Henderson daily dispatch., 1935-06-21

| dustries (mostly manufacturing
where capital plays an important
part. In the last two years. declining
| money rates have partially offset the
advance in the price of raw materials
| and labor, thus preventing too rapid
a rise in finished goods prices. In the
| case of agriculture, logging, and min
ing, land and labor are most impor-
tant; hence, cheap money has little
effect
The effects of easy money are most
apparent in the investment market
Institutions and investors, discourage
ed by their inability to use funds pro-
fitably in business, have turned to
bonds for better yields. The great de
mand for high-grade issues has fore
ed the dollar value OF prices of short
| and medium term bonds upward t.,
new peak for this century. AS the
return on bonds diminished. the over
supply of funds has spilled over into
stocks. forcing blue chip" issues to
a new recovery peak. In turn, lower
yields on their Investments have
forced banks and insurance compan-
les to cut interest rates and to set
up new annuity schedules
Should Stimulate Home Building
Cheap moneys most constructive
effects will be felt in the building
field. Financing is one of the bigeest
items in the cost of a home. Because
of the real estate freeze" of the past
five years. bankers have made but
few of these loans-and those at an
unreaSonably high rate Of interest
with the return on securities SO poor
mortgage institutions are forced to
look more favorably on real estate
mortgages as a form of investment
The prospective home owner, too, is
encouraged for he finds building
money becoming available on five
per cent or less basis Meanwhile. his
savings bank is paying him only two
or three per cent, instead Of four per
cent or more five years ago
But in spite of this great reservoir
of idle funds and low rates, credit is
eXpandi-~>very slowly. Both bankers
and business men are always slow tc
recognize that economic conditions
have changed and that business stra-
tegy must shift with the conditions
Three years ago a strong financial
position might have averted bank
ruptcy. but today large cash sur
plus in the bank does a firm little
good 1t draws no interest and may
even be subject to taxation. The
money" boom of 1898 has long
since passed and we are now in
goods" boom. It is as dangerous to
overlook this fact today as ii was
dangerous not to recognize in 1929
that the bull market for "stocks'' had
turned into q bull market for cash"
What Can Be Done With Cash?
Now, if ever, money should be turn
ed into tangibles.-Use liquid cash
to buy real estate, to modernize fac
tories, to rebuild inventories. to can
high interest bearing bonds and pre-
ferred stocks, and to strengthen per
sonnel by training young men. Some
firms should pay bigger dividends
out of surplus, for stockholders NAV
be able to use the cash more profit
ably than the firm. These vital steps
can be atekn far more advantage
ously and cheaply now than at a later
date. In other words, make and run
your own New Deal The less busi-
ness men look to Washington, the
sooner business will look up.
Now, for the Individual who has
a surplus of cash in the bank: He
should recognize that not only is his
return on his money next to moth
ing at present. but that a rising price
level is destroying the buying power
of his funds. His cash should be put
into goods, a home or a small farm.
furnishings jewels, and works of art.
Most important of all he should have
some stocks of Imitation" companies
such as those producing or process
ing raw materials.
Easy Money Two Edged Sword
While cheap money is now bene-
ficial, over the long term it would
damage the nation. One of the prin-
cipal reasons for saving is to create
a fund, the interest from which will
provide for the saver in his old age
Interest is the premium paid the
owner for postpOning to later date
the satisfaction of his want If the
premium is not attractive enough.
many people will use their cash i'm
mediately. With savings bank inter
est rates halved. it is now necessary
to build up twice as large a fund as
formerly, granting that the cost of
living remains static. Moreover, it is
possible that the governments relief
and social experiments are lessen1ng
the fear of old-age poverty. Hence.
there is less inducement to save to-
day than ever before.
Another unfavorable effect of easy
money is thest imulation of debt
With the carving charges vor,, 1iob+
all classes are encouraged to take on
unnecessary obligations. For instance
have heard it said that we could
double the 1929 federal debt total
without danger for the interest rate