New-York tribune., 1920-06-01
Deflation on Large
Scale Not Imminent.
Says Bank Review
Deplorable State of Railway
transportation Is Held
Responsible for Credit
Situation by National City

NhleNy because of the eplorable
state of railway transportation it
would be mistake to assume that the
country is on the eve Of immediate
defiatlon on large scale, says the
National City Bank in its June cir
cular The imposeibilitv of moving
freight from places where it is pro-
duced to points where it is needed, it
is pointed out, has put a heavy stra in
on bank credit. An instance cited is
the Northwest, where it is urgent that
grain be moved, and yet in that region
there are 13 per cent more coal cars
and 16 per cent fewer box cars than
are needed.
"As result says the City Bank,
1T has been necessary to extend pa
per which should run only ninety
days to eight and even ten months,
because the owners Of the grain can
not realize on it. In the same way the
tie-up of transportation has had dis
astrous effect upon our entire indus
trial and commercial life. Until this
great problem is solved the business
lite OF the country cannot continue to
Junction properly.
THE recent partial breakdown Of
our transportation system, causing in
some quarters a refusal to renew
credits, has resulted in realizing sales
Of merchandise. However, there is q
tendency to exaggerate their impor-
tance in the general business situa-
ton. There is no doubt that credit
here, as in all of the principal coun-
tries of the world, is inflated. But it
would be mistake to assume that we
q J ] q
on large scale
Need of Increased Production
"The great need Of the time is an
Increase of production, and in the long
run large output of necessary goods
Will be the chief instrument in reduc-
ing the relative amount Of credit used
IN the conduct of business. Immediate
and drastic steps should be taken TO
cure our transportation evils. but
when it comes to what Is called the
ratloning Of credit il is important that
every case be considered on it's indi-
vidual merits, and that the greatest
discrimination should be exercised ir
order to facilitate the production of
necessary goods"
in a further discussion OF the oues-
ton Of imitation and defaton the City
Bank dds:
"The recent action Of the Federal
Reserve Board in declaring that
credits must be reduced, and the rails.
ing of the discount rate at all the
Ierge reserve centers. has impressed
not only the bankers throughout the
country but all borrowers with the in
portance Of using credit as conserv-
atlveiy as circumstances viii permit.
War Financing Responsible
Imitation of credit in this country
is direct result of the financing Of
the war and Of the conditions brought
about by the conflict The same situa-
ton which we find here is also to be
found, in many cases in more in
tense degree, in the other principal
countries of the world. The stoppage
Of normal gold shipments in interna-
tlonal commerce, the borrowings by
governments on an unprecedented d
scale, the great rise in the cost of all
kinds of materials, above all the tre-
mendous exhaustion of economic re-
sources caused by the waste Of war it.
self and the nproductiveness of ill
lions of men during several years ne
cessltated the granting of credits for
governmental use and for private
business on a scale which had never
before been known. As result there
is worldwide imitation Of credit
prices have lost their old relation TO
the gold standard, and the whole
world is facing the necessity Of bring
ing about defaton as soon as condi-
tions will permit. There is no doubt
about the Importance of detlation, but
an abrupt contraction Of credit, par
tjcularly in the ordinary requi rements
of business. would be harmful rathe Z
than beneficial It Is important that
imitation, in so far as it springs from
excessive speculation IN markets on
commodities be restricted. However,
it ia not feasible to reduce rapidly the
amount of credit which industrial and
concerns are in the habit
Of using at a time when raw mate
rails, wages and the costs of all in
dustrial and commercial operations are
excessive.
"The problem can only be solved by
the application of good judgment to
the requirements of individual cases,
In the present situation OF credit gen
eralizatien is difficult and unwlse
The natural counte rpoIse to an over
extended credit situation is vastly
augmented production Of necessaries
and that is the great need Of the time
Wages cannot be increased. the public
cannot 20 on consuming more than
ever, the banks cannot continually ex-
pand their loans, new capital cannot
be found for the creation of fresh en-
terprises in the face Of diminshed d
output"