Evening star., 1921-06-18
BY STUART y. WEST.


NEW YORK. Jun" ls.--Rcduction
| of the Federal Rnsnrvc Bank rate to
6 per cent--thc trCDnd cut within two
monthS-camr this week. :LS expect
| ed. 1t served to mako very clear
that whatever rl1r liz the mat ter with
the business and financial situation.
restriction of credit is no longer a
factor The lowering of the rate on
| commercial discount Is, on the one
| hand, proof that the banking hu-
thorities are satisfied with the prog
| ress; made during the last six months
in debating loans and noto issues,
and on the other hand, 1t is a noti-
| hcation to tho business community
| tEtt the credit strain has passed and
that 1t is safe to let down the bars
! which were raised against loan cX-
panSlon Il year ago.
That this assurance has had SO lit
tie effect either upon the trade move
ment or upon the situation in Wall
street simply goes to show that tho
part which the credit tension has
been playing in the great decline of
the past eight months mas been a
good deal ovcrratcd. Raising of the
federal reserve discount checked the
wild speculation III securities and in
commodities "A year and a half ago
and the difficulties placed in the way
OF commercial borrowers accelerated
the business decline
But the credit troubles were not
the supreme influence in the markets
OF 1920-2l that they were in the crisis
OF 1907. The banking difficulties were
OF Su ue1fdindtc Importance to the com
merclA difficulties. The foremost
problem was to restore an inflated
Z n datSs .Iaaf
production to n normal peace basis
| without involving Il crash.
Money Goes begging.
Not being the prime factor in the
situation. the passing of the money
! strinSency has not availcd to turn
| the tld" in business affairs or to stop
! the last few days, has literally gone
! h"gSinS in Wall street. 1t is "A re-
| mindcc that very low call money
; rates are more often than not an
| accompaniment OF slack trade. For
/ instance, during. the acute dcpreS-
sion in the steeh market of 1903--a
| situation somewhat lili" the present
onc-call funds were offered on the
stock exchange at per cent and
| were pressed upon borrowers at this
! figure. while stocks were tumbling
preCipitatcly.
year when il has looked as if the
worst that had happened or could
happen in trade conditions had been
discounted by the enormous shrink
age in security prices. Those who
have Venturcd an assertion to this
effect hav" not been wrong simply
because the stock market has kept
on going down. What we ar" seeing
now is not reasoning process Of
readJuSting securities to IL" straight
ened business conditions. The move
mrnt Of the last few weeks has bee n
unreasonable and largely artificial.
Trade Depression.
It has been the market over,is-
counting trade depression. in precise
" the same manner. and TO precisely Y
| the same extent. that il exaggerated
the prosperity Of two years ago. Short
selling has been conducted with the
same reckloSSneSS that characterized
the speculative buying of October
! 1919. The sequel cannot be doubted
| although nobody is abl. to tell just
when the turn will come. Whether
or not the activities Of bear traders
| will be able TO make 4 further impress
sion, there is no hesitation in calling
/ the present price level very low. ir
saying that it has, in many instances
jOverneaSured tile reduction in com
pany profits and the lowering anf
! Passing OF diNlfeEdS. ana brought
stocks below their intrinsic values.
| One of the remarkable features ot
the situation is that investment bond:
should have responded so little to tn,
rise in the purchasing power of the
dollar and to the decline in money in.
l;erest. Other things being equal
these changes ought 10 lower the in.
come return from securities of fixeC
| rate; that is. raise their cost to the
! investor. Ultimately this must be the
IconS.QuenC" of the drilation in com.
modify prices and the piling up of {
money surplus.
Flood of Securities.
| But at the moment these forces are
| counterbalanccd by the flood of new
! securities which have been preSsine
| upon the market during the last year
! representing the rush of foreign gov.
| ernments and home corporations tc
| raise money which they could no
| do while war loans had the call
, These demands have been SO urGent
that. so far from the borrower get.
, ting hptter terms he has had L
| 6lllC CNf,lillfrl rec cc0lUSc'