Evening star., 1937-09-13

The Government today began new
credit-easing course of action designed
to assure continuance of the "easy'
money which fiscal authorities have
credited with spurring business re-
covery.
1t provides Q) for expenditure Of
$500, 100000 of the Treasury's frozen"
gold hoard-the first release since the
gold sterilization program was be-
gun last December; and (2) for OPEN
market purchases Of short-term Gov
ernment securities.
Fiscal authorities kept close watch
on the days erratic stock market, but
official comments on effects Of the
new credit program were few.
Noting early market gains and the
later sharp recession, one high fiscal
authority said it appeared many
traders merely had been waiting
slight upward tilt in quotations to re-
new the liquidation movement of re-
cent days.
Gains Wiped Out.
Stocks mounted one to three points
in an opening market rally, but later
selling pressure wiped out gains and
cut some securities to even lower
levels.
The Government security market
followed the anticipated course in
pointing higher during early trading,
with some bonds recording . g gain
per $1,000. A later loss Of part Of
these gains brought expressions of
surprise from some authorities.
Federal Reserve Board officials en-
phasized the purpose Of the credit
plan was not to support the Govern
ment security market, but it generally
was assumed the program would have
this collateral effect.
This program was agreed on late
yesterday by the Federal Reserve
Board. Fiscal experts said it was a
logical continuation Of the boards
recent policy of lowering rediscount
rates OF Reserve banks.
1t also marked, they said, q distinct
reversal OF the policy of tightening
money rates initiated with the gold
sterilization program. At that time,
however, banks held large surplus
lendable funds. The policy then was
to prevent credit imitation.
Open-Market Purchases.
The open-market purchases of Fed
eral securities will be made by the
Reserve Boards Open-Market Com
mittee. The effect Of both this opera
ton and the release Of gold from the
Treasury's inactive account will be to
swell banks supplies of excess re-
serves, or lendable money.
These reserves, which form the
basis for credit expansion, now total
about $750,000,000. Although the Re-
serve Board was said to consider this
sum presently adequate to provide an
abundance of credit at low interest
rates, officials cited that Fall and
Christmas currency and credit de-
mands customarily reduce excess re-
serves by 100000 900 to $500 900 900.
Such a reduction in lendable bank
funds, officials said, might bring
squeeze" in the money markets this
FALL lifting interest rates.
Reserves at Present Level.
Reserve Board officials said the
new credit program would be so op-
Grated as to maintain excess reserves
at approximately their present level.
This will be accomplished, Of
flcials said, by adjusting purchases
of Government securities to needs
for excess reserves. When the Re-
serve Board acquires Federal obliga-
tions, much of the money paid for
them goes 20 banks, bolstering their
supplies of idle money.
In releasing $500 100000 of its ST.
$40, 100000 "sterilized" gold holdings
the Treasury will issue that sum Of
gold certificates to Federal Reserve
banks, which will credit the Treasury
with 100000, 900 deposit.
Can Draw on Deposit.
The Treasury then can draw on this
deposit for day-to-day spending and
the money will flow into commercial
banks, increasing their lendable funds.
Officials said the $500, 100000 OF
spending money" might eliminate
the need for some Treasury borrowing
in the future, or might be used to
pare down the outstanding $37,200,-
100000 debt.
Future Treasury gold acquisitions
will continue to be "sterilized"-that
is, they will be financed with funds
borrowed from the money market.
This borrowing removes from the
supply of lendable funds amounts
equivalent to those added by gold i'm
ports.