Evening star. [volume] (Washington, D.C.) 1854-1972, 1948-02-06
Crash Warning Seen
As Move 10 Forestall
Worse Break Later
Hy David Laurence

By David Laurence
President Truman's warning about
an economic crash unless Congress
passes anti-inflation curbs that he
has asked for must be interpreted
realistically.
Nobody-neither the President nor
the Congress nor business nor labor
will ever assume the responsibility
for starting q crash or even for a
"defiation" that could bring a re-
cession.
The truth Is all the talk Is In
tended to be salutary-to exert psy-
Geological restraints against specu-
lation or expansion and cause all
economic groups to be cautious and
prudent.
Perhaps the most lucid statement
on the subject was made few days
ago by Allan Sproul, President of
the Federal Reserve Bank of New
York, who said:
"We are all little enchanted, of
course, with the idea Of a modest
downturn which would relieve some
existing pressures and forestall q
worse disturbance later. But no
one has yet found a sure way Of
bringing about just little depres-
SION"
Could Result From Blunders.
There could be q crash, OF course,
but none that would be brought
about deliberately. 1t could result
from laundering in high places and
by seeking to restrict one segment
Of the economy at the expense Of
the other.
What is not generally realized is
that America today is operating q
gross national production at the
rate Of $237 billion a year. This
means that, with wartime funds
and SURPRISES, commercial opera
lions are running higher than war
time because we are supplying not
only our own needs but those Of the
rest of the world.
To operate q $237 billion business
requires more working capital than
ever before. Inasmuch as equity
markets are dried UP through fear
OF governmental policies or lack Of
incentive for risk capital due to
the punitive tax rates imposed on
the investor class, the businesses
and industries of America have been
yetting their working capital from
the banks. Now, with the screws be-
ing applied due to pressure from the
Truman Administration, 1t is ques-
tionable whether the end result may
not be the liquidation of many bust
nesses and the forcing Of unem-
ployment. Nobody will take re-
sponsibility for such an outcome,
but the Administration pressure on
the banks recently has resulted in
q slowing up Of credit operations
generally.
A fallacious view Of bank loans
has been spread by the administra-
ton and the Federal Reserve Board
Testimony offered recently before
the Senate Banking and Currency
Committee revealed that the ratio
of bank loans to total deposits in
banks Is not as high as 1t was in
1899. Some constructive informa-
ton on this point was placed before
the committee by Robert Fleming
president of the Riggs National
Bank of Washington and q former
president of the American Bankers
Association. Using data from Fed
eral- Reserve Board bulletins, he
pointed out that. whereas on De-
cember 80, 1889, about 80 per cent
of all deposits in all banks were
invested in loans, only Is per cent
of all deposits were invested in loans
In 1947 according to the latest
available figures.
Deposits Rise Overlooked.
What so many people who decry
the amount of bank loans over
look Is that there were only sos
billions of deposits in all banks in
1899. There are about $153 billions
now. To look only at the loans OF
$38 billions In 1947 and compare
them with the $22 billions of loans
In 1899 Is to overlook entirely that
deposits then were less than hall
of what they are today.
Certainly a $237-billion economy
requires more working capital fol
increased payrolls and increased
quantities of goods handled, anc
It would be tragic If restraints or
credit went to the point of defiatior
for deflation's sake.
What makes orthodox reasoning
inapplicable to present-day condi.
lions is the organized pressure Of
labor unions, which can effectively
halt any price declines and car
indeed force prices still further up
ward. Restriction of bank credit
can bring a major collapse ane
start the whole economic system
on a downward spiral
The power to bring on deflatior
rests in government. Mr.. Truman
may find 1t politically desirable te
lash Congress for failing to give
him imitation controls, but the last
thing he wants is the power to de-
fate in an election year, for that
means the end of his political ca
reer. 50 there will be warnings