The Fargo forum and daily republican. [volume] (Fargo, N.D.) 1894-1957, 1911-11-29

4 III almost Impossible To secure these
mediums of trade when they are most
needed. In addition--and this is the
factor which has made the Wall street
money ring so long powerful--the
| present system is a cordial invitation
to speculation. When money is easy,
as tho saying goes. and there is little
| demand for 1t, banks throughout the
country forward their deposits to New
York banks in order to secure the 2
per cent interest offered. Under nor
NAL or nearly normal conditions the
wealth of the country concentrates
rapidly in this city. Naturally the
banks must make some use of the
money which will provide them a re-
turn greater than the per cent which
they are paying for its use and the
obvious chanel is furnished through
loans to Wall Street interests by
which money will be used for specula-
tive purposes. Then as promptly as
an increased demand for credit arises
there is an immediate appeal to New
York which necessitates the calling OF
these loans. In times Of greatest
stress such concentrated action in the
end spells panic.
While the solution of this banking
and currency problem may seem COM
plicated in detail, it is extremely sim
pie in principle. In fact it has been
successfully solved by European coun-
tries which with circulation far small
er than ours are nevertheless more Sc
cure financially because OF the exist
ence Of elastic currency. The real
ization on the part of the business
public in general Of the need OF an
elastic currency is much older than
the present understanding OF thebest
way OF achieving it. But it is now
generally conceded that our present
position of financial insecurity il due
to two causes and that we can obtain
an elastic currency by substituting
commercial paper for bonds and stocks
as the basis for bank loans as do for
eign countries, where panics are un-
known, and by establishing a system
of cooperation and mutual help
among our banks in the form OF cen
trail reserve.
Ninety five per cent Of the business
of this country is carried on by means
OF credit, that is by accommodations
extended by. banks on certain secur-
tiles, a fact which shows how inpor-
tant an elastic currency which shall
maintain this credit is. In this coun-
try, however, the basis OF credit, that
is the securities on which this loan is
made by the banks. consists chiefly of
bonds and stocks, which may be called
slow assets. Abroad the basis of Sc
curity consists OF commercial paper
running for perhaps one, two or three
months. 1t is obvious Of course that
when financial trouble impends money
is most in demand, but when the
stock secured loans OF this country
make 1t most difficult to obtain Just
at that time. Abroad these emergen-
cies are met by expansion of credit.
in this country by contraction. There
loans are increased while they are
curtailed here. because OF the different
forms Of security on which this credit
is based. Commercial paper and bank
acceptances form the main assets of
European banks These bills have the
widest possible market where millions
are exchanged daily with the margins
of one-tenth per cent or one-eighth
per cent in teh interest rate without
the necessity Of scrutinizing the paper
when the bargain is struck Bills of
exchange have been standardized. and
bankers in all parts OF the globe know
what names of the many thousands
that appear as endorsers and acceptors
are considered as good delivery and
against which names there will be
discrimination. The daily plus and
minus is normally regulated in the
case Of European banks by means of
larger sales and collections of bills
receivable or by larger investment in