The Waterbury Democrat., 1935-11-11

to disturb the peace of mil
 Ominous signs of Q strong inl fiationary undertow are unmis- takable. Real estate values are booming, commodity prices are on the wing, and the stock market is as restless as Q boy with the hives. Added to these is the pres- ence of an unprecedented total of $3,0O0, ,0O0,0 900 in bank reserves.
 The situation is as explosive as a cache of TINT, and to say that administration master minds are worried is putting it mildly.
 Reason for their uneasiness is that they are undecided just what policy t0 pursue. They can
 clamp down at the start and risk nippfng the brislKIy bloom . ing prosperity rose in the bud. Or they can let matters take their course, with the danger of a runaway market and a crash
 just as the presidential cam paign is getting under way.
 The temptation to keep hands off is very strong. A lively stock market, active real estate values and commodity prices on the up- grade are potent electioneering medicine. But on the other hand, a boom followed by crash in the midst of the campaign would have disastrous political repercus- SionS.
 So the New Dealers are scratch ing their heads in perplexity - torn between the tempting urge to take 8 flyer and gnawing fear that if their luck fails they will be caught short in the very vor- tex of the 1886 campaign.
 Whip Hand
 The unique factor in the situa- tion is that the New Dealers can take either course they choose. The government now has the complete whip hand to crack down on an infiationary trend.
 The 1883 and 1885 banking laws plus the securities and stock ex- change acts, give it power to exer- else full control-provided there is the will and courage to do so.
 The securities and exchange commission can stop stock manip- ulation by suspending suspected speculators.
 It has already taken such action against one prominent Wall street broker, Michael J. Meehan. 1t has sent out confi- dentiaI orders to it's eight branch offices to be on guard for signs of st0ck-rigging. SEC insiders whisper that certain market movements recently had all the earmarks of forced pressure stoking."
 The new banking statutes sup- plement the SEC with other pow erful measures. They prohibit corporations from lending their surplus funds for stock market operations. In 1928-29 millions of dollars from this source stimu- lated the frenzied gambling of the Coolidge bull market. The banking statutes also provide for strict curbs on loans by banks to brokers.
 Federal Reserve Effective board now has the power to fix
 In addition, the federal reserve marginal requirements. By the stroke of a pen it can raise them so high as to break the back of 8 runaway market instantly. This authority is so sweeping that the board may if it sees fit, com- pletely eliminate marginal trad- ing.
 FINALLY, the reserve board has the means at hand to cope with the trouble brewing problem of excessive bank reserves. AL though the banks are free to lend to any borrower they consider sound risk, or to buy securities themselves, the reserve board still has two mighty levers to bring the banks to heel.
 FIRST, 1t can double reserve requirements, thus wiping out most of the banks lending pow CT.
 SECOND, the board can sell its $2,430, ,O00, ,000 of government se- curities in the open market. Either operation if fully carried through would practically mop up excess bank reserves.
 
 The Drivers Seat
 Such drastic dosage would almost certainly be enough to cut the heart out of any imitation move. But if even this surgery did not sufiiice, the treasury is in a position to throw it's tremendous restraining weight into the bal- ance.
 By transferring its deposits in ordinary banks to the federal re- serve banks, thus depriving the former of huge chunks of excess reserves; by using its $2,000, ,000.- 900 stabilization fund as a brake: and throuhg other technical de- vices, the treasury could dish out xo1n .sa n Tx.as~o %x,avy Inod 1on n1ao r..