Evening star., 1932-02-01
NEW CREDIT PLAN !.
UNDER DISCUSSION
Use of Discounted Corpora.
tion Notes to Raise Cash
Considered.
BY the Associated Press,

BY the Associated Press
NEW YORK, February IA group
OF prominent industrialists Is ees-
Sldering plan by which large corpora
tions rich in cash may act to extend
some $500,000,000 in commercial credit,
which in turn may theoretically De
used as basis for some SIS, 900 900 900
in further credit, tending to swell bank
deposits and bolster commodity prices
This plan, the Associated Press
learned, enviSases the payment for
commodities purchased by the rich
corporations by so or 80 day promissory
notes, rather than cash. The corpora
tionS would leave their cash on deposit
with their banks The sellers who re-
ceived the rich corporations notes
could discount them at their banks
and the banks could in turn rediscount
them at the Federal Reserve.
Backing for Currency.
Such notes would in turn be used as
legal backing for currency, much Of
which now has virtually a IuIl gold
backing even though 1t Is perfectly
legal, under the Federal Reserve act,
to use 60 per cent Of commercial notes.
This gold is now partly sterile and
some industrialiSts fear that the
amount of eligible commercial notes
will decline, tending to absorb part OF
the balance of free gold which the
Federal Reserve system now possess In
excess of requirements.
In other words this free gold,
amounting to about s500,000, ,000 TO-
gether with 1901 900, 900 now being used
for full gold backing, could be used
more effectively if more commercial
paper were made available. A Federal
Reserve note requires only 40 per cent
gold backing and so per cent com
mercial paper.
Many large corporations have huge
cash reserves. General Motors had on
December 81, for instance, roughly
S204 900 900 as compared with sl7s,-
OO0,00 a year previously. II such cor
porationS choose they may easily do
business with some term promissory
notes, and thus provide the basis for
the issue of more currency.
In quarters close to the Federal Re
serve, it was stated that banks in most
localities are already well provided with
large supplies of commercial paper, and
that there is far from any shortage in
the aggregate.
Persons interested in the plan, how
ever, believe that injection Of more
prime commercial paper into the
credit structure would result in more
rediscounting at the Federal Reserve,
and thus expand the amount Of credit
in use as we'll as the currency base.
They feel that this would tend to halt
liquidation Of securities, give better
tone to the markets generally, including
commodities, and act as g restorative
Of confidence.
Mills Plea Recalled.
If the corporations provide $500 0o0.-
900 worth Of promiSsory notes, and
these notes are in turn rediscounted at
the Federal Reserve Bank, under the
workings of the Reserve system, econo-
mists explain. it might provide basis
for a theoretical maximum Of 10 times
that amount or S5,000,O 900 in credit
The plan comedies with the plea Of
Ogden L. Mills undersecretary of the
Treasury, who urged the bankers 10
halt their selling Of securities andt heir
calling Of loans. The banks have been
forced to such action because Of the
lack Of good borrowers and the neces-
Sity of obtaining cash. The plan con-
templates the obviating Of this dim
Guilty through providing good borrowers
and replenishing the supply Of prime
commercial paper, on the basis of which
the nations business and banking Is
largely done in normal times.