Evening star., 1934-09-20
u. 5. BOND SLUMP
CAUSE IS SOUGHT:
Likelihood of Conspiracy by
Investors Against New
Deal Secuted.
BY DAVID LAWRENCE.

BY DAVID LAWRENCE.
Behind the scenes, an interesting
discussion Is going on as to what Is
causing the so-called softness in Gov
ernment bonds and securities.
Obviously it is matter of the grav-
est importance when there is any
tendency toward weakness in Gov
eminent bonds. The natural inclina-
ton is to search for the causes in
order that they may be corrected. For
all the best laid of plans OF economic
and social reform can be wrecked on
the rocks of damaged credit.
While the administration is con-
cerned about the erratic behavior of
Government bonds in the markets,
officials have an unfortunate way of
looking for alibis, trying to blame
something else than the actual facts.
Investment Services Irritate.
Thus it is reliably reported that the
President himself is irritated by the
rather uniform tone of the various
market and investment services,
which in recent weeks have been
advising their clients to sell every
thing and take a side-line position
with their cash.
AS one adviser of the President
expressed it, there is an evident SINH
larity not merely in the advice given
by some Of these advisory services, but
they appear to couple it with some
strong words against the New Deal,
giving the impression that they have
propaganda developed which seeks
to frighten the administration and
swerve it from its policies.
Nothing could be more disastrous
than the point Of view that there is
a conspiracy on the part of investors
to defeat governmental policies. Ger
tainly the holders of bonds and Gov-
ernment securities would be committing
suicide to engage in any such fantastic
adventure.
So far as the banks are concerned,
they have held their Government Sc
curities rather tenaciously. They
haven't varied s1O0 oo0, 900 up or down
out Of a total holding of more than
$3.50 600, 900 in the last year or so.
There is every sign that they have
not only co-6perated by holding on
to their own Government securities,
shifting of course more and more into
short term from long-term issues, but
they have not broadcast any advice
on the general subject.
Weakness Shown Since June 30.
1t is well for the administration
to become concerned. All the speeches
and debates and economic arguments
will not dissuade the powers that be
here as quickly from a mistaken
course as a mishandling of the Gov
ernment bond market.
The truth Is the market for Gov
ernment securities has been showing
weakness ever since June 80 recorded
the largest deficit of peacetime for
the American Republic. On top of
that has come no clariication of
Government plans as to future spend
ing. 1t is known that relief rolls
are mounting and that, while the
New Deal has made noble efforts to
stem the tide of unemployment, it
has raised on the other hand so many
serious obstacles to recovery, espe-
cially through industrial unrest and
strikes, as to induce q defationary
movement.
Governments which, like those in
America, are essentially political are
usually inclined to see political rea-
son in every adverse development.
There is always the temptation to
fnr t1n
or for conspiracy. With all due re-
spect to President Hoover, for instance,
, and the way he tried to fight of the
def1ationary currents, he, too, became
victim of the delusion that shorts
in the stock market were trying to
wreck his administration and it was
this belief on his part which really
started the stock market investigation.
Services Paid for Being Right.
The crux of the matter is that dol
lars behave under certain circum-
stances very much alike, without any
concerted action or planning. Thus
the advisory services, which tell in
vestors to sell, receive a fee for being
right and lose customers when they
!! are wrong. If there happens to be q
| unanimity of opinion among persons
watching the investment trend. it is
because the factors are unmistakable
and because the influences in author
ity refuse to concede the workings Of
the familiar laws of supply and de-
mand
Today investors are bewildered and
| puzzled for the simple reason that the
Government Is rather mysterious
, about it's own plans and intentions
on the fiscal side. Members OF the
cabinet make speeches in favor of the
profit system. but the administration
| acts just the same as if it thinks the
| profit system should be tampered with
considerably.
The difficulty with the administra-
tion's point of view about the profit
system is that it thinks 1t can have
| profit motive and regulate it as
| readily a person adjusts the dial of
his radio Many members Of the ad-
ministration sincerely believe the
profit system is wrong and should be
replaced. 1t is true that the principal
advocate of such a doctrine, Rexford
Tugwell, is in Europe. but Mr.. Roose-
velt has by no means removed from
positions Of authority men whose doc
trines are being taken more and more
seriously by the investors.
Blowing Hot and Cold.
All this uneasiness comes from try
ing to blow hot and cold. to assure
business that it can go ahead while
at the same time permitting a funda-
mental attack on sound economics on
q number of fronts.
| Many billions Of dollars are in.
vested in two ndustrieS-railroads and
public utilities. Many more billions
are invested in Government securi-
ties. Every one of these three major
investment reservoirs depends now
adays upon the wisdom, prudence and
good sense of persons in administra-
| tive positions in Government