The evening herald. (Klamath Falls, Or.) 1906-1942, 1920-12-28

hgoB maght develop through curtail-
cd production. There was likewise
an element OF renewed commodity
speculation evidenced by tho with
holding OF commodltios from markets
under the mistaken idea that the re-
ccsslon in buying would be temper
ary, and that the revival OF purchas-
es would bo mot by secondary price
advances.
These were the four great factors
which wrought n serious change In
tho quality OF our national credit re-
sources. The strlngency In credit
that arose was due not TO an abso-
Lutte shortage OF supply, but 10 the
fact that the efficiency Of the volume
In existence was reduced by It's Inn
paired liauIdity so that II cOult not
answer the demands made upon II.
Instead Of revolving oyer and over.
In normal cycles, large part OF our
credits were either non-llquid or
were revolving at very slow rate.
A normal commercial credit cycle
represents tho period In which the
borrower may reasonably expect, In
tho ordinary flow OF his partlular line
Of business, TO turn over his stock H.
nancod by loan and to be placedf
thereby IN funds from his sales and
collections TO llquIdate the credit at
maturity without renewal This
would release II for new cycle OF
productive activity.
Thus every normal credit cycle
represents work accomplished. just
ns each revolution OF mill wheel
means 30 much horsepower deliver
cd TO the machinery In the plant. The
more revolutions. the more power Is
delivered. Our cerdits, because OF re-
newals and other retarding causes.
were making too few revolutions to
accomplish their normal amount OF
work. Although the volume OF ere
dit was there. the mill wheels were
turning too slowly A given amount
of credit multiplied by n given rate
OF liquidation produces greater busi-
ness power by lower rate Of turn.
over. That Is. a million dollars OF
bank credit loaned and liquidated
six times in "A year TO finance six dif-
ferent commercial transactions per-
forms more work In serving public
needs than when the same million II
renewed TO hold n single volume OF
goods stationary. When conditions
arise In which the normal turnover
cannot be maintained the credits
must be Increased. That Is what
happened due TO the causes outlined.
II took an abnormal volume OF credit
to do the work demanded OF II. Had
credit remained thoroughly liquid II
would not have been necessary to
carry credit expansion TO the extent
Il was carried. All requirements could
have been met with a smaller amount.
Although Il would have been pos
sible to have expanded credit even
further. Il would have been unwise
to do so because OF Its impaired
liqudity. II became evident that a
adjustment OF our credit situation
and OF our business structure was
Even with our increased
gold base and the elastic qualities
given to credit and currency by the
federal reserve system. expansion
was carried TO an extent beyond
which II was not advisable to 30 un-
der existing and impending circum-
stances.
Further expansion would have
served to abet more speculation, to
high prices and to effect
The reaction would
have been correspondingly more yio-
lent. II would then have been no,
a case OF impaired ilquidity
the slowing down OF the
ability OF business to discharge Its
credits, but possibly the inability H.
naiiy TO iiquidate in full, dollar for
dollar-in other words, business
crisis.
Instead OF further expansion,
n became eyident that the