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and then the member bank can, because of its excess reserve condition, Da ti go out into the open market and make loans; that is another step:

At no stage in the proceeding can the Federal reserve bank issue
Federal reserve notes. Practically the only way it can issue Federal

reserve notes is, if there is a demand for them, because of increased derle pay rolls, because business is bigger, or in retail trade, or in hoarding.

Mr. GOLDSBOROUGH. You have been buying $25,000,000 Government securities for several weeks?

Mr. GOLDENWEISER. Yes, sir:
Mr. GOLDSBOROUGH. How do you do that?

Mr. GOLDENWEISER. The mechanics of it are very simple, for the New York bank where the principal market is, buys those securities and

pays for them with a cashier's check on the Federal reserve bank. Mr. GOLDSBOROUGH. I probably misunderstood you. I understood

you to say they could not even buy unless there was some des mand for Federal reserve notes?

Mr. GOLDEN WEISER. No, they can buy but they do not pay for them with Federal reserve notes, unless the demand is for Federal reserve notes.

I would like to get that point clear. The Federal reserve bank has no way or means of issuing so-called Federal reserve notes unless there is a demand for them. They buy the Government securities on their own initiative.

Mr. GOLDSBOROUGH. Suppose they buy it on their own initiative. Can they not pay for it with Federal reserve notes on which they put up Government bonds as security under the Glass-Steagall Act?

Mr. GOLDENWEISER. They can under the law; but the point is be that when a dealer has ten million dollars worth of securities and sells

them to the Federal reserve bank he does not want Federal reserve notes. What he wants is credit on their books; and suppose they give him Federal reserve notes for them, which would be an awful nuisance and practically would not be done--but suppose they do, he would take these notes immediately to the bank and deposit them and that bank would find it had more cash than it required, and immediately would redeposit them in the Federal reserve bank. That is why I say that they can not issue notes unless there is a demand for them because they immediately come back.

Since I am here, I would like to call your attention to this one chart and I would like to incorporate it in the record, because it brings out a point that might be useful to you. This line shows the total amount of deposits in the banks. This other line shows how many times in the year a deposit is utilized. When it is down here it means that the deposit is used at the rate of twenty times a year, or at the rate of about 18 days to a turnover. The thing I want to show you in it is that the deposits in these banks stayed fairly steady in 1928 and 1929. They increased in 1930 notwithstanding the depression. They did not begin to diminish till the latter part of 1931; while the turnover began to go down very clearly at the peak in 1929—went down from fifty-five or fifty-four times a year to twenty times a year. And while at this level they still had the same amount of deposits, their actual buying activity--the amount of business they did had been cut more than in two. This is the item of velocity which enters into the situation and the one over which there is much less direct control than there is over the volume.

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Mr. Busby. It is my recollection that for New York City the velocity of deposits was tremendously out of proportion in 1929 to the velocity of deposits in the rest of the country.

Mr. GOLDENWEISER. Yes, sir. You are quite correct about that. Here is a chart for New York, where it is up as high as 110 in 1929, and is now down to 33. In the country as a whole outside of New York it went up to 25 and is now down to 13. It is perfectly true that the great growth in velocity was in the speculative market. It is also true that there has been a cutting in two of the velocity outside the speculative market.

Mr. Busby. Outside the city of New York all along from 1923 to 1932 there is no great variation except in 1929 it is a little higher?

Mr. GOLDENWEISER. That is a little higher.

Mr. Busby. Would that include the Chicago section as well as San Francisco?

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Mr. GOLDENWEISER. It includes all the leading cities, but not the country banks. We have not the information for country banks This is for the leading city banks.

Mr. Busby. Have you any information whether or not the two large cities mentioned, San Francisco and Chicago, would not also increase the velocity of turnover to bank credits as shown by your chart for banks outside of New York City? Mr. GOLDENWEISER. Yes, sir; they would.

Mr. Busby. That might account in some degree for the shooting up in velocity as shown on your chart there for the year 1929? Mr. GOLDENWEISER. Yes, sir. It is a factor.

Mr. Busby. I would like very much to see those three charts placed in the record.

Mr. GOLDSBOROUGH. Without objection, they will be placed in the record at this point.

(The charts referred to are as follows:)

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