Evening star. [volume] (Washington, D.C.) 1854-1972, 1936-01-26
FEDERAL FINANCING HELD
INFLATIONARY In EFFECT
Former Director of Budget Advocates
Balanced One to Halt Exchange
of Paper.

But tIllS SILVER payable W tH6
bearer on demand" is not silver bull
lion 1t is silver which the Govern
ment values at sl29 an ounce. re-
CARELESS of market price. So even this
convertibility is meaningless.
The so-called gold bonds too have
been legislated out of existence.
The so-called Federal Reserve gold
for the gold owned and deposited by
them in the Treasury carry the fol-
! lowing language: This is to certify
that there is on deposit in the Treas
ury of the United States of America
- dollars in gold, payable to bearer
on demand as authorized by law"
But the law makes redemption entirely
/ discretionary with the Secretary Of
( the Treasury.
( Thus our currency is now on a
/ wholly paper basis. In certain
sense 1t is but the "greenback" in an
other form. Certainly currency today
is merely piece of paper.
In substance, t huge Federal def
cts have been financed by the ennis
sion of pieces of paper.
The S16,37O.000 900 Deficit.
The accumulated deficits since 1890
to the end of November, 1885, amount
to sl6,37O,000, 900. Bonds or Govern
ment obligations have been issued to
meet these deficits. Only a small part
have been purchased oy individual in
yestors. Since 1888 more than 80 per
cent of the bonds issued to finance the
deficits have been absorbed by the
commercial banking system When
bank buys bond from the Treasury
it does not draw its check Ca piece of
paper against itself in favor Of the
Government. Nor does it pay the
Government in pieces of paper (cur-
rency) for the bond which it pur-
! chases.
What really happens is that it takes
the Government piece of paper prom
Using 20 pay in pieces Of paper on
definite date and writes upon its paper
books a paper deposit in favor Of the
Government. Thus the assets Of the
bank are increased oy the amount Of
the bond or bonds which the bank has
purchased while the deposits of the
!
and thus bank deposits arc built up.
incidentally, this is the major reason
for the increase in bank deposits. The
increase cannot be ascribed to in
creased saving The increase is merely
reflection of Government borrowing.
BY following such procedure, how
simple a matter it is fer a government
to build up bank deposits by operating
a. huge deficit and subsequently to
point with pride TO the increase as
though it were attributable to other
and sounder reasons.
The Government now has bank
deposit, while the bank has the Gov
eminent bond. The Government then
proceeds to draw a check "a piece Of
paper against its deposit. The piece
of paper circulates in payment OF
the Governments bills and comes to
rest either in the same or different
bank. The only effect of the pro-
cedure is possibly TO distribute the
bank deposits which the Government
has artificially created. The sig
nificant point about the whole pro-
cedure is that it is purely a paper
transaction, just as much as though
paper currency were issued directly
to pay the Governments bills.
If the Government had financed its
deficits by issuing currency directly
the pieces of paper would have cir
culated and would have come to rest
finally in bank to the credit of an
individual depositor. Thus would
bank deposits have been increased.
just as the present method of financ.
ing has augmented bank deposits.
Greenbacks Cost Money.
Some may argue that the emission
of greenbacks direct would eliminate
an interest charge and consequently
decrease Government expenditures.
| The governor of the Federal Reserve
Board. on page 325 of the hearings
before the House Committee on Bank
ing and Currency on the banking act
of 1885, in part answers this arga-
ment: y
Nov it must be remembered that
there are expenses in connection with
the issuance of currency and keeping
it in circulation, and it may be in
tereSting to note that the cost Of
keeping the greenbacks and notes Of
the United States in circulation today
is more per annum than the present
rate that the Government is paying
on its 180-day bills"
There is, of course. the difference,
significant to a capitalistic system,
that the Government by issuing bonds
recognizes the principle o. interest.
On the whole, however, our cur
rency now being mere piece Of paper.
our bonds now being mere pieces OF
paper and Government check now
being mere piece Of paper, there is
no fundamental Offence between
the direct emission by the Govern.
ment OF pieces OF paper 10 a bank