The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
X-1375 FEDERAL R iS S 'J R V ii BOARD STATSENT FOR TH4 PRt2S3. For r e l e a s e i n morning newspapers of February 6 t h . The February issue of the Federal Reserve B u l l e t i n was complete! and sent to the p r i n t e r today. In the Review of the Month, the f i r s t i t en in the nev? i s s u e , the Bull e t i n discusses the general s i t u a t i o n as t o p u b l i c and p r i v a t e f i n a n c i n g a n ! t h e n says t h a t in s p i t e of the beginning of i n d u s t r i a l demands at banks and the requirements of the l a s t i n s t a l l m e n t s of the Fourth Liberty Loans t h e r e has been e x h i b i t e d a tendency toward the increase of bank balances at f i n a n c i a l c e n t e r s , "Easier r a t e s f o r money" t h e Review continues "have accompanied t h i s inward movement of f u n d s , although the p r i c e paid for longer term c a p i t a l f o r i n d u s t r i a l use has not boon lowered, while r a t e s f o r c a l l loans and o t h e r prime commercial paper have f a l l e n but s l i g h t l y . The tendency however, has been downward and may be taken as i n d i c a t i v e of d i s t i n c t r e cuperative power on the p a r t of the f i n a n c i a l community", AS an i n d i c a t i o n of c a p a c i t y to r e e s t a b l i s h normal conditions a t t e n t i o n is c a l l e d to the beginning of a ".ecline in the amount of war paper, both at anu at member banks. Federal Reserve Banks This .leeline has not been as r a p i d as has beai t r u e a f t e r the close of former L i b e r t y loans. The e x p i r a t i o n of the installment period of t h e loan with the close of January has, however, seen the successf u l l i q u i d a t i o n of most of the i n s t a l l m e n t accounts while t h e r e are encouraging i n d i c a t i o n s t h a t borrowers who obtained accomodation f o r a 90-day p e r i o d are e i t h e r reducing or canceling t h e i r indebtedness, thereby r e l e a s i n g a p r o PprjupTy.to a n Q u n t Qf bank fund3 for U3Q j_n other f i n a n c i n g . - 2 - X-1375 Of the s i t u a t i o n with respect to i n d u s t r i a l f i n a n c i n g thy Review remarks t h a t : "Thus f a r t h e r e has been l i t t l e more than a beginning of i n d u s t r i a l f i n a n c i n g f o r f o r e i g n c o u n t r i e s , and the scope of such operations w i l l depend much upon the outcome of the peace conference. So m#3h at l e a s t seems c l e a r — t h a t the United S t a t e s w i l l have a l a r g e r amount of new c a p i t a l a v a i l a b l e f o r use i n i n d u s t r i a l development than w i l l other nations* Our problem w i l l be determination of the basis upon which t h i s c a p i t a l i s to be divided between domestic and f o r e i g n demands and the c o n d i t i o n s under which i t w i l l be found advisable t o enlarge our holdings of f o r e i g n i n d u s t r i a l obligations. However t h i s problem may be worked out, i t is already p l a i n t h a t a fundamental and e s s e n t i a l aid i n i t s s o l u t i o n w i l l be t h e accumulation of as much f l u i d c a p i t a l as possible. The requirement t h a t saving be f u r t h e r e d and promoted i s t h e r e f o r e again emphasized. There i s already a tendency in many q u a r t e r s toward a r e l a x a t i o n of the r e s t r a i n t s upon exp e n d i t u r e imposed while the war was s t i l l in progress* The c a l l f o r modera- t i o n in outlay and a c t u a l accumulation of funds i s , however, as uigent as ever if r e a l soundness in n a t i o n a l and i n d i v i d u a l finance is soon to be restored." The condition of the currency c i r c u l a t i o n of the country and the tendency of Federal Reserve notes t o r e t u r n to the i s s u i n g banks i s given a t t e n t i o n , both as an i n d i c a t i o n of some slackening i n business a c t i v i t y and as a demonstration of the e l a s t i c i t y of the Federal Reserve note issue itself. On the l a t t e r point i t is observed t h a t r e c e n t redemptions of Federal Reserve notes c o n s t i t u t e t h e most extensive r e d u c t i o n that has occurrred since the o r g a n i z a t i o n of the system, while contemporaneous with t h i s r e d u c t i o n in outstanding Federal Reserve notes t h e r e has been observable a tendency, not y e t s t a t i s t i c a l l y measurable, toward the r e d u c t i o n of o t h e r noteworthy forms of currency i n c i r c u l a t i o n . " I t i s a • f a c t ' says the X-1375 - 3 ? Review "that at nany banks the o v e r - t h e - c o u n t e r d e p o s i t s are beginning to include a considerable amount of gold coin and gold c e r t i f i c a t e s . This r e t u r n of funds t o t h e financial, c e n t e r s i s in p a r t the outgrowth of g r e a t e r confidence due to the t e r m i n a t i o n of the war,, which has c e l l e d f o r t h much hoarded currency from i t s h i d i n g p l a c e s , but i t i s also due in no samll degree t o the slackening of b u s i n e s s a c t i v i t y and i n l e s s e r measure to the f a l l i n g of p r i c e s already noted. The decline in busine ss a c t i v i t y lessens the amount of cash r e q u i r e d by i n d i v i d u a l s f o r t h e i r personal t r a n s a c t i o n s , by f i r m s and corporations f o r the maintenance of t h e i r counter or v a u l t cash, as well as f o r p a y r o l l s , and even by country banks f o r the c u r r e n t meeting of d a l l a of d e p o s i t o r s . Lowered volume of busine ss has in years p a s t always given r i s e to a flow of a c t u a l currency and money toward the f i n a n c i a l c e n t e r s , and under present conditions t h i s flow is in no small degree eventually a flow toward the Federal Reserve Banks, r e s u l t i n g in the ultimate c a n c e l l a t i o n of outstanding note currency. The movement thus observable w i l l a f f o r d „ no ground f o r s u r p r i s e t o those f a m i l i a r with the underlying p r i n c i p l e s of the Federal Reserve note system, demonstrating as i t does the e l a s t i c q u a l i t y of the Federal Reserve note, and showing t h a t , with reduced business requirements, the c i r c u l a t i o n w i l l reduce i t s e l f with the sane f a c i l i t y as i t had p r e v i o u s l y shown in i t s prewar expansion t o meet increased requirements» That i t should r e t u r n t o i t s prewar amount i s not to be expected, e s p e c i a l l y in view of t h e f a c t t h a t so large a volume of Federal Reserve notes has been issued i n s u b s t i t u t i o n f o r the outstanding gold c e r t i f i c a t e s which have been impounded f o r t h e purpose of s t r e n g t h e n i n g the reserve of member and Federal Reserve Banks. Remembering, however, t h a t , as shown i n the Federal Reserve B u l l e t i n f o r October 1918, t h e r e a l " i n f l a t i o n " or abnormal expansion of currency i n the United S t a t e s i s l e s s X-1375 than the f i g u r e s nominally r e p r e s e n t i n g the growth of the c i r c u l a t i o n , the c o n t r a c t i o n ;vhich has already occurred within-i the s h o r t space of a month or a l i t t l e more suggests t h a t i t nay not be long b e f o r e t h i s exooss expansion w i l l bo m a t e r i a l l y reduced." As t o the business s i t u a t i o n and outlook the Review emphasizes the f a c t t h a t the country i s now passing through a p e r i o d of t r a n s i t i o n in which extensive readjustments a f f e c t i n g both c a p i t a l and labor are a c h a r a c t e r i s t i c feature. I t c a l l s a t t e n t i o n to the study t h a t i s being given the problem of c u r r e n t business i n othet c o u n t r i e s and t h e tendency t h e r e t o r e t u r n to-, a stable price level. "Reports of business c o n d i t i o n s " na.de to t h e Board by Federal Reserve agents i t i s noted, "show t h a t the r e t u r n of active production and consumption i s being r e t a r d e d by high expenses of p r o d u c t i o n . Uncertainty* not only among consumers, but also among those who would o r d i n a r i l y be in the market f o r raw m a t e r i a l s with which to manufacture goods, concerning t h e p o s s i b i l i t y or p r o b a b i l i t y of a f u r t h e r drop in v a l u e s , tends in t h e same d i r e c t i o n . I t i s argued t h a t any such decline w i l l be c a r r i e d by those who are a t the moment i n p o s s e s s i o n of the stocks of goods which are thus tending to move toward lower l e v e l s . Producers of secondary a r t i c l e s involving t h e a p p l i c a t i o n of largo q u a n t i t i e s of primary raw m a t e r i a l s are r e l u c t a n t t o absorb t h e loss t h r e a t e n e d , although some business men are showing a d i s p o s i t i o n t o t r e a t such l o s s e s as one of unavoidable charges upon business in the process of a speedy readjustment> The g r e a t volume of our export t r a d e d a r i n g t h e month of December f u r n i s h e s a measure of f o r e i g n demand, but i t remains t r u e t h a t t h i s export t r a d e i s in largo p a r t concerned with raw m a t e r i a l s , foods, and the l i k e , and t h a t wo are s t i l l f a c i n g t h e problem of i i n d i n g or making a market f o r our - 5 - X-1375 n a n a f a c t o r e d goods i n f o r e i g n c o u n t r i e s , a process i n which we can h a r d l y hope t o make tho d e s i r e d success so long as p r i c e s continue upon a l e v e l higher t h a t t h a t e x i s t i n g i n other c o u n t r i e s . Those c o u n t r i e s which f i r s t succeed in r e a d j u s t i n g t h e i r c o s t s of production and r a s t o r i n g t h e i r industry to a normal l e v e l of values w i l l be most s u c c e s s f u l i n developing t h e i r exports and c o n t r o l l i n g the markets of consuming nations t h e world over. The f a c t s i n the Cu.se appear to be understood abroad, as i s i n d i c a t e d by the content of t h e r e p o r t s of t h e v a r i o u s boards and commissions which have l a t e l y been looking i n t o the banking and c r e d i t s i t u a t i o n and which have expressed t h e i r opinions with reference t o t h e course p r o p e r l y t o be followed in b r i n g i n g about a r e t u r n t o s t a b l e conditions*" The B u l l e t i n contains a r e p r i n t of the B r i t i s h r e p o r t on "Financial F a c i l i t i e s " as well as a c o l l e c t i o n of recent important documentary m a t e r i a l r e l a t i v e t o gold production, c e n t r a l bank r e s e r v e s and gold novenents. Business conditions throughout the United S t a t e s are surveyed a t l e n g t h , both as p r e s e n t e d in t h e r e p o r t s of Federal Reserve Agents and i n those of tho Federal Reserve Board's own business index s e c t i o n .
@FedFRASER