The Ely miner. [volume] (Ely, Minn.) 1895-1986, 1933-10-13

n.II those who want TO
do business but who
haven't the resources after four years
Of the depression TO get going again.
Jesse Jones, chairman of the Recon
struction Finance corporation. has
made several speeches urging that the
banks make loans freely TO the butch
er, the baker and the candleStick max
er. From elsewhere in the govern
ment, there is the cry that more credit
shall be provided. credit here, credit
there, and credit otherwise. All of
which has moved observers here TO in
quire, whittier goest thou. Uncle
Sam?"
Students Of finance and economics
who are regarded as knowing their
oats tell me that there must be liberal
use of credit at any time in this coun-
try. II seems TO be the system we
have built up. Now. more than ever.
/ am told. is there a necessity for lib
eral terms TO borrowers. They predi-
cate their views on that which is the
fact, namely, that in every community
there are businesses that would like
10 get going again on something like
a normal basis If they had the re-
sources. These resources, however.
have been depleted by four extremely
difficult years, and consequently the
business men have TO proceed slowly.
But the continued shouting that
there must be credit has more to ii
than just the fact that money ought
TO be loaned. The economists admit
frankly that other factors must be
considered In the first instance, when
the banker of your community makes
a loan, he loans your money that has
Deen entrusted TO his care in the form
of deposits in his bank. In the sec
ond place, the business man who bor-
rows is taking risk. for he has TO
put up collateral security with his note
to the bank, and needless TO say that
collateral is always sufficient TO insure
the bank against loss. So. if the Dor
rover fails TO make profit on the
money he borrows. or if he makes a
bad guess on the investment Of that
money, and loses, he not only loses
the amount borrowed but his collateral
as we'll So. even if he has the re-
sources TO put up the required collat-
eral, he is going to think twice before
he bOrrows.
But let US turn TO a consideration of
government credit. The government
is putting out money N dozen differ
=
eminent agency, the federal reserve sys-
TEN, TO put out other money. Yet the
same factors are influencing that situ-
alton as those that are at work in the
field of private finance.
When the federal reserve system
was created during the administration
of President Wilson, one Of the dreams
of its sponsors was that it would make
credit easy, that it would provide
money when business needed if. This
has been found TO be true. Banks that
are members of the federal reserve
system have the privilege of discount
ing notes they have taken from their
business-house customers. with the
federal reserve banks. What they do
actually is sell that note to the reserve
bank and get cash for it, but they
agree to take it up in a specified time
The federal reserve banks are oper-
ating now on what is known as an
easy money policy.
Easy Money They are loaning
nr money 10 the men,
Der banks on dis
counts at very low rate of interest.
In addition, the reserve banks are en-
gagged in open market operations I'M
der which they are buying United
States bonds and treasury notes at
the rates Of about fifty million dollars
worth a week. The theory Of this is
that the reserve banks. having an elias
tic stock of money, will put ont cash
every time they buy one of those gov
eminent bonds which are acquired
wherever they can be bought That
has put out cash. but from what the
financiers tell me the release of that
currency has not resulted in banks
loaning additional funds to their Gus
toners for the reasons outlined above.
Since there has been no swarm of bor-
rowers at the bank windows, the cash
that has been put out by the reserve
banks simply has found its way back
into the banks as deposits. What
then? The banks have taken that
cash to pay of whatever debts they
have at the reserve banks and have
taken their customers notes back
10 hold them until they mature. Which
is perfectly natural, because the banks
can earn a profit only from the inter-
est they receive on loans, and if the
customer paid 6 per cent and the bank
discounted that note with a reserve
bank. il would have 10 pay a part of
that per cent as interest on its Dor
rOwings from the reserve banks.
Hence, with the note back in its pos
session, the bank gets all of the inter
est.
Now, as to the loans that are being
made by the Reconstruction Finance
corporation. the Department Of Agri-
culture, the Farm Credit administra-
ton. the Federal Home Owners Loan
corporation. and whatever other
agency there may be. it is the same
old story. None of them can loan
unless the security is ample. That is,
a farmer cannot borrow unless be has
a farm which he can mortgage or a
growing crop or some work stock. and
the city man cannot borrow unless he
has a house which he can mortgage. If
it were not that way, the government
would be putting out money without a