Tight Credit

January 2, 1957

Report Outline
Controvery Over Current Monetary Policy
Scarcity of Credit in Peacetime Prosperity
Control of Credit Supply by Federal Reserve
Monetary Policy for a Diverse Economy

Controvery Over Current Monetary Policy

Public controversy over shortages of credit and high costs of borrowing has prepared the way for sharp debates at the 1957 session of Congress on monetary policies of the Federal Reserve Board and the Eisenhower administration. Official insistence upon keeping credit tight has brought heated attack—as well as solid defense—in recent months from financial experts, business leaders, state-local executives, and ordinary citizens. The prospective chairman of the congressional Joint Economic Committee, Rep. Wright Patman (D-Tex.), warned in December that unless current restrictions were relaxed Congress might well adopt special legislation to make credit more readily available. The impact of tight credit on the housing industry already has brought promises of early investigations by the House Veterans Affairs Committee and the Senate Banking and Currency Committee.

The so-called tight money policy has led not only to questioning of the wisdom of recent Federal Reserve actions, but also to expressions of doubt as to the effectiveness of monetary devices in moderating booms and braking recessions. The wide range of the present controversy has prompted suggestions from financial leaders that the time is ripe for creation of a special commission to study and report to the President and to Congress on proper uses of monetary policy in governmental efforts to maintain economic stability.

Hardships Resulting from Credit Restriction

Opponents of the policy of credit restraint contend that it has benefited lending institutions and large corporations while working needless hardship on small businesses, states and localities, and consumers. Some corporation executives have accused the Federal Reserve of hamstringing the expansion plans of important industries. Other critics have asserted that Federal Reserve actions are setting the stage for near-future recession. Rep. Patman said, Dec. 9, that far from preventing inflation, as intended, the tight money policy was actually promoting a rise in prices. Sen. Joseph C. O'Mahoney (D-Wyo.) agreed that Federal Reserve policy had been inflationary because the resulting higher interest rates were being reflected in higher costs for consumer goods.

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