Finance—Public & Private
Are the Clouds Lifting ?
Diatniu the past week there has been a remarkable change in the general financial atmosphere. For some long time past it has been a case of a leaden sky with no signs of a break in the clouds. Within the last few days, however, it might be said that certain winds have sprung up which may have the effect of bringing about a change for the better in the financial weather. They have at all events served to stimulate a certain amount of expectancy resulting in a considerable spurt in many of the leading public securities.
The causes of world-wide financial and industrial depressions are, as I have frequently explained in these columns, numerous and complex, but rightly or wrongly a foremost place has been given to the deflationary movement in many parts of the world, thereby accen- tuating a long continued fall in commodity prices, while chaotic conditions have, it is maintained, been enor- mously increased by the problem of Reparation Payments and War. Debts. Moreover, in the countries where it might have been expected that as a consequence of huge gold accumulations credit would have greatly expanded the reverse has happened, and in the United State's particularly there seems to have been a contraction in central credit facilities which has intensified the depression in that country.
REPARATIONS.
The change in atmospheric conditions, therefore, to which I have referred, has been connected both with the question of Reparations and with the expansion of credit. Just what amount of importance is to be attached to the agreement reached between the European creditors of Germany to hold a Conference at Lausanne in June to consider means for effecting a final settlement of Reparations it is impossible at this juncture to determine. The announcement, however, came at a moment when there had been many rumours of a deadlock between France and this country with regard to such a Conference, and consequently hopes have been once more revived of some final settlement being reached by the summer and of the necessary assistance being given to Germany in the meantime. Much, of course, may depend upon the result of the Elections in Germany and in France which take place within the next two months, but for the moment the announcement of the intention to meet in conference had a remarkably good effect upon markets, an effect so strong as to offset for the moment even the great anxiety felt with regard to the situation in the Far East and its repercussions upon the League of Nations.
CREDIT EXPANSION.
With regard to the proposed expansion of credit in the United States, the full details of the scheme have yet to be received here, but so far as one may judge there is nothing to which exception need be taken, always provided that the proposals are carried out in careful and restrained fashion. In this country the credit system centres, of course, in the Bank of England, which, under certain Parliamentary limitations, has power to expand and con- tract the currency. In the United States this power resides in the group of what is known as Federal Reserve Banks, which give certain credit facilities to the member banks, that is, the principal banks in the United States, by means of rediscounting certain forms of securities. The nature of those securities has been very carefully ipreicribed, and most of them are of the nature of com- mercial bills. It will be seen, therefore, that with trade slack the supply of bills may easily fall short of the re- quirements of the banks; especially if those requirements are increased,.at the moment by reason of frozen credits, that is to say, unliquidated loans. Accordingly, it is pro- posed, under certain conditions, to widen the scope of eligible securities for rediscounting, and this will, doubt- less, have the effect of enabling many concern to meet- its obligations which LotherWise it might have difficulty, in doing, While a.greater feeling of confidenee will he given to the country as a' whtiler Not only so, but tliis measiire (COnYtiued on page 27.2.)
Finance—Public and Private
(Continued from page 270.)
of credit expansion may be said to be justified by the fact that owing to the huge gold accumulations what is known as the Gold Cover for the Note Circulation in America is something over 70 per cent. whereas the minimum legal cover required is only 40 per cent. It will be seen, there- fore, that even if, as a consequence of the enlarged powers, lending by the Federal Reserve Banks should increase and currency note circulation expand, there is an enor- mous margin for such expansion to take place, while still retaining an ample gold cover. At all events, this experiment in credit expansion in the United States will be watched with great interest and with a certain amount of hopefulness. It is because of this hopefulness that there has been a considerable rise during the past week in American securities, a rise which has had S stimulating effect upon other markets.
THE TRADE PROBLEM.
At the same time, it may be well to remember that the prospects of a trade revival are scarcely to be gauged by a mere rise in securities, helpful as such an upward movement may be. It is a rise in the price of com- modities which is needed, and there will have to be a very great increase in confidence and in purchasing power to bring this about, for stocks of many of the leading commodities are still very high. Doubtless, in some of the producing countries, such, for example, as South America and Australia, fresh loans from other countries would have been, and would, still be, a most helpful. factor with regard to the exchange difficulties, but in the long run it would be far more helpful to these countries if, through a rise in the prices of their products, they were. able to bring about a real improvement in
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