EXPANSION OF CREDIT

Poverty Bay Herald, Volume LXIII, Issue 18920, 23 January 1936, Page 16

EXPANSION OF CREDIT

POLICY IN AMERICA OBJECTIVE NOT DEFINED Reference hits often been made to the 1020 price-level as tin objective of the monetary policy of the United States of America, and less frequently there litis been talk of replacing the volume of deposits, shrunk by the deflation from li)2<> to 1933, but there has never been any clear definition of the objective of credit expansion.

In early 1032, the Hoover Administration adopted a prograhime described as "inflationary" and " rollationary," the Economist states, and this programme has been continued and amplified by the present Administration. But, while the United States has more or less formally adopted a managed currency, no criteria of management has ever been formulated. In 1932 and again in 1933. there were major "open-market oper alions" by the Reserve Banks, and since then credit expansion has depended upon gold imports, which have expanded the accounts both of the Reserve Banks and the commercial banks, and, secondly, the financing of the Treasury deficit, which has expanded the accounts of the commercial banks only.

The net consequence is that commercial bank deposits have been lifted roughly 50 per cent, from their lowest figure, and that, in spite of this increase in deposits, member bank reserves have been so augmented that the excess reserves arc about three million dollars, or 100 per cent, above the required reserves. If utilised, this would imply the doubling of present bank deposits. On the other hand, these excess reserves could be contracted by gold exports, by open market sales by the Reserve Board, or by raising the reserve requirements up to 100 per per cent., as permitted by the Banking Act of 1935. Meanwhile, the expansion continues at a rather regular pace, chiefly under the combined influence of gold imports and deficit financing; and it seems likely to continue unless the Budget is balanced or the Treasury and the Reserve Board agree to take positive action to the contrary.