The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1920-02-23
Federal Reserve Board Would
Control Credit System.
Report Warns Against Too
Rapid Deflations Now.
APPEAL MADE TO CONGRESS
Amendment Asked to Allow
New Interest Rates.
Would Enable Banks to Check
Speculation by Borrowers.

Washington. Feb. 23.-Determlna-
ton of the federal reserve to exert the
full power of the reserve banking sys-
tenn in regulating and controlling the
credit situation a course designed to
aid commerce and industry in restor-
ing pre-war equilibrium. was disclosed
in the boards annual report, made
public today. With this as its an
nounced 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 rectify the condition
which confronts the country. This
power necessarily followed the author
ity for and employment of an elastic
system of reserve credit and note
issue, 1t was added.
Recommendations also were made
to congress for amendment of the re-
serve act which would permit reserve
banks, with approval of the federal
reserve board, to establish normal
maximum lines of credit accommoda-
ton for member hanks. An ascend
ing scale of rates would be provided
in event money was borrowed above
believed. would induce banks to hold
their own large borrowers in check
and thus work to the end that credit
expansion on a large scale would be
stopped.
Warns Against Short Cuts.
Warning was given that the coun-
try must guard against too rapid de-
flaticn. While the board was in en-
tire sympathy with measures to over
come this event, it pointed out that
remedies employed to correct defla-
ton might create conditions worse
than deflation itself.
''Deflation merely for the sake of
4 fIa4 nj Crd dU rot n
maI-deflation merely for the sake of
restoring security values and COM
modify prices to their pre-war levels
without regard for otfser consequences.
would be an insensate proceeding in
the existing posture of world affairs"
the report said.
In explanation of its increase in dis
count rates the board said that this
had been the traditional method of
credit control, its use however, pre-
supposes normal conditions and these.
it was pointed out, do not exist at this
time. While high reserve bank rate
was shown to act as a restraining in
fluence upon borrowings, it may oper-
ate as well to attract supplies of credit
from other centers. 1t Is this condi-
ton, among others that was said by
the board to make imperative the use
of its power in controlling credit and
starting deflations.
Needs Cooperation.
In setting forces to work to check
expansion. the board declared much
depended upon cooperation of bust
ness and the community generally.
There is, however no need for dras-
tic or precipitate acton" the report
continued. There need be no appre-
hension as to our ability to affect the
transition from war time to peace
time conditions if reasonable safe
guards against the abuse of the credit
are respected. Our economic and fl
nancial position is, at the bottom, safe
and sound. Extremes must be avoid
ed, the processes of adjusting the vol
ume of credit to a normal basis should
be effected in an orderly manner ana
its rapidity must be governed entirely
by conditions and circumstances as
they develop. Much will depend upon
the cooperation of business. Without
such cooperation from the general
community, progress can be neither
rapid nor substantial.
The specific of greater production
was urged again as one of the meth
IDS by which the proper balance
might be materially aided. Bu- the
bo3rd directed attention to dangers
which lie in the path of great pro-
duction unless that production is i'm
mediately followed by distribution and
az oidance of wasteful consumption 1t
empha sized that boarding must not
be practiced or the stimulant d pro-
duction will avail nothing.
These are the fundamental eco
nomic processes upon which the
proper functioning of the federal re-
serve banks must depend" the report
said. THE federal reserve system
can do much to assist these processes.
but it cannot of itself alone compel
them. Efficacious action along these
lines involves the intelligent and earn
est cooperation of business and the
community generally"