Evening star., 1923-05-06
CONTROL OF CREDIT
HELD FAR-REACH|NG
Federal Reserve Boards
New Policy Called Brilliant
Stride in Banking.
MORE CAUTION SIGNALS
Shipping and Farming Cast Only
Business Shadows. Wander
lip Declares.
MORE CAUTION SIGNALS
ny GEORGE r. HUGHES.

ny GEORGE #. HUGHES.
Special Dispatch to The Star.
NEW YORK, May additional
warnings against undue expansion in
business were features of the finan-
cial week. The chorus of caution be-
came so vosiferious that Frank A.
Nandcrlip' was moved to say that peo-
pie seemed as cautious about the
present prosperous outlook as they
would Il scarlet fever epidemic. Mr..
Nanderlips own characterization of
tie situation described it rs almost
fawIess." The only shadows he saw
" ere those cast by shipping and agrl-
cultural conditions
The stock market. whether influ-
,uccd by these warnings or inltiat-
ing one on its own account. expressed
emphatic dissent from the Wander
lip viewpoint. ignoring all the evil
aences of industrial activity. specu-
l;,tivc securities were thrown over
hoard without much regard to price.
At the same time. the Wall street
atmosphere was filled with all sorts
of dire rumors broadcast in the same
way and from the same sources as
fas been the Wall street custom
whenever successive quotations on
tho ticker tape were at progressively
. ltWer Hg gureS.
Stocks Influence Bonds.
Few stopped to examine the merits
of the case with regard to any par
ticular security. In the speculative
mood which prevailed this week,
earnings and orders, to say nothing
of balance sheets, were of no i'm
portancc whatever.
Naturally enough the bond market.
especially in the speculative and
semi-speculative issues. was more or
less Influenced by the reaction in
stocks. Traders who needed funds TO
protect their commitments in stocks
disposed OF bonds. Issues in which n
speculative interest had been built up
on the basis Of Improvement in earn
ings Or an increasingly favorable
business outlook were governed by
the same factors that affected stocks.
If, however. securities the quota
tions for which vary with the current
charge for money are examined. II
will be found that there has been
Practically no change over the entire
week. There has been some fluctua-
ton in liberties. but this has been
due to varying reports about pros
l.ectiHe government financing and to
expectation of purchases by the Brit
i:h government. gh-grade rails
and industrials have been steady.
Money In Good Demand.
If a period of business contraction
were about to begin with the conSe-
Cuent .cssencd d. mand for funds.
sooner or later capital would take
refuge in safe bonds. and the market
. would show the stimulus of such pur-
cha ases. AS a matter of fact, there
has been no sign of anything of this
Kind. Money still finds profitable en-
ployment in commerce. and judging
from this weeks report of the fed
eral reserve banks, to an increas-
irg extent At the same time quota
lions for time funds remain steady.
practically unchanged. In other
words. neither in the bona nor IN the
money market can any one discern
the perils which loom so large it the
eyes of spectators
Nor Is there any further excessive
rise in commodities In fact. accord
ing to both the Bradstreet and Dun
index numbers, there was a decline
during April. Sugar. as every one
knows. has sustained sensational
loss IN the past week. due to the
talk of boycott on the part Of the
consumers. 1t is doubtful whether
this influence will prove more than a
temporary one. however. Both in
sugar and in cotton the statistical
position is very strong.
Cotton Shortage Feared.
The best opinion seems to be that
unless new cotton is available at an
unusually early date there is bound
TO be, a temporary shortage. The
outlook for winter wheat is much
more promising than week ago.
crop reports will be studied with
great interest from now on. Mean
while sales of the mail order houses
show an increase in buying power
or the agricultural population.
Railroad carloadings continue to
set new records. The report for the
week ending April e1. the latest
available. showed total loadinss of
.27.143 cars. or within $1,000 cars of
the highest number ever loaded,
which was in the week ending Oc-
tober Is. 1920. when the autumn crop
movements were under way. The
principal loadings this week consist
ed mainly Of forest products, OF live
stock ard of merchandise and mis-
cellaneous goods.
Coming back to the money situa-
tion, too little attention has been
paid to the Importance of the an
nouncement Just made by the Fed
eral Reserve Board of it's new policy
rs to control of the credit situation.
In effect. this policy is to attemDt
such control by uniform purchases
and sales Of investments in the open
market rather than by changes in
the rediscount rate. 1t seems that at
the recent conference Of the poyer-
nors of the twelve banks it was de-
cided to operate on this uniform prin-
ciple - '-
lheorv is that when the fed
eefal reserve banks liquidate their
Investments the supply Of money in
me market is lessened by an amount
corresponding to the liquidation and
when the member banks wish to re-
gain this money they must come to
me reserve banks for it. On the
other hand, when the reserve banks
purehase securities the supply OF
money Is increased and the necessitv
Tor rediscount correspondinely les.
sens. This is a great forward step
IN the theory and practice OF the
1ederai reserve banking system.
(Conrriaht 1909