As the depression became worse, the Treasury gold reserve reached a critical stage. European confidence in American securities continued to decline, resulting in almost constant gold exports. The depression reduced the private economy's need for currency and caused a government deficit, accelerating the endless chain of redemption and reissue of paper money. By January, 1894, the gold reserve had sunk to $66 million.
The gold standard could be maintained only by stopping the drain on the Treasury gold reserve or by devising a means for replenishing it continuously. The problem required one or more of the following: a readjustment of American prices to bring them more into line with international prices, a rebirth of European confidence in American securities, a revival of business activity at home, the retirement of a large part of the paper currency, or the elimination of the Treasury deficit. Manifestly, none of these could be brought about quickly. In the meanwhile, therefore, the administration had to choose between abandoning the gold standard and replenishing its reserve by borrowing gold from private holders. The first choice was not even considered by the Cleveland administration.
Selling Bonds to Replenish the Gold Reserve . Secretary Carlisle first attempted to alleviate the Treasury's difficulties by recommending that Congress adopt temporary excise taxes to supply revenue until collections came in under the recently enacted income tax. He also asked Congress for authority to sell short-term obligations for gold at the current market rate of interest. But Congress refused his requests, hoping to force the Treasury to redeem paper money in silver instead of gold. In answer, Carlisle declared that the Treasury would pay out gold as long as it had any in its possession. The statement was interpreted to mean that gold payments might be abandoned, and instead of bolstering confidence as intended, it increased what was already a severe case of the jitters and generally diminished faith in the future of the American dollar.
Although no help could be expected from Congress, the Resumption Act of 1875 was still in force. While it specifically authorized the Secretary to sell bonds for gold in order to expedite the resumption of specie payments, Carlisle interpreted this to include the right to sell bonds to maintain specie payments. Unfortunately, the only existing authorizations for borrowing were those under the refunding acts of 1870-1871, allowing