Salt Lake Telegram | 1937-02-16 | Page 1 | Eccles Warns of Money Snag

ECCLES WARNS OF MONEY SNAG Urges Banking Rule Be Renewed WASHINGTON, Feb. 16 (UP) Chairman afarriner 8. Eccles of the federal reaerve board told the house banking and currency committee today that extension of authority to issue federal reserve notes secured by government obligations la necessary neces-sary to prevent a possible "dliaa- troua deflationary development" The authority for federal reeerve banks to issue notes against government govern-ment obligations expiree March t unless renewed by congress. The house committee Is studying a bill passed by the aenate authorising such extension. The administration's desire for extension was characterised by Eccles as a move to safeguard the federal reserve system's "easy money policy against the possibility of large gold exports. The board has maintained an easy money policy since the federal reaerve re-aerve act waa amended in 1932 to permit issuance of federal reserve notes secured by government obligations, obliga-tions, Eccles amid. This policy, Eccles said, has been an important factor In bringing about "the broad recovery in businees which Is now under way." Eccles gave no Indication that the slmlnutratlon anUclpates a large outward movement of gold In the near future, but aald failure to extend ex-tend this safeguard might lead to a "disastrous deflationary movement." A large outward movement of gold might reduce gold certificate holdings of the federal reserve banks below the amount necessery to provide cover for the outstanding outstand-ing federal reserve notes, Eccles said.