Evening star., 1923-02-25
FUNDS|NHENn
! T0A|DbUS|NESS
Higher Rediscount Rate Does
/! Not Mean Serious Money
/ Shortage.
CHANGE IN TREND SEEN
Commodity Prices Advance Fur.
ther-0utlook Helped by
Consumptive Demands.
CHANGE IN TREND SEEN
BY BYRON SELLER.

BY BYRON SELLER.
Special Dispatch to The Star.
NEW YORK. February 24-Ths
outstanding event Of the week, finan-
cially speaking, was the raising OF
the discount rate by the Federal Re-
serve banks Of New York and Bos-
ton. AS far as the general money
situation is concerned the increase is
not important. simply bringing. as it
does. the eastern banks into line with
tho rest OF the federal reserve sys-
tenn. The significance lies in the ofii-
cial recognition OF a change In tho
trend. II this change Is more than
temporary 1t means two things. first,
that the rise In high grade investment
securities which has been In progress
for the last couple OF years has been
definitely checked and, second. that
the demands of business for more
funds are making some impression
upon the supply.
Eject In bond Market.
Taking up tho hrst point Fridays
bond market showed that investors
and spectators alike took the same
view. Liberty bonds and prime in
yestment rails were all reactionary.
Highly speculative issues continued
to be affected by conditions peculiar
losses in quotations for high grade
securities were not large. as the mar
ket for some time has been discount
Ing some such development. In fact.
the action Of the bank governors was
only q recognition of conditions
which have been prevailing in the
open money market.
1t should not be inferred. however.
Shat any great additional decline in
bond quotations Is in prospect Nor
ts there any indication of any strin-
gency In the money market. The
supply Of funds for legitimate busi-
ness purposes is extraordinarily large.
The effect Of further advance in COM
cannot be overlooked. Such advances
sometimes have almost as much ef-
fect on bond quotations as the raising
o. the money rate. But these ad-
EanceS in commodity prices may
themselves be checked. at least as far
as speculation is concerned, by the
e;Ime stinening in money charges.
Good Business Certain.
In the last analysis the problem
ccnters upon the consumptive de-
,uand If the demand continues good
both raw materials and manufactured
goods will be produced to supply IT
and eventually prices will be fixed so
as to assure the producers a reason
able profit. The best criteria Of con-
sumptive demand are bank clearings
and carloadings. While these continue
on their present scale no concern
need be felt as to a continuance of
good business, and this without much
regard to the money market. Sooner
or later there comes a point at which
consumptive demand is checked, but
when that point will he reached no
one can predict. All this Is said as to
the industrial situation generally. and
without regard to any particular in
dustry. Conditions in any one trade
or with any one commodity may
change with great rapidity while the
seneral situation remains practically
unaltered. II. for instance. sugar
prices should continue to advance un-
der the dual impetus Of speculation
and fears on the part of consumers
OF a scarcity 1t might happen that
the experiences Of the last sugar
commodity produced in many coun-
tries and high prices quickly stimu-
late an inflow of imports. But all
this might happen without any ad-
verse effect on the general industrial
situation.
Demand Main Facts.
As examples Of the proposition that
consumptive demand is the main fac
tor IN the present situation the in
taken. Cotton maintains its present
high price and copper has risen to
It's new level with buying power in
Europe. and especially Germany, at q
low ebb 1t Is hard to see how any
thing else than a genuine domestic
demand can account for present quo
tations, and II so the whole business
outlook is still bright.
Turning to the foreign situation
which the American financial mark
cts still ignore. we and conditions.
~ no better, at least one no worse. 1t
is true that the deadlock between
the French. and the Germans shows
no signs Of breaking, but the explo-
sion predicted in many quarters has
rallied to materialize. And an explo-
sion which is fully anticipated is not
likely to do great deal OF damage
to innocent bystanders. For one thing
away before the fuse burns out. 1t
is becoming more and moro evident
that the European situation cannot
be considered as a whole. The foreign
exchange market shows this.
Progress Abroad Seen.
Otherwise how account for stimuli
taneous strength in sterling and
Of this was afforded this week by the
report from abroad that the republic
Of Czechoslovakia was considering
the funding OF its debt to the United
finances OF this new mid d-European
republic has long commanded the ad-
iniratton OF conservative observers.
II is certainly refreshing to see prog
ress toward financial stability in any
continental quarter. as well as to have
the assurance that, no matter how the
French adventure may turn out, the
result will not necessarily be dis
aster to all Europe. Meanwhile IL
ought to DO observed that French
bonds have been remarkably firm,
and that the panic which seixed in.
vestors q few weeks ago seems to
have abated.
Situation in Congress.
40 review of the week could be
complete without some reference to
the situation in Washington. AS the
session draws to close threats Of
Legislation detrimental to the rail-
roads are no longer as terrifying as
they were when the election returns
began to come in last November. It
looks now as though the much-beset
transportation systems OF the coun-
try would be left In peace. a whiie
vation And Judging from the earn
ings statements and the car-loadings
report most OF them are doing very
we'll.
Whether the session will end with
out ieg>-iation which would cripple
or handicap the federal reserve sys-
tenn in the Huise Of agricultural aid
remains to be seen.
Copyright, 1921
-o