Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-01-13
WHY INTEREST RATES ARE HIGH
BY FREDERIC J. HASKIN.

lesson in the fact that in 1928 Germany
was the worlds most spectacular gamer
of cold. Her gold reserves In the
Reichsbank rose no less than Sl2O,OO0,-
600 during the year, and TINS IN spite
of the fact that her trade balance was
adverse. Moreover, she had heavy
reparation payments to make. The ex-
PLANTATION is that In all German pank-
ing centers interest rates have Deen
high and the discount rate OF the
Reichsbank has stood at.the relatlveY
high figure of z per cent ever Since
October of 1927.
This is a high rate. for a nation re-
covering from defeat and labor1ng un-
der reparation charges to pay, put tne
necessity to produce is SO strong mat u
is paid. for German industry must nave
CAPITAL to regain its footing. so Ior-
eign gold is attracted. II Is interesting
to note that during the last year STU
900 900 flowed into Germany from Rus
STA. This was, however. not 50 much
money sent in for investment as pay
ment for goods purchased.
| Up to last Autumn the year 1923 had
shown a gain of Sl3O,000,000 in gold
! for the Bank of England. but with
| drawals at the end of the year showed
| a net gain of only $10,000,000, and most
of this loss was to Germany, although
| S35, 900 600 came into this market.
Situation Spells Caution.
The Bank of France. the Bank OF
| the Netherlands, the Bank OF ltaiy, the
National Bank of Belgium and the Aus
TRAN National Bank all show gold gains
| for the year. Much of their gold ga:fS
have come from the United States. OF
December %, 1927, the Federal Reserve
banks of the United States showed gold
holdings of So. 739. 100000. On Decent
Der 26 of 1928 this figure had declined
to S2.5840 100000. Our stock still is
| the largest in the world and there Is
nothing to worry about on that score,
but it is conceivable that if our inter-
est rates sink to low level hundreds
of millions would be added to our losses
to foreign countries.
Such a situation spells caution, for
it clearly suggests that American oank-
ers will not permit rates to sink TO q
point which would endanger our gold
holdings. In turn, that means that
money will not continue cheap.
But substantial interest rates by no
means indicate bad business. An1eri-
can earnings are at high level and
promise TO continue there. Save for
the textile and bituminous coal indus
| tries the whole Nation is prosperous.
The extent to which the American pub
lie purchased new securities during
1923 reveals how much money they
had to spare for investment, which, on
the one hand, represents saving on
the part of purchaser, and on the
other, provides industry with capital for
expansion and increased business. In
1927 capital issues to the extent of
| $9,871 ,000,000 were purchased by the
American people. In the first IL months
of 1928 sales of securities amounted
to $4,000, 100000. If the monthly
rate of purchase was maintained
through December, as it undoubtedly
was, 1t will be seen that 1923 will ex-
coed 1927, which, up to that time, was
the record for all years. The greatest
amount of such corporate securities was
issued on the properties of public util-
ities-$1, TIA 900 900.
AS there seems no likelihood Of a
diminution of the supply of surplus
funds, 1t seems highly probable that
1929 will see security issue sales 60
to new high levels. Only six years ago
sales were but a third of what they are
today. These figures relate to brand
new issues and do not represent the
sales and resales of stocks and bonds
which had been on the market before.