Indiana daily times. [volume] (Indianapolis [Ind.]) 1914-1922, 1922-01-02
FINANCES GROW
SOUNDER WITH
REIMBURSEMENT
Reserve Banks AveTted Dis
aster, but Contributed
to Infiationl
By z. D. HULBJt RT,
President Merchants Loan and Trust
Company.

President Merchants. Loan and Trust
Company.
After the armistice there was a short
Iurl in business activi y, followed by
an entirely unlocked for boom. Prices
advanced above war levels and demand
for goods Of all kinds exceeded the sup
ply. A buying panic followed. Mer-
chants ordered more goods than they
needed, fearing that factories could not
make deliveries. Factories misled by
these excessive and partly spurious or
ders. fell into the same error, ordering
more raw material than they could have
anv use for, thinking there would not
be enough to go around
This. Of course, stimulated the pro-
duction of raw material far beyond the
needs of the-country. This state OF az
fairs continued, until the early fall OF
1920, when It stopped as suddenly as
though steam had been shut of in an
FACTORIES IoADED
WITH RAWiMATERIAL.
A Merchants found goods that they had
80 use for pfuring in from factories with
ices tunDking and demand disappear
49, .OrdeM were cancelled by the whole
Ezs5S< 5f@&Axmg factories loaded with raw
- 80 finished products, and with
10 Overhead which could not i'm
1: ~ be reduced This has brought
Ef<8fAhe moss acute depression Of bust
- IA have had in forty years.
$500 be wise to consider whether
~ Y%AeraI Reserve system has not con-
Kributed to this state of affairs. 1t IN
%ioubtedly saved US from disaster during
Ythe war, but it seems clear that no such
imitation as we are now suffering from
could have been attained without the
enormous expansion of credit through
the Federal Reserve banks. Without this,
no such accumulation Of stocks and no
such expansion Of plants would have been
possible Farmers would have been
obliged to sell their crops at high prices
instead OF borrowing money to carry
them into a disastrous market, for the
simple reason that banks could not have
lent them without the aid Of the Federal
Reserve Banks.
RESERVE BANKS TOUCH
HIGH EXPANSION POINT.
1t is rather significant that, at the
exact time when business stopped in
1920, the Federal Reserve banks touched
their high point of expansion in loans
and Federal Reserve notes. On Nov. I,
1920 the total Of loans and notes was
billions in excess of any legitimate need.
Compare this with S220,000000 of Clear
ing House certificates issued in 1907 and
1908. and 1919 600 600 in Clearing House
certificates and Aldrich- Vreeland notes is
sued in 1914, which proved to be ample
for emergency purposes.
In the early part of 1920 we were
looking forward to a long period Of
great prosperity. Now many are looking
forward to a long period of depression
Probably one is as great an error as the
other. Consumption is exceeding prOduc-
ton in most lines even under present con
ditions of forced economy, Establishments
are taking place rapidly, and when they
are completed we shall end a wholesome
change in our whole condition. The weak
and inefficient will be weeded OUT the
business of the country will be IN strong
and capable hands; and our financial
structure will be sounder and safer than
it has been in twenty years.