Evening star., 1933-04-23
INVESTMENT BOND
PRICES DEPRESSED
| DUR|NGPAST WEEK
Initiation Proposals Result in
Selling of Prime
Securities.
Special Dispatch to The Star.

NEW YORK. April 22-Wall Street
, was agitated this week by speculation
over what form of imitation will event
| ually become effective in the United
| States and predictions as to what it will
do to securities and commodities.
While prices were rising for stocks
and commodities, the bond market did
| not boil upwards excepting few groups
High-grade bonds were sold. Second
and third grade speculative descriptions
and the bonds. both internal and ex-
| ternal of the countries whose curren-
cies were rising against the dollar, ad-
| vanced sharply. Bond trading rose from
a daily average of between 5000. .000
and s1o,0oo,000 a day to about $780,
600 900.
Decline in Governments.
The weakness of United States Gov
ernment bonds was caused by exactly
the same factors that affected cor
porations and municipal bonds. 1t had
| nothing to do with the security behind
the bonds or the ability of the borrow
ing corporations or governments to pay
their interest and meet maturitieS. 1t
was a result Of liquidation for the ac-
counts of investors who believed that
imitation is here and that bonds of the
highest grades should be sold because
of the ultimate reduction in the pur-
chasing power Of the income derived
from them.
Initiation may take one of a number
OF forms. The most popular theory is
that the administration will undertake
at the coming international conferences
in Washington to do something for sill
yer and then make an agreement with
the nations Of the world to set up a plan
to stabilize all currencies. This would
| naturally have to include those nations,
like China, that are on a silver basis.
Another theory as to imitation is
based on the Thomas amendment to
the farm relief bill and is, briefly. that
the Treasury will print fiat money with
which to meet all governmental expendi-
lures and maturities. This scheme. of
course. would result In uncomfortable
imitation. Wall street does not believe
this type of currency expansion would
be permitted. 1t would bankrupt every
insurance company. all savings banks,
many commercial banks. and all in
vestment trusts placing their faith in
bonds. and 1t would PROSTATE the In
ternational credit of the United States.
Still another form of relation or In
f1ation that IS believed possible involves
devaluation of the dollar This might
be effected by reducing the gold content
OF the dollar by raising the price of
gold. or by reducing the legal minimum
of gold reserves behind the National
currency.
Now. either the first scheme, of a
managed international currency, or one
of the three involving dollar devalua-
tion would have the same effect mar
ketwise. England has already had a
similar experience. Let us assume, for
the purposes of illustration, that the
dollar is devalued 80 per cent Then,
theoretically. stocks and all commodi-
ties would advance by that amount, the
cost of living would rise by q like per-
centage, corporate earnings would in
crease, and the income from fixed in
terest bearing securities would pur-
chase only 10 per cent Of what 1t would
before imitation.
Effect in England.
Unfortunately for this theory these
things did not happen in England.
English stocks and commodities had
but brief rise, the cost of living hard
ly advanced at all and bonds, after a
brief period Of unsettlement. recovered
to money rate levels. 1t remains to be
seen whether the experience Of the
United States is any different.
(Copyrieht. 1889