Evening star., 1933-01-08

| According to Mr.. OWENS theory the
geld in the Treasury is interehangeabl0
or if it is not, Congress can make it so.
Called Fiat Money.
Treasury and Federal Reserve au-
thorities, however, insist the new Treas
ury notes issued under the Patman bill
would be fiat money, for the reason that
no provision is made for new gold reserves
to insure redemption. OF the $3,073,-
! 3l6,29l in gold held by the Treasury,
might be used to redeem new currency,
these authorities hold. OF this amount
| Sl56,039 08S is the fund set uD under
| the gold standard act of 1900 81 cover
| for the S346,000,o00 Of outstanding
! greenbacks and the slightly more than
a million of Treasury notes of 1890. The
| grecnbacks, which date back to Civil
War time, originally were without any
| gold backing and deprecated to less
| than 40 cents on the dollar in the los.
! The gold in the Treasury which is not
| earmarked for some specific purpose
| amounts to only $34,702 ,907.
| Of the other fold in the Treasury
! 81 ,496, ,96e. .467 is held in trust for Fed
| eral Reserve banks and agents as Sc
| curity for Federal Reserve notes and
| Sl,335 ,604,829 is held in trust against
an equal amount of outstanding gold
! certificates. The Treasury would have
| no right and it is doubtful if Congress
could give it the right, according to
! Treasury and Federal Reserve officials,
to appropriate gold from either of
| these funds to Use for redemption of
other forms Of currency. Nor could the
held by the Federal Reserve banks and
agents
| Fear Lack of Confidence.
The theory of opponents of the Pat
man bill is tflat If two billions or more
of new currency should be issued with
out provision for additional gold re-
| serves, it would create a lack of con-
! fldence in the soundness of the none
| tary system. The effect would be de-
| f1ationary, instead of infiationary. There
| would be q run on the gold dollar.
| Foreign nations would become panicky
and withdraw their balances in this
| country. Our own citizens would hoard
| gold demanding redemption of paper
money in gold. The Treasury would be
unable to withstand the drain and soon
would have to cease to redeem currency
| in gold, or, in other words, would have
to abandon the gold standard.
| With the abandonment of the gold
! standard t+sere would be a deprecia-
ton of tpi value of currency, not only
| of that seWly issued, but all other
forms os paper money. Such a de-
preciatifh would hit farmers and all
other American citizens as well. The
| farmer would be paid in deprecated
currency for his products and would
have to meet his mortgage obligations
| in terms of gold. Wage earners and
! fha col oriad cloccoc t1roI1ld ~
compensation in deprecated currency
and would have to meet mortgage OBJ
| legations in gold. 1t would take more
than one paper dollar to meet a dol
lars worth of obligations contracted in
terms of gold.
European Cases Cited,
If the United States should embark
on course which would lead to aban-
| donment of the gold standard and a
| depreciation of currency, opponents of
currency imitation assert, the outcome
would be similar to what happened in
| Germany, France and other European
countries after the World War. Those
nations resorted to the printing press
! to issue currency without specie cover,
with the result the value dropped to
zero in the case Of Germany and to
almost as low a point in the case of
| France and some other nations.
One of the greatest dangers involved
in the whole procedure, it is declared,
| is that Congress would not stop with
| the issuance of new currency as pro-
| vided by one piece of legislation. Hav-
| ing once found how easy it is to finance
project in this manner, there would
be an irresistible temptation to do the
same thing for some different purpose.
The advocates of the Patman and
Rankin bills ridicule these alarmist
! theories and point out q protection
against imitation Is provided in both
measures. The original Rankin bill
merely authorized the Secretary Of the
| Treasury to issue legal tender Treasury
notes for the payment of the bonus.
| The bill as passed by the House con-
| tanned provision suggested by former
| Senator Owen to make possible a con-
| traction of the note issue. Bonds equal
| in amount to the Treasury notes would
be issued and deposited with the Fed
erai Reserve banks. If any danger Of
INJURIOUS imitation developed, the Fed
eral Reserve Board might direct part
of the bonds to be sold, the proceeds
to be used to retire Treasury notes.
Liberty" Notes Proposed.
Similarly, the Rankin bill, which Mr.
Owen also has Endorsed, contains a
scheme for a controlled imitation The
bill, sponsored by Representative John
E. Rankin. Democrat of Mississippi, in
the House, and by Senator Elmer
Thomas, Democrat. of Oklahoma, in the
Senate. provide for the payment OF
Treasury deficits with Liberty notes
until the general commodity index OF
the Department of Labor, which now
stands at about "a, returns to 100. II
the index rises above 1903, currency rev.
enues or proceeds of bond issues shall
be used to retire Liberty notes sufficient
to restore the price level to 100. II the
index drops below 81, more Liberty
notes shall be issued.
The situation of the Liberty notes
under the Rankin bill in so far as re-
demption in gold is concerned, is thf
same as in the case Of the Patman bill
OF the bills proposing the issuance OF
currency without gold or silver backing
the bill of Senator Lynn ]. Frazier. Re-
publican. of North Dakota, introduced
in the House both by Representative
Patnnan and by Representative J. H
Sinclair Republican, Of North Dakota
for the reflnancing OF farm mortgages
!. might mean q tremendous issue of new
currency Existing farm mortgages to
tai about Sa000,0 100000 Under tht
plan in this bill, which has considerable
backing among farmers in the North
west, these would be Fefnanced at J.
per cent interest rate by the Govern
, ment without any defiation Of values
Bonds secured by farm mortgages woulC
be issued with interest at 1l2 per cen
for sale to the public. Failing TO sci
the bonds at this low rate, the Treasur!
would turn them over to the Fedora
Reserve banks, in return for whicl
these banks would issue Federal Reserv
notes without the usual cover Of gol'
! and eligible paper.
Opposed Borah- Glass Bill.
The administration opposed til
4, Borah- Glass plan under which thert
has been a small expansion of nationa
, bank notes, on the ground it was
; backward step toward inelastic bond
secured currency and that it tends t