New-York tribune., 1921-11-07

In any weighing up Of the numerous
factors which are currently making for
Improvement in business and finance
that having to do with the domestic
credit situation must be given a place
of first rank among the potent con-
structive influences. The change from
year ago has been most striking.
Deflstion, starting gradually and then
moving ahead with increasing momen-
tum. has wrought most extraordinary
change in the banking structure of
the country. IN twelve months time
the borrowings at the Federal Reserve
banks by member institutions have
been reduced from approximately ST.
500, 100000 to $1,250,oO0,000 and gold
reserves have risen from $4,000, 900 900
to $2,S00.000,000. These changes have
resulted in pushing the reserve ratio,
or the percentage of reserves to lis-
bilities, of the system as whole from
the AZ per cent of year ago to the n
per cent reported last week The fig
ures are indicative of the change that
has been going on steadily.
This pronounced improvement
means a great deal to business and in
dustry, and 1t is only now that the
financial community and the country
at large have begun to grasp the i'm
portance of it all. The loans made by
the Federal Reserve banks to the men,
ber institutions have been drastically
scaled down because the latter have
been able to liquidate the loans of their
customers. Now the trend to normalcy
has gone to point where money is
becoming relatively cheap, as judged
from the standards Of several months
ago. and is more than sufficient to sup
ply the requirements of reduced VOL
umc Of business. Federal Reserve
Bank rates as result Of wholesale re-
ductions made last week are down to
the level of the late months of 1917.
Last spring the rate stood at per cent.
In five successive reductions, beginning
last May, the rate in New York has
been lowered to 41s per cent.
Probably the outstanding develop
ment of an extremely interesting week
in the Street. and certainly in many
respects one of the most significant,
was the reduction in Federal Reserve
discount rates. It had powerful slim
ulating effect upon the market for in
vestment securities when the demand,
which has been steadily expanding,
broadened out in striking fashion,
lifting prices of investment securities
of all descriptions to the highest levels
of the year. The upswing in bonds i9
a perfectly natural concomitant Of fall
ing money rates. AS rates decline the
prices of fixed interest bearing securi-
ties rise, bringing income yields nearer
the level Of money. The reverse proc
ess of what is now taking place
occurred during the war Then bond
prices were falling as interest rates
were rising. The present movement
is reflective of the natural accumula-
longer required to such large extent
in business. More than that it is in
dicative Of reviving confidence.
Although the confidence necessary to
a broad speculative market in stocks is
plainly lacking. the action Of securities
Of this character give evidence Of the
same growing feeling of optimism that
has been abroad since early in Sep
tember. Business is still laggard in
most lines and industry is beset with
many serious problems and difficulties.
Yet despite all of the unfavorable as
poets of the general situation there
exists strong undercurrent of senti-
ment that the turn has come and that
even though recovery from this point
may be slow the coming year is likely
to produce greater degree of pros
perity. Stocks have already enjoyed a