Evening star., 1951-02-19
Reserve Board Aide
Terms Vardaman
Alone in Bond Stand
By WiIliom Hines

A spokesman for the Fedora
Reserve Board declared today
that Board Gov. James K. Varda-
man. jr., is "alone in his view
point" that price support fol
Government bonds must continue
Elliott Thurston, special as
sistant to the Federal Reserve
Board. added that the II other
members of the Boards Oper
Market Committee feel continued
bond support is infiationary He
said Board Chairman Thomas B
McCabe definitely sides with the
majority.
Mr.. Thurston's comment came
after Mr. Vardaman made public
his reply to a letter from Senator
Bricker. Republican, of Ohio. In
the reply, Mr.. Vardaman said a
halt to Government support fol
bond prices might result in a
''near-panic" in the bond market
Senator Bricker had accused
Mr.. Vardaman of holding a TO
talitarian philosophy" in urging
Federal Reserve support of the
administration defense financing
plans.
First Indication of Division.
Mr.. Thurston's statement that
the split was 11-to-1 in favor OF
an end to bond support was the
first official indication of the
Open-Market Committees division
on the question. 1t was known
that Mr.. Vardaman and Board
Member Mariner S. Eccles rep
resented the divergent views, but
how many of the 10 other commit
teemen supported each side had
not been revealed. There had
been speculation that other men,
bers supported Mr.. Vardaman's-
and the administration's-stand.
Mr.. Vardaman's letter to Sena-
tor Bricker is the latest chapter
In feud that has been going on
for long time but has received
public attention for only a few
weeks.
In the letter. the Federal
Reserve governor said he had not
suggested that the board waive
Its statutory authority to control
credit. He told Senator Bricker
that the board has been support
ing the bond market voluntarily
Eat arbitrary price levels" for the
last nine years.
The board, he added, has done
nothing ito free itself of this
shackle to a pegged price"
Not Accurate, Says Thurston.
Mr.. Thurston declared today
that this statement was not ac-
curate. THE Board has reported
its position to Congress time and
again since 1945," he said.
Mr.. Vardaman's letter to Sena-
tor Bricker included this passage:
You might be interested in
knowing that for more than a year
! have advocated that con-
Versations with the Secretary of
the Treasury and action by the
board be initiated with a view to
reducing to par the arbitrary price
on longtime Government bonds
7 could not then see any justifl-
cation for supporting these bonds
at high premiums. while at the
same time owners of e. savings
bonds were penalized by loss
of some interest if their bonds
were cashed before maturity"
Truman Referred to Loss.
This was the second time that
discussion of the series "E" bonds
was injected into the dispute, al
though these savings bonds are
not directly concerned. The first
instance came by implication in
the Federal Reserve Boards min
utes, which quoted President Tru-
man as recalling the time, after
World War I, when he was forced
to sell his Liberty Bonds at a
substantial loss. The President
was quoted as saying that he
didn't want this to happen to
bcndholders today.
The great majority of individual
bond owners have their money
invested in Series E, F and G
bonds, which are purchased at a
discount and mature at par. The
bonds directly affected in the Fed
eral Reserve-administration dis
pute are sold at par, earn interest
payable periodically during their
lifetime, and are cashed in at the
original purchase price.
Mr.. Vardaman said he had nc
objection to allowing the bond
price to fall to par, but that he
opposed the idea of letting bonds
seek their own level. Such pro-
cedure, he said, would create a
condition of panic" in the f1nan-
cial markets.
Majority Oppose Support Buying.
The aim Of the Federal Reserve