Evening star., 1934-04-05
Self-Abnegation of Congress /
Revealed in Monetary Policy
Constitution Ciues Legislature Exclu-
size Po,oer ''to Coin Money and
Regulate the Value ThereOf.'

legations are to the banks BY the
end Of the year. according to present
indications, these obligations to the
banks will amount to about 60 per
cent of the Governments obligations
Policy to Be Continued.
The banks, therefore, are really
saving the Government, If not from
financial collapse, at least from
appealing to the public for a test
of confidence through large issue
Of bonds.
Everything points toward continu-
alton of this policy Of treating a
deficit as an asset as long as it will
work, which is to say as long as the
banks can stand the strain.
But as the Government leans more
and more heavily on the banks, the
banks become weaker in their real
resources. For instance. resources Of
all Federal Reserve banks in 1926
were close to $4,000, 900 900. In the
Autumn of 1888 they stood at $780,
000, 900 900.
theoretically. holding Government
obligations should strengthen a bank
anu ~ oOSo dillCSS Illc
pushes its borrowing so far as to
upset the equilibrium between private
and public borrowings.
As the Government has proceeded
in It's utilization Of resources of banks
that is. of the money deposited
there by the people-it has become
increasingly necessary for the banks
to be held as tightly as possible under
the thumb Of the Treasury Depart
ment.
We find. therefore, the Govern
ment entering the banking business
through the back door of preferred
stock A billion dollars at least is
now being employed in this way.
Strong banks as well as weak are
induced to participate in the scheme.
Can Exert Much Pressure.
In the case Of the weak banks. this
will unquestionably benefit depositors
by furnishing funds with which to
meet the obligations Of the banks.
But, in the case of the strong banks,
what is the object of this maneuver?
Is 1t to benefit holders of common
stock and depositors? Or is it to
give the Government leverage on the
banks, so as to facilitate its plan Of
keeping money deposited in the banks
easily available to the Government,
to be used in making the public feel
that the Government is boundlessly
wealthy and boundlessly benevolent?
BY its position as holder Of pre-
ferred stock and under the terms by
which it is placed in that position,
the Government will be able to exert
tremendous pressure upon the banks.
Indeed. it can only be because OF
the pressure which the Government is
now able to exert on the banks that it
has been able to induce the directors
of strong banks to accept the terms
laid down to them An additional
million dollars (secured by the bank
through sale of preferred stock to the
GovernmenD can make but little diff
ference to a bank in good condition
and with deposits of about s80000,-
600 Yet that is the basis on which
the Government bought into one of
the best banks in the United States
recently.
The Government is making much
Of the fact that it will, when neces-
sary, trim salaries of bank officials.
With that ak held over their heads,
it is not likely that officials will go
out of their way to make a fight
against an aggressive policy of using
bank funds by the Government.
Rond Sala Rold CourSe