The sun. [volume] (New York [N.Y.]) 1916-1920, 1919-06-03
SEES DANGER FROM
SPECULATION SURGE
Federal PASRrve Board Warns
Of Menace t Country's
Financial Position.
HAS RAISED MONEY RATES
Usual Way Of Keeping Interest
Down Cannot Be Applied
to Situation.
HAS RAISED MONEY RATES
Special Despatch 10 TIE suS.

WASHINGTON, June "A real danger
to the financial position of the country is
seen by the Federal Reserve Board in
the present surge OF speculation in Wall
Street that has brought several million
share days and the high call money
rates. that have for brief intervals
reached IA per cent
public warning of that danger will
be given In the forthcoming June issue
OF the Federal Reserve Bulletin which
will be issued In a day or two. While
the boards statement. like all of its ac-
tons, is conservative, II says there is an
undoubted element Of danger in the stu
alton, and points out that the usual rem
edies to keep the money rate down-a
change in Federal reserve rediscoun;
rates-cannot be applied because of the
necessity TO keep that rate low for the
absorption OF Government bonds.
After reviewing the domestic situation
and reconstruction in an optimistic way
the board states:
zone phase of the present situation
which parallels conditions that have
existed at the close OF most former wars
is the development OF an active specula
tive situation in the securities market.
During the last month operations on the
New York Stock Exchange have been
upon basis practically unprecedented
since the opening OF tae war. and par
alleled only by the active market oper,,.
tons which marked the advent OF large
munitions orders when the European
contest had definitely established itself
A succession OF million share days. with
abnormally high prices in many classes
OF goods, has indicated the scope of the
speculative movement itself while the
fact that much OF the buying within re-
cent weeks is said to have come not from
professional traders, but from prospec-
tive investors throughout the country. in
dicates the hold which the movement is
the United States.
"One phenomenon which has presented
itself as an incident of this speculative
movement Is the existence OF high call
money rates. These rates have at times
gone as high as IN per cent. although
only for a short period in any instance
Such fluctuations OF the call money rate
have promptly been followed by little
more than very moderate curtailment of
the volume Of banking accommoda ton.
There Is here undoubtedly an element OF
danger TO the financial position Of the
country. Ordinarily a sharp check could
be administered through the advancing
of the rates of redlscount at Federal Re-
serve banks
Such a check for the movement en-
counters some difficulty as long as the
Federal Reserve banks deem 1t neces-
sary to promote the absorption of Liberty
Loan securities by maintaining low rates.
For the moment the avoidance of alb
normally high loan accounts must be
effected by means other than those which
would ordinarily be applied under the
methods and principles of central bank
ing. Eventually. when circumstances
will permit and the Federal Reserve
banks assume their normal functions.
making advances chiefly against liquid
commercial paper. reducing TO small
propositions advances against United
States Government collateral, a natural
and effective check to existing conditions
In the money market may be afforded
through changes in rates at Federal Re
serve banks"