Evening star. [volume] (Washington, D.C.) 1854-1972, 1956-07-29

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Foreign investments in the United
States, especially those in COM
panies holding defense contracts,
are drawing the attention Of sew
eral Senators who fear that such
investments offer the Communist
infiltrator q clear avenue to defense
secrets. ~.
Another concern among many,
including the Securities and Ex-
change Commission, Is the havoc
that could be worked against our
economy and our dollar should the
$13 billion held by foreigners IN
bank accounts and other short
term holdings be suddenly with
drawn.
The security angle has had the
attention for some time of Senator
DIN D. Johnston. Democrat Of
South Carolina. He has had in
mind such cases as that Of the
late Serge Rubenstein and the fight
over control Of Fairbanks, Morse
& Co., waged by Leopold D. Sill
bernstein. He is concerned lest
persons representing unknown for
eign principals work into key posi-
lions in the defense industry.
Senator Johnston wonders wheth-
er Russia has not been able to ac-
complish infiltration through anon
ymous private" bank accounts in
Switzerland and other countries.
The question has been raised with
the Securities and Exchange Com
mission in the Senate Committee on
Post ONCE and Civil Service, Of
which Senator Johnston is chair
man, and in the Senate Banking
and Currency Committee. Further,
the Senate Internal Security Sub
committee on Tuesday started an
investigation of the subject, calling
as it's rstSWitnesses representatives
of the Federal Reserve Bank Of
New York and the Commerce and
Defense Departments. Next, it will
call industrialists, including finan-
cier Silberstein.
StockpiIe Grows
Foreign countries, prospecting dur
ing the past decade and in many
cases helped by United States aid
programs, have been able to build
up their gold and dollar holdings.
Gold held in this country for for
eign governments and central banks
totals about 81 billion. Much Of
this was acquired from us, with the
result that our gold holdings. now
under $22 billion, are smaller than
they were at the end of the war.
Withdrawal Of the 81 billion of for
eigners' earmarked gold could be
effected overnight without disturb
ing our financial stability.
But the same cannot be said OF
foreign official and private short
term balances and similar invest
ments here, which total $13 billion.
Were all these funds to be suddenly
withdrawn through the usual bank
ing and foreign-exchange channels,
they could be taken only in the
form of gold, since we permit for
eign governments and central banks
to convert their dollars into gold on
demand. If $13 billion of gold were
to be subtracted from the nearly $22
billion of yellow metal in the re-
serves on which our money and
credit rests, unless drastic counter
balancing measures were taken in
Washington. severe deflation could
result. For our banking system
rests on proportional reserves
which. in the last analysis. are our
gold stock.
Growing Problem
This is. the danger which has
some economists concerned. Such is
the view of the American Institute
for Economic Research, which says:
Hanging over the American
economy like sword of DamocleS
Except that the magnitude of the
problem keeps increasingly is the
huge demand claim of foreign gov
ernments and central banks on the
Nations gold reserves. The total
claim was more than half those re-
serves in December.
I'VE should expect large with
drawals Of gold in the event OF
marked economic disturbances in
the United States, such as rapid
downturn Of security prices or busi-
ness activity. In that event the
pressure on bank reserves could well
become critical. The New York
banks, in particular, might be forced
to liQuidate Government securities
instead of buying them. with result
ing further deflationary effects.
IF the Federal Reserve banks at
tempted to purchase Government
securities in sufficient volume to
Offset all the outflow of gold that
can occur. they would be confronted
with problem of great magni-
!, tude. -"
Holding a similar fear, DR.. Mel
chior Palyi. Chicago economist, esti-
mates that, in addition to the $13
billions of foreign balances here
several billions Of dollar notes are