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1C77 W . P . G . H A R D I N G . GOVERNOR EX OFFICIO M E M B E R S E D M U N D P L A T T , V I C E GOVERNOR ADOLPH C. MILLER DAVID F . H O U S T O N SECRETARY OF THE TREASURY , C H A R L E S S . HAMLIN FEDERAL RESERVE BOARD CHAIRMAN JOHN SKELTON WILLIAMS COMPTROLLER OF THE CURRENCY HENRY A. MOEHLENPAH W . T . C H A P M A N , SECRETARY R . G . E M E R S O N , ASSISTANT SECRETARY A D D R E S S REPLY TO FEDERAL RESERVE BOARD WASHINGTON November 24,1920* Subject: W . M . 1 M L A Y , FISCAL AGENT X-2070 Extension of C r e d i t t o Farmers* Dear S i r : The Beard has r e c e i v e d s e v e r a l telegrams r e c e n t l y from i n d i v i d u a l s and Boards of Trade i n towns l o c a t e d i n N o r t h e a s t e r n Nebraska, South Dakota, and North Dakota, a l l couched i n s u b s t a n t i a l l y t h e same words and p h r a s e s , urging the Federal Reserve Board " t o d e c l a r e t h a t an emergency now e x i s t s and t o a r r a n g e f o r c r e d i t extension to farmers". For your i n f o r m a t i o n , a copy of one of t h e s e telegrams i s s e n t t o you herewith, t o g e t h e r with a copy of t h e B o a r d ' s r e p l y . Vary t r u l y yours, Enclosures. Governor. To Chairmen of a l l F.R, Banks. 1078 X-2070 a COPY OF TELEGRAM Hon. l.P.Gr. Harding, Governor, Federal Reserve Board, Washington, D.C. Our country i s f u l l of corn, oats, imaature p i g s and p a r t l y f a t t e d c a t t l e , 'Your Board i s i n s i s t i n g t h a t farmers s e l l these products to reduce e x i s t i n g indebtedness. The only s a l a b l e produce i s corn a t 40 cents and oats a t 33 cents per bushel. A sale a t t h i s p r i c e w i l l not pay the cost of r a i s i n g the crop and w i l l not l i q u i d a t e any indebtedness but w i l l simply f o r c e the crops into, t h e hands of s p e c u l a t o r s and a very l a r g e part of the farmers into bankruptcy and a t a time when the consumer i s able to pay a f a i r p r i c e . This means t h a t general bankruptcy w i l l follow. We e a r n e s t l y urge your Board t o declare t h a t an emergency now e x i s t s and to arrange f o r c r e d i t extension t o farmers so t h a t some of the e x i s t i n g indebtedness can be paid out of the proceeds of the p r e s e n t crop. Your Board outlined a policy l a s t spring to bring down p r i c e s and i n so f a r a s p r i c e s of farm products a r e concerned you have c e r t a i n l y more than accomplished your purpose. If your Board would b r i n g p r e s s u r e t o ma e a decent market our farmers would gladly s e l l t h e i r products* 1079 X-S070 b November 24,1920* Dear S i r : A telegram dated November 22nd, signed by yourself and i n behalf of one hundred and e i g h t y - f i v e o t h e r s , has been received and duly considered by the Federal Reserve Board. Our information i s t h a t the p r i c e conditions of which you comp l a i n a r e due i n p a r t t o t h e d i f f i c u l t y of maintaining a l a r g e volume of exports because of the c r e d i t s i t u a t i o n abroad, i n p a r t t o the unusually l a r g e crops which have been produced t h i s year, and i n p a r t to the f a c t t h a t the farmers, f o r one reason or another, c a r r i e d over a l a r g e r amount than usual of l a s t y e a r t s crops. The f a l l of p r i c e s has a l s o been a c c e l e r a t e d because of g r e a t e r economy on the p a r t of consumers and t h e i r r e l u c t a n c e t o pay the p r i c e s which p r e v a i l e d some months ago. The Federal Reserve Board r e g r e t s the embarrassments which are a t t e n d a n t upon the comnerce, business and a g r i c u l t u r e of the country, but d e s i r e s t o s t a t e most p o s i t i v e l y t h a t these conditions have not been brought about by any a c t s or p o l i c i e s of the Federal Reserve Board or the Federal Reserve System. On the other hand, the Board c o n f i d e n t l y a s s e r t s t h a t but f o r t h e precautionary measures taken several months ago condit i o n s would have been f a r worse today than they a r e and t h e p r o s p e c t s of s t a b i l i z a t i o n and recovery much more remote. The Federal Reserve Board has not i n s i s t e d t h a t farmers s a c r i f i c e t h e i r products or t h a t they adopt any p a r t i c u l a r p o l i c y . The Federal Reserve Banks do not deal d i r e c t l y with t h e p u b l i c but a r e permitted by law t o rediscount f o r member banks paper defined by t h e Federal Reserve Act a s e l i g i b l e . There has been no reduction i n the volume of c r e d i t extended by the Federal Reserve Banks during the past year, f o r the volume of paper rediscounted by Federal Reserve Banks and the amount of Federal Reserve n o t e s outstanding a r e each higher by s e v e r a l hundred m i l l i o n s of d o l l a r s than a year ago. Member banks have rediscounted with Federal Reserve Banks a much l a r g e r p r o p o r t i o n of t h e i r t o t a l l o a n s and d i s c o u n t s than they have ever done before - an amount about t e n times g r e a t e r than normal. The Federal Reserve Banks i n the a g r i c u l t u r a l d i s t r i c t s have discounted f o r t h e i r member banks amounts so l a r g e t h a t i n many cases t h e i r own r e s e r v e s would ha te been reduced t o l e s s than one-half the leg&l minimum but f o r t h e f a c t t h a t they were permitted by the Federal Reserve Board t o rediscount with o t h e r Federal Reserve Banks. The t o t a l volume of these i n t e r - b a n k r e d i s c o u n t s which have gone f o r the l a r g e r p a r t t o member banks i n farming s e c t i o n s has a t timtw been i n excess of $250,000,000. This r e p r e s e n t s a sum more than e i g h t times a s g r e a t ""as t h e maximum d e p o s i t s ever made by t h e United S t a t e s Treasury with r a t i o n a l banks t o a i d i n crop moving o p e r a t i o n s . 1080 -2- X-2070 b The Federal Reserve Board i s advised by t h e Federal Reserve Bank i n your d i s t r i c t t h a t c r e d i t f a c i l i t i e s a r e not toeing denied to your member banks, although many of them have under discount amounts f a r i n excess of what would be regarded a s a normal and reasonable l i n e . The Federal Reserve Bank has merely i n s i s t e d t h a t a s n o t e s which have been rediscounted w i t h i t a r e paid the borrowing member bank apply the proceeds t o t h e r e d u c t i o n of i t s indebtedness t o the Federal Reserve Bank. Neither the Federal Reserve Beard nor the Federal Reserve Banks undertake t o d i r e c t t h e c r e d i t policy of member banks; t h i s r e s t s with the d i r e c t o r s of each such i n s t i t u t i o n , and, of course, the Federal Reserve System has no control whatever over the c r e d i t s of non-member banks. No doubt many banks f e e l t h a t they a r e unduly extended and a r e endeavoring t o secure l i q u i d a t i o n or reduction of loans a t m a t u r i t y , but any d i r e c t p r e s s u r e brought t o bear upon the farmer to s e l l h i s products i s exerted by the member and non-member banks and not by the Federal.Seserve Board. Numerous telegrams have been received during t h e p a s t two days, couched i n s u b s t a n t i a l l y the same words and terms a s yours, from i n d i v i d u a l s and t r a d e bodies i n you* s e c t i o n i n d i c a t i n g organized e f f o r t t o bring p r e s s u r e to bear upon the Federal Reserve Board. In each of these telegrams the Board i s urged "to declare t h a t an emergency now e x i s t s and t o arrange f o r c r e d i t extension t o farmers". Such a d e c l a r a t i o n by the Board would be l i a b l e t o cause a r e a l emergency and would a c c e n t u a t e the d i s t r e s s i n s t e a d of r e l i e v i n g i t . An extension of loans t o farmers can be granted only by t h e banks with which the farmers deal or t o which they a r e indebted. The ... Federal Reserve Board has been a c o n s i s t e n t advocate of orderly marketing of crops, but a s has been pointed out by members of the Board i n public addresses, orderly marketing does not mean the t y i n g up of bank c r e d i t s and the withholding of e n t i r e crops from.the market by means of a d d i t i o n a l c r e d i t s from banks, but means gradual sales*. The a p p l i c a t i o n of t h e proceeds of the se s a l e s t o e x i s t i n g indebtedness would place the i n d i v i d u a l farmer, the merchant and the l o c a l bank i n stronger p o s i t i o n and would make i t p o s s i b l e f o r the l o c a l bank to do more f o r the farmer than i t can do if crops a r e withheld e n t i r e l y . I am sending you a copy of an a d d r e s s which I made several weeks ago before the Chamber of Commerce, a t Cleveland, Ohio, and would i n v i t e your a t t e n t i o n p a r t i c u l a r l y t o those paragraphs which have been marked. In conclusion I would say t h a t t h e Federal Reserve Board recognizes the f a c t t h a t a g r i c u l t u r e i s a b a s i c and v i t a l i n d u s t r y . The Board has always assumed a sympathetic a t t i t u d e towards a l l m a t t e r s r e l a . t i n g . t o a g r i c u l t u r e and i t has done, i s doing and w i l l continue t o do a l l i t can i n a "legitimate and proper way t o a s s i s t the farmer i n h i s c r e d i t problems. I t w i l l not, however, be forced i n t o the adoption of p o l i c i e s which i n i t s judgment would be unwise and ruinous, and which would eventually involve the farmer, a s well a s o t h e r s , i n d i s a s t e r . Very t r u l y yours, W. P. G. HARDING, Governor
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