Evening star., 1921-02-27
MANY CROSS CURRENTS DISTURB
THE RETURN TO THE NORMAL
Important Developments of This Week
Likely to Exert Great Influence.
Talk Of Refunding Debt.

banking position
That they gladly gave it was i.-
dlcative OF their certainty that he
would make no improper use OF tho
information obtained during his term
of office.
Chase Economic Bulletin.
The Chase National Bank has just
issued an Economic Bulletin edited
by Il. NJ. Anderson, Jr., Ph.D., econo-
mist of the bank. After discussing
married. as follows:
The specific abnormalities mani
Tested in the United States in 1919
and early 1920 were the following:
An export balance averaging three
hundred to four hundred million dol
lars a month and exceeding the ex-
port balance during the war itself. de
spite the fact that as a creditor coun-
try we should normally have had an
import balance. This abnormality re
mains in large part uncorrected in
the latest published figures. though
signs of a change are in evidence.
During 1919 and early 1920. despite
our favorable balance of trade with
the world as a whole, we were losing
gold heavily because of our adverse
balance of trade with the non Euro
pean world. The closing months OF
1920 corrected this.
LAS a consequence of losing both
gold and goods in foreign trade, We
had the awkward com mbination OF
rapidly rising commodity prices and
growing tension in the money mar
ket
Governmental expenditure continued
after the armistice for several months
at a rate of two billion dollars "A
month. and since the armiStice the
government has spent practically as
much as it did during the war. Gov
fol md, h1S f.n
off but still continues very great.
municipalities, able TO float tax eN-
empt securities, made excessive de
mands on the money, commodity snd
labor markets at a time when the
strain was already too great.
with the return of four million men
to industry from the Army and Navy
in 1919. we witnessed a sharp decline
i'm the physical volume of goods pro-
duced in the United States in 1919
compared with 1918.
Government Financial Exports.
Our export balance with Europe.
financed by the government down to
the middle of 1919. went on on open
account after the middle of 1919. Gre
ating an unfunded debt of Europe TO
private creditors in the United States.
which we estimated at three and a
half billion dollars on September Is.
1920, and which by now substantially
exceeds four billion dollars. This
caused tremendous drain on Ameri-
can banks. which expanded their
loans and investments over twenty.
five per cent from April IL, 1919, 70
April 9, 1920. This expansion occrrre6
despite decline in government bor-
| rowing from the banks. 1t was due
partly to direct loans by American
banks to European importers. on the
guaranty of European banks. but
more to the fact that American busi-
ness men and exchange spectators.
who were tving up their working
canital in advances to Europe. were
Obliged to have recourse to American
banks to replenish their working
| capital 1t was also in part due to
the rising prices and speculation
which the general situation created"
The even greater expansion of
British banks (41 per cent from June.
similar causes, as Britain supplied
goods and services on credit to the
continent of Europe and took over
from New York the greater part of
the floating obligations of the contf-
nent to New York, assuming in turn
direct obligations to New York
railing exchange rates when due
| solely to distorted trade balances
tend to correct themselves through
checking imports and increasing ex-
ports on the part of the country
whose currency is below par. When
however. exchange rates are de
clining because of the sinking value
of irredeemable paper money due
to increasing financial difficulties of
governments or issuing banks. this
generalization ceases to hold. Rising
prices. due to depreciating paper
money. likewise fail 10 check con-
sumption Anticipating further de-
clineS in exchange rates and further
increases in prices. people become ex-
travagant and spectators buy goods
more recklessly. Production. more
over is hampered oy fiuctuating and
falling values of irredeemable paper
money, in view of the impossibility of
forecasting future prices and future
costs. The greatest single evil in the
world today is the unsound paper
money of the continent of Europe.
OF that reduced part of our la Dor
and resources which was devoted to
the production of capital. a substan-
tial part was misdirected during 1919
and early 1920. Government ship
building continued on a great scale.
We overexpanded the automobile in
duStry. We neglected railroad equip
ment, public utilities. and housing.
Unwise expansion has ceased. New
operations of the right sort are being
planned.
The Shell shock.
Business psychology in 1919 and
early 1920 manifested an Irrational
exaltation of an extreme sort. From
this we swung to state of shell
shock in December of 1920. Today
we have recovered from shell shock.
Business men are facing facts
squarely, with caution. but with
courage.
Progress in credit liquidation has
taken place since October of 1920. but
monetary ease has not yet been
achieved. The reserve ratio of the
federal reserve system in recent
weeks has been rising slowly at the
rate o. fraction of l per cent a
week A much more thoroughgoing
paying off of loans will have to pre-
cede real ease in the money market.
Price readjustment has gone far.
so far as the general average of
wholesale prices is concerned, but an
harmonious price system has not yet
been achieved. Further declines in
the general average may be looked
for.
Problems Manageable.
Our problems are manageable, but
they are not all solved. Our general
business and credit system is ex-
ceedingly strong. Our businesses
nous profits of the war and post
war boom. Dividend policies were
conservative. over sixteen billions
of corporate profits were turned back
to surplus. Inventories and other
assets were conservatively estimated.
The total wealth of the country, over
S25OOOO 000, 900 is enormously greater
than the volume of credits resting on
it, Credit risks have been diffuSed.
by a variety of wise practices. There
are, moreover. distinct signs of re-
viving activity in lines where price
readjustment has been most drastic,
nrhe