Detroit evening times. (Detroit, Mich) 1921-1958, 1941-01-06
Doubt President
Will ReIinquish
dollar Power
BY DIR. LEWIS HANEY

DN bAAH ~ " - -
Professor Of Economics. y. !. Universit
The stock market is sal an
important business barometer.
Ii is therefore a matter OF gem
eral interest that II pointed up
ward last week. The move was
not large-probably not much
more than seasonal But this
WIS the second weekly rlSc, and
IL carried all averages tand a
majority Of al stocks traded 10
the highest level in over three
weeks.
Much the same may be said
Of medium-orade corporation
bonds.
There still seem 10 be too
many great uncertainties 10
warrant a belief that any large
sustained movement in either
direction is probable. Unfavor-
able news items might be an
nounced any day. But, on the
other hand. the market at pres
ent relatively low average prices
discounts so much. that no prob
able bad news would cause much
liquidation.
At the same time. any good
news will be received with skep-
ticism. and be followed with
caution.
The first effect of the state
ment issued by the board OF
governors of the Federal Re-
serve System was somewhat
bearish. The statement suggests
that strong efforts m ~ be
made TO control initiation, in
GLIDING the use of increased tax
alton and tighter credit. 1t
suggests a general policy of SELL
ing bonds to the public. These
things might be "deflationary'
in tendency. They might seem
TO be designed to favor bonds
at the expense of stocks.
Such an Interpretation, how
ever. seems 10 me to be short
sighted
In the first place, it is to be
noted that the reserve boards
statement has in mind particu-
larly government bonds and
public financing.
The significance of this fact
is that the government bond
market is already inflated, and
that il is very unlikely that
those suggestions of the board
whieh=are deflationary will be
adopted by the government.
Neither the President nor the
secretary of the treasury has
backed the boards proposals.
Thus we find the reserve
board desiring to cut excess
reserves" But these excess re-
serves have put the banks into
governments" TO such-a great
extent. There seems TO be little
likelihood that bank reserves
can be cut without hurting gov
eminent DOnQS.
The inflated government bond
market represents. not a de-
mand for investment, but de-
mand for liquidity. and flight
from future dollars. On this
basis. many billions of public
debt have already been floated.
What reason is there to believe
that now, as a new wave of
enormous unproductive govern
ment spending develops. II is
possible TO reverse the spending
policies of the past eight years?
Do you think we can sell
$4,000. 100000 worth Of govern
ment bonds TO the banks on one
basis, and then turn about and
sell another $50 600 600 600 10 in
dividual investors on the oppo-
site basis?
l do not believe that the
President will be willing 10 give
up his power 10 devalue the
gold dollar further. 1 do not
believe that the treasury will
give up its easy money policy.
In the second place, we now
appear to be proceeding on the
democratic basis of voluntary
co-operation of capital. enter
prise and labor with government.
Among other conditions, this
basis will require strong secur-
itv markets. and the stimulus OF
rising commodity prices for some
time TO come. / doubt that the
government can sell many bonds
to the public unless the public
is allowed TO enjoy a period OF
business recovery"
Thus. while the immediate
market symptoms are not all
favorable, the most probable
outcome is initiation through
war spending.
Last week. the volume OF trad
ing declined on the rise. and
there was little follow through.
Some pivotal stocks showed
weakness: and the utilities.
under new threats by the SEC
were backward.
But the most active stocks
gained. A majority Of all stocks
traded moved UP each day