Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-03-17

ing In business and IN finance In other
wears and see what happened then un-
der circumstances approximating those
of the present. The nearest parallel We
have % 1878 and 1922 are the years
1920 and 1921, when all Of the forces
of banking restraint were conferred on
the correction Of conditions growing
out Of imitation in commodities and In
securities Immediately following the
war.
In the Spring of 1919 the Federal
Reserve discount rate was AZ per cent.
Two months later call money was loan
ing at Is per cent. 1t was not until
July, 1920. that the rate went TO per
cent. the Bank Of England then quot
ing that figure. and the per cent rae
until November 1921, was 1t Thought
advisable to reduce the discount to Az
per cent. So the cycle from low-inter-
est rates TO high-intereSt rates ana pacK
to normalcy involved q period OF TWO
and one-half years.
It is little more than IL months since
the Federal Reserve first raised its rate
from 3l2 per cent to 4 per cent. and IN
the subsequent period Wall Street has
seen nothing higher than IL per cent
call loane. compared with the rate fire.
ouently quoted Of Is per cent during
the defiation period and as high as 70
per cent when the Stringency was most
severe.
The extreme in this period has been
a S per cent discount rate. but 1t wouio
not be improbable II. in order to erect
permanent control OF conditions. the
discount would, as In 1920 and in 1921,
have to be advanced to per cent.
Commodity Situation Differs.
The main point Of difference between
the situation at present perplexing the
Federal Reserve. and that which preVi-
ously brought criticism against II. re-
lates to commodities rather than 10 Sc
curities. Commodities then were forced
to the point where consumers nnaly
went on strike and refused to buy Then
prices began to come down and the in
yerted pyramid toppled over, bringing
with it failures to mercantile concerns.
the suspension OF dividends. reduction
in wages unemployment and. through
out 1920. continuous liquidation In Sc
curities.
Today commodities are reasonably
low. There are some signs OF imitation,
such as in copper, cotton and in grain.
On the whole. commodities are not a
problem to banking interests. In the
earlier period corporations were carry
ing very heavy inventories and as
shrank in value their
financial position became precarious.
Today these same concerns have mod
crate inventories without the fear Of
price decline, and possibly the ad-
Of rising prices later on. They
are strong in cash and in short-term
securities. Therefore. even applying the
most severe penalties that may be i'm
posed upon borrowers in order to curb
speculation. 1t would be impossible to
produce conditions comparable In their
disturbing effects to, those Of decade
ago.
Weak Points May Develop.
1t may be said. however. that there
always develop out of every period of
prolonged prosperity and of overex-
pansion weaknesses that had not been
but which in the end play
an important part in causing readjust-
ment. These may exhibit themselves in
the investment trusts and finance cor
porations. in the overextended real
estate field, in public utility holding