149. Memorandum of a Conference With the President, White House, Washington, October 23, 19571
OTHERS PRESENT
- Secretary Anderson
- Mr. Brundage
- Mr. McNeil
- General Cutler
- General Goodpaster
Secretary Anderson said that over the previous weekend there had been a great deal of talk of bad funding practices on the part of the government—that deliveries would be required and accepted with payment not being made until much later. He felt it was clear that there was need for a clarifying statement. Accordingly, he met with Mr. Brundage and Mr. McElroy to find out how much above $38 billion in expenditures we would have to go to be assured of paying for materials when delivered. He said the Defense Department stated they could make payments on time for $19.4 billion expenditures in the first six months of this fiscal year and $19.2 billion in the second. He said that Mr. McElroy does feel that some subcontractors will have to fund more of their work in progress and will have to hold down on inventories, but felt that they should be required to do so. Secretary Anderson said he had also talked with Mr. William McChesney Martin2 about the matter. He intended to inform a few key banks that the need for capital for contractors to carry progress costs will be of the order of not more than $200 million instead of the $2 or $3 billion being discussed in the scare stories.
The President thought we should make a statement that in 1957 and 1958 procurement will be so much in each year, and that we will pay our bills when they come due.
Secretary Anderson said that the fund proposals allow for an additional $100 million for the Air Force and $100 million for the Navy after the first of the year. He thought that he could still hold the debt below the debt ceiling, with such figures, if all goes well with collections as now foreseen. He indicated he would meet with Secretary McElroy and get a statement out which should have a great stabilizing effect. He reported that at the beginning of trading on the 23rd, he had called Mr. Funston3 in New York, that the market was [Page 612] up strongly at opening, and sentiment was strong for buying, with a great increase in confidence after the President’s speech the night before.
Secretary Anderson said that companies like Boeing are following a course which is greatly alarming their subcontractors, and in some cases the actions seem to be deliberate. For this reason Mr. McElroy is setting up a special place for subcontractors to come to if they feel that they have been treated unfairly. The President strongly endorsed this procedure.
The President thought that in the present climate a giant step toward unification could be made. This might permit the Secretary of Defense to close out numerous installations, cut down overhead, etc.
Mr. Anderson added to his earlier figures that $60 million additional is to be provided to the Army for the Jupiter project.
Mr. Brundage said he would like to have the $400 million addition as a ceiling, to be reached only if completely necessary.
The President said he thought that rising costs have made our figures out of date. He said he was absolutely determined that we will and must meet all U.S. obligations. He would, however, call in the big manufacturers and tell them that if they start up scare stories again we will change our contracting methods and deal directly with subcontractors. There was discussion of the fact that the big contractors have very little of their own equity, but are operating on government financing, and using government-contract-supported public relations officers to spread these scare stories.
Secretary Anderson said that Secretary McElroy received commitments from the Service Secretaries to meet these figures and not to run over.
The President and Secretary Anderson discussed further the action of big contractors in trying to start a scare campaign.
Brigadier General, US Army