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FEDERAL
RESERVE BOARD
WASHINGTON
X-5515
Decerr ber 3, 1917.
\Jhen
the United St· ttes joined
in
the war <J.gainst Germany
in Apri1 of th i s ye·1r, tha C1.sh reserves '1gainst ccmbinod note
and
deposit
l i ab i l i t i e s of
the
Fede::-'11 ReserYe System were. 83fo.
At the end
f
Hove:. l,er they were about 63.21" (see memo. No. 1).
This me'lns tha t
the
financial operat ions of the
Government,
c o v e r i n ~
lof'.ns to
the aggreg,.ite
ofmbout
t6,500,000,000
during
the per iod fr'>m A
pr i l
to Ncvomber 30,
have
brought about a re
duction in reserves of
about
21/L \le must ben.r
in
mind, how-·
ever,
the.t
ful l payment
for
the second Liberty
Loan
has
not
ywi,
been
c M p l t ~ t e d ( tbe l as t instfll lment not being due unt i l January
15th
anC.:
about
$1,400,000,000
beinr s t i l l paid
by
credi t and
about 650:COO;OOC being s t i l l on deposi t a g ~ i n s t cer t i f icqtes
of indebtedneos sold an0 ir1cluded in
the
above
$6,500,000,000},
I t i s qui'tt:l possible, the:.·efvre, tha t
our
reserves
have
not yc't
reached
the i r
lowest point in connection with the
payment
of
th i s loan, thoug 'l the paying off
of
the Cert i f ica tes of indebtnc: •
ne s s
wil l
l
iq·v.idut e some of the
loans
of
the Federal
Reserve D n ~ k :
and
thus counteract
to a cer ta in
extent
demands
for
further l o i r n ~
from
them.
I f between A p r i l 6th and November 30th, 1917, there hu.c. nu ;
been an
increase
of Cl49,0CO,OOO in the free gold holdings
of
'the
Federal Reserve
System (see
Memo No. 2) the
reserve
p e r c e n t a r : ~ >
would have dropped
b;r a furtheX" 5.6fo to 57.61 .
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2.
X-556
t
i s to be
hoped, and i t must be our
ser ious
concern,
that between
now and
the
next Liberty Loan campaign the reserve
percentage
wil l
again.be
increased. During the previous campaign
in June
i t
dropped
down
from
81.0fo
to
71.4fo/and
then recovered
to 82% in
A -ugust
(see memo
No.;. 3). t
is too ear ly
to
attempt
to
prognosticate how
fqst ::md how far the
reserve
strength wil l
recover th is time,
but
i we consult the charts (Nos.
4
and 5)
showing similar developments in the
Bank
of England, the Banque
de France, the Reichsbank
and
the Bank of
Russia, we
find that
we
must be
prepared
for
a
continuous
r ise
in
the
l i ab i l i t i e s
and
a
cor1tinuous fa l l in reserves of our Federal Reserve B a n r ~ s .
Indeed, we wil l
perceive
tha t in European central banks in mo&t
cases
r i se and
f a l l
show a
fatal accelera t ion
with each s u c c a s s : ~ : \ J e
year.
The German
Reichobank s chart
shows
most ~ l e a r l y
the l ines on which
the
Federal Reserve System s chart is l ikely
to
develop;
i t
sh0ws
a t
the
same
time
the
dangers
tha t
are
f ~ H : -
ing
us
i f we do not move
cautiously.
f
we look a t
the Reichsbank chart
we
find in l ine 3 ( oUJ. ,,
discounted, including ireR.sury b i l l s and advances) seven
p0ak•i
indicatir.g
the large increases in
loans and
discounts ace
or:if·,:ir,,.
ing
the
payments
for each
successive loan.
Within one mcn·C.L
af ter reaching
the
peak
of the
loarl
~ a e r e follows
l iquida-
t ion bringing the
curve down
to
about
the previous level ; b 1 1 ~
we
find that th is
level r i ses between
loans
so
that
each s1. c.,.: _;
-
ive
s tar t ing point
i s higher than the
previous
one, and
bet;;G
c
:
the f i r s t
and
the las t
tltar-ting
points the:re i s a. d i f f o r e ~ c e :n
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s. X-556
over
$2,000,000,000, and
the
reserve has gone down from 36.7fo
to 15.efo.
In
France trom
59.Sfo
to 14.1%;
Russia
.from 60.2%
to
7
41o.
The Bank
of
:2ngle.nd
's
chon"t
does
not ehow
the
real
picture because
about
$910,000,000 of small treasury
circulating
notes
c:ire
not
included (Greenbacks
to
all
intents and purposes,
secured by only l4.9fo
of
gold -
memo.
Ho
6)
Uld
the
deposits
of the Bank of E n g l ~ n d , which p l ~ y a large p ~ r t in England's
resei·ve position must be
considered.
The
Bank
of England's
reserve
p e r c e n t ~ g e
dropped from 39.4fo to
27.1% ( i f
we include
the 9 3 ~ , o o o , o o o
l ~ e a s u r y
notes i t
d r ~ ~ p e d
to about 2 0 . s ~ since
the begir.nir.g of
the
war. But we must
bear
in mind that Engl.find,
from the beginning of the war, drew on the United States f irst
for
gold
and later on
or
crerlit. ~ i t h o u t t h ~ a p p r o x i m ~ t e l y
$4,000,000,000 ($1,?00,000,000
securities sold artd
$2,500,000,000
in djrect loans) which Engl'tnd thus
secured
from the United Stat&s,
Sterling
e x c h ~ n ~ G
l o n ~
since would have collqpsed like
Russian
and
ltaliQ.n ~ x c h a n ; ; : e
'.l.nd Er.gland,
l ike
those countries, wou.ld
be practic -lly or a paper basis today, Fr"l.nce would be
in
the
same condition h ~ d i t
r.ot been
for
o u ~ assistance unless, indeed;
these two
countries
should hava been
able to continue
the war
without i m p o r t a . ~ i o n s from us. (In spite
of
our
assistance,
France's
eondition
a p p e ~ r s
to be a cri t ical one - see
memo.
No. )
I mention the experiences
of
France and England only because
I am
seriou$ly
alarmed by
the thought of
what will be
our
condi•
t ion when
our gold reserve should reach the danger .Point, when out
currency bhould
become
seriously
depreciated
- with
consequent
7/17/2019 frsbog_mim_v06_3014.pdf
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4.
X.-55G
extreme increases :;.n prices
-
and
when
our
power
of expansion
on
any
re11.scn lbly
safe
·;A.sis
should
have
come
to
e.n
end.
When
we ri:iach
that
µrin+ t wil l mean
a
cntastrophe
because, unlike
England ri.nd Frri.nce,
we
hR.ve
nobody irho
wil l st•rnd
behind us flncl
bols ter up our
credi t .
How so:on
wil l
we
reach
that
point?
I t i s
too
early to venture
any
g u ~ J s as to our abil i ty. to
l iquidate
the
investments of
our
Federal
Reserve Banks,
thereby
regaining our
strength
befcre the issue o.f the next Liberty
Lo<i.n.
I t is
not
too ~ a r l y , however, to sound a word cf w lrning and to
ascertaiu what means we h'lve
to
arrest a development which,
i f
shown
to exist might
prove
disastrous.
J f
E1xperience
shculd
shew
that
our
reserve
pcwer
i s
~ v d n d l i n g
from
one
loan
'-l.nother
y
~ n y t h i n e
l i ke
151.,
the
second
or
third
followLw
lor.i.• l
would bt•ing us fnce to f ~ c e with a c r i t i c ~ l s i tua-
t ion .
v:hat
men.no
of
protection
are
there n.vailflble to the Fed-
e r ~ l Reserve
3anks?
And wh<it else c tn there e done to Wl \rd
o f
a
tco r ~ p i J
decline of our ~ n k i n f
s t r e n ~ t h
(1)
The Federl'll Heserve Banks, by raising
the i r ra tes
wil l
have
to
t r y
to
l i o u i d ~ t e
3
s<Jbst l.ntial
portion
of
the i r
investments.
The
di f f icul ty in
the
wqy of
carrying
such policy into
effect
is the
<hnger
c.f cre<tting
a
f in lncial
disturbance which
might
make
things worse ~ n d ~ f f e c t unfavor<ibly the large
l o ~ n
o p e r ~ t i o n s
of
the
Government.
We must, therefore,
move
cautiously
and ci:i.nnot
forcA
matters beyond
certain l imi ts .
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X 556
-5-
(2)
The
Fel0ral
Reserve Banks must t ry to
increase their
goll ho1lings b: : continuing to wi thlraw golJ cert if icates from
circulat ion
anl
substi tute Feleral
reserve
notes.
This
process will
bocorce more
anl
more
J. ifficult
as
the
amount
of outstan..ling
cer t i f i
cates b e c o ~ e s s ~ l l e r
anl
smaller.
(3)
Foleral Reserve Banks mu.st continue the i r effor ts to
secure
goll anl goll cert if icates
from the
vaults
of the
banks.
But
we have
lrawn
heavily
on that source of
s u ~ p l y
anl i t will
be
more
~ i f f icul t in
the
future than n
the past to
gain goll from that
quarter.
(4)
We
r r ~ h t t r ;
to
bet
goll from abroal.
Can
we
get i t?
t
woull be very interesting to
f inl
out what bap[;ened to the
Russian
anl French gol l
n
Lonlon. Is i t im possi ble to get Englanl to reloasi.; .
soma portion
of
that golJ, proviJ.eJ i t is available anl necessar1?
(5)
The
Feleral
Reserve
Banks
must
t ry to
reduce
their
f loat
(the
amount
invested
in
checks
anl
t ransfers) by
raising
the
rate of intorest upon which
these
transactions are
based
anl by trying,
if a t a l l possible, further to reluce the
.:ouble
circle that n.oney
lescribes when
paid in
by the
banks for account
of
the
Government
ani
pail out again y the Government.
(6)
e
n:ust
bend
every
effort
to
prnv0nt
prn:anent
cor; ;ora:te
financing, camouflaged as co.rmiercial paper, from creeping in to the
Faieral
Res0n0
Banks. The s0curitfos n:arket
being
in a
most un-
sat isf
actor: ; conli t i on, corpori:\.tions w l l
tr:, to
cnlat0 so cur i t ies
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X-556
- 6 -
in
form
available
for
investment
y
Federal Reserve Banks; or
amenJ;:r.ents
wil l
be rccorrn.er.dec:
wHh
the
object
of
permitting
l-
eral
Reserve Banks
to
lenJ on corporate
securi t ies .
t i s most
impor·tant that some machinery be created (a Government corporation
such
as
we have
i iscussed) to relieve the FeJeral
Reserve Banks
from
a l l i ional pressuro from the so directions.
(7)
The
Feleral
Reserve Banks have
about
100,000,000 in-
vostei
in
Government
securi t ies .
Tbe
Federal
Reserve
Banks are per-
mi
t t eJ to convert the i r one year
notes
anl other
hol..lings
of Govern-
ment bonls into tho 3
conversion
bonJs)
only.
These bonis sel l a t
present at about 86 n ~
the
arr:.ounts
investel can not therefore
be
l iqui ia teJ a t
th is time. If Fcleral
Reserve .Bo.nks were
permitted
(with
the
approval
of
the
Secretary of
the Treasury) to
convert their
hollings
into
whatever
bonU.s the
Treasury
issues from
time
to
tio:e,
they coull
free
themselves
of these
investments.
These are
pal l ia t ive
measures,
necessar:/ anj important)
in-
jeei)
but they wil l not alequately remedy the si tuat ion i i t should.
be shown that
we
are placing Governrr.ent
securi t ies
faster
than
the
country is able
to alzlsorb them, either because
the country
J.oes not
yet save
enough
or because we are rr.oving
too
fast
-
or both.
I
need not
go
into the question
of
savings,
exce;t
to
say
that i
a Governrr;ent corportation (mentioned
under
6) shoulJ be
established and Congress
should
erripoNer
the Presidnet to l icense
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X-556
- 7 ·
al l public
sales
of cocpr' 'ate foCt .nties -
the
PresiJent
vestin3
this
P'IWVer
in
the
boar:t u:: saiu r.orporation -
waste
by
States anJ.
rr:unicipalitiGs coulJ
be
chocked an:t expansion by sale of securities
c o u l ~ be controllaJ..
Our rrain concern
1
however
1
n:ust be as
to
the
speeJ
with
which we are m o v i n ~ We rrust
be certain
that Ne have not
started
u ~ o a three mile run at a thousanJ yarJ pace.
sure to get •
1
winJ.ed and
to get
knockeJ.
out.
Otherwise,
we are
In
this connection the
question is a burning one, whether
i t
is possible, without enJangering
our chances of
victory, to
bring
the
rr.ili ta r
an.:..
naval J.)rosram of
the
UniteJ
States
anJ her
all ies
into a scope
that
will
0nable us to
be
ttuite certain
that financially we
can hold out even
i
the war should
continue for
several
years.
People
talk
about
tho
rrarvellously
increasel
savin;;
power
of
the
country.
But this impr3ssive increase
is causei y increased
prices
and
increased
wages (moving in a
vicious circle).
Anl
as th0se
increase the
amount
that tho
Governn:ent nust borrow
increases
and
the
value
of
the
dollar
decreases.
Issuing billions for perishable gools (and, worse than that,
perishable
goods
that
destroy
things
of
pernanent
value)
creates
inflation;
i t
creates
increased l e ~ o s i t s a n ~ circulation anl increased
loans
based upon
inflated values (except stocks
and bonds Nhich
go dOW n)
n ~
thereby
creates a
~ e w n l for
increasel reserves.
Increased resarves in turn aro cr0ated by
increased borroWing
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X·-556
8,
from
Federal
Reserve
Bc..nk. ~ a b J . e
showing
increase
.of d.ei:osits
anu
loans since 1914,
shows
~ J : i . a t loans
have increaseJ
by 40,6%
and
·
•
aeposits
by
34.5%,
both
having
iDcreased
by
about
2,500,000,00C.
But
investments
during that perioi
have
increased by 68.5%
1
from
1,914,-
000,000 to
3,227,000,000, and
this greater
increase of
loans
and in
vestrr.ents
47
against
increase
of deposits· of
34.5 is
in
i tself
a
sign
of a crit ical ievelopment that
calls
for close
watching).
This
process
of
inflation
ani
the graiual
weakening
of
our
reserves
can
not
be entirely
avoided.
t is the necessary
consequence of
ex
tended war
financing.
War expensca and Governrrent loans n:ust, h ~ n e v e t
rerrain
fairly nearly within the
lirr,i
ts of
what can
be raised by
taxa-·
tion
and absorbed
by savings
between
one
large Government
loan anJ. the
subsequent one.
If
loans
are
raised
n:uch in excess
of
that limit,
Governrr.ent bonds n:ust be carried in increasing amounts by bank loans
and
these
loans, and ultinately
the
Governzwnt bonds themselves, or
i irect advances to the Government, will
creep
into the Governn:.ent
banks,
causing inflation,
sapping
the
gold reserves and
bringing
about a
cri t ical
financial and economic
situation,
a n ~ ultin:ate
~ i s a s t e r . Tha charts of
Russia
anu France
tel l their own stories
in
this respect.
(I
have no doubt Italy an.i Austria woulJ. show sin.Har
conJ.itions)
The s:peed at
v.hich
we are
proceoding
is
unparalleled.
W i ~ ~ h i n
one year,
1918, i t
is estimated
that we
are
to raj.se
about
19,000>000_,··
n g l a n d ~ i t
js
.; .
e
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- 9 -
estirrated has rais:id ·1: 7
::_· ::i.ri.s
a fl a':crage of 6.725,000,000 11cr
year,
France
4,
37
0 000,
000,
Ge
r:rPLrq
S;
469,
000, 000,
nussia 5, 000, 000, 000,
(See
m n i o s ~
9 to 12).'. 2.n.: as
rJta: .:.eCl
bi;)fore, these
countries
couL
resort to ether financi&.l rrarkets
in or.J.er to
strangth0n the i r
l)ositjcn,
while we
not only
can not oorrow abroal
1
or sel l our secur i t ies abroai
1
but n:ust finance by
our
loans our
a l l ies
as
well
as
ourselves
an ,
in
addition,
have the proceeds of credits openeJ. b; us
used
quite ex
tensively for our a l l i e s
purchases
of gooJ.s in foreign countries .
This l a t t e r ciroumstanco,
and
the
scopc
ani speed with which our
departments
anl our a l l i e s cal l upon the Treasury for funls an
credits are }he danger points which rr.ust comrrana our closest
a t t0nt
0
.6r.,
The
next
month wil l
bring us ief in i te figures upon which
to base rel iable conclusions. e are
lea l ing
with
a
new rr:achifoJry
anl
new
conl i t ions an have
no
p ~ o e t l e n t s
tha t
wouli enable us
to
io
n:.ore
a t th i s
tirr.e than to
point
to certain poss ibi l i t ies , which,
i they shouLi beconce
raal i
t i c s , nay prove
a serious menace
to the
successful prosecution
of the war.
P M. W.
12/7
/17
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December
6
l917
•
lvJ MORANDUM l
RATIO. ·:>F
TIE
FEDERAL RESERVE BANKS
TOTAL
RESEFNES
TO
NET DEPOSIT
AND
FEDERAL
.RESERVE NOTE LIABILITIES
COMBINED ON NOVEMBER 30,
1917.
Total Reserve 1,
576
211 000
Total net J.eposits • • 1,594,647,000
Total F. R. notes
in
circulation
Total
net
leposit
and F.
R.
n o ~ e
l iabi l i t ies Corr.bined 2
1
651,630,000
:Ratio
of to ta l
re3erve
to
net deposit ani
F.
R.
note
l iabi l i t ies o m b i n o ~
-
63.2 per
cent
,·
\. · \. -
X-556.
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FREE GOLD ON APRIL § AND NOVEMl: .;;R 30,
191
7.
Not ioposit
l i ab i l i ty
Reserve requirel
3 5 ~ o )
F.
R.
notas
in
circulat ion
Reson.re requirei (40 )
Total
nat
ieposi t
&
note Liab
1
1
1
s
Total
rosorves required
Total
reserves he l l
o l ~ hol l ings in excess of
r0serve requirements
Gain
in
free ;ol:i between
April
6 aal Nov. 30, 1917
Apri l
6,
1917.
376,510,000
.
150,6J4,JOO
1 3 6 7 9 ~ o o o
416,703,000
9
62
662 1 000
54
5)
9 59
000
Percentages of
reserve to
coi:1binel
net
:le,posit an.i note
l iabi l i t ies
April
6 - (962,662,000 1,136,792,000)
84.7 per
cant.
Nov. 30 -
(1,676,211,000
+
2,652,554,000)
63.2
h
«
X-556.
November
30,
1917.
1, 59
5,
571, 000
558,450, 000
2,652,554,000
981,243,000
1,676,211,000
694, 968,000
If i t
hal
not
been for
the increase
of 149,009,000 in free goll batween April 6 anl N o v e r r ~ e r
30,
1917,
the
reserve
percentage woul.i
have
iroppel to
57.6
(1,676,211,000 - 149,009,000 + 2,652,554,000)
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X-·53E
MEl\. lOP.ANDUM 3 •
RATIO OF TOTAL RESERVE
OF THE
F' iDERAL RESERVE
D l i l U ~ S TO COMBINED NET
DEPOSIT
AND
FEDERAL
RESERVE NOTE
LI.ABILITIES.
April
5-6
.May 11
June
15
June 22
June
29
July 6
July
13
July
20,
July 27
Aug. 3
Aug.
10
Aug.
17
Aug. 24
.Aug.
31
Sept.
7
Sapt .
14
Sept. 21
Sept.
28
Oct.
5
Oct.11-12
Oct. 19
Oct.
26
Nov.
2
lfov. 9
Nov.
16
Nov.
23
Nov. 30
1917
II
II
II
II
II
II
II
II
I
I
II
II
II
I
II
II
. . . .
.
..
............... .
.
.
.
. .
........
......... .
········ ...
.
. .
.
.
.
.
. .
.
........ .
I • • • • t •
e
t • • • \ • • • t
.
.
.
. .
.
.
. ..
.......... .
.
.
. .
.
. . . . . . .
.
.
..... .
.
.
.
.
. . .
, ...... -
.....
.............................
....
83.0
81 l
71.4
71.6
75.4
79.6
79.9
79.1
80.l
81. 9
82. 7
82.0
82.6
81.
7
79.6
80.0
7 ~ 6
77.1
74.4
74.5
75.6
71. 7
69.0
69 .4
65.8
64.7
63.2
par
cent
II
II
II II
II II
II II
tr
II
II
II
II
II II
II
II II
II II
II
II
II II
II II
II
II
II II
II II
II II
I ti
II II
II II
II
II
II II
n
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-
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CiOLD IN VAULT:BAIVK NOTeSll'f.CIRCULAT/ON,'eTC..:
01:'
r e J.J:AP/f((j eLJROPEAN / JANK$ OFISSfJE,S/l{CE THe OfJ 81U AK OF H ~ W A R ;
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BANK NOT.ES
IN CIRCUlATION,eTC.,
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Total Metal l ic
. Reserve
Government
Deposits
Other lDeposi
ts
1 3 2 . ~ 1 1 : : .:lotes in
Ci rel.I.la
t
on
Totc.l
Rai:io .of Reserve
t 0 C C:t1ii.1EHi
Deposit
and
Note
Liabis
Treasury
notes
outs tanJ ing
Coin ni bull ion
Cover
Per cent
RATIO OF i O IJ .T.i
HESEHVE
·ro (;()}ffiilWL FE?0S.:T J .NP ~ W I E L I . 1 ' . : : ? : L : : ~ ' E ~ L
FOR THE
PRINCIPAL
ElffiOPE..AN J3ANK2 SSUE.
(In thousands of lo1J
an3)
Bank of
England Bank
of France
Russian State Bank
:July
29,,
:Nov.
14, :July
30, :Nov.
15,
:July. 16,
:Sept.
16,
Jul;,
31)
:1914
:1917
:1914
:1917
.
o
29,
: to
29,
1914
:1914 :1917
:$185,567 : $270, 603
:$919
J 968
i$683,825:$683,371 :$742,249
:$363)670
.
61,869 205,486
73,834
6, 37
5:
264,937
: 109 J 421
d
: )
299,
515
264, 830
586,468
182,
881
533,213:
327 J 585 :1, 710, 221
:
471)265
998JJ92
l,5-16,570
:4,842,337:1,433)696
:10,001,423
991,957
39.4
27.l
138,695
14.9
59.5
14.1:
60.2
7.4
36.
7
Oct.
23,
1917
: l ,365,J26
:3)778JJ36
15.8
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X-555
Tho following
i s
a
quotatior .
from a l e t t e r of a Dutch G0ntlowan.
According to
the
off ic ia l mGmorandum regarding
Fronch
f inances, Franco had borro
:1ed in
Englo.nd
som3what over Fcs.
8,000,000,000, and close to Fcs. 6 000 000 000 in
thG
United
Sta tes .
Further advances
which
w0 U.S . ) have
made
in H10
mean timo may
have brought
Fr:?.nc,3's d::bt ir,
th i s
country up to
about
Fcs.
8,000,000,000, making a
tot .al
cf Fcs .
16,000
0C'J,C01).
Tho off ic ia l estimate
of
crops of Franca indicatrn
tha t there wil l be
a shortage
of
wheat,
rye, barley, and oacs
of
about
45i
against
tho average yiold of these crops for tho
years 1905
to
1914.
What i s more
serious
i s
tna t
the
short·-
age
;i s greatest
in
wh0at, \'ihere i t amounts to more than
551o
The T0mps
of
Septo:-uber
28th estimates t ha t France L1ay
have
to import between thr00 and fcur b i l l i on Francs o ~
cereals
to
make up tho shortage
cf
th i s
y ~ a r
I t seems impossible to
soe
how France wilL be
able tc
keep up
her
ra te of exchange, eveL
i f
peace
should
c o ~ e
Unlike
England,
France
does not
dispose
of
any foreign invest
went s which can
be eas i ly
made
avai lable .
For
pol i t ica l
reasons, the French
markets were
closed to jus t
foreign
secur i t i es
which would have helped the country most
now, and
the
Government
and
the banks co-operated in put t ing
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-2-
X-555
the
savir gs
of
th
nat ion which
ware
ava i lab le fd r
i iwestment
abroad -
chiefly
in Russia, South America and llfoxico - just
the countries where investors have rsceivod the heaviest
blows.
I t
was
exac t ly
on
acc0urlt
f t h i s
s i tuat ion tha t
France
fou:?: lci
herse l f actual ly the miust
of a
f inancia l cr is is
at
the cut -
break
of
the war. T ~ e necessitL1s
of
the
war long
a,;o
~ o r s w : e d
whatever foreign
assets of
a more l iquid kind
France
may
have
been holding and
t
is
a ' Jellhr.:own
fac t
tha t
the country
has
ever, gene
so fa r as to
pract ical ly pledge
tha credi t
of
i t s
c i t i e s
and i t s bigbest private enterprises f inancia l ly to
back
up tho
G o v e r n ~ o n t
If
we tu rn
to the
conditions
of the Bank of France, we
do not f ind any more reassuring fac t s .
"On
Octcber
l l t h
the note c ircula t ion
was Fcs.
21,500-
000,000, which were covered
by
cnly Fcs. 3,300,000,000 actual
gold, bein
only about 1 5 ~ Most
of
tha assets held against
t h e note i ssues are absolute ly unco l lec tab le fo r the t ime
being.
They cons is t up to :
Fcs. 12,100,000,000
of
advances
to
the
Sta te
1,150,000,000 Bil ls of Exchange net col lect ible
under
the moratorium.
and 3,500,000,000
cf advances to foreign governwents
which notoriously are ~ d v a n e e a to the
Russian Government
t r tha p ~ y o e n t
of
i n t ~ r e s t
on i t s pre-war debt hold
in France.
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This makes a
t o t a l
of
un
col lect
i ble
3
X 555.
assets of Fcs. 16,750,000,000,
or
about 771.
of the
t o t a l
amount of notes outstanding.
11
Perhaps
one
of the greatest d iU ic ult
ies
which
is
in
store for the
French ~ o n y
market and which
may
well give
the f ina l
blow
to
the
whole
structure•
l i e s in
the fact tha t
the
day
wust
come when
the
French
Government
wil l
cease
to
p y
out
to
the
French
holders
of the Russia pre-war
debt
the
in teres t
which i t can never hope to
col lect i t s e l f .
When tha t
day comes
I fear a very s r i o ~ s si tuat ion.
P. JL W
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Il\CBEASES EETVlEEN JLTIE 30, 1914 AND SEPTEMBER
l l ,
1917
OF
LO.A.i. 1S
.AJ:TD
DISCOUN1I
1
S .AND
NET
D.fil'OSITS
OF NATIONAL BAJ.'JKS, .AS
SHO';IN .BY
COMPTROLLER'S
.A.BSTBACTS.
J u ~ e
30, 1914 Sept. 11,
1917
Increases.
. .
--------------------------------------------------------------------------------
(In
thousands of
dollars) .
.
.
Loans and discoi.mts
:
:
inoludiI1£
O'Tard.ra.fts
6,445,555 9,064,855
$2,619,300=
4o.6%
.
Other loans ~ n d invest-
.
:
m ~ n t s excluding p r
:
.
mane11t in Q'est. '.l1ents
l ~ 1 4 2 8 8 8
3 ~
227'
124
1 ~ 3 1 2 2
236=
68.5%
Total
loans
and
investments,
8,360,
443
12,291,979
:
3,931,536=
47&0
liet
deposits, on
which
.
reserve s
conri:.u.ted:
7,495,149
10,082,779
2,5s7:630= 34.5%
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
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X-556
:M EMORANOU 9
BRinSH
WAR
I.CANS
On
September 30,
c c o r ~ i n g
to of
i ~ i l
announcement of the Chan
cellor of the Exchequer, tha
total
funiei debt of the United Kingdom
stood at :C2 518,
300
000 equivalent to
$12, 255,
307, 000.
In
ail i t ion
there
were outstandin; on November 3 about t,991,000,000 equivalent to
$4,820,000,000, of . Treasury
Bills about
$1,475,000,000 loans from the
United States Government anl seve-ra.l hun..ired millions of credits raise.i
in Holland, Scandanavia, Japan anl other foreign countries, rrakin6 a
total of about
18.
7
billions
oi dollars
(see
London Economist, Nov. 17,
1917).
The Lonion
Ei::ono;:r;ist gives tl1e to ta l
net borrowings of tho Brit ish
Governn.ent for
tho
p e r i o ~ August l 1914
to November
10, 1917 as
L4,491,-
514,000 equivalent
to
$ 2 1 , 8 5 7 , 9 5 3 ~ 0 ' . J O ,
'Jf
which
tl,260,0JO,OOO
e q u i v ~
a.lent
to
$ 6 ) : l . 3 ~ ; · o o o ,
000
:rep.resents a..ivanres to Dominj.ons and .Allies
Unler
date of November 14 the
Bank
of EnglanJ reports
among i ts
assets Government
Securi
t ics amou.nting
to
t58, 721,,
320,
equivalent to
$285,768JOOO.
Taking
the larger
e s t i r r a ~ e of total war ..iebt of $21,857,-
953,000 given by
the Lon ..lon
Economist as our
basis
for calculation, we
obtain
a 7early
average
of war
loans
raised between August 1914 and
November
1917 of
about
6,725 million dollars.
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X-556
MEMOR NDUM
10
FRENCH
WAR
LOAN§
I
The
Economiste Europeen
quotes
an
of
ficia.l
bu.J.get
r e ~ : J o r t ,
i n ~ i c a t i n ~ the
follcrfling increases in the French National lebt
ce-
~ w e e n August l 1914 a n ~ S e p t e r r ~ e r 30 1 ~ 1 7 :
National
Defense short-tenr. tonJs,
~ d o n s
de
la Defense Nationale )
National Defense Obligations ,
5 fundel loans
oi
1915
anl
1916
Tote.l
Millions
of
Francs.
21,
700
840
21. 920
44,460
This total is exclusive of 12,350 rr,illions of
francs, equivalent
to ~ 2 3 8 3 . 5
r r ~ l l i o n s of
lollars (at the
nominal
rate of 19.3¢
per
franc)
of war aJ.vances 1. :, the Bank of F 1 ~ a n c e shown an:;ong i t s assets
on :foverr.ber 15, 1917 - The Bank also carries ar i t s assets an
iteffi of 3.145 millions of francs, or about 607
million
Jollars
dis-
counteC.
Treasurr
l3ills,
ti1e proceei.i.s of which were
alvanced
to
the
Allies.
I t
is not clear whether this arr.ount is included in
the
above total of 44,460 millions of fra;.1cs To the
total
given should
be aJled also the
following
amounts
largely taken
from M.
Klotz
s
Treasury
Sta
err.ent as at Juli 31 1917:
Bills s o l ~ in England
Millions
of
francs.
7,952
.Amounts
borrowed
in
the
UniteJ
States:
Bank creli ts ,
Industrial credit
Afril
1917 creli t operations,
Anblo-French loan,
Alvances
by United States
Gov•t.
Amount
borrovveJ. in Japan,
.AO.vances ·by the
Bank
of Algeria,
Total
518
239
498
. l 243
(Nov.l,1917) 4,248.7
129.0
65.0
14,892.7
Total
long-term
anl
short-term
lorr2stic
outstanJ.ing
Sept. 30 1917
Advances
of the
Ba.nk
of France,
loans
44,460
.J..h35Q.
71,702,7
or rrillion
$13,838.8
Assurring this amount to
represent
total
ex;·enditures between August
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•
•
·x556
MDviOR NDtlM
RUSSIAN
W R UWis •
.According to an
off
icia.l anno'\lncement of the Russian Finance
Minister (re:produced
in the Economiste E u r o p ~ e n
of
October 12,
l9i7)
the
Russian
State
expenditures between
August 1, 1914
and
Se:ptember
l 1917,
aggregated
41,393,000,000 Rubles, or 21,317,000,000 nominal,
W h i l e ~ Q o v a r n m e n t : . . r e v e n t w J £ 9 r the
same ;period was
only
about
9, 701.,000,000
Rubles, or 4,996,000,000
nominal..
This
leav.:is a
tota.l of 16,321,000,000
which had to ·oe covered by loans. .Aggregate domestic long-term a.nd short
tenn loans <ire t;iven in the statement as 12,758,000,000
Rubles
or
6
1
570,000
000 non1inal, the remainder of 9,'{49,000,000 non1ina.l thus
being
covered by
foreign loans,
largely
a.dvanc'3d y Great :Brita.in.
On September 29,
1917 tl1e Russian
State Bank reports
among i t s
assets
13 ,394,
795:
000 Rubles
of
snort-term
Treasury bonds
(Eons cl.u lrenor)
besides
828,994,000 R u h i ~ s of advances
for p r o v i s i o n i n ~
operations of ~ h e
Government, or
a total
of l4,223,7s9,ooo Rubles eY.uivalent to abou·t 7,325
mill ion
dollars
a,t the noni:i.nal rc:ite of 51.,5 cents per R u b l ~ Per contra
the
:Bank
re:ports a to tal of 15,886,953,000 Rubles or 8,181,781,000
nOiilina.l of notes in
actUz1.l
circula. t i on •
.Assuming
a
to tal war
debt to September 1917 of 16,319,000,000
the yearly increase
of
the
debt
would average sl ight ly over 5 bi l l ion
dollars.
7/17/2019 frsbog_mim_v06_3014.pdf
http://slidepdf.com/reader/full/frsbogmimv063014pdf 23/23
x556
MEMOR NDUM 12
GD1AN
W R
LOANS.
In mil l ions
of
Marks @ Dollars
(In
millions)
1st • 4 480.8
2i l.d• • • • • • • • • • • • • • •
9 106.3
3rd• • • · · · · · · · · l 2 l 6 2 . 6
4th 10
767 6
5th• • • • 10 699.o
Gth• ••• ••••• ••••• ••• •••• 13 120.0
1,066 4
2,167.J
2,894.7
2,562.7
2,546.4
3,122.6
7th
•.•.....••.•••.•.....••..• · ~ · ~ · · ~ 1 ~ 2 ~ · 4 ~ 3 _ 0 _ . o __ ~ _ . ; ; ; 2 ~ 9 ~ 5 - s ~ · - 3 _
Total ••••••••
72,766.3
@ •.Marks converted at 2 3 . e ~ per Mark.
i7,31s.4
Note: The above totals a r ~
exclusive of Treasury
Bil ls
Treasury Notes, Government War Loan bank notes and other unfuncled
obligations of the Imperial Goveimient.
Ille
above increase
in the
public
debt
averages
about ~ ; 5 4 6 9 0 0 0 0 0 0 per
year, to
which sho-ild
be
added a
certain
amount
of floatine; indebtedness chief ly in the
fol tl of Treasury b i l l s
and War Loan bank notes.