Evening star., 1951-02-28
Mr.. Truman Tries Aqoin

The Presidents latest venture into the field
of credit imitation and what to do about 1t
indicates that final decision with respect to
the differences between the Treasury and the
Federal Reserve System has not yet been made.
To that extent, the new study for which Mr..
Truman has called is a welcome development.
It is doubtful however, that this study will be
productive of any new solutions Of an old
question.
In his statement, the President said he
has been very much concerned with the problem
of reconcng two detectives: "a The need to
maintain stability in the Government security
market and full confidence in the public credit
of the United States, and ~ the need to restrain
private credit expansion at this time.
This implies that Mr.. Truman believes q
formula can be devised which will permit the
attainment of both objectives. It is very doubt
full however, that he is correct If by stability
in the Government security market" he means
a pegged market for long-term Government
issues at 21a per cent rate of interest.
The Federal Reserve view is that its support
of Government securities through open market
purchases should be restricted or discontinued
until realistic" market is achieved. This
would mean that the Treasury would have to
sell its securities in free market, probably
necessitating higher rate of interest. This
changed interest rate would not in itself be a
device for curbing credit expansion, however,
as the President suggested. It would merely be
an incidental result of the refusal by the Federal
Reserve to buy Government securities-a practice
which supplies banks with the basis for what
amounts to six-fold increase in the money
supply for each dollar of purchase.
Mr.. Truman evidently thinks that other
means of curbing this credit imitation can be
found He asked his study committee to consider
authorization for higher reserve requirements on
banks, certain voluntary procedures, and the use
of powers provided in the Emergency Banking
Act of 1898. Does this mean that thought Is
being given to direct Government control Of
the operations of all commercial banks-some
$4,000 In number? II So what about the real
probem-the sale OF Government securities by
non-banking institutions, such as insurance
companies, building and loan associations, etc?
In his statement, Mr. Truman said the program"
could be extended to institutions other than
Federal Reserve member banks, II desired, by
using powers provided in the Trading With the
Enemy Act Just what this contemplates The
Star does not know. But 1t is suggestive of a
cumbersome if not unworkabe nightmare Of
regulation.
1t would seem to be much simpler and less
risky to let the Federal Reserve experiment with
discontnuance of the open market support of
Federal securities. The choice perhaps is a
choice of risks. But the lesser risk would seem
to be to follow the line suggested by Senator
Douglas, who headed committee that made an
exhaustive study of this question in 1s4s, and
which recommended that "the primary power
and responsibility for regulating the supply.
availability and cost of credit in general" shall
be vested in the Federal Reserve. Senator
Douglas now says he intends to offer legislation
to this end unless the Treasury abandons its
Aved f,afa 70
the whip" over the Federal Reserve Boald