The Waterbury Democrat. [volume] (Waterbury, Conn.) 1917-1946, 1934-02-17
The Federal Reserve
Is Fast Fading Out
Present Changes Has Largely NuIIifed Effectiveness
As It Becomes Government Appendage

ISIS, nave MADE the most OF their
opportunity. Both the Thomas
Amendment, adopted by congress
early in 1888, and the Gold Re-
serve act recently adopted, slip the
wings of the reserve system and
Kermit the treasury--directly DOM
mated by the president-to invade
at will a large segment in the
sphere of monetary and credit OPP
erations formerly reserved to the
central banking system.
Under the legislation recently
passed, the secretary of the treas
ury, If the president chooses, can
use the $4,000, 100000 equalization
fund not only for the sterilization
of currencies but for open market
operations. 1t can be used vastly
to expand the country's base of
credit. Should credit contraction
always politically unpopular--be
desirable at any time, it is unlikely
thta it would be brought about by
the treasury, which is interested
in floating its own obligations in a
cheap monetary market and which
Is in the hands of men committed
wholly to the Roosevelt policy of
raising commodity prices by mon
etary and credit manipulation, or
that it could be brought about by
the reserve system as it exists and
as it is manned today.
In this setting, the formal and
legal execution Of the reserve sys-
tenn and the transfer of it's none
tary and credit control completely,
or virtually so, to single central
bank of issue; dominated by the
president or by congress, would be
only another step. With this OBJ
Jective in mind, congress at this
writing is holding hearings on the
necessary legislation. The admin
istration's attitude has not yet been
revealed, but is presumed to favor
the change.
In the character of the testi-
nony thus far heard in advocacy
of central monetary authority,
one gets a significant clue as to the
real motives involved.
Perhaps it Is coincidence that the
majority of those who wish to
Scrap the Federal Reserve System
and to replace 1t with direct federal
monetary and credit control are in
flationists.
Under either change, control of
government credit would be control
Of open market operations, hence
control of expansion or contraction
in excess bank reserves, hence
control of expansion or contraction
Of commercial banking Croft. The
creit boom which collapsed in 1929,
and which had involve dan expan-
sion OF banking credit by $14,500,-
600, 900 between 1922 and 1928.
was founded on an expansion of
$500, 100000 in excess reserves. Re-
Gently such excess reserves have
been approximately $900,000,0
and they could be raised to APP
proximately $4,000, 100000 under
the Gold Reserve Act of 1884.
The mood of the public and of
business and of bankers was such
in the boom that the available
credit me chanism was utilized until
it blew the country to pieces. The
capacity of the excess reserves
mechanism existing to-day is far
greater. Whether it will be util-
lied depends, again, upon the mood
of the public, of business men and
of bankers. This is question No. 1.
Whether, 1t @ credit boom threat
ems, it will be wisely controlled by
the government is question No. 2.
LNO Oh0 uculcS IIldt JHo 5OVcTH-
ment of any country has sovereign
power over the currency. Never
theless, world experience has con-
vincingly demonstrated the wis
dom of delegating the actual exer-
ing authority, divorced as far as
possible from active politics. What
ever the legal formality, govern
ment also has the sovereign power
to control banking credit, but
throughout the past this power
likewise has been wisely delegated
to private banking authority.
The cold fact is that the disast-
rous credit policy followed in this
country during the boom was, in
the main, the policy of the govern
ment then in power; for the Re-
serve System, autonomous In the
DRY, was not beyond it's Influence.
The judgment of that government
was no whit sounder than that OF
the much criticized bankers.
In the final analysis, whether by
further legal change in the present
status of the Reserve System or by
pressure Of public opinion mobil-
lied behind the administration, the
control of credit for an indefinite
time will be what Mr. Roosevelt
chooses to make it. ~
The one thing that we all know
for sure is that every credit boom
ends in an explosion. Whether
Mr. Roosevelt will prove both wiser
and more resolute than his pre-.
decessors, when and If the desired
credit initiation takes hold on the
public fancy, remains for the fu-
ture to reveal.