Golden Flow

A dollar of gold is ten dollars of potential credit.

Last week as another great inflow of gold reached the proportions of a flight to the dollar, U. S. bankers became acutely conscious of that old thumb rule for figuring the nation's credit base. In the past month more than $200,000,000 of the yellow metal has been shipped or is awaiting shipment to the U. S. Most of it was disgorged by hoarders, frightened by the European war buzz. Since all gold landed in the U. S. must be sold to the Treasury, timorous capitalists apparently preferred Roosevelt paper dollars in a U. S. bank to hard bullion in a European vault.

Before the golden flow is over it is expected that total U. S. gold stocks will reach a high of $9,500,000,000--an increase of $2,700,000,000 since the dollar was devalued last year and not far short of one-half the world's supply. From the recondite records of the Federal Reserve System it was evident that little if any of the timid capital was seeking real investment. The funds were merely adding to the money glut by increasing excess member bank reserves, already amounting to $2,800,000,000. If bankers could find borrowers, those reserves would permit an expansion of credit to ten times $2,800,000,000 and create a boom that would dwarf the 1920's. Such a runaway boom is what most people mean when they talk about Inflation.

"The U. S. gets no lasting benefit from these gold receipts, for the capital may be withdrawn as rapidly as it was sent," said National City Bank in its monthly trade & finance review. "In fact, [the gold] is a menace since . . . additions to the gold stock only increase the temptation and the pressure to put it to inflationary uses."

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