The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1921-11-06

stocking up with raw materials.
The ratios Of bank loans to de-
posits would be low; likewise Fed
eral reserve rediscounts. The pro-
verbal hand to mouth policy would
be increasingly evident in business
and unemployment would be grow
ing. Things in general would
seem to be headed towards a period
Of depression. Such was the situa-
ton in the forepart of 1907 and
such in the main has been the sit
uation during the greater part of
1921. What could the banker do
towards checking such a trough of
the normal business cycle, and
starting the curve on its upward
movement?
Reversal on Upgrade.
Broadly speaking, he could re-
verse the procedure suggested
above for the time when the cycle
was approaching its crest.
The preceding liquidation period
accompanied by a relatively large
number of failures and reorganiza-
lions would have cleared the way
and made safer a forward move
ment. With a substantial period Of
rising prices and rising interest
rates in prospect, both the banker
and the business man could wisely
make commitments for longer ne
RODS than before, greater risks
would be justifiable now than at
the previous period. The cautious
making of capital extensions and
improvements by the business man
would now be sound policy, and the
banker, although he should keen
mis- assets reasonably liquid, would
not need to stress liquidity as much
as he had at the other period. In
the making of loans, local indus
tries OF the kinds that had been
most thoroughly liquidated should
be favored, and longer. maturities
should be acceptable. The extreme
~ gilt-edged security holdings
could well be melted to a substan-
tial degree into good business pa
per and into other securities with
larger yields, which. though good,
would not be the luxuries from the
standpoint Of safety that the pre-
vious holdings would now have be-
come. During the upward move
ment of the business cycle certain
kinds of business normally revive
quicker than others - commonly
these are the ones that first expe-
rience the decline. Such Industries
particularly the more basic ones, are
the ones that should first receive
encouragement.
Our exact position in the cycle AT
ffrr,n
sometimes 1t is impossible to feel
certain even about our approximate
position. The business cycle, more
over. Is only one of many funda-
mental forces affecting general
business. 1t is crossed and re-
crossed by the ever mbre regularly
recurring seasonal cycle. Then
again there are the movements COW
ering long periods Of years like the
wide swings of the general price
level and of the interest rate level
Always there is the uncertainty Of
crops, and always the possibility of
war. A new condition like the pres
ent after-war situation of Europe
temporarily may So overshadow the
forces Of the usual business cycles
as to make forecasting and the dis
counting of the future exceptionally
difficult By and large, however.
and viewed over any considerable
period of years, the business cycle
Is sufficiently regular in its occur
renee and sufficiently marked in its
manifestations to make possible a
fair amount of forecasting and dis
counting. and the banker who seri-
ously and studiously makes an at
tempt to do this should in the long
run by SO doing bring profit to him
self and render a valuable service
to the community.