Mohave County miner and our mineral wealth., 1920-02-28
BEWARE OF DEFLAT|ON
 SAYS FED. RESERVE BOARD

Determination of the Federal Re serve Board to exert the full power of the reserve banking system in reg ulating and controlling the credit sit uation, a course designed to aid com merce and industry in restoring pre- war equilibrium, was disclosed in the boards annual report made public this week.
 The board was prepared to" "test the ability of the system to check ex- pansion and to induce healthy liquida- tion." The board explained it was aware of the implied power to rec tify the condition which confronts the country. This power necessarily fol lowed the authority for and employ ment of an elastic system of reserve credit and note issue it was added.
 Recommendations also were made Congress for amendment to the re- serve act which wuld permit reserve banks to establish normal maximum lines of credit accommodation for mem- Der banks. An ascending scale of rate would be provided in event money was borrowed above the maximum line. This, the board believed, would work to the end that credit expansion on large scale would be stopped.
 Warning was given that the coun- try must guard against too rapid de- flation. It was pointed out, however, that some remedies employed to correct deflation might create con- ditions worse than imitation itself.
 "Deflation merely for the sake of deflation and a speedy return 10 normal deflation merely for the sake of restoring security values and com- modity prices to their pre-war levels without regard for other consequences would be an insensate proceeding" the report said.
 "It would never be forgotten that modern business is done on credit. One of it's life-giving princi- ples is credit. The ultimate test of credit system must be found in what it does to promote and increase the production of goods. True, in general, the truth of this observation deserves to be particularly empha sized in the present deranged state ot world industry and trade when pro- duction is the crying need of the hour everywhere"
 In explanation of it's increase in discount rates, the board said that this had been the traditional meth cd of credit control. Its use, how ever, presupposes normal conditions and these, it was pointed out, do not all exist at this time. While high reserve bank rate was shown to act as a restraining influence upon bor- rowings, it may attract credit from other centers. It is this condition, among others, that was said by tho board to make imperative the use of its power in controlling credit and starting deflation.
 "There is, however, no need for drastic or precipitate action" the re- port continued. "There need be no apprehension as to our ability to eff feet the transition from wartime to peace-time conditions, if reasonable safeguards against the abuse of credit are respected. Our economic and financial position is at the bottom safe and sound
 The processes of adjusting the vol ume of credit to normal basis should be affected in an orderly manner"
 A plea was made for complete ab- sorption by investors of outstanding portions of war securities issues. As these pass into the hands of perman- ent holders and the national debt is re- duced by the operation of the sinking fund, there gradually will come a proper balance between the "volume of credit and the volume of concrete things" the board explained.
 The specific of greater production was urged again as one of the meth