It will also make the loaning of money to home buyers, owners, and builders by local, State, and national banks a safe, profitable, and attractive business and rescue the home owner from the clutches of men that advertise "money to loan" who are not able to pay their last month's grocery bill. It will also relieve the home owner from paying brokers' fees, finance charges, high interest rates, and other excessive impositions. Permit me to submit the following computations to verify my statements. With this plan in full operation on a capital of $150,000,000, the following would be the financial statement: United States bonds to secure circulation___ Cash reserve (10 per cent of capital and bonds). Cash deposited to secure and redeem circulating notes--- Total_ Annual earnings: 4 per cent on $1,485,000,000 loans--. 3 per cent on $1,336,500,000 United States bonds__. Total_ Cost of operating on 4 per cent bonds. $150, 000, 000 1, 500, 000, 000 1, 485, 000, 000 3, 135, 000, 000 1, 336, 500, 000 165, 000, 000 148, 500, 000 1, 485, 000, 000 3, 135, 000, 000 59, 400, 000 40,095, 000 99, 495, 000 I mean, now, the bonds issued by the district banks at the rate of 4 per cent interest: 4 per cent on bonds issued___ 3 per cent dividends on capital stocks_ One-half of 1 per cent expenses Net profit- Total___ $60, 000, 000 4,500,000 7,425,000 27, 570, 000 99, 495, 000 If the bonds issued by these district banks carry 5 per cent interest: This result without counting any income on cash reserves carried which should be about 2 per cent, or $3,000,000 per year. The one-half of 1 per cent allowed for expenses is too large by half. At least $3,000,000 should be saved on this item and this will increase the net earnings by $6,000,000 per year, increasing them to $33,500,000 if the bonds can be sold at 4 per cent, or to $18,570,000, if they must pay 5 per cent. On the basis of 4 per cent home loan bonds and 3 per cent United States bonds, the United States would be reimbursed in full for cash and bonds contributed as capital in less than six years and on the basis of 5 per cent home loan bonds and 3 per cent United States bonds in less than 10 years. Thereafter earnings can be accumulated as surplus or interest rates reduced to borrowers. Circulating notes: Should this right be granted to home loan banks? If the right to issue circulating notes is a proper privilege to be granted privately owned national banks operated for private gain upon the deposit in cash and 95 per cent in United States bonds with the United States Treasury, why is it wrong to grant Government-owned home loan banks operated for the benefit and relief of home owners with all profits accruing to the Government the same right? If Federal reserve banks authorized and operated for the relief and benefit of commercial banks with a large part of their profits accruing in dividends and reserves for the benefit of the private stockholders should be extended the right to issue Federal reserve notes for circulation as money, why should this right be denied to home loan banks with better security? The home owners of our country provide the home market and pay the highest known price for the products of farm and factory and for everything they eat, wear, or use. And they are entitled to some consideration at the hands of their Government. Inflation: Before the organization of our Federal reserve system, Federal reserve notes were unknown. Now we have $2,411,565,343 worth of Federal reserve notes in circulation as money. Out of our total circulation over 44 per cent is Federal reserve notes, and we are certainly not suffering from inflation now. We also have $656,655,569 of national bank notes in circulation as money. Over 56 per cent of our total circulation is Federal reserve and national bank notes and both are authorized and issued for the relief and benefit of commercial banks operated for private gain. (See circulation statement by the United States Treasury of October 31, 1931.) To talk of the dangers of inflation at this time of low economic vitality is just "damn nonsense," to use the vocabulary of our esteemed Mr. Dawes. Senator MORRISON. What was that? Mr. ADAMS. I said this: "To talk of the dangers of inflation at this time of low economic vitality is just damn nonsense,' to use the vocabulary of our esteemed Mr. Dawes." It would be just as sensible for the doctor to sit beside the patient. suffering from low blood pressure and talk about the dangers of high blood pressure. The people require a medium to facilitate the exchange of the products of one man or class for the products of another. This medium of exchange may be money, or it may be credit. This medium is the fluid that floats our products in the channels of trade. It is comparable to the water flowing in navigable streams. It carries the ships of trade. When the water is low, transportation slows up and commerce decreases. When the water is high, commerce moves freely and rapidly. Excessive high water may result from excessive storms and threaten to overflow the banks of the streams, but then and then only does danger threaten. Likewise, when the volume of fluid in our channels of trade runs low business declines, industry slows down, unemployment prevails and prices fall. The currency (medium of exchange) during normal times is made up of about 5 per cent money and 95 per cent credit. The money portion consists of approximately 39 per cent gold, silver, and minor coins, and gold and silver certificates, 5 per cent United States notes, 12 per cent national bank circulating notes, and 44 per cent Federal reserve notes. The credit portion of this currency consists of interest-bearing promissory notes, bonds, mortgages, and like securities circulated by means of bank checks. During recent years the money portion of our medium of exchange has shrunk about 20 per cent per capita. That is shown in the circulating statement issued by the Treasury. Part of this was withdrawn by the owners and hidden away in old socks and tin cans. More was withdrawn by frightened bankers and added to their reserves. All of this, however, was unemployed and renders no service to the people. Approximately 60 per cent of the credit portion of our medium of exchange has been withdrawn from use by frightened bankers calling loans and refusing to make new ones while they have piled up unusual reserves in their vaults. This fear on the part of bankers is justified by reason of the lost confidence on the part of the people, which is due in part to the large number of closed banks and recent disclosures of the high pressure methods of our international bankers. Under such conditions there could be nothing but intense deflation, declining trade, decreased manufacturing, reduced inventories, and unemployment of millions of our people. The volume of currency now flowing in our channels of trade is probably not more than 30 per cent of normal, as evidenced by the volume of activity in our leading industries. There can be no danger from inflation, which is merely another name for turning more fluid into the channels of trade, until the volume of this fluid reaches flood tide and threatens to overflow the retaining walls. This increase may be either credit upon which toll in the name of interest must be paid to the financiers that arrange the credit, or it may be money that requires no toll. An increase of $1,000,000,000 in the volume of money in circulation would only increase the volume of currency in the channels of trade from 30 to 36 per cent of normal. Nothing very dangerous about that. We have in the past operated on an oversupply of credit and an undersupply of money. This compound is out of healthy proportion. There should be more money and less credit. This will reduce the toll we are paying to the money changers in the temples of finance and we can expect their opposition to any such plan as this. 98195-32-PT 2—2 Don't be alarmed about this boogey-man labeled "inflation." There can be no danger until we reach the flood stage of trade. We are suffering from a severe case of "deflation" and need a strong tonic. The patient is suffering from very low blood pressure and can not recover with" doctor finance" sitting on the bedside merely repeating over and over again, "You are getting better; you are improving; you are getting better and better every day in every way; your health is just around the corner." What the patient needs is a transfusion of blood, an injection of inflation, and that injection should be money and not credit. Senator MORRISON. I understand you are a standpat Republican. Mr. ADAMS. That is true. Senator MORRISON. You are an official under the administration, you have testified? Mr. ADAMS. Yes. Senator MORRISON. Has the President considered your plan with you? Mr. ADAMS. I have not been invited by the President to discuss it with him, and I would not presume to impose myself upon him. Senator MORRISON. Would you mind saying whether your appearance here is your own voluntary act, or whether you were requested to appear? Mr. ADAMS. I was requested to come here by some member of your committee. The clerk notified me. Otherwise, I would not be here, Mr. Chairman. I am not injecting myself into this. Senator MORRISON. Do you know who caused that request to be made? Mr. ADAMS. No. Senator MORRISON. Your action in coming here is not in any sense official on your part? Mr. ADAMS. Not at all. Senator MORRISON. Your official duties have no particular relation to the subject matter of this bill? Mr. ADAMS. No relation. Senator MORRISON. So, your preparing this plan for furnishing the home loan bank facilities was your own voluntary act? Mr. ADAMS. Yes. Senator MORRISON. You have presented it without any official request on the part of anybody to do so, except that you were merely summoned here by the clerk of the committee? Mr. ADAMS. I was requested to come here and submit my views. Perhaps that is because of some experience I have had in the past, that might qualify me in some degree to do so. Senator MORRISON. What I was trying to get at was, who did that? Mr. ADAMS. I think Senator Norbeck, chairman of the Banking and Currency Committee, instigated it, or directed the request to be made. Senator MORRISON. Did you make known to him that you had been studying this matter? Mr. ADAMS. I have never talked with Senator Norbeck, but I think he does know, because in 1926 I prepared a home loan bank bill that was introduced by Senator Stanfield in the Senate, and that bill is known as Senate bill 3256, Sixty-ninth Congress, first session. I became very much interested in it. Senator MORRISON. That was what I was trying to get at. I was not trying to reflect on you in any way. I was trying to get at what special study you had given to it. So, you did help to prepare a bill that was introduced? Mr. ADAMS. It is evident that you did not have time to read a little statement of my experience which I have submitted. In 1884 I became associated as clerk in an office that made loans as brokers, and made abstracts, examined abstracts, and determined title, wrote insurance, and for seven yaers I was experienced in that line of work back in those days. Senator MORRISON. I did read that, but what I was trying to get at was this. You seem to have prepared a complete scheme of your own, and what I was trying to get at was whether you were associated with anybody else in doing that. Mr. ADAMS. Not at all. Senator MORRISON. Or whether it was your own act. Mr. ADAMS. It was purely my own creation, whether it is good or bad, Mr. Chairman. Senator MORRISON. All right, sir. Mr. ADAMS. I might add this. This has been submitted, but, as I stated, from 1884 to 1892 I was associated in the business of loaning money, writing insurance, and preparing the papers and examining abstracts, and I have even made abstracts from the sectional indexes in the Register of Deeds office. In 1894 I was admitted to the bar, and have practiced in Grand Rapids, Mich.; Seattle and Aberdeen, Wash. I was admitted to the Supreme Court of the United States in 1901. Of course, that does not mean much, as all lawyers know. It is on motion, but it has to be backed up by some experience at the bar at home. I was a member of the Michigan Legislature in 1897, from Grand Rapids. I was speaker of the house in Michigan in 1899. I was a member of the constitutional convention in Michigan in 1907. In 1917 I was associated in preparing the Oregon law for financing our highway system, which provided for the practical hypothecation of the motor-registration fees to meet the payments of interest and maturing principal on bonds issued to build road immediately. That system was later copied by Illinois, I think, first, and many other States have followed. They give me credit for being the first to suggest a gasoline tax on gasoline consumed by motor vehicles to secure the funds to keep up the highways, and that now is adopted by nearly all the States. From 1892 to 1917, as a hobby, much as men indulge golf now, I planned, designed, and built about 100 residences in Grand Rapids, Mich., and Eugene, Oreg. That is my hobby, and I love to do it. I can make out a bill of materials for every piece of material that goes into a house. Senator MORRISON. The point I am trying to bring out is whether or not at this time you have any business connection with anybody engaged in the business of loaning money on homes? Mr. ADAMS. Not at all; not the slightest. |