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R-863

BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

Statement for the Press

For release in morning newspapers
of Tuesday, August 12, 19Ul




Statement of Chairman Marriner S. Eccles
with reference to the President's Executive Order
relating to the regulation of consumer credit.

August 11, 19i|l

R-863

The President today issued an Executive Order under date of
August 9 empowering the Board of Governors of the Federal Reserve System
to regulate consumer credit in order to promote national defense and to
protect the national economy.

An initial regulation will be issued as

promptly as possible following consultation with representatives of the
trade and the financial institutions affected.

The regulations will re-

flect a policy of flexibility and will be in more or less general terms
until experience and further study establish more precise guides that may
be followed.
Frequent conferences have been held with the staff of OPACS with
special reference to problems affecting prices and. civilian supply.

Pre-

liminary conferences have also been held with representatives of the
Secretary of the Treasury and Federal Loan Administrator.

Liaison will be

constantly maintained with all three of these agencies pursuant to the Order,
In effecting a nationwide administrative coverage, under the
authority of the Order, the Board will utilize the services of the 12
Federal Reserve Banks and 2h Branches in administering the Order, thus
making available the long years of practical experience that the Federal Reserve System has had in the field of credit, and enabling details of administration to be decentralized.
Regulation of consumer credit represents another step by the
Government in its effort to prevent inflationary developments.

It is

supplementary to other more fundamental measures that are being undertaken
in other fields»




The danger of inflation arises from the constantly growing

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volume of Government disbursements for defense, giving consumers everincreasing buying power at a time when the country1s capacity for producing
durable goods available for civilian consumption is nearing its limit.
Restriction of consumer credit should dampen the demand for consumers durable goods, such as automobiles, washing machines, refrigerators,
ironers, vacuum cleaners, and many other goods, at a time when their production needs to be curtailed in order to release materials, labor and plant
capacity required to increase production for defense.
The raw materials required for both types of products —
and durable consumer goods —

armaments

are in the main such materials as iron, steel,

copper, zinc, nickel, lead, aluminum, magnesium, rubber, cork, tin, etc»
At present armament demands for such materials are, and probably throughout
the emergency will be, so great that the surplus left over for production
of consumers durable goods will in many cases only permit an output of such
goods considerably smaller than that attained in recent months.
The Order does not cover installment credit for the purpose of
purchasing or carrying a residential building in its entirety»
It is expected that the initial regulation will be built around
a list of articles such as have been mentioned above, which are of the type
usually bought for consumers1 use.

The initial list will not contain

articles ordinarily bought for productive purposes, such as farm implements,
etc.
The initial regulation, it is expected, will apply only to installment credit.




It will not apply to open book accounts nor to straight

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loans payable at one time and in one payment, whether or not secured.

How-

ever, installment credit to obtain cash in relatively small amounts will be
covered by the regulation since this type of credit ic so closely related
to the purchase of articles of the kind listed.

This coverage will be sub-

ject to such exceptions as may be desirable in the public interest.
Restriction of consumer credit during the emergency will assist
in the orderly transition from the defense to the post-defense period.

By

diminishing the volume of credit used for consumer durable goods, it will
make funds available for investment in defense bonds and other forms of
savings.

When the emergency is over funds so savod can be drawn upon to

replenish the depleted stock of durable gocds.

At that time capacity for

their production will become increasingly available as the production of
defense materials is reduced.
It is in the interest of all of the people, in the emergency
period, that the growing demand for consumers durable goods of all kinds
be curtailed as an integral part of a broad coordinated program to combat
inflationary dangers.

We should all be ready and willing during the emergency

to get along with fewer of those consumers goods which will be embraced in
the Board's regulation.

By doing so, we can assist the defense program,

lessen the danger of runaway inflation, increase our savings and our
purchases of defense bonds, and help to build up a backlog of effective
demand to cushion the impact of post-war readjustment.