Evening star. [volume] (Washington, D.C.) 1854-1972, 1920-05-15
SCORE
RAISE IN INTEREST
BY RESERVE BANKS
Advance in Rates to Member
Banks Regarded Injury to
Legitimate Business.

| Legitimate Business.
The advance In interest rates
charged by the federal reserve banks
upon discounts for member banks is
resulting in still further depressing
the market value OF liberty and VIC
tory bonds and in curtailing the
amount of loans desired for legitf-
mate business enterprises. while not
interfering with speculation. in the
opinion OF many Of the senator's
! Senator Owen of Oklahoma has been
course adopted by the Federal Reserve
Board in allowing these increased
rates. He has been Joined by Others
| Including Senator's Simmons of North
Carolina. John Walter Smith Of Mary
land and Ellison ID. Smith Of South
Carolina. The senator's admit that the
Increase was undertaken with a good
purpose in view-that of debating
credit and thereby reducing specula-
| tive accounts. But they insist that
while the speculative accounts are
not suffering as result of this move
| 1t is becoming increasingly difficult
for legitimate business enterprises to
obtain the loans they require. Sem
ator Simmons has expressed the fear
that the farmers Of the country will
be hard hit IL the higher rate Of in
terest on discounts at the federal re-
serve banks is maintained.
senator Owen Files Protest.
Senator owen has engaged in cor
respondence. with Gov. Harding of
the Federal Reserve Board. protest.
ing against the higher rate Of inter
est and urging that 1t be lowered
as means of helping restore liberty
bonds to par. In his last letter to
Gov. Harding. Senator Owen insisted
that if the high rates of interest were
permitted to continue. the inevitable
consequence will be that the govern
ment bonds would go still lower than
they are now. He said:
THE violent fiuctuating high inter-
est rates on the New York Stock Ex-
change which go from s to 30 per
cent, advertised throughout the coun-
try in every important paper in the
land. together with the high interest
rates of the federal reserve banks tc
member banks at and per cent
and the consequent higher commercial.
rates daily advertised in the public
press of 8. and 10 per cent. not to
mention commissions on the side, and
discounts. are jointly impairing con-
fidence and creating an atmosphere
of suspicion. distrust and widespread
talk of pending Industrial depression
and industrial panic.
Will street View Criticized.
1.-THE claim of the New York Stock
Exchange that these high and violent
ly fiuctuating interest rates on call
loans are necessary for the purpose
of preventing speculation is indie
feasible because it does not prevent
speculation. The professional opera
tor Immediately speculates in a bear
market which inevitably must follow
these artificial nigh interest rates.
The Spectator can afford to pay high
interest rates. but legitimate business
cannot. Moreover, the employment
OF bank credits for speculation can
be prevented by harmless methods.
First. by the banks refusing new
loans for speculation purposes. Sec
ond, by requiring gradual liquidation
of old loans employed in speculation.
Third by raising the margin on spec
ulatfve loans.
"The remedies T. suggest are harm
less to the general public. The rem
edy employed of high interest rates
on call loans running up to 80 per
cent ia destructive of public conf
dence. and threatens Industrial de-
pression.-
when the reserve board raises the
rate to s and per cent it has the ef-
feet not Of stopping the Spectator,
but of stopping legitimate business
and putting the brakes on manufac-
ture, commerce. agriculture, ON pro-
duction and distribution.
Discusses Credit DenatIon.
II understand the reserve board
desires to debate credit by raising the
rates of interest. Assuredly raising
the rates of interest will debate cred
its. even the credits of the United
States, Of which 1 complain, but I am
anxious the reserve board shall only
debate those credits that require de-
nation and not debate credits Of the
government and of legitimate produc-
tive business which ought not to be
debated.
THE United States was compelled to
expand its credits and issued $26,00O,-
100000 of war bonds. The war result
ed in an increase of S2O.000,0O 900 Of
bank deposits, a total increase OF ex-
banded credits of s46.000.000. No
substantial part of these credits
should be debated at this time. The
the defation of credits employed in
speculative loans on investment Sc
curities, on real estate. and on COM
modities for boarding by profiteers.
1T seems to me that there is some
serious misconception existing in the
country with regard to what Is in
flafion. and what is not imitation. I am
certainly opposed to imitation. but I am
strongly in favor Of the extension Of
business. increasing production and I'M
proving distribution by extending credits
on 4 stable low interest rate.
Jastihes Expansion. :
THE expansion of crcdit for such
purposes is justified. but. of course.
the expansion of credit beyond the
available resources, even for the most
important of purposes. is not justified.
The Bank Of England, conducted by
-the-wfsest merchants in the world.
has not hesitated to extend credits
for productive purposes even when
the gold reserve was thereby seri-
ously diminished. AS you very we'll
know they went to a very low gold
denying credits to their business men
who were engaged in legitimate in
dustry. The London merchants had
31s per cent acceptance rates all DUR
ing the war, when the British gov
eminent paid per cent.
fngwell that the present depression
in liberty bonds is due to the owners
of liberty bonds spending the bonds
recklessly as spendthrifts. People
who bought liberty bonds do not de-
serve such a. classification. although,
of course, some individuals out of a
very. great number are spendthrifts.
But the spendthrift quickly parts with
his bonds to other people. The spend
thrift theory does not explain the
terrible depression.
IF money was cheap and credits
were available at low rates It is per-
fectly obvious that these bonds would
go to par. and just in degree that the
banks of the country raise the rates
to very high artificial figures, to that
degree the liberty bonds and victory
bonds will assuredly fall in market
value.
You advise me that the liberty
bonds .'cannOf he hrOnHht hack IN
par by artificial methods They can
be depressed by universal high rates
of interest artif1ciatly fixed by the
banks, and that IL precisely what has