23 Nov. 45

sive rearmament program through taxes and public loans. From the outset, the armament program involved "the engagement of the last reserves."

Apart from the problem of raising the huge sums required to sustain this program, the Nazi conspirators were exceedingly anxious, in the early stages, to conceal the extent of their feverish armament activities.

After considering various techniques of financing the armament program, the Defendant Schacht proposed the use of so-called "mefo" bills. One of the primary advantages of this method was the fact that figures indicating the extent of rearmament that would have become public through the use of other methods could be kept secret through the use of mefo bills, and mefo bills were used exclusively for armament financing.

Transactions in mefo bills worked as follows:

Mefo bills were drawn by armament contractors and accepted by a limited liability company, [The Metallurgische Forschungsgesellschaft m. b. H.], the initials of which spell mefo from whence the transaction takes its name. This company had a nominal capital of 1 million Reichsmarks and was therefore merely a dummy organization. The bills were received by all German banks for possible rediscounting with the Reichsbank, and the bills were guaranteed by the Reich. Their secrecy was assured by the fact that they appeared neither in the published statements of the Reichsbank nor in the budget figures.

The mefo bill system continued to be used until April 1 of 1938. To that date, 12 billion Reichsmarks of mefo bills for the financing of rearmament had been issued. Since it was no longer deemed necessary in April of 1938 to conceal the vast progress of German rearmament, mefo financing was discontinued at that time.

A further source of funds which the Defendant Schacht drew upon to finance the Secret Armament Program were the funds of political opponents of the Nazi regime, and marks of foreigners on deposit in the Reichsbank. As Schacht stated--and I am quoting: "Our armaments are also financed partly with the credits of our political opponents."

That statement may be found in a memorandum from the Defendant Schacht to Hitler, dated 3 May 1935, and it bears the number in the document book of 1168-PS, and the specific sentence is found in the second paragraph.

The outstanding mefo bills at all times represented a threat to the stability of the currency because they could be tendered to the Reichsbank for discount, in which case the currency circulation would automatically have to be increased. Thus, there was an everpresent threat of inflation. The Defendant Schacht continued on his