Memorandum for the record: Budgetary struggles and the outlook for refinancing: Recently I have had several talks with the Secretary of the Treasury and the Chairman of the Council of Economic Advisers, Dr. Saulnier, on these subjects. Possibly I have recorded elsewhere some of our projected difficulties in refinancing as outlined and detailed to me by Bob Anderson, the Secretary of the Treasury.1 Unquestionably these problems are serious, the principal factors being as follows:
In the year 1959 we have to refinance more than 50 billion dollars of bond issues, each of which is more than one year term. In addition to this, we have to roll over four times during the year something on the order of 26 billion dollars worth of short term papers.2 Beyond this we must find 12 billion dollars of new money because of the β59 deficit.3 Still above this, we must get the additional money in November and December that will represent the difference between receipts and expenditures during that low point of the year. Finally, whatever projected deficit there will be in the β60 budget will be overhanging the market.
In view of the fact that we are already spending more than 8 billion a year for interest alone, without any amortization, the scope of this problem and the rates of interest that we have to pay are, to say, the least, serious.
On the other hand, Saulnier takes a very much more optimistic view than Anderson does with regard to the gravity of this problem. Whereas Anderson believes that, unless we have a balanced budget we are going to have very bad effects in foreign banking circles because of a diminishing faith in the dollar, Saulnier believes that there is very little danger of this at the moment. Moreover, he is not particularly concerned about the accelerated outward movement of gold.4 He believes that as corporation earnings go up--and he believes that the rate of increase is going to be higher than most people feel--that corporations will have to find use for their money. Many of them will be purchasing notes and short term securities, and this will greatly strengthen the bond market and tend to minimize our interest costs.5
On the other hand, Saulnier does not by any manner of means minimize the seriousness of the situation that will develop if, in addition to the obvious obstacles, we should have a disappointing performance of the economy insofar as its next twelve months recovery is concerned.
In any event, both agree that a balanced budget would have the most salutary effect on our fiscal situation that could be imagined.6
