Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-07-03
FEDERAL RESERVE
CREDIT AIDS SEEN
Bank Believed to Have ADOPT,
ed Policy of Buying
Securities.
BY JOHN L. COOLEY,

NEW YORK, July 3.-When the last
Federal Reserve statement revealed q.
jump of nearly 10000, 900 in Govern
ment security holdings, Wall Streets
immediate conclusion was, Now the
reserve is going at this credit-expan-
sion business in earnest"
1t was the fact of the gain rather
than its size that attracted attention.
Since last Summer there had been viz
tually no change in the volume Of
United States Government obligations
held by the system; hence this sudden
increase Immediately became significant.
The reserve has three means of in
fiuencing credit: BY raising or lower
ing the rediscount rate, by buying or
selling bankers acceptances and by
buying or selling Government securi-
ties. When it buys, money is automat-
ically released; when it sells, the result,
of course. is reversed. For its easy
money program the system has, so far.
relied on the first two methods. If it
has now decided to use the third and
most influential method, important re-
actions may follow. .
Money Market Operations.
Neither by lowering the rediscount
rate-which represents the interest
charged member banks on loans-nor
by purchasing bankers acceptances is
the system able to make money really
cheap to the average borrower in times
of timidity Banks cannot be forced to
borrow from their reserve If their GUS
toners, in turn, are holding back: nor
can the commercial banks be made to
sell their very liquid acceptance hold
ings if they desire to retain such salts
factory short-term investments.
But by purchasing securities the re-
serve can operate more directly in the
money markets, for it thus forces funds
into circulation without working through
the medium of the banks. Numerous
considerations would appear to have
prompted the system to take up its
heaviest cudgel for the cause OF cheap
credit. When the last cut in the re-
discount rate was made it was intended
not only as a reafdrnation OF policy
but as step toward discouraging fur
Their gold shipments by serving notice
that money rates here were still easy
and that they probably would be even
more so. There was temporary stop
page in the gold tide, which then was
running from Paris. but the troubles
in Germany have recently released
vast flood of gold, and metal has been
moving in steadily from several other
sources.
The bankers acceptance market has
been dull. Holders of these prime in
vestments have been reluctant to let
them go while conditions were uncer-
tain, and so something Of stalemate
was reached in the campaign to facili-
tate the eventual business recovery by
keeping money cheap.
Credit Needs.
If the reserve does intend to operate
in governments at this time, Wall
Street sees in the move an indication
that the central banking authorities feel
confidence has been so far restored that
industry will be looking for credit. 1t
would obviously have been useless to
pump large quantities of money into a
surfeited market: on the other hand,
if business will soon be looking for sub
Stantial accommodations it is essential
that the credit be available at the
lowest possible interest.