Evening star., 1935-03-11
Paying Government Debts.

Morgenthau, has announced a new
financial stroke by the Government.
He proposes to retire $675, 900 900 Of
Government obligations through the
use of part of the 10000 900 which
the Government gained through the
reduction of the gold content Of the
dollar. The obligations to be retired
are the two per cent consols, totaling
about $500, 100000, and Panama Canal
bonds bearing a face value Of $75.-
100000.
The gains which the Government
made through the devaluation of the
dollar, the increment in gold realized
by the Government from the reduc-
ton of the gold content, has, of course,
been available for use by the Govern
ment for months. OF the total amount
of this gain s2,0OO,000O0O has been
placed in the So-called stabilization
fund to maintain the value of the
dollar in foreign exchange if neces-
sary. Congress appropriated $780,
100000 for loans to industry. of which
about one-tenth has been used for
that purpose. Congress also has ap-
propriated an indefinite sum to meet
losses in melting gold coins, estimated
to run to sS,00O,oO0, and has author
lied the use of another $23,00o,o 900
for the Philippine currency fund. This
will leave about S642, 100000 of free
gold" which is to be used as the basis
of the retirement of the consols and
the Panama bonds.
The operation undoubtedly has its
good points. 1t is illustrative, how
ever, of the power which the Gov
ernment has to reduce its debts by
manipulating the currency. Having
made the gain of nearly three billions
of dollars through the reduction OF
the gold content of the dollar and
taking over all the gold and gold GER
tificates in the country, the Govern
ment was in position to wipe OH its
debts to the extent Of that total sum
at any time it desired. If the Gov
eminent should again reduce the gold
content Of the dollar, there would be
still further billions available to wipe
out Government debt. Such opera
tions may be called by less polite
name, reputation. In the light of
the gold decisions of the Supreme
Court, the reputation so far carried
into effect has not damaged the people
who have held gold bonds, since the
dollar will still purchase what a
dollar should purchase in this country.
The inf1ationists are pleased with
the plan to retire the consols and
the Panama Canal bonds, both of
which bear two per cent interest.
These bonds have been used by the
national banks in the issue of cur
rency. These two issues of securities
are callable August /. They are to be
taken up and paid for with gold cer-
tificates. These gold certificates are
to go to the Federal Reserve banks,
but no further. And these banks in
turn may issue new currency against
these gold certificates, for the law
says that the Federal Reserve banks
may have in circulation 500 In
notes to $40 of gold certificates. There
fore, there may be issued against these
gold certificates 1852, 100000 in Fed
eral Reserve bank notes. Here is a
possible imitation of the currency of |
considerable proportions. However,
the Government is not calling its move
to retire consols and Panama Canal
bonds an inflationary measure. But |
the possibilities are there and are rec
ognized by inflationists. Perhaps the
move may do something to stop the
cry that there is not enough money
in circulation.