Message

In 1932 the U. S. people made a decision of far greater historical import than the choice of a new Chief Executive. For better or for worse, the U. S. people decided that it would not put up with deflation--the price that capitalism has always had to pay for its periodic excesses. What the U. S. wanted was a President who would "do something." And doing something meant preventing the country from going through the wringer.

Herbert Hoover tried to ease the pain of liquidation but the voters wanted complete relief. So they elected the other candidate. Franklin Roosevelt ditched his economy platform and did what any other man would have had to do in the same position: he gave the U. S. what U. S. wanted--a heroic economic shot in the arm.

Last week President Roosevelt finally and officially admitted that the U. S. was in another Depression. Recognition of its existence took the form of a special message to Congress in which he proposed to end the Depression. His proposition: another shot in the arm.

Most of the reasons and rationalizations given to Congress in the message were repeated in the President's subsequent fireside chat (see p. 10). But the nub of the message was simply: "Viewed from every angle today's purchasing power--the citizen's income of today--is not sufficient to drive the economic system at higher speed." Thus the program itself was founded on the old pump-priming theory with five billions in cash and credit to do the trick. By various bits of legal and financial legerdemain the net cost to the taxpayer was described hopefully as a mere billion and a half. According to the President this would provide him with the "three rounds" of ammunition needed to down Depression.

Round No. 1 was straight Relief. The President asked for an additional appropriation of $1,250,000,000 for WPA for the first seven months of the next fiscal year starting next July. He also asked for an extra $300,000,000 for CCC, National Youth Administration and the Farm Security Administration. The total of $1,550,000,000 would enable the Government to maintain relief expenditures after July 1 at approximately the current rate--$200,000,000 per month.

Round No. 2 amounted to an about face in the Treasury's recent credit policies, which helped bring on the Depression. A year ago when Government's prime concern was not Depression but a runaway boom, the Federal Reserve Board boosted bank reserve requirements. This cut down the total of potential credit in the form of excess bank reserves and made money a little more expensive to borrow. Last week the President told Congress it was now time to lower reserve requirements--which the Reserve Board did forthwith. Net effect of lowering reserve requirements was to increase excess reserves from $1,700,000,000 to $2,400,000,000. That is enough to support a credit expansion of perhaps $15,000,000,000--if businessmen would borrow.

The President also announced a reversal of the Treasury's gold sterilization policy. By this policy the Treasury has been buying gold and putting it in cold storage instead of allowing it to enter the credit system. It now has $1,400,000,000 of sterilized gold--gold which it will now remonetize. This will eventually give the Treasury $1,400,000,000 in cash. When this gold is spent--as gold certificates deposited to the Government's account in Federal Reserve Banks--it will add an equivalent amount to the nation's credit base. The unused part of that credit base (excess reserves) will then swell from $2,400,000,000, to which it was enlarged by lowering reserve requirements, to a record $3,800,000,000.

Round No. 3.--$1,450,000,000 for public works and $462,000,000 for housing, roads, flood control & Federal buildings.' Of the $1,450,000,000, $45,000,000 would be spent in cash immediately. The remaining billion would be loaned by Harold Ickes' PWA to States and other political subdivisions for public improvements. The only string would be that the works should be started within six months and completed within a year or year and a half. One new wrinkle in this works program was the suggestion that instead of the old loan-grant system by which 45% of the money was a Federal gift and the rest a loan, the total would be a loan but non-interest bearing. The net cost to the Federal Government, the President said, would be about the same.

Actually the President has a fourth round of ammunition in the form of an authorization of $1.500,000,000 in new RFC loans--passed by Congress and signed by the President last week.

"Out of the Red." In justification of the cost of his ammunition the President wrote: "Let us unanimously recognize the fact that the Federal debt, whether it be twenty-five billions or forty billions, can only be paid if the nation obtains a vastly increased citizen income. I repeat that if this citizen income can be raised (from an estimated fifty-six billion this Year) to eighty billion dollars a year the National Government and the overwhelming majority of State and local governments will be 'out of the red.' " And the President added: "Business must help. I am sure business will help. We need more than the materials of recovery. We need a united national will. ..."

Day after his message last week Franklin Roosevelt said that he had received several hundred telegrams split up 7-to-1 in favor of his plan. That Congress, which will have to supply Round No. 1 (Relief) and Round No. 3 (PWA), was by no means sympathetic became apparent at once. Opposition wires soon started to flood the capital and the telegraph companies were expecting to be the first beneficiaries of the recovery program.

Vice President Garner, who was amusing himself by trying to find a suitable Easter new hat (see cut), was rumored to disapprove and Senator Pat Harrison was noncommittal. Nonetheless, Congress likes to spend money, particularly in election years and the program was shrewdly divided so that every State and section could be sure of a fat share. In the last depression Congress habitually gave the President lump sums to spend as he wished. Best guess last week was that Congress would indeed give the President what he wanted but this time with more specific instructions as to precisely where and how it should be spent.

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