Boom in Money

Ten years ago this week every bank in the nation closed its doors. Reason: an executive order from newly inaugurated President Roosevelt to stave off complete financial collapse.

This week the Country's 15,000 banks were not only open, they were booming. Through their doors by day, and often by night, customers thronged to deposit and draw on their big wartime earnings. Money, which was skin-tight in 1933, was now plentiful. Circulation of coin and notes was at an alltime high of $15.9 billions, or more than double the levels of 1933. Demand deposits of Federal Reserve member banks stood at the end of 1942 at a record $43 billions, as against $13 billions ten years ago.

If plenty of money were the sole measure of economic health, U.S. bankers would be the happiest businessmen in the U.S. They are not. Too much money in the banks, combined with too few consumer goods on the market, spells out inflation. And if the U.S. public should try to cash in its big deposits for goods with the same energy with which it attempted in 1933 to switch into cash, all hell would break loose. Said one banker this week: "The tinder is there, the fire may follow."

Safe and Sound. If inflation goes further than it already has, it will not be for any of the reasons which got bankers into trouble back in 1929. Truth is there is little similarity between banking today and banking in the '20s. The big gamblers --the Charlie Mitchells and the Al Wiggins --are gone. In America's biggest bank, the Chase, sits conservative Winthrop Aldrich; head of the National City is Gordon Rentschler. In Chicago Walter Cummings heads the great Continental Illinois. In Detroit Walter Scott McLucas chairmans the National Bank of Detroit, which was put together after the 1933 debacle.

Technically these men run institutions that are conservative to a fault. Against 4,000-odd bank failures in 1933, there were only nine last year. Bank deposits (up to $5,000) are insured by FDIC. Though excess reserves are down, member banks carry $13 billions with the Federal; and behind the Federal is the Treasury's $22 billions in gold.

Given the gold, the country still has plenty of ultimate reserves; the danger lies in the rapid rise in deposits. Yet here again the banker has played safe--safer than he would like. One source of deposit money is commercial loans. In 1917-18, for instance, total bank loans rose by 50%. But since the U.S. has been at war, total bank loans have actually decreased, now stand at about $16 billions, only $3 billions above 1933.

Government Agent. Big source of this war's new money is not private loans but the sale of Government bonds to the banks. At the end of 1942, member banks held some $37 billions of Governments, and the total is rapidly rising, making the banks in fact the agent of the Treasury.

Working for Mr. Morgenthau is no great shakes, financially speaking. With Government securities which the banks can buy yielding well under an average 2%, profits are low. In 1942 they were estimated at $400,000,000 (as against 1929's $557,000,000), representing a 6% return on total capital. But many a big bank is undercapitalized in view of its big deposits, so that earnings are in fact poorer than they seem.

But the larger objection to absorbing Governments is the doubt of many a banker that Henry Morgenthau can in fact control the huge spending and borrowing machine he has created. Back in the '30s the theory was that it did not matter how much the Treasury spent or borrowed. Now, with the country's resources employed all-out, every bond bought by the banks feeds the inflation fire.

Banker, What Next? So long as the war lasts, however, the U.S. banker has no choice. He will go on trying to Sell as many Government bonds as he can to the public. But what the public will not take the banker will have to absorb. After the war, he hopes for something different--even though, according to some economic planners, the postwar world will see the Government doing the lion's share of the spending and lending.

The banker of 1942 is not so sure. Already inflation has gone far enough to show that the planners of Washington are no more infallible than were the prophets of Wall Street. If the President is serious about private enterprise creating new jobs, commercial and investing banking may come back into their own. Big New York banks with branches in South America and Europe will have a considerable foreign deposit and lending business. If the world returns to some fixed standard of exchange (and the U.S. is still after all on $35 gold) banks may once more play a creative role in furthering the nation's foreign trade.

Back in 1933, when the reputation of bankers was at an alltime low, one of the wisest of U.S. bankers, Russell Leffingwell, made a moving valedictory to the Pecora Committee. Said he: "We have made mistakes. Who has not? Our boast is that our effort during the whole postwar decade was constructively conceived towards the rehabilitation of America and the world after the war. . . ." Most U.S. bankers, while conceding that conditions after this war will be far different from conditions after World War I, would like to have another chance.

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