"December 2, 1933, Vol. 137, No. 3571," Commercial and Financial Chronicle (December 2, 1933). https://fraser.stlouisfed.org/title/1339/item/518581, accessed on March 3, 2025.

Title: December 2, 1933, Vol. 137, No. 3571

Date: December 2, 1933
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image-container-0 1 Volume 137 Tlie. onime rct31 New York, Saturday, finant ial linc ouci v December 2 1933. The Financi al Situatio n T HE policy of the United States in fixing the price of gold continues the uppermost topic of discussion, and protests against the same have latterly been pouring in from almost every quarter, including some of the most prominent commercial organizations of the country as well as men eminent in the economic and financial world. All dread a continuation of the demoralization of the foreign exchanges under which rates fluctuate so violently from day to day, and, for that matter, from hour to hour, that it is impossible for those engaged in foreign trade to carry on daily business except at tremendous risks, while in many cases the effect is to prevent business altogether. All agree that to eliminate these violent fluctuations and to give stability to the dollar there must be a return to the gold standard. But opinions differ as to how far the Government ought to proceed in the process of restoration and the means best adapted to that end. Of most immediate concern, however, at the mo- ment is the effect of this policy on Government financing. Up to the present time the Government has been able to .conduct its financing with the utmost ease—and this has reference both to short- term borrowing and long-term borrowing, an illus- tration of the latter being found in the October financing, when the United States Treasury was able to float very readily $500,000,000 of Treasury bonds running 10 to 12 years, which were offered for cash. The subscriptions aggregated nearly $2,000,000,000. At the same time it offered to ex- change these same Treasury bonds for the Fourth Liberty Loan 41 / 4s, and was successful in having a large number of the holders representing a consid- erable sum accept the exchange offer. The privilege of exchange is to terminate with the close of business to-day, and in giving notice on Tuesday, Nov. 28, of the contemplated closing, Henry Morgenthau Jr., Acting Secretary of the Treasury, disclosed that $890,000,000 of the 41 / 4% Liberty Loan bonds had been turned in for conversion into the new Treasury bonds. Latterly, however, the Government bond market has been at times severely depressed, as appears from the fact that whereas the new Treasury bonds were disposed of for cash in October at 1011 / 2, they have been selling on the Stock Exchange at below par. The range during November was from 101 5/32 Nov. 1 to 98 8/32 Nov. 10. There was some recovery after that, but even yesterday they were still selling below par, the close for the day having been 99 21/32. Other United States Government obligations have also been weak and lower. Number 3571 The weakness has been largely due to the steady depreciation of the American dollar in terms of gold and lack of confidence in the country's gold policy, which has as its direct aim the further de- preciation of the dollar. Obviously no one is eager to buy Government obligations, or, for that matter, obligations of any kind, with the fact staring him in the face that the dollar he now pays out is to be greatly reduced before he gets it back. Of course, also, the Washington Administration is all the time adding to the volume of Government obliga- tions outstanding, and is likely to be obliged to do this for a considerable time to come. The downward turn in market prices for Government securities comes at a most unfortunate time, inasmuch as the Treasury is obliged the middle of December to make provision for $700,000,000 of maturing certificates of indebtedness. But the United States Treasury has many strings to its bow. Last week, for instance (Nov. 22), Act- ing Secretary of the Treasury Morgenthau an- nounced that support had been extended by the Treasury Department to the Government bond mar- ket through the purchase of United States securities during the few days preceding. While the amount of Government bond purchases was not made public, it was said that a considerable volume of cash is available for this purpose from the Federal Deposit Insurance Corporation, Public Debt Sinking Fund, Postal Savings System and the Farm Credit Ad- ministration. Apparently the worst that can happen is that the financing will have to continue to be of a short-term class, while the desire of course is to refund into relatively long-term indebtedness. The Federal Re- serve banks are also likely to assist in the endeavor to float new Treasury issues, whether long-term or short-term. In the first place, they unquestionably hold a considerable volume of the maturing issues, and these of course will be turned over and replaced by the new issues, whatever form they may take, but especially if they are of the short-term type. In the next place the Reserve banks themselves can add to their holdings of United States Government securi- ties as they were doing until quite recently at the rate of $35,000,000 a week. For the week ending Wednesday night of the present week they show no new acquisitions. What is the extent of the various funds which the Government has at its disposal is not known, but the amount is believed to be con- siderable. Mr. Morgenthau, when he assumed con- trol of the Treasury last week and mentioned the matter of the public funds at the disposal of the
image-container-1 3876 Financial Chronicle Dec. 2 1933 Treasury, stated he would announce from week to week the amount of the current purchases, and accordingly on Monday he reported that the Treas- ury Department had purchased $8,748,000 of Gov- ernment obligations last week for the account of various funds under the control of the Treasury. The acquisitions, he said, which constituted the sole Government operations in the open market last week had been made through the Federal Reserve Bank of New York acting as the Treasury fiscal agent. At that rate, of course, operations of that kind cannot be considered as being on a very extensive scale, though it is possible they may increase. What the amount of such purchases has been the present week will not, of course, be known until the coming Mon- day. The weekly reports will, of course, be watched with considerable interest as they appear. It is hardly needful to say that the course of prices of Government securities for the immediate future will depend very largely on the Treasury policy with reference to the continued purchase of gold. According to present indications the Presi- dent is unlikely to change this policy in any material respect, notwithstanding the protests that are com- ing to him from every side, and notwithstanding also that the gold purchases are not serving to raise the level of commodity values, which is their main object. The foreign exchanges, however, are in a very sensitive condition, and quick to reflect changes or what appear to be changes, and the early part of this week certain developments were looked upon as suggesting that the President was not proving alto- gether deaf to the prayers and petitions that the gold policy be abandoned, by reason of its disturb- ing effects. This view rested on the fact that the Reconstruction Finance Corporation, after raising its price for gold on Tuesday of last week 10c. an ounce to $33.76, kept the price unchanged at that figure, not only the whole of last week, but also on Monday of this week. That was erroneously con- strued as meaning that a disposition now existed, at least for the time being, not to press the gold policy too intensively. The result was that a sharp recovery in the price of the dollar ensued, and foreign ex- change rates at all the leading foreign centers sharply declined. The Government bond market responded with a brisk recovery, and this recovery was not entirely lost when the Reconstruction Fi- nance Corporation on Tuesday marked its price for gold up to $33.85 and has raised it still further on each successive day since then, until yesterday, when the quotation was marked up to $34.01. The foreign exchanges showed a renewed rise against New York, but the price of United States Government securi- ties held its own. The truth is, prices do not respond to changes in the dollar rate, whether on the Stock Exchange or in the commodity markets that they were wont to do during the summer months, though occasionally when the slump in the dollar, or its upward spurt, are very pronounced immediate reflection of the change appears, depending upon market conditions and the frame of mind of those dealing in the same. In like manner there appears to be no discernible effect abroad of the action of the Reconstruction Finance Corporation in raising its price for the metal. The British price for gold continues to follow an independent course, and has now for many days ruled very much lower than the Reconstruction Finance Corporation's price. The , British price yesterday ruled $1.44 per ounce below the Recon- struction Finance Corporation price. Whether the Reconstruction Finance Corporation .is actually acquiring any gold abroad, even at its higher price, is not known. London, according to all accounts, is simply being deluged with new supplies of the metal, the most of this coming from Paris, there being a veritable flight from the franc. The whole affair is shrouded hr great mystery, the only cer- tain thing being that the gold policy of the United States is a disturbing factor creating havoc all around. T N VIEW of the disturbing effects throughout the I whole world occasioned by the American gold policy, it is not surprising that the demand that this policy shall be changed for the benefit not alone of the United States, but for that of other leading countries, should find such wide and universal ex- pression almost everywhere. Business recovery is not only being retarded, but a renewed setback is threatened unless this deeply disturbing menace shall be eliminated. The feeling of opposition is rising almost to fever heat. The explanation of this is very simple. Leaders in industrial circles are recognizing what the President stands almost alone in failing to recognize, namely, that the gold policy with its pernicious ramifications is now the greatest hindrance to a restoration of normal conditions in the economic and industrial world. It is to be regretted that at such a time there is not the unanimity of opinion that there should be as to the proper remedy to be applied. There is close identity and accord as to the cause, but views differ •as to the steps to be taken to remove the cause. Opposition would be more effective if there were agreement as to the best course to pursue in that respect. To us it seems that the operation is very simple—that the gold policy ought to be entirely abandoned and the foreign exchange market be left wholly under natural influences. The probabilities are that in that event the dollar would qui' kly re- turn to its old parity and there would be the ad- ditional advantage that the credit of the United States, so badly impaired as the result of the events of the present year, would be at once restored. Of course that would not be to the liking of those who want to see an advance in the level of commodity values, and think that that end can be achieved by persisting in the ill-fated gold policy. Nothing would be lost, however, even in that re- spect if the policy should be abandoned, since that policy has been entirely ineffective in reaching the goal sought, though it has been supplemented by other artificial devices. As far as basic commodities are concerned the true method for raising prices is to promote trade activity, and let this activity, through the larger volume of business thereby created, do the rest. The gold policy is now unquestionably standing in the way of promoting such growth, and that will continue to be the case for the simple rea- son that business men will not take the risk, and, indeed, cannot afford to take it, while the standard of values is a debatable proposition. All of those in opposition are in favor of a return to gold, but some would not object even if the gold content of the dollar were reduced. Some, too, be- lieve that no action should be taken except in con- junction with other countries, and particularly Great Britain and France. Both would be a mistake
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Date: December 2, 1933
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