View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.



„ « . . . 4 , ' .4 , t » ! .

fc X-6544


For release at 2:30 P.M.
March 20, 1930.

Address by
R . A . Young,
Governor, Federal Reserve B

(Topic of talk "before the American Automobile
Association, March_20j_JL93p,. as broadcast
over'a nation-wide net work of the National Broadcasting Company0



M r . Toastmaster and Representatives of the Automobile
Association of America:
I consider it a great honor to have the opportunity to
dine with you today, and also consider it a rare privilege
to speak to you.
The radio time that has "been allotted to me is limited
and, therefore, I am going to attempt to cover as much ground
as quickly as I possi"bly can.
This country has "been in a "business recession since June
of last year and practically all lines of endeavor have been
I am not going to try to review all of the factors that
contributed to these developments but will simply attempt to
point out the relation of credit to the general situation.
From September 1927 until October 1929 this country
experienced a speculative hysteria that eventually became
world-wide in its effects.

The Federal Reserve System realized

that while this hysteria might be somewhat restrained, it would
nevertheless have to ran its course, and the principal thing
the System could do daring the interim was to attempt to keep
the reserve banks in such order that when the inevitable collapse
should come, the System would be in a position to minimize the
effects of the crash and at the same time to use its influence
towards inducing member banks also to keep in condition to act
promptly and decisively when the need arose.

To accomplish this

result, the Federal Reserve System persistently resorted to the

-2powers that it had at its command - to wit: - the discount
rate, "bill rates, open market operations and direct action.
Credit, however, is one of those peculiar instruments which
seems to work in opposite directions simultaneously, so that
the "benefits secured "by one operation frequently are counteracted "by forces that work in just the opposite direction.
During this period the Federal Reserve System attempted in
cooperation with the member "banks to restrain the growth of
speculative credit and at the same time to assure rates of
interest for credit used in production and distribution that
would not "be punitive.

These efforts halted the growth in

stock exchange loans of member "banks, while these banks continued to supply increasing demands from their customers for
commercial loans.

The demand for speculative credit continued

to be so strong, however, and so far exceeded the willingness
of the member banks to lend on the exchange, that unusually
high rates prevailed in the call loan market for a long period
and were an important factor in attracting a large volume of
loans from non-banking sources.

High call rates, acting either

directly or indirectly, affect all other rates, so for a
considerable period the high call rates prevailing in New York
affected the cost of all credit, not only nationally, but internationally.

Money rates were in fact advanced in all principal

countries to the disadvantage of business throughout the world.
This state of affairs was not only puzzling to the bankers of
America, but caused them great concern.

That they gave the

-3matter careful study, and laid definite and positive plans for
handling the situation when it should break, is clearly evidenced "by the courageous manner in which the "bankers did
handle the situation, particularly in the larger centers, during
that critical week of October 23rd to October 30, 1929, and in
my opinion; if they had not acted as quickly and courageously
as they did, this country would have witnessed one of the
greatest panics it had ever experienced*
There is always an aftermath to such situations and that
is what we have been experiencing during the last four or
five months.

I do not mean to convey the idea that the crash

in the stock-market has "been the only factor in the recession
of production, employment and trade, but that it was an important contributing factor, there can be no question.
Since last October there have been many remedies suggested some of merit and many without merit.

G r e a t stress has been

laid upon the importance of credit, and while I am not of that
school that believes that credit is a determining factor in
such situations, nevertheless, I believe that there is a
possibility of its being a contributing factor.

That I am not

alone in my views is evidenced by the fact that since November
of last year every Federal Reserve Bank has initiated a reduction in discount rates - one bank dropping from 6$ to 3 l/2$
in its discount rate and from 5 3/8$ to 3$ in its buying rate
on acceptances.

Since last October, furthermore, the reserve

banlcs have accumulated a large portfolio of Government bonds.


All such actions have been to lend, the influence of the Federal
Reserve Banks towards easing the price of credit, and X ask
you to remember that the initiation of these actions was not
confined to any one particular group, in any one locality,
but was put in operation by 108 directors of the twelve reserve
banks in twelve trade areas comprising the whole of the United

But the•consequences have not been confined to the

United States.

Central banks in foreign countries which had

been obliged to raise their discount rates during 1928 and
the larger part of 1929 have since last October seen their way
clear to reduce rates again.

Discount rates have accordingly

been reduced in England, France, Germany, and many other foreign
countries, to the advantage of their own people, and since
these countries are good customers of the people of the United
States easier money abroad is in these circumstances also of
advantage to ourselves.
During the past five months the Federal .Reserve System
has been frequently criticized because it does not always move
rapidly enough, but these critics have failed to take into
consideration all of the mechanics of regional bank credit,
and all that I can say is that I believe the Federal Reserve
System has moved, during recent months, as rapidly as the
mechanics would permit and I believe as rapidly as the situation has justified.

I further realize that there are many

people in business that are a bit skeptical of the reality of
this program because they have not as yet felt the effects in

-5their own individual cases, "but unless something unforseen
develops, I am confident that the easing influence of. this
program will in time trickle into all forms of credit.


fact, to date I am quite agreeably surprised with the results that have "been obtained.

There was a time in this

country when hankers operating as independent units were
interested mainly in high rates, and seldom, if ever, in low

However, the experiences of the past ten years have

taught a great majority of bankers that active business,
with reasonable rates, is far more profitable in the long
run, than dull business with high rates.

The willingness

with which many bankers have modified rates convinces me
that they will do their part in the present situation.
I again repeat, however, that credit can only be a
contributing factor towards reviving business and restoring
it to normalcy.

There are many other factors that are per-

haps just as important, and many of them more so.

The men

who are engaged in the business of agriculture, industrial
production, and wholesale and retail trade sunderstand that
they have opportunities and responsibilities in the matter.
They all have their own problems to meet, usually in the
face of competition, and I have no doubt they are working
hard on these problems.

Many of them may feel that they

have good reasons of their own for hesitancy. ^All I can
say is that the Federal Reserve Panics have exhibited no
hesitancy and that the Federal Reserve System has expressed

6itself in an easing program that is clearly evident to everyone.
This was not put in operation without overcoming obstacles, and.
its initiators were not unmindful of unhealthy factors that
might develop, but in any event, they have done what they "believed best to do under the circumstances, and their future
action can only be determined by subsequent developments.
This is a great country, possessed of many advantages and
great natural resources, inhabited with people anxious and
willing to work, and its credit structure is one that can and
will function.
Therefore, it seems to me that others should have more
initiative and less hesitancy, and I feel justified in making
that appeal to the American people feeling confident'that the
experience of 1928 and 1929 will be fresh enough in our minds
to preclude any immediate recurrence of such speculative
hysteria as we had at that time.