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(4EW Sc.»o#l Social MONETARY STATESMANSHIP M a ** The monetary perspective A. National objectives 1. Absolute: 2. Relative: with minimum of inflation, with maintenance of freedom B. to win the mar Relative responsibilities of agencies 1. The armed forces a. 2. Physical requirements Of the Congress a* 3. Appropriations (1) Physical requirements (2) Prices The Treasury a* Absolute: to finance the war b. Relative: methods of financing (1) Taxation (2) Borrowing from current income 3) Borrowing accumulated savings U) Borrowing from commercial banks (5) Borrowing from Federal Reserve Banks ¡ - 2 - 4* The Federal Reserve System a. Absolute: raised b. Relative: (1) (2) to see that all needed funds are Restricted choice (a) Taxation: (b) Borrowing: advise advise on issues Greater freedom (a) Methods of selling securities: War Financing Committee Victory Fund Committee War Savings Staff (b) 5. Method of providing reserves Summary "I think of the independence of a central bank in terms of the understanding of monetary problems and of courage in pressing its point of view, in terms of a tradition commanding the respect of the Government and the public. And, yet, wdth recognition of the fact that it exercises governmental powers and must be a branch of the Government . . . If the central bank understands that it is its function to present the monetary point of view on current problems and if it has succeeded in obtaining fair consideration of that point of view, then I think it has achieved all the independence that it should have." - 3 - Aopr.>pri<ite monetary policies A* Relationship to fiscal policy 1. Magnitude of the budget GENERAL BUDGET SUilMARY (In billions of dollars) July Fiscal January through Fiscal Classification year tnrough Decem_ year 1944 June ber 1942 _________________ 1943 19^2 Receipts: Direct tax«« on iniividuals___ .........____.. .Direct tax«« on corpora tions ...»••••»«•••••••• Other....••••••••••••••• Met receipts...... 13» i 6.7 1.6 3.7 34*9 6.2 2.2 15>2 3*9 2.L 5*0 _1l»1 12.3 War activities*......... 97.0 Interest on the public debt........ 3.0 Jther activities*............4«! Total expenditures.104.1 41*9 32.1 26.0' 1.1 2.3 45.3 .7 2.3 35.1 1.3 5.1 32.4 .'Bases« of «xp«ndLtur»8.*... 71.0 j$qMndlttLres by GoronuMnt c o lo r a t io n s and ie i* 4 *i l a p in Treasury balaac«. - *1 ftierease In d e b t. ••*••••••• 75*7 30.2 27.3 19.6 4 .0 -7 .7 26.7 1 .0 *7*6 35.7 3 .6 ♦ »4 2J.5 L .L 33.1 7.3 'Expenditures: teb lic at cod of p s r j o d . »210»5 3L3|.»8 108.2 72»4_ l a ad&tlon to n«r esqienditiires ®jA®y la % « t acccw t« .the figare® fo r ew rporati«« «ad a g « c ie s ttndade 2.3 M U i « dollars in f is c a l year 1% 2, 3»3 teilHoo Im l f 4 f # and 2 .7 b illio n in 1944. -4 2. Sources of funds 3. Ownership of Government securities OWNERSHIP OF U. S. GOVERNMENT SECURITIES (Amounts in billions of dollars) Estimated-------C holdings June 30, Dec. 31, 1942 to 1942* Dec. 31, _________________________ 1942 ♦ 14.9 41.3 ♦ 3.5 6.2 irai Reserve Banks. lal savings banks.. irance companies... ir investor group; xketable issues... fimarketable issues 4.6 11.0 ♦ ♦ .7 2.1 h a n_g e------Dec. 31, June 30, 1941 to 1941 to June 30, Dec. 31, 1942 1941 ♦ 4.6 + 1.7 ♦ ♦ .1 •4 ♦ ♦ .2 1.1 ♦ ♦ 1.0 4.5 ♦ ♦ 4-3 .9 .2 ♦ ♦ .9 .2 ♦ 12.7 ♦ 9.0 4.1 21.2 ♦ ♦ 8.1 ♦ ♦ ral agencies and trust funds: ecial issues..... blic issues...... 9.0 3.2 ♦ ♦ 1.1 .4 ♦ ♦ Total interestbearing direct and guaranteed securities out standing........ 111.6 15.1 ♦ 35.1 •9 .3 .6 Itïï isâtes for commercial banks, mutual savings banks, in- Iran ce companies, and other investor groups are prelimiPr - 4. B. 5 - Taxation, forced saving, voluntary saving, and inflation a. Graduated income taxes on aaount of income b. Forced saving based on increases in income over income in a base period c. Voluntary saving through organised drives d. Bank purchases Alternative methods of providing reserves 1. Sources of demand for reserves a. Increased deposits b. Drain of cash into circulation 2. Treasury operations and the flow of funds a. Central reserve cities b. Reserve cities c. Country banks 3. Methods of providing funds a. Reduction in reserve requirements b* Open Market operation« o. Loans to member banks (l) Variations