The Sauk Centre herald. (Sauk Centre, Stearns County, Minn.) 1886-current, 1936-12-24
EDITORIAL
COMMENT
New Credit Controls
From Our Exchanges

New Credit Controls
Another step in the administra-
tons program for keeping the base
of potential credit expansion under
control was taken Tuesday when
the treasury acted to freeze" in
coming gold. Until now gold inn
ports have been paid for by the is
suance of gold certificates to the
federal reserve banks. Under that
system outside funds moved into
the money market and tended to-
ward a possible inflationary expan-
sion of credit by swelling the res
ervoir of credit. BY using it's bor-
rowing power, the treasury will
change this method of handling
gold imports and exports in such a
way as to nullify any effect they
might have on our domestic econ
omy.
When foreign money comes into
the country now through the i'm
portation of gold, the treasury will
remove an equal amount from the
credit reservoir. In other words,
the treasury will purchase all i'm
ported and domestic gold with the
receipts from the safe of discount
bills. Future acquisitions of gold
will be deposited in an inactive"
treasury account and thus the pro-
cess of freezing" additional gold
supplies will be completed. The sale
of the discount bills will absorb
from the money market an amount
equal to the new acquisitions. When
gold flows out of this country, the
process will be reversed and by
taking up the bills the treasury
will return an amount of money to
the market that is equal to the vol
ume exported.
The effectiveness of this plan for
dealing with the two-fold influence
of incoming and outgoing funds, in
volving the importation and ex-
portation of gold, is obvious. I'm
portation of gold under our pres
ent circumstances contributes to
the potential credit base and the
net effect of the new program will
be to keep the nations credit re-
servoir at its present level. Since
the expectation Of funds in any
sizeable quantity would tend to
have deflationary effect on the
domestic market, the plan is also
well calculated to offset this ten
dency by releasing additional funds
just as rapidly as the gold leaves
our shores. These measures are be-
ing taken as part of the more gen.
eral program of preventing bank
reserves from becoming too I'M
wieldy and providing a basis for a
runaway BOOM"
The action was not unexpected
because for some time there has
been considerable discussion con-
corning the flow Of foreign capital
to this country. A recent treasury
report showed that from January
1, 1885 to October 1, 1896, there was
net inflow of foreign funds total
ing s2,280, 100000. More than half of
this amount was in short term
banking funds, exceeding security
transactions by almost a half a bill
lion, showing tendency toward
permanence of investment. During
1896, however, the trend has shift
ed somewhat with purchases of Sc
curities growing. The result Of this
international movement of capital
toward us tends to be inflationary
just now and should war break out
in foreign countries, the results
might prove disturbing to our DOM
este economy. It is in anticipation
of both these potentialities that
these new measures in credit con-
troll are being undertaken and With
in their limits they should prove
effective.
The fact that excess reserves are
still over $1,000 100000, despite the
recent increase in reserve require
ments, leaves ample room for Gre
dit expansion, but the opinion of
the treasury appears to be that 1t
can handle this situation with the
powers it and the federal reserve
system now have. Whether that
proves to be true remains to be
seen. A complicating factor that
still must be dealt with is the
spending program Of the federal
government. While deficits may not
increase excess reserves, the effect
of deficit financing on the econom-
ic life of the country, as a whole is
cumulative. But since the problem
Of government spending involves
different set of factors, over
which congress exercises a large
measure of authority, 1t is to that
body that the country must look
for action to control the deficit
Minneapolis Tribune.
Let everybody have his name
put on him in large letters so that
1t can be read Is feet away" is the
whimsical formula proposed by
Strickland Gillian, author and
humorist, for reforming the world
and starting an era Of law-abiding-
ness and good manner"
Writing in the Rotarian Maya
zine, Mr.. Gillian cites examples of
how 1t will work out. One of these
examples will be Of special interest
to those who realize the need for
cutting the hazards Of auto traffic:
"A guy Is driving q car. Anoth-
er guy who wants to 60 faster than