The Waterbury Democrat., 1938-04-25

Is it true-and if so, what sense that the use of $500, ,000, ,000 "sterilized gold" in MT. Roosevelt's spending proposals, will not in- crease the national debt" by that amount?
 This intimation was implicit in MT. Roosevelt's fireside chat. It has been explicitly stated in Washing ton newspaper dispatches. One gets the impression, indeed, that an ex- traordinary notion is being care- fully-and successfully - propagan- dized; that by some mysterious monetary procedure the use of our sterilized gold is going to cost mo- body nothin'." It is money found. a national windfall.
 The truth about the matter can easily be grasped by any one-man or Woman-Who will devote little attention to precisely what happens when gold is "sterilized"; and the extreme gravity of the present pro- posals demands this slight attention on the part of every intelligent citizen.
 The Normal Procedure To understand best what happens when gold is "sterili1ed," one should first trace out what occurs when 1t is not "sterilized."
 For example, shipment of $1,- 100000 in gold comes to New York. It is consigned to 8 bank. Under the present law banks may not hold gold. The bank, accordingly, delivers the gold to the New York Federal Reserve Bank. It is credited with a deposit" on the books of that bank.
 But the Federal Reserve Bank also may not at present legally hold gold. It, therefore, takes the $1,000,- 900 to the treasury and received $1,- 100000 in gold certificates. Each one of these reads that the treasury has so much gold on hand and will pay it to the holder in accordance with the existing statutes. However, un- der present law, the only uncrim- inal holders of such gold certificates are the F Federal Reserve banks.
 Now, observe how this entire normal" situation ends up; the treasury hold the $1,000,000 gold, and that is offset by treasury lia- bility to that amount in the form of the gold certificates. The New York Federal Reserve Bank holds the $1,000,000 gold certificates, and this is offset by its liability, to the same amount to the member banks. The member bank owns the $l,000,- 900 credit at the Federal Reserve Bank, and this is offset by the de- posit liability in favor of the for eigner, who shipped the gold into the country. Exact balancing of good assets against liabilities pre- vails throughout.
 When Gold Is SteriliZed
 When gold is sterilized the detail of the procedure is the same as that described above, up to the point where the Federal Reserve Bank presents the gold to the treasury. At that point the treasury does not give gold certificates for the gold. Why not?
 The only purpose of "steriliza- tion" is to keep the gold out of the monetary system, where it can be made the basis for bank credit null tiplied many times over.
 Instead of giving gold certificates for the gold the treasury pays foi it by check out of its deposit bal ance at the Federal Reserve Bank It then replenishes this balance when necessary, by borrowing in the open market. That is, it borrows to acquire the gold, using interest-bear- ing obligations to do so.
 Thus, the crucial point must be understood that-up to last Friday the United States government hac already borrowed $1 400, ,0000 000 fol the specific purpose of acquiring the $I 400, ,0OO ,0O0 of sterilized gold 1t was then holding.
 A fair description of the situation would be that $1,40O, ,000,0 900 of oul national debt had been, unofhcially earmarked against this gold. Ina is, since the treasury obligations were created for no other purpose than to acquire the gold, 1t was in tended that this much of the ma Sional debt would automatically b' concealed, if the $1 400, ,000, 900 O gold were to be withdrawn by thu foreigners who sent 1t here.
 The Newest Deal i'm Finance
 What, now does the administra ton propose % do in de-sterilizint this sterilized gold? Last Friday i
 was reported that the treasury l1a,