The Washington times., 1935-10-31
RISE IN MONEY RATES
NOT LIKELY TO STICK,
HANEY DECLARES
BY LEWIS Nancy

Professor economics,
California asks why hghgrade bonds hold up
when the idea of initiation causing speculation in stocks
New York reader asks if the attempt of New York banks
put money up will hurt bonds The two questions
- related, and will try to answer both today.
At first glance it strange that any fixedincome
securities Telephone bonds should have coupon
35 per and yet sell 1O3 when investors fear that
the purchasing of dollars will fall and people
buying certain stocks with the idea that will
be benefited by initiation
But the explanation is easy
even per cent bond looks better than bank deposit
2 At the time many of the highest grade stocks yield
little in dividends that feel that bonds at
tractive.
- g. Many people having money 'quidty" They feel
that buying hghgrade bonds they get something they
sell readily at any time without much oss So they accept
very low yields the price of iquidty
Some people deny that going to have further
fation Others comforted by the political breathing
Spe and hope that the Supreme Court will rule against New
Deal attacks and property rights Still others say
that hghgrade bonds not good nothing i and they
! can't or won't speculate they buy bonds
But the fact remains that this strange frmness in bonds
IN the face of depreatng dollars and rising commodity and
stock prices is abnormal condition which indicates in
faton. Bonds hold up because money so low
and money rates are so low because credit is being inflated
The easiest and conclusive proof of this is the fact
that rates stay low while commodity prices
rising Normally such large rise in prices
since March, 1885, wcuu have caused rise in rates
= But instead rates have fallen record low levels
= WhyG Because the New Dealers have killed the invest
credit Government deb that excess have risen
enormously Thus the present money rates have nothing
do with investment in productive enterprise They are the
result OF Government manipulation and money tnkering
Prices rising because dollars have been made cheap
when the dollar is made less valuable have pay
dollars for goods If prices had risen because business
activity and strong demand for commodities interest
would have risen, too, and bonds would have fallen
AS long the New Dealers keep manufacturing credit
tdebt, interest rates will stay abnormay low and bond
prices will probably stay abnormaly high. This is be-
- ginning of Initiation
But the banks while they like high bond prices do not
like low interest rates!
So the larger New York banks have got together and are
trying to boost money rates from per per cent
First they shut out ouotown loans charging u per cent
commission for making such loans Then they agree
"a per cent for their funds Tin the call loan market
1t IS doubtful they make stick The artificial
money (credlD supply great that outoftown
may stay here at a cent Not all lending agencies will
Y ask the q per rate.
& Above ALL the basic situation remains unchanged The
productivity of invested capital (and the yield on high grade
bonds remains abnormaly low. The artificialv
tured supply of credit huge and growing The Federal
Reserve ratio is high and rising. The member
: row practically nothing at the The New Deal
have to keep rates down order to continue
: their borrowing.
So we need not take this by the New York banks
seriously They will eventually be concerned about
keeping their bond Investments sweet than about getting
few dollars in interest their time loans