Demobilization and strength of armed forces.—­Demobilization of our armed forces is proceeding rapidly.  At the time of victory in Europe, about 12.3 million men and women were in the armed forces; 7.6 million were overseas.  By the end of December 1945 our armed forces had been reduced to below 7 million.  By June 30, 1946, they will number about 2.9 million, of whom 1.8 million will be individuals enlisted and inducted after Ve-day.  Mustering-out pay is a large item of our war liquidation expense; it will total 2.5 billion dollars in the fiscal year 1946, and about 500 million dollars in the fiscal year 1947.

In the fiscal year 1947 the strength of our armed forces will still be above the ultimate peacetime level.  As I have said, War and Navy Department requirements indicate a strength of about 2 million in the armed forces a year from now.  This is necessary to enable us to do our share in the occupation of enemy territories and in the preservation of peace in a troubled world.  Expenditures for pay, subsistence, travel, and miscellaneous expenses of the armed forces, excluding mustering-out pay, are estimated at 5 billion dollars.

Contract settlement and surplus property disposal.—­The winding up of war procurement is the second most important liquidation job.  By the end of November a total of 301,000 prime contracts involving commitments of 64 billion dollars had been terminated.  Of this total, 67,000 contracts with commitments of 35 billion dollars remained to be settled.  Termination payments on these contracts are estimated at about 3.5 billion dollars.  It is expected that more than half of these terminated contracts will be settled during the current fiscal year, leaving payments of about 1.5 billion dollars for the fiscal year 1947.

Another important aspect of war supply liquidation is the disposal of surplus property.  Munitions, ships, plants, installations, and supplies, originally costing 50 billion dollars or more, will ultimately be declared surplus.  The sale value of this property will be far less than original cost and disposal expenses are estimated at 10 to 15 cents on each dollar realized.  Disposal units within existing agencies have been organized to liquidate surplus property under the direction of the Surplus Property Administration.  Overseas disposal activities have been centralized in the State Department to permit this program to be carried on in line with over-all foreign policy.  Thus far only about 13 billion dollars of the ultimate surplus, including 5 billion dollars of unsalable aircraft, has been declared.  Of this amount, 2.3 billion dollars have been disposed of, in sales yielding 600 million dollars.  The tremendous job of handling surplus stocks will continue to affect Federal expenditures and receipts for several years.  The speed and effectiveness of surplus disposal operations will be of great importance for the domestic economy as well as for foreign economic policies.