Scare

Even the nimble-witted money changers admitted that it was the worst day since the dollar was devalued a year ago. A frenzied scramble sent the dollar soaring in terms of francs, guilders, sterling, yen, and at one time it sold nearly 3-c- above the gold franc parity. The pound sank to $4.83 1/2, lowest price since November 1933. Bids for gold bloc currencies practically vanished. Wild flew reports that trade contracts were being canceled right & left, and for several hours the whole foreign exchange market was completely demoralized.

Such was Wall Street's jittery reaction one day last week to the possibility that the U. S. Supreme Court would uphold the sanctity of gold clause contracts and restore billions of dollars of public and private obligations which Congress had said were not to be paid in gold or its equivalent (TIME, Jan. 21). Domestic markets slumped ominously. Led by Homestake Mining (gold), which dropped $30 per share to $340, the stockmarket sold down steeply. Wheat touched the lowest level in nearly three months (95-c- per bu.) and cotton sloughed off $1 per bale.

No paradox was it that the same men who solemnly predicted the country's doom less than two years ago when President Roosevelt set off upon the road to devaluation, were last week desperately afraid that a Supreme Court decision might right what they once conceived to have been a great wrong. It might be ironical but it was by no means illogical. For most businessmen the Administration's dollar tinkering brought little except uncertainty. Domestic prices failed to rise in proportion to the cut in the dollar's value, and debts, particularly corporate, remained almost as hard to pay in 59-c- Roosevelt dollars as they were in 100-c- Hoover dollars. If the Supreme Court upheld the gold clause, it might mean that perhaps $100,000,000,000 of bonds and contracts dated prior to June 1933 would have to be paid at the rate of $1.69 for every $1 borrowed. To most debtors such an added burden would prove disastrous. Furthermore, no matter what the outcome of the gold clause cases, business was face to face with what it always fears most--a threat to the status quo.

The Supreme Court's decision will not affect directly the value of the dollar. But prominent among the columns & columns of press speculation on an adverse decision was an opinion of some "departmental experts'' in Washington to the effect that the dollar might be revalued upward to its old gold content. That would mean a drop in the price of gold from $35 per oz. to $20.67.

The mere news that the Administration was even considering such a change caused most of last week's gyrations in the foreign exchange market. The big Manhattan banks dared not buy foreign metal and thus hold the price of dollars at the gold-import point. Profit margins on gold imports spread to fabulous proportions but no bank would risk a 41% loss while the coin or bullion was crossing the seas.

Thoroughly irritated by this state of affairs, Secretary of the Treasury Morgenthau wheeled into action the $2,000,000,000 Stabilization Fund, prime financial mystery of the New Deal. Operating through the New York Federal Reserve Bank, the Stabilization Fund waded into the market, bought French francs on a vast scale, took some of the starch out of the perky dollar.

Next day, apparently reassured that Mr. Morgenthau would continue to pay $35 per oz. for the gold they imported, the big banks began to contract for metal abroad. Before the week was over $36,000,000 in gold was U. S.-bound, bringing the total inflow since Nov. 5 to $263,000,000.

End of the dollar scare, however, dampened not a whit the public's sudden interest in the ponderings of the Supreme Court. Any one who thought he had an inkling of what was in the minds of Chief Justice Hughes and his eight associates was liberally quoted. House Speaker "Joe" Byrns allowed: "I don't anticipate that the law is going to be held unconstitutional. I know that to some folks it looks doubtful . . . but somehow I can't conceive of the Court deciding otherwise. . . . Gold clause suspension means too darn much to the country."

Various other politicians continued to whistle in the dark but Mr. Morgenthau admitted that "we are doing considerable homework."

One night in Washington where betting on the Court's opinion was as heavy as on a first-class sporting event, Gould Lincoln, political pundit on the Washington Evening Star, was called to the telephone by a sweet-voiced lady, who twittered: "I have been referred to you, Mr. Lincoln, as one who could tell me all about this gold case. Now what would be a good bet?"

"I should say that 5-to-4 would be a good wager," said Newshawk Lincoln, slyly referring to the Supreme Court's frequent division on controversial questions.

"Five to four that it will go which way?" the lady better persisted. Mr. Lincoln hung up.

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