Pag^ T-welve 



^ THE I. A. A. RECORD 



December, 1931 



fV. 



Bank Failure Cause Goes 

 Back to War— Roberts 



Farm Mortgage Debt Rises 119 Per 

 CMit from 1910 to 1920 



SOME interesting figures are disclosed 

 by George Roberts, economist of 

 the National City Bank, in pointing out 

 the cause of so many banks being forced 

 to close. 



"The fundamental cause of the wide- 

 spread bank failures goes back to the 

 war-time rise of commodity prices and 

 wages, and to the inflation of credit 

 made possible by the rapid increase of 

 our bank reserves which likewise was 

 a consequence of the war," he said. 



"Prices of everything rose and a new 

 level of values was established which 

 as the people became accustomed to it 

 seemed to be real and permanent. A 

 great voliune of indebtedness was 

 «-ected upon the basis of these values, 

 and when it turned out that they were 

 inflated the position of the debtors be- 

 came a most difficult one. Banks, being 

 debtors to their depositors and subject 

 to call for repayment upon demand on 

 short notice, have been involved in these 

 difficulties, particularly where their 

 funds were employed to an imprudent 

 extent in long-term loans or invest- 

 ments. 



Rural Banks Hit 



"The situation is well illustrated by 

 reference to the rural banks in which 

 the mortality has been highest. During 

 the war and the succeeding boom pe- 

 riod the prices of farm lands were 

 marked up to accord with the higher 

 values of the products grown upon 

 ciiem, and an abnormally active turn- 

 over of farm properties began which 

 was financed largely upon credit. 



Between 1910 and 1920 the esti- 

 mated total farm mortgage debt in the 

 United States rose from $3,600,000,000 

 to $7,900,000,000, or 119 per cent. 

 Farm real estate values by March, 1920, 

 has risen 70 per cent above the 1913 

 average. The rural banks became in- 

 volved in loans which directly or in- 

 directly were based on these land values; 

 and the subsequent decline in them was 

 the cause of a great increase in bank 

 failures. 



Decline Continued 



"By the year 1928 a further rise in 

 (arm mortgage debt to $9,500,000,000 

 had occurred, while the decline in land 

 values continued. Between 1928 and 

 1930 the total debt remained practical- 

 ly unchanged, but by 1930 land values 

 averaged only 115 per cent of the 1913 

 base, and on March 1 of this year they 

 had fallen to 106, or nearly 40 per cent 

 under the peak. The decline in the 

 prices of farm products since May, 1921, 



L P. McMillen. Rock 

 Falls Banlcer, Dies 



when they averaged 148 per cent of 

 the 1909-14 level, carried them down 

 to 72 in September of this year, a re- 

 duction of more than one-half. ■;; 



"These declines in prices and land 

 values have left the new indebtedness 

 without adequate support, and the fig- 

 ures show plainly the grave difficulties 

 with which the banks whose business 

 is with farming communities have had 

 to contend." 



Routing fhe Depressionists 



The Cleveland Trust Monthly says: 

 "In a recent speech, Prof. William T. 

 Foster referred to the meeting of a 

 group of leading financial statisticians 

 — experts in business forecasting — in 

 New York City on November 4. Pro- 

 fessor Foster quoted eight of these ex- 

 perts as follows: 'The farmers will not 

 buy much from the proceeds of this 

 harvest; and, with the price declines ht 

 process throughout the world, there 

 would seem to be little prospect of any 

 extensive business revival in the near 

 future.' 'The general prospect is for 

 slow and irregular business for ten 

 years.' 'I expect to see a long and slow 

 recovery to a general level of subnormal, 

 slow business.' 'Prices will advance a 

 Httle from present levels and then fall 

 once more. Recovery will be slow/ 

 'Conditions abroad will continue to af- 

 fect our business conditions here. It is 

 a conservative estimate to say that ten 

 years must elapse before we can see 

 genuinely prosperous business in this 

 country.' 'Business will come back to 

 fair, slow operations in three years.' 

 'The period of readjustment will be 

 long. It will take at least 10 years.* 

 'We may expect a slow return to a basis 

 on which business can be done at a profit 

 in about three years.' Then Professor Fos- 

 ter continued: 'These pessimistic fore- 

 casts were all made on the 4th of No- 

 vember. But it was the 4th of Novem- 

 ber of the year 1921. At that time 

 business was actually improving, al- 

 though the experts did not know it. 

 Within four months the gain was so 

 marked that everybody could see it. 

 Within sixteen months business was so 

 far above normal that experts became 

 frightened again. Today, the major 

 economic factors are more favorable to 

 a rapid recovery of business than they 

 were in 1921. It is my sober belief that, 

 just as the depressionists of 1921 were 

 routed, so the depressionists of 1951 are 

 in for a rude awakening.' ** 



LP. McMILLEN, 50, president of tilt 

 • First National Bank of Rock FalU, 

 was buried at Tampico on November 22 

 following a large funeral from the Mc- 

 Millen home in Rock Falls. Mr. Mc- 

 Millen was killed instantly in an auto- 

 mobile accident near Malta on the Lin- 

 coln Highway in DeRalb county c* 

 November 20. 



While on his way to the Notre DauM- 

 Southern California football game •! 

 South Bend the car ahead slowed up to 

 turn oflf the pavement. Mr. McMillea 

 jammed on the brakes and skidded oa 

 the wet pavement into the path of a car 

 coming in the opposite direction. The 

 road between DeRalb and Malu had 

 recently been repaired, widened, and 

 covered with an asphalt material whick 

 becomes slippery in rainy weather. Mc- 

 Millen was thrown against the sted 

 framework of his car and suffered a 

 fractured skull resulting fai immediate 

 death. 



Mr. McMillen assisted in organizing 

 the Whiteside County Farm Bureaa 

 more than 12 years ago and served at 

 its first secretary-treasurer. He was 

 especially active in the early history of 

 the Whiteside County Farm Bureau in 

 signing up new members in the south- 

 eastern part of the county. He served 

 on the board of directors of the Illinois 

 Agricultural Co-operative Associatioo 

 several years ago and more recently wac 

 chosen chairman of the Crime Preven- 

 tion Committee of the Illinois Bankers' 

 Association. 



Mr. McMillen's loss will be keenly 

 felt. He made an outstanding record 

 of service to his commimity. 



Hogs Sell Below Value 

 Sees Better Market Ahead 



Due to the fact that hogs are coming 

 to market earlier this year than uswd 

 and that the prospects are for lighter 

 slaughter in the next few months, the 

 present outlook is for considerable im- 

 provement in the hog situation, accord- 

 ing to H. M. Conway, National IAy*- 

 stock Marketing Association. 



He attributes the early marketing ta 

 extensive wheat feeding and cholera in , 

 the cornbelt. This condition, he says, \ 

 is making for a winter hog market 1 

 much the reverse of a year ago, and for 

 extremely low prices at the beginning 

 of the packing season. 



Hogs are now selling far below that 

 actual value, as based on consumptive 

 demand conditions, on the general lev^l 

 of commodity prices, on current and 

 prospective supplies, and on the present 

 level of wholesale and retail prices <H 

 hog products. 



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