SERVICES OF MR. ROSE Mr. JAMES. First I would like to express regret that Mr. Rose is leaving the Treasury Department. The fact that my statement is brief is no measure of its sincerity. Mr. ROSE. Thank you. FACTORS INFLUENCING A BALANCED BUDGET Mr. JAMES. Mr. Secretary, this morning I understood that you took into consideration expected revenues in saying we were nearing a balanced budget. Yesterday the census of new automobiles manufactured but not sold was published. You probably saw it? Secretary HUMPHREY. No. Mr. JAMES. I cannot give you the exact figure but it is the highest in history. Secretary HUMPHREY. The unsold stock? Mr. JAMES. Yes. It was almost 211⁄2 times what it was on the 1st of January last year. The automobile industry being one of the largest in the national economy, do you see anything in that situation that might cause a depreciation in the sources of revenue for next year so far as taxes are concerned? Secretary HUMPHREY. Yes; there is a possibility of it. Secretary HUMPHREY. If this model does not meet with public favor and if it does not move in reasonable volume, it means the automobile companies will have to move forward with perhaps an earlier presentation of the next model, and with increased expenditures in doing so they will make less money. I am talking about the industry as a whole and not 1 or 2 companies. I am talking about a great wide industry. Mr. JAMES. But that industry has a lot of independent industries associated with it? Secretary HUMPHREY. That is right. It would be felt throughout the economy, not necessarily disastrously but it would be felt depending on the degree to which it took place. Mr. JAMES. If such a thing should happen we would probably have an unbalanced budget again? Secretary HUMPHREY. Well, we might. It would depend entirely upon the success of the succeeding model and all of that. You can run into switches from period to period, as you know, but if our economy remains sound you might have some months of reduced earnings that would be made up by increased earnings in other months. FORD MOTOR CO. STOCK Mr. JAMES. As you know, it has been announced that 10 million shares of Ford Motor Co. stock will come on the market. Secretary HUMPHREY. Yes. Mr. JAMES. That might take a lot of money out of savings bonds and savings accounts in banks because there will be a lot of people who will jump in and buy that stock in the belief that because a few people made big profits in Ford years ago, they can buy stock today and do likewise. Do you think that will have any effect on the normal purchases of the small Government bonds? Secretary HUMPHREY. It might have some effect. I would not anticipate it to be big. There is going to be a very wide distribution of the stock. Nobody should make the mistake that you have indicated of being misled in the way you have indicated. Henry Ford made a very excellent statement, I thought, advising everybody of just exactly what it was they were buying and just what the prospects with respect to it were, and my guess is that with the price that will be put on it and all it is probably a good investment that will be absorbed like other good investments, and probably a good deal of the preparation for switching from one thing to another has already taken place. So I would guess that a lot of that is already behind us and that we will not feel any disruptive effects from it in any way. Mr. JAMES. I asked the question because I happen to know some people, who should not be in that sort of investment at all, who are nxiously waiting for it. Secretary HUMPHREY. I am sure you are right that there will be a arge number of people, but probably not a large amount of money. Mr. JAMES. Those are people who, to a large extent, would be buying $50 bonds. Secretary HUMPHREY. To some extent, yes, and to that extent the sale of bonds will be affected. SERVICES OF MR. ROSE Mr. MURRAY. As a freshman member of this committee I would ike to add my regrets that the Government is going to lose the capable services of Mr. Rose, and I would like to wish Mr. Rose every success in his new venture. I am sure from my observation of Mr. Rose that the Government's loss is the gain of whatever endeavor he is going into. Mr. ROSE. Thank you. DESIRABILITY OF A BALANCED BUDGET Mr. MURRAY. I certainly join with other members of the committee, nd I think everbody does, in the thought that it would be a wonderful hing if we could achieve a balanced budget this year; and I certainly oin Mr. Canfield in his remarks that Members of Congress ought to ttempt in their actions to achieve this end by legislating with repect to the demands made upon Government in accordance with evenue. But I think also that the administration in administering he legislation authorized by the Congress, ought to follow a similar policy and not let the people expect that their demands will be satisied if in fact they cannot be adequately satisfied consistent with tax evenues and prospective tax reductions. WORK BACKLOGS In this connection, I have this question: I noticed last year in a umber of the subdivisions of the Treasury Department that they vere building up backlogs of work and that they contemplated with ast year's budget these backlogs would continue. With this year's budget, can we expect that this backlog will be reduced or done away with? Secretary HUMPHREY. That will vary with the backlogs. Some of the backlogs have had some very appreciable reductions. You will get into that as you get to the various departments. In others there have not been as many reductions as you would like to see. The ones that are slow are the ones we are paying particular attention to and where we are making tests to see what we can do about making further inroads in them. I do not know how much progress we will make with it, but we are very hopeful. Progress has been made in some of the backlogs in the Internal Revenue Service, and in others such progress has not been made. Where progress has not been made we are making tests there particularly to see whether we can devise some means of reducing those backlogs. Mr. MURRAY. In connection with the requests you are now making, do you anticipate any backlogs developing? Secretary HUMPHREY. Any increased backlogs? Mr. MURRAY. Yes. Secretary HUMPHREY. We ought not to if we can get the efficiency that we expect. PURCHASE OF TREASURY CERTIFICATES BY FEDERAL RESERVE Mr. MURRAY. The final question I have, Mr. Secretary, which I deem is of a general nature but may be of a specific nature, arose as a result of a publication that came to my office. The publication stated that in the latter part of last year the Federal Reserve purchased $167 million Treasury certificates, undoubtedly the new 25%'s of December 1956 on a when-issued basis while the exchange books were open. The article indicated that the reason for the purchase was not dis closed and was contrary to an established practice of the Treasury Department. I was just wondering if you knew what the reason for it was and what the result was? Secretary HUMPHREY. I think it was just in the ordinary course of business. I do not think there was anything unusual or very special about it. Mr. Burgess may be able to tell you about this particular thing. Mr. MURRAY. Would Mr. Burgess be a more appropriate person to ask about that? Secretary HUMPHREY. I think so. Mr. BURGESS. The Federal Reserve, as you know, is in and out of the market for securities in the effort to keep an even keel in the economy, to either increase or decrease the load on the banks so that they will be freer to lend or a little tighter. They have been follow ing a firm money policy over this year because things are moving pretty fast and they wanted to hold them back a little bit. They ordinarily deal mostly in Treasury bills. In December they increased thei discount rate. The market had been very tight. They found wher we did our financing that they needed to go into the market a little more than usual to keep things on an even keel, and they decided to buy a few of these certificates. That was not a matter of deep-seated policy. It was a little variation of what they had been doing, bu the Chairman of the Federal Reserve Board, Mr. Martin, has always said they would hold themselves flexible to meet situations as they arose, and that was one of those situations. Mr. MURRAY. According to this article, this particular purchase by the Federal Reserve System was contrary to principles established by the Federal Reserve, the principles established being: (1) Open market operations were to be confined to "the short end of the market"; (2) During Treasury financings the Reserve would not purchase maturing issues to which an exchange was offered. But this article went on to say this was actually something that occurred contrary to these principles and that there was not any apparent reason for it. Secretary HUMPHREY. In the first place, it is not a matter of principle at all; it is a matter of practice over a rather long period of time, and there is no reason why they should not do just what they did do. Mr. MURRAY. What was the reason for doing what they did, Mr. Secretary? Secretary HUMPHREY. It is just as Mr. Burgess explained. They are in and out of the market right along pursuing their policy of stability, and there is no reason why they should be limited to one particular thing. Mr. MURRAY. Was this offering a customary thing? Secretary HUMPHREY. Our offering was a regular offering of refunding. Mr. MURRAY. Was it a customary practice on the part of the Federal Reserve or an unusual practice? Secretary HUMPHREY. It is a practice I think should be pursued right along. I think it is the proper practice for them to pursue. Mr. MURRAY. Here is what this article went on to say: Every issuer of securities knows that on occasion he may be called upon to engage in stabilizing activities in issues already outstanding during periods when he is floating others. This is true of the Treasury, too. Of course, good pricing reduces the need for stabilizing purchases, and, in this case, the pricing was excellent. Yet during the period of the exchange offer, according to the Treasury daily statement, the Treasury purchased about $200 million of securities. Presumably these were the ones offered in the refunding. The questions are: What stopped the Treasury from completing the job? Why did the Federal Reserve have to make purchases instead? Secretary HUMPHREY. That is just a matter of the operation of the market, that is all. It is a very small part of the total job. It is just a matter of moving these securities in and out of the market. Mr. BURGESS. If you are a dealer in securities or are sitting at a desk operating these Federal Reserve things, sometimes little matters of practice get to look as big as a house, whereas in the overall picture it really is just a matter of operating flexibility. Secretary HUMPHREY. What article are you referring to? Mr. MURRAY. I am referring to an article put out periodically by Aubrey G. Lanston & Co., a dealer in Federal securities which is sent to my office and which I read occasionally. Are you you familiar with the sale of securities that I am talking about? Secretary HUMPHREY. Sure. Mr. BURGESS. Yes. Mr. MURRAY. Or what they are referring to? Secretary HUMPHREY. Sure. Mr. MURRAY. Then this article is incorrect when it says it was unusual or contrary to sound principles? Secretary HUMPHREY. It is absolutely incorrect when it says it was contrary to sound principles. There is no reason why they should not do it when it is desirable in the light of the market. Some of these theoretical people have argued about whether they operate in one class of securities or another. It is my opinion they should be able to operate in any class that is desirable to meet the great demands. Mr. MURRAY. Was the article correct in the statement that this particular one was unusual and was not done in the fashion of the others? Secretary HUMPHREY. It all depends over what period of time you are talking about. They had not done it for some little time because there had been no occasion for doing it for some time. It was previously done continually. If the article indicates there was anything wrong or that anything was done that should not have been done, the article is absolutely incorrect. Mr. MURRAY. The article does not indicate there was anything wrong or that anything was done that should not have been done. I do not intend to create that impression. What the article indicates is that it was an unusual occurrence that has not happened for 5 years and the writer did not know the reason for it. I wanted to know the reason for it. I still am not very clear on it. It has been explained that it has happened and it has been explained it had not occurred for some time, but why it occurred on this occasion, I do not know. Secretary HUMPHREY. It was done because it was felt this was the best way to handle this market operation at this time. This was an appropriate thing to do at this time and it had not been the appropriate thing to do at some of the preceding times. Mr. BURGESS. The Federal Reserve had just raised the discount rate about 10 days ahead of the time we had to do our financing and the market was still unsettled, so they used a little stronger tool this time to keep the market stable than they would have otherwise. ADVANCE COPIES OF PREPARED STATEMENTS Mr. GARY. Mr. Secretary, several members of the committee have spoken to me about a matter and I feel I should call your attention to it. There was some disappointment over the fact that your prepared statement was not delivered to the committee until this morning. I call your attention to the provision of the Legislative Reorganization Act of 1946 which provides that each standing committee shall, so far as practicable, require all witnesses appearing before it to file in advance written statements of their proposed testimony, and to limit their oral testimony to brief summaries. The act further provides that the staffs of such committees shall prepare digests of the testimony for each committee member. The purpose of that provision is to give members of the committee an opportunity to read the statements so that they can prepare their questions to propound to the witness when he appears before the committee. Since your statement was not received by this committee until this morning, the members of the committee did not have an opportunity to carry that out. |