OCR Text |
Show THE RICH COUNTY NEWS. RANDOLPH, UTAH CITY storage, they have a lending power in storage this lending power is used, the level In the reservoirs falls. In 1920 the reservoirs ran very low, because the farmers and business men made unusually heavy demands upon them at a , time when they had already been drawn down by the war needs of the government The supply of water in a , reservoir becomes useful when it Is distributed through the water-mainThe supply of credit In a federal reserve reservoir becomes useful when it is distributed through the member banks. But just as It is the Individual and not the reservoir that draws the water, so it is the business man or the farmer who takes the first step which may result in drawing upon the reservoir of credit. For example: A grocer In Austin, Texas, wishes to buy fifty barrels of flour. He has not enough money in the bank with which to pay for it so he asks his local Austin bank for a loan. This is the first step just referred to. x The Austin bank, satisfied with the grocer's credit, makes him a ninety-da- y loan on his note. The grocer bys the flour, and proceeds to sell ' it barrel by barrel to his customers. As his customers pay their billi the grocer accumulates money with which he pays off his note. ' In ordinary times and in slack seasons, a banks own resources are sufficient for It3 customers needs. But perhaps the Austin bank, which Is a member of the Federal Reserve system, is asked to make the loan to the grocer at a time when niany people are asking for loqns to carry on their business. Or perhaps its depositors for one reason or another are having to draw down their deposits. If the Austin bank is to continue to lend money anti pay its depositors, lc in turn will have to borrow. Before the Federal Reserve system was In operation, the Austin bank would have had to ask for a loan from some larger bank with which it had an account. Ordinarily the loan could be obtained. But if money happened to be scarce the larger bank might be compelled to refuse to lend, cause its own resources were running below what it might need to meet all the demands of its customers. Now, however, as a member of the Federal Reserve system, the Austin bank Is In a quite different position. It has a bank of its own. the Federal Reserve bank of Dallas, to which it goes as a matter of right given it by law. It sends to the Federal Reserve bank of Dallas the grocers note and other notes upon Which It has already made loans. With these as security, the Austin bank asks the federal reserve bank for a loan. This is the second step In drawing upon the reservoir of credit, and follows the first step which the Individual too when he borrowed from his bank. Both steps must be taken before the federal reserve bank lends a dollar. The Dallas Federal Reserve bank examines the notes to see whether they are sound and acceptable, and of the kind the law permits It to lend upon. Being satisfied, It makes the loan to the Austin member bank. Thls'is called rediscounting ; and the rate of interest the federal reserve bank charges is called the discount rate. This is a published rate, applying uniformly to all mem- bor banks in its district, and Is often quite different from the rate the member bank charges its own customers. The rate a member bank charges its customers ,1s determined, subject to state law, largely by local .business conditions and local , banking custom., Later, vvln the grocers note falls due, the federal reserve bank sends it back to the Austin member bank and receives, payment for it. The Austin bank in turn receives payment from the grocer and gives him back his note. Thus the circle if completed. Meanwhile, the grocer has been able to carry on 'bis business. The simple transaction of the Austin grocer Is typical of the vast mass of loans which enter into the operations of the Federal Reserve system. Suppose, for instance, that instead of the grocer, the borrower Is a dry goods merchant in Butte, a hardware dealer in Chicago, a steel maker in Birmingham, a lumberman in Seattle, or an exporter in New York eacli a -- responsible business man in good financial standing locally.' Suppose, again, that the borrower is anyone who owns a United States government bond or note, and puts it up at his bank as security for a Such borrowings from member banks, loan. whether large or small, can be'borrowed upon by the member banks at their federal reserve banks if they are within ninety days of falling due. It was loans of this sort, rediscounted at the federal reserve banks, that enabled millions of people throughout the United States to subscribe to the Liberty and Victory loans. Just such reasons as prompted the Austin member bank to borrow from its federal reserve bank, sometimes cause a federal reserve bank to borrow. Borrowings by many member banks, representing loans that they have already made to their customers, sometimes draw down the reservoir to such a point that It nyist be replenished If the federal reserve bank is to continue ' to lend. This country is so vast that one section of It is apt to have credit to spare when another section needs credit. All that is necessary Is a quick and easy means for bringing them together. The Federal Reserve system furnishes the means and has often used it. A federal reserve bank renews Its power to lend by borrowing from another federal reserve bank in a district where the demand for credit is smaller. It puts up as security the notes upon which it lias lent to its member banks. In other words, one of the twelve reservoirs in system pipes in some of the surthe country-wid- e one or more of the other reserfrom credit plus voirs and so renews Its power to lend. beThis is the kind ft beneficial tween agricultural and industrial districts that actually took place In the difficult years of 1920 and 1921. At times, when agricultural districts such as Richmond, Atlanta,- St. Louis, Minneapolis, Kansas City or Dallas, having received targe amounts of money in payment for their crops, had surplus credit, they lent it to Industrial districts which were in need of It. At other times, when the situation changed and Industrial districts such as Cleveland. Boston, New York or . Philadelphia, having teceived payment for goods, In also. As HOW THE SYSTEM DOES FOR BANKS WHAT THE BANKS DO FOR CUSTOMERS s. HE passing by the United States senate the otlier day ot "a joint resolution (S. J. Res. 238) author of izing the Federal Reserve bank to St. Louis to erect a building l' yj, (7 cost $400,000 for its branch bank at Little Rock, Ark, brought out in debate the fact that the Arkann sas bank had loaned $388,000.-OOOoiand had the years 1919-2made net profits of $1,011,000. 1 These federal reserve banks are a going up all over the country t and importance fact which shows the magnitude of th.e system'. In response to a public demand for deformation about the Federal Reserve Eanking official sj stem and its operations the following statement is presented: A federal reserve bank does for banks almost It exactly what banks do for their customers. receives money on deposit from such banks as have become members of the Federal Reserve s stein, and lends to them. All national banks are members of the Federal Reserve system, and have many state banks and trust companies become members also. Every member bank is reserve obliged by law to keep with its federal bank ar, amount of money 'Which bears a certain from proportion to the deposits it has received as and reserve. a called Is Its customers. This the federal reserve banks keep the reserves of banks. (heir members they are called reserve At times, member banks borrow from their federal bank just as individuals borrow from their own bank. Individuals cannot deposit money with a federal reserve bank, or borrow from it; member itheir elation with it is through the banks. Before the Federal Reserve system was jn operalone. ation, each individual bank stood virtually well This was safe enough as long as things went in the business world, but even then the machinery of banking was so cumbersome that it often worked badly. In older to meet the requirements of law and to pay depositors, all bonks used to keep targe amounts of gold and currency on hand and most of them also kept money on deposit with other banks in the larger cities. When all went well, 'the money on deposit with the city banks could was be withdrawn in currency whenever it busiwanted. But when, as sometimes happened, ness or banking conditions were disturbed and were anxious suspicion was in the air, the banks to increase the amount of cash on hand lestwith-an unusual number of depositors might want to that draw their money. And it was at those times cash. . the city banks were least able to furnish was limited, of currency available supply 'For the and there was no quick way of increasing it. The limited supply of currency led to the panic of 1907., For, moved by apprehension, almost every thousand banks sought, for one of the .twenty-fou- r such currency as withdraw to .its own protection, it could from otlier banks and pay out as little as possible to its depositors. Thoughwereemergency too .late measures were finally taken, they 'to prevent the coming of trouble, and the existing of hanking machinery fell apart into thousands separate units. Each bank had to trust largely to its own cash resources, because, bowTever willing, the other banks felt they could not give up much of their abilcash, for by doing so they might Impair their needs of their own cusmeet the possible to ity tomers. Each bank, in seeking to protect itselfr strucnecessarily weakened the entire banking when the weakest were defenses The ture. danger was greatest. The result was that every few years a money and depression. panic occurred, bringing disaster States These money panics from which the United Fedsuffered, nnd which the organization of the of were, course, now prevents, Reserve system eral commercia' crises from quite different from the which every country occasionally suffers. Under the Federal Reserve system there is a which the banks quick, certain, automatic way by one another. of the help system members arc that to every is This bad. Important nnd times In good business man, every farmer, every working man, of organization the every citizen. It Is the result a sjstem of makes that zation of kind organ' reservoirs in a community better than many sepv 1 arate wells. is appropriate to think of the Federal Reserve a sjstem of reservoirs. system as exactly that of reservoirs, the federal these twelve are There New' York, Philadelphia. Boston, banks reserve Cleveland .Richmond, Atlanta, Chicago, St. Louis, San Fran-ciscMinneapolis, Kansas City. Dallas and each serving the needs of the member It o in its own federal reserve district. In each reservoirs credit is stored up, and from it, these of need arises, credit is supplied to the memas the their customers, ber banks and through themmento and farmers, but business not' only including much like the is The well. process as otlier banks in a city reservoir, from which water of up storing It Is supplied to houses and their occupants. It may be thought strange that such a thing as is the power to make (.redit, which in this sense the fact is. a great But stored up. be can loans reserve reserfederal in the stored up is deal of it voirs. For, as we have seen, the member banks banks most of the deposit in the Federal Reserve own vaults and their in gold they formerly kept some of the money they used to keep the gold which fedwith other banks. And it is In this and other ways eral reserve banks require loans and that gives them the ability to make -issue currency. The provisions of the law are such thatto the an federal reserve banks can make loans much as as times three and two between amount ihe gold they have. So, bavin a supply of gold banks , ' -- - Forecast of the Congressional Elections had surplus credit, they lent it to agricultural districts. tidiest, handiest margin for all prac, Very closely connected with the power of the federal reserve banks to lend Is their power to tical purposes, Issue currency federal reserve notes. The power Close to 100 districts normally Demto lend, taken by itself, would be of far less value ocratic in the last decade were swept if the power ro Issue currency did not go with into the Republican column by the It. Just as the customer who makes a loan at his Harding avalanche and many of these bank may need to draw out part or all of It In are expected by the political sharps to revert to type in the Nocurrency, so h member bank In making a loan at a federal reserve bank may need, to draw out part vember election this year. Also the or all of it In currency. The power to Issue curRepublicans say they are prepared to lose a considerable number of addiwho has a deposit In a rency insures to everj-on- e solvent bank the ability to draw it out In curtional districts which they generally rency. That explains why this country never carry by a comparatively small pluagain need have a money panic such as that of XX7ASHINGT0N. The last of. the rality. Republican leaders would probprimaries In the West for the ably be satisfied with a majority of 1907 ; explains, Indeed, ,why there was no sugnomination of candidates for United 40 or 50 in the house. ' In a of difficult months money the gestion panic States senators and representatives 1920. of If the Republicans carry the house Look ar a bill bearing the portrait has been held and the election cam- they will be in control of congress of of Lincoln. On Its face it says that It is an paign is on. With only during the second half of Mr. Hardobligation of the United States; on Its back that the senate to be elected the Republi- ings term. Mr. Harding will have the It is redeemable in gold at the treasury In. Wash- cans, who- now have a majority of 22, majority necessary to put through the ington. Federal reserve notes are also redeemed are assured of continued control of remaining legislation bn the program that body In the next congress, though to which he and his party are comIn gold at any federal reserve bank. Each federal reserve bank Is required by law possibly by a reduced majority, and mitted and will have a free opportunity to set aside security, dollar for dollar, against the principal question the election will to lay a solid foundation for a bid for the notes it issues. The security may be either answer is whether the Republicans renomination. gold, or borrowers paper very shortly to be paid, are to retain control of the house also. If, however, the Democrats carry The Harding landslide of 1920 gave the house the G. O. P. will be la representing either loans for the production or distribution of goods and farm products, or loans to the Republicans the unusual and whol- trouble for the next two years, if not holders of the United States government securi- ly abnormal majority of 169 in the longer. ties. The gold which the law requires a federal house, too unwieldy and unmanageSo, in this congressional campaign reserve bank to maintain as a reserve against Its able a majority, say the party leaders, Is heard afar the rumble of the guns notes must always be at least forty per cent of who hold that about 50 make the of the 1924 presidential election. the amount of its notes in circulation. These notes gpt Into circulation and pass out of circulation In much the same way as money Is drawn out of a bank and returned to It. TDLEARY-EYEand ''warty croco- When a man needs currency he draws a check diles a yard or so In length, whose on his bank and cashes it. If he has not enough digestion enables them to chew up, money In the bank to meet the check, he may broom handles as a man would a have to make a loan. In just the same way, when may be harmless in the a member bank needs currency. It draws and toothpick, sense of the word when shipped legal PerbanK. on reserve Its federal cashes a check by parcel post, but Postmaster A. L. haps the member bank had to borrow at the fed- Behymer of Cincinnati has his own eral reserve bank for this very purpose. That is doubts about the matter. how the total amount of currency In circulation personal In addressing ttye National AssociaIncreases. tion of Postmasters, Mr. Behymer exOi. the other hand,, when a man has more cur- plained that live animals and various n chanrency than he needs he deposits It at his bank kinds of barnyard stock, under the only to be followed by and perhaps pays off a loan with it Just so does law, were entitled to mall privileges, ticleers and domesticated motherly a member bank at the federal reserve bank. That If, in transit, they wore badges in- hens. is how the total amount of currency In circula- scribed Harmless. But when alligators and other gruetion decreases. As federal reserve notes for which The Cincinnati postmaster was in- some creatures happen along in the there is no demand accumulate in a federal reserve clined to doubt that fair postmistresses usual run of business and, as was the bank, they are either destroyed or put away In or a bevy of young women clerks In case recently at an Ohio postoffice, its vaults until some need calls, them out again. the home postoffice would look upon a escape from their crate and wallow Whether the volume of federal 'reserve notes in crate of live mice as harmless. Also, about the office snapping broomsticks circulation increases or decreases depends not Mr. ' Bejjymer appeared not to look with and otherwise giving vent to playful up-othe initiative of the federal reserve banks official to the untilreduced some the pranks prospect day serenity upon but upon the needs 'of the member banks. Their of being obliged to attend, water and harmless stage, he declared it was In of their are needs decided the needs, by turn, k about time to call a halt. feed various fowls and Irritated customers. As in drawing water from a reservoir, The convention failed to take any as a , part of the daily postal it Is the Individual who takes the first step. action upon the revelations of the Cinroutine. The plan of organization which the law lays The evolution of the egg, he felt, cinnati postmaster, evidently feeling down for the Federal Reserve system does two was not so bad, explaining that first the harmless" phase of parcel post e system so knit the parcel post handled crates of eggs, management would in the proper things. It provides a nation-widresources may work as then the contents of such eggs after course of events be corrected or m'Odl-fie- d together that nation-wid- e a unit in a national emergency, or be mobilized to in the form of live chicks, by the postal authorities. r meet a local emelgency too severe for local re- hatching, sources to cope with. It also preserves the right In banking. These are of local principles with which Americans are familiar In for the army to retain the services of the working of the federal and state governments thirteen colonels who would have been under the Constitution. separated from the service by the reThe country is divided into twelve districts, duction in that grade in accordance each with a federal reserve bank. In many diswith acts of congress. one or more tricts the federal reserve banks have Brigadier generals to be major genbranches for the better service of the member erals as given In the list are; oanks. Each federal reserve bank has Its own A. W. Brewster, on duty War destockholders, directors, officers and clerks like partment retirement board. other banking institutions. The stockholders are Edward M. Lewis, commanding Secthe member banks. Its nine directors are resiond division, at Camp Travis, Tex. dents of the district, some from the cities and Robert L. Howze, commanding first seme from the country. Three are appointed by RESIDENT HARDING has ap- cavalry division, El Paso, Tex. the federal reserve board In Washington, and the William Lassiter, assistant chief of proved the selection of six brigother six are elected by the member banks, each to be promoted to major staff, War department. adier are In vote. the banks ene generals divided voting, having R. Duncan, commanding George Into three groups, each of which elects two di generals and thirteen colonels to be rectors. These groups are composed, respectively, brigadier generals the largest promo- Fourteenth Infantry brigade, Fbrt army officers Omaha, Neb. of the smallest banks, the middle-size- d banks, and tion list of Ernest Hinds, on duty War departin of peace at ever announced time can three of directors banks the Only the largest ment retirement board. be officers or directors of other banks At least one time. The colonels to be brigadier generals Secretary Weeks said that the nomithree, and usually a majority, are representative John B. McDonald; Charles H. to be are; the would nations transmitted, commerce and For these of industry, agriculture. are Die interests which, through the member senate before the end of this year and Barth; Willoughby Walke; John B. who will be assistant quarbanks, the system is intended particularly to as vacancies occurred In the grades Bellinger, termaster ; Richmond P. Davis ; general affected. serve and protect. The nineteen promotions were made John M. Palmer, aid de camp to GenThese men are responsible for the management d and control of the federal reserve bank. They possible In part by the recent volun- eral Pershing; Briant H. Wells; L. ; Frank R. McCoy ; Harof five retltement King generals determine major the policies under tary elect its officers, which it operates, and establish, subject to ap- and two brigadier generals from active old B. Fisk; Halstead Dorey; Hugh A. Drum ; Stuart Heintzelman. proval by the federal reserve board, the rate of service, which also made it possible discount it charges. All profits, after setting aside the surplus provided in the law and after paying the member banks six per cent dividends on their stock, go to the United States treasury it appears, has UNCLE SAM,stake and are used to reduce the national debt. In the control of at The body is the federal reserve Constantinople. The United States board In Washington, which Is made up of seven government, it Is explained authoritamembers five who are appointed by the Presitively in Washington, has certain defident and devote their entire time to the work, nite interests in Asia Minor and In together with the secretary of the treasury and the final settlement of the controversy the comptroller of the currency. over the Dardanelles. The federal reserve board, however, is not an ' Aside from the duty of enforcing the operating body. Except for its power to require of the citizens of the United one federal reserve baDk to lend to another rights States under the Capitulafederal reserve bank. Its powers are almost tions treaty negotiated with Turkey entirely supervisory. But the board does not pass many years ago, this government is upon the Individual loans which a federal reserve bound to protect the lives and property at the close of hostilities in the war. bank makes to a member bank. The board Itself, of Americans In Asia Minor, and fully Under this armistice, the allies retained the right to keep the Dardaof course, cannot lend money because It has none Intends to do so. nelles open by forde If necessary. - ' to lend. CapitAll rights under the In their right to borrow at a federal reserve ulations While it can be definitely stated that treaties were declared null bank all member banks, large or small, are equal. nnd void this government Is not going to at of sultan the Turkey by in any political or military The law says that a federal reserve bank shall he outbreak of the World war, but make member bank such loans as may be this government protested al the time activity in Asia Minor, it cannot be safely and reasonably made. and has never admitted the cancella- expressed too strongly, officials have The Federal Reserve system provides the tion. that the United States Is defiGermany and Austria accepted declared, entire country with a currency responsive to Its this nullification, but the other powers nitely interested in the control of the varying needs, and thus removes the danger of a acted in the same manner as the Unit- Dardanelles. money panic. Moreover, it provides the entire ed States. The vast importance of these straits, couni ry with a great reseffvoir of credit from The allied nations have maintained coupled with the growing commercial which farm and range, forest and mine, factory naval and military forces In Turkey Importance of the United States, and and store, may receive assistance in producing not meronly to enforce their capitulatory the consequent expansion of Its and marketing all the Innumerable goods and that makes chant it and lives imperative marine, the to and protect wares which go to make up American cornu area rights of their citizens,. but also the beet Interests of this government properties industry and agriculture. nwier the provisions of the armistice should not be endangered by any set concluded between them aod Turkey tlement that is mad. -- N five-doll- one-thir- d i Harmless Animals in the Parcel Post dive-stoc- Nineteen Army Officers Are Promoted ' high-rankin- g Ed,-war- Americas Interest in Constantinople ' O articipate' 1 |