Albuquerque morning journal. [volume] (Albuquerque, N.M.) 1903-1926, 1920-08-24
RAISING INTEREST RATE
BY RESERV BOARDHELD
HARMFUL TO COUNTR Y

war were, where they do not pay
interest on. deposits, from 3 to 4
per cent. as in Belgium, France and
England. In America, where they
do pay interest on deposits of from
to 3 per cent, the normal rate of
interest has been from 5 to 6 per
cent.
Under the unwise policy of the
reserve board commercial paper OF
the best quality is selling TO s and
3 per cent, and in realty many bus
mess men, whose credits are really
good, are paying from 10 to Is per
cent for money through various de-
vices such as commissions and dis
counts, etc. This raises the cost of
commodities necessarily and in
creases the cost of living.
The federal reserve act was
framed by the best opinion OF
America for the purpose of giving
stability to the credit system OF
America, and giving a reasonable
and stable rate of interest. The
power of the credit system in the
hands of the reserve banks is enor-
nous and is now being employed,
not for the purpose of stabilizing
credits, but for the astounding pur-
pose of debating credits, breaking
down confidence, and 1t is bringing
on an industrial depression that
may be extremely harmful unless
promptly checked.
Banks Can't Take Initiative.
THE banks cannot be relied upon
to take the initiative because they
are under the dominance of the re-
serve banks and the reserve board,
and they would put themselves in
jeopardy If they should dare to as
sail the policy of the reserve board.
The chambers of commerce are
differently situated. They are pc
culiarly the victims of this abusive
power, and they can create public
sentiment by making demand for
a change of this policy.
Il therefore believe 1t would be
wise to pass a resolution urging the
federal reserve board to restore the
interest rates which were in ex-
istence before the war. and certain
ly to lower the rates to what they
were during the war and to discon-
tinue the policy of a general defla-
ton of credits.
Banks extend a loan of $4,000
to a citizen. The bank takes prop
er security, puts the note for $lO,-
600 in the bills receivable account
as an asset, and then they deposit
it to the credit of the citizen in the
liability account. The bank de-
mands the payment. The citizen
sells his security or his commodity
for deposit in the bank, pays his
note and cancels the $4,000 of de-
posts. Thus the credit is retired.
The bank charges interest on the
note for payment for giving the
citizen bank credit in exchange for
private credit to the exent the
banks compel liquidation, then
compels the retirement of deposit.
This has taken place on a large
scale recently. Many banks show a
serious loss in deposits because of
this action of their own bank or of
other banks in debating credits.
The transaction is simple.
There is no sense whatever in
retiring credits which are employed
in production and distribution pro-
cesses. This is to check business
and to stop those processes. just to
the extent such a policy is carried
out.
Banks Are justified.
1.-THE banks are thoroughly justi-
fled in giving preference to those
engaged in production over those
engaged in mere speculation, but
there is no justification whatever
in denying the productive process
es the credit essential to carry on
the business of the country. To do
this necessarily brings on an IN
dustrial depression. If this Is being
done with a design of stopping the
business enterprises of the country
and making labor walk the streets
unemployed, as means of teach
ing labor a lesson" it may carry
mischievous consequences of still
more serious character. 1t is OF
urgent importance that all the peo-
Pile of the United States should
constantly be employed, and TO