Show WARNS WARS AGAINST DEFLATION RID p Federal Reserve Board Will ViI Use Full Po Power er told to Aid l d Commerce Washington Feb Jeb 23 De Determination of ot tho the federal reserve reser o board to exert cert tho the full ful power of oC tho the reserve banking system in regulating and md controlling tho the credit situation a course designed to aid commerce and Industry in ill restoring restoring In ing a prewar equilibrium was wa disclosed In the b boards board's ards ard's annual report made public pub pub- lie lic le lo today i The Te board was pr prepared pared to test th the ability of or the system to check expansion sion slon and to Induce healthy liquidation Tho Tue board explained It I was aware of oC the implied power ower to rectify the condition condition condi condi- I condl-I tion which confronts tho the country This power necessarily followed the authority authority author author- ity Iy for and employment of or an j autor-j elastic of or reserve credit and no note to Issue it i was added Recommendations ns also were made mado to the tho Congress for tho amendment of or the I reserve reser o act which would permit banks banks' I Ito to establish normal maximum lines of oC credit accommodation for for member I banks bank An ascending scale of or rates I would be bo provided in event mone money was I borrowed above the maximum line Inel This tho the board believed would work to tho the end that credit expansion on a alar lar largo large o scab scalo be stopped Warning arning was given Iven that tho the country must mUt guard a too rapid d deflation naton It I was WS pointed out however ho that some remedies employed to correct deflation might create creato conditions worse than In Inflation inflation In- In faton itself Dofa Deflation lon merely for fol or the thc sake of or de deflation tie tie- faton and a speedy rot return urn to normal deflation deton merely for tho the sake sako of ot restoring restoring In ing security values and commodity prices to their prewar levels without regard for other consequences would be bt an insensate proceeding the report saidI said It I must never bo be forgotten that thata a a modern business is done on credit Ono One o of its first life giving principles principles principles prin prin- Is credit The ultimate test of or a credit system must bo be found in what it docs does to promote and increase the 1 production of or goods True In general this observation deserves to bo be lo particularly parte- parte emphasized In the tho present deranged de deranged derm de- de rm ranged ed state of world industry and trade when production Is the cr crying Jn need of ot the hour everywhere Traditional Method In explanation of oC its Il increase in discount discount discount dis dis- count rates tho board said ald that this ha had been the traditional method of ot credit control Its Is use however presupposes presupposes presupposes pre pre- supposes normal conditions and these I it was as pointed out do not all al exist at this time While a a high reserve bank rate rato was wag shown to act as a restraining I influence upon borrowing and it I may attract credits credis from frol other centers It Itis itis I is Js this condition among others that was said sald by tho the board boar to make imperative impera Impera- tire tive tho the use of Its Is power In controlling credit and ami starting deflation In checking expansion tho the board de declared de- de dared cared much depended upon cooperation cooperation opera co I de-I tion ton of oC business and the tho community generally There IH is however no need neel for for drastic or precipitate acton action the tho report continued There ne need d be no apprehension as a to our ability to affect the transition from war time to peace time conditions if reasonable safeguards I against the thc base credit are respected II Our economic and financial position I la is at tho the bottom rate cafe and sound Tho The processes of or adjusting tho volume of or credit to a a normal basis should be effected In an orderly manner The Thc granting of extensive credits to foreign trade and the resultant keen competition In our own markets with the thc foreign buyer was charged l by the board as being ono one of or tho tue potent causes of high prices it I was shown that the thc demand for or commodities from domestic as well wel as from foreign sources was wa so far In excess of ot the supply supply supply sup sup- ply that the tho increased cost of or credit can be bo and is absorbed in the tho price Speculation therefore has not been ef effectively effectively ef- ef cly checked b by advances ad in Interest Inter litter c- c ost est rates because of or the anticipated anticipated- and usual usually r realized largo largo largo profits according ac accordIng according ac- ac cording cordIng to tho the analysis The Tho board restated Its Is opposition to the financing of exports which require term long term lons-term contracts through banking operations as distinguished from apPeals appeals ap ap- ap- ap peals Jels to the securities market Of Americ's Amer Amer- leas ica's ics ic's balance balanco of or trade trado for fol the calendar year ear approximately 2 was declared to have fallen as credit transactions on the tho commercial commercial commer commer- cial banks battles Treasury advances ad during tho year ear amounted to but this was as not regarded as sufficient to offset tho the correspond corresponding Ins measure of or expansion necessitated by the carrying of the credit balance I |