REDUCING DEBT.

Star (Christchurch), Volume LXVI, Issue 20561, 12 March 1935, Page 1

REDUCING DEBT.

U.S. Will Employ Profit from Dollar Devaluation. United Press Assn.—By Electric Telegraph—Copyright. WASHINGTON, March 10. What is considered to be the first evidence of the 44 mechanical ” inflationary effect of the decrease in the gold content of the dollar was seen with the announcement by the 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 this 675,000,000 dollars to other purposes, such as, for instance, 2,000,000,000 dollars to the exchange stabilisation fund. This step, along with the expressed intention to concentrate the issue of all currency in the Treasury and the Federal reserve system by providing for removal from all circulation all notes hitherto issued by the national banks, will save the Government nearly 13,500,000 dollars in annual interest charges and will make technically possible a greater expansion of currency and credit. This measure is considered to be one of the most important of a financial nature yet undertaken by the Roosevelt Administration. The gross Public Debt on March 7 was 28,554,000,000 dollars, so that the application of relatively a fractional part of the gold profit to retirement of the National Debt cannot, on its face, be considered that sweeping cancellation of obligation by means of tampering with the currency which has 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. the currency, the method by which the 675,000,000 dollars gold will be used for retirement of existing national bank notes indicates only too clearly secondary and even more dangerous inflationary possibilities of the new measure. The method set out is the issuance by the Federal Reserve Hank of gold certificates which, in turn, tvill be used to retire certain consols and bonds; and under the 40 per esnt gold coverage provision the Federal Reserve Bank could issue 1,687,500,000 dollars in currency. A statement issued by the Undersecretary of the Treasury (Mr Coolie) is significant: ‘‘l would say that this step does not represent inflation but puts the gold profit to use. I do not like the word ‘inflation,’ but this 'tep makes it possible to put more money into use. The chief object of our action is to reduce the National Debt and to 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 interests, for instance the soldiers' bonds group to-night expressed disappointment at the 44 conservative method ” of the Treasury, but disinterested observers were' inclined to wait and see whether this first direct utilisation of the gold profit would be followed by further utilisations before concurring in the opinion that the 1 reasury s methods were conservative.