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 inciden- 
tally increase still further credit demands upon our banks. Once 
under way, such an expansion is difficult to restore to healthy dimen- 
sions. 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 espe- 
cial importance in determining gold flows to and from other coun- 
tries 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 relation- 
ship 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 accen- 
ruation 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 inevita- 
bly 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 gen- 
eral credit policies of the reserve banks. The elements which create 
a helpful or harmful financial situation are constantly being com- 
bined in changing proportions and it is not possible to state in ad- 
(Continued on page 22)