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M Ln m m

The objective of financing th© war with a airdaua of in­
flation can be attained by securing a maximum of funds from others than
cosynorcial bank**#

The distribution of th® debt of the Unitad States

Government indicates that in the fiscal year 1942 and again in the first
five months of fiscal 1943 approximately

63

per cent of borrowings have

been obtained from this source and 37 per cent from banka (See Appendix
T&ble 1 ).
Question arises as to further possible sources of non-bank
funds*

Tile SBC recently estimated individual savings in the United

States (Bee Appendix Tabla 2).

Ingliah experience warrant* the con­

clusion that as rationing is extended to a much wider list of com­
modities the total volume of individual savings will increase con­
siderably*

Furthermore, the most important traditional types of sav­

ings, purchases and payments on durable consumers goods;will dry up.
this latter tendency already is evidenced in the SEC estimates,

This

has resulted in rapid extension of alternative types of saving,such
as insurance, both Government and private, in direct purchase of Govern­
ment securities, and currency and bank deposits*
To the extent that saving is institutionalized in insurance,
building and loan and othera, it can be channeled into Government se­
curities by conference and arrangement with the management# of the in­
stitutions*
Most of the savings, however, are not in#titutionali zed* The
w&&e savings plan clearly is not meeting the shole problem*

It reaches

only the wages of those who have a regular employe** but misses professional
and other people who receive^ payments from many sources.

The SEC es­

timates suggest that as a minimum banks be urged to sell Government se­
curities to customers whose deposits show considerable increases*



Hr*

Friecd of the SEC, who made the estimated, gives the following breakdowi of currency and deposits for the firat three quarters of the year.
in billions

—ikfclL,

J&JLm

Currency* ............
.6
*6 1*2
Demand Deposits....
0
1.3
2.5
Time Deposits........ ..jVjL
^aiu.
“»2 2*1 4.1
Certainly there is no good reason why anyone ohould Increase his time
deposits at the present juncture*
Discussion of the problems of war finance with competent ob­
servers, such as Ralph Young, Frame i* Fetter, Bay Whittlesey, I* A.
Qoldenweiser, and others, leads to this conclusion— wide expansion of
rationing should be accompanied by forced saving*

The two should be

synchronised so that as individuals cannot buy the commodities that are
rationed, they put the funds into Government securities*

It would be

a mistake to allow an Interval between the expansion of rationing and
the adoption of forced savings*

To do eo would give individuals an

opportunity to uncover other methods of disposing of their Income*
Ideally the minimus of disturbance -ould be gained both now and in the
postwar period if taxes could be levied on the basis of the amount of
tosaw. M d

SsrsiA m H W

°P

tawaM*

i&

Tho«. .ho hav. had

large Increases in income have been able to increase their standard of
living*

la the long run they probably should receive such a higher

standard, but to achieve it at this time require® an adjustment in­
cluding unwise expenditures and the readjustment after the mar will in­
volve even more difficult problems*

It seems i.wise, therefore, as a

war measure to retM* * l*rg® P*rt of the increase temporarily and to re


\

^

turn it after the war.
Forced saving is recommended not because particular sources
of funds are drying up.

On balance, the one-tine sources, comprise only

a comparatively small amount in terns of the 1 innslty of the problem.
The broad outlines of British war finance shown in Table 3 suggest
goals at which we night shoot*

POLISH PUBLIC FlHAKCg
(exclude Lend-Lease)

h 1 billion
Bxpent- Amt. of
ditures
Taxes

Sept. 2, 1939.... ...........
Sept. 3# 1939-Aug* 31, 1940...
Sept. 1, 1940-Aug. 30# 1941...
Aug. 31# 19U-Jng« 30, 1942...

1*1
(42*4)
1*6
(35.9)
2*2
(42*5)

Increase in
Increase Bank
Others
Holdings

1.5
2.7
2.7

.1
(7)
.7
(25)
.3
(H)

1.4
(93)
2.0
(75)
2.4
(89)

It Must be borne In mind that between 750 tad 800 Billion h
were secured In 1940 and again in 1941 from liquidation of British inveetaents abroad*

This reduced the magnitude of the local problem by

an equivalent amount*

In the case of the United States, on the contrary,

the Government has to finance hot only our own efforts but expenditures
on I^ad-lease as well*

Bwvertheleas* the fititish have secured approximately

40 per cant of their total expenditures through taxes*

Of the remaining

60 per cant they have secured over the three-year period lass than onefifth from banka*




At the same time that the banks have increased their

holdings of Qovernaent securities by approximately 1 billion L, they have
reduced their loans by 200 Million L.

Total deposits at Bnglish banks

have increased about 1 billion L since the outbreak of the ear*
is an increase of just about 50 per cent.

This

The English hare not only

secured a larger portion of total expenditures from taxes* but, of the
regaining portion, they have secured a much smaller percentage from the
banks*

This goal could not be reached in the United States without a

considerable volume of forced saving*




OWNERSHIP OF PUBLIC DEBT

Expstt™
ditura*
Juqo 30, 1940««t*M*f*»•**«••
pWT6#!Sfe££S##*••••*.*••••
Fiso&l 1941***••••♦•••*••*♦
Fiaoil 1942*.*•*#*•***#*#*#
|H&rcent&g*ll».««•«••* ****
July l~D*c* 1, 1942* *•*«••*«•
p«rcent*g«».••*.**••*•••




Bank

D*bt
In-

holdings
Total

6*8

J2«4

11*7

28.8

24*9

»>t*i

19*0
39.3
3*5
3*3
22*3
55*3
(47.5%) (40.0) (52.5)
6.3
29.0
77.0
14*9
(31*3) (37.7) (68.7)
9*2
38.2
15.7
101.9
(37.0) (37.6) (63*0)
48*5

3J*7

er«as«

Others
holding!
InTotal
cr*a»#
29.5
60.7
33*0
(60.0)
48.0
(62.3)
63.7
(62.4)

QR0S8 SAY1K Of IfcSIVICPALS IK THE U1ITED STATES*
1 9 4 0 -4 2

£jstlmAt«s cf tha Securities and Exchange Coimdssicm
(Billions of dollars)

dross Sftting**.**...........
Liquid S»Tingf4**.*....*......*.•
Gross Saving by Type
1. Currency and bosk deposits*...
2* Savings sad loan associations.
3* Insurance and pension reserves
a* Privtie 1asuranee*»>«»»«>»
b* Government insurance...*•••
c* Total..
4. Securities
a* federal*
b* Municipal.
o* Corporate and other.*••••••
d. T9tftl*»«Mi«.... .
5. Xonfaxn Duellings
a* Purchaser.••••••••.*.•*••••
b* Change in
o* Savicg (a minus b)*«»******
6* Autoeobilee and other durable
cansunsrs' goods..*••*.*.•*•*.
7* Liquidation of debt, not alsowhere classified#«mm«m*«»m

1940

1941

16*57
4.77

25.28

Jan.— 1942
Apr.Mar*
June

JulySept*

3*96
6.45

11.40

-►3.70 ♦ 5.60 - *10 ♦2.40
0 ♦ .05
♦ .25 ♦ .45

♦ 4.10
♦ .03

10*84

♦1.70 ♦ 2.04
♦1.24 ♦ 1.76
♦2.94 ♦ 3.80

♦ .50
• .22
- .56
—*28

6.50
4.18

♦ *J7 ♦ .53 ♦ .6 i
♦ .40 ♦ .60 ♦ .72
♦ .97 ♦1.13 ♦ 1.34

♦ 3.30 ♦2U0
♦ .02 * *06
- .58 ♦ .28
♦ 2.74 +2.62

♦2.54 ♦ 3.01
♦ .88 ♦ 1.08
♦1*6? ♦ 1.92

♦2.20 ♦ 2.80
- .03 ♦ .04
0
♦ .01
♦2.18 ♦ 2.84

♦ .51 ♦ .52 ♦
♦ .12 ♦ .15 ♦
♦ .39 ♦ *36 ♦

♦9.26 ♦11*44 ♦1.82 ♦1.99
- .97 • .67

9.13

♦ *80 ♦ .85

.32
*11
*«a

♦ 1.95
♦

.83

♦Does not Inclndo business or grrrsmn— it saving*
**Oross saving excluding purchases of hones as well aa of autonobiles
mnA other durable oonmaears* toodi*