Evening star., 1922-05-03
HOPE OF US. LOAN .
TO EUROPE FUTILE
Reserve Board to Tell Lon
don ParIey to Go to Pri-
Vate Banks.
BY DAVID LAWRENCE.

European f1nanciers are raising false
hopes and are doomed to disappoint-
ment if they expect the Federal Re-
serve Board to permit the two-and-a-
half-billion-dollar gold reserve in
American banks to be employed to
purchase any international loans.
Positive information to that effect
was given this correspondent today,
together with the prediction that If
Benjamin Strong. jr., governor of the
Federal Reserve Bank of New York.
or any other representative of the
American federal reserve system at
tends the forthcoming conference at
London the most they will be able to
do will be to explain the limitations
sci Europe as to what steps she her
self must take before the confidence
and funds of the American investor
can flow in her direction.
For many days the impression has
gotten abroad that the Federal Re-
serve Board by sending representa-.
tive to the conference Of banks of
issue to be held as a sequel to the
Genoa Conference would be able to
participate in huge consortium for
the f1otation of new loan or for
the regulation Of International ex-
change. Oficials here have been ex-
amining the law to see If by some
had found some powers In the federal
reserve act which permitted such
participation. There are, no such
powers.
Short Loans Permitted.
The most that the member banks
in the federal reserve system can do
Is to purchase short-time acceptances
of not more than ninety days matur-
ity. They can use their gold coin
for such purpose and the American
banks are doing more and more of
that every day.
This process has been encouraged
by the recent simplihcation by the
Federal Reserve Board of the rules
governing such transactions. But
the bills of exchange must be in
dorsed by at least two responsible
parties, and the evidence must be
presented to show the existence of
contracts covering the expectation or
importation of the goods which are
the basis Of the credit. .'
Any idea, therefore, that the gold
supply of the federal reserve system
can be used to purchase securities
foated by European governments is
based on a misconception of the
The gold reserves are absolutely
mortgaged by the legal requirements
concerning domestic deposits. The
gold in the federal reserve system
belongs to the people who deposit
it there. If. on the other hand. the
Europe by purchasing the securities
of foreign governments. the Federal
Reserve Board has no objection. For
every dollar used in the purchase of
a foreign bond reduces the amount
of the federal reserve banks liabili-
ties.
It is within the province of private
banking syndicates and interests
alone to get together and lend to Eu-
ropean governments the sums they
needs, and it is the business Of these
same concerns to endeavor to get in
from the banks and give it to Eu-
ropean governments in exchange for
the new bonds. But the Federal Re-
serve Board cannot do anything to-
ward that end.
Political Stability Urged.
The prevailing opinion among off,
cials Of the Federal Reserve Board
here is that the trouble in Europe is
fundamenta that until the European
governments balance their budgets, re-
duce their armies and solve their po-
litical quarrels, which are doing SO
much to disturb the tranquility Of
Europe. very little if anything can be
done by outside agencies. And the
moment political stability is achieved,
these same officials say, there will be
no difficulty in floating loans in the
United States or anywhere else.
AS an example Of what political
stability means, officials point to the
recent loan Of $15,O00,000 fioated here
by the Czechoslovakian government,
1t was oversubscribed ten times be-
cause investors on this side Of the At
lantic have been apprised through
reputable investment concerns that
the Czechoslovakian government is on
a firm foundation.
The American emissaries to the
London conference will tell their coll
leagues the federal reserve board
American opinion Is sought, the same
views are held today as were ex-
Harding administration and Secretaries
Hughes and Secretary Hoover of the
Harding administration and Secretary
Glass and Houston of the Wilson
administration. that the day of gov
ernment loans is over" and that
Europe must set her own financial
house in order and deserve the con-
fdence Of American investors before
the, gold supply will now across the
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