The Wisconsin tobacco reporter. (Edgerton, Wis.) 1877-1950, 1920-02-27
RESERVE BOARD {
ANNUAL REPORT
Designs Course to Aid Commerce
and Industry.
TO FIX CREDIT SITUATION
Will Exert Its Full Power to Get Ma
tion's Business Back to Prewar
Basis-Asks Congress for an
Amendment.

Washington, Feb. 24.-Determina-
ton Of the federal reserve board to ex-
ert the full power Of the reserve bank
ing system in regulating and control
ling the credit situation--a course de-
signed to aid commerce and industry
IN restoring prewar equilibrium-waS
disclosed in the boards annual report.
made public here.
With this as its announced peace
time policy the board was prepared to
"test the ability of the system to
check expansion and to induce healthy
liquidation" The board explained it
was aware of the implied power to rec
tify the condition which cOnfr0nts the
country. This powed necessarily fol-
lowed the authority for and employ
ment of an elastic system for reserve.
credit and note issue, Ii was added.
Recommendations also were made to
congress for amendment of the reserve
act which would permit reserve banks,
with approval of the federal reserve
mum lines of credit accommodation for
member banks. An ascending scale of
rates would he provided in event
money was 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 large scale would be stopped.
Warning was given that the country
must guard against too rapid deflatiOn.
While the board was in entire SYM
pathy with measures to overcome this
evil, 1t pointed out that remedies en-
plOyed TO correct imitation might Gre
ate conditions worse than imitation it.
self.
Insensate Proceeding.
'DefiatiOn merely for the sake of de-
hatiOn and speedy return to normal
--defatiOn merely for the sake of re-
storing security values and commodity
prices to their prewar levels without
regard to other consequences would
be an inSensate proceeding in the ex-
listing posture of world affairs the
report says
ut must never be forgotten that pro-
ductive industry is profoundly affected
by credit conditions. Modern business
is done on credit. One of it's life-giving
principles is credit. The ultimate test
of 81 credit system must be found in
what ii does to promote and increase
the production of goods. True in gen
eral, the truth of this observation de-
serves . be particularly emphasized in
the present deranged state of world in
dustry and trade when production is
the crying need OF the hour every.
where"
In explanation of it's increase in dis
had been the traditional method of
credit control. It's use, however, pre-
supposeS normal conditions, and these,
1t was pointed out, do not all exist at
this time. While high reserve hank
rate was shown to act as restraining
crate as well to attract supplies of
credit from other centers. 1t is this
condition, among others, that was said
by the board to make imperative the
use of its power in controlling credit
and starting deflation.
In setting forces to work to check ex-
pansiOn, the board declared much de-
pended upon cooperation of business
and the community generally. There
is, however, no need for drastic or
precipitate action" the report cOntin-
ued There need be no apprehension
as to our ability to affect the transit
ton from war time to peacetime con-
tlitiOns if reasonable safeguards
against the abuse Of credit are respect
ed. Our econOm and financial posi-
lion is, at the bottom, safe and sound
Demand Keeps Prices Up.
The granting of extensive credits to
foreign trade and the resultant keen
competition In our own markets with
the foreign buyer was charged by the
board as being zone Of the potent
causes of high prices" 1t was shown
that the demand for commodities from
domestic, as we'll as from foreign
sources was so far In excess of the
supply that the increased cost of cred
It can be and is absorbed In the price
Speculation, therefore. has not been eff
fectively checked by advances in inter-
est rates because of the anticipated
and usually realized large profits ac-
rording to the analysis.