Address before Cuyahoga County Savings and Loan League, Cleveland, Ohio, April 16, 1953

, f , ' I I I I ADDRESS BY IVY BAKER PRIEST TREASURER OF THE UNITED STATES BEFORE CUYAHOGA COUNTY SAVINGS & LOAN LEAGUE CLEVELAND, APRIL 16, OHIO 19 53 • THE RESPO NSIBI LITIE S AND DUTIE S OF THE TREA SURER OF THE UNITE D STATE S ARE DEFIN ED AS FOLLO WS: THE OFFIC E OF THE TREA SURER OF THE UNITE D STATE S IS ESSEN TIALL Y THE BANK ING FACIL ITY FOR THE GOVE RNME NT AND IS REQU IRED UNDE R LAW TO - SERVI CE PRAC TICAL LY THE .ENTIR E FEDER AL ESTAB LISHM ENT, CHAR GED WITH THE RECE IPT, BEING PARTI CULA RLY DISBU RSEM ENT, AND ACCO UNTIN G FOR PUBL IC MONI ES. soj. YOU SEE, I AM A BANK ER . . I AM ACCO UNTA BLE FOR SOME THING LIKE 23 BILLI ON DOLL ARS WORT H OF GOLD BULL ION AT FORT KNOX AND ELSEW HERE ; ABOU T 2 BILLI ON DOLL ARS WORT H OF SILVE R BULL ION, BANK DEPO SITS IN THE NEIGH BORH OOD OF 5 BILLI ON DOLL ARS AND COIN AND CURR ENCY AMOU NTING TO SOME THING LIKE HALF A BILLI ON DOLL ARS - MORE THAN 30 BILLI ON DOLL ARS IN ALL .WHIC H REPR ESEN TS THE TOTA L ASSET VALU ES IN MY OFFIC IAL ACCO UNTSo - 2 WITH SO MUCH MONEY INVOLVED WE WOMEN BELIEVE THAT IT IS ONLY FITTING AND PROPER THAT A WOMAN SHOULD BE IN CHARGE -- AFTER ALL WE WOMEN MANAGE MONEY IN MOST AMERICAN HOMES o THE MANAGEMENT OF MONEY - ESPECIALLY OTHER PEOPLE'S MONEY - AS YOU WELL KNOW, RESPONSIBILITY. IS A GRAVE THIS IS TRUE WHETHER ONE IS MANAGING THE FAMILY ACCOUNTS, THE MONEY ENTRUSTED TO A BANK OR SAVINGS AND LOAN LEAGUE OR TO THE GOVERNMENTo WE IN GOVERNMENT ARE TAKING THIS RESPONSIBILITY SERIOUSLYo ONE OF THE BIGGEST JOBS FACING THE TREASURY DEPARTMENT TODAY IS THE MANAGEMENT OF THE PUBLIC DEBT WHICH CURRENTLY AMOUNTS TO MORE THAN 264 BILLION DOLLARS. ONE OF THE FIRST PROBLEMS TO WHICH THE NEW SECRETARY - GEQRGE Mo HUMPHREY TURNED HIS - 3 ATTENTION WHEN HE TOOK OFFICE WAS THE PUBLIC DEBT. HE ·REALIZED THAT . IT IS HERE THAT SOME OF THE SEEDS OF INFLATION . RE STo IF THIS SERIOUS THREAT TO OUR WAY OF LIFE WAS TO BE ELIMINATE D,. MR. HUMPHREY REASONED , THE DEBT. HAD TO BE MANAGED IN A BUSINESSL IKE WAY IN A WAY THAT ~WOULD NOT FEED MORE OIL TO THE FIRES OF INFLATION o ONE OF THE MOST SIGNIFICAN T STEPS IN HIS ATTACK UPON THIS PROBLEM WAS TAKEN THIS WEEK WHEN HE ANNOUNCE D THE OPENING OF SUBSCRIPT ION BOOKS ON AN OFFERING FOR CASH OF ONE BILLION DOLLARS WORTH OF MARKETAB LE BONDS BEARING 3-1/4 PER CENT INTEREST AND MATURING IN 30 YEARSo THIS MARKED THE FIRST TIME SINCE 1945 THAT THE TREASURY ISSUED SUCH A LONG-TERM BOND. WHAT MAKES - 4 THIS ACTION SO SIGNIFICANT? WHY IS IT IMPORTANT TO YOU AS INVESTORS AND ·AS LEADERS OF INSTITUTIONS WHICH LOAN MONEY TO PEOPLE. IT IS TRUE THAT ONE BOND ISSUE INVOLVING 1 BILLION DOLLARS IS NOT ONE WHICH, IN ITSELF, WILL HAVE MUCH AFFECT UPON THE MONEY MARKETS OR UPON OUR ECONOMYo BUT, THE FACT THAT THE TREASURY HAS ISSUED SUCH AN OFFERING INDICATES THAT SIMILAR ACTION WILL BE TAKEN IN THE FUTURE - IT ESTABLISHES A POLICY. IT INDICATES, MOREOVER, THAT THIS NEW ADMINISTR~TIO N IS ATTACKING THE CAUSE OF INFLATION RATHER THAN THE SYMPTOMS. IN THE LONG RUN, ACTION SHOULD HELP EVERYONE INVESTORS, THE CONSUMER, THE BANKERS, THE B UTCHER,. THIS THE THE BAKER - 5 AND THE CANDLESTICK MAKERo FOR EXAMPLE, AS A ~,RESULT OF THIS ACTION, SAVINGS INSTITUTIONS AND INSURANCE COMPANIES MAY BE ABLE TO PAY A HIGHER RATE OF INTEREST ON DIVIDENDS TO DEPOSITORSo MOREOVER, B ECAUSE OF ITS FAVORABLE AFFECT UPON THE VALUE OF THE DOLLAR, INSURANCE POLICIES W ILL BECOME MORE VALUA B LE TO HOLDERSo SIGNIFICANT , T00 1 A B OUT THIS NE W LONG-TERM 3-1/4 PER CENT B OND IS THE FACT THAT THE AMOUNT FOR W HICH COMMERCIAL B ANKS W ILL B E A B LE TO SUBSCRI B E HAS BEEN LIMITED TO 5 PER CENT OF THEIR TIME DEPOSITS. THE IMPORTANCE OF THIS LIMITATION LIES IN THE FACT THAT COMMERCIAL B ANKS ARE IMPORTANT B UYERS OF SHORT-TERM GOVERNMENT SECURITIESo THEY CAN USE SHORT-TERM SECURITIES TO INCREASE THEIR - 6 RESE RVE ON WHIC H THEY MAK E THE IR LOA NS. THIS OF SERV ES TO BUIL D UP THE SUPP LY OF MON EY AND CRE DIT - THE MON EY MAR KET IS SKYR OCK ETSo THE MON EY, LOO SE AND BOR ROW ING THUS B ORR OWE D, IS PLA CED LTSo IN THE SPEN DING STRE AM AND INFL ATIO N RESU COM PLET E THE ISSU ANC E OF THIS LON G-TE RM BOND IS A FOLL OWE D · DEPA RTU RE FROM THE EASY -MON EY POL ICIE S B Y THE GOV ERN MEN T IN REC ENT YEAR S.. IT SHOW S THA T DO W HAT THE PRES ENT ADM INIS TRA TION IS W ILLI NG TO - AND THE PREV IOUS ADM INIS TRA TION REFU SED TO DO LY TO THA T IS TO PRIC E OUR SECU RITI ES REA LIST ICAL IONS " ATT RAC T INVE STM ENT S FROM SA VIN GS INST ITUT MEN TS THIS IS THE TRA DITI ONA L W AY IN WHIC H GOV ERN HEL P TO CHE CK INFL ATIO N. T-HlS ·w oN' T '~"1lE f..c ::Ji' O:a..c. .E-Q._ - 7 IT'S A LOAN MADE TO THE GOVERNMENT BECAUSE THE RATE OFFERED 3-1/4 PER CENT IS EQUALLY AS AT TR AC T IV E AS OT HE R INV E S TM E Nr S~ GOVE RN ME N --- ,_c-&M P'E TI N-0 ~IN 'F HE ------ --- .!,l..!-~~ - l l t H ~ 1 t 1 , EY. IN OFFERING THIS NEW ISSUE, THE SECRETARY ALSO OFFERED HOLDERS OF F & G BONDS OF WHICH 1 BILLION ONE HUNDRED MILLION DOLLARS WORTH MATURE THIS ) YEAR, THE RIGHT TO SWAP THEM FOR THE N~ BONDS. THIS WAS ALSO PART OF THE POLICY OF EXTENDING THE NATIONAL DEBT OVER A LONGER PERIOD OF TIME. THIS FEATURE OF THE NEW ISSUE SHOULD PROVE TO BE VERY AT.TRACTIVE TO HOLDERS OF THE F & G BONDS BECAUSE THEY WILL BE EXCHANGED PAR FOR PAR. THOSE WISHING TO MAKE THE SWAP MUST DO SO BY MAY 1 - AND - 8 HE RE'S THE IN ·TERE STING AND A TTRCAC TIVE FEAT URE A B OUT THIS EXCHANGE: EVEN THOSE F & G'S WHICH DO NOT REACH THEIR FULL FACE VALUE UNTIL NEXT DECEM B ER WILL B E HONORED AT THE FULL FACE VALUE NO W . THE NEW SECRETARY'S POLICY WITH- REGARD TO MANAGING THE DE B T B Y NON-INFLATIONARY MEANS CAN B E SEEN AT W ORK IN . THE CURRENT DRIVE OF THE SAVINGS B O N D DIVISION. A HEALTHY SAVINGS B OND PROGRAM IS GOOD FOR THE COUNTRYo IT IS GOOD B ECAUSE IT HELPS SPREAD THE OWNERSHIP OF THE PU B LIC DE B T AND CONTRIBUTES TO . :WARDS 'ST A B ILI ZING THE VALUE OF THE DOLLAR. - 9 WE AT THE TREASURY ARE ENCOURAGED BY WHAT HAS HAPPENED IN THE SAVINGS BOND FIELD IN THE PAST THREE MONTHS. FOR MORE THAN TWO YEARS AMERICANS WERE CASHING IN E AND H IN JANUARY, BONDS FASTER THAN THEY WERE BUYING THEM. FEBRUARY AND MARCH THE TWO YEAR TREND • WAS REVERSED AND SALES EXCEEDED CASH-INS BY ALMOST TWO HUNDRED MILLION DOLLARS. THIS CHAN GE IS, IN· PART, DUE TO A FEE LING BY THE AMERICAN PEOPLE THAT WE ARE GOING TO MAKE EVERY HONEST EFFORT TO REESTABLISH THE SOUNDNESS OF THE DOLLARo THIS FEELING, OF COURSE, WILL BE STRENGTHENED BY THE NEW LONG-TERM BOND I MENTIONED EARLIER. IT ALSO WILL BE STRENGTHENED BY THE CURRENT SAVINGS BOND DRIVE. KNOW, THIS CAMPAIGN, AS YOU PROBABLY IS AIMED AT GETTING THE SELF -EMPLOYED - 10 - LAWYER S, DOCTOR S, ENGINEE RS, ( M'ktf~ {/d~t U I A MONTHo ETC. , - TO BUY A BOND j) IMPORTA NCE OF THE SUCCESS OF THIS PROGRA M W AS THE TREASUR Y SO THAT IT IS MORE IN THE HANDS OF INVESTO RS." IN ADDITIO N TO THESE MONETA RY AND FISCAL STEPS B EING TAKE--N B Y THE GOVERN MENT TO STAHL IZE THE DOLLAR , B UDGET o WE ARE ALSO TRYING HARD TO B ALANCE THE IN THE FINAL ANALYS IS, A B ALANCE D B UDGET IS THE MOST EFFECT IVE WAY OF REDUCIN G THE DE B T AND HALTING INFLATI ON. A LONG STEP IN THAT DIRECTI ON HAS ALREAD Y B EEN TAKEN. B UT , LET ME SAY HERE THAT, AT PRESENT , IT - 11 - IS DOUBTFUL IF ANYONE CAN TELL YOU WITH ANY DEGREE OF CERTAINTY WHETHER OR NOT THE B UDGET CAN B E B ALANCE Do IT'S TOO EARLY FOR ANY SUCH PREDICTION. W E ARE OPERATING UNDER CERTAIN HANDICAPS HANDICAPS WHICH WE INHERITED FROM THE OLD ADMINISTRATION. THERE E X IST TODAY F ARFL UNG COMMITMENTS MADE B Y THE PREVIOUS ADMINISTRATION W HICH REQUIRE THE SPENDING OF HUGE AMOUNTS OF MONEY - B OTH AT HOME AND A B ROAD. FOR INSTANCE, CONSTRUCTION PROJECTS B EGUN DURING THIS FISCAL YEAR AND W HICH REQUIRE FURTHER APPROPRIATIONS FOR COMPLETION IN THE NEXT FISCAL YEAR CANNOT B E STOPPED FOR IT W OULD B E MORE EXPENSIVE TO DO THAT THAN TO APPROPRIATE THE FUNDS NECESSARY TO COMPLETE THEMo B UT , THE IMPORTANT THING - THE ENCOURAGING THING- - 12 ABOUT THE WHOLE SITUATION IS THAT EFFORTS ARE BEING MADE TODAY TO TRIM THE BUDGET,. BEING ASKED IN GOVERNMENT TODAY IS: WE SAVE" AND NOT, AND, "HOW MUCH CAN "HOW MUCH MORE CAN WE GET?" UP UNTIL NOW, HAVE RESULTED IN: THE QUESTION HERE IS WHAT THOSE EFFORTS A TOTAL OF $423,325,300 HAS BEEN TRIMMED FROM THE BUDGETS OF THE FIRST SIX MAJOR DEPARTMENTS WHICH HAVE SUBMITTED THEIR REVISED BUDGETS TO CONGRESSo COMMERCE, THESE INCLUDE, AGRICULTURE, DEPARTMENTSo JUSTICE, THE TREASURY LABOR AND INTERIOR THE FIR~T 13 OF 56 INDEPENDENT AGENCIES OF THE GOVERNMENT TO REPORT, REDUCED THEIR REQUESTS BY AN AVERAGE OF 15 PER CENT OR $21,382,000. A TOTAL OF HALF A BILLION DOLLARS MAY NOT SOUND BIG IN A BUDGET WHICH TOTALS OVER 75 BILLION DOLLARSo - 13 BUT, I BELIEVE THAT IT DOES SHOW THAT . THE DEPARTMENTS ARE TRYING . TO SAVE MONEYo MORE SAVINGS 1 NO DOU B T, COULD HAVE B EEN MADE B Y A CLOSER SCRUTINY OF THE BUDGETS OF THE VARIOUS DEPARTMENTS. B UT, THE TIME ALLOTTED THEM W AS SHORT B ECAUSE CONGRESS MUST ACT VERY SOON ON THE B UDGET. NO W, THIS B RINGS UP THE CURRENT DE B ATE - W HAT XlO:Et COM '. ES FIRST A BALANCED B UDGET OR A TAX REDUCTION? SOME PEOPLE W OULD LEAD YOU 'ID B ELIEVE THAT THIS IS LIKE ASKING W H A T COMES FIRST THE CHICKEN OR THE EGG? SCHOOL MAINTAINS THAT IF YOU REDUCE TAXES AND THUS CUT DOWN THE AMOUNT OF MONEY COMING IN , THEN IT IS UP TO THE ADMINISTRATIO N TO LIVE WITHIN. ITS MEANS. - 14 - B UT, THE GOVER NMENT DOESN 'T WORK THAT WAYo IT CAN'To COMMI TMENT S HAVE TO BE MADE IN ADVAN CE. MANY COMMI TMENT S HAVE ALREA DY B EEN MADE COMMI TMENT S W HICH THIS ADMIN ISTRAT ION INHER ITED. THERE FORE, IF TAXES WERE CUT B EFORE THE BUDGE T IS REDUC ED SU B STANT IALLY B ELO W PRESE NT LEVEL S , THE GOVER NMENT W OULD HAVE TO B ORRO W MORE MONEY AND INFLAT IONAR Y FIRES W HICH WOULD MAKE THE TAX CUT MEANI NGLES S. A PREMA TURE TAX CUT WOULD PROVE TO B E WORSE THAN NONE IF IT LED - AS IT E AS IL Y COULD - fftO F UcR TiH E R CHEAP ENING OF THE DOLLA R AND CONSE QUENT FURTH ER LEAKA GE FROM EVERY POCKE T B OOK. - 15 W HAT A B OUT THE NEW ADMINISTRATIO N"S TAX NO W , PROGRAM? THERE ARE TWO MAJOR ASPECTS TO THIS TAX PRO B LEM AND IT IS TO THESE THAT THE TREASURY IS DIRECTING ITS ATTENTION. THE FIRST IS THE IMMEDIATE TAX SITUATION AND THE SECOND , A LONG-RANGE STUDY OF THE ENTIRE TAX PROGRAMS WHICH PRESIDENT EISENHO WER IN HIS STATE OF THE UNION MESSAGE SAID WOULD B E UNDERTAKEN. IN THE FIRST PART OF OUR TAX PROBLEM - THAT IS , THE CURRENT SITUATION - THE TAX EXPERTS AT THE TREASURY ARE TRYING TO B E READY TO RECOMMEND W HAT THE ADMINISTRATIO N STAND SHOULD B E ON SPECIFIC TA X ES, W HICH SOON WILL EXPIRE OR B E ALTERED. EXCESS PROFITS TAiX IS DUE TO EXPIRE JUNE 3 0 . THE THAT W ILL INVOLVE AN ANNUAL LOSS OF A LITTLE OVER $2 B ILLI'ON. ITS EXPIRATION HAS COME TO B E TIED UP W ITH - 16 H. R. 1 WHICH WOULD . ADVANCE THE SCHEDULED DECEMBER 1 CUTBACK ON PERSONAL INCOME TAXES TO JUNE 30, WITH A LOSS OF REVENUE IN THE AFFECTED SIX MONTHS OF ABOUT $1. 5 BILLION DOLLARS, OR $3 BILLION A YEAR. THE CORPORATION INCOME TAX, UNDER PRESENT LAW, WILL DROP FROM. 5 2 TO 4 7 PER CENT ON MARCH 31, 1954, RESULTING IN A YEARLY REVENUE LOSS OF ABOUT $2 BILLION. TAXES, ALSO, ON MARCH 31, 1954, CERTAIN EXCISE WHICH BRING IN ABOUT $1 BILLION A YEAR ARE DUE TO EXPIRE. THE FOUR CHANGES I HAVE MENTIONED - IF ALL S HOU L D C OM E TO P ASS. - WO UL D RE SU L T IN AN ANNUAL DR OP IN TAX R EV E NU E·S OF MORE THAN $ 8 BIL L ION. T0 DETERMINE WHAT OUR POSITION SHOULD BE ON THESE SPECIFIC TAX LAWS IN VIEW OF OUR PROSPECTIVE REVENUE NEEDS, IS THE FlRST PHASE OF THE TAX - 17 REVIEW NOW BEING CONDUCTED BY THE TREASURY. WHEN YOU CDNSIDER THAT $8 BILLION FIGURE AGAINST WHAT OUR BUDGETARY SITUATION LOOKS LIKE AT PRESENT, YOU CAN SEE WHAT A JOB IT IS GOING TO BE TO LET ALL THOSE TAXES EXPIRE ON SCHEDULEo THE TRUMAN BUDGET ESTIMATED A DEFICIT OF $9. 9 BILLIONo THIS ESTIMATE TOOK INTO ACCOUNT CERTAIN REVENUE LOSSES RESULTING FROM SCHEDULED TAX REDUCTLONS o IF THESE REDUCTIONS ARE NOT TAKEN INTO AC COUNT, THE NET DEFICIT FOR FISCAL 1954 WOULD BE $7. 5 BILLIONo ADDING THE $8 BILLION WE WOULD LOSE ON AN ANNUAL BASIS FROM THESE TAX EXPIRATIONS WOULD RESULT IN ABOUT $150 5 BILLION WE WOULD HAVE TO MAKE UP IN SOME WAY OR ANOTHER TO B~LANCE THE BUDGET. ONCE THE BUDGETARY REQUESTS FROM ALL DEPARTMENTS ARE I N - &OMETIME NEXT MONTH - THE TREASURY WILL - 18 - THEN BE IN A POSITIO N TO MAKE DEFINIT E RECOMM ENDATIO NS ON WHAT SHOULD BE DONE IN REGARD TO THESE EXPIRIN G TAXES. THE SECOND PART OF THE STUDY OF TAXES IS WHAT WE CALL OUR LONG-RA NGE VIEW. AS YOU KNOW, OUR PRESENT TAXES GREW LIKE TOPSY. THEY HAVE NO RHYME OR REASONo SO THE TAX EXPERT S IN THE TREASUR Y ARE MAKING THIS LONG-RA NGE STUDY WITH THREE OBJECTI VES IN VIEW. 1. THESE ARE: TO SIMPLIF Y THE SYSTEM AS MUCH AS POSSIBL E. 2. TO REMOVE INEQUIT IES. 3. TO DEVELO P A SYSTEM WHICH WILL IMPOSE THE LEAST OBSTAC LE TO THE ECONOM IC GROWTH OF THE COUNTR Y. THAT IS QUITE A J9B. BUT, THE TREASUR Y HAS OBTAINE D THE SERVICE S OF SOME OF THE NATON'S TOP - 19 - TAX EXPERT S TO WORK ON ITO IT IS GOING TO TAKE TIME TO WORK OUT A TAX PROGRA M FAIR TO EVERY ONE - AND IT IS GOING TO TAKE TIME TO WORK OUT PROGRA MS IN OTHER FIELDS. AS THE ADMINIS TRATION MO.NES FORWAR D IN ITS JOB OF BUILDIN G ASTRON GER AND MORE SECURE AMERICA , IT WILL REQUIRE PATIENC E ON THE PART OF ALL THE PEOPLE AND HARD WORK ON THE PART OF THOSE OF US WHO HAVE BEEN ASKED TO SERVE ON THE NEW EISENHO WER TEAM. BUT, WE A.R E MOVING FORWAR D WITH RESOLUT ION AND DETERM INATION . AND, AS THE ADM IN IS TRATION ' S BASIC POLICIE S ARE DEVELO PED INTO A COHERE NT LEGISLA TIVE PROGRA M AND BECOME CLEARE R IN THE MONTHS AHEAD,, WE SHALL GROW STRONG ER AS A NATION - MIL IT ARI LY, ECONOM ICALLY AND MORALL Y - AND WE SHALL REGAIN THE DIGNITY WHICH WE SO JUSTLY DESERV E IN THE FAMILY - 20 OF NATIONS AS LEADERS OF A WORLD HOPING FERVENTLY FOR PEACE AND PROSPERITY. THERE IS A NEW DETERMINATION IN WASHINGTONo AND THERE IS A NEW DIGNITY , THERE WHICH STEMS FROM THE TOP IN THE PERSON OF Pil'ESIDENT EISENHOWER. THIS IS NOT GOVERNMENT BY CRONY - BUT A GOVERNMENT OF PROVEN A B ILITY - ABILITY TESTED IN THE HIGHLY COMPETITIVE FIELD OF BUSINESS MAN AGE ME NT o THE DIGNITY W HICH PREVAILS IN WASHINGTON TODAY IS ALREADY REFLECTING ITSELF THROUGHOUT THE NATION AS THE INDIVIDUAL GAINS A NEW DIGNITY FREE OF GOVERNMENT CONTROL. THE DIGNITY OF MAN W ILL HAVE REAL MEANING UNDER AN ADMINISTRATION W HICH IS DEDICATED TO THE PRINCIPLES OF INDIVIDUAL FREEDOM AND CREATIVE • - 21 INITIATIVE - AN ADMINISTRATION WHICH IS BUILT UPON A FOUNDATION OF INTEGRITY? EFFICIENCY AND EC ONO MY. THANK YOU" * * * * * * * * * * * * * * * * * *