The Bridgeport times and evening farmer., 1920-07-10
DISCOUNT RATES
 ARE ADVANCED
From the Federal Reserve Agent at
 New York to the Federal Reserve

NeW \ OIk u titS G CdSi cl ISC1SA vS
 Board.)
 the Federal Reserve Bank of New York announced a further advance in discount rates, effective June 1. The rate on commercial paper was raised 6 to per cent, with corresponding increases in other rates. The purpose of the advance, 1t was stated in the was fin order that | bankers their customers and the pulp lie generally may find in the discount rates of this bank reflection of ex- isting credit conditions"
 Credit conditions, which are ana l lyzed in this report each month, were l fully discussed in the report of April | 30. The outstanding facts are that | during the 12 months ended February | 2s, 1920, in spite of decrease of $25s,- 1 450,ooo in the gold holdings of the country, bank loans, accdrding to the l nest available estimate, expanded $5, 20O, ,000, 600 or "A per cent, and prices expanded 26 per cent. From May, 1919, to May. 1920, this expansion re- suited in the following increases in the cost of credit:
 New security issues, from 6 1-2 and ' per cent. to 2 and 8 per cent.
 Comm ercial paper, from 1-2 per cent. to 71-2 per cent.
 Government bond basis, from 4-65 per cent to 5.45 per cent.
 Government short certificates, from 1-2 per cent to 5 1-2 per cent.
 It may fbe interesting to compare rates on commercial paper in the open market with the discount rates of the Federal Reserve Bank of New York. When discount rates were first increased last November Ono change being made in the commercial paper rate) the discount rate on commercial
 
 open market rate was 1-2 per cent. On January g, when the discount rate on commercial paper was raised to per cent, the outside rate was already 6 per cent. On July l, when the dis count rate on commercial paper was raised to per cent, the open market rate was about ' 1-2 per cent.
 The result of the higher Federal Re serve Bank rates, as far as we can learn, has been to impress borrowers with the necessity of borrowing as little as possible, and of presenting sound case fwhen applying for credit. The increasing number of sales, not only of manufactured goods but of raw materials, during the past menth, is clearly indicative of the desire to reduce stocks of goods which are be- ing carried. Producers and distrib utors find that necessary credit is available, but there is greater dis couragement of borrowing for less necessary purposes. Rates on com mercia1 paper in the open market l have risen during the month 1-2 per 1 cent to 8 per cent, and the banks in some of the smaller industrial cities at | which rates have not been raised are | finding an increasing pressure upon | them for loans at their lower rates. Unquestionably, the most interest | ing transaction under the new condi- :; fIo o,f ina ajr1D of June 15 when the Treasury Depart ment offered s400, ,000, 600 of 3-4 and 6 | per cent certificates of indebtedness which were readily taken. In all l $41e, ,0O0,0o0 of these certificates were | allotted. The proceeds of these cer- | tificates, together with the taxes due l Juhe IS, provided the means of liqui- 1 dating s1,ooO. 100000 of certificates l maturing from June 15 to July 15. therefore effecting, temporarily at
 least, a reduction of nearly $60o,- | 000,0OO in the public debt. Between l now and September 15 when the next 1 instalment is paid, doubtless some in- crease in the debt will occur, but the | Secretary of the Treasury has indf- ] cated that a considerable net reduc- ton during the three months is an- ticipated. Further figures submit | ted by the Secretary indicated a de- i crease in the public debt between l August 31 and May "1 of 1,600,0 ,000,- | 900 which the operations of June 15 l increased, temporarily at least, to ] $2,200, 100000.
 l Both issues were well taken, with | the per cent. offering somewhat more heavily subscribed, and their distribution to the public appeared to
 be particularly good. In the various | discussions of financial matters which ] have occurred during the past month, statements frequently made | indicated a general belief that the $3,ooo, 100000 certificates outstand- l ing were largely, if not principally,
 lodged in the banks. This is quite l the reverse of the fact. Studies of
 banking reports have indicated that | during the past six months 75 per
 cent of the outstanding certificates
 were held, not by the banks, but by | the public, and that of the balance, | a considerable portion was held for l investment, like any other short
 paper, by banks not borrowing of the
 Federal Reserve System.
 Another recent and notable de- | veIopment in government financing | was the freer and larger dealing in Treasury certificates of indebtedness
 in the open market. During the last
 two months large transactions have
 occurred, particularly in the short l CT maturities, and at rates approxi-
 mating 1-2-5 3-4 per cent. as against the rates of 6-6 1-2 per cent. which prevailed during April
 and May. The greater activity has | brought about a greater demand. The steady reduction of the gov
 ernment debt. and of the government
 securities held directly and indi- rectly by banks, has not brought
 about the improvement in our credit position which was anticipated some
 months ago when 1t was hoped that | the reduction of these primary in-
 struments of imitation would reduce corresponding1y the credit volume
 The reverse has been true. Not only
 has the volume of credit not been re-
 duced correspondingly, but commer-
 cia1 and other requiremen ents have
 necessitated additional credit to the extent of dn1lhIe the naIlrt of