The evening herald. [volume] (Albuquerque, New Mexico) 1914-1922, 1920-06-03
PANLC-PROOF NATION.

0ONFTDENCE that the currency and banking system Of the
financial Iesdership' Is expressed BY the National Bank Of
Commerce Of New York, in an article in The june H, ns@ aTs. Sd ni
Business Cycle hearing the official authorization Of the bank $ Of
fieers, the view is expressed that the federal reserve system has made
country win not see again such demorsllEa,iCn and chaos IN the
money market as were witnessed in 1898 and 1907.
sNo currency and banking system can avoid the recurrence Of
crises IN thezense Of liquidation periods, or periods OF read,sstmsnt
proof the bank states,
longed are wholesome rather than harmful, the article says II ex-
movement in business Il diffcrcntistes. however. between crises and
panics, defining a crisis IS IAN affair Of industry generally and a
bank policy can and does prevent crises from degenerating into panies
CAS- our understanding Of crises has increased the artiee con
Of business cycle and to recognise that the crisis is merely q phase
Of the general ryshm y movement .ss m l ouH.nsssh : e. ssi aO. ao";D .ga &c
ou. There is good reason for believing, too, tina, with better index
period Of prosperity can be heightened, that the crisis can be made
less severe and that the period of depression can be shortened. II we
can minimik the extravaganza and mistakes OF the prosperity period
we can make the reaction from il less severe. This relates to the
under any system imaginable. Natural Observation-Disclosures fires,
tidal waves crop failures and the iike-strikins at great and rich
rsnters Of population, may bring unexpected business aud financial
shocks But the normal crisis which brings every prosperity period
to a close can ultimately be reduced to a relatively painless process
Crises come when active business men find that their creditors,
whether hanks or investors n other business men begin TO insist upon
a eon'rreion of credit and a liquidation Of debts A crisis means the
END Of beem period, the inauguration OF a period 81 SLOW business
and depression, accompanied by a settling up OF debts and a read
Periods OF reaction and liquidation relieve REIMBURSEMENT ana
strain. They prevent unsound policies from being carried too TAR
They give time for the maturing Of new plans and for the careful
Introduction Of new processes They check wastes and restore ef
ncieney. They anay financial fevers. They need mitigation and
eontrol-but progressively we are learning TO mitigate and to control
them.
when the banking and currency system is sound and elastic it is
almost always possible 10 prevent a crisis from degeneratng INTO
a panic. II is no part of the duty Of the banks in a crtis period TO
force. by artificial methods a continuance Of waning prosperity
Banks viii rather seek 10 persuade their strongest customers to eus'
tail borrowings in the interests Of the general situation, and may
even seek 70 persuade their strongest customers 70 make loans to
help relieve the situation. But banks viii lend freely TO enable sol
vent firms to meet their quick liabilities. II is their business to pro
tct solvent firms. but not TO protect insolvent firms. ~ ther BUS
mess 10 assist solvent firms 10 mobilize slow assets, but II IS not
their business to validate bad assets Of insolvent firms
The recent propose. for stabiizing the dollar by Withdrawing
gold coins from circulation and substituting for them gold certLh-
Gates redeemable in a varying amount Of gold has many defects, the
article says. II points out thst had such a method been IN operation
in 1888 and in 1907 il would have lead TO foreign drains on our gold
"The most important proposal that has yet been made Tor the
mitigation of the extremes of the business cycle, the bank says
is that the various grades Of government. federal, state and muner
pal. together with large corporations like the railroads, should ndopt
a buying policy designed 10 throw as many OF their purchases a.
possible into the period Of depression and TO withdraw from the mar.
Li IN rnnsidnrnhln nnsnra II The heipht Of he nerind Of prosneritY.'