New-York tribune., 1920-02-24
Reserve Board
States Plan to
Govern Credits
Ability of System to Check
Expansion and to Induce
Healthy Liquidation Is
To Be Tested, SaysReport
Wants Bank Limit Fixed
Nation Is Warned That Too
Rapid Defiation Might
Cause More Serious Evil

wAsHINGTON. Feb. 23.-Determi-
,s.ion Of the Federal Reserve Board to
.r,rt the full power of the reserve
nnking system in regulating and con-
,rOlling the credit situation--a course
assigned to aid commerce and industry
4 restoring pre-war equilibrium
~ss disclosed in the boards annual re-
,cr.. made public to-day.
With this as its announced peace
.me policy. the board was prepared to
s.est the ability of the system to check
,ypsnson and to induce healthy liqui-
Sation" The board explained it was
svsre Of the implied power to rectify
,ss condition which confronts the
,ountry. This power necessarily fol
loSed the authority for and employ
rent of an elastic system of reserve
credit and note issue, it was added.
Limit on Credit Advocated
Recommendations also were made to
Congress for amendment of the reserve
set which would permit reserve banks,
With approval of the Federal Reserve
Board to establish normal maximum
lines Of credit accommodation for men,
her banks An ascending scale of
rates would be provided in event money
should be borrowed above the maxi
mum line. This, the board believed.
would induce banks to hold their own
large borrowers in check and thus work
to the end that credit expansion on q
large scale would be stopped.
Warning was given that the country
must guard against too rapid dehation.
While the board was in entire SYM
uathy with measures to overcome this
evil it suggested that remedies en-
pIoyed to correct imitation might create
conditions worse than imitation itself.
"Defation merely for the sake of
deAaton and a speedy return to nor
msl-detiation merely for the sake of
restoring security values and commod-
ity prices to their pre-war levels, with
out regard for other consequences
would be an insensate proceeding in
tie existing posture Of world affairs"
tie report said.
Credit Essential to Industry
at must never be forgotten that
productive industry is profoundly
affected BY credit conditions. Modern
business is done on credit. One of is (
The ultimate test of vTedit sys-
ten must be found in what it does
70 promote and increase the produc-
ton of goods. True in general, the /
truth of this observation deserves TO !
he particularly emphasized in the pres
tat deranged state OF world industry
and trade when production is the cry
ing need of the hour everywhere"
A bill carrying out the boards rec
czmendations for limitation of bank |
Borrowings was introduced by Repre-
sentative Phelan, Democrat, of Massa-
eausetts. former chairman of the House
Banking Committee. after presentation /
Of the report TO Congress- The bill (
would authorize the Federal Reserve /
Beard to review Reserve bank loans /
and 10 increase interest rates on loans .
duciAg borrowings and increasing
credit distribution.
In explanation Of its increase in dis
nunt rates the board said this had I
heen the traditional method of credit
poses normal conditions and these, it
Tine. While . nigh Reserve bank rate
auence upon borrowings, it may oper-
ate as well to attract supplies OF credi,
ron other centers. 1t is this condi- /
Inc board to make imperative the use
starting deAation.
Drastic Action Unnecessary
In setting forces to work 70 check
expansion the board declared much de-
pended upon cooperation Of business
end the community generally. There
s' however, no need for drastic or
rrecipitate action" the report con-
tnued There need be no apprehen-
sion as to our ability to effect the
uanstlon from wartime 10 peace time
conditions If reasonable safeguards
against the abuse Of credit are re-
speeted. Our economic and financial
POSITION is, at the bottom, safe and
sound Extremes must be avoided, the
processes Of adjusting the volume of
credit to a normal basis should be
eaected IN an orderly manner, and its
fapidlty must be governed entirely by
eohaltions and circumstances as they
ceveop. Much will depend upon the
cooperation of business. Without such
cooperation from the general com
munlty. progress can be neither rapid
AOr substantial.'
A plea was made in this connection
'or complete absorption by investors
O. outstanding portions OF war Sc
ttlfltles issues. AS these pass into the
names OF permanent holders and the
.'Su0nal debt is reduced by the opera
non Of the sinking fund, there grad