UNITED STATES DOLLAR.

Manawatu Standard, Volume LV, Issue 88, 12 March 1935, Page 7

UNITED STATES DOLLAR.

PROFIT FROM DEVALUATION

EASING NATIONAL DEBT.

WASHINGTON, March 10. What is considered to be the first evidence of tlie “mechanical” inflationary effect of the decrease of the gold content of the dollar was seen with tlie announcement by tlie Treasury to-night that 675,000,000 dollars of profit from the devaluation of the dollar will now immediately be used to reduce the national debt.

Whereas there was a profit of 2,812,000,000 dollars from the devaluation, there has been a technical allotment of all but 675,000,000 dollars to other purposes such as, for instance, 2,000,000,000 dollars to the stabilisation fund. This step, along with the expressed intention to concentrate tlie issue of all currency in the Treasury and Federal Reserve system by providing for the removal from all circulation of all notes hitherto issued by national banks, will save the Government nearly 13,500.000 dollars in annual interest charges and make technically possible a greater expansion of currency and credit.

The measure is considered one of the most important of a financial nature undertaken by the Administration. The gross public debt on March 7 was 28,554,000,000 dollars. The application of a relatively fractional part of the gold profit to the retirement of i'le national debt cannot, on its face, be considered that sweeping cancellation of obligation by means of tampering with currency which had been feared ever since the gold content of the dollar was materially reduced, but it nevertheless is cancellation.

(Moreover, although it is denied that there is contemplated any further augmenting of currency, the method by which 675,000,000 gold dollars will be used for the retirement of existing national bank notes—the issuance by the Federal Reserve Bank of gold certificates which, in turn, will be used to retire certain Consols and bonds, and the fact that under the 40 per cent, gold coverage provision tho Federal Reserve system could issue 1,687,500,000 dollars in currency—indicates only too clearly secondary and even more dangerous inflationary possibilities of the new measure.

A statement issued by the Undersecretary of the Treasury, Mr Coolidge, is significant: “I would say that this step does not represent inflation, but puts the gold profit to use. I do not like the word inflation, blit the step makes it possible to put more money into use. The chief object of the action is to reduce the national debt and provide for a more uniform currency.” Important lobbying groups at Washington, who had hoped to see the .socalled gold profit used in some grandiose inflationary scheme in their interesfs, for instance, the solders’ bonus group, to-night expressed disappointment at the “conservative method” of the Treasury, but disinterested observers are constrained to wait and see whether this first direct ulitisation of the gold profit will we followed by further utilisations before concurring m the opinion that the Treasury methods were conservative.