Safe Haven | Preservation of Capital |

"The thesis of this paper is that the existing depression was due essentially to the great wave of credit expansion in the past decade. There is a lamentable lack of comprehensive and accurate data concerning this process of debt creation. But highly suggestive information may be assembled regarding the growth of bank loans and investments; the increase in mortgage indebtedness, urban and rural; the increasing volume of securities outstanding; and the expansion of installment credit [I]n the six years after 1922, loans and investments held by banks had increased over $18 billon. This is over 45 per cent

"The great field of credit expansion in the last decade lies in the realm of urban real estate mortgages We have undoubtedly expanded the credit structure, spending today and postponing the accounting until tomorrow. We have been guilty of the sin of inflation. And there will be no condoning the sin nor reduction of the penalty because the inflation is of credit rather than a monetary one.

"Thus the area covered by credit sales enlarges and the volume of credit expansion increases. As in monetary inflation the immediate results seem favorable. Credit expansion results in business activity, in full employment, in optimistic outlook and in a flood of gratulatory literature proclaiming us wiser than our predecessors. But the evidence is consistent and cumulative. The past decade has witnessed a great volume of credit inflation. Our period of prosperity in part was based on nothing more substantial than debt expansion.

"Several financial devices of recent invention have contributed to this process of debt inflation The Federal and Joint Stock Land Banks refinanced a growing proportionof rural land mortgages into long term paper. This gave the borrowers security Of similar tendency but more obvious in its recent developments is the newly originated and rapidly introduced device of urban real estate bonds. As a method of credit inflation this plan could hardly have been bettered The volume successfully sold rolled up with the speed of the proverbial snowball traveling down a steep hill. The fruits of such sales gave us building activity and contributed to the flush times of the decade