Evening star., 1920-02-07
BY STEUART p. WEST.
pecfaI Corresnondeut Of The Star.

! NEW YORK, February This
weeks collapse in Wall street de-
mands different Interpretation en-
tirely from that placed upon the
! break in November Then it was a
clear case of the banks, under the
/ urging of the federal reserve board,
violently shutting down upon specula-
tion and forcing liquidation of loans
on stocks in order to ease the general
overstrain on credit. This weeks de-
cline. the contrary. came in
market in which the speculative ac-
/; count was rela lively small. that is,
small by comparison with what it was
| three months ago.
1t could not be looked upon as a
| tion. for. at the level of prices current
at the start of the week. there had
been ample defiation and certainly no
exaggeration gauged by the standard
! of intrinsic values.
! Two other versions are to be con-
| sldered in relation to this latest
break. According to one version. the
stock market has merely been drawn
| along in a general liquidtion which
| reached into the commodity markets
! and into industrial transactions as
we'll as liquidation '6cause it was
the only way to undo the evils of
past imitation brought abou. by war
| financing and help solve the problem
of the high cost of living. according
| to the other version. the stock mar
! serious slump in the foreign trade
and it's sequel. decline in prices
| and let-up in general business at
home.
Speculation Outside Market.
! AS it looks now. there is consider
able truth in both of these explana-
.tions. The Wall street market had
seemed to have done its share toward
righting the credit situation in the
severe decline last autumn. Yet,
week after week. the federal reserve
statements failed to show improve
ment. The official discount rates
were raised very sharply in what ap-
liquidation in speculation channels
outside of the stock market.
For a while last month Wrll street
was saying that it was not the stock
market this time that the govern
ment was aiming at. but Iatner spec
ulators in cotton, in food products
and in many other industrial lines.
At first. the drop in foreign ex-
change. as it started from the 3s0
level for sterling, had no serious ef-
due to the calling of loans. in which
bills Of exchange formed the collat.
eral. Even last week. in the face OF
rising money rates. the market re-
fused to be much concerned.
Two things happened to upset this
complacent attitude with the start OF
the present week. First. of course
there was the extraordinary collapse
in the exchange and second a con-
traction of funds available for bor-
rowing. owing to the heavy draft ol
the government upon it's New York
deposit account.
Test Will BE offered.
The government funds withdrawn
this week are not. of course. going
to be locked up. They will be paid
out again in short time and will
find their way back to the financial
centers. 1t may be that in this way
money rates will work somewhat
lower. II this happens we shall have
test of just what part the credit
pinch has played in the recent dis
orders and how far. on the other
hand, they are ascribable to the tre-
mendous fall in the exchanges and
the unfavorable possibilities attach
ing thereto.
The opinion is expressed in we'll in
formed banking circles that the ex-
treme low points for sterling and