/specialCollection/BerlinWall/1961-Summer/1961-07-12c.pdf

Read from the scan by GLM-OCR; expect the odd misread word.

# III. Recommendations

## A. Substantive

1. State of Existing Powers - Inadequate but Useful

The powers currently available to the President without further legislation to minimize dislocation to the domestic economy that may result from the Berlin capability program are as follows:

(a) The Federal Reserve Board can act quickly and strongly to contract credit generally at the first signs of a wave of panic buying like those in the summer and winter of 1950;

(b) There is no discretionary authority available on the tax side, but it should be remembered that present tax rates will automatically extract more revenue as incomes rise under the pressure of increased military expenditures. Tax policy is in any case ill-suited to deal with waves of buying financed by liquid savings and bank credit.

## Among direct measures currently available are:

(a) Those surviving in Titles I and III of the Defense Production Act of 1950, as amended, under which there could be instituted a system of priorities and allocations of materials and facilities to aid defense production and protect the essential civilian economy from shortages. These provisions extend to the rationing of consumer goods. There is also a vague but sweeping prohibition of excess accumulation of inventories of materials designated by the President as scarce. (Title I, sec. 102). To make this prohibition operative, the President may prescribe explicit regulations. In addition, the President may curb domestic price increases for essential imported metals, minerals and other materials by the device of buying at rising world market prices and reselling to American users at a lower domestic market price. (Title III, sec. 303). This process would require an appropriation or additional borrowing authority.

(b) The President also has authority to sell out of Defense Production Act stockpiles, (as distinct from those accumulated under the Strategic and Critical Stockpiling Act) and could use this authority to counter speculative shortages and price increases of materials contained in these stockpiles. This is a potentially important power, since it relates to the highly volatile basic raw material prices which are usually the first to react in any speculative flurry. However, it is of spotty and limited usefulness because many of the materials in which inflationary price rises might be expected are not contained in large quantities in those stockpiles. (See below the recommendations on sales of excess materials from the much larger strategic stockpiles.)

(c) The