The Washington herald., 1921-06-05
IRREGULAR TONE
|AGAIN
| ON n EXCHANGE
Short Covering Causes
Rallies in Recent Weak
Issues.
RAILS. HOLD FIRM
Show Confusion
Near Close; Foreign Ex-
changes Remain Heavy.


NEW YORK. June 4.-Today's
stock market displayed much ir-
regularity in moderate trading.
Short covering in some Of the re-
rently weak issues brought rallies,
but others displayed further weak
e@ss. Rails were firm. with Louis
rilIe and Nashville and Atlantic
oasr Line registering sharp ad-
Fances. Toward the close indus
rials showed much confusion of
movement. The foreign exchanges
were again heavy, sterling being
priced at S3.s5i and francs at s.2i
kents. July cotton sold off "a points
ft 1855 cents on the British cotton
lnill troubles and July wheat lost
hnother cents at s1.34. Trading
started in September wheat at
l2ei=. the price dropping to S1.ls.
Reserve surplus.
An increase OF sI3.300 in surplus
reserve brings the clearing house
banks total for this item to S25.-
1000. Loans meanwhile show a
hecrease OF s37,s00.OGo and time de-
posits are lower by s9S.30o, 900
while demand deposits are increased
by ss1-500.0O0. Reserve deposits
with the reserve bank are greater
by s2o.sOo.OOO and government de-
posits have shrunk by s22200.O00.
With little apparent change in
he industrial and trade situation.
And with clear indications that con-
Siderable time will be required for
fn a al in
Important industries as those hav-
ing to do with cotton, steel. auto
mobiles and transportation. the in
terest of the business world has
Icentered on affairs of a more strict
|ly financial character. Wheat's
sharp rise, the July delivery hav-
ing advanced approximately 20 per
cent from the low price recorded
in April. augurs better trade con-
ditions in general. In fact II the
present rally in grains continues
|,some Of the persons who appear
most anxious to save the farmer
from destruction will find them
selves without a mission, which
will perhaps be just as well. since
certain Of the methods suggested
and the motives involved are OF
somewhat dubious character.
High Money Renppears
Another interesting feature OF
the week was the temperance of
an per cent rate for call money
on the New York stock exchange
for the first time in about four
months. Coming after repeated
prophecies Of easy money, and
after the lowering OF reserve bank
zIinr and disturbing to many, who
had expected very cheap money by
this time. Scarcity of call money,
however. is not inconsistent with
the signs of contraction which our
banking system has been showing.
For one thing, a great volume of
funds formerly loaned on, cali has
now been diverted to the-purchase
of acceptances. In addition. large
amounts recently have been alb
sorbed by new issues Of securities,
while the steady drain of heavy
government expenditure goes on
ceaselessly. Each passing week
emphasizes the time required TO
carry on a readjustment OF the
present magnitude. Having escaped
a panic. the price must be paid In
patience during more gradual
liuuidation Of unhealthy business
and business practices.
Reserve Bank Notes
II might be thought that the re-
cent demonstration of the fact that
a lowering OF the reserve bank
rates cannot of itself produce
cheaper money would discourage
infiationists and those who wish Ia
tinker with the credit structure
and to apply quick and simple
remedies. but such. unfortunately
is not the case. Complaint is again
being heard that high reserve rates
are the cause of high rates In the
open market and that the reserve
boarc's policy Is penalizinE busi-
ness and the farmer. Under these
circumstances. il may be as well to
call attention once more to the fact
that the reserve bank rates are
still below the open market rates
although the rate Of the central
hank properly should be above the
market. and that when recently
lowered they were already below
the market Furthermore. there is
nothing to prevent a member bank
from loaning below the reserve
bank rates. and member banks
would do so il funds were really
plentiful and reserve rates were
above the natural level.
The idea that the member bank
retails the reserve banks credit
and must add a profit to the lat
ters charge Is also fallacious, since
In the nature of the case the mem
Der bank rediscounts only a small
proportion of its paper with the re-
serve bank. The real reason why
money rates continue high Is be-
cause an initial shortage Of capital
still exists due both to the losses
incurred in the post-armistice
slump in prices and to the destruc-
tion wrought during the world war
Our federal reserve system has
brought us through an extraordi-
nary crisis in remarkable fashion
and is now performing in unosten-
tatious fashion services OF unique
and practical value. II will be un-
fortunate indeed, il at this juncture
the prestige of the institution were
to be smirched in order to try i'll
considered experiments or to In
gratiatei special interests.