Evening star., 1920-02-28
FINANCIAL PROBLEMS AHEAD
FOR FEDERAL RESERVE BOARD
Annual Report Summarizes Complex Con-
ditions Growing Out of War-E#ort
to Avoid Business Disturbance.

maintained for limited time The
Treasury. however. on December 2s,
announced that it would offer on
interest at the rate OF Az per cent
payable on December Is. 1920. and
the board thereupon took. steps to
advance the rate on notes secured
py treasury certificates to AZ per
cent
Redfseountfne Feature. &C.
Though the law provides that
FEDERAL reserve bank upon the aferma-
I've vote OF five members. Of the
federai Reserve Board must redis.
count the discounted paper Of ane ther
iederaI reserve bank at rates of in
terest nxed by. the board. recourse to
that feature Of the law has not been
Iouna necessary in equalfxing the
reserve position of the several re-
serve banks. There has been such a
spontaneous spirit of cooperation"
says the report. that all suggestions
py, the board have been carried out
voluntarily BY means of leased
wire system of communication trans
actions have been consumrnated al
most instantly. and all payments have
oeen made on the day the transactions
were completed by direct transfers
through the gold settlement fund
"~,thout INVOLVING any physical trans
No more critical period has arisen
in the history of the federal rnservn
system than that Immediately fol.
lowing the cessation OF hostilities
When the continued strain of war
nnance had to be met without the
alu OF war restrictions, when the en-
bargo on gold exports had been lifted
and control of foreign exchange vas
only nominal. But having met the
requirements Of the war without on
croachlng upon its legal reserves, the
BOARD feels that the condition OF the
treasury is now such that discount
policfes more in keeping. with pefre
time conditions may be inaururated
win a minimum disturbance OF busi-
ness and industry. On this point the
annual report of the board says:
Volume OF Bonds Important Factor.
ihe large volume OF government
ponds looking for permanent owner.
snip during the year G919) was how
ever an important factor in the sit
uatlon and retarded the adoption of
normal discount policy. Until the
aosorption of liberty bonds is fairly
complete the federal reserve system
vii! be in transition stage and nor.
MAJ banking policies cannot be made
entirely effective. The absorption bv
INVESTORS of government bonds. as
iindicated by the figures cited earlier
hSpoi l, IL d STaC11yfnR stem in
this direction. 1t should. however. be
repeated that the time has come for
the system. in the interest of com.
merce and business, to exercise its
power to regulate and control tho
credit situation. 'e
Too rapid or too drastic dehation
would defeat the very purpose Of a
well regulated credit system by the
needless unsettlement Of mind il
would produce and the disas astrous re-
action that such unsettlement would
nave upon productive industry.
Radical and drastic defiation ia
not. therefore. in contemplation nor
Is a policy of further expansion.
Either course would in the end lead
only to disaster and must NOT he
permitted to develop. The credit sit
uation In the United States is at hot
tom sound and safe. Our economic
and financial position is essentiaIly
strong. There need be no occa sion for
apprehension as to our ability to ef-
rect the transition from wartime to
pesce-time conditions if reasonablh
safeguards against the abuse of cred
1t are respected. There is. however
no need for precipitate action or ex.
treme measures. Extremes must he
avoided, the Eprocess of adjusting the
volume OF credit to a normal basis
shouid be effected in an orderly man
ner and its rapidity must be gov
erned by conditions and circnn.
stances as they develop. :. -"