The Washington herald., 1920-03-29
CREDIT STRAIN
LONG PENDING
Banks Called Upon to Per-
form Stupendous Tasks
As Result of War.
CHECK LOOSE TRADE
Commodity Speculation and
Inflated Tendencies
Burdensome.
CHECK LOOSE TRADE

II the many lnnuences responsible
for the present money strain could
be expressed as a single cause, that
cause would be that the banks have
been called upon to undertake func-
tions which properly belong to the
! investment market. That is what
has made the strain SO continuous.
and that is why, though the money
market has been somewhat relieved.
, more substantial relief seems far
off
The trouble goes as far back as
the war financing. During the war
it was necessary that the govern
ment have a steady flow of funds.
and beyond what was gained by
taxes and Liberty loans, this was
supplied by the subscriptions of the
banks to Certificates OF indebted
ness" having only a few months to
run. The plan was that as the gov
ernment sold bonds to the public in
its periodic campaigns the proceeds
of the bond sale would be used to
pay off the banks. But the invest
ment market did not absorb these
bonds as rapidly as they were is
sued. When individuals were urged
to borrow on their bonds and pay
for them out of savings many fol-
lowed the first half of the injunc-
tion and neglected the second, with
the result that the banking system
is now loaded down with govern
ment bonds and notes. More than
one-half of the bill holdings of the
Federal Reserve banks are made up
of loans secured not by CONNER
cial paper, but by government obli-
cations.
In still another way the CONNER
cial banks have been performing the
duty of the investment market. The
difference between imports and sx-
ports has been made up by bank
credits. and not by long-term loans
to Europe or by the purchase of
European securities. The duty of
the investing public to relieve the
banks from tasks which do not
properly belong to them-tasks
which create an unstable and
strained condition-has been re-
ferred to time after time for months
past. This duty will be performed
only when the present orgy of ex-
trayagance ceases. and when people
stop squandering their full incomes,
or such large proportion of them,
in current consumption.
Failing full relief by the invest
ment market, and following the
dictates of prudence, the banks have
been compelled to restrict the tx
tension of credits. No indiscrimi-
nate calling of loans that would
have resulted in the unloading of
goods upon the market, business
losses, unsettled prices and confu-
sion has occurred, but in consider
ing not only their individual well
fare and the security and safety or
individual loans, but the welfare of
the entire business community,
loans wanted merely for holding
commodities in speculation for a
higher price, as against loans for
inventories in the natural
course of business or under the
of the freight car short
age. Wherever there has been dis
elimination it has been in favor of
lines that are manufacturing or
producing necessities rather than
luxuries. In the public interest the
essential lines must be protected.
Further credit expansion, which
would lead to another cycle of ris-
Ing prices and still further endan-
ger redeemability in gold. is now
being held in check. II the gold
that Is sent here by Great Britain
In connection with the payment of
the Anglo-French loan in the fall.
added to whatever gold We may
purchase In the London open mar
ket, should result In net additions
to our stock strong efforts should
be made to use that gold to support
our present credit structure. and
not for further imitation. Wisdom
dictates that hereafter we should
be prepared for Withdrawals by
keeping as great surplus of gold
under our credit structure as we
can. sos that exports OF the metal
VIII not force drastic contraction
here, but will allow that contrac-
tion to be gradual.