Regional President Speech

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 Uni tad 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 other a, 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# tit ut i onali 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* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Friecd of the SEC, who made the estimated, gives the following break- dowi of currency and deposits for the fir at 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 mHW °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- \ ^ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 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 Increase in Bxpent- Amt. of ditures Taxes Increase Bank Others Holdings Sept. 2, 1939.... ........... Sept. 3# 1939-Aug* 31, 1940... 1*1 1.5 .1 1.4 (42*4) (7) (93) Sept. 1, 1940-Aug. 30# 1941... 1*6 2.7 .7 2.0 (35.9) (25) (75) Aug. 31# 19U-Jng« 30, 1942... 2*2 2.7 .3 2.4 (42*5) (H) (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 in- veetaents 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 one- fifth from banka* At the same time that the banks have increased their Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 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* This is an increase of just about 50 per cent. 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* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis OWNERSHIP OF PUBLIC DEBT Bank Others D*bt Expstt™ holdings holding! ditura* In- In- Total »>t*i Total er«as« cr*a»# Juqo 30, 1940««t*M*f*»•**«•• 48*5 19*0 29.5 pWT6#!Sfe££S## *••••*.*•••• 39.3 60.7 Fiso&l 1941***••••♦•••*••*♦ 3J*7 6*8 55*3 3*3 22*3 3*5 33*0 (47.5%) (40.0) (52.5) (60.0) Fiaoil 1942*.*•*#*•***#*#*# J2«4 11*7 77.0 6.3 29.0 14*9 48.0 |H&rcent&g*ll» .««•«••* ** ** (31*3) (37.7) (68.7) (62.3) July l~D*c* 1, 1942* *•*«••*«• 28.8 24*9 101.9 9*2 38.2 15.7 63.7 p«rcent*g«».••*.**••*••• (37.0) (37.6) (63*0) (62.4) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis QR0S8 SAY1K Of IfcSIVICPALS IK THE U1ITED STATES* 1940-42 £jstlmAt«s cf tha Securities and Exchange Coimdssicm (Billions of dollars) 1942 Jan.— July- 1940 1941 Apr.- Mar* Sept* June dross Sftting**.**........... 16*57 25.28 6.50 3*96 11.40 Liquid S»Tingf4**.*....*......*.• 4.77 10*84 4.18 6.45 9.13 Gross Saving by Type 1. Currency and bosk deposits*... -►3.70 ♦ 5.60 - *10 ♦2.40 ♦ 4.10 2* Savings sad loan associations. ♦ .25 ♦ .45 0 ♦ .05 ♦ .03 3* Insurance and pension reserves a* Privtie 1 asuranee*»>«»»«>» ♦1.70 ♦ 2.04 ♦ *J7 ♦ .53 ♦ .6i b* Government insurance...*••• ♦1.24 ♦ 1.76 ♦ .40 ♦ .60 ♦ .72 c* Total.. ♦2.94 ♦ 3.80 ♦ .97 ♦1.13 ♦ 1.34 4. Securities a* federal* ♦ .50 ♦ 3.30 ♦2U0 ♦2.20 ♦ 2.80 b* Municipal. • .22 ♦ .02 * *06 - .03 ♦ .04 o* Corporate and other.*•••••• - .56 - .58 ♦ .28 ♦ .01 0 d. T9tftl*»«Mi«..... — *28 ♦ 2.74 +2.62 ♦2.18 ♦ 2.84 5. Xonfaxn Duellings a* Purchaser.••••••••.*.•*•••• ♦2.54 ♦ 3.01 ♦ .51 ♦ .52 ♦ .32 b* Change in ♦ .88 ♦ 1.08 ♦ .12 ♦ .15 ♦ *11 o* Savicg (a minus b)*«»****** ♦1*6? ♦ 1.92 ♦ .39 ♦ *36 ♦ *«a 6* Autoeobilee and other durable cansunsrs' goods..*••*.*.•*•*. ♦9.26 ♦11*44 ♦1.82 ♦1.99 ♦ 1.95 7* Liquidation of debt, not also- where classified#«mm«m*«»m - .97 • .67 ♦ *80 ♦ .85 ♦ .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* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1942, December 31). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19430101_karl_r_bopp

@misc{wtfs_regional_speeche_19430101_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1942},
  month = {Dec},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19430101_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}