Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-11-24
STOCK CRASH STEP
IN 5YEAR CLIMB
Break and Credit Ease Held
Factors in Coming Broader
Development.
Dispatch to The star.

Special Dispatch to The Star.
NEW YORK, November 23-The re-
cent break In stock prices and the cur
rent condition Of ease in credit are not
q climax, but rather are intermediate
steps In q broader development which
may not eliminate for five years more.
This opinion Is expressed by the j.
Henry Schroeder Banking Corporation
in the Quarterly Review. which has just
been released by J. Henry Schroeder q
Co., London. Improvement in business
Is regarded as a matter Of months ana
not years.
After giving reasons for doubling
that any substantial movement In gold
from this country Is In prspect, the firm
states:
Ewes assuming a gradually declining
gold stock, credit expansion In the
United States could continue Tor per-
haps FIVE years at about the average
rate of the past six or seven years. II
this should come about, 1t seems fair
sIiess that the Federal Reserve ratio Tor
the system, as a whole, five years hence
would be about IS per cent, commercial
paper rates per cent and time money
rates 8 per cent. Stock market loans,
made either directly through brokers
or indirectly through loans to tndivid-
walls and others with suitable collateral,
would be much higher than at present,
and stock prices would be considerably
above their present levels. Then the
stage might be more appropriately set
for q business depression than at the
present time"
Reserve Boards Policy.
In spite of the loss In security values,
the review says assurances pour IN
from all parts Of the country that pros
mon the easy interchange of goods and
services, that the pyramtdtng OF secur-
itv values on q slim credit base was an
Important, though not vital, element
ia the economic structure, and that the
demand for most commodities viii De
s,Ifflcient to keep production OF goods
at high level. The possibility tnaG tne
Federal Reserve policy IN the immeolate
future will be to ease commercial pape.
rates and stimulate business Is pOuiOeu
out in the review.
s'Tt is nerhaps no more than human
for r,eople to carry a good thing too iar,
saws the Review, land 1t Is preclSely
this which market operators nave cone
in carrying stock market creolt expan-
sion to a point where commercial inter-
ests might be harmed. Because OF tne
present level Of commercial paper rates
it may not be too much to hope that tne
CHANCE
evident during October VIII be lasIuls
influence upon the stock market.
"Thus, experience has shown that as
long as commercial paper rates are at
reasonable levels, member banks OF the
Reserve System have been willing 10
extend credit to the market through
the medium of secured loans, even after
they have been forced to dip into tneH
investment account and borrow money
from the central banks in order to DO SO.
On the other hand, when, under these
conditions, commercial paper rates have
become Arm, then the banks have with
drawn market credit, either because
they have been gratifyingly cognizant
Of their primary function In business
community, or because they have been
sensible enough to kill the goose which
has laid golden egg for the securities
market.
Money Rates to Stay Low.
"The stock market has faltered before
under the fatal sequence of rapid rise
in commercial paper rates, withdrawal
of money from the stock market by the
banks and high stock market money
rates. Those who heretofore have kept
operating on the upward side OF the
market, however, have been clever
enough to Sc that the rate of expansion
in stock market credit was only tenn
porarily too rapid, and as soon as COM
rnercial paper rates had sunk back to
more comforting levels began their oper-
atoms anew with the utmost confidence.
They were undeniably justified in their
actions from purely opportunist point
Of view, since only once in the past
eight years, namely, 1928, have COM
mercial paper rates been anywhere near
q level which could prove detrimental
to business Commercial paper rates
today, however, at 6 per cent are about
per cent higher than they were in
1928.
Member banks may feel justified In
maintaining the present high level of
loans against stocks and bonds for a
while. Indebtedness of these banks at
the central institutions is rather high,
but the mild business recession which
the United States is now experiencing,
and the AZ per cent rediscount rate for
the New York Reserve Bank, tend to
alleviate this situation. Moreover, there
is the possibility that reserve banks will
purchase Government securities in con-
siderable volume in order to ease COM
rnercial paper rates and stimulate bus
Eventually, however, the present vol
ume OF member bank loans against
stocks and bonds will have to be re-
duced, so that credit can be extended
easily for the more ordinary CONNER
cial needs. When this reduction is
necessary, much will depend upon the
readiness of other lenders to provide
credit for the securities market. The
present level of money rates offers little
attraction to them, and it looks as If the
present level will be with us for some
months to come"