The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
COMMENT GN THE: FEDERAL RESERVE FIVE POINT PROGRAM Point One This proposal ju s tly asks that Congress take steps to absorb the excess reserves by raisin g the required reserves thru the Federal Open Market Committee. This is ju s t ifie d esp ecia lly on the theory that the power l e f t in the member banks to expand and contract demand deposits should be en tirely removed, i f not severely con trolled . But i t is gravely objectionable in giving powers to the Open Market Committee, consisting o f private persons with an in terest adverse to the national p o lic y . The powers granted by Congress should be exclu sively to the Board o f Governors. Giving the Board o f Governors the power to ra ise the reserve requirements by classes or by individual banks to one hundred per cent o f the demand d ep osits, leaving the reserves on time deposits and savings deposits as they are is desirab le. The Act should expressly authorize banks to act as intermediaries between depositors having id le money and borrowers seeking loans fo r constructive purposes. The private membership of the Open Market Committee should be abolished on the ground that the exclusive authority o f the Congress to regulate the value o f money is a power o f sovereignty which cannot with propriety be transferred to private persons, however respectable th eir fin a n cia l standing. The suggestion that the required reserves by exempted from assessment by the FDIC is ju s t ifie d . The FDIC should remain as an agency o f insuring deposits o f a l l banks operating in the United States and o f a l l deposits in such banks; and the exclusive agency thru which bank examinations should be made, with the Comptroller o f the Currency made a subdivision o f the FDIC in r e la tio n to National banks. Point Two The power to issue $ 3 -b illio n o f greenbacks is unimportant provided Congress controls the regulation o f the volume and value o f money. The authority to issue s ilv e r c e r t ific a t e s against seigniorage should cease as unnecessary because under a proper b i l l a l l paper currency required can be furnished out o f bank reserves. The paper currency o f the country is adequately supplied now by member banks whose reserves should be convertible on demand into le g a l tender paper money. The power to devalue the d o lla r in terms o f gold should cease because i t leaves unstable the value o f gold , which has been other wise fix e d by law at $35-00 an ounce. The management o f the $2- b i l l i o n s ta b iliz a tio n fund should be exclusively in the hands o f the Board o f Governors and confined to domestic uses. Such s ta b iliz a tio n fund has been proven to be unavailing v/ith regard to the fran c, which has fa lle n from s ix cents to two cents Point Three The question o f the further flow o f gold into the United States should be the subject of a sp ecia l report to Congress by the Board o f Governors. I t should be obvious that the flow o f gold into the United States is due to the fa c t that even at $35.00 an ounce the gold is le ss valuable than the American domestic d o lla r , whose purchasing powder has been around th irty per cent above predepression normal in terms o f "wholesale commodites; and fa r more valuable in terms of buying choice se cu ritie s in the United States, and fa r more in buying rea l estate or mining properties in the United States* Point Four When, under an act o f Congress, there is an adequate supply o f demand deposits s u ffic ie n t to accomplish maximum employment, there w ill o f course be no need fo r extra money but a need to prevent a larger amount o f money being created* This power should be put in the Board o f Governors in both creating and contracting the money supply thru the purchase or the sale o f Government se cu ritie s and other sound bankable a ssets. Power should be given to the Treasury Department to s e ll it s taxable se cu ritie s in a manner to provide the expenses now anticipated by Government; and to buy such se cu ritie s the Treasury should be authorized by law on s ix months n otice to c a ll any outstanding notes or bonds fo r settlem ent. The Federal Reserve banks should be required by law to prevent the bonds and notes o f the United States going below par by the purchase of such bonds or notes whenever o ffered below par. These provisions would prevent speculation in the United States bonds eith er up or down and further s ta b iliz e the value o f money, and remove from the banks the te r r ib le fea r that speculators could repeat what they did in May, 1920, when bonds p rices went below 82 and in 1932 Y/hen they f e l l to 83* Point Five This suggestion is fu lly ju s t ifie d . The existin g con trol o f speculation on the stock exchanges has gone fa r to prevent any future irresp on sible b u ll market, and has had a tendency in the reverse d irection o f preventing reasonable freedom in buying and s e llin g s e cu ritie s on the market t o the injury o f in du strial enterprises whose oppor tunity to obtain money fo r constructive purposes has been impaired. The rule should be imposed in the creation o f cred its fo r in d u strial and commercial purposes that they should be constructive and not speculative. The Board of Governors should be given the power to prevent an individual bank making loans o f a highly speculative character in such a way as to impair the s t a b ilit y o f the bank, and the bank examiner should be so advised. The examiners should encourage loans based upon sound existin g values capable o f self-a m ortiza tion . The Federal Reserve banks should buy Government bonds issued fo r the t o ta l preparedness program, and should be authorized to s e l l such bonds in the event o f any in fla tio n or rise' in the price le v e l above the predepres sion standard o f 1926. So long as the d o lla r index is above the predepression standard, the Reserve banks under the d ire ctio n o f the Board o f Governors should buy United States bonds and other bankable assets. Y/henever the d o lla r index f a l l s below par, the predepression standard o f 100, the Board o f Governors should s e l l United States bonds and bankable assets u n til the d o lla r index i s restored to the predepression standard. No person not a member o f the Board o f Governors should have any vote as a member of the Open Market Committee, or any advisory power in re la tio n to the monetary p o licy of the United States. The medium o f excnange o f the United States should not be based on debt, eith er fo r creation or con traction ; but should be created exclu sively by the authority o f Congress as a medium of exchange and as a measure ot value, and exclu sively in the public in te r e s t.
@FedFRASER