Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-07-22
U. S. GOLD STOCKS.
GAIN S2OO,oDO,O0O
Interest Rates Have Re-
NAMED Low as Credit
Base Expands.
BY CARLTON A. sHIvELY.

Speciai Dispatch TO The Star.
NEW YORK. July 22.-When finan-
ciai crises occur in Germany, Hungary,
Austria and in SINE of the South
American countries, people in this coun-
try are prone to forget their own Sus-
ceptibility to financial fright. CrsdlC
panics are far from rare in the United
States, however phlegmatic We may
consider ourselves as compared With
ether nations. .
Some interesting figures are published
by the Federal Reserve Board on the
effect of bank failures and fear OF fall
urcs on the public nina. In the past
two months the gold stock of this coun-
try has increased more than S2OO,OOO,-
COO In a single week S90,000,000 was
added to our holdings, partly. through
importation of the metal from Germany,
South America and the Orient ana
partly through release from elrmarK
at the Federal Reserve. Bank. Release
from earmark means that the reserve
bank had set aside--in effect, packed
for shipment-gold b-ught by some for
eigner and that this gold was resold by
the foreigner and returned to that sec
ton of the reserve bank vaults where
its own metal is stored. In practice
this is usually a bookkeeping transac-
ticn, but the effect on credit &c the same.
A gold release from earmark ADDS 10
bank reserves the same as shipment
from abroad and vice versa
Credit Demand Slack.
Had it not been for this immense ad-
dition to gold here, the Federal Reserve
Banks would have been obliged to pump
credit into the money market else
interest rates would have risen. In this
period the demand for credit did not
increase. since trade continued slack,
but bank depositors withdrew their
money on a large scale in some
parts of the country where bank failures
were spreading. Bankers figure that
each dollar of gold imported adds
sufficiently to bank reserves to provide
bank loans of from $40 to $l3. That is
to say, bank credit can be expanded
more than billion dollars when ad-
6ition to gold stock reach a hundred
million dollars. The gold additions of
the past two months widened the credit
base by more than two billions.
When potential credit is thus in
creased interest rates tend to go down.
since the banks try to employ their
credit-making powers. This Summer
money rates have been low, but fairly
steady, in spite of so much increase in
gold. largely because of the offset in
currency circulation. A commercial
bank must keep reserve against cur
rency in circulation. The bulk of the
circulating medium consists of Federal
Reserve notes and gold certificates.
The latter must be backed dollar for
dollar with gold at the Reserve banks.
Reserve notes require only a 40 per
cent gold reserve. Thus a dollar OF
geld imported usually permits an in
crease of more than dollar in cur
rency circulation without tending to
stiffen money rates.
Autumn Activity.
Between the end of March and the
middle Of June currency in circulation
rose S200,000,000, almost offsetting in
credit effect the gold imports. The
near-balance CT these two items eX-
plains why our gold imports have not
brought imitation. Our apparent in
fiation has not really been that, since
the increase came solely from deposit
Withdrawals in the Chicago district and
other sections of the Middle West,
where bank failures were numerous in
that period. AS confidence in the
banking structure returns to normal
an easier period in money is in pros
pect, unless offset by a pickup in
trade Ordinarily the Autumn activity
brings considerable rise in credit and
currency in use.
(Copyrisht, 1919