No Time for Controls

When inflation gets out of hand, industrial countries frequently turn to credit rationing as one way to discourage consumer spending or excessive borrowing by business. The U.S. has shunned such restraints since the end of the Korean War. The economic distortions produced by tight money, however, have revived the demand for stringent credit control. Advocates argue that big corporations have found it comparatively easy to arrange loans while small companies have been turned down and home buyers and builders have suffered from a severe mortgage drought.

Last week President Nixon signed into law a bill giving him unsought power to allow the Federal Reserve Board to regulate the terms, amount and interest rates of all forms of credit. But the President, in keeping with his strong objections to most Government interference in the marketplace, made it clear that he has no intention of using the authority. The measure was sponsored by Chairman Wright Patman and other Democrats on the House Banking Committee. Nixon said that he signed only because the bill also extended the Government's expiring power to regulate interest rates paid to depositors by banks and savings and loan associations. The President called that provision one of "overwhelming urgency" in order to "avoid the risk of destructive competition" among financial institutions.

Credit controls, the President complained in a rebuke to Congress, "would take the nation a long step toward a directly controlled economy and would weaken the will for needed fiscal and financial discipline." That admonition is unlikely to quiet the cry for credit restrictions unless the Federal Reserve soon begins to ease its monetary squeeze. Despite the Reserve Board's good intentions, the Government's money policy simply does not distribute the supply of borrowable money equitably.

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