Evening star., 1932-02-13
Everybody's
Business
Administrator, of Recon-
struct;on Finance Cor
borat;on to Steer Clear
of Unsound Economic
Policies.
BY DIR. MAX WINKLER.
NEW YORK. February l3 (N.ANA

NEW YORK, February Is (N.A.N.A)
Reduced to simple. intelligible terms,
the proposed Glass-Steagall bill, de-
signed to supplement the work of the
Reconstruction Finance Corporation in
speeding up the economic and financial
rehabilitation of the United States,
provides in the first place for the use
by the Federal Reserve Board OF the
United States Government obligations
as a basis for currency issues against
which there must be a 40 per cent
cover.
In other words, Government securi-
ties will become eligible for the issu-
ance of Federal Reserve notes in ex-
cess of the present legal cover. thereby
raising the effective total Of free gold
by about 100000.
1t may be pointed out. perhaps, that
in many countries the collateral re-
quirements for currency issues are
much more liberal than they are in
the United States and that under ex-
isting conditions. with the use Of col
lateral decidedly limited. it will be next
to impossible to take steps necessary
to check def1ation
While the above provision Is Of a
temporary character only, covering a
period of IL months, it is this provis-
ion which is likely to be interpreted as
imitation. but there is no valid reason
for the United States to adhere Stub
bornly to the maintenance of a ratio
of reserve to notes in circulation very
Substantially in excess of 40 per cent.
Furthermore, additional currency will
not be authorized without providing for
reasonably adequate protection which.
in this case. will consist of United
States Government Obligations.
Difficulties Likely.
Difficulties will arise as soon as
money will begin to be, printed, regard
less of whether or not cover is pro-
vided for. Such point, if it should be
reached, will of course constitute in
flation, pure and simple.
The trainers of the bill, however, as
well as those charged with guiding the
financial destinies of the American
people, know enough about the evils
which arise from attempt 70 seek sal
vation from economic troubles in the
printing presses, to steer clear of un-
sound economic and financial policies.
The increase in the present amount
of free gold-that is, the amount in
excess of the required 40 per cent, is
expected to check fears incident upon
further Withdrawals for European &C
count. However, no account seems to
have been taken Of the possible diff
culties which may arise in connection
with foreign investments in the United
States. Those who have so far COM
mented on the bill have for some
reason seen fit to ignore this not en-
tirely irrelevant factor.
The second provision relates to the
broadening of the basis upon which
member banks can secure accommoda-
tions from the Federal Reserve System.
Under existing conditions. banks with
fundamentally sound. but not readily
salable assets, cannot obtain aid from
the system. unless their holdings are
eligible for rediscount.
As result. institutions are obliged
to struggle for liquidity at any cost.
This means that banks must retain
only eligible paper and convert all
other assets, in order to be able to
withstand difficulties arising from the
desire of clients and creditors to With
draw their deposits.
Amusing Spectacle.
In this way. one often encounters the
amusing spectacle of finding banks
which are liquid to the extent of almost
100 per cent. In other words, banks
were obliged to assume the role Of
pawnshops which must. by the very
nature of their business, almost al
ways be in a position to pay out 100
cents on the dollar.
The new provision should go a long
way forward in putting stop to bank
failures which, more than any one
single factor. have been responsible for
the continued liquidation of securities
and commodities. Member banks will
be privileged to apply for and obtain
accommodation for a period of one
year only after they have used all Of
their available eligible commercial as
sets and United States securities and
are in immediate need of assistance
which they may not otherwise secure
to avert failure.
The rate of discount of bank assets
upon which accommodations will be
based is left to the Federal Reserve
Board. In no event. however. shall the
rate be less than l per cent higher
than the prevailing rate Of discount at
the Federal Reserve Bank of any dis
trict using this privilege.
Inasmuch as boarding has been
caused. to very large extent, by the
uninterrupted failure of banks in all
parts of the country, the stopping of
bank failures, which Is one Of the chief
features of the program, is confidently
expected to result in the return of hid
den money to circulation and to the
legitimate channels of commerce and
industry
(Copyright. 1882. by the North American
Newspaper Alliance, Inc.)