Evening star., 1933-11-27

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Mr. Acheson argued:
1t would seem that the proposal that
R.F. C purchase gold with its cwn
debentures under section 9 of the r. F.
c. act is one of doubtful legality.
Under section 9, the r. F.. c. is en-
powered, with the approval of the Sec
Yealy OF the Treasury. TO issue notes,
debentures. bonds and other cbiiga-
tiQnS, either interest bearing or non
| interest bearing. on discount basis
The pertinent words with reference to
"Such obligations may be Issued In
payment CT any loan authorized by this
aet or may y, be oeTed red for sale at such such
| determine with the approval Of the
Secretary of the Treasury"
In the first place. it must be frankly
admitted that the issuance of obli2a-
tions BY the R. F. C. was contemplated
by Congress cnly as a revenue measure
for the purpose of putting the r. F. c.
in funds for use in connection with its
authorized lending functions. The
power to issue such obligations in
payment of any loac authorized by
this act" does not in any way qualify
this assumption.
Congress realized that in the case
of loans TO financial institutions the
highest degree of liquidity IN connec-
ton with sound banking practice often
dictated an immediate reinvestment by
the borrowing institution of the pro-
ceeds of the loan in income producing
Government guaranteed obligations.
and this provision was inserted to ac-
complish this result while at the same
time eliminating useless Treasury
financing.
1t seems difficult under any stretch of
| the Imagination to see how one could
possibly construe the present exchange
Of r. F. c. obligations for gold on the
basis of price in excess of the parity
, figure as an issue of r. F c. obligations
i for a revenue purpose, unless it be as
sumcd that the r. F. c. intends to
! either obtain the gold at less than the
world market price and then dispose OF
| it in the world market at a profit. or to
! acquire the gold and hold it pending a
rise in price at which the gold may be
gainfully disposed Of. And either of
these two assumptions would result in
the R. F. c. not issuing its obligations
: for revenue purposes, but rather dealing
in or speculating in gold for revenue
/ purposes.
No Power to Purchase Gold.
! In the second place. it seems difficult
j to construe an exchange OF R. 2. c.
! obligations for gold as a sale of such
| obligations 1t should be remembered
! that the emphasis in the exchange is
! on the sale of the debentures and not
on the purchase of the gold since the
| r. F. c. has no separate power to pur-
! chase gold. The question. therefore, is,
| is the exchange of F. F. c. obligated for
gold on the basis of price in excess OF
| parity a sale? The R. F. c. act states
/ that the obligations may be offered for
sale "at such price or prices as the
| corporation may determine. The u-c OF
the word price" indicates a money
| transaction and does not mean an ex-
| change of commodities If the obliga-
! tions are to be exchanged for gold. the
! gold must. therefore. be considered not
as a commodity. but as money. Gold
| as money has definite statutory value.
namely. the legally established parity
price. At any other price it could not
be money. since to denominate it as
| such would result in the creation of
moneys Of different values: l. e. dollar
of one kind of money would no. buy a
dollar of another kind of money.
Gold Producers Not Eligible Borrowers.
! II SIlCulQ ut lOttu lIldI lllc
act by its specific words does not au-
thorize the r. F. C. to sell its obliga-
tions at such price or prices as it may
| determine but rather says that It's
obligations may be offered for sale at
such price or prices as The corpora
| ton may determine" COUGHING the
| issuing power in terms of an offer for
sale, rather than of a sale. would seem
to argue that the obligations must be
sold more or less in the open market.
An offer to exchange such obligations
only for gold could hardly, even in
normal times. be considered as offer
| ing them in the open market. Under
present conditions, with the only tree
gold in the country being newly mined
gold. offer to exchange for gold
! only is even more remote from an
| open market operation
The only other authorized means OF
issuing such obligations is, of course,
| for payment of an authorized loan as
above mentioned. since gold producers
| are not eligible borrowers and no form
| R. F. c. act, this method of issuance
is, of course, clearly out of the picture
Exchange Idea Considered.
That provision OF the R. F. c. act
| which empowers the corporation with
| the approval of the Secretary of the
| Treasury, to sell on discount basis its
! short-term obligations, payable at ma
| turity without interest merits consid-
Grafton. 1t might be contended that
the R. F. c. could. exchange its short
| term. non-interest bearing obligations
| for gold at such discount that the
| gold could be considered as accepted
at the parity price as cash. In other
words, r. F. c. could exchange its
| short-term, non-interest bearing obli-
cations to pay S100 for S66 worth of
gold at the present mint parity price.
This. of course. could not be done in
the open market, but would have to be
| restricted to exchanges for gold only.
But even if the necessity of Offering
for sale in the open market was not
considered essential, it is difficult to
construe such a spread between the
| discount. Quite clearly it would not
be a discount justifiable for revenue
purposes and to consider it as a dis
count at all within the meaning of that
term as used by legislators would be to
open wide the door for any and every
kind of a manipulation for Interior
purposes where a statute provides rev.
enue obtaining machinery on discount
basis. The effect of such an interpre-
| tation upon the discount provisions of
| Federal Reserve legislation is interest
| ing to contemplate.