Every evening, Wilmington daily commercial., 1920-02-23
SEES PERIL TO NATION
IN RAPID DEfLAT|ON.
Reserve Board Says Banks Re-
sources Will be Used to Aid
Commerce and Trade.
~ Associated prsss % Eycry Eyep,ns


wnr equilibrium disclosed in the
board. annual report, made public today
With this As its announced peace
time policy, the board was prepared to
test the ability of the system tn check
expansion and to induce healthy liauida.
| ton The board explained il was aware
| Of the implied power to rectify tho CON
dition which confronts the country. This
power necessarily followed the authority
for and employment OF an elastic system
Of reserve credit and note issue, It was
added.
Favor nEsEnvE ACT AMENDMENT.
Recommendations also we're made "a
| Congress for amendment Of the reserve
act which would permit reserve banks
with approval OF the Federal Reserve
| Board, to establish normal maximum
lines of credit accommodation for member
banks An ascending scale of rates would
be provided II money WAS borrowed above
the maximum line. This, the board be-
lleve1, 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.
DANGER or TOO RAPID pErLATTor.
Warning was given that the country
must guard against too rapid de1ation.
While the board was in entire sympathy
with measures TO overcome this evil, 1t
pointed out that remedies employed TO
correct imitation might create conditions
worse than initiation itself.
"Denotion merely for the cake OF de-
fation and speedy return 10 normal ~
deflation merely for the sake Of restoring
security values and commodity prices to
their pre-war levels, without regard TO
proceeding IN the existing posture of
world affairs, the report said
1T must never be forgotten that pro-
ductive industry is profoundly affected
by credit conditions. Modern business is
done on credit. One Of its life-giving prin-
ciples Is credit. The ultimate test
OF credit system must be found IN what
il does TO promote and increase the pro-
duetion Of goods. True IN general, the
truth of this observation deserves to be
particularly emphasized IN the present
derangod state Of world industry and trade
when production IL the crying need Of the
hour everywhere"
DISCOUNT RATES AND CREDIT.
In explanation OF it's increase in dis
count rates, the board said this had been
the traditional method of credit control
Its use, however, pre-supposcs normal cor
dftions and these. il was pointed out, do
not all exist at this time. While a high
reserve bank rate was shown TO art rs q
restraining influence upon borrowings, IL
may operate as well To attract supplies Of
credit from other centers. II is this con-
dltion, among others, that was said by
the board to make imperative the use Of
its power IN controlling credit and starting
deffation.
In setting forces to work TO check ex-
pansion, the board declared much de-
pended on cooperation Of business and
the community generally. "Thcre is,
however, no need for drastic. or precipi-
tate action, the report continued. There
need be no apprehension as To our ability
To effect the transition Of war times To
peace times Irresponsible safeguard against
the abuse OF credit are respected Our
economic ard financial position is, at the
bottom, safe and sound. Extremes must
be avoided, the process Of adjusting the
volume Of credit to 4 normal basis should
be effected IN an orderly manner. and
its rapldity must be governed entirely by
conditions and circumstances as they
develop. Much viii depend upon the CO.
operation of business. Without such CO..
operation ON the general community,
stantsal.
WAR SECURITIES ISSUES
A nlea was made IN this connection for
complete absorption by investors of out
standing portions ot war securities issues
As these pass into the hands Of permanent
holders and the national debt is reduced
by the operation of the sinking fund.
there gradually viii come proper balance
between the volume OF credit and the
volume Of concrete things, the board ex-
planned
The specific of greater production was
urged again as one Of the methods hy
which the proper balance might be
materially aided. But the board directed
attention TO dangers which lie in the path
of great production unless that production
Is immediately followed by distribution
and avoidance of wasteful consumption.
1t emphasized that boarding must not
be practiced or the stimulant Of pro-
duction viii avail nothing.
COOPERATION OF BUSINESS NECESSARY
These are the fundamental economic
processes upon which the proper function
ing OF the Federal Reserve Banks must
depend" the report said. s'rhe Federal
Reserve system can do much to assist
these processes, but il cannot of itself
alone compel them. Efhcacious action
along these lines involves the intelligent
and earnest cooperation of business and
the community generally.
"Whilc the Federal Reserve Board viii
always be mindful OF the Interdependence
OF cr3edlt industry and the influence
on prices by The general volume
OF credit, the board nevertheless cannot
assume to be an arbiter of prices It's
primary duty, AS the guardian of the
nations ultimate banking reserve, is 70
see that the banks under its supervision
effectively and properly as re-
serve banks"
A CAUSE or HIGH PRIcEs.
The granting of extensive credits 30
foreign trade and the resultant keen COM
petition In our own markets with the
foreign buyer was charged by the board
AS being s'one of the potent causes of high
prices" 1t was shown that the demand
Of commodities from domestic as we'll as
foreign sources was SO far in excess of the
supply that the increased cost of credit
can be and is absorbed IN the price. Spec
ulation, therefore, has not been effectively
checked by advances IN interest rates
because of the anticipated usually
profits according to the
analysis.
The board took occasion TO resbate It's |
opposition to the financing Of exports |
which require long term credits through |
banking operations as distinguished from |
appeals to the securities markets. OF |
marica' 4 balapre af trade for ha assl.anjar (