While Congress Haggled

It looked last week as though the Federal Reserve Board had given a dose of salts to a country with a broken leg. The volumes of excess credit (about $300,000,000 worth) which the Reserve had quietly been piling up since February by increasing its weekly purchases of Government bonds (TIME, April 25) still lay idle. Observing this, the Board lowered its purchases of Government bonds from around $100,000,000 a week to $58,000,000, and awaited developments.

Secretary of the Treasury Mills and Governor Meyer of the Reserve Board went out to Chicago to do there what had been done the week prior in Manhattan--set up a new committee to find channels through which the new credit could be pumped out to "reflate" trade & finance. On the committee, besides leading bankers, were such potent Chicago industrialists as President Alexander Legge of International Harvester Co.; President David A. Crawford of Pullman Co.; Chairman James Simpson of Marshall Field & Co.; Charles Glore of Field, Glore & Co.; President Robert E. Wood of Sears Roebuck & Co. Chosen as chairman was Sewell Lee Avery, able president of U. S. Gypsum Co. and of Montgomery Ward. "I have no magic in my briefcase and no rabbit in my hat," said Secretary Mills. The first week's experience of the new Manhattan committee suggested that other hats and briefcases were in like condition.

The Manhattan committee of twelve, chairmanned by Owen D. Young and promptly christened the Apostles, pondered long one afternoon and then announced that it had "discussed questions of fiscal legislation and their bearing upon things that the committee might itself recommend."

This was, of course, pointing a polite finger at Congress. All week the Senate had haggled over the tax bill (see p. 12). All week the prospect of balancing the Budget had remained hazy. Day by day it was increasingly apparent that until Congress acted on the Budget and showed signs of adjourning, Business & Finance must remain hesitant. The committee had to agree with the banking community that it would be folly to use the reserve of credit to bolster bonds before Congress assured a balanced Budget.

Not only Business & Finance were disturbed by Congress' behavior. Europe began increasing its withdrawals of gold. Exports last week came to $70,000,000, making the total for the past six weeks about $280,000,000. Although bankers knew that the Federal Reserve could lose some $1,200,000.000 in gold before reaching the legal minimum they became afraid that the continued alarm might increase the flow, start a real "flight from the dollar." Likewise they were afraid that it would renew hoarding.

Miniscule. One direct accomplishment of Mr. Young's committee was to help small home-owners refinance mortgages and finance repairs. This was done by promising the Savings & Loan Bank of the State of New York that leading banks would buy bonds from it whenever the funds were needed to be reloaned to member associations which in turn would pass them on to sound and worthy homeowners. The amount to be so used may run to $5,000,000--a miniscule portion of the funds on hand, far too small to reflate business or unfreeze New York real estate though a blessing to a few individuals.

Acceptances. A plan the Young committee cogitated and may take up later was to promote the use of trade acceptances in the U. S. Its chief sponsor was thought to be General Motors' Alfred Pritchard Sloan Jr. although Irenee du Pont has campaigned for some time for the plan. A trade acceptance is a dated I. 0. U. bearing the name of the creditor as well as the debtor. If General Motors sells a dealer supplies it may give him credit in the usual way, borrow from, a bank on the "receivable"' if it wants. Or it could make the dealer sign a note, "accept" the note by endorsing it. This would then be "two-name paper," could be sold in the open market where a bill dealer might buy it, take it to his bank which could rediscount it at the Federal Reserve. Popular in Europe, trade acceptances have never found favor generally in the U. S., although bankers' acceptances (bearing the name of a bank as well as a firm) are widely used to finance foreign trade.

30%. Last week the Federal Reserve held $1,525,000,000 worth of Government securities, member banks held $4.093,000,000 worth. The total represented about 30% of the U. S. Government's gross debt of $19,017,000,000. About four billions of the debt is in short-term notes. The Government may soon need another two or three billions for Unemployment Relief and the current deficit plus whatever is needed next year should the Budget remain unbalanced. To raise that money from the public it would have to sell long-term bonds at high interest rates, knocking down the prices of present issues. To get it by selling short-term notes it would have to sell them to the banks, already heavy investors in "Governments." Thus last week even should bankers have decided the bond market was replete with bargains, even should Industry have suddenly started to use credit, the Prosperity Committees would have had a hard time getting banks to loosen their surplus credits while they were uncertain what demands for money the Government might place upon them.

Thus again the finger of logic pointed to Congress as the agency whence the next move must come. The Young committee's quick lapse into inaction seemed almost like a psychological play to make the country impatient with Congress, call forth popular protest, force Congress to get its job done. Further to stimulate such a reaction, the Young committee hinted that strong forces with the power and willingness to buy were only waiting on Congress to enter the security markets in a wide, active way.

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