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About Medford mail tribune. (Medford, Or.) 1909-1989 | View Entire Issue (Dec. 3, 1958)
Medford Tribune 2nd SECTION MEDFORD; OREGON, WEDNESDAY, DECEMBER 3, 1958 Pages 1 to 6 Federal Reserve System Called Huge Storage Tank for Money Editor's note: Following Is the third of six dispatches explaining the complex economic machinery that controls the nation's supply of money. Br CLYDE H. FARNSWORTH UPI Correspondent New York -(UPD- The na tion's super bank the Fed eral Reserve System - is a gigantic storage tank for money. Dollars flow into the bank because of a law forcing com mercial banks to put a part of your deposits into the super bank for storage. The rest is theirs to lend. Originally the storage tank was designed to give a bank cash reserves in case a lot of depositors wanted their money back at once and all at the same time. With funds on reserve it could meet this de mand without calling loans back for repayment. But the tank later worked Into a handy tool for con trolling the amount of funds a bank could lend. Here's how: If the reserve level In the tank drops for any reason then a bank must scramble to secure funds elsewhere to bring its reserves back to the required level. This puts the squeeze on the bank. It might have to refuse loans - perhaps call back some for repayment. Special Type of Money The tool is even more pow erful because these reserves are a very special type of money. Each reserve dollar can be ballooned into six ac tual dollars because of the ability of banks to create the money by making loans. The super bank has at its disposal certain other machin ery enabling It to increase or lessen the storage tank level. Probably the most impor tant oi tnese involves open market operations the ac tions of a committee sitting at Federal Reserve headquarters In Washington. What they do is buy and sell government bonds (except savings bonds and certain special issues) to dealers. These dealers are just like the corner grocer who buys a can of tomatoes hoping to make a profit. They buy from and sell to not only the Federal Reserve but also to banks, in surance companies and large corporations. When the open market committee feels it's necessary to increase reserves, it buys government securities, paying dealers with a Federal Re serve check. When a dealer's bank sends the check to the Federal Re serve Bank of its district to be collected, the reserve bank in effect creates the money by crediting that bank's account. Since reserves already had to be at the required level, the tank spills over, giving the bank the excess to lend. Works in Reverie When securities are sold, the process works in reverse, wiping out that much in re serves. But banks also may borrow from the super bank for brief periods to keep their storage tank money at the required level. This acts as a safety valve so banks aren't forced into calling loans when they are unexpectedly short in the tank. . A loan of this type is called a discount. The fee or rate the super bank charges on this type of loan is the discount rate. In the early stages of the system when the Federal Re serve wanted to discourage loans of this sort, it raised the fee and when it wanted to stimulate loans it lowered the fee. Now, however, a change in the rate is a signal to the nation that the Federal Re serve is loosening or tighten ing its reins on credit. For example, in Mid-Aug ust the system started to raise money would be a little tight er than .it had been af the bottom of the recession. - Be fore the recession set in, the discount rate had been at 3V2 per cent. Can Change Requirements Probably the most powerful machinery of the super bank is its ability to change stor age tank requirements itself. currently these require ments average about 16 per cent of checking deposits. A change of one percentage point in these requirements means a change of about $1 billion in bank reserves, money which can be blown up or contracted roughly six times. . This machinery is not often used, largely because it is so powerful. When it is used, the Federal Reserve tempers its impact with its other tools. Some other factors affect reserves but are not . con trolled directly by the super bank. These, are such things as currency and coin in circu lation, or gold stocks. An increase in currency in circulation occurs around holiday periods. After Thanksgiving, for example, people trek to their banks for an additional $500 million or more in folding money for Christmas shopping. After Christmas the money returns to the bank. Extra From Reserves Since banks always have to have a certain amount of cash on hand, they get the extra money to cover the public's witnarawais irom their re serves at the Federal Reserve. The U.S. has gold, more than $20 billion worth, salted away as backing for the cur rency. You can't buy gold, but foreign countries can. And when they do it also affects reserves. The reason is simply that foreign countries have to pay for the gold in dollars drawn Grange News... Sams Valley Grange To elect officers .of the Sams Valley Grange, a meet ing was held Saturday, No vember 22. Those elected are Albert Straus, master; Elwood Ab bott, overseer; Victor Crox ton, lecturer; Earnest Ra domske, steward; Dennis Dug gan, gatekeeper; Michael Dug gan, assistant steward; Ralph James, secretary; i Mrs. El wood Abbott, treasurer; and Mrs. Earnest Radomske, chap lain. Those who will fill the posi tions of the Graces are Mrs. Dalton Straus, Ceres; Mrs. Albert Straus, Pamona; and Mrs. Jerome Fitzgerald, Flora. The lady assistant steward elect is Miss Alice Croxton, and Jerome Fitzgerald, Wil liam Duggan, and Herman Priem combine to form the executive committee. Miss Connie McDonough has been elected Grange musician. Those comprising the Home Economics committee are Mrs. Victor Croxton, chairman, and Mrs. Ramsey Thompson and Mrs. Herman Priem. The U. S. has about 1,500, 000 hospital beds and esti mates show a need for about 800,000 more. Christmas Wonderland of Diamond and Watch Values Treasury is sent to the Fed eral Reserve for collection. The super bank then lowers the storage tank account of the bank on which the check is drawn and credits the treas ury's account. (Next: The Story of a Check) the discount rate from 13A tol"t of their accounts in U.S. i . i per cent, signalling that I banns. Their check to the 1 PROTECT Your Furniture with : Glass Table Tops A Christmas Gift For the Home Phone SP 3-3613 GLASS CO. 303 North Bartlett SELBY From now until Christmas we will feature special prices on items such as these from our main floor. Also, don't forget we still have EVERYTHING ON SALE in our BARGAIN BALCONY! HASSOCKS Round, Square or With Legs . $495 - $595 . $695 Black Wrought Iron FIRE SCREENS Complete. 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