Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-06-05
CREDIT PLENTIFUL,
BUSINESS OUTLOOK
Restricted Speculation, How
ever, Seen Essential to
SoundnesS.
BY DAVID LAWRENCE.

underlying structure of American
| plenty Of credit available for capital cx-
| pansion provided the Nations credit
system is not abused by excessive spec
| ulation.
| This is the consensus of the author
i tiles here who have neen observing the
satisfactory response Of the credit ma
| chinery Of the Nation to the warning
issued last February by the Federal Re-
serve Board.
The phenomenon of an unprecedent-
ed growth in trade and a greater than
normal increase in production, without
corresponding increase in the volume
I of; credit. is taken to mean that the
capital resources OF the country are
being augmented materially. 1t is es-
timated that $4,000. 900 600 of new in
come is annually coming out of the
national wealth of the United States.
and the question which the Federal Re-
serve Board and other agencies of credit
are trying to determine is how much
of this will be available for the issuance
of securities to finance American enter
prises, both in the domestic and the
foreign fields
The flotation of bonds and stocks for
new enterprises or the expansion OF
existing business Is regarded as the
function of the new capital and not
the field of bank funds. To the extent
that banking institutions must carry
new issues of securities until they are
absorbed by the public, it is conceded
! here that temporary uses of bank
| funds are legitimate. IT, however large
| quantities of money are used for the
purpose of specializing in securities the
opportunity for new capital to be used
| to take care of the growing needs of
expanding business is thereby dimin-
ished.
!. +. Regulation Of Credit.
:. The idea held i'll responsible quar-
I tiers here is. that there is an abundance
of capital for all business purposes. but
! that credit from now on must be regu-
lated from a qualitative rather than
a quantity point Of view. In other
| words. the economic cycle OF American
progress is such that no single factor
can be permitted to obstruct the Ma
tons credit expansion and the Fed
eral Reserve Board conceives its func-
ton to be the accommodation of bust
| ness and commerce without allowing
any group or any factor to be overem-
| phaSized.
| There is for example, an entirely
different situation today as between the
central banks of Europe and the Amer
| lean money market than there was
lew years ago. Money rates are no
! longer controlled within a country by
| that nations supply of funds or credit
Money under the laws of supply and
demand seeks its own level nowadays
i in world which has the telephone.
Telegraph, radio and air mail to break
down the barriers of time
The word ''overemphaSis" is used
] often in official quarters in character
izing the operations of the New York
! Stock Market which have threatened
| to interfere with the normal expansion
| OF credit. 1t is not that the Federal
reserve Board has anything TO do
| with the upward or downward curve
OF stock market values, but it Isl inter-
| ested in whether money that should
be used to assist In the economic evolu-
ton OF the country is consumed in
speculative operations. The exact atti-
tude OF the board is set forth in the
following paragraph:
Board Not Arbiter.
"The Federal Reserve Board neither
assumes nor has II any right or DISPOSE
ton to set itself up as an arbiter of
security speculation or values. It is.
| however, its business to see to IL that
SANS . SNSAUA IACoCANC UdAlkS IuIlCb4O1 AS
! effectively as conditions will permit.
When it finds that conditions are
! arising which obStruct Federal Reserve
Il banks in the effective discharge of their
\ 1unetlon OF so managing the credit
4 facilities OF the Federal Reserve Sys-
| tenn as TO accommodate commerce and
i business, 1t is its duty to inquire into
them and to take such measures as NAV
be deemed suitable and effective in the
81 6rNEa to
IN the immediate situation, means to
restrain the use of Federal Reserve
credit facilities, whether directly or in
directly, in aid of the growth of
speculative credit"
The foregoing was the crux of the
February warning of the Federal Re-
serve Board and now it is felt by the
board that the big test In regulating
credit from qualitative. viewpoint has
been fully demonstrated as practicable
The method used has been direct pres
sure on the banks to analyze carefully
the loans they make and it is expected
that the same prudence and care will
be used In the future by member banks
IN order that there may not be a re-
turn TO excessive speculation.
Overemphasis Attempted.
An interesting commentary on the
oNOSh btAdA hCI oJIudllOIll Is OIISfeQ DV
some elements here to the effect that
the bull market of the last year or SO
has been belated participation in the
prosperity of three years ago, which
instead OF being discounted by those
who make practice of studying eco
nomic trends, was not fully realized
until the peak Of industrial operations
had been reached Whereupon there
was a universal attempt to overempha
size the rate Of growth of American
trade and business
1 The last few months, it Is believed
has served to bring into proper pro-
portion the industrial growth of the
country so that in the readjustment
of stock market operations the true
value of this growth may not again
be overemphasized or made the basis
of excessive speculation The view is
frequently expressed that American
business Is in prosperous condition
and will continue to be except for
seasonal f1uctuation and occasional
sectional depression. but that any re-
Striction on the use of credit NAV ir
themselves bring on disturbance. Thi.
is why the Federal Reserve Board feels
that while its policy of the last few
months may have been painful to some
groups 1t saved the nation from a dan.
gerous alternative-the stoppage Of
progress through a scarcity OF credit
From now on 1t is assumed that thu
credit situation will be easier and thu