The Washington times., 1920-01-24
Advance in Rate on Dis
counts to 6 Per Cent an
Inconvenience, Not a
Hardship.
By BOERsIANER.

some bankers borrow at the Fed
eral Reserve banks for the sole
purpose OF accom- .nodatrng their Gus
toners: directly TO help their clients
indirectly to further commerce. They
do this when their own lending ca
paeity Is at the maximum and make
no money on the Government trans
action.
Many bankers go to the Govern
plenished those borrow for only
replenishment purposes.
Others are out for "a spread" They
have mercantile paper discounted al
~ per cent and put out the proceeds
at D per cent among merchants ana
manufacturers.
Still others have borrowed on their
commercial notes at ~ per cent
and marketed the borrowings at
stin rate, on call, in the financial
district. or late. the last named have
not been numerous; they have oeen
under close scrutiny by the Federal
Reserve board. Numerically and In
requisitionsl volume, the third class
has just preceded the fourth class.
LIT Is Inconvenience.
The largest borrowers arc of the
first and second class; otherwise OF
the I1k n-Inlnutu anu
legitimate order.
TO the majority in this banking
fraternity. therefore, the lift in the
rediscount rate to o per cent Is an
Inconvenience, not a hardship. The
restriction and embarrassment are
10 business at large.
without question the move was
well intended; was taken for the
purpose of extinguishing speculation;
and in that intentional degree to de-
fate prices OF usable and edible com
modities. But Dante's definition OF
tentions is not obsolete; by their
latest action Federal bank officials
have winged its viability and appli-
cability.
What sort of an economic postulate
II is that would decrease money
supply against a business which has
suffered and continues to suffer from
monetary insufficiency. whose very
proof of inadequacy are the high
! rates throughout the country? What
Is the character OF the economic
premise that would make necessaries
cheap by making money dearer and
| making II less available for produc-
| tive purposes? How, finally, may
permanent defation be contrived by
| lessening that part of the currency
| which cannot be outstanding longer
than ninety days? How, in other
terms. may permanent defation be
brought about by diminishing the
| amount of callable or temporary in
| nation?
Privileges Abused.
Even in a technical sense the mis-
| directed purpose OF the 6 per cent re-
| discount rate may be, and very prob
ably will be, defeated. Reserve bank
| officially is convinced the privileges
| of the system are being abused for
selfish ends by certain bankers, who
| by their selfishness abet speculation.
! The conviction is. no doubt, valid, but
the extent of the abuse is as doubt
lessly exaggerated.
What will prevent a banker who
made the spread between Az 20
| per cent in the purely commercial
| ield from making a spread from
! to 8 per cent in the Wall Street call
| ,r time market? He can borrow al
the Federal Reserve bank at 9 per
cent and put out the money in Wal
| Street at per cent and be warmly
| welcomed by both the short or long
| Term borrower. In that respect the
shift would not improve the situation
morally; would, indeed, worsen II
| from the standpoint OF the Federal
Reserve Board, whose shining target
| is the stock market.
| Yet that is likely to take place. The
banker who took Ia per cent from
| his deals at the Federal bank and
gave the borrowing benefit to com
mercial men, will not shut up shop
He will take per cent from the
same source and give the borrowing
| benefit to stock market men. A
Roland is exchanged for an Oliver
save that in this instance oliver Is
less desirable than Roland.