The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1928-01-02
Business fo7" Year Is
Rated as Disappointing
Continued from Page II

from Page II
The accuracy of this observation
is borne out by Bradstreet's reports
on collections. 1t is long time
since they have been satisfactory
too literally sprinkled with fair
and SLOW"
The natural inquiry IS whether the
generally admitted expanding scale
of living is not absorbing funds
which ought to be used in reduction
of obligations and the conservation
of capital to meet the demands Of
increasing business.
The progressive decline of cal
loadinos is another discouraging fac
tor. The total for the latest week
reported, that ending Dec. 10, was
lower than that for the correspond
ing week in any of the four preced-
ing years.
What of Cold Movement
But the most serious query as to
the future of business centers about
the vast and complex question of
the international gold movement
particularly of export from the
United States. Both Brookmire and
Colonel AyreS admit this.
There are differences of opinion
as to how far this movement can
go before it exerts a serious effect
on the credit structure.
Some who speak with authority
think the United States could part
with a billion of its gold without
disturbance Of credits.
Those who have read the illumi-
mating article on Bank Credit In
flation and the Possibilities of Heavy
Experts of Gold" in the Annalist
for Dec. 9 will be disposed to think
that if the outflow of gold should by
any chance go that far the inevita-
BILE result would be heavy shrink
age of security and real estate values
which have been built up through
credit imitation based on a super
abundant gold supply.
For it undoubtedly is true that in
the course of the past five or six
years we have gotten away from the
classical theory that the bulk of
bank credit should come into exist
ence as the result of a normal de-
mand for business credit. that is.
for type of relatively short term.
self liquidating credit required to
finance the current needs of bust
ness.
In 1921. the reporting member
banks of the Federal Reserve SyS-
tenn had commercial loans in 80 per
cent larger amount than their loans
on securities and investments.
U. S. Has Huge Reserve
In October, 1927, the same banks
had loans on securities and invest
mentS almost so per cent greater
than their commercial loans.
In other words the banker today is
loaning more of his depositorS'
money on capital assets than he is
on ordinary short term commercial
credits.
This reversal in character of bank
credits, together with the fact that
the volume has expanded four and
half billions in about five years
needs consideration.
What about this new experiment.
in banking by utilizing bank credits
as a source Of capital on hitherto
unprecedented scale?
If the basis of the credit-our
enormous gold supply, remains un-
disturbed. the banks may be able
to manage the shift in distribution
of credits required by expanding
business activity without serious dis
turbance
But certainly the inflationary tao
tics pursued by cur banking system
during the period under discussion
has not made the problem easy.
Should a billion of our gold be lost
reducing the reserve behind each
500 of bank credit from $3.50 to
$3.50, it requires more optimism than
this writer possesses to believe that
there would be no serious disturb
ance of the credit structure.
Distribute Supply
While it does not seem likely that
we shall lose any such amount OF
gold in the immediate future, the
outward flow recently has been SUBJ
Stantial, and the disturbing fact ex-
lists that foreign nations have piled
up credits against us in one form
or another we'll in excess of a billion
dollars.
Sooner or later, Italy and the
other countries which have sta
bilized their currencieS will require
metallic gold for their currency re-
serves, so the sterilization plan is a
potential drain on our own gold
stock.
Undoubtedly It is for the general
economic good and stability of the
entire world that our superintendent
gold supply should be distributed
gradually to insure a general sound
ness of currencies.
But the management Of the credit
contraction which is involved calls
for super-ability and our credit mar
kets should begin to prepare for II
instead of further encouraging stock
market and real estate speculation