Evening star. [volume] (Washington, D.C.) 1854-1972, 1932-12-04
Banks and Industrial Heads
Are Discouraged by
Recession.
"C0NTR0LLED" INITIATION
BELIEVED OVERRATED
Glut of Free Capital Fails to Offer
Much Relief With Burden
of Fixed Charges.
BY CHARLES F. SPEARE.

BY CHARLES F. SPEARE.
Special Dispatch to The Star.
NEW YORK, December Sit is diff
cult to say which was the larger in
fuence on the markets this week, the
war debts discussion and the fall in
sterling exchange to new low record,
which it involved, or the discouraging
reports from the business centers of the
country.
To separate the effects of both on
the sentiment of investors and indus
trialists is not easy, but as there are
many who still insist that our affairs
are lnsenslt1ve to economic conditions
and political policies abroad, it is per-
haps most accurate to diagnose the stu
alton as one of relapse in the American
business world after three-month Pc
Rod OF convalescence.
Those who have listened this week
to the talk of bankers, manufacturers
and railroad executives have noted a re-
turn to the mood of encouragement pre-
vailing among them last Spring. This
Is based primarily on the failure of
business to continue the improvement
that set in in Midsummer and ran
through the greater part Of october.
Made Good Recovery.
That period was one In which both
securities and commodities had expert
enced substantial recovery, when bank
failures had dropped to the smallest
weekly totals in nearly a year, car
loadings were increasing in more than
seasonal degree, electric production ap-
peared to be slowly getting back to
the volume Of 1881, and retail trade,
employment and pay rolls all indicated
that we had finally started on the up
grade. Security markets were resist
ing each unfavoraEle development and
began to advance on the eve Of an cleo
ton that was obviously to result In q
change from a conservative to a more
liberal administration at Washington.
Less than a week after the election
the question Of the December payments
by the debtor nations of Europe in
jected itself into domestic debate. The
declining rate Of sterling exchange,
new low prices in conspicuous com.
rnodities and q slow sagging movement
in stocks and in secondary grades Of
bonds. The relationship be.
tween war debts and the business af.
fairs OF this country has been re-em-
phasized. The fact has also been
recognized that such progress as
securities and commodities made DUR
ing the Summer originated out of the
purchases of American securities for
foreign account Immediately after the
Lausanne conference ended In July.
Then it seemed that the vexed question
Of reparations, which had unsettled
Europe for more than a year, had
finally been satisfactorily adjusted.
Within two months the appreciation In
American securities had amounted to
approximately $4,000 ,o0o, 900, or AL
most exactly the sum of the principal
and interest which foreign debtors had
obligated themselves to pay to the
United States during the next two
generations.
Debt Plea Significant.
The second British note on war debts
Is a document that should be carefully
read without prejudice by every Ameri-
can citizen concerned in the economic
future Of his country. 1t is an honest
and convincing plea, by conscientious
debtor, for a modification Of terms It
Is obvious that the relation between war
debts and reparations is an intimate
one and that the effects of compulsion
OF full payments cannot be escaped by
American exporters. This fact has long
been insisted on by every commission,
including experts delegated by the
United States, that has filed reports on
the subject.
Great Britain Is one of our best Gus
toners. In the last three months there
has been a decline Of 10 per cent in
the pound, or from about $3.50 to
new low under s3.l5 at one time this
week. This shrinkage in the purchas-
ing power of sterling reduces the ability
of Great Britain to buy American goods,
as well as that Of all other countries
whose financial operations are allied to
sterling. In the nine months to Sep
TENDER 80, the dollar value Of exports
from the United States to Great Britain
was go per cent less than the average
for the same period in 1880 and in
1929. Some part of this was due to
lower prices for commodities and manu-
featured articles. The greater portion
Of the loss reflected lack of resources
with which to buy what we have to sell.
II Great Britain has no other recourse
than to pay the December Is portion
of her debt, she will ship gold from the
Bank OF England, and by so doing once
more dislocate the worlds gold situa-
ton, adding to supplies where they are
already redundant and subtracting from
those where they are Insufficient. In
the past six months the gold stock of
the United States has increased $780,
000,0 OF what value is it to this
country that It add to this amount II. by
so doing, it creates condition that
further slows down our industrial ma
chine, now operating at only 30 Der
cent Of capacity2
Problems for Congress-
The converting Of Congress next weak
and President Hoovers message 10 this
body will develop problems of q strictly
national character. There is no doubt
that some part Of the dullness In bust
ness is due to an unwillingness to make
commitments until such questions as
taxation, Government economy, farm
relief and repeal or revision Of the
eighteenth amendment appear In a
clearer light. There is Just as strong
demand today that the national
budget be balanced as there was last
Winter. The excess Of Government ex-
penditure in the fiscal year to November
80 is approximately $3.50, 900 900.
Both political parties committed
themselves in their platforms to q rigid
curtailment Of expenditures. The diff
fculty Of accomplishing this where the
system of patronage Is involved has
been wildly illustrated this week In
New York City. Therefore, additional
taxes are not improbable. with the
strong preference for sales tax rather
than for an increase in the income tax
schedules. It Is coming to be recog-
nized, too, that some early means Of
assistance must be adopted TO prevent
q general collapse in the farm mortgage
situation throughout the country, in
volving a greater total OF institutional
Investments than those represented in
the railroad bond holdings of insurance