The Leon reporter. (Leon, Iowa) 1887-1930, 1914-11-26
THE FEDERAL RESERVE BANKS
OPEN.

serve banking system, open for bust
ness. What does this event mean?
A legion of sanguine prophets will
lprobably say that it means the end
Iof panics in the United States-and
they will be wrong. A panic, as Wal
ter Bagehot, pointed out at least 40
Iyears ago, is simply a widespread
|cOnviction that people who owe mon
ley will not pay it. The only thing a
|currency system can do to prevent
panics is to head off that part of the
conviction which results from wrong
and unnatural regulations and prac-
tees with respect to the currency. 1t
is confidently anticipated by finan-
ciers that the new act will correct
these. But after it has there remain
the evil practices which lie outside
the currency domain-Overspecu
ton and extravaganza, with all their
attendant follies-to reckon with as
potential causes of panics. Nor is
the new system itself safe except in
so far as it is wisely administered.
There is no safeguard in any system
against human extravaganza, cupid
ity and folly, AS Lowell said:
The right to be cussed fool
Is Sd1C llOlA ali uCNACCo AuHoAS
It's common, as a gin'rul rule,
To every critter born NV woman.
The universal confidence in the st.
Louis federal reserve bank reflects
the community's opinion of the men
chosen to conduct it.
The trouble with us for the last 40
years is that we have operated under
a currency system SO illogical and
wrongheaded and so rigid in its un-
reason and it's wrongheadedness that
the best of foresight could not pre-
vent panics in the United States Jun
der conditions, which, in countries
with rational currency laws, do not
cause panic at all. These evils of
system the new law has, as we all be-
lieve, corrected But VIC need to tread
in national finance the path of wise
conservatism just as much today as
we did day before yesterday.
So much for the negative side;
what Of the positive? How arc the
national banks any better off today
than they were on Saturday?
Under the national banking act
bank might have it's portfolio full OF
the best notes known to the CONNER
cent, and yet be obliged to close it's
doors to the great harm OF the bust
ness community Under the national
banking act a bank might have
large sum of cash in it's vaults when
panic impeded and yet be forbidden,
under the law to make such rational
use of that cash as alone could avert
panic. Under the national banking
act a bank in pressing need OF cash
might 20 Gown to ruin with plenty OF
idle money lying in the vaults of 9TH !
er banks in the region and yet those
other banks be helpless to come to Its
rescue. Under the national banking
act the country, in a time of overcon-a,
fidence on the part of investors,
might go gayly on its way, preparing
for the inevitable period OF sudden
alarm and violent contraction and
yet there be no effective way in which
the sober Judgment OF farseeing men
in the financial centers could inter- I,
vene to prevent.
Under the new law the solvent
bank will not go to ruin. When the
bankers cash gets low he can use
sumo of his good notes for "redis-
l
caie-at the federal reserve bank.
Under the old law the banker long
on good notes and short on cash had
u oWhere to turn. Today he will turn
to the federal reserve bank.
There will be no more failures OF
solvent banks when neighbOr banks
have plenty OF money but cannot use
it to save the threatened institution
because of the reserve requirements.
Under the old law each bank kept it's
own little reserve. Under the new
law the federal reserve bank COM
Dines many small reserves into big
one. 1t is this which makes it pos
s;ble for the banker short of cash to
,cGisro cunt his good notes.
The new law gives the power 10 the
federal reserve bank to fix the dis I
count rate-lhat is TO say how lDuch
interest shall lie charged for money
or ordinary commercial operations.
This is simply the power TO raise or
over the gates in the financial dam.
Here is a lake which must be kept
1t given level in order to supply
water 10 a great city! there is
lam at the outlet. In time OF ,an
lie Jam is lowered ny IIe opening VI
is gates and the water pouTs out
RELY. In time of drouth the gales
ire closed and the water conserved. !
The supply of money-or rather cred
t founded on cash-which does the
business of the St. Louis federal re- !
serve. district may be compared to
hat lake. The dam is the rate OF
interest. So the new system gives !.
he regional bank, representing the
rational banks of wide district, the $
,ower to make money flow freely in
imcs when money is plentiful by
means of low interest rate, and {
hen to restrict its use in times of
carcity by means of high interest
ate and SO equalize demand with t
supply ana prevent sudden alarms 6
With all their sinister possibilities-|I
It. Louis Republic. IL
.----I------------ II
TO-DAY'S DELlVERANCE. lie
Today the people of the United