The sun., 1919-10-06

comparison and noting the increase for
each of the succeeding five years as
compared with the pre-war average. the
following index numbers are reached:
191O-1914, 100; 1915, 1875; l916-1s17,
100: 1918, 100, and 1919, 1876.
ut Is noteworthy that the fiscal year
1919 shows the greatest increase over
the pre-war average-an increase OF 30
per cent.--a rate of increase more than
fourfold that shown for the preceding
fiscal year 1918. Such a gain In the
rate Of increase suggests that heavy ex-
ports (effectuated for the most part by
credit advances) to Europe have been
a very considerable factor in our cost
OF living situation. 1t Is also note
worthy that an estimated 35 per cent.
of the physical volume of exports in the
last fiscal year consisted of foodstuffs.'
One of the most significant statements
in the review serves notice by the board
that the differential rates of discount
given by the Reserve Board on notes Sc
CURED by Government bonds would soon
be done away with. The differential
was maintained TO encourage the alb
sorption, of Government Issues, but with
the Treasury In a comfortable situation,
as pteyiously indicated in THE SUN, the
necessity the board finds Is gone. and Its
future. policy will be devoted to add TO
the bHsiness and commercial world on
permanent peace basis.
Outlook Encouragtng.
After reviewing the Treasury financial
situation, the board states:
''The outlook Is distinctly encouraging
therefore for an improvement in the in
vestment status of the outstanding
funded securities Of the Government and
with 1t for an improvement In the loan
and investment accounts OF the banks.
The extent to which the banks OF the
country subscribed to war bonds OF the
different issues which they did not intend
as a matter of policy to carry perma-
nently as a part of their long term In
yestments cannot be accurately deter
mined.
"Neither can the volume of loans made
by the banks to customers on account Oh
their subscriptions to Government war
issues and still outstanding be accurately
determined. Liquidation of these wal
finance Investments and loans is clearly
a necessary preliminary to any large
and genuine improvement in the banking
and credit situation.
"The recent Improvement In the Gov
ernment bond market foreshadowlng as
| 1t probably does, progressive improve
ment because of increased reallzatlC'i
that Government long term financing Is
over. is therefore of good augury for
the banking situation.
| Liquidation in the natural course OF
war loan accounts seems likely before
long to become a characteristic or the
banking trend. Whether such liquida-
ton. however, will result In lasting
decline in total volume OF outstanding
bank credits will depend upon the state
of industry and trade and upon the
movement of prices.
War Financing Near End.
"As the period of war financing be
gins to approach its end the Federal
reserve banks will again be In posi-
ton to shape their policies without being
under the necessity of giving first con
liberation TO the interests or needs OF
the Treasury. Since the entry OF the
United states into the great war tht
Federal reserve banks have from neces'
sity of the situation utilized their re
sources in every legitimate way In sup
port of war finance. Their discount poi
icy has been shaped first with viea
of facilitating the placement OF the grea
issues of both long term and short tern
obligations brought out by the Treas
ury and, secondly, with view OF stapil
izing the market for Liberty bonds
M
tial rates have been maintained at Ike
serve banks in favor OF borrowings b,
member banks either by their own o
their customers notes when secured %.
war obligations. The effect OF this pollc.
of differential rates has reflected ltsei
in the successful placement of five grea
loans sggregating $21,500. 100000 an
many issues of tax and loan certificates
The preferential treatment thus eXtende
TO borrowers on Government finance ac
count has justified itself not only D.
the results achieved but also was JUS
titled by the unquestionable fact tina
during the war and until the financia
operations incident to the war were com
Melted the main business of the natlo
was the efficient prosecution of the wa
and the first duty of it's financial an
| credit system therefore the constant sup
port of the Governments financial pro
gramme.
THE DISAPPEARANCE OF the Treasr
from the long term loan market and tn
rapid reduction in it's requirements 10
short term accommodation foreshadow
the approach of the time when the dit
ferential rate rs an agency for further
ing the financial operations of the GOV
ernment may be expected to disappea
and Federal Reserve Bank notes ono
more be fixed solely with a view of aC
commodating commerce and business
THE habitual temper of the Amer
: can business community is sanguine an
American business is for the most pal
, done on liberal margins The bulk
the requirements for credit facilitie
comes from industry and trade mainl
domestic in its origin and characte
Such a condition does moi, make fC
, sensitiveness to the infiueu{* of cham
. ing rates such as was the case in Eni
/, land. where much business, IL done c
: a narrow margin OF profit and whei
banking resources were normally largel
. employed in the international loan ma
ket.
: "At any rate is seems fairly clear th
9 little desirable restraining influen
= could have been exercised by ReserN
. bank rates in recent months Viii
repeated tendencies toward speculate
y of one kind or another have manifest,
themselves and at times given rise to {
q undesirable situation, there is no re
o son to believe that an advance of rat
:. would have held these tendencies
Il check, at any rate, no such advanc
( as could have been undertaken witho
h serious injury to legitimate business al
+ desirable enterprise which is entitled
= encouragement and support There
: no ready method in reserve bankiI
= by which the use of reserve faciliti
e can be withheld from undesirable lin
u Of activity without also being withhe
: from use in desirable lines.
4 Problem Very Complex.