New-York tribune., 1921-06-06


Fundamental matters, such as the
general easing of credit, agreement on
reparations, an approach to new
policy of cooperation with Europe are
developing favorably, and give one Il
sense of progress along the road of
after -the-war readjustment. The ad-
verse developments that are occurring
have been foreseen in broad outline,
even though the detail Of the event
entails surprise, The downward read
justment, though almost finished in
some branches of industry, has fur
ther to go in others. AS the president
OF one of the huge national banks re-
marked the other day, the cure to the
present business situation is time.
Meantime particularly aggravated
center of the business world is Cuba,
victim of the speculative ramblcs Of
sugar. AS result of the failure of
the sugar industry to revive--refined
sugar prices touched new low for the
year on Friday-the island remains
financially paralyzed, unable to pay it's
debts. Meantime American and
Canadian banks are carrying their
| Cuban debtors, counting their loans
to the islands as their most frozen
assets.
Spectators had to bid as high as 8
per cent last week to WOO call funds
from money lenders, for the first time
since February s. The stringency re-
! flected in the increase in rates seemed
anomalous in the face of the persistent
| Improvement in the position of the Fed
eral Reserve Bank, of New York, which
last week revealed the highest ratio of
reserves in three years. Funds from
the interior flowed eastward and should
have had the effect of easing the sltua-
tion here. But Wall Street has come
| to know that under present conditions
call money rates do not reflect funda-
mental credit conditions. The funds
which are lent on Stock Exchange COL
lateral at the money desk on the floor
of the board room comprise the odds
and ends of the money market, a spe-
cial kind of credit Local banks last
week lent relatively little for their own
account. large proportion of the
limited supply came from brokers with
a surplus, from capitalists and from
out-of-town banks. The heightened
tightness last week, compared with
earlier weeks, was ascribed to begin
ming of the months disbursements,
heavy absorption of investment securi-
ties, the approach of the time for the
payment of the June 15 installment. of
Federal taxes and the transfer of funds
in connection with German reparations.
The basic fact in the money market
is that actual credit def1ation is going
on. AS loans by member banks to
their customers are paid soff, they in
turn reduce their indebtedness at the
Reserve banks. This process was
anticipated by students of the situa-
ton, and is obviously in accordance
with the conscious policy of the
Federal Reserve Board. When ex-
pansion was at it's peak last November,
the rediscounts of the Federal Reserve
| Bank of New York reached $988,26
722. Last week they had fallen to
$528,357 ,636 for member banks. The
funds released by the changing condi-
tions of industry are in the main be-
ing used to cut down the total volume
of credit in existence in this country.
They are not being diverted from in
dustry to the stock market 1t, has
been estimated that the. loans of
10000 national and state banks to
their customers have shrunk in the
last twelve months to the extent of
100000. And, with the bank loans
contracting at this fast pace, gold has
been rushed to American shores. The
two factors have been pushing reserve
ratios Of the regional banks far above
the danger limit to the highest levels
attained since 1918.
| A new influence in the international
money market is Germany in the role