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FEDERAL RESERVE POLICY FROM THE INSIDE
address by KARL R. BOPP
Vice President, Federal Reserve Bank of Philadelphia
before the
M.B.A. Club, Wharton School
University of Pennsylvania
November 16, 1948, 12 noon

Off the Record
The Apocrypha of Central Banking
- Non canonical books
Text:

have been faithfUl to thee,
Cynara, in my fashion."
- Ernest Dowson

(Some non-finance majors, hence)
SCAFFOLD OF THEORY
A.

Objective - to influence flow of expenditures
1.

Indirectly through volume of money

2.

Through reserves and reserve requirements
Federal Reserve System
Gold
Governments
Discounts

B.




$23 bil.
23 "

Notes
Deposits

$24 bil
22 »

ihe $64 question is: Should flow of expenditures
be restrained or encouraged?
1,

Obviously a matter of judgment

2.

Memoranda on current and prospective
(a)

Economic developments

(b)

Monetary developments

- 2 -

C.

What should the Fed do - if anything?
1. Budgetary surplus
2 • i» nothing
-o
3* Voluntary restraint
4.

Increase in price of reserves
(a)
(b)

5*

II.

Short rates
Long rates

Increase reserve requirements

FEDERAL RESERVE PROGRAM OF RESTRAINT SINCE JULY 1947
A.

Reducing holdings of short-term Governments
July 1947
1«
2.

Increase in rate of bills
Increase in rate of certificates

B.

November 1947 - request for additional authority
over reserves

C.

November-December
to the Federal
1»
2.

D.

- heavy selling of long bonds

Reluctant purchases on the scale down
December 24 - abrupt lowering of pegs

1948
January - increase in discount rate from 1 to 1 l/4#

E.

February 27 - central reserve city requirements
increases 2 £
j

F.

April - repeat request for additional powers

G.

The summer interruption
1.

May 13 - announcement on June and July refundings

H.

June 11 - central reserve city requirements increased 2$

I.

August - increase in discount rates fran 1 l/4 to 1 l/2%

J.

Special session of Congress
1. Consumer credit controls
2 ' Increased authority over reserve requirements
.
Inference to use before ^ support prices

K.



September 16-24 - reserve requirements increased by 2 £ and 1 1/256
j

- 3 -

III.

FEDERAL RESERVE SYSTEM

A • Checks and balances vs. centralized authority and responsibility
1.
2.

No single person wholly satisfied

3-

B.

Democracy inherently too little and too late

Institutional inertia not limited to the
Federal Reserve System

Fear of depression has aggravated hesitancy with respect
to putting on the brakes
1.
2.

C.

1920-21

Present and prospective international commitments

On the spot

vs.

—

1929-33

-

1937-33

pointing the finger

1.

Policy-makers

2.

Our experience in field conferences
(a)
(b)

D.

vs.

technicians

Discussion only
Voting on issues

Never surrender the right to criticize

Nov. 16 a.m.
TREASURY FINANCING
Secretary of the Treasury Snyder announced that holders
of Treasury notes and certificates of indebtedness which will
mature on January 1, 1949* will be offered a one-year 1-1/4
per cent certificate of indebtedness. The maturing securi­
ties are the Series A 1949 notes and the Series A 1949
certificates of indebtedness now outstanding in the aggre­
gate amount of $6,126,729,000.
At the same time the Secretary stated that holders of the
2 per cent Treasury bonds of 1948-50 outstanding in the
amount of $571,431,150 which have been called for redemption
on December 15, 194&, will be offered a one-year 1-1/4 per
cent certificate of indebtedness.







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