Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-23
NATIONAL CREDIT CORPORATION
ARRESTS DEFLATION PROCESS
Preliminary Operations of Organization
Set In Motion by President Have
Had Good Effect.
Special Dispatch to The star.

Special Dispatch to The Star.
NEW YORK, October 23-The for
nation and preliminary operations OF
President Hoover's National Credit Cor
poration have already done much to
break the vicious circle Of deflation
which has been threatening our bank
ing structure. according to E. G. Die
fenbach, president of G. E. Barrett &
Co., Inc. The purpose of the $500,000
900 credit pool is to break this circle OF
def1ation, which leads to further defla-
ton, and substitute for 1t period OF
renewed confidence and credit expan-
sion.
Because of the disturbances prevail
ing in the banking structure Of the
country there Is growing feeling that
the eligibility provision Of the Federal
Reserve act should be broadened in or
der to give greater liquidity to the as
sets of the member banks, and thus a
greater assurance to the bankers in the
granting of credits, by enabling them to
obtain legitimate accommodations on
sound securities in times Of stress. Sen
ator Carter Glass Of Virginia, chairman
Of the Senate Committee on Currency
and Banking, is opposed to any change
in the Federal Reserve act which would
allow banks to rediscount their notes at
the Federal Reserve Bank secured by
other than United States Government
securities or commercial bills. He points
out that as of June 80 the member
banks held the tremendous total of
$3,198 100000 of eligible paper and
$4,000, 100000 Of United States Govern
ment securities, whereas the member
banks were at the date indicated Dor
h. oil cITT1
of Sat 100000. Therefore, it would
seem that the trouble with the present
situation Is not with the Federal Re-
serve banks, for they cannot compel
member banks to rediscount their pres
ent holdings of eligible assets under the
present banking laws.
Method Is Provided.
The Federal Reserve act already pro-
vides a method whereby this action on
the part of member banks can be coun-
teracted by the Federal Reserve banks
themselves through the purchase of
United States Government securities.
This function was very splendidiy used
in the eight months period between
January and August, 1924, when the
Federal Reserve banks increased their
holdings of United States Government
action was taken at time when banks
were failing almost every day, espe-
cially in the Northwest. The Federal
Reserve banks could have exercised
their function in this respect during the
first eight months OF this year and
thereby increased the amount OF Fed
eral Reserve credit and possibly avoided
the necessity of the present banking
pool.
cipally upon three items-billS rediS-
counted by member banks or member
bank notes secured by United States
bonds, bankers accept
ances bought in the open market, and
United States Government securities
purchased for the portfolio The bene-
fetal effect of FEDERAL Reserve credit
upon business is exactly the same II
this credit is provided from any OF the
three sources mentioned. The total
item which tells the story Mr.. Diefen-
bach stated.
In the weekly statement of October
IA the total amount of Federal Reserve
credit outstanding reached $1,000, 600
900 through an increase of total bills
discounted and acceptanceS bought in
the open market. In other words, the
low rediscount rate and low buying
rate for acceptanceS have finally re-
suited in q large increase in the total
amount OF Federal Reserve credit out
standing, which is exactly what the
business community needed. However,
this could have been accomplished much
sooner through the purchase Of United
States Government securities by the
Federal Reserve banks. AS OF August