Daily Kennebec journal., 1918-01-23
COUNTERPART
Initiation Is Message of
Federal Reserve Board
Expansion Of Banking Credit Should
Be Prevented from Running An I'm
controlled course-Goods and Saw
ings Must Be Freed for Use Of Gov
ernment

Washington. Jan. 22.-Effect of credit
expansion on the general rise Of prices
and the part the American people could
play in counter-acting imitation by
wartime economics. were emphasized
today by the Federal Reserve Board in
its annual report to Congress.
The board says that even though
credit expansion is not entirely re-
sponsible for increased prices, lit re-
CARDS it as one of its most important
duties to prevent, as far as practicable,
expansion OF banking credit from run
ling an uncontrolled course.
Goods and credit" says the report,
! must be saved TO the uttermost Of our
ability in oIder to check the upward
movement of prices and in order to
free for the use of the government the
goods and savings required for the win
ming of the war
The present condition Of a greatly
expanded currency will he improved.
the board believes. 'as the public per
forms its duty of absorbing the govern
ment loans out q savings
Before the third Liberty Loan. the
report adds. Federal Reserve banks
must reduce their investments 10
strengthen reserves and avoid the eX-
pansion that has accompanied the last
two Liberty Loans. The board does not
say specifically how it proposes to do
this.
Among the many radical influences
of the war on the money system. the
board explained that one of the most
pronounced had been the effort of GER
tain interests to have the Federal Re-
serve system absorb 90 day notes or
other short term paper accepted, with
the privilege of repeated renewals. The
board had persistentiy opposed any
such effort to destroy liquidity of the
banks assets. on which the system was
based. the report said. but il admitted
that the difficulties of private and cor
porate financing We're so great as to
justify action by Congress.
The most serious problem of cOrpor-
ate financing has been removed by
government opera ton of railroads. says
The report. but the situation is still Sc
rous.
The board therefore" continues the
report respectfully suggests early
! consideration by Congress of the prob
I'm of corporate financing, in the be
lief that no satisfactory solution woui(
, he found that does not involve some de
gree of governmental intervention. The
board is of the opinion that some plaf
for government intervention or aid be
worked out which would meet the re-
quirements of the situation satisfac-
! torily."
Referring to the enormous Strall
during the last year on finances by the
governments war loans, and the aiC
given by the federal reserve system
the report says:
The federal reserve note will more
speedily attain the position originally
intended for it. From being an occa-
sional emergency currency used to sup
plement deficiencies in the supply o1
other existing forms of currency, it Is
becoming the most important conStll-
uent of our circulating medium. re-
spending promptly and naturally to
currency requirements from whatever
source preceding. thus giving to oul
whole currency Il kind and degree OF
elasticity it has never before possess
ed"
Earnings of the l. federal reserve
banks in 1917 were reported as $1o,S0o
900 gross and $11. 900 ret. with de-
clared dividends of about s6,S00 600.
The boards expenses have been little
less than $250,O00 and the cost Of ad-
ministering the gold settlement fund
has been only $500 or l 1-3 cents per
$1,000.
The entrance Of state banks and
trust companies during the year
strengthened the system greatly, says
the report Although the gold reserves
increased enormously in quantity, the
proportion of reserves 70 deposits fell
in proportion to the expansion of cred
1t.
No radical amendments Of the re-
serve act are suggested. although a
few minor changes are recommended.
They include: election of directors of
reserve banks by simpler method,
provision for printing bigger denonli-
nations of Federal Reserve notes, pro-
vision for incorporation Of foreign
trade banks under Federal Reserve
charter, and permission for national
banks to establish branches In their
cities.
PATRIOTIC