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duty to Congress if we didn't point out the effect of that to the Congress, that it would be a means of circumventing the public-debt limitation already set by the Congress.

In other words, is the public debt ceiling to be a ceiling on the public debt or is it not? If the corporation were empowered to issue these obligations in this fashion that would not come under that limitation.

Senator SYMINGTON. Will you two gentlemen identify yourselves for the reporter and for the committee? I am sure that the Comptroller General has been identified, but we are now having testimony from three witnesses.

Mr. LONG. I am Robert L. Long, Director of Audits, General Accounting Office.

Mr. KELLER. I am Robert F. Keller, assistant to the Comptroller General.

Mr. CAMPBELL. Mr. Chairman, I think that this report might well go into the record. This is the report from which Mr. Keller was reading.

Senator SYMINGTON. You would like to have the report in the record?

Mr. CAMPBELL. I think so because of the questions.

Senator SYMINGTON. That will be included at this point without objection, Mr. Campbell.

(The above-mentioned document is as follows:)

REPORT ON CERTAIN ASPECTS OF TREASURY DEPARTMENT OPERATIONS RELATING TO PUBLIC DEBT BORROWINGS AND THE HANDLING OF PUBLIC FUNDS-REVISED FEBRUARY 1955

By the Comptroller General of the United States

COMPTROLLER GENERAL OF THE UNITED STATES,
Washington 25, February 28, 1955.

B-114802

Hon. ALBERT THOMAS,

Chairman, Subcommittee on Independent Offices,

Committee on Appropriations, House of Representatives.

DEAR MR. CHAIRMAN: On March 24, 1954, we sent a report to the former chairman of your subcommittee dealing with certain aspects of Treasury Department operations relating to the public debt and the handling of public funds. This report was made pursuant to request of the subcommittee.

Assuming that a similar report might be of interest to the subcommittee at this time, we have prepared a more current report, which is enclosed. Most of the figures in the report of March 24, 1954, were stated as of December 31, 1953. In the enclosed report, figures are stated as of December 31, 1954, where possible.

A complete audit was not made of all operations in preparing the report. However, various activities are examined in the course of our regular audits and much of the data in the report is based on those audits.

A report on the audit of the Office of the Treasurer of the United States for the fiscal years 1952 and 1953 was submitted to the Congress on June 14, 1954, and it is expected that another report will be released in the near future.

Sincerely yours,

JOSEPH CAMPBELL.

Comptroller General of the United States.

Ever since its creation by the act of September 2, 1789 (5 U. S. C. 241), the primary function of the Treasury Department has been the management of the national finances. The carrying out of this function entails, among other things, (1) borrowing from the public and (2) handling public funds.

This report was originally prepared at the request of the Subcommittee on Independent Offices, Committee on Appropriations, House of Representatives, and was designed primarily to furnish the committee with descriptive material

on certain aspects of these operations. Revisions have been made in this version mainly to update the figures cited to December 31, 1954, where possible. The work performed in connection with the preparation of the report did not include a complete audit of these operations.

BORROWING FROM THE PUBLIC

Article I, section 8, of the Constitution gives the Congress the power "to borrow money on the credit of the United States." The Congress has delegated that authority with wide discretionary powers to the Secretary of the Treasury, subject to the approval of the President for most types of securities. The only authority the Treasury now has to borrow from the public is provided by the Second Liberty Bond Act, as amended, which was initially enacted into law on September 24, 1917 (40 Stat. 288). Public debt obligations outstanding at any one time issued under that act plus the face amount of all obligations guaranteed by the United States that are not owned by the Treasury may not exceed $281 billion (31 U. S. C. 757b). This limitation has been in effect since August 28, 1954, when the act of that date temporarily raised the previous limitation by $6 billion. The increase is effective until June 30, 1955, when the limitation reverts to $275 billion (68 Stat. 895). This latter amount had been in effect as a limitation since June 26, 1946. Before that dare the debt limitation had been gradually increased until it reached a peak of $300 billion during the period April 3, 1945, to June 26, 1946.

Since its inception, the Government has always financed its activities in part from borrowed money. Until World War I, however, revenues over the years were approximately equal to expenditures so that the outstanding public debt never exceeded $3 billion. Deficit financing during World War I increased the public debt to slightly in excess of $25 billion, but the balance outstanding was reduced to approximately $16 billion by 1930. Since then, however, the Government's activities have been financed from borrowings from the public on an increased scale, particularly since the beginning of World War II. Public debt and guarantied obligations subject to the debt limitation reached an alltime peak of $279,764,369,000 on February 28, 1946. The highest amount outstanding since the limitation was temporarily raised in August 1954 was $278,439,442,000, reached on October 2, 1954.

The following table shows the public debt and guarantied obligations of the Government, subject to the debt limitation at December 31, 1954, as summarized from the daily statement of the United States Treasury.

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Because of the important effect public-debt transactions have on the economy of the Nation, determinations by the Treasury regarding the terms and conditions of the public-debt securities to be offered and the amount and timing of the borrowings present a complex problem. Decisions in this area are based not only on the money needs of the Government and the existing market conditions, but also take into consideration overall Government financial and economic policy.

Obligations of the Government not subject to the debt limitation

Since the debt limitation insofar as it applies to public-debt obligations is restricted to obligations issued under authority of the Second Liberty Bond Act, as amended, public-debt obligations still outstanding that were issued under legislation preceding that act are not subject to the limitation. Similarly, certain issues of currency not secured by gold or silver are included in the public debt but are not subject to the debt limitation. The following table summarizes the obligations of these types outstanding at December 31, 1954.

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United States notes (net of gold reserve of $156,039,000) –
National and Federal Reserve bank notes assumed by United
States on deposit of lawful money for their retirement----
Old demand notes and fractional currency-
Thrift and Treasury savings stamps..

Total debt bearing no interest

Total---

84, 737, 000

1,694, 000 1, 323, 000 1,377, 000 88,000

4, 482, 000

190, 642, 000

242, 265, 000 2,019, 000 3,712, 000

438, 638, 000

527, 857, 000

In addition there are many other obligations of the Government which do not come under the debt limitation. The principal types of recorded obligations of this nature are:

1. Borrowings from the public by Government corporations not guaranteed by the United States.

2. Unpaid bills or commitments for goods and services.

3. Liability for funds deposited with the Government in a trust or other custodial capacity, less that portion of the funds for which public debt obligations have been issued.

4. Currency of the United States in circulation.

5. Liabilities of a contingent nature.

Complete information is not readily available as to the total amount of obligations owed by the Government that are not subject to the debt limitation. In order to show the significance of obligations of this nature, however, the latest available information as to certain of these obligations is shown below.

Borrowings from the public by Government corporations not
guaranteed by the United States as of Dec. 31, 1954:
Federal intermediate credit banks_
Banks for cooperatives-----

Estimated unliquidated obligations outstanding against general
and special fund appropriations as of Dec. 31, 1954_.
Balances of trust funds deposited in Treasury as of Dec. 31, 1954,
less that portion of the funds for which public-debt obligations
have been issued__.

$640, 000, 000 156, 000, 000

42, 538, 000, 000

1, 509, 000, 000

25, 945, 000, 000

Federal Reserve notes in circulation as of Dec. 31, 1954_. Other currency of the United States, exclusive of United States notes and certain discontinued issues of currency included in the public debt, held outside of the Treasury as of Dec. 31, 1954. 5, 422, 000, 000 Some liabilities of a contingent nature:

Loans to World War II veterans-portion guaranteed or
insured by Veterans' Administration outstanding at Dec.
25, 1954

Loans made under Defense Production Act of 1950-guar-
anteed portion outstanding at Dec. 31, 1954.
Obligation of Commodity Credit Corporation to purchase
agricultural aid loans held by commercial banks at Dec.
31, 1954___

Purchase agreements of Commodity Credit Corporation with
producers under price-support programs outstanding at
Dec. 31, 1954_.

14, 265, 000, 000

500, 000, 000

2, 338, 000, 000

26, 000, 000

The estimated unliquidated obligations at December 31, 1954, amounting to $42,538 million shown above is based on reports submitted to the Treasury by the various spending agencies in accordance with Budget-Treasury Regulations No. 1. The estimated unobligated general and special fund appropriations available to these agencies at December 31, 1954, based on the same reports amounted to $56,130 million. Thus the total spending authority available to Government agencies at December 31, 1954, in the form of unexpended general and special fund appropriations amounted to over $98,668 million.

Federal Reserve notes shown in the above tabulation as in circulation as of December 31, 1954, are obligations of the United States' and a first lien on all the assets of the issuing Federal Reserve bank. Federal Reserve notes are se cured by the deposit by the Federal Reserve bank concerned, with its Federal Reserve agent, of a like amount of collateral consisting of such discounted or purchased paper as is eligible under the Federal Reserve Act, or gold certificates, or direct obligations of the United States. Collateral security for notes issued as of December 31, 1954, consisted of $11,208 million in gold certificates (or credits payable in gold certificates), $17,140 million in United States Government securities, and $7,150,000 face amount of commercial paper.

Public debt obligations held by or for the account of certain trust funds and Government agencies

At December 31, 1954, about one-sixth of the total public debt obligations outstanding and subject to the debt limitation was held by or for the account of Government agencies or trust and other custodial funds administered by the Government. The cash with which these securities are purchased, like all other public debt receipts, is commingled with all other cash funds held by or for the account of the Treasurer and thus are used along with these other cash funds to meet the day-to-day operating needs of the Government. Following is a summary of these types of public debt obligations outstanding at December 31, 1954.

112 U. S. C. 411

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In each instance the investment of these funds in interest-bearing public-debt obligations has been expressly authorized by the Congress. The rates of interest which the investments shall yield sometimes are and sometimes are not prescribed by the Congress. When the interest rates are not prescribed by the Congress they are fixed by the Secretary of the Treasury under the general authority to prescribe the terms and conditions of public borrowings given to him by the Second Liberty Bond Act, as amended.

The Congress has authorized the payment of interest to certain other trust funds on the amount of cash funds deposited in the Treasury without requiring the formality of investing these funds in interest-bearing public-debt obligations. The deposit liability for these trust funds is not included in the public debt and is not subject to the debt limitation; the interest on these funds is paid from various permanent appropriations other than the appropriation for interest on the public debt. The following table shows the balances in these trust funds at December 31, 1954, and the rate of interest paid on each fund.

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The power of the Congress to control the purse provided for in the Constitution is exercised, for the most part, through the medium of appropriations. The appropriation of funds by the Congress does not in itself create public funds;

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