The New York herald., 1921-01-30


eral Reserve banks were being used too
freely and that unless corrective meas
ures were applied most unsatisfactory
situation might develop. A slight adj
vance OF discount rates at the Federal
Reserve banks was made during No
vcmbar, 1919, and during the latter part
OF January, 1920. rates were sharply ad-
Yanced
While the higher discount rates
doubtless brought about some ilquida-
ten =.=i checked the -rnjd rate OF ex-
~aiisloh, they did not bring about gem
eral liquidation throughout the country.
In May the demands, which usually are
made at the time OF the spring planting.
had been largely met, but we had ahead
Of us the heavy demands for bank ac-
commodations required in the autumn
for the harvesting and marketing of the
crops.
In view OF the fact that no reduc-
tion in the total volume of loans was
taking place as a result of the advances
made in the discount rates. 1t was feared
that unless more discriminating Ddy-
ment was used by member banks in
granting accommodations. the country
would be confronted with real crisis
during the crop moving period.
differentiation, of Loans.
THE Federal Reserve Board pointed
this out to the banks of the country, and
suggested that they give applications for
loans for essential purposes preference
over loans for non-essentiai purposes
The board made it clear. however, that
the banks themselves. and not the Fed
eral Reserve Board or the Federal Re-
serve banks, were to determine the es-
sentiality or non-essentiality of the pur-
poses Tor which the proceeds of loans
asked of them were to be applied. Our
problem, therefore. was to check further
expansion and to bring about normal
and healthy liquidation without curtail-
ing essential production and without
shock to industry. and, so far as possi-
BILE. without any disturbance to legiti-
mate commerce and business
Some Improvement in the character
and liquidity of bank credits was noted
following this advice to the banks, al
though the loans and discounts Of the
Federal Reserve banks continued to in
crease. due largely to crop moving de-
mands, up to November g. Since that
date there has been a. marked reduc-
tion in the total loans and discounts or
the Federal Reserve banks and conse-
quent Improvement in their combined re-
serve condition.
Il feel that whatever the shortcomings
OF the banks of the country may have
been in falling to check the expansion
during the times when a speculative
spirit was rife, they have redeemed
themselves by their attitude and con-
duct during the last six months.
During the last four or five months
the situation has been exactly the re-
verse Of that which existed in 1919. Dur
ing the boom times which extended well
into the year 1920 the warnings which
were given were unheeded generally
and great many who admitted that
reaction and readjustment must come
deluded themselves into the belief that
the reaction would hold others in check
without affecting themselves.
Eject of ReadJustmcnts.
THE effect of the readjus tments
which have taken place in this country
has been painful. Every section OF the
has been affected, and il IS not
that the spirit Of pessimism
should have run amuck just as IN the
months preceding the spirit Of optimism
exceeded all reasonable bounds.
1.-THE effects OF reaction" Governor
continued. have been less
severe. however. i'm the United States
than in any other country where the
expansion Of bank credit and currency
had been proportionately greater and
the prospects for revival are also far
better here than elsewhere.
"a hopeful factor in the present situ-
alton. as see II, Is that we have re-
turned to a normal state of mind. Ex-
tendencies have been checked.
and the Importance OF the individual
living within his means has been brought
home to us. At the same time the wave
OF profound pessimism has passed by
The main thing for us to do now is o
retain n normal state OF mind and he
safe sound and calm in our judgments.
There are signs in evidence that the
extreme depression which has occurred
in some industries is near an end. The
wool situation, which has been ono OF
the worst with which we have had to
is improving. There are indi-
cations that the cotton mills will soon
need increased supplies of raw cotton.
The wheat crop is moving gradually but
steadily to market.
"a thought which should be kept clear
ly in mind is that our problems during
this period OF readjustment are not de-
mestic problems merely, but they are
problems connected with the readjust-
ment OF conditions throughout the entire
world Europe cannot work back to
normal without the help OF America, and
America cannot become normal until tire
normalcy OF Europe is in some way re-
stored and until the restoration has pro-
ceeded far enough to Justify the conclu-
sion that It will eventually be completed.
OF course. the political stabilizauon of
Europe is most desirable. but this result
On aanrfnn1io
and financial rehabilitation develops"
MEXICAN DRYS BEATEN