Evening star., 1936-11-16
"HOt Money"

DuTug Tie campaign OcHdtOT VIII
denberg wrote to Secretary Morgenthau
for an explanation of certain matters
relating to our gold purchase program
and the large volume of American se-
curities being purchased from abroad
From available figures on the gold pur-
chase program-under which all foreign
gold was bought at increased dollar prices
and the purchase of American securities
by foreign investors, Senator Vandenberg
linked the two and deduced that while
Europe cannot find the means to pay
our war debts, it can and does find the
means to buy our securities; and 1t
would at least specifically appear that
our own gold purchase program not only
encourages this process, but also author
ICES it at the expense of the American
people"
Secretary Morgenthaus reply to SEN
ator Vandenberg, made public with the
Senator's letter, agreed with the Senator
as to heavy investments from abroad in
American securities, though not attrib-
nting them to the American gold-pur-
chase program. Nor did the Secretary
agree with Senator Vandenberg as to the
latter's expressed fears over "the peril to
our own domestic situation" should there
be a sudden liquidation of American
securities by foreign investors.
But what Secretary Morgenthau did
say becomes interesting now in the light
of the Presidents order to the Govern
ment's various fiscal agencies to investi-
gate the possibilities of legislation de-
signed to protect domestic markets and
exchange rates against large and sudden
Withdrawals of funds which foreigners
have invested in American securities.
What Senator Vandenberg feared, in
other words, has become subject Of
new study in the administrations close
observation of the booming gyrations of
a busy stock market.
Hot money" or funk money" as the
British call it. is term used to describe
money sent into the United States be-
cause of uneasiness as to the situation
abroad and subject to withdrawal on
short notice. There seems to be no
great concern over this hot money" now
but the potential dangers have been
recognized in the Presidents decision for
thorough investigation of possible ways
and means to curb its inflow.
Replying to Senator Vandenberg last
September, Secretary Morgenthau at
tributed the heavy purchases of Amer
ican securities with foreign funds gen.
orally to improved business conditions in
the United States and to the anxiety,
in some parts of the world, over the
instability of conditions there. The mag
nitude Of foreign holdings, in the opinion
of Secretary Morgenthau, however,
naturally, in the determination OF our
credit policy constant and careful atten-
ton is given to them" They constitute,
said Mr.. Morgenthau, mo threat to con-
tinued recovery" and while it is reason
able to expect heavy Withdrawals in case
of marked improvement in economic and
political conditions throughout the
world, "the complete restoration of con-
fidence in the political and economic sta
bility of Europe is not likely to take
place simultaneously among the bulk of
those who have participated in the flight
from their own currencies to the dollar"
There seems no doubt that part Of
the stock market boom now is attributed
to the desire of those abroad to reap the
reward Of investment on a rising market,
for foreign purchases have been heavy.
The President indicated to the White
House correspondents, however, that he
was more concerned over the effect Of
hot money" on the recently stabilized
exchange rates than he was about the
stock market. The difficulty in drafting
legislation to curb "hot money" would lie
In the fact that curb placed on these
nervous" funds from abroad would like
wise affect bona fide investments from
abroad. 1t is hard to get at one without
killing the other.