Evening star., 1949-03-30
Another Sian of DefIotion

Although its long-range effect on the
general economic outlook seems to be any
body's guess, the Federal Reserve Board S
margin-requirement cut is calculated to
inject new life into the sluggish, half-sleep-
ing stock market. At any rate, in immedi-
ate response to it, the market, which has
been in the doldrums for long time, has
staged its fastest squirt in about year.
The cut, which financial circles have
been requesting for. some months, reduces
the margin requirement from IS to so per
cent. Through practically all of 1946, as an
anti -infiationary measure, buyers had to
pay 100 per cent cash in ordering securities.
Then, in February of 1947, this restriction
was eased by Is per cent, and now 1t has
been lowered another rs, which means that
investors-big and little-will be able to
purchase stocks with a down payment Of
only half the selling price.
In the opinion of many experts, this
lower margin requirement which now
stands only 10 per cent above the prewar
40 per cent requirement-should have the
wholesome effect of revitalizing the Ma
tion's financial markets by encouraging
millions of investors to become more active
in purchasing listed securities. The same
experts have long been asserting that busi-
ness in the exchanges has been strangely
slow and that many quoted prices have re-
fected less than true value when measured
against the country's overall economic Sit
uation. What is hoped for now is that the
Reserve Boards easing of the investing-on-
credit regulation will end the stagnancy OF
recent months and head of the possibility
of an unwarranted deflation of stocks.
The same hope seems to prevail in the
Reserve Board Thus, according to spokes-
man, the decision to cut the margin re-
ouirement-a decision based on the fact
that general credit is contracting ex-
pected to be particularly authorizations
ary with respect to the stock market" This
reflects Mariner Eccles' view-not shared
by a number of other Government econo-
mists-that the postwar boom is over, that
I'VE have been in q recession for several
months" that this is desirable" up to
point, and that continuing def1ation Is
more imminent" at this time than fur
ther imitation. Similar reasoning presum-
ably accounts for the Reserve Boards
decision of March 7 to relax consumer con-
trolls on the installment buying of items
like household appliances, furniture and
automobiles.
In other words, what the boards latest
action adds up to is another of many signs
Including a continuous five-month drop
in the cost-of- living index-that infiation-
ary pressures have about exhausted them
selves in the American economy. Accord
ingly, assuming that critical international
developments do not transform the pros
pect, the big question today seems to be
whether the current defationary trend will
pass beyond Mr.. Eccles' desirable" point
and develop into a recession deeper and
more serious than the one he says already
exists
Economics being an inexact science at
best, its practitioners do not offer unquali-
fled answers. Generally speaking, however,
though protecting themselves with numer-
Gus "ifs" and butts" most of them seem
to believe this: That although the boom
may be over, and although the Presidents
call for anti-inflationary controls may be
outdated, the state of our economy war
rants the moderately optimistic view that
reasonable prosperity will prevail for some
years to come. Whether they are right or
wrong only time can tell.
We Arc Annninn tho WorId