Evening star., 1934-06-24
MENACE OF HUGE CREDIT
BOOM LIES In SILVER PLAN
Banking of Silver Certificates Would
Shoot Reserves Up, With Danger
of Runaway Initiation.

ton has been made, without at all
Goldenweiser, director of research
statistics for the Federal Reserve
Board, in testimony before the Senate
A year ago our silver Senators wanted
Ito do something for silver" largely
in order sympathetically ito do some
thing for China" Now they much
more realistically claim that new large
silver purchases by US will do a great
deal to give the competitive indus
trialization Of the Orient a firm
strong setback.
Thus. possibly helping Europe and
possibly hurting China, in what way
-speciflcally-shalI we help or hurt
ourselves? In answer to that ques-
ton it must first be noted that under
the new silver bill the Secretary of
the Treasury must issue silver GER
tificates "in a face amount not less
than the cost" of all the silver he
purchases. II then he purchases
81 500, 100000 worth of silver, he must
issue $500. 100000 of silver certif-
Gates which will pass into the hands
of the people"
This would increase our money in
circulation from $4,000, 200, 900. where
it now is, to $4,000, 900 900. Another
new bulge in monetary circulation
would be produced. But would it last?
Most of our best administrative none
tary authorities are sure that it would
not. Just as ''the people" in the last
year or so have carried 81 200, 900 900
OF currency back to the banks, so--in
the judgment of these authorities
the people" would likewise carry the
Sl,5O0, ,OoO, 900 of new silver certificates
back to the banks, because of their
present confidence in the banks and
because of their general preference for
dealing through bank checks rather
than through currency.
But would We then be simply lust
where we we're when we started? Not
at all. There is most certainly one
sure thing that our new silver pur-
chases will accomplish if they are
prosecuted enthusiastically and vigor-
ously. They will swell the excess re-
serves" Of the banks in the Federal
Reserve Bank System.
The new silver certificates. as thev
are returned to the banks. will pass
into reserves" which already exist in
colossally excess" amount. The So
called excess reserves es"-the reserves"
above legal requirements-in the banks
OF the Federal Reserve System have
now risen to 81 SOC, 100000. Each dol
lar of that sl,s0O,0oo 900 can be the
basis for $40 of credit. The $780,
100000 could therefore be the basis
for $4,000, ,000, 900 of credit In the
happy days of our promised complete
revival Of business.
Credit Figure Fearful.
But now suppose that 81 500 600, 900
OF banked silver certificates have been
added to our excess reserves" Our
total of excess reserves" would then
be $4,000. 100000. And the amount OF
credit that could be extended on til.
basis of that $4,000, 900, 900 would bt
s66, 900 100000 1t is a figure that i:
not only paralyzing to the imagination,
but provocative of the strongest fear
here regarding a possible orgy c,
credit imitation" if and when pros
perity' comes back in full force.
The great potential outcome then,
of this new silver legislation is prob
ably not so much in the field of curt
rency as in the field of credit. 1t ac-
centuates the probability that in the
next session Of the Congress it will be
necessary to clothe the Federal Re-
serve Board with new powers to check
credit imitation" and speculation"
more effectively in the next prosperity
period.
However. and on the other hand, It
is not a bit certain that the President
will proceed at any high rate of speed
along the line which the new silver
purchase bill directs" the executive
branch to follow. I can well remem-
Der that the Congress, right after the
Great War directed" the President
to abrogate certain clauses of certain
commercial treaties of ours with for
eign countries. President Harding
paid no attention to that direction"
Nor did President Coolidge or Presi-
dent Hoover. Nor has President
Roosevelt.
Directing" President to do some
thing is easy, but actually making him
do it, unless you are willing to i'm
peach him, is difficult indeed. The
best opinion here would seem to me
to be that President Roosevelt will
buy enough silver during the rest of
this year to be able to persuade the
reassembled Congress next January
that he is buying enough silver to help
the silver cause and not enough silver
to create CONSERVATION among the So
called sound money people"
This is a slack-rope balancing act to
which he will undoubtedly give his
personal attention because nobody
else in the administration-or in the
world-has the necessary political
psychological skill
(CopyriEht, 1934)