The Washington herald., 1914-03-16
POWER EREXPANDS
Under new ACT
Two Billion May Be Issued,
but Such Increase Is Un-
likely to Come.
IMITATION BY DEPOSIT
How New Note Issues Might Work Out
If Reserve Banks Secure 80 Per
Cent of Country's Gold.

Previous articles have dealt with vari-
Gus possibilities of expansion and inna-
ton arising from confidence. lower cash
reserves, time deposits, Treasury deposits
in banks. check circulation. and new
forms of discount The possible eNpah-
sion In credittfrom the reduction in oanK
reserve requirements has been inquired at
between two and three billions.
As to the expansion, or the intlation'
that NAV some time arise from the de-
posit of government gold or other moneys
with the reserve bank. this is not a' All
DANGEROUS because against SoNer hI,ieH'
moneys must be kept . per cent IN law
fuI rnorey reserve in the Federal bank
The danger here will arise. If ever, when
tbe government makes application TO De-
oue a borrower, which can be accom-
Iished only after amendment OF the
rank act The government now mas ho
commerce upon which it could make COM
1aercial paper for rediscounI
Power to Expand.
The Government today has far greater
rou,ers 10 expand credit by depositing its
money directly in the national banks
than il will have under this act so iar
as il elects to deposit in the Federdl
banks. ,z nil,
The deposit of the government soid WIN
give a basis for the new Federal notes
whenever the commerce oil lhe cou"'ts u, ~
shall demand them. which may not oe
for some years.
The purpose of this article is to show
the possibility of expansion or intlauoIi
in this seventh form. or by the he"
Federal notes. o,,,,
fT the entire capita! OF the reserEs
hank is maid by. or transmitted lnto' Soiu
there is no deposit liability AGAINST suci
Ia I'D notes he issued, as called
for IN the extent OF SO, 100000 with such
S100 OonGO capital furnishing the 40 pei
cent gold reserve.
So far As gold is paid in on reserve OF
deposit account-and these are one-a .
ncr cent legal money reserve he main
tained against the deposit liability
As the member banks must MAINTAIN
Federal reserve and working paiail'es
and these are likewise one-and mus
mike mart OF their payments during the
raxt three wears hy rediscounts in order
IA preyent contraction. the application iOI
tho neW Federal reserve notes VIII come
through member banks desiring currency
offering the security OF thelr cCii'
mcrcial rcdiscounts therefor.
The maximum of currency to issue l:
measured by the maximum of gold tha'
can be gathered in the reserve banks
Gold In Federal Banks.
7, X the theory of the hest economists
il, the world that the new reserve bank
will he in position to sift out all the goi'
from the circulating currencN' ana una
this being to their interest they VIII
time accomplish it
1t is likewise possible. II not hlshl'
probable. that with the low cash reserve g
,,eouired OF the member banks they VII
larger reserve in commercial paper read9
for rediscounts with the Federal reserv'
hanks in anv emergency. They VIII
therefore, have no reason Tor the aC
crIrnuIation of gold and Will De calet
1Ipon. if necessary. by the Federal boar'
10 mass over their gold to the reser W
hank as preliminary to the redlscouii
for the new currency, as Gold hus' "'
its 81 per cent base.
Treasury on deposit with the reserve
hanks. except tho Sl5O.Coo0oO required ne
hind the legal tenders. ii is easily conceiN
able that the Federal reserve banks may
become within a reasonable numper %
wears tho holders of substantially all th'
gold in the country, or. say. S'6e'"OVv
gold out Of the total 1880, 100000 estimatec
10 he in the United States. Again the slVu'
0JG.OOA of gold representing capital ac
count they may ISSUE dS
S25nOO 600 of notes but against the bal
ance. S1.5O0. .Orh.00O. which must come in by
deposit. there must nc a reserve or 81 pei
cent. or 81. .O0nOO0 which set aside from
their total gold leaves $l.015. .e0o.OOO. aSains
which two and onc-half times this amoun
may be issued in new Federal reserve
currency with the maintenance of the 4
per cent gold reserve.
Lawful Money Reserve.
Now let il be observed right here tina
the S525 OOlOOO set aside against deposi
liability need not be gold. but may he IL
lawful money so that the balance
sheet given below may be worked ou
with only 81 G15. 600 in gold or will
less than 50 per cent of the gold in tn
country in Federal reserve banks.
\ This Sl.O15. .0OO.OG1 gold. free from deposi
liability. permits issue. on 10 per cen
gold reserve base, of s2S61. $1,000 of Fed
cral reserve currency on the security o
commercity bills.
Unless there is the imitation of risinI
prices this would about cover all tn
bills that could on the present volume o
business he gathered together and count
cd strictly commercial"
In balance sheet form this estimate o
maximum possibilities works out abou
as follows:
ASSETS
Gold
Discounts Zoe1 sSVVV