Evening star., 1932-01-16
MARKETS REFLECT
MORE CONFIDENCE
Bank Credit Expansion Pro.
gram Seen as Drive to
Arrest DefIation.
BY JOHN L. COOLEY,
Associated Press Financial Writer.

NEW YORK, January 16.-The sensi-
tive balance that governs the trend OF
security prices shifted emphatically to
the side of confidence this week.
Stocks and bonds turned strong bas-
ing their assurance on unmistakable
intimations that the central banking
system was preparing a credit expan-
sion program designed to arrest de-
fiation. Commodities acquired some
assurance also and Wall Streets spirits
perked up in direct ratio to the rise In
prices.
Many bankers pointed out that the
new policy attributed to the Federal
Reserve System could best be described
as an anti-defiation move rather than
as step toward active imitation. 1t
has long been felt in important quar-
ters that the depreciation in securities
was severely overdone during the al
most unprecedented Autumn decline
and that the time had come to call q
halt
Easy Money Drive Failed.
1t was quickly recalled that the easy
money drive of the Federal Reserve
during 1880 and 1881 had failed to ac-
complish the desired results-princi-
pally, aid for the bond market and
stimulation of commercial borrowing
There were, however, several powerful
factors that defeated this plan, among
them the situation of banks and in
vestors and the general period OF
emergency in which. the country found
itself. Instead OF buying bonds. banks
sold them either because of necessity
or because of the universal desire for
hquidity.
Since there could be little business
revival without new financing and
since corporations were quite unable to
raise money under recent market con-
ditions, banking authorities, it was
said, felt stronger measures should be
adopted 1t was believed that steps
already taken, including the establish
ment of the National Credit Corpora
ton, the reconstruction corporation
plan and the aid given to railroads, had
restored confidence to point that
would warrant drive against the pro-
cesses of deflation.
The first move was a reduction in
the New York Reserve Banks bill-buy-
ing rate, designed TO attract a flow to
the banks portfolio of commercial
paper eligible as circulation reserves.
Another step. it was believed, would
logically be the lowering of the redis-
count rate, to be followed, perhaps, by
large purchases of Government securi-
LIES. oll Gllc UdSlS VI IIAcA plcScIlG SOlu
| holdings the central banks are in q
| theoretical position to expand credit by
| IS billions, assuming that 81 in gold
| can support $40 in credit. However,
so large an increase, bankers are quick
| to state, Is obviously not to be expected.
Other Favorable Factors.
Security markets were much more
interested in the possibilities of credit
expansion than in the trade statistics
which so far have failed to indicate
business recovery. Stocks rallied con-
sistently, with due allowance for real
izing, while the advance in United
States Government bonds was regarded
as sensational. Also. a better feeling
also developed toward municipal bonds,
a trend which received favorable COM
ment in view of the financial problems
faced by many cities.
At Washington Congress pushed the
reconstruction legislation. Secretary
Mellon, in submitting his case for
higher taxes, stressed the need for
balanced budget and the undesirability
of further borrowing to help meet the
deficit At Chicago railroad executives
and labor leaders met for their wage
and employment discussions.
Many brokerage houses attributed
the stock markets recovery chiefly to
short covering 1t was reported that
several important professionals had
switched to the long side, and other
bullish rumors went the rounds of Gus
toners rooms Some houses said
there had been better investment buy
ing. Brokers loans were still down,
although the decline YVES the smallest
in some time: however, it was assumed
margin trading had not been stimu-
lated greatly by the rise in prices.