Iowa County democrat. [volume] (Mineral Point, Wis.) 1877-1938, 1920-02-26
RESERVE BOARD s
ANNUAL REPORT
Designs Course to Aid Commerce
and Industry.
70 FIX CREDIT SITUATION
Will Exert Its Full Power to Get Ma.
TONS Business Back to a Prewar
Basis-Asks Congress for an
Amendment.

Washington, Feb. 24.-Determina-
ton of the federal reserve board to eX-
ert the full power of the reserve bank
ing system in regulating and control
ing the credit Situation-a course de-
signed to aid commerce and industry
IN restoring prewar equilibrium-was
disclosed in the boards annual report,
made public here.
With this as it's announced peace
time policy the board was prepared to
test the ability Of the system to
check expansion and to induce healthy
liquidation" The board explained it
was aware of the implied power to rec
tlfy the condition which confronts the
country. This powed necessarily fol-
lowed the authority for and employ
ment Of an elastic system for re-
serve credit and note issue, it was
added.
Recommendations also were made to
congress for amendment Of the reserve
act which would permit reserve banks,
with approval of the federal reserve
board, to establish normal maxi
mum lines Of credit accommodation for
member banks. An ascending scale Of
| rates would be provided in event
| money was borrowed above the maxi
mum line. This, the board believed,
would induce banks to hold their own
large borrowers in check and thus
work to the end that credit expansion
on a large scale would be stopped.
Warning was given that the country
must guard against too rapid def1ation.
While the board was in entire SYM
pathy with measures to overcome this
evil, it pointed out that remedies en-
| plOyed to correct imitation might Gre
ate conditions worse than imitation it.
self.
Insensate Proceeding.
"Def1ation merely for the sake of de-
t1ation and a speedy return to normal
| -def1ation merely for the sake of re-
| storing security values and commodity
prices to their prewar levels without
regard to other consequences would
be an insensate proceeding in the ex-
listing posture of world affairs" the
report says.
"It must never be forgotten that pro-
ductive industry is profoundly affected
by credit conditions. Modern business
principles is credit. The ultimate test
of a credit system must be found in
what it does to promote and increase
the production of goods. True in gen.
eral, the truth of this observation de-
serves to be particularly emphasized in
the present deranged state of world in
| dustry and trade when production is
the crying need of the hour every
where"
In explanation of it's increase in dis
count rates the board said that this
had been the traditional method of
credit control. It's use, however, pre-
supposes normal conditions, and these,
it was pointed out, do not all exist at
this time While a high reserve bank
rate was shown to act as a restraining
influence upon borrowings, it may OPP
crate as we'll to attract supplies of
credit from other centers. It is this
condition, among others, that was said
by the board to make imperative the
use of it's power in controlling credit
and starting def1ation.
In setting forces to work to check ex-
pansion, the board declared much de-
pended upon cooperation of business
and the community generally. 'There
is. however, no need for drastic or
precipitate action" the report contin-
ued. "There need be no apprehension
as to our ability to affect the transit
ton from war time to 0eacetime con-
ditions if reasonable safeguards
against the abuse of credit are respect
ed Our econOm and financial posi-
ton is, at the bottom, safe and sound"
Demand Keeps Prices UP.
The granting of extensive credits to
foreign trade and the resultant keen
competition in our own markets with
the foreign buyer was charged by the
board as being zone of the potent
causes of high prices" 1t was shown
that the demand for commodities from
domestic, as we'll as from foreign
sources was so far in excess Of the
supply that the increased cost of cred
it can be and is absorbed in the price
Speculation, therefore, has not been eff
fectively checked by advances in inter-
est rates because of the anticipated
and usually realized large profits ac-
cOrdinp to the analySiS