Evening star., 1947-12-02
Bank Credit Tinkerinq
Rumors Could Add ia
Fears Of Recession
Federal Reserve Board
Moves for DefIution
Controls Held Unwise
Bv David Laurence

The last thing anybody in ofdcial-
dom wants to do is to bring on re-
cession or depression. Yet the talk
which is heard about tinkering with
bank credit could conceivably add
to the already growing uncertainty
which is beginning to envelop ousl-
ness operations.
The talk emanates to no small
extent from the activities OF the
Federal Reserve Board, which ap-
parently Is endeavoring to bring
about some sort Of defiation through
curtailment Of bank credit.
The Advisory Council Of the Fed
sfal Reserve Board, which consists
of commercial bankers, recently was
asked for its views concerning the
rapid expansion OF bank credit"
This answer was given:
1--WE nnd nothing in bank loans
themselves to suggest that growth
Of loans has been an active inf1a-
tionary factor. It rather appears to
have been . rejection OF the very
high level Of business activity and
high prices.
Direct Result Of Policies.
"To large extent growth Of loans
Is . direct result Of Government
policies. For example, an increase
OF nearly billion dollars in real
estate loans by insured banks since
the end OF the war reflects directly
the purchase of FILA and GI mort
cages in the housing program. The
Reconstruction Finance Corpora
ton is encouraging bank lending by
guaranteeing risky loans"
The truth Is that, with $225,-
900 900 900 national economy, bank
ing operations will naturally en-
large.
what the bankers council said to
the Federal Reserve Board on the
subject OF imitation is particularly
significant. The statement Of the
advisory group says in part:
"The causes of our present infia-
ton are not in current banking
policies, but are found in the great
wartime expansion Of buying power
together with unusual events and
public policies since that time
Among recent inflationary causes
may be listed the following:
THE foreign aid program;
"a cycle of wage increases in ex-
cess Of increases in either the cost
Of living or productivity;
"A shorter working week:
"A short corn crop:
Veterans bonuses and relief pay
ments;
AGRICULTURAL price subsidies;
~. 8. Government spending OF st
billion dollars . year;
Housing subsidies"
To Ill this the Federal Reserve
Board replied that it agrees with thu
Advisory Council that the basi'
causes Of innation, lie primarily out
side Of the area Of current monetar!
and banking developments" How
ever, the board believes that "al
possible measures and policies shoule
be adopted by Government, bust
ness. farmers and workers to pro-
duce more, consume less, and saw
more, and to avoid cost and price
raising actions. Furthermore, the
board considers that the most effec.
tive means Of diminishing the basir
causes of imitation is maintenance
of the largest possible surplus tr
the Governments budget"
Opposition to Tax Cuts.
On Capitol Hill this is interpreted
TO mean that the Federal Reserv
Board is opposed to tax reduction
ut this time. Also some Of tn
members Of Congress have beel
questioning Secretary Of the Treas
ury Snyder as to the extent to whicl
he goes along with the Federal Re
serve Board on the matter OF tight
ening interest rates, and 1t is evi
dent that the Treasury head doesn
want to increase the amount OF ex
pense the Government incurs Il
paying interest on the huge publ
debt.
Altogether there Is much tai
about manipulation Of Government
controls presumably to curb inf1a
tion," but clumsy handling OF con
trolls can result in q deflationar
trend that would not be easy t
arrest.
The theory that the national econ
omy can be managed artificially is
residue OF New Deal days, and the1
is still reluctance in some quarter
to believe In either the laws of sup
ply and demand or In the naturs
behavior Of workers and manage
ment when confronted with eco
nomic facts.
Osproduction Rights Rsservsd)
IH,RTD Tn n III err