Tighter, as Planned

Only a month after the Administration put its new hard-money policy into effect, cries of doom and disaster welled up, most of them from predictable quarters. C.I.O. and A.F.L. spokesmen expressed fears that the new policy would set off a recession. A group of 19 Fair Deal Congressmen introduced a resolution demanding that the Federal Reserve Board start pegging the price of Government bonds again. Farmers, they said, were having trouble getting support loans; industries had trouble financing expansion, and veterans were having a tough time getting mortgage loans.

There was no doubt that credit was tighter. New York and Chicago banks had far more requests for loans than they could fill. But they could not boost their own credit base by selling Government bonds because the FRB refused to buy in the open market. As a result, all Government bonds fell below par, and no bank wanted to sell at a loss.

According to Plan. But this was all according to plan. Instead of being discouraged by the fall in Government bond prices to the lowest level in 20 years, FRB Chairman William McChesney Martin, strategist of the credit-tightening, was encouraged. He reported that "free riders," the speculators who had bought the newest bonds on credit in hopes of unloading at a quick profit when they soared well above par, had lost their shirts as a result of the drop. In fact, much of the weakness in bonds was due to their frantic unloading. Martin, ready to resume buying and loosen up credit any time there were real signs that the tightening would bring a recession, last week made a token gesture by buying $45 million worth of Treasury bills.

Nobody could find many signs of recession. Actually, credit of all kinds is still on the rise. Consumer credit alone has risen $5 billion in a year (to $25.7 billion), one-third of it in auto installment purchases.

Credit is short now because the FRB has been holding the line, and demands for it are still increasing.

What Is Prosperity? Most other business signs also point to continued boom rather than recession. New building construction is running 10% ahead of 1952's.

The steel industry, which has turned out a record 38.5 million tons in four months, sees few signs of a letup in demand. Industrial production stood last week at 242 on the FRB's index; in 1953--3 first quarter, the gross national product (sum of the value of all goods & services) reached an annual rate of $361 billion v. 1952's $346 billion. Personal income hit a new record of $281 billion, up 5% in the quarter.

With justified sarcasm, the father of the hard-money program, Treasury's Deputy Secretary W. Randolph Burgess, last week asked: "If that is depression, what would prosperity be? The fact is the danger of inflation still exists."

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