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Statement by Wm. McC. Martin,


Chairman of the Board of Governors of the Federal Reserve System,
before the
Banking and Currency Committee of the Senate,
March 30, 1953,
S. 753, A Bill to Provide Standby Economic Controls,
S. 1081, A Bill to Provide Authority for Temporary Economic Controls.

As members of this Committee are aware from previous testimony
on behalf of the Federal Reserve Board, the Board believes that primary
reliance should be placed upon general fiscal, and monetary measures in
order to foster steady economic progress.
Whenever possible, in our opinion, market forces should be
allowed to assert themselves to bring about necessary adjustments within
the framework of fiscal and monetary policies directed toward high levels
of production and employment and a stable value for the dollar.

At the

same time we recognize that when our economy is operating at such a
high rate as it istoday—


production at very near the limits of our

physical capacity in most lines and a fully employed laborforce—


is little or no slack that could absorb the impact of a sudden increase in
business and consumer spending.

Essential as appropriate fiscal and

monetary measures are at all times, they may need to be supplemented
by direct controls under certain emergency conditions.
In the present international situation there is, of course, the
ever present possibility that an emergency might arise.

It might then

be highly desirable to be able to put into effect promptly certain of the
controls which are contemplated in the bills which you are considering.


The Bills in Relation to the Federal Reserve. - - Senator
Capehart's bill, S. 753, would (1) reenact, on a standby basis, authority
to regulate consumer credit in the same flexible form as originally
enacted in the Defense Production Act of 1950; (2) reenact, on a
standby basis, the President's authority to regulate real estate construction credit in the same flexible form contained in the Defense Production
Act of 1950 (applying only to new construction); (3) continue without
change until June 30, 1954, the Government program of guaranteed
loans for financing of defense contracts (the V-Loan Program); and
(4) prohibit voluntary programs or agreements for the restraint of

The other proposals in S. 753 involve matters which do not

fall primarily within the Board's province.
Senator Capehart's other bill, S. 1081, provides that the
President, after consulting the proposed National Advisory Council,
might freeze

prices, wages and rents at the levels then prevailing

for a period of 90 days.

It does not contain provisions relating to

credit controls.
Consumer and Real Estate Credit. - - The Board is not seeking
authority to reinstitute at this time regulation of consumer credit or
real estate credit.

It is true that both consumer and real estate credit

have expanded rapidly in the last year and that some of this credit has


been extended on extremely easy terms,

Delinquencies and repossessions,

painful though they may be, will operate at some point to correct unsound
terms and to cause sellers and lenders to adopt safer credit policies.
The Board feels that market forces will eventually assert themselves
to bring about readjustments provided they operate within a framework
of proper fiscal and monetary policies.
At the same time, the Board recognizes that there may be
emergencies when it may be helpful to supplement general fiscal and
credit policies by more direct restraints.

If Congress decides to

enact legislation to give emergency powers to the Board in the fields
of consumer and real estate credit, the Board recommends that the
powers be granted without the limitations upon terms that have
previously seriously hampered administration of this kind of regulation.
S. 753 provides the authority on this flexible basis.

The Reserve

System, because of its responsibility for monetary policy, is the
logical medium for administering such a law, and has had considerable
experience with this type of regulation.
The Board also recognizes that, if an emergency arose in
which controls over prices, wages and rents were necessary as
provided for by the 90-day freeze bill, S. 1081, consumer and real
estate credit controls might well be needed to supplement other


emergency measures.

Accordingly, if legislation along the lines of

S. 1081 were to be favorably considered by Congress, provisions
authorizing consumer and real estate credit controls for a temporary
period in an emergency might appropriately be included in such
In this connection it may be mentioned that under the Trading
with the Enemy Act of 1917 the President has broad authority in time
of war or national emergency over payments or transfers of credits
by banking institutions, and it is believed that the President could
utilize this authority in order to regulate consumer or real estate
credit in a national emergency.

However, we recognize that some

might question the legal basis of such action under the 1917 law, and,
in any event, we feel that use of this authority should be avoided except
as a last resort.
Voluntary Credit Restraint, -- It is noted that these bills do
not provide for an extension of this authority.

While there are limits

to its effectiveness as a means of credit restraint, under emergency
conditions it can be a useful adjunct to a comprehensive regulatory
V-Loan Program. - - Title III of S. 753 would extend until
June 30, 1954, the authority of various agencies of the Government to

-5guarantee loans for the financing of defense contracts through the agency
of the Federal Reserve System (the so-called V-Loan Program),

It is

the impression of the Board that this program has been constructive and
helpful to the guaranteeing agencies in facilitating defense procurement
and that it should be continued.