War and Credit
War and Credit
Government Regulation and Changing Credit Practices
This chapter looks at a federal policy called Regulation W. As the federal government attempted to restrain inflation during World War II scarcity, it instituted both the well-known rationing program for many consumer goods, and launched the now forgotten first federal attempt to directly regulate consumer credit. With Regulation W, Roosevelt authorized the Federal Reserve to directly regulate how much consumers could borrow and the terms under which this borrowing could occur. While Regulation W reduced the overall amount of consumer debt during the war, it also destabilized established lending practices and encouraged a hybridization of installment credit and charge accounts that combined interest charges and flexibility in a form outside Regulation W. In effect, from the beginning of World War II until the Korean War, Regulation W deeply shaped the course of credit practices in the American economy, pushing retailers and consumers towards revolving credit—the nucleus of today's modern credit card.
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