Evening star. [volume] (Washington, D.C.) 1854-1972, 1938-08-07
CREDIT SHRINKING
IN SPITE Of DRIVE
Spend.Lend Campaign Due
to Boost Banks Holding
=. of Securities.
By GEORGE T. HUGHES.

ny uLoNO1 IL nO0AAEos
NEW YORK, Aug 6 (N.A.NA.).-
No progress is being made in ex-
panding bank credit. The banks have
practically unlimited resources with
which to give credit, but they are not
being used.
Chairman Jones of the R. F. c. says
It is the fault Of the banks and the
banks reply the trouble is that borrow
ers worthy of credit do not ask for it
and that 1t would be unfair to their
depositors. not to say dangerous to
the banks themselves. to lend to any
others. So the matter stands.
The latest report of the member
banks in 1ol cities shows that as of
July 81. 1888, commercial, industrial
and agricultural loans were down over
a half billion dollars from the CORE
spending date a year ago-s556, 000,-
900, to be exact.
Crowley Gives Warning.
In the same connection. Chairman
!, Crowley of the F. D. I. c. makes a
contribution to the discussion. Mr..
Crowley. whose business it is to see
that the banks remain solvent-other-
wise his organizat ton has to make good
losses suffered by depositors-tells the
banks they must be careful to avoid
Excessive risks"
Between Mr. Jones and Mr.. Crowley,
the poor bankers will have to watch
their step. II they are not liberal
with their loans. Mr.. Jones will get
after them, and if they are too liberal,
they will have to answer to Mr.. Crow
ley. So far. they have been leaning
to the Crowley side, as the figures
show.
A bank extends credit when it makes
q loan. 1t creates a deposit which did
not exist before and, even If the bor-
rover checks out the deposit, as he
Is likely to do. 1t turns up in some
other bank. But 1t also extends credit
when it buys securities, for that. too,
creates deposits for the account Of
the seller Of the securities.
Investments Are Down.
Therefore, under the head of bank
credit, both loans and investments fig
ure. AS already pointed out, credit has
been contracting on the loans side; it
Is also contracting on the investment
side. This weeks report reveals that,
IN the last IL months. investments of
the reporting institutions are down
over 100000.
Curiously enough. while the Gov
eminent debt is rising. bank holdings
OF the evidences Of that debt have
been falling. Between the end of
July, 1887, and the end of July, 1898,
the reporting banks-it is only from
these that up-to-date statistics are
ava1la ble-have cut down their invest
ments in direct obligations Of the
United States by 100000, offset
only partly by an increase of $452,-
100000 IN holdings of obligations fully
guaranteed. They have increased their
investments in other securities by $685.
100000. but the net result is that all
investments are of sl04,000,000.
Are Likely to Rise.
1t does not follow that this credit
contraction will continue indefinitely
The spending and lending campaign is
Just getting under way. The borrow
ing with which to finance 1t has vet
to come. When that gets in full
swing bank holdings of Government
securities are likely to rise, although
possibly very slowly.
The truth Is that the Treasury has
been pursuing both an inflationary and
q deflationary program at the same
time, with the latter the more imme-
diately effective. 1t desterilized gold
and used the proceeds to retire Treas
ury bills in excess of new offerings
That has come to an end and, last
week more bills were offered than
were redeemed, but, Unexpectedly,
non-banking investors took them.
There was. therefore, no expansion
Of bank credit involved.
1t is risky to make positive pre-
dictions about the ultimate results
OF the financing of our record-b break
ing national debt, but, if any inference
Is warranted, it is that the road on
which We are travelling leads to infia-
ton. although it is long road.
tCopyrisht. 1898, by the North American
Newspaper Alliance, Inc.)