Evening star., 1938-04-17
valuation of gold or of silver, the s5,435,-

valuation of gold, or of silver, the s5,435,-
100000 total is a considerable nest egg.
Only part Of this is to be used now. For
example. the Treasury has not touched
the e-mentioned 81 800 ,0OO, 900 at any
time since 1t was set aside four years ago.
Moreover, its policy is to keep about
81 900, 100000 OF cash and bank deposits
as working balance for everyday needs
and emergency calls. The s1,O02 900, 900
silver nest egg is a temptation, although
it, too. has been allowed to accumulate
untouched for four years.
A Tempting MorseL
But the other idle gold, obviously. was
the most tempting morsel in the cupboard,
and now it is being used. This "sterilized"
gold represents policy which was ap-
proved when the authorities wanted to
tighten the reins on imitation late in 1896.
There was then alarm over the inpouring
of foreign capital. But sterilized gold and
pump-priming don't fit together. So out
the gold now goes; 81 400 900. 900 in one
fell swoop. 1t will be deposited in the
rate Of spending requires. What We will
do when foreign hot money leaves is at
present an academic question. We can
still use the 81 SOC, 900 900 exchange fund
for that purpose.
Sterlizing gold is a process which
generation reared on the old gold standard
finds it difficult to comprehend We
haven't the space here to discuss it
thoroughly.
Stroke Of the Pen.
Sterilization of gold in 1896 had as its
object to put ceiling on inflation to keep
the inflowing foreign and domestic gold
from tempting the banks into reckless
lending and the people into reckless spend
ing. At the time the policy was introduced
business was booming. So, commencing in
1896. all the new gold was wrapped in
cellophane" and stored away where it could
be seen on the Treasury's statements, but
not touched. Now. however, business is
anything but booming; therefore removal
Of the wrapping is only natural Thus
81 400, 100000 is obtained by stroke Of
the pen. and set aside against the billions
Of recommended expenditures.
Another boom time brake now being
removed is that relating to the cash re-
serves which commercial banks are required
to deposit with the Federal Reserve System.
Those reserves regulate the maximum
deposits which commercial banks may
create. In 1896 and 1887, to prevent q
too rapid expansion of bank credit. the
Federal Reserve System raised the reserve
requirements for country, city and reserves
city banks 100 per cent above their former
levels. This procedure is now to be partly
reversed, thus releasing for other uses
$3.50, 900 now tied up in member bank
deposits with the Federal Reserve banks.
This will make money easier" But it
adds nothing to the Treasury's funds
Only the 81, 400 100000 is now added. The
Bondholders, Beware!
Still another available monetary device
is the resort by the Federal Reserve System
to purchases Of outstanding Government
bonds in the open market. This procedure,
for which hundreds Of millions of dollars
are available, would release money now tied
up In privately owned Government bonds.
Open-market operations by the Federal
Reserve System are intended to stabilize
Government bond prices.
To the extent that the Government
meets next years new expenditures by SELL
ing bonds or other certificates of indebted
ness it will be drawing on the savings Of
the future It's comparable to taking
money out Of the babys savings bank. Like
the nationali1ed oil properties in Mexico,
the public debt is supposed to be paid back
some day But 1t is foolish to be too sure
about that. Let the bondholder beware"
should be a motto hanging on the wall of
every bank, every insurance company, and
every educational or charitable institution
having investment funds. II you have
money in the bank, an insurance policy, or
q child you hope 70 send to college, this
means you.