Evening star., 1932-02-12
BUSINESS AWAITS
STEPS IN FINANCE
DR.. Edie Believes Reserve
Board Holds Vital Power in
Helping Conditions.
Dispatch to The Star.


PHILADELPHIA, February 12.-Ad-
dressing a gathering of local capitalists
at luncheon In the Union League Club
yesterday as a guest of the Penn-At-
lantic Corporation and the Davidson
Capital Co., Lionel D. Edie, widely
known economist, declared that busi-
ness will have to await a clearing of
the financial skies before better times
can return.
DR.. Edie stated that the depres-
sion started with S130,000, 100000 of
long term credit in the United States
and perhaps 10000, ,O00,OO of short
term bank credit. During the past two
years and a half long term credit has
slightly increased, but the bank credit
has been cut about one-third- Roughly
speaking" DR.. Edie said, the burden
of the long term debt has risen be-
cause of q lower price level. To pay
the same debt now as in 1929 the debt
or must part with four times as many
bushels of wheat, or with five times as
many shares Of stock, or with twice as
much real estate. This Is the financial
colossus which bestrides business and
illustrates recovery"
DIR. Edie described the most impor-
tant roads out Of the trouble as fol-
lows:
Drastic Economy Urged.
"First. Government credit, Federal,
State and municipal, is menaced by
failure to curtail expenditures. Cur
tailment by at least 20 per cent is
urgently needed The alternative is
defaults on large scale Moreover,
Is 1t not time that we ceased to look
upon the Washington Government as a
kind OF tree upon which money grows
painlessly and from which it can be
appropriated for everybody's pleasure?
Second. International credit is
menaced by the carryover of war
finance. Reparations are lost cause,
and the sooner the world recognizes
the fact the better. War debts intro
duce the dilemma of either further
compromise adjustments or default. We
need to work out the first horn of the
dilemma without delay.
Third. Domestic bank credit is
menaced by violent contraction having
10 corrective value. The contraction
in recent months at the rate of 25 per
cent per annum disorganizes buying
power and undernines public conf
dence. If We wait for a return of
hoarded currency to start the restora-
tlon OF confidence, we put the cart
before the horse. Restoration of conf
Ing Deliberate action lies within our
serve policy aimed at vigorously com
batting defation. This does not mean
cheap money but an orderly volume
OF money Specifically, ii means pur-
chaSeS OF bills and Government securi-
ties in the open market on a scale
adequate TO restore the reserve bal
anceS Of member banks which nave
been torn down by boarding.
Defiation Nsest Be Stopped.
Fourth. 1t is well to face clearly
the probability that unless conservative
action is taken along this line infia-
tion Is likely along radical lines The
Cnly means of avoiding a violent in
flation is TO take steps to stop defia-
ticn here.
Fifth. The Reconstruction Finance
Corporation is ntrinsicauy neither in
f1atlonary nor deflationary 1t is a
grand experiment in rescue work AS
an experiment it is offered to a de-
presSion-sick Nation, and as an experi-
ment We have to view its progress with
many question marks in our minds as
to exactly what it can do. Will it be
strictly non political? How loosely will
1t define adequate security for its
loans? How rapidly viii it get action
How many applications for relief will
be showered upon it? The public does
not know.
But one fundamental the public
can observe is that the success or
failure of this great experiment depends
| more upon general credit policy as ap-
piled by the Federal Reserve System
than upon the one-by-one acts of
rescue performed by the corporation.
Without more positive Federal Re-
serve policy for combating further gen.
eral credit liquidation. the Reconstruc-
! ton Finance Corporation will work
under almost insuperable handicaps.
In f1nal analysis. we are now in a
race between industrial stagnation and
| financial clearing of the skies