Rock Island Argus., 1920-02-23
us. RESERVE
BANKS MUST
CUT CREDITS
Report Upholds Strong
Means to Assist Healthy
Liquidation.

Washington, Feb. 23.-Determin-
alton of the federal reserve board
to exert the full power Of the re-
serve banking system in regulating
and controlling the credit situation,
a course designed to aid commerce
and industry in restoring pre-war
equilibrium-was disclosed in the
boards annual report, made public
today.
With this as it's announced peace
time policy, the board was prepar-
ed to test the ability Of the sys-
TEN to check expansion and to in
duce 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 authority for and en-
ployment of an elastic system of
reserve credit and note issue, it
was added.
Ask Amendment.
Recommendations were also made
to congress for amendment of the
reserve act which would permit re-
serve 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 in the event money was
borrowed above the maximum line
This, the board believed, would in
duce banks to hold their own large
borrowers in check and thus work
to the end that credit expansion or
a large scale would be stopped.
Warning was given that thu
country must guard against tot
rapid defiation. While the boart
was in entire sympathy with meas
ures to overcome this evil, it point
ed out that remedies employed tt
correct imitation might create con
litions worse than defation itself
Credit Life of Business.
Modern business is done OF
credit. One of its life-giving prin.
ciples is credit. The ultimate tes'
, of a credit system must be fount
in what it does to promote and in.
crease the production Of goods. The
truth of this observation deserves
to be emphasized in the present de
ranged state of world industry alt
trade when production is the cry
ing need of the hour everywhere"
In explanation of it's increase IL
discount rates, the board said thai
this had been the traditional meth
, cd of credit control. It's use, how.
, ever, presupposes normal condi
tions and these, it was pointed out
do not all exist at this time. While
, high reserve bank rate was showr
to act as a restraining influence
upon borrowings, it may operate a:
well to attract supplies of credi
from other centers. 1t is this con
dition, among others, that was sale
/, by the board, to make imperative
the use of its power in controlling
credit and starting deflation.
Condition Is Sound.
| In setting forces to work to checl
expansion the board declared much
depended upon cooperation of bus
mess and the community generally
There is, however, no need fol
drastic or precipitate action" tn,
report continued. Our economi,
and financial position is, at the bot
tom, safe and sound. Extreme.
must be avoided. the processes O
adjusting the volume of credit to {
normal basis should be effected il
an orderly manner. Much will de
pend upon the cooperation of bust
ness. Without such cooperation
from the general community, prog
ress can be neither rapid nor sub
stantial."
A plea was made for complete alb
sorption by investors of outstand