Regional President Speech

DEVELOPMENT OF AMERICAN MONETARY POLICY KARL R. BOPP Vice President, Federal Reserve Bank of Philadelphia Princeton Economic Seminar Princeton University, Princeton, N. J. November 20, 1947 INTRODUCTION A. Feeling 1« Honored 2. Enjoy 3* Embarrassed 4« Inadequacy B. Shall not discuss responsibility C. Analytical description - personal D. Sasy to be critical - post hoc, of course only where now agreed it was wrong I* VAR FINANCE A* Prom July 1940 to June 194-6 Government spent....... . . • • $400 billion Taxes........$175 billion Borrowed • • • 225 ' n II. OPTIONS ON BORROWING FROM THE PUBLIC A. To determine the amount - then public determines the rate B. To determine the rate - then public determines the amount III. THE BASIC DECISION A. In verbal terms - on amount B. In operational tents - on the rate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 - IV. SEASONS FOR THE DECISION A. Distinction between money and Governments considered unimportant 1. Expenses — taxes = liquid asset increase B. Economics 1. Demand for funds unaffected by rate (a) Government (b) Private demands limited by direct controls 2 • Supply of funds &lso unaffected (a) Individuals: direct controls - forced saving (b) Institutions Maturities, new funds C • Experience 1. Probable results of financing war with rising rates - as in First World War V. WHAT RATE? A. Higher B. Existing VI. THE RATE STRUCTURE THAT WAS TO BE MAINTAINED A. Based on institutional habits Banks and short funds B. Uncertainty - expectation of a rise JII. RESULTS OF MAINTAINING RATES A. Injecting certainty into a market whose rates are based on uncertainty. B. Overcoming institutional prejudices - Oct. 1942 issues Banks from excess reserves to shorts and from shorts to intermediate eligibles. C.* IapOfiftftee Qf volume of short Issues Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3 - VIII. SOME TECHNICAL FACTORS (effects on bank holdings) A. Non-eligible securities B. Limiting direct bank subscriptions >^C. War Loan Account and reserve requirements D. Quantitative measure of success of War Loan Drives IX. PREPARATION FOR RECONVERSION A. The last drive B. The notion of economic maturity 1. Model builders versus monetary theorists C. Inadequacy of compensatory fiscal theory Possibility of private sector of the econony operating at a fiscal deficit when profit prospects are high enough and conditions of creating money are easy enough. X. OUR CURRENT PROBLEM A. Excessive money supply B. Upward pressure on prices C. Profitability of creating more money XI. ALTERNATIVE SOLUTIONS A. Collective self-restraint 1. Our regional meetings 2. Productive versus non-productive credit 3* Inadequacy of this approach B. Increasing the price of reserves 1* Federal Reserve policy since July 2« Limitations - Government bond prices C. Hardening other terms of creating money and reserves 1. The Board's proposals of 1945 2* The 1946 report Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - k - XII. QUERIES A. "There ain't no free lunch" B. Relative economic costs of XL B and C 1. Tradition: National Bank Notes 2. Pure economics Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1947, November 19). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19471120_karl_r_bopp

@misc{wtfs_regional_speeche_19471120_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1947},
  month = {Nov},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19471120_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}