Evening star., 1932-01-17
Easier Credit Regarded as
Implied Intent in Cutting
Rates for Bankers Bills.
TIME is BELIEVED RIPE
FOR STRATEGIC ACTION
Stocks and Bonds Enjoy Best Re
covery in Months as Pressure
Is Lifted.
BY CHARLES F. SPEARE.


NEW YORK, January 16,-The i'm
piled intent of the Federal Reserve
Board in reducing buying rates for
bankers bills this week is that step
is being taken in the direction OF easier
credit, or away from the process of
def1ation that has been going on for
over two years, toward one OF moderate
imitation This has not so far been
supplemented by lowering OF redis-
count rates or by purchases OF Gov
ernment securities. The amount of the
latter in the Federal Reserve portfolio
has recently decreased instead OF in
creased while bills discounted have re-
manned stationary.
Undoubtedly a new banking method
or philosophy has been adopted by the
central authorities, who have timed
it with the cessation of liquidation by
member and non member institutions
and expects to promote it through such
agencies as the Reconstruction Finance
Corporation. It also comedies with a
strong undercurrent of confidence in an
adjustment on German credits that will
be helpful, if not entirely satisfactory,
to creditors here and abroad. RecOg-
nizing leadership both in Washing
ton and in financial centers that had
been cCnspiculouSly absent during 1881,
the investing and speculative public
have reversed their positions in the
market. and with pressure lifted, stocks
and bonds have enjoyed the best re-
coveries in months.
Strategy Well Timed.
Unquestionably the psychological mo-
ment has arrived for the strategic
move initiated by the Federal Reserve
authorities The degree of deflation
in commodities, in securities and in
loans to brokers as we'll as those held
by banks had approached, and in some
items exceeded, that of other major
crises. Most of the banks at the end
of the year had put their houses in
order" to the detriment of the bond
market and of many Of their best bor-
rowers in pursuing a practice which
the controller of the currency ought
to deprecate rather than to encourage.
They were in position, therefore, after
the turn of the year, to resume their
normal functions, and having adjusted
their financial structure to the effects
of a price cyclone which swept away
about SITE, 100000 from the assets of
three prominent security affiliates, to
consider those responsibilities attached
to chartered lenders.
Liquidation of credit had been on an
enormous scale and far in excess of
that required to bring the financial
structure back to a sound basis. From
figures that have just appeared in the
American Bankers Association Journal
it is shown that between September,
1929, and September 80 1881, there
was a reduction of S5,29l 900 600, or
20 PER cent, in the ShOrt-term credits
of Federal Reserve member banks and
of nearly so per cent in all reported
security loans. An even larger amount
of decrease would be indicated If the
combined reports of the banks as of
some of the heaviest liquidation .oc-
cured in the final quarter Of 1881.
Rejecting this def1ation were prices
of railroad securities, less than a fort
night ago, lower than they had been
for half century; farm prices that
have not been approXimated in 80
years and quotations for various other
commodities below those known to
living men. Obviously, the time for a
material regeneration had arrived.
Important Dividend Meetings.
There have been no unsettling divi-
dend changes this week; a few have
been even better than anticipated. The
important meetings at which recogni-
ton may be given to improved credit
prospects occur in the second half of
the month and include those of the
United States Steel, Pennsylvania Rail
road and Bethlehem Steel companies
1t is not unlikely that they and others
will determine the rate Of dividend
next to be paid by the outlook for the
future rather than on failure to earn
their dividends during 1881.
There is every reason to believe that
the corporation bond market has seen
it's low levels 1t is not SO certain what
the outcome of proposed Government
financing is to be on outstanding Treas
urv obligations. Although these are at
the base of the credit structure of the
country, they have been pitifully, weak
at times recently. In his special mes
sage to Congress on January 4, Pres
ident Hoover stated that "the recent
depreciation in prices of Government
securities is a serious warning which
reflects the fear of further large and
unnecessary issues of such securities. ="
Since this was delivered all classes Of
Government loans have touched the
lowest prices in a decade, with the
latest long-term issues at a discount OF
about 18 per cent.
An influence inimical to the market
for these loans has been that OF short
selling" There is an old slogan that
one should not sell the United States
short" Recently it appears to have
been a rather popular pastime. If there
is anv warrant for it at all, it is the
fear that a reckless borrowing policy by
the Government may compel additional
loans at rates of interest exceeding the
Yields on existing loans and that, in
stead of balancing the Government
budget through measures OF economy,
the United States debt will expand to
the extravagant proportions reached in
those countries that have gone off the
gold basis.
The sharp political division in the
coming campaign may grow out of two
opposite PHILOSOPHERS in the field of
economies, the one contending for an
easv road for the taxpayer, which might
be popular with the masses, and the
other for a rigid adherence to the prin-
ciple of meeting debts by curtailing
governmental and municipal extraVa-
gances. The issue is one that has been
clearly promoted recently and is likely
to be fought over with as much intens-
itv as those relating to prohibition, the
tariff and international debts.
Copyright, 1922