The Washington times., 1928-06-29
SEE NECESSITY
OF RESERVE
CURB
RICHARD HATTON

RICHARD HATTON
ia Interesting article in. the
American Bankers Association jour
nal III Sargent DISCUSSES the
|k g saestion Of possible conflict between
the Treasury Department and the
saeral Reserve system Washing
tulh bankers have been discussing
ATS same question also, and there
Rrs varied opinions upon the sub
jeet in local financial circles. It is
thought here that the question OF
1.-THE Federal Reserve systems ability
TO curb speculative trends may be
taken Ap in Congress at the next
session. and for. this reason the
following from the Bankers Associa-
ton magazines June issue is Of
especiaf interest:
Record -breaking activity on the
New ork Stock Exchange has
challenged the effectiveness OF the
Federal Reserve machinery for con-
trolling the credit situation of the
country The time is soon coming
!. when the effectiveness of Federal
IReserve credit control practices will
be weighed IN the balance against
their accompli
Effect Delayed
No matter what the future cost
Of stock market activity may be-, or
the trend O. money and credit con-
Gitions during the summer, the fact
remains that the Federal Reserve
system tried for more than six
heaonths to put check upon the
volume OF market operations. and
Nh much time had elapsed before
any signs Of appreciably tighter
money became evident. Next year
the BIZ business legislation before
Congress- viii be the revision. or
rather the modernizationS OF the Fed.
! erai Reserve systems ability to cope
with periods Of widespread stock
market operations or. to put it
Eluntly. to curb speculative trends
win s one Of the points of chief
anterest to the Federal legislators.
So tar tie Federal Reserve sys-
tenn has insisted upon its ability to
kcontroI. At least temporarily, credit
conditions throughout the country.
Proposals I'M Congress for new legis-
IkEUe ID lTDNlQC
checks against the use of Federal
Reserve credit for speculative pur-
po~es, that Is, for financing stock
market activities have been OPP
= posed by he Federal Reserve au-
! thoritieS next winter, presume
bly,. E0nGitions III the money mar
ket viii have changed from those
gbtaihtng during recent months But
he big fact for Congress TO decide
viii be whether the Federal Reserve
system can exercise control. over
the volume of credit going into the
stock market with sufficient prompt.
ress tos render restrictive legislation
unnecessary
Cheap Money
Last summer cheap money lin the
United states was brought about
with very little difficulty. 60 aid
foreig central banks Of Issue over
van Embarrassing period. the Federal
Reserve banks in this country
!. pushed down their discount rates.
Cheap money followed inm sdiately
but not only vere the international
exchanges relieved of press ure, but
the supply OF money available for
kthe call market became more. and
more abundant Conseque htly, the
volume of brokers loans Dutstand
ling began TO grow week fby week
until the unprecedented total of
$4,000. 900 was reached in May
Meanwhile, the Federal Reserve
system since November lna,5 been at
y tempting to reverse the process Of
the previous summer and bring
y about tighter money in This coun.
try. During the summer. the Fed
. eral Reserve banks had been Off
setting gold exports by. the pur
chase OF Government securities In
Ehe open market. with the result
that to the extent that gold left the
,fountry. or was earma Sl1ed. which
Is the same thing. its equivalent
in funds was replaced in the mar
ket. Beginning with November
this practice of offsetthng the out.
ward gold movement was aban
esdoned. In January The first up
ward revision of discount rates was
. undertaken. BY the end of May a
second upward adjustment of dis
count rates to a new level of AN
per cent had been almost com
pleted. Starting around the new
4NTear, the Federal Reserve system
began the sale of Government SCI
.curities which reduced its total
Pholdifgs by some $1o0. 900 900. this
policy having the purpose of re
ducing the visible supply of funds
In the open market, by that amount.
= No offset to Gold Export
Thus, something like $3.50, 600 900
OF gold exports were allowed to
= leave the country without being
offset. The open market opera.
i tons of the Federal Reserve sys-
tenn were utilizeS to their fullest
extent. and Discount rates were
twice increased before there were
any signs. of actually tighter
emoney. Meanwhile the stock mar.
ket had steadily expanded to higher
and higher lepels. while brokers'
loans had mnu inted unchecked. Re.
CARELESS Of the outcome Of the sit
nation. the Important question is
whether the Federal Reserve sys-
tenn should be sunable to control
credit conditions for as long as
six months, or. to put it ano.her
way. whether it should take the
system half year TO make any
Impression upon She money market. .