Evening star., 1931-12-27


artificially restored; that in the midst
CT tremendous political and social
changes. and after an unprecedented
fall in the prices of commodities and in
securities. there could be expected the
same scale of living as in 1929 has now
been abandoned
Encouragement Seen.
The most encouraging prospect at the
end of the year comes from the rigid
discipline to which the American people
are beginning to subject themselves in
all matters Of economy and the broad
ening area of cooperation in the field
CT capital and labor, and to some eX-
tent in that of national politics. These
tendencies have been compelled out of
the crises that have arisen since the
end Of June in Great Britain. Germany,
the Scandinavian countries and in Aus
tTalia, Canada and South America It
cannot yet be foreSeen what may be the
end of the recent upheaval in the Far
East
During the latest phase of collapse in
the markets for securities it has been
apparent for the first time in the past
TWO years that the investing public has
not had its former capacity to buy.
This IS due to loss Of nearly a billion
dends and interest and to a much larger
reduction in the item Of salaries and
services. The Sluggishness in trade is
equally caused BY the great number of
wage earnerS out Of employment or
earning just enough to cover their
necessary requirements Both classes
have commitments made several years
ago. These are still to be liquidated.
Readjustment Necessary.
A period of close figuring on receipts
and expenditures and covering the op-
erations not only of individuals but of
Government. State and municipal au-
thCritieS must be entered upon as one
Of the first means Of creating a margin
to be employed in absorbing securities
and manufactured goods Just as stock
and bond values and those OF commodi-
ties have been brought down to a basis
approXimating that of a decade ago.
and to some extent Of the pre-war
period, so must retail prices. salaries,
wages. rents and all forms of public
services be adjusted to the new pur-
chasing power of the dollar
Ehe extent to which there has been
change in the measurements of values
may be seen in the prices and income
bass at which high-grade securities
is no longer an attraction. although
this was the general average yield of
stocks at the low point Of 1921. Scores
OF bonds that are covering their interest
requlreT entS are quoted at so cents on
the dollar This has been one phase of
a general reversal Of opinion of what
evidences Of property are worth at
time when interest rates are too low
to allow profit to lenders and the
resources CT commercial and savings
banks combined approach the highest
figures in their history
When there is no leadership in the
banking world and a strong division of
opinion over trading policies on the
New York Stock Exchange. actual and
moral support Of securities is lacking.
So confused and demoralized body of
investors ignores the usual methods of
appraiSing values and is influenced
more by prices visible on the ticker
than by earnings. Yields. sponsorship
and by the approximation in cash as
sets to the going price of equities
Developments Traced.
The three outstanding developments
in the past half year are those related
to the foreign situation. the breakdown
in the credit Of the railroads. and the
condition among the banks leading to
record number of insolvencies. These
are dealt with in separate divisions in
this review
Critical as is the railroad situation.
involving as it does a larger capital
amount than any of Americas de-
pressed industries. it is secondary in its
effects on banking sentiment in the
United States to the state of affairs in
Germany and the developments for good
or for i'll pending in the German credit
situation. 1t is fear of what may hap
pen in Germany that paralyzeS bank
ing Initiative and makes even the lead
ers in those industries that have not
felt the extreme effects of the depres-
sion postpone development projects.
The liquidation in American securi-
ties, the def1ation in commodities and
the approach to balance between pro-
ductlon aud consumption, together with
the return Of confidence in the banks
and in the credit position of the United
States, in spite of its huge deficit. make
a solid foundation on which to rebuild
the shattered structure of domestic
trade But over it hangs ominously
the shadow of political and credit COL
lapse in the second largest trading
naticn in the world
Effects Of Sterling Drop.
The shock that came in September
when Great Britain went off the gold
basis has been quite generally absorbed.
although depreciation since then in
sterling exchange by about one-third of
its normal quotation has had far-reach-
ing effects in the money markets of Eu-
rope. Even France has left them. Eng
land, however, now has a strong gov
ernment and a united people, and while
trade in the United States is obviously
suffering from the new British tariff
policies, the gain to the world of finance
of recovering British credit offsets this
shrinkage.
Germany is the unknown quantity,
the Interrogation point in Continental
policies as to debts and the test of
government. America cannot escape
participation in any default that Ger
many may be compelled to make BY
the same reckoning, our conditions will
improve in any adjustment of a perma-
nent nature that may be reached be-
tween Germany and her creditors.
German Credit Problem.
The question of German debts goes
further than reparations. Eventually
II ,,,IIst ho ectfIed not ~, -,