The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
X-613
~
PRESS STA'l'bENt - ~NING tm'YSPAPERS JA.NIIARY 1J 191~.
THE FEDE&L RESERVE SYSTEM UJ 1917.
(Federal .Reserve &lleti:r.. Ja:rAAary 1918.)
In revieWing the year Just closed, the country can not
but regard with profound satisfaction the part played by ita. ba.nking system under the leadership and with tho suppOrt of the federal
Reserve Ba.:nks. The way in which the Federal Besetve System bas withstood every test to which it has been subjected shows the wi~domwith
which it was conceived; the foresight with which it bas been develop•4
and the strength wUh vilich it ha.s been adminstet~d; ir~ it the country
possesses a financial foundation of unrivalled selidity.
The Federal Reserve Banks t~ve taken their place in the
.A.rr.erioa.n f ina.ncial lyatem; they are the keystone of the Oa.nJd.ng arch.
Financing, of the war has,~ howeve-r.; placed unexpected and
heavy burdens~ not only upon the Federal Reserve ~nks 1 but on the
banks of the 4o~iry generallJ. The zeal and effiCiency with Which
they have t!l)SJ)OJaded to the call n:ade upon therL is evidenced by the
results which have ·been achieved in a year which will forever be a
uemorable o~e. Under the leadership of the Secretary of the Treasury~
the banks have done their duty admirably_ in placijlg both the short and
lcmg term iiocurities of the Governrr.ent. As long as the war lasts their
sarvices ir~ th6se ~irections will doubtless have to be relied upon in
the future a.s much as in the past. But there are other services of
equal, if not of greater consequer.ce· i::• .the successful final:lcing of the
war in which the help of the banks of the country will be ~eeded. In
extending a word of greeting to its member b~ks with the opening of the
new rear and as we appro&ch the threshhold of~our second year in the ~r~
the Board feels it proper to point out certain fundamental methods in
which it believes the banks 'ca.n help i1:. »la.cir,g the financing of the war
upon a fo~~dation of unshakable strength.
~ar financing in the last anal]sis l'llB&.na putt.ir.g tht Government in possession of goods an~ services. Fi:.>.lnci.r,g by J.oaL.s means
the sale· to the GoverrdOOnt of goods on credit. To wir. the war, our
Government and the Governments with which we are aseociated must have
goods and services. It is of as ~uch ~port~ce~ therefore 1 that the
Gove~At should be helped to obtain tho goode it requires~ as it is
t~t it should be helped to procure the credit it requires with which
to pay for goods. In neither respect are the American people as yet
co.ope.rating to a suf .ficie;lt dogroe; prilra.rily beoa.uee tboy have ~ot yet
been adequately impressed with tho param~t import~iCO of their cooperation - they have not yet been Dada thorougnly to real~ae the fact.
X-613
- 2 -
that the success or failure of the war -in brief, the fate of the
country - lies in their hands. In the g~at work of educating the
people of the country to an appreciation of their part in the effective
conduct of the war 1 the banks of the country have an opportunity to make
themselves leaders. In the corrmmi ties they serve 1 they should endeavor
to make it clear that the anount of goods th~t cau be produced 1 even in
a country as large and as rich a.s ours 1 is limited: that saving 1 therefore1is necessary a1~d th~.t by saving goods the people are serving their
country in four ways:
(1) They er.<:.ble our ow-n GoverniLent and our allied Governma:.ts to obtc..i:~ tho goods required with tho requisite speed. As everybody kaoffs~ tirr.e is a most import~nt factor at this juucture. Coal 1 copper 1 steel 1 ar.d food stuffs are cases in poL1t.
(2) By saving goods ~ot require~ by the Government they re~
laase corresponding quanti ties for export to otha r countries in exchz..nge
for which needed supplies nay be secured. To illustrate: if everybody,
i.~ tho United States would cut down consumption of cotton ar:.d woolen goods
even to a. .slight ~ount 1 goods to the value of ndllions of dollars would
be available for export and could b~ rrade the basis of exchange to pay for
much r;.eeded supplies of copper and nitrates for ·ourselves ani beef and
wheat for the use of our allies 1 obtained in South America...
(3) By co1.surni::g goods in s:rraller <:.rr.ounts 1 not only are goods
saved but money is saved 1 and the people thus put in a position to absorb and pay for the war loans of the Goverruumt out of savings.
( 4) By dimL1ishing the consUtLption of goods and by paying
for Government bonds out of savings instead of from funds borroweQ from
the banks 1 both the r~pid rise of prices of goods is retarded as well as
banking inflation, which accelerates the rise of prices.
It can not have escaped the attention of the banks~ that 1 since
the beginning of the war 1 deposits have increased at a rapid rate and
that loans 1 discounts, and investments have gro-vn at ar.. even rr,ore rapid
rate. It is true that the Federal Reserve 1 s holdings of gold have also
increased to a point where they c;;.:-e larger than those of any other country
but the percentage of the gold rest:rves against deposits and notes has
decreased. This is a farrdliar phenomenon in tiree of war and to a certai~ ~xtent perhaps unavoidable 1 but it rr.ust nevertheless be our constant
concer~ to keep every dangerous tendency in th~ banking situatio~ under
control and particularly to retard the too rapid expansion of ba.uking
credit as far as this can be done without jeopardiZing the main business
of the country at this tirr~ - the winning of the war.
"
.
X-613
- 3 are however every day making it clearer that the
co:userv~tion of our f ina.;;lcia.l strength is not ot it':'elf sufficient
to in~ure a. succesaful fin.;..ncing of the war. The hna.uciug of the
w~r is only in part a ~~ney proble~; in very large part it is an
oCOQowic problem - a proble~ of consetvi~~ the econondc as well as
tha financial strength of the nc:a.tion and developing our resources and
productive power to the point where they will be equal to sustah. tM
great military oparatious ~.rhich are in prosp\)ct and all that is incideut
to them.
Eve~ts
th~t
Nobody Should~ therefore, consume goods except to the extent.
thair consuaption is nacessary to maintain he•lth anl vigor.
Nobot1 sh~lli draw upor. the credit resource~ of the country
except to finance trar..eactions which are essential fot a natiO':.. co.t war.
Credit should be saved as rr.uch as goods.
Cons3rvation of creJ.it as regards non:-esser.tlal enterprises is
in order to provide, without undue expansion, the oradit required b7 the Governnent and by business essential to the success of the
war and the well-being of the country.
necoss~ry
The Board n;ost earnestly invites serj.ous consideration of
thase and kindred stops in tha developxr.ent of a-program of llatiou.l
aconomy and bespeaks the cooperatio~ of all the banks of the c~ntry
in behalf of their adoption in their several c~nities. the banks
are urged to teach ir. their districts the neaning and necessit7 of
saving ani its relation to the successful fir~ncing of the war; to tall
the city nerch&Rt and thi country storekeeper th~t this is not the time
to ~uy ar.d stock up .. especially with luxuries. Let the people every.il'here bs eucouraged .to consurrAJ fewer things a.:n.i lat those be the simple
and substa~tial things that are necessary to health and strength. Let
the public re~lize t~t it is ~ore respectable iu such war times as
confront us to bo seen in old clothes than in newlones. Let the ~ks
tell the paopla of th~ir c~nitics and th~ir ~uthoriti~s 1 the nayors
and governors, th-t this is not the ti~e for cities to be spending moner
on public works., rather should they be consUering the suspension of
existin6 work with the view of ral~~aing men and ~t~rial for tha use
of the Governn.ent and so as not to con.pate with the Government for the
savings of the people 1 thereby we~kening the ability of the Government
to place its loans.
X-613
••
- 4 -
There is neither ""n 1.mlir..ited supply of ri.en or of ~oods or
of credit. This is 1 therefore~ the t~e for both lar&e ~nl snall enterprises) not .;mg:l.ged in the production or hc:a.ndling of essentiz.ls, to
reduce inventories and thereby free goods and proeuctive power and
banking credit for essential uses.
Gig~ntic opeations of the Governrrent will cause a further
of bank deposits ~nd loans. Our credit structure should therefora be strengthened as far as possible and to this und tho banks should
bend their efforts toward three things:
gr~Nth
(1)
Absorption of governnbnt loans by
s~vings;
{i) Conservation of credit for public ~nd otheruses vtith curta.ilrr:ent to non-essential enterprises;
~~eential
(3) Increase of the gold holdings of the Federai Reserve
Banks so as to naintain an adequate basis for our growing credit
structure.
l::..ttor
The~/ results c~n be achieved if the b~nks ~nd the public>
like those of ~ngland a.nd Fr~nce - and Germany as well • unite in a
determined effort to concentrate gold and goli ce~ificates with the
Federal Reserve ~nks 1 usini Federal Reserve notes instead ~or general
circulation.
We mlst look to the future 1 and prep21.re unceasins;ly for
denands which ~Y be n~de upon ds. The President of the UniteJ
States 1 in a staterr:ent issued on Octobor 13J called ~ttention to th~
fact th::..t "the ext(.,nt to which our country can Nithst.:;.nd the financi~l
strains for ·Nhich we n:.ust be prepared 1 w·ill depend larg.;;ly upon t~
strength and staying. power of the Federal Reserve B-nks 1 11 <i~.nd urged
the in•portance of developin~ to the naxinun. de&r~e our banking power 1
and of providing fi~ncial nachinery adequate for the very great financial requiren:ents imposed upon our country by reason of the w-a.r. He
pointed out th~t all b~nks should cooperate in strengthening the reserves
of the Federal Reserve System1 thereby enlarging the nation's banking
power. The reserve requirerr;ents in a few States practically prohibit
the cooperc~.tion of State banks an~ trust con.p.:.ni:e~s with the Fejera.l ~
ssrve Systezr.~ and nake it in;possible for them to exchange their Federal
Roserve notes for gold 1 ana the Bo~rd would urge St~te banking institutions in these States to endeavor to obtain such lebislative action as
will enable then; to discharge what the President has termed. a. "solemn
obligation". In those States where the legislatures do not meet for a
ye~r or more~ the banks n~ght well petition their ;overnors to call a
sp0cial session of the legisl~ture. No st~te can ~fford not to do ita
iull d·uty at this tin.e in helping the national cause.
furth~r
The Bo~rd therefore ventures to call upon the banks, nember and
each in its co~unity to join in promoting and carrying on a
campaign of educ~tion alons the lines which have been iniicated 1 confiJent
th~t it may count upon their willing and effective cooperatio~
no~~ber,
12/29/17
@FedFRASER