Further along in the same speech, commenting upon the unsoundness of the German plan, he said:
"Imagine for a moment a central bank in the United States, like the Imperial Bank of Germany, issuing all our bank note currency and these notes going into the reserves of our myriad of banks as the basis of loans which, under our system, in turn become our deposits.
"The natural, first, and immediate effect would be an expansion of credit, an inflation to just the extent to which the notes were used for reserves.
"As soon as the situation became obviously dangerous, a halt would be called and a contraction in loans would follow. But a contraction of loans calls for liquidation, and liquidation produces an exigent demand for currency. We all learned that lesson only so short a time ago as 1907.
"But in the very face of the increased demand for more currency the currency would be contracting, because the loans would be reduced by calling in bank notes which were being used for reserves; or, in other words, the loans called would be paid in bank notes.
"For every $100,000 of notes so called in the loans might be reduced to an average of $500,000, and yet this very process of liquidation would be concurrently destroying the only instruments of credit that would adequately meet the demand created by forced contraction. It would clearly lead to self-destruction, to commercial suicide.
"The best thought of England recognizes this subtle but obviously destructive contradiction in the use of credit, and therefore opposes the use of credit notes by the Bank of England."
Gentlemen, the fact that we can force our banks to carry a specified amount of reserves and of a specified quality, by the power of taxation, will preclude the use of bank notes as reserves in the United States.
Mr. Fowler then concludes as follows: