The Washington herald., 1920-02-24
WOULD CHECK
LOOSE CREDITS
Federal Reserve Board
Asks Additional Au-
thority.
HIGHER REDISCOUNTS
Harding Says the Present
Method Is Inef-
fective.

The Federal Reserve Board yesterday
petitioned Congress for additional
authority to check credit expansion.
in transmitting it's annual report to
the House.
Credit expansion. pade necessary
by the war in proportions never be-
fore known, is conceded 20 be one
Of the principal causes OF high
prices of necessities and commodi-
ties generally.
The authority 20 Increase redis-
count rates already possessed by the
board. which IL a standard method
OF checking expansion, now is in
effective because OF present abnor-
NAL conditions. Gov. W. p. @. Hard
ingr Of the board. pointed out
The board now wants power to
increase rediscount rates TO each
bank in direct proportion to its bor-
rowings. Under this plan, the more
bank borrowed the higher rate IL
would have to pay. This is intend
ed to force the bank 10 bring pres
sure to bear on it's large borrowers
As outlined in the report, the
board asked that the Federal re-
serve act be amended by adding 20
subdivision (dD. section IL, "a pro-
viso that each Federal reserve bank,
may. with the approval Of the Federal
Reserve Board, determine by uni
form rule, applicable to all its mem
ber banks alike, the normal maxi
mum rediscount line OF each member
bank, and that IL may submit for
review and determination Of the
Federal Reserve Board gradual
rates on an ascending scale to ap-
ply equally and ratably to all its
member banks rediscounting in
amounts in excess of the normal line
so determined"
The Federal Reserve Boards re-
quest for additional authority wa
contained in IL annual report. writ
ten by Gov. w. p. Harding and pre-.
sented to the House OF Representa-
tives today.
The failure of the usual method
OF checking expansion is explained
by Harding thus:
The normal and traditional meth.
cd of credit control has been the
discount rate: its efficacy. however
presupposes normal conditions
An advance in rates operates
under normal conditions not onlN
10 diminish the demand for credit ny
making certain activities unprofit.
able. but as well to Increase ths
supply Of credit by attracting q.
from other ccnters or countries. Tn.
conditions that make this trsditions
control effective do not exist at the
present time.
The United States stands almoSr
alone as an important free Sol,
market. Other countries are seekinE
and have obtained large credit ir
the United States. as is evidenced
by the fact that our exports eI
ceeded imports during the year b.
SA.OCo.oOo,U0O, and We have paid ouI
adverse balances in gold
1t should be recognized that credit
extended to Europe create a deman,
for commodities that Competes witt
the domestic demand. and this com.
petition is one OF the petent cause
OF high prices.
The demand for commodities from
domestic as well as foreign sources if
SO far in excess OF the supply that the
increased cost of credit due TO ar
advance in rates is absorbed in th'
price. and speculation, anticipating
! large profits. is not checked by any
] iressona bic advance in rates OF interest
These conditions are all adverse TO ar
sy and effective operation of credi'
control by means OF discount rates
The additional power asked by the
board would give Il authority to in.
crease rates under a scale in direc'
! proportion TO the amounts already Dor
rowed bV each bank