Mr. MCFADDEN. What was your suggestion? Mr. OwEN. My suggestion was that they should sequester the gold certificates as they passed over their counters, and replace them with reserve notes, and then redeem the certificates and have that gold put to the credit of the reserve banks in the Treasury of the United States. Mr. MCFADDEN. That would mean that the Federal reserve would acquire the $1,600,000,000 of gold certificates and hold them? Mr. OWEN. Yes, sir; in lieu of Federal reserve notes. Mr. MCFADDEN. I notice, in the past few months, that the Treas ury has received between $200,000,000 and $300,000,000 of gold certificates. What effect has that had? Mr. OWEN. It has had the effect of retiring this gold from circulation, and ultimately, expanding commodity values. Mr. MCFADDEN. What is the purpose or aim of the Treasury in doing that? Mr. OwEN. I would not venture to say what the purpose of any body is; I would simply say what would seem to be the effect of the transaction. Mr. MCFADDEN. Is not that quite in conflict with the present hoarding program? Mr. OWEN. Yes. Mr. MCFADDEN. To get the people to stop hoarding, and the Treasury operation is taking gold certificates out of circulation. Mr. OwEN. No; they are taking the gold certificates out of circulation, but what they are doing is diminishing the monetary demand on gold, and leaving the gold in the Treasury. Mr. MCFADDEN. I recognize that. Mr. OWEN. Yes, sir. Mr. MCFADDEN. Increasing the free gold supply. Mr. OWEN. It will have the ultimate effect of increasing the commodity values, which I am sure the administration would like to do, because it has its economic value, as well as a political value. Mr. MCFADDEN. If I may ask you one other question, I was interested in your reference to the fact that we are issuing a commodity dollar now. Have not we changed the plan a bit by the Glass-Steagall bill, and did not we change the plan Mr. OWEN. Slightly, yes. Mr. MCFADDEN. By permitting the Federal Reserve Board, itself, to go into the open market and buy paper, and issue money, rather than have money going up and down, and the notes of the Federal reserve going up and down? Mr. OWEN. It would be much better to have a system based upon the flow of commodities; but when you have your credit system paralyzed, as at present, it is worth while to use the credit powers of the Government to correct what has been done, temporarily, at least. Mr. MCFADDEN. With the increased use of Government bonds to secure the issuance of Federal reserve notes. Mr. OWEN. The Glass-Steagall bill authorized a limited use of Government obligations for the issuance of reserve notes. Mr. MCFADDEN. The point I was making was that their commodity prices are not the controlling factor entirely in the issue of Federal reserve notes to-day. Mr. OWEN. No, not entirely but the reserve notes are now contracting. Mr. MCFADDEN. To the extent that we place Government secuties back of the Federal reserve notes, are we increasing or diminishg the value of the dollar? Mr. OWEN. To the extent that we emit notes and put them in Mr. GOLDSBOROUGH. Now, I want to make this statement for the cord: The $900,000,000 of gold certificates that I referred to were 000,000,000 which were in circulation, and not now in the vaults of e Federal reserve banks. Mr. OWEN. Yes; I understood the statement, I understood dismctly. Mr. GOLDSBOROUGH. Now, Senator Owen, have you any further atement? Mr. OWEN. No; I think I have nothing further. Mr. GOLDSBOROUGH. The subcommittee, Senator Owen, has been ery much inspired and helped by the wonderful explanation that you ave made of the Federal reserve system and the present condition in hich we find ourselves, and on behalf of the subcommittee I extend you our most profound thanks. Mr. OWEN. I am deeply obliged to the committee for its courteous vitation to comment on the bill. I wish to say, in this connection, at I have done so as an American citizen exclusively, and as a friend, true friend, of all of our interests, the biggest banks in the country s well as the smaller banks in the country, and for our people, and hether they are Democrats or Republicans, because we are all sufferg alike from the economic condition, although comparatively only a w thousands know how it was brought about, and about which there as been very general confusion in the public press. As I say, I ave seen the enumeration of thirty different reasons given, but there only one subsantial great reason, and that was the excessive exansion of credit in the stock market (1927-1929) and the tragic smashing" of credit on the stock market, by calling broker's loans the billions of dollars, the violent shrinking in the values of stocks, onds, and all property throughout the country, which imposed its evastating effect everywhere as between debtors and creditors. [any creditors have suffered greatly as well as the debtors. Most usiness men are both debtors and creditors. Mr. GOLDSBOROUGH. Do you not, as a matter of fact, think that, the 1926 level of prices was resumed, that the creditors of this couny, taken as a whole, would be just as much relieved as the debtors ould? Mr. OWEN. Possibly more so. You can look at the values of the curities held by the savings banks, and by the insurance companies, r great insurance companies, wonderful institutions as they are; ok at their bonds, look at the farm mortgages and mortgages on real tate; look at the effect upon our great banks, magnificent instituons, but look at the effect upon their securities, look at the effect pon their stocks; look at the effect upon the value of the stock of the ational City Bank, for example, diminished to one-tenth of what it as. It was overvalued, in the first place, of course, and now underalued; but they have suffered too, and they are only human beings ke the farmers, of course; and the thing to do is try, seriously and earnestly, to understand what it is that has happened, and take the needed steps to make sure that it can not happen again. Think of the future. This country ought to have complete stability in credit at low rates, and when it has, our manufacturers in this country, with their mass production; our industrial populations, with its skill and industry; our great railways and our farmers, will all make this country blossom like a rose and we will, indeed, lead the world in every way, financially, commercially, and spiritually; but you can not have spiritual progress in the face of deadly misery. It is enough to turn a heart of stone to tears, to see what is transpiring in this country. (The charts and tables referred to are as follows:) 1. Resources and liabilities of all banks reporting, June 30, 1931. 2. Resources in comparison for 1927-1931. 2a. Specified resources Federal reserve banks. 3. Circulation statement United States money. 3a. Gold and silver in United States and in Europe. 4. Imports and exports, 1914-1931 merchandise. 5. Purchasing power of the dollar, 1913-1931. Exchanges by checks. 5a. Chart showing purchasing power of the dollar, 1914-1931. 6. Paper currency of United States by denominations, new issues. 7. Stock and bond averages, 1929-1931. 8. Stock price index chart, 1922-1931. 9. Wholesale prices chart, 1924-1931. 10. Brokers' loans, 1926-1931. Chart. 11. Volume of manufacturing production, 1927-1931. 12. Factory employment and pay rolls, 1920-1931. 13. Comparative earnings, 550 industrial companies, 1927-1931. 14. Freight car loadings, 1924-1931. 15. Brokers' loans in detail-Table, 1926–1931. 16. Brokers' loans in detail-Table, 1926-1931. 17. Reserve bank credits and factors, 1917-1932. 18. Building contracts, 1919-1931. 19. New corporate issues, 1919-1931. 20. Transactions daily New York Stock Exchange October, November, 1929. 21. Loans reporting member banks and investments, 1919–1931. 24. Gold surplus chart. 25. Reserve bank credit chart. 26. Physical volume of Industrial Production. 27. Price level chart. These tables show by chart (Exhibit 10) and in detail (Exhibit 15) the brokers' loans on call and how they were contracted October, 1929. The fact that coincidently with the calling of these brokers' loans, bank credits, deposits, and discounts went down in billions (Exhibit 2), stock prices violently fell (Exhibit 8', and within two years fell 75 per cent (Exhibit 7), that wholesale prices then steadily declined (Exhibits 9 and 27), that the volume of production then fell (Exhibits 11 and 26), that factory employment and pay rolls then fell (Exhibit 12, that corporation incomes fell to one-third (Exhibit 13), that freight-car leadings then fell (Exhibit 14), that building contracts then fell heavily (Exhibit 18. That then the purchasing power of the dollar violently rose in terms of stocks (Exhibit 7) and in terms of commodities (Exhibit 5 and 27) proves the cause and effects of credit contraction. The gold surplus appears, chart 24, and the reserve bank resources are shown (Exhibit 25; 2a, 17). EXHIBITS TO THE REMARKS OF ROBERT L. OWEN BEFORE SUBCOMMITTEE OF BANKING AND CURRENCY COMMITTEE ON STABILIZATION BILLS MARCH 18, 1932 EXHIBIT 1 Principal items of resources and liabilities of all reporting banks in continental United States as compared with similar data for member banks of the Federal reserve system, on or about June 30, 1931 Resources and liabilities of all reporting banks on or about June 30, 1927-1931 [P. 139, Report of the Comptroller of the Currency] Resources and liabilities of all reporting banks on or about June 30, 1927-1931-Con. For national banks only; figures for banks other than national included in undivided profits. For banks other than national. • Includes cash letters of credit sold by banks other than national and outstanding. In addition there are: Bank resources above cited.. The Federal land bank resources. The joint stock and bank resources. The Federal intermediate credit resources. Building and loan association resources (number, 11,767; Total.... $70, 209, 140,000 1,286, 988,000 616, 620, 000 170, 220, 000 72, 282, 971,000 8, 828, 611, 000 81, 111, 582,000 It will be observed that loans from 1929 to 1931 fell over $6,200,000,000 and that demand deposits fell over $3,000,000,000 following the stock-market panic. |