The Washington times., 1925-08-24
BUSINESS GOOD,
BUT DANCER
IS SEEN
Chase National Bank Bulletin
Records Forces Working
for Reaction
By RICHARD HATTON


Benjamin NJ. Anderson jr., Phi. D.,
and issued by the Chase National
Bank of New York gives some in
teresting figures in regard to the
present business outlook, with GER
tain deductions in regard to tariff
and other economic factors. The
bulletin says, in part
Business has been good since
last autumn, and the indications Tor
the near future point to somewhat
increased activity. But there are
forces at work making for reaction
which ought to eliminate while
there is still time. The chief Of
these is our excessively high pro-
tective tariff.
The predictions of economists
and bankers that, as a result of
our new creditor position, we should
have an adverse trade balance have
not yet been realized.
Economic laws have not been re-
versed. Our creditor position
justifies the expectation OF an adj
verse balance. The fulfillment OF
that expectation has been delayed
by the following facts: (a) Europe,
until recently. has been paying al
most nothing to our government.
(bl Europe, until recently, has been
draining herself of gold to buy
goods and pay private debts here.
(c) Our very high tariffs have
checked imports, deferring the time
OF the adverse balance, but making
IL all the greater when it finally
comes. The tariff, if high enough,
can even permanently check irn-
Ports. but if so, 1t will lead to a
great slump in exports when the
abnormal factors sustaining exports
cease to operate. I'D The main in
flHeace sustaining our favorable
trade balance has been the vast
volume of foreign loans we have
been making.
New Foreign Loans
Sin 1924 our new foreign loans,
exclusive Of refunding, amounted to
81 900 ,259. 900. In the first months
OF 1926 the figure was $443, 309 900.
Neither our merchants nor our
bankers declares Professor Ander-
son, are disposed to repeat the
errors of 1919 and 1920, when a
vast export balance was sent out
on loose, unfunded credits and pur-
chases Of foreign exchange. If the
export balance continues. it must
be done with investors money-and
investors are interested only in good
eign borrowers continue to offer us
their securities at the rate of a bill
hon dollars a year? They must
offer even more than this, if our
export balance is not to decline,
since every year sees an increase
in their interest payments due US
OF previous borrowing, and since
France, Italy and Belgium must
soon be finding dollars to make
payments TO our Government
Finally. by what miracle are
we able 50 easily to make these
foreign loans2 Is our capital SUP.
ply inexhaustible? Or have we
been mistaking an artificial excess
capital? The latter is in fact the
case. Our excess gold. the low re-
discount rates of the Federal Re-
serve Banks, and the excessive
open market purchases of the Fed
eral Reserve Banks have all COM
bined to inject unneeded money
into the money markets. piling up
reserves in the commercial banks
which commerce could not use, and
leading to vast expansion in the
investments and stock market loans
OF the commercial banks.
Between March IL, 1924 and July
%. 1925, the stock and bond col.
lateral loans of the reporting mem
Der banks" increased $1,143, 0O0, 900.
and their investments increased
S1,036. 100000. These banks hold
approximately 46 per cent OF our
total commercial bank loans and
investments. It is conservative to
AID an additional $1.521 ,000, 900 OF
combined new investments and
stock and h0nH o0flo
the unreported 54 per cent of our
commercial bank loans and invest
ments. making a grand total for
both items Of $1,000, 900 900 for the
Il1teenth months. This is savings
only In small part. It is chiefly
credit expansion.
Commercial loans of the report.
ing banks during this same period
increased only 800, 000,00 or less
than 1.3 per cent. The banks and
the. merchants have both been con-
sentative. The banks have picked
good investments and have ade-
quate margins for their collateral
loans.
Capital Supply
but can we expect to supply
capital indefinitely by such rapid
bank expansion" asks the Econo.
mist. will the Federal Reserve
Banks continue indefinitely to make
money artificially, even by enlars-
ing their open market purchases?
If SC, We may continue for a time
the illusion of a great abundance
! OF capital in the United States. If
at the same time the strong bor-
rQwers of Europe continue to offer
Securities in adequate volume. we
may continue, despite our existing
tariff policy, to have a large vol
ume Of exports for a long time
with an appalling credit congestion
when the day of reckoning finally
comes. But 1t is not to be expected
that both OF these things will long
continue.
ultimately we shall have an un-
favorable trade balance. This may
come in a good way or in a bad
way. The good way is an increase
Of imports with sustained exports.
The bad way would be to hold i'm
ports down and have exports vio-
emily reduced. Foreign borrowing
In volume adequate TO maintain
our present exports cannot per-
manently continue. Unless imports
Increase largely to replace the bOr-
rowing, exports must fall off.
THE export trade is of prime
Importance to agriculture and cop
per. 1t is of high Importance to
petroleum and its products, the
packers, and many raw material
interests IT Is of great Importance