AGE TWO
UNIVERSITY DAILY KANSAN, LAWRENCE, KANSAS
FRIDAY, OCTOBER 31, 1947
Guest Editorial
ntlation To Get Big Boost
The powers of the Board of Governors of the Federal Reserve system regulate the volume of consumer credit will expire on Saturday. This is the result of the refusal of the 1st Congress to enact legislation requisite to putting these powers on permanent peacetime basis.
The present powers of the board at on an executive order issued Aug. 9, 1941, by the president. This order is being vacated because the card does not believe that such regulations should rest indefinitely in acetine on emergency and war wives after Congress has had ample opportunity to consider the subject.
Under its so-called Regulation W, board's credit-term regulations increased the amount of down payments on purchases and shortened a time period for which credit may be extended. In general, these strictions have required a down payment of about one-third of the purchase price and the balance within a period of 15 months.
History Of Regulation W
Before Regulation W went into effect there had been a rapid expansion of consumer credit. The volume installment debt increased from a
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little more than three billion dollars at the beginning of 1939 to more than six billion in August, 1941.
Thereafter it decreased to less than two billion and never exceeded this figure until after the end of hostilities. The purpose of the government in checking consumer spending was to conserve strategic metals and other materials. Also intended was prevention of inflation, direction of credit to financing the war, and storing up a backlog of buying power to help offset a postwar slump in business.
The board relaxed Regulation W in October, 1945, in two respects: (1) restrictions were removed on loans for home repair and home improvement purposes, and (2) the maturity period on loans for the purchase of other than durable consumer's goods was lengthened from 12 to 18 months. On December 1, 1946, the board further limited Regulation W by confining it to installment credit and centering the restrictions upon purchases of 12 major classes of durable consumer's goods. This was in anticipation of the much-heralded postwar recession (which has not yet materialized.)
What Will Happen Now?
It is most unfortunate that the removal of control over consumer credit should occur under the prevailing conditions of maximum peacetime employment and national income. Notwithstanding continued shortages of goods, (particularly durable goods) and notwithstanding regulation of consumer credit, installment credit expanded during the past 2 months by more than two billion dollars, or to a total of nearly five billion dollars.
the economic effect of adding borrowed dollars to current income can only be to intensify and prolong the period of inflated prices. This premature relaxation of restraints will make no more goods available. It will only add fuel to the inflationary fires already raging.
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Dear Sirs.
Sincerely yours,
University Daily Kansan
While the regulation of consumer credit was born of the exigencies of World War II, it should be realized that the need for regulation is not merely a temporary one. Experience has shown that the excessive expansion and subsequent contraction of consumer installment credit contributes substantially to the rise and fall of production and employment.
Its role in creating instability is increasing with the growing importance of consumers' durable goods in the economy. Instability arises from the fact that excessive credit extended during a business boom accentuates the boom and has to be liquidated out of current income on the downswing.
In fairness to the executive branch of our federal government it should be noted that this unfortunate action on the part of congress was taken against the advice of the Board of Governors and the President's Council of Economic Advisers.
This accentuates depression. Current income which has to be used to pay off excessive installment debt created during the business boom diverts that income from channels of consumer expenditures in the depression. Especially is this true in consumers' durable goods.
Leland J. Pritchard,
Assoc. Prof. of Finance
University Daily Kansan
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