4)

-—

Restriction by
Reserve
Authorities

Security
Operations

Sold Movements

Foreign Money
Markets

Tconomic
Recovery
Abroad

Legislative
Fixity
[Indesirable

COMMITTEE REPORT
Such a business expansion, artificially stimulated by abundance
of long-term capital, must react upon other enterprise and incidentally
 increase still further credit demands upon our banks. Once
under way, such an expansion is difficult to restore to healthy dimensions.
 In anticipation of such conditions, involving as they may,
‘future strain upon the pool either of member or reserve bank credit,
‘he reserve authorities may properly act to restrict the intensity of
rowing speculative or investment demands for credit. This is not
necessarily to say that every growth of security operations is per se
0 be regarded with alarm. Security operations are only one of the
wmerous factors which may serve to develop a situation requiring
-orrective action on the part of the reserve banks.
Security operations take place primarily in the financial centers
>f the country, and money rates in the financial centers are of especial
 importance in determining gold flows to and from other countries
 which may tend to counteract important credit policies of the
system. An extensive gold inflow, for instance, might serve to defeat a
policy or credit restriction.
Thus, we approach the question of how and why our relationship
 to the foreign money situation may bulk large in our own affairs:
During the last few years, when foreign countries have been stabiliz-.ng
 currencies and restoring the gold standard, it has been desirable
n the general interest that no unnecessary pressure upon important
foreign money markets should be exerted from this side. The accenruation
 of ease in the money market, if that involved no serious
risk of undesirable domestic developments, was clearly advantageous
since it would aid in the restoration of normal monetary conditions
in other countries.

Indeed, to avoid undesirable domestic developments, there may
be positive necessity to contribute to economic recovery abroad.
Without stabilization of important foreign currencies there inevitably
 would be a narrower market for our exports. This would be
~specially serious in periods of increasing domestic production, when
foreign outlets for our products are of the highest importance in
preventing that congestion in our domestic markets which would
tend to lower prices and reduce profits.
It is apparent, however, with respect to any of these problems
that efforts to fix by legislation the degree of importance which
must be attached to any of them would be productive of harm, not
zood. A variety of considerations which will have different degrees
>f weight in different periods must necessarily influence the general
 credit policies of the reserve banks. The elements which create
a helpful or harmful financial situation are constantly being combined
 in changing proportions and it is not possible to state in ad-(Continued
 on page 22)