The Bridgeport times and evening farmer., 1918-01-09
By HOWARD STEER Nf HiDolYS RrOS X CN,

Last time we promised to try to show you which way the money tide is running; that is, whether the gen. eral tendency of interest rates is up or down.
 You know, of course, that the more there is of anything the cheaper it is. Nobody ever thought of complaining about the price of potatoes few years ago. They were plentiful and had been so for a long time. But when they got scarce how the price did go upi
 The same thing is true of money. When money is plentiful it is cheap; when it is scarce it is high.
 It is all very easy to understand. For stop and think The banks ot the country are, of course, the great storehouses of money. We all have some in our pocket-books and every store has some in it's cash drawer, but most of the surplus money is turned over to the banks for safe keeping.
 Now the principal way bank can make money is to lend the money that is deposited in it. And if there is a great deal of surplus money in the banks a man who wants to bor- row won't have to pay high rate of interest because the bank around the corner will be glad to lend it to him at a more reasonable rate. The banks must lend their money. They can't afford to let it lie idle in their vaults. If they can't get a high rate I-O 1rTz 4E The banks are not only the great enders of money to individuals and l to business; they' are also the largest buyers of investments in the form of stocks and bonds. When, therefore, they have plenty of money they enter l the markets and buy enormous quan- titles of such investments. This buy 1 ing forces prices up and as the price of a stock or bond goes up the yield 1 on the money goes down. A stock l that yields per cent. at $1OO Q i share will yield only 5 per cent at l S120 a share. So again you see illus trated the truth of the statement that a plentiful supply of money means 1 low interest rates.
 And, of course, the very opposite l is true when money is scarce. IT | there isn't much surpulus cash in l banks the man who wants to borrow has to pay up for the accommoda- | ton. Lack of surplus money money means also lack of buying power for | securities, and as the demand falls off the price goes down, and as the price goes down, the yield on the money rises.
 Perhaps you have already said to yourself, "Yes, I see all that, but why should money be scarcer at one time than another? Generally speak ing, isn't there about the same amount of money in the country one year as another?"
 l Yes, there is. But did you ever eat milk toast? Suppose you are a youngster again and there are two of you at the table. Sometimes your mother lets you pour the hot mix on the toast yourself and this time she has put a whole quart of 1t be- fore you.
 Now a quart of cold milk would perhaps be more than enough for you two to drink, and it certainly looks like a plentiful supply. You pour a lot of it over your toast and pass it to your brother. Your little toast boats are just swimming in milk and pumping into little yellow islands of melted butter.
 The toast begins to soften and yor begin to eat. Each mouthful tastes better than the last. But all at once that little ocean of hot milk around your toast is all gone. It was there just a moment ago, too, and you know you haven't eaten it all up with youl spoon. Where is it? Why, excep
 for the two or three bites you have taken, it is all there, but it is in the toast, of course.
 We'll, the great ocean of money 1T the country gets soaked up by busi-
 ness activity, new factories, ware
 houses, stQges and homes have to bt built, freight yards must be enlarged
 railroad lines extended, new ma
 chinery installed, large stocks O
 goods carried, etc. All the money il
 the country is called upon to help
 The banks are drained just as vol drained the milk pitcher. The none, is in the country just the same, but i
 has been taken out of the bank pitch CTS and poured all over great quan
 tity of business toast, and it is al soaked up. It is no longer available
 in large quantities for f has beer
 passed out in millions of pay envel
 opes and other millions of purchase
 of materials. It can be found only l
 driblets now where only a little whil
 ago it was in chunks. Money i scarce. The man who would Dor row must pay high. Interest rate
 go up. Security prices go down.
 What has all this to do with Lib , erty Bonds? Simply this. Yol haven't lived in Bridgeport man. l weeks without learning that tn
 country is in one of those periods O
 intense business activity. Not only <, business crowded as never before, bu ! the government itself is borrowin
 huge sums of money. 1t is going t ; borrow more, too.
 We'll, then, what is the result? In
 terest rates go up. Security price
 go down. And there you have tn
 biggest reason of all for the dec1in
 in the price of Liberty Bonds That's a rather gloomy conclusion : to reach, isn't it? But cheer up
 Next time we shall have a pieasante 5 chapter in this serial story on Lib 2 erty Bonds.