Evening star., 1920-05-02

of the American Bankers Association
In session at Pinehurst. have taken
steps to cooperate with the Federal
Reserve Board in an orderly and prac-
tical method. in the deflation of cred
its.>
A resolution was adopted that the
federal reserve banks should progress
svely apply well considered ration
ing of credit through the country
entire financial and commercial struc-
ture.
Bankers of the country were urged
to assist wherever possible in advanc-
ing the cause of defiation.
One of the members of the council,
in commenting on the action as indi-
Gated, declared emphatically that the
sore spot was not Wall street; that
the liquidation there during the last
three weeks had been drastic. and
that when the loans of brokers were
under the billion-dollar mark they
were within reason and not excessive.
He also indicated that the chief de-
flation that the council wished for
was in the functioning of liberty
bonds and victory notes as cash. 1t
was necessary during the war that
financed by the banks of the country
and that the federal reserve banks
should make concurrent low rate for
notes made by banks secured by this
SoIidteTdl- IL was a leRltlnlate ana an
unavoidable expansion.
No one knows exactly how many
buyers of liberty and victory bonds
refused to make good on their sub
scrlptions-that is, among the INSTALL
ment buyers: but the amount in the
aggregate upon which there was de-
fault must have been very large.
Many banks pushed these bonds out
as far as possible by getting orders
for their liquidation. and when they
were unable to obtain these they
lfQuidated and held the proceeds for
the account of the buyers.
Serious Case of Flunking.
The most severe case of flunking
comes from the Railroad Administra-
ton, that now finds itself with $685.
100000 of government bonds on hand.
of which ss4.4Oo.o00 represents in
stallment subscriptions upon which
railroad employees failed to complete
payments, leaving the big block of
bonds on the railways, which they
promptly passed to the administra-
tion, and which the appropriation
committee of the House now wishes
to pass along to the War Finance
Corporation at par.
No other case approaching compar-
ison with this is at all likely to be
unearthed. but there is small question
hut what of the billions sold, mil
lions have been defaulted.
1t Is a matter of comparative recent
date that American bankers under
took the business of trading in ac-
ceptances and every laudable method
TO encourage 1t was suggested and
acted upon. Today the business has
grown to such an extent that the Fed
eral Reserve Board is on the eve OF
an investigation of the character OF
the business-just how the credit
lines established are working out.
fa11 I,,n n
extent acceptances are being used In
domestic business.
This investigation is being con-
Quoted through a series of questions.
which will give the Federal Reserve
Board full insight into the acceptance
business. and enable it to put on the
screws in the shape of higher rates
of rediscounts. if 1t deems 1t neces-
Oary.
Higher rates of discount are not
as effective in restricting business
efforts in any line today as they once
were. When the Bank of England
advances rates it has a very positive
effect on projected enterprises. and
frequently causes abandonment OF
contemplated moves, but in this coun-
try the manufacturer. the jobber and
the retailer pass it along to the con-
sumer. who pays the extra and the
expected curtailment of expense. and
perhaps development is not realized.
The Sliding Scale.
The sliding scale Of rates enables
consent Of the Federal Reserve Board.
to advance it's rates as conditions
demand on rediscounts. with especial
reference to member banks that are
straining their credit lines beyond
Justifiable limits. and its second use
full purpose. as applied by the Chi
cago regional institution. is an ad-
vance of the rediscount rates on notes
secured by government bonds-large-
ly liberties-to per cent.
This is a movement in the direc-
tion of getting the bonds out of the
banks. in harmony with the urgings
of the Federal Reserve Board.
The sliding scale will hit only
borrowings.
The war is over-over for a year
and five months, at least far as the
war itself is concerned-and the
bankers feel in hearty sympathy with
government officials and the best
posted economists that these war is
sues should no longer function as
money.
Manufacturers and Merchants, Also.
1t also is desired that manufactur-
ers reduce their credit demands to
their needs: that they cease laying in
such large quantities of goods in an
ticipation of advances. their very
dCtIoH HeipiHS dlOHS tut tTeHu III tnIS
direction: while the anticipatory de-
mand for merchandise always has
been handed on to the retailer, while
both have boosted prices.
Bankers admit their inability to
cope with the direct result of large
wages in the desire of people to buy
expensive goods. One story is told
of driver of delivery wagon. out
shopping with his wife-seeking set
of bedroom furniture. One suite
pleased both very much, and they
were about to place the order. when
it was 1855 they refused to buy. say
ing that they had $500 to pay for 1t
and intended to spend that much.
They did. probably not for any bet
ter furniture.
An instance further illustrating
this trend of the times is shown in a
little folder issued by the savings
division of the war loan organization.
advertising government securities.
and. in this case. given circulation by
J. p. Morgan & Co.. with dividend
check:
There ia large retail concern sell
ing a meritorious article. the price
Of which was plainly stamped thereon.
This price has been steadily main
;a!ned for a number OF years. but re-
Gently the retail store was compelled
10 return its stock OF this article to
the factory to have the price eradi-
Gated and a so per cent higher figure
attached thereto. as sales had fallen
of. 5adly. but at the higher price the
sales were brought back to normal.
A southern retailer made this state
nent:
Our customers seem TO think that
our merchandise is inferior because OF
our prices and we were compelled to
mark up prices in order to do any
business and are now getting along
great deal better. How can the high