Evening star., 1935-03-10
Stabilized Currencies Held
Vital Need for U. S. Busi.
ness Recovery.
DISTURBANCE CREATES
ADDED uncertainties
Between 90 and rs Per Cent OF
Late 1884 Improvement Wiped
Out, Observer Declares.
BY CHARLES F. SPEARE.

OpcCldi DlSpdICH " AIc SJdI
NEW YORK, March 9.-The un-
fortunate miSconstruction Of the COM
ment of President Roosevelt on the
status of the dollar and its sequel in
the markets for securities and the
foreign exchanges provided the lead
ing episode in Wall Street and busi-
ness affairs this week.
The situation respecting the value
of all international currencies is so
delicate at the moment that any sug-
gestion of action affecting their future
Immediately becomes the basis for
speculation as to the possible degree
Of imitation.
There is little doubt that those
countries most concerned with the
present unsettlement of the exchanges
are jockeying for position and are
gradually getting in form where they
can begin to trade with each other.
The decline in the pound sterling,
the pressure of the gold bloc group
and the demand here for further de-
valuation all suggest an early arrival
at a common point of negotiation.
If not, one cannot be optimistic over
the outlook for business recovery in
the United States or in those nations
with which it has active trade re-
lations.
Trade Gains Erased.
The disturbance in the foreign eX-
changes has added another factor TO
those adversely affecting the volume
of trade since the end of January.
Between 20 and 25 per cent Of the
improvement that occurred from
October to January has been lost
This is reflected chiefly in speculative
securities, as common stocks and
junior bonds. From the high level of
the year. stocks this week showed an
average decline of about 9 points and
junior bonds 3 points.
Numerous railroad bonds are lower
than in any previous phase of pesSi-
mism over their future. 1t is need
less to say that those now quoted
between Is and 20 cents on the dollar
have discounted the extremes Of re-
organization, for if, in debt scaling
operation. they are to be exchanged
for stocks. the future earning posi-
biIities of the debtor companies should
provide. an equity worth more than
current bond appraisals.
An illustration CT the need for re-
adjustment of debt is given by the
president Of the st. Louis g. San Fran
cisco Railway in recommending that
the annual interest charges of this
system be cut from around $4,000, 900
to S4,000,000. Such a slash would re-
suit in placing S10S,0Oo.00 consoli-
dated mortgage 4i2 per cent bonds,
sold in 1928 at 81, on q non-ncome
basis along with Sl0,000,000 of IS Of
the same issue anG compel a sharp
!! reduction IN the rate on SIT, 100000
of prior lien and per cents. In
1880, when the Frisco was borrowing
heavily from the banks, it was paying
unearned dividends of per cent on
its common stock. This caused the
trouble that bondholders are now being
asked to rectify at heavy sacrifice.
When the promoters of the reckless
policies of the new era begin to
reform. they become more righteous
| than the suddenly converted inebriate.
This writer believes that much rail-
road debt requires downward adjust
ment, but that the junior bondholder
should not be required to accept
terms resulting in inordinate earn
| ings for common stocks held by pres
ent arrangements, and so far escap-
! ing assessment.
Treasury Loan at Premium.
The huge refunding operation Of
| the Treasury in which it is retiring
the called Fourth Liberty IA per
cent bonds, with 20-25-year issue
at ga per cent. the lowest rate on
| long-term Government paper in half
century. has not been appreciably
affected by the events of the week.
The new loan was quoted at sub
stantial premium when first an
nounced, for it offered better return
than outstanding maturitieS.
New York State also established
this week a new low record cost for
borrowing. when it sold S45 ,000, 900
of bonds at 2.302 per cent. These
were subsequently offered for public
subscription at one-fourth of / per
cent for the one-year portion and at
1875 per cent for bonds running from
1861 to 1885. The Federal intermediate
credit banks have just placed $40.
100000 three and siX-rnonth deben.
lures at IL per cent, a rate compar-
ing with 212 per cent year ago, and
the Federal Home Loan Banks have
reduced their interest charge from 4
per cent to 81 per cent.
The ability of the Federal Govern
ment, States and municipalities to
borrow at constantly improving levels
obviously encourages the habit of
spending. So long, however, as private
capital is unwilling to venture into
the market for corporation securities
and will not freely negotiate COM
mercial loans or loans on real estate,
the volume Of excess bank reserves
will increase and credit imitation will
proceed. While there appears to be
less prospect of currency imitation than
a year ago-in other words, the en-
ployment of printing press" money
to encourage recovery-the bank re-
serves now backing up in the banks,
and enlarged with each new issue Of
Government bonds. must soon begin to
spill over the dam.
1t is encouraging to read that the
head Of the Federal Housing Admins
tration expects "an amazing rise In
the number Of new homes being
erected" in the next few weeks, even
though this prediction has been re-
current since last November. Some
figures have just been compiled by the
National Industrial Recovery Board
showing the need Of building con-
struction if business is to move for.
ward.