INFLOW OF GOLD

Timaru Herald, Volume CXLVIII, Issue 21556, 19 January 1940, Page 4

INFLOW OF GOLD

United States’ Hoard

Suggestions For Use

NEW YORK, December 20. Deep in the forests of Kentucky, far from any habitation, lies buried the major portion of Uncle Sam’s gold hoard of seventeen thousand million dollars—more than two-thirds of the world’s visible supply. In the first three months of the war it was being increased by shipments from abroad, averaging nearly a hundred million dollars a month. What of its future? If, through a protracted war, European countries should become economically exhausted they might, in the opinion of some authorities, dispense with gold as a form of money, and conduct their international trade and financial arrangements by barter, as Germany has done in recent years. In such an event, the United States might find itself with a huge stock of the yellow metal, no longer in demand abroad for monetary purposes. Donations from Reserves To head off such a possible development many proposals are forthcoming. One is to establish an international currency, and that reserves of gold be loaned to European and Latin American countries. As there would be little prospect of these loans being repaid, one school of thought suggests that the gold be donated outright. If the United States should decide to discontinue buying newly-mined gold at a fixed price, as at present, the resultant slump in value of gold stocks would cause a heavy loss to the Treasury. Many of the proffered solutions have serious faults. Authorities agree, or hope, that the resumption of a free interchange of goods and capital will restore to gold its traditional monetary role. Present unprecedented holdings by the United States do not include large amounts sent here by foreign countries for safe keeping, or because it was expected they would be ultimately needed here. This ear-marked gold, approximately a thousand million dollars, is, of course, the property of those countries. Eventually, however, it will doubtless go to swell the amount already held here. Payments for Services The obvious cause of such an aggregation of gold is to balance foreign trade. Last year the United States sold a thousand million dollars more of merchandise to other countries than it bought. This excess was paid for in part by transporting goods for the United States in foreign vessels, taking care of American travellers and tourists, and in other ways. But, even after applying these services, a thousand million dollars was owing. This is a more or less chronic condition; for the 16 years this “adverse balance” has averaged 350 million dollars a year. Gold shipments are the only means of meeting the deficit. Other causes for the flow of gold to the United States include unsettled conditions in Europe, which encourage the liquidation of American invest-* ments. Furthermore, this country has for long seemed a haven for frightened investors abroad. For years they have been withdrawing their resources from investments at home and placing them in the United States. This flight of capital is the outstanding cause of the inflow of gold, which has resulted in a vast upbuilding of the excess re-? serves of banks, now estimated at five thousand million dollars, and representing a potential expansion of loans to business of nearly six times that amount. That this vast credit expansion has not led to a disastrous boom is due to the fact that neither confidence nor demand has revived sufficiently for business to seek increased credit.