Evening star. [volume] (Washington, D.C.) 1854-1972, 1957-01-25
Tight Money Policy

! IgHt money FOIICy
There has been considerable
comment, criticism, and mis-
understanding regarding the
administrations tight money
policy"
This so-called tight money
policy means specifically, in a
current context, the successive
increases in interest rates
charged in recent months by
the Federal Reserve banks to
member banks on loans made
to them. Member banks may
borrow from Federal Reserve
banks to acquire balances suf-
f1cient to meet legal reserve
requirements against their GUS
toners deposits. Inasmuch as
loans generally result in de-
posits, banks must often bor-
row in order to make loans.
Credit policy is determined
by the Federal Reserve Board
which is responsible to Con-
gress and not to the President.
The Federal Reserve Board
has been independent of the
administration since 1851 and
the President has recently af-
flrmed this position as being
in the public interest. AS a
matter of fact the Secretary
of the Treasury has sharply
opposed the last raise in in
terest rates by the Federal Re-
serve Board. Therefore, to say
that this is the administra-
tons policy. as is widely
quoted. is quite in error.
There are also misunder-
standings concerning the pol
icy itself. An unwarranted
criticism is that current higher
interest rates have been caused
by the higher rates charged by
the Federal Reserve banks. An
examination of interest rates
commanded by loans and
credits represented by paper
dealt in the open market shows
that interest rates increased
before the Federal Reserve
banks raised their rates. In
other words 1t was the in
creased demand for credit
which raised rates and the
Federal Reserve Board chose
to accept rates determined by
free market forces and raised
its rates accordingly.
It is claimed that this tight
money policy is preventing de-
serving individuals from &C
quiring loans to buy houses
and preventing business, mu-
inequalities and school dis
tricts from obtaining needed
financing. In the case of hous-
ing it is only difficult to borrow
at VA and FILA prfce-fixed
rates. Credit is like anything
else that is price-fixed-the
shelves are bare when demand
increases. However. funds are
available for most all purposes
at increased rates.
Another current misconcep-
ton is that this tight money
policy is choking of credit
usually for some Interior
motives such as to fatten the
bad bankers. The truth of the
matter is that loans by banks
have been increasing steadily
over the past two years. Bank
ers have been obtaining in
creased rates on their loans
and have also been paying in
creased rates on savings de-
posts. For that matter, price
increases have become quite
general, resulting in greater
incomes for many industries.
1t would not seem quite
equitable to discriminate
against investors, savers and
lenders. including bankers. to
force interest rates below a
free market rate.
The real complaint against
the tight money policy. usually
couched in other terms. is the
refusal of the Federal Reserve
Board to create money and
therefore lower interest rates.
1t is simply another case Of
special interests who do not
want to live with a free market
when 1t goes against them.
The board easily can create
more money in a number Of
ways. This would mean more
dollars chasing around a linz
tied supply of goods and serv-
ices, resulting in higher prices
and imitation.
It is quite generally agreed
that imitation is q destructive
force. But there are special
groups who could derive some
temporary benefit and there
are some who would like to see
this country 60 through
crisis Of this kind for reasons
Of their own. But the mos
dangerous Of all are those who
say that o little imitation
would be good to keep things
going.
Zalio v. Warner.