Evening star., 1936-09-29
BY BLAIR MOODY.

hard, as to make you want TO laugh
or shiver.
Accumulation Of q large savings ac-
count" by the Government might at
first blush seems to be q conservative,
confidence inspiring move. Would that
not give the Government something 1t
could always fall back on? Would it
not give the people q sense Of security?
Would it not be a relief to feel that
Uncle Sam, instead Of being broke"
and mortgaging the taxpayers future
to the hilt, had huge resources he
could call on in an emergency?
The answer is that. instead Of being
conservative. this reserve idea is the
most radical move by far ever made
by the Roosevelt administration. In
stead Of promoting security, 1t would
promote extravaganza. Instead Of bull
warking stability, 1t would completely
disorganize the delicate financial
mechanism on which the Nation now
operates.
It would, for example. "pay OF" the
national debt. by taking 1t out OF pri-
vate hands. but In reality 1t would
freeze the debt at level higher than
the present one and saddle the tax
payers with q perpetual annual inter-
est charge of nearly 81, 400, ,o00. 900 for
this purpose alone.
Currency Revolution.
rnu1y,tfiAvf1n "A
system Of the country and shake the
banking system until its teeth ratified.
1t would raise havoc with the in
vestment portfolios Of private insur-
ance companies, stimulate the fiow Of
both private and Government funds
into all sorts of new enterprises and
be q perpetual. enticing temptation to
spend and innate.
An administration which has Bit
terly criticized the piling up of re-
serves as q check on recovery and q
walling-up Of purchasing power
and based its tax policies on that
theory-would itself be creating in
perpetuity, on paper. the greatest
walled-in reservoir Of potential pur-
chasing power ever collected in one
place.
As the Government is getting all
this money Gf it does) it can do one
Of three things with it. It can pur-
chase outstanding obligations in the
open market. 1t can put Government
bonds directly into the fund, take the
money and spend it. Or 1t can issue
special obligations to the fund and
take the money.
The first plan would retire" the
national debt by bringing bonds
privately held into the hands Of the
Government. The second or third
schemes would merely give Congress
the money to do with what it
pleased-balance the budget, finance
the deficit, boost the benefits. or just
spend it.
Now consider what will happen
when and if the Government chooses
to pay of its debt that way land even
a Government would have . tough
time trying to "just spend forty
seven billions. First. it would serve
as the greatest "open-market opera
ton" in financial history. At the
present time, the Federal Reserve
Board initiates the Nations credit
structure, when 1t seems desirable.
by buying in Government bonds. This
procedure releases q how Of cash to
be used for other purposes by those
previously holding the bonds.
Operation in One Direction.
The building-up of this reserve
fund would be one long open-market
operation-always in one direction.
The Government would rarely sell
bonds, as the Reserve Board now
does to check imitation. If it did sell,
the reason would probably be that
in hard times collections from the
pay roll taxes had not been enough
to keep the old age annuities going
and under that situation the sale
would merely accelerate the depres-
sional spiral.
The release of all these funds. now
held in governments" would mean
that the private investors would have
to find . new place to put them. It
would promote the issue of new securi-
ties and bull" stock market. 1t
would expand the Nations industrial
plant by new construction. 1t would,
with vengeance, release the "pent-up
money" in the private financial lockers
of the Nation. The only trouble with
that side of it would be that, as we
found out in 1929, "the higher they 60,
the harder they fall"
Now in April, 1896, Federal Reserve
banks had As per cent of their loans
and discounts in United States bonds
or bonds guaranteed by the Govern
ment. When Uncle Sam bought them
in, where would the money 60? The
banks favorite method of keeping
their position flexible Is by borrowing
from the Federal Reserve on their own
notes secured by Government obliga-
tions. That will be impossible If the
Government owns all its own debt!
The currency of the country Is
based, through the Federal Reserve
banks. on the holding of Government
bonds by the Reserve banks, and theo-
retically, on the need Of business for
expanding or contracting amount of
money outstanding. If the Govern
ment holds all the bonds, 1t must
change this system entirely, or issue
money directly against its own bonds
held by itself, which Is now consid-
cred the rankest sort Of imitation.
Other Government Bonds.
A large proportion Of the invest
ments Of insurance companies and
other savings institutions also are In
Government bonds. What will be con-
sidered a sound insurance portfolio
when (and always if) these bonds oil
gravitate to the Treasury "Reserve?"
In short. the thinga that have al-
ways been considered inviolate In
our financial structure would, by the
very existence of this huge reserve
be torn up by the roots. And the
economic echoes Of the scheme would
extend far beyond this financial skele-
~, of fhe Nation Tta huce taY hiIr.