Evening star., 1921-08-05
MONETARY CREDITS
Ebb AND FLOW, IS
/. CITED BY HARDING
Governor Of Federal Reserve
Says Board Can Outline
Policy, Can't Press 1t.
DENIES PRICE BREAK
DUE TO RESTRICTIONS
Main Efforts in 1920 Were to Pre-
vent Collapse of U. S. Bank
ing System.

AAS ~ cICAu.
The ebb and flow Of monetary
credits through the federal reserve
system was further described today
before a congressional commission by
Gov. Harding of the reserve board.
we have twelve reservoirs of
money in -the<reserve banks" he said.
and We can put a pipe line from one
to another of them when needs be-
come too great for local money sup
ply. always remembering that the
loans come in and are secured by
local member banks.
'The Federal Reserve Board can
outline a credit policy, but It is very
difhcult to enforce it because of this
member bank proposition. There are
10000 of them, and they take the re-
sponsibility in the first instance.
Dangerous Extension"
Some of them hold unused lending
power, while others in credit strin-
gency go into the Federal Reserve
Bank and get widely, even danger
ously. extended. That was why We
had to establish the progressive rate.
to penalize the heaviest borrowers.
but we hope we will never have to
rut progressive rates in effect again"
There is a prevailing impression
that the break in general prices dur
ing 1920 was due to the restriction
Of credit, and that the reserve board
was responsible for the restriction"
Representative Mills. republican.
New York. said.
There is nothing in it," Gov. Hard
ing replied. Our efforts were de-
in m
OF our banking system.
1T is not our duty to enhance or
reduce prices. but credit is based on
prices. and in 1920 we had most sig
nificant signs that break was COM
ing"
Suppose the board had restricted
earlier" Senator Lenroot said. would
not the rise in prices been lessened?"
That's probable" Gov. Harding
said. 'I1l be frank with you. Had in
terest rates been put up earlier. the
runaway movement of prices and
speculation might have been checked.
and it might have been better"
Says Statement went Ost.
Representative Summers, democrat.
Texas, suggested that the word had
been passed out from the reserve
| banks" during 1913 and 1920. telling
| bankers to beware OF prices and cred
its on farm products particularly.
Nothing went out from the reserve
board that 10 inconsistent with my
statements" Gov. Harding replied.
but I want you to understand that
er, declining to loan, wants to retain
the friendship of the customer il he
can. No bank wants to make per
sonai enemy. The banker passes the
| buck and says the reserve bank has
called in all loans and he can't lend.
That let's him, out. but creates that
widespread sentiment you cite"
As to circulars from district reserve
| banks, Gov. Harding said the board
had but limited control.
Wa. Tickliah Situation.
Nothing has been sent out from
| the board which is at variance with
the statements / have furnished" Gov.
Harding added. 1T wasn't a good time
to be talking too much-in 1920"
Gov. Harding observed. 1T was a
very tfckiishf situation, but we got
through 1t. and We can talk more
boldly now"
i Categorically. responding to a series
of questions by Senator Harrison. Gov.
Harding declared il had not been the
policy of the reserve board or it's
idea. to reduce prices or to spread the
idea they were going to fall.
You must know the pressure which
came upon us to issue general state
ments," Gov. Harding said. but we
never issued one unless silence would
! have made matters worse. You can't
expect the board ever to issue state
ment which is not justified by reality
and the logic of events
| Gov. Harding Testfhes.
Gov. Harding. during his testimony
! yesterday afternoon. declared that "the
Federal Reserve Board didn't create this
! financial depression He said that the
board saw il coming and got ready to
protect things, and people ought to be
grateful il did so. Now all we need is
cessation of pessimism, which marks
| bad times, as foolish optimism marks
good times. We all know now every
body was going crazy in the boom dur
ing the fall of 1919.
! This situation is going to WORK out
There's no comparison between the con-
dition a year ago and conditions today
Take cotton. with a low yield. ar.s AK
ports picking up. Banks everywaercare
! fully justified now in carrying loans.
! "All we've got to do Is to get out of
everlasting pessimism and quit saying
| everything is going to the dogs. Why
man has to put up good. cheerful
face if he wants credit You can't talk
to the banker like you do to the tax
assessor
In general. Mr.. Harding said, 'the at
| titude of the Reserve Board toward
| agriculture has been greatly misun-
derstood and grossly misrepresented -
"The whole trouble with the reserve
system in meeting agricultural demands
! Is that reserve banks do not and cannot
lend 70 individual borrowers" he added
| hands Of member banks before II gets
/ tn the Hysfen"