stumbling block to
lengthening the debt since 1965 has been the 4-1/4 percent
ceiling on the interest rates the Treasury can pay on
securities maturing in more than 7 years -- in other
words Treasury bonds.
In March 1971, the Congress excepted $10 billion of
Treasury bonds from that ceiling, and the Treasury has
issued nearly the entire $10 billion in the interim.
Holdings of Government accounts (mostly social security
trust funds) and the Federal Reserve are not counted
against the $10 billion exception.
The Treasury has used its relatively small $10 billion
exception to the 4-1/4 percent ceiling to achieve as much
debt lengthening as possible without setting off adverse
consequences in the market. Treasury has acted responsibly in issuing long-term debt securities and has requested an additional $10 billion exception to the 4-1/4
percent ceiling. Long-term Treasury bonds issued recently
yield about 8 percent.

CHART 1

AVERAGE LENGTH OF THE MARKETABLE DEBT^
Privately Held
Years

June 1947
10 years
5 months

January 1965
5 years
9 months
/

April 1975
2 years
9 months

'48

I L

"52

'56

'60

'64

'68

A/ Semi-annual plots, calendar years 1946-1969, monthly thereafter.
2/ Partly estimated.
Oltict at th« S « r . u r y ot th. TrMtury
Ollic. at DtOI Arvilynt

May 12.1975-4

CHART 2

PERCENTAGE DISTRIBUTION OF PRIVATELY HELD
TREASURY MARKETABLE DEBT BY MATURITY CATEGORY

Under 1

Office of the Secretary of the Treasury
Office of Debt Analysis

1-2

2-3
3-5
Years to Maturity

5-7

Over 7

May 27. 1975-6

CHART 3

PERCENTAGE DISTRIBUTION OF PRIVATELY HELD
TREASURY MARKETABLE DEBT BY MATURITY CATEGORY

Under 1
Office of the Secretary of the Treasury
Office of Debt Analysis

1-2

2-3
3-5
Years to Maturity

5-7

Over 7

May 28 1975 7

CHART 4

MATURITY DISTRIBUTION OF PRIVATELY HELD
TREASURY MARKETABLE DEBT
$Bil. Under 1 Year
108.8

100
75
50 h
25
0
100
75
50250
100755025
0

1-2 Years

3-5 Years

5-7 Years

Over 7 Years

12.1

16.3

11.2

16.5

9.9

17.4

April 1975

Bills
88.1 \J
Notes &
Bonds
20.7

2-3 Years

oq 9
14.7

91.1

17.8

April 1974

69.4
20.6
21.7

14.7

15.0

April 1973

85.4
68.3
22.0

nil

Office of the Secretary of the Treasury
Office of Debt Analysis

16.0

21.7

May 27. 1975 5

- 16 '
Treasury notes are coupon securities maturing in 1 to
7 years, and there is no statutory interest rate ceiling
on Treasury securities maturing in 7 years or less.
The Treasury also requested legislation to extend the
maturity of notes to 10 years from 7 years, thus removing
the 4-1/4 percent ceiling from the 7 to 10 year maturities.
Treasury bills are usually issued in 91-day, 182-day and
52-week maturities and are sold at a discount. Since
Treasury bills are redeemed at par on maturity, the
return is the difference between the price paid by an
investor and the par value at maturity.

- 17 - .
r*

TYPES OF SECURITIES

QUESTION: What kinds of securities comprise the public debt?
ANSWER: Generally speaking, the public debt consists of (1)
public issues, and (2) special issues for Government
accounts.
Public issues are securities available to varied classes
of investors, such as commercial banks, insurance companies, foreign central banks and governments, state
and local governments, pension and retirement funds,
and individuals. The holdings of the Federal Reserve
System are in public issues. There are also some investments of Government trust funds in public issues,
as well as in special issues.
Public issues may be in marketable, negotiable form,
or they may be non-marketable and non-negotiable.
Treasury bonds, notes and bills are in the marketable
category; non-marketable securities include savings bonds
and notes, retirement bonds, foreign government series
securities, and state and local government series of
bonds, notes and certificates of indebtedness.
Of the public issues, which totaled $372 billion outstanding at the end of 1974, $281.4 billion, or 57.4% of the
debt, were in marketable and $89.6 billion, or 18.3? of
the debt, in non-marketable securities.
Special issues for Government accounts represent investments of the Civil Service Retirement Fund, the Exchange
Stabilization Fund, the Federal Hospital Insurance Trust
Fund, the Federal Old Age and Survivors Insurance Trust
Fund, the Highway Trust Fund, the National Service Life
Insurance Fund, the Railroad Retirement Account, and
similar funds and accounts which, by law, must be in
Treasury securities.
At the end of 1974, special issues for Government accounts
totaled $119.1 billion, or 24.3% of the total debt. (The
Government trust funds also held an additional $22.1
billion in public issues.)

- 18 QUESTION: What are the types and characteristics of marketable
public debt securities?
ANSWER: Currently, marketable securities are issued in the form
of Treasury bonds, Treasury notes and Treasury bills.
They are issued from time to time, pursuant to public
offerings, through the Federal Reserve Banks and Branches
and, except for Treasury bills, the Department of the
Treasury, Bureau of Public Debt.
All marketable securities are available in bearer form,
are transferable and may be sold in the market, and,
ordinarily, may be used as collateral for loans.
Bearer securities, the ownership of which is not recorded,
are payable to bearer. Title passes by delivery, without endorsement and without prior notice to the Treasury.
Bearer bonds and notes are issued with interest coupons
which must be detached and presented for payment when
the interest is due. Bills are issued without coupons
and only in bearer form.
Bonds and most issues of notes are also available in
registered form. The names of the owners are inscribed
on registered securities and, with the addresses, are
recorded by the Department. Interest is paid by check
drawn to the order of the owner of record on the Treasury's
books. Registered securities may be transferred by
assignment executed by the registered owner or the owner's
authorized representative.
Marketable Treasury securities held by member banks of the
Federal Reserve System for themselves or for customers may
also be issued in the names of such banks in book-entry
form. Such securities are represented by entries in the
accounts of the Federal Reserve Bank of the district in
which the member bank is located, and are evidenced by
a receipt. Interest is paid on the due date by credit
in the member bank's reserve account.
Treasury bonds are long-term issues. The bonds of each
loan have a fixed maturity of more than seven years from
the date of issue, when the principal amount becomes
payable. When so provided in the offering circular, bonds
may be called for redemption before maturity, at the
option of the United States, on and after specified dates,
upon four months' notice. Bonds bear interest at fixed
rates, payable semiannually. Interest ceases when the
principal amount becomes payable, whether at maturity or
on an earlier call date. Denominations of recent series
have

If)
been $1,000, $5,000, $10,000, $100,000 and $1,000,000.
Within the same loan, bonds may be exchanged (1) for
other authorized denominations, (2) bearer for registered
or book entry, (3) registered for bearer or book entry,
and (4) book entry for registered or bearer. Some outstanding bonds, issued prior to 1966, are redeemable at
par before call or maturity if owned by a decedent at
the time of his death and are used in payment of the
Federal estate tax due on his estate.
Treasury notes have a fixed maturity of not less than
one nor more than seven years from the date of issue,
when the principal becomes payable. Notes bear interest
at fixed rates, payable semiannually. Denominations
usually are $1,000, $5,000, $10,000, $100,000 and
$1,000,000, some series are offered without the $1,000
denomination. Within the same series, if registered notes
are offered, exchanges are authorized (1) for other
authorized denominations, (2) bearer for registered or
book entry, (3) registered for bearer or book entry,
and (4) book entry for registered or bearer.
Treasury bills are issued on a discount basis with
maturities not exceeding one year. They are usually
issued for terms of 13 weeks, 26 weeks or 52 weeks, at
which time the face amount becomes payable. From time
to time special issues of bills are made to raise
additional cash. These include tax anticipation bills
that mature several days after a regular tax due date
but which may be submitted at par in payment of taxes
due on that date. Bills are bearer securities issued
in denominations of $10,000, $15,000, $100,000, $500,000,
and $1,000,000. Bills of the same issue date may be
exchanged (1) for other authorized denominations, (2)
bearer for book entry and (3) book entry for bearer.
For particulars regarding the issuance of Treasury bills,
reference should be made to Department of the Treasury
Circular No. 418; the details of individual bill offerings
are announced by the Treasury in advance of each auction.
For particulars regarding the issuance of each series of
marketable Treasury bonds and notes, reference should be
made to the particular offering circular which specifies
terms and conditions.
The general regulations governing United States securities
are contained in Department of the Treasury Circular No.
300.

- 20 "
QUESTION: How are marketable securities sold?
ANSWER: Marketable securities may be purchased direct from
the Treasury only on the occasion of a public offering.
Tenders are received at Federal Reserve Banks and Branches
and, except for Treasury bills, at the Department of the
Treasury, Bureau of Public Debt, Washington, D.C. 20226,
during such times as the books are open for the receipt
of tenders.
Banking institutions generally handle tenders for
customers; however tenders may be made direct to a
Federal Reserve Bank or Branch or, except for bills,
to the Treasury.
Tenders for bills are invited weekly for 13-week and 26week series and approximately monthly for the 52-week
series. Bonds or notes or both are offered to refund
maturing securities and at such other times as cash
requirements dictate.
Recent offerings of all securities have provided for
competitive bidding, with the stipulation that noncompetitive bids not exceeding $500,000 will also be
accepted. Non-competitive bidders agree to accept the
securities at the average of the accepted competitive
tenders.
Competitive tenders for bills must be expressed on the
basis of 100, with not more than three decimals, e.g.,
99.925.
Competitive tenders for most offerings of bonds and notes
must be expressed in terms of annual yield in two decimal
places, e.g., 6.02; and not in terms of price. After
the acceptable tenders have been determined, a coupon
yield is established to the nearest 1/8 of 1% necessary
to make the average accepted price 100.000 or less; that
is the rate of interest paid on all securities. Competitive tenders at the lowest yields, and all non-competitive tenders, are accepted to the extent required
to obtain the amount offered.
A deposit of 2% must accompany each bill tender submitted
by other than an incorporated bank or trust company or
a recognized dealer in investment securities; unless the
tender is accompanied by an express guaranty of payment
by a bank or trust company.

- 21 .

^9
A deposit of 5% must accompany each bond or note tender
received from other than a commercial or other bank
for its own account, Federally-insured savings and loan
associations, state, political subdivision or instrumentality, public pension and retirement or other public
fund, dealer, and others specifically cited in the
offering circular and announcement.
After original issue, Treasury bonds, notes and bills
may be purchased in the market at prevailing market prices.
Information regarding such purchases may be obtained from
a bank or a securities dealer.
QUESTION: What kinds of nonmarketable securities are available to
the public?
ANSWER: United States Savings Bonds of Series E and H are on
continuous sale to the public at authorized agencies.
Retirement Plan Bonds are available for purchase by
self-employed persons doing business as sole proprietors
or partners, and by trustees of any qualified pension or
profit sharing plan. (For particulars see Department of
the Treasury Circular, Public Debt Series No. 1-63.)
Individual Retirement Bonds are available for purchase
by persons not covered by any other retirement plan and
by certain exempt organizations. (For particulars see
Department of the Treasury Circular, Public Debt Series
No. 1-75.)
State and local government series of bonds, notes and
certificates of indebtedness are available for purchase
by states, municipalities and other governmental bodies.
(For particulars see Department of the Treasury Circular,
Public Debt Series No. 3-72.)
Treasury Certificates of Indebtedness - REA Series are
available for purchase by recipients of loans from the
Rural Electrification Administration or Rural Telephone
Bank. (For particulars see Department of the Treasury
Circular, Public Debt Series No. 1-73.)
Treasury Bonds - REA Series are available for purchase
by borrowers from the Rural Electrification Administration.
(For particulars see Department of the Treasury Circular
No. 1046.)

- 22 "

Depositary Bonds are available for purchase by banking
institutions qualified as depositaries and financial
agents. (For particulars see Department of the Treasury
Circular No. 660.)
Treasury Bonds, Investment Series B-1975-80, and U.S.
Savings Notes are no longer on sale, but they have not
finally matured and continue to earn interest. (For
particulars, see Department of the Treasury Circulars
No. 883 for the bonds, and Public Debt Series No. 3-67
for the notes.)
The other types of nonmarketable securities in the public
debt are the foreign government series, either dollar
denominated or foreign currency denominated. These
securities are issued as a result of negotiations with
foreign central banks and governments desiring to make
the investment.
QUESTION: What are the essential characteristics 0f savings bonds?
ANSWER: Savings bonds are non-marketable, non-negotiable securities,
which are on continuous sale at official agencies. There
are two series currently on sale: Series E and Series H.
The bonds are dated as of the first day of the month in
which they are purchased, are issued only in registered
form, and may not be used as collateral for loans.
They are issued in single ownership, co-ownership ("A" or
"B") or beneficiary ("A" payable on death to "B") forms
in the names of natural persons, whether adults or minors,
and in single ownership form in the names of fiduciaries
and private and public organizations, but not in the names
of commercial banks in their own right. The social
security or employee identification number of the owner
or first-named co-owner is required as part of the inscription.
The bonds are not callable for redemption before their
extended maturity dates. However, at the option of the
owners, they are redeemable before extended maturity in
accordance with their terms.
Bonds which are lost, stolen, mutilated or destroyed will
be replaced, free of charge.
The owners of E and H bonds may retain their bonds for
extended periods after original maturity and continue to
earn interest. No action is required of an owner desiring to take advantage of any extension priviledge.

23 -

Series E bonds are appreciation type bonds issued on
a discount basis at 75% of the face value. Denominations
range from $25 to $10,000. The bonds currently on sale
mature five years from the issue date, but may be held
and continue to earn interest for an additional ten years.
They may be redeemed at any time after two months from
the issue date, at fixed redemption values. The bonds
increase in value each six months over the issue price.
The increase in value, paid when the bonds are redeemed,
represents interest. When held to original maturity,
the yield is equivalent to interest at the rate of about
6% per annum, compounded semiannually; if redeemed before
original maturity, the yield is less. There is an annual
limitation on holdings of $10,000 (face amount) for each
owner.
The appreciation in value (interest) is subject to Federal
income tax and is reportable as it accrues; however, such
reporting may be deferred until the bonds are cashed,
disposed of or reach final maturity, whichever happens
first.
Series E bonds may be purchased over the counter or
through bond-a-month or payroll savings plans from some
19,000 qualified issuing agents which issue bonds at about
36,000 points. They may be redeemed by any financial
institution qualified as a paying agent or by a Federal
Reserve Bank or Branch or the Department of the Treasury,
Bureau of the Public Debt. There are some 16,500 qualified
paying agents which pay bonds at more than 36,000 points.
Series E bonds, alone or in combination with savings notes,
may be exchanged at current redemption values for Series
H bonds. The bonds/notes exchanged must have a current
redemption value of at least $500. Owners who have deferred reporting, for Federal income tax purposes, the
interest as it has accrued, may continue to defer such
reporting to the taxable year in which the Series H bonds
received in exchange are redeemed, reach final maturity,
or are otherwise disposed of.
Series H bonds are current income bonds, sold at face
amount and issued in denominations of $500, $1,000, $5,000,
and $10,000. They mature 10 years from the issue date,
but may be held and continue to earn interest for an
additional ten years. They are redeemable at par, at the
owner's option, after six months from the issue date.
Interest is paid semiannually by check in varying amounts
based on a graduated scale fixed to produce a return of
about 6% per annum, compounded semiannually, if the bonds
are held to maturity.

- 24 Except for H bonds issued in exchange for E bonds and
savings notes, there is an annual limitation on holdings
of $10,000 (face amount) for each owner.
Series H bonds may be issued and redeemed only by a
Federal Reserve Bank or Branch or by the Department of
the Treasury, Bureau of Public Debt.
For particulars about savings bonds, reference should
be made to the following Department of the Treasury
Circulars: No. 530, governing regulations; No. 653,
offering of Series E bonds; No. 905, offering of Series
H bonds; No. 1036, exchange of Series E bonds and savings
notes for Series H bonds.
QUESTION: What is the tax status of Treasury securities?
ANSWER: Income derived from Treasury bonds and notes and United
States Savings Bonds and Savings Notes is subject to all
taxes imposed under the Internal Revenue Code of 1954.
For purposes of taxation, any increment in value on
savings bonds and savings notes, which is represented
by the difference between the price paid and the redemption
value received, whether at or before final maturity, is
considered to be interest. The amount of discount earned
on Treasury bills is considered as ordinary income. Income derived from the bills, whether interest or gain
from the sale or other disposition, does not have any
exemption, as such, and loss from the sale or other disposition of the bills does not have any special treatment,
as such, under the Internal Revenue Code of 1954. All
securities are subject to estate, inheritance, gift or
other excise taxes, whether Federal or State, but are
exempt from all taxation now or hereafter imposed on the
principal or interest thereof by any State, any possession
of the United States, or by any local taxing authority.
G P O 890-589

For information on submitting tenders:

TELEPHONE WO4-2604

FOR IMMEDIATE RELEASE

June 18, 1975

TREASURY TO AUCTION $1.75 BILLION OF NOTES
The Treasury will auction to the public under competitive and noncompetitive
bidding up to $1.75 billion of 4-year notes. The coupon rate for the notes will
be determined after tenders are allotted. Additional amounts of the notes may
be issued at the average price of accepted tenders to Government accounts and to
Federal Reserve Banks for themselves and as agents of foreign and international
monetary authorities.
The notes will be Treasury Notes of Series E-1979 dated July 9, 1975, due
June 30, 1979 (CUSIP No. 912827 ER 9) with interest payable on a semiannual basis
on December 31, 1975, and thereafter on June 30 and December 31. They will be
issued in registered and bearer form in denominations of $5,000, $10,000, $100,000
and $1,000,000, and they will be available for issue in book-entry form.
Payment for the notes must be made on July 9, 1975. Payment may not be made
through tax and loan accounts. Notes in bearer form will be delivered on July 9,
1975.
Tenders will be received up to 1:30 p.m., Eastern Daylight Saving time,
Wednesday, June 25, 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 Tuesday, June 24. Each tender must be in the amount of
$5,000 or a multiple thereof, and all tenders must state the yield desired, if a
icompetitive tender, or the term "noncompetitive", if a noncompetitive tender.
Fractions may not be used in tenders. The notation "TENDER FOR TREASURY NOTES"
should be printed at the bottom of envelopes in which tenders are submitted.
Competitive tenders must be expressed in terms of annual yield in two decimal
places, e.g., 7.11, 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
amount 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 100.000 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 99-251 will not be accepted.

(OVER)

-2The 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 will be accepted in full at the average price of accepted competitive tenders,
which price will be 100.000 or less.
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
membership, 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, July 9,
1975, at the Federal Reserve Bank or Branch or at the Bureau of the Public Debt in
cash, in other funds immediately available to the Treasury by July 9, 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) Monday, July 7, 1975,
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 the case
of the Treasury, or (2) Wednesday, July 2, 1975, 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.

DepartmentoftheTREASURY
ASHINGTON, DC. 20220

TELEPHONE W04-2041

ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
TO THE AMERICAN JEWISH COMMITTEE
NEW YORK CITY, JUNE 18, 1975
Ladies and Gentlemen:
It is with a deep sense of gratitude that I accept this
award tonight. The American Jewish Committee has gained worldwide respect for its contributions to human rights over the last
half century, and it is a privilege for me to become more closely
associated with its efforts.
In choosing a Roman Catholic for this award, you have also
demonstrated once again that the spirit of brotherhood which
unites the members of this organization knows no boundaries.
Many of us here espouse different social and political philosophies,
we come from different backgrounds, and we worship in different
ways, but in the end, as Thomas Carlyle once observed, "the mystic
bond of brotherhood makes all men one."
More than that, this award signifies that at their core, the
economic problems that many of us in this room must grapple with
each day -- the issues of industrial growth, interest rates, international finance, government spending and the like -- all have
a very direct human impact. These issues are usually cast in
colorless, sophisticated terms -- terms so arcane and esoteric that
when Baron Rothschild was asked once to explain the international
gold system, he reportedly said that there were only two men in the
world who understood it, a banker in London and another one 'in Zurich.
"And," he added, "they disagree." Much the same is true of the
extraordinarily complex issues that are current in today's economy,
but each of them -- when distilled to its essence -- translates
into basic human concerns such as the price of food and shelter,
jobs, and the quality of life. While it is often difficult to
maintain that perspective, it is essential, I believe, to continually try to assess our policies for the future in terms of their
human impact.
Receiving this award tonight has given me pause to think about
the qualities of leadership and more particularly, about a question
that has been troubling many of us in recent days -- the quality
of American leadership in the world. The debacle in Southeast Asia,
setbacks in Europe, and the continuing signs that American friendship

- 2
is no longer welcome in some countries have raised basic
questions in the minds of many of our allies and stimulated a very
healthy debate here in the United States about our future role.
I want to leave no doubt here tonight about where this
Administration stands: we believe that American leadership continues to be indispensable for world peace and economic progress.
We recognize that the United States is no longer the dominant
power that it once was at the end of the Second World War. That
day passed long before Saigon fell. Yet, let us also recognize
that America remains the single most powerful nation in the international galaxy and that our economy exerts an enormous influence
upon the economies of other nations. Our Gross National Product
amounts to over one quarter of the world total, and we are the
world's largest import market, taking some 14 percent of world
exports. We also remain pre-eminent in many fields such as science
and technology, medicine, agriculture, and several of the arts.
To withdraw from active participation in world affairs would put
us on a collision course with the future. America may not be able
to solve any of the world's major problems alone, but it is equally
certain that without American participation there can also be no
solution.
I have not planned to make a major policy address here tonight,
but in the short time that we have together I would like to focus
on three elements that I believe to be essential for a successful
international economic policy for the United States in the years
ahead.
The first and most important element of our foreign economic
policy -- and indeed the greatest contribution we can make to the
world's economic progress -- is to maintain a strong, inflation-free
economy here at home. If we can restore a pattern of sound economic
growth, increasing our demands for the goods of other nations and
offering them greater access to the goods that we can produce,5we
will have done more for the people of the world than any single
foreign aid program that we could ever afford.
Fortunately, there are solid signs that the worst of
r
the recession is now behind us. The continuing stream of
s
statistics that all of us have seen -- in retail sales, ordersT for
durable goods, housing, and the like -- give clear evidence that
the economy is poised for recovery. Moreover, the rate of inflation has
abated farther and faster than anyone expected.
The central goal of our domestic economic policy now is to
achieve a period of sustained, durable economic growth without
bringing on a resurgence of inflation. It is tempting, especially
with an election just around the corner, to seek an immediate end
to the problems of unemployment by trying to spend our way to
prosperity,but in the long run, that course would only lead to a
sorrowful repetition of the boom and bust cycles of the past and
would condemn millions of Americans not to mention the citizens

3^7
of other countries whose economic fortunes are so closely tied
to our own -- to years of further hardship and suffering. We
are determined, even at great political risk, to pursue balanced
economic policies -- policies that make sense not just for one year
but for years to come.
A second imperative for our foreign economic policy is to
establish and pursue a recognizable set of principles within
which we can work with other nations on the most critical issues
of the day. There are some who have the mistaken notion that our
international economic policy consists of various technical arrangements and procedural mechanisms to which we are a party -- so that
the more of such machinery that exists, the better our policy.
I emphatically disagree. The core of our international economic
policy is our dedication to principles expressing our commitment
to a liberal economic order. It is on the strength of our dedication, and our effectiveness and perseverance in its application,
that our international economic policy must be tested.
The fundamental principles to which we are pledged are neither
novel nor surprising, but we believe they are essential to a dynamic
and equitable international economic order.
-- We are firmly committed to avoiding protectionist, beggarthy-neighbor policies which could lead to a breakdown in the international order.
-- We support the liberalization of world trade and are currently
concentrating our efforts on the upcoming Multilateral Trade
Negotiations in Geneva.
ic

>--- We are committed to the free movement of capital investments, tempered only by the need to safeguard essential national
interests, and we will not tolerate investments tainted by ethnic
or religious discrimination.
--We support a wide variety of means for providing financial
and technical assistance and transferring real resources to the
developing world, while rejecting any notion that the developing
countries have a right to whatever resources they demand.
r

]

-- We are committed to maintaining a sound dollar in the only
way that is practical: by assuring the strength and stability of
the economy at home.
-- We are pledged to work with other nations in meeting the
energy challenge, recognizing that our own self-sufficiency will
contribute immeasurably to that goal.
-- We have explicitly committed ourselves to an international
discussion of trade, oil, and other commodities so that we may adopt
policies benefiting both consumers and producers.

- 4--We are committed to working with others to achieve
an orderly and constructive evolution of international monetary
arrangements.
-- And we are pledged to pursue each of these goals in a
spirit of cooperation and reconciliation with all other nations.
-- A third element of our policy -- and the last that I shall
touch upon this evening -- is the overriding need for America to
remain a firm and reliable partner in the search for peace and
economic progress. We have no intention of turning our back on our
friends nor of conceding vital interests to those who oppose us.
I know that some of you are apprehensive today that perhaps
our solid commitment to Israel may be less solid than in days past.
Let me assure you of this: the United States is unflinching in its
friendship for Israel and in its determination to work with the
nations of the Middle East to achieve a just and durable peace as
well as general economic progress.
The process of reassessing our Middle Eastern policies that
you have read so much about has only one purpose in mind: to advance
the cause of peace. It is our conviction that just as the nations
of the Middle East cannot tolerate another war, neither can they
tolerate a long stalemate that would only fester and lead to war.
The President is therefore anxious to determine what diplomatic
strategies could help to rebuild the momentum of the peace negotiations. This is the issue which lay at the heart of his talks
with President Sadat and Prime Minister Rabin and will continue
to guide his discussions in the days ahead.
I am particularly familiar, of course, with our economic
relations with Israel. While that element of our friendship
may not receive as much attention as others, it is nonetheless
of growing significance. Eleven months ago, I had the
privilege of making my first journey to that land, and I can
hardly express my admiration for all that I saw there. The
economic miracle that has sprung up in those hard, scrubby I£
sands will always stand as an unmistakable tribute to the /7
df
people of that nation.
During that visit, which gave me an opportunity to confer
with Prime Minister Rabin, Finance Minister Rabinowitz, and other
leaders, we established the U.S.-Israel Joint Committee for Investment and Trade. Last month, we held our first formal meeting^-this time in Washington -- and striking progress was made in a
number of areas:
-- Minister Rabinowitz and I initialed a treaty that will
help companies on both sides avoid double taxation and will thus
reduce current obstacles to trade and investment.
-- We agreed that it was now feasible to proceed with arrangements for the design, construction and initial operation of a
large-scale prototype plant for the desalting of water. American
aid
has already
been
thistalks
project,
and a U.S.
technical
mission
has appropriated
just returnedforfrom
in Israel.

'15
- 5-- We also agreed that another meeting of the commission
would be held before the end of this year in Israel.
-- Finally we agreed to expand bilateral trade, to seek
means of increasing our cooperation on industrial research and
development, and to encourage further American and other foreign
investment in Israel.
All of these are positive steps forward that further cement
our bonds of friendship and strengthen the prospects for economic
advancement both in Israel and the United States.
I came away from my visit there with a new recognition of
how exciting the prospects would be for that country in a new era
of peace. Anyone who has seen the great schools and universities
of that land, anyone who has seen the progress of industrialization,
and so many other of the remarkable achievements of Israel can only
ponder the dimensions of creative development that must lie ahead
when war is no longer a preoccupation.
Many times in the past, when the world marveled at the success
of Israel in defending herself, that gallant lady, Mrs. Golda Meir,
used to say that Israel had a secret weapon: "no alternative".
As I have traveled in the Middle East and to other regions
of the globe, I am struck by the feeling that peace and economic
progress also have a secret weapon: no alternative.
The nations of the world, in whatever region they may be,
yearn for peace because they know that without it, all of their
other dreams will go aglimmering.
Ladies and gentlemen, I hope that we also realize that there is no
alternative to continuing American participation in world affairs.
The world cries out for firm leadership. We have a choice: we can
either continue to exercise our leadership, working in concert with
other nations, or we can turn our back and unloose a new reign of
anarchy within the free world. In humbly accepting this award
tonight, I ask that all of us renew our determination that in the
years ahead America will remain a strong and reliable partner
in the cause of peace and human freedom.
Thank you very much.
- 0O0 -

^ T Of

Department of theJREASURY

OFFICE OF REVENUE SHARING
WASHINGTON, D.C. 20226

Hi
TELEPHONE 634-5248

/789

V)
FOR IMMEDIATE RELEASE
Friday, June 20, 1975
Contact: Priscilla Crane (202) 634-5248
Actual Use Report forms were issued to all States,
counties, cities, towns, townships, Indian tribes and Alaskan
native villages by the U.S. Treasury Department's Office of
Revenue Sharing today.
The nearly 39,000 units of general-purpose government that
participate in the General Revenue Sharing program are required
to use the one-page form to report expenditures and other obligations of revenue sharing money between July 1, 1974 and June 30,
1975.
Title I of the State and Local Fiscal Assistance Act of
1972 (P.L. 92-512) requires that the reports be made at the end
of each entitlement period (each period of time specified in the
law for distribution of revenue sharing funds). Recipient govern-

ments indicate what amounts of money have been expended in certain
broad areas of activity such as public safety, health, education,
environmental protection, public transportation, recreation,
libraries, financial administration, and social services for
the poor or aged.

Page two

The reports must be signed by the Chief Executive Officer
of each jurisdiction and published in a newspaper with general
circulation locally.

The publication requirement of revenue

sharing law was intended to encourage public participation in
decision-making with respect to State and local uses of the
money, by assuring that the public has timely access to information on uses of shared revenues.
The Actual Use Reports are to be returned to the Office
of Revenue Sharing by September 1, 1975.

Governments that fail

to file properly-executed Actual Use Report forms with the Office
of Revenue Sharing will not receive the first quarterly payment
of sixth entitlement period (Federal fiscal year 1976) funds
in October 1975, as scheduled.

Late-filers will receive their

revenue sharing checks when the next regularly-scheduled payment
is made.
The Actual Use Report is one of two reports required by
law to be filed with the Office of Revenue Sharing for each
entitlement period.

The other, a Planned Use Report which must

be completed before each entitlement period, provides the Office
of Revenue Sharing and the public with information about State
and local officials' plans for the uses of funds the jurisdiction
expects to receive.
finally spent.

Plans may be changed before the funds are

9^9

Page three

Planned Use Reports for the sixth entitlement period were
mailed to all recipients of General Revenue Sharing funds on
April 22, 1975 and must be published and returned to the Office
of Revenue Sharing by June 24, 1975.

Planned Use Reports are

required of units of government before their sixth-entitlement
period funds can begin to be paid.
Replacement forms, if needed, will be provided to any participating government, upon request in writing, to the Office of
Revenue Sharing, Washington, D. C , 20226.

A government that needs

a replacement form should provide its revenue sharing account
number in the letter of request.
When the Planned and Actual Use report information has been
tabulated and analyzed, the Office of Revenue Sharing will issue
a report summarizing the data.
The State and Local Fiscal Assistance Act of 1972 authorizes
the distribution of $30.2 billion in shared revenues to all units
of general-purpose government in the United States from 1972
through December 1976.

Of the amount authorized, $18.9 billion

has been returned to States and local governments to date.

Revenue

sharing checks are issued in October, January, April and July,
as the law requires.
President Ford has requested the 94th Congress to act promptly
to extend the General Revenue Sharing program past its presentlyauthorized termination date, through September 1982.

FOR IMMEDIATE RELEASE

June 18, 1975

TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders
for 364-day Treasury bills to be dated July 1, 1975, and to mature June 29, 1976
(CUSIP No. 912793 ZP4). The bills will be issued for cash and in exchange for
Treasury bills maturing July 1, 1975.
Tenders in the amount of $1,430 million, or thereabouts, will be accepted
from the public, which holds $828 million of the maturing bills.
Additional amounts of the bills may be issued at the average price of
accepted tenders to Government accounts and Federal Reserve Banks, for
themselves and as agents of foreign and international monetary authorities,
which hold $974

million of the maturing bills.

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-thirty p.m., Eastern Daylight Saving time, Tuesday, June 24, 1975.
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

(OVER)

-2deposit 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 $500,000

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

July 1, 1975,

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

July 1, 1975.

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 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.

Department of theTREASURY
ASHINGTON, D.C. 20220

TELEPHONE WO4-2041

3Ef
FOR RELEASE UPON DELIVERY
STATEMENT OP THE HONORABLE DAVID R. MACDONALD
ASSISTANT SECRETARY OP THE TREASURY
(ENFORCEMENT, OPERATIONS AND TARIFF AFFAIRS)
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL ORGANIZATIONS
OF THE
COMMITTEE ON INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
Mr.

Chairman and Members of the Subcommittee:

My name is David R. Macdonald. I am Assistant Secretary
of the Treasury for Enforcement, Operations, and Tariff Affairs.
I am accompanied by Stanley L. Sommerfield, Acting Director of
the Office of Foreign Assets Control, which is under my supervision, and which administers the Rhodesian Sanctions Regulations.
I am pleased to appear before your Subcommittee today
to testify on H. R. 1287, as amended by the Subcommittee last
March. My testimony takes into account the Subcommittee's proposed modification of its amendment. H. R. 1287 is a bill to
amend the United Nations Participation Act of 19^5 to halt the
importation of Rhodesian chrome.
The Department of the Treasury supports the objectives
of H. R. 1287* We endorse the proposal to repeal section 10
of the Strategic and Critical Materials Stock Piling Act
(50 U.S.C. 98 - 98h), thereby restoring the United States
to its proper posture of being in full compliance with the
international treaty obligations of the United States.
We support the first section of H. R. 1287, which
simply nullifies the impact of the so-called nByrd Amendment"
insofar as imports of chrome from Rhodesia are concerned.
There are, however, some potential difficulties with Section
2 of H. R. 1287 as modified, which we feel the Subcommittee
should be aware of before it acts.
WS-335

- 2 -

Section 2 of H. R. 1287 provides in substance that
no steel mill product which contains chromium in any form
may be imported unless accompanied by a certificate of origin
from the exporting country which satisfies the Secretary of
the Treasury that the product does not contain any Rhodesian
chromium.
Steel mill products imported from third countries are
not in fact subject to the U. N. sanctions, regardless of the
origin of their chrome content, unless they were originally
produced by Rhodesian steel mills. However, section 2 of
H. R. 1287 expands our implementation of the U. N. sanctions
to apply to steel mill products produced in third countries
which contain Rhodesian chrome. This secondary embargo is to be
enforced by a certification procedure.
In operation, the type of certification procedures we
are now concerned with involve additional paperwork for exproters, importers, and governmental agencies. The administrative burden imposed, and the additional burden on international trade, would be far from negligible even with a
perfectly-functioning operation. But no certification system
works perfectly — there are always accusations that one
foreign country or another is issuing false certificates. It
has been our experience in the administration of the Chinesetype commodity certification procedures that more than one
commodity had to be suspended from eligibility for certification because the certification procedure was not working properly.
It is in this area of enforcement that our concerns
with H. R. 1287 exist. To be effective, the certification ^.procedures must be carefully set up and effectively enforced, r
Otherwise, they are widely regarded as shams, and the certification structure soon breaks down. Previous certification arrangements of this type have either involved one or two countries,
as in the case of French steel products made with non-Cuban
nickel, or have involved a number of countries but were limited
to products of relatively small total value in international
trade, as in the certification of Chinese-type commodities.
These earlier certification procedures have been manageable partly
because the dimensions of the trade involved were relatively
small. However, U. S. imports of specialty steel products

E>?> <)
- 3 which may contain chromium come from about thirty countries,
and were valued at some $200 million during the year 197^>
if you limit the coverage to ferrochrome and stainless steel
products. If you include alloy steel products, you increase
this total by an unknown but fairly small amount. (Some
low alloy steel products contain chromium, and our total
imports of low alloy steel exceeded $200 million in 197*0 •
Effective enforcement of this amendment could lead
to suspension of imports of third-country steel mill products
from one or more foreign countries. This would constitute
an impediment to our normal trade relations with affected
foreign countries. The problem would be increased if, as
seems likely, we were also compelled to suspend imports of
ferrochrome from these same countries. Obviously, if their
steel mill products contain Rhodesian chrome, it is quite likely
that their ferrochrome would also contain Rhodesian chrome.
Thus, under Section 2 of H. R. 1287 we would be faced
with impediments to our normal foreign trade with third countries
which would only indirectly be related to the primary sanctions
program against Rhodesia itself. How extensive these additional
impediments would be is unknown. In theory, they should be
minimal, since in theory all nations except South Africa adhere
to the U. N. sanctions. In practice, there is more than a
little doubt that all countries do faithfully comply with the
sanctions program, as evidenced by Section 2 itself.
3c I do not wish to overemphasize these difficulties —
the problems may not in practice turn out to be major ones.
I would be less than candid, however, if I said no problems are
foreseen. Nevertheless, we support the repeal of the "Byrd
Amendment", and if enactment of Section 2 of H. R. 1287 is
necessary to achieve this objective, then we will do our best
to ladminister it effectively, while striving to avoid unnecessary
damage to our international trade relations.

REMARKS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
FOR TREASURY WOMEN'S DAY
DEPARTMENTAL AUDITORIUM
WASHINGTON, D.C.
JUNE 18, 1975, 10:00 A.M.
Good morning. It is a pleasure to welcome all of you to
this special gathering honoring the women of the Treasury
Department.
I've had a good deal of conflicting advice about what to
say here this morning. My daughters thought I ought to confess
to you that I am hopelessly old fashioned about women and
promise to do better, though as the father of five daughters I
can hardly be a male chauvinist pig.
The Treasury telephone operators suggested that anything I
said would be all right, so long as it was ten decibels lower.
And Barbara Jensen, the woman who runs my office, said she
really didn't care -- just so long as I kept it short and reported back to her on the double.
As I mentioned, our central purpose here today is to pay
tribute to the women of this Department. While they richly
deserve the gratitude of the entire Treasury family, I hope
that this occasion would serve another purpose as well: to renew
our determination to expand equal employment opportunities so
that women will always feel welcome here and will know that they
may rise as high as their talents and ambitions will carry them.
Some of you may recall the remark of a woman who once served as
the mayor of a town in Canada: "I have always found," she said,
"that as a woman I have to work twice as hard just to get half
as much credit." That's the kind of tradition that we're trying
to end in this department.
Looking back, the women of Treasury may already take pride
in our progress. The first women in this department were assigned
to an attic in the Main Treasury Building to count piles of
currency. They were very few in number then. Now there are over
50,000 women working for Treasury -- they shoot and inspect guns
in the enforcement bureaus, they're economists, they're computer
specialists, coin designers, textile analysts, accountants,
budget officers. We even have our own Harry Truman story --he
gave us our first woman Treasurer in 1949. And just a few weeks
ago -- for 24 hours --we had an Acting Commissioner at IRS,

Anita Alpern. Anita, as you may Know, is tne tirst woman at the
Treasury Department to attain the top grade in the career
service, GS-18, and became part of an unfortunately small elite
group within the government. We are indeed proud of her and hope
that in the future she will be joined by many other women in the
Department.
However, it does not take a day like this, or a year
designated as International Women's Year, to make us aware of the
growing number of women who are in positions of power and influence.
Everyday, we see it happening. When I go to Cabinet meeting, there's
Carla Hills. When I meet with the press, Eileen Shanahan is always
ready with a tough set of questions. When I testify on the Hill,
I never miss my friends Margaret Heckler and Millicent Fenwick.
And when I travel to international conferences, female professionals are part of our negotiating team as well as those of
other nations. In fact, I have been so impressed by the female
assistant to a leading Australian Minister that in exchange for
her coming to Treasury, I've offered to swap my own executive
assistant, John Gartland, and our next three draft choices. So
change is happening all around us. And while men may shake their
heads and wonder about it all, we readily confess, as President
Ford stated a short time ago, that we are living in a new era
for the women of the world -- and I must say I couldn't be happier.
Women, of course, have become a vital force in our economy,
not only as customers, but as wage-earners, investors, and homeowners. There are now over 36 million women in the civilian labor
force, more than half of whom, almost 58 percent, are the wives
of working husbands. They pay their taxes, and as experience has
shown, they are also good credit risks. Employers have also
learned something else about women. There was a time when employers
were reluctant to hire women because they thought that women might
retire early, take 10 years off to raise a family, or decide she
no longer needed the money. As conditions have changed, however,
employers are learning that a career woman offers the same sort
of stability and long-term employment prospect as her male
counterpart.
I would hope that all of us would view the women entering
the modern labor force as a great natural resource for the future.
Many of you have heard me talk before about the need for tripling
our capital investments during the next decade. But, as I always
like to add, we must invest in more than bricks and mortar: we
must also invest in the talents of our people, for the ingenuity
and the imagination of our people remains our single greatest
hope for the future. And when we talk about ingenuity, imagination,
dedication, perseverence and all the other qualities that have
been the have been the hallmark of the American labor force, there
can no longer be any doubt that the women of this country can
Let
bution
contribute
me in
emphasize
the
as well
homehere
as
is just
the
that
men.
asI valuable
believe that
to oura society
woman's as
contriher

- 3-

<^3"L

contribution at the office. Too often I hear from feminists
that a woman has to leave home and children behind in order to
achieve personal satisfaction. I believe that is pernicious nonsense that makes altogether too many homemakers in this country
feel unnecessarily guilty about their role in labor force, but
let us also recognize that being a homemaker is also a job -- a
vital job that must be done well if we want to build solid
foundations for the future in America.
While we continue to hear a great deal about the Equal
Rights Amendment, all of us should also recognize that equal
opportunity is already the law of the land. The Supreme Court
has issued a landmark decision in its behalf. The Justice
Department has filed briefs and won cases. Companies have paid
millions in back pay for discriminatory practices. And the
Labor Department, as well, has won more millions in back pay
settlements from industry. These cases are not argued and won
for women alone; they also apply to blacks, Spanish-speaking,
Orientals, and all religious and ethnic groups who have been
subjected to exclusion and discrimination in the past.
But we cannot expect business, industry or any other component of our economic and social life, to take affirmative
action if we in government do not adhere to the law and take
responsibility for enforcing it and exerting leadership.
Many of you may not know that the Treasury Department has
responsibility for enforcing equal employment opportunity in
the nation's banks and that most of those banks have readily
complied with affirmative action plans for the employment,
development, and training of women and minorities. Threee times
in the past year, we have had to take action to bring particular
banks into compliance. I am pleased to report that in every
instance the banks have taken some positive action to comply, so
that we have not been forced to initiate court action.
I mention this for a reason. Can we really preach affirmative
action to others, if we do not practice it ourselves? Obviously
we cannot do so in good faith.
As you know, 1975 has been designated as International
omen's Year by the United Nations and by Presidential Proclamation,
and the U.S. delegation will be gathered for the world conference
in Mexico City tomorrow (June 19). However, I do not see this
year only as symbolic of a policy and a frame of mind that began
on January 1 and will end on December 31. Rather we should assess
our progress, candidly recognize that we have not totally ended
discrimination, and ensure that the progress we have made is not
just a one-time, token gesture.
President Ford stated it succinctly in his Executive Order
issued early this year. "We must now deal with those inequities
that still linger as barriers to the full participation of women

- 4in our nation's life. We must also support and strengthen the
laws that prohibit discrimination based on sex."
I sent copies of that Executive Order to all bureau heads
and suggested that it be required reading for all managers and
supervisors. Additionally, the President asked me to designate
two representatives to plan and implement programs for Women's
Year observance. I duly appointed Miss Alpern and Warren Brecht
as Treasury's representatives.
Even before that, last October in fact, Mr. Brecht had
already established a Treasury Women's Advisory Committee of
top-level women throughout the Department to advise me and make
suggestions as to how Treasury could improve the status and
training of women within the Department.
The members of that Committee have come up with some
excellent suggestions, and they are largely responsible for
this program today. They recommend that training programs for
both skills and management be available to women, that we start
with the fundamentals of hiring and developing careers for women,
and that promotions and awards, seminars and workshops, executive
development and management institutes be as available to qualified
women as they are to qualified men. In short, they ask that they
not be ruled out before the competition begins.
Their strongest words however, are not in the statistics
which I will get to in a moment, but rather in the attitudes
that are prevalent among Treasury managers and supervisors. While
I am greatly encouraged by the progress made by Treasury in the
employment of both women and minorities in the last few years,
the statistics sadly reflect that we have a long way to go. The
President has pointed out that while women now make up a third
of the Federal Government workforce, only 4.5 percent of the upper
level positions -- GS 13-18 -- are held by women. Here at Treasury,
we do not even match that record: of the 13,000 employees in
grades 13-18 in this Department, only 450 are held by women -a 3.3 percent record. And over 44 percent of our Treasury employees
are women. Moreover, we should recognize that while 80 percent of
all men in the Treasury Deparment are in grades 7 and above, only
22 percent of the females are in those grades; to put it another
way, 20 percent of all male employees are in grades below GS-7,
while 78 percent of all female employees are in those grades. It
is distressing that we are falling so far short, and I think it
is time for all of us to seek improvement.
A basic part of the problem lies in attitudes from a previous
age -- the attitude that I referred to earlier that women are not
career employees or that income is not as vital for them as it is
for a man. Too often, we overlook the fact that many women today
are or
self-supporting
or have
responsibilities
for
supporting
ren
elderly parents.
In addition,
we should
face
the factchildthat

33
many women work today because their husband's income, standing
alone, is not sufficient. Most women work today because they
need the money, just as men do. The women who gets a job for pinmoney or a lark is almost extinct. And once on the job, my
experience shows that women have as strong a need and desire for
job satisfaction as men do, so it is just as imperative to offer
them opportunities for advancement and greater responsibility as
it is for men.
There's another attitude among managers which may even be
more important, and which is equally obsolescent. We all cherish
competence, initiative, intelligence and efficiency. When we find
a secretary or an administrative assistant who has these qualities,
we don't want to let her go beyond that stage. She's too valuable.
We depend on her, she lightens our workload. Never mind if she has
a degree in economics or a masters' in government. She's a great
"gal," she runs the office smoothly.
But is she being utilized or urged to develop those professional
talents for which she was educated and trained? Are we permitting
her a fair opportunity to make a maximum contribution or to utilize
her full potential as a human being?
That's where I think management has a responsibility: to
develop rather than to stymie those people with potential, those
who could achieve if we'd only give them the opportunity. And I
don't mean to imply that this philosophy applies only to the collegeeducated. We all know that some of America's greatest successes
never finished high school, and that's particularly true in the
business world.
It is the responsibility, it seems to me, for managers and
supervisors to be sensitive to those with greater capabilities,
who are often relegated to tedious, boring work, simply because
they're female, or they're black, or they're too young, or they're
too old, or whatever pre-emptive condition we choose to apply. Too
often, the promotion, the training, the awards, the workshops are
earmarked or labelled, unconsciously perhaps, for men only. Ambition
and success are not exclusively male characteristics. How could
they be in a country where boys and girls, men and women share the
same cultural, social and educational backgrounds?
So I think it is incumbent on you to become newly aware of the
responsibility you have to seek out those who aspire to greater
challenge, those who can work their way up career ladders, those
those who can become junior executives, those who can bridge the
gap to middle level positions.
President Ford has asked all Cabinet officers to convey to
federal managers his objective of vigorously carrying out affirmative
actions in support of equal employment opportunity for all government employees. He expects managers to assure that all employees

- 6 will have an opportunity for advancement in accordance with
individual abilities and that managers should be increasingly
accountable in identifying deficiencies and strengthening the
equal employment opportunity programs at all levels. As he says,
"Equal employment opportunity doesn't just happen; it comes about
because managers make it happen."
So I seek your support and cooperation in this effort to
make opportunities available for all Treasury personnel. There
are many women, who on merit alone, deserve the opportunity to
contribute and participate in the higher echelons of Treasury. If
we deny them the opportunities and the challenges for which they
are capable, then we will indeed have wasted a most valuable human
resource. And they will most assuredly seek those challenges elsewhere. I would much prefer that we here provide the challenge and
take advantage of their aspirations and contributions. It will be
rewarding for all of us. But most of all for the Treasury
Department.
Thank you very much for asking me to open this fine woman's
day program.

0O0

Contact:

FOR IMMEDIATE RELEASE

L. F. Potts
x2951
June 20, 1975

TWO ACTIONS ANNOUNCED UNDER ANTIDUMPING ACT

Acting Assistant Secretary of the Treasury, James J.
Featherstone, announced today the amendment of an "Antidumping
Proceeding Notice" of June 16, 1975, in respect of polymethyl
methacrylate polymers from Japan.
The Treasury notice of amendment states in part that
the "Antidumping Proceeding Notice" referred to above
"is amended by changing the caption to
read "POLYMETHYL METHACRYLATE OF PELLET,
POWDER, FLAKE, GRANULAR OR SIMILAR FORMS,"
and by substituting the words "polymethyl
methacrylate of pellet, powder, flake,
granular or similar forms" in the first
paragraph."
In a second action, Mr. Featherstone announced a tentative
negative determination in the investigation of radial ball
bearings from Japan.
Comparisons between home market price and purchase price,
or exporter's sales price, as appropriate, revealed that the
purchase price or exporter's sales price was greater than the
home market price of the subject merchandise.
Imports of radial ball bearings, excluding those with
integral shafts, with an outer diameter of 9 mm and over but
not over 100 mm, from Japan for calendar year 1974 was approximately 80 million pieces valued at roughly $44 million.
Notice of both actions will be published in the Federal
Register of June 23, 1975.

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Title:

CBS Morning News Interview with Secretary Simon

Date:

1975-06-20

Journal:

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Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

EMBARGOED FOR RELEASE UPON DELIVERY
3:00 P.M., EDT, JUNE 20, 1975
REMARKS BY THE HONORABLE GERALD L. PARSKY
ASSISTANT SECRETARY OF TREASURY
BEFORE THE
LOS ANGELES WORLD AFFAIRS COUNCIL
LOS ANGELES HILTON HOTEL
LOS ANGELES, CALIFORNIA
FRIDAY, JUNE 20, 1975, AT 12:00 NOON
The Challenge of an Interdependent World:
Isolation, Confrontation or Cooperation
It is a privilege for me to be able to address such a
distinguished group. We gather here today at a time when the
world is undergoing considerable change. Capitalism, the free
enterprise system and many other values which have been basic
to the development of our country are now being questioned.
While some fear the change that is taking place and the challenges
that result, I believe it presents a real opportunity to us
as individuals, and to the United States as a nation. The
world is looking for those who can recognize that changing
times can provide the environment for the development of
lonr lasting solutions to our problems.
Winston Churchill once said to the American people,
"The destiny of mankind is not decided by material computation.
When great causes are on the move ... we learn that something
is going on in space and time, and beyond space and time, which
whether we like it or not, spells duty."
The United States now has an opportunity, and therefore
a duty, which comes rarely to a nation to help shape a strong
economic and peaceful political future for the world.
In so
doing, however, we must not let the emotions and concerns of
the political arena overwhelm and distort the economic realities
of the marketplace. It f s often easy to cast economic issues
in terms of extremes and to politicize economics. It may sound
politically attractive to say that the free market causes
inflation and thus call for "national economic planning,"
VS- 5 56

- 2or more intensive regulation of the airline industry, or for
allocation of resources, but the inevitable result of such
policies is to alter a market-oriented economy that has been
history's most prosperous, and as important, to place basic
freedoms in jeopardy. Now, more than ever, we have a responsibility to relate both domestic and international policy to
the maintenance of human freedom. Some have the view of economics
that the doing of business must not be left to the people,
but must be planned by the State. The worker is forced to give
up his freedom in the name of security, but the inevitable
result is to stifle innovation and subvert productivity. We
must not let this happen. In the name of tfprice stability",
we must not take part in the creation of new barriers to trade
and investment, special bilateral deals, or reciprocal restrictions which threaten the world's economic system and which can
work to limit the freedom of every American.
To ensure that this will not happen, however, we need
leadership, not only at the national level but throughout our
society. How many times in recent months have you heard the
statement, "What we need is leadership"? In many respects
this feeling of a lack of leadership is a symptom of a more
basic problem. In survey after survey, Americans register
their loss of confidence in our leading institutions and in
those who lead them. It is not just "Watergate," since this
feeling preceded that series of events and has continued beyond
it. It is not confined to the institutions of the Federal
Government -- although these are certainly getting low ratings.
These feelings go virtually across the board to include business,
labor, education, religion, and the media.
Is this because we have run out of able people to give
us leadership? I do not believe so -- as a matter of fact,
I think just the opposite is true. There are plenty of
people of high quality, strong character and genuine dedication -both in the government and out. What's needed, however, is for
more of these people to stand up and seek to be heard -- and
when they do, for more people to listen. Recall some of the
voices of America's past -- "Fourscore and seven years ago";
"We hold these truths to be self-evident that all men are created
equal"; "Ask not what your country can do for you, but what you
can do for your country"; "We have met the enemy and they are
ours"; "One small step for man, one giant step for mankind";
"I have a dream".
The problems we face today need not be accompanied by
a permanent sense of uncertainty and unease. Instead, they
can serve as an impetus to creativity, but people must not
just sit back and complain about our problems. We spend too
much time talking about what we're going to do and I'm afraid
too little time acting. We must seek to learn what our fathers

9V
never seemed to know -- that is that different views and
different ways of life need not be impediments to understanding
or barriers to harmony in the world.
Each of the major problems we face today -- controlling
inflation and stimulating growth; providing food to the
hungry and assisting the poor; ensuring adequate supplies of
natural resources -- demonstrates the interdependence of
the world. Whatever our ideological beliefs or social mores,
we are now part of a single global system on which all of our
national objectives depend. And'the United States has a
critical responsbility. As President Ford has said, "At no
time in our peacetime history has the state of the Nation
depended more heavily on the state of the world. And seldom,
if ever, has the state of the world depended more heavily on
the state of our Nation."
Let us not forget that by any measure, we have given
more in the last 30 years than any other nation in history.
We have successfully resisted serious threats to world order
from those who wished to change it in ways that would have been
detrimental to democratic governments. We have provided more
economic assistance to others than any other country. We
have contributed more food, educated more people from other
countries, and welcomed more foreigners. We have done so
because the American people, after more than a century of
isolation, learned that cooperation with others is not so
much a gift for short-term political gain but rather a service
in the interest of long-term economic harmony.
The next few years will determine whether interdependence
will result in common progress or common failure. The choices
we face are basic: they include isolation, confrontation or
cooperation. At a time when there are questions about the nature
of our commitments in the world, some are arguing that we should
turn inward and concern ourselves only with the state of our
country, thus isolating ourselves from other parts of the
world. Others have grown fearful of our showing weakness and
would have us confront certain countries in order to demonstrate
strength to the world. To me, neither of these approaches will
adequately meet the challenge of interdependence. Instead,
I believe we must respond by building a worldwide framework of
cooperation. It's time to recognize that we cannot exist
apart from the world around us. A world linked by instantaneous
communications and imperiled by nuclear weapons forbids it.
We must seek political and economic relations which will
strengthen the ability of free people to work toward a common
goal together.
The issues facing us today cannot be perceived in terms
of confrontation between the haves and the have nots, for the
world
is composed
of two
sets ofproducers
interests and
but developed
of many: '
developing
nationsnot
which
are energy

- 4nations which are energy consumers; market economies and
non-market economies; capital rich countries and capital poor
countries. Such a world imposes on us the recognition of our
interdependence and in turn the necessity of our cooperation.
Cooperation and the Response to the "New Economic Order"
Cooperation, however, does not mean an abdication of our
principles. We as individuals, and the United States as a
country, must not be afraid to stand up for what we believe
is right. We must not be afraid to defend a free enterprise
system that has made us strong and equally as important, has
helped the rest of the world.
The need to strike the proper balance between a desire
for cooperation and the responsibility for leadership can be
seen as we seek a response to the call by the developing
countries for a "new economic order", a proposal which involves
a basic redistribution of wealth from the industrialized
nations to the poorer countries. Inherent in such a policy
is the belief that the less fortunate countries cannot develop
unless the industrial nations are disadvantaged. This is simply
not the case, and while we want to avoid confrontation, we
clearly cannot acquiesce in such an approach, for such an
economic order outside the United States would require us
either to adopt such a system here or isolate ourselves
economically from the system around us.
I am not suggesting that we seek to maintain the status
quo. We must support the legitimate aspirations of the
developing countries, and we are prepared to discuss with them
ways in which they can participate more fully in the world economy.
However, in this process, we must not sacrifice our economic
system which is based on competitive, free markets. We must
keep in mind that this system has greatly benefited the
developing countries. Through a combination of greater liberalization of world trade as well as an extensive program of
bilateral and multilateral assistance, many developing countries
have been able to grow at rapid rates; in fact more rapidly
than most developed countries.
From 1960 to 1970 the manufactured exports of less
developed countries increased from $3.8 billion to $12.7
billion, increasing less developed countries' share of world
manufactured exports from 6.5 percent to 6.9 percent. Industrial
production in less developed countries increased by 8.3 percent
per year, considerably larger than the 5.9 percent rate
registered by developed countries, and the real GNP of developing
countries increased at an annual rate of 5.6 percent as compared with 4.8 percent for OECD countries.
The main determinant of a country's economic growth rate
has been the skill with which it utilizes its own resources,

not its status as an industrial nation or LDC. While we
frequently tend to think of Japan and Germany as the outstanding examples of countries with high growth rates, there
have also been many exceptional performances registered by less
developed countries. Over the past decade real GNP grew by over
8 percent in Taiwan, South Korea, Thailand and Kenya, while the
exports of Taiwan, and South Korea increased by more than 20
percent per year.
In light of such progress, we should not be afraid to stand
behind the economic principles which have been central to our
system. As we do so, it is important to recognize that the
market is often hard on producers in that it forces them to
undergo the rigors of competition -- but isn't that in everyone's
interest?
Our response to the call for a new economic order should
be a willingness to discuss and negotiate problem areas in a
spirit of cooperation while upholding our commitment to the basic
principles of private ownership and free competitive markets.
Inherent in such an approach is the belief that the long-run
salvation for the poorest countries lies in their own efforts.
The aid we give, the reforms we agree to, will not help these
people unless they themselves create the conditions for selfsustained economic growth.
The general outlines of this approach have recently been
set forth by Secretary Kissinger and Secretary Simon. As Secretary
Kissinger said: "We are prepared to consider realistic proposals
. .. but we are convinced that the present economic system has
generally served the world well ... (and) that the poor nations
benefit most from an expanding world economy."
In order to appreciate fully this approach, I think it would
be useful to examine several critical problem areas and see how
each calls for a cooperative response. Let us examine the problems
of energy, of commodities, and of trade and investment. As we
examine each, we must bear in mind that we will be seeking an
international policy that is complementary to our domestic policy.
President Ford has pursued a domestic economic policy that
is based on greater utilization of the free market. His proposals
in energy which call for deregulation of prices of oil and gas,
his concern for escalating levels of federal spending, his veto
of the farm bill and his opposition to credit allocation all
illustrate the orientation of our domestic policy. In each of
the areas I will discuss with you, we will be striving to transform
such a national approach into an international policy that is
based not on pure ideology but rather on reality.

- 6Energy
No subject illustrates world interdependence more emphatically
than the field of energy. The economies of all nations are
affected by prices they pay for oil. The problem, however, is
that price is not determined by market forces. Because the source
of supply is presently concentrated in a small group of countries,
the price can be determined by unilateral decisions. Due to
both action and inaction, we and the other consuming countries
have allowed ourselves to become overly dependent. The result
is that we now have lost the ability to ensure that the market
can set the price for oil.
Where does the answer lie? It lies with us and with other
consuming countries and with our ability to achieve harmony
with the producing countries. In order for this to happen,
there must be greater understanding by both consumers and producers of each others' needs:
-- Consumers must understand the desires of the producers
for diversification of their economies and for higher
standards of living for their population.
-- Producers must understand that the rapid rise in oil
prices has placed a great economic burden on all
consumers, developed and developing alike.
We in the United States must help this process of .understanding
and we must assume a leadership role in developing policies that
will bring about an expanding supply of energy at market prices.
Our efforts must include national and international programs
aimed at reducing demand for oil as well as accelerating the
development of alternative energy resources. Substantial progress
has been made internationally. Through the establishment of
the International Energy Agency, we and other consuming countries
have been able to address the steps that are required in the
energy area. Conservation objectives have been agreed to, and
an international foundation has been laid for developing alternative energy resources.
However, by seeking international cooperation in the energy
area we must be cautious not to move to a government controlled
and operated energy industry, domestically or internationally.
The cooperative response to interdependence in energy must not
move us farther down the road to state-managed economic development. We must instead attempt to establish the conditions for
the maximum return to the private market for an industry which
in recent years has experienced further and further incursions
by the government sector. A world energy industry consisting
of government-owned operations, government set prices, and
government-to-government supply arrangements must be avoided,
for history has shown us that no individual or group of
individuals can
resources more effectively or more
efficiently
than allocate
the marketplace.

Our efforts with other consuming countries should not be
viewed as a desire to confront the oil producing countries.
I view energy conservation and the development of alternative
energy resources as in the interest of the oil producers as
well as the oil consumers. The oil producers are almost
totally dependent on a depletable asset, namely oil, for their
future. To the extent that oil is not needed, they can preserve
their natural resources and will have more time to diversify
their economies.
Recently, there have been indications that there will be
a rise in the price of oil soon and that such an increase would
be justified since the prices of other commodities have risen.
In addressing such a possibility, I think it is again important
to separate the politics from the economics. There is no question
that the oil producing countries could raise the price if they
wish to. Further, given the fact that substantial increases
in supply cannot take place quickly, control over the price
can be maintained by OPEC for at least the next two years.
Despite the fact that a price rise could happen, I do not
believe that it is economically justified. It is true that oil
producers have lost purchasing power in 1974 -- they have cited
a 35% reduction, while others say it is 24%. The important
fact, however, is that a significant amount of that loss can
be traced back to earlier increases in oil prices. Further,
although prices of other commodities have gone up, many have
also declined, because market forces have been allowed to function,
and changes in price were in response to supply and demand.
Despite such an economic situation, there is a possibility
that a political decision could be made. I feel that the producing countries recognize the impact that a price rise could
have on the economies of the world -- economies that they want
to remain viable and strong. A responsible answer, however,
will not evolve if the issue is cast into the political arena.
Only by analyzing and discussing the underlying economic facts
can producers and consumers act in the best interest of each.
With this in mind, we have put forward proposals to renew a
dialogue between producers and consumers. Further, we are
pushing forward with our bilateral economic efforts with the
producers. Such a cooperative approach is the only way progress
can be made.
Don't misunderstand what I am saying -- cooperation does
not mean abandoning our principles. The United States must
not be afraid to take positions we believe are right. We object
to the current economics of oil pricing, and we believe that an
increase in oil prices could be extremely detrimental to both
consumers and producers. Therefore, we have the right, in
fact the obligation, to express our views. However, this need
not be done in a spirit of confrontation or with the objective
of winning a short-term political victory. Our long-term
economic interests are too vital for that. Instead, we must

- 8seek an open dialogue with the producers aimed at serving
the interests of all people.
Commodities
Just as in the energy area, the subject of commodities
provides insight into the interdependence of today's world,
and the principles which apply to energy apply as well to the
problems of commodities. To some raw material producers, it
may be tempting to think of establishing cartels through which
they could negotiate higher prices for their products. Such
an approach, however, would be detrimental for all countries.
Large price increases combined with production restrictions
will lead to disaster -- world-wide inflation followed by
world-wide recession from which no nation could escape.
Before we accept a complete overhaul of the present system,
we should ask ourselves how bad the existing system really is.
Let us look at what has happened to the world market for
commodities. World market prices of most non-energy commodities
have in fact risen over the past quarter century. This is true
both in terms of the their nominal prices and in terms of the industrial products
which developing countries need. The Economist index of all commodities (excluding
energy) rose over two times from its high in 1951 to its new peak
in the first quarter of 1974. The index for metals went up
some four times over the same period. On the other hand, the
UN's index of industrial goods did not quite double over the
same period. Thus, the actual purchasing power of earnings
from these commodity exports went up.
Prices of commodities did break downward last year from
their record highs. The Economist index has dropped about 40%
from the record high reached in the first quarter of 1974.
At the same time prices for industrial goods -- fueled in
part at least by ever soaring energy costs -- have continued
to increase.
There's no question that many of the developing countries,
especially those who depend on exports of a few commodities to
earn the bulk of their foreign exchange, have seen their terms
of trade turn against them.
Their concern is natural. We understand and sympathize
with it, but although there may be a possibility of growing
scarcity of resources in the years ahead, we should not base
our policy on the expectation of such a trend. The situation
in the commodity markets during the 1972-1974 period has
caused fears of continued shortage and volatility. However,
there was an unusual amount of speculation during this period,
and we need to carefully assess whether this occurrence was
unusual before we make major changes in our policies. To this
end, we are currently engaged in an intensive interagency review

- 9 of our international commodity policy. This review has already
developed some tentative conclusions, which were embodied in
the proposals which Secretary Kissinger recently made before
the Organization for Economic Cooperation and Development:
--we believe that both developed and developing countries
should negotiate new rules and procedures for access
to both markets and supplies of commodities in the
Multilateral Trade Negotiations currently taking place
in Geneva.
--we believe that instead of exclusive producer organizations, consumers and producers should jointly discuss
their problems in the commodity area.
--we believe that the World Bank should consider increasing
its financing of resource investments and explore ways
of combining its financing with private management,
skills, technology and capital, and
--we believe there should be a review of the existing
mechanisms aimed at helping to stabilize the earnings
of developing countries against excessive fluctuation
in their export incomes.
Underlying these proposals is a recognition of several
basic principles:
First, there must be increased investment in the resource
area.
Second, excessive price fluctuations are costly to both
producers and consumers. However, price fluctuations per se
are not evil -- in fact, they are part of the realities of
the marketplace, and we should not attempt to distort the
functioning of the market in the interest of short-run price
stability.
Third, the solution to commodity problems does not lie
in establishing high-fixed prices and attempting to maintain their
value through indexing. Although it is often overlooked, the
rich countries produce more raw materials than the poor. Of
total world exports of nonfood, nonfuel raw materials, the
industrial countries supply about 70 percent. Any indexing
scheme would probably benefit the rich countries more than the
poor.
Fourth, any generalized system of commodity agreements,
aimed at fixing prices would be counter-productive. Instead,
we should look at proposals only on a case-by-case basis.
As we do so, we should bear in mind that commodity agreements,
where they have been tried, have not been very successful. The
coffee agreement broke down when countries exported more than

- 10 their quotas. The wheat agreement is not operative, and the
sugar agreement has been replaced by special arrangements.
One basic reason for this is that producers have seen such
arrangements as a means of raising prices, not achieving
greater stability. Nonetheless, we are willing to look at
possibilities for new arrangements. We are now participating
in the renegotiation of the International Tin Agreement, we
have put forward a new proposal for a coffee agreement, and
we are assessing problems in other commodities, such as copper.
Inherent in this approach is a desire to improve the present
system. We do not want to maintain things as they are if sound
improvements can be made. For example, the United States will
participate constructively in the review of the International
Monetary Fund's Compensatory Financing Facility which the
Ministers of the IMF's Interim Committee called for during their
meetings in Paris last week. This facility provides loans
to developing countries facing balance of payments difficulties
arising from temporary shortfalls in their export earnings.
We will soon follow up with further proposals to international financial institutions on ways to mobilize investments
to give both producers and consumers of commodities the output
they will need in years to come.
Further, we feel that increased exchange of information
among producers, consumers and investors would help strengthen
the market, and we will explore ways this can be done. We are
also studying the question of economic emergency stockpiles
which would not involve interference with the functioning of the
market, but would make supplies available only in times of
extreme shortage. We hope to have recommendations on this possibility shortly.
The U.S. is thus providing leadership toward improving
the workings of international commodities' markets. This will
take time. There is no magic wand that we can wave to solve
all problems.
We need to build and to improve on the system which we
now have to provide a solid basis for balanced growth in real
earnings by commodity producers and for ample supplies for
consumers. We stand ready to cooperate for our mutual benefit
with all countries, both producers and consumers, to strengthen
and improve the system under which we produce, process and
trade commodities.

- 11 Trade and Investment

A third area that calls for cooperation is trade and
investment. Both developed and developing countries must renew
their commitment to an open trading system and a positive climate
for the free flow of resources.
Multilateral Trade Negotiations. The U.S. is now fully engaged
in the Tokyo Round of Multilateral Trade Negotiations in
Geneva, involving some 85 developed and developing countries in
a sweeping effort to liberalize and improve the rules of the
world trading system. These trade negotiations were conceived
nearly four years ago as a major companion effort to reform of
the international monetary system. As with those monetary
negotiations, the trade talks are not focused on short-term
solutions and spectacular initiatives; they rather aim at
creating a better long-run structure for efficient trade and
more harmonious trade relations. A cardinal principle of this
effort will be increased cooperation among governments in
creating a framework for national policies which reinforce
rather than conflict with each other.
The international mandate for this work came from ministers
meeting in Tokyo in September, 1973. Our own domestic mandate
is found in the overwhelming congressional endorsement of last
year's Trade Act of 1974. What we can make of this mandate in
the next few years again will be a question of the leadership
the United States can provide in the Tokyo Round. This
leadership is needed not just for the traditional work of reducing
tariffs and other barriers to trade. It will also be essential
if we are to create more effective international disciplines
for all members of the trading community who find themselves
under pressure to fall back on restrictive or narrowly-conceived
policies which would result in economic burdens for their
trading partners. Since these pressures are especially acute
in many countries this year, our vigorous and imaginative
pursuit of the Tokyo Round takes on a special importance.
The most relevant issues of the day, including the problems of
commodities and access to supplies as well as demands for
temporary import restrictions, are on the table in Geneva.
Fortunately, the atmosphere is businesslike, tempers are low, and
progress there is not impeded by rhetoric. We hope to see the
first results early next year.
Trade With Socialist Countries. Elsewhere, we must continue to
expand our relationships throughout the world. With the socialist
countries, we embarked on a policy in the 1970's which will move
us away from confrontation. The decision to expand our trading
relations with Eastern Europe, the Soviet Union and the People's
Republic of China does not reflect weakness on our part. Rather,
it is a further recognition that world prosperity comes through
acceptance of a global economy.

- 12 We have made great progress in the expansion of our
commercial relations with the socialist countries in the last
three years. In 1971, our total exports to all of these
countries combined amounted to less than $400 million. In
1974 exports were $2.3 billion. This was a five-fold increase
in three years. By contrast, 1971 U.S. imports were $230
million while in 1974 our imports were $1 billion. Thus,
our trade surplus with these countries grew eight times -to about $1.3 billion in 1974.
The potential for future U.S. exports of goods and services
remains high. However, the linkage in the 1974 Trade Act of
emigration conditions to negotiation of commercial agreements
and the extension of official credits --no matter how'well
intended -- has put our firms at a disadvantage in their
competition with other European and Japanese firms for this
market. Here is another example of how politicization of an
economic issue can be detrimental to our long-term interests.
Trade With Middle East. As in our trade with the Socialist
nations, our relations with the countries of the Middle East
must be founded on increased economic cooperation. We have
been pursuing the economic potential there not only because we
feel it will benefit the United States economically, but also
because we feel it can assist us in achieving peace in that
part of the world.
At a time when the potential for hostility is. high and the
political atmosphere uncertain, one response would be to do
nothing on the economic side until the political situation
improved. This, to me, would be a short-sighted view. Instead,
I feel that we must work for increased economic cooperation at
the same time we are seeking the political answer and in so
doing not let political expediency dictate what basic economics
tells us should be done. As such, we must continue to pursue
ways in which we can support the oil producing countries' legitimate
desires to accelerate their own economic development, establish
their industrial and agricultural bases, and improve the living
standards of their people.
Investment. As we attempt to increase our trading relations with
the countries of the world and participate in their development,
we must also maintain an attractive market for their investment
in this country. As most of you are aware, the transfer of
wealth to the oil producing nations has precipitated a worldwide
reappraisal of national policies with respect to foreign
investment. In the United States, there have been persistent
demands that we reject our traditional policy of not interfering
with the free movement of international capital.

- 13 We in the Administration recently conducted a review of
our policy and concluded that no additional limitations were
warranted. The bases for such a conclusion were:
First, that there is no threat to the world or the U.S.
economy presented by the increased investment capabilities
of the oil producing nations. Neither our experience so
far, nor our estimates of future OPEC accumulations justify
fears of domination of our industries.
Second, existing laws provide us with adequate authority
to protect our national security and other essential
national interests.
Third, the investment policies being pursued by the oil
producing countries do not warrant a change in our policy.
They have no desire to control our companies. They realize
that the investment decisions they make now are their
insurance for the future. Therefore, they will be seeking
safe, long-term investments.
Fourth, on the whole, the benefits that result from foreign
investment in terms of increased jobs, additional tax
revenues and more competitively-priced goods and services
far outweigh any potential danger.
At the same time, we have taken a number of administrative
measures to supplement existing laws and procedures. This
initiative involves the establishment of a high-level, interagency Committee on Foreign Investment and a new Office on
Foreign Investment. In addition, we have indicated to foreign
governments that it is in our mutual interest for us to consult
on major prospective governmental investments in this country.
This should not be construed as a retreat from our traditional policy. Indeed, these measures are designed to provide
a healthy climate for foreign investment, consistent with our
belief that such investment will further increase our ties with
other parts of the world. It will be another means of accepting
a world of interdependence and building on it.
Once again, it's important not to let economic realities
be distorted by political rhetoric. Instead, we must avail
ourselves of the rare opportunity to maintain a policy which is
at once principled and profitable -- leading through example
by not interfering with investment in this country and by
continuing our efforts in international forums to break down
all barriers to investment and capital flows.

- 14 Conclusion
These are some aspects of the problems we face. We have
learned in the past that this world demands much of the United
States. Now, we are challenged again. Ralph Waldo Emerson
once said: "No great man ever complains of want of opportunity."
Neither does a great nation.
Our resources are vast, our opportunities are unprecedented,
our leadership is essential. At a time of turbulence, uncertainty and conflict, the world still looks to us for a protecting
hand, a mediating influence, a path to follow. Most of all, it
sees in us a tradition --a tradition that is based on the
inherent worth of every human being.
Let us not forget that all of our political endeavors are
ultimately judged by one standard -- how well we can translate
our actions into human concerns. The effort we make in the years
to come will be a test of our ability to maintain man's freedom.
Man has made his world interdependent. Now the challenge
is to make it one.
The choice is with each and every one of us -- for
policy is not made by institutions but rather by people. The
difficulties we face today and the future that will evolve
are the responsibilities of people -- and it will take leadership to insure the direction we will go. Such leadership can,
and must, start with the individual.
A young woman from the past may offer the best illustration.
At the age of 17, she went to the leaders of her nation and told
them that she could save that country. By the time she was
19, because of her personal belief and commitment, she had
miraculously accomplished this. As often happens, however,
those she befriended, betrayed her. She was turned over to
the enemy, tried in public, told that her belief was false,
and tied to a stake in front of thousands of her country people.
She was told at that moment if she would recant her beliefs
they would free her. As best as history can record, these are
her last words: "Every man gives his life for what he believes,
every woman gives her life for what she believes. Some believe
in little or nothing, and therefore, they give their lives for
little or nothing. But to give up what I believe is worse
than dying." Then she proceeded to let them burn her. Her
name was Joan of Arc.
She's no different than any of us here today. Be we
Moslem, Jew, Christian or Agnostic, we are individuals caught
in the midst of a great challenge.

9c
We must frankly acknowledge our different perspectives
and then try to build on what can unite us.
--We must strive for a new level of political wisdom
that will permit, in fact require, that economic
principles be supported for the good of all.
--We must transfer the concept of a world community from
a slogan into a belief.
In this spirit, we can become masters of our common fate,
and history will record that this was the year that man at last
began to conquer its noblest and most human challenge -- the
challenge of an interdependent world.

0O0

FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE
EDWARD SYMONDS, DEPUTY ASSISTANT
SECRETARY OF THE TREASURY
BEFORE
THE SENATE COMMITTEE
ON PUBLIC WORKS
10:00 am
June 23, 1975
Mr. Chairman and Members of this Distinguished Committee:
Thank you for inviting me to comment upon the proposed
National Petroleum and Natural Gas Conservation and Coal
Substitution Act of 1975.
At the outset, I would like to say that we strongly support j
the concept of replacing oil and gas by coal as a burner fuel
to the maximum extent possible. Our problem with the Bill
concerns its lack of flexibility.
I can think of nothing more important to our Nation's wellbeing than energy. Our physical and economic survival depends
upon energy to keep us warm, furnish us light, power our trans-

portation and drive the machinery that produces much of the wealth ;
of the Nation. For these reasons, we have a vital interest in j

getting the greatest benefit possible at the least cost from the
Nation's natural resources. To do so, we must consider a number
of options.
WS-327

-2In this regard I compliment this Committee for its choice

of the wide range of questions and policy issues it has undertaken
to explore in these hearings. I believe the forthcoming information can provide a most useful background for decision making
in this complicated area of fuel substitution — an important
part of the energy puzzle.
j

Background

Coal has long been important to the energy supply mix. At
the turn of the century, coal supplied about 75 percent of energy
used in the United States. In the early 1900's, however, oil
and gas began to displace coal as principle energy sources.
This trend accelerated in the 1950's and now oil and gas supply
about 75 percent of the energy consumed in the United States.
Coal accounted for only about 17.8 percent in 1974.— There are
a number of reasons for this change, including past access to
inexpensive foreign oil — particularly residual fuel oil —
government actions, environmental restrictions, convenience of

using oil and gas, price controls on gas (making it less expensive
and many other factors, including lack of a long-term energy
policy.
Although the "energy crisis" may have only recently burst
upon the consciousness of many people, a number of foresighted
people saw it coming. Even now, many still misunderstand the
nature of the crisis. There is no worldwide shortage of oil

U.S. Department of the Interior, Energy Perspectives,
February 1975, page 36.

-3and gas reserves or production capacity. Oil and gas are
available; but at artificially high prices. Supplies of imported
oil may also be disrupted for political or other reasons, as
they were in 1973. High prices and possible interruptions make
it imperative that our Nation achieve a greater control over its
own energy destiny.
With his State of the Union Message of January 15, 1975,
President Ford proposed economic, tax and energy programs that,
if implemented, would go far toward helping us reduce our energy

vulnerability. These programs are interrelated and interdependent,
and I support them strongly. One part of the Message concerned
coal conversion. The President asked the Congress to amend the
Clean Air Act and the Energy Supply and Environmental Coordination Act of 1974, to permit a vigorous program to.make greater
use of domestic coal and reduce the need for oil. The amendments
would extend the Federal Energy Administration's authority from
1975 to 1977 to prohibit powerplants, which are early in the
planning process, from burning oil and gas; extend Federal Energy
Administration enforcement authority from 1978 to 1985; and
make clear that coal-burning installations that are planning to
convert to oil be eligible for compliance date extensions to
meet air quality standards.
The proposed National Petroleum and Natural Gas Conservation
and Coal Substitution Act of 1975, as to electric powerplants
and major industrial installations, has three main objectives:

-41. To require that, after January 1, 1979, new
facilities using fossil fuels must be capable of
utilizing coal as their primary energy source,
2. To require that, as soon as possible but no
later than January 1, 1980, existing fossil fuel
plants be capable of utilizing coal as their
primary energy source, and
3. To require that, by January 1, 1985, all such
facilities must utilize coal as their primary energy
source.
In each instance, the utilization must be consonant with applicable environmental standards.
II. Issues and Answers
I should like to comment briefly upon some of- the issues
that concern the Treasury Department. Later, we could offer
additional comments that might be helpful to the Committee.
Capital Availability
Energy is a particularly critical area of capital investment. While I recognize that the ultimate cost of energy will
be influenced by many variables, it appears that capital
requirements over the next decade will total about $1 trillion —
stated in current dollars, to include the effects of inflation.z!
The range of possible capital needs for coal is indicated in

Statement by W.E. Simon, Secretary of the Treasury,
Senate Finance Committee, May 7, 1975.

such studies as those prepared by the Federal Energy Administration, the National Petroleum Council, and Arthur D. Little, Inc.
These studies estimate capital investment totals for coal
through 1985 ranging from $6 billion to $18 billion in 1973
dollars.!./
Apart from the need for massive investment in coal, we
are greatly concerned as to the near-term ability of electric
utilities to finance the conversions required by the proposed
legislation. The current inability of utilities to raise
substantial amounts of capital, and the uncertainty of demand
forecasts, are causing utilities to delay construction of long
lead-time, low fuel-cost, base-load plants, using coal or nuclear
power. I understand that, of new construction proposals announced
between April 1, 1974 and January 1, 1975, there have been
cancellations of 19 units expected to produce 15,773 megawatts.
Furthermore, there have been construction deferrals for one
year of 119 units representing capacity of 104,792 megawatts.2/
The; increased cost of financing was one of several reasons given
for these investment cutbacks.
Scheduled additions in the contiguous United States to electric generating capacity, as of January 1, 1975, were 266 steam
turbine generators, for 132 million kilowatts; and 14 8 nuclear

1/ Federal Energy Administration, Project Independence Report,
November 1974, page 282.
2/ Edison Electric Institute, "1974 Year-End Summary of the
Electric Power Situation in the United States," December 31,
1974, page 7.

-6units, for 160 million kilowatts.1/ We do not have the data to
estimate the number of these units that were planned to have
oil or gas fueled units. The past would indicate that about
44 percent would be oil or gas.2/ However, I would hope that
comparative prices and fuel availability will make coal a
preferred fuel in the future.
If these expansions and the proposed conversions are to
be financed, there must be an improvement in electric utility
profitability. Such improvement would not only generate capital
internally, but would make utility securities more attractive
to the investor and improve the outlook for raising the large
sums required.
At the same time, air quality requirements will deeply
influence capital costs. Adoption of the President's proposal,
as described above, for amendment of the Clean Air Act and the
Energy Supply and Coordination Act of 1974 will have a beneficial
effect upon capital requirements and the price of coal to the
utilities.
Energy investments will inevitably comprise a most important
share of the total capital requirements of the Nation; but their
financing will be manageable, if such investments have the prospect of profitability and are given high priority in a comprehensive national energy program.

1/ Edison Electric Institute, "1974 Year-End Summary of the
Electric Power Situation in the United States," December 31,
1974, page 7.
2/ Congressional Research Service, 1975, "Factors Affecting
Coal Substitution for Other Fossil Fuels in Electric Power
Production and Industrial Uses."

-7-

-^y

Coal Availability
In terms of gross quantities, we have no doubt that ample
coal reserves exist and that, given the necessary economic
incentive, coal production could satisfy almost any foreseeable
demand for coal by 1985.1/ But we doubt whether adequate production could be attained to meet the near-term time-frame of
the proposed legislation. Because coal mines are expensive
and represent an investment life of 20-25 years, there must
be a reasonable assurance of demand at an economic price and
the prospect of a reasonable rate of return on the investment,
if the mines are to be established without unconscionable delays.
Uncertainties about oil import programs, environmental
requirements, surface mining laws, energy prices, and fuel
utilization are additional concerns of businessmen making
investment decisions. The Federal Government is striving to
resolve these uncertainties, so that the mining industry can
respond.
Were these uncertainties resolved and price controls on
oil and gas removed, coal would become competitive as to price
and preferred for its supply reliability. At today's world price
levels, market forces alone would bring about substantial conversions to coal in the least disruptive manner. Continued
controls upon the price of gas particularly distort fuel use

1/ Federal Energy Administration, Project Independence Report,
November 1974, page 106.

-8patterns. Price controls on oil are less distorting than
those on gas only because the controls on oil do not include
all oils. For that reason, among others, the Administration
has urged that price controls on new gas and old oil be
dropped.
While overall quantities to satisfy the increased
requirement for coal under the proposed Act might possibly be
made available, there would inevitably be individual plants
and areas where coal supplies would be inadequate or too
expensive. This bottleneck would be occasioned by the geographic distribution of coal with the sulphur or other characteristics required for each individual market, and by the
inadequacy of local transportation facilities.W/
Transportation
Although not mentioned in our earlier discussion of
capital availability, we believe that transportation investment
is another severe problem. The well-known plight of the
railroads does not need our further amplification. In its
Project Independence Report, the Federal Energy Administration
estimates an increase of rail shipments from 344 million tons
per year in 1973 to 730 million in 1985. While the capability

1/
~~

Federal Energy Administration, Project Independence Report/
November 1974, page 103.

<3Ci
to manufacture locomotives and freight cars exists, there
is little doubt that the return on investment in railroads
must be improved in order to attract the capital required to
handle the increased coal traffic. 1/
Moreover, certain areas face severe problems in financing
the building and maintaining of roads for moving coal from
the mines by truck,

For example, a report of the Kentucky

Department of Transportation states, "The almost complete
impossibility of adequately maintaining these (coal haul)
roads, without exorbitant expenditures of limited funds, has
resulted in the practice of very little maintenance being
accomplished on roads which do not have the initial base and
surface to structurally support these heavy loads." 2/
The report subsequently discusses in some detail the financial
problems faced by that State as a result of the destruction
of these secondary roads.
No doubt, as additional coal reserves are opened,
particularly in previously unmined areas, there will be the
need to build new rail links. But substantial quantities of
coal will move from the mine to the railroad or dock by truck,
over secondary roads.

If so, the problems noted in Kentucky

will become more widespread.

1/ FEA, Project Independence Report, November 1974, page 277.
2/

Kentucky Department of Transportation, Kentucky Coal and
Its Transportation Impacts, 1974, page 49.

- 10 -

Effect Upon Balance of Payments
The effect of coal conversion by major electric and
industrial consumers would react upon imported oil, primarily
on the East Coast. From 1.5 to 2.1 million barrels per day
of residual fuel is being imported — virtually all for
boiler fuel in electric utilities or industrial facilities. 1/
By 1985, the proposed Act would, for all practical purposes,
eliminate these imports. This could bring highly important
financial and security benefits, and we intend to examine
further this facet of the issue.
Imported residual fuel oil comes primarily from the
Caribbean — e.g. Venezuela, the U.S. Virgin Islands, the
Bahamas. It is manufactured from crude oil produced in many
parts of the world. It is impractical to estimate the net
effect of coal conversion upon the balance of payments.
However, it is obvious there would be a net decrease in dollars
flowing overseas, and an early, favorable impact on the balance
of payments ledger.
Impact Upon the Oil Industry
After January 1, 1985, the proposed legislation would
prohibit burning of oil or gas as a boiler fuel by electric
utilities or major industrial installations, thus eliminating

FEA Monthly Energy Review, April, 1975, page 30.

y ^
-11much of the market for residual fuel oil. The oil industry
in the United States is currently producing a residual yield
of 10 percent of total input, or 1,241,000 b/d fuel oil.!/
Although there could be some adjustment without substantial
capital expenditure, to eliminate or minimize this production
of residual could require substantial investment in cokers.
It is estimated that coker capacity, at 1975 prices, costs
about $2,000 per barrel per day. This investment would be
questionable economically, especially for small refiners.
As an extreme example of the impact of the Bill, refineries
appear to fall within the definition of major industrial installations. If so, they would be required to use coal, not the
traditional oil or gas, as fuel for some of their utility
boilers.
A further side effect of the Bill would result from the
fact that in most of the United States, but particularly on
the East Coast, there are commercial enterprises whose primary
function is to barge, terminal, and sell residual fuel oil to
utility and industrial consumers. Such enterprises would

largely disappear or be compelled to reorientate their functions,
if the market for residual were eliminated.

1/ API Weekly Report, May 16, 1975.

-12III. Conclusion
Although we support the concept of replacing oil and gas
by coal as burner fuel to the maximum extent possible, we
also strongly prefer that to the maximum extent possible the
market be used to attain this goal. In those instances where
legislation or administrative action is deemed necessary, I
believe flexibility is required as to the timing and extent
of conversion.
I believe there must be flexibility in the timing within
which facilities can be converted. To allow, for instance,
for unforeseen equipment shortages; for inability of some

utilities or industrial installations to finance the conversi
for regulatory delays, or for special circumstances and true
hardship cases. There also should be flexibility to exempt
all or parts of facilities — because of exceptional economic

reasons as well as physical accessibility. It is particularly
important to preserve the flexibility to accommodate these
problems with a minimum of economic disruption.
A complete prohibition against burning oil or gas would

eliminate inter-fuel competition for electric utilities (exce

for the coal-nuclear choice). For major industrial facilities,
coal would become the only available fuel. This loss of

competition would make the consumers vulnerable to fluctuatio
in coal prices. At the same time, they would become more
vulnerable to work stoppages in the coal industry.
I will be pleased to try to answer any questions you might
have.

Contact: John Plum
964-2615
June 23, 1975

FOR IMMEDIATE RELEASE

TREASURY SECRETARY SIMON MEETS
WITH GERMAN ECONOMICS MINISTER
Treasury Secretary William E. Simon and the Federal
Republic of Germany's Economics Minister, Hans Friderichs,
met here Friday to discuss the current and near term economic
outlook, both domestic and international, and review a number
of other subjects of mutual concern.
Trade, energy and investment questions, as well as
relations with the developing countries figured importantly
among the latter.
Both Secretary Simon and Minister Friderichs expressed
their firm intention to continue to follow policies which will
promote recovery from the current recession without stimulating
a resurgence of inflation. They concurred in the importance
of addressing structural problems in the industrial economies.
Attending the meeting with Secretary Simon were Under
Secretary for Monetary Affairs Jack F. Bennett; Assistant
Secretary for International Affairs Charles A. Cooper; Assistant
Secretary for Economic Policy Edgar R. Fiedler, and Deputy
Assistant Secretary for Trade and Raw Materials Policy Robert
Vastine.
Accompanying Minister Friderichs were Helga Steeg, Assistant
Secretary, Economics Ministry; German Embassy Economics Minister
Helmut Matthias; Jurgen Ter-Nedden, press officer, Economics
Minister; Gerda Burre, the Economics Ministry's U.S. Desk Officer;
Gunther Winkelmann, Financial Counselor and Gunter Roth, Personal
Assistant to Minister Friderichs.
oOo

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Department of thefREASURY
IINGTON. DC 20220

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TELEPHONE W04-2041

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£789^

5
June 23, 1975

FOR IMMEDIATE RELEASE

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2.2 billion of 13-week Treasury bills and for $2.3 billion
of 26-week Treasury bills, both series to be issued on June 26, 1975,
were opened at the Federal Reserve Banks today. The details are as follows:
26-week bills
maturing December 26, 1975

RANGE OF ACCEPTED
13-week bills
COMPETITIVE 3IDS: maturing September 25, 1975
Price
High
Low
Average

98.579
98.560
98.568

Discount
Rate

Investment
Rate 1/

5.622%
5.697%
5.665%

5.80%
5.88%
5.84%

Price

Discount
Rate

Investment
Rate 1/

97.000
96.970
96.983

5.902%
5.961%
5.935%

6.19%
6.25%
6.22%

Tenders at the low price for the 13-week bills were allotted 3%.
Tenders at the low price for the 26-week bills were allotted 81%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Received

Boston
$
77,425,000
New York
2,962,090,000
Philadelphia
21,325,000
Cleveland
33,260,000
Richmond
18,000,000
24,220,000
Atlanta
222,595,000
Chicago
38,695,000
St. Louis
28,000,000
Minneapolis
28,745,000
Kansas City
56,920,000
Dallas
San Francisco 232,825,000
T0TALS$3,744,100,000

Accepted
$
16,505,000
1,797,780,000
21,115,000
33,095,000
18,000,000
21,855,000
88,240,000
27,095,000
11,920,000
22,995,000
14,720,000
126,755,000

Received

Accepted

:$
14,445,000 $
4,445,000
: 3,083,035,000
2,099,140,000
:
5,265,000
5,265,000
:
78,360,000
10,360,000
:
8,220,000
7,220,000
:
10,835,000
9,135,000
•:
166,785,000
44,195,000
:
34,095,000
16,095,000
:
13,965,000
2,965,000
:
19,515,000
15,430,000
:
10,200,000
5,200,000
;
297,750,000
80,950,000

$2,200,075,000 a/$3,742,470,000

$2,300,400,000 b/

a/includes $ 324,580,000 noncompetitive tenders from the public.
b/lncludes $ 127,075,000 noncompetitive tenders from the public.
J7 Equivalent coupon-issue yield.

Alpha Delta Pi

Dear Adi Pis —
I can't tell you what a thrill it is to be here
tonight. I've given more than 50 speeches this past
year, but tonight is the most meaningful of all, to me
personally, because you are not my audience but my
sisters.
I have been an Alpha Delta Pi for almost 29 years
— longer than most of you are alive. I joined the
sorority for one reason: I liked the girls at the Adi
Pi house. I enjoyed the singing of rush week and I
was glad that my chapter, Alpha Nu, had high scholastic
standards. But what I really liked — what turned me
on to Adi Pi — was that all of the girls in the chapter
seemed like friends and sisters — more so than the other
sororities on campus.
I had a wonderful time as an active. I entered the
University of New Mexico as a junior, so I was the only
upper-class pledge, and I was elected pledge president.
For my first semester at the chapter house, seven of us
lived in one room — and you better believe we had to be

Remarks by the Honorable Francine I. Neff, Adi Pi Convention,
Banff, Canada, June 25, 1975.

}9
friends!

For my second semester, I had only one roommate,

but our bedroom was so cold that one day the goldfish
turned over in their bowl, turned blue, and passed on to
goldfish heaven —

and that's when the housemother was

finally convinced that we needed more heat.
When I first came to the University of New Mexico,
I was all set to play the field as far as dating went.
What really happened is that a few days after pledging
Adi Pi, I met a young Phi Delta Theta named Ed Neff, and
from then on it was Ed Friday evening, Saturday

evening,

and every other moment we could spare from our studies.
Ed and I graduated and were married on the same day in
the month of June,27 years ago, and bur wedding reception
was at the Adi Pi house. My hometown was only about a
hundred miles away, but, you see, after meeting Ed Neff
I dumped the old hometown high school sweetheart, and I
didn't have the heart to subject Ed to the scrutiny of
my ex-boyfriend',s friends; so we used the chapter house,
which was my second home anyway.
»

After college, I began a new life as a wife, mother,
and community worker in Albuquerque.

The leadership

training I received from Alpha Delta Pi helped me to be
active and, I think, effective in community affairs. Also,
a great many Adi Pis have been prominent leaders in Albuquerque, and this no doubt influenced me to volunteer
for causes in which I believed.

E?]
I became a volunteer for everything but the first
flight to the moon —
Girls and so on.

the P.T.A., Cub Scouts, Camp Fire

I was scholarship adviser to my old

Adi Pi chapter, as well as song leader for rush week.

remember I would bring my little girl and boy to the
practice sessions, and little Eddie —
and working in a national forest —

now all grown up

little Eddie knew

our Adi Pi songs better than some of the girls.
In 1956, I became president of the Albuquerque
Adi Pi alumnae group, and a few years later I was president of the City Panhellenic Association.

Looking back

now, I realize how much all of this helped me to organize
myself and my activities in later years.
In 1964, my community service eye turned in a new
direction.

I "turned on" to state and national problems,

and I joined the political process.
neighbors to vote —

I registered my

became a poll watcher —

and state

advisor to the New Mexico Teen Age Republican Clubs
at the time my own two children were adolescents.

—

Later,

as they grew older and I had more time, I became a member
of the New Mexico Republican State Central and Executive
Committees, and eventually I was elected delegate to the
Republican National Convention in 1968 and re-elected
again in 1972.
Then, a year ago, on June 21, 1974, I moved from
a volunteer to a career job, with my appointment as the

-4-

35th Treasurer of the United States, and the seventh
woman to hold* that position. Since then,- my life has
been a race between exhaustion and exhileration.
It all really started about March of 1974 when
I received a telephone call, and an unknown voice said
she was calling from the White House and could I come
to Washington and be interviewed for the position of
United States Treasurer. I was scrubbing the kitchen
floor when the call came and I couldn't quite believe
it.
Well, I thought about it — my husband Ed thought
about it — finally we decided I should fly
those friendly skies back to Washington and ccc v:hat
would happen.
I arrived with a horrible cold and a runny nose and
a decided lack of enthusiasm for the whole idea. I went
through a series of interviews — my cold disappeared —
and eventually I was offered my current position. This
was followed by an FBI investigation, a frantic scramble
to get everything organized for my absence from New
Mexico, and finally last June, the swearing in amid
the cheers of my family and friends. Then most of them
departed and I was launched on a whole new life.
Since that moment my life has been hectic — harried
— frenzied — and fun. It's humbling, in complacent
middle-class, middle-age, to find out how little one

3y?
knows about some things.

But it's exhilerating to dis-

cover that a long-time housewife can cope with a whole
new set of experiences and emerge reasonably intact.
I've gained some new wrinkles, and some extra inches
around the waistline.

But the job has done wonders to

postpone a hardening of my mental arteries.
As Treasurer, I have a number of jobs.
In terms of time, my major work at the moment is
related to my role as National Director of the United
States Savings Bonds Division.

I am the first woman,

and the first U.S. Treasurer, who has ever held that
job.

It involves a great deal of traveling, partly

because, of course, the Savings Bond program is nationwide, and partly because the position had been vacant for
a spell and there was a certain amount of "catch up" work
to do.

So far, I've traveled to 29 states —

100,000 miles —

well over

trying to meet our key volunteers and

to kick-off savings bonds drives.
I enjoy the job of National Director because I
believe in the U.S. Savings Bonds program, and because
it is a program of, by,and for volunteers.

Well over

97 percent of all the people working to sell bonds are
volunteers and, of course, I feel right at home with these
people, because I traveled the volunteer route myself for
so long.

I'm pleased to tell you that so far this year, our

Savings Bonds Division is having the best sales year in
31 years.

-6-

3y
In addition to heading the Savings Bonds Division,
I, as United States Treasurer, have the more traditional
task of reviewing and endorsing United States currency.
I still get a thrill out of seeing my name on dollar bills.
I only wish I could keep a few more of them in my bank
account —

I happen to be among the last of the big spenders.

You might like to know —

talking of money —

that

the Treasury Department is considering the pros and cons
of printing a $2.00 bill.
desirable —

My own view is that this is

there's a big gap between the one dollar

and five dollar bills —

and I think

second 100 year birthday would be an

that our country's
appropriate time

to reestablish the $2.00 bill.
Another part of my job is serving as a spokesman for
the Treasury Department and for my super boss, Secretary
of the Treasury William Simon.

I think this is particu-

larly important right now when the ups and downs of the
economy affect everyone of us so directly.
And my final major role is so special it comes only
once every century or so.

I am Chairman of the Treasury

Department's Bicentennial Program for 197 5 and '76.
All of our Department's bureaus and offices are involved
in their own special programs, and we also have some
projects at Main Treasury Building that tell the total
Treasury story.

oy
Two of my favorites are the plans to begin a
permanent, historical exhibit for the Main Treasury
building, and to turn one of the Treasury's lovely
old marble constructed rpoms into a suitable place to
hold official functions.
So I have several different jobs —
my A.B.C.D. list —

I call them

administration, bonds and bicen-

tennial, currency, and departmental spokesman.

This

makes for a ten hour day, but I like being busy, and
contributing to programs I believe in.
Meanwhile you might wonderfhow is my husband Ed
doing back in Albuquerque, where his very demanding
business keeps him most of the--time.
Well, after 26 years with a live-in wife, Ed has
been learning to cope with such basic necessities as
making his own breakfast.

But I must tell you a little

story about him.
When we were first married, Ed, who is originally
from New Jersey, let me know very clearly that he admired
our Southwestern American Indians.

Why?

they spent their time in hunting and in

Well, because
contemplation,

while the squaw built the house, tended the garden, the
goats, and the children —

and actually did most of the

work.
According to Ed, he's been looking, all these
years, for a job for me so he could live in leisure and

-8-

^V
comfort like the Indian man.

Finally, he succeeded, I

got a job — a splendid one — but something went wrong
with Ed's grand design. Instead of leisure he finds
himself, for the very first time, making his own bed,
cooking his own breakfast, and taking out the garbage.
C'est la vie.
Actually, my family survives very well without me
there to nag them to death. Our daughter is married and
attending law school in Texas, and our son works for the
Forest Service in Arizona. I miss my husband Ed, of
course, but we see each other frequently and, in fact,
I was with him this past weekend.
I'm really lucky in one v.7ay, because several close
friends now live in Washington and work with me. And
would you believe that one of them is my old Alpha Delta
Pi sorority sister and roommate and bridesmaid, Carolyn
Johnston? Thank you, Adi Pi.
Carolyn has been a dear,close friend for 29 years;
after we graduated from college, I stayed in Albuqueruqe
and waved her goodby while she took off for a writing
career in Washington, San Francisco, and Tokyo, Japan.
We've kept in touch through the years and she was back
working in Washington when I became the Treasurer; so
first I "borrowed" her from her old agency and then I
inveigled her to stay on permanently and help me with
my new job. We live in the same apartment building in
Washington, where we borrow groceries and furniture and

money —

in fact, with two other friends, we have

quite a capitalist-style "commune" going for us.
So, girls, take a close look at your sorority
sisters; they may play a bigger role in your life
than you think,even a quarter of a century from now.
I've been asked many times, "How does one go about
becoming the Treasurer of the United States?" I can
only reply that there must be dozens of ways, but my
way to a career was through being a volunteer. Working
with others taught me how to get along with other people
and how to organize everything from a marshmallow roast
•

to a Congressional fund drive.

Some 7 0 million Americans

are volunteers in the United States alone, and if all
these volunteers, and the volunteers in Canada, stopped
work tomorrow, our countries would be in a terrific
mess. As a longtime volunteer, I say, don't ever
under-estimate the kind of work that money can't buy.
Some people also have asked me if I don't find
it difficult to start a full-time job after years of quote
"not working" — unquote. The answer is no. Because,
while this is my first salaried job, I began working
hard many years ago, as student, wife, mother and community worker. I didn't need money to make me work —
but it's lovely to have that paycheck every few weeks!

-10-

Xf
Today, I am one of the 44 percent of wives and
mothers who work outside the home, and one of the 9
out of the 10 American women who will work at a paid
job sometime in their lives.
You girls will join the work force at a time when
women really do have some great opportunities.

politics, for example, Connecticut has a woman governor,
and New York a woman Lieutenant Governor.

There are

19 U.S. Congresswomen, and a woman cabinet officer,
Mrs. Carla Hills. Also, a good friend of mine, Mary
Louise Smith, is Chairman of the Republican Party,
which is quite an advance when you think that women
couldn't even vote until the 1920's..
About 44 percent of all Department of Treasury
employees are women.

My position is appointive, but

we do have a GS-18 career Civil Service women —

and

that's the highest civil service rating possible.
other side of the coin is that only 8 women in the
entire federal government have made it to this top
position. And

The

-11-

-—N

EE 5'
even in Treasury, where we have some 13,000 Treasury
employees in the upper level positions of GS 13 to 18,
more than 96 percent of those jobs are held by men.
So, there are still some barricades for you girls to
man — or is that the wrong word to use?
We can all be proud of the Alpha Delta Pis who excell
in so many fields. Let me mention just a few.
Doctor Virginia Trotter of Alpha Eta is the Assistant
Secretary of Education in the Department of Health, Education and Welfare — a first for women.
Violet Diller of Beta Pi is a distinguished Professor
of Biophysics at the University of Cincinnati; Geneva
Wise of Alpha Omicron and Mary Lynch of Beta Beta are
well-known artists; Lois Ellison of Beta Nu and Goldie
Hanson of Epsilon are distinguished medical doctors;
Marian Guilfoyle of Beta Delta and Joan O'Dell of Gamma
Delta have made their mark as attorneys; Theresa Treadway-Carroll of Gamma Zeta is a well-known singer; Clare
Crawford of Beta Phi is a newspaper and TV correspondent
in Washington; Vivian Clark, Beta Theta, supervises and
coordinates University Women's Clubs in Manitoba Province,
Canada — these are just a few of the many, many Alpha
Delta Pis who make us proud to call them sisters.
Women have come a long way — and we don't need a
cigarette ad to tell us so. We're not there yet.

-12-

But my experience at Treasury is that women are actively
encouraged to work, train and think "top job."
I see no reason at all why qualified women shouldn't
aspire to the top job in their field. And I must say
I've met some very smart young women at Treasury who
understand the x, y, z's of economics.
Economics isn't a very sexy subject.
It doesn't sing or dance or tell jokes. But, according
to the newspaper, students are jamming economics classes
these days because inflation and recession have suddenly
made this subject very relevant to their own lives. The
Dow Jones and the unemployment figures are now front-page
news.
I'm happy to report that current economic news is
the best in some time. The personal income of United
States citizens, in May, increased by the largest amount
in 8 months. And the basic balance of payments of the
United States — which is generally considered the most
stable measure of a nation's international financial
position — improved considerably this past spring, as
compared to late last year.
Further, the prestigious Conference Board Economics
Forum — a group of 10 leading economists — reported
earlier this month that the recession appears to have
reached bottom, and there will be a significant upswing
this fall and an acceleration of this trend in 1976. This
is also the general conclusion of the Treasury Department.

-13-

The United States still has plenty of economic
problems, including low corporate profits and a too
high unemployment rate. But, if people can cause
problems, they can solve them too. And I have great
confidence in the people working on these problems
in Washington, as well as great confidence in the ordinary men and women who live and work under our free
enterprise economic system. This is the system that has
given both Canada and the United States two of the very
highest living standards in the world — and has done it
under a democratic government.
Well, girls, I seem to have spent most of my time
describing what happened after I answered that- call
from the White House last year. But if I have any
message for you tonight, it is that the only thing in
life that never changes is change itself. Prepare
yourself now for an unexpected future. Be prepared to
do more, to be more, to change more in your lifetime
than you now believe is possible — as I have had to
do. Keep your goals and plans flexible as new opportunities arise, but never, never shift your basic values.
We seldom know our lifetime scenerio in advance.
But every small step along the way leads to another step
and another goal.
June 25 of 1975 is a wonderful time to be alive.
Let's be alive — all 24 hours of the day ~ to our

-14\

possibilities as women, as members of a loving sorority,
and as citizens of two great nations. Your life is
here and now and what you do today will shape all of
your tomorrows, for what I hope will be your long and
happy lives.

T Of

Department of theTREASURY
WASHINGTON, DC. 20220

TELEPHONE W04-2041
'78

FOR RELEASE AT 4:00 P.M.

June 24, 1975

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 $5,400,000,000 , or
thereabouts, to be issued

July 3, 1975,

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 April 3, 1975,
and to mature October 2, 1975

(CUSIP No. 912793 XR2),

originally issued in

the amount of $2,700,370,000, the additional and original bills to be freely
interchangeable.
183-day bills, for $2,700,000,000, or thereabouts, to be dated July 3, 1975
and to mature January 2, 1976

(CUSIP No. 912793 YM2).

The bills will be issued for cash and in exchange for Treasury bills maturing
July 3, 1975,

outstanding in the amount of $4,904,375,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,792,600,000.
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 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-thirty p.m., Eastern Daylight Saving time, Monday, June 30, 1975.
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)

Others will not be permitted to submit tenders except for their

own account.

Tenders will be received without deposit from incorporated banks

and trust companies and from responsible and recognized dealers in investment
securities.

Tenders from others must be accompanied by payment of 2 percent of

Those submitting competitive tenders

will be advised of the acceptance or rejection thereof.

The Secretary of the

July 3, 1975,

in cash or

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

July 3, 1975.

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 of theTREASURY
TELEPHONE W04-2041

WASHINGTON, DC. 20220

37 o

/789

June 24, 1975

FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S 52-WEEK BILL AUCTION

Tenders for $1»430 million D f 52-week Treasury bills to be issued to
the public, to be dated July 1, 1975,
and to mature June 29, 1976,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS: (Excepting 2 tenders totaling $555,000)
Investment Rate
Price

Discount Rate

(Equivalent Coupon-Issue Yield)

•

High
Low
Average -

93.767
93.529
93.638

6.58%
6.84%
6.72%

6.165%
6.400%
6.292%

, TENDERS FROM THE PUBLIC RECEIVED AND ACC]
District

Received

Accepted

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

$
16,445,000
1,620,285,000
27,900,000
77,740,000
3,190,000
5,750,000
165,910,000
27,725,000
22,500,000
14,365,000
3,205,000
175,505,000

$2,160,520,000

$1,430,850,000

TOTAL

14,445,000
931,285,000
27,900,000
64,690,000
3,190,000
5,750,000
165,900,000
27,115,000
22,500,000
14,365,000
3,205,000
150,505,000

The $1,430,850,000 of accepted tenders includes 39 % of the amount of
bills bid for at the low price and $62,685,000 of noncompetitive tenders
from the public accepted at the average price.
In addition, $1,158,060,000 of tenders were accepted at the average price
from Government accounts and from Federal Reserve Banks for themselves and as
agents of foreign and international monetary authorities.

9
FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
WASHINGTON, D, C,
JUNE 25, 1975
MR. CHAIRMAN AND MEMBERS OF THIS DISTINGUISHED
COMMITTEE:
IT IS AGAIN TIME TO CONSIDER THE BORROWING AUTHORITY
OF THE TREASURY DEPARTMENT.
THE PRESENT TEMPORARY DEBT CEILING OF $531 BILLION,
WHICH WAS ENACTED BY THE CONGRESS ON FEBRUARY 19, WILL
EXPIRE AT THE END OF THIS MONTH.

ON JULY 1, IN THE

ABSENCE OF NEW LEGISLATION, THE TREASURY WILL BE UNABLE
TO ISSUE ANY NEW DEBT OBLIGATIONS OF AMY KIND, EITHER TO
REFUND MATURING ISSUES OR TO RAISE NEEDED NEW MONEY,
IN THE PAST, SECRETARIES OF THE TREASURY HAVE COME
TO THE CONGRESS —

AS I HAVE TODAY —

TO REQUEST AN INCREASE

IN THE DEBT LIMIT ONLY WHEN THE TREASURY WAS CLOSE TO
RUNNING OUT OF BORROWING AUTHORITY.

I DOUBT, HOWEVER,

WHETHER THIS PROCEDURE HAS REALLY INSURED THE MOST

PRODUCTIVE CONSULTATION BETWEEN THE CONGRESS AND THE
ADMINISTRATION.

FOR THAT REASON, I WOULD LIKE TO DISCUSS

WITH YOU TODAY, AS I DID EARLIER WITH THE WAYS AND MEANS
COMMITTEE, SOME POSSIBLE NEW DEPARTURES.
UNDER THE NEW PROCEDURES PRESCRIBED IN THE CONGRESSIONAL
BUDGET AND IMPOUNDMENT CONTROL ACT OF 1974, THE CONGRESS
HAS NOW ESTABLISHED ITS OWN TIMETABLE FOR DETERMINING
THE GOVERNMENT'S AGGREGATE RECEIPTS, OUTLAYS, DEFICIT,
AND DEBT.

AS THE NEW CONGRESSIONAL BUDGET AND DEBT LIMIT

PROCESS IS PLACED INTO EFFECT, IT WOULD SEEM TO ME APPROPRIATE FOR THIS COMMITTEE TO CONSIDER SHIFTING ITS FOCUS
FROM THE AMOUNT OF THE DEBT TO THE WAY IN WHICH THE DEBT
IS MANAGED; THAT IS, TO THE TIMING OF DEBT ISSUES, THE
SIZE OF DENOMINATIONS, THE MATURITY STRUCTURE, AND THE
MARKETING TECHNIQUES.
WHILE A DETAILED ACCOUNT OF THE STEWARDSHIP OF THE
SECRETARY OF THE TREASURY WITH REGARD TO THESE DEBT
MANAGEMENT MATTERS IS ALREADY PRESENTED TO THE CONGRESS
EACH YEAR IN THE ANNUAL REPORT OF THE SECRETARY OF THE
TREASURY ON THE STATE OF FINANCES, WE WOULD BE HAPPY TO
WORK WITH THIS COMMITTEE IN ANY WAY THAT IT SEES FIT IN
SCHEDULING OVERSIGHT HEARINGS FOR THE REVIEW OF THESE
IMPORTANT GOVERNMENTAL ACTIVITIES IN GREATER DEPTH.

-3-

' '}

IN THIS REGARD, I SHOULD NOTE THE CONSIDERABLE
DISCUSSION IN RECENT MONTHS OF THE POTENTIAL IMPACT OF
LARGE FEDERAL DEFICITS ON THE PROSPECTS FOR ECONOMIC
RECOVERY.

DR. MCCRACKEN PUT THE MATTER SUCCINCTLY

WHEN HE NOTED BEFORE THE JOINT ECONOMIC COMMITTEE
EARLIER THIS YEAR THAT:
-' IF THE FINANCIAL COMMUNITY HAS BEEN SLOW
TO APPRECIATE THE ROLE OF FISCAL POLICY
IN THE MANAGEMENT OF THE ECONOMY,
ECONOMISTS HAVE BEEN SLOW TO FACE FULLY
THE IMPLICATIONS OF THE FACT THAT
TREASURY FINANCING AND PRIVATE BORROWING
DO COMPETE FOR FUNDS IN THE SAME MONEY
AND CAPITAL MARKETS. AND TREASURY
REQUIREMENTS ARE NOW LARGE ENOUGH SO
THAT THEIR IMPACT ON FINANCING IN THE

PRIVATE

SECTOR MUST BE FACED QUITE

EXPLICITLY.
FOR THE FISCAL YEAR 1976, THE WHOLE CONGRESS HAS
ALREADY SPOKEN WITH REGARD TO THE DEBT LIMIT. THE
CONGRESSIONAL BUDGET RESOLUTION FOR FISCAL 1976, WHICH
WAS ADOPTED BY THE CONGRESS ON MAY 14 PROVIDED FOR AN
$86.6 BILLION INCREASE IN THE DEBT LIMIT TO A FIGURE OF
$617,6 BILLION FOR THE FISCAL YEAR ENDING JUNE 30, 1976,
I UNDERSTAND THAT THIS CONGRESSIONAL ACTION DOES
NOT HAVE THE FORCE OF LAW IN THE SENSE OF PROVIDING THE
TREASURY WITH BORROWING AUTHORITY AFTER THE END OF THIS
MONTH, YET, AS I SAID TO THE WAYS AND MEANS COMMITTEE,
I WONDER WHETHER IT WOULD NOT BE MORE PRODUCTIVE IF V:E

JUST ACCEPTED THAT NUMBER AND GOT DOWN TO A MORE SUBSTANTIVE DISCUSSION OF THE REAL ISSUES OF DEBT MANAGEMENT.
WE ALL KNOW THAT THERE IS NO WIDESPREAD INCLINATION
TO USE THE DEBT CEILING AS A REAL DETERMINANT OF FEDERAL
SPENDING AND TAXING.

DECISIONS ON THOSE SUBJECTS ARE

MADE BY THE CONGRESS IN OTHER LEGISLATION, AND ONCE THE
TAXES ARE SET AND THE SPENDING IS MANDATED, THE GOVERNMENT HAS NO CHOICE BUT TO BORROW TO COVER THE DIFFERENCES
BETWEEN ITS REVENUES AND OUTLAYS.
I COULD, THEREFORE, ACCEPT THE $617.6 BILLION FIGURE
AS A REASONABLE ESTIMATE OF THE PEAK BORROWING OF THE
TREASURY IN THE NEXT FISCAL YEAR DESPITE THE FACT, WHICH
YOU ALL KNOW, THAT THE FISCAL 1976 BUDGET DEFICIT FIGURE
ADOPTED BY THE CONGRESS IN ITS MAY 14 ACTION IS SIGNIFICANTLY
LARGER THAN THE DEFICIT PROPOSED BY THE PRESIDENT.
IN SUGGESTING THAT WAYS AND MEANS ALSO ADOPT THE

$617.6

BILLION FIGURE,

I WAS

INFLUENCED BY SEVERAL

CONSIDERATIONS.
FIRST, I HAD UNDERSTOOD THAT THE CONGRESS IN SETTING
ITS DEBT CEILING FIGURE WAS CONCENTRATING ON A FORECAST
OF THE JUNE 30, 1976, DEBT LEVEL,

NORMALLY, HOWEVER,

THE DEBT IS AS MUCH AS $5 BILLION HIGHER A FEW WEEKS
EARLIER IN MID-JUNE JUST BEFORE THE HEAVY JUNE TAX
RECEIPTS ARE RECEIVED.

SECOND, I UNDERSTOOD THAT THE CONGRESS WAS OPERATING
WITH AN ESTIMATE WHICH WAS ABOUT $5 BILLION LOWER THAN
OUR CURRENT ESTIMATE OF FEDERAL BORROWING WHICH IS
SUBJECT TO THE DEBT CEILING EVEN THOUGH THE PURPOSE
IS TO FINANCE FEDERAL AGENCY PROGRAMS WHICH HAVE BEEN
PLACED OUTSIDE THE BUDGET.
TABLE 1 ATTACHED TO MY STATEMENT SHOWS OUR ESTIMATES,
BASED ON THE PRESIDENT'S PROPOSED BUDGET PROGRAM IN
1976, OF DEBT SUBJECT TO STATUTORY LIMITATION AT THE
END OF EACH MONTH THROUGH FISCAL YEAR 1976, AS WELL
AS THE PEAK DEBT IN MID-JUNE 1976. OUR ESTIMATES
INCLUDE ALL TREASURY BORROWING TO FINANCE BOTH BUDGET
AND OFF-BUDGET PROGRAMS AND MAKE THE USUAL ASSUMPTIONS
OF A $6 BILLION CASH BALANCE AND $3 BILLION MARGIN FOR
CONTINGENCIES.

THE TABLE SHOWS OUR PEAK DEBT LIMIT

NEED ON JUNE 15 AT $613 BILLION, COMPARED TO THE CONGRESSIONAL

FIGURE OF $617.6 BILLION.

GIVEN THE UNCERTAINTY IN

ESTIMATES AND THE FACT THAT THE DEBT LIMIT DOES NOT
CONTROL SPENDING, I QUESTIONED WHETHER THIS RELATIVELY
SMALL DIFFERENCE WAS WORTH AN EXTENSIVE LEGISLATIVE
EXERCISE.

... ^9
INDEED, IN VIEW OF THE NEW CONGRESSIONAL PROCEDURES,
THE COMMITTEE

SHOULD

CONSIDER DOING AWAY WITH

SEPARATE LEGISLATION ON THE DEBT CEILING AND CONCENTRATING ON OUR DEBT MANAGEMENT OPERATIONS.
AS MEMBERS OF THIS COMMITTE KNOW, THE HOUSE YESTERDAY
APPROVED AN INCREASE IN THE DEBT LIMIT TO $577
BILLION THROUGH NOVEMBER 15, EFFECTIVE ON THE DATE OF
ENACTMENT.

I AM GLAD TO BE ABLE TO ENDORSE THIS ACTION

AS EVIDENCING A REAFFIRMATION OF THE POLICY ADOPTED
IN THE CONGRESSIONAL BUDGET AND IMPOUNDMENT CONTROL
ACT.
OBVIOUSLY, I BELIEVE THAT THE PRESIDENT'S VIEWS
ON THE SIZE OF THE BUDGET DEFICIT IN FISCAL
AND WILL PREVAIL.

1976 SHOULD

BUT IT SEEMS TO ME THAT THE HOUSE

ACTION IS A HIGHLY RESPONSIBLE ACT IN THAT IT PROVIDES
THE BORROWING AUTHORITY REQUIRED BY THE BUDGETARY
TARGETS ADOPTED BY THE CONGRESS ON MAY 14.
IT ALSO SEEMS TO ME TO BE SIGNIFICANT THAT THE
EXPIRATION OF THE TEMPORARY LIMIT UNDER THE HOUSE BILL
ESSENTIALLY COINCIDES WITH THE DATE FOR THE FINAL
CONGRESSIONAL RESOLUTION ON THE BUDGET TOTALS.

THIS

SINCE THE CONGRESS WILL SPEAK TO THE DEBT
LIMIT IN THAT RESOLUTION, THAT ACTION ON TEE DEBT LIMIT

-99

ITSELF WILL
BE A PRO FORMA ACTION, AND
AN OPPORTUNITY
WILL BE AFFORDED FOR THE REVIEW OF OUR DEBT MANAGEMENT
OPERATIONS AND ECONOMIC AND FINANCIAL DEVELOPMENTS IN
SOME MORE DETAIL THAN HERETOFORE HAS BEEN FEASIBLE.
IN LIGHT OF THE VERY LARGE DEFICITS THAT WE HAVE
BEEN FINANCING AND WILL NEED TO FINANCE IN THE COMING
YEAR, WHETHER WE LOOK AT THE CONGRESSIONAL NUMBERS OR
THE PRESIDENT'S, I THINK IT IS IMPORTANT FOR THE
CONGRESS AND THE AMERICAN PEOPLE TO UNDERSTAND WHAT
THE TREASURY HAS BEEN DOING IN THE AREA OF DEBT MANAGEMENT,
IN MAKING OUR FINANCING DECISIONS, WE HAVE SOUGHT
AND OBTAINED THE BEST ADVICE OF PRACTICAL AND EXPERIENCED
MARKET PARTICIPANTS AND FINANCIAL LEADERS.
THE GOVERNMENT BORROWING COMMITTEE OF THE AMERICA;:
BANKERS ASSOCIATION NUMBERS AMONG ITS MEMBERSHIP SENIOR
BANK OFFICERS FROM BANKS IN ALL GEOGRAPHICAL AREAS OF
THE COUNTRY AND OF A WIDE RANGE OF SIZES FROM THE VERY
LARGEST TO RELATIVELY SMALL BANKS.

COMMERCIAL BANKS

ARE THE LARGEST PRIVATE PURCHASERS OF GOVERNMENT
SECURITIES.

ADVICE ON BANK DEMANDS FOR NEW GOVERNMENT

SECURITIES IS VITAL.
THE GOVERNMENT SECURITIES AND FEDERAL AGENCIES
COMMITTEE OF THE SECURITIES INDUSTRY ASSOCIATION
SIMILARLY INCLUDES SENIOR OFFICIALS OF INSTITUTIONS
ACTIVE IN THE GOVERNMENT SECURITIES MARKET, A NUMBER
OF WHOM HAVE SERVED ALSO IN RESPONSIBLE POSITIONS IN

-»-

GOVERNMENT ~ SEVERAL IN THE TREASURY AS ASSISTANTS
TO THE SECRETARY FOR DEBT MANAGEMENT.

THIS COMMITTEE

ALSO HAS A BROAD VIEW OF THE MARKET.
THE MEMBERS OF BOTH ADVISORY COMMITTEES HAVE BEEN
IN FULL AGREEMENT THAT THE TREASURY MUST TAP ALL MATURITY
SECTORS OF THE MARKET AND THAT ITS OFFERINGS SHOULD BE
DESIGNED TO CREATE AND BUILD AN UPWARD SLOPING YIELD
CURVE TO APPEAL TO NONBANK INVESTORS AND TO IMPROVE
THE MATURITY STRUCTURE OF THE DEBT.

THEY HAVE POINTED

OUT ALSO THAT SUCH POLICIES WOULD PROVIDE SOME
PROTECTION AGAINST EXCESSIVE MONETARY GROWTH.
WE H A V E

NOT FOLLOWED THE SPECIFIC RECOMMENDATIONS

OF THE ADVISORY COMMITTEES IN ALL RESPECTS, FOR THE
ULTIMATE JUDGMENTS HAVE BEEN OURS, AS THEY SHOULD BE.
BUT THEIR ADVICE HAS BEEN VALUABLE, AND THE RESULTS OF
OUR FINANCING OPERATIONS HAVE INDEED BEEN SATISFACTORY.
I AGREE COMPLETELY WITH THE WISDOM OF THEIR
CONSISTENT ADVICE THAT TO RAISE THE TREMENDOUS SUMS
WE REQUIRE, WITHOUT EXTREME DISTURBANCE TO OUR FINANCIAL
STRUCTURE, WE MUST ISSUE SECURITIES IN ALL THE DIFFERENT
MATURITY RANGES; AND WE MUST DO OUR BEST TO HALT THE
LONG CONTINUED CONCENTRATION OF OUR DEBT IN SHORT-DATED
SECURITIES,

IN THAT REGARD, IT IS A MATTER OF CONCERN

E1
TO ME THAT THE AVERAGE MATURITY OF THE PRIVATELY-HELD
MARKETABLE DEBT HAS BEEN ALLOWED TO DETERIORATE TO
THE POINT THAT THE AVERAGE MATURITY AT THE END OF
JUNE WILL BE 2 YEARS AND 9 MONTHS COMPARED TO 5 YEARS
AND 9 MONTHS JUST A DECADE AGO AND 10 YEARS AND 5
MONTHS IN JUNE 1947.
THE IMPORTANCE OF AN UPWARD SLOPING YIELD CURVE
SHOULD "NOT BE UNDERESTIMATED. IN THE WORDS OF ONE
COMMITTEE:
BECAUSE THE MAJORITY OF INSTITUTIONAL
INVESTORS BORROW SHORT-TERM FUNDS AND
INVEST THEM LONGER ~ THIS IS TRUE OF
COMMERCIAL BANKS, OF SAVINGS INSTITUTIONS
AND OTHERS — ANYTHING THAT RAISES SHORTTERM RATES DESTROYS THE INCENTIVE TO
INVEST LONGER TERM, BE IT IN MORTGAGES,
CORPORATE BONDS, OR STOCKS. THIS IS
BECAUSE ANY ACTION THAT MAKES SHORT
RATES HIGHER THAN OTHERWISE SIMPLY
INCREASES THE RISKS OF INVESTING LONG,
AND DESTROYS THE INCENTIVE OR NEED TO
EXTEND INVESTMENT MATURITIES.
I PARTICULARLY CALL YOUR ATTENTION TO THE ATTACHED
CHARTS SHOWING THE RECENT COURSE OF INTEREST RATES.
As THESE CHARTS INDICATE, INTERMEDIATE AND LONGERTERM

INTEREST RATES ROSE STEADILY FROM MID~FEBRUARY

UNTIL THE ANNOUNCEMENT ON MAY 1 OF OUR MAY REFUNDING
AND CASH FINANCING PROGRAM.

:io-

y^»

THE TREASURY WAS ACCUSED OF HAVING "TALKED UP"
THESE INTEREST RATES AND HAS ALSO BEEN BLAMED BY SOME
FOR THE MARKET DIFFICULTIES ENCOUNTERED BY CORPORATE
AND OTHER BORROWERS IN THIS PERIOD.
THERE IS, IN FACT, VERY LITTLE, IF ANY, LASTING
MARKET EFFECT FROM A STATEMENT BY THE SECRETARY OF
THE TREASURY OR ANY OTHER PERSON REGARDING THE COURSE
OF FUTURE MARKET RATES UNLESS THE FACTS SUPPORT HIS
CONCLUSIONS.
THOSE WHO MAKE DECISIONS IN MARKETS DO NOT SURVIVE
FOR LONG BY ACTING ON STATEMENTS THAT ARE NOT BASED ON
FACT.

MARKET REACTIONS TO STATEMENTS WHICH ARE NOT

BASED ON FACTS ARE TEMPORARY AND SELF-CORRECTING.
THE KEY TO FUNDAMENTAL MARKET MOVES IS WHAT MARKET
PARTICIPANTS PERCEIVE AS THE REALITIES OF CURRENT AND
PROSPECTIVE FINANCIAL CONDITIONS.

THESE, IN TURN, ARE

DETERMINED BY EXISTING AND ANTICIPATED CONDITIONS
AFFECTING THE SUPPLY AND DEMAND FOR SAVINGS, INCLUDING
THE PRESENT AND PROSPECTIVE FEDERAL DEFICITS,
I WOULD LIKE TO POINT OUT THAT AS SECRETARY OF
THE TREASURY IT IS MY RESPONSIBILITY TO MAINTAIN THE
FINANCIAL INTEGRITY OF THE U. S. GOVERNMENT AND, IN
SO DOING, TO SPEAK OUT WHENEVER THAT INTEGRITY IS

- 11 "
THREATENED.

UNFORTUNATELY, THE CAUSE OF A PROBLEM

IS TOO FREQUENTLY ATTRIBUTED TO THE MESSENGER RATHER
THAN TO THE MESSAGE ITSELF.

AS THE WALL STREET JOURNAL

SAID IN AN EDITORIAL, IT'S LIKE BLAMING THE OBSTETRICIAN
FOR THE HIGH-BIRTH RATE\_AS:YOU;ALL.WELL KNOW, IN THE PERIOD
BETWEEN FEBRUARY AND MAY, IT APPEARED THAT THE FEDERAL
DEFICITS FOR FISCAL 1975 AND FISCAL 1976 WOULD BE
INCREASED BY CONGRESSIONAL TAX AND SPENDING ACTIONS
ALMOST WITHOUT LIMIT.

THAT WAS THE FACTOR

IN THIS PERIOD THAT WAS CLEARLY RESPONSIBLE FOR THE
RISE IN INTEREST RATES.
THE MARKET RALLY FOLLOWING CUR MAY FINANCING
ANNOUNCEMENT WAS BASED ON THE DOWNWARD REVISION IN
THE ANTICIPATED FEDERAL DEFICIT RESULTING FROM LARGER
THAN ANTICIPATED CORPORATE AND INDIVIDUAL TAX RECEIPTS
AND THE IMMEDIATE RELIEF TO THE MARKET THAT WAS PROVIDED BY THE REDUCTION IN OUR ESTIMATED BORROWING
REQUIREMENTS FOR THE TOO MONTHS OF MAY AND JLINE.
THE FURTHER FACTOR WHICH HAS SINCE HELPED TO
LOWER RATES, IS THE GROWING SIGN OF GREATER CONGRESSIONAL
RECOGNITION OF THE FINANCIAL AND ECONOMIC DANGERS OP
EXCESSIVE BUDGET DEFICITS.

OUR EXPERIENCE HAS CLEARLY

INDICATED THAT FURTHER REDUCTIONS IN INTEREST RATES

- * - J ft
FROM NOW ON DEPEND ON MAINTAINING A FIRM GRASP ON THE
BUDGET SITUATION, ON CONTINUED PROGRESS AGAINST
INFLATION, AND ON CONTINUED PROGRESS IN IMPROVING
THE FINANCIAL STRUCTURE OF OUR BUSINESS FIRMS.

ALL

OF THESE THINGS ARE ESSENTIAL TO ACHIEVING A SOLIDLY
BASED AND LONG-LASTING RECOVERY OF THE ECONOMY.
BASED ON THE ADMINISTRATION'S PROJECTION OF A $60
BILLION DEFICIT IN FISCAL 1976, OUR NEW CASH REQUIREMENTS, INCLUDING OFF-BUDGET FINANCING, WILL TOTAL
NEARLY $73 BILLION —

$38.2 BILLION IN THE JULY-DECEMBER

1975 HALF YEAR AND $34,5 BILLION IN THE JANUARY-JUNE
1976 HALF YEAR.

THIS HAS NOT BEEN GENERALLY RECOGNIZED,

EXCEPT BY ACTIVE MARKET PARTICIPANTS.
FACTS ARE THESE:

THE SIMPLE

ON DECEMBER 31, 1974, PRIVATE

INVESTORS HELD $181 BILLION OF MARKETABLE TREASURY
OBLIGATIONS.

B Y JUNE 30, 1976 ~

18 MONTHS LATER

—

THEY WILL HAVE ACQUIRED ANOTHER $80~90 BILLION MORE
OF MARKETABLE TREASURIES.

IN FISCAL 1976

ALL GOVERNMENT

BORROWING, INCLUDING STATE AND LOCAL, IS EXPECTED TO
AMOUNT TO ABOUT 80% OF THE NET BORROWINGS IN THE SECURITIES
MARKET; AND THE FEDERAL SECTOR ALONE WILL ACCOUNT FOR 50%
OR MORE OF THE TOTAL FUNDS RAISED IN ALL CREDIT MARKETS,
TABLES AND CHARTS ARE ATTACHED TO MY STATEMENT
SHOWING CHANGES IN THE OWNERSHIP OF TOTAL OUTSTANDING
TREASURY DEBT OVER THE PAST YEAR; OFFERINGS OF NEW
MARKETABLE SECURITIES BY MATURITY SINCE JANUARY 1;
THE SCHEDULE OF OBLIGATIONS MATURING IN THE NEXT
TWELVE MONTHS; AND HISTORICAL INFORMATION ON NEW
ISSUES, MATURITIES, AND NEW MONEY FINANCING FOR
RECENT YEARS.
ALSO ATTACHED TO MY STATEMENT ARE TRANSCRIPTS
OF FINANCING PRESS CONFERENCES THIS YEAR.
I BELIEVE THAT ANALYSIS OF THIS DATA WILL SUPPORT
A CONCLUSION BY THIS COMMITTEE AND THE CONGRESS THAT
THE TREASURY HAS BEEN FINANCING THE DEFICIT IN A
RESPONSIBLE AND CONSTRUCTIVE MANNER.

IN THIS REGARD,

HOWEVER, I MUST SAY THAT I AM PERSONALLY DEEPLY CONCERNED BY THE NOTION I SOMETIMES HEAR EXPRESSED THAT
THERE IS SOME SIMPLE ANSWER TO FINANCING THE DEFICITS

WHICH WILL AVERT PAINLESSLY ALL RISKS WHICH ARE
INHERENT IN OPERATIONS OF THIS MAGNITUDE.
IN ADDITION TO RAISING AN UNPRECEDENTED AMOUNT
OF NEW MONEY, WE WILL ALSO HAVE SUBSTANTIAL
REFUNDING REQUIREMENTS IN FISCAL 1976, AS TABLE 4
SHOWS.

APART FROM THE $93 BILLION OF PRIVATELY-HELD

REGULAR WEEKLY AND MONTHLY BILLS, $26,0 BILLION OF
PRIVATELY-HELD COUPON ISSUES WILL MATURE IN FY 1976,
THUS, OUR GROSS FINANCING JOB WILL TOTAL OVER

$190 BILLION,

•••'-'\9

THE SHEER SIZE OF THIS FINANCING JOB REQUIRES
THE GREATEST FLEXIBILITY WITH REGARD TO THE CHOICE
OF MATURITIES FOR EVERY NEW SECURITIES OFFERING. AND
YET, UNDER PRESENT LAW, HOWEVER, THERE IS A STATUTORY
LIMITATION OF $10 BILLION ON THE AMOUNT OF BONDS HELD
BY THE GENERAL PUBLIC WITH INTEREST RATES IN EXCESS
OF 4-1/4 PERCENT,

MOREOVER, TREASURY NOTES, WHICH

ARE NOT SUBJECT TO AN INTEREST RATE LIMITATION, ARE
RESTRICTED TO A MAXIMUM MATURITY OF 7 YEARS. BEAR IN MIND
THAT,SINCE 1965, INTEREST YIELDS REQUIRED BY THE MARKET
ON LONGER-TERM TREASURY SECURITIES HAVE BEEN IN EXCESS
OF 4-1/4 PERCENT, AND THE CONGRESS ON THREE OCCASIONS

IN THIS DECADE HAS RECOGNIZED TREASURY NEEDS FOR GREATER
FLEXIBILITY IN ITS DEBT MANAGEMENT OPERATIONS.
—

IN 1967, THE MAXIMUM MATURITY ON TREASURY
NOTES WAS INCREASED FROM 5 YEARS TO THE
PRESENT MAXIMUM OF 7 YEARS, THUS EXEMPTING
ISSUES UP TO 7 YEARS FROM THE 4"L/4 PERCENT
LIMITATION.

—

IN 1971, THE TREASURY WAS AUTHORIZED TO
ISSUE UP TO $10 BILLION OF BONDS WITHOUT
REGARD TO THE 4"L/4 PERCENT CEILING.

—

THEN, IN 1973, THE $10 BILLION EXEMPTION
FROM THE 4-1/4 PERCENT CEILING WAS AMENDED
SO THAT IT WOULD APPLY ONLY TO BONDS OUTSTANDING IN THE HANDS OF THE PUBLIC.

THE

EFFECT WAS TO EXCLUDE ANY BONDS HELD BY
GOVERNMENT ACCOUNTS, INCLUDING THE FEDERAL
RESERVE BANKS, IN CALCULATING THE AMOUNT
OUTSTANDING AGAINST THE $10 BILLION LIMITATION,
THE TREASURY HAS USED $8.5 BILLION OF THE $10 BILLION
BOND AUTHORITY,

THIS LEAVES A BALANCE OF ONLY $1,5 BIL1EON.

IN L I G H T O F T H E

MAGNITUDE OF OUR PROJECTED REFUNDING

AND NEW MONEY NEEDS IN FY 1976 AND BEYOND ~

AMD ALSO

IN LIGHT OF THE BASIC NEED TO RESTRUCTURE THE DEBT TO

REDRESS THE NEGLECT OF PAST YEARS —

THE FLEXIBILITY

WHICH I NOW HAVE FOR CONDUCTING OUR BORROWING OPERATIONS
IS GROSSLY INADEQUATE.
THE WEIGHT OF PRACTICAL AND EXPERIENCED MARKET
ADVICE, AS I HAVE ALREADY INDICATED, IS THAT WE SHOULD
OFFER SECURITIES IN ALL MATURITY AREAS TO MINIMIZE THE
RISK OF AN ADVERSE IMPACT ON ANY PARTICULAR SECTOR.
INDEED, UNLESS WE CAN OFFER SECURITIES IN ALL THE
MATURITY RANGES TO A WIDE RANGE OF INVESTOR INTERESTS,
DEBT MANAGEMENT IS MADE MORE DIFFICULT AND THE ULTIMATE
COST OF FINANCING OUR DEFICITS IS LIKELY TO BE INCREASED,
OBVIOUSLY, THIS MEANS A MARKET JUDGMENT IS CALLED FOR
AT THE TIME OF ANY FINANCING, AND IF OUR CHOICES ARE
RESTRICTED BY INADEQUATE AUTHORITY TO ISSUE A RANGE
OF SECURITIES, SUCH CHOICES ARE MADE MORE DIFFICULT
AND THE RESULTS ARE LIKELY TO BE LESS SATISFACTORY.
IN T H I S

CONNECTION, I SHOULD M E N T I O N T H E SOMETIMES

ERRONEOUS CONCLUSIONS ABOUT THE IMPACT OF TREASURY
FINANCING OPERATIONS ON PARTICULAR SECTORS OF THE
ECONOMY.

THERE IS A TENDENCY, FOR EXAMPLE, TO THINK

OF HOUSING FINANCE IN TERMS OF PERMANENT, 30-YEAR
MORTGAGE FINANCING, BUT AS EVERY HOME BUILDER KNOWS,
THE AVAILABILITY OF SHORT-TERM CONSTRUCTION FINANCING

- 17 -

1
I
i

IS AS IMPORTANT TO GETTING A JOB STARTED AS THE
PERMANENT FINANCING IS TO GETTING THE JOB COMPLETED.
WE A L S O KNOW T H A T T H E

DEPOSIT F L O W T O F I N A N C I A L

INSTITUTIONS, SUCH AS SAVINGS AND LOAN ASSOCIATIONS,
IS FAR MORE SENSITIVE TO THE COMPETITION OF SHORTERTERM T R E A S U R Y O B L I G A T I O N S THAN T O T H E C O M P E T I T I O N OF
LONGER-TERM OBLIGATIONS.

INDEED, EVERY SECTOR OF THE

ECONOMY, EVERY ASPECT OF OUR FINANCIAL MARKETS, IS
SO INTERRELATED THAT UNDUE CONCENTRATION OF TREASURY
FINANCING IN ANY PARTICULAR MATURITY AREA CAN HAVE
ADVERSE EFFECTS THROUGHOUT THE WHOLE MARKET —

WHICH

COULD LARGELY HAVE BEEN AVOIDED BY A BETTER CHOICE
OF NEW SECURITIES.
AS WE MOVE FORWARD INTO THE RECOVERY PHASE,
THERE IS AN ADDITIONAL REASON FOR CONCERN WITH OUR
DEBT STRUCTURE.
IT

IS OBVIOUS THAT A S U B S T A N T I A L P O R T I O N OF OUR

FINANCING IN THE FUTURE, AS IN THE PAST, WILL HAVE
TO BE HANDLED IN THE SHORT AND INTERMEDIATE AREA.
IN FACT, IN THE FIRST 6 MONTHS OF THIS YEAR WE HAVE
ISSUED $47,6 BILLION OF NEW MARKETABLE SECURITIES
EXCLUDING EXCHANGE OFFERINGS TO THE FEDERAL RESERVE
AND GOVERNMENT ACCOUNTS AND COUNTING ONLY THE NET

,18-

ADDITIONS TO BILLS. OF THIS TOTAL,
68 PERCENT —

$32.5 BILLION —

HAS BEEN IN MATURITIES OF LESS THAN

2 YEARS; $12.4 BILLION —

26 PERCENT —

HAS BEEN IN

MATURITIES OF 2-7 YEARS; AND ONLY $2.7 BILLION
LESS THAN 6 PERCENT ~

HAS BEEN IN MATURITIES OVER

7 YEARS; THAT IS, IN THE BOND AREA.

ONLY $1,5 BILLION,

3 PERCENT OF THE TOTAL, HAS BEEN IN LONG-TERM MATURITIES
OVER 20 YEARS.
BUT IF WE CONCENTRATE OUR NEW OFFERINGS ENTIRELY
IN THE SHORT- AND INTERMEDIATE-TERM AREAS, THEN, WHEN
THE ECONOMY HAS ACHIEVED A SUBSTANTIAL MEASURE OF
RECOVERY, THE PROBLEMS OF THE FEDERAL RESERVE WILL BE
GREATLY COMPLICATED, AS WOULD THE PROBLEMS OF FUTURE
SECRETARIES OF THE TREASURY.

THE ALREADY SUBSTANTIAL

BUILD-UP IN THE AMOUNT OF SECURITIES COMING DUE IN
EACH YEAR IS LIKELY TO CONTINUE.

TWO YEARS AGO, THE

PRIVATELY-HELD MARKETABLE DEBT MATURING WITHIN A YEAR
AMOUNTED TO JUST

$84 BILLION,

TODAY, THE FIGURE

IS $119 BILLION,

TWO YEARS AGO OUR MAJOR REFUNDINGS

WERE QUARTERLY, BUT IT IS NOW LIKELY THAT WE WILL SOON
HAVE SIGNIFICANT COUPON MATURITIES IN EVERY MONTH OF
THE YEAR.

WE CANNOT ESCAPE ALL OF THE FUTURE ADVERSE CONSEQUENCES OF NECESSARY SHORT-TERM FINANCING,
JUDGMENT, HOWEVER —

IN MY

AND I KNOW THIS IS A JUDGMENT

SHARED BY OTHER MARKET PROFESSIONALS —

EXCESSIVE

AMOUNTS OF SHORT-TERM TREASURY DEBT COULD CONTRIBUTE
TO ANOTHER SITUATION IN WHICH WE COULD GET AN
EXCESSIVE RISE IN SHORT-TERM INTEREST RATES, WITH
THE WHOLE PANOPLY OF ADVERSE ECONOMIC AND FINANCIAL
CONSEQUENCES SUCH AS DEVELOPED IN 1966, 1969-70, AND
AGAIN IN 1973.
THIS IS OBVIOUSLY NOT AN IMMEDIATE PROBLEM, BUT
AS THE RECOVERY DEVELOPS AND PRIVATE CREDIT DEMANDS
EXPAND, COMMERCIAL BANKS AMD OTHER LENDERS WILL
ATTEMPT TO LIQUIDATE TREASURY SECURITIES TO OBTAIN
FUNDS FOR LENDING TO THE PRIVATE SECTOR.
SHORT-TERM TREASURY DEBT IS VERY NEAR TO MONEY
AND, UNLESS THERE IS A SUBSTANTIAL RISE IN INTEREST RATES,
IT

CAN BE READILY LIQUIDATED AT SMALL COST TO

PROVIDE FUNDS FOR OTHER PURPOSES.

IF TREASURY

FINANCING NEEDS ARE STILL LARGE AT THAT TIME AND
EXCESS DEMAND THREATENS TO REIGNITE INFLATIONARY
PRESSURES, THE FEDERAL RESERVE SYSTEM WILL HAVE TO
RESIST THIS LIQUIDATION BY THE PRIVATE SECTOR BY

310
ALLOWING SHORT-TERM INTEREST RATES TO RISE.
. THE ALTERNATIVE OF FEDERAL RESERVE
PURCHASES FROM THE PRIVATE SECTOR —
THE DEBT —

MONETIZATION OF

COULD TEMPORARILY RESTRAIN SUCH A RISE IN

RATES, BUT ONLY AT THE EXPENSE OF ADDING TO THE
INFLATIONARY POTENTIAL,
I KNOW THE ARGUMENT THAT WE SHOULD REFRAIN FROM
LONG-TERM BORROWING AT THIS TIME WHEN RATES ARE
HISTORICALLY HIGH AND WAIT UNTIL A TIME WHEN RATES
ARE LOWER.

DESPITE THE SUPERFICIAL APPEAL OF THIS

ARGUMENT, TO PRECLUDE THE TREASURY FROM THE SOUND
DEBT MANAGEMENT PRACTICES AVAILABLE TO VIRTUALLY ALL
OTHER FINANCIAL MARKET PARTICIPANTS WILL INEVITABLY
LEAD TO UNDESIRABLE AND DAMAGING RESULTS.
IT MAY SEEM STRANGE THAT ANY SECRETARY OF THE
TREASURY WOULD WISH TO BORROW AT A RATE OF NEAR 8
PERCENT IN THE LONG-TERM MARKET WHEN HE COULD BORROW
AT A RATE OF 5 PERCENT OR LESS WITH 91-DAY BILLS, AN
APPARENT COST DIFFERENCE OF 3 PERCENT, WHICH COULD
TRANSLATE INTO MANY MILLIONS OF DOLLARS OF INTEREST
IN A YEAR'S TIME.
SUCH MECHANICAL-TYPE CALCULATIONS BEG THE
QUESTION.

IN THE FIRST PLACE, LONG-TERM

FINANCING AVOIDS

THE NEED FOR FREQUENT FUTURE REFUNDINGS OF DEBT AT
UNPREDICTABLE RATES OF INTEREST.

SHORT-TERM RATES

ARE VOLATILE AND THEIR VOLATILITY WOULD BE INCREASED
BY CONCENTRATING FEDERAL FINANCING UNDULY IN THE
SHORT-TERM AREA.

SUCH VOLATILITY WOULD HARM NOT

ONLY TREASURY FINANCE BUT THE FINANCING OF PRIVATE
BORROWERS.

THIS IS ONE REASON THAT THE TREASURY CHOSE

TO DO A SUBSTANTIAL PART OF WORLD WAR II FINANCING
WITH 2-1/2 PERCENT BONDS, WHEN THE ALTERNATIVE WAS
FINANCING WITH 3/8 OF 1 PERCENT BILLS.

THE IMMEDIATE

BUDGET COST WAS LESS OF A CONCERN THAN THE CONSIDERATION FOR
FUTURE ECONOMIC STABILITY; BUT UNDOUBTEDLY, WITH THE
SUBSEQUENT RISES IN INTEREST RATES, THE LONG-RUN COST
OF BOND FINANCING WAS LESS THAN THE COST OF CONTINUALLY
ROLLING OVER THE BILLS.
SECOND, AND MORE IMPORTANT, SHORT-TERM

TREASURY

DEBT IS A NEAR-MONEY, SO THAT TO ACHIEVE THE SAME
ECONOMIC EFFECTS, FEDERAL RESERVE POLICY MUST BE
RELATIVELY MORE RESTRICTIVE IF THE AMOUNT OF SHORT-

TERM TREASURY DEBT OUTSTANDING IS LARGER.

IF WE

FINANCE ALL OF OUR DEBT IN THE SHORT-TERM AREA,
THEREFORE, WE WILL CREATE A PROSPECT THAT FUTURE

3n
INTEREST RATES WILL BE HIGHER THROUGHOUT ALL FINANCIAL
MARKETS THAN IF WE FINANCE A MEANINGFUL PORTION OF
OUR DEBT IN THE LONGER-TERM AREA.
THUS, THE APPARENT INTEREST SAVING FROM SHORTTERM

FINANCING CAN BE AN ILLUSION, WHETHER WE ARE

CONCERNED ABOUT THE BUDGET ALONE OR WHETHER WE TAKE
THE POINT OF VIEW OF THE ECONOMY AS A WHOLE, AND I
MIGHT ADD THAT NEARLY EVERY CORPORATE OR MUNICIPAL
TREASURER WHO HAS RELIED ON SHORT-TERM FINANCING IN
THE LAST FEW YEARS WILL SHARE THIS VIEW.
BEYOND THIS,AN INABILITY OF THE TREASURY DEPARTMENT
TO UTILIZE ALL MATURITY SECTORS, INCLUDING THE LONGTERM SECTOR, WOULD BE INTERPRETED BY THE MARKET, AND
THE PUBLIC GENERALLY, AS INDICATIVE OF A LACK OF WILL
TO DEAL WITH THE INFLATION WHICH IS STILL OUR BASIC,
LONG-RUN ECONOMIC PROBLEM.

WHETHER THAT WERE OR WERE

NOT A VALID CONCERN, IT WOULD BE AN IMPORTANT PSYCHOLOGICAL
BARRIER TO THE FUTURE REDUCTIONS IN LONGER-TERM RATES,
WHICH I PERCEIVE AS ESSENTIAL IF WE ARE TO RESTORE
HEALTH TO THE HOUSING INDUSTRY AND ARE TO ENCOURAGE
THE BUSINESS INVESTMENT WHICH IS NEEDED IF THIS
COUNTRY'S ECONOMIC PROGRESS IS NOT TO FALTER.

LONG-

TERM INTEREST RATES HAVE CONTINUED TO REFLECT INGRAINED

INFLATIONARY EXPECTATIONS.

OUR FINANCING SHOULD BE

CONDUCTED IN A WAY THAT WILL HELP TO OVERCOME THOSE
EXPECTATIONS —

NOT IN A WAY WHICH WILL TEND TO

CONFIRM THEM.
FOR THESE REASONS, I BELIEVE THE TIME IS NOW
APPROPRIATE TO INCREASE THE AMOUNT OF BONDS THAT MAY
BE ISSUED WITHOUT REGARD TO THE 4"l/4 PERCENT CEILING
ON RATES AND TO EXTEND THE MAXIMUM MATURITY OF TREASURY
NOTES.
I SPECIFICALLY RECOMMEND, WITH REGARD TO THE 4~l/4
PERCENT CEILING, THAT THE EXCEPTION BE INCREASED FROM
$10 BILLION TO $20 BILLION.

I WISH TO EMPHASIZE AS

STRONGLY AS I CAN THAT MARKET CONDITIONS ARE UNPREDICTABLE,
SO THAT THE AMOUNT OF LONGER-TERM ISSUES WHICH MIGHT
BE ISSUED IN ANY SPECIFIC PERIOD COULD VARY GREATLY,
DEPENDING UPON MARKET DEMANDS.

THE RECORD INDICATES,

HOWEVER, THAT WE HAVE BEEN RESPONSIBLE AND SENSITIVE
TO FINANCIAL AND ECONOMIC CONDITIONS IN OUR USE OF THE
EXCEPTION TO THE 4-1/4 PERCENT LIMIT.

W E WILL CONTINUE

TO BE RESPONSIBLE AND SENSITIVE.
I ALSO STRONGLY RECOMMEND THAT THE MAXIMUM MATURITY
OF TREASURY NOTES BE EXTENDED FROM THE PRESENT 7 YEARS
TO 10 YEARS.

THIS EXTENSION OF THE MAXIMUM NOTE

MATURITY, ASSUMING THAT MARKET CONDITIONS PERMIT,
COULD BE A POWERFUL TOOL IN HELPING TO ARREST THE
DECLINE IN THE AVERAGE MATURITY OF THE DEBT AND REDUCE THE
CONCENTRATION IN SHORT-TERM ISSUES WHICH HAS TAKEN
PLACE IN RECENT YEARS.
IN

ADDITION, I WANT

TO URGE THAT EARLY

CONSIDERATION

BE GIVEN TO REMOVING THE 6 PERCENT RATE CEILING ON
SAVINGS BONDS.

SUCH ACTION WOULD ALLOW THE RATE ON

SAVINGS BONDS TO BE VARIED FROM TIME TO TIME IN
ACCORDANCE WITH CHANGING FINANCIAL CIRCUMSTANCES IN
THE INTEREST OF BOTH SAVERS AND TAXPAYERS. THUS, WE COULD
PROVIDE GREATER ASSURANCE TO THE SAVINGS BOND INVESTOR
THAT HIS GOVERNMENT WILL CONTINUE TO GIVE HIM A FAIR RATE
OF RETURN ON HIS INVESTMENT,

GREATER FLEXIBILITY TO ADJUST

SAVINGS BONDS RATES COULD ALSO MAKE A SIGNIFICANT
CONTRIBUTION TO THE GOVERNMENT'S OVERALL DEBT MANAGEMENT
OBJECTIVES,

SAVINGS BONDS ACCOUNT FOR ABOUT ONE-FOURTH OF

THE TOTAL PRIVATELY-HELD TREASURY DEBT, AND THE AVERAGE
SAVINGS BONDS INVESTOR HOLDS HIS SECURITY FOR A LONGER PERIOD
THAN INVESTORS IN MARKETABLE TREASURIES AND IS THUS AN
IMPORTANT SOURCE OF STABILITY TO DEBT MANAGEMENT.
SUCH FLEXIBILITY WOULD OBVIOUSLY NEED TO BE
EXERCISED WITH DUE REGARD TO THE IMPACT OF SAVINGS
BONDS RATE CHANGES ON DEPOSITARY INSTITUTIONS,

- 25 -

| )

EXPERIENCE HAS DEMONSTRATED, HOWEVER, THERE IS NO
WAY PERMANENTLY TO INSULATE THESE INSTITUTIONS FROM
THE EFFECTS OF CHANGING ECONOMIC CIRCUMSTANCES.

W E HAVE,

THEREFORE, PROPOSED A FINANCIAL INSTITUTIONS ACT,
WHICH WILL ALLOW THE REMOVAL OF REGULATION Q-TYPE
CEILINGS BY PROVIDING THE THRIFT INSTITUTIONS WITH
EXPANDED POWERS WHICH WILL IMPROVE THEIR ABILITY TO
COMPETE WITHOUT A FEDERAL CRUTCH,
THE URGENCY OF THE NEED FOR GREATER DEBT MANAGMENT
FLEXIBILITY IS, I BELIEVE, UNDERSCORED BY THE FACT
THAT I HAVE ALREADY MENTIONED.

DURING THIS CALENDAR

YEAR, OUT OF THE $47.6 BILLION OF MARKETABLE SECURITIES
ISSUED TO THE PUBLIC, $32.5 BILLION HAS BEEN IN
MATURITIES OF LESS THAN 2 YEARS,

THIS IS 68 PERCENT

OF THE TOTAL IN MONEY MARKET INSTRUMENT.
HAS BEEN IN MATURITIES OF 2 TO 7 YEARS.
PERCENT OF THE TOTAL.

$12.4 BILLION
THIS IS 26

AND ONLY $2,7 BILLION, LESS THAN

6 PERCENT OF THE TOTAL, HAS BEEN IN THE BOND AREA OVER
7 YEARS,

IN FACT OF ALL OUR MARKET FINANCING, ONLY $1,5

BILLION, JUST 3 PERCENT, HAS BEEN IN MATURITIES OF OVER
20 YEARS,
THERE IS A LARGE DEBT MANAGEMENT JOB BEFORE US,
THE TREASURY WILL HANDLE ITS PART OF THE DEBT MANAGEMENT
JOB RESPONSIBLY.

I URGE YOU TO ACT PROMPTLY TO GIVE US TIE

TOOLS TO DO THE JOB.

TABLE 1
PUBLIC DEBT
SUBJECT TO LIMITATION
FISCAL YEAR 1976
Based on Estimated
Budget receipts of $299.0 Billion,
Outlays of $358.9 Billion,
Unified Budget Deficit of $59.9 Billion,
and Off-Budget Outlays of $14.2 Billion
($ Billions)
With Usi:
Operating
Public Debt
Cash
Subject to
Balance
Limitation

$3 Biili
Margin 7
Contiiigen

1975 ESTIMATED
6 533 30
536
June
July 31

540

Aug. 31

548

551

Sept.. J*0

6 • 547 555

Oct. 31

6 553 556

Nov. 30

6 ' 560 563

Dec. 31

6 567 ^70

569

572

1976
6

Jan. 31
Feb. 29 6 579 582
Mar. 31 6 591

594

Apr. 15 6 600 G03
Apr. 30 6 593 596
May 31 6 605 , 608
June 15 (peak) 6 610 613
June 30 6 607 ('-0

CHANGES IN OTO3SFSHXP O F TEASUPDf PUBLIC EEBT SECUKTT.Uf2S

(Far values 1/ in billions of dollars)

End
cf

:
Mutual
:
"• State
:Foreign
: Total
:
Other
and
J
: and
:
: Indrrid- : Insurance : savings : CorCcnrn\erFed
: private: investors 6/
inter: pora: local
: national 5/
ciai
ual:> y : Carpanies : banks
Cut:
:
ly
banks 2/
:
tions
4/
:
governments
:
standing
:
Cnq.
: held
Lv.
Cng. :Lv.
. r,;
r*r*\— •'
.
IJV
•
TM.
:L.V.
LTlCj.
r,v
chrr;f.v.
Cha.:Lv.
Cnq.:
CE-g.: Lv.
uia. :.Lv.
i
Lv.
C
Unq : LV.

1974

-0,1 11.2 0.7 29.2 -0.9

57.3

1.4

18.6

-1.1

28.3

0.9

57.7

0.4

17.3

-1.3

0.5 23.8

0.5

56.9

-0.8

18.8

1.5

11.0 -0.3

29.2

0.3

56.0

0.9

19.0

0.2

-0.1 10.5 -0.5

29.3

0.1

56.0

0.0

19.5

0.5

0.0

11.2 0.7 28.8

0.5

56.6

0.6

20.3

0.8

2.5

0.0

11.0 -0.2 28.7 -0.1

58.3

1.7

20.1

-0.2

0.2

2.5

0.0

11.0 0.0

29.2

0.3

58.4

0.1

22.4

2.3

6.2

0.1

2.6

0.1

11.3 0.3

30.0

0.8

61.5

3.1

22.3

-0.1

0.0

6.2

0.0

2.7

0.1

11.4 0.1 30.5

0.5

64.6

3.1

21.3

-1.0

85.7

0.4

6.6

0.4

2.9

0.2

12.0 0.6

29.7 -0.8

65.0

0.4

25.9

4.6

86.1

0.4

6.7

0.1

3.2

0.3

12.5 0.5 29.8

0.1

64.9

-0.1

24.7

-1.2

:^y

474.7

2.3

215.3

4.1

259.4 •-1.3

54.4

-2.4

80.0

0.8

6.0

0.1

2.6

June

4175.1

0.4

213.7

3.4

•
256.4 •-3.0

53.2

-1.2

80.7

0.7

5.9

-0.1

2.6

0.0

10.8 0.4

July

* 75.3

0.2

215.6 "-3.1

259.7

3.3

53.9

0.7

81.6

0.9

5.7 -0.2

2.6

0.0

11.3

7--g.

431.3

6.5

222.8 •

7.2

259.0

-0.7

53.0

-0.9

32.6

1.0

5.7

0.0

2.6

0.0

Seot.

431.5

-0.3

221.6

-1.2

259.8

0.8

52.9

-0.1

83.3

0.7

5.8

0.1

2.5

Cot.

4S0.2

-1.3

217.3

-3.3

262.5

2.7

53.5

0.6

83.8

0.5

5.9

0.1

2.5

Nov.

485.4

5.2

220.0

3.2

265.3

2.8

54.5

1.0^84.3

0.5

5.9

0.0

Tec.

'432.7

7.3

221.7

1.7

271.0

5.7

56.5

2.0

84.3

0.5

6.1

Jan.

494.1

1.4

220.4

-1.3

273.8

2.8

54.5

-2.0

85.3

0.5

Feb.

499.7

5.6

220.3

0.4

278,9

5.1

56.9

2.4

85.3

*/ ^ >-

5G9.7

10.0

219,9

-0.9

289.8

10.9

62.0

5.1

ViEj. •

516.7

7.0

225.9

6.0

290.9

1.1

63.0

1.0

'.' •'

523.2

11.5

226.5

0.6

301.7

10.8

n.a.

n.ai. n.a. n.a.

* OE=;

n.a. n.a. n.a. n.a . n.a. n.<a. n.aL. n.a.

n.a.

n.aL.

n.a.

June 18, 1975

Ofzice or the Scoretary cf the Treasury
Cf.:icc of Debt Analysis

n.a.

United States savinas bonds .are ^included, at ^current •• redemption
value.
.'.;;
Consists of commercial banks, trust companies, and stock savings^
banks in the United States and in Territories and island possessions.-.
Figures exclude securities held in trust departments.
Includes partnerships' and personal trust accounts.

i
Exclusive of banks and insurance companies.(
Consists of the investments of foreign balances and international
accounts in the United States. Beginning with July 1974 the
figures exclude noninterest-bearing notes issued to the
International Monetary Fund.
Consists of savings and loan associations, nonprofit
institutions, corporate•pension trust funds, and dealers^
and brokers. Also included are certain^government deposit-*
accounts and government-sponsored agencies.

Table 3
OFFERINGS OF MARKETABLE SECURITIES 1/
January - June, 197 5
(amounts in billions of dollars)

Maturity

Perec:.
of
Total
100.0

TOTAL OFFERINGS

$47.6

Under 2 years

32.5

68.

Bills

15.7

33. 0

13, 26-week bills
52-week bills
Other bills

11.7
2.4
1.6

Coupons
1
1
2
1
2
1
2
2
1
2

year-•3
year-•6
year--0
year-•2
vear--0
year--8
year-•0
year--0
year--5
year--0

mo. ,
mo. j
mo. r,
mo. ,
j
mo. tr
mo. r,
mo. tr
mo. rj
mo. r
mo. ,

issued 1/9
issued 3/3
issued 3/3
issued 3/25
issued 3/31
issued 4/8
issued 4/30
issued 5/27
issued 6/6
to be issued 6/30

2-7 years
4
3
6
6
3
7

year--4
year-•3
year-•0
year-•3
year--3
year--0

mo. T
mo. r
mo. ,
mo. kr
mo. r
mo r f

issued
issued
issued
issued
issued
issued

1/7
2/18
2/18
3/19
5/15
5/15

7-20 years
15 year-1 mo., issued 4/7

16. 8

35.

0.8
1.7
1.7
.1 6
2 3
1.5
1.6
2. 1
1. 6
2.0
12.4

26.0

1. 3
3 3
1 8
1 8
2 8
1 5
1.2

2.E

1.2

°ver 20 years

1.5

20/25 year-0 mo., issued 2/18
25/30 year-0 mo., issued 5/15

0.8
0.7

Off ice
i
of the Secretary of the Treasury

Juno ) J,

Office of Debt Analysis
1/ Includes ret additions only to bills and excludes o-change
offerings to Federal Reserve and Government Accounts.

lAr*
Table 4
Marketable Maturities Through June 30, lf'7 6
(Issued or announced through June 30, 197 5)
(in billions of dollars)
Treasury Bills
Regular weekly
52-week

Outstanding
$-126.9
100.5
26.A

Private
Hold
93.2
n.a.
n.a.

Coupons* and Other

37.0

26. 0

5-7/8% note 8/15/75
8-3/8% note 9/30/75
1-1/2% note 10/1/7 5
7% note ll/15/75_
7% note 12/31/75""

7.7
2.0

4.6
1.9
*

3.1
1.7

2. 4
1. 5

1.6
3.7
4.9
2.3

.9
3 .5
2.1

•% r\ —) s»

JL > / O

January 31 bill 1/
6-1/4%' note 2/15/76
5-7/8% note 2/15/76
8% note 3/31/76
1-1/2% note 4/1/76
6-1/2% note 5/15/76
5-3/4% note 5/15/76
6% note 5/31/76
8-3/4% note 6/3 0/7 6
Total

1.9
2.2
1.5
2^0
119.T

2.7
2.8
1.6
2.7
163.9

Office of the Secretary of the Treasury
Office of Debt Analysis

J u n e lc , 1VJ V

1/ Treasury bills in two-year note cycle slot.
Less than $50 million
n
-a. Not Available
Note: Figures may not add to totals because of rounding.

racasury Issues, Maturities and New Money
FY 1973-5
in millions of dollars

Jul-Dec
1972

>>*C:"S I DEEPS

Jan-June
1973

Total

Jul-Dec
1973

Jan-June
1974

Total

Jul-Dec
1974

Jan-June
1975p

Total

144,374

134,745

279,119

142,145

141,228

283,373

167,379

187,419

354,798

Bills
Coupons

125,297
19,077

120.G60
14,085

245,957
33,162

132,111
10,034

128,981
12,247

261,0^2
22,281

144,307
23,072

149,565
37,854

293,872
60,926

Grc Es .• '/ituri ties

131,565

140,915

272,480

134,562

144,349

278,911

147,651

154,632

302,283

Fills
Cojpons

115,975
15,590

124,463
16,452

240,433
32,042

124,490
10,072

131,740
12.609

256,230
22,681

130,854
16,797

1,40,859
•13,773

271,713
30,570

12,809

-6.170

6,639

7,583

-3,121

4,462

19,728

32,787

52,515

Bills (net)
^E-'cons
to ForE.Lfjn 2/

9,322
15,327

-3,803
6,683

5,519
22,010

7,621
8,102

-2,759
9,810

4,862
17,912

13,453
14,561
(200)

8,706 1/
31,955
(985)

22,iS9
46,516
(1,185)

Total

24,649

2,880

27,529

15,723

7,051

22,774

23,014

40,664

68,678

11,798

9,114

20,912

8,095

10,061

13,156

8,568

7,215

15,783

12,351

-6,234

6,617

7,628

-3,010

4,618

19,446

33,446

52,892

Met (+ cr - Issues)
i Irsucd to Private

M::t':ritie:'. Privately Hold
CoJpen3
E'E'-/

*:cp.cy frcm Private

0fii.ee of the .T evetary of the Treasury
Office of Debt Analysis
1/ tasir.ves rollover of $4,506 million regular bills maturing June 26, 1975.
2/ Included in coupons issued to private.

June 13, 1975

CHART 1

MATURITY DISTRIBUTION GF PRIWvTELY HELD
tr~—n F'itT^ *»~^»

$Bil. Under 1 Year

3-5 Years

5-7 Years

Over 7 Years

100
75
50 h
25
0
100

• \z-r ..-^ J.-XS.amsr ^TV^x»^-BC«riviB3rsraTOTT^JOtj^*/»:.iinun

June 1974

87.1

75
50 h
25
TE.Ei :^
0

t u t a a / i^a_3^i j«-r>s»rv J

10075-

22.6
itt^&u*.jc~.jnMX—iuni.

14.7

12.8
r~n»««MMWV

•>!( i.n-...T»Bgn— M H J i J i r

11.0 .

r. _ j

16.7

hmmnnuuti

WIWIIIIIIIPl

June

84.1

50P0.4

25 r

0
P"

17.5

16.2
r

YI. ^\».' A - »..^r^^vr^r*

-.? 'r-

T n.v. in <

.n.JRT IA*_-*I» V•*• - ~~'

-w ^ a c j R m f • i-v/rjBe»i,u:»..

* rsliri'ntc'

'"^

11.9
- .-

•.-» —

r»

17.8

..J

!or"«A«r—»j-^aH!..i.mw«iaTu».-jt.i:i<«.Hfc<i«.jjwmKJUiwi»ii Mini I I W . M J I W M

juri*rjio/ r j i

CHART 2

HORT TERM INTEREST RATES
Weekly Averages
%

14
Federal Funds
Rate

13
12

12
Week Ending
June 11,1975 H

7
Prime Rate15-*

6
5

r1—i
A^#rf—i \>
^ 4 ^ ^ i r Discount Rate

7^-y^

k®**©*©

1972

Q.i,.,. c- ..,„ <".,v , . - i 1 r >

*>3 Month
Treasury Biil Rate

i i i i

I ! I 1

1973
Caiendar Years

i i

1974

i i i

i i

1975

"•

June 16. I?/!)?

CHART 3

NTEREST RATES
Weekly Averages

Prime Rate
N e w Aa
Corporates ^ #\

Treasury

-«"-v

y
yy

\JJ

~>&x

v/>

_»«<i*r

7 Year

7 -.,..--;.»••• \\\ ew 20 Yea r ^
-! Bonds
6
\yl\ it^Jj->'(E!

3 Month ^
Treasury Bill Rats

5
4

i± | 1 || 1 I ' I I I I 1 ll ' ' ' ' I' ' M ' I ' ' "

F~~M

J J
1974

1975

June lf», 1975 3
0 -.! ()• 'I •' " •V'">

NEWS CONFERENCE
BY
UNDER SECRETARY JACK F. BENNETT
TREASURY FINANCING PLANS
JANUARY 22, 197 5

4ol^
UNDER SECRETARY BENNETT: As you know, the Secretary
is speaking, right now, to the Ways and Means Committee
on the President's Economic and Energy Program and he will
be speaking again, tomorrow morning, to the Ways and Means
Committee on the Treasury Financing Plans through Fiscal
• Year '76, and on the need for a substantial increase in the
debt ceiling. And, in view of his appearances, I will concentrate today just on the financing situation in the current
half-year period.
During this period of the year, traditionally, we have
limited net financing needs. For example, from 1970 through
1974, our net needs really varied around zero, from a high
of $3.9 billion one year to a low of a negative $5 billion
last year. But this year, we have a growth industry. The
forecast increase in our Treasury marketable debt this half
year period is $28 billion. Now, that is on top of the $17
billion of maturing, longer term .coupon issues and, of course,
on top of the regular bill cycles.
Now, these are the borrowing plans based on the President's program. Of course, if the Congress were to increase
the deficit, the borrowings would be even larger than the
$28 billion.
So far this year, out of the $28 billion needed in this
half year, we have already borrowed $3.3 billion through a
couple of short coupon issues and increases in the regular
bills.
Today, I would like to announce plans for raising $5.3
billion of new money between now and early March, in addition
to the refundings.
Obviously, the $3.3 billion we have already raised,
and the $5.3 billion that I want to announce today, leave
about $19 billion more to be financed later in this halfyear period.
Some of that increase will probably come in the "bill"
area. We plan to retain the flexibility to vary the amount
of weekly announcement on the bills.
We have been using that flexibility, lately, only in
the upper direction, and we will probably do so again in
the coming weeks--but not always in exactly the same amount.
Two weeks ago, we announced an increase of $200 million.
Yesterday, we announced an increase of $300 million.

In addition, we probably have to have some additional
coupon issues, but we do not anticipate any such issue — other
than the ones being announced today--before mid-March. Such
an issue remains a possibility for late March or April.
Now I would like to get down to the three announcements
for today.
Firstly: The one-year bill offering—which is scheduled
to be paid for on February 11th—to replace the $1.8 billion
maturing--will be increased, by $300 million, to $2.1 billion.
This is not an advance announcement. The formal announcement will be out on January 30.
MEMBER OF THE PRESS: That was—those numbers, again?
UNDER SECRETARY BENNETT: There is $1.8 billion maturing
on February 11. We are going to refund that and raise $300
million--that is increase it to $2.1 billion. We will formally announce it later, but I want to announce now the full
package of our financing plans —other than the weekly bills
--through early March.
The second thing that I would like to announce is in
the paper you have: the three securities to be issued on
Tuesday, Februrary 18th.
As you see, there is a total of $5.5 billion and, since
there is little over $3-1/2 billion of publicly held notes
maturing, it will be raising almost $2 billion by that
operation. Each of these three are going to be auctioned
on a yield basis. As you can see, the three are the $3
billion, 3-1/4 years, maturing May 1978; $1-3/4 billion,
6-year note, maturing in 1981; and the $3/4 billion—the
25 year bond--maturing in the year 2000. Although that security is callable in 1995, it does go into the year 2000. This
is our first venture into the year 2000 and beyond.
We also—as we did last time —are providing that at
the option of the investor, payment for up to one-half of
the bond can be deferred for a few weeks; literally through
March 3rd.
In view of the decline in interest rates, and the
lengths of these securities we are issuing, you will note
that they will be issued in denominations as low as $1,000.

M i N x\Jr*%
I

Thirdly: I would like to announce, now, that we expect
to sell $3 billion of notes for payment on March 3, in addition to the refunding I have just announced. I expect
that we will issue the formal announcement of these notes
on Februrary 11, and we will auction them on February 19.
There will be two note issues, each of $1-1/2 billion;
the first will mature the last day of February 1977. That
is, in two years. The other, on August 31, 1976. That is,
in eighteen months. So there are two issues: one for two
years, and one for 18 months.
Now, you can see that these two new notes resemble the
two-year notes that we have been issuing on a regular cycle
in an amount of about $2 billion on the last day of each
quarter.
In the coming months, we will be studying the possibili
of establishing regular month-end, rather than quarter-end
cycle, two year notes; and these two notes to be issued on
March 3 would, obviously, fit neatly into such a cycle.
If we do this — if we establish this cycle —it might
still be appropriate that the amounts issued in the third
month of each quarter might be a bit larger than the others,
because there may be more demand for the quarter-end notes.
In any event, of course, we will have a regular quarter
note maturing at the end of March.
Now, I would be happy to consider any questions, but
the Wire Services may like to go now. I suggest that they
observe an embargo until 4:35 p.m.--all right?
MR. PLUM: Fine!
MEMBER OF THE PRESS: Make it 4:45.'
UNDER SECRETARY BENNETT: 4:45?
MEMBER OF THE PRESS: Right.
UNDER SECRETARY BENNETT: That's all right with
me. 4:45.
MEMBER OF THE PRESS: That is even better.
UNDER SECRETARY BENNETT:

Any questions?

MEMBER OF THE PRESS: Would you give us some more
details on the debt limit?
UNDER SECRETARY BENNETT: No! Those will be
announced tomorrow.
MEMBER OF THE PRESS: Would this financing carry
you beyond the debt limit if it is not raised?
UNDER SECRETARY BENNETT: Oh, yes! The present
debt ceiling is $495 billion. We are almost $495 billion
right now, and we have another $28 billion right here.
MEMBER OF THE PRESS: And when does the $495 billion
last until?
UNDER SECRETARY BENNETT: Well, literally, under
the law, it would expire March 31, 1975.
MEMBER OF THE PRESS: March 31.
Well, that means that even the financing announced
today will take you over the top. I mean, the one that is in
our piece of paper.
UNDER SECRETARY BENNETT: The total package we
announced today will take us over the top. Yes.
MEMBER OF THE PRESS: So you would need an increase
before February 18, would you not?
UNDER SECRETARY BENNETT: There are some variations
in our cash. I think you better wait and let the Secretary
go into that in greater detail tomorrow.
MEMBER OF THE PRESS: The Secretary told the Ways
and Means Committee today that February 18 was the date.
UNDER SECRETARY BENNETT: He did?
MEMBER OF THE PRESS: Yes!
UNDER SECRETARY BENNETT: That is news to me.
MEMBER OF THE PRESS: Yes, sir.
ANOTHER MEMBER OF THE PRESS: You said that you
did not—you will have some more coupon stuff —but not before
mid-March.

An.
UNDER SECRETARY BENNETT: Right!
MEMBER OF THE PRESS: I assume that means with the
exception of the third item that you have announced?
UNDER SECRETARY BENNETT: With the exception of the
things we announced today.
MEMBER OF THE PRESS: The one-and-a-half -Yes?
UNDER SECRETARY BENNETT: There will be no more coupons
before mid-March. We havenTt decided the financing after that.
We have not decided the weekly bills even from now until March,
but we do want to announce that there will be no more coupons,
in all probability before mid-March.
MEMBER OF THE PRESS: Would you expect every weekly
bill to be increased by something?
UNDER SECRETARY BENNETT: Well, we are going to vary
it, but they have all been increased lately.
MEMBER OF THE PRESS: I missed the first part of
this. You may have answered this questions, but is the new
cash that is in the refinancing part of the $3.3 billion you
said you have borrowed?
UNDER SECRETARY BENNETT: No! What I said was that
we need approximately $28 billion new cash this half year.
We have already raised $3.3 billion. We are proposing, in these
three steps I announced today, to raise $5.3 billion. That
leaves another $19 billion to pick up. Some of that $19 billion
will come from bills. The rest will come after early March.
MEMBER OF THE PRESS: The $28 billion that you began
with is the Treasury's marketable debt borrowing base. Is
that about equal to what the budget deficit is going to be in
this half year?
UNDER SECRETARY BENNETT: It includes the borrowing by
the Treasury on behalf of the Federal Financing Bank, of course,
which is not in it.
MEMBER OF THE PRESS: The $28 billion includes the
Federal Financing Bank?
UNDER SECRETARY BENNETT: No! It includes borrowing
by the Treasury to lend to the Federal Financing Bank. It
does not -- we have not at this point forecast any market
borrowing by the Federal Financing Bank. It would probably

AYt7
.rtCt mnre if the Federal Financing Bank borrowed through the
Market! so we are only planning to borrow through the Treasury.
MEMBER OF THE PRESS: Would the $28 billion of total
borrowing be the most for any such period -- the highest ever
for a six-month period?
UNDER SECRETARY BENNETT: Well, it certainly is outside
of the ball park for the first half.
Let me just check one thing.
Now, my numbers only go back to 1970, but it is
clearly well above any half year that is on this record tnr^i.!,
1970
I would doubt if we have anything that large m the
years' before that.
MEMBER OF THE PRESS:

How about the war years?

UNDER SECRETARY BENNETT: Did you say something?
MEMBER OF THE PRESS: I was thinking back in
World War II.
UNDER SECRETARY BENNETT:
have the literal record.

I would think so.

I don't

MEMBER OF THE PRESS: How much has the Federal
Financing Bank borrowed from the Treasury and how nuch is it
authorized to borrow?
UNDER SECRETARY BENNETT: The Federal Financing Hank,
so far, has borrowed about $1.5 billion on the marKet, and
$3.5 billion from the Treasury.
I am sorry. $3 billion from the Treasury; SI.5 bilEo
from the market, at this point.
MEMBER OF THE PRESS:
to borrow from the Treasury?

And how much is it authorized

UNDER SECRETARY BENNETT:
from the market $15 billion.

It is authorized to borrow

It has no limit on borrowing from the Treasury.

MEMBER OF THE PRESS: If, perchance, the Congress
should not enact the tax rebate and, instead enact a reduction
of withholding taxes which would be strung out through the
whole year for the same rough amount, your number here would
'be somewhat smaller, would it not, in the first half?
UNDER SECRETARY BENNETT: It depends on how soon it
started, I suppose. I am sure Congress could take action
that would increase this.
MEMBER OF THE PRESS: Or decrease it?
UNDER SECRETARY BENNETT: Or decrease it -- either
one.
MEMBER OF THE PRESS: If they don't enact it —
this includes $6 billion worth of rebate in May, doesn't it?
UNDER SECRETARY BENNETT: Yes! This is, literally,
based on the program as he presented it.
MEMBER OF THE PRESS: Mr. Bennett, what kind of
impact do you expect a borrowing of this size to have on
interest rates in the market?
UNDER SECRETARY BENNETT: Well, it is difficult to
balance. On the one hand, the kind of activity wehave been
having, you notice, has been pusing them down. This size of
borrowing pushes in the other direction. What is the net?
I don't propose, at this moment, to forecast.
MEMBER OF THE PRESS: Are you contemplating any
changes in the treatment of tax and loan accounts except for
the reducing average life of those deposits as you have been
doing regularly?
UNDER SECRETARY BENNETT: We will be talking to
the Congress, soon, on the tax and loan accounts.
MEMBER OF THE PRESS: Would you consider moving
in the opposite direction and making those accounts more
valuable to the banks, so they would be better able to help
you financing?
UNDER SECRETARY BENNETT: I would not think so.
MEMBER OF THE PRESS: You say you don't know?

•VTJr
UNDER SECRETARY BENNETT: I would not think we would
be moving in the other direction. We are moving, rather,
in the direction of paying directly for services, and keeping
'all the balances and not using that as a way of inducing some
investors to buy --to provide services. We are moving away
from the tie-in deal, in other words.
MEMBER OF THE PRESS: This, conceivably, could set
short term interest rates climbing again?
UNDER SECRETARY BENNETT: Well, you have, again,
opposing forces. In other words, there has just been a redu.^tKn
in the reserve requirements, and this moves in the other direction,
but what is the net? That markets have known that we were
coming -- we have been anticipated with these new announcement.-we had to have more borrowing.
MEMBER OF THE PRESS: I was not here for the last
meeting.
What is the purpose o,f giving the bond buyers a eeuplc
of extra weeks to pay half of their subscription?
UNDER SECRETARY BENNETT: There is plenty of time f::those who get money on the 18th to place it. We thought th«°:e
might be some people, if given a little more time to screpe
it together and plan it,'who would be willing to buy the
securities, if they could pay for it in two installments.
Of course, in recent periods, the largest we have financed, of
a very long term security was $600 million. We are stepping
this up to $750 million.
MEMBER OF THE PRESS: On the $1,000 minimum, \-.hrr.
it? I know you switched back and forth a few times?
UNDER SECRETARY BENNETT: What is what?
MEMBER OF THE PRESS: The $1,000 minimum - you
switched back and forth in past auctions -- the last auctior
the note auction -- what was last minimum?
UNDER SECRETARY BENNETT: The last thing we had,
the minimum was $5,000 early this month.
MEMBER OF THE PRESS:

When was it last $1,000?

41?
UNDER SECRETARY BENNETT: Sorry.
MEMBER OF THE PRESS: When was it last a $1,000
•note?
UNDER SECRETARY BENNETT: 1979 was the $1,000 note,
was it not?
MR. SNYDER: That is right! 1979.

[

UNDER SECRETARY BENNETT: Early this month, we had
two notes: 1976 and 1979. 1976 we did for a $5,000 minimum.
The 1979 we did for a $1,000 minimum.
MEMBER OF THE PRESS: Do you expect the next round
of financing to maintain the top notch?
UNDER SECRETARY BENNETT: The next round of financing?
On these two in early March -- we have not decided on the details
on those.
MEMBER OF THE PRESS: Mr. Bennett, you had referred
to some figures for second half borrowings for the past fev.
years.
I wonder if you could just read us what those figures
are?
UNDER SECRETARY BENNETT: No! The Secretary is going
to go into all that tomorrow.
MEMBER OF THE PRESS: What the borrowings were?
Just the figures on what the borrowings were for the second
six months of the fiscal year?
UNDER SECRETARY BENNETT: He will be going into
what our projections are. I can read you what they were in
previous years.
MEMBER OF THE PRESS: No! I am interested in comparing
figures - the borrowing for the last period of this fiscal
year compared to, say, the previous two years.
UNDER SECRETARY BENNETT: Well, I can't give you the
figure for our projected borrowing for the last halt of this
year.

If you are interested in the borrowing for the last
half of the previous -MEMBER OF THE PRESS: Okay!
UNDER SECRETARY BENNETT: Is that what you want?
MEMBER OF THE PRESS: Yes!
UNDER SECRETARY BENNETT: What I will be reading
you, here, are figures for net increase in Treasury marketable
borrowing in the last half of calendar years.
Is that what you want?
UNDER SECRETARY BENNETT: No! I wanted the last
half of the fiscal year.
UNDER SECRETARY BENNETT: I can read you the last
half of fiscal years -- the current half-year period.
MEMBER OF THE PRESS: Right!
UNDER SECRETARY BENNETT:
1970: - $1.5 billion
1971: + $3.9 billion
1972: - $2.5 billion
1973: + $1.1 billion
1974: - $5 billion
1975: + $28 billion
MEMBER OF THE PRESS: Thank you.
UNDER SECRETARY BENNETT: Those figures included
all of the securities that we issued to foreign governments,
some of which were called "specials".
MEMBER OF THE PRESS: Have you any projection about
Agency borrowing in this half year? More? Less? Normal?

12
UNDER SECRETARY BENNETT:

We have a projection.

I am sorry. I don't know whether I should release
that number because Ash and Simon are testifying on this.
I don't want to steal the things they are putting on.
MEMBER OF THE PRESS: Is it possible to say
whether it will be less than the first half of last year?
If not, "Okay".
I am just wondering if this might ease a little of
the pressure.
UNDER SECRETARY BENNETT: Yes.
I don't have the detailed numbers and Mr. Snydei
tells me they are not good, anyhow. So I guess I better
not give them to you.
MEMBER OF THE PRESS: Why do you have the February 18
date for the new securities?
UNDER SECRETARY BENNETT: Well, they mature on the
15th, which is a Saturday. Monday the 17th is a holiday.
MEMBER OF THE PRESS: You don't need the money over
that 3-day period.
UNDER SECRETARY BENNETT: They don't get paid off
until the actual outflow.
It is a 3-day weekend.
I think I will see you more often this year!
(Whereupon, the Press Briefing was concluded at 4:45 p

News Conference
Bv
Under Secretary Jack F. Bennett
Treasury Financing Plans
February 24, 1975

UNDER SECRETARY BENNETT: Gentlemen and ladies, I am
grateful for your coming today because we have an awful lot
of financing to do and we figure that the more we can inform
our potential customers the better off we will be.
We have to give a lot of careful attention to this and
maybe do some innovative things. For that reason, we had
an unusual meeting today with our two advisory committees.
We have a Securities Industry Association Advisory Committee and an American Bankers Association Advisory Committee.
They usually come in once every three months before our
quarterly announcements. We had them in again today, not to
talk specific announcements but to have them view the total
problem for the whole year and give us their thinking.
That package I gave you there is a package they were
given and I thought you might find it useful to have. We
gave them a little bit of background, which I also would like
to give you to bring you up to (Jate on the size of financing
needs.
We last met a month ago on the 22nd of January and the
financings which we announced then and had announced earlier
would raise $10.6 billion for this current half-year period.
At that time we said that we anticipated we would be
issuing no new coupon issues, before mid-March, that is issues
over one year, beyond those then being announced. And that
is still our anticipation.
But, we do anticipate the need to borrow in the coupon
area, about $7 billion worth between the middle of March and
the middle of April. Now, that would be in addition to what
we raise in the bill area.
So far this year we have used our flexibility to vary
the weekly and monthly bill announcements always in the upward direction and we'have raised this year $5.1 billion in
increases on the bills as they mature. We will probably continue to raise money but I don't want to specify the exact
amount because we need some flexibility in the bill area. I
hope we don't need much flexibility with respect to that
announcement of $7 billion. There is some uncertainty about
that, particularly in the estimates of tax receipts.
There is a lot of uncertainty, of course, about the
impact of congressional action, but that primarily comes after
the middle of April.

Mf
The House Ways and Means Committee tax bill, H.R. 2166,
would leave us with an estimated$4,4 billion additional borrowing requirement this half year above the President's Program. If the President's Energy Program were blocked, that
would add another $1.1 billion.
Congress has already taken some action writh respect to
food stamps which would add $200 million in this half year.
Now, there have been some actions, of course, other
than Congressional actions. The President announced the
release of the Highway Trust Fund, but that has only $100
million effect during this half year period. There have been
a lot of other things. We took in less from an off shore lease
and there have been variations in taxes.
The President's Program as proposed would have left us
with a borrowing need in this half year of about $28 billion,
a little over $28 billion, of which, we have done $10.6 billion
and I am announcing today that we will be doing $7 billion.
That will leave another $11 billion to be done in the bill
area or in later coupon issues.
Measures that Congress could take could take easily that.
$11 billion to $21 billion if I add all these different things
together.
The second half of the year, of course, is even more
uncertain. You recall the President's Program called for borrowing net new money in the second half of the year of $37 billion. That number would be obviously bigger t° the extent
that Congress does not agree with his rescission proposals.
But the main reason I wanted to talk to you today, was
about the specifics of the financing that we're thinking of
for the period mid-March to mid-April, I'd like to not make
any formal announcement of those in the sense that we're
putting out the formal announcement today. I'd like to pass
around a piece of paper that tells you what we're now thinking
of. This is not a commitment to do exactly these things.
We will make the formal announcements and commitments
as we get closer to the dates, but this is our present thinking
and I think it might be helpful if the market knew it so they
can be prepared. We could change the amounts or the dates or
the times but this is definitely our current thinking.
Pass that around, Jack, will you.

A»1.
These announcements that you are about to see are for
five different coupon issues. Two of them are further filling
in the two-year note cycle on the end of a month that \%e began in recent weeks.
One of them is the regular quarter end two-year refunding. The other two are longer coupons. One for almost seven
years and one for over 15 years.
Now, please bear in mind that whiJLe these are going on
we will probably also be raising additional funds in the bill
area.
Now, the first one shown there, for payment on March 19
would be a reopening of a note that is now outstanding and
matures in 1981. The others are new securities.
The third one, which is the regular quarter end is a
Treasury refinancing of a Federal Financing Bank piece of
paper that is maturing. When that piece of paper matures the
Federal Financing Bank will not have anv securities held bv
the public. They will all he held by Treasury,
QUESTION: Why is there net--you have a net cash to be
raised on that third item of a billion?
UNDER SECRETARY BENNETT: Well, there is $1.2 billion
public!)' held of the FFB bill that is maturing on the 31st
of March. We are issuing it to the public for $2.2 Million
so we are only raising SI billion of net new money from the
publ ic.
Now, on that particular security since it is existing,
the fed and other holders have some in addition to the public
holdings.
QUESTION: So you are actually raising $8.2 in that period,
you will be auctioning $8.2?
UNDER SECRETARY BENNETT: Yes.
Now, during this period ahead, in additon to the bills
we will actually be auctioning, we will be auctioning S12
billion. he have the regular refunding on the 15th of May.
We have these two quarter end refundings and we have tax
anticipation bills and cash management bills maturing in April
and June, so that adds up to $12 billion in addition to the
$7 billion here, all in addition to what v.e do in bills.
QUESTION: But those are just roll-overs.

UNDER SECRETARY BENNETT: The $12 billion that is coming
un is just a roll-over. So, between now and the end of this
h^f vear we have $12 billion of ordinary roll-overs, $7 billion of coupons I am announcing today, plus $11 to $21 billion
some portion of which will be coupons. The coupons Presumably
• will be after the middle of April but the bills will start
before then.
QUESTION: Is it $7 today or is it $8 today?
UNDER SECRETARY BENNETT: I think the left-hand columns
add up to $8 billion--try it and see.
QUESTION: The items you listed that Congress is in the
process of doing or in the case of food stamps has done, add
up to only just under $6 billion and yet you said there could
easily bean additional $11 billion for this past half year.
UNDER SECRETARY BENNETT: I said from $11 billion to $21
billion.
QUESTION: An additional $10, right?
UNDER SECRETARY BENNETT: Well, I mentioned also the
Highway Trust Fund as one.
QUESTION: Yes.
UNDER SECRETARY BENNETT: And, in addition to that we
lost some money on the off-shore lease sales. Ise may lose
some more .
QUESTION: You are also talking about revenue shortfalls?
UNDER SECRETARY BENNETT: Well, wait a minute. There is
an addition to the rest of the program. There is the Resident's $17 billion for the fiscal 1976. There is another $-7
billion for the remainder of this half-year that is still up
for consideration in addition to the tax bill.
QUESTION: The rescissions.
UNDER SECRETARY BENNETT: The rescissions.
QUESTION: How about the revenue in-flow, is that falling short of the rescissions?
UNDER SECRETARY BENNETT: At the moment we don't have
any particular revenue additions.

\ i/u
QUESTION: Is the reason that the House Tax Bill would
impose upon you an estimated $4.4 billion more than the President's Program, the fact that the rebate comes all in one go.
UNDER SECRETARY BENNETT: Well, both larger and sooner,
the total tax.
QUESTION: If that is approved, would the $28 billion
figure you have been using for the first half of the year be
revised to what, $32.4?
UNDER SECRETARY BENNETT: Well, the tax bill alone would
take this figure of $28 billion up $4.4 billion. It depends
on how many things you added on top. If you added on the
rescission or energy, I am not predicting, I am just trying to
sav what some of these effects would be on the total need,
QUESTION: I cion' t see where you get another $4,4 billion from the Ways and 'leans tax bill, How do you break
that down?'
UNDER SECRETARY BENNETT: Well, the $4.4 billion is in
this half year. It would not be as large an effect in the
second half.
QUESTION: Except for bills, are you giving the market
assurance that you won't raise any more than $7 billion in
this time period?
UNDER SECRETARY BENNETT: I am giving them a strong
expectation. I don't want to give a full assurance. Just
as last time we thought it was useful to say to the market
we did not anticipate it would be necessary to come back for
coupon issues before mid-March and as it turned out we
didn't. We want the market to have this because this is a
lot of notes and bonds to absorb but it is not a guarantee,
QUESTION: How much of these additions that you have
outlined here will be carried over into subsequent 6-month
periods as well? You orginally estimated, I think it was $9'">
billion over the next 18 months,
UNDER SECRETARY BFNNETT: Well, the tax bill, for
example, would also have a small additional impact in terms
of our borrowing in the second half. This is not just a
transfer from the second half to the first half,
QUESTION: Is it possible to estimate what the total
impact is over this 18-month period?

. . y^
UNDER SECRETARY BENNETT: I can give you an estimate on
the second half. It is a couple of hundred million, but I
don't have an estimate for the first half of 19 76.
QUESTION: Did you have a breakdown on the $4.4 billion?
UNDER SECRETARY BENNETT: How much of it is the withholding and how much is the rebate you mean?
QUESTION: Why it should be $4,4 billion more than the
present rebate in the last half-year?
UNDER SECRETARY BENNETT: Well, letTs say in the two
halves of the year it is $4.6 billion. Is Fitzpatrick back
there somewhere? Do you have a breakdown of the $4.4 billion?
(Off-the-record discussion)
Well, here is a little bit of the answer, The individual rebate in the President's Program was $4,9 billion and
in the tax bill is $8,1 billion.
QUESTION: It is because it all comes in one payment?
UNDER SECRETARY BENNETT: This is the amount in this
half-year. Ours was in one payment. A little bit has
slopped over.
QUESTION: Your half of yours.would have been in the second half-year.
UNDER SECRETARY BENNETT: No. There was a slop-over
effect. We had individual rebates altogether of $4.9 billion
in the first part and $7.3 billion in the second half because
of the slop-over. It was nominally split but some of it
would not get cashed until the second half.
Now, where is the tax withholding effect on there?
9

(Off- the-record discussion)
I don't know the details.
QUESTION: I am not clear which one of these five is
what you'd call a regular quarterly.
UNDER SECRETARY BENNETT: March 31. You see we have established in the last couple of years a regular quarterly cycle.
At the end of every calendar quarter we had a two-year note,
generally in the $2 billion range. This one, which happened to
be the only Federal Financing Bank issue on the Treasury

<EE
date was smaller. It was $1.5 billion, but the Fed owns
$300 million of it, so it is $1.2 billion publicly held.
QUESTION: And it was a Federal Financing Bank issue
instead of a regular quarterly?
UNDER SECRETARY BENNETT: As we announced last time we
began to fill in the space between the quarters. Two of
these issues that I announced today are the same type of a
animal, filling in quarters. Now, there are still some holes
left in a 2-year monthly cycle but four will be filled in,
in addition to the regular quarter end issues that were
already there.
QUESTION: You talked about innovation earlier. Can
you give us any ideas what sort of ideas you are considering
at this stage?
UNDER SECRETARY BENNETT: Well, one is this monthly twoyear cycle.
To some extent it is an innovation to be doing this
much longer term coupon in between the regular refundingsr
We had lots of other ideas given to us today to think about
in terms of cycles further out. People have raised the idea
of going back to perpetuals and they have generally canvassed
the whole framework of Treasury financings.
QUESTION: Did the advisory committees that you talked
to today, did members of them express any preference for a
longer issue.
UNDER SECRETARY BENNETT: Let me say that this piece of
paper I have given you is not something I gave them. They
were not aware. We developed this since we met them.
QUESTION: What I mean is did they suggest that the
market might -UNDER SECRETARY BENNETT: There is a basic refrain in
both committees and a lot of other advice we are getting that
at the moment we have an opportunity to issue some longer term
securities. Thev can't be sure that later this year when the
economv starts picking up that we will be able to and should n
ignore this opportunity.
They also feel that we have to try to preserve a yield
curve if we are going to provide an adequate incentive for
the investors to lengthen their debt and the intermediaries
to lengthen theirs.

QUESTION: Did your advisory committees express any
fears or qualms about money raising operations of Treasury,
particularly the $10 billion?
UNDER SECRETARY BENNETT: We did not ask them whether
this was too much money or too little.
QUESTION: And they did not volunteer anything either.
UNDER SECRETARY BENNETT: We did not ask them. They
are technical.
QUESTION: Do you have any estimates about private
financing?
UNDER SECRETARY BENNETT; Well, that package we gave
you has a recent estimate of the Treasury projected flow of
funds for the year.
QUESTION: What do you anticipate market reaction to be?
UNDER SECRETARY BENNETT: Well, I hope that it will be
favorable in the sense that we are coming clean with the
needs. I don't think tha amount that we are announcing today
should be a surprise to anyone because we indicated last time
what the amounts would be. So what we are trying to do
today is give plenty of notice so that the investors can
get ready and find a place for it.
Okay. Thank you very much.
(Whereupon, at 5:05 p.m. the press conference was
concluded.)

NEWS CONFERENCE
BY
UNDER SECRETARY JACK F. BENNETT
REVIEW OF APRIL FINANCING
MARCH 31, 197 5

UNDER SECRETARY BENNETT:
your coming around.

Good afternoon.

I appreciate

We think it is helpful to discuss the Treasury Financing
Plan in advance to help investors prepare for the market.
would like to discuss our short-term financial outlook.

At the time of the President's Message early this year,
we had a conference, you may recall, and projected $28 billion
of net new money borrowing by the Treasury in this current half
year.
Our best guess -- the one on which we are working at the
moment -- is that that number will be about $41 billion in this
half year, including the effects of the new Tax Legislation and
assuming that the one-time payments to Social Security recipients
are appropriated in time to be paid in this half year.
MEMBER OF THE PRESS: How much are they?
UNDER SECRETARY BENNETT: $1.7 billion.
Now, of that S41 billion, we have now accomplished - or
at least announced -- $23.3 billion so far this year.
Now, that, of course, is in addition to roll-overs of
maturing securities. So far this year, we have already had
the $4.8 billion of maturing, privately held, securities other
than bills.
Normally, these days, we talk about the "new money."
We, also, have maturing regular securities in the remainder
of this half year as well. We have $10.7 billion maturing between now and the end of this fiscal year.
But the main thing is that we now must project about SI"-1/2
billion of net new money borrowing between now and mid-year.
Out of that $17-1/2 billion, I would like to give today a projection of our financing from now up until our mid May regular
refunding. That is a projection apart from the regular weekly
bills. This projection is not a firm promise, but it is our
best information.
You will recall that in the last press conference of this
type, -- that was on February 24 -- we announced projected
borrowing through April 15 of five coupon securities and, in
fact, since then, we have announced exactly those five securities.
We did move earlier, the date of payment of the last one by six
days. We did come through with the exact same securities and,
of course, over that period, as we expected, we have made sorevariations in the weekly bills.

Now, the projection for this period from now until mid-May
contains just two issues, other than the weekly bills. Each
of these issues will be for $1.5 billion.
The first one is the one announced today, for which you
have the handout there. That is a bill to be issued on April 14
for 9-1/2 months to mature at the end of next January.
I would like to make clear that, with this bill, we are
not attempting to re-establish a 9-month bill cycle; rather,
we are moving further in the direction of establishing a regular
month-end two-year note cycle by filling in some of the blanks.
I would expect that this 9-1/2 month bill will be rolledover, when it matures, into a regular two-year month-end note.
Moreover, the second issue -- which we are projecting today,
is a note to be issued on April 50, for exactly two years, to
mature on April 30, 1977. You can see that, with that, we are
filling in some of the holes in this two-year cycle.
Chuck, will you pass around that table, the spacing chart.
We have the short end of the spacing chart that you might
look at. You can see that, beginning the first of next year,
we have already filled in about eleven of the available monthend slots. There are still five to go.
MEMBER OF THE PRESS: What was that?
UNDER SECRETARY BENNETT: On this chart which Chuck is
passing out, we see that starting the first of next year up untiJ
two years from now there are about 16 month ends. We will have
with this announcement, filled in eleven of the available monthend slots with these two-year type securities. There are still
about five open.
MEMBER OF THE PRESS: Why not 24?
UNDER SECRETARY BENNETT: Financing is so great this year
we have not bothered to fill in any of the rest of the '75's.
We would just have to finance it all over again.
I am really starting my thinking with the first of next
year; but there are 24 if you add in the rest of this year.
I hope, as I started to say at the beginning, that this
type of projection six weeks in advance will help the investors
prepare. As you know, we have an auction tomorrow of a 19 montl
security that also fits into this two-year cycle, but, then,
our next big announcement will be at the end of April, when we
announce the scheduled refunding on May 15. I would not be

- 3surprised if, on that occasion, in addition to the refunding,
we raise some cash as well.
That announcement of the refunding will be made on May first.
I think that is all I have in mind.
Do you have any questions?
MEMBER OF THE PRESS: Mr. Bennett, between now and mid-May,
with the two $1.5 billion issues, how much extra in new cash
would you expect to raise with the weekly bill offer?
UNDER SECRETARY BENNETT: I don't propose
In recent weeks, we have been raising $700
week, but we have to keep some flexibility
MEMBER OF THE PRESS: And you said at the
had accomplished --

to announce that.
to $800 million per
here.
outset that you'

UNDER SECRETARY BENNETT: (Interposing) We raised $600 million
in our most recent announcement of a one-year bill.
I am sorry:
MEMBER OF THE PRESS: You said at the outset that you had
accomplished, or announced, $23.3 billion so far this fiscal
year. You thought about $41 billion.
That equals about $17.7 billion left. You used a $17.2
billion figure.
UNDER SECRETARY BENNETT: $17-1/2!
MEMBER OF THE PRESS: Of which only "three" are being disclosed today.
UNDER SECRETARY BENNETT: Right!
MEMBER OF THE PRESS: Plus some bills -- to an amount we
don't know.
UNDER SECRETARY BENNETT: I am not announcing any bills.
MEMBER OF THE PRESS: No.
UNDER SECRETARY BENNETT: There will be bills during that
period. We will be raising some money between now and the refunding with bills.

9\
MEMBER OF THE PRESS: But not enough to make up the $17
billion.
UNDER SECRETARY BENNETT: Oh, no! There is plenty to do
in the refunding and thereafter.
MEMBER OF THE PRESS: Does the grand total and, therefore,
the $17-1/2 billion still to go assume that the Treasury will
borrow to cover the tax -- the entire amount of the tax rebate
in this six-month period?
UNDER SECRETARY BENNETT: This projection that I am working
off of and planning financing assumes that the entire tax rebate
will be cash before the end of June.
MEMBER OF THE PRESS: Right!
Secondly, you mentioned an appropriation for the special
$50 Social Security -UNDER SECRETARY BENNETT: I think the bill that the President
just signed is a bill authorizing payments for the Social Security.
There still has to be an appropriation of that money.
MEMBER OF THE PRESS: You previously had estimated, I think,
$37 billion for the following half year.
Do you have a revision on that as well?
UNDER SECRETARY BENNETT: I don't have a really decent one.
I would think it would be in the order of $40 billion or somewhat more, but I don't have a really detailed one. It was $37
billion when I was projecting $28 billion for the first half.
I don't have a really reliable forecast for the second half.
MEMBER OF THE PRESS: Mr. Bennett, the difference between
your estimate for this half last time and this time is about
$13 billion.
I think the Tax Bill would be about $6 or $7 billion,
wouldn't it?
What would be the rest?
UNDER SECRETARY BENNETT: Well, actually, it is the difference
between this time and the time before last. Last time, I was
using numbers closer to $38 billion. Thev had gone up toward
$38 billion.

To go back to the time before, I was using $28 billion:
$6 billion plus is the effect during this half year of the tax
bill.
MEMBER OF THE PRESS: Let's put it this way: Does the figure
that you are citing here include any Bills currently under consideration which you expect to be passed, or is this all legislation which is already on the books?
UNDER SECRETARY BENNETT: No. This does not include any
new Bills.
Of this $13 billion difference from $28 billion to $41 billion,
the biggest piece is the Tax Bill, $6 billion plus.
There were a number of other things that effected the diffcrenc
The lease receipts on some gas and oil lease sales were less than
expected, in the order of $2-1/2 billion. Failure to act on some
of the rescissions requested by the President, $2-1/2 billion, and
a number of other things, Fo6d Stamps, $100 million or less on
the Highway Trust Fund, a lot of little things.
The biggest chunk of the $13 billion would be the $6 billion
plus on the Tax Bill.
MEMBER OF THE PRESS: How much did you say for the gas and
oil?
UNDER SECRETARY BENNETT: On the order of $2 1/2 billion.
That is just a forecast. Only part of it has passed.
MEMBER OF THE PRESS: Has any of the change resulted from
less-than-expected receipts?
UNDER SECRETARY BENNETT: I don't think there is any major
receipt change here.
MEMBER OF THE PRESS: Is this possible to be done in a $60
billion deficit?
UNDER SECRETARY BENNETT: That rough number I was throwing
out for the second half of the year was, but the $60 billion
deficit is for the next fiscal year.
MEMBER OF THE PRESS: What is the approximate outlook then,
for the fiscal year that is now ending?

9
UNDER SECRETARY BENNETT: Sorry?
MEMBER OF THE PRESS: What is the approximate outlook if you can give us one -- for the fiscal year now ending -the deficit. The budget deficit.
UNDER SECRETARY BENNETT: I don't like to forecast budget
deficits. It is not my business.
MEMBER OF THE PRESS: Well, but maybe you can do something
besides forecast. How about estimated?
UNDER SECRETARY BENNETT:

Well, I can estimate the cash --

MEMBER OF THE PRESS: Ten years -- I mean ten months of
the year are passed aren't they?
UNDER SECRETARY BENNETT: There is another part of Washington
that is responsible for announcing budget deficits. I am responsible for announcing monetary, "real money." They keep the
books over there.
MEMBER OF THE PRESS: Mr. Bennett, most of the five issues,
or the five issues that you sold in that last series are all
seling at a discount now, and yet, Treasury bills seem to be
holding up in price, and the yields are down.
How many more bills can be absorbed before that market
starts to sell at a discount?
UNDER SECRETARY BENNETT: Our need for financing is so great
that we can't afford to neglect any part of the market.
MEMBER OF THE PRESS: How much aid are you getting -- how
much in foreign purchases do you see in what has taken place
•from January first to now, in Treasuries and, particularly, bills?
UNDER SECRETARY BENNETT: We have been announcing each
week -- the amount of the purchases for the Fed and foreign
monetary accounts. Let's see if I have a number, here, on the
total foreign purchases. It is complicated.
We have, of course, three types of foreign purchases. We
still have some of the non-marketables that we used to deal with
in the "Germanys" and the "Japanese", and the traditional Central
Banks. There are still some changes there. We have not issued
any of that type to any of the OPEC investors. We did, but they
have matured.

There are a lot of purchases that they make directly in
the market. Then, there are those which are made through the
Fed on behalf of the foreign monetary institutions, and I would
guess that the acquisitions of the various foreign monetary
institutions over this period are in the order of $2 billion -a little bit less than $2 billion.
I guess if you add up all of these weekly announcements,
it would do, I would say, $1-1/4 billion.
MEMBER OF THE PRESS: Since when?
UNDER SECRETARY BENNETT: The first of the year.
MEMBER OF THE PRESS: Foreign purchases?
UNDER SECRETARY BENNETT: Foreign purchases in the weekly
auctions.
MEMBER OF THE PRESS: Plus, possibly, some additional in the
market?
UNDER SECRETARY BENNETT: Plus a lot more in the market!
MEMBER OF THE PRESS: How much will the Treasury be raising
in all, then, in this fiscal half, including roll-overs?
Is it fifty-six?
UNDER SECRETARY BENNETT: Well, strictly speaking, when we
are talking about roll-over statistics, it includes the fact that
we roll-over every week, and every month, three month, and sixmonth, and one-year maturity bills. But if you leave these regulai
bills aside and you add up the $41 billion which we have to do,
the $4.8 billion other than regular bills that we have already
done, and the $10.7 billion that we have coming -MEMBER OF THE PRESS: Does that include some "Tabs"?
UNDER SECRETARY BENNETT: $56-1/2 billion is the total, in
this half year, of that type of borrowing.
MEMBER OF THE PRESS: The 10.7 is coupon issues?
UNDER SECRETARY BENNETT: The $10.7 billion is coupons, plus
Tabs and cash management bills, everything except the regular
weekly and annual bills. It includes Tabs and cash management
bills maturing in April and June.

^33
MEMBER OF THE PRESS: The $23.3 billion new money that you
mentioned in the beginning carries through tomorrow's auction,
and is cut off at that point, on anything else beyond that0
UNDER SECRETARY BENNETT: Yes!
MEMBER OF THE PRESS: Also, I don't think you suggested
when the auction of the $1-1/2 billion of two-year notes would be.
UNDER SECRETARY BENNETT: I have not announced it. We will
announce, formally, the auction date later.
MEMBER OF THE PRESS: The payment would be April 30?
UNDER SECRETARY BENNETT: Yes.
MEMBER OF THE PRESS: Mr. Bennett, earlier, at the February
24th briefing, you expressed some concern about the ability of
capital markets to absorb this.
Just what would you say about the ability now, with this
extra burden?
UNDER SECRETARY BENNETT: Well, of course, at that time,
rates were going down. That stopped, and our main concern continues to be, not the immediate future, but the situation after
the recovery becomes more pronounced.
MEMBER OF THE PRESS: Could you be a little more explicit?
Do you feel that Calendar '75 is not a problem now, because
there is no pronounced recovery of any kind occurring now.
UNDER SECRETARY BENNETT: No. But I say, you know, there are
some signs that maybe it is on the verge of starting. But I am
not expressing any concern about this period that we are talking
about here. We have considerable concern about it thereafter.
MEMBER OF THE PRESS: Do you mean that the $40 billion in the
second half -- or approximately $40 billion?
UNDER SECRETARY BENNETT: Yes!
MEMBER OF THE PRESS: Will this cause any problem -- increas
competition --to the New York City issues that are going to be
coming up?

\9
UNDER SECRETARY BENNETT: Well, let's see. Their next issue
would be for payment, by coincidence, April 14.
MEMBER OF THE PRESS: And then I think they have some that
they will be having come due, too.
UNDER SECRETARY BENNETT: There will be some, thereafter,
but they were thinking of a short issue on April 14 , I think,
and this one that we are talking about here is 9-1/2 months.
So it is in the same order. It will be auctioned at different
times.
MEMBER OF THE PRESS: Do you see this as causing much of
a problem for them?
UNDER SECRETARY BENNETT: Sorry?
MEMBER OF THE PRESS: Will this cause much of a problem for
them?
UNDER SECRETARY BENNETT: No! The amount of money that they
are talking about, in terms of what we are talking about, is just
peanuts!
MEMBER OF THE PRESS: You say that refinancing might be
announced on May 1, and, if my recollection is rig.ht, that is
a Thursday.
UNDER SECRETARY BENNETT: We are changing the day, this time,
because the Secretary and I are scheduled to get back on Monday
night from the Asian Development Bank. We want Tuesday and
Wednesday to get ready.
MEMBER OF THE PRESS: How big is the mid-May refunding?
UNDER SECRETARY BENNETT: It is maturing, at the moment at
$3.8 or $3.9 billion which isit? $3.8 billion?
That could change between now and then.
MEMBER OF THE PRESS: Thank you.
UNDER SECRETARY BENNETT: Thank you.
(Whereupon, the Press Briefing was concluded at 4:30 o'clock
p.m.)
oOo

y
News Conference
By
Under Secretary Jack F. Bennett
Treasury Financing Plans
May 1, 197 5

2
UNDER SECRETARY BENNETT: Some of you may not have
met Ralph Forbes, the new Special Assistant to the Secretary,
Debt Management. We are fortunate to have him come to us
after eleven years with the National Bank of Boston.
What I am going to say at the beginning of this conference I have written down, so you don't have to take extreme
notes. The copies will be handed to you in a few minutes, as
soon as the Xerox machine spews them out; in addition to
the formal announcement that I have given you, and the background
material, which is the same material we gave to the two
Advisory Committees yesterday, as reported to us this morning.
Ladies and gentlemen: We appreciate your coming here
today, for we are grateful for your help in making the details
of our Treasury security offerings widely known. This is the
fourth such conference this year.
Over the course of these conferences, the estimates
of the Government's needs to borrow from the public over the
current half year period have varied. On January 22 the estimated
increase in indebtedness to the public from December 30, 1974
to June 30, 1975 was $28 billion. On February 24, the estimate
was up to $38 billion. A month ago, on March 31, the estimate
was $41 billion. Today, our best estimate is $36 billion.
Since the last conference tax payments have been coming in
larger than expected so that the estimate of total budget receipts
for the current fiscal year ending June 30 have been revised
upward from $275 billion to $282 billion, though of course,
considerable uncertainty remains even for this fiscal year's
receipts .
Of the total of $36 billion of expected increase in
debt outstanding in this half year, $28-1/2 billion has already
been accomplished or announced through the first four months,
that is,- through yesterday, April 30, leaving $7-1/2 billion
still to be arranged. Of that amount, some portion is
expected to be arranged through the sale of Savings Bonds, leaving
$6-3/4 billion to be raised net through sales of marketable
securities to the public in issues not yet announced, that is,
in addition to the sales we have already announced through the
sale of 3 and 6 month bills to be paid for on Thursday of
next week.
That $6-3/4 billion net still to be raised in the
market is in addition to amounts to be raised to pay off securities
maturing during this period, that is the weekly maturities of
3 and 6 month bills; the one year bill maturing on June 3rd;
the copuon securities maturing on May 15, of which some are held
by the Federal Reserve Banks, which we assume will roll over

91
3
their investment, and of which $3.8 billion are held by the
public; the regular quarter-end security maturing on June 30
of $2 billion; and finally the cash management and tax
anticipation bills maturing in mid-June in the amount of
$2.75 billion.
Of these maturities the market would confidently
expect that we would roll over all the maturities except
that $2.75 billion of cash management and tax anticipation
bills, so that I tend to look at our market financing decision
to be how to raise in new borroing the $6-3/4 billion of net
increase in indebtedness plus the $2.75 billion, for a total
of $9-1/2 billion.
In raising that $9-1/2 billion we have to make
difficult decisions on which maturities to offer. One factor
we have to take into account is that we have been concerntrating
our borrowing very heavily in the short maturities with the
result that the average length of our marketable debt has been
declining, from 5 years, 9 months at the end of 1964 to
2 years, 9 months at the end of 1974, to 2 years, 8 months
yesterday, as indicated in one of the charts in the background
material we have distributed to you. As a net result of the
passage of time, the maturity of some securities, and new
issues by us, the Treasury now has outstanding $300 million
fewer securities maturing in over 7 years than it did at the
beginning of the year. As of yesterday, of the $205 billion
of marketable Treasury securities in the hands of the public,
69% matures in 2 years or less, 25% matures in 2 to 7 years,
and only 8% matures in more than 7 years.
The financing plan we have come up with does not,
however, make much change in the average length of the debt.
Under that plan the average length of the debt at the end of
June is expected to be 2 years and 9 months, and that average
length would be reduced further thereafter until our next
longer term issue.
Our financing plan consists of three parts; several
securities which we are formally announcing today for sale
next week in the separate announcement you have received;
three coupon issues which we are tentatively projecting
for sale late this month and next month but have not finally
decided upon though we are announcing our projections at this
time for the information of prospective purchasers, and thirdly
some expected increases in our bill issues which will be decided
and announced later in the light of our actual cash position.

V)<
The securities being offered today are: $2.75 billion,
3-1/4 year notes maturing August 15, 1978; $1.5 billion,
7 year notes maturing May 15, 1982; and $.750 billion, 30 year
bonds maturing May 15, 2005.
These securities total $5 billion and will raise
$1.2 billion in cash. They will be auctioned in maturity
order next week on Tuesday, Wednesday, and Thursday by yield
auction. The minimum denomination will be $5,000 for the
3-1/4 year note and $1,000 for the longer term securities.
The payment for the new securities will be on May 15 except
that purchasers will have the option to pay for the 30 year
bond on June 2.
In addition to these securities we anticipate three
coupon issues to fit into our new 2-year note cycle. The
first will be for $2 billion maturing on May 31, 1977, auctioned
on May 14 for payment on May 27. I understand that the
Home Loan Bank system has announced today the paydown of
$1.3 billion of maturing securities on that date. The second
security will be a 16 month $1.5 billion note maturing October 31,
1976, to be auctioned on May 22nd, and paid for on June 6. The
third will be a roll over of the $2 billion maturity on June 30
to June 30, 1977, probably to be auctioned on June 17.
In addition to these securities sold to the public,
we would expect some purchases of the same marketable securities
will be made by foreign monetary authorities. For planning
purposes, we assume these purchases will total about $600 million.
To achieve our forecast total financing need of
$9-1/2 billion, we shall probably have in addition to raise
some amount, now forecast at $4.2 billion, through additions
to our bills outstanding. We have five weekly bill maturities
and one yearly bill maturity prior to mid-June, our traditional
cash low point, I intend to maintain flexibility by not
announcing individual amounts for the prospective bill sales.
Finally, I would like to mention that our current
estimate of the required net increase in our indebtedness
in the second half of the year is now about $40 billion if the
Congress accepts the President's recommendation of a $60 billion
budget deficit for the fiscal year 1976. Of course, our
borrowing requirement will be higher if the budget deficit
is increased.
Now, I'd be happy to attempt to answer any questions.

y
5
MEMBER OF THE PRESS: Secretary Bennett, do your
upward revisions of revenue for this fiscal year have any
likelihood of high revenues for next year, also?
UNDER SECRETARY BENNETT: We asked that questions
today, and the answer was, "No".
MEMBER OF THE PRESS: Do you have any explanation
why revenues are better than you expected?
UNDER SECRETARY BENNETT: It has not been "withholding".
It has been tax returns, final tax returns.
MEMBER OF THE PRESS: Individuals?
UNDER SECRETARY BENNETT:
MEMBER OF THE PRESS:

Both.

Corporate, too?

UNDER SECRETARY BENNETT:

Individual and Corporate.

A lot of it has happened in recent days.
MEMBER OF THE PRESS: Do you have any information
about why those liabilities are higher than you had anticipated?
UNDER SECRETARY BENNETT:

Why the tax liabilities are

higher?
All I know at the moment is that it has come in faster,
and they've revised the estimates.
MEMBER OF THE PRESS: The latest official estimate
for the budget deficit for fiscal 1975 is $46 billion.
UNDER SECRETARY BENNETT: Wait a minute. I will
check. The latest number published in the Economic Indicator
is $49.7 billion, I believe.
What number did you say?
MEMBER OF THE PRESS: That is probably in N.I.A.
The number I get from O.M.B. has been 46.
UNDER SECRETARY BENNETT:

That is not N.I.A., is it?

MEMBER OF THE PRESS:

No, sir.

UNDER SECRETARY BENNETT: This is not N.I.A. This
is the April Economic Indicator. It is $49.7 billion.
MEMBER OF THE PRESS: Is that figure an estimate for
the deficit for the fiscal year?
UNDER SECRETARY BENNETT: This is the estimate
for the deficit for the fiscal year 1975; $49.7 billion.
Now, that had in it the receipt estimate of $274.5 billion.
MEMBER OF THE PRESS: So the deficit could be closer
to $42 billion, rather than $50 billion?
UNDER SECRETARY BENNETT: I don't know and if I knew,
I couldn't say what variations there may be in the outlay
estimates. Jim Lynn has to announce that. The latest official
deficit is $49.7 billion based on $274.5 billion. Nov;, we
have guessed the receipts would be $282 billion.
MEMBER OF THE PRESS: Congress seems close to
recommending a deficit figure of about $10 billion higher for
fiscal 1976 than the President suggested.
Do you think the market could handle a deficit in
the range of $70 billion?
UNDER SECRETARY BENNETT: The experience I have had
here is that Treasury is always able to borrow. The question
is not whether the Treasury can borrow, but whether there is a
damage from the amount we borrow.
At the moment, the market is in good shape. When the
recovery gets more under way, as I said many times, that is
the worry.
MEMBER OF THE PRESS: What is the limit on your long
term borrowing?
UNDER SECRETARY BENNETT: We now have authority
to issue, in addition to what we have already issued, $2.1
billion. We are only proposing to issue, here, $750 million.
However, we will be going forward, in a matter of days, to
ask the Congress to increase our debt ceiling. You recall debt
ceiling expires end of June.
At the same time, we will ask the Congress to increase
our long term borrowing.

u
MEMBER OF THE PRESS:

Is that seven years or more?

UNDER SECRETARY BENNETT: Sorry?
MEMBER OF THE PRESS: Seven years or more -- is
that the term?
UNDER SECRETARY BENNETT: Seven years or more, at
rates above 4-1/4%.
MEMBER OF THE PRESS: What was the ceiling? What
was the amount? Did you say 2.1? Is that what remains?
UNDER SECRETARY BENNETT: $2.1 billion is what is left.
Originally, it was $10 billion, all long term. Then it was
$10 billion for those in the market, not counting those held
by the Fed and the Government accounts.
MEMBER OF THE PRESS: 2.1 is due and remaining?
UNDER SECRETARY BENNETT: Out of the two different
definitions of $10 billion.
MEMBER OF THE PRESS: Is the $28-1/2 billion figure
that you already raised the same as the figure in Secretary
Gardner's letter to Senator Humphrey that was published.
Somebody has suggested there was an error in that.
UNDER SECRETARY BENNETT: As I recall, he showed
in his figures a borrowing in this half year of $41 billion.
MEMBER OF THE PRESS: Yes, but the amount already
raised, to April 30,came out at 28.3. Somebody suggested that
that figure should have been about $24 billion. But, if I am
talking about something you have never heard of, just forget it.
UNDER SECRETARY BENNETT: Our number includes the bills
through next Thursday. Our number, at the moment, is
$28-1/2 billion.
MEMBER OF THE PRESS: The bills through Thursday?
UNDER SECRETARY BENNETT: Yes! That, of course,
includes savings bonds, and a few odds and ends.
MEMBER OF THE PRESS: By reducing your borrowing
by only $5 billion -- your estimate for the full half year
by only $5 billion -- with your receipts going up to
seven, you are going to be better off in terms of cash by
$2 billion at the beginning of the next fiscal year.

9i
8
UNDER SECRETARY BENNETT: No! Our forecast, here,
is based on fiscal year end cash of $6-1/2 billion, $6-1/2 billion.
MEMBER OF THE PRESS: What was your previous
reporting?
UNDER SECRETARY BENNETT: In the same order. You
won't be able to make any deductions from what I am telling
you, as to what happens, because, when I was talking to
you a month ago about our borrowing plans, I was not using
the last public budget figures. I was using our infernal
estimates. Unfortunately, that arithmetic won't work.
MEMBER OF THE PRESS: I am not sure why not.
UNDER SECRETARY BENNETT: Because I was not using
the latest public budget figures when I was talking to you,
I was using our operating figures.
*

MEMBER OF THE PRESS: Could we say, then, that you
were assuming outlays -- then, you were assuming outlays
were going to be $2 billion higher than the latest official
estimate?
UNDER SECRETARY BENNETT: We still have the question
of the slippage, because there are a lot of non-budget things.
All I can say at the moment, is that we have reduced our
borrowing estimate from $41 to $36 billion.
We can also tell you from the last public receipt
estimate, we have gone from $2"4.5 to $282 billion. The
derivation from that on the outlay side will be difficult, but
if you call Jim.Lynn, he may be ready to tell you. I tried
to reach him this afternoon to ask him whether he would like
for me to tell you, but I couldn't reach him. If you call
him, he may tell you.
MEMBER OF THE PRESS: Would you please go over, then,
how you reached the $9.5 billion in new cash.
UNDER SECRETARY BENNETT: We are raising $1.2 billion
in the May 15 refunding. We are raising $2 billion by the
end-of-May note.
We are raising $1-1/2 billion on the June 6 note.
We are assuming $600 million from the Foreign
Monetary Authorities. And then, I assume, $4.2 billion in bill
additions. I hope that adds up.

9
MEMBER OF THE PRESS: That $600 million figure from
foreign buying -- how much foreign buying has there been?
UNDER SECRETARY BENNETT: About $1-1/4 billion so
far this year. That is, foreign buying under this procedure.
There has been additional foreign buying in the market,
but not through this special procedure. This special
procedure, we started the first of the year.
That estimate you have in this text has been published,
I guess
The $6 billion total foreign increase and holding oi
Treasury securities in the first three months, but don't
read that as OPEC!
You will recall that our numbers for the last year
of OPEC investments here were $11 billion, of which between
$6 and $7 billion were in Treasury securities. They nave
continued to invest this year, but OPEC investments here this
year, are running at a lower rate than last year. It is hard
to make much out of the numbers we have, but they are coming
in at a somewhat lower rate.
While I have you, I might point out another thing
that worried me. I was reading in one of your newspapers this
morning, "Dollar hits a new low in Paris".
I have a feeling that this headline is a little
misleading. It is true that the French franc has been going
up relative to all currency but, in fact, the dollar nou _
is where it was about the beginning of the year, the beginning
of January, and it's strengthened considerably.
We had an average devaluation, let us say, on
February 28, of 18.8%. Now it is 16.3%. So that is a
substantial strengthening of the dollar over the last
2-1/2 months.
The Swiss franc, for example, is now weaker relative
to the dollar than it was at the end of last year, a couple ol
percentage points weaker.
I think that is a story that some of you have not
noticed, but the dollar has been strengthening.
I used to point out that the dollar strengthened
more from May of last year to its high point at the end o
August, then it weakened from then to February; this is still
true.

u
10
The fact is that the dollar has also strengthened
considerably, since its fall, from February.
The headline that says the dollar is at an alltime low in Paris,
somehow gives the flavor that the weakening
of the dollar continues. It is that the French have been going
up relatively below the European currencies and the dollar.
On the average, we have done pretty well.
MEMBER OF THE PRESS: Do you have any comment on
the criticism of Senator Humphrey and others about issuing
any long bonds at all, and what you expect the inclusion
of the long bond in this package will have on the bond market?
UNDER SECRETARY BENNETT: Well, what we have included
here, $.75 billion, of course, is less than the last one we
issued. The last one was $1.25 billion.
Also, since he made those statements, we have had
a chance to talk to him and, of course, stress how the average
length of our debt had been going down and a large proportion
of the debt is short term, and all of the traditional reasons
why it is important that we not be overly dependent on short
term, including the fact that short term rates are relevant to
business activity, particular,y to inventories, just as long
term rates are relevant to other parts.
MEMBER OF THE PRESS: Mr. Bennett, would the increase
in outlays suggest that our economy may be a little stronger
than the economic statistics would indicate?
UNDER SECRETARY BENNETT: Increase in taxes?
MEMBER OF THE PRESS: The receipts, yes. All right.
UNDER SECRETARY BENNETT: I would rather not jump
to conclusions.
MEMBER OF THE PRESS: How much of the "7" merely
reflects inflation -- where you are getting bigger taxes?
UNDER SECRETARY BENNETT: Of course, when they
originally made the estimates, they were trying to take
inflation into account.
That is all rather new and not fully analyzed.

41S
11
MEMBER OF THE PRESS: When you said "individual and
corporate returns", do these returns indicate higher
liabilities for Calendar '74, for the most part; or are
we talking about some corporate liabilities for later periods?
UNDER SECRETARY BENNETT: For the individual, it
would be Calendar 1974.
For the corporations, I don't know whether the
payments reflect the 1974 or 1975 base for the payment of
estimated taxes.
MEMBER OF THE PRESS: How much effect has the
change in the shift to inventories had on corporate tax
receipts?
UNDER SECRETARY BENNETT: Do you have an estimate?
MY SNYDER: Initially, it was estimated that the
shift in treatment would amount to about $3 and $4 billion.
That has been in the estimates ever since Hector was a pup!
So there has not been any indication of any more than that.
MEMBER OF THE PRESS: Mr. Bennett, on the $6 billion
for the first half of this year, what was the non-0'PEC part?
UNDER SECRETARY BENNETT: What is the non-OPEC part?
MEMBER OF THE PRESS: Yes!
UNDER SECRETARY BENNETT: I don't want to give a
specific number, but I would say the bulk of it.
Are the Wire Service people ready to go? Can we
hold it? Will five minutes be all right? Twenty minutes
to 5:00 -- embargo.
MEMBER OF THE PRESS: This afternoon, the House-in
dealing with its current resolution on the budget -- adopted
an amendment by Congressman Reuss which more or less suggests
to the Ways and Means Committee that they find ways of raising
$3 billion by closing a variety of loopholes in the tax law
fiscal '76.
At the head of the list was the Domestic International
Sales Corporation, which he said represented a tax expenditure
of $1.3 billion during fiscal '76.

12
Given the strength of our exports at this time, and
the much larger revenue loss associated with that -- than
the Treasury originally estimated -- are you considering,
suggesting -- or agreeing to -- elimination of DISC?
UNDER SECRETARY BENNETT: While I am not the
Treasury spokesman on tax policy, from long experience with
the Domestic International Sales Corporation, I am very
skeptical of estimates, and what will be raised.
In general, the Treasury position has been that what
we have accomplished in the revision of the International
Tax and this Tax Bill just passed was appropriate. We ought to
see what happens.
I better ask Fred Hickman for the details. But we
were quite happy with what happened in the International
area up to now. We don't at the moment have any additional
recommendations.
MEMBER OF THE PRESS: Does the financing package
that you have announced today
through June 30 -- cover the
entire tax rebate?
UNDER SECRETARY BENNETT: Yes! There is another thing
that I might mention. It also covers the Social Security
payment which we are assuming will be mailed in mid-May.
The Congress has not appropriated the money. They are
having some problems on it, but it does have to assume they
are all paid. The checks have all been made out for mailing.
MEMBER OF THE PRESS:- At 8%?
UNDER SECRETAR_ BENNETT: No!
MR. SNYDER: $50.00.
UNDER SECRETARY BENNETT: Okay. Thank you.
(Whereupon, the Press Briefing was concluded.)

FOR IMMEDIATE RELEASE

June 25, 1975

ALTERNATE U. S. EXECUTIVE OF ADB IS SWORN IN
Roy Papp was sworn in today as Alternate Executive Director
of the Asian Development Bank. The oath was administered by
Secretary of the Treasury William E. Simon at the main Treasury
building.
Papp, a partner in the Chicago investment counseling firm
of Stein Roc § Farnham, is a native of Trenton, New Jersey,
and a graduate of Brown University and the Wharton School of
the University of Pennsylvania. He joined Stein Roc t\ Farnham
upon graduation from Wharton with an MBA in 1955.
He is director of the Federal National Mortgage Association
of Washington, D.C., and a board member of the Chicago Council
of Foreign Relations.
Secretary Simon, in remarks at the swearing in ceremony,
said that Papp is joining the Office of the U. S. Director at
the Asian Development Bank at a critical time. "American support
for the Bank is most essential now in the context of recent events
in Asia," said the Secretary. "The United States, as a nation
of the Pacific as well as the Atlantic, must and will remain
actively involved in the problems and development of Asia."
The Bank's headquarters are in Manila, Philippine Islands.
Rex Beach is U. S. Executive Director.
oOo

WS-339

Department of theJREASURY
WASHINGTON, DC. 20220

TELEPHONE W04-2041

June 25, 1975

FOR IMMEDIATE RELEASE
RESULTS OF AUCTION OF 4-YEAR TREASURY NOTES

The Treasury has accepted $1.75 billion of the $5.4
billion of
tenders received from the public for the 4-year notes auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield
Highest yield
Average yield

7.74%
7.85%
7.

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 100.034
High-yield price
Average-yield price

99.664
99.731

The $1.75 billion of accepted tenders includes 77% 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, $20 million of tenders were accepted at the average-yield
price from Government accounts and from Federal Reserve Banks for themselves
and as agents of foreign and international monetary authorities.
J7 Excepting 12 tenders totaling $735,000.

DepartmentoftheTREASURY
WASHINGTON, DC. 20220

TELEPHONE W04-2041

STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON COMMERCE
CONSUMER AND MONETARY AFFAIRS
HOUSE COMMITTEE ON GOVERNMENT OPERATIONS
JUNE 26, 1975, 9:30 A.M. EDT

New York City's Financial Crisis
A few years ago Charles De Gaulle arrived in New York
and spoke affectionately about the special bonds he felt
for that great City. "How often, at difficult moments, I
looked to New York, I listened to New York, to find out what
you were thinking and feeling here, and always I found a
comforting echo." Those of us who know New York City as
the financial capital of the world, the focal point of its
'capital markets, have similar feelings. I have been
privileged to spend my professional career there, and I look
upon the city as a second home.
It was with these feelings that my colleagues and I
approached the very difficult problems of New York this
spring. There was no prejudice against New York, only a
sadness that this great City which had inspired so many had
allowed its finances to become so disordered. And there were
certainly no prejudgments based on the coincidence that the
city's leadership happened to come from a different political
party. No, we faced the problems of New York City acutely
aware that fundamental questions relating to the proper
roles and responsibilities of government at all levels of
our system were squarely presented. And we concluded that the
problems of New York were created at the local level and would
have to be solved there.
For background, we must first understand the nature of the
problem that was developing. Frequently, corporate entities
of all types find that the timing of receipts and expenditures
do not correspond. Thus, for example, a builder will borrow
money from a bank to build a house, promising to repay the
money out of the proceeds of its sale to the homeowner.
At the corporate or governmental levels, wider options are
available. Because the amounts involved are often beyond the
capacity of one bank -- or even a group of banks — to lend
from their own funds, such borrowing may take place through
1
the sale of debt securities in the public market.
WS-338

2
The successful use of this system depends on one
simple condition: that the amount borrowed does not
exceed the anticipated income. When this condition is
continually violated — when, for example, borrowing occurs
not in anticipation of income, but instead to close a gap
between income and expenditures — the system ultimately
breaks down. And that is precisely what happened to New
York City this spring.
Having borrowed to finance deficits and then lacking
a surplus in later periods to pay off these loans, the only
way New York could pay off past loans was by floating new ones.
As the deficits persisted and grew, the borrowing pyramid
mounted: since 1969, New York's short-term debt has increased
from $700 million to over $4 billion. At the end of 1974,
New York accounted for nearly 40 percent of all state and
local short-term debt outstanding.
The decision to halt this spiral was not made by a small
group of men in a smoke-filled room. Instead, it was made
in the clear light of day — visible to all — by that most
omniscient of judges: the market iself. On March 13 and 20,
the City, through its underwriters, offered for public
sale $912 million of short-term notes at tax-exempt interest
rates of up to 8 percent. Even for investors of relatively
moderate means this looked, at least on the surface, like a
very good deal. For such investors, the effective yield, on
a tax equivalent basis, was some three times greater than
that available at a savings bank. Yet weeks after the offering,
despite relatively vigorous marketing, more than half of the
notes remained unsold.
The market had spoken. Investors knew that buying the
notes would make them just another layer in the borrowing
pyramid and that their primary source of repayment would be
the creation of still more layers of debt in the months ahead.
In the absence of any credible indication from the City that
it was taking any action to balance its budget, the necessary
first step toward undoing the pyramid, investors simply shied
away, choosing instead from a variety of competing investment
options. Although the returns on such instruments may not
have matched what New York was offering, the risks, as perceived
by the market were much lower. For New York, the market —• at
least temporarily — had closed.
It was in this atmosphere that we entered the picture.
When the possibility of a financial crisis was first brought
to
attention
in March,
I —
immediately
asked
Under
background
of
formy
the
Monetary
matter.
--Affairs
moved
Mr.
quickly.
Bennett
Jack F.
Bennett
Within
also ato
the
New
take
first
Yorker
personal
week
by Secretary
professional
alone
charge
he

yx)
3
convened and participated in four high-level meetings -three here in Washington and one in New York City — involving
representatives from the City, from the State and from the
financial community. Indeed, at the last of this early series
of meetings, he asked for and obtained the participation of
experts on the municipal market from throughout the country.
Our purpose in holding the early series of meetings was
twofold. First, we wanted to determine quickly whether any
facile steps were available to reopen the market in time to
permit the City to sell $550 million of additional notes on
April 14. Accordingly, we met and talked with a variety of
market experts — from New York City and elsewhere — to
identify the causes of the market closure and to explore
possible solutions. These were candid, realistic meetings of
professionals, urgently seeking ways to sell a then unsaleable
product.
A second purpose of these early sessions related more
directly to the question of Federal financial assistance.
Before we could identify, much less evaluate, our options in
this regard, we needed facts: facts about the City's expenses
and obligations, facts about its revenue sources, facts about
its debt structure. An early roadblock was the absence of
good records. No document existed which summarized with any
clarity the income and expenses of the City. No document
provided a straightforward accounting of its assets and
liabilities. As we quickly became mired in the byzantine
world of the City's accounts, our requests that such information
be developed were met with earnest promises of prompt compliance.
Although that was more than three months ago, the information
has not yet arrived.
While these meetings proceeded, other parts of our staff
were also at work. Our legal staff analyzed questions^ranging
from our legal authority to purchase municipal securities to
the coverage of the federal bankruptcy laws. Others began
to explore in depth the range of federal assistance programs.
And after complaints surfaced that payments under our social
and educational assistance programs were too low or too late
or both, we immediately commenced an inquiry at HEW, which
has responsibility for administration of the programs involved.
Let me dwell briefly on the HEW situation because it is
indicative of the kind of misunderstanding which has permeated
this entire matter. At the City's request, senior members
of my staff and Secretary Weinberger's staff met with budget
experts from the relevant departments of the City's government:
The Board of Education, The Department of-Social Services and
Government
at
thethe
like.
start,
was
Understandably,
fueled
shortchanging
by a conviction
there
the was
City an
that
inelement
the
somehow
amount
of the
suspicion
and
Federal
timing

4
of its support payments. As the meeting progressed a strange
thing happened: in going through the assistance programs,
item-by-item, the group determined that HEW was doing an
excellent job in scheduling its assistance payments to New York.
Apart from a question whether certain Medicaid payments should
be changed to an advance rather than reimbursement basis — which
I shall discuss later — the City officials left satisfied that
we were properly carrying out our responsibilities.
But HEW's concern for New York did not stop there.
After the meeting, they carefully reviewed our entire program
in New York, most of which is administered through the New
York State Department of Social Services. And that review
resulted in the discovery of substantial underpayment of the
estimated federal welfare payments paid to the City by the State.
We called the underestimates to the attention of appropriate
State officials, and the matter was promptly corrected, with
the City receiving an additional $90 million.
I call these matters to your attention because they so
clearly belie the image of callous insensitivity that some
have sought to saddle us with.
Let me now turn to the question of special federal
financial assistance to the City of New York. The determination
that hundreds of millions of dollars would not magically
materialize from HEW programs illustrates a fundamental
proposition that we established very early. Irrespective of
the merits of the case for special federal financial assistance
to New York, the practical means of providing such assistance
were severely limited. We identified four possible options
for the Federal Government:
One: Advance Revenue Sharing and Medicaid payments
Two: Guarantee or purchase NMW York City securities.
Three: Lend New York City all or a portion of the
required funds through the Federal Reserve System.
Four: Take no action at the federal level,
recognizing that a solution must be developed and
implemented at the local level.
In evaluating the options, we first looked at the legality
and practicality of implementing each of them, again still not
yet reaching the question which separated options 1 through 3
from option 4: that is, whether any form of federal action was
warranted on the merits.

5
We found that only the first option could be accomplished
by Executive Branch administrative action. We had no authority
whatsoever to make a direct loan to New York or to purchase
any of its securities. As a matter of law, there were only two
sources of meaningful amounts of cash.
First, there was Revenue Sharing. On July 7, we are
scheduled to make the April-June quarter's Revenue Sharing
payment. New York City is scheduled to receive $64 million
and New York State an additional $57 million. Had we advanced
the date for making this payment and had the State then agreed
to turn over to the City all of its share, this source could
have provided $121 million.
The other potential source of cash was the change in the
Medicaid payment method I referred to earlier. At present,
the federal share of Medicaid coverage for patients in private
hospitals is paid to cities on a reimbursement basis; that is,
upon presentation of a voucher confirming that the city has
paid the hospital the amount in question. As a consequence, the
city must first borrow the funds and pay the hospital before
receiving the federal share. Had we changed this procedure,
agreeing to provide the funds in advance on an estimated basis,
we could have provided the City with approximately $75 million
from this source.
The total of $196 million available through these channels
seemed small in relation to New York's enormous cash
requirements. We therefore tended to dismiss this option and
turned to the others.
New legislation — the second route — appeared equally
unpromising. Legislation authorizing federal purchase or
guarantee of municipal securities raises a number of complex
issues ranging from tax policy to management of the Federal
Debt to federal/state/local relations. In view of the fact that
any such legislation would — as a political necessity — have
had wider application than just New York City, such complexity
alone eliminated this course as a viable option. There simply
was not time to resurrect and resolve these fundamental questions
in a satisfactory way and still meet New York's timetable for
cash.
Third, there was the possibility of a loan from the
Federal Reserve. Governor Mitchell addressed this option in
detail yesterday and I need not retrace his steps. In evaluating
this option from the Administration's standpoint, however,
these facts stand out. First, we were aware of the limitations
Congress itself imposed on this approach. By requiring the
approval
members
of extreme
theclearly
Boardrestraint.
of
Governors
--this
morewe
than
a
authority
simple of
majority
befive
exercised
— Congress
with
intended
that
Moreover,

6
knew that historically the Fed had conformed to the will
of the Congress and had not exercised such authority in nearly
four decades. Accordingly, we were aware from the start that
this option, like the first two, was probably of dubious utility.
With these considerations in mind, we turned squarely to
the merits of Federal involvement. In addressing this question,
a number of criteria were relevant:
First, the assistance had to be effective: that is,
it had to be part of a solution which we could
confidently predict would prevent a recurrence of
the crisis after this money ran out;
Second, the assistance had to be fair and equitable:
we could not show undue favoritism to one city at
the direct or indirect expense of others;
Finally, and this is partially a composite of the
preceding criteria, the assistance had to be in the
national interest: undue expense or adverse impact
on other federal programs or objectives could not be
tolerated.
What did effectiveness mean? It meant to us that the
payment must be necessary to get the City over a nonrecurring,
short-term crisis, a financial accident, so to speak.
A payment would not be "effective" if it appeared that the
same cash flow problem — highlighted by an inability to raise
funds through the sale of securities in the public market — would
appear again, month after month. A payment would not be
effective if it treated only the symptoms and not the cause.
In other words, we were looking for a plan of responsible fiscal
action, designed and implemented at the local level, to restore
investor confidence and reopen the public market. Although many
ideas were discussed between March and the middle of May, as
of the time of our decision no City official was willing to
commit the City Government to an immediate and effective program
of meaningful fiscal reform.
The importance of a program of fiscal reform really
bridges this criterion of effectiveness and the next criterion
of fairness. For if we were to use the nation's funds to deal
with the difficulties of one city, albeit a very important one,
we would have to satisfy ourselves that any such payment would
not be to the disadvantage of other cities.
Fairness meant two things. First, any aid we provided
New York would have to be made available to other cities.
Thus, nationwide application of option 1, for example, would
cost
for providing
the federal
New taxpayer
York with$15
a million
single $196
— amillion
high price
payment.
to pay

99^
7
Second, we looked at New York's position relative to
other cities to determine whether it was demonstrating the
kind of concern for its financial affairs that characterized
the actions of other municipalities throughout the nation.
We immediately discovered that by comparison to other cities,
New York was not a particularly hard-hit victim of the
recession or the so-called urban crisis. Its real property
values, its sales taxes and its income tax revenues had held
up better than most other cities. Unlike other cities, the
problem was on the expenditure, not the revenue, side.
It is not the province of a federal official to tell any
city how much it should spend on social services, how much it
should pay its employees or charge its students. But when
that city comes to Washington seeking financial aid, it is
most emphatically the duty of the Federal Government to review
the balance between expenditures and revenues. And what we
found in New York was a complete lack of balance — rapidly
increasing expenditures that far outstripped the growth in
revenues. Expenditures were increasing at a rate of 15 percent
a year while revenues were growing at only 8 percent a year.
This problem is not merely too much government; it is financial
disaster.
With this in mind, let me turn briefly to some specific
data concerning the City's finances. Looking at the payroll,
Census Bureau data shows that New York employs some 49
employees per 1,000 residents. The payrolls of most other
major cities range from 30-35 employees per 1,000 inhabitants.
And Baltimore, New York's closest competitor at 42 employees
per 1,000, this year imposed a 20 percent reduction in the
municipal payroll. By comparison, New York's proposed cuts -prior to Mayor Beame's recent budget announcements — were minimal.
Turning to specific services, New York spends $151 per
capita on health and hospitals. Among other cities, only Boston
is over $100, at $122 per capita — most cities are at $50 or
below. Yet, as measured by the vacancy rate, nearly one
quarter of the beds in New York City hospitals were empty
last year.
I do not want to belabor the welfare situation; New York's
problems in this regard are altogether too well-known.
Nevertheless, it bears noting that among cities over 1,000,000 —
all of which have large underprivileged populations -- only
New York spends more than $20 per capita on welfare and related
social services. Its figure is $315 per capita.
Moreover, although the situation has improved in recent
years, the
welfare
rolls
remain
laden with
ineligibles.
Earlier
this
week the
State
Department
of Social
Services reported

8
an estimated ineligibility rate of 9 percent. Although this
is down from 18 percent in 1973, the improvement still compares
unfavorably with results elsewhere in the state. Over the
same period, non-City welfare ineligibles fell from 15 percent
to less than one percent. And these figures take on more
meaning at over $10 million per percentage point.
Let's look at still other areas. At an annual cost of
more than one-half billion dollars, New York's city-operated
university — larger than virtually every state university —
provides a tuition-free education to every high school
graduate, regardless of the student's ability to finance his
own education. Yet reasonable tuition charges would not be
a hardship since both the state and federal governments have
extensive scholarship programs, insuring that no qualified
student will be denied an education. The present system
needlessly subsidizes, at great expense to every taxpayer, those
who are able to bear the costs themselves.
The burden of New York's massive payroll is multiplied by
one of the nation's most generous employee benefits systems.
Fringe benefits for many city employees equal 50 percent of
base pay. In addition, employees need not contribute to their
own pension plans, yet may retire early at high rates.
Police and fire, sanitation, housing, the picture is the
same: New York is at or near the top in every category on a
per capita basis. And on a total dollar basis, to which we
ultimately must turn in determining how the bills will be paid,
there is simply no comparison.
As would be expected, the bottom line reflects the component
parts. New York spends in excess of three times more per
capita than any city with a population over one million. When
the base is broadened to include smaller cities, only Boston
and Baltimore spend more than half as much as New York — and
even when compared to these cities, New York's expenses are 50
percent higher.
These figures, from 1973, provide the most current basis
of comparison. When historical data are evaluated, other
interesting trends come to light. Not only does New York now
spend far more than any other city, but over a ten-year period,
its increase in spending has far outpaced other urban centers.
From 1963 through 1973 per capita municipal expenses of large
U.S. cities (excluding New York) increased on the average 2.2
times. During the same period, New York's expenses increased
some 3.5 times, a 50 percent greater rate.

9
The only way an entity which spends more than it takes
in can keep afloat is by borrowing. Accordingly, the ultimate
indicator of a city's ability to manage its financial affairs
is its debt strcture, and — given legal restrictions -particularly the short-term portion thereof. On June 30, 1969,
New York had $671 million in short-term debt outstanding.
By June 30, 1974, the figure had increased 6 times, to
approximately $3.5 billion. And only the closing of the market
for New York in April prevented the short-term borrowing load
from approaching $6 billion this year. As it is, and taking
into account state advances to be repaid by "Big Mac," short-term
debt will be nearly $4.5 billion, a billion dollar increase in
one year.
And even the growth in short-term debt does not tell the
whole story. In recent years, some $700 million per year of
deficit spending for current purposes has been "hidden" in the
capital budget to be financed by long-term borrowing. This
practice alone now costs the New York taxpayer well in excess
of $100 million per year.
By contrast, apart from bond anticipation notes — which
can be considered a form of construction financing — few
cities have any short-term debt at all. Each year Chicago
issues some $300 million in notes, and pays them off annually
when tax payments come in. Until May 5 of this year, Boston
had $65,000,000 in tax anticipation notes outstanding, but it
retired them on schedule when 1975 taxes were paid this April.
Again, except for bond anticipation notes, no other major
American city reported any short-term debt.
In recent years, New York has faced the marketplace's
demands for restraint, responsibility and realism with spending,
promises and gimmickry. Capital borrowing for current
expenditures, artificially high revenue estimates to "balance"
budgets and support even more borrowing, and, above all, an
inability to say no where more spending is concerned, make
New York unique among our major cities. While the economic
difficulties of recent years have caused most of us — from
the individual taxpayer to other large cities — to tighten our
already tight belts, New York has plunged onward, committing
its own citizens to impossibly large financial burdens and
now turning to the taxpayers of the nation for even more funds.
In the course of numerous meetings at all levels, we stressed
this disturbing set of facts to City officials. And we were not
alone. From the New York Times, from the New York Clearing
House, from the Citizens Budget Commission, the same message was
repeated again and again: get your spending into line with your
ability to pay.

10
How did the City respond? Speaking bluntly, I think
they thought we were all a bit naive. You could fight crime,
you could fight pollution, you could fight poverty and
ignorance, but — in New York — you could not underestimate
the powerful forces for spending being brought to bear on the
City's elected officials, driving the City into the slow and
painful death of bankruptcy.
Now I know enough about New York to know that Mayor Beame
and his colleagues would be in the fight of their lives the
moment they touched their scalpel to the growing layer of
fiscal fat which is strangling the City. One only has to look
at that incredible pamphlet off-duty policemen, firemen and
others were handing out to tourists earlier this month to
appreciate the kind of problem the Mayor was dealing with.
But we make a tragic mistake when we resolve questions solely
on the basis of which side is more threatening or more
unscrupulous.
But as of early May, when I, and then the President, met
with the Mayor and the Governor, no resolution of the problem
was in sight. The issue as then presented was plain and simple:
give us the money to get us through the immediate crisis, then
we'll begin to worry about a solution.
As I have indicated, it had become clear that the only
real solution lay in a responsible program of fiscal reform.
Such a program would reopen the market and avert the possibility
of a default by New York City. But because no such program
had even been suggested by City officials, it was our
responsibility to evaluate the constant suggestions that a
default by New York would have a devastating impact on the
capital markets, the banking system and the national economy
as a whole.

1/
11

It was quickly apparent that the principal adverse effects
would be based on psychological factors, not objective ones.
To be sure, many parts of the economy -- especially in New York
City -- would suffer severe harm. On the whole, however, our
markets, our banking system and our economy each are large and
diversified enough to withstand the temporary inability of even
an entity the size of New York City to meet its obligations.
But I have been around markets long enough to know that one
ignores psychology at his own peril. Accordingly, before reaching
a decision, we asked ourselves three more questions about the
psychological effects of a default:
-- First, what impact would a default have on the securities
markets, particularly the municipal markets?
-- Second, would a default influence the condition of the
major banks?
-- And third, what impact would a default have on public
confidence nationally?
With respect to the impact on the market, it is fair to say
that there were differences of opinion. Certain market professionals from the private sector did tell us the effect could
be devastating. But my staff and the Federal Reserve Bank of
New York, which as you know, serves as the focal point for our
public securities markets, advised me that whatever impact did
occur would be temporary, and, even so confined, would be negligible.
Three factors produced this judgment. First, it was uniformly
believed that any default would be shortlived and that there was
enough underlying value in New York City to assure that all holders
would eventually be paid 100 cents on the dollar. Second, the
municipal market had recently experienced the prospect of a major
tax-exempt issuer default -- New York State's U.D.C. -- and had
weathered it well. Third, New York's problems had been public
knowledge since at least November and the market, at least in
large part, had reflected this risk by discounting the prices of
New York City and other weaker issuers. This last judgment was
confirmed by the strong rally in the municipal market when "Big
Mac" was established.
We found the banking system even better equipped to handle
whatever shock might occur. The New York City holdings of the
major New York banks, while large in absolute terms, were only

a fraction of one percent of the total assets of these
institutions. The sophisticated investors, whose large deposits were in question, were aware of this fact, and were
also aware that, upon a default, this portion of the banks'
holdings of New York securities would hardly become worthless.
This lack of a realistic basis for fearing large withdrawals was coupled with a recognition that the system was
designed to handle such an event, if it did occur. A primary
reason for establishing the Federal Reserve System was to correct
temporary imbalances of liquidity in our banking structure. And
the System clearly would have been able to handle any imbalance
which might have occurred in these circumstances.
/
Finally, working with Chairman Greenspan of the Council
of Economic Advisors and senior economists at the Federal Reserve,
we looked at potential consumer and business reaction. In view
of the general knowledge of New York's situation and an awareness
that at least many of the underlying problems were of the City's
own making, we saw little risk that a default would be viewed
as an indication of a more widespread economic malaise.
Concluding that a default would not have precipitated an
economic crisis did not mean that a default should not be avoided
at virtually any cost. But when we reviewed our analysis of what
other cities have done and are doing to meet the economic
challenges of these times, another barrier to special treatment
for New York became apparent. Many of our leading cities are
having troubles these days, troubles largely attributable to
the recession and unemployment levels, and to the impact of these
phenomena on municipal revenues. But as I discussed earlier,
and as confirmed by a recent Joint Economic Committee staff study,
virtually all these jurisdictions have met their problems head on,
recognizing that meaningful cuts in spending levels were a
critical part of any solution. As we in this town are altogether
too aware, spending cuts do not come easy for any elected official,
especially when a direct impact on one's own constituents can be
identified. But throughout the country, brave local leaders have
literally put their political futures on the line by insisting
that all questions, however painful, be addressed and that the
problems be solved in a responsible manner.
Under our system of government, it is not, and should not
be, the job of the Federal government to manage the finances of
State and Local government. That function must be handled locally,
by the government's duly elected leaders. But we do have a

^r
responsibility to those leaders not to undermine their efforts.
And if we have provided funds to New York, what would we have
said, for example, to the Mayor of Detroit or to the Mayor of
Cleveland, each of whom has incurred the wrath of major political
forces in his own city by taking steps to see that they pay their
own way. No, if our system is to continue to function, it was
clear we had to protect the credibility of local leaders. And
aid to the one major city which had not taken action to meet its
fiscal responsibilities would have destroyed that credibility
overnight.
These were the elements of our decision-making process.
As you can see, the decision was not made hastily, lightly or
without complete attention to all relevant considerations. It
was not an easy decision, but I think events to date have shown
it was the right one. With the Federal avenue closed off, so to
speak, all parties could again turn their full attention to
developing a solution at the appropriate governmental level.
Before concluding, I do want to mention what the City and
State have done since May 14, because I think it does provide a
basis for optimism. The formation of the Municipal Assistance
Corporation --or "Big Mac" as it has come to be known -- provide
the basis for constructive action in two important areas. First,
MAC will refinance, and thus in effect reduce, New York City's
short-term borrowing load by some $3 billion. A major problem
in marketing New York City notes has been sheer volume, the marke
simply gets tired of the same issuer making massive claims on
the market, month after month. Although New York's short term
borrowing demands will continue to be enormous by any standard,
a 40 percent reduction should be of benefit.
Second, both in the directives of the legislation itself
and in the ongoing activities of the MAC Board, valuable assistance in implementing a meaningful program of fiscal reform should
be provided. The legislation directs the City to adopt reforms
such as better accounting and the elimination of capital borrowin
for expense items. Perhaps more importantly, the legislation mak
the MAC Board a formal participant in the budget-making process.
As such, the largely non-political Board can act as a buffer for
the other participants in making and implementing the hard decisions with respect to spending which are essential to a long
term solution.

14
In short, MAC has helped with the cash-flow crisis, MAC
will reduce the short-term borrowing load and MAC can provide
needed technical and political assistance in making the necessary
spending cuts. But the fact remains that the hard decisions
must be made. And they must be made and implemented promptly
to avoid a recurrence of the financial crisis in the fall.
Frequently over the past three months, the inevitable
comparison between the finances of New York and the finances
of the Federal government has come up. The comparison is justified.
The problem and its causes are the same, only our Federal printing
press relieves us of one of the symptoms -- the "cash-flow crisis"
we have just experienced. More importantly, the solution is the
same: fiscal responsibility.
Ladies and Gentlemen: In tracing for you today the developments and reasoning that led to our decision of May 13 with regard to the City of New York, I have tried to avoid pinpointing
responsibility on any individuals or administrations. There is
no need to descend to that level. More than that, I would hope
that all of us might recognize that the New York City experience
raises questions that are much larger than any individual personalities, questions that relate to our philosophy and approach
toward government.
Americans are rightfully concerned about the fiscal plight
of the largest and richest city in the land because they know
that the philosophy which has prevailed in New York -- the
philosophy of spend and spend, elect and elect -- first took
root and flourished here in Washington, D.C. As a nation, we
began planting the seeds of fiscal irresponsibility long ago.
Forty of our last 48 budgets have been in deficit, and 14 out
of the last 15. By the end of next fiscal year, the total
Federal debt will be more than twice what it was less than a
decade and a half ago. And by that same date, private holdings
of Treasury securities will have increased 50% in only 18 months.
Neither man nor government can continue to live beyond their
means for very long. A family that persists in such habits will
eventually enter bankruptcy. A city will ultimately default on
its loans. And a nation will foist upon its citizens the cruelest
and most regressive tax of all, inflation.

^69

There can be no doubt that the problems of inflation that
we have experienced in recent years as well as the recession which
arose from that inflation are both a product of our excesses of
the past. When the Federal budget runs a deficit year after year,
especially during periods of high economic activity such as 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
in 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
problems such as inflation.
We must stop promising more and more services to the public
without knowing how we will pay for them. We must play fair with
the American people, telling them not only what services we can
deliver but how much they will cost -- both now and in the future.
And we must recognize that the taxpayer, on whom the entire
pyramid of Federal, state and local taxation must rest, can carry
only so much. It is fruitless to spend more than he is able or
willing to pay for.
For too many years, like the City of New York, we have been
trying to burn the candle at both ends, living off our inheritance
and mortgaging our future at the same time. Whether we can pre0O0
vent the nation from falling into the same plight as our greatest
city is now the central issue before us.

FOR IMMEDIATE RELEASE

June 26, 1975

SWEDISH FINANCE UNIT TO BE BRIEFED AT TREASURY
Seventeen members of the Swedish Parliament Finance
Committee, headed by Chairman Nils Asling, will learn more
about the United States economy and debt management policy,
as well as international economic and monetary policy, at a
briefing tomorrow at main Treasury.
The Treasury briefing panel includes Deputy Secretary
Stephen S. Gardner; Sidney L. Jones, Counselor to the
Secretary; Ralph Forbes, Special Assistant to the Secretary
for Debt Management; F. Lisle Widman, Deputy Assistant
Secretary for International Monetary and Investment Affairs;
John H. Auten, Director, Office of Financial Analysis; Donald E.
Syvrud, Director, Office of International Monetary Affairs,
and Ellen E. Maloney, Swedish Desk Officer.
In addition to Chairman Nils Asling, members of the
Parliamentary unit are: Sven Ekstrom, Deputy Chairman; Knut
Johansson; Axel Kristiansson; Oscar Franzen; Sigfrid Lofgren;
Anton Fagelsbo; Ake Larsson; Paul Jansson; Kurt Soderstrom;
Karin Soder; Carl-Henrik Hermansson; Rolf Wirten; Arne Gadd;
Bertil af Ugglas; Bengt Metelius; and Tord Olofsson. Curt
Lidgard, Economic Counselor at the Swedish Embassy will accompany the group.
0O0

WS-340

Department of theJREASURY
WASHINGTON, D.C. 20220

^TV
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__W ~'~ __

^1 G 1

TELEPHONE WO4-2041

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m 51
• >l

____-$*
Ky

•

___^1 7 8 9^__j

NTACT: GEORGE ROSS
EXT. 5985
JUNE 27, 19 75

i\5**
FOR IMMEDIATE RELEASE

Netherlands
Philippines
Singapore
United Kingdom
Zambia

The Treasury Department would welcome amendments to previous
comments, or new or supplemental comments concerning negotiations with those countries. Comments should be sent in
writing to Frederic W. Hickman, Assistant Secretary of the
Treasury, U.S. Treasury Department, Washington, D.C. 20220.
In addition, the Treasury Department always welcomes comments
with respect to the advisability of entering into or revising
income tax treaties with any country.

WS-342

(OVER)

•

-2The Treasury Department also announced today that
negotiations are completed or are approaching completion
with the following countries:
Indonesia Republic of China (Taiwan)
Israel
South Korea
Kenya
Income tax treaties with the USSR, Romania, Cyprus, Poland
and Iceland were signed on June 20, 1973, December 4, 1973,
April 19, 1974, October 8, 1974, and May 7, 1975, respectively. The treaties with the USSR, Romania and Poland
have been submitted to the Senate for approval.
The announcement appeared in the Federal Register of
June 27, 1975.

-oOo-

JUNE 25, 197S

TAIK1NG POINTS FOR THE WHARTON/STANFORD GRADUATES

(JUNF

IT IS A PLEASURE FOR ME TO JOIN THIS DISTINGUISHED
GATHERING TODAY. I AM PARTICULARLY PLEASED TO KNOW THAT
TWO OF THE FINEST BUSINESS SCHOOLS IN THE COUNTRY HAVE
SENT SO MANY OF THEIR GRADUATES. TO THE NATION'S CAPITAL.
AFTER NEARLY THREE YEARS IN WASHINGTON, I AM CONVINCED
THAT WHAT WE NEED IN THIS COUNTRY IS LESS GOVERNMENT IN
BUSINESS, AND MORE BUSINESS ~ BETTER BUSINESS PRACTICES —
IN GOVERNMENT. YOUR PRESENCE IN WASHINGTON IS DEFINITELY
ENCOURAGING.

WHEN I FIRST RECEIVED AN INVITATION TO SPEAK HERE
SEVERAL MONTHS AGO, IT APPEARED THAT THE BULK OF MY REMARKS
MIGHT BE DIRECTED TO THE IMMEDIATE PROBLEM OF ENDING THE
RECESSION. FORTUNATELY, THERE ARE NOW SOLID SIGNS THAT THE
WORST OF THE SLI'MP IS BEHIND US. THE CONTINUING STREAM OC
STATISTICS THAT ALL OF US HAVE SEEN — IN RETAIL SALES,

26.

-2-

ORDERS FOR DURABLE GOODS, HOUSING AND THE LIKE ~ GIVE
CLEAR EVIDENCE THAT THE ECONOMY IS POISED FOR RECOVERY.
MOREOVER, THE RATE OF INFLATION HAS RECEDED FARTHER AND
FASTER THAN ANYONE EXPECTED.

THE OBSERVATION THAT THE U.S. ECONOMY HAS APPARENTLY
REACHED THE BOTTOM OF THE RECESSION IS NOT THE SAME THING,
OF COURSE, AS CLAIMING THAT EXISTING CONDITIONS ARE
SATISFACTORY. THE STATISTICS MAY CONTINUE TO REFLECT
DISAPPOINTING RESULTS FOR SPECIFIC SECTORS OF THE ECONOMY
FOR SEVERAL MORE MONTHS, AND THE RATES OF INFLATION AND
UNEMPLOYMENT ARE STILL UNACCEPTABLY HIGH. WHAT WE ARE
SAYING IS THAT FURTHER AGGREGATE DETERIORATION IS
UNLIKELY AND THAT WE HAVE PROGRESSED BEYOND THE STAGE
WHERE A CUMULATIVE DECLINE INTO CHRONIC STAGNATION IS
A CURRENT THREAT.

-2A-

H,\-

WITH THE ECONOMY THUS AT A TURNING POINT, WE NOW HAVE
AN EXCELLENT OPPORTUNITY TO BEGIN LOOKING FURTHER DOWN THE
ROAD ~ TO DETERMINE NOT ONLY THE SHAPE OF THE RECOVERY
BUT OUR ECONOMIC PROSPECTS FOR SEVERAL YEARS TO COME. I
WELCOME THIS OPPORTUNITY BECAUSE IT SEEMS TO ME THAT FOR
TOO MANY YEARS WE HAVE BEEN PREOCCUPIED WITH SOLVING THE
PROBLEMS OF THE MOMENT, TRYING TO ACHIEVE SHORT-TERM
PROSPERITY AT THE EXPENSE OF LONG-TERM GROWTH. ONE OF THE
MAJOR REASONS WHY INFLATION HAS PLAGUED US FOR SO MANY
YEARS AND THEN, ALMOST INEVITABLY, WE WERE AFFLICTED
WITH A SEVERE RECESSION IS THAT FOR OVER A DECADE WE HAVE
NEGLECTED THE FUTURE NEEDS OF OUR ECONOMY, CONVINCING
OURSELVES THAT WE COULD HAVE GUNS AND BUTTER AT THE

-3-

U|G1-

SAME TIME, BUYING A GREAT SOCIETY ON THE LAYAWAY PLAN, AND
SHACKLING OUR PRIVATE ENTERPRISE SYSTEM WITH AN
EXTRAORDINARY NUMBER OF REGULATIONS THAT ARE SAID TO BE
SOCIALLY USEFUL BUT TURN OUT TO BE ECONOMIC MONSTROSITIES.
IN OUR GOVERNMENT, WE HAVE HAD ONE BUDGET DEFICIT AFTER
ANOTHER— 14 IN THE PAST 15 YEARS, 40 IN THE LAST 48 YEARS ~
SO THAT WE HAVE BUILT INFLATIONARY PRESSURES AS WELL AS
INFLATIONARY EXPECTATIONS INTO THE VERY FABRIC OF OUR
ECONOMY. OUR MONETARY POLICIES, PARTLY IN AN EFFORT TO
ACCOMODATE OUR DEFICITS, HAVE ALSO PUMPED EXCESSIVE
STIMULATION INTO THE ECONOMY OVER A 10-YEAR PERIOD. IN
THE PRIVATE SECTOR, WE HAVE FOR MANY YEARS OVERCONSUMED
AND UNDERINVESTED, SO THAT EVENTUALLY — IN 1973 AND EAPEY
1974 — WE BEGAN TO EXPERIENCE SEVERE CAPACITY SHORTAGES
IN SOME OF OUR MOST CRITICAL INDUSTRIES, EXACERBATING THE
PRESSURES OF INFLATION, AND OVER THESE SAME YEARS WE HAVE
ELECTED POLITICIANS WHO HAVE PROMISED US THAT WE CAN COMPEL

.,. 9}
POLLUTION, REBUILD OUR MEDICAL SYSTEM, OVERHAUL OUR
TRANSPORTATION, GUARANTEE THE GOOD LIFE TO THE POOR AND THE
AGED, PROVIDE UNIVERSAL COLLEGE EDUCATION, FEED THE WORLD,
IMPROVE OUR WEAPONS SYSTEMS AND CONTINUE TO INCREASE
EVERYBODY'S REAL INCOME — ALL AT THE SAME TIME. WHEN WE
ELECT PEOPLE WHO MAKE SUCH HOLLOW PROMISES AND WHOSE VISION
OF THE FUTURE STOPS AT THE DATE OF THE NEXT ELECTION, WE
CAN HARDLY EXPECT BETTER RESULTS. CLEARLY, WE HAVE BEEN
BURNING THE CANDLE AT BOTH ENDS ~ SIMULTANEOUSLY LIVING OFF
OUR INHERITANCE AND MORTGAGING THE FUTURE OF OUR CHILDREN.
WE ARE NOW PAYING THE PRICE FOR THE SINS OF OUR OVERINDULGED
PAST.

AS WE BEGIN TO WORK OUR WAY OUT OF THIS QUAGMIRE, IT
IS TIME TO START DIRECTING OUR ATTENTION AWAY FROM THE
INSTANT GRATIFICATIONS OF TODAY AND TOWARD THE CHALLENGES
OF TOMORROW, WE MUST PUT OUR ECONOMY ON A COURSE THAT IS
SUSTAINABLE BOTH POLITICALLY AND ECONOMICALLY OVER THE LONG
RUN.

y
THE CHALLENGES AHEAD
IF I HAD TO CHOOSE A MINIMUM ECONOMIC AGENDA FOR THE
UNITED STATES DURING THE COMING DECADE, THERE ARE SEVERAL
MAJOR GOALS THAT WOULD AUTOMATICALLY RISE TO THE TOP OF
MY LIST:
— * A S THE FORCES OF RECOVERY TAKE HOLD, WE MUST
RESTORE MUCH GREATER DISCIPLINE TO OUR FISCAL AND MONETARY
AFFAIRS, TRYING TO ACHIEVE BUDGETARY SURPLUSES IN THE GOOD
YEARS JUST AS WE HAVE DEFICITS IN THE LEAN ONES.
—

WE MUST TILT OUR ECONOMY AWAY FROM ITS CURRENT

EMPHASIS UPON PERSONAL CONSUMPTION AND GOVERNMENT SPENDING
TO A MUCH HEAVIER EMPHASIS UPON SAVINGS AND CAPITAL FORMATION,
~

WE MUST ROLL BACK THE TIDE

OF GOVERNMENTAL REGULATIONS

THAT NOW ENGULF NEARLY EVERY ONE OF OUR INDUSTRIES, COSTING
CONSUMERS UNTOLD BILLIONS OF DOLLARS AND SLOWING THE
PROCESS OF ECONOMIC GROWTH.
—

WE MUST BE WILLING TO

ACCEPT THE SACRIFICES AND

MAKE THE INVESTMENTS WHICH WILL LEAD TO GREATER SELF-

-6SUFFICIENCY IN ENERGY.
—

WE MUST WORK WITH

OTHER

CONSUMER NATIONS TO CREATE

AN ENVIRONMENT THAT WILL BRING A REDUCTION IN INTERNATION
OIL PRICES.
—

WE MUST ALSO WORK WITH BOTH

THE INDUSTRIALIZED

NATIONS*AND THE NATIONS OF THE THIRD WORLD IN A COOPERATIVE
SPIRIT ON PROBLEMS OF FOOD, DEVELOPMENT, MONETARY AFFAIRS,
AND OTHER ISSUES.
— AND WE MUST REBUILD AND MAINTAIN THE FREE ENTERPRISE
SYSTEM IN THIS COUNTRY, RECOGNIZING THAT IT IS STILL THE
GREATEST ENGINE FOR SOCIAL PROGRESS ANYWHERE IN THE WORLD.

THE CAPITAL INVESTMENT CHALLENGE
TIME WILL NOT PERMIT ME TO EXPLORE EACH OF THESE TOPICS,
BUT THERE IS ONE THAT I WOULD LIKE TO DISCUSS FOR A FEW
MORE MOMENTS BEFORE TURNING TO YOUR QUESTIONS BECAUSE I
THINK IT IS ONE OF THE GREATEST CHALLENGES OF THE COMING

DECADE —

THE NEED FOR GREATER CAPITAL INVESTMENT.

HISTORY

WILL ULTIMATELY JUDGE US, I BELIEVE, NOT ON OUR SUCCESS
IN DEALING WITH SHORT-TERM PROBLEMS SUCH AS RECESSION
BUT ON OUR ABILITY TO MEET THE LONG-RANGE GOAL OF GREATER
SAVINGS.AND INVESTMENT.
IT IS AN ECONOMIC FACT OF LIFE THAT INCREASED
PRODUCTIVITY IS THE ONLY WAY TO INCREASE OUR STANDARD OF
LIVING, AND YET IN RECENT YEARS THE UNITED STATES HAS NOT
ADEQUATELY MET THE CAPITAL INVESTMENT REQUREMENTS THAT ARE
NECESSARY TO SUPPORT STEADY INCREASES IN PRODUCTIVITY,
IN FACT, THE RECORD OF CAPITAL INVESTMENT IN THE UNITED
STATES HAS BEEN THE WORST AMONG THE MAJOR INDUSTRIALIZED
NATIONS OF THE FREE WORLD. TOTAL U.S. FIXED INVESTMENT
AS A SHARE OF NATIONAL OUTPUT DURING THE PERIOD 1960
THROUGH 1973 AVERAGED 17.5 PERCENT A YEAR, COMPARED TO
35 PERCENT IN JAPAN, 26 PERCENT IN WEST GERMANY AND
25 PERCENT IN FRANCE.

-8-

4 9^

A SLOW RATE OF CAPITAL INVESTMENT FOR AN EXTENDED
PERIOD OF TIME CAN CAST A LONG SHADOW OVER A NATION'S
ECONOMIC FUTURE. AS SHOWN BY A NUMBER OF STUDIES, THERE
IS A CLOSE RELATIONSHIP BETWEEN CAPITAL INVESTMENT AND
VARIOUS MEASURES OF ECONOMIC GROWTH AND PRODUCTIVITY. A
DYNAMIC ECONOMY IS NEEDED TO CREATE JOBS BY APPLYING NEW
TECHNOLOGY AND EXPANDED PRODUCTIVE CAPACITY. A PRODUCTIVE
LABOR FORCE IS ALSO NECESSARY FOR PRODUCING GOODS AND
SERVICES TO MEET RISING DEMANDS WITHOUT CREATING FURTHER
INFLATION. IT IS NO ACCIDENT THAT IN RECENT YEARS THE
UNITED STATES HAS ALSO HAD ONE OF THE POOREST RECORDS IN
PRODUCTIVITY GAINS. FROM 1960 THROUGH 1973, PRODUCTIVITY
INCREASES '999. " .' AVERAGED 10.5 PERCENT
A YEAR IN JAPAN, APPROXIMATELY 6 PERCENT IN FRANCE AND
WEST GERMANY, AND HERE IN THE UNITED STATES -- THE ECONOMIC
LEADER OF THE WORLD — ONLY 3,3 PERCENT.

EXPERIENCE HAS ALSO AMPLY DEMONSTRATED THAT OUR

-[1,9
CREATED IN PART BY CAPACITY SHORTAGES, ESPECIALLY THOSE
THAT HAVE DEVELOPED IN RECENT YEARS IN ENERGY AND RAW
MATERIALS.

THE CONTINUOUS DETERIORATION OF OUR INTERNATIONAL

TRADE BALANCE DURING THE 1960'S WAS ALSO AT LEAST PARTLY
THE RESULT OF THE LOSS OF COMPETITIVENESS OF U.S. GOODS AND
INCREASED RELIANCE ON FOREIGN SOURCES OF GOODS.

THUS, INADEQUATE

CAPITAL INVESTMENT CAN DAMAGE THE ECONOMY IN MANY DIFFERENT
AND SIGNIFICANT WAYS.

LOOKING AHEAD, IT IS IMPOSSIBLE TO KNOW PRECISELY
WHAT OUR CAPITAL NEEDS WILL BE BUT A NUMBER OF LEADING
STUDIES "

BOTH INSIDE AND OUTSIDE THE GOVERNMENT ~

NOW

SUGGEST THAT THE CAPITAL REQUIREMENTS FOR THE UNITED STATES
ECONOMY OVER THE 12-YEAR PERIOD FROM 1974 THROUGH 1985
WILL TOTAL APPROXIMATELY $4 TO $4-1/2 TRILLION.

THAT FIGURE

IS BASED ON A COMBINATION OF PLANT AND EQUIPMENT
INVESTMENT WHICH WOULD TOTAL ABOUT $3.5 TRILLION, PLUS
HOUSING, WHICH BRINGS THE GRAND TOTAL TO ABOUT $4-1/2

y^
TRILLION.
PAST?

HOW DOES THAT COMPARE TO INVESTMENTS IN THE

IN THE 12-YEAR PERIOD PRECEDING THIS ONE, TOTAL

CAPITAL INVESTMENTS IN THIS COUNTRY WERE ABOUT $1-1/2
TRILLION.

IN OTHER WORDS, OUR FUTURE NEEDS WILL BE ALMOST

TRIPLE THOSE OF THE PAST,

CLEARLY WE HAVE OUR WORK CUT

OUT FOR US.

WHILE THESE NUMBERS MAY SEEM LARGE AND I AGREE THAT
THEY ARE, IT IS ABSOLUTELY CERTAIN THAT WITH STABLE GROWTH
AND A FUNDAMENTAL CHANGE IN POLICIES, WE CAN REACH THIS
GOAL.

HOWEVER, LET ME RE-EMPHASIZE THAT WE CAN SUCCEED

ONLY IF WE PURSUE NEW POLICIES ~

POLICIES THAT RECOGNIZE

INFLATION AS THE GREATEST LONG-TERM THREAT TO OUR ECONOMIC
WELFARE AND ENCOURAGE MUCH GREATER SAVINGS AND INVESTMENT
AS OPPOSED TO HIGH LEVELS OF CONSUMPTION AND GOVERNMENT
SPENDING.
STEPS TOWARD M,FFTTNH JHF CAPTTAI INVFSTMFNT CHALLENGE
THERE ARE, I WOULD SUGGEST, THREE 3ASIC STEPS THAT

9"
FIRST, THE FEDERAL GOVERNMENT MUST DISCIPLINE ITSELF
so THAT IT NO LONGER UPSURPS SO MUCH OF THE MONEY IN OUR
PRIVATE CAPITAL MARKETS.

AS YOU MAY KNOW, IN THE PERIOD

EXTENDING FROM FISCAL YEAR 1966 THROUGH FISCAL YEAR 1974, OUR

CUMULATIVE BUDGET DEFICIT WAS SOME $103 BILLION.
LOOK IN'THE CLOSETS AROUND TOWN ~
GINNIE MAES

IF YOU

TO THE FANNIE MAES, THE

AND THE SALLIE MAES

THE EXPORT-IMPORT BANK,

AND THE MANY OTHER OFF-BUDGET AGENCIES AND PROGRAMS —

YOU

WILL FIND THAT DURING THIS SAME DECADE, THE NET BORROWINGS
TO COVER THE OFF-BUDGET ACTIVITIES OF THE FEDERAL GOVERNMENT
AMOUNTED TO ANOTHER $137 BILLION.

ADDING THESE TWO FIGURES

TOGETHER, YOU CAN SEE THAT OVER THAT PERIOD, THE FEDERAL
GOVERNMENT PREEMPTED ABOUT A QUARTER OF A TRILLION DOLLARS.
FROM THE CAPITAL MARKETS THAT HAVE ALWAYS BEEN THE CENTER-

PIECE OF OUR FREE ENTERPRISE SYSTEM.

AND OF COURSE, FEDERAL DEMANDS ON THE MARKETS ARE STILL
'EXPANDING WITH OUR BORROWING NEEDS FOR FISCAL YEAR 1975
AND FISCAL YEAR 1976 PROJECTED TO REACH A MINIMUM OF $124
BILLION. THE BEGINNING POINT, IF NOT THE FUNDAMENTAL
POINT, FOR ACHIEVING OUR CAPITAL INVESTMENT GOAL IS TO
REDUCE THE HEAVY PRESSURE THAT THE GOVERNMENT IS PLACING
ON THE MARKETS.

BEYOND THAT, THE FEDERAL GOVERNMENT MUST TAKE A HARD
LOOK AT POSSIBLE READJUSTMENTS IN THE STRUCTURE OF CORPORATE
v

TAXATION. AS YOU KNOW, THE HOUSE WAYS AND MEANS COMMITTEE
HAS JUST BEGUN EXTENSIVE HEARINGS ON TAX REFORM. I AM
LOOKING FORWARD TO WORKING WITH THE COMMITTEE AND THE
CONGRESS ON REVISIONS IN THE CODE THAT WOULD ENCOURAGE
SOUND AND DURABLE ECONOMIC GROWTH.

- 13 -

ONE SUBJECT WHICH HAS OCCUPIED A GOOD DEAL OF OUR
INTEREST IS THE INFLUENCE ON INVESTMENT OF OUR TWO-TIER
SYSTEM OF CORPORATE TAXATION IN WHICH INCOME IS TAXED ONCE
AT THE CORPORATE LEVEL AND AGAIN AT THE SHAREHOLDER LEVEL.
THIS APPROACH DISCRIMINATES AGAINST CORPORATE INVESTORS
GENERALLY AND SMALL EQUITY INVESTORS PARTICULARLY. WE
SHOULD KEEP IN MIND THAT OUR SYSTEM OF TAXATION BEARS MORE
HEAVILY ON CORPORATIONS THAN DO THE TAX SYSTEMS OF ALMOST
EVERY OTHER MAJOR INDUSTRIALIZED NATION. IN THE LAST FEW
YEARS, OUR MAJOR TRADING PARTNERS HAVE LARGELY ELIMINATED
THE CLASSICAL TWO-TIER SYSTEM OF CORPORATE TAXATION. THROUGH
A VARIETY OF MECHANISMS THEY HAVE ADOPTED SYSTEM OF
"INTEGRATING" THE PERSONAL AND INDIVIDUAL INCOME TAXES SO
THAT THE DOUBLE TAXATION ELEMENT IS RADICALLY LESSENED,

BEYOND ACHIEVING GREATER MODERATION IN FEDERAL SPENDING
AND POSSIBLE REVISIONS OF THE TAX CODE, A THIRD ITEM OF
CONCERN FOR THE FUTURE OF CAPITAL INVESTMENT IS CORPORATE
PROFITABILITY. BY EVERY STANDARD MEASUREMENT, IT CAN BE
DEMONSTRATED WHEN ADJUSTED TO REMOVE THE ARTIFICIALITY OF
INVENTORY VALUATIONS AND THE ILLUSION OF INADEQUATE DEPRECIATI
CHARGES BASED ON THE MUCH LARGER REPLACEMENT COSTS OF ASSETS
IN TODAY'S WORLD, CORPORATE PROFITS PEAKED IN THE MID-1960'S A
HAVE STEADILY DECLINED TO LESS THAN HALF OF THAT LEVEL TODAY.
RETAINED EARNINGS — THE FUNDS THAT ARE NECESSARY TO HELP
FINANCE EXPANDED CAPACITY — PLUNGED ALL THE WAY FROM $20
BILLION IN 1965 TO MINUS $16 BILLION IN 1974. THAT MEANS
THAT THERE WAS NOT NEARLY ENOUGH EVEN TO REPLACE EXISTING
CAPACITY AND NOTHING TO FINANCE INVESTMENT IN ADDITIONAL NEW
CAPACITY.

YET,

PUBLIC PERCEPTION

CORPORATE PROFITS

HAS GONE

IN JUST THE OPPOSITE DIRECTION. A RECENT POLL BY OPINION
RESEARCH CORPORATION SHOWED THE PUBLIC ESTIMATED AFTER-TAX

-15-

' /'

PROFITS ON EACH DOLLAR OF SALES FOR THE AVERAGE MANUFACTURER
TO BE 33 CENTS ~ MORE THAN SIX TIMES THE REAL FIGURE FOR
ALL OF 1974 AND SOME NINE TIMES MORE THAN THE REAL FIGURE
FOR THE FIRST QUARTER OF 1975. ON CAMPUS, GEORGE GALLUP
FOUND THIS SPRING THAT THE MISPERCEPTIONS WERE EVEN WORSE:
THE MEDIAN STUDENT ESTIMATE FOR CORPORATE PROFITS WAS 45 CENTS
ON THE DOLLAR.

BUSINESS HAS TRADITIONALLY BEEN A PUBLIC SCAPEGOAT,
BUT WITH THE GAP BETWEEN REALITY AND PUBLIC UNDERSTANDING
APPARENTLY WIDENING, I THINK WE HAVE TO GIVE MUCH MORE
ATTENTION TO QUESTIONS OF PUBLIC EDUCATION. AND I THINK
THAT BUSINESS MUST CARRY A VERY HEAVY PART OF THAT RESPONSIBILITY
IT IS PARTICULARLY GALLING TO ME TO SEE HOW OFTEN BUSINESS
MISREPRESENTS THE TRUE STATE OF ITS PROFITS TO THE PUBLIC,
APPARENTLY IN THE VAIN HOPE OF ATTRACTING INVESTORS. A GOOD
PART OF THE EROSION IN PROFITABILITY IN RECENT YEARS HAS
BEEN HIDDEN FROM SHAREHOLDERS BY WHAT I CAN ONLY TERM

PUBLIC RELATIONS BOOKKEEPING,

LONG AFTER IT BECAME

EVIDENT, FOR INSTANCE, THAT FIFO ACCOUNTING WAS COSTING
UNNECESSARY TAX PAYMENTS, COMPANIES PERSISTED IN MAINTAINING
THE PROFITABILITY FICTION MERELY TO GIVE THE ILLUSION OF
BETTER EARNINGS, EVEN NOW DEPRECIATION CHARGES AS REPORTED
TO SHAREHOLDERS AVERAGE FAR LESS THAN THOSE APPEARING ON
TAX RETURNS. SUCH BOOKKEEPING PRACTICES DO A DISSERVICE
TO BOTH SHAREHOLDERS AND TO THE PUBLIC AT LARGE WHO ARE
BEING TOLD OF PROFITS THAT DO NOT EXIST. AND I CAN ASSURE
YOU THAT THEY MAKE IT FAR MORE DIFFICULT FOR US IN WASHINGTON
AS WE SEEK TO IMPROVE THE ENVIRONMENT FOR CAPITAL INVESTMENT.

LADIES AND GENTLEMEN: I COULD CONTINUE IN THIS VEIN
FOR A SOME TIME TO COME AND STILL NOT COMPLETE ALL THAT
I WOULD LIKE TO IMPART TO YOU ABOUT OUR ECONOMIC CHALLENGES.
THERE CAN BE NO DOUBT THAT OUR PROBLEMS ARE FORMIDABLE.
THERE WILL BE TIMES WHEN SOME OF US WILL DESPAIR ABOUT THE

-17FUTURE BECAUSE PROGRESS WILL BE SLOW AND DIFFICULT. BUT
I WOULD URGE WE RECOGNIZE THAT A TIME OF GREAT CHALLENGE
IS ALSO A TIME OF GREAT OPPORTUNITY. THIS IS NOT THE TIME
FOR QUITTERS BUT FOR BUILDERS — MEN WITH VISION WHO CAN
SEE WHAT IS BEST IN AMERICA AND BUILD UPON IT. THEY SAY
WE ARE IN' NEED OF LEADERSHIP. I SAY THAT THIS IS A TIME
FOR MEN AND WOMEN WHO BELIEVE IN FREEDOM ~ PERSONAL
FREEDOM AND FREEDOM IN THE MARKETPLACE — TO RISE UP AND
PROVE WHAT CAN BE DONE, NOT JUST FOR A FEW AMERICANS BUT

FOR ALL AMERICANS. THAT IS THE GREATEST CHALLENGE FACING
US TODAY, AND EACH OF US MUST DO HIS PART IN MEETING IT.

THANK YOU.

Contact Point:
R. B. Self X8256
June 27, 1975
FOR IMMEDIATE RELEASE
TREASURY ANNOUNCES ACTIONS
ON EIGHT COUNTERVAILING DUTY CASES
David R. Macdonald, Assistant Treasury Secretary for
Enforcement, Operations and Tariff Affairs, today announced
actions in eight countervailing duty cases. In four cases,
preliminary determinations were made that bounties or grants
are being paid or bestowed on certain exports to the United
States. In two cases, preliminary negative determinations
were issued that no bounties or grants are being paid or
bestowed within the meaning of the countervailing duty law.
In one case the investigation has been terminated. In addition the receipt of a petition and initiation of countervailing duty proceedings was announced. All of these actions
will appear in the Federal Register of June 30, 1975.
Under the Countervailing Duty Law (19 U.S.C. 1303),
the Secretary of the Treasury is required to assess an
additional duty on merchandise benefiting from the payment
or bestowal of a "bounty or grant" by a foreign government
or*other entity. The additional duty is equal to the amount
of the bounty or grant.
Cases in which a preliminary affirmative determination
is being made include canned hams and canned shoulders from
EC Member States (Denmark, The Netherlands, Belgium, France,
Italy, Ireland, Luxembourg, The United Kingdom and West
Germany), with 1974 U.S. imports valued at $231 million;
ferrochrome from the Republic of South Africa, with 1974
U.S. imports valued at $18 million; leather handbags from
Brazil, with 1974 U.S. imports valued at $5.2 million; and
float glass from West Germany, with 1974 U.S. imports valued
at about $100,000.
WS-343

- 2 Cases in which a preliminary negative determination
is being made include float glass from the United Kingdom,
with 1974 U.S. imports valued at $1.2 million; float glass
from France, with 1974 U.S. imports valued at $126,000.
The investigation of oxygen sensing probes from Canada
is being terminated. In 1974 there were no U.S. imports
of this product from Canada.
Petitions in all these cases were considered received
on January 4, 1975, under provisions of the Trade Act of
1974 and a notice to that effect was published in the
Federal Register of January 15, 1975. Under the provisions of the Countervailing Duty Law, as amended by the
Trade Act of 1974, Treasury is required to make preliminary
determinations within six months of receipt of petitions.
After publication of these determinations in the Federal
Register, interested persons will be afforded thirty days
to submit written views concerning the preliminary decisions.
Following consideration of all written views, Treasury will
issue a final determination as to whether or not any bounty
or grant is being paid or bestowed on the products in question. Also, in the case of affirmative decisions, Treasury
will indicate, if necessary, whether the temporary waiver
of countervailing duties under the provision of Section 331(b)
of the Statute is to be exercised. Treasury is required
under the Law to issue final determinations in all these
cases by no later than January 4, 19 76.
Mr. Macdonald noted that in at least the German float
glass case Treasury has been unable to secure adequate information abroad on the alleged bounties or grants and thus
was proceeding on the best information available, as required
by law. Efforts to collect accurate data will continue prior
to issuance of a final determination.
Assistant Secretary Macdonald also announced the receipt
of a petition and initiation of investigation on cheese from
Norway. The petition, received in satisfactory form on
May 21, 19 75, alleged that payments or bestowals, conferred
by the Government of Norway upon the manufacture, production
or exportation of cheese from Norway constitute the payment
or bestowal of a bounty or grant within the meaning of the
Countervailing Duty Law. Treasury is required to make a

- 3preliminary decision by November 21, 1975, and a final
decision no later than May 21, 1976. During calendar
year 1974, imports of cheese from Norway were valued at
$10 million.

37?

i !

UNITED STATES DEPARTMENT OF TREASURY
WASHINGTON, DDCo
PRESS CONFERENCE

Held by
RALPH FORBES
Special Assistant to the
Secretary (Debt Management)

4*00 poKU
Wednesday, July 23, 1975
Treasury Building
Room 4121
Washington9 0 o C

i
The above-entitled press conference was convened* pursuantj
to notice, at 4 s00 pc.au
|

$f*
1

MR* PLUMs

You all know Rulph Forbes, I am sure,

the Special Assistant tc the Secretary for Debt Management*

and Ed Snyder, who's been here with the Undersecretary of

Monetary Affairs when he conducted these at all times. Mr*

Forbes is the most recent one*

Today Mr» Forbes will be in charge of all the answers

and other matters* The wire services, when they want to

leave early — Ralph isnft quite sure when this comes, so if

you guys in the wire services want to leave ahead of the

others, we will let you go. Is that all right?

SPECIAL ASSISTANT FORBES s At the last conference

in which former Undersecretary Bennett announced on June 18

that we would be raising $9 4 billion between that point and

August 14, at the same time he suggested that the needs for

the second half of the calendar year in terms of borrowing

from the public would total $38 billion*

We have issued or announced so far, $8*25 billion,

and that*s through the bill auction which settles on the 31st

of this month* It includes S3025 billion of coupons divided

between four-year cycle notes and two~yaar cycle notesP as well

as additions of $5 billion to the bill auctions*

We are now projecting our n&sd through the September j
i

low point, which is just prior to the tax datd? e -$me3 for

approximately $8 billion* which w# intend tc rsice as follows% J

£5

In tha August refunding, the announcement of which 1

3*/

you have in front of you, wc? intend to raise ?1 billion from
the public* Ites a $5.8 billion package, refunding $4„8
billion of privately held maturing issuese
We will be auctioning on a yield basis the following
securities t 3 billion two-«md-thrs^quarter~year notes
maturing May 15, 1978, to be auctioned on July 29 — next
Tuesday? 2 billion seven-year notes maturing August 15, 1982,
to be auctioned on Wednesday, July 30f and finally, 80C
million to be auctioned on Thursday, July 31, a 25-year bond
maturing August 15, 2,000 callable on the option of the
Treasury on or after any interest date beginning in 1995c
For our additional cash needs we are planning to
use two-cycle notes issued for an amount between $3-1/2 to $4
billion for settlement in late August and in early September,
using maturity slots available for the two or four-year note
cycle, depending on market conditions at the time*
Specifics of this announcement will be made towards
the middle of August. The balance of our cash needs will be

raised from adjustments to the asaounts being added to the six
intervening bill auctions* Five of those are weekly, ar*d one
of those is a 52-week bill.
In the July to December period, we now anticipate
borrowing from the public $41 billion* of which $2 billion to

•?3 billion we would expect to get ir. tha fern of savings bon

leaving market borrowings froi& the \:£blic of between $3? and

J/E/
$39 billion. Between the September low point and the end of
2

October, we expect to need approximately $9 billion.

Are there any questions? I

QUESTIONS If you rf»ad that whole thing through

again — would you read that? It's just an awful lot of

numbers awful fast, Ralph.

SPECIAL ASSISTANT FORBES: I am sorry. We have

announced or issued to date, $8.25 billion. That carries us

through the end of July. We are now announcing a need for

approximately $8 billion to carry us through the September low

point.

From the September low point and before the end of

October, we will need an additional $9 billion. Those are

approximate figures.

QUESTION: Is that $9 billion new cash?

SPECIAL ASSISTANT FORBES: That*s righto

QUESTION: Is that $9 billion including the $8

billion or additional ~-

SPECIAL ASSISTANT FORBES: Additional between the

low point in September and the end of October.

QUESTION: You have gone through the August

! 22
i

refunding, and then could you pick up from the plans from

E23

there?

SPECIAL ASSISTANT FORBES: All righto The August

refunding we intend to reist* a billion

P3
QUESTION:

Thatfs in your announcement?

SPECIAL ASSISTANT FOBBES: Right.

In additional

cash we are planning to use two-cycle note issues for settlement towards the end of August and early September? and those
cycle notes will fitting into the two to four-year cycle
note slots, depending on market conditions at the time. The
additional cash needs between now and the September low point
will be made up by the use of additions to the bill auctions.
QUESTION:

The cycle notes amounting to $3-1/2 to

$4 billiop?
SPECIAL ASSISTANT FORBES: That's right.
QUESTION:

So it could be §2-1/2 to $3 billion in

additional bills that you would be selling in those six
periods?
SPECIAL ASSISTANT FORBES:

It looks more like 3;

3 plus.
QUESTION: And then beyond September, those issues
you are announcing today, you will need another 21 or 22?
SPECIAL ASSISTANT FORBES: Well, we will need additional cash. The 21 or 22 I am not sure how you got that*
QUESTION:

lfm sorry.

I was wrong.

SPECIAL ASSISTANT FORBES: Between the September low j
point and the end of October, x^re anticipate an additional 9.
QUESTION:
the same number?

And for the whole of the half year, still

SPECIAL ASSISTANT FORBES: A total of $41 billion
borrowing from the public, of which we anticipate between
$2 and $3 billion to coma as savings bonds, leaving $38 to
.-

$39 billion boxxowing from the public.
QUESTION:

How does that compare with, the previous

$38 billion that Mr. Bennett said a month ago?

Was he making

that announcement for the savings bonds?
SPECIAL ASSISTANT FORBES: Yes, he was. The
difference essentially results from some offsetting cash flow
items, but primarily —

well, a higher cash balance on year

end.
QUESTION:

$38, $39 billion deducted compares

to his 38, in other words?
SPECIAL ASSISTANT FORBES: Essentially there are
some offsetting cash flow items, but the final cash balance
is also slightly higher.
QUESTION:

I am still not clear. When Bennett was

talking about 38, is that equivalent to your 38 or 41?
SPECIAL ASSISTANT FORBES: Equivalent to the 41.
QUESTION:

You.said —

j
i
does this mean that you will j

need to raise $16 billion between the end of October and

December?

I
SPECIAL ASSISTANT FORBES:

I*m not sure how you

arrive with that arithmetic, but I think it could show slightly
less than $16 billion.

But once you get out into the final

s&"
t

quarter* Congress has returned, and there are a number of

question marks, so 1 would h^ reluctant to hang heavily ci

the arithmetic. I think it is less than $16 billion.

MR. SHYDERi The market would be less than $15 j
i

billion.

which have been running $400 million net to us, or thereabouts.

Donft push it too hard. That's too far in the future. j

QUESTION: So you have scaled back your financing I

needs in the second half by $3 billion?

SPECIAL ASSISTANT FORBES: The figure is higher now.

It is going from $38 billion to $41 billion,,

QUESTION: With $2 to $3 billion in savings bonds?

Tha difference would be savings bonds, essentially,

i
13

SPECIAL ASSISTANT FORBES:

That's correct —

in that.

QUESTIONS %'his auction will compensate for wha;; !

But that was included in the $38 billion.

included]
j
j

i
16

period —

the auction next week?

j
i

SPECIAL ASSISTANT FORBES:

*?he auction next week --

there are four auctions. There is a regular weekly bill

auction, and there will be the three issues that we have

announced specifically today designed to refinance the August

maturities, as well as raise an additional $1 billion* and therf

are two additional bill auctions between now sm& the oi^s

announced in tha middle of August, and I presume we would have

to .raise additional cash wit i those as well.

QUESTION: Did Mr^ Bennett: say that between a:ld-0#une

8
&

and mid-August you would be raising $9.4 billion and you have

only raised $8.25?

SPECIAL ASSISTANT FORBES: $8-3/4 billion has been

announced to date, and that*s just July. Mr. Bennett's —

QUESTION: What accounts for roughly $3 billion

escalation in the needs for the second half compared to

Bennett#s earlier estimate?

SPECIAL ASSISTANT FORBES: Well, there are some offsetting cash flow ltesss, but whan you combine those with the

slightly higher year-end cash balance, that explains the

bulk of the difference.

QUESTION: But the cash flow items must have bean on

the negative sides.

SPECIAL ASSISTANT FORBES: On both sides in our

forecasting ~ a little more negative than positive. Is the

arithmetic still bothering anybody, because X would be willing

to run through that again.
!

QUESTION:

Would you explain again the purpose and

the results or the expected results of the two-cycle note !

Issues? i

SPECIAL ASSISTANT FORBES: We wo&id hope to rais^ an j

additional $3-1/2 to $4 billion with those two issues. Tiey

would be paid for, or we would foe paid for them, sometime rear

the and of August, and then on the second one it would be early

i
September.

We will probably ax&r,osms:^ them at the same t.uaec

QUESTION:
is it —

And there are open slots in both ~

vtoat

two-year and four-year cycles?

SPECIAL ASSISTANT FORBES: Yes* That is correct.
4 \ V QUESTION: One is end-of**i^o^th and one is end~ofguarter?
SPECIAL ASSISTANT FORBES z I believe they are both
7
3

«rf-.£-month
QUESTION:

And you aren't saying it says between

the two-year and four-year at this point?
to

SPECIAL ASSISTANT FORBES: Not at this point. I

think it is becoming increasingly routine on the cycle &otes9

and as we have bills# we retain some flexibility in terras of

the emphasis on different maturities.
QUESTION: The only other thing that I g^ess I*s*

lost on in the arithmetic ±B whether this announced schedule

evidently does imply a fairly regular increase in tha regular

weekly bill issues?

SPECIAL ASSISTANT FORBES: Yes* that is true. We

intend to maintain a fair amount of flexibility as to the

amounts, but given the absolute siise of the numbers that ws

have to cope with, it will be nacassary to do a substantial

portion in the bill market.

Thank you* gentleman.

(Conference concluded at 4:20 ps*;>

FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
WASHINGTON, D.C.
JUNE 25, 1975
Mr. Chairman and Members of this distinguished
Committee:
It is again time to consider the borrowing authority of
the Treasury Department.
The present temporary debt ceiling of $531 billion, which
was enacted by the Congress on February 19, will expire at the
end of this month. On July 1, in the absence of new legislation,
the Treasury will be unable to issue any new debt obligations of
any kind, either to refund maturing issues or to raise needed
new money.
In the past, Secretaries of the Treasury have come to the
Congress -- as I have today --to request an increase in the
debt limit only when the Treasury was close to running out of
borrowing authority. I doubt, however, whether this procedure
has really insured the most productive consultation between the
Congress and the Administration. For that reason, I would like
to discuss with you today, as I did earlier with the Ways and
Means Committee, some possible new departures.
Under the new procedures prescribed in the Congressional
Budget and Impoundment Control Act of 1974, the Congress has now
established its own timetable for determining the government's
aggregate receipts, outlays, deficit, and debt. As the new
congressional budget and debt limit process is placed into effect,
it would seem to me appropriate for this Committee to consider
shifting its focus from the amount of the debt to the way in which
the debt is managed; that is, to the timing of debt issues, the
size of denominations, the maturity structure, and the marketing
techniques.
WS-341

- 2While a detailed account of the stewardship of the Secretary
of the Treasury with regard to these debt management matters is
already presented to the Congress each year in the Annual Report
of the Secretary of the Treasury on the State of Finances, we
would be happy to work with this Committee in any way that it
sees fit in scheduling oversight hearings for the review of these
important governmental activities in greater depth.
In this regard, I should note the considerable discussion in
recent months of the potential impact of large federal deficits
on the prospects for economic recovery. Dr. McCracken put the
matter succinctly when he noted before the Joint Economic Committee
earlier this year that:
If the financial community has been slow
to appreciate the role of fiscal pblicy
in the management of the economy, economists
have been slow to face fully the implications
of the fact that Treasury financing and private
borrowing do compete for funds in the same money
and capital markets. And Treasury requirements
are now large enough so that their impact on
financing in the private sector must be faced
quite explicitly.
For the fiscal year 1976, the whole Congress has already
spoken with regard to the debt limit. The congressional budget
resolution for fiscal 1976, which was adopted by the Congress on
May 14 provided for an $86.6 billion increase in the debt limit
to a figure of $617.6 billion for the fiscal year ending June 30,
1976.
I understand that this congressional action does not have
the force of law in the sense of providing the Treasury with
borrowing authority after the end of this month. Yet, as I said
to the Ways and Means Committee, I wonder whether it would not be
more productive if we just accepted that number and got down to a
more substantive discussion of the real issues of debt management.
We all know that there is no widespread inclination to use
the debt ceiling as a real determinant of federal spending and
taxing. Decisions on those subjects are made by the Congress in
other legislation, and once the taxes are set and the spending is
mandated, the government has no choice but to borrow to cover the
differences between its revenues and outlays.
I could, therefore, accept the $617.6 billion figure as a
reasonable estimate of the peak borrowing of the Treasury in the
next fiscal year despite the fact, which you all know, that the
fiscal 1976 budget deficit figure adopted by the Congress in its
May 14 action is significantly larger than the deficit proposed

- 3 -

J9s

by the President.
In suggesting that Ways and Means also adopt the $617.6 billion
figure, I was influenced by several considerations.
First, I had understood that the Congress in setting its
debt ceiling figure was concentrating on a forecast of the June 30,
1976, debt level. Normally, however, the debt is as much as
$5 billion higher a few weeks earlier in mid-June just before the
heavy June tax receipts are received.
Second, I understood that the Congress was operating with an
estimate which was about $5 billion lower than our current estimate
of Federal borrowing which is subject to the debt ceiling even
though the purpose is to finance Federal agency programs which
have been placed outside the budget.
Table 1 attached to my statement shows our estimates, based
on the President's proposed budget program in 1976, of debt subject
to statutory limitation at the end of each month through fiscal
year 1976, as well as the peak debt in mid-June 1976. Our estimates
include all Treasury borrowing to finance both budget and off-budget
programs and make the usual assumptions of a $6 billion cash balanceand $3 billion margin for contingencies. The table shows our peak
debt limit need on June 15 at $613 billion, compared to the congressional figure of $617.6 billion. Given the uncertainty in
estimates and the fact that the debt limit does not control spending,
I questioned whether this relatively small difference was worth an
extensive legislative exercise.
Indeed, in view of the new congressional procedures, the
Committee should consider doing away with separate legislation
on the debt ceiling and concentrating on our debt management
operations.
As members of this committee know, the House yesterday approved
an increase in the debt limit to $577 billion through November 15,
effective on the date of enactment. I am glad to be able to endorse
this action as evidencing a reaffirmation of the policy adopted in
the Congressional Budget and Impoundment Control Act.
Obviously, I believe that the President's views on the size
of the budget deficit in fiscal 1976 should and will prevail. But
it seems to me that the House action is a highly responsible act
in that it provides the borrowing authority required by the budgetary
targets adopted by the Congress on May 14.
It also seems to me to be significant that the expiration of
tne temporary limit under the House bill essentially coincides with
ne date for the final congressional resolution on the budget totals.
ince the Congress will speak to the debt limit in that resolution,
nat action on the debt limit itself will be a pro forma action, and
opportunity will be afforded for the review of our debt management

operations and economic and financial developments in some more
detail than heretofore has been feasible.
In light of the very large deficits that we have been
financing and will need to finance in the coming year, whether
we look at the Congressional numbers or the President's, I think
it is important for the Congress and the American people to understand what the Treasury has been doing in the area of debt management.
In making our financing decisions, we have sought and obtained the
best advice of practical and experienced market participants and
financincial leaders.
The Government Borrowing Committee of the American Bankers
Association numbers among its membership senior bank officers from
banks in all geographical areas of the country and of a wide range
of sizes from the very largest to relatively small banks. Commercial
banks are the largest private purchasers of Government securities.
Advice on bank demands for new government securities is vital.
The Government Securities and Federal Agencies Committee of
the Securities Industry Association similarly includes senior
officials of institutions active in the government securities market,
a number of whom have served also in responsible positions in government -- several in the Treasury as Assistants to the Secretary for
Debt Management. This Committee also has a broad view of the market.
The members of both advisory committees have been in full
agreement that the Treasury must tap all maturity sectors of the
market and that its offerings should be designed to create and
build an upward sloping yield curve to appeal to nonbank investors
and to improve the maturity structure of the debt. They have pointed
out also that such policies would provide some protection against
excessive monetary growth.
We have not followed the specific recommendations of the
advisory committees in all respects,
for the ultimate judgments
have been ours, as they should be. But their advice has been
valuable, and the results of our financing operations have indeed
been satisfactory.
I agree completely with the wisdom of their consistent advice
that to raise the tremendous sums we require, without extreme disturbance to our financial structure, we must issue securities in
all the different maturity ranges; and we must do our best to halt
the long-continued concentration of our debt in short-dated securities.
In that regard, it is a matter of concern to me that the average
maturity of the privately-held marketable debt has been allowed to
deteriorate to the point that the average maturity at the end of

39z
June will be 2 years and 9 months compared to 5 years and 9 months
just a decade ago and 10 years and 5 months in June 1947.
The importance of an upward sloping yield curve should not be
underestimated. In the words of one committee:
Because the majority of institutional
investors borrow short-term funds and
invest them longer -- this is true of
commercial banks, of savings institutions
and others -- anything that raises shortterm rates destroys the incentive to
invest longer term, be it in mortgages,
corporate bonds, or stocks. This is
because any action that makes short
rates higher than otherwise simply
increases the risks of investing long,
and destroys the incentive or need to
extend investment maturities.
I particularly call your attention to the attached charts
showing the recent course of interest rates. As these charts
indicate, intermediate and longer-term interest rates rose
steadily from mid-February until the announcement on May 1 of
our May refunding and cash financing program.
The Treasury was accused of having"talked up" these interest
rates and has also been blamed by some for the market difficulties
encountered by corporate and other borrowers in this period.
There is, in fact, very little, if any, lasting market effect
from a statement by the Secretary of the Treasury or any other person
regarding the course of future market rates unless the facts support
his conclusions.
Those who make decisions in markets do not survive for long
by acting on statements that are not based on fact. Market reactions to statements which are not based on facts are temporary
and self-correcting. The key to fundamental market moves is
what market participants perceive as the realities of current and
prospective financial conditions. These, in turn, are determined
by existing and anticipated conditions affecting the supply and
demand for savings, including the present and prospective federal
deficits.
I would like to point out that as Secretary of the Treasury
it is my responsibility to maintain the financial integrity of
the U.S. Government and, in so doing, to speak out whenever that
integrity is threatened. Unfortunately, the cause of a problem is
too frequently attributed to the messenger rather than to the
message itself. As the Wall Street Journal said in an editorial,
it's like blaming the obstetrician for the high birth rate. As
you all well know, in the period between February and May, it
appeared that the federal deficits for fiscal 19"5 and fiscal 19"6

would be increased by Congressional tax and spending actions
almost without limit. That was the factor in this period that
was clearly responsible for the rise in interest rates.
The market rally following our May financing announcement
was based on the downward revision in the anticipated federal
deficit resulting from larger than anticipated corporate and
individual tax receipts and the immediate relief to the market
that was provided by the reduction in our estimated borrowing
requirements for the two months of May and June.
The further factor which has since helped to lower rates,
is the growing sign of greater Congressional recognition of the
financial and economic dangers of excessive budget deficits. Our
experience has clearly indicated that further reductions in
interest rates from now on depend on maintaining a firm grasp
on the budget situation, on continued progress against inflation,
and on continued progress in improving the financial structure
of our business firms. All of these things are essential to
achieving a solidly based and long-lasting recovery of the economy.
Based on the Administration's projection of a $60 billion
deficit in fiscal 1976, our new cash requirements, including
off-budget financing, will total nearly $73 billion -- $38.2 billion
in the July-December 1975 half year and $34.5 billion in the
January-June 1976 half year. This has not been generally recognized, except by active market participants. The simple facts
are these: On December 31, 1974, private investors held $181 billion
of marketable Treasury obligations. By June 30, 1976 - - 18 months
later -- they will have acquired another $80-90 billion more of
marketable Treasuries.
In Fiscal 1976 all Government borrowing, including State and
local, is expected to amount to about 80% of the net borrowings
in the securities market; and the Federal sector alone will account
for 50% or more of the total funds raised in all credit markets.
Tables and charts are attached to my statement showing changes
in the ownership of total outstanding Treasury debt over the past
year; offerings of new marketable securities by maturity since
January 1; the schedule of obligations maturing in the next twelve
months; and historical information on new issues, maturities, and
new money financing for recent years.
Also attached to my statement arc transcripts of financing
press conferences this year.
I believe that analysis of this data will support a conclusion
by this committee and the Congress that the Treasury has been
financing the deficit in a responsible and constructive manner.
In this regard, however, I must say that I am personally deeply

3?9
- 7 concerned by the notion I sometimes hear expressed that there
is some simple answer to financing the deficits which will avert
painlessly all risks which are inherent in operations of this
magnitude.
In addition to raising an unprecedented amount of new money,
we will also have substantial refunding requirements in fiscal
1976, as Table 4 shows. Apart from the $93 billion of privatelyheld regular weekly and monthly bills, $26.0 billion of privatelyheld coupon issues will mature in FY 1976.
Thus, our gross financing job will total over $190 billion.
The sheer size of this financing job requires the greatest
flexibility with regard to the choice of maturities for every
new securities offering. 'And yet, under present law, however,
there is a statutory limitation of $10 billion on the amount of
bonds held by the general public with interest rates in excess
of 4-1/4 percent. Moreover, Treasury notes, which are not
subject to an interest rate limitation, are restricted to a maximum
maturity of 7 years. Bear in mind that, since 1965, interest yields
required by the market on longer-term Treasury securities have been
in excess of 4-1/4 percent, and the Congress on three occasions
in this decade has recognized Treasury needs for greater flexibility
in its debt management.operations.
-- In 1967, the maximum maturity on Treasury notes was increased from 5 years to the present maximum of 7 years,
thus exempting issues up to 7 years from the 4-1/4
percent limitation.
-- In 1971, the Treasury was authorized to issue up to
$10 billion of bonds without regard to the 4-1/4
percent ceiling.
-- Then, in 1973, the $10 billion exemption from the
4-1/4 percent ceiling was amended so that it would
apply only to bonds outstanding in the hands of the
public. The effect was to exclude any bonds held by
government accounts, including the Federal Reserve Banks,
in calculating the amount outstanding against the $10
billion limitation.
The Treasury has used $8.5 billion of the $10 billion bond
authority. This leaves a balance of only $1.5 billion.
In light of the magnitude of our projected refunding and
new money needs in FY 1976 and beyond -- and also in light of
the basic need to restructure the debt to redress the neglect
of past years -- the flexibility which I now have for conducting

our borrowing operations is grossly inadequate.
The weight of practical and experienced market advice,
as I have already indicated, is that we should offer securities
in all maturity areas to minimize the risk of an adverse impact
on any particular sector. Indeed, unless we can offer securities
in all the maturity ranges to a wide range of investor interests,
debt management is made more difficult and the ultimate cost of
financing our deficits is likely to be increased. Obviously,
this means a market judgment is called for at the time of any
financing, and if our choices are restricted by inadequate
authority to issue a range of securities, such choices are made
more difficult and the results are likely to be less satisfactory.
In this connection, I should mention the sometimes erroneous
conclusions about the impact of Treasury financing operations
on particular sectors of the economy. There is a tendency, for
example, to think of housing finance in terms of permanent,
30-year mortgage financing, but as every home builder knows, the
availability of short-term construction financing is as important
to getting a job started as the permanent financing is to getting
the job completed. We also know that the deposit flow to financial
institutions, such as savings and loan associations, is far more
sensitive to the competition of shorter-term Treasury obligations
than to the competition of longer-term obligations. Indeed, every
sector of the economy, every aspect of our financial markets, is
so interrelated that undue concentration of Treasury financing
in any particular maturity area can have adverse effects throughout
the whole market -- which could largely have been avoided by a
better choice of new securities.
As we move forward into the recovery phase, there is an
additional reason for concern with our debt structure.
It is obvious that a substantial portion of our financing in
the future, as in the past, will have to be handled in the short
and intermediate area. In fact, in the first 6 months of this
year we have issued $47.6 billion of new marketable securities
excluding exchange offerings to the Federal Reserve and Government
accounts and counting only the net additions to bills. Of this
total, $32.5 billion -- 68 percent -- has been in maturities of
less than 2 years; $12.4 billion -- 26 percent -- has been in
maturities of 2-7 years; and only $2.7 billion -- less than
6 percent -- has been in maturities over 7 years; that is, in
the bond area. Only $1.5 billion, 3 percent of the total, has
been in long-term maturities over 20 years.
But if we concentrate our new offerings entirely in the
short- and intermediate-term areas, then, when the economy has
achieved a substantial measure of recovery, the problems of the
Federal Reserve will be greatly complicated, as would the prpblems
build-up
of future in
Secretaries
the amount of
ofthe
securities
Treasury.
coming
The already
due in each
substantial
year is

399
likely to continue. Two years ago, the privately-held marketable debt maturing within a year amounted to just $84 billion.
Today, the figure is $119 billion. Two years ago our major
refundings were quarterly, but it is now likely that we will
soon have significant coupon maturities in every month of the
year.
We cannot escape all of the future adverse consequences of
necessary short-term financing. In my judgment, however -- and
I know this is a judgment shared by other market professionals -excessive amounts of short-term Treasury debt could contribute to
another situation in which we could get an excessive rise in
short-term interest rates, with the whole panoply of adverse
economic and financial consequences such as developed in 1966,
1969-70, and again in 1973.
This isobviousiy.not an immediate problem, but as the recovery
develops and private credit demands expand, commercial banks and
other lenders will attempt to liquidate Treasury securities to
obtain funds for lending to the private sector.
Short-term Treasury debt is very near to money and, unless
there is a substantial rise in interest rates, it can be readily
liquidated at small cost to provide funds for other purposes. If
Treasury financing needs are still large at that time and excess
demand threatens to reignite inflationary pressures, the Federal
Reserve System will have to resist this liquidation by the private
sector by allowing short-term interest rates to rise.
The alternative of Federal Reserve purchases from the private
sector -- monetization of the debt -- could temporarily restrain
such a rise in rates, but only at the expense of adding to the
inflationary potential.
I know the argument that we should refrain from long-term
borrowing at this time when rates are historically high and wait
until a time when rates are lower. Despite the superficial appeal
of this argument, to preclude the Treasury from the sound debt
management practices available to virtually all other financial
market participants will inevitably lead to undesirable and
damaging results.
It may seem strange that any Secretary of the Treasury would
wish to borrow at a rate of near 8 percent in the long-term market
when he could borrow at a rate of 5 percent or less with 91-day
bills, an apparent cost difference of 3 percent, which could
translate into many millions of dollars of interest in a year's
time.
Such mechanical-type calculations beg the question.

In the first place, long-term financing avoids the need
for frequent future refundings of debt at unpredictable rates
of interest. Short-term rates are volatile and their volatility
would be increased by concentrating federal financing unduly
in the short-term area. Such volatility would harm not only
Treasury finance but the financing of private borrowers. This
is one reason that the Treasury chose to do a substantial part
of World War II financing with 2h percent bonds, when the alternative was financing with 3/8 of 1 percent bills. The immediate
budget cost was less of a concern than the consideration for future
economic stability; but undoubtedly, with the subsequent rises in
interest rates, the long-run cost of bond financing was less than the
cost of continually rolling over the bills.
Second, and more important, short-term Treasury debt is a
near-money, so that to achieve the same economic effects, Federal
Reserve policy must be relatively more restrictive if the amount
of short-term Treasury debt outstanding is larger. If we finance
all of our debt in the short-term area, therefore, we will create
a prospect that future interest rates will be higher throughout
all financial markets than if we finance a meaningful portion of
our debt in the longer-term area.
Thus, the apparent interest saving from short-term financing
can be an illusion, whether we are concerned about the budget alone
or whether we take the point of view of the economy as a whole, and
I might add that nearly every corporate or municipal Treasurer who
has relied on short-term financing in the last few years will
share this view.
Beyond this, an inability of the Treasury Department to
utilize all maturity sectors, including the long-term sector,
would be interpreted by the market, and the public generally, as
indicative of a lack of will to deal with the inflation which is
still our basic, long-run economic problem. Whether that were or
were not a valid concern, it would be an important psychological
barrier to the future reductions in longer-term rates, which I
perceive as essential if we are to restore health to the housing
industry and are to encourage the business investment which is
needed if this country's economic progress is not to falter.
Long-term interest rates have continued to reflect ingrained inflationary expectations. Our financing should be conducted in a
way that will help to overcome those expectations -- not in a
way which will tend to confirm them.
For these reasons, I believe the time is now appropriate to
increase the amount of bonds that may be issued without regard to
the 4-1/4 percent ceiling on rates and to extend the maximum
maturity of Treasury notes.
I specifically recommend, with regard to the 4-1/4 percent
ceiling, that the exception be increased from $10 billion to
$20 billion. I wish to emphasize as strongly as I can that market
conditions are unpredictable, so that the amount of longer-term

- 11 issues which might be issued in any specific period could vary
greatly, depending upon market demands. The record indicates,
however, that we have been responsible and sensitive to financial
and economic conditions in our use of the exception to the 4-1/4
percent limit. We will continue to be responsible and sensitive.
I also strongly recommend that the maximum maturity of
Treasury notes be extended from the present 7 years to 10 years.
This extension of the maximum note maturity, assuming that market
conditions permit, could be a powerful tool in helping to arrest
the decline in the average maturity of the debt and reduce the
concentration in short-term issues which has taken place in recent
years.
In addition, I want to urge that early consideration be given
to removing the 6 percent rate ceiling on Savings Bonds. Such
action would allow the rate on Savings Bonds to be varied from time
to time in accordance with changing financial circumstances in
the interest of both savers and taxpayers. Thus, we could provide
greater assurance to the Savings Bond investor that his Government
will continue to give him a fair rate of return on his investment.
Greater flexibility to adjust Savings Bonds rates could also make
a significant contribution to the Government's overall debt management objectives. Savings Bonds account for about one-fourth of the
total privately-held Treasury debt, and the average Savings Bonds
investor holds his security for a longer period than investors in
marketable Treasuries and is thus an important source of stability
to debt management.
Such flexibility would obviously need to be exercised with
due regard to the impact of Savings Bonds rate changes on depositary
institutions. As experience has demonstrated, however, there is
no way permanently to insulate these institutions from the effects
of changing economic circumstances. We have, therefore, proposed
a Financial Institutions Act, which will allow the removal of
Regulation Q-type ceilings by providing the thrift institutions
with expanded powers which will improve their ability to compete
without a Federal crutch.
The urgency of the need for greater debt management flexibility
is, I believe, underscored by the fact that I have already mentioned.
During this calendar year, out of the $47.6 billion of marketable
securities issued to the public, $32.5 billion has been in maturities
of less than 2 years. This is 68 percent of the total in money
market instrument. $12.4 billion has been in maturities of
2 to 7 years. This is 26 percent of the total. And only $2.7
billion, less than 6 percent of the total, has been in the bond
area over 7 years. In fact of all our market financing, only $1.5
billion, just 3 percent, has been in maturities of over 20 years.
There *? a larSe debt management job before us. The Treasury
will handle its part of the debt management job responsibly. I urge
you to act promptly to give -usoOo
the
- tools to do the job.

TABLE 1
PUBLIC DEBT
SUBJECT TO LIMITATION
FISCAL YEAR 1976
" Based on Estimated
Budget receipts of $299.0 Billion,
Outlays of $358.9 Billion,
Unified Budget Deficit of $59.9 Billion,
and Off-Budget Outlays of $14.2 Billion
($ Billions)

1975

Operating
Cash
Balance
ESTIMA TED

Public Debt
Subject to
Limitation

June 30

533

July 31

540

Aug. 31

54H

Sept. JO

547

Oct. 31

553

Nov. 30

560
567

Dec. 31
1976
Jan. 31

569

Feb. 29

579

Mar. 31

591

Apr. 15

600

Apr. 30

593

May 31

605

June 15 (peak)

610

June 30

607

- 2 United States savings bonds ,are \included.at current redemptionvalue.
Consists of commercial banks, trust companies, and stock savings^
banks in the United States and in Territories and island possessn
Figures exclude securities held in trust departments.
Includes partnerships' and personal trust accounts.
i
Exclusive of banks and insurance companies.
Consists of the investments of foreign balances and international
accounts in the United States. Beginning with July 1974 the
figures exclude noninterest-bearing notes issued to the
International Monetary Fund.
Consists of savings and loan associations, nonprofit
institutions, corporate pension trust funds, and dealers^
and brokers. Also included are certain^government deposit-•
accounts and government-sponsored agencies.

T<b.e 2
GiaNGES IN OWNERSHIP OF TEASURY PUBLIC TFffT SECURITIES
(Par values 1/ in billions of dollars)

of
Month
1974

Total
Mutual
State
: Foreign
Fed
privateCommerIndividInsurance
Corsavings
Other
and
: and
Out&
cial
ual:] 3/
ly
Companies
porabanks
investors 6/
local
: interstanding
GA
banks 2/
held
tions 4/ covemirents : national 5/
:Lv.
Chg. : Lv.
Chq. :Lv.
Chq.:Lv.
Chq. Lv.
Chg Lv.
Chg.rLv."
Chq:Lv.
Chq, Lv.
Chg Lv.
Cng. Lv.
Cng.

1 lEV

474.7

2.8

215.3

4.1

259.4

JUTi3

475.1

0.4

218.7

3.4

256.4 -3.0 53.2 -1.2 80.7 0.7

5.9 -0.1 2.6

July

475.3

0.2

215.6

-3.1

259.7 3.3 53.9 0.7 81.6 0.9

Aug.

481.8

6.5

222.8 • 7.2

Sept.

481.5

-0.3

221.6

Cct.

480.2

-1.3

Nov.

485.4

Dae.

-1.3

54.4

-2.4

80.0

0.8

6.0

0.1

2.6

-0.1 11.2

0.7

29.2

•0.9

57.3

1.4

18.6

-1.1

0.0 10.8 0..4 28.3

0.9

57.7

0.4

17.3

-1.3

5.7 -0.2 2.6

0.0 11.3 0.5 28.8

0.5

56.9

-0.8

18.3

1.5

259.0 -0.7 53.0 -0.9 82.6 1.0

5.7 0.0 2.6

CO 11.0 -0.3 29.2

0.3

56.0

0.9

19. C

0.2

-1.2

259.8 0.8 52.9 -0.1 83.3 0.7

5.8 0.1 2.5

-0.1 10.5 -0.5 29.3

0.1

56.0

0.0

19.5

0.5

217.8

-3.8

262.5 2.7 53.5 0.6 83.8 0.5

5.9 0.1 2.5

0.0 11.2 0.7 28.8

0.5

56.6

0.6

20.3

0.8

5.2

220.0

3.2

265.3 2.8 54.5 1.0^ 84.3 0.5

5.9 0.0 2.5

0.0 11.0-0.2 28.7

0.1

58.3

1.7

20.1

-0.2

492.7

7.3

221.7

1.7

271.0 5.7 56.5 2.0 84.8 0.5

6.1 0.2 2.5

0.0 11.0 0.0 29.2

0.3

58.4

0.1

22.4

2.3

Jan.

494.1

1.4

220.4

-1.3

0.1

0.8

61.5

3.1

22.3

-0.1

Feb.

499.7

5.6

220.8

0.4

MUE

509.7

10.0

219.9

-0.9

Apr.

516.7

7.0

225.9

to/

523.2

11.5

226.5

197J

273.8

2.8

54.5

-2.0

85.3

0.5

6.2

0.1

2.6

11.3

0.3

30.0

278.9 5.1 56.9

2.4 85.3 0.0.

6.2 0.0 2.7 0.1 11.4 0.1 30.5 0.5 64.6 3.1 21.3 -1.0

239.8 10.9 62.0

5.1 85.7 0.4

6.6 0.4 2.9 0.2 12.0 0.6 29.7 -0.8 65.0 0.4 25.9 4.6

6.0

290.9 1.1 63.0

1.0 86.1 0.4

6.7 0.1 3.2 0.3 12.5 0.5 29.8 0.1 64.9 -0.1 24.7 -1.2

0.6

301.7 10.8 n.a.

n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Office of the Secretary of the Treasury
Office of Debt Analysis

June 18, 1975

Table 3
OFFERINGS OF MARKETABLE SECURITIES 1/
January - June, 1975
(amounts in billions of dollars)

Percent
of
Total

Maturity
TOTAL OFFERINGS

$47.6

100.0

Under 2 years

32.5

68.3

Bills

15.7

33.0

13, 26-week bills
52-week bills
Other bills

11.7
2.4
1.6

Coupons
1
1
2
1
2
1
2
2
1
2

year--3
year--6
year--0
year- 2
year--0
year--8
year--0
year--0
year--5
year--0

mo. f,
mo. ,
mo. tr
mo. f,
mo. tr
mo. rt
mo. p
,
mo. tr
mo. ,
mo. r
j

issued 1/9
issued 3/3
issued 3/3
issued 3/25
issued 3/31
issued 4/8
issued 4/30
issued 5/27
issued 6/6
to be issued 6/30

2-7 years
4
3
6
6
3
7

year--4
year-•3
year-•0
year-•8
year-•3
year-•0

mo. ,
mo. ,
mo. ,
mo. ,
mo. ,
mo, ,

issued
issued
issued
issued
issued
issued

1/7
2/18
2/18
3/19
5/15
5/15

7-20 years
15 year-1 mo., issued 4/7

16. 8

35.2

0.8
1.7
1.7
1.6
2.3
1.5
1.6
2. 1
1. 6
2.0
12.4

26.0

1 3
3 3
1 8
1 8
2 8
1.5
1.2

2.6

1.2

Over 20 years

1.5

20/25 year-0 mo., issued 2/18
25/30 year-0 mo., issued 5/15

0.8
0.7

-J

Office of the Secretary of the Treasury
June 13, i j
Office of Debt Analysis
1/ Includes net additions only to bi3Is and excludes exchange
offerings to Federal Reserve and Government Accounts.

9^*3
Table 4
Marketable Maturities Through June 30, 197 6
(Issued or announced through June 30, 1975)
(in billions of dollars)
Privately
Held
93.2
n.a.
n.a.

Treasury Bills
Regular weekly
52-week

Outstanding
$-126.9
100.. 5
26'. 4

Coupons" and Other

37.0

26.0

7.7
2.0

4.6
rl.9

1975"
5-7/8% note 8/15/75
8-3/8% note 9/30/75
1-1/2% note 10/1/75
7% note ll/15/75_
7% note 12/31/75^*

3.1
1.7

2,4
1.5

1.6
3.7
4.9
2.3

1.5
.9
3.5
2.1

•» *\ —»*-

January 31 bill 1/
6-1/4% note 2/15/76
5-7/8% note 2/15/76
8% note 3/31/76
1-1/2% note 4/1/76
6-1/2% note 5/15/7 6
5-3/4% note 5/15/76
6% note 5/31/76
8-3/4% note 6/30/76
Total

Office of the Secretary of the Treasury
Office of Debt Analysis

1.9
2.2
1.5
119.2
2.0

2.7
2.8
1.6
163.9
2.7

June 18, 197

1/ Treasury bills in two-year note cycle slot.
Less than $50 million
n.a. Not Available
Note: Figures may not add to totals because of rounding.

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<

Department of theTREASURY
WASHINGTON, D.C. 20220

TELEPHONE WO4-2041

CONTACT: GEORGE ROSS
EXT. 5985
FOR IMMEDIATE RELEASE

JUNE 27, 19 75

STATUS OF INCOME TAX TREATY NEGOTIATIONS
The Treasury Department today announced the countries
with which it is engaged in income tax treaty negotiations,
and invited comments.
The Treasury Department has a general policy of announcing initial income tax treaty negotiations with particular
countries, and giving an opportunity for comment. However,
often negotiations are scheduled on short notice, making
notice impractical, and often negotiations extend over a
period of several years, so that earlier comments no longer
reflect current problems. In order to give better guidance
and in order to obtain comments from interested persons,
the Treasury Department today announced that negotiations
are currently
in process withMorocco
the following countries:
Botswana
Canada
Netherlands
Denmark
Philippines
Egypt
Singapore
Iran
United Kingdom
Jamaica
Zambia
Malta
The Treasury Department would welcome amendments to previous
comments, or new or supplemental comments concerning negotiations with those countries. Comments should be sent in
writing to Frederic W. Hickman, Assistant Secretary of the
Treasury, U.S. Treasury Department, Washington, D.C. 20220.
In addition, the Treasury Department always welcomes comments
with respect to the advisability of entering into or revising
income tax treaties with any country.

WS-342

(OVER)

<^/dj?

Jftf.
-2The Treasury Department also announced today that
negotiations are completed or are approaching completion
with the following countries:
Indonesia Republic of China (Taiwan)
Israel
South Korea
Kenya
Income tax treaties with the USSR, Romania, Cyprus, Poland
and Iceland were signed on June 20, 1973, December 4, 1973,
April 19, 1974, October 8, 1974, and May 7, 1975, respectively. The treaties with the USSR, Romania and Poland
have been submitted to the Senate for approval.
The announcement appeared in the Federal Register of
June 27, 1975.

-oOo-

Department of theTREASURY
VASHINGTON, O.C. 20220

TELEPHONE WO4-2041

49d
June 30, 1975

FOR TtMEDIATE RELEASE
RESULTS OF TREASURYTS WEEKLY BILL AUCTIONS

Tenders for $2.7 billion of 13-week Treasury bills and for $2.7 billion
of 26-week Treasury bills, both series to be issued on July 3, 1975,
were opened at the Federal Reserve Banks today- The details are as follows:
RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing October 2, 1975

High
Low
Average

Discount
Price
Rate
98.504 a/
5.918%
98.467
6.065%
98.481
6.009%

Investment
Rate 1/
6.11%
6.26%
6.20%

26-week bills
maturing January 2, 1976
Price
96.875 b/
96.783
96.817

Discount
Rate
6.148%
6.329%
6.262%

Investment
Rate 1/
6.45%
6.65%
6.58%

a/ Excepting 3 tenders totaling $545,000
b/ Excepting 3 tenders totaling $410,000
Tenders at the low price for the 13-week bills were allotted 68%.
Tenders at the low price for the 26-week bills were allotted 30%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS: .
District

Received

Accepted

Boston
$
52,680,000 $
52,680,000
New York
3,020,655,000
2,207,455,000
Philadelphia
25,670,000
25,670,000
Cleveland
43,290,000
33,290,000
Richmond
26,305,000
26,305,000
Atlanta
31,880,000
31,880,000
Chicago
275,390,000
95,970,000
St. Louis
39,255,000
29,935,000
Minneapolis
16,360,000
16,360,000
Kansas City
58,195,000
56,195,000
Dallas
32,945,000
28,945,000
San Francisco 187,450,000
95,450,000
TOTALS$3,810,075,000

Received

Accepted

$
20,170,000
2,976,045,000
13,195,000
60,705,000
19,855,000
15,945,000
241,420,000
28,155,000
14,910,000
20,915,000
23,315,000
173,330,000

$
10,170,000
2,269,020,000
13,195,000
25,705,000
19,845,000
15,945,000
168,920,000
21,155,000
14,910,000
18,415,000
20,315,000
103,230,000

$2,700,135,000 c/$3,607,960,000

$2,700,825,000 d/

SJ Includes $423,080,000 noncompetitive tenders from the public.
5/ Includes $196,070,000 noncompetitive tenders from the public.
__/ Equivalent coupon-issue yield.

Department of theJREASURY
(WASHINGTON, D.C. 20220

TELEPHONE WO4-2041

# / /

FOR RELEASE AT 12:00 NOON EDT
JULY 1, 1975
Contact:

Assistant Secretary
Charles Cooper
964-2522
Thomas Wolfe
964-5965

TREASURY ANNOUNCES RESULTS OF
GOLD AUCTION
The Treasury announced today that in the Treasury gold
auction on June 30, 758 bids were received for a total of
approximately 4 million ounces at prices varying from $32.50
to $182 an ounce. Of this total, 70 bids from 41 bidders
were accepted for 499,500 ounces at a price of $165.05 per
ounce. The gross revenue to the Federal Government from this
sale will be $82,442,475.00.

oOo

WS-344

<#2THE 8 LARGEST ACCEPTED BIDDERS

Swiss Bank Corporation, Zurich

140,000

Republic National. Bank

97,500

M. Rothchild & Sons, London

90,000

Sharps, Pixley

52",750

Mocatta Metals Corporation

32,500

Comp. de Banque etf d Investissments

29,750

Merrill, Montagu, Handty & Harman

26,000

Swiss Credit Bank

23,000

ounces

THE.7 LARGEST ACCEPTED BIDDERS
(Corrected)
July
Swiss Bank Corporation, Zurich 140,000
Republic National Bank 81,000
M. Rothchild § Sons, London 75,750
Sharps, Pixley 58,750
Mocatta Metals Corporation 32,500
Comp. de Banque etfd Investissments 29,750
Merrill, Montagu, Handy § Harman 28,000

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Title:

"The News Center" Interview with Frank Zarb

Date:

1975-07-01

Journal:

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

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CBS Morning News, "Auction Forces Gold Prices Down"

Date:

1975-07-02

Journal:

Volume:
Page(s):
URL:

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https://fraser.stlouisfed.org

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NBC Nightly News Quotes Secretary Simon

Date:

1975-07-02

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"Eyewitness News", Statements by Secretaries Simon and Hill

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•99a
4iller

UNITED STATES DEPARTMENT OF THE TREASURY

Room 4125 Treasury Building
15th & Perm ;yl ania Ave. N.W
Washington, D*C.
WEDNESDAY, July 2, 1975
10:15 a.m.

PRESS BRIEFING
« BY DAVID R. MACDONALD,
ASSISTANT SECRETARY
ENFORCEMENT- OPERATIONS AND TARIFF AFFAIRS
ON
_ PRELIM:CMARY

DETERMINAT :CNS

ON
NINE COUNTERVAILING DUTY CASES
PARTICIPANTS:
PETER SUCEMAI7,
Deputy Director for Tariff Affai
LYNN BARREN,
General Counsel»s Office
- and **
MEMBERS OF THE PRESo

«--oOO'

#4/
Assistant Secretary of the Treasury David R. Macdonald
announced nine preliminary decisions under the U.S. Countervailing Duty Law [19 U.S.C. 1303;. Under the Countervailing
Duty Law, as amended hy the Trade Act of 1974, the Secretary
of the Treasury is required to issue a preliminary determina~
tion within six months after a petition has been received.
Petitions in all these cases were considered received on
January 4f 1975, under provision of the Trade Act cf 1974
and a notice to that effect was published in the Federal
Register of January 15f 1975.
In five cases. Treasury's preliminary determination
was that bounties or grants are being paid within the meaning
of the statute. In four of the cases, Treasury*s preliminary
decision was that no bounties or grants are being paid. All
of these actions will appear in the Federal Register of
July 3, 1975.
Cas^s in which a preliminary affirmative determination is being made include asparagus from Mexico, with 1974

iiaports valued at $1.7 million; Emmentha ;.er and Gruyere chee
from Switzerland, with 1974 imports value:! at approximately
$8.0 million? footwear from Korea, with 1074 inpcrts valued
at $105 million; float glass from Belgium with 197^: imports
valued at $550,000: and float glass from Italy, with 1974
imports valued at $500,003.
Cases in which a preliminary negative determination

3
is being made include carbon steel and high strength steel
plate from Mexico, with 1974 imports valued at $760,000;
cast iron soil pipe from India, with 1974 imports valued at
$160,000; footwear from Taiwan, with 1974 imports valued
at $170 million; and textiles from India, with 1974 imports
\alued at $100 million.
Responding to a ruestion from the Press with

respect to the ruling of the Secretary on imports of Emmenthaler
and Gruyere cheeses from Switzerland:
SECRETARY MACDONALD: Although the Swiss sell this
kind of cheese -- Emmenthaler and Gruyere ~-» although this
'is the same cheese we forced the EG to drop their
subsidies on, there is no question that, in the Swiss care,
the Emmenthaler and Gruyere that is sold in the United states
is for table us3«-not for further processing.
The DAS. company that would buy Swiss Emvronthaler

for further processing would be out of its mind-<bec!&u.se it is
high priced; it is forty or fifty cents higher, normally,
than Emmenthaler coming out of other-source,' Emmenthaler
produced ir. this Country.
Z'EmER OF THE PRESS: Is that forty or fifty cents a.
pound?
SECRETARY MACDONALD: Yes.
So, as a result, rt was our cor.cl-tsi:>n that this

993
4

should be treated -- basically -- along the lines of the table
cheese situation. Now, as you know, insofar as the table

cheeses were concerned, we granted the EEC discretion, and did

not countervail, and they left a good portion of their subsidi
of} those cheeses; and, similarly, we felt that the Swiss
should be given the same treatment.
I am glad you asked the question because I would
like to make it clear that the statute is mandatory, and

no matter what complaint or irrelevancy is brought up in terms
of our Trade Relations^ we must apply it.
MEMBER OF THE PRESS: What is the basic reason
for the negative finding in the Mexican steel case?
What was the ellegation based on?
MR. SUCHMAN: The allegation was a certain remission
of payments on exports, But we found that the remission of
payments did not exceed the rebate of the indirect tnxes

that are otherwise due en steel, which the Treasury traditiona
has found not to be a bounty or grant in these particular
circumstances.
MEMBER OF THE PRESS: Could you give us the
reasoning in the two footwear cases?
SECRETARY MAC10NALD:: The fcotwear case from Korea
— where we went positive <-- was a very painful decision!
Korea has been extremely -ccc^erative and, n fact,

¥£9
5
dropped, I believe, two programs that would have been
determined to be bounties or grants--leaving
financing as the only bounty or grant left.

preferential
Our preliminary

determinations are that the amount of the bounty or grant —
although we don't make that determination in a preliminary
determination ~- nevertheless, our preliminary determinations
are that the amount of the bounty or grant in the Korean
footwear case is less than one percent.

Nevertheless, it did

not drop to the point of what we would consider de niiruiais^
and we felt, therefore, that we had to go positive.
MEMBER OF THE PRESS: Less than one percent
bounty -•- was that of the

The

whole product mentioned.'

SECRETARY MACDONALD: Taiwan, on the ether hand,
had soroe of the same problems,

but their preferential

financing, when worked out over a sales factor, worked out—by
and large—at less

than one-tenth of one percent.

A couple

of exceptions may have clipped above that, somewhere.
v;e

That,

^iLsl feel, was de minimis^
MEMBER OF THE PRESS:

will be made in the

Are you saying that a waiver

ch-sose Switzerland case?

SECRETARY MACDONALD: Yes. :He anticipate exercising
discretion, upon certain conditions.
MEMBER OF THE PRESS:

Could you lift that waiver

if you decided later th!E'- it had not heen a good move?
SECRETARY MACDONlrhD: .Absolutely;

&tr
MEMBER OF THE '?RESS: Could you make that before '79,
or could you also prolong it? '79 — is that the final point?
SECRETARY MACDONALD: As the law now stands, on
January 4, 1979, everything turns back into a pumpkin, and
the Secretary of the Treasury has no more discretion*and
Mandatorily, then, must impose countervailing duties on
all bounties or grants that are found to exist. But, of course,
the theory of the Trade Act--in granting discretion over that
period of time:*- is that negotiations will ensue in Geneva,
as to which some resolution will be forthcoming involving
all subsidies and their nature and allowability, if you will*
So it is altogether possible thatr-by the time 1979
rolls around«*~we will have solved this difficult problem.
MEMBER OF THE PRESS: What is the practical sense
of the&e additional six mrnths? I mean, everybody has the
right to introduce written views and would you, under certe in
circumstances*-*on the basis of such viewsp-change your mind?
SECRETARY MACDCNALD: As far as the Swiss go?
MEMBER OF THE PRESS: Yes.
SECRETARY MACDONALD: Well. 1 thin> you are referring
to two things:
No. 1: We asked for comments so that if an/body
has something that he racily thinks exists, he can .ruhmt it.
if
1 am sure /we ha<* been c'.Derating under some basic rv.isunderStanding of the fact:,,

y88, w

will naturally., go back to the

996
7
drav/ing board.

I don't think that is the case in tha Swiss

case* Kor do I think that is the case in any of these cases
really.

But we certainly want to leave that possibility out.

Nobody is infallible.

But, beyond that, there is a six-

month period between the preliminary determination and
the final determination.
comments, as such*

That is not necessarily for

That is for making a determination

if, and under what circumstances/the discretionary power
of the Secretary of the Treasury will be used.
MEMBER OF THE PRESS: Does the understanding
you reached with the Swiss official in recent discussions-to write about the new communique ~~ does that constitute,
already, the Condition A of the waiver?
SECRETARY MACDONALD: Yes. We feel that Condition A
has been met--under certain circumstances.
•'"'Condition A" »-fo>: those of you

who don't already

know it—is that the adverse effect of the bounty or grant
will be eliminated or substantially reduced by action taken
by the Exporting Country.
MEMBER OF THE PRESS:

On the cast iron soil pipe,

was there not another ca:ia ~« another complaint?
Or is there one pending in addition to this o?va?
SECRETARY MACDC^ALD:

Do ycu mean orhar than India?

Or some ether noi.iie?
MEMBER OF THE PRE£S: No. On India, Ca India,

997
8
SECRETARY MACDONALD: This is the case.
MEMBER OF THE PRESS: The only one?
SECRETARY MACDONALD: The only one;
MEMBER OF THE PRESS: What were the allegations in
this case?
Again,
MR. SUCHMAN: /I think the allegation was that there
was a cash payment on export.
SECRETARY MACDONALD: And, again, I think che cash
payment did not exceed or even rise up to an alrov/able
remission of indirect taxes that would have been paid on
cbmestic sales—which the Treasury Department historically
has not deemed to be a hounty or grant, as long as that
remission relates directl^/ to the product—or its component.
MEMBER Or TEE PRESS: Could you give us the
allegation and the reasoning on the textiles case?
SECRETARY MAC:DONALD: That is the same thin;.;;.
MR. SUCHMAN: Acs/
SECRETARY MhC::ONALD: The same thing as the cast
iron pipe car:a.
MEMBER C.7 T"-~3 PRESS: What was that?
MR. SUCHiAiN: The allegation was a cash yaynenr
on export and. as a mutter of fact, 1 believe in that case
that the cash payment no longer exists. But there is sore
question that the Indians may be ready to re-institute the

payment, and our analysis is that, even if they do rs«-institut

VJ1S
9
it, . that it v/ill be mere than off-set by rebates of
indirect taxes directly borne by the product.
MEMBER OF THE PRESS:

Well, what do you mean?

That would be a countervailing situation, surely!
Rebates?
SECRETARY MACDONALD:
taxes.

No.

If you have a ten percent

Rebates of indirect

commodity excise tax that

is payable for products sold domestically, and you rebate that
same tax for a product sold abroad,

the Treasury Department's

position,historical ly, has. been that that is not a bounty or
grant.
MEMBER OF THE ;:-RESS: What kinds of textiles
are included in the textiles from India?
MR. SUCHMAN:

All kinds.

Cotton and man-made.

MEMBER OF THE hEESS: It is a very old caso, isn'c it?
This one?
MR. SUCHMAN:

Yes/ Actually, I fhiuh it may be two

cases that we combined into one.
SECRETARY MACrAAAIA): That is what he is thinking of.
MR. SUCHMAN: From '63.
SECRETARY MACDONALD: And there are all t*pe* 2?
cotton and man-made te:;;tile3.

Is that right?

MR. SUCHMAN: That is correct,
MEMBER OF THE PRESS::

What wars the a itegution£

for the Belgian f • oat clear.;?

92?
10
SECRETARY MACDONALD: Pardon me?
MEMBER OF THE PRESS: For the Belgian float glass*
what were the allegations that you received?
SECRETARY MACDONALD: Basically, a Regional Aid
case ~~ assistance given to the construction of a plant,
and the establishment of a business in a particular region
by the Belgian Government.
MEMBER OF THE: PRESS: Is it likely that there will
be a waiver in the Korean footwear case? You said it is a
•"minimal amount".
SECRETARY MACDONALD: Well, yes. 1 don't want to prejudge the thing, but I would certainly hope that some
satisfactory solution could bo found in that situation.
Incidentiy, no waiver is technically possible
under — the Korean footwear is both rubber and non-rubber
footwear, and the non~rubber does not allow a waiver under
the Trade Act-*-strangely enough-***unless an agreement
is entered into "temporizing" -~ I think that is the
word of the Act -*- temporising the imports of neo-rubher
footwear. But, assuminy that that condition exists ~
MEMBER Of TEE PRESS (Interposing" r.r. Macdonald,
on the forro problem case which was decided, last week, 1
understand the allegations in that rare relatively flimsy,
relative to the allegations, for anatar.ee, in the Aexican
steel case, or in some of the others that you =c-rH r~a^-!-n

93*
11

There have b^en charges of political favoritism
in the past.
Would you comment on that?
SECRETARY MACDONALD: Gee, I never even heard
the allegations but I could comment and say that the
allegations in the South African ferrochrome case are not
flimsy. Some of the allegations were not flimsy. There were
other allegations that we rejected out of hand. But there
were some, definitely ~- there was freight rate preferential
treatment on exports and «-•*• I don't know — port charges
things like that.
MEMBER CF THE PRESS: Was not low labor costs
one of the allegations?
SECRETARY MACDONALD: That allegation, we rejected.
"MEMBER OF THE PRESS: Did you also reject the
apartheid.\ alleo/ation?
SECRETARY MACDONALD: Same thing. Same thing.
We have already taken the position ,n other c:=i3^3
that price controls, as such, are not bounties or grants,
even though they are trade-diotorting measures; but, once
you take that position, the setting of rates for Labor
Unions — whether they ^re high or low •• — as long as there

is not a conveyance of something of value from the :~ovarnr. e
er fro?* some other person ~- ;ve don't: consider that a
bounty or grant; laying asice whatever Social opinion you may

12
have of it.
MEMBER OF THE PRESS: Thank you.
ANOTHER MEMBER OF THE PRESS: What is involved
in the Italian float glass case?
SECRETARY MACDONALD: Regional Aid All float
glass cases are Regional Aid cases. That is a Mezzog