Evening star., 1948-10-22
Federal Reserve
AdmitsFaiIure
0fCreditCurb
Sale Of U. S. Bonds
By Insurance Firms
Exceeds Billion
BY ths Asseciotsd Press

The Federal Reserve Board
said today 1t hasn't been able
to throttle inflationary forces
with a 15-month check on credit
expansion.
Fed by borrowed money purchases,
these forces still dominate the econ
omy and are in position to surge
forward, the boards October "Bulle-
tin" reported
In an analysis of bank credit de-
velopments, the publication said
plenty OF customers are ready to
spend if they can get credit The
Bulletin, added that lending re-
sources also are plentiful. despite
efforts at restraint.
The Bulletin came out with the
first open expression of concern by
Federal authorities over recent
heavy selling of Government bonds
by insurance companies.
Insurance Firms Sell Bonds.
In the last three months, it said,
insurance companies alone have
sold more than billion dollars in
Government bonds, mainly to get
funds to lend to businessmen and
others.
The Reserve Board has no power
to control insurance company lend
ing, although it can restrict the
lending capacity of banks.
This process of shifting out Of
Government securities results in the
creation of bank deposits and bank
reserves and is just as inf1ationary
as bank credit expansion" the bull
letin commented.
1t acknowledged that the Federal
Reserve System bought up much Of
the insurance companies offerings,
as well as those of other sellers.
This policy of buying Government
bonds "in the absence Of other buy
ers" willing to pay par value or
slightly more for them has been
hotly disputed in recent months.
Policy Called Infiationary.
One of the chief critics, Thomas
Parkinson of Equitable Life Assur-
ance, contends the policy is infia-
tionary
He and other critics say the Re-
serve Systems support Of bond prices
! itself spurs the sale of the bonds
and reuse of the funds for other
loans, while at the same time keep
ing interest rates low enough to
promote further borrowing.
The bulletin did not debate the
point. 1t acknowledged that by
absorbing these bonds from nom
bank investors" the reserve board
may be increasing reserves for pos
sible bank loans.
Should sales of Government Sc
curities by nonbank investors con.
tinue, banks would be able, In the
absence of further restraining ac-
ton, to accommodate a very large
loan demand without reducing their
own holdings of Government Sc
curities." it said.
The bulletin said credit develop
ments have been IAN important in
fluence in the continuation OF in
f1ationary pressures, notwithstand-
lllk SOlllC Va lA1C dSdIC S11Ol td6CS Va
goods and the substantial Treasury
surplus
Bond Holdings Increase.
The Reserve Boards latest report
shows that holdings of Government
bonds by the II Federal Reserve
Banks rose 1896 ,000, 900 during the
week ended October 20.
/ The Treasury disclosed only We'd
nesday that Secretary Snyder met
Monday with insurance company
officials to discuss the Government's
debt management problems.
Despite acquisition of further
bonds. the IL Reserve Banks man.
aged to lower their overall holding
of Government securities by SILL
O0O, 900, chiefly due to $4s7, 900 900
decrease in 90-day Treasury bills and
a s11 100000 decline in Treasury
note holdings