"When You Start to Squeeze"

The current inflation has been largely fueled on credit (as has U.S. prosperity). Collectively, Americans owe $150 billion in commercial bank loans, $115 billion in car loans and $29 billion on bank credit cards. Groping for new weapons to fight inflation, the Administration is taking a look at whether credit controls will help. The prospects are not good.

Under the never invoked Credit Control Act of 1969, the President has the authority to ask the Federal Reserve Board to restrict bank lending and/or consumer borrowing in any of eleven specified ways, including flatly forbidding "any extensions of credit under any circumstances the board deems appropriate."

Thus the President could ask the board to put a ceiling on the dollar amount of loans that any bank could make, or restrict particular types of loans, or accomplish the same purpose indirectly by regulating ratios of banks' loans to their capital. He could ask that consumers be required to make larger down payments on purchases of houses, cars, refrigerators or indeed just about anything, and to pay the rest of the price more quickly.

Selective credit controls have been tried several times, most recently during the Korean War years, 1950-52, but economic experts say that they had little measurable effect. As long as people have money to lend, borrowers will find a way to tap it. Large corporations unable to borrow from domestic banks could borrow from abroad, or issue bonds or commercial paper (in effect, big short-term IOUs); a consumer could take out one of the personal loans that were permitted or borrow on his life insurance to buy a car. Says J.H. Tyler McConnell, president of Delaware Trust Co.: "When you start to squeeze one area, the money just bursts out somewhere else." Also, bankers argue, controls unfairly hurt small companies and low-income consumers who need credit the most.

The Administration seems convinced. It has been considering a number of possibilities, but the only significant step it is believed likely to ask the board to take is to impose some kind of curb on all credit cards. It might put a lower ceiling on the debt that a consumer could run up on a card, or require speedier repayment of outstanding balances.

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