| Show will Us use gold profit to retire bond ond issues public debt to be reduced in move by treasury that Is unprecedented in annals of federal financing by WILLIAM C UTLEY INCLE sam has reached into U UNCLE his jeans for the first time to spend in any large way the gold profit resulting from the devaluation of the dollar by fuguitt 1 the government will have retired two longstanding long standing issues of 2 per cent federal bonds reducing the now staggering public debt by almost and easing in the carrying charge of the national debt by a year in effecting the move the treasury department will cause the withdrawal of all national bank notes from circulation further concentrating ia control of the currency under the federal government the act which Is hailed as the most important financial one of franklin D Roosevel ts administration and Is without precedent in the annals of federal financing Is in no way inflationary according to leading bankers as well as henry W gen thau secretary of the treasury and thomas jefferson coolidge un der secretary who made the announcement no it does however create some potential opportunity for inflation about of the gold profits will continue to remain in tile the stabilization fund the fund so 60 far has been called upon tor for the larger part only for support of the dollar on exchange markets keeping such a profit on lee ice was looked upon as ag a waste of resources by the treasury the department part ment found that it could put some of these resources to work and at the same time concentrate federal control of the currency which has been one of the objectives of the banking bill before congress by retiring bonds which carry the circulation privilege these are bonds which the national banks deposit as collateral when they issue national bank notes the government go eminent will as opportunity offers substitute federal reserve notes for national bank notes of which there are outstanding this will leave only three kinds of currency in circulation silver certificates united states notes and federal reserve notes relic of civil war finance the national bank note Is a relic of the financing of 0 the civil war before virtually all banks were issuing circulating notes whose value because no law made all currency interchangeable at par as it Is now varied in inverse ratio to the geographical distance of the notes from the banks which issued issue them A note issued by a bank in springfield ill was good tor for its face value in springfield where everybody and his b rother brother knew the bank but in cleveland ohio it was worth less and in trenton N J still less with the need tor for more money pressing during civil war time the government issued a new kind of currency called united states notes which their color soon earned the name greenbacks green backs in addition to the banks which purchased war bonds it granted the privilege of issuing another form of currency national bank notes there are still some of the greenbacks green backs in circulation today and national bank notes now make up about 10 per cent of our currency the latter step had the double advantage of selling more war bonds and unifying the currency it may easily be seen that unifying the currency making bank notes the same value throughout the nation was 01 if 0 senator elmer thomas actually a vital step in unification of the country itself at a time when the union was in vital need of hanging together before issuing national bank n otes notes banks had to deliver to the comptroller of the currency collateral in the form of federal bonds which they had already bought and which were designated as having the circulation privilege the comptroller then issued to the bank na lional bank notes up to the par value of the bonds in case of failure of tile the bank tile the government would redeem the notes out of the leonds bionda deposited by the bank the issuing of tile the notes was in effect circulation of federal bonds this was a profitable business for or the banks for in addition to the he interest they earned on national bank notes loaned 0 out u t or invested ovester ov ested they also received inter est st on the bonds deposited wa with th the treasury reasi iry department in the case of f the bonds now to be retired retire the I 1 nt C rest q w was a s 2 p per e r cc cent nt until july 22 1932 the only londs bonds with the circulation privilege were bere those about to be retired august 1 on that date a provision of the he federal homo home loan rank bank act allowed other bonds totaling approximately the circulation privilege until july 22 1935 1915 quoting directly from the report of the he treasury retires the bonds at that time the banks with circulating cu notes outstanding under this his temporary authorization will have lave to replace the bonds now DOW 01 4 jov ird thomas jefferson coolidge under secretary of the treasury serving as security with lawful money to retire their outstanding notes thus secured it follows then that retiring national bank notes Is in reality retiring the bonds which secure them A little over a year ago the federal government decided to revalue the dollar under the gold cold reserve act of january 31 1934 1034 the treasury department acquired all the gold in the united states this metal was then valued at 2007 2067 an ounce the government revalued it at 35 an ounce thus there was still the same amount of gold in the country but there were more dollars for a given amount of gold in process of re valuing gold and in that way re valuing the dollar at cents in gold the nation realized a technical profit of 2812 two billion dollars was placed in the stabilization fund and out of the remainder congress appropriated to the federal reserve banks for loans to industry of this total has been used for the purpose an indefinite sum was appropriated by congress for the melting of gold coins estimated at and another was appropriated for the philippine currency fund leaving G this will be used to retire some of the national debt the difference between the and the necessary to retire the bonds will be made up out of a special treasury fund it la Is believed the bonds which will be retired in the move are the 2 per cent consola consolidated refunding bonds of 1930 which have been called for redemption july 1 and the 2 per cent panama canal loan bonds of 1910 1930 and 1918 1018 1933 1939 which have been called for redemption august 1 the former issue totals and the latter 71 74 7 l hven the retirement of this sizeable total represents only a small small fraction of the public debt which in mid march stood at 28 5 3 as compared with a year earlier based on gold profit the treasury will retire the bonds by issuing gold certificates based on the gold profit to federal reserve banks and they in turn will issue federal reserve notes against the gold certificates to redeem the national bank notes the treasury department estimates that it will take about a year for the government to acquire all the out outstanding g national bank notes these of course will simply disappear entirely from the national ledger according to undersecretary coolidge this will not in any way change the governments policy toward gold or gold certificates but would merely increase tile the number of such certificates held by federal reserve banks the total outstanding amount of currency will not be altered at all federal reserve notes will simply take the place of the national bank notes the country will be freed of all bond secured money the only real inflationary aspect of it the movement hns has been largely pooh by an and coolidge this aspect Is tile the power of if tile the federal r reserve re banks an to issue more federal reserve notes using ing the gold certificates as a base than Is necessary to retire the national bank notes federal reserve notes loles need only a 40 per cent gold base therefore they may be issued in amount two and a halt half times that of the gold represented by the gold certificates in this case the federal reserve banks technically could issue approximately against the gold certificates notably sharing this view was senator elmer thomas dem of oklahoma one of the mott mot ardent advocates of inflation lie he has advocated all along the issuance of currency against certificates which do not bear interest the financial world was inclined to minimize the possibilities of actual inflation it took the stand that no inflation will take place because one angle of the operation will offset the other using the gold to retire the bonds the government will be increasing the reserves of the national banks tills in itself would be inflationary for it would expand the credit base but the same banks that receive these additional funds will have to put up cash for the retirement of the national bank notes which they have issued against tile the bonds deposited nith the treasury this will menn mean a loss of reserves for the banks effecting an actual balance and leaving them with no more reserve than they had bad before standing in the way as an obstacle to retirement of national bank notes in past years yeara has been the fact that the banks made an extra 2 per cent profit using the notes for they received interest on the bonds deposited in addition to the interest earned by the money in loan or investment there Is but little protest expected a galust against the action at the present time however because the banks have much more funds on hand than they c can an profitably lend or invest during the lat two years they have actually been retiring their circulation rapidly of their own accord the two largest banks in the country the chase national and tile the national city both of now new york had no bank notes outstanding at all at the close of 1934 stimulate bond market it was thought that the retirement of the bonds might stimulate the government bond market by creating a demand for new issues of the national banks to replace the retired bonds about the only direct harm that could come from the move was thought to be a misunderstanding der of the procedure both home and abroad especially foreign markets might jump to the conclusion that this was inflation accordingly th the e government was ready the day after the move was announced to guard the dollar on all markets with the additional gold profits in the stabilization fund the governments plan was an indication di of real confidence on the part of the treasury department to handle bond financing in the future according to dr 0 W sprague former executive assistant to the secretary of the treasury 1 I had supposed the gold profit would be held for government bonds in case they were weak he said raid commenting on senator thomas assertion that the move would result in an increase of I 1 ilk 4 tf 9 is I 1 I 1 ali 01 atz 4 henry jr secretary 7 of the treasury in the currency he s said aid that would ile be of little consequence there Is already about in currency it would be like a drop in the ocean the governments use of the gold profit to retire part of the national debt was without inflationary implications except as individuals interpreted them in the opinion of col lembard P ayres nationally known economist and statistician the move takes into progressive reality the recent gold decision of the united states supreme court it mattes makes all money government money he said the governments operation was generally considered dered a constructive one the chief actual danker danger that may lie in it Is the pieced precedent t it sets for bailog off the public debt by cutting the value of the dollar dol lir too much of that would ln in time result in collapse Q western newspaper union |
