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Statement for the Press

Summary of Remarks by_
Wm. McC. Martin, J r . , Chairman,
Board of Governors of the Federal Reserve System,
before the Bankers Club of Chicago,
Chicago, Illinois,
For release in morning
May 28, 1952.
papers, Thursday, May 29.
The stability which has characterized our economy for the past twelve
months in the face of continuing international tension, expanded defense spending, and substantial adjustments in the output of civilian goods is one of the
most encouraging aspects in the long-run economic prospects for the Nation.
It is doubtful whether we have ever made so many adjustments in the space of
a single year during peacetime and still kept the economic ship on a comparatively even keel.
That it has been possible to achieve such stability can be attributed in
large part to the prompt and effective application of fiscal and monetary, as
well as direct, measures of restraint.

Tax increases enacted by Congress in

the fall of 1950 and again last summer have made possible a relative balance
in Government expenditures and income thus far.

In times like these when

employment, production, and personal incomes are at peak levels, the
importance of the pay-as-we-go principle cannot be overemphasized.
Prudent trimming of Government expenditures should accompany the taxes,
in order to avoid deficit financing.


So far as the Federal Reserve System is concerned, its primary
efforts to offset inflationary pressures have been through discount and open


traditional tools of a reserve banking system.


actions were effectively supplemented by selective regulation of stock market,
consumer instalment, and real estate credit, as well as by the Voluntary
Credit Restraint Program.

The lenders of the Nation have reason to take

satisfaction in their contribution to the successful operation of this voluntary
program which has recently been put on a standby basis.
Looking ahead, Chairman Martin said, there are some who feel that
the danger of a resumption of the inflationary spiral is slight.

With all of

the uncertainties in the situation today, however, it is an extremely
hazardous occupation to predict what will happen in the months ahead.
Accordingly, credit and monetary instruments, which have proved effective
in helping to maintain stability, should not be discarded.

The Federal

Reserve Board has recognized the need for flexibility in monetary and
credit measures, particularly in the field of selective regulations,
evidenced by a series of actions during recent months.


If there were to be

another flare-up of inflationary pressures, the restraining instruments
which have proved effective during the past year should again be made
Chairman Martin also called attention to the significant changes in
the Government's financing program announced recently by the Secretary
of the Treasury.

All financial institutions, he said, have a responsibility


to see that the public has every opportunity to learn about these offerings
and to appreciate the advantages which accrue to the buyers of the various
types of new bonds.

One of the most important tasks which bankers face

in the next few months is to aid the efforts of the Treasury in obtaining the
funds it needs from private, nonbanking sources.