Inflation Pox

When Congress assembled on Jan. 3 many a hard-money man's heart fluttered apprehensively lest Congress should inflict inflation on the U. S. Fortnight later Franklin D. Roosevelt dosed Congress with some homeopathic medicine, asked authority to devalue the dollar to the 50-c--60-c- level. Thereupon the Congressional demand for inflation all but disappeared. Last week it made a new appearance. Inflationary bills, like bright red pock marks, appeared on several parts of the U. S. legislative body. Three bills in particular--proposals to give somebody something handsome--promised inflation. They loomed particularly large because they threatened to make serious trouble for the Administration's legislative program. The three: Frazier-Lemke Bill would give U. S. farmers a release from heavy mortgage charges. It proposed to have the Government take over the $9,000,000,000 of U. S. farm mortgages. The Government would pay off these mortgages in cash. The farmers would give the Government new mortgages for the same amount but bearing only 1 1/2% interest. To this would be added a 1 1/2% amortization charge. Against these mortgages the Government would issue an equal amount of 1 1/2% bonds--for sale to the public. Since even in these times of low interest rates the Government cannot sell long term bonds at less than 3%, obviously the bonds could not be sold. In that event, the Federal Reserve Banks would be ordered to buy the bonds and issue currency against them-- thus using the printing press to turn out some $9,000,000,000 of new money to pay off farmers' mortgages. Until last week this bill reposed harmlessly in committee. Then Congressmen began to pass around an unofficial petition to bring it out on the floor. When the official petition was opened, within one day it had 139 of the necessary 145 signatures. Alarmed, Administration leaders got busy, induced 15 Congressmen to withdraw their signatures. Meantime Representative William Lemke from financially radical North Dakota also got busy, collected seven new signatures.

McLeod Bill (as amended) would order RFC to pay off in cash all deposits in closed banks up to $2,500 and to lend depositors up to 85% on any remaining unpaid balances. Jesse Jones, speaking to the House Banking & Currency Committee against the bill, said it would involve the Government in huge losses--up to $2,500,000,000 if balances in all closed banks were paid in full, a large portion of that amount under the $2,500 limitation. How the sum would be obtained the bill did not specify (probably by borrowing) but the fact that it would result in a big distribution of cash in nearly all parts of the U. S. influenced Congressmen to support it. Again a petition to discharge the bill from committee was started in the House. When only nine of the necessary 145 signatures were lacking, House leaders got together, did a parliamentary trick. They reported the bill favorably from the Banking & Currency Committee. On the crowded calendar of the House the bill was not likely to get consideration before adjournment unless the Rules Committee gave it a favored status. To force the Rules Committee to do so would require another petition and under the rules the bill could not be brought up until the second Monday in May (May 14, too close to expected adjournment for any likelihood of passage). Undeterred, the advocates of the bill, led by Michigan's McLeod who called the ruse "one of the rawest things I've ever heard of," completed their petition, hoped to force its consideration in spite of the trick played on them. They even circulated for signature a manifesto announcing that they would not allow Congress to adjourn until the bill had been voted on. The Hearst Press has steadily ballyhooed the bill. Many Congressmen look upon it lovingly, sure that it would please their constituents. Therefore Speaker Rainey and Majority Leader Byrns viewed it with much alarm, believing that, given an opportunity, the House would certainly pass it, possibly repass it over a veto. Secretary of the Treasury Morgenthau in a lengthy criticism declared that the bill's costs ''out-weigh any benefits that the legislation could achieve."

Dies Bill, as passed by the House (TIME, March 26) would give the Administration power to accept silver at 25% above market value in payment from foreign nations for exports of U. S. farm surpluses. Last week the Senate Committee on Agriculture added two amendments that changed the measure's whole nature: 1) To order the Treasury to take over all silver in the U. S. and pay for it in silver certificates at "not less than the highest world price for spot fine silver on the day preceding . . . the proclamation of the nationalization of silver." 2) To order the Treasury beginning in January 1935 to buy 50,000,000 ounces of silver each month--all silver purchase to stop when the general price level of 1926 had been restored, or when silver reached $1.29 per oz. (present market price 46-c-).

By taking over all the silver in the U. S. and then proceeding to buy 50,000,000 ounces of silver each month (20% to 30% of total world production per year), the Treasury would put up silver prices to great heights, give large profits to silver speculators and to the big copper and lead companies who mine most of U. S. silver, and greatly please the seven states* which mine 95% of the U. S. silver output. Meanwhile the U. S. Treasury would have to pay for large quantities of silver to be buried in its vaults and several hundred million dollars of currency would be paid out to silver producers and speculators. Faced with the combined strength of the silver and inflation blocs. Administration leaders scratched many a greying lock while they wondered how they could muster enough votes to beat this bill, or emasculate it.

* Utah, Idaho, Montana, Arizona, Colorado. Nevada, New Mexico.

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