Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-03
i. S. FEELS EFFECT
OF BRITISH MOVE
Shifting of World Markets
Watched Closely in
Washington.
BY DAVID LAWRENCE.

Although the current economic sit !
uation has been Tor the last few days
perpleXing phase Of the general de- i
preston, the key is to be found in the
little understood but rapidly increasing
effects of the suspension by S;reat .
Britain of her gold standard.
Official Washington has hesitated to !,
adopt any policy that would interfere
with natural readjustment The Fed
eral Reserve System is being compelled
to take into account the numerous re-
actions throughout the world resulting
from a dislocation of international eX- !
change and the redistribution of gold. ,
The tariff wall of the United States
may be surmounted in some instances
by the more cheapiy produced Euro !
pean products. whose labor is paid for
in a deprecated pound sterling. Sim
ilarly, Great Britain and some OF the
other countries have suddenly obtained
the effects of tariff wall themselves
by reason of the diminishing purchas- !
ing power of their people, who are be-
ing forced to buy domestic substitutes
instead Of imported goods.
So complicated are the many phases
Of the problem OF world trade and
exchange that some Officials here think
ii may take eight or nine months be-
fore an equilibrium is established once
more in international exchange.
Two STANDARDS IN vogue.
Two major systems Of evaluating
products are in vogue: namely, the
American dollar and the new British
pound sterling. Or to express 1t an
other way. the question really is: Will
gold be the measure Of value or will
it be the arbitrary standard growing
out of the new British pound sterling?
No artificial measures are being con-
sidered here to bring about reconcilia-
ton of the two AS a matter of fact,
the feeling is growing here that nature
will have to take its course and that
the tradesmen Of the world will in the
natural course of events establish a
balanced relationship so that there will
be interchange on a mutually satisfac-
tory basis.
Today with the British pound sterling
selling in world markets at about one
fifth less than in normal times. the
British citizen who happens TO be
fortunate enough to own American
securities can sell his bonds or stocks
and get American dollars or gold which
he con convert instantly into FL ! )
of the new British money and have
one-flfth more money to pay his bills
at home. This is one reason why
Britons have been selling securities in
New York, thus causing a selling wave
which has helped to reduce prices of
securities for everybody. Conversely. an
American citizen sending goods to Great
Britain and other countries which have
followed her in abandoning the gold
standard now finds that the European
purchaser must put up one-fifth more
in the currency of his country in order
to make the same purchase of American
goods that he did before. Such a 20
per cent increase in price for foreign
goods means the curtailment of imports
IN an already declining foreign trade
for American factories.
British Prices Rising.
Prices in Great Britain will go I'D
to some extent, but probably not as
quickly as would be necessary to bring
about the previous ratio of domestic
British prices to foreign markets.
Under such circumstances, with
tariff walls crumbling and the equiv
alent of new tariffs being erected, there
is bound to be unsettlement. Some OBJ
servers here think the British action
was far more sensational than any
thing that has happened since the Oc-
tober, 1929. break in the stock market
and that it will take some time for the
world 10 get over the effects of the
new factors introduced by the British
situation.
For the moment there is drifting
policy here, largely because there is no
desire to do anything impulsive in a
critical situation, but it is inevitable
that some inf1ationary tendency will
creep into the Federal Reserve policy
1t will not be so much a deliberate
effort to control values as a readjust-
ment which will compel the Federal Re-
serve to issue currency in larger guam
titles against eligible paper or through
purchases of Government securities and
bankers acceptances. The last week
shows that the Federal Reserve stood
ready to absorb these acceptances and
did so to the extent OF about a quarter
OF billion dollars.
There is underlying it all a feeling
of confidence that American assets and
reserves are sufficient to weather the
new crisis. but that inevitably the re-
adjustment machinery will work slowly
and will not be accelerated very much
by attempts at artificial measures.
(CopyriEht, 1872