Word: frb
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Since the entire economy has expanded greatly since 1948, the total of bank loans in itself was not too alarming. Furthermore, loans normally rise at this time of the year. But FRB thought that the rate of increase has been too fast (up $4 billion throughout the nation or nearly 10% since the start of the Korean war). To slow the rise, FRB last week was considering an order to boost the total reserve requirements of its member banks closer to the limit under present law, thus reduce the amount of money banks have for lending. If prices continued...
Sabotage. Actually, FRB's efforts so far to fight inflation by restricting credit have been all but sabotaged by John Snyder's Treasury Department. As long ago as August, FRB made its first move to discourage borrowing by boosting the discount rate and dropping its support prices of many U.S. securities, thus pushing up interest rates throughout the U.S. (TIME, Sept. 4). But when the Treasury put on the market a record-breaking ($13.5 billion) issue of short-term notes, it refused to accept the higher rates, insisted instead on its long-standing policy of cheap money...
...result was that by last week, when the Treasury's financing operation ended, FRB had had to absorb most of the new low-interest notes itself, in order to keep an orderly market. By so doing, FRB might well have offset the higher interest rates that it had imposed; in buying most of the Treasury's huge issue, FRB had increased the amount of money available for loans to its member banks. If the banks took advantage of this, commercial loans, in the end, might rise even more. In short, before FRB could make its sensible anti-inflationary...
Meanwhile, FRB got ready to tighten up further on consumer credit. It thought that Regulation W, which had gone into effect three weeks ago, was too mild. Consumer credit in August had climbed to an alltime peak of $20.9 billion, up $614 million from July...
When compared to the high level of consumer income, credit actually was not quite as high percentagewise (9.5%) as in 1941, when the much smaller $9.8 billion of consumer credit was more than 10% of income. But FRB thought the rate of increase was too fast and should be slowed down...