New Britain herald. [microfilm reel] (New Britain, Conn.) 1890-1976, 1929-01-11

and sseuritisa selling their holdings.
have thus come into possession Of
their original capital plus large pre-
fits which many Of them are In .
poaitien to lend 70 the stock Ex-
change until such time ~ the prices
Of securities or OF real estate suit
them better. The abundance Of mort
gaxs money during this period has
led 10 the refunding Of many mort
gagea with the result that the mort
gagees are In possession Of liquid
funds. which have come back to the
general capital market, including
the call loan market Investment
trusts. floating issues easily In the
period Of bank expansion. have also
In many cases. large funds for stock
market loan.
1.-THE original fountain and source.
then. OF the great volume OF free
funds in the hands OF individuals.
firms. corporations. foreign banks.
investment trusts. and 10 on. avail
able for loans on the Stock Ex-
change. 10 the prior expansion In
earning assets and deposits by the
banks. What does the long-run fu-
ture hold with respect to the volume
OF such funds? The answer seems
fairly clearly indicated. For the
present, certainly. the expansion of
bank credit Is over. Incoming gold
is no longer making excessive re-
serves. On the contrary, we have
lost $500. 100000 of gold since the
peak Of gold holdings In 1927. The
federal reserve authorities are no
longer pursuing an easy-money
policy. The reserves Of the banks of
the United States are no longer ex-
cessive. The volume OF new securi-
ties currently floated IL reduced. and
the interest rates at which new
bonds can be placed are not attract
i've to borrowers who do not need
to borrow. Assuming, then. that the
period Of easy money and rapid bank
expansion IL over. the presumption
would be that the volume Of liquid
funds in outside hands availab BILE for
loans at the Stock Exchange would
ultimately diminish rather than
grow, though for a time. II interest
rates stay high, 1t may even In
crease.
AT high rates. foreigners are
glad to leave their funds at the dis
posal OF the New York stock ex-
change. With lower rates, they will
be disposed to take part OF them
home. and in the process take some
gold. Business corporations will
gradually tend to use their excess
Of liquor funds. They have maturi-
ties OF existing obligations to meet
which they would refund In an easy
money market. but which they
would pay off in the face Of firm
money rates. Presumably. too, the
corporations have issued securities
rot merely to get cash for indefinite
contingencies but rather with view
to very definite purposes in the fu-
ture. They have got their money
when It was easy to get, but they
mean to use 1t at a later time. In
vestors lending temporarily to the
stock exchange look forward to the
time when security prices will be
more attractive. and when they will
buy securities themselves instead OF
holding loans against securities. TIL,
long run tendency would. therefore
be for the unusual fund of liquid
money In the hands OF private lead
ers to be reduced to more norma
proportions. unless it Is fed by re
newal OF bank expansion.
The situation may be imperfect
ly represented by the analogy Of .
great river which has been in floot
for 4 period OF several years in I
wide valley with many tributar,
streams. and with great areas IT
which lakes could be formed. Thu
extraordinary flow from the head
waterA which had filled and over
filled the main channel. ceases. bu
1t takes a long time for the leve
to be reduced and for the flood It
subside, The excess water comes
pouring back from the tributar,
rivers and creeks and from tn
lakes which have been formed ir
the creek valleys. We might add II
our picture the Influence OF I'M
mense siphons (symbolizing tn
| high interest rates) bringing bacl
water even from those lakes whicf
could not otherwise release 1t.