The Pensacola journal. (Pensacola, Fla.) 1898-1985, 1920-04-12
DEFLATION PLAN.
is GIVEN BANKS.
Excess Interest Will BE Charged
on Borrowings Above a
Nominal Safe Margin.
BY GEORGE H. MANNING

Washington, April ti-As a means OF
aiding the federal reserve board to re-
duce tue present enorrnsus initiation in
the currency, generally believed by
experts to be the cause of high prices.
congress has passed an amend1nent to
the federal reserve act giving the board
power, in its discretion,8to charge ex-
cess interest on borrowings of banks
over what it may consider safe mar
gin.
1t is believed that through the exer-
else of this authority the federal re-
serve board can reduce The money in
circulation curtaiI speculative borrGw-
ing. and bring about redemption of a
large amount of paper in order to re-
duee present high prices and guard
against a financial panic.
This legislation was recommended by
the federal reserve board. 1t was
passed by the house last week. After
failing in half a dozen previous attempts
to have the senate pass the amendment
Senator Mclean of Connecticut, chair
man of the senate banking and cur
rency committee, called it up in the
senate again yesterday and succeeded in
obtaining its passage.
The board has ample power TO in
flate the currency as was shown dur
ing the war when it took care of S26,-
600 100000 of loans without disrupting
the co,mtry's finances. But while there
are other provisions in the federal re-
serve act calculated to deflate the cur
rency the board asked for this author
itv in the belief that raising the in
terest rates would be the surest meth
cd. under present circumstances, TO
reduce the borrowings where the dam
ger mark has been reached
One of the principal claims for the
federal reserve act at the time of its
massage was that it permitted of an
elastic currency. Its power of expan-
sion was we'll tested during the war :;
now its ability to contract is to be
tested and watched with great interest
Senator Gronna, of North Dakota
objected to passage of the bill on the
ground that it would give too much
power to the federal reserve board.
Gronna said that while it was claimed
this legislation was to raise interest
rates and reduce speculation that 1t
really worked a hardship upon the pro-
ducerS.
..The argument is made that this will
only affect the large concerns and
those who are asking for larger credits
than they are entitled to, but that does
not always follow" said Senator
Gronna. when the order went out a
short while ago that banks must eXer-
else care and not extend credit to the
farmer what effect did it have? You
might as we'll say to the farmer: You
must sell your wheat, or your cotton
or live stock as to say to him: on
the first of the month, when your OBJ
legation becomes due, you must pay us,
because we cannot extend further cred
it, That is what happened. and | am
afraid it will happen again in the fu-
ture."
senator Smith of South Carolina said
il seemed TO be a doubtful experiment
after the federal reserve act had with
stood the greatest financial strain the
world has ever produced and had fl
nanced the world war without disaster.
to begin an artificial defiation of our
currency
The amendment provides that when
the banks have reached certain per-
centage OF their capital and surplus. the
reserve bank may then, by means of a
gradually increasing interest rate, re-
strict their facilities The primary
purpose is to restrict speculative bor-
rowing