Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-11-13

articles on the present business situation
written for The Star and North American
Newspaper Alliance.
Special Dispatch to The Star.
NEW YORK, November 13-In the
three previous articles it has been
shown that much of the severity of
the present depression could have been
avoided If the general level of COM
modify prices had been supported by
an appropriate Federal Reserve bank
ing policy.
This has not been done. The Amer
lean people are confronted with do
nothing policy that has engulfed the
Federal Reserve system, and the watch
full waiting in Washington and else
where continues.
Not that the open-market policy is
anything new. The Federal Reserve
has been handling major operations in
the purchase and sale of Government
securities for many years. For example:
From January, 1922, to May, 1922,
it bought $400, 000,000 in Government
securities. From June, 1922, to July,
1928, it sold S525, 900, 900.
From December 1923, to September,
1924, it bought $4,000 900 worth.
From November, 1924, to March,
1925, it sold $3.50, 100000.
In April, 1926, it purchased $685.
From August, 1925, to September,
1926, it sold $4,000, 900.
So the plan contemplates no de-
parture for the Federal Reserve system
Policy Explained.
DR.. w. Randolph Burgess, deputy
governor of the New York Federal Re-
serve Bank, in his book, The Reserve
Banks and the Money Market" says:
Purchases of Government securities
have usually been made In PERIODS OF
business recessions and price weakness,
and have usually been followed by
credit conditions which may be de-
scribed as a borrowers market.
"Sales of Government securities nave
usually been made in periods Of very
active business, rising prices and neavy
speculation, and have usually been fol-
lowed by credit conditions which may
be ascribed as a lenders market"
Now if this premise Is correct, It IS
evident that the only countries which
have been in position to adopt a
policy of naturalization are France and
the United States. Actual imitation has
been going on in France due to the
influx of gold. i. Fifteen per cert IN
crease in note circulation last year.
The fact that this condition did not ex-
tend into other countries must ne &C
counted for by the present unwilling
ness of French investors to interest
themselves in the securities OF other
nations.
But money is cheap, very cheap, IN
the United States, and why should
we try to make it more. OF drug on
the market than ever?" demanded one
banker.
Eyes, money is cheap, in that there
IS accumulated at the principal imam
cial centers large amount OF snort,
term money seeking investment IN call
loans. But even so the average call loan
rate during October was no lower than
the average rate for July, 1924, wnen
conditions were practically normal.
Interest rates have naturally been
high since 1914. due to war conditions
and heavy borrowings for rehabihtation.
Before the war present call loan rates
would have been considered normal even
under prosperous conditions.
Long Term Money.
But it is long-term money that must
be made cheap before we can expect
business revival, and we have so far had
no satisfactory bond market; IN fact,
prices are no higher than il 1928, and
are well below the levels Of. say, 1926.
Speaking generally, money in the United
States is not plentiful. 1t has become
a by-word in the market: Yes, money
is cheap but try an get it.
Eight or nine months ago three
months money, secured by high-clasS
stock exchange collateral, could be Dor
rowed IN Paris at a rate OF three-quar-
ters of / per cent per annuni. No such
rate has been reached in the United
States. Present rates in 10th Paris and
London for all classes of money are
much lower than in New York.
The organization OF the Bank OF
France is such that 1t cannot influence
the financial situation in the same way
as the Bank of England or the Federal
Reserve Bank. Therefore, while France
can justly be charged with boarding
gold, it would certainly seem that she
has been confronted with set OF con-
ditions which may be overcome only
gradually. She has not yet become
world money center.
The Dollar Basis.
But how about the United States?
The Right Honorable Reginald Nc
Kenna, chairman of the Midland Bank,
greatest in the British Empire, has
again pointed out that the principal
countries are now on a dollar basis,
not gold basis. That is no exaggera-
ton. The United States is in a posi-
ton to dominate the gold price level
Of the world, because it has more than
half of the monetary gold supply of
the world and can attract gold at any
time.
The United States has therefore a
distinct and unique responsibility in
this matter, much more far-reaching
than that of any other nation. The
cannot be evaded. The
worlds richest nation finds itself with
world responsibilities as well as world
privileges.