The Nezperce herald. (Nezperce, Idaho) 1900-1957, 1920-12-16
WHY WE CANNOT HAVE A PANIC

ecu vi 1odiIc " Tic farmers, which
are repaid by them at harvest thor
are carried on loans to the ware
house men, which are repaid when
Z the goods are sold to the mannfac
turers, and then carried again ~
loans to the manufacturers nnt;i
they have made up the raw product
into salable goods, and these loans
are repaid when the goods are sold
to the retailers, and they are again
carried on loans to the retailers m
til finally they are sold to the NH.
lie and the whole cycle of credit !
liquidated :
Without this use Of credit we
should have great difficulty in car
rying through our more Important
operations-we should have To o.
back to barter. for there would not
be enough money to represent ali
the goods. Therefore, we find that
ia bank may be of the greatest sar'
vice to only sufficient amount Of
what is known as "till money! f.
pay such OF it's depositors as ask for
cash. In these days comparativelv
few people withdraw cash from the
banks. They pay their bills by
check and thus in a way EXCHANGE
credits instead of cash. A well man
aged bank that is called upon sud-
denly to repay all it's deposits finds
itself with an inadequate amount Of
cash, but with loans on securities or
notes which, if turned into cash
would be more than sufficient to
pay all the depositors as they passed
in line before the teller's window
In the old days each bank was I'M.
it unto itself. Ii it was callel upon to
pay an unusual amount of money #
could sell its securities in the mar.
Ret and thus realize the cash, but It
could not collect the loans to indi-
viduals or for the functiOning of
business because it could not ask
payments on notes until they be-
came due. The most important part
of bank lending is to individuals or
corporations, to buy materials, and
thus stimplate the production of the
country by engaging the services Of
workers. but, practically speaking,
there was no way that this could
safely be done in former days to the
extent that the bank s resources die
tated that it should be done. To af-
ford a dependable discount market
is one of the objects of the Federal
Reserve Banks.
The Federal Reserve System con-
sists CT II regional banks, each with
a governor and under the superyis-
ion Of Federal Reserve Board at
Washington. The members of the
regional banks and depositors in
them are banks-not individuals.
The man in the street does not come
in contact with a Federal Reserve
bank in the sense that he comes in
contact with his own bank. Without
going into the various technical
ramifications of the banks, it is their
function to rediscount certain varie-
ties Of the promissory notes receiv-
ed by the member banks. The pro-
cess is this: Your bank discounts a
note that you offer, believing that
you are person Of responsibility. If
the bank finds that it needs more
Bank are sound and well-backed pa
per that will be paid at maturity.
None of this paper is payable at a
date beyond three months, except
agricultural and live stock paper,
which may run for six months Thus
every member has access to the re-
discount facilities of the Federal Re
serve System, and if it has sound
md liquid paper can convert it into
cash at any time and at once to
withstand even an extraordinary
Train upon it's resources such as is
involved in rum
In the old days financially
ound bank might be forced BY
leavy Withdrawals to suspend pay
nent simply because it could not
urn its assets into cash. If it had
,ept all Of its deposits in cash it
would not have been able to serve
is customers or to help business, for
is conducted on credit-not
II cash. Under the present system
o emergency demand for money
I'LL more than inconvenience well.
bank, for the facilities are
honey than it has on hand, instead
t trying to get you to pay your
ote before it is due or selling secur
les, it gathers up your note and
Their notes which may be defined as
eligible for rediscount, takes
1em to the Federal Reserve Bank
the district and receives therefor
! exchange book credit or FEEDER
Reserve Bank notes, which are
This permits bank, when
needs money, to get it, and ths
lies as laid down by the Federal
eserve Board insure, as far as any