Evening star., 1936-02-03
BONUS MAY FORCE
ECONOMY POLICY
Debt, Plus Fight for Infla-
ton, Brings Finances
Under Scrutiny.
BY DAVID LAWRENCE.

It's an Ill wind that blows no good.
Passage Of the soldier bonus has
brought an acute realization on the
part Of the executive and legislative
branches Of the Government that the
Treasury is face to face with real
crisis in fiscal policy,
On the decisions made in the next
fortnight will depend whether Amer
lea is TO embark slowly but surely on
a course that means printing press
money and all the evils of imitation or
whether the sound and prudent course
will be taken looking toward curtail-
ment of expenditure, readjustment of
the budget and program of COM
prehensiye taxation.
The "inflationists" are active. They
want to issue currency against gold
now in the Tres sury. They want to
issue it against silver They want to
issue it to pay current debts, the
bonus, and to meet expenses for the
new farm program.
| The fallacies in their argument are
demonstrable entirely apart from
the danger Of breaking down conf
dence in the dollar, which is always TO
be faced the moment there is de-
| parture from the usual methods of
raising Government revenues.
Report Cites Gold Stock.
When subcommittee Of the Sen-
ate Agricultural Committee issues a
report outlining how large sums Of
money can be printed and put into
circulation by methods that have not
been utilized for currency expansion
in the customary sense, it is time to
examine that report and see what it
implies. The report says:
The United States Treasury has
gold Of the monetary value of slo,-
l76 6,338,576"
But has the Treasury any such sum
in bona f1de ownership? 1t is true
the Treasury called in all the gold
and put it into vaults for safe keep
ing, but the Treasury didn't steal this
gold and it didn't confscate the gold.
II gave in return for the metal a
claim check known as gold certifl-
cate" These gold certificates were
issued TO the Federal Reserve banks,
which in turn hold them in trust for
the depositors in all banks who turned
In the gold.
The truth is to be found in read
ing the daily statement of the United
States Treasury, which carries on one
side an asset of gold" amounting to
sl0,178, 1896, ,209 and, on the other side,
carries under liabilities the words
gold certificates" amounting to ST.
ISL, ,040,154.
Pledged in Gold Act.
Now these gold certificates are evi-
dences of the Treasury's payment for
the original metal impounded. The
gold reserve act specifically pledges
the metal as collateral to secure the
issuance of those gold certificates. For
the Congress now to break its contract
by confiscating the collateral and
issuing more gold certificates against
it or by assuming possession of the
gold certificates and using them to
pay Government debts when they
are really not the property of the
United States Government at all
would be plain case of confiscation,
or legalized steal.
There is approximately $780,
100000 in the so-called exchange
stabilization fund and S456 100000 in
a gold reserve fund, which are the
property of the Treasury to do with
it as it pleaseS, but Congress has al
ready extended for year the eX-
change stabilization fund and presum-
ably the fund is serving useful pur-
pose in keeping dollar exchange
abroad at the proper ratio to other
currencies, or there might conceivably
be run op the dollar by foreign
spectators and then agricultural
prices might be adversely affected.
It has been enormously assumed by
some advocates of imitation that. since
40 per cent is usually required for
gold, the Government could take a
portion OF its gold and issue two and
half times as much currency. But
currency is issued nowadays by banks
with 20 per cent backing of gold GER
tificates. specifying particular
amount OF gold in the Treasury against
it. and the remaining 60 per cent
must be Government bonds or eligible
commercial paper To issue currency
against gold certificates already
pledged would be to violate and impair
the value of the collateral already
| pledged.
1t may be asked whether Federal
Reserve notes, issued by the Federal
Reserve banks which have invested
so much Of their funds in Government
bonds, aren t really a kind of fat
money because they depend on the
good faith of the Government.
Printing Press Spiral.
While il is true that the Govern
meuts word is the basis of faith in the
currency it is also important to re-
alize thar the Government bonds rest
upo.I the peoples faith that ultimately
revenues will be derived from taxation
and will be earned in the proper way
so as to meet these debts at maturity.
Printing press money is not earned
money" put "say-so' or fiat" money.
anu OIlCc GONetIlIlellb UeSlIlo W
turn on the printing presses and issue
money without providing a method Of
redemption or retirement through tax
alton. faith in money as well as bonds
begins to diminish. Prices then begin
to skyrocket and, in some instances,
like Germany. 1t takes whole weeks
pay envelope to buy loaf OF bread.
Once the spiral starts, it is hard to
control.
There isn't the slightest doubt that
President Roosevelt is against these in
fiationary measures. He vii, resist
them. But to do so effectively his
whole administrative course may have
to be changed. He may have to say
THE bonus is the last big payment
we'll cut down from now on" Drastic
economics are inevitable if initiation is
to be avoided, and so are sales taxes Of
some kind.
Crisis Seen as Near.